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Official Liquidator of United India General Finance Pvt. Ltd. (In Liquidation) Vs. Satya Dev Awasthi and ors. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtDelhi High Court
Decided On
Case NumberCompany Appeal No. 402 of 1973 and Company Petition Appeal No. 125 of 1967
Judge
Reported in[1978]48CompCas190(Delhi); 33(1977)DLT1; ILR1977Delhi337; 1977RLR171
ActsCompanies Act, 1956 - Sections 446
AppellantOfficial Liquidator of United India General Finance Pvt. Ltd. (In Liquidation)
RespondentSatya Dev Awasthi and ors.
Advocates: V.V. Shastri, Adv
Cases ReferredS. Krishnamachariar v. The Hanuman Bank Ltd.
Excerpt:
.....proceedings re-started after setting aside the order already passed. at the same time he can in a collateral proceedings plead that the order is not binding upon him. - - on that date the official liquidator indicated that he would like to lead evidence qua respondents nos......clause contained in the hire-purchase agreement on the footing that he had not entered into that hirepurchase agreement. the case of the first respondent as disclosed in the application, is that he had signed a number of blank forms, papers. hundis and probotes in favor of the company, which were now alleged by the company to be a hire-purchase agreement. it is also stated in that application that the company had seized the vehicle. it was further stated that a criminal case had been filed before a magistrate. and the truck had been taken into custody by the delhi police and is now standing at the police station patel nagar, new delhi. further it was stated that the company had applied for custody of the vehicle in that court. it was alleged that the company had no right to take.....
Judgment:

Dalip K. Kapur, J.

(1) The present petition on behalf of M/s. United India General Finance Private Ltd., now in liquidation, has been moved by the Official Liquidator under various Sections of the Companies Act, 1956. The first three respondents are the hirer or debtor and the two guarantors in respect of vehicles No. USU-445, which was financed by the company when it was functioning. The .remaining three respondents i.e., 4 to 6 are the ex-Directors of the Company. The claim in respect of the first three respondents is that they had taken a vehicle from the company under a hire purchase agreement and as per the books of the company, Rs. 39.126.00 was due from them as on 13th November. 1967. A further sum of Rs. 25,350.00 is claimed as interest on that sum making a total of Rs. 64,476.00 . Future interest on this sum is claimed at the rate of 12 per cent per annum. As the present petition was filed on 2nd June, 1973. the claim has now become a fairly substantial one.

(2) As regards respondents 4 to 6, the claim of the Official Liquidator is that there was a previous case before the Civil Judge, Lucknow in which it was claimed that a sum of Rs. 9,075.00 had been paid to company by the first respondent. As the credit shown in the books is only Rs. 875.00 , it was alleged that the difference of Rs. 8,200.00 was received by respondents 4 to 6 and they were liable to account for the same. Hence the claim against respondents 4 to 6 was to the extent of Rs. 8.200.00 .

(3) In the body of the petition it was mentioned that an ex par/e order had been passed by the Civil Judge, Lucknow on 9th November. 1968 to the effect that there was no arbitration agreement between the company and the respondent No. 1 and the company had also no right to the vehicle. It was further claimed that this order was passed on 9th November, 1968, whereas the winding up order was passed by the Court on 12th August, 1968. On this basis, it was stated that the order of the Court was void being in contravention of Section 446 of the Companies Act and also because it was passed without obtaining leave from the winding up Court. It was further stated that there was a criminal case instituted in the Court of Mr. B. N. Verma, Judicial Officer, Lucknow, which had resulted in the vehicle being seized under a search warrant and taken into custody by the Delhi Police. Even now, the vehicle was stated to be standing at the Police Station, Patel Nagar, which was not releasing the vehicle without an order from the proper authority. The petitioner wanted the following reliefs in respect of the claims : (a) a payment order against the first three respondents to the extent of Rs. 64,476.00 together with future interest and (b) a payment order against respondents 4 to 6 to the extent of Rs. 8,200.00 . And also an order generally directing the police authorities to give up the vehicle to the officials Liquidator.

