Case: Vysya Bank Limited Vs. Official Liquidator, Shreeniwas Cotton Mills Limited (In Liquidation )

( 1 ) THIS appeal arises out of the judgment of the learned single judge dated June 14, 1989, in company Application No. 366 of 1988 whereby the appellants had applied for leave under section 446 of the Companies Act, 1956 (hereinafter referred to as "the Act"), for continuing the suit filed by them, inter alia, against Shreeniwas Cotton Mills Ltd. , the company in liquidation. By the judgment under appeal, the said application was dismissed and hence the present2 ) IS the obtaining of leave under section 442 of the Companies Act, a condition precedent to filing of a suit  Can such leave be granted ex post facto  Does failure to obtain leave entail dismissal of the suit and whether as regards limitation the suit instituted without leave is to be regarded ineffective until leave is granted  Such are the questions we are required to answer in this appeal.

Court's reasoning:
( 9 ) IN the light of the above statutory provisions, we shall now examine the questions posed by us at the outset. ( 10 ) THE section does not expressly provide for nullification of the proceedings as a consequence ofwith the requirement of the section. The intention of the Legislature can be inferred from the omission of the words to the effect "previous leave of the court". Whenever the legislature wanted to make such leave or permission a condition precedent to the institution of proceedings, the words "previous sanction or permission or leave" have been used like in section 92 of the Civil Procedure Code, 1908, and in section 197 of the Criminal Procedure Code, 1973, and again in clause 12 of the Letters Patent The consequence of disregarding the necessity of the leave can also help us find out the legislative intent. The section does not expressly declare what shall be the consequence ofwith the statutory injunction. Whenever the legislature intended to lay down an absolute prohibition, the Legislature has expressly declared its intention in unambiguous terms. Section 537 of the Act can be compared with section 446. Section 537 of the Act reads as follows :"537. Avoidance of certain attachments, executions, etc. , in winding up by or subject to supervision of court.(1) Where any company is being wound up by or subject to the supervision of the court(a) any attachment, distress or execution put in force, without leave of the court, against the estate or effects of the company, after the commencement of the winding up; or (b) any sale held, without leave of the court, of any of the properties or effects of the company after such commencement; shall be void. (2) Nothing in this section applies to any proceedings for the recovery of any tax or impost or any dues payable to the Government. "( 11 ) SECTION 537 contains an unequivocal declaration that any action against the company after the commencement of the winding up, without the leave of the court, "shall be void". Such an express declaration is totally absent in section 446. The legislative intent is, therefore, undoubtedly not to lay down an absolute prohibition. A decree passed in the absence of leave is not a nullity. (See State of Bihar v. Syed Anisur Rehman [1977] 47 Comp Cas 372 (Pat) and united India General Finance Pvt. Ltd. , In. re : Official Liquidator United India General Finance pvt. Ltd. v. Satya Dev Awasthi [1978] 48 Comp Cas 190 (Delhi ). ( 12 ) THUS form the clear and unambiguous language of section 446, it can be seen that the leave required is not a condition precedent and can be granted ex post facto. In Bansidhar Shankarlal. [1971] 41 Comp Cas 21 the Supreme Court was directly concerned with the question as to whether leave was a condition precedent or not and held (at page 25) :"even granting that sanction under section 179 does not dispense with the leave under section 171 of the Act, to institute a proceeding in execution against a company ordered to be wound up, we do not thank that there is anything in the AM which makes the leave a condition precedent to the institution of a proceeding in execution of a decree against the company and that failure to obtain leave before institution of the proceeding entails dismissal of the proceeding. The suit or proceeding instituted without leave of the court may, in our judgment, be regarded as ineffective until leave is obtained, but once leave is obtained the proceeding will be deemed instituted on the date of granting leave. "( 13 ) PRIOR to this pronouncement by the Supreme Court, the courts in the country had taken divergent views. One view was that it was a condition precedent and the other that it was not. A division Bench of this court had in Eastern Steamship Pvt. Ltd. v. Pucto Pvt. Ltd. [1971] 41 comp Cas 43 taken the view that leave was a condition precedent. However, the Supreme Court decision in Bansidhar Shankarlal [1971] 41 Comp Cas 21 was delivered after the decision in eastern Steampship Pvt. Ltd. [1971] 41 Comp Cas 43 (Bom) and has thus impliedly overruled the decision in Eastern Steamship Pvt. Ltd. Apart from the fact that we are bound by the decision of the Supreme Court in Bansidhar Shankarlal [1971] 41 Comp Cas 21, the legislative intent manifested in the language leaves no room for doubt. We are supported in our view by the decisions in Zahama Bee v. Reliable Corporation P. Ltd. [1974] 44 Comp Cas 483 (AP), Star engineering Works v. Official Liquidator, Krishnakumar Mills Co. Ltd. [1977] 47 Comp Cas 30 (Guj), State Bank of Indian v. Official Liquidator, Scraps (India) P. Ltd. [1979] 49 Comp Cas 514 (Mad) and United Commercial Bank v. State of Jammu and Kashmir [1986] 60 Comp Cas 653 (P and H ). We are fully conscious of the fact that the Supreme Court decision in Bansidhar shankarlal [1971] 41 Comp Cas 21 was under section 171 of the Companies Act, 1913, and we are dealing with section 446 of the Indian Companies Act, 1956. The difference brought about in the language of section 446 of the Act is only a drafting change and has not effected any change in the legal position gathered by the Supreme Court from the language of the corresponding section 171 of the Indian Companies Act, 1913. The change in the language is only by way of amplification, clarification or elaboration of the provision contained in section 171 of the 1913 act rather than alteration or amendment thereof or departure therefrom. ( 14 ) THIS takes us to the next question, viz. , does failure to obtain leave entail dismissal of the suit and whether as regards limitation the suit instituted without leave be regarded ineffective until leave is granted  This is Mr. Kadams submission which is based on the observation, viz. , "the suit or proceeding. . . granting the leave" in Bansidhar Shankarlal [1971] 41 Comp Cas 21 (SC ). This submission found favour with the learned single judge. The Supreme Court, after unequivocally holding that leave is not a condition precedent, observed as above. This observation has to be read in harmony with what the Supreme Court held a little earlier in the same paragraph, viz. , leave is not a condition precedent. Correctly interpreted it would mean that a suit or a legal proceeding pending at the time of the winding up order or commencement thereafter would be "ineffective" unless it is activated by leave. "ineffective" would only mean ineffective qua the official liquidator only who has power, inter alia, to defend any suit or other legal proceeding in order to protect all the property, effects and actionable claims to which the company is entitled. Thus, the observation cannot be stretched toa plaintiff whose suit when filed is otherwise within limitation. To give such an interpretation to this observation can result in only setting at naught what is held by the Supreme Court. The bar of limitation is a creature of the statute and cannot be imposed or read into the otherwise unambiguous language of section 446. The observation in question speaks of a legal fiction and cannot be interpreted to read into the said provision any legal bar. In these circumstances, we cannot accede to Mr. Kadams submission. The learned single judge was clearly in error in holding as he did.( 15 ) NOW, we come to the last submission of Mr. Kadam. It is submitted that in any view of the matter the application for leave wasas under the residuary article 137 of the limitation Act, 1963, it should have been made within three years from the accrual of the right to apply. Section 446 of the Companies Act does not prescribe any time. Leave can be applied for, as we have held, subsequent to the order of winding up. Article 137 of the Limitation Act, 1963, deals with applications and is a residuary article. Under section 5 of the Limitation Act, the court is empowered to extend the time in filing any appeal or application unlike in a suit. We see no substance in this submission and the same is rejected.