TMI Blog2006 (4) TMI 253X X X X Extracts X X X X X X X X Extracts X X X X ..... missed upholding the grant of leave. - CIVIL APPEAL NO. 5072 OF 1998 - - - Dated:- 4-4-2006 - ARUN KUMAR AND R.V. RAVEENDRAN, JJ. Ravi Shankar Prasad and Ms. Kamini Jaiswal for the Appellant. Deba Prasad Mukherjee, M.P. Jha, Ram Ekbal Roy, Harshvardhan Jha, R.P. Wadhwani, Himanshu Shekhar, Gopal Singh and B.B. Singh for the Respondent. JUDGMENT R.V. Raveendran, J. - This appeal directed against the order dated 1-9-1997 of the Patna High Court in LPA No. 259/1996, relates to the applicability of Article 137 of Limitation Act, 1963 to a petition under section 446(1) of the Companies Act, 1956, seeking leave of the Company Court to proceed with a pending suit. 2. Nalanda Ceramic Industries Ltd. (second respondent herein, referred to as the Company ) was a company incorporated under the Companies Act, 1956 (for short the Act ). Appellant Nos. 1 to 3 were its Directors. The Company had obtained certain credit facilities from the State Bank of India (first respondent herein and referred to as the Bank ). The loans were secured by mortgage of the assets of the Company. The repayment of the amounts advanced to the Company was guaranteed by the appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay (filed by appellant No. 1 herein) and further prayed that while the proceedings as against the first defendant company may be kept in abeyance, the suit may be proceeded with against the other defendants. 6. The trial court disposed of the application by an order dated 9-3-1990. It rejected the application filed by second defendant (appellant No. 1 herein) for staying the suit under section 22 of the SIC Act. It, however, held that the suit against all the defendants will have to be stayed in view of the order of winding up. It was of the view that the liability to pay the amount due was on the principal-debtor, namely, the Company, and that the guarantors would be liable only if the Company defaulted; and that, therefore, if the proceedings against the Company had to be stayed, it had also to be kept in abeyance against all defendants till the Bank obtained an appropriate direction from the High Court. The Bank challenged the said order in CRP No. 388/1990 before the High Court. 7. When the Company Court was informed that an inquiry under section 16 of the SIC Act had been directed by the BIFR, it passed an order on 16-7-1990, staying the operation of the order of windi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, the application by the Bank seeking leave to proceed with the suit ought to have been filed within 3 years from the date when the right to apply accrued. The right to apply accrued on 24-10-1989 when the order of winding up was passed. Therefore, the last date for filing an application seeking leave was 24-10-1992 and the application filed on 11-8-1995 was barred by limitation. The Company Court erred in condoning the delay by exercising power under section 5 of the Limitation Act, 1963 suo motu, in the absence of an application seeking condonation of delay. ( ii )Even if leave was to be granted, there was no justification for directing that the decretal amount should be recovered from the guarantors and only if there was any deficit, it should be recovered from the company. Contention (i) : 11. Sub-section (1) of section 446 as it stood to the relevant point of time provided that 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 the winding up order, shall be proceeded with, against the company, except by leave of the cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on or application filed under any Act to a civil court. With respect we differ from the view taken by the two-Judge Bench of this Court in Athani Municipal Council case (AIR 1969 SC 1335) and hold that article 137 of the 1963 Limitation Act is not confined to applications contemplated by or under the Code of Civil Procedure." The said view was reiterated in Additional LAO v. Thakoredas AIR 1994 SC 2227. But the question is whether article 137 would apply to an application under section 446(1) of the Act. 13. Insofar as the first category of applications under section 446(1) of the Act there is no question of any period of limitation. The period of limitation is to be calculated, not with regard to the application seeking leave to file a suit or proceeding, but in regard to the suit/proceeding itself. An illustration may clarify. If the proposed suit is to enforce payment of money secured by a mortgage by the company, the period of limitation for such suit is 12 years. Surely an application seeking leave to file such suit, cannot be rejected by applying article 137 on the ground three years have elapsed from the date of the order of winding up, even though the 12 years p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... up, from unnecessary litigation and from multiplicity of proceedings and protect the assets for equitable distribution among its creditors and shareholders. This object is achieved by compelling the creditors and others to come to the court which is winding up the company and prove their claims in the winding up. For this purpose, all suits and proceedings pending against the company are also stayed subject to the discretion of the winding up court to allow such suits and proceedings to proceed. When a winding up order is passed, the effect is that all the affairs pertaining to the company in liquidation, including all suits/proceedings by or against the company, come within the control and supervision of the winding up court. The winding up court has to decide whether it will let the suit/proceeding to continue in the court where it is pending, or it will itself adjudicate the suit/proceeding. Thus, under section 446(1), the winding up court only decides about the forum where the suit has to be tried and disposed of. The Limitation Act which prescribes the periods within which a party can approach a court seeking remedies for various causes of action, is not attracted to such appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... comes dormant. Various alternatives are possible when a suit gets so stayed. The plaintiff in the suit can move an application under section 446(1) of the Act, and when leave is granted, proceed with the suit. If the leave is refused, the suit may be transferred to the Company Court for being tried and disposed of under section 446(2)( a ) of the Act. The plaintiff may also file an application for transfer of the suit to the Company Court for disposal under section 446(2)( a ). Alternatively, the plaintiff may get the suit dismissed with liberty to make a claim under section 446(2)( b ) of the Act. Even if the suit is proceeded with, without obtaining leave of the Company Court, either not being aware of the order of winding up or ignoring the provisions of section 446(1), the resultant decree will not be void, but only be voidable at the instance and option of the Official Liquidator of the company. It is also possible that the court passing the winding up order may at any time, on the application either of the liquidator or of any creditor or contributory, make an order staying the winding up either altogether or for a limited time on such terms and conditions as the court deems ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to file an application under section 446(1), when an order of winding up is passed. On the other hand, passing of an order of winding up casts a duty or obligation on the person who has sued the company to obtain the leave of the court to proceed with his suit for proceeding. The right to apply for leave accrues, not because of the order of winding up, but because the suit/proceeding is stayed. The right to apply for grant of leave under section 446(1) accrues every moment the suit remains stayed. Consequently, it follows that as long as the suit/proceeding (filed before the order of winding up) remains stayed, an application, for leave can be filed, Therefore, the application filed on 11-8-1995 was in time and not barred by limitation, even if article 137 is applied. Re: Contention (ii) 20. Learned counsel for the appellant submitted that there was no justification for the court to direct that the decretal amount should be recovered from the guarantors first and only if there was any deficit,it should be recovered from the company in liquidation. Learned counsel for the Bank and the Official Liquidator fairly conceded that there was no reason or justification for imposing ..... X X X X Extracts X X X X X X X X Extracts X X X X
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