2012 (9) TMI 1254 - HC - Companies Law

Appeal Dismissed: Court Upholds Rejection of Company Revival Plan, Citing Lack of Credibility and Workers' Interest.

The HC dismissed the appeal, affirming the decision to reject the application for convening a meeting under Section 391 of the Companies Act, 1956. The ... - Issues Involved:1. The scope of inquiry by the court under Section 391 of the Companies Act, 1956, regarding convening a meeting for a proposed revival scheme of a company in liquidation.2. The assessment of the bona fides and legitimacy of the revival proposal after a significant lapse of time.3. The consideration of workers' interests and the potential impact of the revival scheme on them.4. The evaluation of the financial viability and credibility of the sponsor proposing the revival scheme.5. The implications of real estate market conditions on the revival proposal.Issue-wise Detailed Analysis:1. Scope of Inquiry under Section 391 of the Companies Act, 1956:The court's inquiry under Section 391 is to determine whether it is permissible to convene a meeting of shareholders to deliberate on a proposed revival scheme. The court must assess if the proposal is genuine and serves the company's and stakeholders' interests. The court noted that the application for convening a meeting and the approval of the revival scheme are distinct stages. At the stage of convening a meeting, the court should not delve into the merits of the scheme but should ensure that the proposal is not frivolous or intended to thwart the liquidation process.2. Assessment of Bona Fides and Legitimacy of the Revival Proposal:The court observed that the revival proposal came after a gap of 20 years, which raises questions about its bona fides. The appellants, who were part of the former management, did not object to the sale of the company's movable assets during the liquidation process. The timing of the proposal, coinciding with a boom in real estate prices, suggests that the revival scheme may be driven by the appellants' interest in the appreciating value of the company's land rather than a genuine intent to revive the company.3. Consideration of Workers' Interests:The court emphasized that the interests of the workers, who have been waiting for their dues for over two decades, are paramount. The revival proposal's promise of reemployment for the workers appears unrealistic, as most of them have reached retirement age. The court noted that the payment of workers' dues should be prioritized over speculative revival plans that do not guarantee tangible benefits to the workers.4. Evaluation of Financial Viability and Credibility of the Sponsor:The court scrutinized the financial credibility of the sponsor, M/s Dharnidhar Cotex Pvt. Ltd., and found it lacking. The sponsor's recent incorporation and inability to demonstrate substantial financial backing cast doubt on its capacity to support the revival scheme. The court highlighted the importance of establishing the sponsor's creditworthiness and the source of funds for the revival, which was not adequately addressed by the appellants.5. Implications of Real Estate Market Conditions:The court acknowledged that the rising real estate prices could influence the appellants' motivation to propose a revival scheme. The court was wary of the possibility that the revival proposal was a strategic move to capitalize on the increased land value rather than a sincere effort to restart the company's operations. The court underscored that the sale of land at current market rates could significantly help in settling the company's liabilities, including workers' dues.Conclusion:The court concluded that the revival proposal lacked credibility and was not in the best interest of the stakeholders, particularly the workers. The proposal appeared to be motivated by the appellants' interest in the appreciating land value rather than a genuine intent to revive the company. The court dismissed the appeal, affirming the decision of the learned Company Judge to reject the application for convening a meeting under Section 391 of the Companies Act, 1956.