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2025 (1) TMI 1218
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....this appeal was posted for final disposal at the admission stage, subject to any overnight part-heard matters. 3. Admit. Considering the orders made from time to time earlier and with the consent of the learned counsel for the parties, the appeal was heard finally. 4. This appeal questions the order of 09 October 2023, read with the order dated 21 December 2022, made by the Company Court disposing of the Interim Application No. 3663 of 2022 made by the first Respondent under Section 466 of the Company's Act, 1956, and staying the proceedings for the winding up of Swadeshi Mills Company Limited (in liquidation) ("said company"). 5. The first and second Appellants hold 5400 and 250 shares, respectively, in the said company. The first Respondent is a group company of the Shapoorji Pallonji Group of Companies and has 29.29% shares in the said company. The third Respondent is also a group company of Shapoorji Pallonji Group of Companies and holds 22.72% shares in the said company. Collectively, the first and third Respondents hold 52% of the shares in this said company. The fourth Respondent is a trade union of the erstwhile workers of the said company. The second responden....
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.... deposit an amount of Rs.240 Crores with the Official Liquidator within a period of six weeks from the date of uploading of this order. (ii) The Applicant shall file undertakings to the effect : (a) that in case the amount of Rs.240 Crores, to be deposited by the Applicant with the Official Liquidator, falls short to satisfy the liabilities of the Company in liquidation, the Applicant will deposit such further amount as may be necessary to discharge those liabilities; (b) that it will pay to any individual ex-worker who is not willing to accept the amount in accordance with the Agreement for Settlement, higher of the amount that may be adjudicated by the Official Liquidator in accordance with the order of the Division Bench dated 22 December 2015 and the amount which is payable under the Agreement for Settlement; (c) that it will make necessary provision for rehabilitation of the SSP ex-workers and/or their families who are in occupation of the residential quarters/chawls situated on the premises of the company and also those ex-workers and/or their families who were made to vacate the residential quarters/chawls, as they were rendered inhabitabl....
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....llants, raised several grounds, including that the impugned order dated 09 October 2023 does not even advert to Section 466 of the Companies Act and the principles to be followed for deciding such an application. He submitted that the impugned order dated 09 October 2023 also does not take any cognizance of the Company Court's order dated 14 October 2011, the Appeal Court's judgment and order dated 23 August 2013 and the Hon'ble Supreme Court's order dated 23 February 2016, by which the Company Application No. 243 of 2011, again seeking a stay on the winding up proceedings under Section 466 of the Companies Act was dismissed with strong observations and findings. 15. Mr Khanna submitted that such non-consideration vitiates the impugned order dated 09 October 2023, even if such order is read along with the order dated 21 December 2022. He submitted that even the order dated 21 December 2022, apart from making a cursory reference to the dismissal of an earlier application under Section 466 of the Companies Act, does not advert to or in any event consider the orders made by the Company Court, Appeal Court and the Hon'ble Supreme Court declining to stay the winding up of proceedings....
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....e scope of Section 466 of the Companies Act. He submitted that the Company Court was not even alive to the principles laid down in the decisions. 19. For the above reasons, Mr Khanna submitted that the impugned orders should be quashed and set aside. 20. Mr Tulzapurkar, learned Senior Advocate for the first Respondent; Mr Amir Arshiwalla, learned counsel for the third and fifth Respondents; and Mr Cuyrus Ardeshir, the learned Senior Advocate for the fourth Respondent, defended the impugned orders based on the reasoning reflected therein. 21. The learned counsel for the above Respondents submitted that though the impugned order dated 09 October 2023 may not have referred to the orders dismissing the earlier application under Section 466 of the Companies Act, the order dated 21 December 2022 did refer to the rejection of an identical prayer in the past in paragraph 16. The learned counsel, therefore, urged that the orders dated 21 December 2022 and 09 October 2023 must be considered together, and based upon the same, no case is made out to warrant interference in this Appeal. 22. The learned counsel for the above Respondents submitted that the earlier application under Se....
