2003 (11) TMI 359 - HC - Companies Law

Winding-up - Meetings to ascertain wishes of creditors or contributories - right to be heard at the stage of admission of the Company Petition for winding up - HELD THAT - In the present case, in the affidavit in support of the company application (Company Application No. 352 of 2003), it has been averred that State Bank of India leads the consortium of banks that advanced large sums of money to the respondent Company towards working capital facilities. The consortium consists of State Bank of India, Bank of Baroda, Canara Bank, Union Bank of India, State Bank of Indore, Corporation Bank, ABN Amro Bank N.V.,Central Bank of India, Standard Chartered Bank, Bank of India, HDFC Bank and Barclays Bank. As of 31st March, 2002, an amount of approximately Rs. 250 crores is stated to be outstanding from the company to the consortium. The outstandings of the intervenor, State Bank of India, are estimated at Rs. 79 crores exclusive of interest. Apart from this, it has been averred that a comprehensive restructuring proposal was prepared by the company and has been submitted by the Bank to the financial institutions. The State Bank of India has granted its in-principle approval by a letter dated 19th April, 2003 for the acceptance of the restructuring package by other members of the consortium. State Bank avers that care has been taken to protect the interest of the petitioners, of the workers and of the banks and financial institutions. On these averments made by State Bank of India and in view of similar averments made by other creditors, the applications for intervention must be allowed. That is in consonance with the legal position. Thus, I am of the view that the creditors should be permitted to intervene. The company applications are accordingly made absolute in terms of prayer ( a ).

Summary

Issues Involved:
Secured creditors asserting right to be heard at the stage of admission of Company Petition for winding up, challenged by the petitioner.

Summary:
The legal position, as per section 557 of the Companies Act, 1956, recognizes the right of creditors to appear and be heard at all stages relating to the winding up of a company, including the admission stage. The admission of a petition for winding up has significant consequences for a company's market position and credibility. The Supreme Court precedent establishes that both workers and creditors have the locus to appear and be heard in winding up petitions. The wishes of creditors are crucial in determining whether a winding up order should be made.

In a specific case, creditors opposing a winding up petition were allowed to intervene at the admission stage, emphasizing the importance of considering creditors' interests early on. The Court must have regard to the wishes of creditors and contributories in all matters related to the winding up of a company. The interests of creditors are not merely affected by the admission of a petition but must be considered even at the admission stage.

The judgment of a learned Single Judge of the Delhi High Court, which held that creditors opposing a petition are not entitled to be heard at the admission stage, was not accepted. The clear statutory principle under section 557 mandates the Court to consider creditors' wishes in all winding up matters. The interests of creditors, as demonstrated by a consortium of banks in the present case, are substantial and must be taken into account. The applications for intervention by creditors are allowed in line with the legal position.

The company applications by secured creditors are granted, permitting their intervention at the admission stage of the Company Petition for winding up.