1992 (7) TMI 277 - HC - Companies Law

Company assets sale ordered to pay debts: Petitioner to manage tenders, ads, court approval

The court ordered the sale of the company's assets to mitigate losses and liabilities, directing the petitioner to call for tenders, advertise, and seek ... Winding up – Powers of tribunal on hearing petition, Avoidance of transfer, etc., after commencement of Issues Involved:1. Deadlock in the affairs of the company.2. Total liability exceeding the assets.3. Petition for winding up the company.4. Sale of the company's assets before winding up order.5. Jurisdiction and inherent powers of the court under the Companies Act.Detailed Analysis:1. Deadlock in the Affairs of the Company:The petitioners filed for the winding up of the company, citing a deadlock in the company's affairs. It was contended that the company was not conducting any business and had significant liabilities. The second respondent, a shareholder and director, admitted the company's financial distress but denied the deadlock allegations. The court found that there was indeed a deadlock, as the petitioner and the second respondent were not in agreement, and no business had been transacted for years.2. Total Liability Exceeding the Assets:The petition highlighted that the company's liabilities far exceeded its assets, with accumulated losses over Rs. 55 lakhs. Both the petitioner and the second respondent had provided personal guarantees for loans from the State Bank of India. The court acknowledged that the company's liabilities were mounting daily, with interest accruing at Rs. 4,600 per day, further exacerbating the financial situation.3. Petition for Winding Up the Company:The court, after hearing both parties, admitted the winding-up petition under section 433(e) of the Companies Act, noting that the respondent had not seriously objected to the winding-up. The court postponed the consideration for advertisement and further hearing, indicating the need for a resolution to the company's financial and operational deadlock.4. Sale of the Company's Assets Before Winding Up Order:The petitioner sought an order to sell the company's assets to a willing buyer, Mr. Jamal, to mitigate further losses and liabilities. The second respondent initially agreed but later opposed the sale, leading to further disputes. The court considered the necessity of selling the assets to prevent further financial deterioration and acknowledged that the second respondent was still open to fair negotiations for the sale.5. Jurisdiction and Inherent Powers of the Court Under the Companies Act:The court discussed its inherent powers under section 443(1)(c) and rule 9 of the Companies (Court) Rules, 1959, to pass interim orders necessary for justice, even before a winding-up order is made. Citing precedents from the Supreme Court and High Courts, the court emphasized its authority to order the sale of assets to prevent further abuse of process and to advance justice. The court rejected the second respondent's contention that such orders could not be made before a winding-up order.Conclusion:The court concluded that it was just and proper to order the sale of the company's assets to mitigate further losses and liabilities. The petitioner was directed to call for tenders from the public, advertise in leading newspapers, and place the tenders before the court for approval. The proceeds from the sale would be deposited in the court for payment to the State Bank of India, with the petitioner's advertisement expenses charged to the company. The court retained oversight for further steps in the sale process.