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In the Matter of Ovation International (India) P. Ltd. Grey Steel Casting and Finishing Co. P. Ltd. Vs. Adverts (Private) Ltd. and anr. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtMumbai High Court
Decided On
Case NumberCompany Application No. 68 of 1968 in Company Petition No. 87 of 1968
Judge
Reported in[1969]39CompCas595(Bom)
ActsCompanies Act, 1956 - Sections 94, 94(1), 171, 211, 232, 295, 391, 395, 441(2), 442, 446, 450, 456, 457(1), 457(2), 466, 490, 528, 529, 530, 537 and 537(1); Code of Civil Procedure (CPC), 1908 - Order 38, Rules 5(3) and 6(2)
AppellantIn the Matter of Ovation International (India) P. Ltd. Grey Steel Casting and Finishing Co. P. Ltd
RespondentAdverts (Private) Ltd. and anr.
Appellant AdvocateK.D. Mehta, Adv.
Respondent AdvocateH.G. Advani, Adv. and Official Liquidator in person
Excerpt:
company - winding up - companies act, 1956 and order 38 rules 5 (3) and 6 (2) of code of civil procedure, 1908 - execution proceedings initiated by decree-holder against company sought to be stayed by creditor who succeeded in winding up petition - attachment of company's assets in absence of sale cannot be treated as having been completed before commencement of winding up - said proposition shows that execution has not been in force before commencement of winding up - attachment of assets before judgment does not confer right upon decree-holder - court competent to stay suit proceeding during pendency of winding up petition - execution proceedings stayed. - maharashtra scheduled castes, scheduled tribes, de-notified tribes (vimukta jatis), nomadic tribes, other backward classes and.....madan, j. 1. this is a judge's summons under section 442 of the companies act, 1956, taken out by the applicants, grey steel casting and finishing co. private limited, who have filed a petition to wind up the ovation international (india) private limited (hereinafter referred to as 'the company') being company petition no. 87 of 1968 and which petition is still pending. in view of the facts which have come to light in the affidavit in reply filed on behalf of the first respondents, adverts (private) limited, and the document which have been put in by consent, the only prayer in the summons which survives for consideration is the one asking for stay of the execution of the decree passed in favour of the first respondents against the company by the bombay city civil court in suit no. 4234.....
Judgment:

Madan, J.

1. This is a judge's summons under section 442 of the Companies Act, 1956, taken out by the applicants, Grey Steel Casting and Finishing Co. Private Limited, who have filed a petition to wind up the Ovation International (India) Private Limited (hereinafter referred to as 'the company') being Company Petition No. 87 of 1968 and which petition is still pending. In view of the facts which have come to light in the affidavit in reply filed on behalf of the first respondents, Adverts (Private) Limited, and the document which have been put in by consent, the only prayer in the summons which survives for consideration is the one asking for stay of the execution of the decree passed in favour of the first respondents against the company by the Bombay City Civil Court in Suit No. 4234 of 1968 on July 18, 1968, and for restraining the first respondents from taking any steps or proceedings in execution thereof.

2. In view of the argument advanced in support of some of the contentions raised on this summons, I propose to set out the facts in greater detail than would have otherwise been, necessary, The company was incorporated on August 18, 1967. The main objects for which the company was established are to carry on the business of manufacturers, buyers, sellers and distributing agents of and dealers in all classes of patent, pharmaceutical, medical and medicated preparations, patent medicines, toilet requisites and cosmetics. The registered office of the company is situate at 22, Mahalaxmi Chambers Bhulabhai Desai Road, Bombay 26. The company also has a godown situate at Hind Rajasthan Estate 229, Naigaum Cross Road, Bombay.

3. On July 9, 1968, the applicants presented Company Petition No. 87 of 1968 to wind up the company. The applicant's case as set out in the petition is that by an agreement dated December 16, 1967, the applicants were appointed the company's sole selling agents in India for all products of the company upon certain terms. The applicants acted as such sole selling agents, but in or about February, 1968, certain disputes arose between the applicants and the company which were settled in March 1968. The settlement was recorded in an agreement dated March 16, 1968. By the said agreement, the earlier agreement of December 16, 1967, was by mutual consent cancelled and the company appointed the applicants as the marketing company for all products manufactured by the company. The company further agreed to pay to the applicants a sum of Rs. 30,000 in full and final settlement of their claims for service rendered under the said agreement dated December 16, 1967. Under the said agreement dated March 16, 1968, the applicants were under an obligation to buy certain minimum quantities of the products manufactured by the company and were also under an obligation to provide and maintain offices and warehousing facilities at Bombay, Delhi, Calcutta and Bangalore at an aggregate expense of Rs. 55,000 per month plus beauty consultant's salaries, bonus and forwarding expenses. This sum was based on a minimum turnover of Rs. 22,000 units of normal lines of products of the company based on the price of Rs. 10 per unit and any shortfall in the minimum turnover was to be reimbursed by the company. The other provision of the said agreement are not relevant for the purposes of this summons. The applicants forwarded to the company from time to time statement of account showing the amount due by the company and as on May 15, 1968, a sum of Rs. 78,954.73 P became due by the company to the applicants. The company raised no objection to the said statements of account and made part-payments between May 16, 1968, and May 31, 1968, aggregating to Rs. 5,665. Thereafter, further statements of account were sent. The applicants sent several notices to the company demanding payment. The balance of the applicants claim as on June 30, 1968, is Rs. 1,45,373.53P. It is alleged in the petition that a sum of Rs. 5,68,000 is due by the company to various distributors who have made advance payment in respect of goods to be supplied to them by the company, a sum of Rs. 55,000 in respect of sales-tax and a sum of Rs. 1,50,000 to sundry creditors, while the only assets of the company consist of bank balances of an aggregate amount of about Rs. 16,000 and furniture and fixture in the company's registered office and raw materials, machinery and 22 formulae of the products manufactured by the company, all of which are of the value of about Rs. 2,00,000. It is further alleged in the petition that the products of the company were being manufactured by the British Drug House Private Limited under an agreement which was terminated in or about May, 1968, and thereafter the production of the company's products has completely stopped. The issued, subscribed and paid-up capital of the company is Rs. 300 out of the authorised capital of Rs. 5,00,000 divided into 5,000 shares of Rs. 100 each. The company had originally three directors, W.F. Young, who was the managing director, Glen C. Macmohan and J. Singh. According to the applicants the said Macmohan left India permanently in or about February, 1968, while the said Singh resigned as director in or about June, 1968, and the said Young suddenly absconded from Bombay some days prior to the filing of the petition and that there is since then no other director or responsible person in effective management and charge of the company's affairs. A copy of the news report which appeared in the 13th June, 1968, issue of the newspaper, Indian Express, Madras edition, about a criminals case registered by the Coimbatore District Crime Branch Police against the said Young, another person styled as the beauty director of the company and a representative of the company charging them with having entered into a conspiracy and thereby having induced a merchant of Coimbatore District to part with Rs. 22,500 on the promise of giving him the right of retail distributorship in a territory for the cosmetics marketed by the company, has been annexed to the petition. The grounds on which the winding-up is sought is that the company is commercially insolvent, its substratum has gone, there is a deadlock in the management of the company and there is no reasonable hope that the company can trade at a profit as it has no credit in the market and its assets are grossly insufficient to meet its liabilities. On these grounds the applicants have submitted that it is just and equitable to wind up the company. This winding-up petition was filed on July 9, 1968, and was accepted by the court on the same day and notice issued to the company. On July 15, 1968, the official liquidator was appointed provisional liquidator of the company.

4. On July 1, 1968, a few days prior to the filing of the winding-up petition, the first respondents filed the said Suit No. 4234 of 1968 against the company in the Bombay City Civil Court as a summary suit claiming a sum of Rs. 24,443.53 with interest thereon the at the rate of 6 per cent per annum from the date of the suit till payment and the costs of the suit. The case of the first respondents in the plaint was that on or about January 4, 1968, the company engaged the first respondent's service to handle advertising work for the company and to release their advertisements on all India basis. Accordingly, between January 6, 1968, and April, 1968, the first respondents carried out publicity week for the company in different newspapers and cinema houses as and when required by the company and sent their bills from time to time to the company. Certain payments on account were made by the company. The publicity work was completed by the end of April, 1968, and there remained a balance of Rs. 24,443.53 due by the company to the first respondents. Along with their letter of June 11, 1968, the first respondents enclosed for the company's confirmation a statement of account showing the said amount due as at the end of April, 1968. The company returned a copy of the said statement duly confirmed.

5. After filing the suit, on July 3, 1968, the first respondents applied for an attachment before judgment of the company's movable property, viz., furniture, fittings and stock-in-trade, lying at the company's office premises and the raw materials lying at the company's godown and the goods lying with the said British Drug House Private Ltd. and of the money lying in the company's bank account with the Bank of America, Bruce Street Branch, Bombay. The said application was supported by an affidavit of one Baji Nariman, the managing director of the first respondents, to which was annexed an affidavit of one Parviz Jal Sonavalla, a representative and bill collector of the first respondents. Both the said affidavits were solemnly affirmed on July 3, 1968. Mr. H. G. Advani, learned counsel for the first respondents, has admitted that the affirmation of the said affidavits was a mistake and instead what was stated in the said affidavits ought to have been on oath inasmuch as the said Nariman and Sonavalla are both Parsi Zorastrians. The said report in the newspaper, Indian Express, a copy of which was annexed to the winding-up petition, was referred to in the said affidavit of Nariman. The allegations made in the said affidavit were that the said Macmohan had already left India permanently and that the said Young was about to leave India, his family having left India a fortnight earlier. It was further alleged that with an intent to obstruct and delay the execution of any decree which might be passed against the company, the company had already transferred and assigned their factory and their cosmetic formulae to one Gold Bond Cosmetics Private Ltd. and that with the same intent the company was frantically trying to dispose of its furniture and fixture lying at its office premises and its raw products and empty packages which were laying with the said British Drug House Private Ltd. and also in a godown in the company's factory. The said affidavit further referred to a news item in the 1st July, 1968, issue of the newspaper, Times of India, to the effect that some of the goods of the company were being sold by Messrs. Gandhi and Co., auctioneers, under instructions from a pledge. It was further alleged that a representative of the company, one Raj Gopalan, had approached the said Nariman a few days ago and inquired of him if he could find some suitable buyer for the office furniture and fittings of the company; that, similarly, the said Young had approached the said Sonavalla and had in fact handed over to the said Sonavalla a list of such furniture and fittings; and that since July 1, 1968, the company had locked up its office premises and no one was allowed to enter therein. In the said affidavit of Sonavalla the allegations about the said Young approaching him to find out a buyer for the office premises of the company along with the furniture and fittings lying therein and as to the said Young handling over to him a list of such furniture and fittings were confirmed and it was further alleged that on July 1, 1968, as well as on the morning of July 2, 1968, when the said Sonavalla had gone to the office of the company to make a demand for payment he had found the said premises locked; that he had again gone to the company's office at about 5 p.m. on the 2nd of July when the said office was open and the company's representative, the said Raj Gopalan, who was present, had informed him that the company's directors, the said Young and Miss Annfoo, had not attended the office on that day and that there was no way of contacting them.

