TaxTMI 
TaxTMI 
2013 (2) TMI 61
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.... 10, Civil Procedure Code (variously described as "the Code" and "CPC"). The present judgment disposes of a plaintiff's appeal impugning the Order dated 23.10.2007 of a learned Single Judge in I.A. No. 8275/2003 and I.A. No. 8670/2003 in Suit No. 675/1999 ("the suit"). The impugned judgment held that the plaintiff's failure to take steps under Order 22, Rule 3, Civil Procedure Code (variously described as "the Code" and "CPC") resulted in abatement of its suit. 2. The plaintiff, in its suit, had claimed a money decree, based on alleged transactions which took place in Germany. The defendants had urged that the suit was time barred; their application for rejection of plaint was however, dismissed; that order was confirmed by the Division Bench, which had left the plea open for consideration after trial. During the pendency of the suit, the Plaintiff Bank Kriess, merged with the Yapi Kredi Bank. The merger was affected in terms of a Deed dated 27.08.2001 with effect from 09.10.2001. As a result Yapi Kredi Bank AG took over all the assets and liabilities of Bank Kreiss AG; on and from 09.10.2001, the Plaintiff bank ceased to exist. The fourth defendant filed an application (I.A. 82....
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.... after merger, is not entitled to file application under Order XXII Rule 10, seeking its substitution in place of the transferor company. Learned Single Judge also relied upon the decision reported as Narendra Bahadur Tandon v. Shankar Lal (since deceased) 1980 (2) SCC 253 that once the company is dissolved, it ceases to exist and the liquidator cannot represent such a non-existing entity. The impugned judgment also relied upon Saraswati Industrial Syndicate Ltd. v. CIT AIR 1991 SC 70 and Singer India Limited v. Chander Mohan Chadha and Ors. 2004 (7) SCC 1. 5. During the pendency of the present appeal, an application (I.A. No. 14878/2008) was filed, for substituting C.H. Financial Investments as the appellant. The applicant contended that it succeeded to the claims in the suit - and consequently to the right to prosecute the present appeal - by virtue of transfer deed executed by Yapi Kredi Bank, on 23.01.2008. A copy of that assignment and transfer deed was placed on the record. It is contended that in terms of the assignment/transfer deed, the right and obligations of Yapi Kredi Bank against Kaunsoplast and the defendants in the original suit, out of which the present appeal h....
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....liabilities and assets of the transferor company subject to the terms and conditions of contract of transfer or merger, as it were. Contending that the principle enunciated in Bhagwan Dass Chopra (supra) applies to the facts of this case, learned counsel argued that the impugned judgment is in error of law in holding otherwise. Reliance was also placed upon the judgment of the Lahore High Court in Rameshwar and Ors. v. MT. Ganpati Devi and Anr. AIR 1936 (Lah) 652 in this regard. Learned counsel also relied upon the decision in Dhurandhar Prasad Singh v. Jaypee University and Ors. 2001 (6) SCC 534 to emphasize that Order XXII Rules 3 and 4 distinguish from Rule 10 and that in case of the former, the right to sue is extinguished when legal representatives are not brought on record. On the other hand, in case of Rule 10, even if the assignee or the individual upon whom the interest devolves, does not appear in Court, but steps into the shoes of the original litigant, the consequence would be that the case would continue and the party upon whom the interest has devolved risks being bound by any judgment and order. It is submitted that apart from overlooking this important distinction, ....
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.... court accepts the report of the official liquidator after directing winding-up and distributes the proceeds to creditors, workers and contributories, the ultimate result is the death of the company under Section 481 of the Act. He also relied upon the decision of the Division bench in Spice Entertainment Limited v. Commissioner of Service Tax (ITA 475-476/2011, decided on 03.08.2011) for the proposition that amalgamation of two companies results in the death of amalgamating company which loses its entity. 8. It was lastly argued that C.H. Financial Investments Limited's assertion that it is the successor to the claims in the suit are unfounded and contradictory to the case set-up by Yapi Kredi Bank. In this regard, it was pointed out that Yapi Kredi Bank had stated that on 09.10.2011, the original plaintiff, i.e. Kreiss Bank ceased to exist. The suit was said to have abated by the order dated 23.10.2007. In this context, learned counsel for the defendant stated that C.H. Financial Investments Ltd. states that Yapi Kredi Bank has since merged with Fermin Credit Bank gmbH and that it ceases to exist. The assertion of C.H. Financial Investments Ltd. that it was a shareholder in Kr....
