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2017 (9) TMI 129
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....), who was acting as the Provisional Liquidator (in short, 'the PL') was discharged, was passed only in C.P.No.179 of 2001, whereas, on the record of the Company Judge, there is, even now, another petition pending, whereby, winding up of KOFL is sought. In other words, the argument advanced is that dismissal of C.P.No.179 of 2001 will not bring about an efficacious conclusion even from the point view of KOFL. 2.1. We may also note that, the learned Company Judge, while passing the impugned judgement and decree, has also gone on to dismiss C.P.No.179 of 2001, though the prayer in C.A.No.734 of 2011 was confined only to the discharge of OL. 3. As to whether, such a direction could have been passed or not by the learned Company Judge, is also a matter in issue, as submissions, in this behalf, have been advanced on behalf of the appellant. 4. Before we proceed further, and in order to adjudicate upon the instant appeal, the following, broad, facts are required to be noticed. 4.1. C.P.No.179 of 2001 came to be filed by one Mr.S.Ramaiah, who is arrayed as respondent No.3 in the instant appeal. He, along with his wife, had deposited monies with KOFL. Since, there was a....
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....mounts that the appellant sought to infuse, out of his personal funds to repay depositors, though, in instalments, was too small an amount, given the extent of monies owed. 4.7. The Court, however, went on to state that the appellant, based on an additional affidavit filed by him, shall bring in the assured amounts and assets for repayment of debt for the benefit of depositors and other creditors. The Court, thus, restrained the appellant from alienating his immovable properties and other valuable assets, shares, deposits, investments and other movables without the leave of the Court, even while, noting the fact that KOFL had become insolvent and had lost its substratum. As alluded to above, the Court came to the conclusion that it was a fit case for admitting the Company Petitions. 5. As would be obvious, the aforementioned facts present only a broad preface as to how, the two, Company Petitions, i.e., C.P.Nos.179 and 180 of 2001, came to be filed. 5.1. The instant appeal, which has been filed by the erstwhile Chairman of KOFL, as indicated above, is, principally, contested by respondent No.1, i.e., United Western Bank, predecessor-in-interest of Investment Development Ba....
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....as appointed as the PL. 5.7. In the interregnum, in line with the then prevailing provisions of the Income Tax Act, 1961, the agreement for sale was presented before the concerned income tax authority. According to UWB/IDBI, the concerned income tax authority gave its No Objection Certificate (NOC) for sale of the subject property on 18.04.2000. 5.8. We may, however, note that in the application filed by UWB/IDBI, qua which the impugned judgement and order has been passed by the learned Company Judge, i.e., Comp.A.No.734 of 2011, UWB/IDBI avers that the income tax authority had attached the subject premises, whereupon, a sum of Rs. 2,02,322/- was paid by UWB/IDBI, out of the balance sale consideration payable to KOFL. It is further averred that the attachment vis-a-vis, the subject property, was lifted only thereafter. 5.9. Be that as it may, UWB/IDBI, on 24.07.2002, requested the Administrator appointed by this Court to execute the sale in its favour vis-a-vis the subject property. Since, there was no response, UWB/IDBI filed Comp.A.No.1208 of 2002, with the learned Single Judge, wherein, the prayer made was, for issuance of a direction to the Administrator, to execute a ....
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....nistrator, passed a common order in Comp.A.Nos.2482 to 2485 of 2007. In the said order, the Company Judge observed that, since, the Administrator had reported to him that the appellant had paid the entire amount, as directed by the Court on 09.10.2007, he was inclined to lift the attachment order and direct the Administrator to return the sale deed dated 17.09.1993, and other relevant papers pertaining to the property situate at No.9, Mohan Kumaramangalam Road, Poineer Sudarsan Plaza, Nungambakkam, Chennai-600 034. To be noted, these were title documents, which, the appellant had deposited with the Administrator. 8.3. Consequent thereto, the Administrator filed a report dated 08.06.2009. The report filed showed that the learned Administrator had made recoveries from the debtors of KOFL to the extent of Rs. 1,03,44,559/-. In addition thereto, the Administrator had transferred a sum of Rs. 7,64,363/- to the OL. The total recoveries, which the Administrator had made was Rs. 1,11,08,922/-. Furthermore, the report also recorded that the appellant had made, via cheques issued on various dates between January 2003 and December 2007, remittances to the Administrator amounting to Rs. 7,4....
