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TMI Blog1929 (1) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... no less than 10 grounds of appeal), and from the statements of counsel and by comparing the judgment under appeal and the two judgments of the appellate Bench what exactly was the question which we were invited to answer. 5. I will briefly state the facts which in greater detail appear from the judgments of Mr. Mukerji, J. and Mr. Weir, J. After certain preliminary proceedings the present appellants, who had previously given some indecisive indications of their intention to submit their claim to the receiver, put in a definite application on 12th April 1927 asking to be allowed to proceed to execution of a decree which they had obtained on foot of a mortgage. They also asked to be allowed to proceed with a pending suit. But as to this we have not been addressed. This action of the appellants has been understood throughout as an intimation of their intention to stand out of the winding up proceedings and not submit their claims to proof. 6. Mr. Justice Mukerji had in a previous suit Union Indian Sugar Mills Co. v. Brij Lal A.I.R. 1927 All. 426 held that he was entitled, if he suspected that the claim was not a just claim, to go behind a decree for damages and in proper circumstan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ors should pay them, as a first charge-holder out of the assets of the company or out of such parts of the assets of the company as may have been validly charged by the company, (d) I hold therefore, that leave to execute the decree should be refused. 9. I note here that Mukerji, J., did not say what course he proposed to adopt if, after the liquidators had time to consider the merits of the case in which the decree had been obtained, he (Mukerji, J.,) was of opinion that the decree or part thereof was not supported by consideration in his opinion good. 10. As the judgment stands it may be that in that event he would continue to refuse leave to proceed to execution of the decree only until the liquidators had time to file a suit to get the decree set aside. On the other hand it may be that he would hold that he was entitled to ignore the decree and himself allow only such part of the debt if any, as might find to be justly due. 11. As Mukerji, J.'s judgment has not definitely stated which of these two courses he would adopt, it was at least open to argument that the appeal from his order, on the main ground on which we are asked to set it aside, is premature. 12. But it i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opinions of the two learned Judges on either of these three points nor was there on certain other minor points. 18. Weir, J., further held that the winding-up Judge while he has jurisdiction to refuse leave has "jurisdiction" to refuse only temporarily to enable him to decide whether he will: (a) direct the liquidator to pay up the decree, or; (b) allow the decree-holder to file a suit to proceed or (c) direct the liquidator to get the decree set aside; that the winding up Judge has no jurisdiction to refuse leave "absolutely" and thus himself virtually tear up the decree and the mortgage-deed on the foot of which the decree was obtained. Mr. Justice Sulaiman on the other hand has held that the winding up Judge has power to refuse leave "absolutely," and this would, of course, include the lesser powers which alone Mr. Justice Weir would allow. It is in this last point that the learned Judges have really differed, and I have, therefore, redrafted the question for our opinion as follows: Where a person has obtained a mortgage dated 4th April 1923) on the assets, including moveable and immovable property of a company, and has obtained what was in eff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... except possibly to this extent that in the case of a secured creditor the winding up Judge may, if he so desires, give him permission, if he is satisfied that the debt was a good and just debt, to proceed to enforce his security whether by filing a suit or by proceeding to execution of his decree if he has already obtained one. 25. We were also invited by counsel on both sides to consider the numerous cases quoted in the judgments of Mukerji, J., and Weir, J., together with a few further cases not so mentioned, I will proceed to state as briefly as possible my view. 26. On the face of them Ss 169 and 171 are wide enough to confer upon the winding up Judge power respectively to stay all proceedings by a secured creditor and to refuse leave to a secured creditor to proceed. The appellant then relies on Section 229. That section provides that in the winding up of an insolvent company (and in this case there is no doubt about the insolvency) the same rules shall prevail and be observed with regard to the respective rights of secured and unsecured creditors and to debts provable and to the valuation of annuities and future and contingent liabilities as are in force for the time being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... creditors, and counsel was not able to point to any such and was reduced to acknowledging that if his interpretation of the section was accepted the section was without meaning. I see, therefore, no reason for restricting the word "rules" in Section 229 to the narrower sense of "rules made under an Act." I am, therefore, of opinion that the rules contained in any section of the Provincial Insolvency Act, the rules, if any, made under the Act and any appropriate established rules of practice in insolvency proceedings are imported into the Companies Act, unless there is some thing in the Companies Act itself already providing for the matter in question, or in conflict with the rule which it is proposed to import. 34. Counsel for the respondent next contended that even if the wider meaning must be given to the word rules" in Section 229, the rule by which a secured creditor was given immunity in insolvency proceedings was not intended to be imported but only the rule giving a secured creditor priority. There does not, however, appear to be any justification prima facie for admitting the one class of rule and not admitting the other Moreover, it is manifest t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f any, are the special rights of a secured creditor? 