6. On the strength of these affidavits, on the same day, viz., July 3, 1968, two orders of attachment before judgment were made. By each of the said orders the company was ordered to furnish security in the sum of Rs. 25,000 and to place the same at the disposal of the said court in satisfaction of any decree which might be passed against the company or to appear on July 11, 1968, to show cause to the contrary and, in the meantime, by one of the said orders, the Registrar of the said court was ordered to issue a warrant of attachment before judgment under Order XXXVIII, rule 5 and Order XXI, rule 43, of the Code of Civil Procedure, attaching the movable property, viz., furniture, fittings and stock-in-trade belonging to and lying at the company's office premises in its possession and raw materials belonging to and lying at the company's godown in its possession and the goods belonging to and lying in the company's possession at the premises of the said British Drug House Private Limited to the extent of Rs. 25,000. By the other order the said Registrar was ordered to issue a warrant of attachment before judgment under Order XXXVIII, rule 5, and Order XXI, rule 46, of the Code, attaching the amount to the extent of Rs. 25,000 in the hands of the Bank of America payable to the company, lying in the account of the company with the said bank. In pursuance of the said orders, the Registrar of the said court issued a warrant of attachment before judgment under Order XXXVIII, rule 5, commanding the Sheriff of Bombay to call upon the company on or before July 11, 1968, either to furnish security in the sum of Rs. 25,000 to be produced and placed at the disposal of the court as required, or to produce the property ordered to be attached or its value to the extent of Rs. 25,000 or to appear and show cause why the company should not furnish such security. By the said warrant the Sheriff was further commanded to attach the said bank account and the said movables. Two other warrants of attachment were also issued by the said Registrar : the one under Order XXI, rule 43, directing the Sheriff to seize forthwith the said movables and unless the company paid to the Sheriff the amount to the extent of Rs. 25,000, to keep the property seized in his custody until further order of the court, and the other under Order XXI, rule 46, prohibiting the company from recovering the amount to the extent of Rs. 25,000 or any part thereof from the said bank and prohibiting the said bank from making any payment to the company until further order of the said court. The said attachments were levied on 3rd and 4th July, 1968 respectively. The writ of summons in the said suit was also served about the same time by leaving it with a clerk in the company's registered office. On July 18, 1968, i.e., after the winding-up petition was filed and provisional liquidator was appointed, the said suit reached hearing. There was no appearance on behalf of the company, though one of the shareholders, one T. A. Raman, attempted to appear through an advocate but probably on being pointed out that he had no right to represent the company, the advocate applied for permission to withdraw his appearance, which was granted and thereupon an ex parte decree was passed against the company as prayed for and by the said decree was passed against the company as prayed for and by the said decree the said attachments before judgment were confirmed.

7. On July 19, 1968, the present judge's summons was taken out. On the same day an order was passed staying the said suit and restraining the first respondents from proceeding or continuing with it or from taking any further proceedings therein pending the hearing and final disposal of the said summons. On that day the only substantive prayer was for staying the said suit and restraining the first respondents from proceedings or continuing with it or taking any further proceedings in the said suit pending the said winding-up petition. The applicants were apparently unaware of the said attachments before judgment obtained by the first respondents or of the said decree passed in favour of the first respondents. At the hearing of the summons, on this fact being brought out in the affidavit in reply filed on behalf of the 1st respondents the summons was amended to incorporate a further prayer to restrain the 1st respondents from taking any steps or proceedings in execution of the said decree pending the hearing and final disposal of the said company petition.

8. I will now summarise the rival contentions raised on this summons. The applicant's contentions are that :

(a) the orders of attachment before judgment are bad in law;

(b) assuming they are not so, the attachment before judgment does not confer any right upon the 1st respondents;

(c) the attachment confirmed at the time of the passing of the decree being after the date of the filing of the winding-up petition would be void under section 537(1) of the Companies Act, 1956, if the company were ordered to be wound up;

(d) the first respondents were not entitled to execute the said decree without leave of the court; and

(e) on the principles governing the grant of stay under section 442 of the Companies Act, all further proceedings in the execution of the said decree should be stayed.

9. The contentions of the first respondents are that :

(a) the summons was not maintainable as it has been taken out by the applicants and not by the provisional liquidator in his own name;

(b) the attachment before judgment was an attachment or execution put in force before the commencement of the winding-up within the meaning of the expression 'attachment, distress or execution put in force' in clause (a) of section 537(1) of the Companies Act and accordingly no leave of the court was necessary to complete the execution of the decree by sale of the movables and garnishee order against the Bank of America;

(c) the attachment before judgment constituted the first respondents a class of creditors who were secured creditors or analogous to secured creditors, who stood outside the winding-up and who, therefore, could not be restrained from realising their decree; and

(d) by reason of the attachment before judgment, the attached movables and the moneys lying in the company's bank account had ceased to be the property of the company and neither the provisional liquidator nor, assuming the company was ordered to be wound up, the official liquidator would have any right thereto as against the first respondents.

10. Before considering the arguments advanced before me, it will be convenient at this stage to set out the relevant provisions of the Companies Act, 1956. Section 442, 446 and 537 provide as follows :

'442. Power of court to stay or restrain proceedings against company. -

At any time after the presentation of a winding-up petition and before a winding-up order has been made, the company, or any creditor or contributory, may -

(a) where any suit or proceedings against the company is pending in the Supreme Court or in any High Court, apply to the court in which the suit or proceedings is pending for a stay of proceedings therein; and

(b) where any suit or proceeding is pending against the company in any other court, apply to the court having jurisdiction to wind up the company, to restrain further proceedings in the suit or proceedings;

and the court to which application is so made may stay or restrain the proceedings accordingly, on such terms as it thinks fit.

446. Suits stayed on winding-up order. - (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.

(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 the 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 or proceeding by or against the company which is pending in any court other than that in which the winding-up of the company is proceeding may, notwithstanding anything contained in any other law for the time being in force, be transferred to and disposed of by the court.

(4) Nothing in sub-section (1) or sub-section (3) shall apply to any proceeding pending in appeal before the Supreme Court or a High Court.

537. Avoidance of certain attachments, executions, etc., in winding-up by or subject to supervision of court. - (1) Where any company is being wound up by or subject to the supervision of the court -

(a) any attachment, distress or execution put in force, without leave of the court, against the estate or effects of the company, after the commencement of the winding up; or

(b) any sale held, without leave of the court, of any of the properties or effects of the company after such commencement;

shall be void.

(2) Nothing in this section applies to any proceedings for the recovery of any tax or impost or any dues payable to the Government.'

11. The contention raised by the first respondents that the applicants were not entitled to take out this summons as the same ought to be taken out by the provisional liquidator in his own name is in the nature of a preliminary objection and I shall, therefore, deal with it first. In support of this objection, Mr. Advani, learned counsel for the 1st respondents, has relied upon the decision of a learned single judge of the Calcutta High Court in Roopnarain Ramchandra Private Ltd. v. Brahmapootra Tea Co. (India) Ltd. (1961) 65 C.W.N. 1060.

12. In that case Brahmapootra Tea Co. (India) Ltd. was ordered to be wound up on a petition presented by the Registrar of Companies, West Bengal. On an application made by the said company the winding up order was set aside and on the same day the official liquidator was appointed provisional liquidator. After the provisional liquidator was appointed an ex parte decree was passed against the said company in a suit filed on the Original Side of the Calcutta High Court by Roopnarain Ramchandra Private Ltd. The said company acting through its directors applied to set aside the said ex parte decree. The contention of the said company was that the ex parte decree was a nullity because the court had no jurisdiction to pass the decree by reason of the appointment of the provisional liquidator since no leave of the court had been obtained to proceed with the suit. A preliminary objection was taken by the plaintiffs that the application was not maintainable as it should have been made by the provisional liquidator. This objection was upheld by the learned judge who held that :

'The only person competent to make an application after there has been appointment of the provisional liquidator is such person and not the company.'

13. Relying upon this passage Mr. Advani has submitted that the judge's summons ought to have been taken out by the provisional liquidator and that too in his own name and not by the applicants. This argument of Mr. Advani overlooks the provisions of section 442 of the Companies Act, for that section expressly confers upon a contributory and the company as also upon a creditor the right to apply for stay of a pending suit or proceeding at any time after the presentation of a winding-up petition and before a winding-up order has been made. The applicants are creditors of the company or claim to be creditors of the company. Though at the time of the acceptance of the winding-up petition notice was given to the company, the company has till today not appeared and not challenged the applicants' claim to be creditors of the company. The applicants are, therefore, entitled to take out this summons. What the learned judge meant when he held that the provisional liquidator alone and not the company could make the application must be understood in the context of the facts of that case which show that the application was made in the name of the defendant company under the instructions of the directors. Once, however, a provisional liquidator is appointed, the directors are not as a rule entitled to exercise their powers as directors of the company. Under section 450, when the court appoints the official liquidator as provisional liquidator, the court may limit and restrict his powers either by the order appointing him or by a subsequent order; but if the court does not do so, the provisional liquidator has the same powers as the liquidator. He thus becomes entitled under section 456 to take under his custody and control all the property, effects and actionable claims to which the company is or appears to be entitle Under clause (a) of section 457(1) he has the right 'to institute or defend any suit, prosecution or other legal proceeding, civil or criminal, in the name and on behalf of the company' and not in his own name. Under clause (i) of the section 457(2) it is he alone who is entitled 'to do all acts and to execute, in the name and on behalf of the company,' and not in his own name.' all deeds, receipts and other documents, and for that purpose to use, when necessary, the company's seal'. It is, therefore, clear that when a company is ordered to be wound up, a legal proceeding by the company can be instituted only by the official liquidator but in the name and on behalf of the company. Similarly, when a provisional liquidator is appointed and his powers in that behalf are not restricted, any legal proceeding can only be instituted by the provisional liquidator but in the name and on behalf of the company. In Dawsons Bank Ltd. v. Nippon Menkwa Kabushaki Kaisha (Japan Cotton Trading Co. Ltd (1935) 5 Comp. Cas. 191, their Lordships of the Privy Council pointed out that the change which liquidation, proceedings bring about in regard to a suit against a company is that in the conduct of its defence the company would, before liquidator. When a company is ordered to be wound up or a provisional liquidator appointed, any legal proceeding by a company, therefore, has to be instituted, by the official liquidator or the provisional liquidator, as the case may be, but in the name and on behalf of the company and the directors will have no right to institute such legal proceeding since the company no more acts through its directors, and when the learned judge held that the only person competent to make the application was the provisional liquidator and not the company, he really meant no more than this. There is, therefore, no substance in the objection taken by the first respondents to the applicants' locus standi to take out the judge's summons.

