2010 (2) TMI 576 - HC - Companies Law

Whether the learned company judge has not bestowed attention to the possible defences that were available to the respondent-company? Held that - To examine as to whether it is a situation warranting an order to wind up the affairs of the company or otherwise, even if such circumstances are not complied with, there is no question of the court proceeding to pass such an order. Even if the circumstances stipulated in any one of the clauses of section 433 of the Act still it is in the discretion of the court to pass or not to pass an order of winding up of the company. It is for the court to bestow its attention to the object of the provision to pass the order to wind up the affairs of the company which is mainly to protect the public interest and not necessarily from the angle of the company surviving or not. When such aspects are involved in passing an order of wind up in respect of the company with the initial stage as in the impugned order not bestowing such attention, in our opinion, clearly vitiates the law and inevitably we have to set aside the impugned order and it is necessary that the appellant-company is given a proper opportunity to put forth its version before the petition presented under section 433(e) of the Act is examined by the company judge and appropriate orders are passed thereafter and for such purpose the matter is remanded. It is for the parties to appear before the learned company judge and make good their versions. Appeal allowed.

Summary

Issues:
Challenge to the order admitting and advertising a company petition without proper consideration of defenses available.

Analysis:
The High Court of Karnataka heard an appeal against an order passed by the company judge admitting and advertising a company petition. The respondent-company contended that the judge did not consider the possible defenses available, leading to serious repercussions for the company. The respondent argued that the order could financially harm the company and its investors. The High Court acknowledged the gravity of the situation, recognizing the need for thorough consideration before ordering a company to be wound up. The court referred to Section 433 of the Companies Act, 1956, which outlines circumstances under which a company may be wound up by the Tribunal. The court emphasized that passing such an order should be in the public interest and not solely based on the company's ability to pay debts.

The court highlighted that even if the conditions specified in Section 433 are met, it is at the discretion of the court to decide whether to wind up the company. In the case of a significant public sector undertaking like the appellant, public interest is a crucial factor in the decision-making process. The court emphasized the importance of giving the company a fair opportunity to present its case before any decision on winding up is made. Therefore, the court set aside the impugned order and remanded the matter to the company judge for a proper examination based on the appellant's version. The parties were directed to appear before the judge to present their arguments.

The appeal was allowed, and the impugned order was overturned. The case was remanded to the company judge for further proceedings. The court dismissed the applications seeking to vacate the stay, as they were no longer relevant in light of the main appeal decision. The matter was scheduled to be listed before the company judge for further proceedings in eight weeks.