2011 (3) TMI 1459 - HC - Companies Law

Winding up - Petitioner-company filed a reference with BIFR - In said reference, BIFR observed that it was just and equitable and in public interest to wind up company - In course of appeal proceedings, interim application was filed by respondent No. 1, seeking impleadment - In impleadment application, respondent No. 1 averred that there were inter se disputes in group which were sought to be settled through arbitration, though award was pending challenge; and that given stake of respondent No. 1 in company if show-cause notice issued by BIFR evincing a prima facie view to wind up company was confirmed by AAIFR, grave prejudice would be caused to applicant as he would have had no opportunity to file a proposal for its revival - In terms of impugned order amongst other directions, a direction came to be issued allowing said impleadment application - Held that - respondent No. 1 had right to present his point of view. since proceedings before AAIFR were second step arising from orders passed by BIFR whereby it had come to a prima facie view to wind up petitioner-company, AAIFR had deemed it appropriate to implead respondent No. 1 as a party. therefore, there was no reason to exercise jurisdiction under article 226 to interfere with impugned order

Issues:
1. Impleadment application filed by a shareholder in a company facing winding up proceedings.
2. Interpretation of Section 13(2) of the Sick Industrial Companies (Special Provisions) Act, 1985.
3. Rights of shareholders in a closely held company during insolvency proceedings.

Issue 1: Impleadment Application
The case involved a company that had filed for reference under the Sick Industrial Companies (Special Provisions) Act, 1985. The Board for Industrial and Financial Reconstruction (BIFR) had passed directions indicating the company's failure to revive itself and recommended winding up. The respondent, a shareholder seeking impleadment, claimed a stake in the company based on a family arbitration award. The respondent alleged mismanagement by the current management, leading to difficulties in the company's revival. The court considered the respondent's interest in the proceedings before the Appellate Authority for Industrial and Financial Reconstruction (AAIFR) and allowed the impleadment, as the respondent sought to present a revival proposal for the company, aligning with the objective of seeking revival. The court found no reason to interfere with the impleadment order, emphasizing the respondent's right to present their viewpoint for the company's revival.

Issue 2: Interpretation of Section 13(2)
The court analyzed Section 13(2) of the Sick Industrial Companies (Special Provisions) Act, 1985, which grants powers to the BIFR and the AAIFR to allow interested parties to be present, heard, or participate in proceedings based on their interest in the subject matter. The court emphasized that impleadment decisions are not governed by the Code of Civil Procedure but by the Act's provisions. The court highlighted the importance of considering a party's interest in the subject matter of the proceedings before allowing impleadment, ensuring alignment with the Act's principles.

Issue 3: Rights of Shareholders in Insolvency
The judgment delved into the rights of shareholders in a closely held company during insolvency proceedings. It discussed the family arbitration award stipulating equal equity stakes for the brothers in the family entities. The respondent, claiming a stake in the company based on the award, raised concerns about mismanagement and the company's potential winding up. The court acknowledged the respondent's interest in the company's revival and the need to present an alternative management proposal. It recognized the respondent's right to participate in the proceedings before the AAIFR to advocate for the company's revival, aligning with the overall objective of seeking revival and not conflicting with the company's interests.

In conclusion, the court dismissed the petition challenging the impleadment, emphasizing the respondent's right to participate in the proceedings for the company's revival, considering the complex dynamics of the family-owned company and the interests at stake in the insolvency proceedings.

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