Partly allowed

The Official Liquidator v. Mr. Gaurav Sharman

Telangana HC15 Apr 2010COMPA/1660/2007

Case brief

AI extract

What is this about?

The High Court dismissed applications allowing the Official Liquidator to quash execution proceedings and stay attachment orders initiated by decree holders in a consumer dispute against Asia Pacific Investment Trust Ltd. The Court held that initiating suit or proceeding against a wound-up company creates a bar under Section 446 of the Companies Act, 1956.

What did the court decide?

Quashing of execution proceedings in E.A. No. 106 of 2007; raising of attachment order dated 30.08.2007; direction to State Bank of India to release FDR amount to Official Liquidator.

The Official Liquidator Vs Mr. Gaurav Sharman — Company and Corporate | Telangana HC (2010)

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*** THE HON’BLE SRI JUSTICE B.SESHASAYANA REDDY**

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+ Company Application Nos.1660 & 1670 of 2007 in

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Company Petition No.84 of 1997

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% 15-04-2010

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Between:

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# The Official Liquidator, High Court of A.P., Hyderabad & Liquidator of M/s.Asia Pacific Investment Trust Ltd. (in liquidation)

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….Applicant

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(in both applications)

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and

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$ 1. Mr. Gaurav Sharman & Ors.

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.…Respondents (in both applications)

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! COUNSEL FOR APPLICANT: MR.M.ANIL KUMAR

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^COUNSEL FOR RESPONDENT Nos.1 TO 4: MR. NISARUDDIN AHMED JEDDY

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< Gist:

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> Head Note:

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? CITATIONS: II (2006) CPJ 318 (NC) 2007 (1) CPR 282 1 (2009) CPJ 68 AIR 1984 SC 1579

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THE HON’BLE SRI JUSTICE B.SESHASAYANA REDDY Company Application Nos.1660 and 1670 of 2007

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Company Petition No.84 of 1997

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Date:1 5 th April, 2010

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Between:

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The Official Liquidator, High Court of A.P., Hyderabad & Liquidator of M/s.Asia Pacific Investment Trust Ltd. (in liquidation)

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….Applicants

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(in both applications)

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and

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1. Mr. Gaurav Sharman & Ors.

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.…Respondents (in both applications)

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THE HON’BLE SRI JUSTICE B.SESHASAYANA REDDY Company Application Nos.1660 and 1670 of 2007 in Company Petition No.84 of 1997

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COMMON ORDER:

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These two Company Applications have been taken out by the Official Liquidator on behalf of M/s.Asia Pacific Investment Trust Limited (in liquidation) seeking to quash the execution proceedings in E.A.No.106 of 2007 in C.D.No.814 of 2003 on the file of the District Consumer Disputes Redressal Forum-II, Hyderabad, and to raise the attachment order dated 30.08.2007; and seeking stay of all further proceedings in E.A.No.106 of 2007 in C.D.No.814 of 2003 pending on the file of the District Consumer Disputes Redressal Form-II, Hyderabad respectively. More precisely, C.A.No.1660 of 2007 is filed under Sections 446(1) & 537 (1)(a) of the Companies Act, 1956 r/w. Rule 9 of the Companies (Court) Rules, seeking to quash the execution proceedings in E.A.No.106 of 2007 in C.D.No.814 of 2003 and to raise the attachment order dated 30.08.2007 and whereas, C.A.No.1670 of 2007 is filed under Rule 9 of the Companies (Court) Rules, 1959, seeking stay of all further proceedings in E.A.No.106 of 2007 in C.D.No.814 of 2003.

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2. By order dated 19.08.1998 passed in Company Petition No.84 of 1997, this Court directed winding up of M/s.Asia Pacific Investment Trust

