Patna High Court
United Bank Of India vs Official Liquidator, Maksudpur ... on 29 August, 1983
Equivalent citations: 1984(32)BLJR148, [1986]59COMPCAS770(PATNA)
JUDGMENT
1. This appeal under clause 10 of the Letters Patent is directed against the order of the company judge, dated April 12, 1976, passed in Company Petition No. 2 of 1975 rejecting the application of a bank by which a prayer was made under Section 446 of the Companies Act, 1956 (hereinafter referred to as " the Act"), for grant of leave of the court to proceed with Title Mortgage Suit No. 258 of 1972 pending in the court of Subordinate Judge, First Court, Gaya.
2. The salient facts for the decision of the point raised in this appeal may be stated here. It appears that the aforesaid title mortgage suit was filed on December 15, 1972, by the appellant, United Bank of India, against the company and a prayer was made for a mortgage decree as also personal decree against other defendants, some of whom were directors of the company. In 1975, one of the directors filed an application for winding up of the company, respondent No. 2. The said application was registered as Company Petition No. 2 of 1975. The bank objected to the winding up of the said company and alternatively prayed that the bank may be permitted to proceed with the suit. Winding-up order was passed on October 31, 1975, and the bank's application for leave to proceed with the suit was rejected as premature. Thereafter, the bank filed another application after the winding-up order was passed, under Section 446 of the Act. This application was filed on February 27, 1976, and the said application has been rejected by the impugned order. The appellant has thereafter come to this court.
3. The learned company judge in the impugned order has referred to the decision in M.K. Ranganathan v. Government of Madras [1955] 25 Comp Cas 344 (SC); AIR 1955 SC 604, but he was of the view that intervention of the court is needed only when the actual stage for effecting sale, etc., is reached. According to the learned company judge, no application for leave to prosecute a pending suit was necessary. Mr. K.D. Chatterjee, learned counsel appearing for the appellant bank, contended that the learned company judge was not correct in holding that leave of the court is not necessary to prosecute a pending suit. Reliance has been placed by Mr. Chatterjee upon the provisions of Section 446(1) of the Act. As Subsection (1) only is relevant, it will be appropriate to quote the said subsection here. It reads thus:--
" When a winding up order has been made or the official liquidator has been appointed as provisional liquidator, no suit or other legal proceeding 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 court and subject to such terms as the court may impose."
4. Reference was also made to Section 537 of the Act. Mr. Chatterjee did not rely upon Section 537, as according to him, on a plain reading of the said section, it has no application to the present case at this stage and he reserved the right to canvass the said question in future if occasion would arise. On a plain reading of Sub-section (1) of Section 446 of the Act, it is manifest that where a winding-up order has been passed, leave of the court is necessary for proceeding further with a pending suit or proceeding. The same decision which has been relied upon by the learned company judge was placed before us by Mr. Chatterjee. In Ranganathan's case [1955] 25 Comp Cas 344 (SC); AIR 1955 SC 604, their Lordships, after quoting Section 171 and Section 229 which are equivalent to Sections 446 and 529, respectively, of the present Act and similar to Sections 231 and 317 of the English Act, proceeded to quote the relevant portion from the decision of Food Controller v. Cork [1923] AC 647 (HL). It will be apposite to read here the relevant portion of paragraph 15 of the said decision, which reads thus (at p. 351 of 25 Comp Cas):
"The position of a secured creditor in the winding up of a company has been thus stated. 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 ' 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, page 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 suit or takes other legal proceedings for the realisation of his security, he is bound under Section 231 (corresponding with Section 131, 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. 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 to 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. The provisions in Section 317 are also supplementary to the provisions of Section 231 and emphasise the position of the secured creditor as one outside the winding up, the secured creditor being, in regard to the exercise of those rights and privileges, in the same position as he would, be under the Bankruptcy Act."
5. The language of Section 171 of the old Act dealt with in the aforesaid Supreme Court decision is similar to Section 446 of the present Act. Thus, it is manifest from the discussions made above that secured creditors have to apply for leave under Section 446 of the Act though the suit was filed before the winding-up order was passed. It cannot be disputed that a secured creditor is outside the scope of the winding-up proceeding and can, if so likes, proceed to realise the debt from the properties covered by the security. But if he chooses to file a suit or has already filed a suit before the winding-up order was passed, he has to obtain leave of the winding-up court which should as a matter of course be granted unless there are special grounds for its refusal. It is true that the term " secured creditor " has not been defined in the Act but the said term has been defined in the Provincial Insolvency Act and under Section 529 of the Companies Act, application of the insolvency Rules in the winding-up of insolvent companies have been made applicable to the extent indicated in that section. It is not disputed that the present bank, which is the appellant before us, is a secured creditor and is outside the winding-up proceeding, but in view of Section 446, the bank is bound to take leave for proceeding with a pending suit; more so in the present mortgage suit which is based on several securities and hypothecation deeds and in which personal decree has also been asked for against all the defendants some of whom were directors of the company. We have gone though the petition filed under Section 446 of the Act and the relevant papers from the paper book. In our view, no special ground has been made out to refuse leave to the appellant, which should ordinarily be granted. We also do not find any such reason mentioned in the impugned order while rejecting the petition for grant of leave.
6. For the reasons stated above, the appeal is allowed and the judgment of the company judge is set aside. Leave is granted to the appellant bank to prosecute the aforesaid title mortgage suit pending in the court of Subordinate Judge, First Court, Gaya. As nobody has appeared on behalf of respondents to oppose this appeal we make no order as to costs.