Court upholds decision dismissing appeal for permanent stay of winding-up order due to inadequate revival plan.

Forbes & Company Ltd. Versus Official Liquidator of Bombay High Court

Forbes & Company Ltd. Versus Official Liquidator of Bombay High Court - TMI Issues Involved:
1. Application for Permanent Stay of Winding Up u/s 466 of the Companies Act, 1956.
2. Revival of the Company and Business.
3. Interests of Creditors, Workmen, and Public Interest.
4. Commercial Morality and Public Interest.
5. Rights of Shareholders and Contributories.

Summary:

1. Application for Permanent Stay of Winding Up u/s 466 of the Companies Act, 1956:
The appellants sought a permanent stay of the winding-up order passed on 5 September 2005 for Svadeshi Mills Company Limited. The Company Judge dismissed the application on 14 October 2011, stating no grounds for exercising discretion u/s 466 were made out. The appeal challenges this dismissal.

2. Revival of the Company and Business:
The appellants, part of the Shapoorji Pallonji Group, proposed to diversify the company's business into real estate, arguing that the textile business was no longer viable. They claimed readiness to deposit Rs. 86 crores with the Official Liquidator and additional funds as required. The Company Judge found that the appellants did not plan to revive the textile business but intended to develop the company's properties as real estate, which does not constitute a revival of the company's original business.

3. Interests of Creditors, Workmen, and Public Interest:
The appellants held 52% of the equity shares and were also secured creditors. They claimed to have obtained an assignment of the debts due to other secured creditors. The opposition came from a group of workmen representing 763 workmen and staff. The Company Judge emphasized that the claims of the workers could not be defeated and that the proposed stay would place the matter beyond the control of the Official Liquidator.

4. Commercial Morality and Public Interest:
The Company Judge found that the application was contrary to commercial morality and public interest. The judgment cited principles from various cases, emphasizing that the court must consider whether the stay would be conducive or detrimental to commercial morality and public interest. The Supreme Court's judgment in Meghal Homes (P.) Ltd. v. Shree Niwas Girni K.K. Samiti was referenced, which underscored the need for genuine revival efforts and not just asset disposal.

5. Rights of Shareholders and Contributories:
The appellants, as contributories, did not have the consent of all shareholders for the stay of winding up. The court noted that a scheme of reconstruction under Section 391 would be more appropriate, allowing members to consider and vote on the proposal. The judgment highlighted that the appellants' approach interfered with the proprietary interest of a substantial percentage of members (48%) without adequate material to justify their preference.

Conclusion:
The Bombay High Court upheld the Company Judge's decision, finding no merit in the appeal. The court concluded that the appellants' proposal did not constitute a genuine revival of the company's business and was contrary to commercial morality and public interest. The appeal was dismissed with no order as to costs.