Supreme Court emphasizes discretion in staying proceedings under Companies Act Section 442(b)

Official Liquidator Versus Dharti Dhan (P.) Ltd.

Official Liquidator Versus Dharti Dhan (P.) Ltd. - [1977] 47 COMP. CAS. 420 (SC), 1977 AIR 740, 1977 (2) SCR 964, 1977 (2) SCC 166 Issues Involved:
1. Maintainability of the appeal to the Division Bench.
2. Interpretation and application of Section 442(b) of the Companies Act.
3. Discretionary power of the court under Section 442(b) and Section 446 of the Companies Act.
4. Interference by the Supreme Court under Article 136 of the Constitution.

Issue-wise Detailed Analysis:

1. Maintainability of the Appeal to the Division Bench:
The Solicitor-General for the appellant, official liquidator of Golcha Company, conceded that the Division Bench had jurisdiction to hear the appeal based on Section 483 of the Companies Act. Section 483 states:
'Appeals from any order made, or decision given, in the matter of the winding up of a company by the court shall lie to the same court to which, in the same manner in which, and subject to the same conditions under which, appeals lie from any order or decision of the court in cases within its ordinary jurisdiction.'
Thus, the objection to the maintainability of the appeal was given up.

2. Interpretation and Application of Section 442(b) of the Companies Act:
The respondent, Dhan Company, applied for a stay of proceedings under Section 442(b) of the Companies Act, arguing that a compulsory winding-up petition was pending against it in the Bombay High Court. Section 442(b) provides:
'At any time after the presentation of a winding-up petition and before a winding-up order has been made, the company, or any creditor or contributory, may-(b) where any suit or proceeding is pending against the company in any other court, apply to the court having jurisdiction to wind up the company, to restrain further proceedings in the suit or proceeding; and the court to which application is so made may stay or restrain the proceedings accordingly on such terms as it thinks fit.'
The court clarified that the object of Section 442 is to stay claims in suits and proceedings pending elsewhere until the winding-up order is made, after which Section 446 operates to transfer proceedings to the court exercising jurisdiction to wind up the company.

3. Discretionary Power of the Court under Section 442(b) and Section 446 of the Companies Act:
The court emphasized that the power to stay proceedings under Section 442(b) is discretionary and not mandatory. The word 'may' in the context of Section 442(b) signifies a conferment of power, which must be exercised judiciously based on the totality of the facts. The court stated:
'A stay is not to be granted if the object of applying for it appears to be, as it does in the case before us, merely to delay adjudication on a claim, and thereby to defeat justice.'
The court concluded that the application by Dhan Company seemed to be made with the object of delaying decisions on claims, which justified the rejection of the stay application by the learned company judge.

4. Interference by the Supreme Court under Article 136 of the Constitution:
The court acknowledged that it generally does not interfere with interlocutory orders. However, it found that a question of general principle regarding the discretionary power under Section 442(b) necessitated interference. The court stated:
'We think that a question of general principle arises in this case which has to be clarified so that an interference by this court under article 136 of the Constitution, in order to vindicate a correct principle and to meet the ends of justice, is called for.'
The court allowed the appeal, set aside the judgment and order of the Division Bench, and restored the order of the learned company judge.

Conclusion:
The Supreme Court allowed the appeal, emphasizing the discretionary nature of the power to stay proceedings under Section 442(b) and the necessity to exercise such power judiciously. The judgment of the Division Bench was set aside, and the order of the learned company judge was restored.