14. At the outset the applicants have submitted that none of the interesting question with respect to the scope and effect of section 537(1) of the Companies Act raised by the first respondents really arise for determination as the said two orders for attachment before judgment were bad in law and invalid. Two reasons have been advanced in support of this :

(i) that the issue of notice to the company under Order XXXVIII, rule 5(1), was necessary before the said orders of attachments before judgment could be passes, and

(ii) under Order XXXVIII, rule 5(1), the security which can be called for could only be such as would be sufficient to satisfy the decree which may be passed in favour of the first respondents, while in the instant case the security directed to be furnished by the said two orders was for double the amount of the first respondent's claim in suit.

15. In support of the first ground Mr. Mehta has relied upon the decision of the learned single judge of the Lahore High Court in Madan Theatres v. Hari Das A.I.R. 1936 Lah 33, in which it was held that before making an order of attachment before judgment under Order XXXVIII, rule 5(3), it is absolutely necessary that notice must be issued to the defendant under Order XXXVIII, rule 5(1). In that case an application for attachment before judgment was filed supported by an affidavit and straightaway on the said application a warrant supported by an affidavit and straightaway on the said application a warrant for attachment before judgment was ordered to be issued as prayed. No notice at all was directed to be given to the defendant. What was observed in that judgment, therefore, must be understood in the context of the facts of that case and cannot be taken as laying down a broad proposition that when the court orders the issue of a notice to the defendant under Order XXXVIII, rule 5(1), it cannot at the same time direct conditional attachment of the whole or portion of the property of the defendant without in the first instance issuing a notice to the defendant. In fact, Order XXXVIII, rule 5(3), contemplated such an ex parte order of attachment before judgment being made. Order XXXVIII, rule 5(1), provides for the court directing the defendant either to furnish security or to appear and show cause why he should not furnish security. The words 'or to appear and show cause why he should not furnish security' must necessarily mean that the direction given to furnish security must be at or about the time when the application for attachment before judgment is made and before notice is directed to be given to the defendant and before the defendant is heard. Sub-rule (3) of Order XXXVIII, rule 5, provides that the court may also in the order direct the conditional attachment of the whole or any portion of the property specified. The order referred to in this sub-rule is the order directing the defendant to furnish security or to appear and show cause why security should not be furnish security or to appear and show cause why security should not be furnished. This is further borne out by the use of the word 'conditional' in Order XXXVIII, rule 5(3). Under that sub-rule, the order of attachment is conditional, because the attachment ordered to be made would be ordered to be withdrawn under Order XXXVIII, rule 6(2), when either the defendant shows cause or furnishes the required security. It is in the discretion of the court, depending upon the facts of each case, whether at the time of issuing the notice and directing the defendant to furnish security or to appear and show cause why the security should not be furnished, a conditional attachment has been directed, the court will proceed under Order XXXVIII, rule 6(1), and if the defendant fails to show cause or fails to furnish the required security within the specified time, the court may order attachment before judgment. If, however, a conditional order of attachment has been made at the time of issuing the notice to the defendant, at the hearing of the notice the court will proceed under Order XXXVIII, rule 6(2). Thus, Order XXXVIII, rule 5(3), and Order XXXVIII, rule 6(1), contemplate two distinct stages. Under Order XXXVIII, rule 5(3), the order which is made is an ex parte order before issue of notice to the defendant, while under Order XXXVIII, rule 6(1), it is an order made after hearing the defendant, after notice has been served upon him.

16. So far as the second ground urged by Mr. Mehta is concerned, it is undoubtedly true that under each of the said orders of attachments before judgment dated July 3, 1968, the defendant is called upon to furnish security to the extent of Rs. 25,000 and in the meantime the property specified in each of the said orders is directed to be attached. At first sight, therefore, it would appear that in order to raise the attachment directed to be levied under both the said orders, the company would be required to give security in the aggregate sum of Rs. 50,000. If, however, both these orders are read together, such a result does not follow. The said orders do not provide that the attachment will be raised only if the company furnishes the security specified. By the said orders the company is called upon, in the alternative to furnishing security, to appear and show cause why the required security should not be furnished. If, therefore, the company had given security in the sum of Rs. 25,000 and even if there was no other cause why the company should not be directed to furnish security, the very fact that security sufficient to satisfy the plaintiff's claim had already been given, would have been sufficient cause to raise the conditional attachments levied under both the said orders. I, therefore, hold that the said orders are not invalid and the attachments levied thereunder were properly levied.

17. This brings me to the main question before me and one which has been strenuously debated at the Bar, viz., whether the attachment in this case falls within the scope of clause (a) of section 537(1) of the Companies Act. It is the first respondents' case that what is avoided under section 537(1) is an 'attachment, distress or execution put in force' without leave of the court against the estate or effects of the company, after the commencement of the winding-up. In the present case, if the company were ordered to be wound up under section 441(2), the winding-up would be deemed to commence on the presentation of the winding-up petition, viz., on July 9, 1968. In Mr. Advani's submission the attachment before judgment levied by the first respondents was prior to that date and hence not hit by clause (a) of section 537(1) and accordingly the first respondents were entitled to proceed with and complete the attachment or execution put in force by them without obtaining leave of the court; for, according to Mr. Advani, if no leave of the court was necessary even after the company was ordered to be wound up, no purpose could be served by staying further proceedings in execution of the decree obtained by the first respondents pending the hearing of the winding-up petition. While considering the arguments on this part of the case I will omit the word 'distress' when referring to the expression 'attachment, distress or execution put in force' except when necessary for the consideration of the question before me.

18. The question which first falls for consideration is whether an attachment before judgment can be said to be an attachment or execution put in force within the meaning of section 537(1). For this purpose it is necessary to see the relevant provisions of the Code of Civil Procedure, 1908. Part II of Code deals with the general rules relating to execution of decrees, while the detailed rules of procedure are to be found in Order XXI. Part VI, which is headed 'Supplemental Proceedings', deals with the general powers of the court in regard to interlocutory proceedings, while procedural details with respect to are to be found in Orders XXXVIII, XXXIX and XL. Section 94 of the Code confers up on the court the powers to make certain interlocutory orders including the power to grant temporary injunction and attachment before judgment and to appoint a receiver, 'in order to prevent the ends of justice from being defeated'. Under clause (b) of section 94, the court may 'direct the defendant to furnish security to produce any property belonging to him and to place the same at the disposal of the court or order the attachment of any property'. The procedural details relating to the powers conferred by clause (b) are to be found in rules 5 to 13 of Order XXXVIII which deal with attachment before judgment. Under Order XXXVIII, rule 5, the court may, at any stage of the suit, on being satisfied that the defendant, with intent to obstruct or delay the execution of any decree that may be passed against him, is about to dispose of the whole or any part of his property or is about to remove the whole or any part of his property from the local limits of the jurisdiction of the court, direct the defendant within a time to be fixed by the court,

(1) either to furnish security, in such sum as may be specified in the order, to produce and place at the disposal of the court, when required, the said property or the value of the same, or such portion thereof as may be sufficient to satisfy the decree, or

(2) to appear and show cause why he should not furnish security.

19. By the same order the court may also direct the conditional attachment of the whole or any part of the property so specified. Under rule 6 if the defendant fails to show cause why he should not furnish security, or fails to furnish the security required within the time fixed by the court, the court may order the property specified or such portion thereof as appears sufficient to satisfy any decree which may be passed in the suit to be attached. Where the defendant shows such cause or furnishes the required security, and the property specified or any portion of it has been attached conditionally by the court, the court may order the attachment to be withdrawn, or make such other order as it thinks fit. Rule 7 provides that 'save as otherwise expressly provided, the attachment shall be made in the manner provided for the attachment of property in execution of a decree'. Rule 8 provides for investigation of claim to property attached before judgment and provides that such claim should be investigated in the same manner as provided for the investigation of claims to property attached in execution of a decree for the payment of money, i.e., in the manner provided by Order XXI, rule 58 to 63. Order XXXVIII, rule 9, provides that an attachment before judgment is to be ordered by the court to be withdrawn when the defendant furnishes the required security or when the suit is dismissed. Under Order XXI, rule 55, on the other hand, the attachment in execution of a decree is to be removed after the decree is satisfied or is set aside or reversed. Under Order XXXVIII, rule 10, attachment before judgment is not to affect the rights, existing prior to the attachment, of persons not parties to the suit, and does not bar any other decree-holder from applying for the sale of the property under attachment in execution of his decree, and, as I will point out later, if such property were sold, the holder of the attachment before judgment would have no right merely by reason of the attachment before judgment or even on such attachment before judgment being confirmed on the passing of the decree, to claim ratable distribution of the sale proceeds.

20. Now the very phrase 'attachment before judgment' implies that it is not and cannot be the same as an attachment in execution of a decree passed against a defendant on judgment being given. The opening words of section 94 as also rules 5, 6 and 7 of Order XXXVIII show that the object of an attachment before judgment is to prevent a defendant from removing the whole or any part of his property from the court's jurisdiction with intent to obstruct or delay the execution of a decree that may be passed against him and thus depriving a plaintiff of the fruits of his decree in case the plaintiff succeeds in the suit. The purpose of an attachment before judgment is thus to prevent the ends of justice from being defeated. It is not the execution of a decree but to see that as and when the stage of the execution arrives, there is property available against which execution can be enforced. The object underlying Order XXXVIII and that underlying Order XXI are wholly different. In Dattatraya Baliram Naik v. Rambhabai Jairam Patil ( : AIR1962Bom236 ), a Division Bench of this High Court has held that in the case of an attachment before judgment the purpose is to safeguard the plaintiff against the disposal of property and to see that the plaintiff's decree is in a position to be satisfied. It is for this reason that two alternatives are provided for, viz., (1) furnishing of security and (2) attachment of property on failure to furnish security. The essential purpose of Order XXI is to see that the process of the court is not defeated once execution starts. It is for this reason that separate provisions have been made in the Code for attachment before judgment and attachment in execution proceedings. The provisions of Order XXXVIII clearly show that it is a self-contained and a complete provisions by itself and it is only in certain procedural respects that the provisions of Order XXI relating to attachment are made applicable to attachment before judgment.

