C.M. No.376/2016.
This is an application on behalf of Zarai Taraqiati Bank Limited (ZTBL) under section 316 of the Companies Ordinance, 1984 (Ordinance) (currently section 310 of the Companies Act, 2017 (Act) after repeal of the Ordinance), for seeking leave to procee d in the Execution Application No.12-B/2 005 and Execution Application No.28-B/2014 in COS No.10/2002 pending before this Court in Banking jurisdiction. The learned counsel for the applicant submits that in suit for recovery filed by the applicant, interim decree against the company under liquidation (company) as well as 10 other judgment debtors was passed on 22.04.2002 and final decree was passed on 21.04.2014. He submits that two separate Execution Applications were filed for execution of said interim and final decrees, however , in meanwhil e the company was wound up on 07.03.2005, resultantly the execution petitions could not proceed without permis sion of this Court under section 316 of the Ordinance and 310 of the Act.
He submits that execution petitions being also against guarantors and mortgagors, the permission may be granted to proceed with execution petitions.
2. The learned counsel for applicant in C.M. No.2/2022 (filed by one of the Ex-Direc tor Muhammad Arif Sehgal) has supported the above application whereas learned counsel for applicant in C.M. No.4/2022 (filed by one of the Ex- Director namely Asif Sehgal) has oppos ed this application. Learned JOL have resisted this application by filing written reply . No one else has appeared to contest this application.
3. I have heard learned counsel for the parties and perused the record with their able assistance. For ready reference, section 310 of the Act (which is identical to section 316 of the repealed Ordinance) is reproduced hereunder:- "310. Suits stayed on winding up order .-(1) When a winding up order has been made or a provisional manager has been appointed, no suit or other legal proceeding shall be proceeded with or commenced against the company except by leave of the Court, and subject to such terms as the Court may impose.
(2) The Court which is winding up the company shall, notwithstanding anything contained in any other law for the time being in force, have jurisdiction to entertain, or dispose of, any suit or proceeding by or against the company .
(3) Any suit or proceeding by or against the company which is pending in any court other than that in which the winding up of the company is proceeding may, notwithstanding anything containe d in any other law for the time being in force, be transferred to and disposed of by the Court."
4. The object of section 310 of the Act is to prevent litigation against a company , which is being wound up except with the permission of Court including all proceedings in which, the company under liquidation is either a defendant or respondent. The principle underline in section 310 of the Act is that property remained vested with the company but liquidator is a trustee for the benefit of all the creditors and therefore, one creditor cannot be placed at an advantageous position and be permitted to derive the benefit to the exclusion of other creditors. However , mere pendency of winding up petition ipso-facto does not operate as a bar to any suit or proceedings by or against the company but bar only operates on actual winding up order or order appointing the Provisional Manager . The permission under section 310 of the Act is not only confined to suits but the words "other legal proceedings" in subsection (1) of section 310 of the Act, can and should be held to cover the execution proceedings. Therefore, grant of permission by the Company Judge is necessary for execution of a decree against the company in liquidation.
5. However , when the permission is required to proceed with the execution, the Court must consider the claims of all the creditors and application to continue execution proceedings against the company in liquidation can be refused if it would mean to give undue preference to the decree holder over the other creditors of the company , unless the decree holder is a secured creditor and has specifically opted to stay outside the winding up and enforce its security . It is also relevant to note that as per settled law, a person claiming to be a secured creditor cannot be compelled to prove his debt in liquidation, such person could stand outside the winding up proceedings and rely upon his security . When such creditor asks for leave to sue, such prayer should ordinarily be granted unless there are special grounds to support the contrary course. Further in a judgment and decree, in which the judgment debtors also include the individuals besid e company , the execution will ordinarily be allowed to proceed against individuals because winding up proceedings are against the company and not against the individual judgment debtors who are jointly and severally responsible.
6. There is no specific yardstick in section 310 of the Act for grant or refusal of permission. However , this Court in case M/s Kashmir Theatres Limited Lahore (In Liquidation) M/s Nizami Pictures Lahore and Sh. Abdul Rehman, Managing Director (PLD 1964 (West Pakistan) Lahore 326) laid down following six guiding principles for such permission and leave under section 316 of the Ordinance: (Now section 310 of the Act).- i) Leave of the Court cannot be obtained merely for the asking. It is not to be granted automatically or as a matter of course. The Court has to examine the facts of each case and exercise its discretion. Such discretion must be exercised reasonably and not arbitrarily or capriciously . In exercising a discreti on, the Court may grant leave unconditionally or may impose some conditions. ii) In cases in which the company is the sole defendant, as a general rule, unless the question or issue in the action or proceeding is one which cannot be properly determined in the winding up, Leave will be refused. In re Poola Firebrick Co. (1874) 17 Eq. 268, and in Re Keyasham Co. (1863) 33 Beav 123. iii) Where, however , the question at issue is such that it cannot be conveniently gone into in the winding up, leave will generally be given. (See Wilson Vs. Natal Investment (1867) 36 LJ Ch. 312). iv) In cases where the company is a necessary party to the action, but there are other defendants as well, the Court generally grants leave. -- In re Marine Investment Co. (1868) L.T . 535. v) The Court usually insists, however , upon an undertaking by the plaintiff that he will not enforce against the company any judgment which he may obtain without the leave of the Court. (See McEwen vs. London, Bombay and Mideteranean Bank Ltd. (1867) 15 L T 495 and Hegal vs. Curria (1867) W N 75. vi) In a proper case a Court may revoke the leave already granted, (See Hukumchand vs. Radhakisshan AIR 1925 Cal. 916 ).
