1999 (1) TMI 421 - HC - Companies Law

Issues Involved:
1. Permission for the Samiti to run the Chanpatia factory for the 1998-99 crushing season.
2. Allegations of misappropriation and defalcation of funds by the Samiti.
3. Inspection and report by the official liquidator.
4. Objections by the Sangharsh Samiti and other parties.
5. Conditions imposed on the Samiti for running the factory.

Detailed Analysis:

1. Permission for the Samiti to run the Chanpatia factory for the 1998-99 crushing season:
The Champaran Sugar Co. Ltd., in liquidation, had its Chanpatia factory run by the workers' cooperative society (Samiti) during the 1997-98 crushing season as an interim measure. The Samiti submitted an application (A-163) seeking permission to run the factory for the 1998-99 season. Despite not generating profits and incurring a loss of about Rs. 3 lakhs, the factory produced sugar worth about Rs. 3 crores and paid the workers and cane-growers substantially. The Court considered the interest of the workmen and cane-growers, whose livelihood depended on the factory, and decided to grant permission for one more season under specific conditions.

2. Allegations of misappropriation and defalcation of funds by the Samiti:
The objections raised by the Sangharsh Samiti and other parties alleged that the Samiti misutilized the opportunity by misappropriating and defalcating funds, selling scrap, ungraded sugar, molasses, and other items illegally. The official liquidator's report, however, did not substantiate these allegations. The Court noted that the security of the factories was not under the control of the official liquidator, making it difficult to pinpoint any theft or pilferage.

3. Inspection and report by the official liquidator:
The Court directed the official liquidator to inspect the two factories and submit a report to verify the allegations. The official liquidator's report, based on records and inspections, indicated that the factory ran for 65 days, purchasing 3,13,728.47 quintals of sugarcane and producing 25,249 quintals of sugar. The report showed substantial payments to cane-growers and workers, with a balance of Rs. 15 lakhs remaining unpaid to the staff. The Court accepted the report, finding no substantial proof of misappropriation or defalcation.

4. Objections by the Sangharsh Samiti and other parties:
The objections (A-166, A-170, A-171) primarily came from the Barachakia factory workers, who were not receiving payments as their factory required conversion to a sulphitation plant. The Court noted the potential internal disputes and politics among the workers as a factor in the objections. The objections did not dispute the running of the Chanpatia factory or the payments made to workers and cane-growers but focused on alleged malpractices by the Samiti.

5. Conditions imposed on the Samiti for running the factory:
The Court imposed several conditions on the Samiti for running the Chanpatia factory for the 1998-99 season:
1. An undertaking not to remove, sell, or transfer any machinery or assets without the official liquidator's permission.
2. Deposit proceeds from sales in a bank and use them for factory expenses.
3. Inform the official liquidator and obtain permission for hypothecating stocks.
4. Comply with free sale and levy requirements.
5. Appoint an internal auditor approved by the official liquidator.
6. Bear all payments and liabilities without imposing them on the company or official liquidator.
7. Obtain permission for selling scrap or ungraded items.
8. Not cut any trees without Court permission.
9. Maintain overall control of the factory with the Court and official liquidator.
10. Obtain a resolution from Samiti members agreeing to the conditions.
11. Report on steps taken for converting the Barachakia factory and generating funds.

The Court concluded that the Samiti should be given another opportunity to run the Chanpatia factory under these conditions, ensuring transparency and accountability while protecting the interests of the workmen and cane-growers.

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