43. Section 229 bears on the face of it a reference to "the respective rights of secured and unsecured creditors." The phrase is in itself sufficient to show that the legislature recognized a difference between the rights of the two classes of creditors. In view of what I have said above as to the scope of Section 229 I see no reason for excluding from importation into winding up proceedings the broad established and admitted principle of insolvency law in the case of insolvency of an individual that a secured creditor can stand outside the proceeding, as evidenced by, amongst other sections Section 9(2), Section 28(6) except so far as getting leave is concerned (as to which both the learned Judges of the Division Bench were in agreement) and Section 47 and as evidenced by the prevailing practice. 44. In this connexion I note that Rule 104, Companies Act Rules of this Court, authorizes this Court to be guided by the practice and procedure of the High Court of Justice in England in matters relating to companies so far as they are applicable and not inconsistent with these Rules and the Act. Turning to the English " ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... becomes of the right to priority which at another stage of the argument for the liquidator it was admitted and contended the secured creditor had. 48. Counsel was further driven to urge that a creditor claiming to be a secured creditor is not a secured creditor" at all until he has "proved" his security. To this the definition of "secured creditor" in Section 2(1)(e), Pro. Ins. Act, is a sufficient answer. In fact even an unsecured creditor, in order to secure acceptance of his claim does not necessarily have to do more than send it in under Rule 45, which sending in would appear to be equivalent to the state which is described as "notifying" in Section 64, Pro. Ins. Act; even such a creditor need not "prove" unless called upon vide Rule 46: 49. In this connexion I note the phraseology of the second part of Section 229, "all persons who would be entitled to prove * * may come in." The word "provable" as used in the Provincial Insolvency Act, does not in my opinion mean "which must be proved." but "capable of proof" or "which may be, i.e., are allowed to-be, proved." To appreciate this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made. It is admitted on all sides that not one of the cases whether English or Indian, suggests that the winding up Judge can compel a secured creditor to come into the winding up proceedings or in any way submit his claim to scrutiny. In cases such as In re Van Laun, Ex-parte Chatterton [190] 2 K.B. 23 it is clear that the secured creditor had exercised his option to come into the winding up proceedings and submit his claim to the winding up Judge. They are no authority for the proposition that the Judge has power to compel him to come in. 56. The fact that there are no cases in which it has been held that a winding up Judge can compel a secured creditor to bring in his security and that he can scrutinize that security and if he sees fit, in effect tear it up, and no cases in the opposite sense suggests that the practice in England and in this country has been uniform in one direction or the other and has been regarded as not open to question. This uniformity of practice suggests the following consideration. If the practice has been uniform in favour of the secured creditor it would be natural to find that the question of his privilege had never been raised. On the other hand if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to adjudicate on the merits of the claim. It may not be in form an adjudication, but it is a judicial pronouncement and it may have a serious repercussion on the right of the secured creditor to an unprejudiced trial of his claim and also it may induce a purchaser to pay an enhanced price under what may prove to have been a false impression of security created by the action of the Judge. But there may possibly in very exceptional circumstances be a case in which unqualified refusal would be upheld and it may be that Jessel, M.R. (with whom James, JJ. and Cotton, L.J., expressed their agreement) had this possibility in mind when he held in the case to which I have just referred that those who desire to restrain a secured creditor from proceedings must offer to pay him off or show some special grounds for restraining him. 62. I would state the following propositions: (1) That no secured creditor need, or can be forced to prove his debt, and, that, with the next following exception, such a creditor can stand wholly outside the winding up proceedings if be so elects and rely upon his security or his decree if he has obtained one. (2) That every secured creditor must obtain leave t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) and" the rules in force under the law of insolvency "(mentioned in Section 229). This implies that the word "rules" in Section 229 must be liberally construed in the sense of "rules of law" including (a) provisions of the Insolvency Act, (b) rules made under that Act, and (c) rules of practice. Niamatullah, J. 70. I agree with. Boys, J. to the answer he proposes to make on the question referred to the Pull Bench and would add a few observations in support of his conclusions and to emphasize some aspects of the case on which they rest. 71. The facts of the case so far as they are necessary to make my remarks intelligible are briefly as follows: 72. The appellants Lala Hansraj and others obtained, on 28th October 1924, an ex parte decree for sale, passed by a learned Judge sitting on the original side of the Calcutta High Court, for a large sum of money (about ₹ 1,77,000) on foot of a mortgage deed dated 25th April 1923, executed by Dehradun Mussoorie Electric Tramway Co. Ltd., which has since gone into liquidation and is being wound up by Mukerji, J. a learned Judge of this Court. Inasmuch as no legal proceedings can be taken except by leave ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ogether, as Sulaiman, J. thinks, or whether his