9911796707
TMI Blog1971 (12) TMI 80X X X X Extracts X X X X X X X X Extracts X X X X ..... , 1966, for an order for winding up the Rajratna Naranbhai Mills Co. Ltd. The court made an order on 26th June, 1967, winding up the company and simultaneously appointed the official liquidator as liquidator of the company. The liquidator proceeded to collect and take into his custody all the properties, effects, actionable claims to which the company was entitled. In the process the liquidator came across evidence showing that the company was the owner of 186 shares of the National Machinery Manufacturing Company Ltd. It also transpired that the respondent, Shri Manubhai Harilal Shah carrying on business in the name and style of M/s. New Quality Bobbin Works was the creditor of the company and the respondent filed the Summary Suit No. 1477 of 1966 in the City Civil Court at Ahmedabad on 29th August, 1966, for recovering the amount of Rs. 17,426*16. On the same day he applied for and obtained an ex parte order of attachment before judgment and attachment of the aforementioned 186 shares was sought and granted. On 1st November, 1966, Company Petition No. 21 of 1966 was filed for winding up the company. On that day the aforementioned suit was pending. On 10th November, 1966, a consen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r subsequent sale are not void and the summons is liable to be dismissed. It was also alleged that section 537 is not attracted and that the application was barred by limitation. In the further affidavit filed by the official liquidator it was alleged that the respondent was a near relation of the partner of the managing agent of the company in liquidation and when the suit was filed and attachment before judgment was obtained the company was already in insolvent circumstances and the partner of the managing agent desired to give an unfair advantage to his own relation and the sale and recovery of the money after commencement of the winding-up proceedings would not be binding on the official liquidator. From the pleadings the contentions of the applicant-liquidator can be summarised as under : Attachment and sale of 186 shares belonging to the company in liquidation, after commencement of the winding up proceedings, would be void under section 537 as the same was done without the leave of the court. From the pleadings of the respondent, the contentions put forth by him can be summarised as under : (1)The respondent was not aware of the winding-up proceedings. (2)Attachment is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he official liquidator has been appointed as provisional liquidator, no suit or other legal proceeding shall be commenced, or if pending at the date of the winding-up order shall be proceeded with, against the company, except by leave of the court and subject to such terms as the court may impose. (2) The court which is winding up the company shall, notwithstanding anything contained in any other law for the time being in force, have jurisdiction to entertain, or dispose of- (a)any suit or proceeding by or against the company ; (b)any claim made by or against the company (including claims by or against any of its branches in India) ; (c)any application made under section 391 by or in respect of the company ; (d)any question of priorities or any other question whatsoever, whether of law or fact, which may relate to or arise in course of the winding-up of the company ; whether such suit or proceeding has been instituted or is instituted, or such claim or question has arisen or arises or such application has been made or is made before or after the order for the winding-up of the company, or before or after the commencement of the Companies (Amendment) Act, 1960. (3) Any suit o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... side the winding up and then a preferential creditor and thereafter unsecured creditors and balance amongst the contributories. While collecting the assets of the company it will be the duty of the liquidator to realise all claims subsisting in favour of the company. It must be his endeavor to collect all the assets of the company which have been unauthorisedly, dishonestly, fraudulently or illegally taken away from the company. In order to prevent the scramble for the assets of the company, the liquidator has to step in and to take possession of and protect the assets of the company. As observed by Lindley L.J. in In re Oak Pits Colliery Co. [1882] 21 Ch. D. 322, 329 (C.A.), the object of the winding up provisions of the Companies Act is to put all unsecured creditors upon an equality and to pay them pari passu. To accomplish this it was provided that any action, execution, distress or other process against the assets of the company should be suspended, otherwise winding-up would result into a scramble for the assets. Sections 531 to 537 grouped together under sub-heading "Effect of winding-up on antecedent and other transactions" provide for avoidance of certain transactions or r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss there is a specific provision in the Companies Act providing for obtaining leave of the court in respect of a certain thing to be done, no leave of the court, is necessary and therefore, sale of the shares without leave of the court would not be void. It was urged that the expression "without leave of the court" in section 537(1) would only mean where leave of the court is necessary and sale is effected without leave of it. There is no warrant for this construction. Section 537 itself would mean that no sale of the property of the company in liquidation can be made without leave of the court after commencement of the winding-up proceedings except on the pain of its being declared void. Where a consequence of a thing being done without leave of the court is provided for, it implies that the leave of the court is necessary and otherwise consequence would follow. No separate or