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Rani Sarla Devi Vs. Banda Electric Supply Co. Ltd. and ors. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtDelhi High Court
Decided On
Case NumberExecution Appeal No. 96 of 1968
Judge
Reported inILR1970Delhi495
ActsCompanies Act, 1956 - Sections 446
AppellantRani Sarla Devi
RespondentBanda Electric Supply Co. Ltd. and ors.
Advocates: D.K. Kapur and; A.N. Khanna, Advs
Cases ReferredRameshwar Nath v. U. P. Union Bank Ltd.
Excerpt:
.....act (1956), sections 446 & 537 - attachment put in force after commencement of winding up without leave of court void--leave granted previously by court under section 446 to continue the suit in which decree has been passed does not ensure for effecting attachment.; that if leave has been granted by a company court to continue with a suit filed prior to the winding up of a company, it cannot be inferred or implied that the leave for commencing execution proceedings is implict in the leave granted for continuation of the suit. ; when a winding up order is made it relates back to the date of the presentation of the winding up petition and the property of the company vests in the court. no one can be permitted to take that property from the court without first obtaining leave to..........for recovery of over rs. 2 lacs against the judgment-debtor company. during the pendency of the suit, winding up proceedings in respect of the judgment-debtor were commenced in the allahabad high court and a provisional liquidator was appointed. accordingly, the suit could not proceed in view of section 446 of the companies act, 1956. the decree-holder then applied to the allahabad high court for grant of leave to proceed with the suit in delhi. this leave was granted on 8th august, 1967. the suit itself was decreed on 12th march, 1968. after the passing of the decree anorder of winding up was made in respect of the judgment-debtor company by the allahabad high court on 17th september, 1968. the decree- holder moved an execution application in this court on 6th november, 1968 praying.....
Judgment:

Prakash Narain, J.

(1) The decree-holder, Smt. Rani Sarla Devi, filed a suit for recovery of over Rs. 2 lacs against the Judgment-debtor company. During the pendency of the suit, winding up proceedings in respect of the judgment-debtor were commenced in the Allahabad High Court and a provisional liquidator was appointed. Accordingly, the suit could not proceed in view of Section 446 of the Companies Act, 1956. The decree-holder then applied to the Allahabad High Court for grant of leave to proceed with the suit in Delhi. This leave was granted on 8th August, 1967. The suit itself was decreed on 12th March, 1968. After the passing of the decree anorder of winding up was made in respect of the judgment-debtor company by the Allahabad High Court on 17th September, 1968. The decree- holder moved an execution application in this Court on 6th November, 1968 praying for execution of the decree in favor of the decree-holder by attachment of a sum of Rs. 1,85,000.00 lying with the U.P. Electricity Board, Lucknow to the credit of the Judgment-debtor. On 12th November, 1968 this Court ordered the issue of warrant of attachment returnable by 20th December, 1968. The attachment seems to have been effected and an injuction order dated 12th November, 1968 was served on the official liquidator of the judgment-debtor restraining him the Company to withdraw the said sum of Rs. 1,85,000.00 lying with the L'.P. Electricity Board. Thereupon the official iiquidator filed an affidavit in this Court staling that as the execution proceedings had been commenced and the attachment warrant had been issued at the instance of the decree-holder without her obtaining leave of the winding up Court to take these proceeding the attachment may be recalled and any other order in execution be vacated. Notice of this affidavit was given to the decree-holder who filed a reply. The short point for consideration is whether having obtained leave to proceed with the suit the decree-holder is entitled to take benefit of that leave granted to her to even commence execution proceedings and effect attachment of the Judgment-debtor's property or whether fresh leave of the Allahabad High Court should have been taken before moving the execution application and applying for attachment.

