Karnataka High Court
A S Pattabhiraman vs M/S S N Finance Pvt Ltd on 28 March, 2022
Author: B. M. Shyam Prasad
Bench: B. M. Shyam Prasad
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 28TH DAY OF MARCH 2022
BEFORE
THE HON'BLE MR. JUSTICE B. M. SHYAM PRASAD
CIVIL REVISION PETITION NO.104/2014
C/W.
CIVIL REVISION PETITION NO.90/2014
IN CRP NO. 104/2014
BETWEEN :
1. SMT K R SATYAVATI
MA, CAIIB
W/O A.S.PATTABIRAMAN
AGED ABOUT 66 YEARS,
RETIRED BANK CHIEF MANAGER,
NO.607-A,1ST MAIN ROAD,
2ND STAGE, RAJAJINAGAR,
BENGALURU - 560 010.
2. MS.JYOTSNA PATTABIRAMAN,
BE,MBA (STANFORD)
W/O MADHURANATH KONETY
AGED ABOUT 38 YEARS,
SOFTWARE ENGINEER,
NO.607-A, 1ST MAIN ROAD,
2ND STAGE, RAJAJINAGAR,
BENGALURU - 560 010.
3. DR.K.R.PADMAVATY,
MBBS, DGO
W/O LATE RAMAMURTHY,
AGED ABOUT 66 YEARS,
RETIRED GOVT.SR.MEDICAL OFFICER,
2
NO.607-A, 1ST MAIN ROAD,
2ND STAGE, RAJAJINAGAR,
BENGALURU - 560 010.
4. DR.K.R.SRIDHAR,
S/O SRI. R.K.SHASTRY,
AGED ABOUT 60 YEARS
GASTROENTEROLOGIST,
NO.607-A, 1ST MAIN ROAD,
2ND STAGE, RAJAJINAGAR,
BENGALURU - 560 010.
5. INDIAN INSTITUTE OF ENTREPRENUER
DEVELOPMENT (REPRESENTED
BY ITS DIRECTOR SMT.MEENA JAYARAM)
OPPOSITE TO CLASSIC AVENUE,
ASHRAM ROAD, AHMEDABAD.
... PETITIONERS
(BY SRI. K SUMAN, ADVOCATE)
AND:
M/S S N FINANCE PVT LTD
(IN LIQUIDATION),
REPRESENTED BY THE OFFICIAL
LIQUIDATOR
MINISTRY OF CORPORATE AFFAIRS,
CORPORATE BHAVAN,
12TH FLOOR, RAHEJA TOWERS,
M.G.ROAD, BENGALURU - 560 001.
... RESPONDENT
(BY SRI. SHRISHAIL S. NAVALGUND, ADVOCATE)
THIS CRP IS FILED UNDER SEC. 115 OF CPC.,
AGAINST THE ORDER DATED 1.2.2014 PASSED IN
MIS.CASE NO.120/2012 ON THE FILE OF THE III ADDL.
CITY CIVIL AND SESSIONS JUDGE (CCH NO. 25),
3
BENGALURU, ALLOWING THE MISCELLANEOUS PETITION
FILED UNDER ORDER 9 RULES 9 R/W SEC.144 AND 151
OF CPC.
IN CRP NO. 90/2014
BETWEEN
A S PATTABHIRAMAN
S/O A B SUBRAMANIAN
AGED ABOUT 71 YEARS
R/A NO.607-A, 1ST MAIN ROAD
II STAGE, RAJAJINAGAR
BENGALURU - 560 010.
... PETITIONER
(BY SRI.C.V. NAGESH, SENIOR ADVOCATE FOR
SRI. K. RAGHAVENDRA., ADVOCATE)
AND:
M/S S N FINANCE PVT LTD
(IN LIQUIDATION),
REPRESENTED BY THE OFFICIAL
LIQUIDATOR
MINISTRY OF CORPORATE AFFAIRS,
CORPORATE BHAVAN,
12TH FLOOR, RAHEJA TOWERS,
M.G.ROAD,
BENGALURU - 560 001.
