2008 (5) TMI 416 - HC - Companies Law

Winding up petition - appointment of the official liquidator - Held that - far as inquiry conducted by this court during the pendency of this petition is concerned enough materials have come on record that necessary proceedings have been initiated by the State Government and even otherwise once winding up order is passed the official liquidator may be put in charge of the affairs of the company and he will have powers under the Companies Act to initiate proceedings against the erring officials. As far as issuance of direction to the State Government to repay the amount to the bondholders is concerned the issue is already concluded by the decision of this court as referred to above against which LPAs are pending before a Division Bench of this court and hence no separate directions are required to be issued in the present petition. The official liquidator how ever shall remain in touch with this proceeding and pursue the same so as to book the real culprit. Subject to the aforesaid this petition is accordingly disposed of. Official liquidator attached to this court is hereby appointed as liquidator of the company and is directed to exercise all powers conferred on him in the Act. He will take charge of the assets of the company and issue necessary notices for compliance of the provision under section 454 of the Companies Act 1956 for filing statement of affairs of the company. A compliance report be filed before the court within a period of three months from today.

Issues Involved:
1. Petition for winding up under Section 433 of the Companies Act, 1956.
2. Appointment of an official liquidator.
3. Financial status and liabilities of the petitioner-company.
4. Inquiry into the mismanagement and financial irregularities.
5. Responsibility of the State Government regarding the company's financial obligations.
6. Legal proceedings and decrees against the petitioner-company.
7. Voluntary Retirement Scheme (VRS) and its implications.

Issue-wise Detailed Analysis:

1. Petition for winding up under Section 433 of the Companies Act, 1956:
The petitioner, Gujarat Small Industries Corporation Ltd., filed a petition under Section 433 of the Companies Act, 1956, seeking winding up of the company due to its inability to pay debts and accumulated losses amounting to Rs. 70.54 crores as of March 31, 2006. The court noted that the company had been incurring losses for the last ten consecutive years, and its business activities had been discontinued since 1999.

2. Appointment of an official liquidator:
The court appointed the official liquidator attached to the High Court of Gujarat as the liquidator of the company, directing him to exercise all powers conferred on him under the Companies Act. The liquidator was instructed to take charge of the assets of the company and issue necessary notices for compliance with Section 454 of the Companies Act, 1956, for filing the statement of affairs of the company.

3. Financial status and liabilities of the petitioner-company:
The petitioner-company had liabilities amounting to Rs. 109 crores as of March 31, 2006, excluding Rs. 66 crores due on account of interest and others. The company had fixed assets valued at approximately Rs. 6 crores, which had been attached by the Sales Tax Department. The petitioner-company's debtors, loans, and advances were considered doubtful, with negligible recovery prospects.

4. Inquiry into the mismanagement and financial irregularities:
The court inquired into the mismanagement and financial irregularities within the company. The State Government had appointed a High Power Committee to investigate the causes leading to the company's financial distress. Reports from the Accountant General and a special audit by M/s. Manubhai and Co., chartered accountants, were submitted. Departmental inquiries were initiated against three managing directors of the company for major defaults and irregularities.

5. Responsibility of the State Government regarding the company's financial obligations:
The court examined whether the State Government should be held liable for the company's financial obligations towards co-operative banks and other investors. It was noted that previous judgments had concluded that the Government was not responsible for the acts and deeds of the Government company in all cases. Appeals against these judgments were pending before a Division Bench of the court.

6. Legal proceedings and decrees against the petitioner-company:
Various financial institutions and bondholders had filed cases for repayment of loans and bonds, resulting in decrees against the petitioner-company amounting to over Rs. 50 crores. The petitioner-company was unable to satisfy these decrees due to its financial condition.

7. Voluntary Retirement Scheme (VRS) and its implications:
The State Government had implemented a Voluntary Retirement Scheme (VRS) for the employees of the petitioner-company. A significant amount was paid to employees opting for VRS, with the State Government providing funds as a secured loan. The company had relieved 321 employees under VRS, with only five employees remaining on a regular basis.

Conclusion:
The court concluded that the petitioner-company should be wound up due to its inability to discharge its liabilities and the discontinuation of its business activities. The official liquidator was appointed to manage the winding-up process and pursue any necessary legal actions against erring officials. The petition was disposed of with the official liquidator directed to file a compliance report within three months.

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