2014 (7) TMI 728 - HC - Companies Law

Company Court Procedure: Importance of Advertising Petitions for Winding Up

Indo Rolhard Industries Ltd. Versus MK. Mahajan & Another

The Division Bench concluded that the company court cannot order the winding up of a company without advertising the petition, as per the judgment in ... Winding up petition - publication of advertisement - unable to pay dues to the creditors - Held that:- the learned Single Judge rightly observed that there was no reason why advertisement should be deferred, more so as the Appellant Company had not availed of the opportunity granted to it by the Division Bench to move an application for deferment of the advertisement of the petition. Even otherwise, there did not appear to be any special circumstances which would warrant deferment or suspension of the publication of advertisement. The petition was filed as far back as in the year 2005 and the Appellant Company had sufficient opportunity to settle the claims of the Respondents. Deferment of publication of advertisement to enable the Appellant to pay to the Respondent the admitted dues was thus no longer warranted, and as a matter of fact publication was immediately called for. - no merit in the present appeal which appears to us to be only an attempt to protract the proceedings. - Decided against the company. Issues Involved:1. Whether the company court can order winding up of a company without ordering the petition to be advertised.2. Whether the appellant company was denied an opportunity to invoke the inherent powers of the court under Rule 9 of the Companies (Court) Rules, 1959.3. Whether the learned Company Judge's orders rejecting the appellant's applications for cross-examination and for bringing additional documents on record were justified.4. Whether the appointment of the Official Liquidator as Provisional Liquidator and the direction for publication of the citation were appropriate.Issue-wise Analysis:1. Whether the company court can order winding up of a company without ordering the petition to be advertised:The Division Bench addressed this issue by referring to the Supreme Court's judgment in *National Conduits (P) Ltd. v. S.S. Arora*, which clarified that a petition for winding up cannot be placed for hearing unless it is advertised. The court emphasized that the advertisement of the petition is crucial to protect the interests of the creditors and shareholders and prevent potential misuse of the court's process. The Division Bench concluded that the procedure adopted by the learned Company Judge in ordering the winding up without advertisement was unsustainable.2. Whether the appellant company was denied an opportunity to invoke the inherent powers of the court under Rule 9 of the Companies (Court) Rules, 1959:The Division Bench noted that Rule 9 of the Companies (Court) Rules, 1959, provides the court with inherent powers to give directions or pass orders necessary for the ends of justice or to prevent abuse of the court's process. The court observed that the appellant company was not given an opportunity to invoke these inherent powers to argue against the advertisement of the petition. The Division Bench allowed the appeal, set aside the order of the learned Company Judge, and remanded the matter for reconsideration, granting the appellant company the liberty to move an application under Rule 9 within seven days.3. Whether the learned Company Judge's orders rejecting the appellant's applications for cross-examination and for bringing additional documents on record were justified:The learned Company Judge rejected the appellant's application for bringing additional documents on record, noting that these documents had already been considered in the order dated 16.02.2009. The application for cross-examination was also dismissed, with the court observing that it appeared to be an afterthought intended to delay the proceedings. The court found no new grounds or bona fide reasons to justify the cross-examination. The appellant did not appeal against these orders, and the Division Bench noted that the merits of the admission order were not questioned in the appeal.4. Whether the appointment of the Official Liquidator as Provisional Liquidator and the direction for publication of the citation were appropriate:The learned Company Judge, after examining the history of the case and the orders of the Division Bench, directed the advertisement of the petition and appointed the Official Liquidator as Provisional Liquidator. The Division Bench clarified that the findings and observations of the learned Single Judge regarding the admission of the winding up petition stood undisturbed. The court found no reason to defer the advertisement or the appointment of the Provisional Liquidator, especially given the prolonged nature of the proceedings and the appellant's failure to settle the claims of the respondents. The appeal against this order was dismissed, with the court noting that the appellant's attempts appeared to be aimed at protracting the proceedings.Conclusion:The court dismissed the appeal, finding no merit in the appellant's contentions and upholding the learned Company Judge's orders for the advertisement of the winding up petition and the appointment of the Official Liquidator as Provisional Liquidator. The court emphasized the need for fair procedure and the protection of the interests of creditors and shareholders, while also highlighting the appellant's lack of bona fides and attempts to delay the proceedings.