... RESPONDENT
(BY SRI. SHRISHAIL S. NAVALGUND, ADVOCATE)
THIS CRP FILED UNDER SEC.115 OF CPC., 2000 AS
AMENDED, AGAINST THE ORDER DATED 1.2.2014
PASSED IN MISC NO.120/2012 ON THE FILE OF THE III
ADDL. CITY CIVIL & SESSIONS JUDGE, BENGALURU,
ALLOWING THE MISCELLANEOUS PETITION FILED UNDER
ORDER 9 RULES 9 R/W SEC.144 AND 151 OF CPC.,
4
THESE PETITIONS HAVING BEEN HEARD AND
RESERVED ON 23.12.2021 AND COMING ON FOR
PRONOUNCEMENT OF ORDERS THIS DAY, THIS COURT
MADE THE FOLLOWING:
ORDER
These petitions are filed under section 115 of the Code of Civil Procedure (for short, 'the CPC') by the respondents in Misc. No. 120/2012 on the file of the III Additional City Civil and Sessions Judge, Bengaluru (CCH 25) - for short, 'the Civil Court'. The proceeding in Misc. No.120/2012, which is under Order IX Rule 9 read with section 144 and 151 of CPC, is filed by the common respondent in both the petitions, M/s SN Finance Private Limited, a company incorporated under the Companies Act, 1956 and in liquidation.
2. The respondent has filed the application in Misc. No. 120/2012 for restoration of the original suit in OS No. 7306/2002 which is dismissed on 16.01.2012 for default under Order IX Rule 8 of CPC. The petitioner 5 in CRP No. 90/2014, which is the first of the present two petitions, is by the first respondent in Misc. No.120/2012 and the first defendant in the aforesaid suit in OS No.7306/2002. The petitioner in CRP No.104/2014, which is the other of the petitions, is by the second to sixth respondents in Misc. No. 120/2012 and the other defendants in the suit in OS No.7306/2002. The civil Court by the impugned order dated 01.02.2014 has allowed the application in Misc.No.120 of 2012 setting aside the dismissal order dated 16.01.2012 in OS No.7306 of 2002 and restoring the suit for decision on merits.
3. The respondent has commenced the suit in O.S.No.7306/2002 for recovery of Rs.5,94,21,914.36 ps. with interest from the petitioners, and as an alternative prayer, the respondent has sought for declaration that the immovable properties described in the plaint schedule are its properties because these properties are 6 purchased using the respondent's funds. The petitioners have contested the respondent's suit by filing the respective written statements. The suit is dismissed for default on 16.01.2012. In the parallel proceedings in OS No.824/2003, which is commenced by Sri A R Pattabhiraman - the petitioner in CRP No. 90/2014 - for possession of the suit schedule properties, there is a decree and he has taken possession of the aforesaid properties through the process of court in the execution Case No. 600/2012.
4. During the pendency of the suit in OS No. 7306/2002, the respondent is directed to be wound up by the Company Court in COP No. 142/2004. However, the winding up order dated 29.06.2006 is recalled on an application viz., CA No.1001/2006. The respondent is again directed to be wound up by the order dated 31.08.2010, and this order is confirmed with the dismissal of the appeal filed by the respondent's former 7 directors in OSA No. 36/2010. This appeal in OSA No.36/2010 is dismissed on 14.01.2011.
5. The respondent's former directors, with the confirmation of the winding up order with the dismissal of the appeal in OSA No. 36/2010, have filed a memo with the Civil Court in OS No.7306/2002 on 28.01.2011 for issuance of notice to the Official Liquidator [for short, 'the OL']. The petitioners, who are the defendants in OS No. 7306/2002, are given opportunity to file objections to this Memo dated 28.01.2011. On 02.04.2011, the civil Court has recorded such statement of objections is not filed1. The suit is dismissed for default on 16.01.2012. It is not disputed that one of the former directors of the respondent has informed the OL about the dismissal of the suit repeatedly i.e., in the months of January and February 2012. The OL has filed the application in Misc. Case 1 The details of this are referred to in paragraph 23 of the impugned order 8 No. 120/2012 on 15.02.2012 for restoration of the suit, and as aforesaid, the civil Court has allowed this application by the impugned order setting aside the order of dismissal and restoring suit for decision on merits.