(2) As already noticed above the leave that the decree-holder had obtained was for proceeding with her suit. This was obviously done under section 446 of the Companies Act, 1956. A reading of this section makes it clear that a suit is one type of legal proceeding contemplated permission to file or continue which is necessary when a winding lip order has been made or a provisional liquidator appointed in respect of a company. All other proceedings are included in the words 'other logal proceedings'. The leave that had been granted to the decree- holder in this case was for continuation of her suit. This section does apply not only to suits but also to any other legal proceeding which a party may institute or continue and would include execution proceedings, In this view of the matter a suit has to be regarded as distinct from an execution proceeding and separate leave would be necessary for starting execution proceedings even though leave had earlier been granted to continue with the suit. If leave has been granted by a company Court to continue with a suit filed prior to the winding up of a company it cannot be inferred or implied that the leave for commencing execution proceedings is implicit in the leave granted for continuation of the suit. I am fortified in coming to this conclusion by a Bench decision of the Allahabad High Court in Rameshwar Nath v. U. P. Union Bank Ltd. : AIR1956All586 . Aggarwala, J. who spoke for the Court while construing the somewhat similar provision in the Companies Act, 1913 observed as under:-

'SECTION 171 makes no distinction between a suit or legal proceeding decided by the Court itself or by some other Court. In the present case the appellant's claim for rent was, by consent of parties, decided by the Company Court itself. It will be assumed that the leave of the Court was implicit so far as the proceeding in this Court was concerned. But no such implied leave can be inferred for the initiation of the execution proceedings in the court of the District Judge. Before the execution proceedings could be instituted, leave of the Company Court was necessary under S. 171. The object of S. 171 is to vest the control of all suits or legal proceedings against a company under liquidation in the Court in which creditors of the Company may not be deprived of their just dues upon a pro rata distribution, by one creditor taking away the whole or a portion of the assets of the Company, without submitting himself to the pro rata distribution. After the passing of the order of winding up or of the appointment of the provisional liquidator, all the property and effects of the Company are deemed to be in the custody of the Court as from the date of the order of winding up of the Company S. 178(2) and the Official Liquidator is directed to take into custody or in his control all such property for the purposes of winding up. It would be very anomalous thereforee if the property and effects of the Company which is being wound up by the Court are to be taken away without leave of the Court by a claimant who does not come forward to prove his claim in the winding up. The law, thereforee, provides that all suits or legal proceedings shall not be commenced or proceeded with against the Company except by leave of the Court in which winding up proceedings are pending. Section 171 does, thereforee, apply even to the order of the Court which is sought to be enforced not by a petition in the winding up but by instituting execution proceedings in some other Court. It is immaterial in such cases that the claim or debt which is the subject-matter of the suit or other legal proceeding came into existence after the date of winding up. '

(3) The present petition filed on behalf of the Official Liquidator of the Company, however, invokes Section 537 of the Companies Act, 1956. This section has nothing to do with Section 446 of the Companies Act. In fact it is a new section and no provision similar to this was available in the Companies Act, 1913. Under the Act of 1913 a sale held without leave of the Court was voidable at the option of the official liquidator. Under the present statute Section 537 makes such a sale void. This provision in terms also provides that any attachment, distress or execution put in force without leave of the Court shall be void. Admittedly, no leave was obtained in this case to move the execution application or effect attachment of the judgment-debtor's property. It is obvious from the scheme of the Act that the legislature had enacted this provision to safeguard the interest of the creditors and contributories of a company so that no fraudulent transaction takes place. Jt is also obvious that a decree-holder of a money decree must rank with other unsecured creditors and share pro rata in the distribution of the assets of the company to all the unsecured creditors, when a winding up order has been made it relates back to the date of the presentation of the winding up petition and the property of the company vests in the Court. No one can be permitted to take that property from the Court without first obtaining leave to do so. The very fact that though leave contemplated by section 446 may be granted for a suit yet an attachment made without leave is to be void shows that leave obtained for the continuation of a suit will not ensure for moving an execution application or affecting attachment. I, thereforee, hold that the attachment effected in pursuance of this Court's order dated 12th November, 1968 is void and dismiss the execution application moved by the decree-holder as incompetent having been filed without complying with the provisions of section 446 of the Companies Act, 1956. In the circumstances of the case I leave the parties to bear their own costs.


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