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Section 372: Power of Court to stay or restrain proceedings

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Section 371 All 470 Sections of Companies Act Section 373
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Legal Commentary & Landmark Judgments: Section 372

Section 372 of the Companies Act, 2013 extends the court's power to stay or restrain legal proceedings pending a winding-up petition against a converted company to encompass suits brought against any contributory of the company.

  • Pre-Winding Up Protective Stay: Where a petition for winding up a company registered under Chapter XXI is presented and pending, the court or Tribunal possesses discretionary power to stay or restrain legal proceedings.
  • Extension to Suits Against Contributories: Unlike standard corporate winding up where stays apply solely against the corporate entity, Section 372 expressly extends the stay to suits and proceedings against any individual contributory.
  • Creditor Application Condition: The power to restrain proceedings against a contributory is exercisable specifically upon an application made by a creditor of the company seeking to protect collective asset distribution.
Key Landmark Precedents:
  • Official Liquidator v. Parthasarathi Sinha, (1983) 1 SCC 538: The Supreme Court held that the court exercises protective jurisdiction in winding up to stay individual or collateral proceedings that could dismantle or dissipate assets needed for rateable creditor satisfaction.
  • Re: Anglo-Austrian Printing & Publishing Union, [1895] 2 Ch 891: The Chancery Division held that staying individual proceedings against contributories is necessary to prevent single creditors from gaining unfair preferences over the collective estate.
  • Central Bank of India v. Elmot Engineering Co. (P) Ltd., (1994) 4 SCC 159: The Supreme Court affirmed that judicial stay powers during winding up are designed to freeze individual creditor actions and consolidate claims under court supervision.
Courtroom Practice & Strategic Litigation Guidance:

If a creditor initiates recovery proceedings against an individual partner or contributory for a corporate debt while a winding-up petition against the converted company is pending, file an interim application under Section 372 before the Tribunal. Seek an immediate stay of the civil suit to preserve collective pari passu administration.

Section 371 All 470 Sections of Companies Act Section 373