2007 (12) TMI 288 - HC - Companies Law

Court dismisses petition for winding up, orders government investigation to protect depositors

The court dismissed the petition for winding up due to non-compliance with the requirement of a special resolution and lack of jurisdiction to suo motu ... Winding up – Circumstances in which company may be wound up by Tribunal, Winding up – Appointment and powers of liquidators, Inherent Power of court Issues Involved:1. Winding up of the petitioner-company under sections 433(a), (c), (e), (f) and 439 of the Companies Act, 1956.2. Appointment of a provisional liquidator and the role of the advocate-commissioner.3. Compliance with section 433(a) regarding the necessity of a special resolution.4. High Court's inherent power to suo motu order winding up of a company.5. Investigation into the affairs of the petitioner-company under section 237(a)(ii) of the Companies Act.Detailed Analysis:1. Winding up of the petitioner-company under sections 433(a), (c), (e), (f) and 439 of the Companies Act, 1956:The petitioner, previously a partnership firm, was incorporated as Asra Estates Ltd. The petition for winding up was filed due to various financial and operational issues, including misappropriation of funds by an employee, seizure of assets by the police, and multiple criminal complaints by depositors. Despite having assets worth Rs. 5.20 crores against liabilities of Rs. 3.73 crores, the company faced significant operational challenges and legal hurdles, leading to the decision to seek winding up.2. Appointment of a provisional liquidator and the role of the advocate-commissioner:The court initially appointed the official liquidator as the provisional liquidator and directed the petitioner to hand over the assets. Subsequently, due to the official liquidator's workload, the court appointed an advocate-commissioner to expedite the process. The advocate-commissioner faced difficulties, including litigation over the company's properties and lack of cooperation from the ex-managing director. Ultimately, the advocate-commissioner sought to be relieved from his duties.3. Compliance with section 433(a) regarding the necessity of a special resolution:The court emphasized that a special resolution by the shareholders is mandatory for a company to file a petition for its winding up under section 433(a). The petition filed by the managing director lacked such a resolution, making it non-compliant with the statutory requirements. The court cited precedents to highlight that the board of directors alone cannot decide to wind up the company without shareholder approval.4. High Court's inherent power to suo motu order winding up of a company:The court examined whether it had the inherent power to suo motu order the winding up of a company under section 433(f). It concluded that the High Court's discretion to wind up a company is limited to petitions presented by specified categories under section 439(1). The court does not have the inherent power to suo motu order winding up without a valid petition.5. Investigation into the affairs of the petitioner-company under section 237(a)(ii) of the Companies Act:Given the circumstances, the court decided to direct the Central Government to investigate the affairs of the petitioner-company under section 237(a)(ii) to protect the interests of the depositors. The court noted that the petition for winding up was an attempt to avoid repayment of deposits and evade criminal liability. The investigation would ensure accountability and appropriate action against those responsible for mismanagement and misappropriation.Conclusion:The court dismissed the petition for winding up due to non-compliance with the requirement of a special resolution and lack of jurisdiction to suo motu order winding up. However, it directed the Central Government to investigate the company's affairs to safeguard the depositors' interests. The advocate-commissioner was relieved, and the official liquidator was tasked with retaining the company's records. The criminal proceedings against the company's directors were allowed to continue.