2012 (4) TMI 483 - HC - Companies Law

Companies Act 1956 - petitioning-creditor seeking immediate appointment of a provisional liquidator over the company non-payment of debt winding up petition filed by creditor in 1998 dismissed on ground of reference made by the company to the BIFR prior to the filing of such petition no scheme formulated by BIFR for nearly a decade - immovable properties of the company were alienated against little or no consideration fictitious financial restructuring undertaken by the company to have positive net worth to de-register itself from BIFR scheme other creditor s winding-up petitions also admitted - Held that - Merely by virtue of the pendency of the reference, the company enjoyed the suspension of legal proceedings, contracts and the like under Section 22(1) of the BIFR Act of 1985. A series of measures was adopted by the management of the company as a part of a vicious and malafide design to cheat its creditors, deceive all authorities and, its employees. In such circumstances, petition is allowed by way of appointment of official liquidator as the provisional liquidator over the company. Since, company is unable to show that transactions of sale of immovable properties were necessary or for the purpose of augmenting resources to discharge the company s debts. Hence they being fraudulent, the title therein may not be deemed to have passed at all from the company Decided in favor of petitioner.

Summary

Issues Involved
1. Appointment of a provisional liquidator.
2. Claim of the petitioning-creditor.
3. Mismanagement and fraudulent transactions by the company.
4. Protection of the company's assets and interests of creditors, employees, and workmen.
5. Public interest and corporate governance.

Issue-wise Detailed Analysis

1. Appointment of a Provisional Liquidator:

The petitioning-creditor sought the immediate appointment of a provisional liquidator over the company due to years of unpaid dues and alleged corrupt practices by the company's management. The court emphasized that the appointment of a provisional liquidator is an exceptional order and must be based on a prima facie unimpeachable claim. The court found that the petitioning-creditor's claim, based on the company's admission of dues in a draft rehabilitation scheme, was unimpeachable. The court noted that the company's mismanagement and fraudulent transactions necessitated the appointment of a provisional liquidator to preserve the company's assets and protect the interests of creditors, employees, and workmen.

2. Claim of the Petitioning-Creditor:

The petitioning-creditor's claim was based on a transaction for the supply of goods to the company and the company's admission of part of the dues in a draft rehabilitation scheme presented before the Board for Industrial and Financial Reconstruction (BIFR). The petitioning-creditor limited its claim in the present proceedings to the admitted amount of over Rs. 2 crore, while a separate suit was filed for the balance claim. The court found that the company's defense was illusory and sham, and the petitioning-creditor's claim was prima facie unimpeachable.

3. Mismanagement and Fraudulent Transactions by the Company:

The court found that the company, during the financial year 2006-07, engaged in fraudulent transactions by selling valuable immovable properties at gross undervalues to entities under the same management. These transactions were done without the permission of the BIFR or the Assets Sales Committee, and the properties were transferred against almost no consideration. The court highlighted that the company's management used the company for self-aggrandizement, to the detriment of creditors, employees, and workmen. The court noted that such acts amounted to gross mismanagement and fraud on the other shareholders.

4. Protection of the Company's Assets and Interests of Creditors, Employees, and Workmen:

The court emphasized the need to protect the company's assets and the interests of creditors, employees, and workmen. The court noted that the company had not paid wages to its workmen for several months and had substantial outstanding statutory liabilities. The court found that the company's assets were in serious jeopardy in the hands of the current management and that the immediate appointment of a provisional liquidator was necessary to protect the company's interests.

5. Public Interest and Corporate Governance:

The court highlighted the public interest aspect of the case, noting that Dunlop India Limited was a listed company once considered a blue-chip company. The court expressed concern over the company's management stripping the company of its assets while leaving creditors, employees, and workmen in the lurch. The court emphasized that the appointment of a provisional liquidator was necessary to restore confidence in the institution and protect public interest.

Conclusion

The court allowed the petitioning-creditor's application by appointing the official liquidator as the provisional liquidator over Dunlop India Limited with full powers under the Companies Act, 1956. The provisional liquidator was directed to take all necessary steps to protect the company's assets and interests and recover the fraudulently transferred properties. The company and its directors were ordered to ensure that all books, records, documents, assets, and properties were made available to the official liquidator. The court declined the company's request for a stay of operation of the order, citing the despicable conduct of the company's management.