2003 (4) TMI 464 - HC - Companies Law

Circumstances in which a company may be wound up, Winding up Commencement of, Winding up Powers of tribunal on hearing petition

Issues Involved:
1. Validity of the settlement between the company and the petitioning creditor.
2. Allegations of collusion and conspiracy.
3. Representative character of winding up proceedings.
4. Preservation of assets and pari passu distribution among creditors.
5. Compliance with the Companies Act and Companies (Court) Rules.
6. Valuation and sale of the Guwahati property.
7. Discretion of the company court in winding up proceedings.

Issue-Wise Detailed Analysis:

1. Validity of the Settlement:
The court found the settlement between the company and the petitioning creditor, Luxmi Tea Company, to be in the best interest of the company. The settlement aimed to avoid winding up by liquidating the company's dues through the sale of its Guwahati property. The court noted that the property was valued at Rs. 1 crore 91 lakhs in 1995, and the petitioning creditor proposed to pay Rs. 40 lakhs in cash for the company's statutory liabilities. This settlement was considered beneficial for the company and was accepted by the court.

2. Allegations of Collusion and Conspiracy:
The appellants contended that the winding up order resulted from collusion and conspiracy between some contributories and the petitioning creditor to deprive the company of its assets. However, the court found no evidence supporting these allegations. The court emphasized that the settlement was in the company's best interest and aimed to prevent its winding up.

3. Representative Character of Winding Up Proceedings:
The appellants argued that after advertisement, the winding up proceedings acquired a representative character and could not be disposed of based on a settlement between the parties. The court acknowledged this but noted that no other creditors, except the petitioning creditor and its sister concern, supported the winding up petition. The court ascertained the views of the shareholders and found that 70% were against winding up, while only 18% were in favor.

4. Preservation of Assets and Pari Passu Distribution:
The appellants argued that in a winding up proceeding, the company's assets should be distributed pari passu among all creditors. The court noted that the settlement aimed to prevent winding up and preserve the company's assets. The dues of the workers were taken care of, and no other creditors, except the petitioning creditor and its sister concern, came forward.

5. Compliance with the Companies Act and Companies (Court) Rules:
The appellants contended that the sale of the Guwahati property violated various sections of the Companies Act and Companies (Court) Rules. The court examined sections 433, 441, 442, 443, 529A, 536, 537, and 557 of the Companies Act and found that the provisions were not violated. The court emphasized that the winding up order had not been made, and the settlement aimed to prevent winding up.

6. Valuation and Sale of the Guwahati Property:
The appellants argued that there was no independent valuation, no reserve price was fixed, and no public auction was held for the Guwahati property. The court noted that the suit court had granted leave to sell the property, and the appellants were given an opportunity to find a purchaser at a higher price but failed to do so. The court found that the property was valued at Rs. 4 crores in 1998, and the settlement was in the company's best interest.

7. Discretion of the Company Court:
The court emphasized the wide discretion conferred on the company court in winding up proceedings. The court noted that it has the power to stay winding up proceedings, refuse to pass a winding up order if other remedies are available, and make efforts to preserve the company. The court found that the settlement was in the company's best interest and aimed to prevent its winding up.

Conclusion:
The court dismissed the appeal, finding no merit in the appellants' contentions. The court held that the settlement between the company and the petitioning creditor was in the best interest of the company and aimed to prevent its winding up. The court emphasized the wide discretion conferred on the company court in winding up proceedings and found that the provisions of the Companies Act and Companies (Court) Rules were not violated. The court vacated all interim orders and did not award costs.

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