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....led claims, the appellant was called upon to furnish security in the form of Fixed Deposit Receipt (FDR) worth Rs. 25,00,000/- (Rupees twenty five lakhs) and, to hand over the same to the OL. The initial period, for which, deposits were to be kept alive was pegged at one year. The appellant was given liberty to approach the Court, upon the expiry of the tenure fixed vis-a-vis Fixed Deposit, for issuance of appropriate orders. (ix).The OL was directed to depute one of his officials to take inventory of the entire material belonging to KOFL, albeit, in the presence of the nominee of the Administrator and to take possession of the same thereafter. The time frame given, for the said purpose, was four (4) weeks from the date of receipt of the order and upon filing of the report, in that behalf. (x).The Administrator was discharged of his obligation to manage the affairs of KOFL, which, essentially, pertained to redemption of dues of depositors. The Administrator was, however, directed to prosecute the appeal, and in that behalf, take assistance, if necessary from the OL. 10. It appears that the Company Petition, in this background, came up before the Court, for hear....
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....espondent to the first respondent. ii. To grant an order of attachment of the aforesaid amount of Rs. 1,30,29,441.00 together with accrued interest lying with the second respondent and belonging to the first respondent. iii. To direct the second respondent to pay the aforesaid amount of Rs. 1,30,29,441.00 together with accrued interest to the Petitioner Bank towards the recovery of the Certificate amount. 14.2. The aforementioned reliefs were sought for by SBI, in view of the consequential directions contained in the impugned judgement dated 04.10.2013, whereby, the OL, upon his discharge, was directed to transfer the sum of Rs. 1,27,00,000/- lying with him by way of investment and Rs. 3,29,441/- available with him in the form of Bank Deposits, to the appellant herein. 14.3. The DRT, taking into account, the directions contained in the impugned judgement and order dated 04.10.2013, vide its order dated 13.12.2013, granted only one of the three (3) reliefs, which is, the order of attachment prayed for by SBI. 14.4. Accordingly, the sum available with the OL, in the form of investment and bank deposits amounting to Rs. 1,30,29,441/- was directed to be attac....
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.... of 2000 and 14 of 2002. (v)(a). We may only note that in so far as O.A.No.14 of 2002 is concerned, which, evidently, has been filed by SBI stands disposed of, by DRT vide order dated 30.05.2005, with the issuance of a Recovery Certificate. SBI, accordingly, has been issued, it appears, a Recovery Certificate for a sum of Rs. 1,40,81,030.75. (v)(b)We have, though, not been told, what was the fate of the other two original applications. 16. At this stage, it would be relevant to note that in the final report, a tabular chart has been set out by the OL with regard to the working capital limit sanctioned by each bank. For the sake of convenience, the details as given therein are set out hereafter : Sl. No. Name of the Bank Limit (Rs. In lakhs) 1. State Bank of India 75.00 2. Bank of India 125.00 3. Catholic Syrian Bank Ltd. 35.00 4. Bank of Madura Ltd. 25.00 5. Bank of Baroda Ltd. 75.00 6. United Western Bank Ltd. 50.00 7. Karur Vysya Bank Ltd. 100.00 8. The Federal Bank Ltd. 50.00 17. Apart from the OL, the appellant, as it appears, also, filed a counter affidavit to Comp.A.No.734....
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....omp.A.No.734 of 2011 has been filed without the knowledge of other creditors, who have a pari passu right on the subject property, in terms of Section 529A of the 1956 Act. (xii).Finally, since, there is no scope for restructuring and/or reviving KOFL, it is, in its interest, that the OL continues to act as its PL. The appellant, being its promoter, has no role to play in collection of dues from the borrowers of KOFL and payment of monies to the outstanding creditors in the absence of a revival scheme or resumption of business of KOFL in view of the directions issued by this Court vide order dated 05.12.2001. 18. It is, in this background, that the learned Company Judge was called upon the pass orders in Comp.A.No.734 of 2011. 19. What, thus, emerges, upon the perusal of the record, which includes the impugned order, is as follows : (i).That KOFL owed a sum of Rs. 66,55,055/-, to UWB/IDBI as on 31.03.1999. (ii).A resolution was passed by the BOD of KOFL on 31.03.1999, authorising one of its Directors to negotiate the sale of the subject property with UWB/IDBI. Accordingly, the letter dated 02.02.2000, was issued by KOFL to UWB/IDBI expressing its wi....
