2020 (1) TMI 280 - HC - Companies Law

Company operated under Court oversight, facing investigation for mismanagement and oppression.

The Court found that despite the winding-up order, the Company operated as a going concern under Court-appointed management committees. The compensation ... Winding up petition - compensation paid by the National Highways Authority of India (NHAI) towards acquisition of the lands of the Company - whether the workers' union of the Company could maintain an application under Section 529A of the erstwhile Companies Act, 1956? HELD THAT:- This Court directs as follows:- I) That the Court continues to be in the position of custodia legis of the Company/BJF. II) That ipso facto there is no permanent stay of winding up. III) That as the custodia legis, this Court appoints a three member Committee of Management (for CoM). IV) The CoM will be constituted of the following members: 1) Mr. Mukul Lahiri, Learned Senior Advocate; 2) Mr. Snehatosh Mazumder, Learned Counsel; and 3) Mr. Sondwip Mukherjee, Learned Counsel (and erstwhile Joint Special Officer). V) The CoM will be entitled to appoint an Auditor of quality to carry out a complete audit, including a forensic audit, of the Company. VI) The CoM shall be also entitled to consult professionals of standing/experts on an advisory basis for arriving at a just conclusion with regard to the professional and financial health of the Company. VII) All creditors, workers etc. claiming their dues from the Company shall submit their respective claims with the CoM. The CoM shall quantify and prioritise the respective claims and submit a schedule of payments in consultation with the Auditors and experts appointed by the CoM. VIII) The cut-off period for filing claims with the CoM shall be the period when the Company was referred to BIFR for a rehabilitation scheme. IX) The initial remuneration of the members of the CoM shall be ₹ 1.5 lacs (Rupees One Lakh Fifty Thousand only) each. The CoM shall be entitled to secretarial and other expenses of ₹ 50,000/- (Rupees Fifty Thousand only) at the initial stage. X) Out of the total sum of money presently lying in the custody of the Learned Registrar (Original Side), High Court at Calcutta, a sum of ₹ 25 lacs (Rupees Twenty Five Lacs only) be initially placed at the disposal of the CoM, which shall keep the said money in a separate account in a Nationalised Bank, to be operated on the basis of joint signatures of two members of the CoM. XI) The expenses of the Auditor and the advisory opinion of the experts shall initially be met by the CoM from out of the balance of ₹ 25 lacs after deducting the sum of 5 lacs towards their individual remuneration and secretarial costs. XII) All parties present before this Court and otherwise claiming to be associated with the Company, subject to the satisfaction of the CoM, as well as all officers at the Government/Administrative level shall render assistance to the CoM, as and when called for. XIII) The CoM shall be entitled to place its recommendations before the Court. The CoM shall keep in mind that the template of Company Law Jurisdiction has been transformed over the years, making it necessary for this Court to observe that the present litigation associated with CP 2/1987 alongwith its connected CAs is almost antique, thus requiring any surviving rights of parties to be tested under current laws. Reference answered. Issues Involved:1. Legitimacy of the winding-up order of Baranagore Jute Factory PLC (BJF).2. Entitlement to the compensation amount deposited with the Registrar.3. Status of the Company as a going concern.4. Alleged mismanagement and oppression by the current management.5. Rights of creditors, workers, and other stakeholders.6. Custodia legis status of the Company.7. Need for a forensic audit of the Company’s accounts.Detailed Analysis:Legitimacy of the Winding-Up Order:The winding-up petition CP 2/1987 was filed for the winding-up of Baranagore Jute Factory PLC (BJF). The Court noted that despite the winding-up order, the Company continued operations under various management committees appointed by the Court. The Hon'ble Apex Court's judgment in Civil Appeal No. 4101-4103 of 2004 (In Re: Radheshyam Ajitsaria) was cited, which observed that the Company was functioning as a going concern and that the winding-up process had been permanently stayed under Section 466 of the Companies Act, 1956. However, the Court clarified that no terms and conditions for a permanent stay of winding-up were discussed or proposed in the Ajitsaria case.Entitlement to the Compensation Amount:The compensation amount of approximately Rs. 95 Crores, paid by the National Highways Authority of India (NHAI) for land acquisition, is central to the dispute. The current management claimed entitlement to this amount, arguing that the Company is a going concern. However, the Court noted that the compensation money should be filtered through the Court, given the Company’s status as custodia legis. The Court also observed that the Company’s financial turnaround was primarily due to the compensation money, not its operational performance.Status of the Company as a Going Concern:The Court acknowledged that the Company continued to operate under the supervision of the Court and various management committees. The Hon'ble Apex Court in its judgment dated 24th May 2006, observed that the Company was a going concern and the winding-up proceedings were permanently stayed. However, the Court emphasized that the Company remained under Court supervision and that the winding-up order was not permanently stayed in the classical sense.Alleged Mismanagement and Oppression:Several parties raised concerns about the legitimacy of the current management, alleging mismanagement and oppression. The Court noted that these allegations required further investigation and directed that the issue of alleged surreptitious change in management and oppression be examined by the newly appointed Committee of Management (CoM).Rights of Creditors, Workers, and Other Stakeholders:The Court recognized the claims of creditors, workers, and other stakeholders, both from the period when the winding-up petition was filed and those who continued to support the current management. The Court directed that all claims be submitted to the CoM for quantification and prioritization.Custodia Legis Status of the Company:The Court held that the Company remained under the supervision of the Court (custodia legis) and that any decisions regarding its assets and operations must be filtered through the Court. The Court appointed a three-member Committee of Management (CoM) to oversee the Company’s operations and financial health.Need for a Forensic Audit:The Court directed the CoM to appoint an auditor to conduct a complete audit, including a forensic audit, of the Company’s accounts. The CoM was also authorized to consult professionals and experts to assess the Company’s financial health and make recommendations to the Court.Court's Directions:1. The Court continues to be in the position of custodia legis of the Company/BJF.2. There is no permanent stay of winding up.3. A three-member Committee of Management (CoM) is appointed, consisting of Mr. Mukul Lahiri, Mr. Snehatosh Mazumder, and Mr. Sondwip Mukherjee.4. The CoM is entitled to appoint an auditor for a complete audit, including a forensic audit.5. All creditors, workers, etc., must submit their claims to the CoM.6. The cut-off period for filing claims is when the Company was referred to BIFR.7. Initial remuneration and expenses for the CoM are specified.8. A sum of Rs. 25 lacs is placed at the disposal of the CoM for initial expenses.9. The CoM is to file its report within three months.10. CP 2/1987 remains formally on record for further orders.11. Issues of alleged surreptitious change in management and oppression are to be examined.12. The CoM's recommendations will guide further actions.Conclusion:The Court's judgment emphasizes the continued supervision of the Company by the Court, the need for a thorough audit, and the equitable consideration of claims by all stakeholders. The appointment of a new Committee of Management aims to ensure transparency and accountability in the Company’s operations.