6. The OL has examined his witness, Sri. Nagendra [an assistant] in support of the petition for restoration of the suit and OL has marked Exhibits P1 and P2: Ex. P 1 is an authorization letter dated 13.08.2013 and Ex. P 2 is the order sheet in OS No.7306/2002. The respondents have not examined any witness, but their documents (Exhibit R1 - R8] are marked when admitted by the OL's witness in cross- examination. The details of the respondents documents are as follows: Exhibit - R1 is a certified copy of the application under section 446 of the Companies Act, 1956 [for short, 'the Companies Act'] read with Rules 6 and 9 of the Company (Court) Rules, 1959 filed by the 9 OL in Company Petition No. 142 of 20042 and Exhibit R2-8 are certified copies of the letters addressed by one of the directors of the respondent to the OL informing about the pendency of the suit in OS No.7306/2002. The certified copies are issued by the office of the OL on an application filed on behalf of the petitioners.
7. It must be recorded at this stage that the OL has filed the application in Misc. Case No.120/2012 for restoration of the suit in OS No.7306/2002 contending that subsequent to the second winding up order, the office of the OL has communicated with the respondent to handover court records and to brief his standing counsel/caseworker handling the post-winding up 2 The OL has filed this application requesting the Company Court to decide whether the finding of the learned magistrate, in a proceeding under section 138 of the Negotiable Instruments Act, 1881 that the notice issued for payment of Rs.70 lakhs covered under the dishonoured cheque dated 27.1.2003 is beyond limitation, is justified in law. In this application, which is filed on 27.11.2007, the OL has referred to the suit in OS No. 7306/2002, and it is also stated that the cheque dated 27.01.2003 is offered by one of the respondents as part of the offer for settlement. Of the suit claim.
10affairs of the respondent. Even after repeated requests, the respondent's officers have not turned up to handover the relevant files or proceedings commenced by the respondent.
8. In support of this application for restoration, the OL has also specifically contended that the application is filed to protect the interest of a large number of depositors; and the OL must not be denied an opportunity to protect the interests of a large number of deposit holders and public at large because of any lackadaisical approach or lobby of the vested interests that has brought about the dismissal of the suit.
9. However, the OL's witness, Sri Nagendra.R in his cross-examination has not only admitted that OL has referred to the suit in OS No.7306/2002 in the application filed under section 446 of the Companies 11 Act on 27.11.20073 but also that a certain Sri Gundanavvar, one of the directors of the respondent, through his letters as per Exhibit R1-R8, had informed the OL about the pendency of the suit. Interestingly, this witness has also admitted that Sri A.R Pattabhiraman, the petitioner in CRP No.90/2014, has filed another suit in OS No.824/2003 for possession of the properties that are mentioned in the plaint schedule in OS No. 7306/2002, that this suit is decreed and Sri.A.R.Pattabhiraman has taken possession of the aforesaid properties through the process of court in Execution Case No. 600/2012.
10. The civil Court, on consideration of the evidence on record, has categorically found that the OL's case that his office had no knowledge of the pendency of the suit in OS No.7306/2002 or the dismissal thereof until the Depositors' Association 3 Exhibit R1 12 informed his office about the same, is difficult to believe. The civil Court has also concluded that the OL has not approached it with clean hands in seeking restoration of the suit, and the respondent has taken false pleas. However, the civil Court has restored the suit on the grounds that no order is passed on the memo dated 28.01.2011 filed by the former directors of the respondent for issuance of notice to the OL, that public fund is involved in the original suit and that the laches by the OL cannot be a reason for the respondent to lose its rights. The civil Court's order in this regard reads as under:
"33. This Court has also not passed any orders on the memo nor issued the notice to the official liquidator when request was made by the directors of the petitioner company.
34. In view of the above facts, I hold that the contention of the respondents that the real cause for non-prosecution is solely the gross negligence, indifference and lethargy on the part 13 of the petitioner company and the petitioner company has not shown the genuine cause cannot be accepted. The documents produced are sufficient to show that the petitioner company directors had sufficient reason to say that they were deprived of opportunity to contest this case because of non-appearance of the official liquidator in the original proceedings. As the public fund is involved in the claim of the original proceedings, the absence of the government machinery in the proceedings with the case cannot be the ground for the petitioner company to lose its right. The latches committed by the official liquidator and its officials do not disqualify the petitioner company seeking the order for restoration of the original proceedings. Hence, I hold that the petitioner company has proved sufficient cause for getting the restoration of the original proceedings and deserved to get the favourable order as prayed for .................."