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....rkar referred to the discussions in paragraphs 25, 26 and 27 of the Appeal Court's order dated 23 August 2013. He submitted that in appropriate cases and for a good cause, the Court may still order a stay of winding up even if none of the three criteria for grant of stay in normal circumstances are made out. He submitted that in the present case, the first Respondent had shown sufficient cause for making an exception to the normal rule regarding grant of stay to the winding up proceedings. He submitted that this Appeal Court should consider this case, and based upon such consideration, this Appeal should be dismissed instead of remanding the matter to the Company Court for fresh consideration. 26. The learned counsel for the above Respondents submitted that the Appellants hold a miniscule percentage of shares in the said company. They submitted that some shares were purchased even after an order for a winding up was made. Accordingly, they submitted that there were no bona fide in instituting this Appeal. The learned counsel for the above Respondents submitted that the Appellants' insistence about the said company carrying on the mill business smacks of unreasonableness. They po....
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....The first Respondent has referred to its incurring security charges and offering to pay liquidation costs. 35. In the Interim Application No.3663 of 2002, the first Respondent also referred to the public interest involved in reviving the said company. Here, the first Respondent has pleaded that the revival of the said company will allow the re-development of chawls located on its lands and the re-development of the land, which will lead to the construction of low-cost housing by MHADA as per law. There is also a statement that erstwhile workers would be entitled to participate and apply for these low-cost housing units, a portion of which will also be offered free of cost to eligible erstwhile workers. The first Respondent also stated that it proposes establishing and operating a textile educational institution on the company's property. 36. The first Respondent has also referred to "future business" that could be undertaken after the revival of the said company. Again, the emphasis is on diversifying its business activities into other fields, "including real estate development". The first Respondent has explained how continuing the company's earlier business of manufacturing....
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....o the Tribunal a report with respect to any facts or matters which are in his opinion relevant to the application. (3) A copy of every order made under this section shall forthwith be forwarded by the company, or otherwise as may be prescribed, to the Registrar, who shall make a minute of the order in his books relating to the company." 41. The principles based on which an application under Section 466 of the Companies Act ought to be decided were summarized by the learned Single Judge of the Calcutta High Court in Neelkantha Kolay Vs. The Official Liquidator AIR 1996 Calcutta 171 in the following terms: - "23 .... "Therefore, from the above principles which have been summarised in different authorities and the decision referred to hereinbefore it appears that the discretion for stay under Section 466 can only be exercised by the Court; (1) if the Court is satisfied on the materials before it that the application is bona fide; (2) the Court would be guided by the principles and definitely come to the finding that the principles are applicable to the facts of a particular case; (3) mere consent of all the creditors for stay of....
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.... were followed by the Company Court in this matter (S. C. Dharmadhikari, J) when dismissing the earlier application under Section 466 of the Companies Act vide order dated 14 October 2011. In paragraph 29, the learned Company Judge broadly summarised the principles to be adopted while dealing with an application under Section 466 of the Companies Act. Paragraph 29 of the Company Court's order dated 14 October 2011 reads as follows: - "29. Thus, the broad principles are that the Court must be satisfied on the materials before it that the application is bona fide, mere consent of all creditors for stay of winding up is not enough; that offer to pay in full or make satisfactory provisions for payment of the creditors is not enough; the Court will consider the interest of commercial morality and not merely the wishes of the creditors and contributories; the Court will refuse an order if there is evidence of misfeasance or of irregularity demanding investigation; the jurisdiction for stay can be used only to allow in proper circumstances a resumption of the business of the company and the Court is to consider whether proposal for revival of the company is for the benefit of the....
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.... 33) "As held by the Hon'ble Supreme Court, the Company Court cannot take a narrow and pedantic view of the matter and proceed on the basis that the company is the property of the shareholders and it is their wish which has to be given effect to. Similarly, it is only the interest of the shareholders and the creditors which has to be borne in mind. The larger role that has now been highlighted makes it abundantly clear that a company is a social institution. It is not the interest of those who invest their money in a company which has primacy or they alone have to be placed in the forefront. Once the society as a whole has a stake in a company, then, the company Court cannot overlook that aspect, for it would be shirking its duty and ignoring public interest. The company Court has to keep public interest and public good in the forefront as well. Therefore, while exercising its powers under section 466, the company Court cannot do anything which shakes the confidence of the public at large in the functioning or working of the company Court or that of the Liquidator. Once commercial morality and corporate responsibility are inbuilt in the administration and management of com....
