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Judgment
This company appeal under Section 483 of the Companies Act, 1956 has been filed against the order dated 5.9.2017 passed in Company Petition
No.25 of 2001 by which application (I.A. No.7044/2016) under Section 446 of the Companies Act, 1956 seeking permission of leave to file a suit
against the Company in liquidation has been rejected by the learned Company Judge on the ground that the objections raised by the State from time to
time have been rejected and those orders have attained finality and the auction sale in favour of auction purchaser has also been confirmed and
possession has been delivered to the auction purchaser.
It is a case of the appellants/State that land of 74.664 hectare bearing various Survey numbers of village Moja Dhundharka, Moja Bani Khedi and
Moja Daloda, was allotted to the company in liquidation M/s. Jiwaji Rao Sugar Mill in 1945 for establishment of Sugar Mill. The land in question was
acquired by the then State of Gwalior by paying compensation to the land owners. The allotment was made under the provisions of Kanoon Matiavk
Husul Araji, Samvat 1974. By the aforesaid allotment, the lease hold rights was given to the said company and after enforcement of M.P. Land
Revenue Code, 1959 all the lease, which were granted by the then State of Gwalior will be governed by the provisions of M.P. Land Revenue Code,
1959 (in short, “the Codeâ€) and as per the aforesaid Code, the land in question stood vested with the State Government. When the respondent
No.1 company was unable to pay salaries of its workers, the State Government to protect the interest of workers granted guarantee towards the loan
granted to the Company. Since the respondent No.1 Sugar Company did not pay the loan amount and, therefore, the Central Bank of India filed three
cases for the recovery of the said amount before the Civil Court, which was later on transferred to the Debt Recovery Tribunal and all the three suits
were decreed by the Debt Recovery Tribunal on 5.4.2002.
In the meanwhile, the respondent No.1 â€" company came in the liquidation and in pursuance of which the Company Petition No.25/2001 was
registered. In the meantime, in pursuance to recovery certificate, the recovery proceedings with the help of recovery Officer of DRT were initiated.
The objection of the State in respect of auction of the land in question has been rejected. On 10.2.2010 a sale certificate in favour of respondent No.2
was issued. Thereafter, again objection was submitted. The respondent No.2 has also filed an application for setting aside the objection and his prayer
was allowed by the learned Company Judge on 16.1.2013 by rejecting the objection of the State and the sale was confirmed in favour of respondent
No.2 - Auction Purchaser.
Thereafter, the appellants have filed Civil Suit for declaration in respect of land in question on 17.12.2012 before the District Judge, Mandsaur.
After receipt of notices, the respondent No.2 filed an application under Order VII Rule 11 (d) of C.P.C. for rejection of the plaint, which was allowed
on 18.6.2016 and the learned Trial Court has ordered to obtain permission of Company Court to prosecute the said Civil Suit under Section 446 of the
Companies Act, 1956.
The State filed an application under Section 446 of the Companies Act, 1956 (vide I.A. No.7044 of 2016) before the learned Company Judge on the
ground that the Company in liquidation had no power to mortgage the land of the State, no mortgage deed on the basis of which the Bank initiated the
recovery proceedings and auctioned the lease hold rights of land in question in favour of respondent No.2 was never produced either before the
D.R.T. or before the learned Company Judge and without verification of property, the land was auctioned.
The stand of the respondent No.2â€"auction purchaser that the suit land was mortgaged with the Central Bank in the year 1978 by the company in
liquidation about the loan taken in 1952. In a suit preferred by Central Bank of India for recovery was decreed on 5.4.2002. The State was party to
the recovery proceedings in the said suit before the DRT and it was a Guarantor and contested the recovery suit. On merit the appeal filed by the
State against the judgment and decree dated 5.4.2002 has been dismissed and the said decree has attained finality. The State also did not challenge the
DRT order dated 10.2.2010 whereby auction sale was confirmed by rejecting the objection of the State Government. After confirmation of sale, the
possession of the land in question was given to the auction purchaser by order dated 4.12.2013. The State also did not challenge orders dated 4.9.2006,
16.3.2009 and 16.1.2013 passed by the learned Company Judge. The State never claims ownership of the land in question in recovery proceedings.
According to the auction purchaser, the State was a Guarantor for Jiwajirao Sugar Mills, the principal borrower from Central Bank of India. The
liability of the guarantor is co-extensive and the property of the guarantor can be sold without even not recovering from the borrower in first instance.
The certificate has the effect of res judicata about the title of the borrower. After passing of order dated 5.4.2002, the second suit filed by the State
was not maintainable. The learned Company Judge rightly relying on the decision of the Apex Court in the case of Erach Boman Khavar Versus
Tukaram Shridhar Bhat and another reported in (2013) 15 SCC 655 rejected the application for grant of leave. The present appeal filed against the
aforesaid order is not maintainable.
Learned Senior Counsel for the respondent No.2 â€"auction purchaser has drawn our attention to the decisions of Apex Court in the case of Vek
Kumar Vs. M/s. Pearl Cycle Industries reported in 1982 Tax L.R. 2405; Indian Bank Vs. The Official Liquidator reported in JT 1998(4) SC 172;
United Bank of India Vs. The DRT and others reported in JT 1999 (2) SC 574; Allahabad Bank Vs. Canara Bank and another reported in (2000) 4
SCC 406; Erach Boman Khavar Vs. Tukaram Shridhar Bhat and another reported in (2013) 15 SCC 655; Official Liquidator UP and Uttarakhan Vs.
Allahabad Bank and others reported in AIR 2013 SC 1823; Bank of Maharashtra Vs. Pandurang Keshav Gorwardkar and others reported in (2013) 7
SCC 754; Anita International Vs. Tungabadra Sugar Works Mazdoor Sangh and others reported in (2016) 9 SCC 44; M. Nagabhushana Vs. State of
Karnataka and others reported in AIR 2011 SC 1113; Bhanu Construction Company Pvt. Ltd.Vs. Andhara Bank, Hyderabad and others reported in
(2001) 1 SCC 347; Sadashiv Prasad Singh Vs. Harendra Singh and others reported in AIR 2014 SC 1078; United Bank of India Vs. Satyawati
Tondon and others reported in AIR 2010 SC 3413 and Gwalior Sugar Co. Ltd. and another Vs. Anil Gupta and others reported in JT 2012 (110 SC
115 and submitted that the respondent No.2 Company in liquidation was a private Limited Company and the owner of a Sugar Mill located at
Districtâ€"Mandsaur in the State of Madhya Pradesh. After grant, the land was recorded in the name of company in liquidation as a pucca tenant and
after coming into force of M.P. Land Revenue Code in the year 1959 the company was recorded as a Bhumiswami in respect of the aforesaid land.
The status of the company in liquidation as Bhumiswami had not been disputed by the State. Since 1946, the company in liquidation was paying
revenue under Section 129 (6) of Revenue Manual to the then Mal Gujar. Learned Senior Counsel for the respondent No.2â€"auction purchaser has
further drawn our attention to order dated 10.2.2010 of the DRT and submitted that all the objections of the State was dismissed. Section 18 of the
Recovery of Debts (Due to Banks and Financial Institutions) Act, 1993 bars the jurisdiction of the Civil Court. The appellants/State does not have any
right to file a suit and prayed for dismissal of the appeal.
We have heard the arguments of learned Counsel for the parties at length and perused the record.
Section 446 of the Companies Act provides that, when a winding up order is made or the official liquidator is appointed as provisional liquidator, no
suit or legal proceedings should be commenced or if pending on the date of the winding-up order, shall be proceeded with, against the company,
Except with the leave of the court and subject to such terms as may be imposed. Sub-section (2) further lays down that the court which is winding-up
the company shall, notwithstanding anything contained in any other law in force, have jurisdiction to entertain or dispose of, inter alia, any suit or
proceeding by or against the company, whether such suit or proceeding has been instituted or is instituted. A careful examination of these provisions of
law makes it clear that once a winding-up order is made or the official liquidator is appointed as provisional liquidator, no proceedings can continue or
be instituted against the company without the permission of the court. It is further clear that jurisdiction to entertain or dispose of any suit or
proceeding by or against the company is vested in the company court without any kind of restriction. The only restriction that exists under the scheme
of section 446 is that the court should be satisfied that there is a case to grant leave to institute or to continue a suit by or against the company. There
is nothing in the said provision of law restricting the jurisdiction of the company court to suits by or against the company alone. The expression ""any
suit or proceeding by or against the company"" is wide enough to bring within its sweep any kind of suits.
Shri Romesh Dave, learned Government Advocate has contended, in support of the application, that the suit was filed against the official liquidator,
auction purchaser and others to decide the question of title of the land in question, therefore, leave to file the suit should be granted by the learned
Company Judge in exercise of its power under Section 446 of the Companies Act, 1956. He has further drawn our attention to order dated 2.5.2012
passed by the learned Company Judge in the same company petition i.e. Company Petition No.25 of 2001 by which leave was granted on the ground
that applicants therein have to establish their right, title and interest on the land in question by adducing the evidence. Order dated 5.2.2012 reads as
under:-
“I.A. Nos.6198/10, 6199/10 and 6200/10 have been filed by the applicants/interveners for permission to intervene in the Company Petition and for
passing the appropriate orders.
These I.A.s have been filed by the applicantinterveners claiming title on the land which has been sold in the auction proceedings.
The applicants have raised the plea that the 366.15 Bigha land was given on lease by the State of Gwalior to M/s Jivaji Rao Sugar Mills. On objection
by the farmers compensation was paid for part of land but no compensation was paid for 148 Bigha and it was ordered to give this land to Jivaji Sugar
Mill as “Gair Maurusi Haq†without payment of compensation under Section 35 of “Kanoon Mutallik Husool Araaji†Sanwat 1974. In
pursuant to which applicants had granted lease of their land to Mill. It is the case of the applicants that on the closure of the mill, the lessor would be
entitled to get back the possession of their land. The Recovery Officer of D.R.T. has sold the assets of the company which includes the land of the
applicants also, and the applicants came to know about it when the purchaser had moved an application for mutation. In this background, a prayer for
intervention has been made with a further prayer to set aside the sale made in respect of the land of the applicants.
The application is opposed by the auction purchaser raising the plea that the objection raised by the State Government as well as 136 other persons
claiming ownership over the sold property have already been rejected and that the I.A.s are misconceived.
The secured creditor-Central Bank of India, Mandsaur has also opposed the I.A. stating that the land was sold pursuance to the order of the recovery
officer, D.R.T. associating the O.L. with the sale proceedings. The remedy for making application to set aside the sale of the immovable property is
provided under Rule 16 referable to second schedule of the Income Tax Act, 1961 which is available subject to deposit of the entire amount, and
under the Company Court Rules no machinery is prescribed for setting aside the concluded sale. Referring to the various provisions of the Tenancy
Acts, a plea has been raised that the company in liquidation was a Bhumiswami.
Considering the rival contentions raised by the parties, it is found that a factual enquiry is required to be conducted and the oral and documentary
evidence by the concerned party is required to be led and appreciated for deciding the claim raised by the applicants in these I.A.s. The applicants
have to establish their right, title and interest on the land in question by adducing the evidence.
The auction purchaser and the secured creditor in this background have raised an objection that the proper remedy for the said purpose is to file a civil
suit. Counsel for the applicant has not disputed that the remedy of civil suit is available.
Keeping in view the aforesaid aspect of the matter, the I.A. Nos.6198/10, 6199/10 and 6200/10 are rejected with liberty to the applicant to approach
the Civil Court or avail such other appropriate remedy as is available in accordance with law.â€
It is also observed by the learned Company Judge along with an application for grant of leave, no documents have been annexed to show any
prima facie title of the State on the land of the Company in liquidation.
The Apex Court in the case of Erach Boman Khavar Vs. Tukaram Shridhar Bhat and another (supra) while considering the scope of Section 446
of the Companies Act has held as under:-
“22. We have referred to the aforesaid decisions solely for the two purposes. First, grant of leave of the court is not a condition precedent for
initiation of a civil action or the legal proceedings. It is because the Section does not expressly provide for annulment of a proceeding that is
undertaken without the leave of the court. There can be no shadow of doubt that leave of the winding up court can be obtained even after initiation of
the proceeding. The second, the seminal object behind engrafting of the said provision is to see that the interest of the company is safeguarded so that
it does not face deprivation of its right and claims are adjudicated without the knowledge of the company court and further the court has a discretion to
see whether leave should be granted and, if so, with what conditions or no condition. That apart, the court may grant leave if it felt that the company
should not enter into unnecessary litigation and incur avoidable expenditure.â€
The learned Company Judge rejected the application while making the following observations:-
“Though, the auction purchaser has paid the full consideration amount and sale has been confirmed in his favour, but on account of the objection by
the State, mutation of land has not been done and auction purchaser has not been able to use the purchased land. The other connected I.As reveal that
Central Government has sanctioned Food Park on the land in question, but for want of mutation of land, the auction purchaser is not able to go ahead
with the project.
Hence, granting of permission at this stage would amount to wiping of the aforesaid order of the tribunal and this Court by which not only the objection
raised by the State from time to time have been rejected and those order have attained finality, but the auction sale has also been confirmed and
possession has been delivered to the auction purchaser.
Having regard to the aforesaid, the prayer in IA No.7044/2016 for granting leave to file the suit cannot be granted to the State at this stage.
I.A. No.7044/2016 is accordingly rejected.â€
From the aforesaid narration of facts, it is not in dispute that the question of right, title and interest on the land in question of the State has not been
finally decided in any of the proceedings either before the DRT or before the learned Company Judge. As per DRT proceedings and order dated
5.4.2002, the State was made a party to the proceedings on the ground that land in question was mortgaged with the Bank. No copy of mortgage deed
was filed nor any document was produced either before the DRT or before the learned Company Judge to prove that the land was mortgaged by the
State with the Bank or that the Company in liquidation was declared Bhumiswami of the land. The question whether the lease hold rights was given to
the company and or by operation of Section 182 of the Code the Company in liquidation cannot be deemed to be Bhumiswami of the land in question
or the State lessors would be entitled to get back the possession of their land is required to be decided on merits by adducing oral and documentary
evidence by the concerned parties, who are claiming their rights over the land in question. The appellants/State have to establish right, title and interest
on the land in question by adducing evidence.
In dealing with application under Section 446, the Court has necessarily to consider the interest of the company and to see that its assets are not
wasted in frivolous and unnecessary litigation. The appellants only want leave to file a suit as they are claiming right, title and interest over the land in
question and the same was never adjudicated before the learned Company Judge in winding up proceedings. Leave to file a suit should ordinarily be
granted, where the question at issue is one which cannot be gone into and decided in the winding up proceedings.
The leave of the Court cannot be obtained merely for the asking. It is not to be granted automatically or as a matter of course. The Court has not
to examine the facts of each case separately and exercise its discretion. Such discretion must be exercised reasonably and not arbitrarily or
capriciously.
Bearing these principles in mind, if we examinethe facts here, we find that this is a fit case where leave to proceed with the legal proceedings
should be granted. The object of the section is to prevent a litigation against the company which is being would up, except with the consent of the
Court, of proceedings in which the company is either the defendant or the respondent or proceedings against the company. The leave will ordinarily be
granted because we must have due regard to the rights of the State so also the fact that in the same matter an application by the applicants -
interveners claiming title on the land which has been sold in the auction proceedings have been allowed by granting liberty to approach the Civil Court
or avail such other remedy as is available in accordance with law.
An order or decision on an application under Section 446 is, therefore, clearly an order or decision in the matter of winding up. It is not a mere
procedural order, for it affects the valuable right to obtain relief by filing a suit. The order passed in an application under Section 446, is an order finally
decides a dispute between the parties or deprives the appellants/State of a substantial and important right and is not a mere formal or interlocutory
order. An appeal, therefore, lies against such an order or decision under section 446 of the Act.
For the above mentioned reasons, we set aside the impugned order passed by the learned Company Judge by which application of the
appellants/State for grant of leave (I.A. No.7044 of 2016) is rejected. The Company appeal filed by the appellants is allowed.
The result, therefore, is that the application (I.A.No.7044/2016) for grant of leave is allowed and, accordingly, leave is granted to the appellants, to
file the proposed suit before the Court. There will be no order as to costs, in the circumstances of the case.