TMI Blog2013 (2) TMI 61X X X X Extracts X X X X X X X X Extracts X X X X ..... e, or at least make an effort to trace the rightful successor to prosecute the claim, or defend the proceeding. The argument based on Section 3(42) of the General Clauses Act, 1897 is also of no assistance, because even if a company is a person, and winding up results in its death, there is a radical difference between an amalgamation and a final winding up order, after all affairs of the company have been taken care of by the Court. It is therefore held that the conclusions of the learned single judge that the suit had abated by virtue of Order 22 Rule 3, on the “death” of the original plaintiff, cannot be sustained. Procedural laws are meant to regulate the object of doing substantial and real justice and not to foreclose adjudication on merits. The court is mindful of the fact that barring the application of the principle action personalis moritur cum persona, (i.e a personal right of action dies with the death of the person) other claims do not extinguish, and can be continued. A creditor’s claim to his dues therefore does not die. Even where abatement occurs, in the sense that the time prescribed for the setting aside of abatement expires - under Article 120 of the Schedul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in abatement of its suit. 2. The plaintiff, in its suit, had claimed a money decree, based on alleged transactions which took place in Germany. The defendants had urged that the suit was time barred; their application for rejection of plaint was however, dismissed; that order was confirmed by the Division Bench, which had left the plea open for consideration after trial. During the pendency of the suit, the Plaintiff Bank Kriess, merged with the Yapi Kredi Bank. The merger was affected in terms of a Deed dated 27.08.2001 with effect from 09.10.2001. As a result Yapi Kredi Bank AG took over all the assets and liabilities of Bank Kreiss AG; on and from 09.10.2001, the Plaintiff bank ceased to exist. The fourth defendant filed an application (I.A. 8275/2003) for dismissal of suit on account of non-existence of the plaintiff. The fourth defendant urged that as no application was made under Order XXII Rule 3 of the Code, the suit abated. Order XXII Rule 3, CPC requires that an application should be made for substituting the legal representatives of the deceased plaintiff within a stipulated time, i.e. is 90 days from the death of the plaintiff. In this case, since the Plaintiff ban ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndustrial Syndicate Ltd. v. CIT AIR 1991 SC 70 and Singer India Limited v. Chander Mohan Chadha and Ors. 2004 (7) SCC 1. 5. During the pendency of the present appeal, an application (I.A. No. 14878/2008) was filed, for substituting C.H. Financial Investments as the appellant. The applicant contended that it succeeded to the claims in the suit and consequently to the right to prosecute the present appeal by virtue of transfer deed executed by Yapi Kredi Bank, on 23.01.2008. A copy of that assignment and transfer deed was placed on the record. It is contended that in terms of the assignment/transfer deed, the right and obligations of Yapi Kredi Bank against Kaunsoplast and the defendants in the original suit, out of which the present appeal has arisen, were assigned to the said applicant, C.H. Financial Investments. This application was resisted by the defendant/respondent who urged that Yapi Kredi Bank s right to prosecute the suit itself is suspect and under the circumstances, the claim by C.H. Financial Investments, to be its successor in respect of the claims in the litigation cannot, therefore, be countenanced. It was contended that the impugned judgment is erroneously pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. AIR 1936 (Lah) 652 in this regard. Learned counsel also relied upon the decision in Dhurandhar Prasad Singh v. Jaypee University and Ors. 2001 (6) SCC 534 to emphasize that Order XXII Rules 3 and 4 distinguish from Rule 10 and that in case of the former, the right to sue is extinguished when legal representatives are not brought on record. On the other hand, in case of Rule 10, even if the assignee or the individual upon whom the interest devolves, does not appear in Court, but steps into the shoes of the original litigant, the consequence would be that the case would continue and the party upon whom the interest has devolved risks being bound by any judgment and order. It is submitted that apart from overlooking this important distinction, the Court also fell into error in not noticing that under Order XXII Rule 10, a detailed enquiry at the stage of granting leave is not warranted and that the Court has to be prima facie satisfied that the leave to continue to prosecute or defend the suit has to be granted, having regard to the facts and circumstances. In this regard, learned counsel relied upon the decision reported as Amit Kumar Shaw v. Farida Khatoon 2005 (11) SCC 403. Le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he death of amalgamating company which loses its entity. 8. It was lastly argued that C.H. Financial Investments Limited s assertion that it is the successor to the claims in the suit are unfounded and contradictory to the case set-up by Yapi Kredi Bank. In this regard, it was pointed out that Yapi Kredi Bank had stated that on 09.10.2011, the original plaintiff, i.e. Kreiss Bank ceased to exist. The suit was said to have abated by the order dated 23.10.2007. In this context, learned counsel for the defendant stated that C.H. Financial Investments Ltd. states that Yapi Kredi Bank has since merged with Fermin Credit Bank gmbH and that it ceases to exist. The assertion of C.H. Financial Investments Ltd. that it was a shareholder in Kreiss Bank and that devolution of Kreiss Bank s interest in the suit to Yapi Kredi Bank, which in turn assigned it to the said applicant (C.H. Financial Investments Ltd.) is not borne-out by the scanty documentation on the record. On the other hand, the documentation points to suppression of facts which go to establish that neither Kreiss Bank nor Yapi Kredi ever had the right to prosecute the suit. Having regard to these confusing and contradictory