2009 (3) TMI 583 - HC - Companies Law

Compromise and arrangement, Winding up - Powers of Liquidator, Suspension of legal proceedings, contracts, etc.

Summary

Issues Involved:
1. Petition for revival and the principal objectors.
2. Factual background.
3. Simultaneous efforts by the ex-directors to settle claims by OTS.
4. The proffered scheme of revival.
5. The financial reckoning and the basis of objections for revival.
6. Freshness Coating's objection.
7. Electricity Board's objections.
8. M/s. Saket Steels' decretal claims.
9. DSECL's response to objections.
10. The objections omnibus in a nutshell.
11. Revival, always the cherished goal.
12. The answers to the objection by the purchaser held by the official liquidator.
13. Extent of enforceability of decree.
14. Regarding objections by the Electricity Board.
15. Answers as regards objection from HFC and in respect of all other sundry claims.
16. Alleged non-compliance of statutory requirements.
17. Final disposition.

Detailed Analysis:

I. Petition for Revival and the Principal Objectors:
The petition for revival of a company ordered to be wound up in 1995 was resisted by several parties, including the Official Liquidator, Haryana State Electricity Board, and M/s. Freshness Coatings (P.) Ltd. The Official Liquidator sought confirmation of the sale of the company's last remaining property, while the petitioners aimed to revive the company.

II. Factual Background:
M/s. Dabriwala Steel and Engineering Co. Ltd. (DSECL) was incorporated in West Bengal in 1970 and later moved to Faridabad. Financial constraints led to its closure in 1985, and subsequent BIFR proceedings recommended its winding up. The High Court ordered the winding up in 1995.

III. Simultaneous Efforts by the Ex-Directors to Settle Claims by OTS:
The ex-directors initiated a one-time settlement (OTS) with creditors, including the State Bank of India and Haryana Financial Corporation, and settled workers' claims. However, claims from the Haryana State Electricity Board and a decree-holder for specific performance remained unresolved.

IV. The Proffered Scheme of Revival:
The revival scheme proposed by the directors included:
(a) Increased property value since 1995.
(b) Liquidation of debts through one-time settlements.
(c) Funding by a financier and co-promoter.
(d) Assistance from Mr. Sanjay Gulati for upfront payments.
(e) Shareholding adjustments to facilitate revival.

V. The Financial Reckoning and the Basis of Objections for Revival:
The Official Liquidator reported Rs. 75,37,054 in the company's account, including Rs. 25,00,000 from M/s. Freshness Coatings (P.) Ltd. HFC objected to the disbursement of funds to the State Bank of India without notice to secured creditors. HFC's dues were Rs. 85,57,600 with further interest.

VI. Freshness Coating's Objection:
M/s. Freshness Coatings (P.) Ltd. opposed the revival scheme, arguing it was a ploy to sell the property privately. They pointed out the absence of industrial activity in the remaining property and non-compliance with sections 391, 392, and 394 of the Companies Act.

VII. Electricity Board's Objections:
The Electricity Board objected to the adjudication of its claims by the Official Liquidator, arguing that the arbitrator's award was beyond jurisdiction and did not cover energy charges. They claimed Rs. 42,43,621, but the Official Liquidator upheld only Rs. 6.61 lakhs.

VIII. M/s. Saket Steels' Decretal Claims:
M/s. Saket Steels Ltd. obtained a decree for specific performance in 1996. The decree was challenged as void ab initio due to the pendency of BIFR proceedings and the winding-up order. The decree-holder sought permission to execute the decree through the company court.

IX. DSECL's Response to Objections:
The ex-directors argued that all major creditors, except the Electricity Board and HFC, had been satisfied. They contended that the revival scheme did not require compliance with sections 391, 393, and 394 of the Companies Act.

X. The Objections Omnibus in a Nutshell:
The opposition to revival came from various quarters, including a successful auction purchaser, a decree-holder, and the Electricity Board. The Official Liquidator aimed to ensure the satisfaction of creditors and workers.

XI. Revival, Always the Cherished Goal:
The court acknowledged that revival is preferable to winding up. The availability of property and infrastructure at Plot No. 142, Faridabad, provided a basis for potential revival.

XII. The Answers to the Objection by the Purchaser Held by the Official Liquidator:
The court emphasized that the revival scheme must genuinely contemplate the revival of the company's business and satisfy public interest and commercial morality. The opposition from the highest bidder, M/s. Freshness Coatings (P.) Ltd., was not sustained.

XIII. Extent of Enforceability of Decree:
The decree obtained by M/s. Saket Steels Ltd. was voidable at the company's instance. The court directed the company to repay the amounts received with interest. The decree-holder was entitled to seek execution through the company court.

XIV. Regarding Objections by the Electricity Board:
The court upheld the Official Liquidator's determination of Rs. 6.61 lakhs as payable to the Electricity Board. The Board could pursue independent claims for energy charges if admissible in law.

XV. Answers as Regards Objection from HFC and in Respect of All Other Sundry Claims:
The court approved the amounts adjudicated by the Official Liquidator for various claims, including those from HFC, Income-tax Department, and Excise Taxation Office.

XVI. Alleged Non-Compliance of Statutory Requirements:
The court found no necessity for convening separate meetings of shareholders or secured creditors, as all major claims had been adjudicated.

XVII. Final Disposition:
1. The petition for revival was ordered.
2. M/s. Saket Steels Ltd. was entitled to repayment with interest.
3. The sale confirmation in favor of M/s. Freshness Coatings (P.) Ltd. was disallowed, but they were entitled to a refund and solatium.
4. The amounts adjudicated by the Official Liquidator were approved.
5. The Electricity Board could pursue independent claims for energy charges.
6. The petitioners were liable to pay any deficiency with interest.

The petition and applications were disposed of in the above terms with no costs.