TaxTMI 
TaxTMI 
1971 (2) TMI 62
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....e balance of the purchase price but the first respondent failed to take delivery owing to its difficult financial circumstances and the appellant, therefore, forfeited the sum of Rs. 39,852 on the basis that it represented earnest money paid by the first respondent to the appellant. The first respondent contested the claim of the appellant to forfeit the sum of Rs. 39,852 and its contention was that the sum of Rs. 39,852 was paid by the first respondent to the appellant not as earnest money but as part payment of the purchase price. The first respondent was in the meantime ordered to be wound up by an order made by this court on 26th June, 1967, and the official liquidator was appointed liquidator of the first respondent. Now each of the two contracts between the appellant and the first respondent contained an arbitration clause in the following terms : "In the event of any dispute between the purchaser and the firm the matter should be referred to the arbitration of two merchants who are members of the Indian Merchants Chamber of Bombay, one to be nominated by each party to the contract. The arbitrator shall nominate an umpire who shall be qualified to be a sole arbitrator unde....
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....of section 446. Section 446, subsections (1), (2) and (3), read as follows ; "446. Suits stayed on winding up order.-(1) When a winding-up order has been made or the official liquidator has been appointed as provisional liquidator, no suit or other legal proceeding shall be commenced, or if pending at the date of the winding-up order, shall be proceeded with, against the company, except by leave of the court and subject to such terms as the court may impose. (2) The court which is winding up the company shall, notwithstanding anything contained in any other law for the time being in force, have jurisdiction to entertain, or dispose of- (a)any suit or proceeding by or against the company ; (b)any claim made by or against the company (including claims by or against any of its branches in India); (c)any application made under section 391 by or in respect of the company; (d)any question of priorities or any other question whatsoever,2 whether of law or fact, which may relate to or arise in course of he winding up of the company : Whether such suit or proceeding has been instituted or is instituted, or such claim or question has arisen or arises or such application ....
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....tity is concerned. The rights, properties, assets and liabilities of the company continue to remain vested in the company. The only change which takes place is that the board of directors is dissolved and the management of the company is taken over by the official liquidator for the purpose of winding up the company. The company, therefore, continues to remain bound by the arbitration agreement just as it would remain bound by any other contract entered into prior to the date of winding-up. This becomes amply clear if we look at the provision enacted in section 446, sub-section (!). If an arbitration proceeding is pending against a company at the date of the winding-up order, it cannot, by reason of the bar enacted in section 446, sub-section (1), be proceeded with against the company except with the leave of the court and except on such terms as the court may impose. This provision clearly postulates that if leave is granted by the court, the arbitration proceeding can be continued against the company. But how can the arbitration proceeding be continued if the company Ceases to be bound by the arbitration agreement ? Section 446, sub-section (1), therefore, necessarily involves th....
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....gainst the company in liquidation and, therefore, if the company files a suit for enforcing a claim against a third party, it would have to be filed in the High Court. But if the suit is filed in breach of an arbitration agreement which continues to be binding on the company despite the making of the order of winding-up, the High Court can, certainly, in the exercise of its discretion under section 34 of the Arbitration Act, on proper application made to it on behalf of the third party, stay the suit with a view to enforcing the arbitration agreement. The High Court would not in such a case be disowning its jurisdiction. It would, on the contrary, be exercising its jurisdiction by saying that, though it has jurisdiction to entertain and dispose of the suit, it would hold the parties to their arbitration agreement and stay the suit filed in breach of the arbitration agreement. It was then contended on behalf of the respondents, relying on section 446, sub-section (3), that, under that sub-section, even a suit which has been stayed by a civil court can be transferred to and disposed of by the High Court despite the order of stay passed by the Civil Court and that would go to indic....