1974 (3) TMI 79 - HC - Companies Law

Validity of compromise decrees upheld for company in liquidation; court affirms jurisdiction. State's payments under court orders deemed sufficient.

The court upheld the validity of compromise decrees against a company in liquidation, affirming the court's jurisdiction to pass such decrees. It ... Winding up – Suits stayed on winding-up order Issues:1. Validity of compromise decrees passed against a company in liquidation.2. Jurisdiction of the court to pass decrees against a company in liquidation.3. Corporate status and legal entity of a company in liquidation.4. Obligations of a debtor when payments are made under court orders.Analysis:1. The judgment pertains to three revision applications by the State of Bihar regarding money owed to a private limited company, which had gone into liquidation. The company had entered into compromise decrees with the plaintiffs for payment of certain sums of money. The State of Bihar sought to withhold further payments citing section 446 of the Companies Act, 1956, after the company's liquidation. The court was asked to stay payments, but the lower court refused, leading to the State's revision applications.2. The court analyzed the jurisdiction issue concerning passing decrees against a company in liquidation. Reference was made to a previous judgment stating that while suits against a company in liquidation require the leave of the winding-up court, the absence of such leave does not render the decrees without jurisdiction. The court emphasized that the court hearing the suit has the jurisdiction to pass decrees, and the absence of leave does not invalidate the decree. Therefore, the compromise decrees against the company in liquidation were deemed valid.3. The judgment highlighted that a company does not lose its corporate status or legal entity when it goes into liquidation. Even in liquidation, the company remains a legal entity capable of entering into agreements and being party to legal proceedings. It was noted that the official liquidator could address the compromise decrees and manage the debts owed by the company. The court emphasized that the company's liquidation did not affect its ability to be a party to legal proceedings or enter into compromise decrees.4. The court addressed the obligations of the State of Bihar as a debtor in making payments under court orders. It was stated that the State, having made payments under court orders, was discharged from its liability, irrespective of the fate of the money post-payment. The court held that the State's duty was to comply with court orders, and it was not required to ensure the proper distribution of the funds among the company's creditors. Therefore, the court upheld the lower court's decision, dismissing the revision applications.In conclusion, the judgment clarified the validity of compromise decrees against a company in liquidation, affirmed the jurisdiction of the court to pass such decrees, emphasized the continued legal entity status of a company in liquidation, and outlined the debtor's obligations in making payments under court orders.