2010 (4) TMI 610 - HC - Companies Law

Winding up - preferential right to purchase the assets - Held that - The interest of the creditors and the employees as well will be best protected if the sale is held as a going concern in public auction and this Bench in the earlier appeal preferred by the representative of the section of the employees passed such direction. The appellant in their separate appeal could not place any better materials for passing a different order which would be beneficial for all concerned. Similarly, we do not find any reason to pass any order for refund of the money deposited by the appellant as a condition for continuation of the business pursuant to the interim order passed in the proceedings and the learned Single Judge most judiciously observed that the question of return of such money will be considered only after the court was fully satisfied that the company-in-liquidation was not poorer than it was on the date the order of winding up had been passed. We also do not find any reason to vary the order passed by us in the previous appeal disposed of by us making some specific order regarding payment to the landlord and we re-affirm that order as regards the payment to the landlord. Thus no merit in this appeal and the same is dismissed.

Issues Involved:
1. Legality of the dismissal of applications under sections 466 and 457 of the Companies Act, 1956.
2. Rights of the third party (appellant) to continue business operations or purchase assets.
3. Validity of interim orders and their impact on the winding-up process.
4. Refund of money deposited by the appellant.
5. Payment of dues to the landlord.

Issue-wise Detailed Analysis:

1. Legality of the dismissal of applications under sections 466 and 457 of the Companies Act, 1956:

The appeal was initiated by a third party against the order dated 8-1-2010, which dismissed applications under sections 466 and 457 of the Companies Act, 1956. The applications sought to stay the winding-up order and to allow the appellant to run the company under a new management. The court found that the nexus between the appellant and the promoters of the company-in-liquidation required thorough investigation. The court held that the question of refunding the Rs. 2 crores deposited by the appellant would be decided after ensuring the company was not poorer than at the winding-up order date.

2. Rights of the third party (appellant) to continue business operations or purchase assets:

The appellant, supported by a section of the employees, sought preferential rights to purchase the assets of the company or continue its business operations. The court referenced a previous case, Elvoc (P.) Ltd., In re [1982] 52 Comp. Cas. 308, where a private sale was allowed due to the special efforts of the employees in reviving the company. However, the court found no such special circumstances in the present case. The appellant's four-month management under an interim order did not justify a private sale without public auction.

3. Validity of interim orders and their impact on the winding-up process:

Interim orders had allowed the appellant to manage the company temporarily. However, these orders were vacated, and the court directed the official liquidator to take possession and conduct necessary investigations. The court emphasized that the sale of the company's assets should be conducted through public auction to protect the interests of creditors and employees.

4. Refund of money deposited by the appellant:

The appellant requested a refund of the Rs. 2 crores deposited. The court upheld the learned Single Judge's decision that the refund would be considered only after ensuring the company was not financially worse off than at the winding-up order date. The court found no reason to deviate from this decision.

5. Payment of dues to the landlord:

The court reaffirmed its previous order directing the official liquidator to pay the landlord's dues from 1-9-2009 at the rate of Rs. 6,14,000 per month from the funds available. The court found no reason to vary this order.

Conclusion:

The appeal was dismissed, and the court found no merit in the appellant's claims. The court reiterated the importance of public auction for the sale of the company's assets and upheld the previous orders regarding the winding-up process and payment to the landlord. The decision aimed to protect the interests of creditors and employees while ensuring a fair and transparent process.

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