TaxTMI 
TaxTMI 
2011 (10) TMI 764
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....nsideration in this appeal, which arises out of the Order of dismissal of the application - C.A. No. 1286 of 2010 (30.03.2011) preferred by the appellant. 2. The Company - Sri Visalakshi Mills Private Limited owes an amount of ₹ 79.35 Crores to the secured creditors - Indian Bank, ARM, Madurai, Dena Bank, Madurai, workmen and other claims payable to E.S.I. Corporation and E.P.F. Organisation. For recovery of the amount of ₹ 13,18,88,090/-, Indian Bank has initiated SARFAESI proceedings in 2004. After long drawn litigation, unit 'C' was sold in 2007. In respect of 'A' and 'B' units, the SARFAESI proceedings are pending. Earlier, the Company challenged the order of appointment of the Official Liquidator to take possession of the properties and to give police protection and the Company failed to comply with the Order of the Court made in O.S.A. No. 312 of 2008. In the second round of litigation, the Company also challenged the sale of assets of the Company. In these circumstances, can the appellant claiming to be the Contributory invoke the inherent jurisdiction of the Company Court to re-agitate the matter on the ground of irregularity in the init....
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....by Petitioning Creditor. On 22.7.2008, the Official Liquidator, who had been appointed as a provisional liquidator, had convened a meeting of the secured creditors, Ex. Directors and petitioning creditor for the purpose of taking charge of the assets. In pursuance of the Order of the Court, the provisional liquidator effected publication calling for claims against the Company. The Official Liquidator was directed to value the assets in 'A' and 'B' Units through ITCOT. 6. Direction to Official Liquidator to take possession of the properties and O.S.A. No. 312 of 2008:-By the Order dated 24.9.2008, the Court directed the Official Liquidator to take possession of the properties of the Company and also directed the Directors to hand over the keys of the Company and permission was granted to the Official Liquidator to break open and take possession in case of non-co-operation. As against the Order dated 24.9.2008, Company filed O.S.A. No. 312 of 2008. In the appeal, the Company handed over a Cheque (dated 19.11.2008) for ₹ 5,00,000/-in favour of the Petitioning Creditor and the counsel appearing for the Company took time for getting instructions for repayment of t....
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.... came to be dismissed on 7.9.2009 and the date of auction was fixed on 10.09.2009. On 15.09.2009, sale was confirmed by the Court and consequential order was passed on 14.10.2009 allowing the Official Liquidator to hand over the properties. 9. Being aggrieved by dismissal of the applications - C.A. Nos. 1238 and 1239 of 2009, the appellant preferred appeals in O.S.A. Nos. 370 and 372 of 2009. Both in the applications as well as in the appeal, the appellant challenged the auction and auction proceedings mainly on the grounds that the properties are in the border of Madurai Corporation limit very near to schools and colleges and the properties are very valuable properties and that the valuation was not properly done and that the auction is vitiated on account of the error apparent on the face of the records in fixing the upset price. It was further averred that a Syndicate had been formed to knock away the property at a very low price. Yet another objection raised was that many Indian Companies, textile industries all over India and even the foreign companies have the proposal to start their Companies at Madurai and therefore global tenders should have been sought before proceeding ....
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.... report and also statement of expenses incurred by the Official Liquidator stating that the Official Liquidator has incurred expenses to the tune of ₹ 91,32,559/-towards valuation charges, professional charges and the payment to the security and other incidental expenses. The 2nd respondent - Petitioning creditor also filed an elaborate counter affidavit stating that the appellant very well knew about the pendency of the proceedings all along since his own father was defending the proceedings and that the appellant was residing at Madurai and knew that possession had been taken over by the Official Liquidator and that the appellant cannot take advantage of the trivial irregularity in the advertisement. The workmen, who filed impleading petition, also strongly opposed the application by contending that the appellant is residing along with his father - N. Thiagarajan, who was defending the Company Petition all these years and that the application has been filed only to drag on the proceedings and to evade the workmen's claim. 13. Even though the appellant claimed that he is a shareholder before the single Judge, the appellant did not produce any share certificates, but onl....
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....d administrative proceedings would also apply to judicial proceedings such as a petition for winding up of a Company. 15. Per contra, Mr. V. Prakash, learned Senior Counsel for the official liquidator has raised strong objection as to the locus standi of the appellant as the 'contributory' in terms of Section 428 of the Companies Act. The learned Senior counsel has submitted that in terms of Section 439(1), only those persons mentioned therein are entitled to present a Petition for winding up of a Company and a person as a 'contributory' is entitled to file an application only if he satisfies the requisites of Section 439(4)(b). Learned Senior Counsel would mainly contend that only a person as a 'contributory' in terms of Section 439(4)(b), is entitled to file application relating to the winding up petition including a petition to set aside/recall the order of winding up and the appellant was not a shareholder as on date of winding up and therefore he has no locus standi to file any petition for setting aside the order of winding up. 16. Locus standi:-The appellant claims that he holds 30,000 shares in the Company and that "he is substantial sharehold....
