The Industrial Credi... v. Vanjinad Leathers Lt...

M.C.A No. 12/91 was filed by Industrial Credit and Investment Corporation of India (I.C.I.C.I) seeking leave to continue Suit No. 549 of 1989 on the file of the Bombay High Court instituted by it on 17-2-89, far earlier than winding up of this company. This company was ordered to be wound up only on 22-8-90. An order was passed to withdraw the suit to this Court and also this Court permitted the applicant to continue the suit outside the winding up. Another order was also passed in Report No. 2 and in M.C.A No. 12/91 directing I.C.I.C.I and State Bank of Travancore to pay to the Official Liquidator to meet the initial expenditure for winding up. These orders were taken up before the Supreme Court in S.L.P (Civil) No. 10101/91 and 11055/92. These petitions were heard and decided by the Supreme Court as per judgment reported in I.C.I.C.I v. Srini vas Agencies, (1996) 4 SCC 165. The Supreme Court left the matter to the Company Court to pass appropriate orders in the light of the observations contained in the judgment. In the said judgment, the Supreme Court laid down certain norms and principles with regard to the exercise of the powers of the Company Court under Section 446 of the Companies Act, 1956. The Supreme Court also observed that while exercising that power the Company Court also would bear in mind the rationale behind the enactment of Recovery of Debts Due to the Banks and Financial Institutions Act, 1993, in short ‘the 1993 Act’. It is in that background M.C.A 12/91 has again come before this Court for consideration.

2. M.C.A 58/96 in filed by the Official Liquidator seeking to transfer another suit namely Suit No. 2553/94 pending before the High Court of Bombay exercising the powers vested in this Court under Section 446 of the Companies Act, 1956. That suit was filed by Industrial Development Bank India, Bombay, the 2nd defendant in the suit filed by I.C.I.C.I Therefore, the subject-matter is closely connected with the issue raised in M.C.A 12/91.

3. M.C.A 122/96 is another application filed by the Official Liquidator seeking transfer of Suit No. 549/89 filed by I.C.I.C.I before the High Court of Bombay, the subject-matter of M.C.A 12/91.

4. M.C.A 207/96 is another application filed by I.C.I.C.I seeking to set aside the order passed by this Court on 28-2-91 in M.C.A 12/91 and seeking leave under Section 537 of the Companies Act for execution/enforcement of any decree to be passed in the said suit. This also is thus closely connected with the matter agitated in M.C.A 12/91.

5. The facts framed in all these four applications raise issues, namely whether the suits now pending before the Bombay High Court filed by the secured creditors of the company in liquidation need be withdrawn to this Court and whether the plaintiffs be granted leave to continue the suit standing outside the winding up proceedings.

6. Section 446 of the Companies Act deals with special powers enjoined on the Company Court with regard to the pending suits at the time of winding up, in which the company wound up, is a party. Sub-section (1) provides that no suit or other legal proceeding shall be commenced or be proceeded with against the company except by leave of the Company Court and subject to such terms imposed by that Court. Thus, when there is a pending suit against a company in liquidation, the plaintiff in the concerned suit, to continue the suit, shall mandatorily obtain leave of the Company Court to proceed with the suit. Sub-section (2) of Section 446 of the Companies Act enables the Company Court which had passed the winding up order to entertain the jurisdiction to dispose of any suit by or against the company by withdrawing it from the Court where it is pending. Thus, the Company Court has an overwhelming power under Section 446(2) to withdraw the suit from any Court if the company in liquidation is a party to that suit. Sub-section (2) contains a non-obstante clause. Therefore, that power to withdraw the suit and try it, conferred on the Company Court has an overriding effect over all other enactments. It is exercising this power that this Court passed order dated 28-2-91, which was taken in Supreme Court in S.L.P (Civil) 10101/91 and it has been decided as per the decision in I.C.I.C.I's case (1996 (4) SCC 165) referred to above. In paragraph 13, it was held as follows:

“We are, therefore, of the view that the approach to be adopted in this regard by the Company Court does not deserve to be put in a straight-jacket formula. The discretion to be exercised in this regard has to depend on the facts and circumstances of each case. While exercising this power we have no doubt that the Company Court would also bear in mind the rationale behind the enactment of Recovery of Debts Due to the Banks and Financial Institutions Act, 1993 to which reference has been made above. …………….

It need not be stated that the terms to be imposed have to be reasonable, which would, of course, vary from case to case………………. The Company Court shall also apprise itself about the fact whether dues of workmen are outstanding, if so, extent of the same. It would be seen whether after the assets of the company are allowed to be used to satisfy the debt of the secured creditor, it would be possible to satisfy the workmen's dues pari passu”.

7. Counsel for the Official Liquidator pointed out that entire assets of the company are lying in Thavanur in Kerala within the jurisdiction of this Court and are in the custody of the Official Receiver appointed by the High Court of Bombay in the suit filed by the I.C.I.C.I An amount of Rs. 25,000/- is being expended per month for it being looked after through security agencies. No income is derived from the property. Thus, everyday, the assets of the company are being eroded and the losers are the workmen who in terms of Section 529A stand on par with the secured creditors.

