SHREE THJ PROTAP TEXTILE MILLS Vs. GRANARIBS LTD

JUDGEMENT

(1.) IN this suit a preliminary point has been taken that it is not maintainable. The circumstances in which the suit came to be instituted are as follows: the plaintiff company claims to be a creditor of the defendant company to the extent of Rs. 1,50,000/- advanced by way of deposit, made on the 9th October, 1946 besides interest amounting to Rs. 27,600/ -. The suit was filed with leave under clause 12 of the Letters Patent. The defendants are three in number. Besides the company Granaries Ltd. alleged to be indebted to the plaintiff Shree Tej Protap Textile Mills, Sohanlal Murarka and Dwarkadas Bhargava have also been imp-leaded as defendants. No relief is claimed against Dwarkadas Bhargava, who is alleged to have been appointed provisional liquidator of the plaintiff company by the Alwar High Court in Rajasthan on January 24, 1949. According to the plaint the petition resulting in the said order was false and malicious and the order of appointment is bad and invalid. In paragraph 8 of the plaint it is stated that as in spite of repeated requests by the plaintiff Dwarkadas Bhargava refused to institute this suit, he has been imp-leaded as a co-defendant with the debtor. The plaint is verified by Shyamsundar Lal Patodia, a director of the plaintiff company, who claims to be acquainted with the facts of this case and has verified the statements contained in all the paragraphs as true to his knowledge.

(2.) THE point taken is that as soon as a provisional liquidator is appointed the powers of the directors of the company are suspended and it is no longer open to them to institute a suit in the name of the company. For this purpose reliance was placed on several sections of the Indian Companies Act of 1913 and it will be useful to deal with the relevant portions of the sections seriatim. Section 171 of the Act lays down that "when a winding up order has been made or a provisional liquidator has been appointed, no suit or other legal proceeding shall be proceeded with or commenced against the company, except by leave of the Court, and subject to such terms as the Court may impose". This section shows that once the appointment of a provisional liquidator is made it is not open to a person claiming relief against the company either to commence any legal proceedings or to proceed with the same, if already on foot, without the leave of the Court. Section 175, which deals with Official Liquidators, provides by sub-section 2 that "the Court may make such appointment provisionally at any time after the presentation of the petition and before the making of an order for winding up, but shall, before making any such appointment, give notice to the company, unless for reasons to be recorded it thinks fit to dispense with notice. " This is the section which enables the Court to appoint an official liquidator provisionally or, to use the more common expression, appoint a provisional liquidator at any time after the presentation of a petition for winding up. Under sec. 177a of the Act, it is the duty of an official liquidator, even if appointed provisionally, to make out and submit a statement as to the affairs of the company, verified in the manner laid down, unless the Court thinks fit to order otherwise. This section shows that the official liquidator, whether appointed provisionally or not, has to make a statement as to the assets of the company, its debts and liabilities, names, residences and occupations of the creditors as also the debts due to the company, the names, residences and occupations of the persons from whom they are due. Under sec. 178 "the official liquidator, whether appointed provisionally or not, shall take into his custody, or under his control, all the property, effects and actionable claims to which the company is or appears to be entitled. " By sub-section 2, all the property and effects of the company shall be deemed to be in the custody of the court as from the date of the order for the winding up of the company.

(3.) THIS section clearly shows that once the Official Liquidator is appointed, even if provisionally, it is his duty to take into his custody and control all the property, assets, effects and actionable claims of the company and even if he does not take possession as he should, all the property and effects are to be deemed to be in his custody. In my view this clearly establishes the proposition that although the powers of the directors are not permanently severed, the same remain frozen for the time being. The property, effects and actionable claims of the company can not be dealt with or disposed of by the directors so long as they are in the custody of the court: the necessary corollary is that the directors cannot take any steps for the realization of the property, effects or actionable claims to which the company may be entitled. The powers of the Official Liquidator are enumerated in sec. 179 of the Act. A power to institute or defend any suit or prosecution or other legal proceeding, civil or criminal, in the name and on behalf of the company, is one of the powers which the Official Liquidator can exercise with the sanction of the Court, i. e. , the mere appointment of an Official Liquidator does not entitle him to institute a suit for realization of an asset or effect or actionable claim of the company unless the Court appointing him specially sanctions such institution.