Powers of court to stay or restrain proceedings?

Intorduction: Accordingly, the High Court has the power to stay and/or restrain proceedings initiated or to be initiated in any other Court so that it may hear and dispose of such Saved Petitions. As per section 372. The provisions of this Act or of the Insolvency and Bankruptcy Code, 2016, as the case may be, with respect to staying and restraining suits and other legal proceedings against a company at any time after the presentation of a petition for winding up and before the making of a winding up order, shall, in the case of a company registered in pursuance of this Part, where the application to stay or restrain is by a creditor, extend to suits and other legal proceedings against any contributory of the company.

Section 372. Power of Court to stay or restrain proceedings:

The provisions of this Act or of the Insolvency and Bankruptcy Code, 2016, as the case may be, with respect to staying and restraining suits and other legal proceedings against a company  at any time after the presentation of a petition for winding up and before the making of a winding up order, shall, in the case of a company registered in pursuance of this Part, where the application to stay or restrain is by a creditor, extend to suits and other legal proceedings against any contributory of the company.

Sec 442 – Power of Court to stay or restrain proceedings against company.

At any time after the presentation of a winding up petition and before a winding up order has been made, the company, or any creditor or contributory, may–

(a) where any suit or proceeding against the company is pending in the Supreme Court or in any High Court, apply to the Court in which the suit or proceeding is pending for a stay of proceedings therein ; and

(b) where any suit or proceeding is pending against the company in any other Court, apply to the Court having jurisdiction to wind-up the company, to restrain further proceedings in the suit or proceeding ; and the Court to which application is so made may stay or restrain the proceedings accordingly, on such terms as it thinks fit.

265. Power of court to stay or restrain proceedings.

The provisions of this Act with respect to staying and restraining actions and proceedings against a company at any time after the presentation of a petition for winding up and before the making of a winding-up order shall, in the case of a company registered in pursuance of this Part of this Act, where the application to stay or restrain is by a creditor, extend to actions and proceedings against any contributory of the company.

Case Laws:

In The Matter Of Ovation … vs Adverts (Private) Ltd. And Anr. on 5 October, 1968

Equivalent citations: 1969 39 CompCas 595 Bom

Author: Madan

Bench: D Madon

In The Matter Of Ovation … vs Adverts (Private) Ltd. And Anr. on 5 October, 1968

Equivalent citations: 1969 39 CompCas 595 Bom

Author: Madan

Bench: D Madon

1. This is a judge’s summons under section 442 of the Companies Act, 1956, taken out by the applicants, Grey Steel Casting and Finishing Co. Private Limited, who have filed a petition to wind up the Ovation International (India) Private Limited (hereinafter referred to as “the company”) being Company Petition No. 87 of 1968 and which petition is still pending. In view of the facts which have come to light in the affidavit in reply filed on behalf of the first respondents, Adverts (Private) Limited, and the document which have been put in by consent, the only prayer in the summons which survives for consideration is the one asking for stay of the execution of the decree passed in favour of the first respondents against the company by the Bombay City Civil Court in Suit No. 4234 of 1968 on July 18, 1968, and for restraining the first respondents from taking any steps or proceedings in execution thereof.

2. In view of the argument advanced in support of some of the contentions raised on this summons, I propose to set out the facts in greater detail than would have otherwise been, necessary, The company was incorporated on August 18, 1967. The main objects for which the company was established are to carry on the business of manufacturers, buyers, sellers and distributing agents of and dealers in all classes of patent, pharmaceutical, medical and medicated preparations, patent medicines, toilet requisites and cosmetics. The registered office of the company is situate at 22, Mahalaxmi Chambers Bhulabhai Desai Road, Bombay 26. The company also has a godown situate at Hind Rajasthan Estate 229, Naigaum Cross Road, Bombay.

3. On July 1, 1968, a few days prior to the filing of the winding-up petition, the first respondents filed the said Suit No. 4234 of 1968 against the company in the Bombay City Civil Court as a summary suit claiming a sum of Rs. 24,443.53 with interest thereon the at the rate of 6 per cent per annum from the date of the suit till payment and the costs of the suit. The case of the first respondents in the plaint was that on or about January 4, 1968, the company engaged the first respondent’s service to handle advertising work for the company and to release their advertisements on all India basis. Accordingly, between January 6, 1968, and April, 1968, the first respondents carried out publicity week for the company in different newspapers and cinema houses as and when required by the company and sent their bills from time to time to the company. Certain payments on account were made by the company. The publicity work was completed by the end of April, 1968, and there remained a balance of Rs. 24,443.53 due by the company to the first respondents. Along with their letter of June 11, 1968, the first respondents enclosed for the company’s confirmation a statement of account showing the said amount due as at the end of April, 1968. The company returned a copy of the said statement duly confirmed.