21. This brings me to the difficult question of what happens to an attachment before judgment when a decree is passed in favour of the plaintiff. The only provision of the Code dealing with this situation is rule 11 of Order XXXVIII which provides that : 'Where property is under attachment by virtue of the provision of this order and a decree is subsequently passed in favour of the plaintiff, it shall not be necessary upon an application for execution of such decree to apply for a re-attachment of the property.'

22. Mr. Advani, learned counsel for the first respondent, has submitted that the combined effect of rules 7 and 11 of Order XXXVIII is that on a decree being passed in favour of the plaintiff, the attachment before judgment becomes an attachment in execution with retrospective effect from the date the attachment was levied or in any event from the date of the decree and therefore the attachment or execution is put in force within the meaning of section 537(1)(a) of the Companies Act from the date the attachment before judgment was levied.

23. Now under Order XXXVIII, rule 11, on a decree being passed in favour of the plaintiff, no order of the court confirming or continuing the attachment before judgment is necessary or required though very often courts make such orders as was done at the time the decree of the City Civil Court was passed in favour of the first respondents. The making of such an order, however, cannot affect the character of an attachment before judgment, for, whether such an order is made or not, under Order XXXVIII, rule 11, when a decree is passed in favour of the plaintiff, the attachment before judgment continues to subsist. The question is whether on a decree being passed in favour of the plaintiff, an attachment before judgment continues to subsist as an attachment in execution, or, in other words, whether on the decree being passed its character changes. It will be convenient first to examine the provisions of Order XXI of the Code before turning to the authorities on the point. Execution is the enforcement of the process of the court of its own decree. The main rules of procedure are enacted in Part II of the Code and the minor rules of procedure are relegated to Order XXI. Section 537(1) specifies the different modes in which a decree can be executed. The relevant provisions of that section are :

'Subject to such conditions and limitations as may be prescribed, the court may, on the application of the decree-holder, order execution of the decree -

(a) by delivery of any property specifically decreed;

(b) by attachment and sale or by sale without attachment of any property;

(c) by arrest and detention in prison;

(d) by appointing a receiver; or

(e) in such other manner as the nature of the relief granted may require.'

24. Thus amongst the modes of the execution specified are (a) attachment and sale of property and (b) sale without attachment of property. But whatever may be the mode of execution, the court will order execution of the decree only on the application of the decree-holder. Thus an application for execution by a decree-holder is a sine qua non for setting into motion the process of the court by which a court's decree is executed. Order XXI, rule 10, provides for an application for execution to be made to the court which passed the decree or to the court to which the decree is transferred for execution or to the officer of the court appointed in that behalf. Order XXI, rule 11(2), provides that an application for execution of a decree is to be in writing signed and verifies, and prescribes the particulars to be set out therein. Amongst the particulars required to be specified are the date of the decree, whether any appeal has been preferred from the decree, whether any, and, if so, what payment or other adjustment of the matter in controversy has been made between the parties subsequent to the decree and what previous applications for execution of the decree have been made and their results as also in which of the modes specified in section 51 the assistance of the court is required. Under rule 146 of the Rules of the Bombay City Civil Court, 1948, all applications for execution of decrees or orders are to be made to the Registrar of that court and the transmission of decrees and the issue of all necessary warrants and notices are to be made by him. Rule 154 requires every application for execution to be in Form No. 38 and to contain in addition to the particulars mentioned in Order XXI, rule 11(2), also the date and nature of any writ issued before or after the judgment. Under rule 166 when a warrant for sale is not taken out within a year from the date of the warrant of attachment or where an attachment in execution has not been fully executed within a year from the date thereof, a fresh application must be made for such further execution as may be necessary and if no such fresh application is made to the Registrar, the Registrar after giving notice to the judgment-creditor and after hearing his objections, if any, on the application of any party interested in the property subject to attachment, may make an order that the attachment has ceased and on such order being made, the attachment is to be deemed to have been raised.

25. From these different provisions which apply to an attachment before judgment and an attachment in execution, it follows that an attachment before judgment does not stand on the same footing as an attachment in execution nor does it become an attachment in execution on a decree being passed in favour of the plaintiff. Before execution is set in motion, an application for execution has to be made by the decree-holder. If the property against which execution is sought has been attached before judgment the benefit of that attachment will, however, become available to the decree-holder and he can, without re-attaching the property, file an application in execution to have the property sold. Similarly, if the attachment before judgment has been levied on any property of the judgment-debtor not in his possession by the issues of a prohibitory order, the decree-holder can, without applying for a fresh prohibitory order, apply for issue of a garnishee notice. The decree-holder, however, will not be able to realise the fruits of his decree, whether an attachment before judgment has been obtained or not, unless and until he makes an application in execution. If the attached property has been sold or brought into court, the decree-holder, who had obtained an attachment before judgment, will not be entitled to ratable distribution under section 73 of the Code unless and until, before the receipt of such assets, he has made an application for execution of his decree passed against the same judgment-debtor.

26. I will now turn to the authorities. In Pallonji Shapurji Mistry v. Edward Vaughan Jordan I.L.R. (1888) 12 Bom. 400, the question which fell for the court's determination was whether the holder of an attachment before judgment, who had obtained a decree in his favour subsequently, was entitled to rank as an applicant in execution against the property attached so as to become entitled to ratable distribution without applying for execution. The provisions for ratable distribution under the old Code were to be found in section 295 and were materially the same as those in section 73 of the present Code. The provision corresponding to the present Order XXXVIII, rule 11, was section 490 which provided that where property is under attachment by virtue of the provisions of this Chapter, and a decree is given in favour of the plaintiff, it shall not be necessary to re-attach the property in execution of such decree. The argument by the decree-holders who had obtained an attachment before judgment was that by reason of the provisions of section 490, no application for attachment was necessary as on the passing of the decree the attachment before judgment became an attachment in execution. After examining the provisions of the old Code relating to execution, Scott J. held that the effect of section 490 was that the attachment before judgment enures and became an attachment in execution. Scott J. further came to the conclusion, though somewhat reluctantly as he said, that an application for execution was necessary before section 395 could include the case, under section 490, of the holder of an attachment before judgment. Scott J. further observed 'until he has made his application he only holds security, which may be destroyed by the interposition, after decree has been given, of a jus tertii'. In an identical situation which arose after the present Code came into force, a Division Bench of the Madras High Court reached the same conclusion as Scott J. in A. L. A. R. Arunachellam Chettiar v. P. S. K. Haji Sheik Meera Rowthar I.L.R. (1911) 34 Mad. 25. The court observed that Order XXXVIII, rule 11, of the new Code amplified the language of the old section 490 and rendered manifest the intention of the Legislature even under the old Code as regards the necessity for an application for execution even though the property had been attached before judgment. The same view was taken by the Rangoon High Court in R. N. Panday v. Mohamed Kassim Khan (1938) Rang. L.R. 565. The question whether an attachment before judgment should be deemed to be an attachment in execution once a decree was passed came up in different circumstances for consideration before a Full Bench of the Madras High Court in Arunachalam Chetty v. Periasami Servai I.L.R. (1921) 44 Mad. 902. In that case the plaintiffs had obtained an attachment before judgment and in execution of the decree passed in their favour they endeavoured to bring the attached property to sale. A claim to the attached properties was made, which was allowed. The plaintiffs thereupon filed a suit for a declaration that they were entitled to attach the properties and bring them to sale in execution of the decree. The question referred to the Full Bench was whether the suit was governed by article 11 or 13 or 120 of the old Limitation Act of 1908. The full Bench held that article 11 governed the suit. Wallis C.J., with whom Oldfield, Kumaraswami Sastri and Ramesam JJ. agreed, held that under Order XXXVIII, rule 11, property attached before judgment did not become property attached in execution of a decree upon the mere passing of a decree, for execution may never be applied for, but it merely enabled the decree-holder to apply for execution by sale of the attached property without a fresh attachment where, however, there was an order in execution for the sale of the attached property, the property was to be considered as attached in execution by virtue of Order XXXVIII, rule 11, and a claim put in after such an order might properly be regarded a claim to property attached in execution of a decree within the meaning of article 11. Spencer J., who gave a separate but concurring judgment, held that once a decree was passed and an attempt made to execute it, what was an attachment before judgment became in effect an attachment in execution of a decree by reason of Order XXXVIII, rule 11, and as attachment is the first step in the execution of all decrees against property, just as sale or delivery of property is the last step, the effect of Order XXXVIII, rule 11, was that execution is made to date back to the first attachment which was before judgment. The question again came up for consideration before another Full Bench of the Madras High Court in Meyyappa Chettiar v. Chidambaram Chettiar (1924) I.L.R. 47 Mad. 483. The question referred to the Full Bench was whether Order XXI, rule 57, applies to property attached before judgment, when there has been a decree followed by an execution petition for the purpose of bringing the attached property to sale. Under Order XXI, rule 57, where a property has been attached in execution of a decree but by reason of the decree-holder's default the court is unable to proceed further with the application for execution, it may either dismiss the application or for sufficient reason adjourn the proceedings to a future date and if it dismisses the application, the attachment ceases. If, therefore, Order XXI, rule 57, applied to the case of property attached before judgment, then upon the dismissal under Order XXI, rule 57, of an application for sale in execution of the attached property, the attachment would cease. The majority held that when a decree-holder files an application for execution asking for sale of the attached property, the attachment before judgment automatically becomes an attachment in execution. Schwabe C.J., who along with Wallace J. differed from the majority, was of the view that there was nothing in the Code to justify the view that property which had been attached before judgment became property attached in execution and ceased to be property attached before judgment once proceedings were taken to bring that property to sale in execution. According to the minority view, Order XXXVIII, rule 11, provided no more than that when once a property had been attached before judgment, there need be no attachment in execution for the purpose of selling the property as the court by reason of the attachment before judgment had got control over the property and could proceed with the sale. In Kuppuswami v. Rangai Goundan : AIR1962Mad383 , though the earlier decisions of the Madras High Court were not referred to, a learned single judge held that Order 38, rule 11, in effect equated an attachment before judgment to an attachment made in execution of a decree and accordingly under Order XXI, rule 57, the court was competent to make an order with regard to such an attachment when it made an order in relation to the execution application. A view contrary to that of the Madras High Court was taken in Moti Jha v. Jowala Prasad Marwari I.L.R. (1937) 16 Pat. 589; A.I.R. 1937 Pat. 626, Bohra Akey Ram v. Basant Lal, I.L.R. (1924) 46 All. 894; A.I.R. 1924 All. 860, Abdul Hamid v. Mussammat Asghari Begum : AIR1953All173 (F.B.)), Ayezali Mir v. Mahanandabarui A.I.R. 1949 Cal. 320, and Shibnath Singh Ray v. Sheikh Saberuddin ( : AIR1929Cal465 ).

