Delhi High Court: A petition was filed by Kirloskar Inv. and Finance Ltd. (petitioner) seeking an appropriate order or direction, permitting the applicant to execute the decree dated 24-11-2023 passed against Apollo Tubes and Steel Industries Ltd. (respondent) currently under charge of the Official Liquidator. Chandra Dhari Singh, J., allowed an application granting permission for execution of a decree against a Company which is under liquidation pursuant to an order passed 20 years ago, directing the petitioner to seek permission of the Court prior to seeking execution of the decree in case the decree is rendered in its favour.
The petitioner is one of the creditors of Apollo Tubes and Steel Industries Ltd. (“judgment debtor”), a company incorporated in 1973 under the Companies Act, 1956. In 1993, the petitioner Company entered into a lease agreement with the judgment debtor for a total amount of Rs. 99,75,000, to be paid in equal installments of Rs. 2,77,084 over a period of 35 months. However, in 1998, the judgment debtor was directed to wind up by the Court vide order dated 22-11-98. An official liquidator was appointed, initiating the winding-up process. Before the winding-up order, the petitioner Company filed a suit before the Madras High Court and to continue this suit, they obtained leave under Section 446 of the Companies Act, 1956, from this Court on 06-05-04.
The suit filed before the Madras High Court was decreed in favor of the petitioner Company on 24-11-23. However, the decree is currently pending execution. Given that the petitioner Company had been granted leave to continue with the suit before the Madras High Court, the present application was filed seeking permission to execute the decree obtained.
Counsel for petitioner argued that as a secured creditor, the petitioner is entitled to enforce the security created in its favor and repossess the machinery subject to the lease agreement. They emphasized that the liability of the guarantors is distinct and independent of the principal debtor’s liability, and thus, no prejudice would be caused to the respondent company. The counsel further contended that the petitioner had obtained statutory leave under Section 446 of the Companies Act, 1956, to pursue the civil suit and would suffer irreparable hardship if permission for execution of the decree was not granted.
Counsel for Official Liquidator opposed the application, asserting that the petitioner is an unsecured creditor and the execution of the decree should be postponed. The Liquidator argued that the petitioner failed to file a claim before him and highlighted that the Companies Act provides a mechanism for considering creditors’ claims and priorities. They also noted that funds had already been disbursed to secured creditors and workers, leaving no funds available for unsecured creditors. Consequently, allowing the application would prolong the case unnecessarily, given the lack of funds for unsecured creditors, and thus requested the dismissal of the application.
The issue under consideration was whether the petitioner can be allowed to execute the decree passed in his favour by the Madras High Court vide order 24-11-2023.
The Court noted that on perusal of Section 446 of the Companies Act, 1956, it is clear that to continue a suit against a company whose winding up proceedings are ongoing, the party seeking such continuance of suit should seek leave from the Court for the same. The permission is required to be taken for the continuation of the suit and the provision is silent on the aspect of whether such permission is required for execution of the decree as well or not.
Placing reliance on Bansidhar Shankarlal v. Mohd. Ibrahim, (1970) 3 SCC 900, the Court observed that once the leave is granted to proceed with the suit, there is no need for the parties to file another application to seek execution of the decree awarded in their favor.
The Court, however, agreed with the applicant’s argument that staying the favorable decree would render the entire process useless and that the issues related to execution should be considered later. The Court also noted that the case law cited by the Official Liquidator was not entirely applicable.
The Court further acknowledged that granting execution permission could impact other creditors and disturb the established priority in liquidation proceedings. The provisions of the Companies Act ensure fair treatment of all creditors, and the Court must carefully consider this while granting execution permission.
The Court observed that since the decree holder had filed for the leave of the Court for the first time, it is apparent that the Court had adjudicated the issue based on the same. On the contrary, the Petitioner/applicant herein has already been granted leave to continue the suit. Therefore, the same amounts to valid permission for continuance of the same and execute the rights obtained after that. Consequently, the Delhi High Court was pleased to grant leave to the Petitioner/Applicant to execute decree against the Respondent. It was further stated that the applicant must have spent considerable resources fighting the suit for the last 20 years and therefore, it would not be appropriate to deprive him of the opportunity to execute the decree obtained in his favour.
Given that the applicant had already obtained leave to continue the suit and had invested considerable resources over two decades, the Court decided that denying execution of the decree would be unjust. Consequently, the Court granted the applicant permission to execute the decree dated 24-11-2023 and disposed of the application.
[Kirloskar Inv. and Finance Ltd. v Oas Appolo Steels and Tubes Ltd., 2024 SCC OnLine Del 5141, decided on 29-07-2024]
Advocates who appeared in this case :
Senior Adv. Satvik Varma along with NG Law Chambers comprising of Nakul Gandhi, Akshay Nagarajan and Mujeeb Rehman for petitioners
Ms. Ruchi Sindhwani, Sr. Standing Counsel with Ms. Megha Bharara, Advocate for Official Liquidator
Mr. Satvik Verma, Sr. Advocate with Mr. Nakul Gandhi, Mr. Shantanu Parmar, Mr. Manas Syal, Ms. Gazal Ghai, Mr. Shantanu Parmar and Mr. Akshay Nagarjan, Advocates for applicant