1998 (12) TMI 453 - HC - Companies Law

Court dismisses application to continue Civil Suit No. 4780, deems agreements void, suit against company in liquidation not maintainable.

YS. Spinners Ltd. Versus Official Liquidator of Shri Ambica Mills Ltd.

The court dismissed the application for leave to continue Civil Suit No. 4780 of 1995 against Shri Ambica Mills Ltd., finding the agreements void and the ... Winding up - Suits stayed on winding up orders, Meetings - Explanatory statement to be annexed to notice Issues Involved:1. Application for leave under Section 446 of the Companies Act, 1956.2. Validity of the agreements between the applicant and Shri Ambica Mills Ltd.3. Alleged non-disclosure of material facts to shareholders.4. Impact of Supreme Court injunction and undertaking on the agreements.5. Maintainability of a suit for damages and compensation against a company in liquidation.6. Rescission of the agreement by the applicant.7. Claims against other defendants in the suit.Issue-wise Detailed Analysis:1. Application for leave under Section 446 of the Companies Act, 1956:The applicant sought leave to continue Civil Suit No. 4780 of 1995 against Shri Ambica Mills Ltd., now in liquidation, or alternatively, to transfer the suit to the High Court. The court examined whether the leave should be granted, considering the interests of the company and avoiding unnecessary litigation. The court noted that Section 446 aims to protect the company from wasteful litigation and that leave should be granted only when the issues cannot be resolved in the winding-up proceedings.2. Validity of the agreements between the applicant and Shri Ambica Mills Ltd.:The agreements dated 2-11-1989, 6-12-1989, and 9-12-1989, were challenged on the grounds of being void ab initio due to violations of the Supreme Court's injunction and the undertaking given by the company. The court held that the agreements were entered into in violation of the Supreme Court's order and the provisions of the Companies Act, making them void. The agreements were also found to be in violation of Section 536(2) of the Companies Act, as they were made after the commencement of winding-up proceedings without the court's validation.3. Alleged non-disclosure of material facts to shareholders:The court found that the explanatory statement under Section 173(2) of the Companies Act did not disclose the Supreme Court's injunction and the undertaking, which were material facts. This non-disclosure rendered the resolution passed in the extraordinary general meeting invalid, and consequently, the agreements based on such resolution were void.4. Impact of Supreme Court injunction and undertaking on the agreements:The court emphasized that the agreements violated the Supreme Court's injunction and the undertaking given by the company, which prohibited the alienation of immovable assets without the court's leave. The agreements created an encumbrance on the property, violating the Supreme Court's order and making the agreements void under Section 23 of the Indian Contract Act.5. Maintainability of a suit for damages and compensation against a company in liquidation:The court held that a suit for damages and compensation for breach of contract against a company in liquidation cannot be maintained as it would create new rights or complete incomplete rights, which is not permissible under the winding-up scheme. The court cited precedents to support that a claim for damages is not a claim for an ascertained amount and cannot be pursued after the winding-up order.6. Rescission of the agreement by the applicant:The applicant's rescission of the agreements on 24-1-1995 was found to be ineffective as the agreements were void ab initio. The court also noted that the applicant continued to act under the agreements even after becoming aware of the Supreme Court's injunction, thereby affirming the agreements. The applicant's attempt to rescind the agreements was not timely and did not comply with the requirements of Section 65 of the Indian Contract Act.7. Claims against other defendants in the suit:The court allowed the applicant to proceed with the suit against other defendants (ICICI, Ahmedabad Electricity Co. Ltd., and State of Gujarat) as long as no relief was sought against the company in liquidation. The court suggested that the applicant could lodge claims for its properties allegedly left at the company's premises with the official liquidator.Conclusion:The court dismissed the application for leave to continue Civil Suit No. 4780 of 1995 against Shri Ambica Mills Ltd. or to transfer the suit to the High Court. The agreements were found to be void, and the suit for damages and compensation could not be maintained against the company in liquidation. The court allowed the applicant to proceed with claims against other defendants and to lodge claims for its properties with the official liquidator.