2008 (12) TMI 403 - HC - Companies Law

Appeal dismissed on Company Court's authority to appoint provisional liquidator for asset sale under Companies Act

The appeal challenging the Company Court's authority to appoint a provisional liquidator with the power to sell properties, including those held by other ... Whether the Company Court exercising jurisdiction in an application under sections 433, 434 and 439 of the Companies Act, has the power to appoint a provisional liquidator giving him liberty to sell properties not merely the property standing in the name of the Company but also the properties standing in the names of other Companies on the premise that such assets have been created with the funds collected by the Company? Held that:- Having regard to the scheme of the Companies Act protecting the interest of third parties and controlling the discretion of the liquidator by overall supervision of the Company Court, it will be untenable to contend that the directions given by the Company Court at the time of appointment of the provisional liquidator are not in conformity with law. Thus the sole contention raised by the appellant is therefore, without any substance and the appeal is dismissed Issues:1. Scope of Enquiry in Appeal2. Material on which plea for winding up was made3. Subsequent important events4. Statutory powers of Provisional Liquidator5. Extent of Directions that the Company Court could pass6. DispositionScope of Enquiry in Appeal:The primary issue in this case was whether the Company Court had the authority to appoint a provisional liquidator with the power to sell properties not only belonging to the Company but also those in the names of other companies, based on the premise that such assets were created using funds collected by the Company.Material on which plea for winding up was made:The application for winding up the company was based on allegations of fraud by the directors, involving diversion of company funds for personal use and purchasing properties in the names of other companies to conceal assets from creditors. The Company Court appointed a provisional liquidator after finding evidence that funds were transferred to companies owned by one of the directors, indicating the need for a thorough investigation to determine the extent of assets owned by the Company.Subsequent important events:After the appointment of the provisional liquidator, properties belonging to the Company were identified and handed over for sale. The Official Liquidator gathered details related to the Company, and the proceedings were advanced for the sale of several properties. The appellant contested the ownership of these properties, but the Court held that the properties were rightfully handed over to the liquidator.Statutory powers of Provisional Liquidator:The provisional liquidator appointed by the Court under section 450(3) of the Companies Act possesses the same powers as a regular liquidator. These powers include the authority to sell company properties, as outlined in section 457 of the Companies Act.Extent of Directions that the Company Court could pass:The Company Court, in addition to the powers of the liquidator, has the authority under section 477 to summon individuals and secure company assets. The Court's wide powers allow it to pass orders to protect the interests of parties seeking winding up. The Court's directions regarding the investigation and sale of assets were deemed lawful, considering the provisions of the Companies Act safeguarding third-party interests.Disposition:The appeal challenging the Company Court's directions was dismissed as unsubstantiated, with no order as to costs.This judgment clarifies the powers of the Company Court and the provisional liquidator in cases of winding up, emphasizing the need for thorough investigations and protection of all stakeholders' interests under the Companies Act.