(4) Although the present petition involves many substantial questions, not one of the first three respondents have put in appearance. Initially, this Court ordered the issue of summons under Section 477 of the Companies Act, 1956 to respondents 2 to 6 and an ordinary notice to respondent No. 1. There was no service. Then the Court ordered that the notice be issued to respondents Nos. 1, 2 and 3 only. Respondent No. 2 was served as per affidavit filed on 4th April, 1974, and. thereforee thereafter respondent No. 1 was summoned under Section 477 of the Companies Act. He was served by affixation but did not put any appearance. He was then ordered to be served through registered post. On 13th January, 1975, an affidavit of service was filed qua respondent No. 1, but he did not put in appearance. Then bailable warrants were ordered to be issued against him for 13th March, 1975 and summons under Section 477 were ordered to be issued to respondent No. 3. In spite of every effort, the warrants could not be served on the first respondent. There was no report from the District Magistrate, Rai Bareilly concerning this warrant. On 29th July, 1975, it was directed that a demi-official letter be sent to the District Magistrate to send a report concerning the execution of the warrant. No response was received and finally the Court ordered on 14th November, 1975, that the respondents had not been served with the summons in form No. 111 and consequently, they should now be served with ordinary notice. On 16th January, 1976, an affidavit of service was filed qua respondents 3 to 6. Respondents 4 to 6 put in appearance through counsel but respondent No. 3 did not appear and wa,s set ex parte. Finally on 19th March, 1976. affidavit of service was also filed qua respondent No. 1 was also set ex parte. On that date the Official Liquidator indicated that he would like to lead evidence qua respondents Nos. I to 3 to begin with the and accordingly the case was set down for evidence against respondents 1, 2 and 3 who were all ex parte. In spite of several adjournments being given, the Official Liquidator only examined one witness who was Mr. H. K. Das Sharma, respondent No. 4, ex-Manacing Director of the company in liquidation.

(5) As the matter has been heard ex parte against respondents 1 to 3; it is necessary to point out the various difficulties that have arisen in the decision of this case, in spite of the absence of the said respondents. Firstly, the hire-purchase agreement on which the case has been based is not on record and cannot be located. Then the only document on record is the ledger account of the first respondent which shows a debit balance of Rs. 4,710.00 in respect of the unpaid hire-purchase Installments and Rs. 13,193.04 in respect of the incidentals. It was also stated by Mr. H. K. Dass Sharma that the birepurchase agreement was entered into on 15th December, 1965, for Rs. 34,308.00 , out of which Rs. 7,500.00 was paid initially and the balance of Rs. 26,808.00 was payable in 24 Installments of Rs. l,117.00 each, commencing from 1st February, 1966. Further, it was stated that the vehicle was repossessed by the company in 1966 and brought to Delhi. The hirer then filed a theft case with the police, who took possession of the vehicle. Ever since then the vehicle was with the police. It appears from the statement that the seizure of the vehicle was ordered by the Magistrate on the application of the company before it went into liquidation. Thus, the vehicle in question is still in police custody for the last 10 years and according to the application, the vehicle is with the Police at Patel Nagar Police Station, New Delhi.

(6) The inconsistent nature of the Official Liquidator's case is indicated from the fact that the account in question shows that the hire money due as on June, 1966, amounted to only Rs. 4,710.00 . The remaining amount consists of incidentals totalling Rs. 13,193.04 composing largely different items of expenditure incurred after June, 1966. They are mostly items in the nature of traveling allowances or repair charges. There are several items of traveling allowances and expenses paid to various persons right up to December. 1966. There are also two small items in 1967. The major items relates to repair charges. I wonder how such a large amount was incurred by the company in respect of repairs, when the vehicle was lying with the police. It is quite possible that this expenses for repairs was incurred by the company after the vehicle had been repossessed and before it was seized by the police. However, there is no direct evidence to prove this fact and the Official Liquidator is not in a position to prove the entries themselves. The ex-Managing Director in his statement did not give any indication how the expenses were incurred except to say that they were justified. According to him, the items could be proved by reference to the vouchers but the same have not been traced out by the Official Liquidator. This raises a problem as to the manner in which this case can be decided. The Primary difficulty faced by the Official Liquidator is the absence of the hire purchase agreement and a secondary difficulty is the establishment of the correctness of the account. For both these reasons it is very difficult to give a decision in favor of the petitioner in the absence of proper proof of the account.