8. Taking into account the observation of the Supreme Court and the facts as mentioned above, certainly there would not have been any difficulty in deciding the case and things as it is, I would have easily ordered withdrawal of the suit to this Court and directed the Official Receiver to put the possession of the property to the Official Liquidator. But, the guideline given by the Supreme Court is that the Company Court would also bear in mind the rationale behind the enactment of the Recovery of Debts Due to the Banks and Financial Institutions Act, of 1993. Section 18 creates a bar on jurisdiction of other authorities and Courts except the Supreme Court and High Court under Articles 226 and 227. As per Section 2(h) Financial Institutions are defined and it includes the ‘institution’ within the meaning of Section 4A of the Companies Act, 1956. In terms of that provision both I.C.I.C.I and I.D.B.I shall be regarded as financial institutions. Therefore, the suits filed by the said two financial institutions for recovery of loan advanced by said institution come under 1993 Act. As per Section 31 of the said Act, all the pending cases shall stand transferred to such Tribunal. So, in terms of Section 31, the suits filed by I.C.I.C.I and I.D.B.I and pending before the Bombay High Court are suits which stand transferred under the provisions of 1993 Act to the Tribunal set up under that Act.

9. Section 34 of the 1993 Act provides that provisions in that Act “shall have effect notwithstanding anything inconsistent therewith contained in any other law for the times being in force or any instrument having effect by virtue of any law other than this Act”. Necessarily, this shall have an overriding effect over any other law.

10. ‘1993 Act’ is a special law to deal with the applications by the banks and financial institutions for recovery of debts. Companies Act, 1956 is also a special law. Section 446 of the Companies Act 1956 which contains a non-obstante clause is also a provision to exclude all other laws with regard to pending suits in which company in liquidation is a party. The 1993 Act, is also a special law enacted by the Parliament itself. So, when that later special law was enacted, the Parliament would have certainly in mind the provisions in the earlier special law namely the Companies Act, 1956. Thus, it was notwithstanding the special provision contained in the Companies Act, 1956, that Section 31 had been enacted in ‘1993 Act.’ Therefore, the latter special law will prevail over the former. Necessarily, the Company Court will not have jurisdiction with regard to suits or applications pending on or after the “appointed day” as per the ‘1993 Act’. Thus, exercise of power by the Company Court under Section 446 of the Companies Act, 1956 is excluded by Section 34 of the 1993 Act.

11. When the power under Section 446 cannot be exercised in respect of the suits filed by I.C.I.C.I and I.D.B.I in the Bombay High Court after the appointed day in terms of 1993 Act, no leave is necessary for any party to the said suit to continue it, nor this Court can withdraw the suit to be tried here. That has to be tried before the specialised machinery set up under the ‘1993 Act.’ In such circumstances, M.C.A 12/91 has to be dismissed because no leave is necessary to proceed with the suit filed by the applicant in that case. M.C.A 58/96 and M.C.A 122/96 are also dismissed as the suits filed by I.D.B.I and I.C.I.C.I cannot be withdrawn to this Court. The order passed by this Court in M.C.A 12/91 on 28-2-91 is no longer in force in the light of the Supreme Court judgment in I.C.I.C.I's case (1996 (4) SCC 165) referred to earlier. So, there arises no question of setting aside that order. Therefore, M.C.A 12/91 also stands dismissed.

12. The Official Liquidator has in M.C.A 122/96 made a prayer to direct the Court Receiver in Suit No. 549/89 of Bombay High Court to hand over possession of all assets and records of the company in liquidation. The company in liquidation is the first defendant in that suit. Necessarily, the Official Liquidator will have to represent the company in that suit. He can apprise the Court or the Tribunal, as the case may be, about the facts relating to eroding of the entitlement of the workers and seek Official Liquidator, in the light of the later development of the winding up of the company, to be appointed as Court Receiver. This order will not stand in the way of the Official Liquidator's right to apply for such appropriate orders before the appropriate authority.

13. In M.C.A 207/96, I.C.I.C.I had also prayed for leave for continuance of the Receiver and to put the decree to be passed in execution. The leave is applied for in terms of Section 537 of the Companies Act, 1956. As I have already found that Section 34 of the ‘1993 Act’ has an overriding power and it prevails over the provisions in the Companies Act, 1956 no such permission is necessary. M.C Application is thus dismissed.

14. The company had been ordered to be wound up by this Court. This Court has certainly the power to deal with the winding up applications and to pass appropriate orders to meet the ends of justice. The entire property of the company is in the custody of the Official Receiver of the Bombay High Court. No asset or record is in the possession of the Official Liquidator. At the same time, the Official Liquidator has to proceed with the winding up process and has to represent the company either in the Bombay High Court or in the Tribunal established under the ‘1993 Act’. For this, expenses have to be incurred. The secured creditors have to meet this. In Report No. 2 in C.P 17/90 this Court had already passed an order directing I.C.I.C.I and State Bank of Travancore to pay Rs. 25,000/- each to the Official Liquidator to meet the preliminary expenses. That order has not been set aside by the Supreme Court. This Court can certainly pass appropriate orders to meet the ends of justice including giving directions to the secured creditors to pay amounts to the Official Liquidator to proceed with the winding up proceedings. Therefore, the order dated 20-7-92 in report No. 2 in C.P 17/90 shall be complied with by I.C.I.C.I It is submitted that the State Bank of Travancore had taken that order in appeal as M.F.A 664/92. Official Liquidator shall take steps to get the interim order of stay modified. That stay is only confined to the State Bank of Travancore. So, payment by I.C.I.C.I is not affected by that order. Over and above that, I.D.B.I, another secured creditor, shall also pay Rs. 25,000/- to the Official Liquidator to defend the suit filed by them and also to meet the expenses towards the winding up. Payment shall be made at any rate within one month from today.

Order accordingly.