(1.) THESE two applications raise a common question of law. The question is whether, under section 446 of the Companies Act, 1956, leave to proceed with a proceeding against a company in liquidation can be granted, even though the proceeding was instituted after the passing of the winding-up order. Messrs. Associated Industrial and Engineering Corporation Ltd. has been in C.P. No. 2 of 1970 ordered on April 3, 1970, to be wound up. Messrs. Shankar Service Station, a partnership concern doing business at Ranipet, Bellary District, Mysore State, claiming to have supplied petrol, oil, etc., to that company to the value of Rs. 9, 946, instituted O.S. No. 86 of 1970 on the file of the Principal District Munsiff, Hospet, on April 18, 1970, without obtaining leave of this court to institute that suit. On coming to know of the order of winding-up, the plaintiff-firm has taken out Application No. 238 of 1970, praying for leave to continue the said suit or in the alternative to transfer that suit to the file of this court for disposal. Messrs. Gannon Dunkerley and Company Ltd. has been in C.P. No. 83 of 1968 ordered by this court to be wound up by order dated March 14, 1969. One Ekambaram, an employee of that company, has filed Claim Petition No. 344 of 1969 on the file of the Labour Court, Madras, under section 33-C(2) of the Industrial Disputes Act, 1947, praying for an award for Rs. 3, 311 said to be due to him by way of salary, etc. Before instituting that claim petition, he did not obtain the leave of this court. On coming to know about the winding-up order, he has filed Company Application No. 404 of 1970 praying that leave may be granted to continue the said claim petition.
(2.) THE official liquidator opposes these applications contending that as the aforesaid proceedings were instituted after the respective company was ordered to be wound up and as the leave of this court was not obtained before the commencement of those proceedings, leave cannot be granted to proceed with those proceedings. A similar question arose before me in C.P. No. 23 of 1958, in which a private limited company had been ordered to be wound up. Claiming the company's assets as an item of joint family property, some members of a Hindu joint family instituted a partition suit, impleading, among others, the official liquidator as a defendant, but without obtaining the leave of the court. On the objection taken by the official liquidator that the suit was not competent, inasmuch as the leave of the court was not obtained, the plaintiffs in that partition suit moved this court for leave to continue the suit. On a consideration of section 446 and the authorities, I held that the suit instituted without obtaining the prior leave of the court was incompetent and leave could not be granted to enable the continuation of the suit. That decision is reported in Sri Murugan Oil Industries Private Ltd., In re. After I rendered that judgment, the Supreme Court in Bansidhar Shankarlal v. Mohd. Ibrahim, had to consider a case arising under the Companies Act of 1913, in which the provision regarding taking leave of the court before institution of proceedings against a company in liquidation was enacted in section 171. In that case, leave was granted to continue an execution petition filed against a company in liquidation after the liquidation order. THE party aggrieved by that grant of leave failed in first appeal and second appeal and the High Court of Calcutta refused to certify the appeal under article 133 of the Constitution, after dismissing the second appeal filed by the said aggrieved person. That person filed two petitions before the Supreme Court, one against the order dismissing his second appeal and the other against the order of the High Court refusing to certify. THE Supreme Court dismissed the petition against the order of the High Court in second appeal but granted special leave against the order of the High Court refusing to certify the case. In dealing with that case, the Supreme Court incidentally considered the question whether leave could be granted under section 171 of the Companies Act, 1913, so as to validate the institution of the proceeding without taking the prior leave of the court. Construing section 171 of the old Act, the Supreme Court held that there was nothing in that section to make the leave a condition precedent to the institution of a proceeding and that failure to obtain leave before institution of the proceeding would not entail the dismissal of the proceeding. In view of this decision it was contended on behalf of the applicants in these cases before me that my decision already referred to would require reconsideration. It is in these circumstances that these applications have come up for consideration before me.For a proper understanding of the decision of the Supreme Court in relation to section 446 of the Companies Act, 1956, it is necessary to have a comparative study of section 171 of the 1913 Act, to which that decision relates, and section 446 of the 1956 Act. Section 171 of the 1913 Act was modelled on section 231 of the English Companies Act, 1948. For easy reference the following table would be useful : 1956 Act. 1913 Act. English Act of 1948. 446. Suits Staved on 171. Suits stayed on 231. Actions stayed on winding order. --(1) When winding-up order.-When a winding-up order.