Permission granted to pursue arbitration suit against company under Companies Act

The court granted permission to the applicant to pursue the arbitration suit against the respondent company under section 446(1) of the Companies Act, 1956. The judgment emphasized the flexibility in granting leave post-institution of proceedings, following the precedent set by the Supreme Court. It also highlighted the importance of considering the nature of the dispute and involvement of external parties when determining whether to allow a suit to proceed under section 446(1).

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Issues:
Permission under section 446(1) of the Companies Act, 1956 to proceed with Arbitration Suit No. 17 of 1989 against the respondent company.

Analysis:
The judgment pertains to a case where the applicant sought permission under section 446(1) of the Companies Act, 1956, to proceed with Arbitration Suit No. 17 of 1989 against the respondent company. The applicant claimed to be a secured creditor with priority of claim under section 48 of the Gujarat Co-operative Societies Act, 1961, due to hypothecation agreements for goods and machinery, with a significant sum outstanding. The winding-up order of the respondent company was issued in 1985, and the suit was filed in 1989. The applicant relied on the Supreme Court decision in Bansidhar Shankarlal v. Mohd. Ibrahim to argue that leave of the court was not a precondition for commencing the suit and could be granted subsequently. The Supreme Court's ruling in Bansidhar Shankarlal v. Mohd. Ibrahim clarified that while a suit or proceeding initiated without leave may be considered ineffective until leave is obtained, once granted, the proceeding is deemed to have been instituted from the date of leave.

The official liquidator opposed the grant of permission under section 446(1), expressing concerns about potential floodgates of suits in various courts. Reference was made to the Gujarat High Court decision in Star Engineering Works Ltd. v. Official Liquidator, which highlighted that the decision to grant leave should be based on the merits of each case. However, the principle that leave should generally be granted when the claim is beyond the scope of investigation by the company court or judge handling company matters was acknowledged. In this case, the court granted leave to the applicant to proceed with Arbitration Suit No. 17 of 1989 against the respondent company, emphasizing that leave could only be given for a suit against the company and not other parties. Given the complexity of the dispute involving external parties, it was deemed appropriate to resolve the dispute against the company within the existing litigation. The applicant was directed to bear the counsel fees of the official liquidator amounting to Rs. 1,000.

In conclusion, the court granted permission to the applicant to pursue the arbitration suit against the respondent company under section 446(1) of the Companies Act, 1956. The judgment underscored the flexibility in granting leave post-institution of proceedings, following the precedent set by the Supreme Court. The decision also highlighted the importance of considering the nature of the dispute and involvement of external parties when determining whether to allow a suit to proceed under section 446(1).

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