Companies Act Case Law Government Of Orissa Vs M/S Ashok Transport Agency And Ors

CASE NO.:
Appeal (civil) 3209 of 2002

PETITIONER:
GOVERNMENT OF ORISSA

RESPONDENT:
M/S ASHOK TRANSPORT AGENCY AND ORS.

DATE OF JUDGMENT: 05/11/2004

BENCH:
C.J.I.R.C. LAHOTI, G.P. MATHUR & P.K. BALASUBRAMANYAN

JUDGMENT:
J U D G M E N T
P.K. BALASUBRAMANYAN, J.
M/s Ashok Transport Agency, Respondent No.1 herein [hereinafter
referred to as the ‘plaintiff’], filed a suit against M/s O.M.C. Alloys
Limited, a Government Company, [hereinafter referred to as the
‘defendant’], for recovery of a sum of Rs.3,90,210/- with interest thereon.
The suit was filed on 1.8..1986. The defendant filed a written statement
on 14.10.1987. On 29.08.1990, the suit was dismissed for default. On
20.09.1990, the plaintiff filed an application under Order IX Rule 9 of the
Code of Civil Procedure for restoration of the suit. On 03.08.1991, the
defendant filed a memo substantially submitting that it was not opposing
the restoration of the suit. The application for restoration was heard and
posted for orders to 17.8.1991. On that date, orders were not pronounced
and the pronouncement of orders was adjourned to 02.09.1991.
On 30.08.1991, the Ministry of Law, Justice and Company Affairs,
Government of India, issued a Notification S.O. 562 (E) in exercise of the
powers conferred under sub-Sections (1) and (2) of Section 396 of the
Companies Act, 1956, called the OMC Alloys Limited and the Orissa
Mining Corporation Limited (Amalgamation) Order, 1991. It provided
for the amalgamation of the defendant with the Orissa Mining
Corporation Limited [hereinafter referred to as the ‘Corporation’], a
Government of Orissa company incorporated under the Companies Act.
In addition to providing for the amalgamation of the two companies and
for transfer of all rights and properties of the defendant and the vesting of
the same in the Corporation in accordance with law, by clause 12, it
provided for the dissolution of the Company. Clause 12 reads:
“12. Dissolution of the M/s OMC Alloys Limited 
Subject to the other provisions of this order, as from the
appointed day, M/s OMC Alloys Limited shall be dissolved
and no person shall make, assert or take any claims demand
or proceedings against the dissolved company or against a
director or an officer thereof in his capacity as such director
or officer, except in so far as may be necessary for enforcing
the provisions of this order.”

Clause 7 thereof made provision for saving of legal proceedings. It
reads:-
“7. Saving of legal proceeding.- If on the appointed
day, any suit, prosecution, appeal or other legal proceedings
or whatever nature by or against the dissolved company be
pending, the same shall not abate or be discontinued, or be
any way prejudicially affected by reason of the transfer to the
resulting company of the undertaking of dissolved company
or of anything contained in his order. But the suit,
prosecution, appeal or other legal proceeding may be
continued, prosecuted and enforced or against the resulting
company in the same manner and to the same extent as it
would or may be continued, prosecuted and enforced by or
against the dissolved company, if this order had not been
made.”

By definition, the resulting Company is the Corporation.
Thus, by virtue of the above Order issued under Section 396 of the
Companies Act, the rights and obligations of the defendant were taken
over by the Corporation with a liberty given to claimants like the plaintiff
to continue the prosecution of their suits against the Corporation.

It is seen that the defendant, who was represented by counsel and
who had filed a written statement in the suit, did not bring to the notice of
the Court that the defendant had got amalgamated with the Corporation,
that it stood dissolved and that it was necessary to implead the
Corporation before proceeding further with the suit. The plaintiff also did
not take any steps to implead the Corporation as a defendant in the suit
either due to ignorance or due to want of care.

