2007 (7) TMI 419 - HC - Companies Law

Company when deemed unable to pay its debts, Admission of petition and directions as to advertisement

Issues Involved:

1. Abuse of process of law by respondents through unauthorized publication.
2. Impact of unauthorized publication on appellant's business.
3. Legal provisions and precedents regarding advertisement of winding-up petitions.
4. Conduct of respondents and its implications on the judicial process.
5. Decision of the company judge and its appropriateness.

Issue-wise Detailed Analysis:

1. Abuse of Process of Law by Respondents through Unauthorized Publication:

The respondents filed a company petition for winding up of the appellant-company under sections 433(f) and 439 of the Companies Act, 1956. The company judge issued a show-cause notice but did not authorize any publication. Despite this, the respondents published advertisements in newspapers and communicated with various organizations, including the Government of India and the Union Bank of India, about the winding-up petition. This action was a clear transgression of the court's order, as the publication was done without specific directions from the court, violating rule 96 of the Companies (Court) Rules, 1959.

2. Impact of Unauthorized Publication on Appellant's Business:

The unauthorized publication and subsequent communications by the respondents had a disastrous effect on the appellant's business. The appellant alleged that these actions caused immense pecuniary and monetary damage. The respondents misrepresented the facts and distorted the court's order, projecting non-existent proceedings and orders, which further aggravated the situation for the appellant.

3. Legal Provisions and Precedents Regarding Advertisement of Winding-Up Petitions:

Rule 96 of the Companies (Court) Rules, 1959, stipulates that a petition for winding up should be posted before the judge for admission and directions regarding advertisement. The court cited precedents such as *Satellite Television Asian Region Limited v. Kunvar Ajay Designer Saree (P.) Ltd.* and *National Conduits (P.) Ltd. v. S.S. Arora*, emphasizing that publication without court authorization is a serious abuse of the process. The court also referenced *In re Signland Ltd.* and *In re Doreen Boards Ltd.*, which highlighted that premature advertisement is a flagrant breach of the process and should be discouraged.

4. Conduct of Respondents and Its Implications on the Judicial Process:

The respondents' conduct was deemed reprehensible as they not only published unauthorized advertisements but also wrote misleading letters to various entities, misrepresenting the status of the winding-up petition. This conduct was seen as a flagrant and serious breach of the process of law, reflecting a lack of respect for the judicial process. The court found that the respondents' actions amounted to an abuse of the process of the court and caused significant damage to the appellant.

5. Decision of the Company Judge and Its Appropriateness:

The company judge condoned the respondents' conduct after they tendered an apology and imposed a cost of Rs. 10,000. However, the appellate court found this decision erroneous. The court held that the company judge failed to record any finding regarding the abuse of the process of court, which was manifestly clear from the respondents' conduct and communications. The appellate court emphasized that a person who seeks to subvert the process of law does not deserve any indulgence and that the respondents' actions undermined the authority of law.

Conclusion:

The appellate court accepted the appeal, set aside the order dated October 12, 2006, passed by the company judge, and dismissed Company Petition No. 61 of 2006 filed for winding up of the appellant-company. The court highlighted the importance of adhering to legal processes and the serious implications of abusing the process of law.

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