IMPORTANT POINT
An application u/s 446(1) of Companies Act for leave to proceed with a pending suit or proceeding not being an application for any relief, will not attract Article 137 of Limitation Act.

Headnote:(i) Companies Act, 1956—Section 446(1)—Limitation Act, 1963—Article 137—Application seeking leave of Company Court to proceed with a pending suit against company—Applicability of limitation under Art. 137 of Limitation Act—An application for leave to proceed with a pending suit or proceedings not being an application for any relief, will not attract Art. 137—Respondent bank filed Title Mortgage suit against borrower company and the guarantors—During pendency of suit, order for winding up the company came to be passed by Company Court on 24.10.1989—Bank filed application u/s 446(1) of the Act seeking leave of Company Court to proceed with its suit—Application was resisted on plea of limitation—Right to apply for leave accrued not because of order of winding up but because the suit was stayed—Right to apply for grant of leave accrued every moment the suit remained stayed—Application filed on 11.8.1995 was not barred by limitation even if Art. 137 was applied.
       Held : An application seeking leave to proceed, in respect of a pending suit or proceeding (filed before the order of winding up) is not an application for enforcement of any claim or right. It does not seek any ‘relief’ or ‘remedy’ with reference to any claim or right or obligation or liability. It is an application which is interlocutory in nature. An interlocutory application is not subject to any period of limitation, unless otherwise specifically provided by law. We are conscious of the fact that an application under Section 446(1) seeking leave to proceed with the suit/proceeding, is not filed as an ‘interlocutory application’ in the suit/proceeding before the court where such suit/proceeding is pending. But an interlocutory application is nothing but an application in the course of an action. It is a request made to a court, for its interference, in a matter arising in the progress of a proceeding. Therefore, in a broad sense, the application under section 446(1) filed before the company court seeking leave to proceed with a pending suit or proceeding, is an ‘interlocutory application’ with reference to the pending suit/proceeding. Article 137 is intended to apply to applications for enforcement of a claim or adjudication of a right or liability in a court. An application for leave to proceed with a pending suit or proceeding not being such an application for any relief, will not attract Article 137.(Para 17)
       A suit, which is filed prior to the order of winding up and pending on the date of winding up, gets stayed when an order of winding up is passed. An order of winding up does not create any `right’ to file an application under Section 446(1) of the Act. Nor does any right `accrue’ to a plaintiff/petitioner in a suit/proceeding to file an application under Section 446(1), when an order of winding up is passed. On the other hand, passing of an order of winding up casts a duty or obligation on the person who has sued the company to obtain the leave of the court to proceed with his suit for proceeding. The right to apply for leave accrues, not because of the order of winding up, but because the suit/proceeding is stayed. The right to apply for grant of leave under Section 446(1) accrues every moment the suit remains stayed. Consequently, it follows that as long as the suit/proceeding (filed before the order of winding up) remains stayed, an application for leave can be filed. Therefore, the application filed on 11.8.1995 was in time and not barred by limitation, even if Article 137 is applied.(Para 19)
       (ii) Companies Act, 1956—Section 446(1)—While granting leave to respondent bank to proceed with its recovery suit against company which had been wound up, Court directed that decretal amount should be recovered from guarantors first and only if there was any deficit it should be recovered from company in liquidation—No justification for imposing such condition which was liable to be deleted.
       Held : Learned counsel for the appellant submitted that there was no justification for the court to direct that the decretal amount should be recovered from the guarantors first and only if there was any deficit, it should be recovered from the company in liquidation. Learned counsel for the Bank and the Official Liquidator fairly conceded that there was no reason or justification for imposing such a condition, having regard to the legal position that the liability of the principal-debtor and guarantors is joint or several. There is no question of directing the amount to be first recovered from the guarantors. The creditor has the option of recovering the amount in the mannfer he deems fit. Though the company court has the power while granting leave, to impose conditions, such conditions can be imposed only for good and valid reasons. The terms imposed cannot affect the rights of third parties nor impose an obligation contrary to law. Therefore, the condition imposed while granting leave is deleted.(Para 20)

JUDGMENT

Raveendran, J.—This appeal directed against the order dated 1.9.1997 of the Patna High Court in LPA No. 259/1996, relates to the applicability of Article 137 of Limitation Act, 1963 to a petition under Section 446(1) of the Companies Act, 1956, seeking leave of the Company Court to proceed with a pending suit.

