N.L. Tibrewal, J.
1. The Bank of India has filed this petition for grant of leave under Section 446(1) to continue/proceed with the pending recovery proceedings in Petition No. 462 of 1995 before the Debt Recovery Tribunal, Delhi, against Saraf Synthetics (Rajasthan) Ltd., the company in winding up (briefly referred to as 'the company'). The applicant-bank is a secured creditor and initially it had filed Civil Suit No. 993 of 1994 against the company and others in the High Court of Delhi (Original Civil Jurisdiction) for the recovery of Rs, 2,41,14,123 with future interest and costs of the suit. On establishment of the Debt Recovery Tribunal, Delhi (for short 'the Tribunal'), the suit was transferred to it where recovery proceedings are pending. In S. B. Company Petition No. 10 of 1992, the winding up of the company has been ordered on November 3, 1995, hence, by this petition the bank is seeking leave to continue recovery proceedings before the Tribunal.
2. The question that calls for decision in this petition is as to whether the pending recovery proceeding against the company before the Debt Recovery Tribunal, relating to realisation of the debts should be allowed to continue/proceed or it should be transferred to this court which is seized of the winding up proceeding.
3. The principal contentions raised by Shri O. P. Garg, in support of the petition are that the applicant-bank is a secured creditor and it had initiated the suit/proceedings for recovery of the debts prior to filing of the winding up petition against the company, hence, its interest as secured creditor has to be protected. That the bank has lent a huge amount to the company and it is the main secured creditor, The bank has already incurred a lot of expenditure in the conduct of the suit/recovery proceedings by engaging lawyers, etc., and as such it shall not be in the interest of justice to transfer recovery proceedings which are now pending before the Debt Recovery Tribunal.
4. I have given my careful consideration to the above submissions and I find much force in them. It would be desirable to take note of the relevant provisions which are contained in Sections 446, 529 and 529A of the Companies Act, 1956 (for short 'the Act').
5. Section 446 of the Act reads as under :
'446. Suits stayed on winding up order.--(1) When a winding up order has been made or the official liquidator has been appointed as provisional liquidator, no suit or other legal proceeding shall be commenced, or if pending at the date of winding up order, shall be proceeded with, 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--
(a) any suit or proceeding by or against the company ;
(b) any claim made by or against the company (including claims by or against any of its branches in India) ;
(c) any application made under Section 391 by or in respect of the company ;
(d) any question of priorities or any other question whatsoever, whether of law or fact, which may relate to or arise in course of the winding up of the company ;
whether such suit or proceeding has been instituted, or is instituted, or s.uch claim or question has arisen or arises or such application has been made or is made before or after the order for the winding up of the company, or before or after the commencement of the Companies (Amendment) Act, 1960.
(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 contained in any other law for the time being in force, be transferred to and disposed of by that court.
(4) Nothing in Sub-section (1) or Sub-section (3) shall apply to any proceeding pending in appeal before the Supreme Court or a High Court.'
6. A bare perusal of Section 446 reveals that the section is intended that the assets of the company under liquidation are brought under the control of the winding-up court to avoid, wherever possible, wasteful and expensive litigation and see that all matters of dispute, which are capable of being expeditiously disposed of by the winding-up court are taken by that court. Section 446 is wide enough to cover all suits and legal proceedings whoever may be the plaintiff.
7. Section 529 provides for the application of insolvency rules in the winding up of insolvent companies. It also provides that the security of every secured creditor shall be deemed to be subject to 'pari passu' charge in favour of the workmen to the extent of the workmen's portion therein.
8. Section 529A states overriding preferential payments. It provides that workmen's dues and debts due to secured creditors to the extent such debts rank under Clause (c) of the proviso to Sub-section (1) of Section 529 pari passu with such dues, shall be paid in priority to all other debts.
9. A combined reading of the aforesaid provisions leads to the following results as stated by the Supreme Court in Industrial Credit and Investment Corporation of India Ltd. v. Srinivas Agencies [1996] 86 Comp Cas 255, 259 :
'(i) A winding up court has jurisdiction, inter alia, to entertain or dispose of any suit or proceeding by or against the company, even if such suit or proceeding had been instituted before an order for winding-up had been made. This apart, the winding-up court has jurisdiction to transfer such a suit or proceeding to itself and dispose of the same. These follow from Sub-sections (2) and (3) of Section 446.
(ii) When a winding up order has been made or the official liquidator has been appointed as provisional liquidator, no suit or other legal proceeding, even if pending at the date of the winding up order, can proceed against the company, except by leave of the company court vide Sub-section (1) of Section 446.