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....were issued, the defendants moved for rejection of the plaint, inter alia contending that the suit itself was time-barred. That application, 4237/1999, was rejected on 02.08.1999. The defendants carried the matter in appeal, being FAO (OS) 287/1999. By order dated 27.01.2000, the Division Bench of this Court held that no interference with the order dismissing the application for rejection of the application was called for. In these circumstances, on 08.08.2003, the fourth defendant moved an application, stating that he became aware that the plaintiff bank had ceased to exist with effect from 09.10.2001 as it had merged with Yapi Kredi Bank and that since there was no claim of succession of any interest in the suit on account of the original plaintiff ceasing to exist, the suit itself was liable to be dismissed. On 11.08.2003, the plaintiff Yapi Kredi Bank AG moved an application, I.A. no. 8670/2003, stating that Kreiss Bank had merged with it and that the latter (the applicant) had taken-over assets and liabilities of Kreiss Bank as a result of which it was entitled to continue the suit. 11. The learned Single Judge was persuaded to hold, upon an analysis of the decisions in Nar....
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....state of the deceased plaintiff. XXXXXX XXXXXX XXXXXX 10. Procedure in case of assignment before final order in suit.- (1) In other cases of an assignment, creation or devolution of any interest during the pendency of a suit, the suit may, by leave of the Court, be continued by or against the person to or upon whom such interest has come or devolved. (2) The attachment of a decree pending an appeal therefrom shall be deemed to be an interest entitling the person who procured such attachment to the benefit of sub-rule (1)." Analysis and conclusions 13. The first question which this Court proposes to address is whether a company "dies" within the meaning of Order 22, Rule 3, CPC and whether a suit filed against it abates upon its merger or amalgamation with another existing company. The impugned judgment relied on Narendra Bahadur Tandon (supra), where the Court held, inter alia, that "...once the company was dissolved it ceased to exist and the liquidator could not represent a non-existing company". In Saraswati Industries Syndicate Ltd. v. CIT Haryana, Himachal Pradesh, Delhi, AIR 1991 SC 70, the Supreme Court considered the question of amalgamation and the effect....
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.... under the scheme of amalgamation, but the corporate identity of transferor company ceases to exist with effect from the date the amalgamation is made effective." 14. The judgment reported in Shri Rikhu Dev relied on by the Applicant states, inter alia, that a representative suit does not come to an end with the death of the plaintiff, who sues on behalf of a body of persons, individual or juristic entities: "8. This rule is based on the principle that trial of a suit cannot be brought to an end merely because the interest of a party in the subject matter of the suit has devolved upon another during the pendency of the suit but that suit may be continued against the person acquiring the interest with the leave of the Court. When a suit is brought by or against a person in a representative capacity and there is devolution of the interest of the representative, the rule that has to be applied is Order 22 Rule 10 and not Rule 3 or 4, whether devolution takes place as consequence of death or for any other reason. Order 22 Rule 10 is not confined to devolution of interest of a party by death; it also applies if the head of the mutt or manager of the temples resigns his office or i....
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....hich the transferee company or corporation has become the successor-in-interest of the transferor company or corporation." 16. The conclusion of the learned Single Judge that the amalgamation of one company with another, results in the death of the former (i.e. the transferee company) cannot be faulted. Yet, that factor alone cannot, in the opinion of this Court, be dispositive of the question thrown up in these proceedings. While extinguishment of the corporate personality, or "corporate death" as it were, in the event of a final winding up of a company or amalgamation of one company with another, may be a reality, that alone cannot afford an answer to what happens to a litigation to which the amalgamating company is a party. It is here that the analogy with either a company finally wound up, in dissolution proceedings, or the death of an individual, ends. In the case of winding up of a company, the final order directing dissolution, after all steps to settle its affairs are taken, and the Court is satisfied that such order as necessitated, is in fact made. The process of "winding up the affairs" includes settlement of claims against the company, in satisfaction of the creditor....
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.... also mindful of Section 394 (2) which provides for the transfer of liabilities or property of the transferee company to the transferor company. In Saraswati Industrial Syndicate, this was precisely noticed, when the Supreme Court held that the "..true effect and character of the amalgamation largely depends on the terms of the scheme of merger. But there can be any doubt that when two companies amalgamate and merge into one the transferor company loses its entity as it ceases to have its business. However, their respective rights or liabilities are determined under the scheme of amalgamation." This position was again underscored in Singer (supra). 18. The question identical to the one posed to this Court in this case arose for consideration before the Bombay High Court. A learned Single Judge of that Court in Re Delta Distilleries Limited, Mumbai v (1) Shaw Wallace and Company Limited, Calcutta; (2) Shaw Wallace Distilleries Limited; (3) United Spirits Limited (2008 [1] Mah.LJ 899) held that: "The effect of a Scheme of Amalgamation, as held by the Supreme Court in Singer India Ltd. vs. Chander Mohan Chadha, (2004) 7 SCC 1 is that as a result of amalgamation of two Com....