On 02.09.1991, with only the defendant on the party array, the
application for restoration of the suit was allowed, the suit was restored
and adjourned to 31.10.1991. Meanwhile, on 24.09.1991, the
Government of Orissa promulgated ordinance No.8 of 1991 in exercise of
powers conferred under Article 213(1) of the Constitution of India and
issued a Notification dated 24.09.1991 whereby the Charge Chrome
Division originally known as OMC Alloys Limited of the Corporation
stood transferred and vested in the Government of Orissa. On
27.09.1991, the Government of Orissa sold what had vested in it, to Tata
Iron and Steel Company (TISCO). It is seen that the defendant did not
take further part or interest in the litigation and this resulted in Money
Suit No.491 of 1986 being decreed ex parte on 12.11.1991. The
defendant did not accede to the demand of the plaintiff for satisfying the
decree. The plaintiff came to know of the Government Notification and
the subsequent developments and issued a notice to the Secretary,
Department of Steel and Mines demanding payment of the decretal dues.
The decree having not been satisfied, the plaintiff filed an Execution
Petition on 24.10.1994 impleading the defendant as judgment debtor
No.1, the Corporation as judgment debtor No.2 and the State Government
of Orissa as judgment debtor No.3. In other words, the plaintiff, the
decree holder, sought to execute the decree not only against the
defendant-judgment debtor, but also against the statutory transferees. The
Corporation filed an objection objecting to the executability of the decree
as against it. The Government of Orissa also filed an objection objecting
to the executability of the decree as against it. Both took the stand that
not being parties to the decree, they were not bound by it. Thus, the
question arose in execution whether the decree obtained by the plaintiff
against the defendant was capable of being enforced against the
Corporation and the State of Orissa. The Executing Court held that the
decree was executable as against the Corporation and the State of Orissa
since they were successors-in-interest of the judgment debtor and hence
bound by the decree. Their objection was thus overruled. The
Corporation and the Government of Orissa challenged the order of the
Executing Court before the High Court of Orissa in Revisions under
Section 115 of the Code of Civil Procedure. The High Court of Orissa
after considering the relevant aspects and relying on the decision of this
Court in State of Orissa vs. Klockner & Co. [1996 (8) SCC 377], held
that the Executing Court was right, since the Corporation and the State
Government were only successors-in-interest of the defendant-judgment
debtor and it was not open to them to challenge the decree as a nullity or
as one unenforceable against them. Thus the revisions were dismissed.
The dismissal of its revision, Civil Revision No. 117 of 1998, is
challenged in this appeal by the Government of Orissa.

This appeal was heard by two learned Judges of this Court. One
learned Judge came to the conclusion that the decree could not be
enforced against the appellant and the appellant was entitled in execution
to successfully raise the objection of non-executability of the decree as
against it. The other learned Judge took the view that the decree was
enforceable against the Corporation and also the Government of
Orissa, though they were not impleaded in the suit, since they were
successors-in-interest of the judgment debtor. It is seen that the
essential difference in approach between the two learned Judges was
as to whether it was for the plaintiff to have taken steps to bring on
record the Corporation and the State of Orissa as parties to the suit before
proceeding with it and obtaining a decree, or whether it was for the
successors-in-interest of the defendant, if they wanted it, to seek to come
on record by themselves so as to defend that suit. Anyway, the two
learned Judges thus differed. In view of this, their Lordships referred the
appeal to a larger bench for decision by order dated 30.04.2004. That is
how, this appeal has come up before a bench of three Judges.

