Judgments of Small Cause Court non-executable without Company Act leave

The Court held that the judgments and decrees by the Small Cause Court were non-executable until leave under Section 446 of the Companies Act, 1956, was obtained. The application was allowed to enforce compliance with Section 446, making the rule absolute.

---

---

Issues Involved:
1. Validity of the sale of the company's assets.
2. Requirement of obtaining leave under Section 446 of the Companies Act, 1956.
3. Legal standing of the judgments passed by the Small Cause Court, Vadodara.
4. Delay and laches in filing the application.

Detailed Analysis:

1. Validity of the Sale of the Company's Assets:
The company, Shree Ambica Mills Ltd, was ordered to be wound up on 17.01.1997. The Official Liquidator took charge of the assets and properties, including property situated at Akota Road, Vadodara. The applicant submitted an offer for the purchase of the company's assets for Rs. 5.15 crores, which was subsequently confirmed by the Court at Rs. 8.60 crores. The sale was confirmed on the condition that the dues of the Gujarat Electricity Board (GEB) and the Municipal Corporation would be borne by the purchaser. The Official Liquidator executed the sale deed for the freehold land in favor of Mr. Manubhai Maganbhai Patel and the leasehold land in favor of the applicant.

2. Requirement of Obtaining Leave under Section 446 of the Companies Act, 1956:
The core issue revolves around the necessity of obtaining leave under Section 446 of the Companies Act, 1956, before proceeding with any legal action against the company under liquidation. The Court emphasized that it was incumbent for the respondents to seek permission from the Company Court before proceeding with the Rent Suit No. 372 of 1988 and Civil Misc. Application No. 26 of 2008. The failure to obtain such leave rendered the proceedings voidable at the instance of the Official Liquidator. The Court referred to the Supreme Court's ruling in Harihar Nath & Ors. Vs. State Bank of India and Erach Boman Khavar vs Tukaram Sridhar Bhat & Ors, which clarified that leave under Section 446 is mandatory and can be obtained even after the initiation of proceedings.

3. Legal Standing of the Judgments Passed by the Small Cause Court, Vadodara:
The judgments passed by the Small Cause Court, Vadodara, in Rent Suit No. 372 of 1988 and Rent Suit No. 211 of 1991 were challenged on the grounds that they were issued without the necessary leave under Section 446 of the Companies Act, 1956. The Court found that the Small Cause Court erroneously proceeded without considering the affidavit filed by the Official Liquidator and the requirement of obtaining leave. Consequently, the awards and judgments passed by the Small Cause Court were deemed non-executable until compliance with Section 446 was achieved.

4. Delay and Laches in Filing the Application:
The respondent argued that the application should be dismissed due to delay and laches, as it was filed more than two years after the sale deed was executed. The Court acknowledged the delay but emphasized the legal necessity of obtaining leave under Section 446, which superseded the issue of delay. The Court held that the proceedings could not be validated until the leave was obtained, thereby allowing the application to the extent of enforcing compliance with Section 446.

Conclusion:
The Court concluded that the judgments and decrees passed by the Small Cause Court, Vadodara, in Rent Suit No. 372 of 1988 and Civil Misc. Application No. 26 of 2008 were not executable until leave under Section 446 of the Companies Act, 1956, was obtained. The application was allowed to this extent, and the rule was made absolute.

---