cir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .2003, the fourth defendant moved an application, stating that he became aware that the plaintiff bank had ceased to exist with effect from 09.10.2001 as it had merged with Yapi Kredi Bank and that since there was no claim of succession of any interest in the suit on account of the original plaintiff ceasing to exist, the suit itself was liable to be dismissed. On 11.08.2003, the plaintiff Yapi Kredi Bank AG moved an application, I.A. no. 8670/2003, stating that Kreiss Bank had merged with it and that the latter (the applicant) had taken-over assets and liabilities of Kreiss Bank as a result of which it was entitled to continue the suit. 11. The learned Single Judge was persuaded to hold, upon an analysis of the decisions in Narendra Bahadur Tandon (supra), Saraswati Industrial Syndicate Ltd. (supra) and Singer India Limited (supra) that when two companies merged into one, the transferor company loses its identity as it ceases to have business. It was further held that even though rights or liabilities are determined under a scheme or deed, yet the destruction of corporate entity results in death like situation as far as the transferor company is concerned. Therefore, in view of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the person who procured such attachment to the benefit of sub-rule (1). Analysis and conclusions 13. The first question which this Court proposes to address is whether a company dies within the meaning of Order 22, Rule 3, CPC and whether a suit filed against it abates upon its merger or amalgamation with another existing company. The impugned judgment relied on Narendra Bahadur Tandon (supra), where the Court held, inter alia, that once the company was dissolved it ceased to exist and the liquidator could not represent a non-existing company . In Saraswati Industries Syndicate Ltd. v. CIT Haryana, Himachal Pradesh, Delhi, AIR 1991 SC 70, the Supreme Court considered the question of amalgamation and the effect on the amalgamating company, in the context of income tax liability of the transferor company. 5. Generally, where only one Company is involved in change and the rights of the shareholders and creditors are varied, it amounts to reconstruction or re-organisation or scheme of arrangement. In amalgamation two or more companies are fused into one by merger or by taking over by another. Reconstruction or amalgamation has no precise legal meaning. The amalgamatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... suit cannot be brought to an end merely because the interest of a party in the subject matter of the suit has devolved upon another during the pendency of the suit but that suit may be continued against the person acquiring the interest with the leave of the Court. When a suit is brought by or against a person in a representative capacity and there is devolution of the interest of the representative, the rule that has to be applied is Order 22 Rule 10 and not Rule 3 or 4, whether devolution takes place as consequence of death or for any other reason. Order 22 Rule 10 is not confined to devolution of interest of a party by death; it also applies if the head of the mutt or manager of the temples resigns his office or is removed from office. In such a case, the successor to the head may be substituted as a party under this rule. The word 'interest' which is mentioned in this rule means interest in the property, i.e., subject-matter of the suit and the interest is the interest of the person who was the party to the suit. 15. The question of substitution of a transferee company in the background of amalgamation of a company that was party to a legal proceeding directly arose before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ality, or corporate death as it were, in the event of a final winding up of a company or amalgamation of one company with another, may be a reality, that alone cannot afford an answer to what happens to a litigation to which the amalgamating company is a party. It is here that the analogy with either a company finally wound up, in dissolution proceedings, or the death of an individual, ends. In the case of winding up of a company, the final order directing dissolution, after all steps to settle its affairs are taken, and the Court is satisfied that such order as necessitated, is in fact made. The process of winding up the affairs includes settlement of claims against the company, in satisfaction of the creditor s rights; it also includes the right of the Official Liquidator to be impleaded in a pending suit, or other litigation, to which the company is party as a defendant, or which is instituted by it, and press the claim, or defend them. Thus, the death unlike in the case of an individual is not sudden; it is preceded by a series of steps some of which include issuance of orders adjudicating rights of the company, and third parties- mandated by law, under the overall supe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ases to have its business. However, their respective rights or liabilities are determined under the scheme of amalgamation. This position was again underscored in Singer (supra). 18. The question identical to the one posed to this Court in this case arose for consideration before the Bombay High Court. A learned Single Judge of that Court in Re Delta Distilleries Limited, Mumbai v (1) Shaw Wallace and Company Limited, Calcutta; (2) Shaw Wallace Distilleries Limited; (3) United Spirits Limited (2008 [1] Mah.LJ 899) held that: The effect of a Scheme of Amalgamation, as held by the Supreme Court in Singer India Ltd. vs. Chander Mohan Chadha, (2004) 7 SCC 1 is that as a result of amalgamation of two Companies into one, "the Transferor Company loses its entity as it ceases to have its business". The respective rights or liabilities are determined under the Scheme of Amalgamation but the corporate entity of the Transferor Company ceases to exist with effect from the date the amalgamation is made effective. The concept of abatement is inapposite where a merger takes place in the course of a Scheme of Amalgamation in pursuance of a sanction received from the Company Court. The tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here