1947 (4) TMI 7 - HC - Companies Law

High Court affirms Subordinate Judge's decision on sale annulment; fraud, lack of interest cited

The High Court affirmed the Subordinate Judge's decision to set aside the sale, ruling that the judgment-debtor lacked a saleable interest, the respondent ... Winding up – Suits stayed on winding-up order Issues Involved:1. Saleable interest of the judgment-debtor.2. Allegations of fraud and misrepresentation.3. Applicability of clause 171 of the Companies Act regarding the necessity of leave from the High Court for proceedings against a company in liquidation.Detailed Analysis:1. Saleable Interest of the Judgment-Debtor:The primary issue was whether the judgment-debtor had a saleable interest in the property sold on 4th April 1944. The appellant, Benares Bank Ltd., in liquidation, had obtained a decree against the judgment-debtor and executed the sale of an eight annas share in lots 1 and 2. The respondent, Sashi Bhushan Misra, became the auction-purchaser. However, Misra later filed an application under Order 21, rule 91 of the Civil Procedure Code to set aside the sale, claiming the judgment-debtor had no saleable interest. The learned Subordinate Judge found that the judgment-debtor indeed had no saleable interest, a conclusion supported by the evidence presented. The High Court agreed with this assessment, noting that it was unnecessary to refer to other evidence as the judgment-debtor's lack of saleable interest was not contested.2. Allegations of Fraud and Misrepresentation:The respondent alleged that he was induced to purchase the property based on fraudulent assurances by the lawyers and agents of the decree-holder, leading him to believe that the properties belonged to the judgment-debtor. This misrepresentation was claimed to have kept the respondent from discovering the defect in the title until 15th October 1944. The High Court, after considering the facts and evidence, concurred with the Subordinate Judge's finding that the respondent was indeed misled by fraud and misrepresentation.3. Applicability of Clause 171 of the Companies Act:The decree-holder argued that the application to set aside the sale was not maintainable without the leave of the Allahabad High Court, as required under clause 171 of the Companies Act. This clause stipulates that no suit or other legal proceeding can proceed against a company in liquidation without the Court's leave. The High Court examined various precedents and interpretations of clause 171. It noted that defensive proceedings, such as applications made in the course of execution proceedings initiated by a company in liquidation, do not require such leave. The Court referred to several cases, including decisions from the Lahore High Court and the Privy Council, supporting this view. It concluded that the auction-purchaser's application to set aside the sale was a defensive proceeding and did not require prior leave from the High Court.The High Court also discussed the interpretation of 'suit' and 'legal proceeding' within the context of clause 171, emphasizing that these terms refer to original proceedings in a Court of first instance and not to defensive actions or appeals arising from such proceedings. The Court held that requiring leave for defensive applications would be impractical and contrary to the legislative intent, particularly given the short limitation period for such applications.Conclusion:The High Court dismissed the appeal, affirming the Subordinate Judge's order setting aside the sale. It held that the judgment-debtor had no saleable interest in the property, the respondent was misled by fraud and misrepresentation, and the application to set aside the sale did not require leave under clause 171 of the Companies Act. Each party was directed to bear their own costs for the proceedings.