2009 (12) TMI 515 - HC - Companies Law

Winding up - Power of Court to stay winding up - Held that - The impugned order was obtained with mala fide motive after suppression of material facts of dishonour of the cheque dated 6-1-2009. Mere fact that after committing default the company on a subsequent date was in a position to pay the entire dues was not sufficient to order stay as pointed out above. It appears from the impugned order that the learned Single Judge has without recording any reason directed the Official Liquidator to return possession already taken pursuant to the earlier order and fixed a date for further hearing. The procedure adopted by the learned Single Judge was totally irregular as mentioned above and was opposed to the well-settled principles which are required to be followed before exercising the discretion of stay. We consequently allow the appeal set aside the impugned order and reject the application filed by the company-in-liquidation on which the impugned order has been passed as the averments made therein do not make out a case for recalling the earlier order. The payment made by the respondent pursuant to an order passed by a Division Bench of this Court in connection with this appeal should be adjusted towards the claim of the appellants.

Summary

Issues Involved:
1. Stay of winding up order and possession of property.
2. Default in payment of instalments by the company-in-liquidation.
3. Application for stay based on suppression of material facts.
4. Irregular procedure followed by the learned Single Judge.

Analysis:
1. Stay of Winding Up Order and Possession of Property:
The appeal concerned a petitioning creditor seeking a winding-up order against a company-in-liquidation due to unpaid rent and non-furnishing of Tax Deducted at Source Certificate. The company defaulted in rent payments, leading to the application for winding up. The winding up petition was admitted, and the company was directed to pay the outstanding amount in instalments. However, the company's cheque for the second instalment was dishonoured, prompting the petitioning creditor to publish a notice of default. The Official Liquidator took possession of the company's assets as directed by the court. Subsequently, the company sought a stay of the winding-up order, but the court found the application lacked merit, especially as material facts regarding the dishonoured cheque were suppressed. The court highlighted principles guiding the granting of stays under the Companies Act, emphasizing the need for bona fide applications and considerations beyond mere payment offers.

2. Default in Payment of Instalments by the Company-in-Liquidation:
The company failed to pay the second instalment as per the court's order, leading to the Official Liquidator taking possession of the company's property. The company attempted to remedy the default later, but the court found this insufficient to warrant a stay of the winding-up order, especially given the suppression of material facts regarding the dishonoured cheque. The court emphasized the importance of complying with statutory duties and providing full information to the Official Liquidator.

3. Application for Stay Based on Suppression of Material Facts:
The court found that the company's application for a stay of the winding-up order was obtained with a malicious motive as it suppressed material facts about the dishonoured cheque. The court noted that the application failed to disclose important details, such as the cheque's dishonour and the subsequent attempt to pay with a draft. Such suppression of facts influenced the court's decision to reject the stay application and uphold the winding-up order.

4. Irregular Procedure Followed by the Learned Single Judge:
The court criticized the learned Single Judge for irregularly directing the Official Liquidator to return possession of the company's property, which had already been taken in compliance with the earlier order. The court found the procedure followed irregular and contrary to established principles governing the discretion of granting stays. Consequently, the court allowed the appeal, set aside the impugned order, and rejected the company-in-liquidation's application for a stay, emphasizing the need to adhere to proper procedures and principles in such matters.

In conclusion, the judgment highlights the importance of transparency, full disclosure of material facts, and adherence to legal principles when seeking stays of winding-up orders in company liquidation proceedings.