11. Sri C.V. Nagesh, the learned senior counsel for the petitioners, relying upon the civil Court's finding that the OL has not approached the Court with clean hands and has taken false pleas, submits that the civil 14 Court with this finding could not have held that there was sufficient cause for restoration of the suit. Sri C.V. Nagesh canvasses the sufficient cause [a condition precedent for invoking jurisdiction under Order IX Rule 9 of CPC], would encompass the requirement of approaching the court with clean hands, and if it is concluded that a party has not approached the Court with clean hands, it would be incongruous to conclude that there is sufficient cause for restoration of the suit. In this regard Sri C.V. Nagesh relies upon the exposition by the Hon'ble Apex Court in V Chandrasekharan and another v. Administrative Officer and Others4 which reads as under:
34. The appellants have not approached the court with clean hands, and are therefore, not entitled for any relief. Whenever a person approaches a Court of Equity, in the exercise of its extraordinary jurisdiction, it is expected that he will approach the said 4 2012 (6) Supreme 612 15 Court not only with clean hands but also with a clean mind, a clean heart and clean objectives. Thus, he who seeks equity must do equity. The legal maximum "Jure Naturae Aequum Est Neminem Cum Alterius Detrimento El Injuria Fieri Locupletiorem"
means that it is a law of nature that one should not be enriched by causing loss or injury to another. ....................
35. The judicial process cannot become an instrument of oppression or abuse or means in the process of the court to subvert justice, for the reason that the court exercise its jurisdiction only in furtherance of justice. The interest of justice and public interest coalesce and therefore, they are very often one and the same. A petition or an affidavit containing a misleading and/or inaccurate statement only to achieve an ulterior purpose, amounts to an abuse of the process of the court.
12. Sri C.V. Nagesh relies upon the decision of the Hon'ble Apex Court in Sushil K Chakravarthy 16 (Deceased) Thr. Legal Heirs v. M/s Tej Properties Private Limited5 to emphasize the proposition that a person must approach a Court with clean hands is applied even when the application is under Order IX Rule 9 of CPC where the test of sufficient cause must be satisfied. In continuation, Sri C.V. Nagesh submits that the civil Court could not have proceeded on the basis that public funds are involved when such plea was neither taken nor supported by evidence, and the civil Court has thus persuaded itself to find in favour of the respondent in restoring the suit considering circumstances that are totally extraneous to the pleadings and evidence.
13. Sri. Shrishail Navalgund, the learned counsel for the OL, does not dispute that the petitioners will have to succeed in the petitions if the OL, who now represents the respondent, is held to the circumstances 5 2013 (3) Supreme 440 17 pleaded in the application for restoration because the civil Court's findings that the circumstances relied upon are a false plea and that OL has not come clean with all the circumstances are not challenged. But, Sri. Shrishail Navalgund contends that the civil Court's reasoning that the suit in OS No. 7306/2002 must be restored for decision on merits is well founded for two reasons; and so long as these two reasons are justified and permissible, the impugned order would be unexceptionable.
14. Sri. Shrishail Navalgund urges that it is undisputed the former directors of the respondent filed a memo on 28.01.2011 in the suit in OS No. 7306/2002 for issuance of notice to the OL, but neither the memo is rejected nor the notice is issued to the OL as requested. With the winding up order, which would be akin to an insolvency proceedings, the OL, who would be in the position of an assignee or a receiver, should have an 18 opportunity as contemplated under the provisions of Order XXII Rule 8 of CPC, and this failure would offer just and sufficient cause for the restoration of the suit.
15. Sri. Shrishail Navalgund also argues that the civil Court could not have dismissed the suit in OS No.7306/2002 for default under Order IX Rule 8 of CPC without first issuing notice to the OL on whether he would want to continue the suit and offer security for the costs, and because the suit is dismissed without such opportunity to the OL, the civil Court has rightly relied upon these circumstances to conclude that there is sufficient cause for restoration of the suit. Sri. Shrishail Navalgund to buttress his argument relies upon the decision of the Calcutta High Court in Kissen Gopal v. Suklal6 and draws the attention of this Court to the following conclusion in this decision "........... It seems to me that R 8 cannot be intended to apply in any case where there is a 6 AIR 1927 Calcutta 76 19 defective suit and there is known to be no person in the position of the plaintiff who has any right or duty to appear. If, therefore, the learned judges original order is supposed to have been made under Or. 9 r 8 it was made under a complete misapprehension as to the position. It is said now that the only remedy of the appellant was either by himself or by the official assignee to come on time under Or. 9 r 9 and ask that the suit might be restored. In my opinion that has no application to this case. In such a case it is necessary before there can be any default on the part of anyone that some steps should have been taken to have the suit made a competent suit once again. The provisions for doing that are contained in Or. 22 r 8 and I agree with the contention of the learned counsel for the Appellant and with the opinion of Mr. Justice Farrar in the case of Lekhrah v. Shamlal that "what the section contemplates is that the court should fix the time within which the assignee may decline to continue the suit and to give security for the costs thereof".