(iii) Any sale held, even without the leave of the winding up court pursuant to an order of a civil court on it being approached by a secured creditor to realise its debt will not ipso facto be void, in view of the holding in Ranganathnn (M. K.) v. Government of Madras [1955] 25 Comp Cas 344 (SC) that Section 537, dealing with voidness of sale, operates when the sale is pursuant to attachment of company court, This, however, would be the position where a company has not been wound up, but is in the process of being wound up.'
10. In Centra) Bank of India v. Elmot Engineering Co. [1994] 81 Comp Cas 13 ; [1994] 4 SCC 159, it has been held that the aim of Section 446 is to safeguard the assets of the company against wasteful or expensive litigation as far as matters which could be expeditiously and cheaply decided by the company court. It was also observed that while granting leave under this section the court always takes into consideration whether the company is likely to be exposed to unnecessary litigation and costs. Whether the leave under Section 446(1) should be granted or a pending suit for realisation of the debts against the company should be transferred to the company court, one should also bear in mind Section 446(2) which has been substituted by the Companies (Amendment) Act, 1960. Initially, there was no specific provision conferring jurisdiction to the court winding up the company analogous to the one conferred by subsection (2) which has been introduced to enlarge the jurisdiction of the winding up court so as to facilitate the disposal of winding up proceedings. The Company Law Committee appointed for examining comprehensive amendment to the Companies Act, 1956, recommended that a suit by or against a company in winding up should notwithstanding any provision in law for the time being be instituted in the court in which the winding up proceedings are pending. The Committee made this recommendation having noticed that a winding up order being made and the official liquidator being appointed, he is to take into his custody the company as required by Section 446. It also took note of Section 457 conferring power on the official liquidator to sell the properties of the company and to realise the assets. The Committee felt that at the stage when the winding up order is made, the company may as well have subsisting claims to realise these claims and the liquidator will have to file a suit, In order to avoid this eventuality and to keep all incidental proceedings in winding up before the court, its jurisdiction was required to be enlarged to entertain petitions, amongst others, for recovering the claims of the company. Thus, suitable amendment was brought by substituting Sub-section (2) in its present form.
11. In Sudarsan Chits (I.) ltd. v. G. Sukumamn Pillai [1985] 58 Comp Cas 633 ; [1984] 4 SCC 657, the Supreme Court tracing the historical background of Section 446(2) in its present form observed that it confers special jurisdiction on the court winding up the company which otherwise it may not have enjoyed. It was, then, observed therein as under (page 637) :
'To give effect to these recommendations, Sub-section (2) was suitably amended to bring it to its present form by the Companies (Amendment) Act, 1960. The Committee noticed that on a winding up order being made and the official liquidator being appointed a liquidator of the company, he has to take into his custody company property as required by Section 456, Section 457 confers power on him to institute or defend any suit, prosecution, or other legal proceedings, civil or criminal, in the name and on behalf of the company. Power is conferred upon him to sell the properties both movable and immovable of the company and to realise the assets of the company and this was to be done for the purpose of distributing the assets of the company amongst the claimants. Now at a stage when a winding up order is made the company may well have subsisting claims and to realise these claims the liquidator will have to file suits, To avoid this eventuality and to keep all incidental proceedings in winding up before the court which is winding up the company, its jurisdiction was enlarged to entertain a petition amongst others for recovering the claims of the company. In the absence of a provision like Section 446(2) under the repealed Indian Companies Act, 1913, the official liquidator in order to realise and recover the claims and subsisting debts owed to the company had the unenviable fate of filing suits. These suits as is not unknown, dragged on through the trial court and courts of appeal resulting not only in multiplicity of proceedings, but in holding up the progress of the winding up proceedings. To save the company which is ordered to be wound up from this prolix and expensive litigation and to accelerate the disposal of winding up proceedings, Parliament devised a cheap and summary remedy by conferring jurisdiction on the court winding up the company to entertain petitions in respect of claims for and against the company. This was the object behind enacting Section 446(2) and, therefore, it must receive such construction at the hands of the court as would advance the object and at any rate not thwart it.'
12. Taking into consideration the entire background and the legal aspect I am of the opinion that it is difficult to lay down a strait-jacket formula to exercise discretion for granting leave under Section 446(1) of the Act. It would depend on the facts and circumstances of each case. Undoubtedly, the interest of a secured creditor and the fact of incurring a lot of expenditure by him in filing the suit/recovery proceedings for realisation of the debt against the company would be required to be taken note of while exercising discretion. The company court would also take care of the interest of other secured creditors while deciding the question as to whether leave should be granted or not.
