1998 (2) TMI 462 - HC - Companies Law

Issues Involved:

1. Winding-up of the company under sections 433(f) and 439 of the Companies Act, 1956.
2. Allegations of mismanagement, misappropriation, falsification of accounts, and forgery.
3. Maintainability of the petition in light of proceedings under section 29 of the State Financial Corporations Act, 1951.
4. Conflict between the Companies Act and the State Financial Corporations Act regarding the sale of assets.

Detailed Analysis:

1. Winding-up of the Company under Sections 433(f) and 439 of the Companies Act, 1956:

The petitioners, who are shareholders of the company, sought the winding-up of the company under sections 433(f) and 439 of the Companies Act, 1956, alleging mismanagement, misappropriation of funds, falsification of accounts, and forgery by respondents 2 and 3. The 2nd respondent, managing director of the 1st respondent-company, denied these allegations but did not object to the winding-up order under section 433(f).

2. Allegations of Mismanagement, Misappropriation, Falsification of Accounts, and Forgery:

The petitioners alleged significant mismanagement and financial misconduct by respondents 2 and 3. These allegations included the misappropriation of company funds, falsification of accounts, and fabrication of documents. The 2nd respondent denied these allegations in their counter-affidavit.

3. Maintainability of the Petition in Light of Proceedings under Section 29 of the State Financial Corporations Act, 1951:

The 4th respondent, Kerala Financial Corporation (KFC), a creditor of the company, argued that the petition was not maintainable. They contended that the petition was filed in collusion between the petitioners and respondents 2 and 3 to delay and obstruct recovery proceedings initiated by KFC under section 29 of the State Financial Corporations Act, 1951. KFC had initiated proceedings to recover a loan of Rs. 19.1 lakhs, which had escalated to Rs. 39,29,537 by 1-1-1996. They had taken possession of the company's assets mortgaged to them but failed to provide evidence of the exact date of possession.

4. Conflict Between the Companies Act and the State Financial Corporations Act Regarding the Sale of Assets:

The primary issue was whether KFC could proceed against the company's assets under section 29 of the SFC Act despite the winding-up proceedings under sections 433(f) and 439 of the Companies Act. The court noted that KFC had not provided evidence of taking possession of the assets. The petitioners argued that once winding-up proceedings are initiated, all other proceedings, including those under section 29, must be regulated by the Companies Act.

The court examined various precedents, including decisions from the Kerala, Delhi, and Bombay High Courts, and the Supreme Court. The court concluded that the SFC Act, being a special statute, does not automatically override the provisions of the Companies Act. The court emphasized that sections 529, 529A, and 537 of the Companies Act, introduced by the Amending Act of 1956, take precedence over the earlier provisions of the SFC Act.

The court held that KFC could not proceed with the sale of the company's assets without involving the official liquidator appointed by the court. The sale must be conducted with the liquidator's involvement and subject to the court's confirmation to protect the rights of all creditors, including those with pari passu charges.

Conclusion:

The court ordered the winding-up of the company and appointed the official liquidator as the liquidator of the company. KFC was allowed to sell the mortgaged property of the company by standing outside the winding-up proceedings, provided they involved the liquidator in the sale process and obtained the court's confirmation. The petitioners were directed to advertise the winding-up order and deposit an amount for initial expenses with the official liquidator.

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