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Company Law Project
Company Law Project
UNIVERSITY
2021-22
Final draft of:
Critical analysis of Harihar nath and oths v SBI
Held
Ratio decidendi
Concluding remarks
Facts of the case
Nalanda Ceramic & Industries Ltd was a company incorporated under the companies act, 1956. The
Company had obtained certain credit facilities from the State Bank of India. The loans were secured by
mortgage of the assets of the Company. The repayment of the amounts advanced to the Company was
guaranteed by the appellants. On 28.11.1988, the Bank filed a suit against the Company (defendant
No.1), the appellants and others . In the said suit, the Bank sought a decree for Rs.5,95,98,258.31
against defendants 1 to 4 (the company and the appellants) with interest thereon and several ancillary
and consequential reliefs. Even prior to the said suit, other creditors had filed petitions for winding up of
the Company to the Patna High Court, alleging that it was unable to pay its debts. During the pendency
of the said company petitions, a notification dated 16.4.1984 was issued under the Bihar Relief
Undertakings (Special Provisions) Act, 1982, declaring the Company as a relief undertaking, thereby
preventing further progress of the petitions for winding-up. This legislation had power to stay winding
up proceedings of any company for further inquiry by the state industrial board due to which till 1995
there was stay on winding up proceedings.
Thereafter, on 11.8.1995, the Bank filed an application under Section 446(1) of the Act, seeking leave of
the Company Court to proceed with its suit. The said application was resisted by the appellants on the
ground that the application seeking leave was barred under Article 137 of the Limitation Act, 1963. The
appellants contended that the application ought to have been filed within 3 years from the date of
winding up, that is, on or before 24.10.1992 and the application filed on 11.8.1995 was barred by
limitation.
The Company Court granted leave condoning the delay in filing the application but also directed that the
decree if obtained, would be executed against the appellants/directors in the first instance and then
only against the company.
(i) Applications seeking leave to file a suit or commence a legal proeeding against the company, after an
order for its winding up has been made.
(ii) Applications seeking leave to proceed with a pending suit or legal proceeding against a company,
filed or initiated before the order for winding up of such company.
Held
The court held that there is no applicability of section 137 for computing period of limitation for a suit of
leave to be filed before the company court in the both the categories(i and ii) of application under section
446(1) of the companies act, 1956.
And as for second category of application article 137 is intended to apply to application seeking for a
enforcement of a claim or adjudication of a right or liability in a court. An application for a leave to
proceed in respect of a pending suit or proceeding not being such an application for any relief it will not
attract section 137. An application seeking leave to proceed in respect of a pending suit or proceeding
(filed before the order of winding up) is not an application for enforcement of any claim or right. It does
not seek any “relief” or “remedy” with reference to any claim or right or obligation or a liability. It is an
application which is interlocutory in nature and interlocutory application are not subject to period of
limitation unless specifically provided by law.
It may be useful to consider the meaning of the words "right to apply accrues" that occur in Article 137.
An order of winding up does not create any "right" to file an application under Section 446(1) of the Act.
Nor does any right "accrue" to a plaintiff-petitioner in a suit/proceeding to file an application under
Section 446(1), when an order of winding up is passed. On the other hand, passing of an order of winding
up casts a duty or obligation on the person who has sued the company to obtain the leave of the court to
proceed with his suit or proceeding. The right to apply for leave accrues, not because of the order of
winding up, but because the suit/proceeding is stayed. The right to apply for grant of leave under Section
446(1) accrues every moment the suit remains stayed. Consequently, it follows that as long as the
suit/proceeding (filed before the order of winding up) remains stayed, an application for leave can be
filed. Therefore, the application under Section 446(1) filed on in the present case was in time and not
barred even if application under 137 is applied.
Concluding remarks
After going critically through the judgement of the divison bench of the honourable Supreme court we
can say that the bench was absolutely correct in providing relief to the bank and provided it leave as due
to Sic act the winding up proceeding was barred for three years without any delay on the part of bank
and the judgement also got further in explaining the legal point of non application of article 137 in
section 446(1) of the companies act and hence finding error in the company court decision which even
though condoning the delay of period of limitation provided application of leave to the bank for suit.
The divison bench of the sc on the other hand said not only there is no question of limitation but also
that with no question of limitation the additional direction(i.e decree if obtained to be executed against
the directors firstly and later to the company ) given by the lower court also would not apply.
Hence we can say that the judgement delivered by the divison bench was right on all legal grounds and
the court went on to set its duty to explain exactly the correct point of law as the relief was same in
both the jiudgement of the company court and the sc but the rationale was different and there was no
justification for additional direction.
BIBLIOGRAPHY
Indian kanoon.org