4. On the strength of these affidavits, on the same day, viz., July 3, 1968, two orders of attachment before judgment were made. By each of the said orders the company was ordered to furnish security in the sum of Rs. 25,000 and to place the same at the disposal of the said court in satisfaction of any decree which might be passed against the company or to appear on July 11, 1968, to show cause to the contrary and, in the meantime, by one of the said orders, the Registrar of the said court was ordered to issue a warrant of attachment before judgment under Order XXXVIII, rule 5 and Order XXI, rule 43, of the Code of Civil Procedure, attaching the movable property, viz., furniture, fittings and stock-in-trade belonging to and lying at the company’s office premises in its possession and raw materials belonging to and lying at the company’s godown in its possession and the goods belonging to and lying in the company’s possession at the premises of the said British Drug House Private Limited to the extent of Rs. 25,000. By the other order the said Registrar was ordered to issue a warrant of attachment before judgment under Order XXXVIII, rule 5, and Order XXI, rule 46, of the Code, attaching the amount to the extent of Rs. 25,000 in the hands of the Bank of America payable to the company, lying in the account of the company with the said bank. In pursuance of the said orders, the Registrar of the said court issued a warrant of attachment before judgment under Order XXXVIII, rule

5. The contentions of the first respondents are that :

(a) the summons was not maintainable as it has been taken out by the applicants and not by the provisional liquidator in his own name;

(b) the attachment before judgment was an attachment or execution put in force before the commencement of the winding-up within the meaning of the expression “attachment, distress or execution put in force” in clause (a) of section 537(1) of the Companies Act and accordingly no leave of the court was necessary to complete the execution of the decree by sale of the movables and garnishee order against the Bank of America;

(c) the attachment before judgment constituted the first respondents a class of creditors who were secured creditors or analogous to secured creditors, who stood outside the winding-up and who, therefore, could not be restrained from realising their decree; and

(d) by reason of the attachment before judgment, the attached movables and the moneys lying in the company’s bank account had ceased to be the property of the company and neither the provisional liquidator nor, assuming the company was ordered to be wound up, the official liquidator would have any right thereto as against the first respondents.

10. Before considering the arguments advanced before me, it will be convenient at this stage to set out the relevant provisions of the Companies Act, 1956. Section 442, 446 and 537 provide as follows :

“442. Power of court to stay or restrain proceedings against company. –

At any time after the presentation of a winding-up petition and before a winding-up order has been made, the company, or any creditor or contributory, may –

(a) where any suit or proceedings against the company is pending in the Supreme Court or in any High Court, apply to the court in which the suit or proceedings is pending for a stay of proceedings therein; and

(b) where any suit or proceeding is pending against the company in any other court, apply to the court having jurisdiction to wind up the company, to restrain further proceedings in the suit or proceedings;

and the court to which application is so made may stay or restrain the proceedings accordingly, on such terms as it thinks fit.

446. Suits stayed on winding-up order. – (1) When a winding-up order has been made or the official liquidator has been appointed as provisional liquidator, no suit or other legal proceeding shall be commenced, or if pending at the date of the winding-up order, shall be proceeded with, against the company, except by leave of the court and subject to such terms as the court may impose.

Section 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.”

9. Relying upon this passage Mr. Advani has submitted that the judge’s summons ought to have been taken out by the provisional liquidator and that too in his own name and not by the applicants. This argument of Mr. Advani overlooks the provisions of section 442 of the Companies Act, for that section expressly confers upon a contributory and the company as also upon a creditor the right to apply for stay of a pending suit or proceeding at any time after the presentation of a winding-up petition and before a winding-up order has been made.

The applicants are creditors of the company or claim to be creditors of the company. Though at the time of the acceptance of the winding-up petition notice was given to the company, the company has till today not appeared and not challenged the applicants’ claim to be creditors of the company. The applicants are, therefore, entitled to take out this summons. What the learned judge meant when he held that the provisional liquidator alone and not the company could make the application must be understood in the context of the facts of that case which show that the application was made in the name of the defendant company under the instructions of the directors. Once, however, a provisional liquidator is appointed, the directors are not as a rule entitled to exercise their powers as directors of the company. Under section 450, when the court appoints the official liquidator as provisional liquidator, the court may limit and restrict his powers either by the order appointing him or by a subsequent order; but if the court does not do so, the provisional liquidator has the same powers as the liquidator. He thus becomes entitled under section 456 to take under his custody and control all the property, effects and actionable claims to which the company is or appears to be entitle Under clause (a) of

In Dawsons Bank Ltd. v. Nippon Menkwa Kabushaki Kaisha (Japan Cotton Trading Co. Ltd (1935) 5 Comp. Cas. 191 (P.C.)), their Lordships of the Privy Council pointed out that the change which liquidation, proceedings bring about in regard to a suit against a company is that in the conduct of its defence the company would, before liquidator. When a company is ordered to be wound up or a provisional liquidator appointed, any legal proceeding by a company, therefore, has to be instituted, by the official liquidator or the provisional liquidator, as the case may be, but in the name and on behalf of the company and the directors will have no right to institute such legal proceeding since the company no more acts through its directors, and when the learned judge held that the only person competent to make the application was the provisional liquidator and not the company, he really meant no more than this. There is, therefore, no substance in the objection taken by the first respondents to the applicants’ locus standi to take out the judge’s summons.

References:

https://indiankanoon.org/doc/186224/,

https://www.mca.gov.in/Ministry/pdf/,

https://www.mca.gov.in/Ministry/pdf/

Companies_Act_1956_13jun2011.pdf

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