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1989 SCC OnLine Del 83 : ILR (1989) 2 Del 212 : (1989) 17 DRJ
10 : (1991) 70 Comp Cas 190 : (1989) 80 CTR 14 (Allied Laws)

In the High Court of Delhi

Original Civil
(BEFORE Y.K. SABHARWAL, J.)

State Bank of India … Plaintiff;

Versus
Indian Electric … Defendants.
I.A. No. 6732 of 1988 in S. No. 2387 of 1986
Decided on February 22, 1989

Companies Act, 1956 — Ss. 446(1) and (3) — When winding up order
has been made against a company no suit or other legal proceedings shall
be proceeded with against the Company except with leave of Company
Court — Can it be said that suit or other legal proceedings shall not be
proceeded with against other defendants also
Plaintiff has filed this suit for recovery of Rs. 15,09,661.71 ps. Defendant No. 4
is a Private Limited Company and is being sued as acceptor of the various bills
drawn by Defendant No. 1 on it. Defendant No. 4 Company was ordered to be
wound up on 16-9-1988. The question was as to the effect of order of winding up
on the proceedings in suit vis-à-vis, defendants other than Defendant No. 4.
Held :
1. If the suit or other legal proceedings cannot be proceeded with ‘against the
company’ it cannot be said the same shall not be proceeded with against other
defendants also. This is so for several reasons. First, Section 446 is applicable only
to the companies and other defendants in the suit are not companies but are
different and distinct legal entitles. Second, had the legislature intended that no suit
or legal proceedings to which the company is a party shall proceed even against
other defendants after winding up order in respect of the company is made it would
have said so expressly. Third, the liability of other defendants may be independent,
separate and distinct from that of the company. Fourth, in proceedings plaintiff may
be seeking no relief and/or interim relief against the company.
(Para 10)
For the Plaintiff : Ms. Shroff, Advocate.

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For the Defendants : P.C. Khanna, Senior Advocate with Ms. Reva
Khetrapal, Advocates, for Defendants 1 and 2.
Cases Referred to:
1. TV Purshottam & Co. v. Provisional Liquidators, Subhodaya
Publications Ltd., (1955) Vol. XXV Company Cases p 49.
2. State Bank of India v. Depro Foods Ltd., (1985) Vol. 57 Comp Cas, p.
562.
The Judgment of the Court was delivered by
Y.K. SABHARWAL, J.:— Plaintiff, State Bank of India has filed this
suit for recovery of Rs. 15,09,661-71 p. Defendant No. 1 is a
partnership firm of which Deepak K. Singh, Defendant No. 2 and
Krishna K. Rawat, Defendant No. 3 are the partners. The claim is that
as on 15-4-1985 defendants' outstanding in the accounts with the
plaintiff were as under:—
MTL (Machinery) Rs. 2,20524-77
Cash Credit (FT) Rs. 3,52,637-49
Cash Credit (Bills) A/c Rs. 6,25,499-68
MTL Equity, Fund Assistance Rs. 66,000-00
2. Defendant No. 4 is a Private Limited Company and is being used
as acceptor of the various bills drawn by Defendant No. 1 on it.
Although decree for full amount in suit was claimed by plaintiff against
all the defendants but during arguments, learned counsel for the
plaintiff, stated that Defendant No. 4 is liable only in respect of cash
credit (Bill) Account and the plaintiff does not claim any amount from
the said defendant in respect of three other credit facilities, namely,
MTL (Machinery), Cash Credit (FT) and MTL (Equity Fund Assistance).
3. By orders made on 22-9-1987 Mr. Mohinder Goel, advocate, was
appointed a receiver to make an inventory and take possession of the
goods of Defendant No. 1 firm. He was also directed to keep the goods
at a place/godown to be provided by the plaintiff bank. Defendant No. 2
was directed to give all assistance to the receiver. Inventory of the
goods, as directed

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by the court, was prepared and the receiver has submitted a report
dated 14-3-1988, inter alia, stating that the factory is under lock and
key of Deepak K. Singh and machinery goods were not removed
because it was felt that most of the machines which are embedded in
the floor will get damaged because of its removal and transportation.
The report also states that factory is closed since 1985 and that no
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useful purpose shall be served by storing the machines for a longer

period till the disposal of the suit. The receiver further states that the
machines be disposed of on ‘as is where is basis’ after giving
opportunity to both the parties.

4. Turning now to the prayer of the plaintiff, for sale of the

machinery/goods of Defendant No. 1, of which inventory has been
prepared by the receiver, Defendants 1 and 2 have neither filed any
reply to the application of the plaintiff nor any factual submission was
put forth on their behalf as to why order for sale be not made. However,
Mr. P.C. Khanna, learned counsel for the Defendants 1 and 2 submitted
that this court has no jurisdiction to pass any orders on this application
or proceed with the suit in view of the winding up of the Defendant No.
4 company. Defendant No. 4, Integral Marketing Pvt. Ltd. was ordered
to be wound up on 16-9-1988 in Company Petition No. 58/85 entitled
Deepak K. Singh v. Integral Marketing P. Ltd. About winding up of
Defendant No. 4 there is no dispute. The question is as to its effect on
these proceedings.
Sections 446(1) and (3) of the Companies Act, 1956 on which
reliance has been placed read as under:—
446. Suits 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 proceedings 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 court
and subject to such terms as the court may impose.
(3) Any suit or proceeding by or against the company which is
pending in any court other than that in which the winding up of the
company is proceeding may, notwithstanding anything contained in
any

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other law for the time being in force, be transferred to and disposed of
by that court.”

