1984 (11) TMI 243 - HC - Companies Law

Summary

Issues Involved
1. Competency of the application u/s 536(2) of the Companies Act, 1956, before a winding-up order is made.
2. Issuance of directions for financial arrangements and property disposition during the pendency of winding-up petitions.

Summary

Re: Competency of the application u/s 536(2) of the Companies Act, 1956

The court examined whether an application under section 536(2) of the Companies Act, 1956, is competent before a winding-up order is made. The section provides that any disposition of the property of the company made after the commencement of the winding-up shall be void unless the court orders otherwise. The purpose of this provision is to prevent improper disposition of property that would reduce the assets available for distribution among creditors. The court noted a judicial conflict on whether such jurisdiction can be exercised before a winding-up order is made. The court referenced multiple cases, including Tulsidas Jasraj Parekh v. Industrial Bank of Western India, which emphasized that bona fide transactions in the ordinary course of business should be sanctioned to avoid paralyzing the company's trade. The court concluded that the jurisdiction to validate transactions before a winding-up order is made is within its power, as restricting this would defeat the purpose of keeping the company as a going concern.

Re: Issuance of directions for financial arrangements and property disposition

The court considered whether the directions as prayed for should be issued, validating the disposition of the property intended by the company for securing advances from financial institutions. The court emphasized that transactions necessary or expedient in the interest of the company and its creditors and shareholders, entered into bona fide and in the ordinary course of business, should be maintained. The court noted the State Government's declaration of the company as a relief undertaking and its efforts to revive sick units. The court highlighted the potential adverse impact on workers and their families if the company could not secure the necessary funds. The court found no objections from shareholders or creditors against the directions sought. Consequently, the court exercised its discretion to issue the directions, ensuring the company could continue its operations and serve the interests of all stakeholders.