Case Laws Companies Act Bansidhar Shankar Lal Vs Mohd Ibrahim

PETITIONER:
BANSIDHAR SHANKARLAL

Vs.

RESPONDENT:
MOHD. IBRAHIM & ANR.

DATE OF JUDGMENT:
25/09/1970

BENCH:
SHAH, J.C.
BENCH:
SHAH, J.C.
GROVER, A.N.

CITATION:
1971 AIR 1292 1971 SCR (2) 476
ACT:
Constitution of India, Art. 133 (1) (b) and (c)-Supreme
Court will not certify appeal when on merits it agrees with
High Court.
Companies Act, 1913, ss. 171 and 179–Company in
liquidation-Liquidators joining in second appeal against
decree ordering ejectment of company from land-Landlord
filing application for execution of decree without obtaining
permission under s. 171 of Companies Act from Company Judge-
Application whether maintainable.

 

HEADNOTE:
The first respondent instituted an action in the Court of
the Subordinate Judge Alipore for a decree of ejectment in
respect of land occupied by a company. The suit was
decreed. Before the decree was passed the company took a
loan from the appellant and mortgaged its fixed assets in
favour of the appellant. After the passing of the decree
the company executed a second mortgage of its fixed assets
in favour of the appellant against another loan. The decree
obtained by the first respondent against the company was
confirmed in first appeal. Thereupon the company and the
first appellant filed Second Appeal No. 1380 of 1954 in the
High Court of Calcutta. The appellant also filed a suit in
the said High Court an its original side to enforce the two
mortgages in his favour and obtained a preliminary mortgage
decree in the suit. Another creditor of the company applied
for and obtained an order directing that the company be
wound up. The liquidators of the company and the appellant
prosecuted Second Appeal No. 1380 of 1954. The decree of
the first appellate court was confirmed by the High Court.
The first respondent then instituted an application for
enforcement of the decree in ejectment against the company.
The appellant resisted the application on the ground that
the same was not maintainable since leave of the High Court
under
s. 171 of the Companies Act, 1913 had not been obtained.,
Thereafter on the motion of the first respondent the
Company Judge granted leave to execute the decree in
Second Appeal No. 1380 of 1954. The Subordinate Judge
before whom the proceedings were pending dismissed the
objections of the appellant against execution of the decree
and the order of dismissal was confirmed by the first
appellate court and the High Court. The appellant’s
applications for a certificate for leave to appeal to this
Court was also rejected. in appeal by special leave
challenging the refusal of certificate.
HELD : (i) The object of s. 171 is plain. It is intended to
ensure that the assets of a company ordered to be wound up
by the Court shall be administered for the benefit of all
the creditors and that some creditors only shall not obtain
an advantage over others by instituting or prosecuting
proceedings against the company. The section is intended to
maintain control of the Court which has made an order of
winding up on proceedings which may be pending against the
company or may be initiated after the order of winding up,
and the Court may remain seized of all those matters so that
its affairs are administered equitably and in an orderly
fashion. [480 B-C]
477
If sanction of the Court under s. 179 to prosecute the
appeal before the High Court was obtained by the liquidators
in the present case-and it must be so assumed-the contention
raised on behalf of the appellant lost all significance for
an execution application is only a continuation of the suit
and the control of the High Court enures during the
execution proceedings also. It would be giving effect to a
technicality divorced from the object of s. 171 of the
Companies Act to hold that even in a suit filed or
prosecuted with the sanction of the Court the decree may not
be enforced by a successful party without leave under that
section. [480 E-G]
Even granting that sanction under s. 179 does not dispense
with the, leave under s. 171 of the Act, to institute a
proceeding in execution against a company ordered to be
wound up, there is nothing 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 failure to
obtain leave before the institution of the proceedings
entails dismissal of the proceeding. The suit or proceeding
instituted without leave of the Court may 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. [48OH-481B]
Har Narain Misra v. Kanhaiya Lal Lohawalla. I.LR. [1939] 2
Cal. 425 and Godavari Sugar and Refineries Ltd. v.
Kambhampati Gopalakrishnamurthy & Ors., A.I.R. 1960 A.P. 74,
disapproved.
Nazir Ahmed v. Peoples Bank of Northern India Ltd. I.L.R.
[1942] Lah. 517, Suresh Chandra Khannabish v. Bank of
Calcutta Ltd. (1950) 54 Cal. W.N. 832 F.B., Peoples
Industrial Bank Ltd. v. Ramchandra Shukul, I.L.R. 52 All
430, Roopnarain Ramchandra Private Ltd. V. Brahmapootra Tea
Co. (India) Ltd. & Anr. 65 C.W.N. 1060 and Suresh Chandra v.
The Bank of Calcutta, 21 Company Cases 110, referred to.
(ii)This Court would not be justified in certifying an
appeal in which-, the only question which may be urged is
the one on which it ha&, expressed an opinion against the
appellant. [482 A]

 

JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1927 of
1966.
Appeal by special leave from the order dated December 24,
1965 of the Calcutta High Court in Supreme Court Appeal No.
55 of 1965.
G.L. Sanghi, Jnanendra Lal and B. R. Agarwala, for the.
appellant.
Sukumar Ghose, for respondent No. 1.
The Judgment of the Court was delivered by
Shah, J. Mohammed Ibrahim (hereinafter called “the plain-
tiff”) instituted an action in the Court of the Subordinate
Judge, Alipore for a decree in ejectment in respect of land
occupied by the Luxmi Spinning & Weaving Mills Ltd. as his
tenant. The. suit was decreed on October 1, 1953. Before
the decree was
478
passed, the Company had executed on January 31, 1951 a deed
in favour of Bansidhar mortgaging its fixed assets for
securing repayment of Rs. 1,25,000/-. After the decree of
the Trial Court, the Company executed on January 21,, 1954 a
second deed also in favour of Bansidhar mortgaging the fixed
assets for repayment of an additional sum of Rs. 2,00,000/-.
The decree of the Subordinate Judge in the plaintiff’s suit
was confirmed on August 4, 1954. Against that decree the
Company and Bansidhar preferred second appeal No. 1380 of
1954 to the High Court of Calcutta. Bansidhar also filed a
suit in the High Court of Calcutta on its original side to
enforce the two mortgages in his favour and obtained a
preliminary mortgage decree in the suit on May 13, 1955.
Another creditor of the Company applied for and obtained on
August 22, 1955 an order directing that the Company be wound
up. The liquidators of the Company and Bansidhar prosecuted
the Second Appeal No. 1380 of 1954. The decree of the
District Court was confirmed by the High Court in its
appellate jurisdiction on February 22, 1958. The plaintiff
then instituted an application for enforcement of the decree
in ejectment against the Company without obtaining leave of
the High Court of Calcutta under s. 171 of the Indian
Companies Act, 1913. On December 17, 1958, Bansidhar filed
a petition contending that the application for enforcement
of the decree was not maintainable without leave of ‘the
High Court which ordered that the Company be wound up. On
the motion of the plaintiff the Company Judge granted leave
to execute the decree, in Second Appeal No. 1380 of 1954.
The Subordinate Judge before whom the proceedings were
pending, dismissed the application filed by Bansidhar, and
the order of dismissal was confirmed by the Additional
District Judge and by the High Court in Second Appeal.
Bansidhar’s petition for a certificate for appeal to this
Court under Articles 133(1)(b) and (c) of the Constitution
was also rejected. Bansidhar then preferred two petitions,
for special leave to this Court-one against the order of the
High Court dismissing his Second Appeal against the order in
the execution proceedings, and the other against the order
of the High Court refusing to certify the appeal. under Art.
133 (1) (b) and (c) of the Constitution. This Court
dismissed the petition against the order of the High Court
in ‘Second Appeal and granted special leave to appeal
against the order of the High Court refusing to certify the
case.
The order passed by the High Court in Second Appeal, having
affirmed the order of the District Court unless the appeal
preferred to this Court involved some substantial question
of law of public or private importance, the case could not
be certified under Art. 1 3 3 (1 ) (b) even if the proposed
appeal involved direc-
479
tly or, indirectly some claim or question respecting
property of value not less than Rs. 20,000/-. The High
Court could not also certify the case as a fit one for
appeal under Art. 133(1)(c) unless in the view of the Court
it raised a question of some general or public importance.
Counsel for the appellant says that the Subordinate Judge
was incompetent to entertain the application for executing
the decree in Second Appeal No. 1380 of 1954 unless the High
Court of Calcutta in its company jurisdiction granted leave
to execute the decree under s. 171 of the Indian Companies
Act, 1913. Counsel urged that leave of the High Court is by
the terms of s. 171 of the Indian Companies Act made a
condition precedent to the institution of a proceeding
against a Company ordered to be wound up by the Court,
and that the application for execution of the decree without
in the first instance obtaining leave of the High Court was
entertained without authority. The question sought to be
raised in the proposed appeal, it was urged, was of general
or public importance. In any case it was contended that
there is conflict of opinion among the Courts in India ,on
the true interpretation of s. 171 of the Indian Companies
Act, 1913, and s. 446 of the Companies Act, 1956 (which re-
placed s. 171 of the Act of 1913), and the High Court was
bound to grant the certificate applied for either under s.
13(1) (b) or under Art. 133(1)(c) or both the clauses.
Our attention is invited to the decision of the High Court
of Calcutta in Har Narain Misra v. Kanhaiya Lal Lohawalla(1)
and of the High Court of Andhra Pradesh in Godavari Sugar
and Refineries Ltd. v. Kambhampati Gopalakrishnamurthy and
Others (2) In these cases it was held that leave of the High
Court which has ordered winding up of a Company is a
condition precedent to the institution of proceedings
against a Company in liquidation, and that proceeding
initiated without obtaining leave of the Court in the first
instance must be dismissed.
There are, however, other cases which take a contrary view.
Nazir Ahmed v. Peoples Bank of Northern India Ltd.
(3) ; Suresh Chandra Khannabish v. The Bank of Calcutta
Ltd. (4). People’s Industrial Bank Ltd. v. Ramchandra
Shukul(5); Roopnarain Ramchandra Private Ltd v. Brahmapootra
