2007 (10) TMI 406 - HC - Companies Law

Winding up - Circumstances in which a company may be wound up - Held that - Truth or otherwise of the factual assertions that a one time settlement has been entered into with all the secured creditors, that the dues of a majority of the unsecured creditors have already been paid, that the workmen dues have been settled etc., can only be ascertained after the prescribed notice is advertised informing all concerned that the B.I.F.R. has recommended winding up of M/s. C.P.L. on just and equitable grounds, after affidavits are filed either in support or in opposition to the winding up and evidence, both oral and documentary, is adduced in the course of winding up proceedings. Let an advertisement be issued in New Indian Express (English daily) and Andhra Jyothi (Telugu daily), Hyderabad and Ranga Reddy District editions to be published on or before 22-10-2007 stating that the date of hearing shall be on 12-11-2007.

Issues Involved:
1. Jurisdiction and discretion of the High Court in winding up a company under Section 433 of the Companies Act.
2. The procedural requirements under the Companies (Court) Rules, 1959.
3. The weight and consideration of the BIFR's opinion in the High Court's decision-making process.
4. Consideration of events subsequent to the BIFR's opinion.

Detailed Analysis:

1. Jurisdiction and Discretion of the High Court:
The High Court's jurisdiction to wind up a company under Section 433 of the Companies Act is discretionary. The Court must consider whether the grounds mentioned in clauses (a) to (f) of Section 433 are met. Under Section 443, the Court has the authority to dismiss the petition, adjourn the hearing, make an interim order, or order the winding up of the company with or without costs.

2. Procedural Requirements Under the Companies (Court) Rules, 1959:
The petition for winding up must adhere to the procedural requirements outlined in the Companies (Court) Rules, 1959. Rule 96 requires the petition to be posted before the Judge for admission and directions regarding advertisement. Rule 99 mandates the advertisement of the petition in the Official Gazette and in newspapers, which serves to notify creditors, contributories, and other interested parties. Rule 103 and Rule 104 outline the filing and service of affidavits in opposition and reply, respectively.

3. Weight and Consideration of the BIFR's Opinion:
The BIFR, an expert body, can recommend the winding up of a sick industrial company under Section 20 of SICA if it concludes that the company cannot make its net worth exceed its accumulated losses within a reasonable time. However, the High Court is not bound by the BIFR's opinion. The Supreme Court in V. R. Rama Raju v. Union of India held that the High Court must consider the BIFR's opinion but not abdicate its function of determining the question of winding up.

4. Consideration of Events Subsequent to the BIFR's Opinion:
The High Court can consider subsequent events brought to its notice by the erstwhile management of the company. The Court must examine whether these events affect the validity of the BIFR's opinion and whether the company should be wound up. The Company Court can only examine the contents of the BIFR's opinion and recommendations during the initial hearing on admission. Subsequent events can be considered after the petition is admitted and advertised, allowing creditors, contributories, and others to support or oppose the winding up.

Conclusion:
The High Court admitted the petition for winding up and directed that an advertisement be issued in specified newspapers, notifying the hearing date. The Court emphasized the necessity to follow procedural requirements under the Companies (Court) Rules, 1959, and allowed for the consideration of subsequent events in the winding-up proceedings. The case was listed for hearing on 12-11-2007 before the regular Court handling company matters.

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