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Zahama Bee Vs. Reliable Corporation (P.) Ltd. and anr. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtAndhra Pradesh High Court
Decided On
Case NumberCivil Revision Petition No. 979 of 1971
Judge
Reported in[1974]44CompCas483(AP)
ActsCompanies Act, 1956 - Sections 446
AppellantZahama Bee
RespondentReliable Corporation (P.) Ltd. and anr.
Appellant AdvocateP.L. Narasimhasarma and ;B. Subbanarasaiah, Advs.
Respondent AdvocateNone
DispositionPetition allowed
Excerpt:
.....of companies act, 1956 - district munsif dismissed application since petitioner had not obtained leave of winding up court to file application - such order challenged - leave can be obtained even after commencement of proceedings with retrospective effect - leave of winding-up court to proceed with suit is not a precondition - held, order of munsif not justified. - - 95/62 dismissing the application filed by the petitioner under order 1, rule 10, civil procedure code, for adding the official liquidator, high court of mysore at bangalore as a defendant in the suit in place of the company, the reliable corporation private ltd. 2. the simple but subtle question that is raised for decision in this revision petition is whether under section 446 of the companies act, 1956 (1 of 1956)..........to obtain leave before institution of the proceeding entails dismissal of the proceeding. the suit or proceeding instituted without leave of the court may, in our judgment, be regarded as ineffective until leave is obtained, but once leave is obtained, the proceeding will be deemed instituted on the date granting leave.' 13. the principles that can be gleaned from the aforesaid authorities are: (1) that leave of the winding-up court to proceed with the suit or other legal proceedings is not a condition precedent to the institution of a proceeding, (2) that failure to obtain such leave before the institution of the proceeding did not entail dismissal of the proceeding, and (3) that the proceeding instituted without the leave of the court, would, however, be ineffective until leave.....
Judgment:

Chennakesav Reddy, J.

1. This civil revision petition arises out of the order of the Principal District Munsiff, Chittor, in I.A. No. 1169/70 in O.S. No. 95/62 dismissing the application filed by the petitioner under Order 1, Rule 10, Civil Procedure Code, for adding the official liquidator, High Court of Mysore at Bangalore as a defendant in the suit in place of the company, the Reliable Corporation Private Ltd., Bangalore.

2. The simple but subtle question that is raised for decision in this revision petition is whether under Section 446 of the Companies Act, 1956 (1 of 1956) (hereinafter referred to as ' the Act'), leave of the winding-up court is a condition precedent to the institution of any suit or legal proceedings against a company ordered to be wound up and whether failure to obtain such leave is fatal to the proceedings.

3. The relevant facts may be briefly stated. The petitioner filed the suit against Reliable Corporation Private Ltd., Bangalore, for a declaration of her title and for possession of the plaint schedule properties. The Reliable Corporation was wound up by the High Court of Mysore on July 10, 1970, and the official liquidator attached to the High Court of Mysore was appointed as the official liquidator of the said company. The petitioner then filed an application for impleading the official liquidator as defendant in the suit in place of the wound-up company. The official liquidator opposed the application and contended that in view of the provisions of Section 446 of the Act no suit or other legal proceedings shall be commenced or if pending at the date of the winding-up order shall be proceeded against the company except by the leave of the court. Since the present application was filed in August, 1970, after the winding-up order, it is void even at its inception and in any case cannot be proceeded with except with the leave of the court. It was, therefore, submitted that the petition should be dismissed in limine. The learned district munsiff dismissed the application. The learned munsiff held that since the petitioner had not obtained the leave of the court for filing the application, the application itself was not maintainable. Therefore, this revision petition is filed aggrieved against the said order.

4. It is common ground that Reliable Corporation Private Ltd. was ordered to be wound by the High Court of Mysore and an official liquidator had been appointed by the date of presentation of the present application by the petitioner. It is also not denied that the petitioner did not obtain leave of the winding up court before filing the application. Therefore, the only question for determination is as to what shall be the consequence of non-compliance with the requirement of Section 446 of the Act. It is therefore necessary to refer to Section 446 of the Act. The relevant portion of the section reads as follows :