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Limited and the Official Liquidator attached to this Court came to be appointed as the Liquidator of the company (in liquidation). The company (in liquidation) was carrying on business as non-banking financial institution. The company (in liquidation) failed to keep up its commitments and defaulted in making payments to its depositors. During the course of liquidation proceedings, the Official Liquidator sold some immovable properties of the company (in liquidation) situated at Delhi, Bangalore, Chennai and Coimbatore, with leave of this Court. Whileso, the Official Liquidator received a letter dated 13.09.2007 from the State Bank of India-5^th respondent herein enclosing a Garnishee order dated 30.08.2007 passed by the President, District Consumer Disputes Redressal Forum-II, Hyderabad, in E.A.No.106 of 2007 in C.D.No.814 of 2003 directing the said Bank to attach and forward a sum ofRs.19,15,736/- from the Fixed Deposit Receipt No.30181484149 worth of Rs.37,18,133/- held by the company (in liquidation) in the said Bank towards satisfaction of the decree passed in favour of the respondents 1 to 4 herein. The respondents 1 to 4 filed C.D.No.814 of 2003 on the file of the District Consumer Disputes Redressal Forum-II, Hyderabad, under Section 12 of the Consumer Protection Act, 1986, seeking direction to the company and its directors to pay Rs.8,70,905/- with interest thereon. The C.D. filed by them came to be allowed by the District Consumer Disputes Redressal Forum-II, Hyderabad, directing the opposite parties 1 to 5 and 7 therein jointly and severally to refund the maturity amount of Rs.8,70,905/- with interest at 12% p.a. from 01.02.1998 till the date of payment and compensation of Rs.87,000/- and costs of Rs.1,000/-, by order dated 20.04.2005. The Opposite Parties 2, 3, 4, 5 and 7 therein filed F.A.No.1130 of 2005 on the file of the A.P. State Consumer Disputes Redressal Commission, Hyderabad, assailing the order passed in C.D.No.814 of 2003. The appeal filed by them came to be disposed of on 01.12.2006. Thereafter, the decree holders i.e., respondents 1 to 4 herein, filed E.A.No.106 of 2007 for execution of the decree and sought for attachment of the FDRs standing in the name of the judgment

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debtors/Opposite Parties i.e. M/s.Asia Pacific Investment Trust Limited (in liquidation). The District Consumer Disputes Redressal Forum-II, Hyderabad, ordered for attachment of the amount and directed the State Bank of India-5^th respondent to send the amount of Rs.19,15,736/-. Hence, these two applications by the Official Liquidator, seeking the reliefs stated supra.

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3. Notice before admission came to be ordered on 17.10.2007 in C.A.No.1670 of 2007. An interim order of stay is also came to be granted on the even date.

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4. The respondents 1 to 4 entered appearance through a counsel and filed counter-affidavit resisting the applications. It is stated in the counteraffidavit that the proceedings have been initiated under Section 25 of the Consumer Protection Act, against the property of the judgment debtors and not against the company alone and therefore, Sections 446 or 536 of the Companies Act cannot be pressed into service. It is further stated in the counter-affidavit that proceedings under Section 25/27 of the Consumer Protection Act cannot be brought into the ambit of Section 446 or 537 of the Companies Act. For better appreciation, I may refer paras.3 and 4 of the counter-affidavit, which reads as hereunder:

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“3. It is pertinent to note that the C.D.No.814 of 2003 is filed not only against Asia Pacific Investment Trust Limited (Company in liquidation) but also against all the Directors of the Company and their other companies too are made liable in the C.D.No.814 of 2003. Thus, CD No.814 of 2003 is filed against Company in Liquidation as well as other companies which are not in liquidation. Accordingly, the District Consumer Forum-II, after recording detailed findings allowed the complaint directing the Opposite Parties therein, Directors and their other Companies to jointly and severally pay the decretal amount of Rs.8,70,905/- with interest @ 12% per annum from the date of maturity of fixed deposits i.e., 1998 and costs of Rs.88,000/- were also imposed on all the Directors/Companies. The copy of the District Consumer Forum-II Judgment passed in C.D.No.814 of 2003 is annexed herewith on pages.9-16.

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4. The Directors of the company in Liquidation and Directors of the Companies not in liquidation appealed before the Appellate Authority

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viz., A.P. State Commission. The A.P. State Commission passed order in FA No.1130 of 2005 directing these respondents (Decree Holders) to attach the Properties of the First Opposite party in the main CD No.814 of 2003 viz., M/s.Asia Pacific Investment Trust Limited, under Sec.25 of C.P. Act while simultaneously advising these Respondents 1 – 4 (Decree Holders) to register claim before the Official Liquidator. The order / decree in F.A.No.1130 of 2005 is filed herewith on Pages.17 – 20.”

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5. Heard learned counsel appearing for the official liquidator and learned counsel appearing for the respondents 1 to 4.