jurisdiction in that behalf is limited to such time as may be reasonable to enable the liquidator to decide if he should attack the decree by instituting a regular suit, as Weir, J. would have it. 76. That a secured creditor need not prove his debt in winding up proceedings and can stand wholly outside such proceedings relying on his security is conceded by both learned Judges of the Division Bench. Weir, J. has quoted a, number of English decisions in support of this view. Sulaiman, J. though he does not consider any of the sections of the Provincial Insolvency Act imported into the provisions of the Indian Companies Act by Section 229, of the latter Act, has nevertheless expressed himself as follows: Although there is no express provision in the Companies Act protecting secured creditors, their safety rests on well established principles. Under the Transfer of Property Act an interest is transferred to a mortgagee. A mortgagee's estate, so to speak, is carved out of the original estate and vests in the mortgagee, when a company is in liquidation, only the property of the company comes under the control of the Court or the Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ill be seen at a glance that Sections 231 and 232 of the Companies Act are parallel to Sections 53 and 54 of the Insolvency Act, but it is significant that there is no provision in the Companies Act corresponding to Section 4, Provincial Insolvency Act which lays down: (1) Subject to the provisions of this Act, the Court shall have full power to decide all questions whether of title or priority, or of any nature whatsoever, and whether involving matters of law or of fact, which may arise in any case of insolvency coming within the cognizance of the Court, or a Court may deem it expedient or necessary to decide for the purpose of doing complete justice or making a complete distribution of property in any such case. (2) Subject to the provisions of this Act and notwithstanding anything contained in any other law for the time being in force, every such decision shall be final and binding for all purposes as between, on the one hand the debtor and the debtor's estate and, on the other hand, all claimants against him or it and all persons claiming through or under them or any of them. (3) Where the Court does not doom it expedient or necessary to decide any question of the nature ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dged with reference to the rule of res judicata contained in Section 11, Civil P C., and that the former, being an officer of the Court and representing the interest of the whole body of creditors as well as those of the shareholders, is not bound by the decree. I take leave to point out that before the rule of res judicata can be invoked by one or the other of the parties, to determine the binding character of the decree there must be an issue in a suit or proceeding in a competent Court between the parties, and in so far as such an occasion does not arise before a Court in winding up proceedings, there is no room for the application of the rule of res judicata. Such an occasion will, of course, arise when the mortgage or the decree is in question in a regular suit brought by the liquidator to challenge the mortgage or the decree or in any proceedings taken by the mortgagee to realize his security. I doubt if in such a case the liquidator can get over the bar of res judicata by an appeal to his position as a representative of the creditors generally. Prima facie he will, in that contingency, occupy no higher position than the one which an attaching creditor does under similar circ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to follow its action. Cases are, however, conceivable in which the Court may safely refuse leave altogether. The claim of a secured creditor may be so manifestly baseless as not to weigh with it and with the intending purchasers who may be willing to offer full value for the property, confidently relying on their ability to defeat the claim when made. In such a case the Court may deem it desirable to withhold leave absolutely and to dispense with the necessity of the liquidator instituting a suit to vindicate the title of the company. In practice, cases of this kind will be of rare occurrence but are not beyond the range of possibility. The legislature did not consider it expedient or even possible to lay down exhaustively cases, in which and the purposes for which leave should be granted and those where it should be refused. Unlimited jurisdiction has been, therefore, conferred by Section 171, Companies Act, on the winding up Judge, to withhold leave for such time and on such terms or altogether as the circumstances of each case may warrant. 83. Where legislature has advisedly conferred jurisdiction or power on a Court without imposing any fetters thereon, it cannot be limited b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cured creditor without the slightest justification "his method of the exercise of the jurisdiction" may be erroneous, but his jurisdiction cannot be questioned. 87. An order passed without jurisdiction is a nullity and therefore one of the tests of an order being without jurisdiction is to find if it can be treated as not possessing a binding effect. Can the order of a winding up Judge refusing leave absolutely be regarded as a nullity? Can it be ignored after a reasonable time such as may be considered sufficient to enable the winding up Judge to decide what steps should be taken with reference to the claim of the secured creditor? I have no doubt as to the answers to these questions. If a winding up Judge has no jurisdiction to refuse leave without specifying a reasonable time, that order ought to cease to have binding effect after a reasonable time. It seems to me that there is a contradiction in terms in the proposition that a Judge has no jurisdiction to refuse leave for all time but can refuse leave for such length of time as he considers reasonable. If the length of time for which he can withhold leave rests with him, he can refuse it absolutely and altogether acc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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