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Eastern Steamship Private Ltd. Vs. Pucto Private Ltd. and anr. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtMumbai High Court
Decided On
Case NumberCompany Application No. 69 of 1969 in Company Petition No. 53 of 1963
Judge
Reported in(1970)72BOMLR697; [1971]41CompCas43(Bom)
ActsCompanies Act, 1956 - Sections 446 and 446(1); ;Indian Companies Act, 1913 - Sections 171
AppellantEastern Steamship Private Ltd.
RespondentPucto Private Ltd. and anr.
Appellant AdvocateS.T. Tijoriwalla, Adv.
Respondent AdvocateM.H. Shah and ;R.J. Bhatt, Advs.
Excerpt:
.....of suits instituted after the winding up order to the provisions of section 446 of the companies act, 1956. - - 2 have common directors and that the mortgages were fraudulent as well as without consideration. this provision clearly negatives the suggestion that a suit commenced without leave can be continued by obtaining leave at any stage thereof. the cause of action is endorsed on the writ of summons. 2, the entire suit would be without jurisdiction and could fail even in respect of the defendant no......shall 'commence' a suit except with leave. this provision clearly negatives the suggestion that a suit commenced without leave can be continued by obtaining leave at any stage thereof.' 12. the same question again arose in the case of maya ookeda v. kuverji kurpal mr. justice blackwell, following the judgment of mr. justice davar in the case previously cited, decided that a creditor of an insolvent cannot bring a suit against the insolvent without first obtaining leave to sue from the insolvency court under section 17 of the presidency towns insolvency act, 1909.13. the same question also in the case of bhimaji bhibhutmal v. chunilal javerchand under section 28(2) of the provincial insolvency act, 1920. mr. justice tyabji took a view different from that taken by mr. justice davar. he.....
Judgment:

Nain, J.

1. This is judge's summons dated 12th August, 1969, taken out by the applicants who are the plaintiffs in Suit No. 252 of 1969 pending in this court for leave to continue the said suit instituted by them on 24th February, 1969, and to continue all proceedings pending in the said suit. The application is under the provisions of section 446 of the Companies Act 1 of 1956. The respondents in the judge's summons are the defendants No. 1 and 2 in the suit.

2. When the judge's summons came up for hearing before Mr. Justice Kantawala, some judgments of this court under the provisions of the Presidency Towns Insolvency Act (III of 1909) and the Provincial Insolvency Act (V of 1920) were cited which also provide for leave to commence a suit. As there was a conflict between various decisions of this court, to which we shall refer later, by an order dated 12th January, 1970, the learned judge referred the matter to a Division Bench. This is how the matter comes up before us to-day.

3. A petition for winding up Gill Amin Steamship Company Private Limited the defendant No. 2 was filed in this court on 4th July, 1963. A provisional liquidator was appointed on 26th August, 1963, and an order of winding up was made on 23rd September, 1963. The plaintiffs claim to be creditors of the said company. The defendant No. 1 claim to be mortgagees of a ship named 'S. S. Sheilla Margarette' belonging to the defendant No. 2 company under two deeds of mortgage dated 18th May, 1963, and 28th May, 1963, in the sums of Rs. 2,60,000 and Rs. 1,30,000 respectively. The plaintiffs wish to challenge the validity of the said mortgages and contend that the said mortgages are not binding on the official liquidator, inter alia on the ground that they were made within a period of one year before the date of the order of winding up and further that the defendant No. 1 and defendant No. 2 have common directors and that the mortgages were fraudulent as well as without consideration. The plaintiffs have filed Suit No. 252 of 1969 in this court challenging the validity of the said mortgages.

4. The facts leading to this litigation may be briefly stated On 22nd June, 1967, this court ordered that the official liquidator should accept the offer of the defendant No. 1 to purchase the said ship 'S. S. Sheilla Margarette' for Rs. 2,00,000. The acceptance of the said offer was by the said order made subject to the defendant No. 1. proving their mortgage before the official liquidator. On 8th January, 1968, the plaintiffs filed a petition in this court for an order that it may be declared that the instruments of mortgages dated 18th May, 1963, and 28th May, 1963, in the amount of Rs. 2,60,000 and Rs. 1,30,000 respectively created in favour of the defendant No. 1 were void and invalid as against the company in winding up. On the said petition an order was made on 24th January, 1969, whereby the plaintiffs were allowed to withdraw the said petition with liberty to file a suit on the same cause of action. Thereafter on 24th February, 1969, the plaintiffs took out a judge's summons for leave to institute a suit pursuant to the liberty granted to them in the order dated 24th January, 1969, On this judge's summons an ex parte order granting to the plaintiffs the requisite leave was made on 24th February, 1969. On the same day the plaintiffs instituted the suit which came to be numbered as suit No. 252 of 1969 in respect of which the present judge's summons has been taken out.