(7) Fortunately for the Official Liquidator, he has filed Along with the application certified copies of the order of the Civil Court at Lucknow in Misc. Case No. 57 of 1966. He has also filed the order passed in that case on 9th November, 1968. It appears that the first respondent filed an application under Section 33 of the Indian Arbitralion Act to challenge the arbitration clause contained in the hire-purchase agreement on the footing that he had not entered into that hirepurchase agreement. The case of the first respondent as disclosed in the application, is that he had signed a number of blank forms, papers. Hundis and probotes in favor of the company, which were now alleged by the company to be a hire-purchase agreement. It is also stated in that application that the company had seized the vehicle. It was further stated that a criminal case had been filed before a Magistrate. and the truck had been taken into custody by the Delhi police and is now standing at the police station Patel Nagar, New Delhi. Further it was stated that the company had applied for custody of the vehicle in that Court. It was alleged that the company had no right to take possession of the vehicle and finally it was claimed that there was no arbitration agreement and the company had no right to the vehicle. In the body of the application, the following admission is contained :-

'THATthe applicant purchased Truck No. USU-445 from the opposite party for Rs. 27,500.00 and the agreed price was agreed to be paid as follows :- (a) Rs. 7,500.00 were paid at the time of purchase. (b) The remaining amount was agreed to be paid in easy Installments.'

In my view, this is a clear admission to the effect that there was a hire-purchase in which part of the price had been paid in the beginning and the remaining amount had to be paid in easy Installments.

(8) The Court of Civil Judge, Lucknow, decided this case on 9th November, 1968, passed the following order :-

'APPLICANTcounsel none respondent for opposite party despite repeated calls. Ex parte. The applicant has substantiated the case through affidavit Kha 25 & Kha 26. there is no counter affidavit shown to me on record and there is none to press the counsel made to the applicant's case. thereforee I find that the case of the applicant stands established and the application succeed. The application is allowed as prayed with ex parte costs. sd/- B. Chandra Civil Judge. Lucknow. 9-11-1968 '

This order is not at all a speaking order and docs not at all show what has been decided. As it was an application under Section 33 of the Arbitration Act, all that it could possibly decide was that there was no arbitration agreement. There is no decision that there was no hire-purchase agreement between the partics. Furthermore, this decision was given on 9th November. 1968, whereas the winding up order was passed on 12th August, 1968. This brings me to consider the legal effect of the order in question which has been urged before me by Mr. Shashtri on behalf of the Official Liquidator. He submits that the order is void, and, thereforee, has no legal effect at all This is a very substantial question as to the effect of Section 446 of the Companies Act. 1956. The relevant portion of that Section reads :-

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.'

Thus whenever a winding up order has been made no suit which is pending at the date of the winding up order can be proceeded with against the company except the by leave of the Court. According to the learned counsel, no leave was ever sought from this Court and, thereforee, the order in question was ineffective. There are three possibilities in my view regarding the interpretation of the order. Firstly the Court may have passed the order without knowing that a winding up order had been passed. Secondly, the Court might have known that the winding up order had been passed but thought that the proceedings could continue. Tn other words, the Court wrongly interpreted the provisions of section 446 of the companies Act. Thirdly, the Court might have been wrongly informed that the leave had A been granted or might have assumed that leave to continue the suit had been granted. It is problematic in the absence of and proof, to know why the Court proceeded with the matter after the winding up order was passed, it is not possible to determine what was in the mind of the Court when it passed the order. One has to see whether the order has legal effect or is totally void. This depends on the nature of the stay which is contemplated by Section 446 of the Companies Act, 1956. Undoubtedly, the legislative intention is that all proceedings should be stayed after the passing of the winding up order. The object of the provision is to place all the creditors of the company on equal footing. However, if a winding up order is passed by one Court, it is not humanly possible for any other Court to know of the existence of the order till information is actually received but it. Hence, it is quite conceivable that the Court may continue to deal with procecdings in absolute ignorance of the fact that the winding up order has been passed. The Court may even be unaware of the provisions of Section 446 of the Companies Act, 1956. Thus, there is always a possibility that a Court may continue with the proceedings in spite of the statutory provisions of section 446 of the Companies Act. The question which arises for decision is, whether the continuance of the proceedings after the winding up order leads to the decision being a nullity or merely voidable at the option of the Official Liquidator.

(9) In order to explain the section further, it is useful to refer to Section 537 of the Companies Act, 1956, which states :-

'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 effects 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.'

