Skip to content


The Palghat Wariar Bank Ltd. (In liquidation) through Its Official Liquidators Vs. Mundan Kandath Purakkal Ramaswamy's son, Padmanabhan and Anr. (04.04.1950 - MADHC) - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtChennai High Court
Decided On
Case NumberSecond Appeal No. 1187 of 1947
Judge
Reported inAIR1951Mad348; (1950)2MLJ450
ActsCompanies Act, 1913 - Sections 171
AppellantThe Palghat Wariar Bank Ltd. (In liquidation) through Its Official Liquidators
RespondentMundan Kandath Purakkal Ramaswamy's son, Padmanabhan and Anr.
Appellant AdvocateD.A. Krishna Variar, Adv.
Respondent AdvocateC. Unikanda Menon, Adv.
DispositionAppeal dismissed
Cases ReferredMt. Zamrut v. Peoples Bank) Northern India
Excerpt:
.....his favour by 2nd defendant regarding rents of certain properties attached by plaintiff - whether claim proceeding started by 1st defendant and order made on it by execution court should be regarded as null and void on account of want of court in winding up under section 171 - company in liquidation should institute execution proceedings and rely upon section 171 to debar persons from defending their property in those execution proceedings - ground taken by appellant has no merit. - - 1. the interesting question of law debated before me in this second appeal is whether when a company in winding up attaches certain property in execution of a decree in its favour as that of its judgment-debtor, any claim petition by a third patty is to be regarded as 'other legal proceeding' within..........transaction on its merits, and the only question which arises fair consideration is whether the claim proceeding started by defendant 1 and the order made on it by the execution court should be regarded as null and void on account of want of the court in the winding up under section 171, companies act. on this latter question too, the courts below have concurrently held against the plaintiff.3. the argument for the appellant is that the claim proceeding constitutes an independent legal proceeding which cannot be proceeded with or commenced against the company except by leave of the court, while the contention for the respondents is ,that it is in the nature of a defensive proceeding in answer to the execution petition of the plaintiff, for which no leave is necessary under the act......
Judgment:

Raghava Rao, J.

1. The interesting question of law debated before me in this second appeal is whether when a company in winding up attaches certain property in execution of a decree in its favour as that of its judgment-debtor, any claim petition by a third patty is to be regarded as 'other legal proceeding' within the meaning of Section 171, Companies Act, which shall not be proceeded with or commenced against the company except by leave of the Court.

2. The appellant before me is the plaintiff in the original suit who sued to set aside an order on a claim petition filed by defendant 1 on the basis of an assignment in his favour by defendant 2 regarding the rents of certain properties which had been attached by the plaintiff. The claim succeeded in the execution Court, and the case of the plaintiff is that the assignment was a sham transaction unsupported by consideration which was entered into by defendant 2 with a view to defeating the claim of the plaintiff in execution of its decree against defendant 2 in O. S. No. 195 of 1936 on the file of the District Munsif's Court at Palghat. Both the Courts below have found against the case of the plaintiff in the attack made against the transaction on its merits, and the only question which arises fair consideration is whether the claim proceeding started by defendant 1 and the order made on it by the execution Court should be regarded as null and void on account of want of the Court in the winding up under Section 171, Companies Act. On this latter question too, the Courts below have concurrently held against the plaintiff.

3. The argument for the appellant is that the claim proceeding constitutes an independent legal proceeding which cannot be proceeded with or commenced against the company except by leave of the Court, while the contention for the respondents is ,that it is in the nature of a defensive proceeding in answer to the execution petition of the plaintiff, for which no leave is necessary under the Act. The learned counsel for the appellant says that as ruled by Kuppuswami Ayyar J., in the Calicut Bank Ltd. v. Narayanan Nambudri, : AIR1944Mad84 , the word 'proceeding' in the section of the Act applies to execution proceedings also and is not confined to original proceedings, and that the claim petition is itself a proceeding in execution which falls within the mischief of the section, But as the lower Court rightly puts the matter.

'In the present case no execution proceedings were started by defendant 1 against the Wariar Bank (in liquidation). On the other hand, the Official Liquidators as representing the Wariar Bank (in liquidation) applied in I. A. No. 225 of 1943 for attachment of the mesne profits or of the rent payable by defendant 8 to defendant 2 and the claim petition was filed by defendant 1 as E. A. No. 506 of 1943 only in the attachment proceedings started by the liquidators.'

The decision in the Calicut Bank Ltd. v. Nekkat : AIR1944Mad84 , does not therefore apply to the present case where defendant 1 only put forward a claim as a defence to the execution proceedings already started by the Official Liquidators.

