1954 (11) TMI 28 - HC - Companies Law

Defendants can defend suits without company court permission under Companies Act Section 171

The court clarified that under Section 171 of the Companies Act, 1913, defensive actions by defendants in suits initiated by the company do not require ... Winding up – Suits stayed on winding-up order Issues Involved:1. Interpretation of Section 171 of the Companies Act, 1913.2. Requirement of leave from the company court for legal proceedings against a company in liquidation.3. Definition and scope of 'other legal proceeding' under Section 171.4. Applicability of Section 171 to defensive actions by defendants in suits initiated by the company.Issue-wise Detailed Analysis:1. Interpretation of Section 171 of the Companies Act, 1913:Section 171 stipulates that after a winding-up order is passed, no suit or other legal proceeding shall be instituted or continued against the company without the permission of the company Judge. The court examined whether this section applies to defensive actions taken by defendants in suits initiated by the company itself.2. Requirement of leave from the company court for legal proceedings against a company in liquidation:The court discussed whether an application for review of a judgment, which was decreed in favor of a company before it went into liquidation, requires permission from the company Judge. It was argued that if the proceedings were initiated by the company, subsequent defensive actions by the defendant should not require such permission.3. Definition and scope of 'other legal proceeding' under Section 171:The court analyzed various interpretations of 'other legal proceeding' in the context of Section 171. It referred to several precedents, including:- Benaras Bank Ltd. v. Sashibhushan Misra: Interpreted 'legal proceeding' as original proceedings analogous to a suit.- Raj Kumar Singh v. Benaras Bank Ltd.: Held that appeals or revisions could be considered legal proceedings requiring permission.- Shiromani Sugar Mills Ltd. v. Governor-General in Council: Argued against a narrow interpretation, suggesting that 'other legal proceeding' includes actions like distress and execution.The court concluded that 'other legal proceeding' should not be confined to original proceedings but could include appeals and revisions.4. Applicability of Section 171 to defensive actions by defendants in suits initiated by the company:The court emphasized that Section 171 should not be interpreted to place defendants in a difficult position where they need permission to defend themselves in suits initiated by the company. It was held that defensive actions by defendants, such as appeals, revisions, or reviews, do not constitute proceedings against the company.Conclusion:The court concluded that in cases where a company has obtained a decree, an application for review of that decree by the defendant does not require the leave of the company Judge under Section 171. The proceedings initiated by the company do not convert defensive actions by the defendant into proceedings against the company. Therefore, no permission from the company Judge is necessary for such defensive actions.