This section shows that if a sale or other proceedings in execution takes place after a winding order has been passed then it is void. There is no corresponding provision to show that the judgment is rendered void. Presumably, the framers of the law wanted to make a distinction between a sale or proceedings in execution and other proceed ings in the suit or other legal proceedings, not being proceedings in execution. Undoubtedly, proceeding in execution is also a legal proceeding which would be stayed under Section 446 of the Companies Act. However, the Act has provided an additional safeguard in such cases to the effect that if a sale or attachment takes place after the winding up order then it is void unless leave has been obtained from the court winding up the company. This matter has been dealt with in several reported decisions which can usefully be referred to. It was held in Smt. Bhagwati Ddevi Bubna and others v. Dhanraj Mills Private Ltd. and others, : AIR1969Pat206 , by a Division Bench of the Patna High Court that if a suit is continued without leave obtained under Section 446 of the Cumpanics Act, the decree passed in such a suit is not void but it is only voidable at the instance of the Liquidator. The Court computed the Section (446) with Section 537. There is also a quotation in the judgment from a Full Bench decision of the Lahore High Court, viz., Nazir Ahmed v. Peoples Bank of Northern India Ltd., A.I.R 1942 Lah. 289, in which it was held :-

'WHENEVERproceedings are commenced without leave, the proper course for the Liquidator is to apply to the Court turn stay of the proceedings, and not to plead the omission to obtain leave as a bar to the further maintenance of the proceedings, as in practice, the section has always been worked out by applying to stay the proceedings.'

(10) A number of other decisions were also referred to in the Lahore Case. Those cases has also been referred to in the Patna case. In my view the decision in the Peoples Bank case (supra) decided by the Lahore High Court has no application to the present case because it was not a case in which a final decree or order was passed after the winding up order, but was concerned with the effect of appointing a Provisional Liquidator. In the present case, it is more useful to refer to the Patna case and the decision therein, because it has greater relevance to the question whether the order is nullity or merely voidable. On this question the Court finally held that though the order was passed with jurisdiction and the decree was not void, it was voidable at the instance of the Official Liquidator. As the Official Liquidator had objected, it was concluded by the Court as follows :-

''HENCEthe decree under execution in the instant ease is not binding on the Liquidator and hence proceedings in execution cannot continue. The matter has, thereforee, to be taken to the winding up court for further order. Any observation made by the executing court regarding the nature of the decree cr its executability must be ruled out as being of no effect.'

These observations were based on the view that even ex-post fucto leave could be given by the winding up Court.

(11) In a decision given by the Calcutta High Court by A. N. Ray. J. (as his Lordship then was) reported as Roopnarain Ramchandra Private Ltd. v. Brahmapootra Tea Co. India) Ltd., and another, : AIR1962Cal192 , it was observed on this question as follows :-

'IFleave has not been obtained, the decree does not become a nullity turn lack of jurisdiction. Where the plaintiff was not aware of any winding up order and thereforee could not asked for any leave the absence of the leave is not fatal as to render the decree a nullity. In appropriate cases leave can be given even retrospectively if circumstances of the case justify'.

In that case the application had not been made by the provisional liquidator and thus the decree was not set aside.

(12) In some other cases, Buldeo Narain Singh v. United India Bank Ltd., A.I.R. 1916 Pat 47, S. Krishnamachariar v. The Hanuman Bank Ltd., (in liquidation), Tanjore, : AIR1963Mad308 , it was held either under Section 171 of the Old Act or Section 446 of the new Act that if proceedings were taken in execution, they would be void. Although in the latter Madras Judgment it was held that as the Official Liquidator participated in the proceedings without objection, there has been a waiver of the objection.