7. I have carefully examined the instant case in the light of discussion and aforenoted guiding principles. The applicant/ZTBL is a secured creditor but it did not opt to stay outside the winding up and enforce its security . In Para 4 of C.M. No.248/2005, the ZTBL specifically admitted that it has filed its claim before this Court in this winding up petition, which application was allowed on 25.04.2005. Notwithstanding above legal position, the decrees dated 22.04.2002 and 21.04.2014 in favour of the applicant are not only against the company under liquidation but same are also against 10 other judgment debtors including guarantors and mortgagors. For recovery of claim of the applicant/ZTBL, this Court in this winding up petition can auction the assets of the company and distribute the amount realized but it cannot proceed against the properties of individual mortgagors and guarantors of applicant/ZTBL who are also judgment debtors in the above execution petitions. In case of M/s Kashmir Theaters supra this Court held that in cases where the company is necessary party to the action but there are other defendants as well, the Court generally grant leave. The same legal position was also reiterated by this Court in (matter of SECP vs. Innovative Investment Bank Limited ) C.O. No.46 of 2010 vide order dated 26.04.2018.
8. In Shafi Woolen Industries Limited, Lahore and 5 others (PLD 1993 Lahore 691), this Court held that where guarantors are also joined as parties, Court generally grants leave. Relevant part of the judgment is reproduced below:- "5. It is not denied that the applicants are the secured creditors. Law is fairly well-settled that a person claiming to be a secured creditor cannot be compelled to prove his debt in liquidation. He can stand outside the winding up proceedings and rely upon a security and when such a person asks for leave to sue, the prayer should ordinarily be granted, unless there are special grounds to support the contrary course. Refer: The Punjab Pulp and Paper Mills Limited (AIR 1932 Lahore 475). Similar view has been expressed In re: Capt. Muhammad Aqeel Siddiqi and 2 others reported in PLD 1988 Karachi 72. It was held in that case:- "In any case , where a suit to enforce a mortgage or security upon the company's property is filed normally leave to proceed with the suit-is granted particularly in cases where a guarantor or guarantors are also joined as parties to the suit because presence of both the company in liquidation represented by liquidator and guarantor or guarantors is either necessary or proper in order to effectually and completely decide all questions involved in the suit". In re: Marine Investment Co.
(1868) L.T. 535, it was held that in cases where the company is a necessary party to the action, but there are other defendants as well the Court generally grants leave. Refer: PLD 1964 (W .P.) Lahore 326."
9. Similarly in Capt. Muhammad Aqeel Siddiqi and 2 others ( PLD 1988 Karachi 72 ), Court held as under:- "In any case, where a suit to enforce a mortgage or security upon the company' s property , is filed normally leave to proceed with the suit is granted particularly in cases where a guarantor or guarant ors are also joined as parties to the suit because presence of both the company in liquidation represented by liquidator and guarantor or guarantors is either necessary or proper in order to effectually and completely decide all questions involved in the suit. I may here quote a passage from "Ghosh on the Company Law" (Pakistan Edition, 1977), which reads as follows:- "Proceedings will be, allowed to continue where they are to enforce a mortgage or security upon the company property , or where the company is a necessary party to an action against other persons. (Emphasis Supplied), or where an action is the most convenient method of trying a question, or where a share-holder has commenced proceedings for recession and rectification of the register before the winding up, or where the claim is for specific performance or for recovery of possession."
10. Though the above case law is for permission to proceed with the suit, however , considering that mortgagors and guarantors of applicant/ZTBL cannot be proceeded against in this winding up petition, the same principle shall also be applicable to the execution to the extent of guarantors and mortgagors. However , this Court is not bound to grant permission as prayed for rather it is settled law that this Court while granting permission may impose conditions in leave granting order as it may deem fit and appropriate.
11. In view of above discussion, this application is partially allowed and applicant is granted permission to proceed with above referred execution petitions only to the extent of judgment debtors who were impleaded as guarantors and mortgagors, however , execution petitions will not proceed against company , being this winding up petition already pending and such permission will give undue advantage to applicant over other creditors.