Winding-up proceedings and State contracts: later leave can cure limitation, but informal executive assurances remain unenforceable.

A proceeding against a company in winding up is not non est merely because prior leave was absent; where leave under section 446(1) is later granted, the proceeding is treated as instituted on the date of leave for limitation purposes. A claim against a State based on an alleged executive arrangement is enforceable only if it satisfies the constitutionally prescribed form for State contracts under section 122 of the Constitution of Jammu and Kashmir. An informal agreement, assurance or guarantee that is neither pleaded nor proved in the required form cannot sustain liability, and promissory estoppel cannot override that constitutional requirement.

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Issues: (i) Whether a suit against a company in winding up could be treated as duly instituted for limitation purposes when leave under section 446(1) of the Companies Act, 1956 was granted after filing; (ii) Whether the alleged arrangement relied upon by the bank was enforceable against the State in the absence of compliance with section 122 of the Constitution of Jammu and Kashmir.

Issue (i): Whether a suit against a company in winding up could be treated as duly instituted for limitation purposes when leave under section 446(1) of the Companies Act, 1956 was granted after filing.

Analysis: Section 446(1) prohibits commencement or continuation of proceedings against a company in winding up except by leave of court. The governing principle applied was that absence of prior leave does not render the proceeding non est if leave is subsequently obtained; in such a case, the proceeding is treated as instituted on the date leave is granted. The contrary view adopted by the Division Bench was held to be inconsistent with the statutory scheme and the controlling precedent.

Conclusion: The question was answered against the respondent-bank and in favour of the appellant.

Issue (ii): Whether the alleged arrangement relied upon by the bank was enforceable against the State in the absence of compliance with section 122 of the Constitution of Jammu and Kashmir.

Analysis: Section 122 requires State contracts and assurances made in the exercise of executive power to be expressed and executed in the prescribed manner. The bank's case rested on an alleged agreement, assurances and guarantees, but no formal contract satisfying the constitutional requirement was shown. The reasoning below was rejected because the pleaded arrangement was treated as a continuation of an earlier lease arrangement and also as falling outside the constitutional formality requirement, even though the bank had not pleaded or proved an enforceable contract in that manner. The Court found the reliance on promissory estoppel and the characterization of the original transaction unsustainable on the record.

Conclusion: The alleged arrangement was held unenforceable against the State, and the decree against the appellant could not stand.

Final Conclusion: The appellate decree in favour of the bank was set aside and the State was relieved of liability under the impugned judgment.

Ratio Decidendi: Where a proceeding against a company in winding up is later sanctioned by leave of court, the proceeding is treated as instituted on the date of leave for limitation purposes; and a claim against the State based on an alleged executive arrangement cannot be enforced unless it satisfies the constitutionally prescribed form of State contract.

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