1985 (12) TMI 346 - HC - Companies Law

Summary

Issues Involved:
1. Appointment of a provisional liquidator u/s 450 of the Companies Act, 1956.
2. Allegations of misconduct and mismanagement against respondent No. 2.
3. Financial status and viability of the respondent company.
4. Counter-allegations by respondents against the petitioners.

Summary:

1. Appointment of a Provisional Liquidator:
The petitioners filed I.A. No. 1264 of 1985 u/s 450 of the Companies Act, 1956, seeking the appointment of a provisional liquidator. The court held that the appointment of a provisional liquidator is a "drastic measure" and should not be resorted to unless absolutely necessary. The court emphasized that such an appointment is generally not made before the hearing of the petition for winding up unless the company is insolvent or the petition is unopposed. The court concluded that it is not just and equitable to appoint a provisional liquidator at this stage.

2. Allegations of Misconduct and Mismanagement:
The petitioners alleged that respondent No. 2 acted in a manner detrimental to the company, defrauded shareholders, and committed various illegalities, leading to the company's financial distress. The petitioners claimed that respondent No. 2 misused his fiduciary capacity, resulting in a loss of confidence in the company's management. The court noted these allegations but also considered the counter-allegations made by the respondents.

3. Financial Status and Viability of the Respondent Company:
The petitioners argued that the company is heavily indebted, with liabilities amounting to Rs. 21,50,201, and that the business has come to a standstill. The respondents, however, contended that they are taking steps to revive the company and hope to make it profitable within a couple of years. The court referred to the decision in Madhusudan Gordhandas and Co. v. Madhu Woollen Industries P. Ltd., which held that trading losses do not destroy a company's substratum unless there is no reasonable prospect of future profit.

4. Counter-Allegations by Respondents:
The respondents accused petitioner No. 5 of unscrupulous means and deception, claiming that the petitioners' actions contributed to the company's current state. They argued that the petitioners filed the petition with an ill-motive to save their skin. The court acknowledged these counter-allegations and noted that the truth of the allegations and counter-allegations is yet to be determined.

Conclusion:
The court directed respondent No. 2 to submit quarterly statements of accounts and progress reports, maintain detailed accounts, and furnish a list of assets and liabilities. The respondents were also restrained from alienating or disposing of the company's assets until further orders. The application, I.A. No. 1264 of 1985, was disposed of with these observations.