16. Insofar as the public interest being a relevant factor under Order IX Rule 9 of CPC and the 20 consideration thereof by the civil Court, Sri. Shrishail Navalgund relies upon the decision of the High Court of Bombay in the Official Liquidator High Court, Bombay Liquidator Of Rossel Finance Limited v. Ross Muraka (India) Private Limited7 and contends that invoking public interest cannot be called extraneous to the consideration of sufficient cause for restoration of suit which is dismissed for default.
17. In rejoinder, Sri C.V. Nagesh submits that the reliance upon the decision of the High Court of Calcutta in the Kissen Gopal v. Suklal supra is unjustified because in the case on hand before the High Court of Calcutta, the plaintiff was declared an insolvent in another case and because the plaintiff was so declared the provisions of Order XXII Rule 8 were made applicable. In the present case, the respondent is a company registered under the provisions of the 7 2015 SCC online Bombay 7870 21 Companies Act. The respondent, because of the winding up order, is subject to the relevant provisions of the Companies Act and the Company (Court) Rules 1959 [for short, 'the Company Rules'] and therefore, it cannot be contended that the civil Court, before dismissal of the suit in OS No.7306/2002, had to issue notice to the OL as contemplated under Order XXII Rule 8 of CPC.
18. Sri C.V. Nagesh elaborates that in the case of a company in liquidation because of the winding up order, a statement of affairs must be filed by the concerned as mentioned under section 454 of the Companies Act, and in terms of Rule 124 the Company Rules, notice shall be issued by the OL requiring the persons as aforesaid to submit and verify a statement of the affairs of the company in the prescribed Form [Form No. 55]. A Statement of affairs would necessarily indicate the details of actionable claims commenced and yet to be commenced. As such, the onus is on the OL to 22 issue notice calling upon the concerned to furnish all the details as contemplated in the statement of affairs and take necessary measures to protect the assets [including actionable claims] of the company in liquidation. An OL is also required to maintain a register, which is called a Suit Register, in Form No.142-K as required under Rule 286 of the Company Rules.
19. Sri C.V. Nagesh elaborates that these requirements are specific to a company in liquidation and are designed so that the OL, who is invested with necessary powers to take appropriate measures to protect the company's claim (with the leave of the Company Court), is appraised of the true affairs of the company in liquidation. The Companies Act, which otherwise contemplates elaborate procedure, does not stipulate any notice to an OL in any pending proceedings by any Court or Tribunal. Lastly, Sri C.V. 23 Nagesh submits that in the light of the admitted facts [Exhibit R1 - R8] it is indisputable that the OL was informed about the pendency of the suit, but no action was taken and therefore, the OL cannot even otherwise complain of lack of knowledge.
20. Sri. Shrishail Navalgund also contends that because this Court's jurisdiction under section 115 of CPC is narrow and limited, and because there is no material irregularity in the exercise of civil Court's jurisdiction under Order IX Rule 9 of CPC, this Court must not interfere with the impugned order even on the ground of jurisdiction. However, Sri C.V. Nagesh refutes this submission asserting that with the civil Court concluding that the restoration of the suit is sought on grounds that are based on false pleas, could not have exercised its jurisdiction Order IX Rule 9 of CPC and therefore, this Court must intervene in exercise of jurisdiction under section 115 of C.P.C. 24
21. In the light of the rival submissions, the question for consideration, apart from the question of this Court's jurisdiction, would be:
Whether the civil Court could have restored the suit in OS No. 7306/2002 while considering an application under Order IX Rule 9 of CPC on the twin grounds that notice of the suit is not issued to the OL after the winding up order despite a memo for issuance of such notice by the former directors of the respondent and that public interest would also justify restoration of the suit.