4. It is observed in Palmer's Company Law, Edn. 19 by A. F. Topham K. C. at p. 404 :

''' The object of the winding up provisions of the Companies Act,' 1862 said Lindley L. J. in Be Oak Pitts Colliery Co. (1882) 21 Oh. D. 322 'is to put all unsecured creditors upon an equality and to nay them pari passu.' To accomplish this, it was indispensab le that proceedings against the company by way of action, execution, distress or other process should be suspended, otherwise the winding up would resolve itself into a (scramble for the assets. Accordingly the Act of 1862 gave the Court jurisdiction in various cases to restrain proceedings. Section 24 (5) of the Judicature Act, 1873, modified these provisions to some extent by providing that no proceeding in the High Court can be restrained by injunction but this did not alter in substance the jurisdiction. Now by Section 226 of the Act of 1948, the Court can, after presentation of the petition, restrain proceedings, and by Sections 227 and 231, on a winding up order being made, or a provisional liquidator appointed, proceedings are automatically stayed and cannot be proceeded with without leave of the Court. In this way creditors and others are compelled to come in and prove their claims in the winding up and a rateable and just distribution of the company's assets is effected.'

Judged from the stand point of the object and purpose of the statutory provision, it is clear to my mind that the proceeding by way of a claim petition with which defendant 1 intervened in the course of the execution proceeding of the plaintiff does not fall within the purview of the section of the Act.

5. It may be that where the language of the statute is sufficiently wide to cover a case not within its professed or implied purpose and object the language must still be given effect to. But as pointed out in Rustomji's Company Law, Edn. 2 at p. 396 ;

'When once an action by the company itself has been proceeded with, there is no necessity for the defendant in the action to obtain leave for any defensive proceeding on his behalf. Where a company in liquidation is plaintiff, the defendant may put in a counter claim (against the company) in the nature of a defence without obtaining the leave of the Court.'

Reference is made by the learned author in this connection to a case in Humber & Co. v. John Griffiths Cycle & Co., (1902) 85 L. T. 141 and to a case in Mersey Steel & Iron Co. v. Naylor, (1882) 9 Q. B. D. 648 : 51 L. J. Q. B. 576. Inthe formal ease it was ruled by the House of Lords that

'Where a company is being wound up under thedirection of the Court, an appeal to the House of Lordsin which the company is respondent, brought in anaction in which the company was originally plaintiff,is not 'a proceeding against the company' within Section 87, Companies Act, 1862.'

In the latter case Jessell M. E. observes in thecourse of the argument at p. 656--and thatappears as part and parcel of the headnote thata counter claim is in the nature of a defencewhich if raised in answer to an action by aCompany for debt can be entertained withoutthe leave of the Court. That case has beenaffirmed in the House of Lords In Mersey Steel& Iron Co. v. Naylor Bonzon & Co., (1884)9 A. C. 434 : 53 L. J, Q. b. 497. An attachment proceeding like the one with which weare concerned in the present case started in thecourse of execution proceedings taken by theplaintiff, it is said, is not strictly in the natureof a defensive proceeding by a party to theexecution petition but is in the nature of anindependent proceeding by a stranger to theexecution petition in vindication of his right tothe property attached. True; but I am inclinedto think on a careful consideration, of the argument that the principle of the decisions abovecited does apply to the present case of a claimpetition which in substance is only incidentalto the main proceeding in execution started bythe plaintiff Bank itself.

6. It is urged for the appellant that had the claim petition failed and not succeeded and had a suit been filed by the present respondents that would obviously have been hit at by the requirement of leave of Court in the winding up, and that there is no reason why merely because the claimants succeeded, that should make any difference. The argument is, strictly speaking, beside the point, because what we have to consider is not so much the case of the suit under Order, 21, Rule 63, Civil P. C., as the nature of the claim proceeding itself.

7. As put in the case in Mt. Zamrut v. Peoples Bank) Northern India, A. i. R. 1936 Pesh. 185 : 164 I. C. 1012 which has been relied upon by the lower appellate Court in the present case, where it is the decree-holder who has set the law in motion, the position of a claimant who intervenes in execution is analogous to that of a defendant in a suit. I agree with Middleton J. in that case when he observes:

'It appears to me to be most inequitable that a company In liquidation should institute execution proceedings and rely upon Section 171, Companies Act, to debar persons from defending their property in those execution proceedings.'

I am satisfied that the point taken for the appellant in this ease has no merits and must fail.

8. The second appeal is accordingly dismissed with coats. (No leave).


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //