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Judgment
Raghava Rao, J.—The interesting question of law debated before me in this second appeal is whether when a company in winding up
attaches certain property in execution of a decree in its favour as that of its judgment-debtor, any claim petition by a third patty is to be regarded as
other legal proceeding"" within the meaning of Section 171, Companies Act, which shall not be proceeded with or commenced against the
company except by leave of the Court.
The appellant before me is the plaintiff in the original suit who sued to set aside an order on a claim petition filed by defendant 1 on the basis of
an assignment in his favour by defendant 2 regarding the rents of certain properties which had been attached by the plaintiff. The claim succeeded
in the execution Court, and the case of the plaintiff is that the assignment was a sham transaction unsupported by consideration which was entered
into by defendant 2 with a view to defeating the claim of the plaintiff in execution of its decree against defendant 2 in O. S. No. 195 of 1936 on the
file of the District Munsif''s Court at Palghat. Both the Courts below have found against the case of the plaintiff in the attack made against the
transaction on its merits, and the only question which arises fair consideration is whether the claim proceeding started by defendant 1 and the order
made on it by the execution Court should be regarded as null and void on account of want of the Court in the winding up u/s 171, Companies Act.
On this latter question too, the Courts below have concurrently held against the plaintiff.
The argument for the appellant is that the claim proceeding constitutes an independent legal proceeding which cannot be proceeded with or
commenced against the company except by leave of the Court, while the contention for the respondents is ,that it is in the nature of a defensive
proceeding in answer to the execution petition of the plaintiff, for which no leave is necessary under the Act. The learned counsel for the appellant
says that as ruled by Kuppuswami Ayyar J., in the The Calicut Bank Limited Vs. Nekkat alias Eppurath Manakkal Parameswaran Nambudiri''s
son Narayanan Nambudiri, , the word ""proceeding"" in the section of the Act applies to execution proceedings also and is not confined to original
proceedings, and that the claim petition is itself a proceeding in execution which falls within the mischief of the section, But as the lower Court
rightly puts the matter.
In the present case no execution proceedings were started by defendant 1 against the Wariar Bank (in liquidation). On the other hand, the Official
Liquidators as representing the Wariar Bank (in liquidation) applied in I. A. No. 225 of 1943 for attachment of the mesne profits or of the rent
payable by defendant 8 to defendant 2 and the claim petition was filed by defendant 1 as E. A. No. 506 of 1943 only in the attachment
proceedings started by the liquidators.
The decision in the The Calicut Bank Limited Vs. Nekkat alias Eppurath Manakkal Parameswaran Nambudiri''s son Narayanan Nambudiri, , does
not therefore apply to the present case where defendant 1 only put forward a claim as a defence to the execution proceedings already started by
the Official Liquidators.
It is observed in Palmer''s Company Law, Edn. 19 by A. F. Topham K. C. at p. 404 :
'''' The object of the winding up provisions of the Companies Act,'' 1862 said Lindley L. J. in Be Oak Pitts Colliery Co. (1882) 21 Oh. D. 322 ''is
to put all unsecured creditors upon an equality and to nay them pari passu.'' To accomplish this, it was indispensab le that proceedings against the
company by way of action, execution, distress or other process should be suspended, otherwise the winding up would resolve itself into a
(scramble for the assets. Accordingly the Act of 1862 gave the Court jurisdiction in various cases to restrain proceedings. Section 24 (5) of the
Judicature Act, 1873, modified these provisions to some extent by providing that no proceeding in the High Court can be restrained by injunction
but this did not alter in substance the jurisdiction. Now by Section 226 of the Act of 1948, the Court can, after presentation of the petition, restrain
proceedings, and by Sections 227 and 231, on a winding up order being made, or a provisional liquidator appointed, proceedings are
automatically stayed and cannot be proceeded with without leave of the Court. In this way creditors and others are compelled to come in and
prove their claims in the winding up and a rateable and just distribution of the company''s assets is effected.
Judged from the stand point of the object and purpose of the statutory provision, it is clear to my mind that the proceeding by way of a claim
petition with which defendant 1 intervened in the course of the execution proceeding of the plaintiff does not fall within the purview of the section of
the Act.
It may be that where the language of the statute is sufficiently wide to cover a case not within its professed or implied purpose and object the
language must still be given effect to. But as pointed out in Rustomji''s Company Law, Edn. 2 at p. 396 ;
When once an action by the company itself has been proceeded with, there is no necessity for the defendant in the action to obtain leave for any
defensive proceeding on his behalf. Where a company in liquidation is plaintiff, the defendant may put in a counter claim (against the company) in
the nature of a defence without obtaining the leave of the Court.
Reference is made by the learned author in this connection to a case in Humber & Co. v. John Griffiths Cycle & Co., (1902) 85 L. T. 141 and to
a case in Mersey Steel & Iron Co. v. Naylor, (1882) 9 Q. B. D. 648 : 51 L. J. Q. B. 576. In the formal ease it was ruled by the House of Lords
that
Where a company is being wound up under the direction of the Court, an appeal to the House of Lords in which the company is respondent,
brought in an action in which the company was originally plaintiff, is not ''a proceeding against the company'' within Section 87, Companies Act,
1862.
In the latter case Jessell M. E. observes in the course of the argument at p. 656--and that appears as part and parcel of the headnote that a
counter claim is in the nature of a defence which if raised in answer to an action by a Company for debt can be entertained without the leave of the
Court. That case has been affirmed in the House of Lords In Mersey Steel & Iron Co. v. Naylor Bonzon & Co., (1884) 9 A. C. 434 : 53 L. J, Q.
b. 497. An attachment proceeding like the one with which we are concerned in the present case started in the course of execution proceedings
taken by the plaintiff, it is said, is not strictly in the nature of a defensive proceeding by a party to the execution petition but is in the nature of an
independent proceeding by a stranger to the execution petition in vindication of his right to the property attached. True; but I am inclined to think
on a careful consideration, of the argument that the principle of the decisions above cited does apply to the present case of a claim petition which in
substance is only incidental to the main proceeding in execution started by the plaintiff Bank itself.
It is urged for the appellant that had the claim petition failed and not succeeded and had a suit been filed by the present respondents that would
obviously have been hit at by the requirement of leave of Court in the winding up, and that there is no reason why merely because the claimants
succeeded, that should make any difference. The argument is, strictly speaking, beside the point, because what we have to consider is not so much
the case of the suit under Order, 21, Rule 63, Civil P. C., as the nature of the claim proceeding itself.
As put in the case in Mt. Zamrut v. Peoples Bank) Northern India, A. i. R. 1936 Pesh. 185 : 164 I. C. 1012 which has been relied upon by the
lower appellate Court in the present case, where it is the decree-holder who has set the law in motion, the position of a claimant who intervenes in
execution is analogous to that of a defendant in a suit. I agree with Middleton J. in that case when he observes:
It appears to me to be most inequitable that a company In liquidation should institute execution proceedings and rely upon Section 171,
Companies Act, to debar persons from defending their property in those execution proceedings.
I am satisfied that the point taken for the appellant in this ease has no merits and must fail.
The second appeal is accordingly dismissed with coats. (No leave).