independent provision making it obligatory to obtain leave of the court need be made and consequence thereafter provided for. Therefore, the language of section 537 which is clear and unambiguous would show that any attachment, distress or execution put in force without leave of the court against the estate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his construction is not placed on section 537(1), it would lead to a startling result. Mr. Trivedi contended that if the construction canvassed for by him is not put on section 537, the court should be called upon to pass a number of anticipatory orders which the court would be loath or reluctant to pass and also a really solvent company may find it very difficult to carry on its normal business during the period between the presentation of the winding-up petition and making of the winding-up order. It is true that very often considerable time elapses between presentation of the winding-up petition and making of the winding-up order. Now, if the winding-up petition fails, section 537(1) would never come into play. If at a later date winding-up order is made, in view of the provisions contained in section 441 the order would relate back to the date of the presentation of the winding up petition. In the intervening period if the company except for its normal trading activity has sold its properties or effects the sale would be void. The court would never be required to make anticipatory orders because if winding up petition is presented, ordinarily under section 442 further proceedin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would mean from the date on which winding-up petition is presented are declared void under section 537. As a third limb of the first ground of attack, it was urged that there is no provision for making such an application as has been made by the official liquidator and, therefore, the present application is not maintainable. The application is made by the official liquidator under section 537. The official liquidator seeks a declaration that sale of the shares is void in view of the provisions contained in section 537 and consequently for au order for refund of the amount taken by the respondent. Question is whether this relief can be obtained by the official liquidator by way of an application to the company judge in charge of the winding-up proceeding of the company or he should be directed to file a suit. Contention is that there is no specific provision for making such an application. Section 446 which I have set out in extenso provides that the court which is winding up the company shall, notwithstanding anything contained in any other law for the time being in force, have jurisdiction to entertain, or dispose of any claim made by or against the company; any question of prior ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... property of the company which would be void under any of the provisions of the Companies Act or any other law for the time being in force and which would not be binding on him as liquidator of the company, it would be equally his duty to take action to collect that asset. If this is the duty cast on the liquidator, simultaneously power was conferred upon him under section 457(1) to institute or defend any legal proceedings. If he has power to institute or defend legal proceedings and if in performance of his duty he comes across a transaction which is void against him, the transaction becoming void because of the winding-up proceedings, it would be a question of fact arising in the course of winding up of the company and this court will have jurisdiction to decide that question. This appears to me to be the scope and ambit of jurisdiction conferred upon the High Court under section 446(2). It is necessary to put liberal construction on section 446(2) so as to widen the jurisdiction of the High Court in dealing with all questions arising in winding up. Under the Companies Act, 1956, jurisdiction is conferred upon the High Court alone to entertain winding-up proceeding. It is in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idator along with the provisions by which jurisdiction is conferred on the High Court that proceedings of a certain nature in a winding up can be taken up before the High Court and that exactly has been done in this case. I would now refer to some of the cases to which my attention was drawn at the Bar. In Grey Steel Casting and Finishing Co. P. Ltd. v. Adverts (Private) Ltd. [1969] 39 Comp. Cas. 595 (Bom.) facts were that Adverts (P.) Ltd. filed a suit against Ovation International (India) Pvt. Ltd., and obtained an order for attachment before judgment of certain properties of the company, during the pendency of the winding-up petition filed by Grey Steel Casting and Finishing Co. P. Ltd. against Ovation International (India) P. Ltd. Subsequently, petitioning creditor took out summons under section 442 for stay of further proceedings in the suit and for an injunction restraining the attaching creditor from taking any further proceedings therein. This summons was contested by the attaching creditor, inter alia, on the ground that such a summons could not be taken out more particularly by the petitioning-creditor but it should have been taken out by the provisional liquidator. Nega ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jurisdiction and was a nullity and that he continued to be tenant notwithstanding the said ex parte decree. It was contended before the Supreme Court that no action could be taken by the liquidator under section 45B(1) of the Banking Companies Act, 1949, for recovering possession from the tenant but the liquidator should have filed a suit and the order of the High Court on the summons taken out by the liquidator was without jurisdiction and such a decree would be a nullity. Section 45B of the Banking Companies Act is in pari materia with section 446(2) of the Companies Act. After referring to section 