Madhya Pradesh High Court
Oshi Foods Limited And Ors. vs State Bank Of India on 15 July, 1997
Equivalent citations: 1997(2)MPLJ643
ORDER T.S. Doabia, J.
1. The brief facts which have led to the filing of this petition Under Section 115 of the Code of Civil Procedure be noticed.
2. Petitioner No. 1 M/s Oshi Foods Ltd. is a company registered under the Companies Act. It has its head office at New Delhi. As it was unable to meet some of its financial commitments, a company petition was filed in the Delhi High Court. This bears No. 28 of 1992. On 17th of March, 1992, Delhi High Court has passed an order directing winding up of the company. One Shri A. K. Das has been appointed as official liquidator. This official liquidator has taken over the assets of the company on 29th of September, 1993. In a nutshell, it can be stated that the company is now under winding up process.
3. Against the company a suit was filed by the State Bank of India at Gwalior. To the maintainability of the suit, a preliminary objection was taken. This objection was to the effect that the suit cannot proceed unless and until leave of the company court in terms of 444 and 446(1) of the Companies Act, is obtained. The trial Court has held that the suit can proceed notwithstanding the provisions contained in Section 446 of the Companies Act. It is against the above order, this petition has been filed.
4. Reliance is being placed on the decision reported as M. K. Ranganathan v. Govt. of Madras, AIR 1955 SC 604. In this judgment it was observed that if a secured creditor wants to take the assistance of the Court then it has to obtain leave of the Court. The Supreme Court of India was at the relevant time dealing with Section 171 of the Companies Act, 1913. The decision referred to above was noticed in the decision reported as Central Bank of India v. Elmot Engineering Company, (1994) 4 SCC 159. Para 14 is relevant and be noticed again.
"This section aims at safeguarding the assets of a company in winding-up against wasteful or expensive litigation as far as matters which could be expeditiously and cheaply decided by the company court are concerned. In granting leave under this section, the Court always takes into consideration whether the company is likely to be exposed to unnecessary litigation and cost. The position of secured creditor came to be decided by this Court in M. K. Ranganathan. At AIR pp. 607 and 608, in paragraphs 15 and 16 it was held :
"The phrase "outside the winding up" is an intelligible phrase if used, as it often is, with reference to a secured creditor, say a mortgagee. The mortgagee of a company in liquidation is in a position to say "the mortgaged property is to the extent of the mortgage my property. It is immaterial to me whether my mortgage is in winding up or not. I remain outside the "winding up" and shall enforce my rights as mortgagee".
This is to be contrasted with the case in which such a creditor prefers to assert his right, not as a mortgagee, but as a creditor. He may say 'say' 'I will prove in respect of my debt'. If so, he comes into the winding up.
It is also summarised in Palmer's Company precedents, Vol. II, p. 415.
"Sometimes the mortgagee sells, with or without the concurrence of the liquidator, in exercise of a power of sale vested in him by the mortgage. It is not necessary to obtain liberty to exercise the power of sale, although orders giving such liberty have sometimes been made".
The secured creditor is thus outside the winding up and can realise his security without the leave of the winding up Court, though if he files a suit or takes other legal proceedings for the realisation of his security he is bound under Section 231 (corresponding with Section 171, Indian Companies Act) to obtain the leave of the winding-up Court before he can do so although such leave would almost automatically be granted.
5. Section 231 has been read together with Section 228(1) and the attachment, sequestration, distress or execution referred to in the latter have reference to proceedings taken through the Court and if the creditor has resort to those proceedings he cannot put them in force against the estate or effects of the Company after the commencement of the winding-up without the leave of the winding-up, Court.
6. The provisions in Section 317 are also supplementary to the provision of Section 231 and emphasise the position of the secured creditor as one outside the winding up, the second creditor being. In regard to the exercise of those rights and privileges, in the same position as he would be under the Bankruptcy Act.
7. The corresponding provisions of the Indian Companies Act have been almost bodily incorporated from those of the English Companies Act and if there was nothing more, the position of the secured creditor here also would be the same as that obtaining in England and he would also be outside the winding up and a sale by him without the intervention of the Court would be valid and could not be challenged as void Under Section 232(1), Indian Companies Act.
That case no doubt dealt with the forerunner to Section 446 namely, Section 171 of the Indian Companies Act, 1913. But that does matter.
8. The two decisions noticed above do support the proposition put across by the learned counsel for the petitioner.
9. The learned counsel appearing for the State Bank of India has, however, stated that the Supreme Court of India in the later case did not approve of the transfer of the case from the Court at Hyderabad to the Court at Bombay. It be seen that above is a totally different proposition. The Supreme Court of India has no where said in the aforementioned case that leave is not required. Once leave is granted, it may be possible for the trial Court to proceed with the litigation at Gwalior notwithstanding the fact that the registered office of the Company is not at Gwalior.
10. Another argument which has been raised by the learned counsel for the respondent-Bank is that this is a composite suit where not only company in its corporate name has been proceeded but suit has also been filed against the guarantors and therefore suit should be permitted continued against the guarantors. It be seen that unless and until the liability of the company is determined the guarantors cannot be held liable. It may be possible to proceed against the guarantors if the decree is obtained against the company which is going to be executed. Therefore, in such a situation when a composite suit has been filed and when leave of the Company Court is required for proceeding against the company then the conclusion is inescapable that the suit cannot proceed unless and until the leave of the Company Court is obtained.
11. This petition is, accordingly allowed leaving the State Bank of India to seek and apply for leave to proceed with the suit. It would also be apt if the State Bank of India also seeks direction from the Company Court to the effect that in case leave is granted then the Courts at Gwalior should be permitted to continue with the litigation in question. There would be no order as to Costs.