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....1208 of 2002, whereby, UWB/IDBI sought issuance of a direction to the Administrator for execution of sale deed. The Company Judge vide order dated 21.04.2003, dismissed the application by labeling it as a fraudulent preference. (x).Appeal preferred by UWB/IDBI, which is numbered as O.S.A.No.284 of 2003, was also dismissed by the Division Bench of this Court, vide order dated 17.08.2009. (xi).Against the said order dated 17.08.2009, UWB/IDBI has preferred a SLP, which is pending adjudication. 20. The Division Bench has formed a view that the subject transaction is a case of fraudulent preference, and while doing so, has returned the following findings of fact and law : (i).That the only immovable asset, which KOFL had, was the subject property. (ii).The aspect of sale of the subject property had not received the approval of its shareholders in accordance with the provisions of Section 293 of the 1956 Act. In other words, the Division Bench came to the conclusion that the said provision was applicable, as the subject property formed the whole or, substantially the whole of the undertaking of KOFL and therefore, its sale could only have been cond....
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....in by the appellant, while the balance 20% of the dues were paid by the Administrator. The learned Company Judge also noted that a sum of Rs. 1,95,73,682.44 was refunded to the appellant, albeit, out of the personal funds brought in by him. 21.2. In this context, the learned Company Judge observed that "the line of demarcation between the promoter's personal funds and the company's funds is very thin and the third respondent would not have had this benefit if the prosecution had continued under the Tamil Nadu Protection of Interest of Depositors Act, 1997". In sum, the learned Company Judge's assessment vis-a-vis the appellant is that the only reason he opposed Comp.A.No.734 of 2011, was that he did not want the creditors to take recourse to his personal assets. 21.3. In so far as UWB/IDBI is concerned, the learned Company Judge recognised the fact that Comp.A.No.734 of 2011, had been filed only to remove one of the impediments in its way in securing the title to the subject property. The present application, according to the learned Company Judge, was in effect an attempt to take a shortcut to success. 22. Having adverted to the motivation of the contesting pa....
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....in the place of the petitioning creditor, notwithstanding his failure to advertise the Company Petition. Adequate opportunity in this behalf was not given. (ii). Second, the learned Company Judge was called upon to rule as to whether or not the prayer made in Comp.A.No.734 of 2011 ought to be granted. The prayer made in the application, according to the learned counsel, was confined to seek OL's discharge as PL. There was no prayer made to seek dismissal of C.P.No.179 of 2001. (iii). Third, on the record of the learned Company Judge, the CP filed by respondent No.3's wife, i.e., C.P.No.180 of 2001, was also pending adjudication. Therefore, notwithstanding the impugned judgement, the OL, who was appointed to act as a PL, vide order dated 05.12.2001, would continue to do so in C.P.No.180 of 2001, as the said order was passed, both in C.P.Nos.179 and 180 of 2001. In order to buttress this submission, our attention was drawn to the Decree dated 04.10.2013, which adverts to the fact that only C.P.No.179 of 2001 stands dismissed. (iv). Fourth, the learned Company Judge, ought to have given an opportunity, not only to the appellant, but also other credit....
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....rned Company Judge had considered all aspects of the matter, and thereafter, employed his discretion in the matter, this Court, sitting in appeal, ought not to interfere with the impugned judgement and order. In support of this submission, learned Senior Counsel relied upon the following judgements : (i).The Printers (Mysore) Private Ltd. V. Pothan Joseph, AIR 1960 SC 1156 ; (ii).Wander Ltd. and Another V. Antox India P. Ltd., 1990 (Supp) SCC 727 ; Discussion on provisions of the 1956 Act and 1959 Rules: 26. Given this background, before we proceed further, it may be relevant to notice some of the provisions of the 1956 Act. 26.1. The circumstances, in which, a company can be wound up by Court are provided for under Section 433 of the 1956 Act. At the relevant point in time, the said section contained six (6) clauses. These clauses enumerated the circumstances, in which, a company could be wound up. The subject Company Petition, i.e., C.P.No.179 of 2001, was filed under the provisions of Clause (e) and (f) of Section 433. 26.2. Clause (e) speaks of a circumstance, whereby, a company is unable to pay its debts. Clause (f), on the other hand, empowers the C....
