Case: Central Bank of India Vs. M/s. Elmot Engineering Company

protection is indispensable equally in winding-up and in bankruptcy to prevent a scramble for the assets, but it is not always enough. An even-handed justice requires that the Court should have power to intervene at an early stage for the protection of the assets, and this power is given by this section. 13. This Section aims at safeguarding the assets of a company in winding-up against wasteful or expensive litigation. As far as matters which could be expeditiously and cheaply decided by the Company Court. In granting leave under this Section, the court always takes into consideration whether the company is likely to be exposed to unnecessary litigation and cost. The position of secured creditor came to be decided by this Court in M.K. Ranganathan (supra). At pages 607 and 608, in paragraphs 15 and 16 it was held: "The position of a secured creditor in the winding up of a company has been thus stated by Lord Wrenbury in -`Food Controller v. Cork 1923 AC 647 (A) : ``The phrase outside the winding up `is an intelligible phrase if used, as it often is, with reference to a secured creditor, say a mortgages. The mortgagee of a company in liquidation is in a position to say ``the mortgaged property is to the extent of the mortgage my property. It is immaterial to me whether my mortgage is in winding up or not. I remain outside the `winding up and shall enforce my rights as mortgagee. This is to be contrasted with the case in which such a creditor prefers to assert his right, not as a mortgagee, but as a creditor. If so he comes into the winding up. It is also summarised in Palmers Company Precedents, Vol.II, P.415: ``Sometimes the mortgagee sells, with or without the concurrence of the liquidator, in exercise of a power of sale vested in him by the mortgage. It is not necessary to obtain liberty to exercise the power of sale, although orders giving such liberty have sometimes been made. The secured creditor is thus outside the winding up and can realise his security without the leave of the winding-up Court, though if he files a suit or takes other legal proceedings for the realisation of his security he is bound under S. 231 (corresponding with S. 171, Indian Companies Act) to obtain the leave of the winding-up Court before he can do so although such leave would almost automatically be granted. Section 231 has been read together with S. 228(1) and the attachment, sequestration, distress or execution referred to in the latter have reference to proceedings taken through the Court and if the creditor has resorted those proceedings he cannot put them in force against the estate or effects of the Company after the commencement of the winding up without the leave of the winding-up Court. The provisions in S. 317 are also supplementary to the provisions of S. 231 and emphasise the position of the secured creditor as one outside the winding up, the second creditor being, in regard to the exercise of those rights and privileges, in the same position as he would be under the Bankruptcy Act. The corresponding provisions of the Indian Companies Act have been almost bodily incorporated from those of the English Companies Act and if there was nothing more, the position of the secured creditor here also would be the same as that obtaining in England and he would also be outside the winding up and a sale by him without the intervention of the Court would be valid and could not be challenged as valid and could not be challenged as void under S. 232(I), Indian Companies Act. 14. That case no doubt dealt with the fore-runner to Section 446, namely, Section 171 of the Indian Companies Act, 1913. But that does matter. 15. In this case the appellant is admittedly a secured creditor. It sues on a mortgage by deposit of title deeds. Such a suit is not likely to involve a long drawn out trial. On the scope of Section 446(2) of the Act, this Court had occasion to observe in Sudarsan Chits (I) Ltd. (supra), at page 1582, in paragraph 10: ``Sub-section (2) of Section 446 confers jurisdiction on the Court which is winding up the company to entertain and dispose of proceedings set out in clauses (a) to (d). The expression `Court which is winding-up the company will comprehend the court before which a winding up petition is pending or which has made an order for winding up of the company and further winding up proceedings are continued under its directions. Undoubtedly, looking to the language of Section 446(1) and (2) and its setting in Part VII which deals with winding-up proceedings would clearly show that the jurisdiction of the Court entertain and dispose of proceedings set out in sub-cls. (a) to (d) of sub-sec. (2) can be invoked in the Court which is winding up the company. 16. Without intending to lay down the law broadly but confining only to the facts of this case, we feel that the order or transfer of the suits to the High Court of Bombay cannot be supported. We are unable to uphold the finding of the High Court when it observed: ``On examination of facts and circumstances of the case, I am of the opinion that defending at a far distance in the Court of Additional Subordinate Judge, Rangareddy District at Saroor Nagar in Andhra Pradesh is going to be more expensive than if the said suits are continued and tried in this Court on the same being transferred to this Court. It is neither convenient nor proper that the official Liquidator appointed Liquidator of the Respondent No. 1 should be asked to defend the said suits in that Court since the wasteful expenditure is to be avoided. 17. This transfer will result in greater expenditure to the appellant Bank which certainly is avoidable "than the wasteful expenditure to the Official Liquidator.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]As far as matters which could be expeditiously and cheaply decided by the Company Court. In granting leave under this Section, the court always takes into consideration whether the company is likely to be exposed to unnecessary litigation and cost.That case no doubt dealt with theto Section 446, namely, Section 171 of the Indian Companies Act, 1913. But that does matter.In this case the appellant is admittedly a secured creditor. It sues on a mortgage by deposit of title deeds. Such a suit is not likely to involve a long drawn out trial.Without intending to lay down the law broadly but confining only to the facts of this case, we feel that the order or transfer of the suits to the High Court of Bombay cannot be supported. We are unable to uphold the finding of the High Court when itexamination of facts and circumstances of the case, I am of the opinion that defending at a far distance in the Court of Additional Subordinate Judge, Rangareddy District at Saroor Nagar in Andhra Pradesh is going to be more expensive than if the said suits are continued and tried in this Court on the same being transferred to this Court. It is neither convenient nor proper that the official Liquidator appointed Liquidator of the Respondent No. 1 should be asked to defend the said suits in that Court since the wasteful expenditure is to be avoided.This transfer will result in greater expenditure to the appellant Bank which certainly is avoidable "than the wasteful expenditure to the Official Liquidator.