5. On the judge's summons dated 24th February, 1969, a final order was made on 24th April, 1969, to the effect that no further order was necessary in view of the fact that ex parte leave had already been granted to the applicants. The said order also granted liberty to the defendants to apply fir revocation of the leave granted ex parte On 1st July, 1969, the defendant No, 1 took out a judge's summons for an order that ex parte ad interim leave granted to the plaintiffs on 24th February, 1969, be revoked By an order dated the 6th August, 1969, the leave was revoked on the ground that the leave could only be granted in terms of rule 117 of the Rules framed by the Supreme court under the companies Act, 1 of 1956, on notice to the defendants and the leave granted to the plaintiffs being ex parte was liable to be revoked. Thereafter the plaintiffs took out the present judge's summons for leave to continue the suit already instituted by them on 24th February, 1969, viz., Suit No. 252 of 1969. The said judge's summons as we have already stated was referred to a Division Bench and had come up for hearing before us today. The defendants have opposed the summons, inter alia, on the ground that leave to commence the suit could only be granted before the suit was commenced, and no leave could be granted under section 446 of the Companies Act, 1 of 1956, to continue a suit which has been instituted after the order of winding up.

6. Section 446(1) of the Companies Act, 1 of 1956, reads as under :

'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.'

7. A plain reading of the above sub-section would suggest that (a) no suit shall be commenced against the company after a winding up order has been made except by leave of the court; and (b) if a suit is pending at the date of the winding up order it shall not be proceeded with except by leave of the court. In other words leave to continue or proceed with a suit can only be granted if it is pending at the date of the winding up order and not if it is commenced after the date of the winding up order.

8. There is a similar bar created by section 17 of the Presidency-Towns Insolvency Act, 1909, which provides as under :

'17. On the making of an order of adjudication the property of the insolvent wherever situate shall vest in the Official Assignee and shall become divisible among his creditors, and thereafter, except as directed by this Act no creditor to whom the insolvent is indebted in respect of any debt provable in insolvency shall, during the pendancy of the insolvency proceedings, have any remedy against the property of the insolvent in respect of the debt or shall commence any suit or other legal proceedings except with the leave of the court and on such terms as the court may impose'

9. The words of section 17 would show that when an order of adjudication is made, no creditor in respect of a debt provable in insolvency, shall have any remedy against the property of the insolvent in respect of the debt provable in insolvency nor shall he commence any suit or other legal proceeding except with the leave of the court and on such terms as the court may impose. Sub-section (2) of section 28 the Provincial Insolvency Act, 1920, similarly provides as under :

'28(2). On making of an order of adjudication, ......... on creditor to whom the insolvent is indebted in respect of any debt provable under this act shall during the pendancy of the insolvency proceedings have any remedy against the property of the insolvent in respect of the debt, or commence any suit or other legal proceeding except with the leave of the court and on such terms as the court may impose.'

10. The provisions in the two Insolvency Acts deal only with remedies or suits or other legal proceedings commenced after the making of the order of adjudication and not with continuation of suits or proceedings pending at the date of the order of adjudication.

11. In In re Dwarkadas Tejbhandas a question arose as to whether leave ought to be obtained before the commencement of the suit or could be granted after the same was filed for the continuation of the suit already filed. Mr. Justice Davar held that the leave contemplated under section 17 of the Presidency Towns Insolvency Act, 1909, was leave which ought to be obtained before the commencement of a suit and could not be granted after the same was filed Two passages in the judgment read as under :

'The words of the section are so clear and unambiguous that there is no possibility of construing them in any way other than that leave must be obtained before the commencement of the action.

The words of the section are so clear and explicit that they leave no room for any construction other than the one I have placed upon them. No creditor shall 'commence' a suit except with leave. This provision clearly negatives the suggestion that a suit commenced without leave can be continued by obtaining leave at any stage thereof.'

12. The same question again arose in the case of Maya Ookeda v. Kuverji Kurpal Mr. Justice Blackwell, following the judgment of Mr. Justice Davar in the case previously cited, decided that a creditor of an insolvent cannot bring a suit against the insolvent without first obtaining leave to sue from the insolvency court under section 17 of the Presidency Towns Insolvency Act, 1909.

