2010 (3) TMI 911 - HC - Companies Law

Court Allows Recall of Winding-Up Order with Safeguards for Creditors

The court allowed the application for recalling the winding-up order, subject to safeguards to protect creditors and claimants. The applicant was required ... Recalling the winding up order - Held that:- This court is of the opinion that the application deserves to be allowed and the order of winding up deserves to be recalled on issuance of proper and adequate safeguards in the interest of creditors and claimant if any. This court is of the view that the official liquidator shall issue appropriate advertisement in two languages namely in English and Gujarati in at least two daily newspapers of good circulation in the area where the company was situated containing gist of this order and safeguards provided hereinafter in this order so as to put to notice all the concerned and making them aware about the safeguards, otherwise the willingness of applicant to keep aside a sum for three years by the official liquidator in fixed deposit for meeting any legally admissible claim of any claimant or creditor would be merely a paper arrangement without any meaning, as there would not be any occasion for such claimant or creditors if any to know that there exists such arrangements. Issues Involved:1. Application for recalling the winding-up order.2. Settlement of dues with creditors.3. Compliance with statutory requirements for revival.4. Objections by the official liquidator.5. Legal precedents and powers of the court.Issue-wise Detailed Analysis:1. Application for Recalling the Winding-Up Order:The applicant, a former managing director and contributory of the company, filed for recalling the winding-up order dated November 22, 1976, passed in Company Petition No. 34 of 1976. The winding-up was initiated due to the company's failure to pay Rs. 77,054.72 to M/s. Suresh Steel Corporation. The applicant claimed that the company could be revived and had settled its outstanding dues with creditors.2. Settlement of Dues with Creditors:The applicant stated that the company had settled its dues with M/s. Suresh Steel Corporation for Rs. 1,50,000 and with Pegasus Assets Reconstruction P. Ltd. for Rs. 70,00,000, which was the assignee of the State Bank of India's debt. The applicant assured that apart from the settled creditors, the company had no other significant liabilities, and any remaining minor dues would be discharged.3. Compliance with Statutory Requirements for Revival:The applicant's counsel argued that the court has the power to recall the winding-up order under section 466 of the Companies Act, 1956, read with rules 6 and 9 of the Companies (Court) Rules, 1959, and section 151 of the Code of Civil Procedure, 1908. The official liquidator contested this, stating that the applicant should have followed the procedure under section 391 of the Companies Act, 1956, for a scheme of reconstruction/revival.4. Objections by the Official Liquidator:The official liquidator raised several objections, including the delay in filing the application after 33 years, non-compliance with rule 24 of the Companies (Court) Rules, 1959 (regarding advertisement in the regional language), and the need for a proper scheme under section 391. The liquidator also questioned the validity of the debt assignment to ARCIL and the sufficiency of the applicant's settlement proposals.5. Legal Precedents and Powers of the Court:The court examined various precedents, including decisions from the Karnataka High Court and previous orders of the Gujarat High Court, which supported the court's power to recall winding-up orders and consider revival schemes. The court emphasized that the revival scheme must be genuine and viable, and the interests of creditors and claimants must be safeguarded.Court's Decision:The court allowed the application for recalling the winding-up order, subject to several safeguards to protect the interests of creditors and claimants. These included:- Deducting expenses incurred by the official liquidator and depositing 50% of the remaining amount in a fixed deposit for three years to meet any legally admissible claims.- The applicant providing an undertaking to honor all legally admissible claims and not to alienate the company's assets except for revival purposes.- Issuing advertisements in English and Gujarati newspapers to inform potential claimants about the safeguards and the fixed deposit arrangement.The winding-up order dated November 22, 1976, was recalled, and the company petition was restored to file and permitted to be withdrawn. The court's order ensured that the company and its directors would remain liable for any legal and statutory obligations arising from the winding-up proceedings.