1934 (5) TMI 14 - HC - Companies Law

Creditor's Misconduct in Winding Up Petition

Bombay House Ltd., In re

The High Court found that the petition for winding up of the company by the creditor was not made in good faith as the creditor had already seized and ... Winding up – Powers of tribunal on hearing petition Issues:1. Whether the petition for winding up of the company was made in good faith by the petitioning creditor.2. Whether the actions of the petitioning creditor in insisting upon further proceedings in liquidation were bona fide.3. Determination of costs in the liquidation proceedings.Detailed Analysis:1. The High Court of Lahore, comprising Tek Chand and Monroe, JJ., deliberated on the petition for winding up of a company by the Bharat Insurance Company, the sole creditor of the Bombay House Limited. The Court found that the petitioning creditor had already attached and sold all available assets of the company, indicating that the motive behind the winding up petition was to pressure the company's directors to pay the outstanding amount personally. The Official Liquidator informed the Court that the company had ceased business, had no assets, and the directors' whereabouts were unknown. The Court concluded that the petition for winding up was not made in good faith by the petitioning creditor.2. Despite the Official Liquidator's recommendation to dissolve the company due to lack of assets and the futility of liquidation proceedings, the petitioning creditor insisted on tracing the directors for examination, alleging potential fraud. However, after examining the Managing Director, the Court found no prima facie case against him and noted that the petitioning creditor had already seized and sold the company's goods before the winding-up application. The Court determined that the petitioning creditor's actions were not bona fide, leading to a decision on costs in the liquidation proceedings.3. In the absence of specific provisions in the Companies Act, the Court relied on Section 35 of the Civil Procedure Code to address the issue of costs. The Court exercised its discretion under Section 35 and directed the petitioning creditor, Bharat Insurance Company, to pay the Official Liquidator's out-of-pocket expenses in the liquidation proceedings along with a fixed remuneration of Rs. 150. The Official Liquidator was instructed to submit a detailed expense account to the District Judge for verification, who would then issue a payment order against the petitioning creditor for the amount due. The Court emphasized that the Official Liquidator, appointed at the creditor's instance, should not bear the costs personally, and the petitioning creditor should cover the expenses incurred.This judgment highlights the Court's scrutiny of the petitioning creditor's motives in seeking the winding up of a company, the importance of good faith in such proceedings, and the Court's authority to determine costs in the absence of specific statutory provisions.