22. It is undisputed that the suit in OS No. 3706/2002 is dismissed by the civil Court in exercise of the jurisdiction under Order IX Rule 8 of CPC, and consequentially the suit is restored for a decision on merits, by the civil Court in exercise of its jurisdiction under Order IX Rule 9 of CPC. Whether this exercise of 25 jurisdiction by the civil court is regular or otherwise, would depend upon this Court's opinion on whether the civil Court could have restored the suit in exercise of its jurisdiction under Order IX Rule 9 of CPC, either on the ground that a notice to the OL is not issued or on the ground that restoration would be justified in public interest. Therefore, the question as formulated is first taken up for consideration.
23. It is undisputed that after the suit in OS No.7306/2002 is commenced in the year 2002, one of the petitioners made over a cheque dated 21.02.2003 for a sum of Rs.70 lakhs towards settlement of the suit; with this cheque being returned without payment, proceeding under section 138 of the Negotiable Instruments Act, 1881 is commenced in CC No. 5118/2003. The concerned learned Magistrate has rejected this complaint by the order dated 05.10.2007 on the ground of limitation. In the interregnum, the 26 respondent is first directed to be wound up on 29.06.2006, and this order dated 29.06.2006 is recalled on 01.02.2008 on an application in CA No. 1001/2006. The respondent is again directed to be wound on 31.08.2010.
24. When the first winding up order was in force, the OL has filed an application under section 446 of the Companies Act for adjudication on whether the learned Magistrate could have rejected the complaint in CC No. 5118/2003 on the ground of limitation. In this application, OL has referred to the pending suit in OS No.7306/2002. After the second winding-up order dated 31.08.2010, the officers of the respondent, admittedly, before the dismissal of the suit, have handed over the records of the suit in OS No. 7306/2002 to the office of the OL and have also informed his office about the pendency of the suit. Of course, they have also filed memo dated 28.01.2011 27 requesting the civil Court to issue notice of the suit to the OL upon the dismissal of the appeal in OSA No. 36/2010 as against the second winding up order dated 31.08.2010.
25. These undisputed circumstances establish beyond doubt that the OL knew about the respondent's claims against the petitioner and the pendency of suit in OS No. 7306/2000 much before the dismissal of the suit on 16.01.2012. Despite these undisputed circumstances, the OL has filed the application for restoration alleging lack of knowledge until a particular association, again allegedly, informed his office about the suit and contending that the respondent's former directors are delinquent in not informing his office about the suit. This pretentious justification for restoration, in this Court's considered view, and as rightly observed by the civil Court in the impugned 28 order, is a false plea and a case where the OL has not approached the civil Court with clean hands.
26. The proposition that a litigant who invokes discretionary jurisdiction must come clean with all the facts must have its full force irrespective of the quantum or the nature of the amount in dispute, and irrespective of whether the litigant is a private individual or an official discharging statutory duties. If it is established that a litigant is guilty of suppression, such litigant cannot be admitted to any relief. Perhaps such litigant could be heard to say that this proposition must not apply in full vigour, if an obvious procedural irregularity resulting in irreparable injury is established. Therefore, OL's case that the civil Court, before dismissing the suit in OS No. 7306/2002 because of the winding up order dated 18.10.2004 [which is confirmed with the dismissal of the appeal in OSA No. 26/2010], should have issued notice is also examined to assess 29 whether this possible exceptional circumstance is established.
27. It is obvious that the civil Court has not referred to any statutory provision to opine that notice had to be issued to the OL before the dismissal of the suit. The civil court is persuaded to opine that notice had to be issued only because a memo was filed in that regard before dismissal of the suit. There is no discussion on why the provisions of the provisions of Order XXII Rule 8 of CPC should apply to the present case, and in fact, there is not even a reference to these provisions in the impugned order. It is for the first time before this Court that reliance is placed on the provisions of Order XXII Rule 8 of CPC to contend that these provisions would apply and therefore, the OL should have been extended an opportunity to continue the suit. This contention is premised in the assertion that both the OL and the receiver discharge fiduciary 30 responsibilities in taking over the assets of a distressed entity and applying the same to discharge the debts in terms of certain set rules. The rules that govern the discharge of their respective responsibilities must be considered to test the merit of the aforesaid contention.
