Allowed

M/S Jewel De Paragon Pvt. Ltd. v. M/S Rajesh Exports Ltd.

Karnataka HC23 Sept 2023WP/33761/2018

Case brief

AI extract

What is this about?

The High Court allowed the writ petition challenging the trial court's order that recalled a previous stay. The court held that under Section 446 of the Companies Act, 1956, pending proceedings against a company must not proceed after a winding up order is passed except by leave of the winding up court. Trial proceedings were restored.

What did the court decide?

The impugned order dated 07.07.2018 is set aside and the order dated 11.11.2014 restoring the stay is restored.

M/S Jewel De Paragon Pvt. Ltd. Vs M/S Rajesh Exports… — Company and Corporate | Karnataka HC (2023)

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1 - NC: 2023:KHC:34728 WP No. 33761 of 2018

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IN THE HIGH COURT OF KARNATAKA AT BENGALURU

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DATED THIS THE 23^RD DAY OF SEPTEMBER, 2023

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BEFORE

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THE HON'BLE MR JUSTICE R. NATARAJ

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WRIT PETITION NO. 33761 OF 2018 (GM-RES)

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BETWEEN:

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M/S JEWEL DE PARAGON PVT. LTD., RATHNAM'S COMPLEX, 10/5, KASTURBA ROAD, OPP. MAHATMA GANDHI PARK, BANGALORE-560 001 REPRESENTED BY ITS MANAGING DIRECTOR.

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MR. K.V.KISHORE S/O K.R.V. RATHNAM EX-MANAGING DIRECTOR M/S. JEWEL DE PARAGON PVT. LTD., RESIDING AT NO.123, NIKHITHA MANSION, 3^RD FLOOR, 3^RD MAIN, 80 FEET ROAD, SBM COLONY, NAGENDRA BLAOCK, BSK I STAGE, BANGALORE-560 050.

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…PETITIONERS

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Digitally signed by SUMA Location: HIGH COURT OF KARNATAKA

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(BY SRI. S.R.KAMALACHARAN, ADVOCATE FOR M/S SUNDARASWAMY AND RAMDAS, ADVOCATES)

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AND:

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M/S RAJESH EXPORTS LTD., COMPANY INCORPORATED UNDER COMPANYS' ACT AND HAVING ITS OFFICE AT NO.4, BATAVIA CHAMBERS, KUMARA KRUPA ROAD, KUMARA PARK EAST, BANGALORE-560 001 AND REPRESENTED BY ITS OFFICER MR. R.M.NANJUNDASWAMY.

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…RESPONDENT (BY SRI. P. RAJU, ADVOCATE)

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THIS WRIT PETITION IS FILED UNDER ARTICLE 227 OF THE CONSTITUTION OF INDIA READ WITH SECTION 482 OF THE CODE

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2 - NC: 2023:KHC:34728 WP No. 33761 of 2018

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OF CRIMINAL PROCEDURE, 1973 PRAYING TO CALL FOR THE RECORDS IN C.C.NO.19782/2007 ON THE FILE OF XXI ADDITIONAL CHIEF METROPOLITAN MAGISTRATE AND XXIII SENIOR CIVIL JUDGE SCCH-25 [ANNEXURE-A] AND QUASH THE ORDER DATED 07.07.2018.

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THIS PETITION, COMING ON FOR PRELIMINARY HEARING IN 'B' GROUP, THIS DAY, THE COURT MADE THE FOLLOWING:

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ORDER

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This petition is filed challenging the correctness of the order dated 07.07.2018 passed by the XXI Additional Chief Metropolitan Magistrate and XXIII Additional Senior Civil Judge, Bengaluru (henceforth referred to as 'Trial Court') in C.C.No.19782/2007 by which, the Trial Court modified the earlier order dated 11.11.2014 and posted the case for further proceedings.