27. So far as this High Court is concerned, in two cases under the present Code, viz., Ardeshir Nusserwanji Dossabhoy v. Usman Gani Memon : (1929)31BOMLR1101 ), and Hari Sabaji Kamat v. Shrinivas Vithal Pal ( : (1931)33BOMLR1130 ), the majority view in the Full Bench case of Meyyappa Chettiar v. Chidambaram Chettiar (1924) I.L.R. 47 Mad. 483, was adopted. The first was the decision of Madgavkar J., sitting singly, while the second was the decision of a Division Bench. The same question, viz., whether Order 21, rule 57, applied to an attachment before judgment came up for consideration before another Division Bench of this High Court in Dattatraya Baliram Naik v. Rambhabai Jairam Patil ( : AIR1962Bom236 ) and the Division Bench, after considering the earlier authorities, held that Order XXI, rule 57, did not come into operation in the case of an attachment before judgment and an attachment before judgment was, therefore, not vacated merely because the application by the decree-holder for the execution of the decree was dismissed owing to some default made by him. The court pointed out that in cases where an attachment before judgment had been made it constituted an exception to the ordinary rule that attachment was necessary for effecting the sale in execution. The Division Bench Preferred the construction placed by the learned judges in the minority view in Meyyappa Chettiar v. Chidambaram Chettiar (1924) I.L.R. 47 Mad. 483. On the ground that the construction adopted by the majority was a forced construction. The court further held that the observation of the Division Bench in Hari v. Shriniwas ( : (1931)33BOMLR1130 ) adopting the majority views in the Full Bench case of Meyyappa Chettiar v. Chidambaram Chettiar I.L.R. (1924) 47 Mad. 483, must be regarded as obiter as in that case the point did not actually arise for the court's determination.

28. Even apart from the Division Bench ruling in Dattatraya Baliram Naik v. Rambhabai Jairam Patil : AIR1962Bom236 , which is binding on me, I fail to see how the Madras view supports the first respondents' contention, for even according to that view, an attachment before judgment becomes an attachment in execution only when an execution application is filed. In the present case, no application has yet been filed for execution of the decree passed in favour of the first respondents.

29. In my opinion the expression 'attachment, distress or execution put in force' does not include an attachment before judgment. The object underlying section 537(1) is to prevent the property of the company being taken away by a creditor without leave of the court once a winding-up petition has been filed. Section 537(1) thus ensures that an executing creditors does not get priority over other creditors, This is made amply clear by the use of the words 'distress or execution' in juxtaposition with the word 'attachment' as also by the second sub-section which exempts proceedings by the Government for recovery of any tax or impost or any dues payable to it. This shows that the word 'attachment' in clause (a) of section 537(1) means an attachment the purposes of which is to realise the decretal claim, i.e., an attachment in execution, and does not include an attachment before judgment, for the object of an attachment before judgment, as pointed out earlier, is different from the object of an attachment in execution. In the present case the attachment before judgment having been already levied before the winding-up petition was filed, there is no question of the property being attached again in execution for the purpose of executing the decree. Accordingly, the question of any attachment within the meaning of clause (a) of section 537(1) being put in force against the property of the company does not and will not arise in this case. In view of some doubt that prevails as to when an attachment, distress or execution can be said to be put in force, as I will point out later, I do not propose to decide at what precise stage hereafter the execution will be put in force as it is not necessary for the purposes of the present application to do so, but at whatever state it is put in force, it will be after the commencement of the winding up and hence would be void unless leave of the court dealing with the winding-up petition is obtained.

30. I may at this stage deal with another contention of the applicants, viz., that if the company were ordered to be wound up, the attachment before judgment would become void on the date when the decree was passed, because it would be then an attachment or execution put in force without leave of the court. I have already held that on the decree being passed, the attachment before judgment does not become an attachment in execution and, accordingly, this contention of the applicants must be negatived.

31. Even if an attachment before judgment become an attachment in execution on the passing of the decree, it is doubtful if such an attachment would be hit by clause (a) of section 537(1), for it would then have become an attachment in execution by operation of law and not by an act of the decree-holder. An attachment 'put in force' must mean an attachment put in force by an act of the party by making the necessary application to the executing court and not an attachment coming into existence by operation of law. It is also difficult to contemplate how the plaintiff could apply to the company judge for leave to levy such an attachment when he cannot even be sure whether the decree which would operate to convert the attachment before judgment into an attachment in execution would be passed in his favour.

32. I will now consider the case on the alternative footing that the attachment levied on the company's property falls within the scope of the expression 'attachment, distress or execution put in force'. Even then any sale of any of the properties or effects of the company held in pursuance of such attachment after the dated of the filing of the winding up petition would be void, under clause (b) of section 537(1), as it would be a sale held without the leave of the court after the commencement of the winding up. Mr. Advani has, however, contended that this will only apply to sale of the movable properties in the possession of the company which have been attached and not to the moneys in the account of the company with the Bank of America and the first respondents are, therefore, entitled to issue a garnishee notice and obtain a garnishee order against the Bank of America without leave of the court even if the company were ordered to be wound up. In support of this contention Mr. Advani has relied upon the construction placed upon the corresponding section 232 of the old Indian Companies Act, 1913, prior to its amendment by the Indian Companies (Amendment) Act, 1936, by the Allahabad High Court in Kayasth Trading and Banking Corporation v. Sat Narain Singh A.I.R. 1921 All. 149. The old section 232 provided as follows :

'(1) Avoidance of certain attachments, executions, etc. - Where any company is being wound up by or subject to the supervision of the court, any attachment, distress of execution put in force without leave of the court against the estate or effects or any sale held without leave of the court of any of the properties of the company after the commencement of the winding up shall be void.

(2) Nothing in this section applies to proceedings by the Government.'

33. As originally enacted, section 232 did not contain the words' or any sale held without leave of the court of any of the properties'. In Kayasth Trading and Banking Corporation's case A.I.R. 1921 All. 149 the facts were that, long prior to the presentation of the winding up petition against the company, certain property belonging to the company was attached in execution of a decree. The property was repeatedly put up for sale. It was last put up for sale on the very day on which the winding-up proceedings were initiated. On that day too there were no bidders prepared to offer up to the reserved price and the court passed an order allowing fourteen day's time to the decree-holder to make any further application. Before the expiry of that period, an offer for purchase of the property was received from the special manager of the court of wards and after fixing another date for the auction sale, at which sale no other bids were received, the sale was concluded in favour of the special manager against the objections of the company. An appeal was filed against the decision confirming the sale. Piggott and Walsh JJ., who delivered separate but concurring judgments, upheld the sale. The relevant passage in the judgment of Piggott., upon which Mr. Advani has placed considerable reliance, is as follows :

'The expression which we have quoted (namely' attachment distress or execution put in force') is taken bodily from the English law and is not altogether reconcilable with the rules of our Code of Civil Procedure on the subject of execution of decrees. We take note of the fact that in the Companies Act itself provision is made for two distinct contingencies. The court to which the winding up petition is presented can, if it sees fit to do so, pass an order the effect of which would be to suspend all proceedings, including execution proceedings, against the company's assets for the period between the presentation of the petition and the passing of the winding up order. Secondly, on the passing of the winding up order, all proceedings, including proceedings in execution, are automatically suspended unless the leave of the court be obtained. In the present instance no interim order was passed by the court in charge of the winding-up, and we may say that on looking into the matter we think it very unlikely that any such order would have been passed if it had been asked for. Looking at the scheme of the Companies Act as a whole, and also at the English authorities in which the expression with which we are concerned has been interpreted, we have no doubt that the words 'any attachment, distraint or execution put in force' must be considered as a whole, and that in this particular case the execution with which we are concerned had been 'put in force' within the meaning of this section long prior to the 26th of February, 1920. It was in fact put in force for the purposes of this section when this particular property was attached.'

34. I have been referred to only one English authority which has placed this construction on the expression 'attachment, distress or execution put in force', namely, Ex parte Parry : In re Great Ship Company Ltd (1863) 33 L.J. Ch, 245. In that case a creditor of an unregistered company sued for his debt and after long hostile litigation obtained judgment and issued a writ of fieri facias which was duly executed by the Sheriff by seizure. Thereafter a petition was presented for winding up the company and an ex parte order was made to restrain the sale by the Sheriff of the property seized. On appeal, it was held that this was not a case where a stay ought to be granted seeing that the creditor had obtained his judgment after great opposition, execution issued upon that judgment, property seized under the execution, and nothing to stop it, except the power given to the court under the Companies Act 1862. Knight Bruce L.J. did not express himself upon the point but according to Turner L.J., as the winding up petition was presented some days after the seizure by the Sheriff, execution had been put in force before the petition was presented. There is, however, no discussion on the meaning of the expression 'attachment, execution or distress put in force'. I take it that there are other English authorities to this effect, but in considering how far English authorities on the subject can apply, the different modes of execution which prevail in England and in India ought not to be lost sight of. It should also be borne in mind that in the Allahabad case the sale was ordered and property repeatedly put up for sale before the winding up petition was filed and it was, therefore, not necessary for the court to go back to the date of attachment to decide that execution was put in force when the property was attached. The most ordinary form of execution in England is by writ of fieri facias which commands the Sheriff to 'cause to be made' out of the goods and chattels of the judgment-debtor the sum recovered by the judgment together with interest and immediately after the execution of the writ to bring the money and interest before the court to be paid to the judgment-creditor. Under a writ of fieri facias the Sheriff may seize and sell all the personal goods and chattels belonging to the judgment-debtor which he can find and which can be sold, with certain exception. No fresh order for sale or a fresh warrant addressed to the Sheriff is necessary for holding the sale. Once the goods are seized by the Sheriff, he proceeds to sell the same. Under Order XXI, rule 64 however, before property attached under a decree can be sold, an order of the court directing sale is necessary and a fresh warrant of sale is required to be issued. In In the matter of Rajhari Ice Factory Ltd. (1937) 41 C.W.N. 597, a case of voluntary winding up, it was held by the Calcutta High Court that as distinction must be drawn between a seizure under the English writ of fieri facias and an attachment under the Indian law.

