2013 (9) TMI 913 - HC - Companies Law

Application for Permanent Stay of Winding Up Dismissed, Emphasizing Public Interest and Commercial Morality

The court dismissed the application for a permanent stay of winding up, as it found that the applicants' main intention was to exploit the company's lands ... Winding up - Power to stay winding up - Stay on Winding up Petition – Held that:- it was apparent that the applicants do not desire to revive the business of the company in liquidation by developing part of its properties or portions of its lands, but desire to take over the said lands for exploitation in the real estate market - It was clearly their motive that these lands should be taken over without offering the market price, but via this application so that once the permanent stay of winding up was obtained or granted, that would mean that the company’s prime assets and properties can no longer be controlled by the court - They would develop these lands by constructing buildings and sell off the units therein and earn profits. The desire to cash on the lands with a view to fully exploit their potential was not matched with the same approach as far as the creditors of the company are concerned - By not reviving the company after taking it out of winding up shows that the applicants were primarily concerned with the benefits attached to these lands. Thus, to avoid participation at a public auction and at a sale which will be conducted in a transparent and fair manner, that the application had been filed - If ultimately it was impossible to revive the company, then, it was better that the liquidator carries on its affairs till the dissolution of the company - It was only through the mechanism and participation of the liquidator, that the court can ensure settlement of claims of the secured and unsecured creditors in accordance with law - when claims of certain workmen have been given a preference over others or non-consenting employees, then, all the more it would not be in public interest and commercial morality to grant any reliefs - Relying upon Shaan Zaveri v. Gautam Sarabhai (P.) Ltd. [2009 (5) TMI 543 - HIGH COURT OF GUJARAT] - The scheme was found to be not contravening any of the provisions of law that the discretion was exercised on the sound judicial principles - That must be seen in the facts of that case and that this judgment does not lay down any general rule - None of the grounds enabling exercise of discretion under section 466 have been made out, this company application was dismissed but without any order as to costs - The official liquidator should now proceed expeditiously and adjudicate the claims received and take all such steps as were necessary and permissible in law for winding up the company in liquidation. Issues Involved:1. Application for permanent stay of winding up under Section 466 of the Companies Act, 1956.2. Bona fides of the applicants and their intent to revive the company.3. Claims and dues of workers and employees.4. Public interest and commercial morality.5. Locus and representation of workers' unions.6. Legal provisions and precedents relevant to the stay of winding up.Issue-wise Detailed Analysis:1. Application for Permanent Stay of Winding Up:The application invoked the powers of the court under Section 466 of the Companies Act, 1956, seeking a permanent stay on the winding up order dated September 5, 2005, of Swadeshi Mills Co. Ltd. The applicants, Forbes and Co. Ltd. and Grand View Estates P. Ltd., proposed to deposit Rs. 86 crores with the official liquidator to settle the dues of secured creditors, workers, and employees, and requested the assets and properties of the company in liquidation be handed over to them.2. Bona Fides of the Applicants and Intent to Revive the Company:The applicants claimed to be major shareholders and secured creditors, owning 52% of the total equity shares of the company in liquidation. They argued that the company's textile business was no longer viable and proposed to undertake real estate development instead. The court noted that the applicants were part of the Shapoorji Pallonji group, which has expertise in real estate, and questioned their intent to revive the company's business. The court emphasized that the application seemed to be an attempt to exploit the company's lands for real estate development rather than reviving the textile business.3. Claims and Dues of Workers and Employees:The court considered the claims of 748 workers represented by Ms. Jane Cox and the Rashtriya Mill Mazdoor Sangh, which had signed a memorandum of understanding with the applicants. The court noted that the official liquidator had received 1,138 individual claims from workers and was in the process of adjudicating them. The court emphasized that the dues of all workers must be adjudicated by the official liquidator in accordance with law, and the memorandum of understanding with one union could not be held conclusive for all workers' claims.4. Public Interest and Commercial Morality:The court highlighted that a company is a social institution with responsibilities towards the community, including workers, consumers, and the public at large. It emphasized that the court must consider public interest and commercial morality while exercising discretion under Section 466. The court found that the applicants' primary interest was in exploiting the company's lands for real estate development rather than reviving the company's business, which was contrary to public interest and commercial morality.5. Locus and Representation of Workers' Unions:The court addressed the issue of locus and representation of workers by different unions. It noted that the status of Rashtriya Mill Mazdoor Sangh as a representative union was a matter for the official liquidator to decide. The court allowed the official liquidator to adjudicate the claims of workers who did not wish to abide by the memorandum of understanding independently and in accordance with law.6. Legal Provisions and Precedents Relevant to the Stay of Winding Up:The court referred to Section 466 of the Companies Act, 1956, which allows the court to stay winding up proceedings permanently or temporarily on terms and conditions it deems fit. It also cited various legal precedents, including the principles summarized by the Calcutta High Court in Nilkanta Kolay v. Official Liquidator, which emphasize that the court must be satisfied of the bona fides of the application, consider the interest of commercial morality, and ensure that the stay will be conducive to public interest. The court also referred to the Supreme Court's decision in Meghal Homes (P.) Ltd. v. Shree Niwas Girni K. K. Samiti, which emphasized that the court must consider public interest and commercial morality while approving a scheme or arrangement under Sections 391 to 394 of the Companies Act.Conclusion:The court dismissed the application for permanent stay of winding up, finding that the applicants' primary intent was to exploit the company's lands for real estate development rather than reviving the company's business. The court emphasized the importance of public interest, commercial morality, and the need to adjudicate workers' claims in accordance with law. The court allowed the applicants to withdraw the deposited amount of Rs. 86 crores with accrued interest, without prejudice to their rights to challenge the order in a higher court.