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....he buyers which took effect under a traite de scission in accordance with French law had the effect, without more, of rendering the assignee a party to an English arbitration as soon as the assignment took effect. The Court of Appeal held that it did not but expressly reserved the position "where the foreign law creates a universal successor, as in National Bank of Greece & Athens S.A. v. Metliss [1958] A.C. 509." The comment in the judgment of Lloyd L.J. [1992] Q.B. 610, 619 that:- "there cannot be a valid arbitration when one of the two parties has ceased to exist," must be read subject to the same possible exception. The question I have to consider remains, on the authorities, an open one. The second observation is that while the reported cases show quite clearly that a corporation which has ceased to exist is not entitled to maintain any legal proceedings, they do not show that where the dissolution occurs in the course of pending proceedings this necessarily deprives the court of any power to do what is just and convenient in the particular case. There are a variety of principles which apply in different situations and, so far as I am aware, there is no reason why the....
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....1 of the Companies Act 1985) declaring the dissolution to be void. It was held that the effect of that declaration was prospective only and did not validate acts done since the dissolution in March 1977. Consequently, once the company had been dissolved there was no possibility that proceedings which took place thereafter could subsequently be validated with the result that the action pending at the date of dissolution "ceases, not temporarily and provisionally, but absolutely and for all time:" per Megaw L.J. Both in Morris v. Harris [1927] A.C. 252 and in the Foster Yates & Thom case a distinction was drawn between a restoration under section 352 of the Act of 1948 (section 223 of the Companies (Consolidation) Act 1908) which was prospective only and other provisions of the Companies Acts which had retrospective effect and provided that "the company shall be deemed to have continued in existence as if its name had not been struck off:" section 353(6) of the Act of 1948; section 242 of the Act of 1908. In the Foster Yates & Thom case the Court of Appeal rejected the submission that where a restoration took place under section 352 of the Act of 1948, so that the restoratio....
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.... were approved in a Division ruling of the Court of Appeal, in Yorkshire Regional Health Authority v Fairclough Building Ltd. & Anr 1996 (1) All ER 519 where the Court observed that: "......When a litigant dies, or becomes bankrupt, the litigation does not cease, unless the cause of action is personal to him. It may be carried on by his personal representatives, or his trustee in bankruptcy, in their own names. There is, not surprisingly, provision in the RSC for the change in the identity of the party to be duly made: R.S.C., Ord. 15, r. 7. A corporate plaintiff does not die, but it may cease to exist. A particular example is when the corporation, which is a creature of statute, is terminated by statute and its rights and liabilities are transferred to some other person. When that occurs, the new person may become a party to pending proceedings in place of the old. Although the identity of the party changes, the nature of the claim does not. It is, in legal terms, the same cause of action as it was before. There is no question of a new claim or cause of action being asserted, even though in the particular circumstances the claim is being made by a different person. Because i....
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.... representative (who might not be aware of his rights, or might be in the dark about the litigation itself) applies for setting aside the abatement; if the time provided for doing so lapses, the residuary Article in the Limitation Act, 1963 applies, enabling such a course of action. The underlying thought is that a cause of action is not extinguished; the court has to trace, or at least make an effort to trace the rightful successor to prosecute the claim, or defend the proceeding. The argument based on Section 3(42) of the General Clauses Act, 1897 is also of no assistance, because even if a company is a person, and winding up results in its death, as explained earlier, there is a radical difference between an amalgamation and a final winding up order, after all affairs of the company have been taken care of by the Court. It is therefore held that the conclusions of the learned single judge that the suit had abated by virtue of Order 22 Rule 3, on the "death" of the original plaintiff, cannot be sustained. 22. As regard the second question, i.e. applicability of Order 22 Rule 10, those provisions are enabling provisions meant to further ends of justice. This was held in S. A....
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....egarding the legal effect of a merger, or scheme of amalgamation, upon pending proceedings, in Bhagwan Das Chopra (supra) that "subject to such terms it becomes liable to be impleaded or becomes entitled to be impleaded in the place of or in addition to the transferor company or corporation in any action, suit or proceeding, filed against the transferor company or corporation by a third party or filed by the transferor company or corporation against a third party and that whatever steps have already taken place in those proceedings will continue to operate against and the binding on the transferee company or corporation in the same way in which they operate against a person on whom any interest has devolved in any of the ways mentioned in Rule-10 of Order-22 of Code of Civil Procedure, 1908" affords the clearest guidance in such circumstances. Neither Saraswati Investment Syndicate, nor Singer nor any of the decisions is a direct authority on the question of succession to legal proceedings before a civil court. Even though Bhagwan Dass was rendered in the context of industrial adjudication, the Court expressly relied on Order 22 Rule 10, and spelt out its application in these circu....