35. In view of the judgment of the Allahabad High Court, when the Indian Companies Act, 1913, came to be amended by the Indian Companies (Amendment) Act, 1936, opportunity was availed of to amend section 232 also so as to make any sale of any of the properties of the company after the commencement of the winding up void unless leave of the court was obtained. Mr. Advani has submitted that by this amendment the legislature introduced an altogether new provision and not that it did accept as correct the decision of the Allahabad High Court. This argument does not appear to be correct. Clause 85 of the statement of objects and reasons states that section 232 had been construed as not covering sale held after the winding up and that the amendment was designed to forbid such sale (see Gazette of India, 1936, Part II, page 98). In M. K. Ranganathan v. Government of Madras : [1955]2SCR374 , Bhagwati J. pointed out that in Baldeo Narain Singh v. United India Bank Ltd. A.I.R. 1916 Pat. 47, a contrary decision was reached by the Patna High Court in circumstances exactly similar to those before the Allahabad High Court and that this conflict was resolved and the decision of the Allahabad High Court got over by amending section 232. This, on the contrary, shows that the legislature did not act with the intention of introducing a new provision in the Companies Act, but, as the legislature preferred and approved the Patna view, it wanted the law to be brought in line with it so as to make express its original intention in enacting section 232.

36. The exact scope and effect of section 537 of the Companies Act, 1956, can only be judged by bearing in mind that just as section 169, 171 and 232 of the old Companies Act, 1913, were supplementary to one another, so under the Companies Act, 1956, sections 442, 446 and 537 of the present Act are supplementary to one another. The scheme underlying this group of sections is a part of the general scheme of administration of the assets of a company in liquidation laid down by the Companies Act. This scheme is that all creditors, other than secured creditors who choose to stay outside the winding up, must rank pari passu and that in any action they may choose to take against the property of the company, they must be subject to the control of the court. The position under the old Companies Act was thus stated by the Federal Court in Governor-General in Council v. Shiromani Sugar Mills Ltd. (In Liquidation). ( ).

'Section 171 must, in our judgment, be construed with reference to other section of the Act and the general scheme of administration of the assets of a company in liquidation laid down by the Act. In particular, we would refer to section 232. Section 232 appears to us to be supplementary to section 171 by providing that any creditor (other than Government) who goes ahead, notwithstanding a winding-up order or in ignorance of it, with any attachment, distress, execution or sale, without the previous leave of the court, will fine that such steps are void. The reference to 'distress' indicates that leave of the court is required for more than the initiation of original proceedings in the nature of a suit in an ordinary court of law. Moreover, the scheme of the application of the company's property in the pari passu satisfaction of its liabilities, envisaged in section 211 and other section of the Act, cannot be made to work in co-ordination, unless all creditors except such secured creditors as are 'outside the winding up' in the sense indicated by Lord Wrenbury in his speech in Food Controller v. Cork (1923) A.C. 647 are subject as to their actions against the property of the company to the control of the court. Accordingly, in our judgment, no narrow construction should be placed upon the words 'or the legal proceedings' in section 171. In our judgment, the words can and should be held to cover distress and execution proceedings in the ordinary courts. In our view, such proceedings are other legal proceeding against the company, as contrasted with ordinary suits against the company'.

37. The position under the Companies Act, 1956, is the same. Under the 1956 Act, section 446 requires leave of the court for commencing a suit or other legal proceeding including an execution proceeding when a winding-up order has been made or provisional liquidator appointed or for proceeding with any suit or other legal proceeding including execution proceedings against the company pending at the date of the winding-up order. Section 537 lays down the consequences of adopting certain specified proceedings against the property or effects of the company without leave of the court after the commencement of the winding up and in terms makes such proceedings void. From this, however, the converse that if a proceeding had started prior to the commencement of the winding up, it can continue without leave of the court does not follow. The consequence of non-compliance with section 446 is not to be found only in section 537. While section 446 deals generally with all suits and proceedings, section 537 deals with certain specified types of proceedings only. Accordingly, if the execution proceedings were pending at the date of the winding-up order, by reason of the express provisions of section 446, the first respondents would not be able to proceed with them unless they obtained leave of the court.

38. In B. V. John v. Coir Yarn and Textiles Ltd. (1960) 30 Comp. Cas. 162, the Kerala High Court rejected the argument that the consequences of not obtaining leave under section 446 were to be found only in section 537(1) and, consequently, a proceeding which did not come within the mischief of section 537(1) was good notwithstanding that it was in transgression of section 446. The court held that section 537 was supplementary to section 446, the two covering different though, to some extent, overlapping grounds and, therefore, a suit or other legal proceeding commenced or proceeded with without leave of the court in violation of section 446 was void. In Nazir Ahmed v. People Bank of Northern India Ltd. (In Liquidation) (2) (1943) 13 Comp. Cas. 1; A.I.R. 1942 Lah. 289 a full Bench of the Lahore High Court held that a suit instituted against a company in liquidation without leave should not be dismissed on that ground alone, but an application should be made to stay or restrain the proceedings and if thereafter leave was applied for, the court may or may not grant leave depending upon the circumstances of the case, but if leave were granted, the proceedings would not be a nullity. In In the matter of Allahabad Trading and Banking Corporation Ltd. ( : AIR1928All165 ) it was held that where a decree obtained in a suit against a company continued without leave of the court, the decree was not binding on the liquidator being in contravention of section 171 of the old Companies Act. In Ashutosh Sikdar v. Behari Lal Kirtania I.L.R. (1908) Cal. 61; (1907) 6 C.L.J. 320, Nabin Kishore v. Chowdhrani Jagneswar Sanyal ( : AIR1933Cal809 ), Baldeo Narain v. United Bank Ltd. A.I.R. 1916 Pat. 47 and Sri Nilkantha Narain Singh v. Probhat Kumar Lala, a sale held in contravention of section 171 of the old Companies Act, 1913, corresponding to section 446 of the Companies Act, 1956, was held to be voidable at the instance of the liquidator. The facts in the last mentioned case were that prior to the amendment of section 232 by Act 22 of 1936, the sale of a company's property had taken place after the winding-up order in pursuance of an attachment effected before the commencement of the winding up. It was submitted that, even apart from the provisions of section 171, under the provisions of the unamended section 232 the sale was void. Negativing this contention the court held that the have required under section 232 was to be sought only when execution came to be enforced against the estate or effects of the company, viz., at the time of attachment, and that what was prohibited by that section was the process of attachment against the estate or effects of the company without leave of that court. If, therefore, the execution had already been put in force against the estate or effects of the company, when no leave of the court was necessary as contemplated under section 232, then that execution was free to proceed to its logical conclusion without being hit by that section notwithstanding the fact that thereafter there was actually a commencement of the winding up. The court derived support for the conclusion it had reached from the amendment made in section 232 in 1936. The following passage in the judgment in that case has been relied upon by Mr. Advani :

'Otherwise on rational ground it would be difficult to support the view that in the same execution which has been put in force after the commencement of the winding up leave of the court should be sought twice, first, at the stage when the attachment is effected and then again in the same proceeding at the stage when the sale of the property attached is held. And if the new sub-clause 'or any sale held without leave of the court of any of the properties' is to refer to the case of a sale where the execution proceeding had already been put in force before the leave of the court was necessary then it necessarily follows that this is a new provision made therein by the Act of 1936 and was originally not present in the section. The contention of the learned Advocate-General, however, is that this amendment of the year 1936 was made only by way of clarification of the old section and not with a view to add anything new therein. In other words, according to him, sale was already from the very inception of the parent section included in the phrase 'execution put in force against the estate or effects of the company'. If it were so then the new amendment should not have provided any independent leave of court for the sale also.'

39. With respect to the learned judges of the Patna High Court who decided that case, I am unable to see any irrationality as envisaged by them. If the attachment was effected before the commencement of the winding up, leave would only be necessary for putting the property to sale or for taking any further step in execution. In a case where execution is sought to be commenced after the commencement of the winding up, it is not necessary that leave of the court should be sought twice, first at the stage when the attachment is effected and then again in the same proceeding at the stage when the sale of the property attached is to be held, because in such a case the leave which would be asked for would be leave to attach and to sell the property. Since it is for the court to grant leave either unconditionally or subject to such terms as it may impose, the court, if inclined to grant leave both to attach and sell the property, may do so or it may grant leave in the first instance only to attach the property and require that at the stage when the sale is to be held, fresh leave of the court should be asked for. The same would apply to other modes of execution. Thus there would not be any irrationality or illogicality in holding that for completing execution on a property attached before the commencement of the winding up, leave of the court is required to sell or take other steps in execution against the attached property after the winding up has commenced. The attention of the learned judges of the Patna High Court does not appear to have been drawn to the judgment of the Supreme Court in M. K. Ranganathan v. Government of Madras : [1955]2SCR374 , where the circumstances which led to section 232 being amended, and the evil which was sought to be remedied thereby were pointed out, viz., to get over the judgment of the Allahabad High Court and the complications that followed as a result thereof. That is a quite different thing from the legislature accepting that judgment as correctly interpreting the unamended section 232. But even according to the Patna decision, a sale held after the commencement of the winding up of property of the company attached before the commencement of the winding up, though not void under the unamended section 232, would still have been voidable at the instance of the liquidator under section 171.

40. Mr. Advani has also relied upon a judgment of a Division, Bench of the Calcutta High Court in Amrit Lal Kundu v. Anukul Chandra Das (1916) I.L.R. 43 Cal. 586. In that case the company's properties were attached and were about to be put to sale when the shareholders passed a resolution for voluntary winding up, appointing the petitioner sole liquidator. The liquidator thereupon sought to stay the sale proceedings and to release the movables from attachment and custody of the court. At the hearing the liquidator failed to produce the Registrar's certificate of liquidation and the court held that, in the circumstances, it would be unjust to stay the sale. The sale was held and the proceeds came into court. Thereupon the liquidator obtained a rule from the High Court in its revisional powers under section 25 of the provincial Small Causes Courts Act, 1887. The court expressed a doubt as to its jurisdiction but held that, since the sale-proceeds came into court before any application was made to the High Court to pass an order in favour of the liquidator, the distribution of the proceeds in court must be governed by the provisions of the Civil Procedure Code. The court further pointed out that the liquidator's argument seemed to them to be based upon the idea that the property of the company vested in the liquidator, which was erroneous. I fail to see what relevance this case has on the question which falls for determination by me.

41. In view of the position discussed above, even if leave were not required under section 537(1), the first respondents would be required to obtain leave under section 446 for taking any fresh step or making any application in execution. I am not required today to decide whether not obtaining leave under section 466 would result in making such proceeding void or only voidable at the instance of the liquidator and I, therefore, refrain from expressing any opinion thereon.