28. The provisions of Rule 8 Order XXII of CPC stipulate that, insolvency of plaintiff in any suit, which the assignee or receiver might maintain for the benefit of the creditors, shall not cause the suit to abate unless the assignee or the receiver declines to continue the suit, and when, for any special reason, is called upon to give security for the costs fails to offer such security. If the assignee or receiver neglects or refuses to continue the suit and to give security within the time allowed, a defendant may apply for the dismissal of the suit on the ground of insolvency. The Court may dismiss the suit awarding cost to the defendant. The dismissal or the abatement would bar a fresh suit, but it would be open 31 to the plaintiff/legal representatives, or the assignee/receiver, to seek setting-aside of the abatement or dismissal if sufficient cause for non- continuation of the suit is established. The provisions of section 5 of the Limitation Act are also made applicable8.
8 "8. When plaintiffs insolvency bars suit.- (1) The insolvency of a plaintiff in any suit which the assignee or receiver might maintain for the benefit of his creditors, shall not cause the suit to abate, unless such assignee or receiver declines to continue the suit or (unless for any special reason the Court otherwise directs) to give security for the costs thereof within such time as the Court may direct.
(2) Procedure where assignee fails to continue suit, or give security- Where the assignee or receiver neglects or refuses to continue the suit and to give such security within the time so ordered, the defendant may apply for the dismissal of the suit on the ground of the plaintiff's insolvency, and the Court may make an order dismissing the suit and awarding to the defendant the costs which he has insured in defending the same to be proved as a debt against the plaintiff's estate.
9. Effect of abatement or dismissal.- (1) Where a suit abates or is dismissed under this Order, no fresh suit shall be brought on the same cause of action. (2) The plaintiff or the person claiming to be the legal representative of a deceased plaintiff or the Companies Act the assignee or the receiver in the case of an insolvent plaintiff may apply for an order to set aside the abatement or dismissal; and if it is proved that he was prevented by any sufficient cause from continuing the suit, the Court 32
29. These provisions must be read in the light of the scheme under the provisions of the Provincial Insolvency Act, 1920 (for short, 'the Insolvency Act') as regards the appointment [and powers] of a receiver9, appointment of an interim receiver10, the adjudication of a debtor as an insolvent and the administration of the properties of an adjudged insolvent and the other provisions. Further, such conjunctive reading of the aforesaid must be contrasted with the scheme for administration of the affairs of a company in liquidation and the powers of an OL to opine that the provisions of shall set aside the abatement or dismissal upon such terms as to costs or otherwise as it thinks fit. (3) The provisions of section 5 of the 46Indian Limitation Act, 1877 (15 of 1877) shall apply to applications under sub-rule (2).
Explanation.-Nothing in this rule shall be construed as barring, in any later suit, a defence based on the facts which constituted the cause of action in the suit which had abated or had been dismissed under this Order. 9 Section 56 of the Insolvency Act 10 Section 20 of the insolvency Act 33 Order XXII Rule 8 and Rule 9 of CPC would apply when the plaintiff is a company in liquidation.
30. The Companies Act is repealed by the current Companies Act, 2013 and the Provincial Insolvency Act is repealed by the Insolvency Bankruptcy Code, 2016. These changes have brought on a different regimen, but for the purposes of the present adjudication, the provisions of the Insolvency Act and the Companies Act must be referred to.
31. Under the provisions of the Insolvency Act, a creditor, or the debtor himself, can present a petition for adjudication, and the provisions of section 8 of this Act is categorical that no insolvency petition can be filed against any corporation or against any association or a company. When a petition for adjudication is presented [in accordance with the procedure laid down in CPC for admission of a plaint], the court, while admitting the 34 petition, can appoint an interim receiver to take over the properties of the debtor. The powers of such interim receiver will be the same as are conferred on a receiver appointed under the provisions of CPC11.
32. If the Court does not dismiss the insolvency application for reasons as mentioned in section 25 of the Insolvency Act, it shall pass an order for adjudication but with reasonable time for the debtor to apply for his discharge. Upon order of adjudication, the property of the insolvent shall vest in the court [or the receiver if appointed] and the properties shall be available for distribution amongst the creditors12. The order of adjudication will relate back to the date of the petition. Insofar as all proceedings pending as of the date of adjudication, the concerned court, on proof that an order of adjudication is made, may either stay the 11 A reference in this regard must be made to the provisions of Order XL Rules 3 and 4 of CPC 12 Section 28 of the Insolvency Act 35 proceedings or allow the proceedings to continue on terms13. The subsequent chapters of the Insolvency Act provide for protection, amendment, annulment and administration of property.