13. The same question also in the case of Bhimaji Bhibhutmal v. Chunilal Javerchand under section 28(2) of the provincial Insolvency Act, 1920. Mr. Justice Tyabji took a view different from that taken by Mr. Justice Davar. He held that a suit brought by a creditor against an insolvent against whom an order of adjudication was made, if brought without the leave of the court need not necessarily be dismissed, but may either be stayed or allowed to be proceeded with on terms In the judgment a reference is made to the provisions of section 171 of the Indian Companies Act, 1913, which also provided for leave to commence or proceed with suits against a company in winding up. He referred to the corresponding provisions of the English Companies Act and the decisions of the English courts thereon and pointed out that it had been held in the English decisions interpreting provision similar to section 171 of the Indian Companies Act, 1913, that leave to commence the suit could be obtained either before the suit was commenced or during the pendency of the suit. He did not follow the judgment of Mr. Justice Davar, and held that leave could be granted on terms subsequent to the institutions of the suit.

14. In the case of Jehangir Cursetji Mistry v. Kastur Pannaji Oswal, a similar question arose before Chief Justice Beaumont under section 28(2) of the Provincial Insolvency Act, 1920 and he took the same view as was taken by Mr. Justice Davar and by Mr. Justice Blackwell in the cases referred to hereinabove.

15. It would, therefore, appear that in three out of the four cases decided by the Bombay High Court, in interpreting the provisions of the Insolvency Acts, this court took the view that leave must be taken prior to the institution of the suit and could not be granted subsequently. The provisions of the Insolvency Acts seem to be similar to the provisions of section 446 of the Companies Act, 1 of 1956, in respect of suits which are commenced for the first time after the winding up order.

16. Mr. Tijoriwalla on behalf of the plaintiffs has relied on the provisions of section 171 of the Indian Companies Act, 1913, the judgments of English courts in interpreting section 231 of the English Companies Act, 1948, which is in terms similar to section 171 and the judgments of Indian High courts in interpreting section 171. Section 171 reads as under :

'171. When a winding up order has been made or a provisional liquidator has been appointed no suit or other legal proceedings shall be proceeded with or commenced against the company except by leave of the court and subject to such terms as the court may impose.'

17. The language of section 171 would show that suits commenced before the winding up order or appointment of a provisional liquidator are not separated from suits commenced thereafter as has been done in section 446 of the Companies Act, 1956, In respect of both kinds of suits, section 171 provides that no such suits or other legal proceedings shall be proceeded with or commenced against the company except by leave of the court indication that there are two stages at which a plaintiff may seek the leave of the court. He may seek the leave of the court before the commencement of a suit or he may even choose to seek such leave after the winding up order or appointment of a provisional liquidator, when he wishes to proceed with the suit. In the case of suits commenced after the winding up order or appointment of a provisional liquidator, the leave, of necessity, will have to be taken before the suit is proceeded with. Section 171 easily lends itself to the interpretation that even in respect of the suits instituted before the date of the winding up order or appointment of a provisional liquidator, the leave could be sought and obtained subsequent to the institution of the suit and before proceeding therewith.

18. The language of section 231 of the English companies Act, 1948, is in terms similar. In interpreting the English Act the English Courts have taken the view that even in the case of suits commenced after the date of the winding up order, leave could be obtained subsequently.

19. This has been followed in India by a Full Bench of the Lahore High Court in the case of Nazir Ahmed v. People's Bank of Northern India Ltd. In the Lahore judgment, some case decided by English courts under the provisions of the English Companies Act have been cited and the judgments of the Bombay High Court under the provisions of the two Insolvency Acts referred to by us hereinabove have also been referred to. The case before the Lahore High Court was one under section 171 of the Indian companies Act, 1913. Following the English judgments, the Lahore High Court took the view that since the words used in section 171 were borrowed from the English law where they had a recognised meaning attached to them, it should be assumed that the same meaning was assigned to those words by the Indian Companies Act, 1913, which borrowed the language of the English statute. The Lahore High Court held that a suit instituted against a company in liquidation without leave under section 171 should not be dismissed on that ground alone and that where a plaintiff institutes a suit against a company in liquidation without the leave of the court under section 171 and subsequently applies for such leave within the period of the limitation of the suit and the leave is granted only after the period of limitation has expired, the suit should not be dismissed and limitation should be calculated in the same way as if the suit had originally been instituted with leave.