42. The above discussion on the construction of clause (a) of section 537(1) would have been to a large extent academic but for the first respondent's submission that by reason of the amendment of section 232 of the old Companies Act and the re-enactment of the provisions of the amended section 232 in section 537 of the Companies Act, 1956, only the position with respect to sale following upon attachment has been altered, but all other modes of execution remain unaffected and the first respondents are, therefore, free to proceed against the moneys lying in the company's account with the Bank of America, which have been attached, by issuing a garnishee notice against the bank without leave of the court. It is also the proceeding against the company but against the garnishee, i.e., the bank, and, therefore, since leave is required only for taking a proceeding against the company, no leave would be required for adopting garnishee proceedings against the bank. Neither of these contentions can be accepted. Execution is either against the person or the property of the judgment-debtor. The moneys in the company's bank account have been attached because they are moneys belonging to the company, and it is because they are moneys belonging to the company that the bank will be called upon by a garnishee notice to deposit them in court in satisfaction if the decree obtained by the first respondents against the company. If these were moneys belonging to the bank, the first respondents would have no right to proceed against them in execution of a decree obtained against the company. Garnishee proceedings are also proceedings in execution against the property of the judgment-debtor (see Anglo-Baltic and Mediterranean Bank v. Barber and Co. [1924] 2 K.B. 410 According to Mr. Advani, learned counsel for the first respondents, the position originally prevailing has been changed by the insertion of rules 46A to 46G in Order XXI, with effect from November 1, 1966, by the High Court in exercise of the powers conferred upon it by section 122 of the Code of Civil Procedure. The provision in the Code for attachment of a debt due to the judgment-debtor is to be found in Order XXI, rule 46, and is by issue of an order prohibiting the judgment-debtor from recovering the debt and the garnishee from making payment thereof until further order of the court. The garnishee so prohibited from paying the debt is permitted by sub-rule (3) of rule 46 to pay the amount of his debt into court and such payment discharges the garnishee as effectually as payment to the party entitled to receive the same. In the case of a debt due by the garnishee to the judgment-debtor, the prohibitory order is made both upon the judgment-debtor and upon the garnishee. The relevant provisions of the new rule 46A are as follows :

'46A. Garnishee notice. - (1) The court may in case of a debt other than a debt secured by a mortgage or a charge or by a negotiable instrument, which has been attached under rule 46 or 51 of this Order, upon the application of the attaching creditor, issue notice to the garnishee liable to pay such debt due from him to the judgment-debtor or so much thereof an may be sufficient to satisfy the decree and costs of execution, or to appear and show cause why he should not do so.

(2) Such application shall be made on affidavit verifying the facts alleged and stating that in the belief of the deponent the garnishee is indebted to the judgment-debtor.'

43. From the provisions of rule 46A it is clear that before any garnishee notice can issue there has to be an application for that purpose by the judgment-creditor supported by an affidavit. It is only when such an application is made that garnishee proceedings can commence. This is not just the continuance of the prohibitory order under Order XXI, rule 46, but the commencement of a legal proceeding, though before an application for the issue of a garnishee notice can be made, the debt must first be attached under Order XXI, rule 46, Rule 46B provides as follows :

'46B. Consequences of default in appearance of the garnishee. - Where the garnishee does not forthwith pay into court the amount due from him to the judgment-debtor or so much thereof as is sufficient to satisfy the decree and the costs of the execution or does not appear and show cause in answer to the notice, the court may order the garnishee to comply with the terms of such notice, and on such order execution may issue as though such order were a decree against him.'

44. Rules 46C to 46E deal with a case where a garnishee disputes his liability or it appears to the court that the debt belongs to some third or that any third person has a lien or charge or any other interest over such debt and for the determination of the question that would then arise. Rules 46F, 46G and 46H are as follows :

'46F. Payment by garnishee under orders of court to be valid discharge to the garnishee. - Payment made by the garnishee on a notice under rule 46A against the judgment-debtor or any other person ordered to appear as aforesaid for the amount paid or levied, although such judgment may be set aside or reversed.

46G. Costs. - The costs of any application made under rule 46A and of any proceeding arising therefrom or incidental thereto shall be in the discretion of the court.

46H. Appeal. - An order made under rule 46B, 46C or 46E shall be appealable as a decree.'

45. Rule 46G would also show that garnishee proceedings are proceedings in execution initiated by an application, an order on which is made separately appealable by rule 46H. Since the moneys in the company's bank account have already been attached before judgment by a prohibitory order by reason of the provisions of Order XXXVIII, rule II, no fresh prohibitory order under Order XXI, rule 46, would be necessary but a fresh application under Order XXI, rule 46A, by the first respondents would be required before garnishee proceedings can be initiated by them. If so, leave of the court will be required for the initiation of such proceedings both under sections 446 and 537(1)(a) and any such proceedings initiated without leave of the court would be void under section 537(1)(a). Rule 175 of the Rules of the Bombay City Civil Court provides that the Registrar of that court may, in the case of any debt (not secured by a negotiable instrument) or any movable property not in possession of the judgment-debtor or any negotiable instrument which has been attached under XXI, rules 46, 51 or 52, issue a notice to the garnishee calling upon him to appear and show cause why he should not pay or deliver into court the debt due from or the property deliverable by him to the judgment-debtor or so much thereof as may be sufficient to satisfy the decree and the cost of execution. Relying upon this rule, Mr. Advani has argued that, at least so far as the Bombay City Civil Court is concerned, no application is required to be made to the Registrar for the issue of a garnishee notice and, therefore, the issue of a garnishee notice by the Registrar would not amount to commencing a legal proceeding. There is no substance in this argument. I fail to see how the Registrar can issue a garnishee notice without being moved to do so by the decree-holder. Under rule 146 of the Rules of the Bombay City Civil Court Rule all applications for execution are to be made to the Registrar who has thereupon to issue the necessary warrants and notices. The garnishee notice is to be issued in Forms 53, 54 or 55 of the Forms set out in the Rules of the Bombay City Civil Court Rules as may be applicable. Each of these forms also refers to an application for execution having been made.

46. Mr. Advani has also relied upon the decision of the Kerala High Court in Lukka Varghese v. Devasia Varkey : AIR1965Ker47 in support of his submission that garnishee proceedings against the Bank of America would be proceedings only against the garnishee and not against the company. That decision lays down no such proposition as canvassed by Mr. Advani. In the Civil Procedure Code as applicable in the State of Kerala rules 46A to 46-1 have been inserted in Order XXI. These Rules are similar to rules 46A to 46H inserted in Order XXI by our High Court. In the case before the Kerala High Court a garnishee notice was issued and was made absolute and an order was made under Order XXI, rule 46B, against the garnishee to deposit the amount in court and a warrant was directed to issue to the garnishee. A petition to wind up the judgment-debtor company was presented. After the presentation of the petition, the garnishee made an application for the judgment-debtor bank was ordered to be would up. Thereupon the garnishee applied for stay of proceedings under section 446. The court expressed great doubt as to whether the garnishee had any locus standi to apply under section 446. The court held on the merits that under Order XX1, rule 46B, once a garnishee order was made against a garnishee, it became in effect a decree against the garnishee on which execution may issue against him and any proceeding in execution of such a decree cannot be construed as a proceeding against the company and was, therefore, not within the prohibition of section 446.

47. Far from in any manner supporting the first respondents' case, this decision completely negatives the various contentions raised by them. Under this decision until a garnishee notice is issued and on such notice a final order made against the garnishee to pay the amount of the debt in court, the proceedings would be said to be also against the company and not only against the garnishee.

48. The other argument of Mr. Advani is that as under the Company Act. The property of a company does not vest in the official liquidator or the provisional liquidator since he is only it custodian, by reason of the attachment levied on the company's property that property has ceased to be the property in possession of the company and the provisional liquidator is not entitled to take the attached property in his custody and, accordingly, the execution proceedings would not be against the property or effects of the company but the case of moneys lying in the bank account would be against the garnishee and in the case of movable which have been attached under Order XXXVIII, rule 5, and Order XXI, rule 43, against the property in the Sheriff's custody. I fail to see any warrant there is in law for this argument. This argument stands negatived by the express provisions of section 456 under which the liquidator or the provisional liquidator, as the case may be, is to take into his custody or under his control all the property, effects and actionable claims to which the company is or appears to be entitled. The fact that the property may not be in the company's possession is irrelevant. If it is property or actionable claim to which the company is or appears to be entitled, the provisional liquidator is entitled to take it in his custody or under his control. In this connection Mr. Advani has relied upon Fatechand Tarachand v. Parashram Maghanmal : AIR1953Bom101 , a case under the Presidency Towns Insolvency Act, 1909. In that case in execution of a decree by attachment and sale, the stock-in-trade of the judgment debtor was attached by the Sheriff by seizure under Order XXI, rule 43. Subsequently, the judgment-debtor was adjudicated an insolvent. The attachment was, however, withdrawn at the instance of the judgment creditor who thereafter filed a fresh application for execution by sale of the property without attachment and a warrant of sale under Order XXI, rule 64, was issued. The official assignee thereupon took out a chamber summons to quash and set aside that warrant and for an order directing the Sheriff to hand over possession of the property to him on the ground that it had vested in him under section 52(2)(c) of the Presidency Towns Insolvency Act. Under the relevant provisions of that Act, the property of the insolvent vests in the official assignee and becomes divisible amongst his creditors. Under section 52(2)(c) the property of the insolvent includes goods which at the commencement of the insolvency were in the possession, order or disposition of the insolvent in his trade or business by the consent and permission of the true owner under such circumstances that he is the reputed owner thereof. The court held that by reason of the attachment the stock-in-trade belonging to the judgment-debtor had ceased to be in his possession, order or disposition and, therefore, was not available to the official assignee under section 52(2)(c) of the Presidency Towns Insolvency Act and the subsequent withdrawal of the attachment after the order of adjudication did not have the effect of vesting it in the official assignee. It should be noted that this was an application to set aside the warrant of sale only on the ground that the stock-in-trade had vested in the official assignee under section 52(2)(c). Under section 53(1), however, no person is entitled to the benefit of execution issued against the property of a debtor against the official assignee except in respect of assets realised in the course of execution by sale or otherwise before the date of the admission of the insolvency petition. The present case is not governed by the provisions of section 52(2)(c) of the Presidency Towns Insolvency Act, and I fail to see how this decision can have relevance.

