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TMI Blog2003 (2) TMI 342X X X X Extracts X X X X X X X X Extracts X X X X ..... tion to the second respondent to submit the statement of accounts and accounts of the assets of the company in liquidation and the use of the same belonging to the company from March 1, 1999, to August 17, 2001, when the official liquidator took possession of the factory of the company in liquidation. 3. In company Application No. 1420 of 2001, the applicant has prayed for a direction to the second respondent to make good to the company in liquidation the benefits derived by it from March 1, 1999, to August 17, 2001, on account of the use of the factory and assets of the company in liquidation. 4. The circumstances by which the above applications came to be filed are as follows : M/s. Bharat Tex Fashions Limited (hereinafter referred to as the "company") was incorporated on July 23, 1996, by the third and fourth respondents as promoters for the purpose of manufacture and export of garments. Though the company in liquidation commenced its production during November 1997, and showed a profit of Rs. 14.50 lakhs during the first year of operations, it declared a loss of Rs. 3.50 crores during the year ended February 28, 1999, and more than fifty per cent of the capital of the compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udge of this court, was appointed as a sole arbitrator. Along with the reference, the second respondent also filed a petition for interim custody of the properties of the company in liquidation. The terms of arbitration was "in the matter of agreement of financial assistance dated February 5, 1999, and the guarantee agreement dated May 12, 1999, between the second respondent and the company in liquidation". The company participated in the arbitration proceedings. The arbitrator by award dated June 21, 2000, declared that the second respondent was entitled to realise from the company in liquidation as an unsecured creditor a sum of Rs. 2,17,05,139.36 with interest thereon at 8 per cent per annum from April 1, 2000, till payment; that the second respondent was entitled to realise from the company in liquidation as a secured creditor, Rs. 2,88,75,872 with interest thereon at 8 per cent per annum from April 1, 2000, till payment; that the company should pay the second respondent the sum total of Rs.5,05,81,011.36 with a charge on Schedules A and B properties, set out hereunder, for the realisation of Rs. 2,88,75,872 with interest at 8 per cent per annum from April 1, 2000; that a month ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n liquidation. After taking possession, the court also directed the official liquidator to file his report. The said order was taken on appeal by the second respondent in O.S.A. No. 165 of 2001. The said appeal was disposed of holding that inasmuch as the winding up order had already been passed, the official liquidator is the person entitled to be in charge of the assets of the company. Holding so, the Division Bench also directed the official liquidator to take custody of the assets of the company, if not already taken. When Company Application No. 486 of 2001 was again listed on February 18, 2002, this court rejected the same on the ground that the winding up proceedings are to be continued as per the directions of the Division Bench. While the matter stood at that stage, the applicant in all the above applications has approached this court for the reliefs detailed supra. 5. According to Mr. C. Harikrishnan, learned senior counsel for the applicant, the challenge to the award is mainly on the ground that when the winding up proceedings were pending, not only the company in liquidation but also the second respondent who was before the court even when winding up order was passed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the voluntary winding up shall be deemed to have been validily taken. (2) In any other case, the winding up of a company by the court shall be deemed to commence at the time of the presentation of the petition for winding up." The words employed in sub-section (2) of section 441 are explicit and clear without any ambiguity. In terms of the express provision, the winding up shall relate back to the date of presentation of the petition and the winding up of the company shall be deemed to commence from the date of presentation of the petition for winding up and not from the date of the order, though the process of winding up takes effect from the date of the order. 9. Yet another section 446(1) of the Companies Act, 1956, which is relevant for the case reads as under : "Suit stayed on winding up order.-(1) 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 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." In terms of the above section, no sui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y listed before the First Assistant Registrar of this Court, who by order dated November 24, 2000, directed the transmission to the District Court, Chenglepet. Section 446 refers to obtaining leave from the court even for continuation of the legal proceedings after the winding up order is passed. The words "other legal proceedings" employed in section 446 include in its ambit the execution proceedings also. Hence, it is incumbent on the part of either the second respondent or the company to obtain leave to continue the execution proceedings. No application under section 446(1) seeking leave of the court to pursue the execution proceedings was filed at the initial stage. The order of the First Assistant Registrar dated November 24, 2000, was made by exercising the power under Order 39, rule 1 of the Original Side Rules read with section 39 of the Civil Procedure Code in the matter of arbitration proceedings. The power under section 446(1) should be exercised only by the company court, as that court alone is vested with the exclusive power either to grant or to refuse leave to commence the suit or other legal proceedings or to continue pending suit or other legal proceedings after th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 165 of 2001. This court disposed of the said appeal on August 1, 2001, and the relevant paragraphs are as follows : "Having regard to the fact that winding up order has already been passed and the official liquidator is the person who is entitled to be in charge of the company's assets, the liquidator shall take custody of the company's assets, if not already done. However, he shall permit the appellant to appoint and maintain security guards in and around the factory at the cost of the appellant to ensure the safety of the property. Learned counsel for the impleading applicants submits that the status of the appellant as a secured creditor and even its status as a creditor is a matter of dispute. That is a matter which the learned company judge will decide at the appropriate time. We make it clear that the further proceedings in the winding up are to be continued and that the assets which admittedly belong to the company be brought to sale expeditiously. Before the sale proceeds are distributed, questions regarding the appellant's status as a creditor as also its claim that it is a secured creditor shall be determined by the company court. The appeal is disposed of accordin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on and Conciliation Act, 1996 (hereinafter referred to as the "Arbitration Act"). It is his contention that the said Act governs the field of arbitration and is a special enactment. The Companies Act, 1956, is a general enactment. He would further contend that it is well-settled law that the special enactment shall exclude the general enactment. In such event, the company court would have no jurisdiction to set aside the award passed by the arbitrator exercising the powers under the special enactment. Mr.Ravikumar Paul, learned counsel for the third respondent would support the arguments of Mr. K.M. Vijayan, learned senior counsel in all aspects. In addition to the same, he would submit that there is no fraud or collusion by the parties to arbitration proceedings. He would further submit that not even an allegation is made in the affidavits filed in support of the applications. 