Punjab and Sind Bank vs Domino Leathers Ltd. (In Liquidation)

Permod Kohli, J.—Punjab and Sind Bank has filed this petition for seeking leave of the company court to continue with Civil Suit No. 623 of 2001, for recovery of Rs. 6,82,129 along with interest, pending in the court of Mr. Sudeep Goel, Civil Judge (Junior Division), Chandigarh. Copy of the plaint has been placed on record. The bank instituted suit against M/s. Domino Leathers Ltd., company in liquidation, and its ex-directors in their capacity as guarantors as also the Industrial Development Bank of India (hereinafter referred to as the "IDBI") and Mr. D.P. Ojha, official liquidator, attached to this Court. Notice of the suit was issued to the official liquidator, who seems to have resisted the plea of continuance of the suit in contravention of Section 446 of the Companies Act, 1956 (hereinafter referred to as "the Act"). The bank has, accordingly, approached this Court seeking leave of company court to continue with the suit.

Notice of this petition was issued to the official liquidator who has filed his reply and resisted the petition on the following grounds:

(1) That at this stage, the claim of the Punjab and Sind Bank is barred by time; and

(2) That the petition has been filed after the delay of about five years from the date of passing of the winding up order.

The sole question is whether the bank should be granted leave to continue with the suit or not ? Section 446 of the Act reads as under:

Suits stayed on winding up order.-(1) When a winding up order has been made or the official liquidator has been appointed as provisional liquidator, no suit or other legal proceedings 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 Tribunal and subject to such terms as the Tribunal may impose.

(2) The Tribunal shall, notwithstanding anything contained in any other law for the time being in force, have jurisdiction to entertain, or dispose of:

(a) any suit or proceeding by or against the company ;

(b) any claim made by or against the company (including claims by or against any of its branches in India) ;

(c) any application made u/s 391 by or in respect of the company;

(d) any question of priorities or any other question whatsoever, whether of law or fact, which may relate to or arise in course of the winding up of the company ;

whether such suit or proceeding has been instituted, or is instituted, or such claim or question has arisen or arises or such application has been made or is made before or after the order for the winding up of the company, or before or after the commencement of the Companies (Amendment) Act, 1960 (65 of 1960) ...

(4) Nothing in Sub-section (1) or Sub-section (3) shall apply to any proceeding pending in appeal before the Supreme Court or a High Court.

Sub-section (1) of Section 446 of the Act prohibits institution or commencement of legal proceedings against the company on the passing of the winding up order or the appointment of provisional liquidator and, if any, proceedings were pending on the date of the winding up order, the same cannot be proceeded with against the company except with the leave of the court. Sub-section (2) of Section 446 of the Act, however, empowers the Tribunal (company court) to entertain or dispose of any suit or proceeding by or against the company irrespective of the fact whether such suit or proceeding or claim made on or before of the winding up order.

It is the admitted position that the winding up order was passed by this Court on August 2, 2001, in Company Petition No. 50 of 1999. The official liquidator was appointed as liquidator. The official liquidator has taken over the possession of the property and assets of the company. The bank, however, instituted Civil Suit No. 623 of 2001 on October 12, 2001, against the company, its ex-directors in their capacity as guarantors and the official liquidator besides the IDBI. From the frame of the suit and the fact that the official liquidator has been impleaded as a party defendant, it is apparent that the bank had the notice and knowledge of the winding up order having been passed by this Court prior to the institution of the suit. The bank, however, proceeded with the suit in the civil court without seeking leave of the company court. It is only on an objection being raised with regard to continuance of the suit by the official liquidator, the present petition has been filed. It is pertinent to mention here that Section 446(1) of the Act prohibits institution of the proceedings against the company when a winding up order has been made or the official liquidator, has been appointed as liquidator. However, suit against the guarantors or any other person who may be a party other than the company, can proceed in the civil court without attracting the bar contained in the aforesaid section. Therefore, the suit against all the defendants except the company and the official liquidator can conveniently be proceeded with in the civil court. The objection of the official liquidator that the claim of the bank, at this stage, is barred by time, is of no relevance, as admittedly the suit was instituted within time and, in any case, it is for the civil court to examine whether the suit is within period of limitation or not. The other objection raised by the official liquidator is that the present petition has been filed after a long delay of about five years after the institution of the suit and the passing of the winding up order. But the question arises whether it is equitable and in the interest of justice to grant leave to proceed with the suit or not. Section 446 of the Act, does not create any absolute embargo in institution of the suits against the company. It only provides for leave of the court and on grant of leave, all proceedings against the company become valid. The proceedings are not void ab initio, but only voidable at the option of the official liquidator.

In the case of Bansidhar Shankarlal Vs. Mohd. Ibrahim and Another, , the hon''ble Supreme Court considered the validity of the proceedings in a suit instituted after the winding up order without the leave of the court u/s 446 of the Act wherein the hon''ble Supreme Court observed as under (page 25):

...we do not think that there is anything in the Act which makes the leave a condition precedent to the institution of a proceeding in execution of a decree against the company and that failure to obtain leave before institution of the proceeding entails dismissal of the proceeding. The suit or proceeding instituted without leave of the court may, in our judgment, be regarded as ineffective until leave is obtained, but once leave is obtained the proceeding will be deemed to be instituted on the date granting leave.

As noticed above, the bank has instituted the suit not only against the company but also against its former directors in their capacity as guarantors and prohibition contained in Section 446 applies only in respect of the company and not against any other person. Therefore, either to institute the suit against the guarantors or to pursue the same, no leave of this Court is required. However, the leave is needed where the suit is to be instituted against the company after passing of the winding up order. Under the given circumstances, I am inclined to grant leave to the bank to institute the suit and continue with the same. Since the suit has already been instituted without the leave of this Court, ex-post facto leave shall be deemed to have been granted at the time of institution of the suit. However, in the event of passing of decree, the same shall not be executed without prior permission of this Court.

At this stage, it has been brought to my notice that from the copy of the plaint it appears that Mr. D.P. Ojha, official liquidator, has been impleaded as a party by name. There is no allegations of personal bias or mala fide against him. The plaintiff is directed to amend the plaint and implead him in his official capacity only.