1992 (3) TMI 278 - HC - Companies Law

Cotton Corp. of India granted leave to continue suit in Madras High Court for efficient winding-up

The court granted leave to Cotton Corporation of India Ltd. to continue the pending suit in Bombay, subject to specific conditions, and ordered the ... Winding up - Suits stayed on winding-up order Issues Involved:1. Grant of leave to continue a pending suit under Section 446 of the Companies Act, 1956.2. Transfer of the pending suit from the Bombay High Court to the Madras High Court.Detailed Analysis:Issue 1: Grant of Leave to Continue a Pending SuitBackground:Company Application No. 720 of 1990 was filed by Cotton Corporation of India Ltd. under Section 446 of the Companies Act, 1956, seeking leave to continue prosecuting Suit No. 1291 of 1980 pending before the Bombay High Court. The suit was for the recovery of Rs. 27,36,851.14 with interest from Radhakrishna Mills Ltd. (in liquidation) due to an alleged breach of contract.Legal Framework:Section 446 of the Companies Act, 1956, stipulates that no suit or legal proceeding can continue against a company in liquidation without the leave of the court. The objective is to protect the company's assets and ensure equitable distribution among creditors, avoiding unnecessary litigation and costs.Court's Analysis:The court examined the facts and circumstances, emphasizing that leave is not granted automatically but is subject to judicial discretion. The court considered the principles laid down in previous judgments, including the Supreme Court's decision in Bansidhar Shankarlal v. Mohd. Ibrahim, which allows for granting leave retrospectively.Decision:The court granted leave to Cotton Corporation of India Ltd. to continue the suit subject to the following conditions:1. The applicant cannot proceed against the assets and effects of the company in liquidation by way of attachment before judgment.2. In the event of obtaining a decree, the applicant must prefer the claim before the official liquidator as an unsecured creditor.Issue 2: Transfer of the Pending Suit to the Madras High CourtBackground:Company Application No. 2311 of 1991 was filed by the official liquidator under Section 446(3) of the Companies Act, 1956, to transfer Suit No. 1291 of 1980 from the Bombay High Court to the Madras High Court for disposal.Legal Framework:Section 446(3) gives the winding-up court the jurisdiction to transfer any suit pending in another court to itself for disposal. The discretion to transfer must be exercised judiciously and in the interest of all parties concerned.Court's Analysis:The court noted that the official liquidator had custody of the company's records and that it would be more convenient and cost-effective to handle the suit in the winding-up court. The court also considered the balance of convenience, emphasizing the need for expeditious disposal of the suit to facilitate the winding-up process.Opposition by Cotton Corporation of India Ltd.:The respondent argued that the suit was ripe for trial in Bombay, and transferring it would incur significant expenses. They also contended that the official liquidator's apprehensions were baseless as they were already represented by a pleader in Bombay.Decision:The court found the official liquidator's reasons compelling and ordered the transfer of Suit No. 1291 of 1980 to the Madras High Court. The court directed that the proceedings pending before the Bombay High Court be transferred to its file for disposal, emphasizing the need for convenience and cost-effectiveness in the liquidation process.Conclusion:The court granted leave to Cotton Corporation of India Ltd. to continue the pending suit in Bombay, subject to specific conditions, and ordered the transfer of the suit to the Madras High Court to facilitate the winding-up process efficiently and economically.