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TMI Blog1981 (2) TMI 188X X X X Extracts X X X X X X X X Extracts X X X X ..... ondent in C. A. No. 441/79, wife of Surender Kumar, seeks to be transposed as a co-petitioner in that application. By C. A. No. 406/80, Vivek Kumar seeks to transpose the company, arrayed as a respondent in C. A. No. 441/79, as a co-petitioner. These applications were made in the backdrop of the following facts and circumstances. Pearl Cycle Industries Ltd., in liquidation, was incorporated as a private joint stock company in 1955, as an enterprise of Raghunath Prasad, father of Surender Kumar. In 1960; the company, which had been incorporated with the object of manufacturing bicycles and accessories, was converted into a public company. At all material times, the family had controlling interest in the company. In the year 1966-67, the company was faced with financial difficulties as a result of which, Mercantile Bank Ltd., which had advanced large amounts of money to the company, as well as the Industrial Credit and Investment Corporation, called up their out-standings and a suit, being Suit No. 175/66, was filed jointly by the Bank and the Corporation for the recovery of Rs. 40,50,000 in Delhi. The suit was based on a mortgage of all the movable and immovable assets of the comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wo decrees and to stall the sale of the assets in execution thereof, apparently to get a little more time to arrange the necessary funds to pay off the bank, wholly or partly, and seek a restoration of the company to the family. C. A. No. 144/80 was filed by Surender Kumar, during the pendency of the other application, and CAs. Nos. 406/80 and 134/80 intended to transpose the company (are by him) as well as by the wife of Surender Kumar as co-petitioners. The company and the bank were impleaded as the respondents; Vivek Kumar also impleaded Surender Kumar, his father and his mother as respondents Surender Kumar in his application impleaded his wife and son as respondents in addition to the company. Vivek Kumar seeks to void the two decrees and to have them declared in executable on the grounds that the board of directors of the company, including the joint managing directors, had not been duly constituted and were, therefore, incapable of giving consent to the claims being decreed and his father, Surender Kumar, had been acting against the interest of the members of the coparcenary in getting the aforesaid decrees passed and was acting prejudicially to the interest of the members ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er Kumar and the members of the family that they wish to explore the possibility of a settlement with the bank on the basis of a further scaling down of the liability and to discharge the obligation so as to avoid the distress sale of the assets of the company and try for the eventual restoration of the company. This court gave enough time to Surender Kumar but, unfortunately, he has not been able to either satisfy the bank or produce the necessary funds to pay more than the highest offer made for the assets. The first question for consideration is as to the locus standi of Surender Kumar and Vivek Kumar to assail the decrees passed against the company. So far as Vivek Kumar is concerned, he is neither a judgment-debtor, nor a shareholder of the company. He has also no interest in the assets of the company, which are sought to be proceeded against in execution. No movable or immovable property belonging to him is sought to be either affected by the decrees or to be proceeded against in execution thereof. The only right in which he claims to have the necessary standing to assail the decrees and stall their execution is based on the allegation that the controlling interest in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ary competence either to give the consent or to ratify the consent already given. That is a separate facet of the matter which could be decided if the proceedings survive this challenge. I have, therefore, no hesitation in holding that none of the applicants have the necessary locus standi to challenge the two decrees or their execution. Whether the applications are maintainable under section 446 of the Companies Act, is the next question that requires consideration. There are two facets of the plea with regard to maintainability. One is that the applications are not maintainable under section 446 of the Act. Second is that the challenge to the decrees in collateral proceedings of execution could be only on the ground of nullity and on the allegations as laid down, they could not be said to be a nullity, whatever else may be said about their validity. This is how section 446 reads: " Suits stayed on winding-up order :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 com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... where those in the management of the company were themselves the wrongdoers and obviously, would not initiate such proceedings. The company in the present case is in liquidation and the official liquidator alone was competent to initiate appropriate proceedings by the company, and there was no averment that the official liquidator was the wrongdoer or was acting unreasonably in not initiating appropriate proceedings for the annulment of the decrees. It would be interesting to point out in this context that the bank is apparently the only creditor of the company and that is perhaps the reason why the official liquidator has not taken any positive step to stall the execution of the decrees by the bank as a secured creditor, even though the official liquidator was naturally interested in the assets fetching the highest possible price in execution proceedings. A factor, which is not altogether irrelevant, is that whatever be the proceeds, the claim of the bank, which according to the two decrees would be over a crore and Rs. 50 lakhs and would have increased considerably on account of further interest would be too large to leave any surplus that may fall into the hands of the official ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n proper proceedings against a decree and not in collateral proceedings. Execution proceedings are certainly collateral proceedings and would be within the limitation of this principle. If a suit or a claim under section 446(2)( a ) or ( b ) was maintainable, it would perhaps not be a case of collateral proceedings because such proceedings would be in the nature of a regular proceeding but the same is not true of the question that may be raised under section 446(2)( d ) of the Act. If any question is raised with regard to a decree under sub-section 2( d ), it would in its nature be a question raised in collateral proceedings, that is, proceedings for the winding-up of the company, at whose instance or against whom a decree has been passed. Any such question, must, therefore, satisfy the requirement for a valid challenge to a decree, i.e ., that the decree is a nullity. The challenge to the decrees in the present case, ex facie, could not be said to be on the ground that it is a nullity. Mere incompetence of the board of directors or a defect in their constitution or any disqualification or any termination of their status would be incapable of vitiating the decree or making it a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etermination. Section 456 enumerates the powers of the liquidator and whatever be the extent of the powers of the liquidator, and there certainly is a power to institute claims with the sanction of the court, none of these are able to sublimate the proceedings filed by the applicants. This application is, therefore, of no avail to prop up the present proceedings. Section 531 deals with fraudulent preference and declares that "any transfer of property, movable or immovable, delivery of goods, payment, execution or other act relating to property made, taken or done by or against a company within six months before the commencement of its winding-up" be invalid if certain conditions are satisfied. This contention was raised in the context of an averment that the winding-up order was made on the basis of the winding-up petitions filed in 1966-67 and if that was so, the commencement of winding-up would naturally relate back to the institution of the proceedings. It was, however, not disputed that the winding-up petition filed in 1967 was eventually withdrawn and dismissed as such and the winding-up order was made on July 31, 1975, the winding-up petition being C.P. No. 94/73, filed on No ..... X X X X Extracts X X X X X X X X Extracts X X X X
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