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of <h1>Directors' Authority Upheld Despite Provisional Liquidator: Timely Objections Required</h1> <h3>Shree Tej Protap Textile Mills Versus Granaries Ltd.</h3> Shree Tej Protap Textile Mills Versus Granaries Ltd. - [1961] 31 COMP. CAS. 610 (CAL.) Issues Involved:1. Maintainability of the Suit2. Authority of Directors Post-Appointment of Provisional Liquidator3. Role and Powers of Provisional Liquidator4. Defendants' Right to Challenge Authority at TrialDetailed Analysis:1. Maintainability of the SuitThe primary issue raised was whether the suit was maintainable given the appointment of a provisional liquidator for the plaintiff company. The court examined the provisions of the Indian Companies Act, 1913, particularly sections 171, 175, 177A, 178, and 179, which collectively suggest that the appointment of a provisional liquidator suspends the powers of the directors. The court concluded that the directors' powers are 'frozen for the time being' and they cannot institute a suit in the name of the company once a provisional liquidator is appointed. However, the court also considered the timing of the defendants' objection, ruling that the proper remedy would have been to file an application to strike out the plaint soon after its institution, not at the hearing. As the provisional liquidator was no longer in charge of the company's assets at the time of the hearing, the suit was deemed maintainable.2. Authority of Directors Post-Appointment of Provisional LiquidatorThe court emphasized that the appointment of a provisional liquidator suspends the directors' powers to manage the company's affairs, including instituting legal proceedings. The court stated, 'the directors cannot take any steps for the realization of the property, effects or actionable claims to which the company may be entitled.' The directors' authority to act on behalf of the company is effectively 'dormant' while the provisional liquidator is in place. The court referenced several legal texts and precedents to support this view, including Palmer's Company Precedents, Buckley on the Companies Acts, and Halsbury's Laws of England.3. Role and Powers of Provisional LiquidatorThe court detailed the role and powers of the provisional liquidator as outlined in the Indian Companies Act, 1913. Under section 178, the provisional liquidator is required to take into custody all the property, effects, and actionable claims of the company. The court noted, 'the official liquidator alone is to be deemed to be in the custody or control of the assets of the company and no one can be allowed to interfere with his custody, control or management of the affairs of the company.' The provisional liquidator's powers include instituting or defending legal proceedings on behalf of the company, but only with the court's sanction.4. Defendants' Right to Challenge Authority at TrialThe court addressed the defendants' argument that the suit should be dismissed because the director who verified the plaint had no authority to do so at the time of filing. The court relied on the judgment in Russian Commercial and Industrial Bank v. Comptoir d'Escompte de Mulhouse [1925] A.C. 112, which held that such objections should be raised through a substantive application to strike out the plaint, not as a defense at trial. The court also referenced Richmond v. Branson & Son [1914] 1 Ch. 968, where it was held that the authority of a solicitor to bring an action cannot be disputed at trial but must be challenged through a proper application. Given that the provisional liquidator was no longer in charge, the court ruled that the suit was maintainable, and the defendants' objection was not valid at this stage.ConclusionThe court held that the suit was maintainable despite the initial appointment of a provisional liquidator, as the proper procedure to challenge the authority of the directors had not been followed by the defendants. The directors' powers were indeed suspended during the provisional liquidator's tenure, but this did not render the suit invalid once the provisional liquidator was no longer in charge. The court's decision underscores the importance of timely procedural objections and the limited role of directors once a provisional liquidator is appointed.
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