OFFICIAL LIQUIDATOR versus DHARTI DHAN (P) LTD.

Citation: [1977] 2 S.C.R. 964 · Decided: 10-02-1977 · Supreme Court of India · Bench: Y.V. CHANDRACHUD, P.S. KAILASAM · Disposal: Appeal(s) allowed
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Judgment (excerpt)

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964 
OFFICllL LIQUIDATOR 
v. 
DHARTI DHAN (P) LTD. 
February 10, 1977 
(M. H. BEG, C.J. AND P. S. KAILASAM, J.] 
I 
CO!.npan!es Act, 1956-:-Sections 442, 446-Power to stay proceedings whe-
ther d1scret10nary-Meamng of the word "may" occurring in s. 442. 
' 
Constitution of India, 1950-Article 136-Appeal bv special leave-Inter-
ference by Supreme Court-:-Scope of. 
· 
. The Company .Juqge in tl,ie .~(>mbay High Court directed on 3-1-1970 adver-
llsement of the ':"mdmg up petitmn filed by the Registrar of Companies in 
Maharashtra agarnst the respond t company, one of the d'ebtors of the Gotcha 
conwany to th~ .extent of Rs. 11 69,043/-. 
The respondent company appealed 
agamst the dec1s10n of the Company Judge and obtained an order dated 
3rd 
Febru1!ry, 1970, from a Division Bench staying the operation of the order of 
advertisement of the winding up petition. As the respondent company defaulted 
in the payment of two of its instalments, as agreed to between the Golcha com-
pany and the respondent company by agreements dated 25th June 1966 and 
17th January 1967, the Official Liquidator of the Golcha company made a claim 
under s. 446(2) of the Companies Act for the. recovery of a sum of Rs. 5 lac 
before the Company Judge of the High Court of Rajasthan. 
The respondent 
company after obtaining an ord~r of stay of the proceedings against it in the 
Bombay High Court made. another application under s. 442(b) of the Companies 
Act in the Rajasthan High Court for staying of proceeding against it under s 446 
(2) made by the appellant on the groilnd· that a compulsory wiriaing up petition 
was perlding against it in the Bombay High Court. The Company Judge rejected 
the application under s. 442(b) of the Act on 9-5-1974. 
But, the 
Division 
Bench of the Rajasthan fligh Ct;mrt allowed the appeal against the stay order 
and. ordered a conditional stay of ·iproceedings u/s. 446 (2) of the Act against the 
respondent company. 
On appeal by special leave, the Court, 
HELD : (I) The clear object of s. 442 is that claims in suits and proceed-
ings pending elsewhere which have a bearing on the company's liabilities may 
be stayed only until the winding up order is made, because, after the winding 
up order has been passed, s. 446 begins to operate so as to automatically transfer 
with certain exceptions, proceediqgs against the company being wound up· to the 
court exercising the jurisdiction Ito wind it up. [968 B-C] 
(2) Sections 442 and 446 of the Act have to be read together. 
It is only 
where the object of the two sections, when read .together, is served by a stay order 
that the stay order could be justified. That object 1s to exped1t10usly decide and 
dispose of pending claims in the winding up proceedings. 
A stay is not. to. be 
granted if the object of applying for it al'pea_rs to be merely to delay adjudica-
tion on a claim, and, thereby, to defeat 1usllce. 
In other words, a stay or~er 
under s. 442 cannot be made me1hanically or, as a matter of course, on sho-:vm.g 
fulfilment of some fixed and pr scribed c.onditions. It-can <;>nly be made Judi-
ciously upon an examination of the totality of the facts which vary from case 
to case 
It follows that the order to be passed must be discretionary and the 
powe'r to pass it must, therefore, be directory and not mandatory. [969 B-D] 
(3) The word "may" used before stay u/s. 442 of the Companies ~ct .really 
means "may" and not "must" or "shall" in such a context. In fact, 1t _1s not 
quite accurate to say that the word "may" by itself acquire~ t~e meanmg of 
"must" or "shall" sometimes. 
This word, however, always stgmfies. a co.nfer,-
ment of that power. That power may, having r~gard to ~he context m which !t 
occurs and the requirements contemplated for its exercise have annexed to 1t 
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OFFICIAL LIQUIDATOR V. DHARTI DHAN 
965 
an obligation which compels its exercise in a certain way on facts and circum· 
A 
stances from which the obligation to exercise it in that way arises. 
In other 
words, it is the context which can attach the obligation to the power compelling 
its exercise in a certain way. The context both legal and factual may impart to 
the power that obligatoriness. [969 D·F] 
( 4) Thus, the question to be determined in such cases always is whether the· 
power conferred by -the use of the word "may" has annexed to it an obligation, 
that, on the fulfilment of certain legally prescribed conditions to be shown by 
"'· 
eviden
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