HARIHAR NATH AND ORS. versus STATE BANK OF INDIA AND ORS.

Citation: [2006] 3 S.C.R. 769 · Decided: 04-04-2006 · Supreme Court of India · Bench: ARUN KUMAR · Disposal: Dismissed

Judgment (excerpt)

HARIHAR NATH AND ORS. 
A 
v. 
STA TE BANK OF INDIA AND ORS. 
APRIL 4, 2006 
[ARUN KUMAR AND R.V. RA VEENDRAN, JJ.] 
B 
Companies Act, I 956; Section 446-Limitation Act, I 963; Article I 37-
Loan taken by Company from a Bank by mortgaging its assets with personal 
guarantee of its Directors-Mortgage suit filed by the Bank before trial court 
against the Company and its directors-Meanwhile, an order of winding up C 
of the Company was passed by High Court in petitions filed by some creditors 
of the Company-Bank filed an application before Company Court seeking 
leave to proceed with the Mortgage suit pending before trial court-Objections 
raised to the application on the ground that it was time barred under the 
Limitation Act-Company Court allowed the application of the Bank after D 
condoning the delay suo moto-Appeal before High Court was also 
dismissed-Correctness of-Held, a suit against a Company gets stayed on 
passing of a winding up order of the Company-An application for leave of 
Court filed under the Companies Act to proceed with a pending suit is not 
an application seeking enforcement of a claim or adjudication of a right or 
liability in a court-Right to apply for grant of leave under the Companies E 
Act accrues every moment the suit remains stayed-Hence, period of limitation 
specified under the Limitation Act is not applicable-Sick Industrial 
Companies (Special Provisions) Act, 1985; Sections I 6 and 22. 
Appellants as Directors of second respondent Company obtained a loan 
from first respondent Bank by mortgaging the assets of the Company on 
their personal guarantee. The Bank filed a Title Mortgage suit before trial 
court against the defendants - appellants and the Company - for decretal 
amount with interest thereon and other ancillary and consequential reliefs. 
F 
Some creditors filed petitions before High Court for winding up of the G 
Company alleging that it was unable to pay its debts. Since the Company 
became sick, a reference was made to the Board for Industrial and Financial 
Reconstruction which directed an enquiry under section 16 of the Sick 
Industrial Companies (Special Provisions) Act, 1985 (SIC Act). 
769 
H 
770 
SUPREME COURT REPORTS 
[2006] 3 S.C.R. 
A 
In view of the reference, the first appellant filed an application before 
the trial court in the Title Mortgage Suit under section 22 of the SIC Act for 
stay of further proceedings in the suit. In the meantime, the High Court 
passed an order for winding up of the Company. The trial court disposed of 
the application by rejecting it to stay the suit under section 22 of the SIC 
B Act. The trial court, however, stayed the suit in view of the order of winding 
up by the High Court. 
The Bank filed an application under section 446(1) of the Act before 
Company Court seeking leave to proceed with the suit. The appellants resisted 
the application on the ground that it was time barred under Article 137 of the 
C Limitation Act, 1963. The Company Court granted leave after condoning the 
delay suu moto subject to the condition that if a decree was granted in the 
suit, jointly and severally against various defendants, the Bank should proceed 
to recover the decretal amount from the appellant-guarantors first and only 
if there was any deficit, it should be recovered from the Company. A Letters 
Patent Appeal filed by the appellants before Division Bench of the High Court 
D was dismissed. 
E 
F 
In appeal to this Court, the appellants contended that an application for 
grant of leave filed by the Bank is time barred under Article 137 of the 
Limitation Act, 1963 since it was not filed within 3 years from the date of the 
order of winding up; that the Company Court erred in condoning the delay 
suo moto by exercising power under section 5 of the Limitation Act in absence 
of an application seeking condonation of delay; and that there was no 
justification for directing that the decretal amount should be recovered from 
the guarantors first and only if there was any deficit, it should be recovered 
from the Company. 
Dismissing the appeal, the Court 
HELD: I. I. The object of Section 446 of the Companies Act, 1956 is 
not to cancel, nullify or abate any claim against the company. Its object is to 
save the company which has been ordered to be wound up, from unnecessary 
G litigation and from multiplicity of proceeding and protect the assets for 
equitable distribution among its creditors and shareholders. This object is 
achieved by 

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