45B, the Supreme Court negatived the contention of the tenant that the ex parte decree made by the High Court in winding-up proceedings at the instance of the liquidator was a nullity and observed as under: "It appears to us that, consistently with this policy and with the scheme of the Amending Act. where the liquidator has to approach the court under section 45B for relief in respect of matters legitimately falling within the scope thereof, elaborate proceedings by way of a suit involving time and expense, to the the detriment of the ultimate interests of the company under liquidat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fail to see how that jurisdiction will be lost by the provision contained in section 15 of the Code of Civil Procedure. Section 15 provides that every suit shall be instituted in the court of the lowest grade competent to try it. It was urged that hierarchy of courts envisaged under the Code of Civil Procedure is the court of civil judge, junior or senior division, as the case may be. Next higher court is District Court and the highest court in the State is the High Court. Contention is that once jurisdiction of the ordinary civil court is not excluded to entertain a proceeding for granting relief as sought in this summons, obviously, the liquidator should have approached the civil court of the lowest grade competent to try the proceeding in which the same relief could be granted. There is absolutely no merit in this contention. If special jurisdiction is conferred on the High Court by section 446(2) to entertain the present summons, it would not be lost by virtue of section 15 of the Code of Civil Procedure. Section 15 would operate where ordinary civil jurisdiction of the court is invoked and ignoring the court of lowest grade the party approached the highest. But, where special ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r to the presentation of the winding-up petition. I have my own doubt whether the word "attachment" as used in section 537(1)(a) includes within its sweep attachment before judgment. But as attachment before judgment obtained by the respondent is not the subject-matter of dispute in this summons, I would not further dilate upon the point. This summons is directed against the sale of the property. Assuming for a moment that the attachment before judgment was levied prior to the presentation of the winding-up petition, that by itself does not validate the sale in execution which took place after the commencement of the winding up proceeding and which was held without leave of this court. Even if a valid attachment is levied, it does not create any interest in the attached property of the attaching-creditor. The effect of attachment of a property of the company which is being wound-up against the liquidator was recently considered by me in Company Application No. 59 of 1971 Anantha Mills Ltd. (In Liquidation) v. City Deputy Collector, Ahmedabad-[1972] 42 Comp. Cas. 476 , 486 (Guj.) decided on November 30, 1971. In this connection, I have observed as under : "In order to give full eff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cation is within time in view of section 458A of the Companies Act. I will examine the second limb of the argument first. Section 458A of the Companies Act reads as under : "458A. Exclusion of certain time in computing periods of limitation.- Notwithstanding anything in the Indian Limitation Act, 1908, or in any other law for the time being in force, in computing the period of limitation prescribed for any suit or application in the name and on behalf of a company which is being wound-up by the court, the period from the date of commencement of the winding-up of the company to the date on which the winding-up order is made (both inclusive), and a period of one year immediately following the date of the winding-up order shall be excluded". I will first proceed on the assumption that section 458A applies and the period of limitation is three years as contended by the respondent. Now, in computing the period of limitation as provided by section 458A, the period between the date on which the winding-up petition is presented and the date on which the order is made has to be excluded and the period of one year immediately following the date of winding-up order shall be excluded. The p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in any of the articles placed in the Third Division and, therefore, necessarily it would be covered by article 137. In support of this submission, he drew my attention to the definition of the "applicant" in section 2(a). It is an inclusive definition and it provides that "applicant" includes petitioner, etc. It was urged that in the Limitation Act of 1908, definition of the word "applicant" did not include the petitioner and this is an innovation made in order to cover all types of applications which can be commenced by a petition. Contention is that whenever a petition has to be filed the person who files the petition would be petitioner and he would be included in the definition of "applicant" and proceedings filed by him would be an application and if there is no particular article which provides a period of limitation for that type of application, article 137 would be attracted and the period of limitation would be three years commencing from the time when the right to apply accrues. Mr. L. T. Shah sought to repel this argument by urging that article 137 applies only to an application which can be made under the Code of Civil Procedure or the Code of Criminal Procedure only. M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Andhra Pradesh High Court in In re Vegetols Ltd. (In Liquidation) [1968] 38 Comp. Cas. 58 (A.P.). In that case summons was taken out by the liquidator under sections 468, 477 and 537 of the Companies Act, 1956, for a direction that the Indian Bank Ltd., Vellore, shall pay Rs. 25,41715 to the official liquidator. Allegation was that