2. Nalanda Ceramic & Industries Ltd. (second respondent herein, referred to as ‘the Company’) was a company incorporated under the Companies Act, 1956 (for short ‘the Act’). Appellant Nos. 1 to 3 were its Directors. The Company had obtained certain credit facilities from the State Bank of India (first respondent herein and referred to as ‘the Bank’). The loans were secured by mortgage of the assets of the Company. The repayment of the amounts advanced to the Company was guaranteed by the appellants. On 28.11.1988, the Bank filed a suit (Title Mortgage Suit No. 150/1988 on the file of the Special Subordinate Judge, Ranchi) against the Company (defendant No.1), the appellants (defendants 2 to 4), and four others namely State of Bihar, Bihar State Financial Corporation, I.F.C.I. and IDBI (defendant Nos. 5 to 8). In the said suit, the Bank sought a decree for Rs. 5,95,98,258.31 against defendants 1 to 4 (the company and the appellants) with interest thereon and several ancillary and consequential reliefs.

3. Even prior to the said suit, other creditors had filed petitions for winding up of the Company, in Company Petition Nos. 1/79, 2/79 and 4/79 on the file of the Patna High Court, alleging that it was unable to pay its debts. During the pendency of the said company petitions, a notification dated 16.4.1984 was issued under the Bihar Relief Undertakings (Special Provisions) Act, 1982, declaring the Company as a relief undertaking, thereby preventing further progress of the petitions for winding-up. As the company became sick, a reference was also made to the Board for Industrial & Financial Reconstruction which directed an inquiry under Section 16 of the Sick Industrial Companies (Special Provisions) Act, 1985 (for short ‘SIC Act’). In view of the said reference, the first appellant (second defendant in the suit), filed an application on 16.9.1989 in the Bank’s suit under Section 22 of the SIC Act, for stay of further proceedings in the suit.

4. The Bank resisted the said application, inter alia, on the ground that Section 22 of SIC Act had the effect of staying only proceedings in the nature of winding-up and execution and did not come in the way of progress of any suit for recovery of money due by the Company by enforcing the security.

5. When matters stood thus, an order for winding up the company was passed by the High Court on 24.10.1989. When the said order came to its knowledge, the Bank filed a further objection to the application under Section 22 of the SIC Act, contending that Section 22 of the SIC Act will not apply in view of the order for winding up. The Bank also submitted that having regard to Section 446(1) of the Act, it required the leave of the court only to proceed against the company, but there was no bar for proceeding against the other defendants. The Bank, therefore, prayed for dismissal of the application for stay (filed by appellant No.1 herein) and further prayed that while the proceedings as against the first defendant company may be kept in abeyance, the suit may be proceeded with against the other defendants.

6. The trial court disposed of the application by an order dated 9.3.1990. It rejected the application filed by second defendant (appellant No.1 herein) for staying the suit under Section 22 of the SIC Act. It, however, held that the suit against all the defendants will have to be stayed in view of the order of winding up. It was of the view that the liability to pay the amount due was on the principal-debtor, namely, the Company, and that the guarantors would be liable only if the Company defaulted; and that, therefore, if the proceedings against the Company had to be stayed, it had al

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2006 Supreme(SC) 313

IMPORTANT POINTAn application u/s 446(1) of Companies Act for leave to proceed with a pending suit or proceeding not being an application for any relief, will not attract Article 137 of Limitation Act.

Cases Referred (3)

IMPORTANT POINT
An application u/s 446(1) of Companies Act for leave to proceed with a pending suit or proceeding not being an application for any relief, will not attract Article 137 of Limitation Act.