2010 (6) TMI 328 - HC - Companies Law

Unsuccessful applicant under section 466 of the Companies Act for staying of the order of winding up of the company - Held that - No hesitation to conclude that the proposed scheme does not come within the purview of section 466 of the Act justifying staying of the order of winding up of the company. Moreover, we find substance in the contention of Mr. Kar, the learned advocate for the respondent No. 8, that without removing the lacuna pointed out by the Company Court while rejecting the similar application by disclosing the particular of the unsecured creditors, the appellant was not even entitled to maintain another application. We, therefore, hold that the application under section 466 of the Act was not at all maintainable at the instance of the appellant without removing the defects pointed out by the learned Company Court while rejecting the earlier application and at the same time, even on merit, the same deserves dismissal as the object of the scheme is to distribute the assets of the wound up company by private arrangement and thus, it is for the Official Liquidator to immediately take step for sale of the assets.

Summary

Issues Involved:
1. Validity of the application under section 466 of the Companies Act.
2. Justification for the dismissal of the application by the learned Single Judge.
3. Legitimacy of the assignment deed from Allahabad Bank to Deccan Traders Private Limited.
4. Bona fide intention of the appellant to revive the company.

Detailed Analysis:

1. Validity of the application under section 466 of the Companies Act:
The appellant filed an application under section 466 of the Companies Act seeking a stay on the winding-up proceedings of the company-in-liquidation. The learned Single Judge dismissed the application for several reasons, including the absence of a clear source of funds to pay the bank dues, lack of details regarding unsecured creditors, and the appellant's proposal to convert industrial land for residential use. The court emphasized that the application did not meet the requirements for staying the winding-up order, as it did not present a viable plan for the company's revival but rather aimed at liquidating the company's assets through a private arrangement.

2. Justification for the dismissal of the application by the learned Single Judge:
The learned Single Judge dismissed the application primarily because:
- The scheme did not specify the source of funds to pay the bank dues.
- The appellant did not disclose the names of unsecured creditors.
- The scheme was contingent on obtaining permission from the State Government for land use change.
- The primary motive appeared to be selling the factory land for residential purposes rather than reviving the company.
The court found that the scheme did not align with the intent of section 466, which aims at genuine attempts to revive a company in liquidation.

3. Legitimacy of the assignment deed from Allahabad Bank to Deccan Traders Private Limited:
The appellant challenged the assignment deed from Allahabad Bank to Deccan Traders on several grounds, including:
- The assignment was made without notice to the appellant.
- It was executed during the pendency of the appeal without the appellate court's leave.
- The assignment might have been illegal under the Banking Regulation Act.
The court did not delve deeply into the validity of the assignment, as the primary focus was on the viability of the appellant's scheme for the company's revival.

4. Bona fide intention of the appellant to revive the company:
The appellant argued that it had a substantial stake in the company and had taken steps to protect its assets. However, the court found that the proposed scheme did not genuinely aim to revive the company's industrial activities but rather to convert its assets for real estate purposes. The court referred to the Supreme Court's observations in Meghal Homes (P.) Ltd. v. Shree Niwas Girni K.K. Samiti, emphasizing that a genuine attempt to revive a company should conform to public interest and commercial morality. The court concluded that the appellant's scheme did not meet these criteria.

Conclusion:
The application under section 466 of the Companies Act was dismissed as it did not present a viable plan for the revival of the company-in-liquidation. The court found that the scheme aimed at liquidating the company's assets through a private arrangement, which did not justify staying the winding-up order. The appeal was dismissed with costs, and the learned Single Judge's decision was upheld.