2008 (10) TMI 356 - HC - Companies Law

Winding up - Held that - The recommendations of the BIFR forwarded to the Court under section 20(1) of the Act dated 26-3-2003 is accepted. The M/s. Kanan Steel Ltd.-company is wound up under section 433 of the Companies Act, 1956 and the Official Liquidator is appointed as Liquidator of the company. The PICUP will file a detailed affidavit with regard to the inventories and the assets of the company and the charge, which the PICUP may be having over the company. The Official Liquidator will issue notice to the Union Bank of India to put in appearance and give details of the charges. The notices shall be issued to the ex-directors to submit statement of affairs. If no statement of affairs is found within 21 days on the receipt of the notice, the Official Liquidator will move an application for prosecution of the ex-directors under section 454(5) of the Act. The PICUP has not taken any step for sale of the assets and has thus, lost the right given to it by the Board. The Court does not find that the PICUP should be allowed to sell the assets. The PICUP however will continue to deploy security over the assets and keep accounts and claim expenses. The Official Liquidator will take over the possession of the assets. He shall get them valued and submit a report to the Court within two months.

Issues:
1. Winding up recommendation from BIFR under Sick Industrial Companies Act, 1985
2. Delay in proceedings post appeal dismissal by AAIFR
3. Non-appearance of company representatives and dilatory tactics
4. Lack of rehabilitation proposal and unrealistic projections
5. Appointment of Official Liquidator and PICUP as Selling Agent
6. PICUP's role as secured creditor and possession takeover
7. Liquidation order and responsibilities of Official Liquidator
8. PICUP's failure to sell assets and Official Liquidator's duties

Issue 1: Winding up recommendation from BIFR under Sick Industrial Companies Act, 1985
The matter involved a reference from BIFR recommending winding up of M/s. Kanan Steels Limited under section 20(1) of the Sick Industrial Companies (Special Provisions) Act, 1985. The BIFR had declared the company a 'sick industrial company' in 2000 and dismissed the reference in 2001. Despite subsequent proceedings and appeals, including the appointment of Union Bank of India as Operating Agency, the company failed to submit a viable rehabilitation proposal, leading to the recommendation for winding up.

Issue 2: Delay in proceedings post appeal dismissal by AAIFR
After the appeal against BIFR's order was dismissed by AAIFR, proceedings were adjourned multiple times due to various reasons, including illness of representatives. The Court noted the company's dilatory tactics to avoid winding up and expressed concern over the difficulty faced by the Official Liquidator in recovering assets post-dismissal of appeals.

Issue 3: Non-appearance of company representatives and dilatory tactics
The company's representatives had been appearing in court without filing objections to the winding up. The Court observed a pattern of delay tactics by the company post-appeal dismissal, raising suspicions of asset siphoning or sale. The lack of cooperation from representatives and failure to file objections further indicated a lack of genuine efforts towards rehabilitation.

Issue 4: Lack of rehabilitation proposal and unrealistic projections
Despite opportunities given for rehabilitation proposals, the company failed to submit viable plans, with projections deemed unrealistic and unviable by secured creditors. The absence of concrete proposals and the company's inability to meet financial obligations led to the conclusion that the company was not likely to recover within a reasonable time, justifying the winding up recommendation.

Issue 5: Appointment of Official Liquidator and PICUP as Selling Agent
Following the acceptance of BIFR's recommendations, the Court ordered the winding up of the company under section 433 of the Companies Act, 1956. The Official Liquidator was appointed as the Liquidator, with PICUP designated as the 'Selling Agent' to dispose of company properties and deposit sale proceeds for distribution as per legal provisions.

Issue 6: PICUP's role as secured creditor and possession takeover
PICUP, as a secured creditor, had entered appearance and sought to realize its dues by selling securities. Despite taking possession, PICUP had not initiated asset sales, leading to the Court's decision not to allow the sale but to maintain security over assets. The Official Liquidator was tasked with valuing and taking possession of assets.

Issue 7: Liquidation order and responsibilities of Official Liquidator
The Court's acceptance of BIFR's recommendations resulted in the winding up of the company, with the Official Liquidator appointed to oversee the liquidation process. Responsibilities included issuing notices to relevant parties, valuing assets, and submitting reports to the Court within specified timelines to facilitate the liquidation proceedings effectively.

Issue 8: PICUP's failure to sell assets and Official Liquidator's duties
The Court noted PICUP's inaction in selling assets, leading to the loss of its selling rights granted by the Board. While PICUP was allowed to maintain security over assets, the Official Liquidator was directed to take possession, value assets, and submit reports promptly. The disposal of connected Company Petitions was in line with the winding up order and liquidation process.

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