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TMI Blog1976 (12) TMI 136X X X X Extracts X X X X X X X X Extracts X X X X ..... rate of 12 per cent, per annum. As the present petition was filed on 2nd June, 1973, the claim has now become a fairly substantial one. As regards respondents Nos. 4 to 6, the claim of the official liquidator is that there was a previous case before the Civil Judge, Lucknow, in which it was claimed that a sum of Rs. 9,075 had been paid to the company by the first respondent. As the credit shown in the books is only Rs. 875, it was alleged that the difference of Rs. 8,200 was received by respondents Nos. 4 to 6 and they were liable to account for the same. Hence, the claim against respondents Nos. 4 to 6 was to the extent of Rs. 8,200. In the body of the petition it was mentioned that an ex parte order had been passed by the Civil Judge, Lucknow, on 9th November, 1968, to the effect that there was no arbitration agreement between the company and the respondent No. 1 and the company had also no right to the vehicle. It was further claimed that this order was passed on 9th November, 1968, whereas the winding-up order was passed by the court on 12th August, 1968. On this basis, it was stated that the order of the court was void being in contravention of section 446 of the Compani ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 16th January, 1976, an affidavit of service was filed qua respondents Nos. 3 to 6. Respondents Nos. 4 to 6 put in appearance through counsel but respondent No. 3 did not appear and was set ex parte. Finally, on 19th March, 1976, affidavit of service was also filed qua respondent No. 1 and was also set ex parte. On that date the official liquidator indicated that he would like to lead evidence qua respondents Nos. 1 to 3 to begin with and accordingly the case was set down for evidence against respondents Nos. 1, 2 and 3 who were all ex parte. In spite of several adjournments being given, the official liquidator only examined one witness who was Mr. H.D. Das Sharma, respondent No. 4, ex-managing director of the company in liquidation. As the matter has been heard ex parte against respondents Nos. 1 to 3, it is necessary to point out the various difficulties that, have arisen in the decision of this case, in spite of the absence of the said respondents. Firstly, the hire-purchase agreement on which the case has been based is not on record and cannot be located. Then the only document on record is the ledger account of the first respondent which shows a debit balance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficulty faced by the official liquidator is the absence of the hire-purchase agreement and a secondary difficulty is the establishment of the correctness of the account. For both these reasons it is very difficult to give a decision in favour of the petitioner in the absence of proper proof of the account. Fortunately for the official liquidator, he has filed along with the application certified copies of the order of the Civil Court at Lucknow in Misc. Case No. 57 of 1966. He has also filed the order passed in that case on 9th November, 1968. It appears that the first respondent filed an application under section 33 of the Indian Arbitration Act to challenge the arbitration clause contained in the hire-purchase agreement on the footing that he had not entered into that hire-purchase agreement. The case of the first respondent, as disclosed in the application, is that he had signed a number of blank forms, papers, hundis and pronotes in favour of the company, which were now alleged by the company to be a hire-purchase agreement. It is also stated in that application that the company had seized the vehicle. It was further stated that a criminal case had been filed before a Magis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reads: "446. (1) When a winding-up order has been made or the 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". Thus, whenever a winding-up order has been made no suit which is pending at the date of the winding up order can be proceeded with against the company except by leave of the court. According to the learned counsel, no leave was ever sought from this court and, therefore, the order in question was ineffective. There are three possibilities in my view regarding the interpretation of the order. Firstly, the court may have passed the order without knowing that a winding-up order had been passed. Secondly, the court might have known that the winding-up order had been passed but thought that the proceedings could continue. In other words, the court wrongly interpreted the provisions of section 446 of the Companies Act. Thirdly, the court might have been wrongly informed that the leave had been granted or might have assumed that l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roceedings in execution. Undoubtedly, proceeding in execution is also a legal proceeding which would be stayed under section 446 of the Companies Act. However, the Act has provided an additional safeguard in such cases to the effect that if a sale or attachment takes place after the winding-up order then it is void unless leave has been obtained from the court winding up the company. This matter has been dealt with in several reported decisions which can usefully be referred to. It was held in Smt. Bhagwati Devi Bubna v. Dhanraj Mills Pvt. Ltd. [1969] 39 Comp. Cas. 1023 (Pat.) by a Division Bench of the Patna High Court that if a suit is continued without leave obtained under section 446 of the Companies Act, the decree passed in such a suit is not void but it is only voidable at the instance of the liquidator. The court compared section 446 with section 537. There is also a quotation in the judgment from a Full Bench decision of the Lahore High Court, viz ., Nazir Ahmad v. Official Liquidator, Peoples Bank of Northern India Ltd. [1943] 13 Comp. Cas. 1 (Lah.) [FB], in which it was held: "Whenever proceedings are commenced without leave, the proper course for the liquid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t been made by the provisional liquidator and thus the decree was not set aside. In some other cases, Baldeo Narain Singh v. United India Bank Ltd., AIR 1916 Pat. 47 and S. Krishnamachariar v. Hanuman Bank Ltd. ( In liquidation ) [1963] 33 Comp. Cas. 543 (Mad.) it was held either under section 171 of the old Act or section 446 of the new Act that if proceedings were taken in execution, they would be void, although in the later Madras judgment it was held that as the official liquidator participated in the proceedings without objection, there has been a waiver of the objection. These in short are the relevant authorities on the question before me. What then is the true position? The section requires that the proceedings should not continue after the winding-up order has been passed. Therefore, section 446 of the Companies Act operates as a statutory stay of all proceedings. Section 482 of the Companies Act, 1956, contains a provision that a winding-up order has to be enforced by all courts as if it has been passed by them. Thus, the Civil Judge in Lucknow should have stayed the proceedings but it did not do so. The effect of the order is that the official liquidato ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pecial position because he has the choice of avoiding the order by contending that it is not binding upon him. This argument cannot be refuted. I accept the same. In any event, even if the order was binding on the official liquidator it has very little effect on his legal rights in the present case because the order does not say that the hire-purchase agreement is not binding. It merely states that the application is allowed. As the application only sought to avoid the arbitration clause, at the very most, the effect of the order is to declare the arbitration clause in the contract not binding on the parties. This does not affect the question whether the hire-purchase agreement is binding or not. There is nothing in the order in question suggesting that the hire-purchase agreement is not binding. Now, coming to the question as to what are the rights of the official liquidator, I find that the application filed by the first respondent in Lucknow court refers to an alleged hire-purchase agreement and also admits that certain documents were signed. This certainly supports the statement of Mr. H.K. Das Sharma that there was a hire-purchase agreement which cannot be traced now. I ac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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