1984 (7) TMI 330 - HC - Companies Law

Summary

Issues Involved:
1. Winding up of the company under section 439 read with section 433(e) and (f) of the Companies Act, 1956.
2. Appointment of a provisional liquidator under section 450 of the Companies Act, 1956, read with rule 106 of the Companies (Court) Rules, 1959.
3. Insolvency and mismanagement of the company.
4. Preservation of the company's assets.

Issue-wise Detailed Analysis:

1. Winding up of the company under section 439 read with section 433(e) and (f) of the Companies Act, 1956:
The creditor, Canara Bank, filed a petition for winding up M/s. Brunton and Company (Engineers) Ltd. The statutory notice under section 434 was served but returned unserved as the company was locked. The petition was supported by the bank's affidavit detailing the company's financial distress, including unpaid debts exceeding Rs. 1 crore, lack of responsible officers, and non-maintenance of books of accounts since 1981. The company countered, claiming its assets exceeded liabilities and it intended to restart operations. However, the court found the company's defense inadequate and vague, highlighting the company's commercial insolvency and inability to pay debts.

2. Appointment of a provisional liquidator under section 450 of the Companies Act, 1956, read with rule 106 of the Companies (Court) Rules, 1959:
The bank also sought the appointment of a provisional liquidator to take immediate possession and management of the company. Rule 106 allows such an appointment upon proof of sufficient ground. The court found prima facie grounds for appointing a provisional liquidator, noting the company's non-functioning status since July 1982, unpaid debts, and the risk of asset dissipation through theft and burglary. The court emphasized the necessity to preserve the company's assets and prevent further loss.

3. Insolvency and mismanagement of the company:
The court noted the company's financial distress, including unpaid debts, statutory liabilities, and non-functioning status since July 1982. The company's management failed to take steps to revive operations or settle debts. The court found the company commercially insolvent, with its liabilities outweighing assets and a negative net worth. The company's indifferent and negligent attitude further exacerbated the situation, leading to asset loss and increased liabilities.

4. Preservation of the company's assets:
The court highlighted the danger to the company's assets due to theft, burglary, and mismanagement. The appointment of a provisional liquidator was deemed necessary to safeguard the assets and manage the company's affairs effectively. The court ordered the official liquidator to take immediate charge of the company's properties and manage them, with police assistance if required, to prevent further asset dissipation.

Conclusion:
The court allowed the application for the appointment of a provisional liquidator, citing the company's commercial insolvency, mismanagement, and the need to preserve its assets. The official liquidator was directed to take immediate charge and manage the company's properties, with police assistance if necessary. The court emphasized the necessity of positive and effective orders to safeguard the interests of creditors and prevent further asset loss.