the payment was made after the commencement of the winding-up proceedings and it would be void under section 536(2) unless the court otherwise directs. Summons was resisted, inter alia, on the ground that the application of the official liquidator was barred by limitation and reliance was placed on article 137 of the Limitation Act of 1963. After examining the previous case law on the subject, it was held that article 137 is corresponding to article 181 of the Limitation Act of 1908 and it would only apply to an application that can be made under the Code of Civil Procedure. The question has been more elaborately examined in Town Municipal Council, Athani v. Labour Court, Hubli [1969] 36 F.J.R. 177; A.I.R. 1969 S.C. 1335, 1342. The question came up before the court in an appeal against the decision of the Mysore High Court dismissing the writ petition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... article, regard must be had to the provisions contained in all the earlier articles. The other articles in the third division to the schedule refer to applications under the Code of Civil Procedure, with the exception of applications under the Arbitration Act and also in two cases applications under the Code of Criminal Procedure. The effect of introduction in the third division of the schedule of reference to applications under the Arbitration Act in the old Limitation Act has already been considered by this Court in the case of Sha Mulchand & Co. Ltd. [1953] 23 Comp. Cas. 1 ; [1953] S.C.R. 351 ; A.I.R. 1953 S.C. 98 We think that, on the same principle, it must be held that even the further alteration made in the articles contained in the third division of the schedule to the new Limitation Act containing references to applications under the Code of Criminal Procedure cannot be held to have materially altered the scope of the residuary article 137 which deals with other applications. It is not possible to hold that the intention of the legislature was to drastically alter the scope of this article so as to include within it all applications, irrespective of the fact whether they ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding for all matters relating to the winding-up of companies which, by the Act are to be prescribed and also to make rules providing for all such matters as may be prescribed, except those reserved to the Central Government. Power is also conferred upon the Supreme Court to make rules consistent with the Code of Civil Procedure as to the mode of proceedings to be had for winding-up a company, and for the voluntary winding-up of companies, for the holding of meetings of creditors and members in connection with the proceedings under section 391, and for giving effect to the provisions of the Act as to the reduction of the capital and generally for all applications to be made to the court under the provisions of the Act. Armed with these powers, the Supreme Court has enacted the Companies (Court) Rules, 1959. Rule 6 provides that, save as provided by the Act or by the Rules, the practice and procedure of the court and the provisions of the Code so far as applicable shall apply to all proceedings under the Act and the Rules. Thus provisions of the Code of Civil Procedure apply to the proceedings under the Companies Act-not by itself but by virtue of rule 6 enacted in exercise of the ru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat case action was commenced by Kent and others as liquidators of the Ville-Marie Bank against the respondent to recover $20,000 alleged to be owing by the respondents to the bank on a promissory note. The respondents admitted the debt claimed, but alleged that it was extinguished by compensation or set-off. The applicant moved for leave to amend the summons by adding description as liquidators of the bank. Both the application and notices were dismissed holding that the liquidators were "sans qualite" to bring the action in their own name. After the appeal was dismissed by the King's Bench Division, the matter was brought before the Privy Council. The Privy Council allowed the amendment and remanded the matter for decision on merits. In the process it was observed that the liquidator must sue in his own name or in that of the company according to the nature of the action, in his own name where he acts as representative of creditors and contributories, in that of the company to recover either its debts or its property Relying on this judgment, it was urged that the present application by the official liquidator is in his capacity as representative of the creditors and contributori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecree and to the execution thereof. But a right may accrue under a statute in favour of the company and the right may accrue on the happening of certain events which may not be available before the happening of that event. The company must get back all those properties transferred in violation of certain provisions of the Companies Act on the happening of the event,viz., order winding up the company being made. If that right accrues after such an order is made, it is none-the-less a right of the company albeit to be exercised by the liquidator because of the winding-up order. But, it cannot be denied that right is the right of the company. Therefore, the present action is maintainable and the application is in the name of and on behalf of the company and not as a representative of the creditors and contributories. It is immaterial and irrelevant that the benefit of the action may ultimately flow to the creditors and contributories. Section 458A, therefore, would be attracted. Having examined the contention of limitation from all possible angles, it may be answered from both the angles. First answer is that article 137 of the Limitation Act, 1963, would not apply to the present app ..... X X X X Extracts X X X X X X X X Extracts X X X X
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