K VADIVELU Vs. OFFICIAL LIQUIDATOR MADRAS

JUDGEMENT

(1.) THIS application taken out by the plaintiffs in C. S. No. 230 of 1965 on the file of this court raises of important question of law under S. 446 of the Companies Act, 1956. The applicants are the sons of one Kolandayyappa Gounder, who is the second defendant in the suit. The first defendant Muthuswami Gounder is the father of Kolandayappa Gounder. The said two defendants started a business called Sri Murugan Oil Industries Private Ltd. , Karur, and incurred loss. Some creditors of the company took out C. P. 23 of 1958 alleging that the company was insolvent and should be wound up. Overruling the objections on behalf of the company this court directed the winding up. Against that order the company preferred O. S. A. 62 of 1959. The appellate court dismissed the appeal confirming the order of winding up. The applicants, subsequent to the winding up order instituted O. S. No. 228 of 1964 on the file of the Subordinate Judge, Tiruchirapalli, impleading their father and grandfather and some alienees of their family properties and creditors as defendants along with the official Liquidator, and prayed for partition of their joint family properties. They questioned several acts of their father and grandfather contending that those acts were not binding on them. As per the order of this court and numbered as C. S. 230 of 1965. One of the objections raised on behalf of the Official Liquidator is that the suit is incompetent inasmuch as the leave of this court had not been obtained before the institution, as required under S. 446 of the Companies Act. To get over that objection, the applicants have taken out this application praying for grant of leave with retrospective effect to enable them to prosecute the suit. Objections are raised on behalf of the Official Liquidator to the effect that the commencement of the suit itself was barred under S. 446 and that leave cannot be granted with retrospective effect to cure the fatal and fundamental defect that existed at the very inception of the commencement of the proceeding. There appears to be no direct decision of this court on this question.

(2.) SECTION 446 (1) reads thus: "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. " this section does not impose a total prohibition against proceedings either being taken or continued against the company in liquidation. The object underlying this section is to safeguard the assets of the company in winding up against 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 right against the company. Palmer in Company precedents, Part II, 17th Edn. , at page 302 observes: "when a winding up order is made the court, acting by its officer--the official Receiver--lays its hand upon the assets and says, no creditor or claimant must touch these assets or take proceedings by way of action, execution or attachment pending the distribution by the court in due course of administration. This protection is indispensable equally in winding up and in bankruptcy to prevent a scramble for the assets, but it is not always enough. An even-handed justice requires that the court should have power to intervene at an early stage for the protection of the assets, and this power is given by this section".

(3.) THE question is whether obtaining leave of the court before the commencement of the suit or other legal proceedings is a condition precedent for such commencement. It is contended on behalf of the applicants that though initially the absence of leave may be defective that defect can be cured by the court granting leave with retrospective effect, and that the object of the Legislature in requiring that leave should be obtained before the commencement of the suit or other legal proceeding is only to put the Official Liquidator on notice of such intended proceeding. Authorities are not uniform on this question. In People's industrial Bank Ltd. v. Ramchandra Shukla, ILR 52 All 430 = (AIR 1930 All 503)the suit was commenced after the winding up order had been made, but without obtaining leave of the court, Leave was granted during the pendency of the suit under S. 171 of the Companies Act 1913 corresponding to S. 446 of the present act 1956. The liquidator neither contested nor appealed against the order granting leave. The court held that in these circumstances the leave cannot be said to be a nullity and the suit is not liable to be dismissed on the ground that leave had not been obtained before the institution of the suit.