2013 (12) TMI 1646 - HC - Companies Law

Issues Involved:
1. Jurisdiction under Section 536(2) of the Act during the pendency of Company Petition for winding up.
2. Allegations of violation of laws in the matter of pledge of shares.
3. Claim of respondent that USL is a subsidiary of the applicant.
4. Principles governing exercise of jurisdiction of Courts under Section 536(2) of the Act.
5. Pledge of shares for raising loans not forthcoming from the applicant's annual report 2011-12.
6. Adjudication over pledges of shares in favour of S.B.I & J & K Bank Limited.
7. Public announcement.
8. Price per equity share.
9. Immovable property valuation report.
10. Allegation that the applicant is commercially insolvent.
11. Allegation that SPA, PPA & SHA are detrimental to the interest of creditors.
12. Utilization summary.

Summary:

1. Jurisdiction under Section 536(2) of the Act during the pendency of Company Petition for winding up:
The Court held that an application under Section 536(2) of the Companies Act, 1956, is maintainable even before the winding-up order is made. However, such an application should be entertained only after the petition is formally admitted and advertised, ensuring that all creditors are notified and heard.

2. Allegations of violation of laws in the matter of pledge of shares:
The Court noted that the respondent had pledged shares even after the filing of the winding-up petition, which was disputed by the petitioners. The Court held that the validity of these pledges should be investigated by the Official Liquidator after the winding-up order is passed.

3. Claim of respondent that USL is a subsidiary of the applicant:
The Court observed that the respondent claimed USL as its subsidiary and had pledged shares in favor of various financial institutions. However, the Court found that the respondent had not disclosed all material facts and had misled the Court.

4. Principles governing exercise of jurisdiction of Courts under Section 536(2) of the Act:
The Court emphasized that the power under Section 536(2) should be exercised to protect bona fide transactions carried out in the ordinary course of business and in the interest of the company and its creditors. The Court must ensure that the interests of unsecured creditors are not prejudiced.

5. Pledge of shares for raising loans not forthcoming from the applicant's annual report 2011-12:
The Court found discrepancies in the pledges made by the respondent, noting that some pledges were created after the filing of the petition. The Court held that these pledges do not prima facie qualify for repayment and require further investigation.

6. Adjudication over pledges of shares in favour of S.B.I & J & K Bank Limited:
The Court noted that the respondent had pledged shares in favor of SBI and J&K Bank but had not notified these secured creditors or heard them. The Court held that the transaction was not bona fide and the impugned order was vitiated.

7. Public announcement:
The Court observed that the public offer for the sale of shares at Rs. 1,440 per share had failed, as none of the public shareholders offered to sell their shares. The Court found that the respondent had not disclosed the Share Purchase Agreement to the petitioners, violating principles of natural justice.

8. Price per equity share:
The Court found that the shares were sold at Rs. 1,440 per share, while the market price was around Rs. 2,324.10 on the date of the order. The Court held that the price quoted on the Stock Exchange cannot be the sole criterion for valuation and that the transaction was not bona fide.

9. Immovable property valuation report:
The Court noted that the respondent had proposed to sell certain immovable properties and file a separate application for the same. The Court directed the respondent to refrain from creating any encumbrance over its properties pending disposal of the company petitions.

10. Allegation that the applicant is commercially insolvent:
The Court found that the respondent owed a substantial amount to nationalized banks and had not disclosed this fact to the Court. The Court held that the transaction was not bona fide and was detrimental to the interests of the creditors.

11. Allegation that SPA, PPA & SHA are detrimental to the interest of creditors:
The Court found that the respondent had entered into parallel transactions, diverting substantial portions of the consideration. The Court held that these transactions require further investigation and cannot be validated without proper scrutiny.

12. Utilization summary:
The Court directed the respondent to deposit the sale proceeds in the Court and refrain from selling the remaining shares or creating any encumbrance over its properties pending disposal of the company petitions.

Conclusion:
The appeals were partly allowed, and the impugned

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