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TMI Blog1978 (1) TMI 146X X X X Extracts X X X X X X X X Extracts X X X X ..... l,25,700.28 at half yearly rests and at 9 % per annum on Rs. 38,797.85 at monthly rests, from the defendants and in default for a direction for the sale of the mortgaged property set out in Sch. A to the plaint and application of the net proceeds thereof in payment of the amount to be decreed with rights reserved in the appellant to proceed against defendants 2 to 9 personally for the balance, if any, due after adjustment of the proceeds of such sale to the suit claim. Such a relief was prayed for on the allegation that the first defendant by its partners, defendants 2 to 9, applied to the appellant for grant of credit facilities and to secure the term loan, the first defendant by its partners, defendants 2 to 9, executed a registered mortgage over the first defendant's factory, land and buildings, described in Schedule A to the plaint and, subsequently, the first defendant was said to have handed over possession of the assets to Messrs. Straps (India) Private Ltd., in pursuance of an agreement the first defendant had with the said company under which the company agreed to take over the assets and liabilities of the first defendant. The said Messrs. Straps (India) Private Ltd. was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asada Rao J. relied upon the earlier decisions of Palani-swamy J. in K. Vadivelu v. Official Liquidator, Madras : Sri Murugan Oil Industries Ltd, In re [1970] 40 Comp. Cas. 77; AIR 1971 Mad 311 and Associated Industrial and Engineering Corporation Ltd., In re (In Liquidation) [1974] 44 Comp. Cas. 488 (Mad). In the latter case, Palaniswamy J., after an elaborate consideration of section 446 of the present Act and section 171 of the Indian Companies Act, 1913, hereinafter referred to as "the former Act", and section 231 of the English Companies Act, 1948, corresponding to section 171 of the former Act, came the conclusion that even though section 171 of the former Act was capable of authorising the filing of an application for leave even after the suit has been instituted without such leave, the language of section 446 of the present Act did not authorise such leave being obtained after the suit has been actually instituted and that, in this respect, section 446 of the present Act constituted a deliberate and definite departure. It is the correctness of the conclusion of Ramaprasada Rao J., based as it is on the decision of Palaniswamy J., that is the subject-matter of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther legal proceeding" to be instituted after the winding-up order has been made or the official liquidator has been appointed as provisional liquidator and the expression "shall be proceeded wit" qualifying "suit or other legal proceeding pending at the date of the winding-up order". There are two other differences between section 171 of the former Act and section 446 of the present Act, one of which does not make any difference in substance and the other is of no consequence for the present discussion. The first is, section 171 of the former Act uses the expression "when a provisional liquidator has been appointed", while section 446 of the present Act uses the expression "when the official liquidator has been appointed as provisional liquidator". This is the result of an official liquidator being permanently appointed under the present Act pursuant to section 448(1) of the present Act, to be attached to each High Court. The second difference is that when the opening limb of section 446(1) uses the expression "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", the al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bansidhar. After the dismissal of the second appeal, the plaintiff-decree-holder applied for execution of the decree against the company without obtaining leave of the High Court of Calcutta under section 171 of the former Act. On December 17, 1958, Bansidhar filed a petition contending that the application for enforcement of the decree was not maintainable without the leave of the High Court which ordered that the company be wound up. On the motion of the decree-holder, the company judge granted leave to execute the decree in Second Appeal No. 1380 of 1954. The executing court dismissed the application filed by Bansidhar and the order of dismissal was confirmed by the Additional District Judge and by the High Court in second appeal. Bansidhar filed a petition for a certificate for appeal to the Supreme Court under art. 133(1)( b ) and ( c ) of the Constitution and the said petition was rejected by the High Court. Bansidhar then preferred two petitions for special leave to the Supreme Court one against the order of the High Court dismissing his second appeal against the order in the execution proceedings, and the other against the order of the High Court refusing to certify the app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sanction under section 179 does not dispense with the leave under section 171 of the Act, to institute a proceeding in execution against a company ordered to be wound up, we do not think that there is anything in the Act which makes the leave a condition precedent to the institution of a proceeding in execution of a decree against the company and that failure to obtain leave before institution of the proceeding entails dismissal of the proceeding. The suit or proceeding instituted without leave of the court may, in our judgment, be regarded as ineffective until leave is obtained, but once leave is obtained the proceeding will be deemed instituted on the date of granting leave." While dealing with this position, the Supreme Court also pointed out the object of providing for obtaining such a leave. After extracting section 171 of the former Act, the Supreme Court observed (p. 24): "This section is in terms analogous to section 231 of the English Companies Act, 1948 (11 12 Geo. 6, Ch. 38). The object of section 171 is plain. It is intended to ensure that the assets of a company ordered to be wound up by the court shall be administered for the benefit of all the creditors, and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... suit. Palaniswamy J. held that such leave could not be granted. For coming to this conclusion, the learned judge referred to certain decisions of this court as well as other courts and also certain decisions bearing on the language contained in section 17 of the Presidency Towns Insolvency Act and section 28(2) of the Provincial Insolvency Act, imposing a ban on creditors to whom the insolvent is indebted, from commencing any suit or other legal proceeding against the property of the insolvent in respect of the debt except with leave of the insolvency court. However, the learned judge (Palaniswamy J.) had not dealt with the decision of the Supreme Court to which we have already drawn attention. In the later decision, namely, Associated Industrial and Engineering Corporation Ltd., In re (In Liquidation) [1974] 44 Comp. Cas. 488 (Mad) the learned judge has expressly dealt with the decision of the Supreme Court. After referring to the decision of the Supreme Court and the language of section 171 of the former Act, the learned judge proceeded to state (p. 494): "The question is whether the aforesaid principle should be applied even to section 446 of the 1956 Act. In enacting th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ituted without the