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6. Learned counsel appearing for the official liquidator submits that the order of winding up of M/s.Asia Pacific Investment Trust Limited (in liquidation) came to be passed on 19.08.1998 and therefore, any proceedings initiated by the respondents 1 to 4 against the company (in liquidation) without obtaining leave of this Court under Section 446 of the Companies Act, 1956, do not bind the official liquidator, in which case, the decree obtained by the respondents 1 to 4 in C.D.No.814 of 2003 does not confer any right on them to proceed against the properties of the company (in liquidation), which are vested with the Official Liquidator. Learned counsel refers Section 446 of the Companies Act, 1956.

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7. Learned counsel appearing for the respondents 1 to 4 submits that the respondents 1 to 4 invested their hard-earned money in the company (in liquidation) and there being no other alternative, they proceeded with filing of complaint before the District Consumer Disputes Redressal Forum-II, Hyderabad and obtained decree and thereupon, the aggrieved parties challenged the decree by filing an appeal which ended in dismissal and at this distance of time, denying the fruits of the decree causes much hardship to them. He further contends that the decree obtained by the respondents 1 to 4 against the company (in liquidation) cannot be declared as void since the respondents 1 to 4 moved the applications seeking ex post facto ratification of their action for initiating proceedings against the company (in liquidation). In support of his submissions, reliance has been placed on the following decisions.

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1) Manipal Sowbhagya Nidhi Ltd. v. A.G.M.F.G.O.C.C.A^[1]

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2) Vinod L Doshi & Ors. v. Sohan Lal and Anr .^[2]

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3) CIMMCO BIRLA LTD. v. ANIL SETH I^[3]

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8. In Manipal Sowbhagya Nidhi Ltd. v. A.G.M.F.G.O.C.C.A’s case (1 supra), the National Consumer Disputes Redressal Commission, New Delhi, held that remedy under Section 3 of the Consumer Protection Act, 1986, is an additional remedy available to the consumers. Mere pendency of the petition before the Company Law Board or the High Court does not result in a ban on the functioning of the Consumer Fora. 9. In Vinod L Doshi & Ors. v. Sohan Lal and Anr.’s case (2 supra), it has been held by the Punjab State Consumer Disputes Redressal Commission, Chandigarh, that Section 446 of the Companies Act, creates a bar to the continuance of pending proceedings subject to permission from the Company Judge or any legal authority mentioned in the Companies Act during the winding up or after the winding up of the Company. The only bar is that the person who wishes to launch or continue legal proceedings must take permission of the Company Judge or any other legal authority mentioned under the Companies Act. Nothing bars the respondent complainants to seek that permission from the Company Judge of the Bombay High Court to allow the proceedings under Section 27 of the CP Act to go on.

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10. In CIMMCO BIRLA LTD. v. ANIL SETHI’s case (3 supra), the Delhi State Consumer Disputes Redressal Commission, New Delhi, held that the remedy under the Sick Company Act is an independent remedy available to a company and not to the consumer and moreover, the persons, who were issued debentures at the agreed rate of interest are entitled to get an amount in terms of contract between the parties. Where the company becomes defunct or sick, it is not attributable to consumer, as they have no role to play in it. It is the consumer who suffers at the hands of such a company who became defunct and sick due to mismanagement of its affairs or any other reasons and the conduct of

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affairs of the company qua the consumer has to be decided and adjudicated on the anvil of definition of “deficiency in service” provided by the Consumer Protection Act.

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11. Indisputably, by the date of the respondents 1 to 4 filing C.D. before the District Consumer Disputes Redressal Forum-II, Hyderabad, the company (in liquidation) was directed to be wound up by an order dated 19.08.1998 passed in Company Petition No.84 of 1997, and the Official Liquidator attached to this Court was appointed as its Liquidator. The provisions of the Companies Act relating to winding up are intended to give relief to the company which is insolvent, from the harassment of its creditors on the one hand and to provide a machinery by which all creditors are equally satisfied, on the other hand. It is established principle that insolvency law is devised for the protection of distressed debtors and protection of the insolvent. The policy and object underlying it is to secure the distribution of a debtor’s estate among his creditors and to prevent the more active creditors from getting an undue advantage over those who may be less active. If some of the creditors move the authorities under the Consumer Protection Act and receive their dues, the other creditors who do not move that authority may not get any amount due to them. It cannot be taken that the legislature intended that such a result should happen by implementing the Consumer Protection Act intended to benefit the consumers in general and not to benefit one or a small group of consumer against the interests of the larger sections of the consumers.