13. In Central Bank of India v. Elmot Engineering Co. [1994] 81 Comp Cas 13 (SC) leave under Section 446 of the Act was refused by the Bombay High Court on the ground that in defending by the liquidator at a far off place there would be a wasteful expenditure and ordered transfer of the suit to the High Court at Bombay. The Supreme Court held that the order of transfer of the suit to the High Court of Bombay cannot be sup-ported as the transfer would result in greater expenditure to the appellant-bank which certainly is avoidable than the wasteful expenditure to the official liquidator.
14. In Industrial Credit and Investment Corporation of India Ltd. v. Srini-vas Agencies [1996J 86 Comp Cas 255 (SC) we find guidelines from the Supreme Court in a case where recovery proceedings initiated by the bank as secured creditor are pending before the Debt Recovery Tribunal. It was held therein as under (page 263) :
'We have duly applied our mind to the rival contentions. It is no doubt correct that the interest of the secured creditor, who has had recourse to an independent proceeding to realise his debt has to be protected ; but it is apparent this cannot be done at the cost of other secured creditors. To preserve the integrity of one secured creditor, another secured creditor cannot be discredited-his integrity has to be of equal concern. /( may, however, be that in a particular case the secured creditor who has approached the civil court happens to be one who has lent a huge amount, or be one who is the main secured creditor. In such a situation, on approach being made by such creditor, we have no doubt that the company court would duly take note of this fact and should like to grant leave required by Sub-section (I) of Section 446 ; and by the same token refuse to transfer the proceeding to his court. This is not to say that in all the cases where the proceedings have been initiated by the main secured creditor, the company court would grant leave. Much would depend on the circumstances of each case. But, if the position be that the secured creditor who had approached the civil court is one amongst many similar creditors, it may be that the company court feels that to take care of the interest of other secured creditors, either the relief of leave does not deserve to be granted or that the proceeding is required to be transferred to it for disposal. It may be pointed out that Sections 529 and 529A of the Act do contain provisions in so far as the priority of secured creditors' claim is concerned and of course, the company court would not transfer the proceeding to it merely because of its convenience ignoring the difficulties which may have to be faced by the secured creditor, who may be at a place far away from the seat of the company court. The need to protect the company from unnecessary litigation and cost have, however, to be borne in mind by the company court.
We are, therefore, of the view that the approach to be adopted in this regard by the company court does not deserve to be put in a straitjacket formula. The discretion to be exercised in this regard has to depend on the facts and circumstances of each case, While exercising this power we have no doubt that the company court would also bear in mind the rationale behind the enactment of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993. to which reference has been made above. We made the same observation regarding the terms which a company court should like to impose while granting leave, It need not be stated that the terms to be imposed have to be reasonable, which would, of course, vary from case to case. According to us, such an approach, would maintain the integrity of that secured creditor, who had approached the civil court or desires to do so, and would take care of the interest of other secured creditors as well which the company court is duty bound to do, The company court shall also apprise itself about the fact whether dues of workmen are outstanding ; if so, the extent of the same. It would be seen whether after the assets of the company are allowed to be used to satisfy the debt of the secured creditor, it would be possible to satisfy the workmen's dues pari passu.'
15. Applying the aforesaid guidelines and taking into consideration the relevant facts and circumstances of the case, in particular that the applicant-bank is the largest secured creditor and debt recovery proceedings are pending before the Debt Recovery Tribunal, Delhi, I am of the opinion that it would be just and proper to grant leave under Section 446(1) of the Companies Act to continue/proceed with the recovery proceedings against the company and other persons before the Debt Recovery Tribunal, Delhi, with certain conditions.
16. In the result, leave is granted to the applicant-bank to continue the debt recovery proceedings in Petition No. 462 of 1995 pending before the Debt Recovery Tribunal, Delhi, subject to the following conditions :.
(1) The applicant will undertake to discharge the liability due to the workmen, if any, under Section 529A of the Act to the extent of the amount realised from the assets of the company.
(2) The applicant-bank will intimate the official liquidator from time to time about the progress of the recovery proceedings and the interlocutory applications, if any, seeking any order in relation to the secured properties.
(3) The final result of the proceedings shall be intimated immediately to the official liquidator.
(4) The execution proceeding for realisation of the amount from the properties of the company shall be taken by the bank after obtaining permission from the company court.
(5) The expenses to be incurred by the official liquidator in defending before the Tribunal shall be recoverable from the sale proceeds of the properties of the company as and when sold.
17. The company petition stands disposed of as indicated above. There shall be no order as to costs.