2003 (4) TMI 412 - HC - Companies Law

Summary

Issues Involved:
1. Default in payment of royalty dues.
2. Admission of Company Petition for winding up.
3. Appointment of Official Liquidator as Provisional Liquidator.
4. Financial status and viability of the respondent company.
5. Opposition to winding up and appointment of provisional liquidator.

Issue-wise Detailed Analysis:

1. Default in Payment of Royalty Dues:
The petitioner, a well-known artist, alleged that the respondent company failed to pay the royalty dues amounting to Rs. 66,74,780 despite selling several albums of songs sung by the petitioner. A Summary Suit No. 1873 of 2003 was filed for recovery of the dues and interest. The respondent admitted liability, leading to a consent decree on 1-10-2002, which stipulated payment in four instalments. The respondent defaulted on the first instalment due on 30-12-2002 and the second instalment due on 28-4-2003.

2. Admission of Company Petition for Winding Up:
Pending adjudication of the suit, the petitioner filed Company Petition No. 719 of 2002 for winding up the respondent company. An order based on consent terms was passed on 7-10-2002, stating that the petition would stand admitted if the respondent defaulted on payments for over 30 days. Due to the respondent's default, the petition stood admitted.

3. Appointment of Official Liquidator as Provisional Liquidator:
The petitioner requested the appointment of an Official Liquidator under Section 450 of the Companies Act, 1956. The court considered whether appointing a provisional liquidator was necessary, referencing the practice of appointing provisional liquidators only when there is no opposition or when the company concedes to the appointment. The court emphasized the need to weigh all pros and cons and consider whether the petitioners have made a strong prima facie case for winding up.

4. Financial Status and Viability of the Respondent Company:
The respondent company argued that it was in a sound financial position but faced temporary liquidity issues due to piracy, free music downloads, and private FM radio stations. The court examined the company's balance sheets, revealing consistent losses and declining sales over several years. The court found no reasonable prospect of the company's revival and noted a strong possibility of further losses if the business continued.

5. Opposition to Winding Up and Appointment of Provisional Liquidator:
The respondent opposed the winding up and appointment of a provisional liquidator, citing a contract with Amson Audio Private Limited to finance and distribute music albums. However, the court found that the majority in value of creditors did not oppose the petition, and the debt to the petitioner was undisputed. The court concluded that the respondent's financial issues were not temporary and that appointing a provisional liquidator was necessary to prevent further losses.

Conclusion:
The court appointed the Official Liquidator as the provisional liquidator, with conditions allowing the respondent to avoid immediate liquidation by paying the defaulted instalments and future instalments on time. The court emphasized the need to protect the interests of all creditors and prevent further financial deterioration of the respondent company.