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12. Section 10 of the Companies Act, 1956, provides that the Court having jurisdiction under the said Act shall be the High Court having jurisdiction in relation to the place at which the registered office of the company concerned is situate, except when jurisdiction is conferred on any District Court subordinate to the High Court. Section 439 of the Companies Act provides for filing of a petition for winding-up of a company. Section 443 provides for the passing of an order of windingup among other matters. Section 446 of the Companies Act is as

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follows:

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“446. (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 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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Under Section 456 (2) of the Companies Act, 1956, all the properties and effects of a company shall be deemed to be in the custody of the Court from the date of the order for the winding up of that company. The official liquidator is only an Officer of Court appointed under Section 448 of the Companies Act and he is the liquidator of the company by virtue of Section 449 of the Companies Act. Appointment and powers of provisional liquidator are governed by Section 450 of the Companies Act. Generally, he shall have the same powers as a liquidator unless it is limited or restricted by the order of the Court. The liquidator can make payments only as provided in the Companies Act after getting orders from the Company Court. Under Section 528 of the Companies Act, all debts payable by the company are to be admitted to proof and the provisions in insolvency proceedings are applicable to proof of debts under Section 529 of the Companies Act. Under Section 530, the company is entitled to make certain payments as preferential payments. Under Rules 147 to 169 and 174 of the Companies (Court) Rules, the liquidator is to initially settle a list of creditors, and the Court will adjudicate on any further

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claims and finally settle the list of creditors. Only after such settlement of list of creditors, the liquidator can proceed to declare any dividend with the sanction of the Court. (Rule 275 of the Companies (Court) Rules).

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13. The historical evolution of Section 446 was succinctly traced in Sudarshan Chits (P) Ltd. v. G.Sukumaran Pilla i^[4] . The Supreme Court held as follows:

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“7… To save the company which is ordered to be wound-up from this prolix and expensive litigation and to accelerate the disposal of windingup proceedings, the Parliament devised a cheap and summary remedy by conferring jurisdiction on the Court winding-up the company to entertain petitions in respect of claims for and against the company. This was the object behind enacting Section 446(2), and therefore, it must receive such construction at the hands of the Court as would advance the object and at any rate not thwart it”.

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14. The object of Section 446 of the Companies Act is to save the company which is being wound-up from unnecessary litigation and to protect its assets for equitable distribution among its creditors and its shareholders. This being the object of Section 446 of the Companies Act, it is apparent that all those matters where the claim of such a nature can be investigated by the winding-up Court, would be within the purview of Section 446. In case any creditor of the Company files a claim before the authority under the Consumer Protection Act and secures an order in his favour and the company is forced to pay that amount, that will really amount to preferring that creditor to other similarly placed creditors. It is in order to avoid such a situation that the Companies Act provides for settlement of list of creditors after due notice to all creditors.

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15. Keeping in view the object of Section 446 of the Companies Act, 1956, it is to be held that the order obtained by the respondents 1 to 4 by filing E.A.No.106 of 2007 from the District Consumer Disputes Redressal Forum-II, Hyderabad, cannot be sustained.

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16. Accordingly, both these Company Applications are allowed quashing the proceedings in E.A.No.106 of 2007 and consequently, attachment order passed by the District Consumer Disputes Redressal Forum-II, Hyderabad, in E.A.No.106 of 2007 is hereby raised.

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Consequently, the 5^th respondent-State Bank of India, Institutional Banking Division, Hyderabad Main Branch, Bank Street, Koti, Hyderabad shall release the FDR amount along with interest standing in the name of M/s. Asia Pacific Investment Trust Limited (in liquidation) in favour of the Official Liquidator. No costs.

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______________________ B.SESHASAYANA REDDY, J.

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Dated:15^th April, 2010. Note: L.R. copy to be marked. B/O cs

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THE HON’BLE SRI JUSTICE B.SESHASAYANA REDDY

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Company Application Nos.1660 and 1670 of 2007 in

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Company Petition No.84 of 1997

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Date:1 5 th April, 2010