State Bank of Patiala vs Northland Sugar Complex Ltd. and others

Swatanter Kumar, J.—This is a petition filed by the State Bank of Patiala Branch, Sector 17-A, Chandigarh, u/s 446(1) of the Companies Act, 1956, seeking leave/to prosecute with the original application filed by the bank before the Debts Recovery Tribunal at Jaipur. The averment in the petition is that State Bank of Patiala (hereinafter referred to as "the bank") was approached by Northland Sugar Complex Limited (hereinafter referred to as the company in liquidation) for financial assistance. On the request of the company in liquidation in December 1993, the bank had agreed to grant term loan limit to rupees one crore, cash credit hypothecation and pledge limit of Rs. 360 lakhs. This facility was agreed to be advanced under the consortium arrangement of the banks comprising State Bank of India Sector 22, Canara Bank Sector 35, Chandigarh, and the petitioner-bank. The limits were allowed and were operated by the company in liquidation. Respondents Nos. 2 to 7 were the directors and guarantors for the return of the loan in question. Respondents Nos. 8, 9 and 10 were the other financial institutions which had a charge on the property of the company in liquidation. The charge on plant, machinery, assets and other present and future assets was on a pari passu basis. Collateral securities were furnished. All the private respondents had earlier executed documents for themselves and on behalf of the bank in favour of the petitioner.

As the company in liquidation defaulted in repayment of the amounts advanced to them, the bank was left with no alternative but to claim its dues through due process of law. Consequently, the bank filed a petition on October 8, 1997, against the respondents including the other financial institutions to have the matter decided on a pari passu basis. The bank claimed a sum of Rs. 6,88,137.41 in that application, a copy of the application filed before the Debt Recovery Tribunal at Jaipur, u/s 19 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, is annexed here to the petition as annexure P-1.

The respondent-company had failed to pay its admitted dues to its creditors which resulted in filing of winding up Petition No. 45 of 1996. The company was ordered to be wound up vide order dated October 9, 1997, and the official liquidator attached to this court was appointed as official liquidator of the company. The application by the bank before the Debts Recovery Tribunal was certainly filed prior to the order of winding up, but in any case in order to continue the recovery proceedings against the company, it was mandatory for the bank to seek permission of the company court in accordance with the provisions of section 446 of the Companies Act. The respondents have been served and arguments have been heard. Learned counsel appearing for the respondents fairly stated that there could be no opposition for grant of such permission to the petitioner. The counsel appearing for the official liquidator also stated that he has no objection to the grant of permission sought by the bank.

The provisions of section 446 of the Companies Act make it mandatory for any person to seek leave of the company court for pursuing or continuing any suit or legal proceedings against the company in liquidation. The discretion which is vested in the company court has to be exercised in accordance with the settled principles of law. The company court has to protect the assets of the company but at the same time it has to ensure expeditious disposal of the suit or legal action taken by or against the company expeditiously and without any unnecessary expenses. Where the company court does not transfer the suit or proceedings to be dealt with and decided before the company court itself, in that event, the permission would normally be granted to the applicant. No legal impediment has been shown for grant of permission. The copy of the application (annexure P-1) shows that the amount prima facie is due and such a claim is not barred in law. This court is not concerned with the merits of the claim at this stage because it must be determined by the proper forum. The company court has the jurisdiction to grant permission at any stage and the mere fact that proceedings were initiated without the leave of the court would be no ground to decline the permission at a later stage. At this stage, reference can be made to a recent judgment of this court in the case of Industrial Finance Corporation of India v. Rama Fibres Ltd. (In liquidation) [1999] 97 Comp Cas 80 - C.P. No. 157 of 1997 decided on January 21, 1998. The order of winding up was passed after the presentation of the application by the bank before the Debts Recovery Tribunal, but that would in no way absolve the bank of its responsibility to seek permission of the company court to pursue the said remedy before the Tribunal at a subsequent stage.

For the reasons aforestated, I find no reason as to why permission prayed for be not granted to the applicant-bank. Consequently, this petition is allowed. The bank is granted permission u/s 446(1) of the Companies Act to continue and proceed with the application filed by it before the Debts Recovery Tribunal and to have the same decided in accordance with law. Leave is granted subject to the condition that any decree/recovery certificate issued by the Debts Recovery Tribunal shall not be executed against the assets of the company without the specific permission of this court at that stage. The petition is accordingly allowed. There shall be no order as to costs.