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....cords of the company, on 12.8.2011, Official Liquidator has filed a detailed report stating that the contention of the appellant that he held 9,000 shares of the Company in liquidation is not correct. 19. We may briefly refer to the report of the Official Liquidator refuting the contention of the appellant that he is the shareholder of the Company in liquidation. Share certificate No. 69 for 5000 shares with distinctive numbers 26290 to 31289 was shown to have been transferred thrice as detailed below: Sl. No. Transferee Transferor Transfer No. Date of Registration 1 N. Palaniappan L. Narayanan Chettiar 8 18.12.1957 2 N. Thiagarajan N. Palaniappan 25 10.9.1980 3 T.Narayanan N. Thiagarajan 31 14.9.1990 Share Certificate No. 71 for 4000 shares with distinctive Nos. 63410 to 67409 was issued to Sri L. Narayanan Chettiar and the shares were shown to have been transferred thrice as detailed below: Sl. No. Transferee Transferor Transfer No. Date of Registration 1 N. Palaniappan L. Narayanan Chettiar 8 18.12.1957 2 N. Thiagarajan N. Palaniappan 25 10.9.1980 3 T.Narayanan N. Thiagarajan 31 14.9.1990 20. Upon verificat....
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....ing up of the Petition. In terms of Section 439(4)(b), a contributory can maintain a petition only if he has held the shares for at least six months during the eighteen months immediately before the commencement of the winding up proceedings. 25. In order to file a Petition for winding up, a contributory has to satisfy the requirements of Section 439(4)(b). As per Section 439(4)(b), the name should have been registered as a shareholder for atleast six months during the 18 months immediately before the commencement of the winding up. Section 439(4)(b) reads as under: 439. Provisions as to applications for winding up. (1) to (3).... (4) A contributory shall not be entitled to present a petition for winding up a company unless (a).... (b) the shares in respect of which he is a contributory, or some of them, either were originally allotted to him or have been held by him, and registered in his name, for at least six months during the eighteen months immediately before the commencement of the winding up, or have devolved on him through the death of a former holder. 26. By a reading of Section 439(4)(b), it is clear that a person has to satisfy the requirements of Section 439....
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....tories can seek relief of filing winding up petition, the same stipulation applies vice versa for filing petition to set aside the winding up order. When the Act emphasises the "durational requirement" of holding shares by the contributory for filing winding up petition, only those persons are empowered to undo the same. If we dilute the rigour of Section 439(4)(b) either for filing winding up or for setting aside the order of winding up, it would affect the stabilised functioning of the Company. In the absence of necessary proof that the appellant held the share certificates for atleast six months during the eighteen months immediately before the commencement of winding up proceedings, the appellant, who has not satisfied the requirement of Section 439(4)(b), could not have filed the petition to set aside the winding up order dated 3.12.2008. 30. Alleged defect in compliance of the mandatory requirements of advertisement (Form 48):-Be that as it may, assuming that the appellant is 'any person whose interest was likely to be affected by the winding up petition and is entitled to oppose the winding up petition, let us consider the merits of the arguments advanced on b....
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....tesh Gururao Kurati, (2006) 3 SCC 150 and Union of India and Others vs. Bishamber Das Dogra, (2009) 13 SCC 102, the learned Senior Counsel would further submit that to sustain the allegations of violation of principles of natural justice, one must establish prejudice and no such prejudice was shown to have been caused to the appellant. 32. Mr. Vijay Narayan, the learned Senior Counsel for the petitioning creditor/2nd respondent would submit that the agent, who has been entrusted the job of giving advertisement by the petitioning creditor misunderstood the scope of publication and he published the matter, which appeared after the title "advertisement of publication" and the non-mentioning of the cause title and the company petition number was only an inadvertent mistake done by the agent on account of ignorance of the legal provisions. 33. Reiterating the submissions made by Mr. Vijay Narayan, learned Senior counsel appearing for the petitioning creditor and Mr. V. Prakash, learned Senior Counsel appearing for the Official Liquidator , learned Counsel appearing for the workmen Mr. Srinivasa Murthy would submit that the appellant was aware of the happenings in the Company....
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....etition is admitted, it is still open to the Company to move the Court that in the interest of justice or to prevent abuse of the process of Court, the petition be not advertised.... 36. C.P. No. 78 of 2008 was filed on 13.2.2008 and on 7.3.2008, notice regarding admission was directed to be served on the Company. On 13.6.2008, after the notice was duly served on the Company, the matter was listed for hearing; but there was no representation on behalf of the Company and the matter was adjourned to 24.06.2008. On 24.06.2008, order was passed that the Official Liquidator be appointed as the provisional liquidator and to take charge of the assets of the Company. Advertisement was directed to be published in English daily - Deccan Chronicle and Tamil Daily - Dina Thanthi and Tamil Nadu Government Gazette fixing the date of hearing as 22.07.2008 with the 14 days of clear advance notice. The advertisement was published in English daily and Tamil daily on 3.7.2008. In the advertisement so effected, the cause title and the company petition number were not given in the publication. In Paragraph No. 7 of the counter affidavit filed in C.A. No. 1286 of 2010, the petitioning creditor has clea....
