Benares Bank Ltd. vs Sashibhushan Misra

Manohar Lall, J.—This is an appeal by the decree-holder, the Benares Bank, Ltd., (in liquidation)--who is aggrieved by the order of the learned Subordinate Judge of first Court,, Monghyr, dated 14-111945 by which he has held that the judgment-debtor has no saleable interest in the property which was purchased by the respondent and, therefore, has set aside the sale.

The appellant having obtained a decree against the judgment-debtor in the Court of the Subordinate Judge at Bhagalpore got it transferred to Monghyr for execution and put up to sale the interest of the judgment-debtor in eight annas share in costs 1 and 2. The sale was actually held on 4-4-1944, and the respondent Sashi Bhushan Misra became the auction-purchaser for Rs. 5100. The sale was confirmed on 6-5-1944.

On 3 11-1944 Sashi Bhushan Misra filed an application under Order 21, Rule 91, Civil P.C, that; the sale should be set aside upon the ground that the judgment-debtor had no saleable interest on the date of the sale. The reason for making the application beyond 30 days of the date of the sale was alleged to be that the petitioner was a resident of Darbhanga district and when he sent the rent to the landlord he was informed on 15-10-1944 that the name of the judgment-debtor was not recorded in the landlord''s serishta, but the name of one Ambica Singh was recently mutated in place of the "judgment-debtor by virtue of a kabala executed in June 1941 regarding lot No. 2 and that lot No, 1 had long ago been purchased by the Banailly Raj in execution of a rent decree and the same had been settled with Ambica Singh who had sold it to one Munshi Sahu. It will be observed that all these alleged transactions took place long before the date of the sale.

It was also asserted in para. 3 of the application that the applicant was assured by lawyers and agent of the decree-holder that the properties actually belonged to the judgment-debtor and that acting on this fraudulent assurance the petitioner was kept out of knowledge of the fact that the judgment-debtor had no saleable interest in the property sold and, therefore, he could not make the application earlier.

The real question in the case was a question of fact, namely, whether by reason of fraud and misrepresentation, the respondent was induced to purchase the property and that he discovered the defect in the title of the judgment-debtor only on 15-10-1944. Evidence was adduced on behalf of the applicant which consisted of Babu Bindeshwari Prasad Singh, an advocate, who is the brother-in-law of the auction-purchaser, of the tahsildar of the Banailly Raj, of the patwari of Babu Ugramohan Sao and of Babu Shree Krishna Misra, who was an advocate on behalf of the decree-holders in the execution case.

On behalf of the appellant the only witnesses examined were the civil Court peon, who merely reported as to the delivery of possession, and of Shambhu Nath, the molazim of the decree-holder.

The learned Subordinate Judge on a consideration of the evidence has come to the conclusion that the auction-purchaser was led to purchase the property by fraud and misrepresentation on the part of the agent of the decree. Holder-the property was purchased by Bindeshwari Prasad Singh in the name of Sashi Bhushan Misra.

Having perused the evidence we agree with the view of the Subordinate Judge. The evidence of Shambhu Nath - who is the only witness on behalf of the decree holder--corroborates the case sought to be made out on behalf of the auction-purchaser. (After considering his evidence, his Lordship proceeded.) The learned Subordinate Judge was impressed with the evidence of Bindeshwari Babu and having perused his evidence we are of the opinion that he should be believed. He says definitely that he made enquiries from Babu Srikrishna Misser, the leading lawyer on behalf of the decree-holder and he was told that the properties belonged to the judgment-debtor and were free from encumbrance and he was further assured that Babu Srikrishna Misser had made an enquiry regarding the title of the judgment-debtor through Shambhu Nath karpardazand Mr. Srivastava, the Law Superintendent of the decree-holder--the Law Superintendent of the decree-holder has not been examined. The applicant did not rely upon the onus of proof but actually examined Babu Sri-krishna Misser, who should have been examined on behalf of the decree-holder, and thus he was deprived of the advantage of cross-examining him. This practice of forcing a litigant to examine the adversary''s witness has been condemned by their Lordships of the Judicial Committee in many cases. But the evidence of this witness as it stands does not contradict the evidence of Babu Bindeshwari Prasad Singh. (His Lordship considered his evidence and then continued.) On these facts, I am satisfied that we should agree with the appreciation of the evidence by the learned Subordinate Judge.

It was not argued before us that the judgment debtor had saleable interest on the date of the sale, and, there fore it is unnecessary to refer to the other evidence which supports the conclusion of the learned Subordinate Judge that the judgment-debtor had no saleable interest in the land sold on 4-4-1944.

The learned Government-Advocate also took the objection, which was overruled by the learned Subordinate Judge, that the application for setting aside the sale was not maintainable in view of the provisions of Section 171, Companies Act. That section provides that:

When a winding up order has been made or a provisional liquidator has been appointed no suit or other legal proceeding shall be proceeded with or commenced against the company except by leave of the Court....

It is argued that as the leave of the Allahabad High Court was not obtained in the present case, the learned Subordinate Judge should not have entertained the application for setting aside the sale.

The true scope and ambit of this section of the Companies Act has been the subject of contradictory decisions by the various High Courts. One view is that those proceedings which are in the nature of defensive proceedings to contest or defend a litigation started by a company in liquidation before or after it has gone into liquidation are not hit by the section. In accordance with this view, which commended itself to the learned Subordinate Judge, it has been held that an application like the present one, which was made in the course of the execution proceedings started by the Company in liquidation as decree-holder, does not require the sanction of the High Court. The opposite view may be illustrated by the decision of the Allahabad High Court in Rawat Raj Kumar Singh and Others Vs. Benaras Bank Ltd. (In Liquidation) and Others, that Section 171 is as much applicable to appeals by persons who have been unsuccessful in suits brought against them by companies as to original suits brought by such persons.

I have examined a large number of cases which have clustered round this difficult question and am inclined to accept the view of the Lahore High Court that Section 171 does not apply to appeals or applications by unsuccessful parties to a litigation brought by a company.

In the Pull Bench case in Kishen Singh v. Industrial Bank of India AIR 1918 Lah. 181 it was expressly held that an application for revision arising out of an action brought by a company does not come within the purview of Section 171, Companies Act.

In Jiwan Das v. Peoples Bank of Northern India AIR 1937 Lah. 926 it was held that when once an action by a company in liquidation has been proceeded with and is successful, there is no necessity for the defendant in the action to obtain leave for any defensive proceeding on their behalf, and the filing of an appeal was not held to be proceeding with or commencing any legal proceeding against'' the Company. The same view was adopted in Simla Banking and Industrial Co., Ltd., Lahore v. Indo Swiss Trading Co. Ltd. Calcutta AIR 1938 Lah. 754.

The leading case which has always been taken as the guide is the ease in Humber v. John Griffiths Cycle Co. (1901) 85 L.T. 141. In that case Lord Davey in delivering the judgment of the Court observed:

When once an action by the company itself has been proceeded with there is no necessity for the defendants in the action to obtain leave for any defensive proceedings on their behalf.

Braund J. attempted to distinguish the observation of Lord Davey upon the ground:

In that case a company, John Griffiths Cycle Co., had in the first instance brought an action against the defendants prior to the winding up in which the company had been unsuccessful. The company then appealed to the Court of appeal and it was during the pendency of that appeal that the winding up order against the company was passed. In that appeal the company was eventually successful. Then the defendant to the suit who was the respondent to the appeal appealed to the House of Lords and it was in respect of that appeal to the House of Lords that the question arose whether the leave of the winding up Court was necessary. In other words, Lord Davey said that inasmuch as the appeal which was pending at the date of the winding up order in that case was an appeal by the company itself and as such was one which needed no leave to prosecute it, it was a proceeding which might go on to its ultimate conclusion including an appeal to the House of Lords notwithstanding Section 87, Companies Act of 1862 which was the Act then in force,

With utmost respect, I am unable to agree. If it is once conceded, as it must be, that no leave of the company Judge is required to resist or defend a proceeding or a suit instituted by the company, why should an unsuccessful defendant or respondent be forced to ask for leave when he wishes to go to the higher Courts to have the order or judgment set aside? An appeal is always treated as a continuation of the suit, and as there is no definition of the word "appeal" in the CPC or in the Companies Act, I would also hold that an application in revision to an appellate Court asking it to set aside or revise a decision of a subordinate Court is an appeal within the ordinary acceptation of the term : Sir Dinshaw Mulla in the Privy Council case in AIR 1932 165 (Privy Council) . It will be also noticed that the appeal by the defendant to the House of Lords in Humber v. John Griffiths Cycle Co. (1901) 85 L.T. 141 was filed after the winding up of the company had?been ordered during the pendency of the litigation and, therefore the defendant would have been forced to take the leave of the Court before he was allowed to appeal to the House of Lords were it not for the fact that he was merely appealing against an order which the company had successfully obtained against him from the lower appellate Court, that is to say he was merely taking a defensive action. I would respectfully dissent from the view expressed by Braund J.

The matter may be looked at from another point of view which has been well expressed by Tek Chand J. in the later Full Bench case of the Lahore High Court in Shukantla v. Peoples Bank of Northern India AIR 1941 Lah. 392 where he points out that the terms of Section 171 are clear and imperative:

They create an absolute bar against the commencement, or continuance, of a suit or other legal proceeding against the company except with the leave of the Court. Neither the word ''suit'' nor the expression ''illegal proceeding'' is, however, defined in the Companies Act, the CPC or the General Clauses Act. They have different meanings in different statutes according to the context, but there is no doubt as to their meaning in Section 171. As stated in Section 26, Civil P.C. a ''suit'' is a proceeding under the Code, which is instituted with the presentation of a plaint in a Court of original jurisdiction and it is in this sense that this word is used here. The expression ''legal proceeding'' in this section is coupled with ''suit'' and obviously means proceedings ejusdem generis, that is to say, original proceedings in a Court of first instance, analogous to a suit, initiated by means of a petition similar to a plaint. It does not include proceedings taken in the course of the suit nor proceedings arising from the suit and continued in a higher Court like an appeal from an interlocutory or final order passed in the suit. The rule of interpretation to be followed in such cases is contained in the maxim copulatio verborum indicat acceptationem in eodem sensu (the coupling of words shows that they are to be understood in the same sense.) Reference may, in this connection be made to Hood Barrs v. Cathcast (1894) 3 Ch. 376 affirmed on appeal by the House of Lords in Hood Barrs v. Heriot 1897 A.C. 177 in which a similar provision in the (English) Married Women''s Property Act, 56 and 57 Viet., Clause 63, Section 2, was so interpreted.

