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In Re: Janata Works Pvt. Ltd. (In Liquidation) - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtMumbai High Court
Decided On
Case NumberCompany Petition No. 939 of 1978 (Bom. Original side)
Judge
Reported in(1982)84BOMLR587
AppellantIn Re: Janata Works Pvt. Ltd. (In Liquidation)
Excerpt:
.....prosecute suit already commenced prior to winding up, further leave whether necessary to execute decree obtained in such suit.;no creditor of a company has any locus standi before the court in respect of any matter as regards administration of the assets of a company in liquidation. but a body of creditors has the right to act with the liquidator. under sections 464 and 465 of the companies act through a committee of inspection the body of creditors have a right of audience in matters in respect of a company in liquidation. from the provisions of rules 11(a), 11(b) of the companies (court) rules, 1959 and section 464 of the companies act, 1956, it is evident that an application for appointment of a committee of inspection has to be made by a judge's summons.;section 537 of the..........under section 446 of the new act, no further leave is necessary to be obtained to execute the decree obtained in such a suit. if that be so, section 537 must necessarily have an application where execution is sought to be levied after the order of winding-up of a decree obtained before the order of winding-up is passed. section 537 would come into play only in the latter case viz. in case where a decree has been obtained against the said company prior to its winding-up and the decree is sought to be executed after the winding up of the company. sections. 537 is not to be read to mean that if leave to prosecute the suit is obtained by the plaintiff under section 446, he must again obtain leave under section 537 for execution of the decree. the placing of the two sections by the.....
Judgment:

Rele, J.

1. The Official Liquidator has submitted his report for directions whether he should take out a Judge's Summons against M/s. Janata Industries for setting aside execution of the eviction decree passed by the Court of Small Causes at Bombay.

2. The company had five galas viz. galas Nos. 16 to 20 in premises at 162, Tulsi .Pipe Road, Lower Parel, Bombay. The Official Liquidator took possession of 4 galas, viz. gala Nos. 16 to 19. He could not take possession of Gala No. 20 as the occupant of that gala raised dispute.

3. Prior to the winding-up of the company, the landlord of the said building M/s. Janata Industries filed a R.A.E. Suit No. 1527/5464 of 1978 against the company in ejectment. On the winding-up of the company, the suit was continued by the landlords after obtaining leave of this Court under Section 446 of the Companies Act, 1956.

4. In or about July, 1979, there was a fire in the vicinity of the said galas and gala Nos. 16 and 17 were damaged in that fire. The suit, however, was defended by the Official Liquidator by engaging an advocate. The suit was decreed on July 14, 1982 and the company in liquidation was directed to deliver vacant and peaceful possession of the suit premises to the landlords viz. M/s. Janata Industries on or before August 16, 1982. The question of preferring an appeal against the said decree arose and the Official Liquidator was advised that if any appeal was to be preferred, he will have to deposit the arrears of rent for the period from September, 1977 to June, 1982 amounting to Rs. 87,000/-. This the Official Liquidator found it impossible to do as the company had no funds whatsoever to its credit. The Official Liquidator, therefore, sought directions of the Court by his report dated August 10, 1982 whether he should hand over possession of the said galas Nos. 16 to 19 to the landlord. On that report, the Official Liquidator was directed to give notice to the petitioning creditor. In his resubmitted report dated September 1, 1982, the Official Liquidator has stated that he was informed that possession of the said galas Nos. 16 to 9 was taken by the landlords in execution of the decree through plaintiff, on 17th and 18th August, 1982. On the resubmitted report, the question that arose for consideration was whether the landlord could execute the decree without the leave of the Court as required by Section 537 of the Companies Act, 1956. The said report was adjourned on the application of Shri K. Dalpatrai, the learned advocate appearing on behalf of the petitioning creditor, for two weeks. In the meantime, the Court gave directions to the Official Liquidator to negotiate with the landlord and accordingly, the Official Liquidator negotiated with the landlords and in the meeting held before the Official Liquidator on September 16, 1982 the landlords offered to give up the arrears of rent of Rs. 87,000/- upto June, 1982 and Rs. 4,500/- upto the end of September, 1982. The landlords also offered to pay to the Official Liquidator Rs. 30,000/-.

5. When the resubmitted report dated September I, 1982 came up for hearing before me today, Shri Zaiwala appearing on behalf of a creditor of the Company handed over to me a Judge's Summons. I refused to grant leave on the ground that no creditor of the company has any locus standi before the Court in respect of any matter as regards administration of the assets of a company in liquidation. A creditor has no such right when the company is a going concern and the position does not change when the company is in the process of winding-up. However, it has been the practice of this Court, and which practice is saved by Rule 6 of the Companies (Court) Rules, 1959, that the petitioning creditor is given notice in some matters arising in liquidation for his say. But there is no such practice of this Court that a creditor of the company has any right of being heard in such matters. It is on this basis that I refused audience to Shri Zaiwala, appearing on behalf of the creditor. I also refused leave to the creditor on whose behalf Shri Zaiwala appeared to take out the Judge's Summons.

