2013 (8) TMI 650 - HC - Companies Law

Winding up Appointment of Official Liquidator Official Liquidator were directed to take steps against the transfer of properties - Held that - The management was not at all serious for revival - The assets were no more safe in the hands of the erstwhile management - It was fit and proper, Official Liquidator must take immediate step for possessing the assets and proceed with the winding up - Transfer of four properties were either made during the pendency of the reference or immediately before or during pendency of the winding up proceeding - In such event, the learned Judge was justified in directing Official Liquidator to take steps in this regard. The well-reasoned decision of the learned Single Judge would clearly show, the Court tried its best to find out a solution for revival of the company - The management was however, not serious - For 14 months, the matter was kept pending On a combined reading of the aforesaid two provisions any transfer prior to date of the commencement of winding up proceeding or during the pendency would be void - Similarly, under the Sick Industrial Companies Act 1987 any transfer of immovable assets during pendency of the reference before the BIFR is prohibited. Appeal of ICICI Bank Held that - The direction of His Lordship for restoration of the assets was nothing but a direction upon the Official Liquidator to take lawful steps against the wrong - Such step would obviously deserve a regular proceeding upon notice to the transferee and/or the persons claiming title under them - ICICI bank claiming to be the mortgagee would be at liberty to contest such proceeding - Their apprehension is premature Neither of the observations would suggest forcible repossession of the properties - it would require a lawful proceeding to be brought for the purpose - In case such proceeding was brought ICICI bank would be free to contest - intervention at this stage was not warranted Decided against appellant.

Issues Involved:
1. Legitimacy of the winding-up order.
2. Justifiability of the creditors' claims.
3. Legality of property transfers during BIFR proceedings.
4. Consideration of workers' interests.
5. Applicability of Section 557 of the Companies Act, 1956.
6. Role of ICICI Bank in the winding-up process.

Detailed Analysis:

1. Legitimacy of the Winding-Up Order:
The judgment scrutinized the winding-up order passed by the learned Judge on January 31, 2013. The appellant company argued that the judgment lacked plausible reasons for winding up and failed to adjudicate the creditors' claims, which is a prerequisite under Section 434. The company contended that the winding-up was neither just nor equitable as the creditors did not demonstrate the company's inability to pay its debts. The company proposed to deposit Rs. 13 crores within four months to stay the winding-up order permanently. However, the Court observed that the management was not serious about revival and failed to present a concrete proposal for repaying the creditors and workers.

2. Justifiability of the Creditors' Claims:
The creditors, including SMIFS Private Limited and Madura Coats, argued that the company admitted to substantial dues, and the learned Judge's decision was well-reasoned. The creditors highlighted that the company's net worth became negative, leading to BIFR proceedings, and the company presented an illusory financial picture to exit BIFR. The Court found that the creditors' claims were substantial and the company failed to effectively confront them.

3. Legality of Property Transfers During BIFR Proceedings:
The judgment addressed the fraudulent property transfers during BIFR proceedings. The learned Judge directed the Official Liquidator to take steps against these transfers, which were deemed void under Section 536(2) of the Companies Act, 1956, and the Sick Industrial Companies Act, 1987. The Court upheld this direction, emphasizing that any transfer during BIFR proceedings or winding-up proceedings is void unless otherwise ordered by the Court.

4. Consideration of Workers' Interests:
The Court considered the plight of the workers, who had substantial claims against the company. The State highlighted the need to reopen the factory to provide employment to the workers. The Court noted that the company was not serious about addressing the workers' claims and failed to take necessary steps for their welfare.

5. Applicability of Section 557 of the Companies Act, 1956:
The appellants argued that the learned Judge failed to ascertain the wishes of the creditors under Section 557. The Court observed that such a direction must be based on a definite proposal for revival coupled with a repayment schedule. Since no concrete proposal was presented by the company, the Court found no merit in this argument.

6. Role of ICICI Bank in the Winding-Up Process:
ICICI Bank contended that the properties mortgaged to them were wrongfully included in the winding-up process. The Court clarified that the direction to the Official Liquidator was to take lawful steps against the fraudulent transfers, which would involve regular proceedings with notice to the transferees. ICICI Bank would have the opportunity to contest these proceedings.

Conclusion:
The appeals were dismissed, affirming the winding-up order. The Court found that the management was not serious about revival, the creditors' claims were substantial, and the property transfers were fraudulent. The interests of the workers were paramount, and the Official Liquidator was directed to take immediate steps to possess the assets and proceed with the winding-up.

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