Tea Co. (India) Ltd. & Anr. (6).
Section 171 of the Indian Companies Act, 1913 provided that-
(1) 1. L. R. [1939] 2 Cal. 425.A.I.R. 1960 A. P. 74.
(3) I. L. R. (1942) Lah. 517.(4) (1950) 54 Cal. W. N. 832
F.B.
(5) 1. L. R. 52 All. 430.(6) 65 Cal. W. N. 1060.
480
.lm15
“When a winding up order has been made or a provisional
liquidator has been appointed, no suit or other legal
proceeding shall be proceeded with or commenced against the
Company except by leave of the Court and subject to such
terms as the Court may. impose.”
This section is in terms analogous to s. 231 of the English
Companies Act, 1948 (11 & 12, Geo. 6, Ch. 38). The object
of s,. 171 is plain. It is intended to ensure that the
assets of a Company ordered to be wound up by the Court
shall be administered for the benefit of all the creditors,
and that some creditors only shall not obtain an advantage
over others by instituting or prosecuting proceedings
against the Company. This section is intended to maintain
control of the Court which has made an order for winding up
on proceedings which may be pending against the Company or
may be initiated after the order of winding up, and the
Court may remain seized of all those matters so that its
affairs are administered equitably and in an orderly
fashion.
When the Second Appeal No. 1380 of 1954 was pending before
the High Court of Calcutta at the instance of the Company 1:
and Bansidhar against the decree passed by the District
Court, in ejectment, the Company was ordered to be wound up
by order of the High Court of Calcutta and the liquidators
were appointed. The liquidators prosecuted the appeal.
There is no evidence on the record whether the liquidators
obtained the sanction of the Court under s. 179(1)(a) of the
Company’s Act 1913. But, there is no reason to suppose that
the liquidators did not obtain the sanction of the Court.
If sanction of the Court under s. 179 to prosecute the
appeal before the High Court was obtained, and it must be so
assumed, the contention raised on behalf of Bansidhar loses
all significance for an execution application is only a
continuation of the suit and the control of the High Court
ensures during the execution proceeding also. If the
sanction of the Court has been obtained for the prosecution
of the suit, it would be plainly unnecessary to obtain fresh
sanction to the institution of execution proceeding at the
instance of the successful party. It is true that the
sanction obtained by the liquidators is granted under S. 179
of the Companies Act to initiate or enforce a claim of the
Company or to defend an action, whereas the leave of the
Court to institute or to continue a suit against the Company
in winding up is obtained under s. 171. It would be giving
effect to a technically divorced from the true object of the
section to hold that even in a suit filed or prosecuted with
the sanction of the Court, the decree may not be enforced by
a successful party without leave under S. 171 of the Act’
Even granting that sanction under S. 179 does not dispense
with the leave under s. 171 of the Act, to institute a
proceeding in execution against a Company ordered to be
wound up, we do
481
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
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,
the regarded as ineffective untill leave is obtained but
once leave is obtained the proceeding will be deemed
instituted on the date granting leave.
In Buckley on the Companies Act, 13th Edn., at p. 499 it is
observed :
“Leave to continue after winding up a
debentureholder’s action, whether previously
or subsequently commenced, will be given
unless the liquidator is able and willing to
give in the winding up the relief which could
be obtained in the action.”
The Calcutta High Court in Suresh Chandra v. The Bank of
Calcutta(1) examined the decisions of the English Courts in
some details and observed that as regards s. 171 of the
Indian Companies Act, 1913, the High Court has
jurisdiction to grant leave to proceed with the suit or
other proceedings against a Company in liquidation even if
such leave was not obtained for its commencement. The
proceedings may at best be regarded as instituted on the
date on which the leave was obtained from the High Court.
Considering the question both on principle and authority we
are unable to agree with the view expressed by the Calcutta
High Court in Har Narain Misra’s case(2) and in
Godavari Sugar and Refineries Ltd. case(3) by the Andhra
Pradesh High Court.
Counsel for the appellant, however, urged that this Court
is not concerned in this appeal with the correctness of one
or the other of the two conflicting views. Counsel says
the Court has, only to consider the correctness of the
view of the High Court, refusing to grant the certificate.
In our judgment, it would be a futile exercise if we come
to the conclusion that the view taken by the High Court on
the merits of the case is true, still to certify the case
for appeal. The proposed appeal only involves the question
about the maintainability of the execution proceeding
commenced by the plaintiff and against the Company in
liquidation without leave of the High Court which has
ordered the company to be wound up. We entertain no
doubt that the High Court
(1) 21 Company Cases 110. (2) 1. L. R. 392 Cal.
425.
(3) A. I.R. 1960 A. P. 74.
48 2
was right in the view it has taken on the merits and the
contentions raised. We do not think that we will be
justified in certifying an appeal in which the only question
which may be urged is the one on which we have expressed our
opinion against the appellant.
The appeal fails and is dismissed. The appellant will pay
the costs of the plaintiff in this Court.
G.C. Appeal dismissed.
483

 

 

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