Notice to guarantors and case-by-case discretion under company winding-up law remain essential despite debt recovery proceedings.

A guarantor impleaded as a defendant in bank recovery suits is entitled to notice and a hearing before leave under section 446 of the Companies Act, 1956 is granted or revoked, because Rule 117 requires service on parties to the suit and denial of notice infringes a statutory right. The Company Court's jurisdiction is not automatically ousted by the Recovery of Debts Due to Banks and Financial Institutions Act, 1993; leave under section 446 must be decided case by case, having regard to secured creditors, workmen and the special debt-recovery regime. Binding directions of the Supreme Court in the winding-up proceedings also remain relevant and cannot be ignored on an assumption of automatic transfer.

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Issues: (i) whether a guarantor who is impleaded as a defendant in recovery suits has locus standi and a right to be heard in proceedings for grant or revocation of leave under section 446 of the Companies Act, 1956; (ii) whether the Company Court's jurisdiction under section 446 of the Companies Act, 1956 is ousted by the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, and whether the Supreme Court's directions in the winding-up matter required the Company Court to deal with the banks' claims itself.

Issue (i): whether a guarantor who is impleaded as a defendant in recovery suits has locus standi and a right to be heard in proceedings for grant or revocation of leave under section 446 of the Companies Act, 1956

Analysis: The appellant was made a defendant in the banks' suits and faced a claim for decree against it. Rule 117 of the Companies (Court) Rules, 1959 requires notice, for an application under section 446(1), to be served on the Official Liquidator and on the parties to the suit or proceeding sought to be commenced or continued. Since the appellant was a party to the suits, it was entitled to notice and an opportunity of hearing before leave was granted. The denial of notice amounted to infringement of a statutory right, and the appellant was therefore entitled to seek revocation of the leave.

Conclusion: The appellant had locus standi and was entitled to be heard; the application for revocation of leave was maintainable.

Issue (ii): whether the Company Court's jurisdiction under section 446 of the Companies Act, 1956 is ousted by the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, and whether the Supreme Court's directions in the winding-up matter required the Company Court to deal with the banks' claims itself

Analysis: The statutory scheme of the Companies Act and the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 does not create an automatic and complete ouster of the Company Court's jurisdiction. The discretion under section 446 must be exercised on the facts of each case, keeping in view the interests of secured creditors, workmen and the purpose of the special debt-recovery legislation. The Company Court could not proceed on the premise that no leave was required or that the suits stood automatically transferred merely because the Tribunal existed. The Supreme Court's earlier directions in the winding-up proceedings were binding and had to be considered by the Company Court; they could not be disregarded on the assumption that the debt-recovery statute displaced them.

Conclusion: The Company Court's refusal to revoke leave on the footing of automatic ouster and automatic transfer was unsustainable; the matter required fresh consideration in accordance with law.

Final Conclusion: The impugned order was set aside and the application for revocation of leave was remitted for fresh decision on the merits in the light of the governing legal principles.

Ratio Decidendi: Leave under section 446 of the Companies Act, 1956 cannot be granted or sustained without notice to the parties to the suit, and the Company Court must exercise its discretion case by case notwithstanding the Debt Recovery Tribunal regime, while giving effect to binding directions of the Supreme Court.

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