5. Section 446(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. '

6. A close and careful reading of the section will make it clear that leave of the court is not a condition precedent for the commencement of any suit or other legal proceedings. The section also itself does not expressly provide for nullification of the proceedings as a consequence of non-compliance with the requirement of the section. Leave of the winding-up court can be obtained even after the commencement of the proceedings. The object of the provision appears to be to safeguard the company from being subjected to liability or being deprived of its rights and claims without the knowledge of the winding-up court. Therefore, leave of the court can be obtained even subsequently and with retrospective effect. The intention of the legislature can also be inferred from the omission of the words ' previous leave of the court ' in the section. Whenever the legislature wanted to make such leave or permission a condition precedent to the institution of proceedings, the words 'previous consent or permission' have been used. The section is not in a mandatory form as is contained in various enactments such as the Civil Procedure Code, Criminal Procedure Code and certain other Acts where it has been specifically provided that ' no suit or other proceedings shall lie or be taken without the previous consent of the court or the authority concerned'. Vide Section 197 of the Criminal Procedure Code, Section 92 of the Civil Procedure Code, Section 375 of the Andhra Pradesh Municipalities Act and Section 143 of the Gram Panchayats Act. I do not think there is any valid justification to import into the language of the section the words 'previous consent'. Therefore, the observance of the formality in question is not a condition precedent to the institution of the proceedings.

7. What then is the consequence of disregarding this procedural provision?

8. The section does not expressly declare what shall be the consequence of non-compliance with the statutory injunction. Whenever the legislature intended to lay down an absolute prohibition, the legislature has expressly declared its intention in unambiguous terms. The provisions of Section 537 of the Act may now profitably be compared with this section. Section 537 of the Act reads as follows :

' 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 assets 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.'

9. The section expressly declares that any action against the company after the commencement of the winding up, without the leave of the court, ' shall be void '. But Section 446 contains no such express declaration as to the consequences of non-compliance. The legislative intent is, therefore, undoubtedly not to lay down an absolute prohibition. I am, therefore, of the view that failure to obtain leave of the court under Section 446 of the Act will not entail dismissal of the proceedings.

10. It may be apposite at this stage to refer to some of the decided cases on this fine point. The Kerala High Court in Varkey Thomas v. Catholic Bank of India, while considering the scope of Section 446 of the Act, observed as follows :

' The institution of proceedings is not affected by the want of leave and the worst that can be said is that any proceeding taken by the court before the grant of the leave would be bad, a defect which can be remedied, if necessary, by taking the proceeding afresh after leave has been granted.'

11. The learned judge further held that the bar is not against the party instituting the legal proceedings but against the court commencing the adjudication thereof by the issue of process. The Calcutta High Court in Suresh Chandra Khasnabish v. Bank of Calcutta Lid. had occasion to consider the scope of Section 171 of the Indian Companies Act, 1913, which is in terms analogous to Section 446 of the Companies Act, 1956. After examining in some detail the decisions of the English courts, the learned judges concluded as follows :

' The company law is not a part of the indigenous law of India. It has come from England. It is, therefore, permissible in construing sections of the Indian statute to refer to the English case law on the subject.'

12. The court has jurisdiction under Section 171 of the Indian Companies Act to give leave to proceed with a suit or other legal proceeding against a company in liquidation even though such leave was not obtained before its commencement. In Bansidhar Shankarlal v. Mohd. Ibrahim the Supreme Court affirmed the decision of the Calcutta High Court in Suresh Chandra Khasnabish v. Bank of Calcutta Ltd. Shah J. (as he then was), speaking for the court, observed as follows:

' ......we do not think that there is anything in the Act which makesthe leave a condition precedent to the institution of a proceeding in execution of a decree against the company and that failure to obtain leave before institution of the proceeding entails dismissal of the proceeding. The suit or proceeding instituted without leave of the court may, in our judgment, be regarded as ineffective until leave is obtained, but once leave is obtained, the proceeding will be deemed instituted on the date granting leave.'

13. The principles that can be gleaned from the aforesaid authorities are:

(1) that leave of the winding-up court to proceed with the suit or other legal proceedings is not a condition precedent to the institution of a proceeding,

(2) that failure to obtain such leave before the institution of the proceeding did not entail dismissal of the proceeding, and

(3) that the proceeding instituted without the leave of the court, would, however, be ineffective until leave was obtained.

14. Therefore, both on principle, and authority, I have no hesitation in holding that the order of the learned munsiff dismissing the application filed by the petitioner as not maintainable is clearly without jurisdiction. He should have directed the petitioner to obtain the leave of the winding-up court keeping the application pending.

15. The civil revision petition is, therefore, allowed. The lower court is directed to restore the Interlocutory Application No. 1169/70 to its file and proceed with the application after the leave of the winding-up court is obtained by the petitioner under Section 446 of the Act. Since no one appeared to oppose this petition, there will be no order as to costs.


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