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...., when, a resolution is passed by the company, in that behalf. 27. It may be important to note that Section 447, clearly, provides that, an order for winding up of a company shall operate in favour of all creditors and contributories, as if it was made on a joint petition of a creditor and of a contributory. 27.1. However, before a Court reaches such a stage, that is, of passing a winding up order, there are intermediary stages, which includes, a stage, at times, for appointment of the OL, as the PL. The power to do so is vested in the Court under Section 450 of the 1956 Act. 27.2. Under Sub-section (1) of Section 450, the Court is empowered, at any time, after the presentation of a winding up petition, but before making an order of winding up, to appoint the OL attached to the concerned Court, as the PL. However, before appointing a PL, the Court is required to give notice and reasonable opportunity to the company, to make a representation, unless for special reasons, which are to be recorded in writing, the Court deems it fit to dispense with such notice. 27.3. The Court is also empowered to decide on the contours of the powers, it wishes to confer on the PL. In case,....
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....ay be relevant to note that these options find a reflection in 96. Admission of petition and directions as to advertisement Upon the filing of the petition, it shall be posted before the Judge in Chambers for admission of the petition and fixing a date for the hearing thereof and for directions as to the advertisements to be published and the persons, if any, upon whom copies of the petition are to be served. The Judge may, if he thinks fit, direct notice to be given to the company before giving directions as to the advertisement of the petition. Rule 96 of the 1959 Rules. While, the second option gets clearly reflected in Rule 96, the first and third options, which enable issuance of notice both before and after admission are provided for in an indirect manner in Rule 96. Rule 96 states that the Company Judge may, if he thinks fit, give notice to the Company before giving directions as regards the advertisement of the petition. In other words, if, there is an admission of the Company Petition, then, a direction for advertisement has to be, necessarily, given, wherein, the date of hearing of the Company Petition would have to be indicated with a caveat that issuance can be delayed ....
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....ance with the provisions of rule 99 shall not be heard at any time before the date fixed in the advertisement for the hearing of the petition.) Rule 100 provides that a winding up petition shall not be withdrawn after presentation without the leave of the court. To strengthen this position, Sub-rule (2) of Rule 100 provides that, if, an application is filed to withdraw a winding up petition, which has already been advertised in accordance with the provisions of Rule 99, the said application shall not be heard, at any time prior to the date fixed in the advertisement for hearing of the winding up petition. 29.7. It is interesting to note that the rules do not provide, explicitly, the consequences of failure to advertise the petition, as mandated under Rule 99 read with the provisions of Rule 24 of the 1959 Rules. It is also be worthwhile to note that a conjoint reading of Rule 99 along with Rule 24(2) would demonstrate that advertisement of the winding up petition cannot be dispensed with, by the Company Judge, and therefore, in that sense, makes advertisement compulsory given the nature of the proceedings. 29.8. Pertinently, though, neither Rule 99 nor Rule 24 stipulate the a....
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....ly if, the two conditions adverted to above, subsist. We can safely assume herein that the Company Judge had no difficulty in otherwise holding that there was a sufficient cause for substitution, the only impediment faced was the presence of suitable and willing person / entity. 30.3. Only to reiterate the two qualifications provided in Rule 101(4) for substitution are (i) first, that the person should have the right to present a petition; and (ii) second, he should be a person desirous of prosecuting the petition. 30.4. In this context, as rightly pointed out by Mr.Seshadri, the Court has made observations that no creditor or contributory came forward expressing his/her desire to prosecute the original petition for winding up, and that the Court has also gone on to observe that the appellant had not offered to prosecute the original petition. As a matter of fact, we may note that the Court further observed that even during the course of the hearing, the appellant made no such offer, even though, he could have made such an offer. 31. Therefore, to our minds, two aspects would arise for consideration given the fact and circumstances obtaining in the instant case. First, if,....
