RAM MANOHAR LOHIYA NATIONAL LAW

UNIVERSITY

2021-22
Final draft of:
Critical analysis of Harihar nath and oths v SBI

Submitted to:- Submitted by:-

Dr. Vegesna Visalakshi Hardik Yadav
Associate professor Section -A
Rmlnlu Enrollment no.-59
Semester VI
ACKNOWLEDGMENT:

I would like to express my heartfelt gratitude to my teacher and mentor

Dr. Visalakshi maam , a special thanks to the Library staff for helping
me . I also greatly acknowledge the help and guidance provided to me
by my seniors.
Thanks and appreciation to my family members for their constant
support, to the library staff and other members of this institution and
lastly to my friends for their help
TABLE OF CONTENT

Facts of the case

Issue/Question before the court

Relevant legal provision

Held

Ratio decidendi

Concluding remarks
Facts of the case
Nalanda Ceramic & Industries Ltd was a company incorporated under the companies act, 1956. The
Company had obtained certain credit facilities from the State Bank of India. The loans were secured by
mortgage of the assets of the Company. The repayment of the amounts advanced to the Company was
guaranteed by the appellants. On 28.11.1988, the Bank filed a suit against the Company (defendant
No.1), the appellants and others . In the said suit, the Bank sought a decree for Rs.5,95,98,258.31
against defendants 1 to 4 (the company and the appellants) with interest thereon and several ancillary
and consequential reliefs. Even prior to the said suit, other creditors had filed petitions for winding up of
the Company to the Patna High Court, alleging that it was unable to pay its debts. During the pendency
of the said company petitions, a notification dated 16.4.1984 was issued under the Bihar Relief
Undertakings (Special Provisions) Act, 1982, declaring the Company as a relief undertaking, thereby
preventing further progress of the petitions for winding-up. This legislation had power to stay winding
up proceedings of any company for further inquiry by the state industrial board due to which till 1995
there was stay on winding up proceedings.

Thereafter, on 11.8.1995, the Bank filed an application under Section 446(1) of the Act, seeking leave of
the Company Court to proceed with its suit. The said application was resisted by the appellants on the
ground that the application seeking leave was barred under Article 137 of the Limitation Act, 1963. The
appellants contended that the application ought to have been filed within 3 years from the date of
winding up, that is, on or before 24.10.1992 and the application filed on 11.8.1995 was barred by
limitation.

The Company Court granted leave condoning the delay in filing the application but also directed that the
decree if obtained, would be executed against the appellants/directors in the first instance and then
only against the company.

Issue/Question Before the court

The question was whether Article 137 of the Limitation Act would apply to the application for leave
and whether the direction(i.e decree if obtained to be executed against the directors firstly and later
to the company) in the matter of enforcement of the decree is sustainable.
Relevant Legal provision
Sub-section (1) of Section 446 of the Act contemplated two categories of applications for leave being
filed before the Company Court. They are :

(i) Applications seeking leave to file a suit or commence a legal proeeding against the company, after an
order for its winding up has been made.

(ii) Applications seeking leave to proceed with a pending suit or legal proceeding against a company,
filed or initiated before the order for winding up of such company.

Held
The court held that there is no applicability of section 137 for computing period of limitation for a suit of
leave to be filed before the company court in the both the categories(i and ii) of application under section
446(1) of the companies act, 1956.

Ratio decidendi(rationale given)

The court said that in case of first category of application in 446(1)(i) are concerned there is no period of
limitation as period of limitation is not to be calculated with regard to application seeking leave to file a
suit or proceeding but with regards to suit itself ,i.e so long as the suit is within time on the date of filing
the leave, the application will be entertained. While computing the period of limitation for the
suit/proceeding, the time spent in obtaining the leave to file suit under section 446 will have to be
excluded applying section 15(2) of the limitation act,1963.

And as for second category of application article 137 is intended to apply to application seeking for a
enforcement of a claim or adjudication of a right or liability in a court. An application for a leave to
proceed in respect of a pending suit or proceeding not being such an application for any relief it will not
attract section 137. An application seeking leave to proceed in respect of a pending suit or proceeding
(filed before the order of winding up) is not an application for enforcement of any claim or right. It does
not seek any “relief” or “remedy” with reference to any claim or right or obligation or a liability. It is an
application which is interlocutory in nature and interlocutory application are not subject to period of
limitation unless specifically provided by law.

It may be useful to consider the meaning of the words "right to apply accrues" that occur in Article 137.
An order of winding up does not create any "right" to file an application under Section 446(1) of the Act.
Nor does any right "accrue" to a plaintiff-petitioner in a suit/proceeding to file an application under
Section 446(1), when an order of winding up is passed. On the other hand, passing of an order of winding
up casts a duty or obligation on the person who has sued the company to obtain the leave of the court to
proceed with his suit or proceeding. The right to apply for leave accrues, not because of the order of
winding up, but because the suit/proceeding is stayed. The right to apply for grant of leave under Section
446(1) accrues every moment the suit remains stayed. Consequently, it follows that as long as the
suit/proceeding (filed before the order of winding up) remains stayed, an application for leave can be
filed. Therefore, the application under Section 446(1) filed on in the present case was in time and not
barred even if application under 137 is applied.
Concluding remarks
After going critically through the judgement of the divison bench of the honourable Supreme court we
can say that the bench was absolutely correct in providing relief to the bank and provided it leave as due
to Sic act the winding up proceeding was barred for three years without any delay on the part of bank
and the judgement also got further in explaining the legal point of non application of article 137 in
section 446(1) of the companies act and hence finding error in the company court decision which even
though condoning the delay of period of limitation provided application of leave to the bank for suit.
The divison bench of the sc on the other hand said not only there is no question of limitation but also
that with no question of limitation the additional direction(i.e decree if obtained to be executed against
the directors firstly and later to the company ) given by the lower court also would not apply.

Hence we can say that the judgement delivered by the divison bench was right on all legal grounds and
the court went on to set its duty to explain exactly the correct point of law as the relief was same in
both the jiudgement of the company court and the sc but the rationale was different and there was no
justification for additional direction.
BIBLIOGRAPHY

Scconline web edition,2022

Indian kanoon.org

Avtar singh company law 5th edition,2009