2001 (7) TMI 1225 - HC - Companies Law

Winding up - Circumstances in which company may be wound up, Appointment and powers of provisional liquidator

Issues Involved:
1. Admission of winding-up petitions.
2. Appointment of provisional liquidator.
3. Alleged breach of natural justice.
4. Financial status and management of the company.
5. RBI's cross-objection regarding observations made by the learned company Judge.
6. Criminal liability and investigation against the company's directors.
7. Various interlocutory applications related to the case.

Issue-wise Detailed Analysis:

1. Admission of Winding-Up Petitions:
The appeal challenges the order admitting winding-up petitions filed under section 433 of the Companies Act, 1956, by private creditors and under section 45MC of the Reserve Bank of India Act by the RBI. The learned company Judge admitted all petitions based on the company's inability to pay its debts and financial irregularities.

2. Appointment of Provisional Liquidator:
The appointment of a provisional liquidator under section 450 of the Companies Act was also challenged. The company's counsel argued that the order was passed without adequate notice and opportunity to respond. However, the court found that the company had sufficient notice and opportunity, as evidenced by the detailed affidavits filed and the extensive hearings conducted.

3. Alleged Breach of Natural Justice:
The company argued that the principles of natural justice were breached as they were not given adequate opportunity to respond to the petitions and the reports relied upon by the RBI. The court, however, found that the company had ample opportunity to present its case, including filing detailed affidavits and participating in hearings. The court cited the Supreme Court ruling in S.L. Kapoor v. Jagmohan to emphasize that natural justice was not violated.

4. Financial Status and Management of the Company:
The court examined the company's financial status, noting significant liabilities exceeding its assets. The company owed Rs. 229 crores to 46,000 depositors, with liabilities totaling Rs. 300 crores. The court found that the company's investments through subsidiary companies were questionable and required further investigation. The financial mismanagement and lack of bona fides justified the appointment of a provisional liquidator.

5. RBI's Cross-Objection:
The RBI filed a cross-objection against certain observations made by the learned company Judge. The court noted that these were not adverse findings but merely observations. The RBI was advised to seek the expunging of these remarks through an application before the learned company Judge.

6. Criminal Liability and Investigation Against Directors:
The court addressed the issue of criminal liability under sections 541 to 543 of the Companies Act, clarifying that the observations made by the learned company Judge regarding investigation into financial irregularities did not constitute final findings. The court emphasized that the criminal liability of the directors would be determined by the competent criminal court.

7. Various Interlocutory Applications:
Several interlocutory applications were addressed, including those related to the release of funds, modification of orders, and the arrest of directors. The court dismissed these applications, noting that they were either rendered infructuous by the dismissal of the appeal or were matters to be dealt with by the appropriate criminal court.

Conclusion:
The appeal was dismissed, confirming the order of the learned company Judge admitting the winding-up petitions and appointing a provisional liquidator. The court found no breach of natural justice and upheld the findings regarding the company's financial mismanagement. The RBI's cross-objection was disposed of with liberty to seek expunging of remarks before the learned company Judge. Various interlocutory applications were also disposed of accordingly.

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