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....ing proposition it is likely that the petitioner would not waste his time, energy and money in prosecuting a lost cause. But does not that mean that the Court would become helpless where it is amply clear to it that the Company is not solvent only for the reason that it is unable to find a willing suitor. Suitors while being willing to continue with the winding up process may not wish to take the financial burden of taking out an advertisement. 31.3. In this particular case, the petition was filed under Clauses (e) and (f) of Section 433 Clause (f) of Section 433 enables a Court to order winding up of the company, once, it forms an opinion that it is just and equitable to do so. The order of the admission, dated 05.12.2001, clearly, points in the direction that the Court had reached, at that point in time, at least, to a prima facie conclusion that the liabilities of KOFL were substantially more than its assets, and that, KOFL had lost its substratum. 31.4. The record shows that KOFL, has at least, eight (8) secured creditors, who have outstanding dues, and that, there are, in effect, apart from the subject property, no other assets available to satisfy those dues. KOFL is th....
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....e process of the Court) Rule 9 of the 1959 Rules. Rule 9, speaks of the inherent powers of the Court to issue directions which may be necessary to achieve ends of justice or to prevent abuse of the process of Court [see National Conduits (P) Ltd., Vs. S.S.Arora, (AIR 1968 SC 279)]. Therefore, in our opinion, in the absence of, a specific provision in the Rules mandating that the advertisement would have to be published only by the original petitioner, the Court can direct, where the situation so demands, the PL to publish the advertisement. 32. This apart, there is another difficulty in the way of UWB/IDBI, which is that, the impugned judgement and order not only allowed the prayer made in Comp.A.No.734 of 2011, but also dismissed C.P.No.179 of 2001, though, that was not the prayer made in the application. 32.1. Mr.Seshadri, submits that since, compliance had not been made of the directions issued by the Company Judge, vide order dated 05.12.2001, requiring the original petitioner to advertise the petition, the learned Company Judge was well within his rights to dismiss the Company Petition, i.e., C.P.No.179 of 2001 as well. 32.2. We are unable to accept this submission. I....
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.... orders have been passed. Mr.Seshadri, learned Senior Counsel, attempted to get away from this tricky problem, which was staring him in the face, by alluding to the fact that the learned Company Judge, had adverted to this aspect, in paragraph 2 of the impugned judgement and order. A perusal of paragraph 2 of the impugned judgement would show that there is only a reference to the fact that respondent No.3's wife, i.e., Mrs.R.Seethalakshmi, had also filed a Company Petition i.e. C.P.No.180 of 2001. 33.1. According to us, this would not help the cause of the UWB/IDBI, as the impugned judgement and decree does not contain any direction qua to C.P.No.180 of 2001. Since, the order dated 05.12.2001, was common to C.P.Nos.179 and 180 of 2001, the directions contained therein with regard to admission and other matters will continue to operate, even if, we were to sustain the impugned judgement and order vis-a-vis C.P.No.179 of 2001. 34. Before we conclude, we must also indicate that the result reached in the instant appeal would have an impact on SLP No.33825 of 2009, which arises out of O.S.A.No.284 of 2003, which was, as noticed above, dismissed by a Division Bench of this Cour....
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....ct of the matter is not within the scope of the present proceedings. What is clear though the motivation of the appellant to keep the company petition ongoing cannot impinge upon construction of the Rules adverted to above by us. 34.2. Having said so we make it abundantly clear that nothing that we said above will come in the way of prosecution of the appellant in civil and criminal proceedings, if, otherwise they are tenable in law. 35. Before we conclude, we would also like to deal with the judgements cited by Mr.Seshadri. 35.1. The first, in the line, is the judgment rendered in the matter of : Kothari Industrial Corporation Ltd. V. Kotak Mahindra Bank Ltd., CDJ 2009 MHC 2543. This was a case, where, the Division Bench of this Court, interfered with the order of the Company Judge, whereby, winding up of the concerned company had been directed without advertising the Company Petition. The Division Bench held that the order of winding up was contrary to the statutory requirements, as stipulated in the 1959 Rules, which obligated advertisement of the winding up petition. In this regard, reference, inter alia, was made to Rule 24(2) of the 1959 Rules. This judgement, in so ....