Leave to sue outside winding up allowed subject to security for liquidators' expenses and protection against execution without court orders.
Whether secured creditors may obtain leave to sue outside winding up was determined by applying the court's wide discretion to grant or refuse leave and to impose terms; the petitioners' asserted security requires litigation but their delay and acquiescence in provisional liquidation that benefited them justified conditional leave. Outcome: leave granted on terms securing repayment of liquidators' expenditures - petitioners must deposit market-value government paper as security within one month, liquidators' costs to be deducted from any decree, suit result to be reported to the court, and no execution against liquidators without court order.
Issues: Whether leave under section 171 of the Indian Companies Act should be granted to petitioners claiming to be secured creditors to bring a separate suit against a company in liquidation, or whether they should be compelled to seek relief only in the winding up proceedings.
Analysis: The petitioners assert title as secured creditors and seek leave to sue; that claim is disputed and requires investigation in a regular suit. Section 171 permits the court wide discretion to grant or refuse leave and to impose terms. Precedent establishes that a claimant asserting a security may ordinarily sue outside winding up unless special grounds justify refusal. The petitioners delayed enforcing their alleged security, supported provisional liquidator appointment, and permitted the liquidators to protect and manage the assets; liquidators incurred expenses and raised loans. In view of the delay and the benefit derived by the petitioners from the liquidators' acts, it is equitable to grant leave only on terms securing repayment of amounts spent or to be spent by the liquidators during the pendency of the suit.
Conclusion: Leave to bring a separate suit is granted on terms: (a) petitioners must within one month deposit Government paper of the market value of one lakh rupees endorsed to the Official Liquidators as security for loans and liquidation expenses incurred and to be incurred; if petitioners succeed the liquidators' expenditures shall be deducted from their decree and if petitioners' claim fails the Government paper shall be returned; (b) the result of the suit shall be reported to the court and any decree shall not be executed against the liquidators without the court's orders. Parties to bear their own costs.
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