1982 (2) TMI 265 - HC - Companies Law

Summary

Issues Involved:

1. Appointment of a provisional liquidator.
2. Maintainability of the application for a provisional liquidator.
3. Allegations of mismanagement and danger to the assets.
4. Financial status and arrangements with creditors.
5. Bona fide nature of the petitioner's application.
6. Equitable considerations and interim relief.

Issue-wise Detailed Analysis:

1. Appointment of a Provisional Liquidator:
The petitioner, a creditor of the company, sought the appointment of the official liquidator as the provisional liquidator of the company. The petition was based on grounds of danger to the assets, insolvency, and the company's admission of having no defense to the petition. However, the court found no substantial averment supporting the danger to the assets, relying only on an extract from a letter.

2. Maintainability of the Application for a Provisional Liquidator:
The company argued that the application was not maintainable at this stage, referencing Section 450(1) of the Companies Act, 1956, which allows for the appointment of a provisional liquidator only after the winding-up petition's admission by the court. The petitioner contended that the presentation of the petition to the Department sufficed. The court refrained from expressing an opinion on this point due to the lack of decided authority.

3. Allegations of Mismanagement and Danger to the Assets:
The petitioner cited a letter dated January 7, 1982, from a director of the company alleging mismanagement. However, the court questioned the reliability of these allegations, noting that the letter was not endorsed to the petitioner and appeared to result from internal disputes between directors. The court found that the letter was likely provided to the petitioner by the director in collusion.

4. Financial Status and Arrangements with Creditors:
The company explained its financial distress due to the destruction of hides and skins during the 1978 floods and labor troubles. It had since entered into an agreement with 76 out of 92 creditors, representing 82% of the total number of creditors and 79.21% of the total debt value, to pay debts in installments. The company had already paid the first installment of nearly Rs. 4 lakhs. The court was satisfied that the company had overcome its temporary financial distress and could honor its commitments to the creditors.

5. Bona Fide Nature of the Petitioner's Application:
The court found the petitioner's application to be not bona fide, considering it a mere lever to obtain full payment without accepting the installment arrangement agreed upon by other creditors. The court noted that the petitioner refused the company's offer to pay the dues in installments and insisted on full payment at once.

6. Equitable Considerations and Interim Relief:
The court emphasized equitable considerations, noting that nearly 80% of the creditors had agreed to the installment arrangement. The court referred to the Supreme Court's decision in Madhusudan Gordhandas and Co. v. Madhu Woollen Industries P. Ltd., which highlighted the importance of considering the wishes of the creditors before making a winding-up order. Given the substantial agreement among creditors and the company's efforts to pay its dues, the court found it improper to assist the petitioner by appointing a provisional liquidator.

Conclusion:
The application for the appointment of a provisional liquidator was dismissed with costs. The court concluded that the petition was not bona fide and primarily aimed at leveraging full payment without accepting the installment arrangement. The court also noted the importance of considering the wishes of the majority of creditors who had agreed to the installment plan.