11. The Companies Act, 1956, is a self-contained code relating to companies, their incorporation, working and winding up. Of course, the Companies Act is a general enactment. The object of the Companies Act is to consolidate and amend the law relating to companies and certain other associations. Chapter II ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e arbitral award at the instance of the party. The provisions of the Arbitration Act, though a special enactment, deal only in respect of settlement of disputes or for passing awards strictly in consonance with the terms of the arbitration agreement. Such dispute could be referred only by the parties to the agreement and not by any other third party. Even under section 34 of the Arbitration Act, only a party to the arbitration agreement and a party to the arbitration award can file an application to set aside the arbitration award and that too only on conditions enumerated under section 34(2) of the Act. There is no provision under the Arbitration Act for ordering winding up of a company. Coming to the Companies Act, a petition for winding up may be filed by the company on its own or by an aggrieved creditor. When such a petition is pending, even a creditor who is otherwise aggrieved and who is not before this court can also approach the court as an intervenor. The provisions of the Companies Act do not prevent an intervenor to assist the court though not permitted to implead third party. Here is a case where the applicant is not a party to the arbitration proceedings. Under the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... void in the event, such proceedings are initiated without the leave of the court. In this context, it would be relevant to note that legal proceedings as contemplated under section 446(1) shall include in its ambit the arbitration proceedings and the consequential execution proceedings initiated by the second respondent. 12. The learned senior counsel for the second respondent would rely upon the judgment of the Apex Court in A.S. Nizar Ahmed & Co. Ltd. v. Collector of Vellore District [2002] 39 SCL 842 (Mad.) and contend that in between two special enactments, the latter will prevail over the former. E. Padmanabhan, J., while considering the provisions of section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985, and the Environment Protection Act, has held that the latter enactment shall prevail. The said judgment arose entirely under a different set of facts and the specific powers conferred on the respective authorities. The question argued was as to whether award of compensation ordered by the authority against the company under the Environment (Protection) Act can be deprived in view of the pendency of the proceedings before the BIFR and more particularly, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said circumstances, the Apex Court rejected the application filed by the official liquidator. 14. Coming to the facts of the present case, an agreement for financial assistance was entered by the company in liquidation on February 5, 1999, after the statutory notice was issued by the petitioner in C.P. No. 145 of 1999 on February 2, 1999. The arbitrator was appointed only after the company court had taken cognizance of the company petition on June 14, 1999, as the arbitrator was appointed only on April 1, 2000. It must be also noted that the second respondent even before referring the matter to the arbitrator approached this court by filing C.A.No. 1284 of 2000 seeking for permission to absorb the assets of the company in liquidation in full and final settlement of its dues and the second respondent was fully aware of the pendency of the winding up proceedings. The award was passed on June 21, 2000, of course, before the order of winding up was made on December 7, 2000. There was no hurdle for the second respondent till that stage the hurdle arose due to the subsequent action of the second respondent, which is worth mentioning. After the award was passed, the second responden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gal principles, let me now consider the applicability of those principles to the facts of the present case. C.A. No. 1418 of 2001 is filed to set aside the award of the arbitrator. I am unable to agree with the said request, as the appointment of the arbitrator and the passing of final award were prior to the winding up order and for such proceedings, no leave of the court is necessary. Further, the award of the arbitrator is sought to be set aside on the ground of fraud and collusion. A reading of the award would show that arbitration proceedings were contested by the company in liquidation and officers of the bank were examined both on behalf of the second respondent and the company in liquidation. The award was passed on the merits. Hence, I do not find any fraud or collusion either on the part of the second respondent or on the part of the company in liquidation except the fact that the reference as to the dispute was made to the arbitrator and the award was passed pending company petition for winding up. In such event, this court cannot hold that the initiation of the arbitration proceedings and the consequential passing of the award are hit by section 446(1) of the Act. Howev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the extent indicated above by declaring that all further proceedings pursuant to the award are void and cannot be continued and the second respondent is not entitled to the benefit of the award by executing the same. In view of the said finding, the official liquidator appointed by this court as provisional liquidator is entitled to take charge of the entire assets of the company in liquidation and whatever the claim of the second respondent has against the company could be made only to the official liquidator. The said claim may also be based upon the award of the arbitrator dated June 21, 2000. 19. Consequently, C.A. No. 1419 of 2001 is disposed of with a direction to the second respondent to file the statement of accounts and accounts of the assets of the company for the period from March 1,1999, to August 17, 2001, to the official liquidator within a period of four weeks from the date of receipt of a copy of this order, and the official liquidator is directed to adjudicate the said claim. The relief sought for in C.A. No. 1420 of 2001 for making good of the benefits derived by the second respondent shall be subject to the adjudication by the official liquidator on the state ..... 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