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Issues: (i) Whether secured creditors were entitled to leave under section 446(1) of the Companies Act, 1956 to continue pending suits and to proceed against the hypothecated assets of the company in winding up; (ii) Whether section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 barred the suits or the appointment and continuation of the receiver; (iii) Whether the suits ought to be transferred from the Bombay High Court to the company court in Andhra Pradesh or otherwise refused leave on the grounds raised by the respondents.
Issue (i): Whether secured creditors were entitled to leave under section 446(1) of the Companies Act, 1956 to continue pending suits and to proceed against the hypothecated assets of the company in winding up.
Analysis: A secured creditor may stand outside the winding up proceedings and realise security by sale of the mortgaged or hypothecated property. If court intervention is required, leave of the company court may be sought. The fact that the company court can also adjudicate claims under section 446(2)(b) does not deprive the secured creditor of the election to continue an already pending suit. The applicants were secured creditors seeking continuation of pre-existing mortgage suits, not initiation of fresh proceedings.
Conclusion: Leave to continue the suits was rightly granted, and the objection to continuation of proceedings failed.
Issue (ii): Whether section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 barred the suits or the appointment and continuation of the receiver.
Analysis: Section 22 suspends only execution and coercive process in execution of decrees and does not bar the filing or continuation of suits. The receiver had been appointed before the BIFR reference, and the company had already been declared sick and later directed to be wound up, so the plea of an operating statutory bar was unavailable.
Conclusion: The bar under section 22 did not apply, and the challenge on this ground was rejected.
Issue (iii): Whether the suits ought to be transferred from the Bombay High Court to the company court in Andhra Pradesh or otherwise refused leave on the grounds raised by the respondents.
Analysis: The suits had been filed years earlier in a court having territorial jurisdiction. The respondents' objections regarding merits, limitation, discharge of guarantors, and lack of territorial jurisdiction were matters to be urged in the suits themselves. Transfer was not justified at a late stage after substantial progress and expense in the Bombay proceedings, and the request to refuse leave for sale raised a matter to be addressed before the Bombay High Court.
Conclusion: The request for transfer and the ancillary objections were rejected.
Final Conclusion: The secured creditors were permitted to continue the pending mortgage suits and the receiver was allowed to proceed under further directions, subject to safeguarding the workmen's dues and intimation to the official liquidator.
Ratio Decidendi: A secured creditor may elect to stand outside winding up and continue an already instituted suit with the company court's leave, and section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 does not bar the filing or continuation of suits, being confined to execution and coercive processes in execution.
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