2003 (4) TMI 466 - HC - Companies Law

Issues Involved:
1. Settlement between the company and the petitioning creditor.
2. Winding up petition and advertisement.
3. Injunction on selling company assets.
4. Valuation and sale of the Guwahati property.
5. Bona fide nature of winding up applications.
6. Representative character of winding up proceedings.
7. Legal provisions under the Companies Act.
8. Court's discretion in winding up proceedings.
9. Priority of creditors under section 529A of the Companies Act.

Detailed Analysis:

1. Settlement between the company and the petitioning creditor:
The appellants, contributories, and shareholders of Howrah Motor Company Ltd., appealed against an order dated 15th March 2002, where the Company Judge in a winding-up proceeding held that the settlement between the company and the petitioning creditor, Luxmi Tea Company, was in the best interest of the company, thus no winding-up order was made.

2. Winding up petition and advertisement:
The petitioning creditor lent Rs. 16 lakhs and Rs. 1 crore to the company in January 1996. The company failed to repay, leading to a winding-up petition in August 1998. The winding-up court admitted the petition on 2nd September 1998, granting instalments, and allowed advertisement in default of payment. The advertisement was published on 3rd January 1999.

3. Injunction on selling company assets:
In a separate suit filed by some shareholders alleging mismanagement, an injunction was granted on 24th September 1998, restraining the company from selling its fixed assets without court leave. The company sought leave to sell its Guwahati property to pay the petitioning creditor, which was granted on 18th October 2001.

4. Valuation and sale of the Guwahati property:
The Company Judge noted that the Guwahati property was valued at Rs. 1.91 crores in 1995. The petitioning creditor proposed to pay Rs. 40 lakhs in cash to the company for statutory liabilities. The court found the sale price acceptable as no higher offer was brought by the appellants.

5. Bona fide nature of winding up applications:
The application by Srabani Dey for substitution in the winding-up proceeding was dismissed on 14th May 2002. Another winding-up application by Srabani Dey was dismissed on 15th May 2002, as the court found it not bona fide. The court ascertained that 88% of shareholders did not support winding up.

6. Representative character of winding up proceedings:
The learned Counsel for the appellant argued that the winding-up proceedings acquired a representative character post-advertisement and could not be disposed of based on a settlement. The court, however, found that only the petitioning creditor and its sister concern supported the winding-up petition, and the majority of shareholders opposed it.

7. Legal provisions under the Companies Act:
The appellant's counsel referred to sections 433, 441, 442, 443, 529A, 536, 537, and 557 of the Companies Act, arguing that the court acted in breach of these provisions. However, the court found that no winding-up order was made, thus the provisions cited did not apply.

8. Court's discretion in winding up proceedings:
The court emphasized its wide discretion under sections 440, 443, 446, and 447 of the Companies Act to avoid winding up and preserve the company. The court noted that it could refuse a winding-up order if other remedies were available and winding up was unreasonable.

9. Priority of creditors under section 529A of the Companies Act:
The court noted that section 529A, which deals with the priority of creditors, normally applies post-winding up order. Since no winding-up order was made, this provision did not come into play. The court found that the settlement was in the best interest of the company, and no secured creditor claimed priority.

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, ensuring its survival and preventing winding up. All interim orders were vacated, and no costs were ordered.

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