Applying this reasoning to the facts of the present case, I would observe that the company itself started the execution proceeding and, therefore, the judgment-debtor was entitled to raise objections to the execution of the decree and to have the sale set aside without the previous sanction of the High Court of Allahabad. Indeed this position has not been questioned before us. Now, if the judgment-debtor can make proper application without the sanction of the High Court, all persons who are entitled to have the sale set aside by a proper proceeding, e.g. under Order 21, Rule 89 or Order 21, Rule 90, or Order 21, Rule 91, Civil P.C, must also be held entitled to do so without obtaining leave of that Court. It may be suggested that the auction-purchaser was not resisting the execution of the decree, but the auction-purchaser is a representative of the judgment-debtor and is expressly authorised under Rule 91 to apply to the executing Court to have the sale set aside. This application has to be made within 80 days of the date of the sale but before its confirmation, and, this application has to be made during the continuance of the execution proceedings started by the Company. This application; can be truly called a defensive application the auction-purchaser wants to safeguard his interest by seeking the aid of the executing Court that he should not be defrauded and deprived of his money which he has deposited by offering the bid for the property; in the circumstances alleged he gets no title on the completion of the sale.

As a contrast attention may be drawn to the above noticed decision of the Lahore High Court in Shukantla v. Peoples Bank of Northern India AIR 1941 Lah. 392 where it was held that a suit under Order 21, Rule 68, Civil P.C, could not be instituted without the leave of the High Court against the company for a declaration of title of the plaintiff--the reason being that it was not a defensive proceeding, but was an independent suit brought on a proper plaint on a court-fee in a different Court. It may be open to argument that the decision of their Lordships of the Judicial Committee in the well known case in Phul Kumari v. Ghansham Misra (08) 35 I.A. 22 having held that a suit under Order 21, Rule 63 was a mere continuation or review of the proceedings under Order 21, Rule 58, Civil P.C, the institution of a suit by an unsuccessful objector may well be held to be a continuation of the defensive proceedings. But it is unnecessary to decide the correctness of the view taken by the Lahore High Court as to this special situation, I am only drawing attention to'' it to show that the Lahore High Court has pointed out that if the proceeding in question could be held to be a defensive proceeding no leave of the High Court was necessary, u/s 171, Companies Act. They held that the leave of the High Court was necessary as such a suit could not be held to be a defensive proceeding.

Finally, I desire to say that the Legislature could not have intended that before a litigation is finally disposed of any aggrieved party, who has a right to move the same Court before the proceedings are terminated there, should be made to rush up to the Company Judge to obtain his leave to make an application for reliefs available to him under the statute. The period of limitation, it will also be observed, for such an application is a short one, that is to say 30 days from the date of the sale. It can easily be contemplated that in many cases it may be difficult to obtain an order from the High Court within such a short period. In B. Maharaj Kishore Khanna Vs. Benaras Bank, Braund J. refused to grant leave to continue the appeal where the appeal had been filed within time but the application for the grant of leave was made after the time had expired. This is an illustration of the harshness of the view which commended itself to the learned Judge and also supports me in taking the opposite view that this could not have been the intention of the Legislature in framing Section 171. I am, therefore, free to construe the relevant words of Section 171 in their natural plain meaning which accords with justice and convenience of practice.

For these reasons, I am of opinion that the learned Subordinate Judge was right in overruling this objection of the decree-holder. The result is that the appeal must be dismissed. But in the circumstances I would direct that each party should bear his own costs of these proceedings both here and in the Court below.

Mukharji, J.

I agree. The application made by the auction-purchaser to have the sale set aside on the ground that the judgment-debtors had no saleable interest in the land did not require any leave of the Court such as is contemplated by Section 171, Companies Act. The miscellaneous case to which the application gave rise could not be called a suit; nor was it a legal proceeding of the nature of a suit. Further, as pointed out by my learned brother, it was a defensive proceeding. The auction-purchaser had to pay 25 per cent, of the purchase-money when the property was knocked down to him. Under Order 21, Rule 85, Civil P.C., be had to pay the balance within a certain period. His case was that he bid at the sale on. the fraudulent misrepresentation, made to him on behalf of the decree-holder and he wanted back the money which he had paid in Court under Order 21, Rule 84 and Order 21, Rule 85, Civil P.C.

In the circumstances of the case no leave of the Court appears necessary u/s 171, Companies Act. The appeal is fit to be dismissed.