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.... Court cannot approve an arrangement by which the assets of the company in liquidation are disposed off or taken over by some private arrangement and to put it more clearly by circumventing the company Court itself. The Court even in matters of sections 391 to 394 and 466 of the Companies Act, 1956 has to take into consideration the aspect of public interest, commercial morality and the intention to revive the company." (See para 39) 47. Apart from laying down the above principles and observations, in the precise context of Company Application No. 243 of 2011 filed by the first and third Respondents, the Company Court, in its order dated 14 October 2011, held the following:- "I will have to test the present application and the request of the applicants therein on the touchstone of the above principles. All discretion has to be exercised judiciously and not arbitrarily. The Court cannot pick and choose shareholders and creditors. The Court cannot in the garb of conflicting claims of workers or because of any rift inter-se between them, allow the claims of the said workers and other creditors to be compromised or defeated altogether. Ultimately, the applicants may claim t....
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....the lands with a view to fully exploit their potential is not matched with the same approach as far as the creditors of the company. By not reviving the company after taking it out of winding up shows that the applicants are primarily concerned with the benefits attached to these lands. By exploiting and utilising them to their advantage, the applicants are not agreeable to the Liquidator and the Court controlling their actions in interest of all creditors and general public. The business opportunities on account of spiraling prices in the Real Estate Market is the only attraction for the applicants. The proceeds and gains from such opportunities ought to have been shared by them with all. However, that is not their intent, is clear from their stand. If these lands are sold by the Official Liquidator under the supervision of this Court and at open, fair and transparent public auction, the applicants may not stand any chance and hence they desire to obtain the lands at a throwaway price by a back-door method. That is the sole intent in making this application. By invoking sympathy of some creditors and stating that the monies to meet the claims of the workers would be brought in imm....
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....If ultimately it is impossible to revive the company, then, it is better that the Liquidator carries on its affairs till the dissolution of the company. It is only through the mechanism and participation of the Liquidator, that the Court can ensure settlement of claims of the secured and unsecured creditors in accordance with law." (See para 42) 48. After explaining the principles that should guide a Company Court in deciding application under Section 466 of the Companies Act and after recording clear and categorical findings that the first and third Respondents, who are a part of the Shapoorji Pallonji Group, were only interested in acquiring the said company's immovable properties at a throwaway price and by a backdoor method by taking away the entire proceedings in winding up from the supervision and control of the Court, the Company Court, dismissed the application under Section 466 of the Companies Act. 49. The Company Court also held that if the affidavits of the first and third Respondents were perused carefully, it was evident that it was the Shapoorji Pallonji Group that was interested in the lands of the said company, and if they had to obtain such lands at a public....
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....entions to the contrary, we suspect that the Company Court's order dated 14 October 2011 and the strong observations therein concerning precisely the first and third Respondents and their attempt to stay the winding up proceedings with the intent to obtain the said company's immovable properties, without having to go through the process prescribed under Sections 391 to 394 of the Companies Act or without having to purchase such property in free, fair and transparent auction proceedings that the Official Liquidator would be obliged to hold, was not brought to the notice of the Company Court when the Company Court made the impugned order dated 09 October 2023 and for that matter the order dated 21 December 2022. If this order were brought to the notice of the Company Court, we are quite sure that at least the same would have been referred to and some attempt made to distinguish the same before allowing the application under Section 466 of the Companies Act. 53. The Company Court's detailed order, running into 68 pages, was challenged by the first and third Respondents by instituting Appeal No. 34 of 2012. By yet another detailed order that ran into almost 24 pages, the Appeal Cour....
