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Eastern Automobile Syndicate Ltd. and anr. Vs. Babu Rajendrakumarsingh - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtMadhya Pradesh High Court
Decided On
Case NumberFirst Appeal No. 57 of 1953
Judge
Reported inAIR1959MP95
ActsCompanies Act, 1913 - Sections 169, 171 and 232; Companies Act, 1956 - Sections 442, 446 and 537
AppellantEastern Automobile Syndicate Ltd. and anr.
RespondentBabu Rajendrakumarsingh
Appellant AdvocateK.A. Chitale, Adv.
Respondent AdvocateH.C. Dhanda, Adv.
Cases ReferredHumber and Co. v. John Griffiths Cycle Co.
Excerpt:
- - the company as well as thakur ranjeetsingh preferred appeal on 29-9-1953. while the appeal was pending winding-up order was passed. the plaintiff company was unsuccessful in that action......if we examine the wording of the section it appears to me that leave is necessary in respect of a suit or proceeding against the company. the material time with reference to which the question of leave is to be considered is the date of winding-up order. it is with reference to this date that we have to see whether a suit or proceeding is commenced or proceeded with against the company.if the proceeding is against the company naturally the person attempting to commence or to proceed with that suit or proceeding would be interested in commencing or pursuing the same. it is he who will therefore be required to approach the winding-up court for leave. as far as i can see the provision is not intended for preventing the company from carrying on any protective proceeding without obta-ining.....
Judgment:

V.R. Newaskar, J.

1. A preliminary objection is raised in this appeal on behalf of the respondent that since a winding-up order has been made with respect to the appellant-Company, since the filing of the present appeal in a winding-up proceeding for compulsory winding-up, it cannot be continued without the leave of the winding-up Court by reason of provisions of Section 171 of the Indian Companies Act, 1913, which applies to the present case.

2. The facts leading up to the present appeal, necessary for consideration of this objection may be briefly stated:

3. Respondent filed the suit out of which this appeal arises against the appellant Company and its Managing Director Thakur Ranjeetsingh for the recovery of Rs. 15,469-8-3 on the basis of a loan agreement in respect of a sum of Rs. 26,000/- on terms and conditions mentioned therein. The agreement, it was alleged, was executed by Thakur Ranjeetsingh as the Managing Director of the Company. Thakur Ranjeetsingh had personally guaranteed the repayment of this loan as per terms of the agreement.

After giving credit for the amounts received towards this plaintiff filed the suit for the balance with interest. The defendant-company and Thakur Ranjeetsingh both contested the suit denying borrowing of Rs. 26,000/-; pleading want of consideration for the agreement sued upon and repayment of Rs. 12,000/- more. The defence was overruled: and the suit was decreed. This appeal is directed against that decree. The Company as well as Thakur Ranjeetsingh preferred appeal on 29-9-1953. While the appeal was pending winding-up order was passed.

4. The question which arises for consideration is whether in view of the aforesaid circumstances Section 171 of the Indian Companies Act, 1913, is a bar to the continuance of this appeal in the absence of a leave from the winding-up Court.

5. Section 171 of the Indian Companies Act, 1913, is as follows:

'When a winding-up order has been made or a provisional liquidator has been appointed no suit or other legal proceeding 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.'

6. In order to understand the true significance of this provision it will be necessary to examine the policy of law in making this provision.

7. The object of winding-up through or under the Supervision of the winding-up Court is to see that there is proper realisation of the assets of the Company from those who are liable to the Company and their fair and equitable distribution amongst those who are entitled to the same. The policy of law in enacting Sections 169, 171 and 232 of the Act is to protect the assets of the Company for equitable distribution amongst those entitled and to prevent the administration being embarrassed by a general scramble of creditors.

8. Bearing in mind this policy if we examine the wording of the Section it appears to me that leave is necessary in respect of a suit or proceeding against the Company. The material time with reference to which the question of leave is to be considered is the date of winding-up order. It is with reference to this date that we have to see whether a suit or proceeding is commenced or proceeded with against the company.

If the proceeding is against the Company naturally the person attempting to commence or to proceed with that suit or proceeding would be interested in commencing or pursuing the same. It is he who will therefore be required to approach the winding-up Court for leave. As far as I can see the provision is not intended for preventing the Company from carrying on any protective proceeding without obta-ining leave from the Court.

No case has been cited before me which requires a Company to approach a winding-up Court to enable it to commence or continue a suit or proceeding against others including its debtors nor a case, in which a Company desiring to avoid the effect of an adverse decision against it. Leave in all cases has to be obtained by a party ranged on the side opposite to the Company and the object of seeking leave is to enable that party to obtain a decision adversely affecting the assets of the Company.