6. Although, in my opinion, a creditor has no right of hearing, a body of creditors has the right to act with the Liquidator. Section 464 of the Companies Act, 1956 provides for appointment of a committee of inspection to inspect the accounts of the Liquidator at all reasonable times (s. 465(2) ) and the Liquidator may call a meeting of the committee as and when necessary (s. 465(3)). Section 646 provides that at the time of the passing of the Winding up Order or any time thereafter the Court may appoint a committee of inspection to act with the Liquidator. It is through the committee of inspection that the body of creditors have a right of audience in matters in respect of a company in liquidation. There is no committee of inspection appointed in this case and there is no proper application before the Court for appointment of the committee of inspection. Shri Zaiwala orally stated the Judge's Summons may be treated as a Summons for appointment of a committee of inspection which I did not allow. If an appointment of the committee of inspection is to be made, Section 464 read with Rules 140 and 141 of the Companies (Court) Rules, 1959 provides for the procedure to be followed for appointment of committee of inspection. Rule 11 of the said Rules states that the applications mentioned in Rule 11(a) shall be made by petition and rule 11(b) states that all other applications under the Act or under the Rules shall be made by Judge's Summons. Section 464 does not find place in Rule 11(a). Hence, the application for appointment of committee has to be made by Judge's Summons. There is no such Judge's Summons taken out by the creditor on whose behalf Shri Zaiwala appears.

7. Shri K. Dalpatrai, on a request to him by Shri Zaiwala, made a very strenuous attempt to have the consideration of the report postponed but he did not give any reason whatsoever for the postponement of the consideration of the report. As already stated above, at the request of Shri K. Dalpatrai, the report was already adjourned for two weeks. Except for wordy disputes which are brought before this Court, no concrete proposal has been brought before the Court even today by Shri K. Dalpatrai in consultation with Shri Zaiwala that the Official Liquidator will be reimbursed the amount of arrears of rent nor is there any proposal in regard to the compensation to be paid to the Official Liquidator for the occupation of any of the galas. The only contention raised is that the landlords have not followed the provisions of Section 537 of the Companies Act, 1956 in executing the decree.

8. Shri C.J. Sawant, appearing on behalf of the landlords, has submitted before me that once leave to prosecute the suit has been obtained under Section 446 of the Companies Act, no further leave of the Court to execute the decree is required to be obtained* In support of this submission he has relied upon the decision of the Supreme Court in the case of Bansidhar Sankarlal v. Md. Ibrahim : [1971]2SCR476 . In that case, the landlord filed a suit against the Company for a decree in ejectment of the premises occupied by the company as his tenant. The decree was confirmed in appeal. Pending the second appeal, a petition for winding-up of the Company was filed and on the winding up of the company, second appeal was prosecuted by the Liquidator and the mortgagee. In second appeal, the eviction decree was confirmed. The landlord sought to execute the decree without obtaining leave of the Court as required by Section 171 of the Companies Act (1913) corresponding to Section 446 of the Companies Act, 1956 (hereinafter referred to as 'the Old Act' and 'the New Act'). The mortgagee filed a petition contending that the application for enforcement of the decree was not maintainable without leave of the High Court which ordered the Company be wound up. On the motion being made by the landlord, leave was granted in second appeal to execute the decree. In construing Section 171 the Supreme Court observed [at p 1294 para 6]:

It is intended to ensure that the assets of a company ordered to be wound up by the Court shall be administered for the benefit of all the creditors, and that some creditors only shall not obtain an advantage over others by instituting or prosecuting proceedings against the Company. The section is intended to maintain control of the Court which has made an order for winding up on proceedings which may be initiated after the order of winding up, and the Court may remain seized of all those matters so that its affairs are administered equitably and in an orderly fashion.

It was further held (at p 1294 para 7):

If sanction of the Court under Section 179 to prosecute the appeal before the High Court was obtained, and it must be so assumed, the contention raised on behalf of Bansidhar loses all significance for an execution application is only a continuation of the suit and the control of the High Court ensures during the execution proceeding also. If the sanction of the Court has been obtained for the prosecution of the suit it would be plainly unnecessary to obtain fresh sanction to the institution of execution proceeding at the instance of the successful party.

Section 179 corresponds to Section 457 of the New Act. This decision of the Supreme Court shows that once the Official Liquidator has obtained leave of the Court to exercise powers enumerated in Sub-section (1) of Section 457, he can exercise all those power in the administration of the assets of the company and if once leave to prosecute the suit is obtained, no further leave under Section 446 of the Companies Act, 1956 is necessary for the purpose of executing the decree.

9. The provisions analogous to the provisions of Section 537 of the New Act viz. Section 232 of Old Act have not been considered by the Supreme Court in Bansidhar Sankarlal's case (supra). Section 537 of the Companies Act provides for avoidance, of certain attachments or execution under the supervision of the Court. It states :-

Section 537: (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 effect 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.

