2010 (1) TMI 573 - HC - Companies Law

Court dismisses revival applications, orders asset sale. Upholds legal principles for genuine stakeholder benefit.

The court dismissed the revival applications, directed the official liquidator to proceed with the sale of the company's assets, and emphasized the need ... Revival of the company - assets of the company in liquidation could not be sold so far. The resultant effect has been that the creditors have been kept at bay and expenses in the nature of guarding expenditure has been continuously incurred and the machinery is also deteriorating from day-to-day Held that:- The official liquidator is directed to get in touch with the firms and companies engaged in identical type of business as that of the company in liquidation so that the plant and machinery can be sold to the actual users thereof and not as scrap. In that event the plant and machinery is likely to fetch a handsome amount which will be enough to liquidate the dues of the company in liquidation substantially if not in full. Such sale can be made by private negotiation subject to confirmation of the court. The valuation in that regard has already been indicated herein. No further valuation thereof at this stage is necessary. The official liquidator shall be at liberty to appoint an agent for the purpose of procuring appropriate buyers at a commission to be settled by the court. M/s. Engineers and Valuers collaboration referred to hereinabove should also be contacted for this purpose. The applicant who is the lessor in this case is also expected to render adequate assistance to the official liquidator in finding an appropriate buyer so that the plant and machinery can be sold at an appropriate price for the benefit of all the creditors of the company in liquidation. Issues Involved:1. Nationalization and restructuring of companies.2. Assets and liabilities of the company in liquidation.3. Claims by various creditors and stakeholders.4. Applications for revival of the company.5. Legal principles for stay of winding up.6. Evaluation of revival schemes.7. Role of the official liquidator and nationalized banks.8. Impact on employees and lessor's rights.Detailed Analysis:Nationalization and Restructuring of Companies:The judgment details the historical context of Lansdowne Jute Co. Ltd., which underwent several changes, including nationalization and restructuring. The company, originally incorporated in 1904, was renamed Birds Jute and Exports Ltd. in 1971. Birds and Co. P. Ltd., a subsidiary, was nationalized in 1980, leading to the creation of National Jute Manufacturers Corporation Ltd. and Bharat Process and Mechanical Engineers Ltd. These entities were later involved in various legal and financial complications.Assets and Liabilities of the Company in Liquidation:The assets of Bharat Process and Mechanical Engineers Ltd. (the company in liquidation) included valuable properties such as a workshop at Dakhindari Road and a registered office at Netaji Subhash Chandra Bose Road. The plant and machinery were valued at Rs. 40.81 crores. The liabilities included substantial dues to the UCO Bank, Employees' State Insurance Corporation, Provident Fund Authority, and various other creditors. The company also had significant rental arrears and guarding charges.Claims by Various Creditors and Stakeholders:The judgment outlines the claims by various creditors, including:- UCO Bank, which agreed to settle for Rs. 50 lakhs.- Employees' State Insurance Corporation, claiming Rs. 1,89,58,216.- Provident Fund Authority, claiming Rs. 7,02,880.95 and Rs. 64,04,291.- Lessors and security service providers, with substantial dues.Applications for Revival of the Company:Several applications were made for the revival of the company:- C.A. No. 272 of 2008 by Consortium Enterprises P. Ltd., proposing to employ workers but not bear any liabilities.- C.A. No. 291 of 2008 by Bharat Process and Mechanical Engineers Ltd., Sramik Union, and Jamilur Rehaman Khan, proposing financial support from TPG Equity P. Ltd.- C.A. No. 620 of 2008 by ex-workers and unions, proposing to invest Rs. 8 crores and pay partial dues to creditors.Legal Principles for Stay of Winding Up:The court referred to the principles for stay of winding up as discussed in Mahavir Prasad Agarwalla v. Ashkaran Chattar Singh and Meghal Homes P. Ltd. v. Shree Niwas Girni K.K. Samiti. The principles include the bona fide nature of the application, the proposal for satisfying creditors, and ensuring that the revival is not a ruse to dispose of assets.Evaluation of Revival Schemes:The court found that none of the revival schemes proposed were acceptable as they did not offer to pay the dues of creditors in full and seemed intended to take away the fruits of the winding up. The official liquidator suggested that the schemes were vague and aimed at grabbing the company's property.Role of the Official Liquidator and Nationalized Banks:The judgment criticized the UCO Bank for acting irresponsibly by supporting revival applications that were not in the national interest. The official liquidator was directed to sell the plant and machinery to actual users rather than as scrap to fetch a better price.Impact on Employees and Lessor's Rights:The court noted that the employees' dues had been largely settled and any remaining disputes were pending before the Supreme Court. The lessor, Birds Jute and Exports Ltd., itself a sick company, sought the disclaimer of the leased property to improve its financial health. The court emphasized that the interests of the lessor's employees should not be compromised for the lessee's employees.Conclusion:The court dismissed the revival applications, directed the official liquidator to proceed with the sale of the company's assets, and emphasized the need to protect national interests and the financial health of the lessor. The judgment highlighted the importance of adhering to legal principles and ensuring that revival schemes are genuine and beneficial to all stakeholders.