9. In the present case no doubt at the commencement of the suit the action was against the Company. But when the winding-up order came to be passed there was no proceeding against the Company of the sort requiring the opposite party to approach the winding-up Court for leave in order to obtain a fresh decision for adversely affecting the assets of the Company. There was already a decision in favour of the opposite party, and it was the Company which was interested in prosecuting a protective to relieve itself from the effect of an adverse decision.

10. To such a proceeding no leave in my opi-Inion, is necessary,

11. Counsel for both parties have referred to the decisions reported in Kishen Singh v. Industrial Bank of India AIR 1918 Lah 181 (FB) and Raj Kumar Singh v. Benares Bank, AIR 1941 All 154 which appears to take somewhat opposite views. Both these decisions appear to take the cue from the decision of the House of Lords in England in a case reported in Humber and Co. v. John Griffiths Cycle Co., (1901) 85 LT 141.

12. In order to appreciate the view taken in the two Indian decisions it will be useful to examine the implications of the aforesaid English case.

13. The facts of that case were that an action was brought by John Griffiths Cycle Company against Humber and Company. The plaintiff Company was unsuccessful in that action. Plaintiff appealed and while that appeal was pending a winding-up order was passed against the plaintiff. The appeal was continued by it and it was successful therein. The opposite party Humber and Company now appealed and the question arose whether leave was necessary.

The argument on the side of the appellant was that no leave was necessary as the proceeding was merely defensive while it was argued on behalf of the other side that leave would be necessary inasmuch as when the appeal was preferred it was a proceeding against the Company. Lord Davey in his speech said:

'The respondents, that is to say the Company, 'Now' object that the present appellants cannot proceed with their appeal without the leave of the Court in Ireland. I am of opinion that the objection cannot be maintained. It was the respondents who themselves proceeded with the action after the winding-up order, by prosecuting their appeal in the Court of Appeal, and when once an action by the Company itself has been proceeded with, there is no necessity for the defendants in the action to obtain leave for any defensive proceeding on their part.'

14. This decision was understood in the Full Bench decision of the Lahore High Court in Kishensingh's case AIR 1918 Lah 181 to lay down that when an action is commenced by the Company itself then no leave would be necessary for enabling the opposite party to prosecute an appeal or revision while it was held by Braund J., in the decision in AIR 1941 All 154 that the aforesaid decision of the House of Lords cannot be understood to decide in general terms that wherever there is an appeal from a suit in which the company itself was the plaintiff that appeal may be proceeded with or commenced without the leave of the Court in spite of a winding-up order.

15. In the Lahore case the facts were that a suit was commenced by the Company prior to winding-up order The Company was successful and the opposite party wanted to prefer appeal against that decision. By this time winding-up order was passed. Question was whether leave for prosecuting the appeal was necessary. It was held that no leave was necessary because it was a protective proceeding.

In the Allahabad case the facts were that in August 1939 the Company obtained a decree in a suit filed by it against the defendant. On 3-12-1939 the defendant preferred appeal against the Company as the respondent. In March 1940 the Company was ordered to be wound up. In these circumstances it was held that leave to prosecute the appeal would be necessary as the appeal was a proceeding against the Company.

The decision in the aforesaid House of Lords Case seems to suggest that it is the date of winding-up order that is material. If at the time of that order there is a proceeding against the Company pending or to be commenced leave would be necessary. But if a proceeding is to be continued or commenced by the Company no leave would be necessary.

No leave further will be necessary if a proceeding pending on the date of the order by the Company is continued and the Company was successful and the opposite party desires thereafter to take a protective proceeding. The word 'action' used by Lord Davey in his speech includes an appeal as will be clear from the following observations made in the contest of facts of that case:

'It was the respondents who themselves proceeded with the action after the winding-up order by prosecuting their appeal'.

16. But whatever be the correct view it is unnecessary to consider the matter further for the purpose of the present case because in the first place the conflict exists in cases where the initial action is by the company and in the second place in this case at the date of winding-up order it was a proceeding by the Company and not against it.

The fact that to begin with it was a proceeding against the Company is not material because as I have already discussed above the question of leave under Section 171 of the Indian Companies Act has a reference to leave to be obtained not by the Company but by the opposite side from the winding up Court and thereby to induce it to allow the matter litigated in the ordinary way.

17. For these reasons no leave in this case is necessary for prosecuting the present appeal.

18. The appeal shall therefore be set down for hearing.

T.C. Shrivastava, J.

19. I agree.


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