20. The Calcutta High Court has taken the same view as the Lahore High Court in Suresh Chandra Khasnabish v. Bank of Calcutta Ltd. The Allahabad High Court has also taken the same view in the case of People's Industrial Bank Ltd. v. Ram Chander Shukul. In another case in the Calcutta High Court, viz., Roopnarain Ramchandra Private Ltd. v. Brahmapootra Tea Co. (India) Ltd., Mr. Justice A. N. Ray was dealing with a case under section 171 of the Indian Companies Act, 1913. That was, however, not a case of leave, but a contention based on section 171 was taken that a suit instituted with out such leave was a suit without jurisdiction. The learned judge took the view that in suits or proceedings against the company in the course of liquidation the absence of leave to continue or to proceed does not deprive the court of the jurisdiction to pass any decree. The court had jurisdiction to hear such suits. The existence of jurisdiction did not depend upon any such leave. The learned judge was, however, not concerned with the problem that we have before us, nor has be expressed any view thereon.

21. Mr. Tijoriwalla made an attempt to argue that a suit is not commenced within the meaning of section 446 of the Companies Act, 1 of 1956, until the issuance of the writ of summons or until the stage of the trial. He contended that leave could, therefore, be granted at any time after the institution of the suit. He invited our attention to a judgment of the Punjab High Court in the case of Puran Mal Ganga Ram v. Central bank of India Ltd. where reference has been made to the law in England that in England a suit is instituted not when the plaint is presented, but when the process is issued. In consequence, the learned judges of the Punjab High Court observed that under section 171 of the Indian Companies Act, 1913, a suit is commenced on the issuance of the first compulsory process to bring the parties to the court. There is, however, a substantial difference between the English practice and the law in India. Under the provisions of section 26 of the Code of Civil Procedure and Order 4, rule 1, a suit is instituted by the presentation of a plaint. In England the suit is instituted when a writ of summons is issued. The cause of action is endorsed on the writ of summons. A plaint drafted and filed in the registry only after the defendant has called for it and not otherwise. It would, therefore, be right to say that in England a suit does not commence with the filing of the plaint. The law in India is different from the law in England and we are unable to subscribe to the view taken by the Punjab High Court on that point. However, we are not concerned with the provisions of section 171 of the Indian Companies Act, 1913, with which the learned judges of the Punjab High Court were dealing in the above case. If under the provisions of section 171 leave could be granted before or after the institution of the suit, the question when the suit commenced would not arise.

22. We are of the view that section 446 of the Companies Act, 1956, makes a departure from section 171 of the Indian Companies Act, 1913. Section 171 easily lent itself to the interpretation that both in cases of suits commenced before or after the winding up order leave could be taken after the winding up order. Section 446, however, separates the two kinds of suits. It provides that only in the case of suits pending at the date of the order of winding up leave could be taken to proceed with the suit. It further provides that no suit shall bee commenced against the company after the winding up order has been made except by leave of the court. In such cases leave could only be granted to continue it or to proceed with it if it is commenced after the date of the winding up order. We are also of the view that in India a suit is commenced on the presentation of a plaint in court.

23. The provisions of section 17 of the Presidency Towns Insolvency Act, 1909, and Section 28(2) of the Provincial Insolvency Act, 1920, are similar in respect of suits instituted after the winding up order to the provisions of section 446 of the Companies Act, 1 of 1956, and we take the same view as has been taken by Davar J., Blackwell J. and Beaumont C.J. in the cases referred to above.

24. We are, therefore, of the view that leave to continue Suit No. 252 of 1969, which was instituted after the date of the winding up order, cannot be granted.

25. Mr. Tijoriwalla made an attempt to argue before us at the stage of his reply that in fact the suit instituted by the plaintiffs was not against the company but was for the benefit of the company and that the relief asked for was in favour of the defendant No. 2, i.e., the company and not in favour of the plaintiffs, and that no leave under section 446 of the Companies Act, 1 of 1956, was necessary in respect of such suits. This question, however, does not arise before us. The application before us is for leave to continue the suit already instituted on the footing that it is against the company. However, it will be open to the plaintiffs to take up this contention at the hearing of the suit. Similarly, Mr. Shah contended that if leave to continue the suit was refused against the defendant No. 2, the entire suit would be without jurisdiction and could fail even in respect of the defendant No. 1. In our view, this is also a contention which arises at the hearing of the suit and not on the hearing of the judge's summons with which we are dealing. It will be open to the defendants to take this contention at the hearing of the suit.

26. In the result, the judge's summons fails and is dismissed. Costs will be costs in the suit. Counsel certified.

27. Summons dismissed.


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