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The proceedings under Section 138 of the Negotiable Instruments Act, 1881 (henceforth referred to as 'N.I. Act') was initiated against the petitioners in C.C.No.19782/2007. The petitioner No.1 was ordered to be wound up in terms of an order dated 07.08.2014 passed by this Court in COP No.221/2013. Consequently, a request was made before the Trial Court to stop all further proceedings in view of Section 446 of the Companies Act, 1956. The Trial Court

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3 - NC: 2023:KHC:34728 WP No. 33761 of 2018

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noticing the pendency of the proceedings and the embargo of the proceedings against the company in liquidation, halted the proceedings in terms of its order dated 11.11.2014. Later, on 07.07.2018 by the impugned order, the Trial Court held

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"But even after lapse of almost 4 years, there is no progress made in the case. No purpose would be served in keeping the matter in the same stage. Therefore, the order dated: 11.11.2014 is hereby recalled.

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Call for cross examination of PW.1 as last chance. The complainant is directed to keep the PW.1 without fail."

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Being aggrieved by the said order, the petitioners

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are before this Court.

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The learned counsel for the petitioners submitted that when the liquidation proceedings are underway, the proceedings before the Trial Court were bound to be stayed and the Trial Court without awaiting the outcome of the liquidation proceedings would not have proceeded with the trial.

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Per contra, the learned counsel for the respondent submitted that though the liquidation proceedings have still not attained finality, since the proceedings before the Trial Court were initiated before winding up, the proceedings are bound to continue. The learned counsel for the respondent relied upon the judgment of the Hon'ble Apex Court in M/s. BSI Limited and another vs. Gift Holding Private Limited and another [AIR 2000 SC 928] and contended that if the proceedings was completed before the commencement of the proceedings under Section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985, it can continue.

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I have considered the submissions made by the learned counsel for the petitioners as well as the learned counsel for the respondent.

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The fact that the petitioner No.1 is ordered to be wound up by this Court in terms of the order dated 07.08.2014 is not in dispute. Once an order to wind up a company is passed then the provision of Section 446 of the Companies Act, 1956 kicks in.

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NC: 2023:KHC:34728 WP No. 33761 of 2018

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For the sake of immediate reference, Section 446 of the Companies Act, 1956 is extracted below:-

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" 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.

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(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 -

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(a) any suit or proceeding by or against the company;

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(b) any claim made by or against the company (including claims by or against any of its branches in India);

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(c) any application made under section 391 by or in respect of the company;

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(d) any question of priorities or any other question whatsoever, whether of law or fact, which may relate to or arise in course of the winding up of the company;

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whether such suit or proceeding has been instituted, or is instituted, or such claim or question has arisen

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or arises or such application has been made or is made before or after the order for the winding up of the company, or before or after the commencement of the Companies (Amendment) Act, 1960.

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(3) Any suit or proceeding by or against the company which is pending in any Court other than that in which the winding up of the company is proceeding may, notwithstanding anything contained in any other law for the time being in force, be transferred to and disposed of by that Court.

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(4) Nothing in sub-section (1) or sub-section (3) shall apply to any proceeding pending in appeal before the Supreme Court or a High Court."

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A perusal of Section 446 of the Companies Act, 1956 leaves no doubt that if any legal proceedings is commenced or if pending at the date of winding up order, it shall not be proceeded with against the company except the leave of the Company Court. It is not in dispute that as on the date of the order of winding up, the proceedings before the Trial Court was pending and therefore, the Trial Court could not have proceeded with the trial of the case. In that view of the matter, the impugned order dated 07.07.2018 deserves to be annulled.

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NC: 2023:KHC:34728 WP No. 33761 of 2018

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The contention of the learned counsel for the respondent that if the proceeding was completed before the commencement of the proceedings under Section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985, it can continue, may not apply to the facts of this case since the proceedings before the Trial Court is yet to be completed.

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In that view of the matter, this petition is allowed . The impugned order dated 07.07.2018 passed by the XXI Additional Chief Metropolitan Magistrate and XXIII Additional Senior Civil Judge, Bengaluru in C.C.No.19782/2007 is set aside and the order dated 11.11.2014 is restored.

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Sd/JUDGE

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PMR

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List No.: 1 Sl No.: 24

M/S Jewel De Paragon Pvt. Ltd. v. M/S Rajesh Exports Ltd.

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M/S Jewel De Paragon Pvt. Ltd. v. M/S Rajesh Exports Ltd.

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