(13) These in short are the relevant authorities on the question become me. What then is the true position The section requires that the proceedings should not continue after the winding up order has been passed. thereforee, section 446 of the Companies Act operates as a statutory stay of all proceedings. Section 482 of the Companies Act, 1956, contains a provision that a winding up order has to be enforced by all Courts as if it has been passed by them. Thus, the Civil Judge in Lucknow should have stayed the proceedings but it did 'not do so. The effect of the order is that the Official Liquidator was fully competent to move that court to set aside the order. He could have made an application to the effect that the order was ineffective because there was an automatic stay by reason of the passing of the winding up order which could only be removed by moving the winding up Court. If the Official Liquidator had acted hi this way, possibly the Court would have set aside its order. Now that order stands and has not been set aside. The question for consideration is whether it has any effect on the matter now before this Court. It has been indicated in Patna Judgment (Smt. Bhagwati Devi-supra) that the order in any other legal proceedings without the leave of the Court is voidable. In a given case the Official Liquidator may accept the order as being correct, in some other cases, he might say that the order is of no effect. The choice is with the Official Liquidator. In the present case the official Liquidator has taken the stand that the order is ineffective because it B has been passed without notice to him and in any case it was an exparte order. I think he can take this position- He can say that the order is not binding upon him. The effect of such a contention would be that the order would not operate as rest judicata. The further qcestion whether the order is a nullity or merely voidable does not arise. The Official Liquidator could as easily have accepted the order and treated it as binding upon himself. Thus, my conclusion is that the order is not void ab initio but can be avoided by the Official Liquidator, if he so desires. It can be avoided by applying to the Court at Lucknow and having the proceedings restarted after setting aside the order already passed. At the same timie he can in a colleteral proceedings plead that the order is not binding upon him. This is substance, is my conclusion on the legal effect of Section 446 of the Companies Act. I must state at the same time, I cannot legitimately accept the view that the order is a nullity and absolutely void, because it is an order of a court; and the order of a court, even a subordinate court. has to be treated with the greatest respect- Every order has to be assumed to be correct till set aside by a superior Court. I have no jurisdiction to set aside the order, and. thereforee, the order is not null and void. The Official Liquidator is in a special position because he has the choice of avoiding the order by contending that it is not binding upon him. This argument cannot be refuted. I accept the same.

(14) In any event, even if the order was binding on the Official Liquidator it has very little effect on his legal rights in the present case because the order does not say the hire-purchase agreement is not binding. It merely states that the application is allowed. As the application only sought to avoid the arbitration clause, at the very most, the effect of the order is to declare the arbitration clause in the contract not binding on the parties. This docs not affect the question whether the hire purchase agreement is binding or not- There is nothing in the order in question suggesting that the hire purchase agreement is not binding.

(15) Now coming to the question as to what are the rights of the Official Liquidator, I find that the application filed by the first respondent in Lucknow Court refers to an alleged hire-purchase agreement and also admits that certain documents were signed. This certainly supports the statement of Mr- H. K. Das Sharma that there was a hire-purchase agreement which cannot be traced now. I accept the statement and hold that there was a hire-purchase agreement which cannot now be located and the terms of which cannot be ascertained. In short, I reach the conclusion that the first respondent took vehicle No. USU-445 on hire-purchase on 15th December, 1965 and had to B pay a sum of Rs. 26.900.00 in 24th monthly Installments in relation to that hire-purchase. The vehicle was seized by the company in 1966 for non-payment of the Installments. At that time the sum of Rs. 4.710.00 was due under the hire-purchase agreement which is recoverable in respect of the vehicle. After the seizure, the first respondent got the vehicle seized by the police and thus deprived the company of the use of the vehicle after it had been re-possessed. This means the entire amount of the hire-purchase is recoverable from the first respondent on account of the seizure of the same at the instance of the first respondent. Thus a sum of Rs. 26,808/the full amount of the hire-purchase is recoverable from the first respondent. I disallow the claim concerning incidental because there is no hire-purchase agreement on record and, thereforee, I do not find material to show that this claim could be made out. In fairness to the counsel for the Official Liquidator, I mention that he did urge on the basis of blank copy of the agreement that repairs could be charged after the seizure of the vehicle if the vehicle was found to be in a damaged condition. As there is no evidence on this question, and there is no hire-purchase agreement, I disallow this part of the claim, because I cannot ascertain the terms of the agreement. At the same time in view of the hire-purchase agreement being admitted in the Lucknow Court, and the later seizure of the vehicle by the police, the compa.ny is entitled to get the vehicle back and the police should, thereforee, release the same in favor of the Official (, Liquidator.

(16) In the absence of the hire-purchase agreement I cannot award any interest nor I can award future interest. I accordingly pass a payment order for Rs. 26,808.00 which was the full amount payable in respect of the hire-purchase Installments, against the first three respondents. The first respondent is liable as the hirer and second and third respondents as the guarantors. I may mention that second and third respondents were also shown in the application before the Civil Judge, Lucknow as being signatories of the documents in that capacity. The Official Liquidator is also entitled to the recovery I of the Vehicle.

(17) As the respondents have not appeared, I do not make any order for costs in the circumstances of the case


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