Shri Jai Krishin Amar vs K.M. Capital Limited
2003 Latest Caselaw 578 Del

JUDGMENT

Vikramajit Sen, J.

IA 6013/2003

1. This application has been filed on 22.5.2003, i.e., one day previous to today's hearing, praying for the condensation of delay in filing IA No. 9740/2002 in which application provisions of Order xxxvII Rule 4 read with Section 151 of the Code of Civil Procedure has been invoked.

2. For this application to merit consideration, it ought necessarily to have been filed along with IA No. 9740/2002. Having not been so filed it is not maintainable and serves no useful purpose. The application deserves dismissal on this short ground.

3. Without prejudice to the above no the explanation has been given for the inordinate delay in its filing which is sought to be condoned. Dismissed.

IA 9740/2002

4. Since the application has been filed beyond the prescribed period of limitation, and since it has not been accompanied by an application seeking the condensation of delay; it deserves dismissal for the reason that it has been preferred beyond limitation. Be that as it may, the only contention put forward on behalf of the Applicant is that it had gained knowledge of the passing of the Decree only when it was served with a notice in the execution proceedings. Admittedly no defense to the suit has been preferred.

5. It must be borne in mind that the present application has been filed in respect of a suit covered by Order xxxvII of the Code of Civil Procedure, viz. a summary suit. The constitutionality of Order xxxvII has been unsuccessfully assailed before the Hon'ble Supreme Court, which found an intelligible differentia between commercial suits and ordinary suits for recovery. The application appears to have been filed keeping Order IX Rule 13 of the CPC in view, rather than Order xxxvII Rule 4. In order to bring out the distinction between these two provisions they are reproduced in juxtaposition.

Order IX Rule 13

13. Setting aside decree ex parte against defendants. -

In any case in which a decree is passed ex parte against a defendant, he may apply to the Court by which the decree was passed for an order to set it aside; and if he satisfies the Court that the summons was not duly served, or that he was prevented by any sufficient cause from appearing when the suit was called

Order xxxvII Rule 4

4. If the defendant enters an appearance, the plaintiff shall thereafter serve on the defendant a summons for judgment in Form No. 4A in Appendix B or such other Form as may be prescribed from time to time, returnable not less than ten days from the date of service supported by an affidavit verifying the cause of action and the amount claimed and stating that in his belief there is no defense to the suit.

on for hearing, the Court shall make an order setting aside the decree as against him upon such terms as to costs, payment into Court or otherwise as it thinks fit, and shall appoint a day for proceeding with the suit:

Provided that where the decree is of such a nature that it cannot be set aside as against such defendant only it may be set aside as against all or any of the other defendants also:

Provided further that no court shall set aside a decree passed ex parte merely on the ground that there has been an irregularity in the service of summons, if it is satisfied that the defendant had notice of the date of hearing and had sufficient time to appear and answer the plaintiffs claim.

Explanation. - Where there has been appeal against a decree passed ex parte under this rule, and the appeal has been disposed of on any ground other than the ground that the appellant has withdrawn the appeal, no application shall lie under this rule for setting aside the ex parte decree.

6. It is palpably evident that legislature made a conscious departure when dealing with actions and litigations falling under Order xxxvII, which is a pandect of its own. While it is expected of an applicant/defendant merely to show sufficient cause for his non appearance on the date of hearing when the decree was passed in his absence, for setting aside such a decree passed in an ordinary suit, the requirements for obtaining the same relief in respect of a summary suit is justifiably more onerous and stringent. If decrees passed in summary suits are to be dealt with the same latitude as under Order IX Rule 13, the object of expeditious disposal of such claims would be immediately defeated. The distinction between these two sections has been carefully culled out by a plethora of precedents of various High Courts. In Dwarka Cement Works Ltd. Vs. Rajnesh Jain, 2000 AIHC 3309 it has been held that a Defendant in a summary suit is bound to show special circumstances for his non-prosecuting the case as laid down in Order xxxvII Rule 4. What logically follows is that these circumstances require greater precision in pleadings than those under Order IX Rule 13 of the CPC. In Tirlok Singh V. Madan Singh Nirala, it has been opined that a Defendant has to satisfy twin conditions, namely, (i) of disclosing sufficient cause for non-appearance as also, (ii) existence of a substantial defense in the suit. As already observed, while in Order IX Rule 13 the second condition is not essential for the disposal of the application for setting aside the decree, in the case of decrees passed under Order xxxvII the defense must be simultaneously disclosed so that the intention of a expeditious disposal is not thrown to the winds. Similar views have also been articulated in Jaramillo Bharathi Vs. Prichikala Venkatachalam AIR 1999 Andhra Pradesh 427 where it has been underscored and emphasised that under Order xxxvII Rule 4 the Defendant must show special circumstances in contradistinction "sufficient cause". One need not, however, traverse the various decisions of the High Courts in view of the recent authoritative pronouncement of the Hon'ble Supreme Court in Rajni Kumar v. Suresh Kumar Malhotra & Anr., . Paragraph 10 of the judgment reads as follow:

