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Issues: (i) Whether leave under section 446 of the Companies Act, 1956 could be granted to continue a civil suit for declarations, recovery of amounts and damages against a company in liquidation where the impugned agreements were entered into after commencement of winding up and in breach of a restraint order of the Supreme Court. (ii) Whether the applicant could validly rescind the agreements and maintain a suit for compensation and damages when the transaction was found to be unlawful, unsupported by proper shareholder disclosure and incapable of creating enforceable rights after winding up.
Issue (i): Whether leave under section 446 of the Companies Act, 1956 could be granted to continue a civil suit for declarations, recovery of amounts and damages against a company in liquidation where the impugned agreements were entered into after commencement of winding up and in breach of a restraint order of the Supreme Court.
Analysis: The winding up was held to have commenced from the date of presentation of the first winding up petition, so the agreements executed later were hit by the statutory restraint on disposition of company property. The agreements were also found to have been entered into in violation of the Supreme Court's injunction and the undertaking given to that Court, and the shareholders were not informed of these material facts in the explanatory statement for approval of the sale. On that basis, the transactions were treated as void and incapable of supporting enforceable claims against the company in liquidation. The Court further held that permitting a damages action based on such agreements would expose the company to unnecessary litigation and cost, which section 446 is intended to prevent.
Conclusion: Leave to continue the suit was rightly refused and this issue was decided against the applicant.
Issue (ii): Whether the applicant could validly rescind the agreements and maintain a suit for compensation and damages when the transaction was found to be unlawful, unsupported by proper shareholder disclosure and incapable of creating enforceable rights after winding up.
Analysis: The Court held that the agreements were void ab initio because their object and consideration were unlawful, being contrary to the Supreme Court's order and the mandatory requirements governing disposal of a substantial undertaking. Even on the alternative premise of voidability, the applicant had affirmed the transaction by seeking completion of the conveyance after knowledge of the alleged fraud and had remained in possession and enjoyment of the unit for years, so rescission was not available. Since a claim for damages does not crystallise into an enforceable debt until adjudicated, it could not create a new liability against the company after winding up, nor could incomplete rights be completed by a post-winding-up suit.
Conclusion: The rescission-based damages claim was not maintainable and this issue was decided against the applicant.
Final Conclusion: The application for leave to proceed with the civil suit and for joinder of the official liquidator was rejected because the proposed suit rested on void transactions and would improperly create fresh liabilities against the company in liquidation.
Ratio Decidendi: A suit against a company in liquidation cannot be permitted under section 446 where it seeks to enforce rights arising from a void transaction entered into after commencement of winding up and in violation of a binding court restraint, especially when the claim would create new or incomplete liabilities rather than recognise an existing debt.
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