Normally, in a case covered by Order XXII Rule 10 of the Code of
Civil Procedure where rights are derived by an assignee or a successor-in-
interest pending a litigation, it is for that assignee or transferee to come on
record if it so chooses and to defend the suit. It is equally open to the
assignee to trust its assignor to defend the suit properly, but with the
consequence that any decree against the assignor will be binding on it and
would be enforceable against it. Equally, in terms of Section 146 of the
Code of Civil Procedure, a proceeding could be taken against any person
claming under the defendant or the judgment debtor. Similarly, a person
claiming under the defendant or the judgment debtor could seek to
challenge the decree or order that may be passed against the defendant, by
way of appeal or otherwise, in the appropriate manner. But, it would not
be open to it to challenge the decree as void or unenforceable in execution
in the absence of any specific provision in that regard in the statute or
order bringing about such a transfer or assignment. Going by these
general principles, it is possible to argue that it was for the Corporation,
and subsequently for the State of Orissa, to get themselves impleaded in
the suit and to prosecute a defence, not inconsistent with the defence
already set up by the defendant in its written statement. Neither the
Corporation nor the Government of Orissa took that step. In such a
situation, normally, one would be inclined to the view that it is not open
to the Corporation or to the Government of Orissa to challenge the
executability of the decree as against them. It is in this context that the
impact of Amalgamation Order has to be considered.
There is no dispute that the companies concerned were Government
companies and that under Section 396 of the Act, the Central Government
had the power to provide for amalgamation of the companies in national
interest. It was in exercise of that power, that Notification S.O. 562(E)
dated 30.08.1991 providing for amalgamation of the defendant and the
Corporation was issued. The said Order, in addition to providing for
amalgamation of the two companies, also made two important provisions
in Clauses 7 and 12. By virtue of Clause 12, a dissolution of the
defendant was brought about and it was provided that no person shall
make, assert or take any claims demand or proceedings against the
dissolved company, but claimants like the plaintiff and other creditors
were not deprived of their right to proceed with the enforcement of their
claims against the dissolved company in terms of the Order. Clause 7,
which we have quoted above, provided that any suit, prosecution, appeal
or other legal proceeding by or against the dissolved company pending on
the appointed day, shall not abate or be discontinued or be any way
prejudicially affected by reason of the transfer to the resulting company,
the Corporation, of the undertaking of the dissolved company or of
anything contained in the Amalgamation Order. But it was specifically
provided that the suit, prosecution, appeal or other legal proceeding may
be continued, prosecuted and enforced against the resulting company,
namely, the Corporation, in the same manner and to the same extent as it
would or may be continued, prosecuted and enforced by or against the
dissolved company, if the order of amalgamation had not been made. In
other words, a claimant like the present plaintiff, was given the right to
proceed with the suit as against the Corporation in terms of Clause 7. On
the wording of clause 7, an obligation was cast on the plaintiff to implead
the Corporation as a defendant in the suit and to proceed with the same. It
may be noted that at the relevant time, the suit stood dismissed for default
and the same had not been restored though the application for restoration
of the suit was pending. The suit was got restored after the amalgamation
took place and the consequences as set out therein followed. On the terms
of the Amalgamation Order, the plaintiff did have the right to proceed
with the application for restoration and the suit as against the Corporation
by taking appropriate steps in that behalf. We must also notice that it was
the plain duty of the defendant and its counsel, to bring to the notice of the
Court the fact of promulgation of the Amalgamation Order so as to enable
the Court to pass appropriate orders regarding the continuance of the
proceeding before it. All the same, that can only be a reason for the
plaintiff not having taken the requisite steps at the relevant time. In the
face of the Amalgamation Order, we are of the view that it was necessary
for the plaintiff to have brought on record the Corporation and the State
Government before proceeding with its suit and the search for a decree in
its favour. The terms of the Amalgamation Order has not been properly
appreciated by the Executing Court and the High Court when they
allowed the plaintiff to proceed with the execution as against the
Corporation and as against the Government of Orissa.

Thus, we are inclined to the view that the Corporation and the State
of Orissa should have been impleaded in the suit prior to the decree on the
terms of the Amalgamation Order. Learned counsel for the appellant
submitted that the appellant only wanted an opportunity to defend the suit
consistent with the stand adopted in the written statement filed by the
defendant subject to any additional pleas that may be available to be
raised by the appellant. We think that in this case, the proper order to be
passed, in the interests of justice is to accede to the plea of the appellant to
give it a chance to defend the suit especially in view of the relevant
clauses of Amalgamation Order, 1991, by setting aside the orders
impugned in this appeal and also by setting aside the ex parte decree and
reviving the suit and by directing the trial court to try and dispose of the
same afresh and in accordance with law, after bringing on record the
Corporation, the Government of Orissa and TISCO, since the State had
subsequently sold the assets to TISCO, and after giving the newly added
defendants an opportunity to file their written statements, not inconsistent
with the one already filed by the defendant. After giving of such an
opportunity to the newly added defendants, it will be for that Court to
proceed with the trial and disposal of the suit in accordance with law.
We therefore allow this appeal. We set aside the orders of the
Executing Court and the High Court on the objections raised by the
appellant. We close the Execution Petition. In the interests of justice, we
set aside the ex parte decree in Money Suit No. 491 of 1986 on the file of
the Civil Judge, Senior Division, Bhubaneswar and remand that suit to the
Court of the subordinate Judge of Bhubaneswar for a fresh trial and
disposal as indicated above. The parties would appear before that Court
on 14.12.2004 to take further orders regarding the posting of the suit.
Learned Senior Counsel for the appellant has submitted before us that
appearance would be entered on behalf of the Corporation and the
Government of Orissa. The trial court will direct the plaintiff to take out
summons to TISCO and also to the Corporation and the Government of
Orissa if they do not appear before it on 14.12.2004. Since defendant
No.1 was already on the party array and had appeared in the suit, no fresh
notice to it will be necessary. We have been assured on behalf of the
Government of Orissa that it will appear in the trial court on the date
fixed. After the appearance of the Corporation and the Government of
Orissa or after service of summons on them and TISCO, the trial court
will proceed with the suit and dispose of the suit in accordance with law
and in the light of the directions as above.

The parties are directed to suffer their respective costs.

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