"10. It is important to note here that the power under Rule 4 of Order 37 is not confined to setting aside the ex parte decree, it extends to staying or setting aside the execution and giving leave to appear to the summons and to defined the suit. We may point out that as the very purpose of Order 37 is to ensure an expeditious hearing and disposal of the suit filed there under, Rule 4 empowers the court to grant leave to the defendant to appear to summons and defined the suit if the court considers it reasonable so to do, on such terms as court thinks fit in addition to setting aside the decree. Where on an application, more than one among the specified reliefs may be granted by the court all such reliefs must be claimed in one application. It is not permissible to claim such reliefs in successive petitions, as it would be contrary to the letter and spirit of the provision. That is why where an application under Rule 4 of Order 37 is filed to set aside a decree either because the defendant did not appear in response to summons and limitation expired, or having appeared, did not apply for leave to defend the suit in the prescribed period, the court is empowered to grant leave to defendant to appear to the summons and to defend the suit in the same application. It is, therefore, not enough for the defendant to show special circumstances which prevented him from appearing or applying for leave to defend, he has also to show by affidavit or otherwise, facts which would entitle him leave to defend the suit. In this respect, Rule 4 of Order 37 is different from Rule 13 of Order 9."

This is the law which must be applied to the facts of the present case. There is not even a whisper of a defense to the suit in the present application. The second conditions spelt out by the Hon'ble Supreme Court, which is essential for granting relief under Order xxxvII Rule 4 is palpably wholly absent. This is sufficient reason for rejecting the application.-

7. So far as the circumstances for setting aside or recalling the ex parte decree are concerned, it has firstly been contended that the Judgment Debtor can legally be ascribed with the knowledge of the ex parte decree only on receipt of notice issued by this Court in execution proceedings. This contention has only to be stated for it to be rejected forthwith. The Judgment Debtor has been served in the suit by publication. In Order AXIS Rule 13 and, a fortiori, under Order XAVIER Rule 4, the applicant must clearly and diligently discharge the duty to dispel all doubts of the adoption of dilatory techniques in the litigation. In the present case winding-up proceedings had been filed by M/s. Rahul Departmental Stores Pvt. Ltd. in CP No. 456/1997. That petition eventually was dismissed. However, Shri Kuldeep Mansukhani who has signed the present applications and his affidavit in support thereof, had appeared in the winding-up proceedings on 14.3.2001, 7.7.2001, 13.7.2001, 17.7.2001 and on various dates thereafter. The Decree Holder had intervened in those proceedings and had brought it to the notice of the Company Judge that a decree has been passed against the Respondent-company (i.e. the Judgment Debtor in these proceedings) Even if I was presently not seized with a decree passed under Order xxxvII, I would have been in no doubt whatsoever that at least in July 2001 the applicant had sufficient and requisite knowledge of the passing of a Decree dated 11.11.1999. Where sufficient cause and diligence has not been shown in the context of Order IX Rule 13, it certainly cannot exist in the far more stringent provisions of Order xxxvII Rule 4.