6. The argument of Mr. Khanna is that in view of the order of

winding up of Defendant No. 4 this suit cannot proceed against any of
the defendants except by leave of the company court.
7. It cannot be disputed that Defendant No. 4 has no concern with
the machinery/goods of Defendant No. 1 for which orders for sale are
sought by the plaintiff. It is not the case of any of the parties that the
goods belong to Defendant No. 4 or that the Defendant No. 4 has any
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interest in the said goods. By this application no liability is being

fastened on any of the assets of Defendant No. 4 company in
liquidation. The claim against Defendant No. 4 is only in respect of cash
credit bill facility as acceptor of various bills drawn by Defendant No. 1
on it. In respect of cash credit bill facility, the plaintiff claims that all
defendants are jointly and severally liable. In respect of other facilities
plaintiff does not claim any decree against Defendant No. 4. The
plaintiff has also not claimed any relief against Defendant No. 4 in this
application.
8. Learned counsel for the parties have not cited any direct
judgment taking view one way or the other on the question of effect of
order of winding up being made in respect of one of the defendants. I
have to decide the question on the plain language of the section and
general principles. Learned counsel for the defendants has, however,
placed reliance on Section 446(3) of the Companies Act, in support of
the contention that the entire suit is liable to be transferred to the
company court. Counsel submits that it will neither be possible nor
feasible to split the claims in suit and transfer part of the suit to the
company court while not transferring the suit against other defendants.
Counsel argues that this anomaly shows that proceedings in the suit
are liable to be stayed against all the defendants till the leave to
proceed against the company is obtained from the Company Court
under Section 446(1) of the Companies Act, 1956.
9. In my opinion, the question of splitling claims in suit would arise
only when leave to proceed against the company is not granted by the
company court and is not relevant at this stage. The two judgments TV
Purshottam & Co. v. Provisional Liquidators, Subhodaya Publications
Ltd., (1955) Vol. XXV Company Cases p. 49 (1) and State Bank of India
v. Depro Foods

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Ltd., (1985) Vol. 57 Company Casses, p. 562 (2) relied upon by Mr.
Khanna are not of much assistance for deciding the point in issue in
this case. These judgments lay down the general principles on which
leave under Section 446(1) may be granted. Even in these two
judgments it has been held that in cases where company is a necessary
party to the action but there are other defendants as well, generally
leave is to be granted.

10. The language of Section 446(1) is plain, clear and unambiguous.

The mandate of the section is that when a winding up order has been
made no suit or other legal proceedings shall be proceeded with
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‘against the company’ except with the leave of the company court.
When the section states that the suit or other legal proceedings shall
not be proceeded with ‘against the company’ can it be said that suit or
other legal proceedings shall not be proceeded with against other
defendants also. My answer is ‘No’. The reasons are many. Firstly,
Section 446 is applicable only to the Companies under the Act and
other defendants before me are not companies and are different and
distinct legal entities. Secondly had the Legislature intended that no
suit or legal proceedings to which the company is a party shall proceed
even against others after winding up order in respect of the company is
made it would have said so expressly and would not have said that “……
No suit or other legal proceedings shall ……… be proceeded with,
against the company, except by leave of the court ….”. Thirdly, the
liability of other defendants may be independent, separate and distinct
from that of the company. Fourthly, in proceedings plaintiff may be
seeking no relief and/or interim relief against the company. Even in the
present case, the plaintiff has not claimed any relief against Defendant
No. 4 in this application. In my view, there is no substance in the
contention that proceedings in the suit against Defendants 1 and 2
cannot continue because of order of winding up of Defendant No. 4. Ms.
Shroff, in my opinion, has rightly relied upon Order, 1 Rule 4, CPC inter
alia, providing that judgment may be given against such one or more of
the defendants as may be found to be liable, according to their
respective liabilities. Defendants have not raised any other objection to
the sale of the goods.
11. Consequently, I accept the report of the Receiver that the goods
should be sold on “as is where is basis.”
12. For the reasons stated above, I direct the Receiver Mr. Mohinder
Goel, advocate, to sell the machinery/goods mentioned

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in his report dated 14-3-1988. Defendant No. 2 is directed to provide

all assistance and cooperation to the receiver. The machinery/goods will
be sold after due publicity and by giving advertisements atleast in two
leading newspapers one of English and another of Hindi. The receiver
will also give opportunity to parties to bring the buyers with a view to
fetch maximum price of the goods. The prospective buyers will be given
inspection of machinery/goods to be sold and receiver will work out
other modalities of sale including period during which the offers could
be given and goods could be inspected by the prospective buyers. The
prospective buyers will be required to deposit with the receiver 10 per
cent of the amount of offer by bank draft to be drawn in the name of
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the Registrar of this court. Learned receiver shall file his report within
two months giving details of all the offers. The offers will be subject to
confirmation by the court. The plaintiff will bear all expenses for sale
and give its full assistance and cooperation to the receiver. The fee of
the receiver is tentatively fixed of Rs. 5000 which will be paid by the
plaintiff. IA 6732/88 is allowed in the above terms leaving the parties
to bear their own costs.

R.D.
Ordered accordingly
———
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