cannot be a valid arbitration when one of the two parties has ceased to exist, must be read subject to the same possible exception. The question I have to consider remains, on the authorities, an open one. The second observation is that while the reported cases show quite clearly that a corporation which has ceased to exist is not entitled to maintain any legal proceedings, they do not show that where the dissolution occurs in the course of pending proceedings this necessarily deprives the court of any power to do what is just and convenient in the particular case. There are a variety of principles which apply in different situations and, so far as I am aware, there is no reason why the court should not be entitled to mould a procedure which takes account both of the interests of the parties and the needs of justice following a transmission of interest. It was urged upon me that it is a general principle of English law that if a plaintiff or defendant named in English proceedings does not exist at the date the proceedings were commenced, then the proceedings are a nullity and must be set aside: see Lazard Bros. Co. v. Midland Bank Ltd. [1933] A.C. 289. That principle is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : per Megaw L.J. Both in Morris v. Harris [1927] A.C. 252 and in the Foster Yates Thom case a distinction was drawn between a restoration under section 352 of the Act of 1948 (section 223 of the Companies (Consolidation) Act 1908) which was prospective only and other provisions of the Companies Acts which had retrospective effect and provided that the company shall be deemed to have continued in existence as if its name had not been struck off: section 353(6) of the Act of 1948; section 242 of the Act of 1908. In the Foster Yates Thom case the Court of Appeal rejected the submission that where a restoration took place under section 352 of the Act of 1948, so that the restoration was prospective only, the action merely abated. But both Megaw and Cumming-Bruce L.JJ. discussed the meaning of abatement, and Cumming-Bruce L.J. said: upon the failure of an action for want of a plaintiff or of a plaintiff with an interest in the proceedings the action would abate but could revive if and when appropriate steps were taken to enable the action to proceed. It was accepted that abatement did not put an end to an action but merely suspended it. In Tymans Ltd. v. Craven ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be duly made: R.S.C., Ord. 15, r. 7. A corporate plaintiff does not die, but it may cease to exist. A particular example is when the corporation, which is a creature of statute, is terminated by statute and its rights and liabilities are transferred to some other person. When that occurs, the new person may become a party to pending proceedings in place of the old. Although the identity of the party changes, the nature of the claim does not. It is, in legal terms, the same cause of action as it was before. There is no question of a new claim or cause of action being asserted, even though in the particular circumstances the claim is being made by a different person. Because it is the same cause of action, there is no scope for a limitation defence. The defendant cannot say that the time for bringing proceedings has expired when the new claimant replaces the old, because the essential point is that no new claim is being put forward. Until 1980, this was entirely clear. Ord. 15, r. 7 regulated the change in the identity of the party. Ord. 15, r. 6 and Ord. 20, r. 5 provided for the quite different situation where a new or an existing party seeks to introduce a new claim into the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (42) of the General Clauses Act, 1897 is also of no assistance, because even if a company is a person, and winding up results in its death, as explained earlier, there is a radical difference between an amalgamation and a final winding up order, after all affairs of the company have been taken care of by the Court. It is therefore held that the conclusions of the learned single judge that the suit had abated by virtue of Order 22 Rule 3, on the death of the original plaintiff, cannot be sustained. 22. As regard the second question, i.e. applicability of Order 22 Rule 10, those provisions are enabling provisions meant to further ends of justice. This was held in S. Amarjit Singh Kalra (dead) by Lrs. and Ors. and Smt. Ram Piari (dead) by L.Rs. and Ors. v. Smt. Pramod Gupta (dead) by Lrs. and Ors. 2003(3) SCC 272: 26. Laws of procedure are meant to regulate effectively, assist and aid the object of doing substantial and real justice and not to foreclose even an adjudication on merits of substantial rights to citizen under personal, property and other laws. Procedure has always been viewed as the handmaid of justice and not meant to hamper the cause of justice or sanctify miscar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roceedings will continue to operate against and the binding on the transferee company or corporation in the same way in which they operate against a person on whom any interest has devolved in any of the ways mentioned in Rule-10 of Order-22 of Code of Civil Procedure, 1908 affords the clearest guidance in such circumstances. Neither Saraswati Investment Syndicate, nor Singer nor any of the decisions is a direct authority on the question of succession to legal proceedings before a civil court. Even though Bhagwan Dass was rendered in the context of industrial adjudication, the Court expressly relied on Order 22 Rule 10, and spelt out its application in these circumstances. For these reasons, the conclusion of the learned Single Judge that as the suit had abated under Order 22 Rule 3, CPC, resulting in the consequent inapplicability of Order 22 Rule 10, appears to be based on a textual reading of that provision. Order 22 Rule 10, CPC applies in cases like the present; the Court would have then, to necessarily embark on an inquiry albeit a prima facie or rudimentary one, to decide if indeed the applicant concerned is the successor entitled to the carriage of the legal proceeding, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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