leave of the court, it could be permitted to be proceeded with by granting leave, then the expression ' if pending at the date of the winding-up order' would be without any meaning and rendered purposeless. That could not have been the intention of the legislature in making this change in the law. The obvious intention of the legislature is that leave could be granted to commence a proceeding only if leave is sought for before the commencement of the proceeding and that leave could be granted to proceed with a proceeding only if the proceeding was pending at the date of the winding-up order. That is the only rational way of interpreting the language employed in section 446." It is this decision of Palaniswamy J. which has been followed by Ramaprasada Rao J. in the order under appeal. Our attention was drawn to two other decisions dealing with section 446 of the present Act. One is that of a Division Bench of the Bombay High Court in Eastern Steamship Private Ltd. v. Pucto Private Ltd. [1971] 41 Comp. Cas. 43. This decision, which also did not refer to the decision of the Supreme Court mentioned already, held that section 446 of the present Act had made a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansidhar Shankarlal v. Mohd. Ibrahim [1971] 41 Comp. Cas. 21, Shah J., as he then was, delivering the judgment of the court, has observed at page 23 : 'The question sought to be raised in the proposed appeal, it was urged, was of general or public importance. In any case it was contended that there is conflict of opinion among the courts in India on the true interpretation of section 171 of the Indian Companies Act, 1913, and section 446 of the Companies Act, 1956 (which replaced section 171 of the Act of 1913)......' Therefore, this passage of the Supreme Court indicates that, according to the Supreme Court, section 446 of the 1956 Act replaced section 171 of the 1913 Act, and the two sections, according to the Supreme Court, were in pari materia . Even apart from these observations from the judgment of the Supreme Court which was primarily dealing with the provisions of section 171 of the 1913 Act, as we have pointed out above, there is no difference in substance between section 446 of the 1956 Act and section 171 of the 1913 Act. There is a difference only in framing the language of the section and in putting in more elaborate terms what was in a condensed form in the 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red by the Supreme Court from the language of section 171 of the former Act and that the change in the language of section 446 of the present Act is by way of amplification, clarification or elaboration of the position contained in section 171 of the former Act, rather than alteration, amendment or departure. For coming to the above conclusion, we have taken into account the purpose of enacting a provision like section 171 of the former Act or section 446 of the present Act. The purpose and object of the provision have been set out by the Supreme Court itself in the extract which we have already given from its judgment. For the purpose of achieving that object and effectuating that purpose, it is not necessary to hold that obtaining of leave is a condition precedent to the institution of the suit or other legal proceeding and if such suit or other legal proceeding is instituted without obtaining leave, the same cannot be rendered effective by subsequently applying for and obtaining leave. The second circumstance which has influenced us in coming to this conclusion is as follows : As we have indicated already, the commencing of a suit or other legal proceeding under that section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... suit. If such a serious consequence is to result, what is the provision or principle on the basis of which one can impute -knowledge of such appointment of official liquidator as provisional liquidator to the plaintiff in such a suit ? Could it have been the intention of Parliament that an innocent person's right to institute a suit against a company should be thwarted for no fault of his own ? We may also take another case. A company, though its registered office is situate in one place, may have places of business throughout the country and a person is entitled to institute a suit against such company where a part of the cause of action arises. Suppose a person who lives far away from the place where the court passing an order of winding up is situate and without any knowledge of the fact that the official liquidator has been appointed as provisional liquidator, institutes a suit in a distant court, can it be contended that such a suit should be dismissed, simply because the plaintiff had not obtained the leave of the court which passed the order winding up the company, for instituting such a suit ? We are clearly of the opinion that no such consequence is intended by Parliament ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liament that the court which passes the order of winding up of a company should have control over all such proceedings will be defeated. Under these circumstances, to impute to Parliament a deliberate departure from the legal consequence of section 171 of the former Act, when it changed the language of section 446 of the present Act will certainly lead to such serious and unintended results. It is worthwhile pointing out that if a person's remedy to proceed against a company for the purpose of enforcing his or its rights is sought to be taken away by such an interpretation of section 446 of the present Act, such a construction will constitute a serious inroad into his or its ordinary legal rights which must be justified only on the basis of unexceptionable public need or interest. Having regard to these consequences, we are inclined to take the view that the change in the language of section 446 of the present Act is only a drafting change and such a change was not intended to constitute a deliberate departure from the legal consequences flowing from section 171 of the former Act and in this we respectfully agree with the conclusion of the Gujarat High Court in the decision referre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ound in section 171 of the former Act. Only during the course of the consideration of the Bill in Parliament, we find an amendment was given notice of by the Government and that amendment was that the expression "shall be commenced, or if pending at the date of the winding-up order, shall be proceeded with" was substituted for "shall be proceeded with or commenced" and such an amendment was moved and adopted by the Lok Sabha on 7th September, 1955. There was no discussion or comment on this amendment as intending to effect any change in the law. This aspect of the matter also will tend to confirm the conclusion which we have already reached as to the scope of section 446 of the present Act. Consequently, we hold that the application filed by the appellant herein for obtaining leave of the court for proceeding with the suit which it had already filed, namely, O.S. No. 233 of 1974, was competent and the court had the power to grant such leave so as to render the suit already filed effective from the date of such granting of leave. In the present case, Ramaprasada Rao J. has simply followed an earlier decision of Palaniswamy J. and dismissed the application on the sole ground that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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