2008 (10) TMI 356 - HC - Companies Law

Winding up order granted for M/s. Kanan Steels Limited under Sick Industrial Companies Act, 1985

Kanan Steels Ltd., In re

Kanan Steels Ltd., In re - [2009] 90 SCL 127 (ALL.) Issues:1. Winding up recommendation from BIFR under Sick Industrial Companies Act, 19852. Delay in proceedings post appeal dismissal by AAIFR3. Non-appearance of company representatives and dilatory tactics4. Lack of rehabilitation proposal and unrealistic projections5. Appointment of Official Liquidator and PICUP as Selling Agent6. PICUP's role as secured creditor and possession takeover7. Liquidation order and responsibilities of Official Liquidator8. PICUP's failure to sell assets and Official Liquidator's dutiesIssue 1: Winding up recommendation from BIFR under Sick Industrial Companies Act, 1985The matter involved a reference from BIFR recommending winding up of M/s. Kanan Steels Limited under section 20(1) of the Sick Industrial Companies (Special Provisions) Act, 1985. The BIFR had declared the company a 'sick industrial company' in 2000 and dismissed the reference in 2001. Despite subsequent proceedings and appeals, including the appointment of Union Bank of India as Operating Agency, the company failed to submit a viable rehabilitation proposal, leading to the recommendation for winding up.Issue 2: Delay in proceedings post appeal dismissal by AAIFRAfter the appeal against BIFR's order was dismissed by AAIFR, proceedings were adjourned multiple times due to various reasons, including illness of representatives. The Court noted the company's dilatory tactics to avoid winding up and expressed concern over the difficulty faced by the Official Liquidator in recovering assets post-dismissal of appeals.Issue 3: Non-appearance of company representatives and dilatory tacticsThe company's representatives had been appearing in court without filing objections to the winding up. The Court observed a pattern of delay tactics by the company post-appeal dismissal, raising suspicions of asset siphoning or sale. The lack of cooperation from representatives and failure to file objections further indicated a lack of genuine efforts towards rehabilitation.Issue 4: Lack of rehabilitation proposal and unrealistic projectionsDespite opportunities given for rehabilitation proposals, the company failed to submit viable plans, with projections deemed unrealistic and unviable by secured creditors. The absence of concrete proposals and the company's inability to meet financial obligations led to the conclusion that the company was not likely to recover within a reasonable time, justifying the winding up recommendation.Issue 5: Appointment of Official Liquidator and PICUP as Selling AgentFollowing the acceptance of BIFR's recommendations, the Court ordered the winding up of the company under section 433 of the Companies Act, 1956. The Official Liquidator was appointed as the Liquidator, with PICUP designated as the 'Selling Agent' to dispose of company properties and deposit sale proceeds for distribution as per legal provisions.Issue 6: PICUP's role as secured creditor and possession takeoverPICUP, as a secured creditor, had entered appearance and sought to realize its dues by selling securities. Despite taking possession, PICUP had not initiated asset sales, leading to the Court's decision not to allow the sale but to maintain security over assets. The Official Liquidator was tasked with valuing and taking possession of assets.Issue 7: Liquidation order and responsibilities of Official LiquidatorThe Court's acceptance of BIFR's recommendations resulted in the winding up of the company, with the Official Liquidator appointed to oversee the liquidation process. Responsibilities included issuing notices to relevant parties, valuing assets, and submitting reports to the Court within specified timelines to facilitate the liquidation proceedings effectively.Issue 8: PICUP's failure to sell assets and Official Liquidator's dutiesThe Court noted PICUP's inaction in selling assets, leading to the loss of its selling rights granted by the Board. While PICUP was allowed to maintain security over assets, the Official Liquidator was directed to take possession, value assets, and submit reports promptly. The disposal of connected Company Petitions was in line with the winding up order and liquidation process.