1986 (10) TMI 289 - HC - Companies Law

Summary

Issues Involved:
1. Maintainability of the application under Section 391 of the Companies Act.
2. Feasibility and bona fides of the proposed scheme for revival of the company.
3. Decision on the sale of the mill as a running unit.
4. Direction to the official liquidator regarding lease continuation and sale considerations.

Issue-wise Detailed Analysis:

1. Maintainability of the Application under Section 391 of the Companies Act:
The primary issue was whether the application under Section 391 filed by a contributory holding 100 shares was maintainable. The court examined Section 391(1) and (2) of the Companies Act, which allows a compromise or arrangement to be proposed by the company, any creditor, or any member. The court referred to Rule 68 of the Companies (Court) Rules, 1959, which contemplates notice to the liquidator when the company is not the applicant, indicating that even in liquidation, a creditor or member can file an application. The court cited precedents such as Travancore National and Quilon Bank, In re [1939] 9 Comp. Cas. 14 and Rajendra Prosad Agarwalla v. Official Liquidator [1978] 48 Comp. Cas. 476, which supported the view that creditors or members retain their rights to file applications under Section 391 even after a winding-up order. Thus, the court concluded that the application was maintainable.

2. Feasibility and Bona Fides of the Proposed Scheme for Revival of the Company:
The court scrutinized the proposed scheme, which included paying creditors in two installments, offering employment to permanent workers, and suspending the winding-up order permanently. The official liquidator's report highlighted that the company had significant liabilities, including unpaid interest to preferential and ordinary creditors, and the scheme did not address these adequately. The court noted that the three proposed directors were not shareholders, and their financial capacity to advance the required funds was not disclosed. The first respondent had a misfeasance decree against him, further questioning the scheme's credibility. The court emphasized that even at the stage of filing an application under Section 391(1), it must be satisfied about the scheme's prima facie feasibility and bona fides. Concluding that the scheme lacked credibility and was intended to delay the winding-up, the court dismissed the application.

3. Decision on the Sale of the Mill as a Running Unit:
The appellant-lessee filed applications for the sale of the mill as a running unit and for lease continuation. The court had to consider whether to sell the mill privately to the appellant or through a public auction. The official liquidator's reports and valuation by SITRA indicated the machinery's value, including additions by the lessee, and the land and building's worth. The court acknowledged the appellant's significant investments in the mill and the potential complications of removing machinery if sold to a third party. The court referred to Elvoc (P.) Ltd. In re [1982] 52 Comp. Cas. 308, which supported private sales under certain conditions. Balancing the interests of creditors and the practicality of running the mill, the court decided that a private sale to the appellant for Rs. 30,00,000 was reasonable.

4. Direction to the Official Liquidator Regarding Lease Continuation and Sale Considerations:
The court directed the official liquidator to execute the sale deed upon receiving an initial payment of Rs. 15,00,000, with the balance payable in five half-yearly installments of Rs. 3,00,000 each. The appellant was required to continue paying the lease amount until the sale deed execution and create a first charge on the mill for the balance payment. The court allowed the appeals, setting aside the earlier order for convening meetings under Section 391 and directing the private sale of the mill to the appellant.

Conclusion:
The appeals were allowed, and the application under Section 391 was dismissed. The court ordered a private sale of the mill to the appellant for Rs. 30,00,000, payable in installments, considering the practicalities and the interests of creditors. The official liquidator was directed to execute the sale deed and manage the lease continuation until the sale's completion.