-When a winding up order has winding-up order has been winding-up order has been been made or the official made (or a provisional liqui- made or a provisional liqui- liquidator has been appoint- dator has been appointed) dator has been appointed, ed as provisional liquidator, no suit or other legal pro- no action or proceeding no suitor other legal pro- ceeding shall be proceeded shall be proceeded with or ceeding shall be commen- with or commenced against commenced against the ced, or if pending at the the company except by company except by leave date of the winding-up leave of the court, and sub- of the court and subject to order, shall be proceeded ject to such terms as the such terms as the court with, against the company. court may impose. may impose. except by leave of the court and subject to such terms as the court may impose... Sectior 171 of the 1913 Act has been construed in two ways. THE Calcutta High Court in Harnarain Misra v. Kanhaiyalal Lohawala and the Andhra Pradesh High Court in Godavari Sugars and Refineries Ltd. v. Kambhampati Gopalakrishnamurthy took the view that the leave of the court which has ordered winding up of a company is a condition precedent to the institution of proceedings against the company in liquidation and that proceedings instituted without obtaining the leave of the court in the first instance must be dismissed. THE Allahabad High Court in People's Industrial Bank Ltd. v. Ram Chander Shukul took a contrary view and held that leave was not a condition precedent. A Full Bench of the Lahore High Court in Nazir Ahmad v. Offi. Liq., People's Bank of Northern India overruling a Bench decision of that court in People's Bank of Northern India (In liquidation) v. Fatehchand & Co. Ltd. (In liquidation) took a similar view and observed that, since the words used in section 171 were borrowed from English law, where those words had recognised a particular legal meaning, it should be assumed that the same meaning was assigned to those words in the Indian Companies Act, 1913, and that a suit instituted against a company in liquidation without obtaining prior leave under section 171 should not be dismissed on that ground alone. THE Full Bench held that limitation should be calculated in the same way as if the suit had been originally instituted with leave.In Suresh Chandra Khasnabish v. Bank of Calcutta Ltd. a Bench of the Calcutta High Court, dissenting from its earlier view taken by a single judge in Harnarain Misra v. Kanhaiyalal Lohawala and following the aforesaid Full Bench decision of the Lahore High Court, held that under section 171 of the 1913 Act the court had jurisdiction to grant leave to proceed with the suit or other legal proceeding against a company in liquidation even though such leave was not obtained before the commencement of such suit or proceeding. But in that case the leave was asked for by a secured creditor in respect of money due to him. THE same view was followed by that High Court in Roopnarain Ramchandra Pvt. Ltd. v. Brahmapootra Tea Co. (India) Ltd.
(3.) MR. Harikrishnan, appearing for the applicant in Company Application No. 328 of 1970, contended that though the change effected in section 446 may give room for that interpretation, the decision of the Supreme Court seems to lay down the principle that even though a proceeding or a suit is instituted without the leave of the court, still leave can be granted so as to make it effective at least from the date of the grant of leave. I am unable to accept this contention. What their Lordships were concerned with was the interpretation of section 171 of the 1913 Act and there was no need or occasion for their Lordships to consider the change made in section 446 of the 1956 Act. I have already pointed out that the language employed in section 171 of the 1913 Act is capable of two interpretations, and their Lordships have already pointed out that the language does not warrant the inference that leave is a condition precedent to the institution of a proceeding. The decision has to be understood only in the light of the language of section 171 which arose for consideration and, therefore, I am unable to accept the argument that the same principle should be applied in interpreting section 446 of the 1956 Act also. On a plain reading of section 446 of the 1956 Act, it follows that for commencing a proceeding against a company in liquidation, leave is a condition precedent and that if a proceeding is commenced against such a company without obtaining prior leave of the court, no leave can be granted for proceeding with that proceeding, as the leave to proceed with a proceeding can be granted only if the proceeding was pending on the date of the winding-up order. In the face of the plain language, there is no scope to apply the theory that, by the grant of leave, the proceeding can be deemed to be commenced on the date of grant of leave. A similar view has been taken by the Bombay High Court in Eastern Steamship Private Ltd. v. Pucto Private Ltd. As I have already pointed out in Sri Murugan Oil Industries Private Ltd., In re, the object of section 446 is to safeguard the assets of the company in winding up against the wasteful or expensive litigation in regard to matters capable of being determined expeditiously and cheaply by the winding-up court itself with a view to ensure equitable distribution of the assets among those entitled thereto and also to prevent the administration from being embarrassed by a scramble among the creditors and others having rights against the company. It may be that an innocent creditor, not knowing the winding-up order, may institute a proceeding without obtaining the leave of the court before hand. On coming, to know the winding-up order, he cannot, having regard to the language of section 446, ask for leave to proceed with the proceeding, however honestly and bona fide he might have commenced the proceeding.The claims of these two applicants are money claims which are provable in liquidation proceedings. They were said to be in time on the date of commencement of the winding-up proceeding of the respective companies. Therefore, even on considerations of equity, the applicants have no case to urge. There is no need to transfer to this court the suit filed by the applicant in Application No. 328 of 1970. In the result, both the applications fail and are dismissed and, in the circumstances, without costs.