8. An objection has also been taken that the decree is non est and delays non-executable inasmuch as it was passed during the pendency of the winding-up petition, i.e., C.P.No. 456/1997. As has already been mentioned, this winding-up petition was filed by a third party against the Judgment Debtor. What immediately strikes me is that a collusive petition can be filed which would have the effect of delaying a decision in the civil suit. This, consideration, however, would undoubtedly weigh in the mind of the Judge at the time when permission under Section 446 of the Companies Act was to be granted or declined. Be that as it may, a distinction requires to be drawn in this context between civil suits that have been filed prior to the appointment of a provisional liquidator and those filed thereafter. In winding-up proceedings the interests of creditors in the same class are to be dealt with in similar fashion. The all-pervading interest in winding-up proceedings, therefore, is to secure the maximum benefit for the maximum number of creditors. The intendment behind Section 446 of the Companies Act is not to give any succor to a company which is under winding-up but rather to strengthen the arms of the Official Liquidator so that the above objective can be achieved. Prior to the passing of an order appointing a Provisional Liquidator or a Official Liquidator, the company actively defends the action. If it can be expected to defend the winding-up action I see no reason why the company should not be similarly expected to defend all civil actions also. The effect of appointment of a Provisional or an Official Liquidator would be to take the company out of the hands of his erstwhile owners and to place its future fortune in that of the Official Liquidator. It is quite possible that at the time when the Liquidator takes the affairs of the company into his hands, he may not be aware of all the litigations pending against the company. Unless he receives knowledge of all litigation, the task of distribution of the assets would be severely crippled by passing of decrees in undefended suits. It is quite palpably clear that Section 446 has been enacted with this purpose alone and not with the intention of delaying or defeating legitimate claims against the company which is in the process of being wound up.

9. My attention has justifiably been drawn to the decisions in A.M. Padmakshi Vs. Sudarsan Chits (India) Ltd. and Others, [1987] 62 Comp. Cas. 637 where it was held that the mere appointment of a Provisional Liquidator did not affect the continuance of pending proceedings. It was opined that the Plaintiff was not obliged to obtain leave of the Court under Section 446(1) to continue the execution proceedings. Alternatively it was opined that even taking a narrower view, failure to obtain leave before institution of proceedings did not entail dismissal of the proceedings and the suit or proceedings instituted without leave of the Court would be perfected once leave was obtained and such leave would be deemed to relate back to the time of the institution of the proceedings. In Vyas Bank Ltd. Vs. Official Liquidator, Shreeniwas Cotton Mills Ltd., [1995] 84 Comp. Cas. 493 a Division Bench of the High Court of Bombay drew the distinction mentioned above, that is, that pending action can be continued and fresh action can be commenced only by the leave of the Court. It was also observed that a Decree passed in the absence of the Court's leave under Section 446 is not a nullity; and leave under Section 446 is not a condition precedent and can be granted post facto. It was also noted that Section 446 of the Company Act does not prescribe any time within which an application for leave would have to be filed, and that leave can be applied for even subsequent to the order of winding-up. In Zahama Bee Vs. Reliable Corporation (P.) Ltd. and Another [1974] 44 Comp.Cas. 484 it has been held that - " the object of Section 446 was only to safeguard the company from being subjected to liability or being deprived of its rights and claims without the knowledge of the winding-up court. Therefore, the leave of the Court can be obtained even subsequently and with retrospective effect." In State of Bihar Vs. Syed Anisur Rahman and Others. [1977] 47 Comp.Cas. 372 Justice Untwalia, as his Lordship then was, was of the opinion that the absence of leave to continue or proceed with the suit does not deprive the Court of jurisdiction to pass any decree and the decree does not become a nullity for lack of jurisdiction.

10. In the present case this suit is for recovery of Rs. 26,39,563/- was filed on 12.6.1998. No doubt CP No. 456/1997 had already been filed by them. The Provisional Liquidator, however, was appointed on 12.1.1999. the suit was, therefore, maintainable when it was filed. The question that next arises is what effect is to be given to the appointment of a Provisional Liquidator. In this respect I would revert back to the observations made at the start of this order. In the case of a frivolous or a collusive winding-up petition it would be a travisty of justice if legitimate claims were to be held in abeyance or were to be held as not maintainable because of the filing of a meritless or collusive winding-up petition. As it transpired, in the said Company petition, on the intervention of the present Plaintiff/Decree Holder, the Company Judge dismissed the petition by Order dated 6.8.2002. The appointment of the Provisional Liquidator was recalled. In these circumstances the embargo of Section 446 no longer continues, and would, therefore, have no application to these proceedings.

11. Before departing I shall make a brief reference to the contention of Mr. Chaudhary, learned counsel appearing for the Judgment Debtor, that the company had applied to the Company Law Board and had put forward a scheme for payment to all its creditors. It is strenuously contended by Mr. Bajpai that the Scheme has not been implemented at all by the Judgment Debtor. In my opinion any Scheme for repayment would require consideration by this Court only in the context of the passing of orders in execution proceedings.

12. In these circumstances the application is wholly without merit and is dismissed with costs of Rs. 2000/-.