2013 (1) TMI 227 - HC - Companies Law

Whether the company court can order winding up of a company without ordering the petition to be advertised? - Held that - The Supreme Court has observed in National Conduits (P) Ltd. (1967 (9) TMI 46 - SUPREME COURT OF INDIA) that an application for dispensing with the citation into the newspaper may be made even when there is an unconditional admission of the petition for winding up. It appears to us that that right cannot be denied.

Summary

Issues:
- Can a company court order winding up of a company without advertising the petition?

Analysis:
1. The appeal questioned whether a company court can order the winding up of a company without advertising the petition. The appellant, a company, had a petition filed against it by two shareholders under section 433 of the Companies Act, 1956. The company court admitted the petition, directed winding up, appointed the official liquidator, and ordered the citation to be published without advertising the petition. The appellant argued that this procedure was unsustainable, citing the judgment in National Conduits (P) Ltd. v. S.S. Arora, which outlined the steps for winding up a company under court supervision. The Supreme Court's judgment emphasized the necessity of advertising the petition before placing it for a hearing.

2. The appellant contended that the company court denied them the opportunity to invoke the inherent powers of the court, as codified by Rule 9, to prevent the advertisement of the winding-up petition. Referring to the judgment in Lord Krishna Sugar Mills Ltd. v. Smt. Abnash Kaur, the Supreme Court recognized the court's power to suspend advertisement pending the disposal of an application to revoke the admission of the petition. The court reiterated that the company should have the right to challenge the advertisement based on valid grounds.

3. The respondent argued that advertising the petition was essential to protect creditors and shareholders, but the Supreme Court highlighted in various judgments the potential adverse consequences of immediate advertisement. In IBA Health Ltd. v. Info-Drive Systems Sdn. Bhd., the Supreme Court emphasized the need for caution in ordering advertisement, as it could tarnish the company's image and lead to financial repercussions. The court stressed that the company court should not function as a debt collection agency and should prevent misuse of the legal process.

4. The court allowed the appeal, setting aside the order for winding up and remanding the case for further proceedings. It directed that any application by the company under Rule 9 should be decided in accordance with the law. The judgment emphasized the importance of providing the company with an opportunity to challenge the advertisement of the winding-up petition, ensuring a fair procedure is followed by the company court.