TMI Blog1957 (7) TMI 25X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court in Rajasthan on January 24, 1949. According to the plaint the petition resulting in the said order was false and malicious and the order of appointment was bad and invalid. In paragraph 8 of the plaint it is stated that as in spite of repeated requests by the plaintiff Dwarkadas Bhargava refused to institute this suit, he has been impleaded as a co-defendant with the debtor. The plaint is verified by Shyamsundar Lai Patodia, a director of the plaintiff company, who claims to be acquainted with the facts of this case and has verified the statements contained in all the paragraphs as true to his knowledge. The point taken is that as soon as a provisional liquidator is appointed the powers of the directors of the company are suspended and it is no longer open to them to institute a suit in the name of the company. For this purpose reliance was placed on several sections of the Indian Companies Act of 1913 and it will be useful to deal with the relevant portions of the sections seriatim. Section 171 of the Act lays down that "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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion that although the powers of the directors are not permanently severed, the same remain frozen for the time being. The property, effects and actionable claims of the company cannot be dealt with or disposed of by the directors so long as they are in the custody of the court; the necessary corollary is that the directors cannot take any steps for the realization of the property, effects or actionable claims to which the company may be entitled. The powers of the official liquidator are enumerated in section 179 of the Act. A power to institute or defend any suit or prosecution or other legal proceeding, civil or criminal, in the name and on behalf of the company, is one of the powers which the official liquidator can exercise with the sanction of the court, i.e., the mere appointment of an official liquidator does not entitle him to institute a suit for realisation of an asset or effect or actionable claim of the company unless the court appointing him specially sanctions such institution. In my view it would not be open to the directors or even to the entire body of shareholders of a company to authorise any one to deal with the assets of the company or dispose of its effect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... remained on the record as if he was one of the parties to the proceedings. Delivering judgment Lord Russell pointed out at page 203 : "Here, indeed, is a comedy of errors, all of which might have been avoided if the bank had remained throughout the sole co-defendant with Saw Kai. The liquidation could make no difference in this regard : the claim of the plaintiffs was a claim against the bank, and not against the liquidators. The change which was brought about by the liquidation in regard to the suit was merely this, that in the conduct of their defence the bank would, before liquidation, act through the directors, during the liquidation through the liquidators, and after the termination of the liquidation through the directors once more." The position according to his Lordship was that the proper party to the proceedings was the bank and the liquidator need not have been joined as a party unless any relief was claimed against him. In Gosling v. Gaskell and Grocoit [1897] A.C. 575, 587 Lord Watson summarised the position of the liquidator in the following words : "The company, when in liquidation, although by no means defunct, could no longer act by its directors, and appoi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... department. Subsequently the manager of the London branch agreed with the French bank to pay off the amount due to the latter on the banker's credit in return for the bonds. The amount was paid, but the French bank refused to release the bonds. In an action brought in the name of the Russian bank by the manager of the London branch against the French bank and the London bank for the return of the bonds, the defendants by their defence alleged that the plaintiff bank had ceased to exist, and disputed the authority of the London branch manager to bring the action." It was held by the House of Lords that it was not open to the defendants to raise by way of defence to the action the objection that the London branch manager had no authority to bring the action in the name of the plaintiff bank, but they ought to have moved to strike out the name of the bank as plaintiff. The various opinions given by the Law Lords in deciding this case do not contain much discussion of this question but they were content to accept the judgment of Atkin LJ., who, in his turn, relied on a judgment of Warrington J. in Richmond v. Branson Son [1914] 1 Ch. 968 . In Richmond's case ( supra ) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ased on any particular rule or rules of the Supreme Court in England but on good sense and conscience and the practice of the courts. Incidentally, it may be noted that Wakrington J., during the course of the argument, had asked counsel whether they could refer to a single case in which the authority of the plaintiff to the action being brought had been disputed at the trial and counsel were not able to cite any such decision. On the facts of the case it is not disputed now that the provisional liquidator is no longer in charge of the assets of the company. If that be so, the suit in form seems to be unexceptionable, i.e., it is a suit filed in the name of the company where the plaint is verified by one of the directors, who in the normal course of things would be a proper person to sign and verify the pleading under the provisions of Order XXIX of the Code of Civil Procedure. It certainly would have been open to the defendants, so long as the order appointing the provisional liquidator was operative, to move an application to strike out the name of the company from the records of the suit and to make the solicitor for the plaintiff personally liable for the costs but as the po ..... X X X X Extracts X X X X X X X X Extracts X X X X
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