10. Once leave to prosecute the suit is obtained under Section 446 of the New Act, no further leave is necessary to be obtained to execute the decree obtained in such a suit. If that be so, Section 537 must necessarily have an application where execution is sought to be levied after the order of winding-up of a decree obtained before the order of winding-up is passed. Section 537 would come into play only in the latter case viz. in case where a decree has been obtained against the said company prior to its winding-up and the decree is sought to be executed after the winding up of the company. Sections. 537 is not to be read to mean that if leave to prosecute the suit is obtained by the plaintiff under Section 446, he must again obtain leave under Section 537 for execution of the decree. The placing of the two sections by the legislature has also to be considered in this respect. Section 446 is placed in Chapter 1 of part VII under the subheading 'Consequences of winding-up' while s. 537 is placed in Chapter V of part VII under the sub-heading 'Effect of winding up on Antecedent and other Transactions.' It is to the antecedent transaction of obtaining of the decree prior to winding-up and execution levied after winding-up that Section 537 would apply. Therefore, even on this basis, once leave of the Court is obtained by the plaintiff under Section 446 to commence a suit after winding-up or to prosecute a suit already commenced prior to winding-up, no further leave is necessary for executing the decree. Therefore, it is an error to say that the landlords M/s Janata Industries should have obtained further leave of the Court to execute the decree and that the landlords not having obtained the leave of the Court to 'execute the decree, the execution levied by them and the consequent possession taken by them of the four galas is void.

11. I have been referred to a decision of the Delhi High Court in the case of Tanwar Finance P. Ltd. In liquidation v. Kanwar Ram Chandar (1979) 49 Comp CAS 827. In that case the voluntary winding up became subject to the supervision of the Court several years ago. There were several decree-holders who had taken out execution proceedings in the Subordinate Judge's Court for sale of land belonging to the company in liquidation. In one of such proceedings an order was passed by consent of the voluntary liquidator and the decree-holder inter alia 'that the decree-holders will not sell properties in execution of decrees without obtaining leave of the Court under Section 537 or other relevant provisions in that behalf. In another application for leave under Section 537 of the Companies Act, 1956, it appears that out of the seven petitioners six of them were permitted to take out execution proceedings and to attach the land. Pursuant thereto, the land was sold by the public auction. The order granting permission as well as the sale was challenged. It was under these circumstances that the Delhi High Court observed:

Assuming that permission has been given to institute certain proceedings, then the Companies Act requires a further permission for purposes of attachment and sale of the property. This is so stated in Section 537 of the Act. So, leave from the court has to be sought also under these provisions.

This case is distinguishable on facts.

12. Since it has been held by me that the execution levied by the landlord was a proper execution and the landlords having already obtained leave of the Court under Section 446 of the New Act to prosecute the suit no further leave under Section 537 is necessary in such a case to be obtained, the question is whether the possession obtained by the landlords could at all bedisturbed. The landlords having obtained possession in execution of the decree by due process of law such a possession cannot be disturbed, since Section 537 of the Companies Act has no application to the facts of the present case.

13. In the present case the fact remains that the possession obtained by the landlords cannot be distrubed. On an assumption that such possession can be restored to the Official Liquidator, on the basis that the landlords have not obtained leave of the court under Section 537 to execute the decree what would be effect. The result would be that the landlords would be called upon to deliver possession back to the Official Liquidator of such premises and then the landlords would be required to obtain leave of the Court to execute the decree and then take possession. There could be no reason whatsoever for the Court to refuse leave to execute the decree. The court having once granted permission to prosecute the suit, the Court cannot deprive the plaintiffs of the fruits of the decree by refusing leave to execute the decree.

14. In the present case, what is necessary to be considered is that there is a heavy liability of Rs. 87,000/- by way of arrears of rent upto June, 1982 and a further liability of mesne, proof its of Rs. 4,500/- upto September, 1982 at the rate of Rs. 1500/- per month. If any offer for taking the galas--on caretaker basis is received by the Official Liquidator, 'the Official Liquidator will first have to pay arrears of rent as well as the accruing rent of Rs. 1,500/- per month, with a further payment of income-tax on the amount which he receives by way of compensation. Taking all these facts and circumstances into consideration, I see no reason to accept the baseless arguments advanced before me by the learned Counsels. The company in liquidation will be put to a heavy liability merely because a creditor unfoundedly feels aggrieved.

15. In order, however, to safeguard the interest of the company, I directed the Official Liquidator to negotiate with the landlord not merely to give up the heavy arrears of Rs. 87,000/-, but also to pay to the Official Liquidator over and above that some amount. In the meeting held before the Official Liquidator, the landlords agreed to pay to the Official Liquidator of the company in liquidation Rs. 30,000/-. Before me the offer has been doubled and the landlords have undertaken to pay to the Official Liquidator of the company in liquidation Rs. 60,000/- within 15 days from to-day and to give up all arrears of compensation and not to hold the Official Liquidator liable in any manner whatsoever or to make any claim against the Official Liquidator or against the company in liquidation in respect of any matter whatsoever in respect of the said four galas Nos. 16 to 19. They have also agreed to write a recording letter accordingly as aforesaid.

16. I, therefore, direct the Official Liquidator not to take any further action in the matter and accept from the landlords Rs. 60.000/-.

17. The directions on the report are as follows :-

Prayer (a) Yes but the amount will be Rs. 60,000/-.

Prayer (b) Yes undertaking will be as stated in para 14 above.


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