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....e but the only correct view based on the facts and circumstances of the case." 57. The Appeal Court also discusses, in some detail, the scope and import of Section 466 of the Companies Act and the principles on which the Company Court would exercise its powers to stay the proceedings in winding up either altogether or for a limited time on such terms and conditions as it thinks fit. The Appeal Court has held that Section 466(1) confers a discretion on the Court and not a mandate. The discretion must be exercised on the satisfaction that a stay of the proceedings in relation to winding up ought to be granted. The legislature has carefully used the expressions "on proof to the satisfaction" and "ought to be stayed". Before the Court grants a stay, the statutory requirement is that there must be proof brought before the Court based on which it is satisfied that the proceedings ought to be stayed. 58. The Appeal Court referred to several decisions of the English Courts and the Indian Courts interpreting provisions like Section 466 of the Companies Act. Reference was made to an early decision of Lord Esher, M.R., speaking for the Court of Appeal in Re Flatau 1893 (2) Queen's Bench....
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.... satisfaction of the court that all proceedings in relation to the winding up ought to be stayed" make an order for the stay "on such terms and conditions as the court thinks fit." Quite apart from any authority (and I may mention In re Telescriptor Syndicate Ltd. [1903] 2 Ch. 174) this language seems to me to make it abundantly clear that the jurisdiction is discretionary, and that it lies on those who seek a stay to make out a sufficient case for it. In particular, the words "satisfied," "just and beneficial," "satisfaction of the court" and "ought to be stayed" seem to me to indicate that the applicant for a stay must make out a case that carries conviction." (emphasis supplied)" 60. The Appeal Court also referred to and approved the decision of Justice S R Das (as the learned Judge then was) in the matter of East India Cotton Mills Ltd (supra). The Appeal Court also referred to the Hon'ble Supreme Court's decision in Sudarsan Chits (I) Ltd Vs. G. Sukumaran Pillai & Ors AIR 1984 SC 1579. in which it was held that an order of stay under Section 466 is to place the order of winding up in a state of suspended animation. In other words, despite the grant of the ....
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....on at a near revival of the corporate existence of the erstwhile company in liquidation, which would be sufficient for the intervention of the court to grant a stay on winding up. The Court held that once the stay is issued under Section 466, that would necessarily result in the revival of the corporate existence. Hence, that, itself, is not sufficient for the exercise of discretion. When winding up has been ordered under the direction of the Court, the provisions of Section 466 mandate that the Court must be satisfied on proof that an order of stay ought to be granted. These words place an affirmative duty and obligation on the Court to consider several aspects of the case, not just the interests of the creditors in determining as to whether an order of stay should be granted. 65. The Appeal Court considered in detail the decision of the Hon'ble Supreme Court in the case of M/s Meghal Homes Pvt. Ltd. Vs. Shree Niwas Girni K.K.Samiti & Ors AIR 2007 SC 3079 in which it was held the Company Court was bound to consider whether the liquidation was liable to be stayed for a period or permanently while adverting to the question whether the scheme is one for the revival of the company ....
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....ll Co. Ltd. (1981) Volume 51 Company Cases 20. 69. In paragraph 27 of its judgment and order dated 23 August 2013, the Appeal Court made the following significant observations in the context of the provisions of Sections 391 to 394 of the Companies Act. "27 That brings us to the last aspect of the present appeal. In the present case, all the shareholders of the erstwhile company in liquidation did not join in the application for stay of winding up nor have they consented to it. Learned Senior Counsel appearing on behalf of the Appellants had, in fact, during the course of hearing submitted that the Appellants were unaware of and had no material available to them at present of how the other shareholders would respond when a meeting is called. In a situation such as the present, where all the shareholders have not been joined in the application for the stay of an order of winding up, it would be more appropriate if the company court were to be moved by way of an application for reconstruction under Section 391 to take the company out of winding up. In such a case, the members of the company have an opportunity to consider and vote on a proposal and the company court has t....
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....and the strong observations therein, the Appeal Court's judgment and order dated 23 August 2013 and the reiteration of the strong observations therein and the order of the Hon'ble Supreme Court dated 23 February 2016 were not brought to the notice of the Company Court when the learned judges of the Company Court made their orders dated 21 December 2022 and 09 October 2023. If these judgments and orders had been brought to their notice, we are sure they would have been considered and discussed by the learned judges before the impugned orders were made. 74. The parties' vague reference to earlier applications being dismissed due to the workmen's resistance was insufficient. The copies should have been annexed, and the judgments and orders should have been explicitly brought to the Company court's attention. Since the first Respondent was seeking a discretionary order under Section 466 of the Companies Act, it was their duty to have placed copies of such judgments and orders before the Company Court and not merely rest content by the pleading in paragraph No. 23 of the Interim Application No. 3663 of 2022 and after that, craving leave of the Court to refer to and rely upon ....
