JANARTHANAM J.

Ratna Packaging Complex (P.) Ltd. is a private limited company registered under the Companies Act, 1956 (for short "the Act, 1956"), having its registered office at Rural Industrial Estate, Kattukuppam, Pondicherry. It carried on business in the manufacture of packing materials like corrugated boxes, rolls-boards and heavy duty shipping containers, etc. The Canara Bank offered certain financial facilities as a secured creditor to the said company, which availed of the same on execution of necessary documents. Similarly, the Pondicherry Industrial Promotion Development and Investment Corporation Ltd. advanced certain amounts to the company on the furnishing of certain security by the company and thus, it had also become a secured creditor. There were five directors in the company and they also stood as guarantors to the bank for repayment of the amount by the company. The company on its inability to pay its debts was wound up on a petition by a creditor in Company Petition No. 56 of 1984 by an order of this court dated November 25, 1985, and the property of the company came to be vested with the official liquidator attached to this court. Prior to the initiation of the winding up proceedings, the bank instituted a suit, Original Suit No. 427 of 1984, on the file of the Principal Subordinate Judge, Pondicherry, on August 1, 1984, for realisation of the debt due to them against the company and others. The bank has now come forward with the present application under section 446 of the Act of 1956 praying for grant of leave to continue the proceedings in Original Suit No. 427 of 1984, on the file of the Principal Subordinate Judge, Pondicherry, impleading as respondents, the company now represented by the official liquidator besides the five directors and the Pondicherry Industrial Promotion Development and Investment Corporation Ltd. represented by its managing director.The official liquidator has filed his report stating that he has no objection to grant of leave subject to the terms (a) to (e) enumerated thereon. Besides, the learned official liquidator on the premise of section 529 of the Act of 1956 making the law of insolvency applicable to liquidation proceedings, would raise a question of some importance, which, according to him makes it obligatory on the person coming forward with an application under section 446 to make an election as to whether such a person is standing within or outside the liquidation proceedings in view of the fact that legal consequences to flow widely vary depending upon the election so made.

The two points that arise for consideration in such circumstances are as follows :

(1) Whether it is obligatory for the applicant coming with an application under section 446 of the Act of 1956 to make an election for his standing inside or outside liquidation proceedings ; and

(2) Whether it is legally permissible to incorporate terms as suggested by the official liquidator whilst granting leave ?

Point No. 1 : A consideration of the salient provisions adumbrated in sections 28, 47, 48 and 61 of the Provincial Insolvency Act, 1920 (for short, "the Act of 1920"), will be necessary for determination of the question involved on this point. Section 28 deals with the effect of an order of adjudication. Sub-section (2) of section 28 prescribes that on the making of an order of adjudication, the whole of the property of the insolvent shall vest in the court or in a receiver as hereinafter provided, and shall become divisible among the creditors, and thereafter, except as provided by this Act, no creditor to whom the insolvent is indebted in respect of any debt provable under this Act shall during the pendency of the insolvency proceedings have any remedy against the property of the insolvent in respect of the debt or commence any suit or other legal proceeding except with the leave of the court and on such terms as the court may impose. It is but necessary to note in this context the provisions