Leave to sue a company in liquidation and transfer to company court may be granted on protective terms

On winding-up, a pending suit against a company cannot proceed without leave of court, and leave may be granted on protective terms to safeguard the liquidation estate, creditors and workmen. The court may restrain attachment before judgment and require any decree-holder to prove only as an unsecured creditor before the official liquidator. A pending proceeding may also be transferred to the company court where that course better serves expeditious and economical liquidation, especially when records are with the official liquidator, the claim is disputed, and evidence can be more efficiently dealt with by the winding-up court.

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Issues: (i) Whether leave should be granted to continue the pending suit against the company in liquidation, and on what terms; (ii) Whether the pending suit ought to be transferred to the company court for trial and disposal.

Issue (i): Whether leave should be granted to continue the pending suit against the company in liquidation, and on what terms.

Analysis: On the making of a winding-up order, no pending suit against the company can proceed except by leave of the court. The power to grant leave is discretionary and must be exercised judicially, having regard to the interests of the company in liquidation, its creditors and workmen, and the need to avoid unnecessary litigation and expense. The court may grant leave unconditionally or impose conditions to safeguard the liquidation process. The claim before the official liquidator did not by itself bar leave to continue the suit.

Conclusion: Leave to continue the suit was granted, subject to conditions preventing attachment before judgment and requiring any decree-holder to prove before the official liquidator only as an unsecured creditor.

Issue (ii): Whether the pending suit ought to be transferred to the company court for trial and disposal.

Analysis: The winding-up court has jurisdiction under section 446(3) to transfer a pending proceeding from another court. That power is discretionary and must be exercised in the interests of expeditious liquidation, convenience of parties, availability of records, and economy of costs. The court found that the records were with the official liquidator, the amount claimed was substantial and disputed, evidence would be better dealt with by the winding-up court, and transfer would facilitate efficient administration of the liquidation estate.

Conclusion: The transfer application was allowed and the suit was directed to be transferred to the company court for disposal.

Final Conclusion: The suit was permitted to proceed only on protective terms, and the pending proceedings were brought before the winding-up court for disposal in aid of the liquidation.

Ratio Decidendi: In liquidation proceedings, leave to continue a pending suit and transfer of that suit to the winding-up court are discretionary powers to be exercised judicially to protect the liquidation estate and secure expeditious, economical adjudication.

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