2002 (11) TMI 721 - HC - Companies Law

Issues Involved:
1. Alleged failure of companies to pay professional fees.
2. Petition for winding up of companies under the Companies Act, 1956.
3. Request for appointment of a provisional official liquidator.
4. Right of an advocate to retain client files for unpaid fees.
5. Allegations of fraudulent misappropriation by company directors.

Issue-wise Detailed Analysis:

1. Alleged Failure of Companies to Pay Professional Fees:
The petitioner, a seasoned advocate, filed petitions under section 439 read with sections 433 and 434 of the Companies Act, 1956, claiming that the companies failed to pay his professional fees. He argued that the companies' failure to pay indicated financial insolvency, warranting their winding up. The petitioner had sent multiple letters and a statutory notice under section 434, which went unanswered. However, the companies did not refuse to pay but requested a detailed account statement to reconcile their records. The court found that the petitioner should have provided the requested details instead of filing for winding up, as the companies' request for an account statement was reasonable and did not indicate a refusal to pay.

2. Petition for Winding Up of Companies:
The court held that the purpose of the winding-up provisions is not to pressurize companies for debt recovery, especially when the debt is bona fide disputed. The companies' request for an account statement was seen as a legitimate step to ascertain the debt. The court emphasized that the petitioner should have pursued a civil suit for debt recovery rather than filing for winding up, as there was no prima facie case of financial insolvency or inability to pay debts.

3. Request for Appointment of a Provisional Official Liquidator:
The petitioner sought the appointment of a provisional official liquidator to take over the companies' assets, alleging potential fraudulent misappropriation by the directors. The court found no substantial evidence to support these serious allegations. It was noted that the petitioner made defamatory statements without prima facie substantiation. The court concluded that the petitioner's claims did not justify the appointment of a provisional official liquidator.

4. Right of an Advocate to Retain Client Files for Unpaid Fees:
The companies' counsel argued that the petitioner unjustly retained the files and briefs, which prejudiced the companies. The court referred to the Supreme Court judgments in C.S. Venkatasubramanian v. State Bank of India and R.D. Saxena v. Balram Prasad Sharma, which clarified that an advocate cannot retain client files as a lien for unpaid fees. The court held that the petitioner should have returned the files and pursued other legal remedies for fee recovery. The companies demonstrated good faith by issuing cheques for the claimed amounts, which the petitioner accepted in court.

5. Allegations of Fraudulent Misappropriation by Company Directors:
The petitioner alleged that the directors were scheming to fraudulently misappropriate company properties. The court found these allegations to be baseless and unsupported by evidence. It was emphasized that the petitioner, as a senior advocate, should have refrained from making such serious accusations without substantial proof. The court reiterated that the companies' financial health did not justify winding up, as there was no indication that their liabilities exceeded their assets.

Conclusion:
The court dismissed the petitions for winding up, emphasizing that the petitioner had an alternative remedy of filing a civil suit for fee recovery. The court also highlighted the professional conduct expected of advocates, particularly in handling client files and making serious allegations. The petitions were dismissed with no order as to costs.

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