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....orders were placed before the Company Court, there is nothing to suggest that the Company Court considered such orders. The earlier application's rejection was not only due to the worker's resistance. That may have been one of the considerations. The company court and the appeal Court recorded far weightier reasons supporting the rejection. 78. At least regarding the Company Court's order dated 21 December 2022, we understand that the Company Court, at that stage, had merely issued some directions to test the financial capacity of the first Respondent. Therefore, the order dated 21 December 2022 (made by N J Jamadar, J.) stipulates that "based on the aforesaid compliances and response, if any, the Court would consider the prayer for permanently staying the winding up order and revival of the company, and consequential reliefs". 79. Therefore, it could be argued that the non-application of the various principles required to be applied when considering an application under Section 466 of the Companies Act may not be very relevant. Similarly, it could be argued that the non-consideration of the orders dismissing the earlier application, and the strong observations may not be....
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....he observations in such orders were most relevant and material even for deciding the Interim Application No. 3663 of 2022. After showing all this material, it was, no doubt, open to the first Respondent and the other supporting Respondents to attempt to distinguish the orders or make out the case of a change of circumstances. However, no such case was made out either in the Interim Application No.3663 of 2022 and any discussion on the aspect of change of circumstances, etc., is not even reflected in the orders dated 21 December 2022 and 09 October 2023. 83. Mr Tulzapurkar referred to the first Respondent's case falling within the exceptions referred to by Megarry J. in Re Calgary (supra). As noted earlier, the said decision is a clear authority for the proposition that "in normal circumstances no stay should be granted of winding up, unless each member, (1) either consents to it; (2) or is otherwise bound not to object to it; (3) or else there is secured to him, the right to receive all that he would have received had the winding up proceeded to its conclusion." Therefore, if the first respondent was confident that its case fell within the exception from the normal circumstances....
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.... Court's judgment and order dated 23 August 2013 and the Hon'ble Supreme Court's order dated 23 February 2016 was the cause due to which the Company Court could make the impugned orders without adverting to the principles governing the exercise of discretion under Section 466 of the Companies Act and also perhaps oblivious of the strong observations concerning the first and third Respondents and their attempt to acquire the said company's immovable properties at a throwaway price without free, fair and transparent auction process that the Official Liquidator would have held under the supervision of the Court. 87. The Appeal Court, in its judgment and order dated 23 August 2013 at paragraph 27, has noted that where all the shareholders have not been joined in the application for the stay of an order of winding up, it would be more appropriate if the company court was to be moved by way of an application for reconstruction under Section 391 to take the company out of winding up. Despite such precise observations and even though, in the Interim Application No.3663 of 2022, not all shareholders have been joined, the impugned order has stayed the winding up proceedings so that the fi....
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....e because they do not consider binding precedents, including the law laid down by the Appeal Court in its judgment and order dated 23 August 2013. 91. For all the above reasons, we allow this Appeal and quash and set aside the impugned orders dated 09 October 2023 and 21 December 2022. The stay on the winding-up proceedings of the said company is dissolved. Consequently, the winding-up proceedings, which were in abeyance, revive. The orders for the appointment of the liquidator also revive. The orders concerning the liquidator's reports were also consequential to or in the context of the stay application. Since the impugned orders on the stay application are dissolved or set aside, such orders on the liquidator's reports would also not survive. Interim Applications, if any, would not survive and the same are disposed of. 92. After arguments, Mr Tulzapurkar submitted that if this Court allows the Appeal, the stay on the winding-up proceedings should be continued for a reasonable period so that the Respondents can challenge our judgment and order. He pointed out that the first Respondent had already deposited Rs.240 Crores in the Court, which has already been disbursed to the w....