49. The next argument advanced on behalf of the first respondents was that by reason of the order of attachment obtained by the first respondents, they are in the position of secured creditors or in a position analogous to that of secured creditors, and therefore outside the winding-up. The law on the point is well established and needs no elaborate discussion. It is thus summarised in Mulla on the Code of Civil Procedure, 13th edition, page 318 :

'Attachment creates no charge or lien upon the attached property. It only confers a right on the decree-holder to have the attached property kept in custodia legis for being dealt with by the court in accordance with law. It merely prevents and avoids private alienations; it does not confer any title on the attaching creditors. There is nothing in any of the provisions of the Code which in terms makes the attaching creditor a secured creditor or creates any charge or lien in his favour over the property attached. But an attaching creditor acquires, by virtue of the attachment, a right to have the attached property kept in custodia legis for the satisfaction of his debt, and an unlawful interference with that right constitutes an actionable wrong.'

50. Mr. Advani, learned counsel for the first respondents, has, however, submitted to the contrary and has referred to Goverdhandas Vallabhdas v. Official Liquidator, Electro-Metal Refining Co. Ltd. A.I.R. 1930 Bom. 16, in support of his submission and in particular has placed considerable emphasis up on the following passage in the judgment of Marten C.J. :

'The result then of the whole case, in my opinion, is that even if the applicant fails to establish his claim to be a secured creditor - which technically he seems not to be - and if his real position was only that of an attaching creditor, yet he has apparently lost that position by reason of the events that have happened. There is, at present, no application before the court to allow him to proceed with his rights in execution as an attaching creditor, if any. Under those circumstances his present application to be treated as a secured creditor in respect of this engine and to be paid out of the proceeds of the engine in priority to the other creditors, is misconceived, and must be dismissed.'

51. On the strength of this passage Mr. Advani has submitted that the court considered that the applicant would have been a secured creditor but for the fact that he had lost that position by reason of the events that had happened. The passage, however, does not bear the construction sought to be placed upon it by Mr. Advani. It, on the contrary, clearly points out that the applicant had failed to establish his claim that he was a secured creditor by reason of the attachment levied by him. It further points out that his real position would only be that of an attaching creditor which position he had lost by reason of events which had happened subsequent to the attachment. Several authorities on the point have been considered in the judgment and the judgment points out that the bulk of authorities would show that technically an attaching creditor is not a secured creditor although by reason of his attachment he has certain rights. These rights, as pointed out above by me, are to have the attached property kept in custodia legis for being dealt with by the court in accordance with law and to prevent and avoid private alienations. In this judgment it is also pointed out that since execution proceedings were pending when the winding-up order was made, the real remedy of the applicant was to make an application for leave to proceed with his application for execution.

52. Mr. Advani has also relied upon the observation of Scott J. in Pallonji Shapurji Mistry v. Edward Vaughan Jordan I.L.R. [1888] 12 Bom. 400 to the effect that the holder of an attachment before judgment, until he has made his application for execution, only holds a security which may be destroyed by the interposition, after decree has been given, of a jus tertii. Now that decision in so far as it held that an attachment before judgment became, on the passing of the decree, an attachment in execution is no longer good law in view of the Division Bench ruling in Dattatraya Baliram Naik v. Rambhabai Jairam Patil : AIR1962Bom236 . Even apart from this, Scott J. did not use the word 'security' in the sense canvassed by Mr. Advani. This word was used in a general sense and not as implying that the attaching creditor was a secured creditor who would stand outside the winding-up.

53. Lastly, Mr. Advani has submitted that in the circumstances of this case the court in its discretion should refuse to stay proceedings in execution of of the decree obtained by the first respondents. Three circumstances have been relied upon by Mr. Advani.

54. The first circumstance is that the first respondents are decree-holders and execution has already been put in force against the properties of the company. In this connection Mr. Advani has relied upon Ex parte Parry : In re Great Ship company Ltd. [1863] 33 L.J. Ch. 245 in which it was opined that in the circumstances of that case since judgment had been obtained after great opposition, execution issued upon that judgment and property seized under the execution before the presentation of the winding-up petition, if an application for stay had been made, the court would have refused the stay. I have already held that in the present case execution has not been put in force. The decision in Ex parte Parry : In re Great Ship Company Ltd. (1863) 33 L.J. Ch. 245 has, therefore, no application to the present case. Apart from this, since the date of the decision in Ex parte Parry : In re Great Ship Company Ltd. (1863) 33 L.J. Ch. 245 the trend of later English authorities has been to the contrary. These later authorities have laid down that in the balance of special circumstances and until the execution is completed by seizure and sale, the court ought to exercise the discretion vested in it by staying or restraining the proceedings with a view to securing equal distribution of the assets among creditors of the same class, as otherwise during the interval between the presentation of a winding-up petition and the making of a winding-up order, certain creditors would help themselves out of the assets of the company in priority to some others in a less fortunate position (see Westbury v. Twigg & Co. Ltd. [1892] 1 Q.B. 77, Bowkett v. Fullers United Electric Words Ltd. [1923] 1 K.B. 160 and Anglo-Baltic and Mediterranean Bank v. Barber and Company [1924] 2 K.B. 410. In Bowkett v. Fullers United Electric Works Ltd. [1923] 1 K.B. 160 it was held that the fact that the judgment was obtained and an execution was impending was not such a special circumstance as to induce the court to depart from its ordinary practice.

55. The same practice as in England prevails in the Calcutta High Court (see In the matter of Rajhari Ice Factory Ltd. [1937] 41 C.W.N. 597 and in this High Court.

56. The second circumstance relied upon by Mr. Advani is that if a stay of proceedings were granted, the attachment which has been levied would continue and the first respondents would have to continue incurring the expenses of the Sheriff in connection therewith so far as concerns the movables of the company in the shape of salaries of the watchmen engaged by the Sheriff and if ultimately a winding-up order was not made but instead the winding-up petition dismissed, all such amounts would have been needlessly spent by the first respondents. I fail to see how this can be a circumstance inducing the court to depart from its usual practice. The expenses incurred by the first respondents would be costs of the execution proceedings and would from part of the decretal claim. The first respondents have attached all the movables of the company as also its bank account. The property attached appears to be more than sufficient to satisfy the decretal claim and the costs of execution. Even if it were not, it would make no difference. The same argument would apply to every application for stay made in the interval between the appointment of a provisional liquidator and the making of a final order on the winding-up petition where an attachment has been effected before the filing of the winding-up petition. To accept this argument would be tantamount to laying down an exception to section 442 in the case of such an attaching creditor which the Legislature never intended. In In the matter of the Rajhari Ice Factory Ltd. [1937] 41 C.W.N. 597 the Calcutta High Court held that an attachment of the assets of a company which is subsequently wound up and which attachment had not been completed by sale, cannot be treated as having been completed before the commencement of the winding-up so as to allow the attachment to prevail over the interest of the creditors as a whole.

57. The third circumstance relied upon by Mr. Advani is the change made in the language of section 446 from that used in the corresponding section 171 of the old Companies Act of 1913. Under the old section 171 leave of the court was necessary both for commencing as well as proceeding with a suit or other legal proceeding against the company when a provisional liquidator was appointed. Now under section 446 when the official liquidator is appointed as provisional liquidator, leave is necessary only for commencing a suit or other legal proceeding and not for proceeding with it. According to Mr. Advani, since the attachment or execution was put in force against the property of the company before the presentation of the winding-up petition, any step which the first respondents may now take would not be commencing a legal proceeding but would be proceeding with a legal proceeding for which they are not required to obtain leave of the court. If no leave of the court is necessary, then, in Mr. Advani's submission, no stay ought to be granted. I have already negatived the contention that the attachment or execution has already been put in force and have held that execution proceedings have not yet commenced, Even if they had, it would have made no difference, for the language of section 442 is wider than that of section 446. Section 442 does not provide that in cases where a provisional liquidator is appointed, stay should be granted only when leave of the court is necessary, viz., for commencing a proceeding. Even though under section 446 leave of the court is not necessary for proceeding with a pending suit or other legal proceeding, section 442 expressly confers upon the court the power to stay a pending suit or proceeding during the tendency of a winding-up petition.

58. The special circumstances which may induce the court to depart from its general practice were stated by Scrutton L.J. in Anglo-Baltic and Mediterranean Bank v. Barbar and Company [1924] 2 K.B 410 as those to be found, for example, in Armorduct Manufacturing Co. v. General Incandescent Co. [1911] 2 K.B. 143 where a judgment creditor was induced by a false pretext on the part of the company to postpone execution and the company taking advantage of that postponement went into voluntary liquidation and asked the court to stay execution of the judgment because it was being wound up.

59. In the present case I find no special or exceptional circumstances present to induce the court to exercise its discretion in favour of the first respondents by refusing the stay applied for.

60. The scheme of sections 528 to 530 of the Companies Act is that all creditors must prove their claims in the winding up of the company and thereafter all creditors of the same class must be paid pari passu. This can hardly be given effect to if to-day the first respondents were permitted to execute their decree. There are no special or exceptional circumstances present in this case as would induce the court to depart from its usual practice. In fact all the circumstances are such as would, on the contrary, induce the court to stay the proceedings. The City Civil Court suit was filed and the attachment before judgment obtained at a time when the company was in insolvent circumstances, was attempting to dispose of its properties and there was no responsible person in charge of the company and criminal proceedings were pending against some of its directors. In these circumstances, it would have been apparent to anybody that a winding-up petition was imminent. The decree obtained by the first respondents is an ex parte decree. The company could not even file an appearance as there was nobody in charge of the company. From this I should not be understood to say that I doubt in any way the guanines of the first respondents' claim. This is a matter for the official liquidator to look into, if the company is ordered to be wound up, at the stage of proof of debts.

61. In these circumstances, the applicants are entitled to the relief which they seek and I, accordingly, pending the hearing and final disposal of company Petition No. 87 of 1968 filed by the applicants to wind up the company, stay all proceedings in execution of the decree passed on July 18, 1968, in favour of the first respondents against the company by the Bombay City Civil Court in Suit No. 4234 of 1968 and also during this period restrain the first respondents from taking any step or proceedings in execution of the said decree.

62. The hearing of this summons has taken nearly 20 hours. Such elaborate arguments became necessary by reason of the contentions raised by the first respondents, each one of which has been negative. In these circumstances, this is a fit case for the court not to allow costs according to the ordinary scale laid down in Appendix III to the Companies (Court) Rules, 1953. In view, however, of the fact that on some points there was a conflict of authorities, I do not think that this is a case in which the court should, under rule 339, allow taxed costs. In my opinion, the proper order for costs would be to award under rule 341(2) a sum in gross in lieu of taxed costs. I accordingly direct the first respondents to pay to the applicants the costs of this summons fixed at Rs. 1,000. The costs of the official liquidator will come out of the assets of the company.


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