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....any Petition number and cause title in the paper publication. The appellant, being son of the Director of the Company, knew about the pendency of the proceedings all along since his father was defending the same. It is stated that the appellant was aware that the possession of the properties had been taken over by the Official Liquidator. Earlier, by the Order dated 24.9.2008, the Court directed the Official Liquidator to take possession of the properties of the Company. As against the said order dated 24.09.2008, the Company preferred appeal in O.S.A. No. 312 of 2008. Because of non-compliance of the direction of the Court to pay ₹ 5 lakhs to the petitioning creditor, by the order dated 1.12.2008, the said O.S.A. No. 312 of 2008 came to be dismissed. Subsequently, when the matter came before the single Judge, the appellant paid a sum of ₹ 9,93,000/-to the petitioning creditor and assured to pay the balance amount of ₹ 45,015.50ps and subsequently the entire amount was settled to the petitioning creditor. On 19.2.2009, the Court directed the Company to pay ₹ 25,08,395/-to the Official Liquidator. Inspite of direction from the Court the amount due to the Offi....
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....Contention - Petitioning creditor's dues settled: As pointed out earlier, the amount was paid to petitioning creditor and on 27.8.2009, a joint memorandum was filed by the Company and 2nd respondent stating that the entire amount was settled and the Company Petition is not being pressed. Laying emphasis upon the same, the learned Senior Counsel for the appellant has submitted that when the amount due to the 2nd respondent has been fully settled, the claim of the Bank is being contested before D.R.T., and the claim of the workmen is only to the extent of 3.12 crores as per Section 12(3) settlement. It was further argued that the assets of the company are worth nearly ₹ 400 Crores and that the Company has been in business for about sixty years, and while so it would not be in the interest of any person to wind up the company. The learned Senior Counsel would further submit that for the sake of few lakhs payable to the Official Liquidator, assets of the Company cannot be brought for sale and the winding up order is totally unjustifiable. 43. The above contention cannot be countenanced. It is not as if the Company owes only a few crores payable to the workmen and to the sta....
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....ent charges account of the Official Liquidator. Even though the appellant seeks to set aside the winding up order, neither the company nor the appellant has come forward to settle the dues to the Official Liquidator, which he has spent from out of the common establishment charges account. 46. As pointed out earlier, in O.S.A. Nos. 370 and 372 of 2009, while setting aside the auction sale, Court remitted the matter back to the company Court to proceed with the sale process afresh after making necessary publication. It was thereafter the appellant has filed the application - A. No. 1286 of 2010 under Rule 9 of the Companies (Court) Rules invoking the inherent jurisdiction of the Court. 47. Claims of the Workmen:-In the report of the official Liquidator filed in August, 2010, the claims of the workmen is stated as ₹ 28.02 Crores. The statutory dues to E.S.I. Corporation and E.P.F. Organisation are ₹ 2.91 Crores and ₹ 8.43 Crores respectively. On behalf of the appellant, it was contended that as per Section 12(3) settlement, only an amount of ₹ 3.25 Crores is due and while so the claim of the workmen is very much exaggerated. Mr. K. Srinivasamurthy, the learne....
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....pleading petition - M.P. No. 3 of 2011, Indian Bank has expressed its readiness to tender the Official Liquidator's expenses and stated that the Indian Bank may be allowed to continue the sale process under SARFAESI Act. Mr. Jayesh B Dolia, learned counsel for Indian Bank has submitted that as held by the Supreme Court in Rajasthan State Financial Corporation case (2005) 8 SCC 190, while dealing with the similar provisions under DRT Act, the sale of securities of a Company in liquidation could be resorted to and all that is required is that the official liquidator should be involved in each and every stage of sale. In its affidavit, Indian Bank has undertaken to associate the Official Liquidator in the sale of assets of both movables and immovables by issuing the sale notice under the SARFAESI Act. 51. Following the decision of the Supreme Court in Rajasthan State Financial Corporation case, and considering the question whether the Asset Reconstruction Company formed under the SARFAESI Act is entitled to be associated in the process of the sale of the assets of a Company under liquidation along with the Official Liquidator, the First Bench of this Court in Asset Reconstruction....
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....l Liquidator as on 31.7.2011 from out of the common establishment charges of the Official Liquidator (vide report of the Official Liquidator dated 12.8.2011) and the subsequent expenses incurred by the Official Liquidator from out of the common establishment charges of official liquidator as on date. The said amount of ₹ 1,04,63,659/-shall be the first preferential claim from out of the sale proceeds of the assets. 54. In the result, the Appeal is dismissed with the following directions and observations: • The Indian Bank, Asset Recovery Management Branch, Madurai is directed to deposit ₹ 1,04,63,659/ with the Official Liquidator, High Court, Madras towards the expenses incurred by the Official Liquidator from out of the common establishment charges of the Official liquidator. On such deposit, the Official Liquidator shall hand over the possession of the assets of the company in liquidation to the Indian Bank. The Indian Bank shall associate the Official Liquidator in the SARFAESI proceedings before DRT by impleading the Official liquidator in the proceedings pending before DRT. • The Indian Bank, being the lead Bank, is permitted to bring the properties ....