2009 (3) TMI 565 - HC - Companies Law

Winding up - Circumstances in which a company may be wound up - Held that - Having regard to the fact that the contentions of the petitioner had been already disclosed in the petition for winding up and the conduct of the reconstruction company had already been referred to in its application for impleadment, counsel for the petitioner pleaded that the averments in the company petition itself could be taken as objection to the application filed by the reconstruction company seeking for modification of the order. As already made against alienation of assets, it shall stand modified to permit the reconstruction company to take further proceedings under the SARFAESI Act. The petitioner would be permitted to move this Court for appropriate directions if the petition for winding up is considered favourably. The ultimate directions shall follow on what is held on the outcome of petition for winding up. In the meanwhile, no appropriation or disbursal of the sale proceeds shall be undertaken by the asset reconstruction company without leave of this Court.

Summary

Issues:
Petition for winding up under Companies Act, 1956 due to inability to pay debts, Stay application under Sick Industrial Companies (Special Provisions) Act, 1985, Impleadment of reconstruction company under SARFAESI Act, Jurisdiction conflict between SARFAESI Act and Companies Act.

Analysis:
1. The petition for winding up the company was filed based on the respondent-company's inability to pay its debts, supported by a statutory notice demanding repayment. The respondent-company sought a stay of proceedings citing the Sick Industrial Companies (Special Provisions) Act, 1985. The court considered the provisions of the Act and the company's status as a sick industrial company, ultimately dismissing the stay application.

2. The petitioner contested the stay application, pointing out that the respondent-company had been taken over under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). The court noted that the SARFAESI Act abated any relief under the SICA after invoking its provisions, leading to the dismissal of the stay application.

3. The petitioner filed for impleadment of the reconstruction company under the SARFAESI Act. The reconstruction company argued that the SARFAESI Act had overriding effect over the Companies Act, emphasizing sections 35 and 37 of the SARFAESI Act. The court allowed the impleadment but rejected the reconstruction company's plea to modify the order regarding asset sale.

4. The court considered the contentions of both parties, with the petitioner arguing that the reconstruction company's actions were already disclosed in the winding-up petition. The court allowed the impleadment of the reconstruction company as the second respondent and dismissed the stay application, giving the respondent-company time to file objections to winding up.

5. The court addressed the extent of operation of the SARFAESI Act and its jurisdiction conflict with the Companies Act. Referring to a previous judgment, the court held that the SARFAESI Act and the Companies Act could coexist, with no inconsistency between them. The court rejected the petitioner's contention regarding the commencement of winding up and directed the filing of a counter after dismissing the application under the SICA.

6. The court modified the direction against alienation of assets to allow the reconstruction company to proceed under the SARFAESI Act. However, the court emphasized that any appropriation or disbursal of sale proceeds required the court's permission until the outcome of the winding-up petition was determined.

7. In conclusion, the court dismissed the stay application, allowed the impleadment, and disposed of the plea for modification. The respondent-company was given time to file a counter in the winding-up petition, with further proceedings scheduled for a later date.