33. It is in the background of this scheme, the provisions of Order XX Rule 8 of CPC contemplate that a suit shall not abate on the insolvency of a plaintiff unless the assignee or the receiver declines to continue the suit or fails to give security has directed by the court. The provisions of Order XXII Rule 8 of CPC has come up for discussion before the Division Bench of the High Court of Bombay in Velji Shivji v. Mathuradas Haridas14. The Division Bench has exposited that the abatement under Rule 8(1) would be if the assignee does not comply with the direction to offer security or for any other reason declines to continue the suit; unless the suit is dismissed under Rule 8 (2), the suit is not dead 13 Section 29 of the Insolvency Act 14 1947 (49) BomLR 645 36 and continues to be on the file of the court. It may be in a state of suspended animation and it continues to be alive. The forfeiture of the right that visits the official assignee would be only so long as he is the dominus litis, and subject to the provisions of Rule 9, but this forfeiture would not affect the plaintiff's right to continue the suit if, at the later point of time, he is discharged from the insolvency.
34. If this scheme is to be made applicable to the company in liquidation under the provisions of the Companies Act, the procedure that ensues on a winding up order must stipulate the same. If the statutory provisions do not stipulate issuance of notice to OL by Courts where actionable claims by the company in liquidation are pending, and if the respective schemes, insofar as the duties and responsibilities of the receiver
- assignee [in the case of insolvency] and an OL [in the case of winding up] are different, this Court cannot, by 37 an interpretative process hold that the notice as contemplated under Order XXII Rule 8 of CPC must also be issued to the OL.
35. The provisions of the Companies Act stipulate15 that when a winding up order is made, or the OL is appointed, no suit or other legal proceedings shall be commenced, or proceeded with, against the company in liquidation except with the leave of the Company Court. When an order of winding up is made, unless directed otherwise, a statement of affairs of the company directed to be wound up will have to be filed in the prescribed Form, and verified by an affidavit. The statement of affairs will have to contain particulars such as debts and liabilities and the debts due to the company16.
36. The OL in this regard will have to issue notice as contemplated under Rule 124 of the 15 Section 446 of the Companies Act 16 Section 454 of the Companies Act 38 Companies Rules. The statement of affairs will have to be filed in Form No. 55. The statement of affairs will have to be submitted within 21 days from the relevant date or such extended time not exceeding 3 months. If any person, without reasonable excuse, makes default in submitting the statement of affairs, would be punishable with imprisonment for a term which may extend to 2 years and with fine. The company Court is invested with the power to take cognizance and try the offence in accordance with the procedure prescribed for trial of summons is under Cr.P.C. In addition, as pointed out by Sri C.V. Nagesh, a Suit Register will also have to be maintained by the OL.
37. These provisions establish that upon an order for winding up, sufficient time bound procedures are prescribed to ensure that the OL is acquainted with the company's debts and liabilities and also the debts due to the company. Therefore, the OL need not wait for 39 notice from a court where the suit commenced by the company is pending adjudication, and if this is ensured, it cannot be argued on behalf of the OL that the OL must receive an opportunity as contemplated under Order XXII Rule 8 of CPC. Significantly, because of the provisions of section 446 of the Companies Act while there would be stay of suit proceedings commenced against the company in liquidation, the company Court is invested with the jurisdiction under section 446(2) of the Companies Act to entertain and dispose of even a suit commenced by a company in liquidation.
38. The civil Court is persuaded to restore the suit for a decision on merits, despite its own conclusions as regards the application being premised on false please and the OL not approaching the Court with clean hands, because it has opined that the depositors' interests, and therefore the public fund, will have to be protected. However, the application for 40 restoration is not based on such grounds. Though this ground may seem overwhelming at the first blush, this Court, on an anxious consideration of all the undisputed facts and circumstances, is of the considered view that by itself this ground cannot prevail and constitute sufficient cause for restoration of the suit.
39. For the foregoing, this Court must answer the question formulated in favour of the petitioners, and opine that the civil Court has erred in exercise of its jurisdiction in allowing the applications for restoration of the suit in OS No.7306/2002. The civil Court could not have allowed restoration either on the ground that notice was not issued to the OL or that the protection of public funds would justify restoration. Hence, the petitions in CRP No.104/2014 and CRP No.90/2014 are allowed and the impugned order dated 01.02.2014 in 41 Misc. Case No.120/2012 on the file of the III Additional City Civil and Sessions Judge, Bengaluru (CCH 25) is set-aside No costs.
SD/-
JUDGE SA* Ct:sr