ORDER

1. The appellant had granted a lease to Respondent 2 Hindustan Forest Company (P) Ltd. (hereinafter referred to as "the Company") for felling trees in 1961. In terms of the agreement executed between the appellant and the Company, the Company was liable to pay royalty on the timber so felled to the appellant. This lease was initially valid up to 1968 and was then extended up to 1971.

2. In 1972 the Company passed a resolution that it should be wound up voluntarily under Section 484 of the Companies Act, 1956. The final order for winding up was passed by the High Court of Punjab and Haryana on 7-2-1975.

3. In June 1975 a suit was filed by the Bank against the Company and the appellant for various reliefs including a decree for payment of money by the appellant to the Bank. The case of the Bank in the suit was that the Company was its constituent. From time to time the Bank had advanced loans to the Company. The Companys financial affairs deteriorated sometime in 1969. The Company approached the respondent Bank for further financial assistance. The Bank was not willing to advance any money unless the repayment of the amount sought to be advanced was guaranteed by the State. The conditions for advancing any loan to the Company were set out in a letter dated 19-6-1969 addressed by the Managing Director of Jammu and Kashmir State Financial Corporation to the Manager of the respondent Bank which records the terms of this proposal.

4. The proposals were to the effect that the respondent Bank would advance an amount of Rs 6 lakhs to the Company and these funds would be placed at the disposal of the Forest Department. The Forest Department would supervise the operation of the felling of trees for the remaining period of the lease and would sell the timber. Out of the sale proceeds the appellant would be entitled to recover its royalty up to 50% of the sale proceeds and the balance would be used for paying the various creditors of the Company. It was the respondent Banks further case that the Conservator of Forests raised certain disputes as regards the rate of the royalty, namely, that the full royalty would be recovered from the sale proceeds. Pursuant to this "agreement, assurances and guarantees" alleged to have been given by the appellant, the respondent Bank sanctioned an amount of Rs 6 lakhs in favour of the Company. According to the Bank, the money was placed at the disposal of the Conservator of Forests. This arrangement continued for a period of two years. It was admitted that there was no formal agreement as required under Section 122 of the Constitution of Jammu and Kashmir (hereinafter referred to as "the Constitution"). The respondent Banks case was that it was entitled to a return of Rs 6 lakhs advanced by it pursuant to the alleged arrangement. A decree was accordingly prayed for against the appellant (Defendant 1) and the Company and persons who the Bank claimed had guaranteed the repayment of the Companys dues (being Defendants 2 to 5 in the suit).

5 . A written statement was filed by the respondent Bank in which the arrangement was denied and it was also pleaded that the alleged agreement would, in any event, be contrary to Section 122 of the Constitution.

6. The suit was transferred to the High Court of Punjab and Haryana d where the winding-up proceedings were pending. Leave was granted to the respondent Bank under Section 446(1) of the Companies Act, 1956 on 1-8-1980. The suit was renumbered as CP No. 48 of 1981.

7. The learned Single Judge framed several issues on the pleadings. Of these we are concerned with Issues (1), (6), (7) and (8) which read as under:

(1) Whether suit is not maintainable as no leave has been obtained under Section 446 of the Companies Act? OPR

(6) Whether the suit is barred by time? OPR

(7) Whether Defendants 2 to 5 are not liable for the suit amount because the management of forest lease was handed over to Defendants 1 and 6 at the instance of the petitioner Bank? OPR

(8) Whether the