2011 (10) TMI 513 - HC - Companies Law

Winding up - Powers of Court under section 466 of the Companies Act, 1956 stay on winding up proceedings applicants are promoters of the company - applicants pray that the assets and properties of the company in liquidation be handed over to them and the Official Liquidator to stand discharged Held that - it is apparent that the applicants do not desire to revive the business of the company in liquidation by developing part of its properties or portions of its lands, but desire to take over the said lands for exploitation in the real estate market - It is clearly their motive that these lands should be taken over without offering the market price, but via this application so that once the permanent stay of winding up is obtained or granted, that would mean that the company s prime assets and properties can no longer be controlled by the Court - They would develop these lands by constructing buildings and sell off the units therein and earn profits - none of the grounds enabling exercise of discretion under section 466 have been made out, this company application is dismissed

Issues Involved:
1. Invocation of Section 466 of the Companies Act, 1956.
2. Bona fides of the Applicants.
3. Workers' claims and Memorandum of Understanding.
4. Public interest, commercial morality, and corporate responsibility.
5. Revival of the company in liquidation versus exploitation of assets.
6. Discretion of the Court under Section 466.

Issue-wise Detailed Analysis:

1. Invocation of Section 466 of the Companies Act, 1956:
The Company Application invoked the powers of the Court under Section 466 of the Companies Act, 1956, requesting a permanent stay on the winding-up order dated 5th September 2005, passed for the Swadeshi Mills Company Ltd. The applicants, Forbes & Company Ltd. and Grand View Estates Pvt. Ltd., sought to deposit Rs. 86 crores with the Official Liquidator to pay secured creditors, workers, and employees, and subsequently take over the assets and properties of the company in liquidation.

2. Bona fides of the Applicants:
The applicants claimed to be major shareholders and secured creditors, owning 52% of the equity shares of the company in liquidation. They argued that their intent was to bring the company out of winding up, as they were part of the Shapoorji Pallonji Group with expertise in real estate development. However, the Court scrutinized the bona fides of the applicants, noting that their primary interest appeared to be in exploiting the real estate potential of the company's lands rather than reviving the textile business.

3. Workers' claims and Memorandum of Understanding:
The applicants referred to a Memorandum of Understanding dated 15th November 2010 with the Rashtriya Mill Mazdoor Sangh, representing the workers. The Official Liquidator had paid 75% of the workers' claims from the sale proceeds of the company's machinery. However, Ms. Jane Cox, representing 748 workmen, argued that the workers' dues should be adjudicated independently of the Memorandum of Understanding, as it did not cover all claims and was not binding on all workers.

4. Public interest, commercial morality, and corporate responsibility:
The Court emphasized that a company is a social institution with responsibilities towards the community, including workers, consumers, and the public. The Court must consider public interest, commercial morality, and corporate responsibility while exercising its discretion under Section 466. The Court noted that the applicants' intent to exploit the real estate potential of the company's lands without reviving the textile business was not in line with these principles.

5. Revival of the company in liquidation versus exploitation of assets:
The applicants argued that the textile business was no longer viable and proposed to undertake real estate development. However, the Court found that the applicants were primarily interested in the valuable lands of the company and not in reviving its business. The Court observed that the applicants sought to take over the company's assets at a throwaway price through a back-door method, bypassing the provisions of Sections 391, 392, and 394 of the Companies Act.

6. Discretion of the Court under Section 466:
The Court highlighted that its discretion under Section 466 must be exercised judiciously, considering public interest and commercial morality. The Court found that the applicants' proposal was not bona fide and was aimed at taking over the company's assets without a genuine intent to revive its business. The Court dismissed the application, directing the Official Liquidator to proceed with the winding-up process and adjudicate the claims of the workers and other creditors.

Conclusion:
The Court dismissed the Company Application, finding that the applicants' intent was not to revive the company's business but to exploit its valuable lands. The Court emphasized the importance of public interest, commercial morality, and corporate responsibility in exercising its discretion under Section 466. The Official Liquidator was directed to proceed with the winding-up process and adjudicate the claims of the workers and other creditors. The applicants were allowed to withdraw the deposited amount of Rs. 86 crores with accrued interest, without prejudice to their rights and contentions.

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