2015 (10) TMI 1523 - HC - Companies Law

Appointment of Liquidator - Interim Restrain order for disposal of company s assets Respondent proposes to dispose of its assets in pursuance of the CDR scheme; without making any payment to Applicant and with a view to defeat the legitimate claim of Applicant Appellant sought an order of provisional liquidator; Respondent submits that no jurisdiction of court lies to either continue its order of protective relief qua the property of the company. Held That - Respondent shall not dispose of any of its assets or create any third party rights and shall keep the Petitioner informed about the progress and status of the implementation of the C.D.R. Scheme and declaration of relief undertaking - Petitioner granted liberty to press for admission of the petition and relief in the matter as and when the notification of relief undertaking ceases to apply to the Respondent Decided in favour of Appellant.

Issues Involved:
1. Appointment of provisional liquidator and interim restraint order.
2. Indebtedness and financial condition of the Respondent company.
3. Impact of Corporate Debt Restructuring (CDR) scheme on the winding-up petition.
4. Declaration of the Respondent company as a relief undertaking under the Bombay Relief Undertakings Act, 1958.
5. Legal implications of Sections 3 and 4 of the Bombay Relief Undertakings Act, 1958.
6. Comparison with the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA).
7. Precedents and case law analysis including Binod Mills Co. Ltd. and Baroda Rayon Corporation Ltd.
8. Grant of interim relief despite the stay on proceedings.

Detailed Analysis:

1. Appointment of Provisional Liquidator and Interim Restraint Order
The petitioner sought the appointment of a provisional liquidator for the Respondent company and an interim restraint order to prevent the disposal of the company's assets pending such appointment. The court considered the financial instability of the Respondent company and the need to protect the Applicant's claim.

2. Indebtedness and Financial Condition of the Respondent Company
The Respondent company was indebted to the Applicant to the tune of over Rs. 24.91 Crores. The company had been referred to the Corporate Debt Restructuring (CDR) cell, and while the Applicant was not part of the CDR lenders, its debt was acknowledged in the company's debt profile under 'Non CDR lenders'. The Applicant argued that the company proposed to dispose of its assets without addressing the Applicant's claim, thereby potentially defeating the Applicant's legitimate claim.

3. Impact of Corporate Debt Restructuring (CDR) Scheme on the Winding-up Petition
The court noted that the mere existence of a CDR scheme under implementation does not automatically negate a winding-up petition. It was emphasized that even with a CDR scheme in place, the court could defer the admission of a winding-up petition but still pass protective orders regarding the company's property.

4. Declaration of the Respondent Company as a Relief Undertaking under the Bombay Relief Undertakings Act, 1958
The Respondent company was declared a relief undertaking under the Bombay Relief Undertakings Act, 1958, on 22 July 2015. The Respondent argued that this declaration removed the jurisdiction of the Company Court to continue any protective relief orders concerning the company's property.

5. Legal Implications of Sections 3 and 4 of the Bombay Relief Undertakings Act, 1958
Sections 3 and 4 of the B.R.U. Act provide that the State Government can declare an industrial undertaking as a relief undertaking to prevent unemployment. This declaration suspends the application of certain laws and agreements and stays proceedings related to rights, privileges, and liabilities accrued before the declaration. The court analyzed the conditions and effects of such a declaration, noting that the rights and liabilities would revive once the notification ceases to have force.

6. Comparison with the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA)
The Respondent contended that the protection under the B.R.U. Act was greater than that under SICA, as it suspended not only proceedings but also the underlying contracts. However, the court clarified that only contracts made under the laws specified in the schedule of the B.R.U. Act were suspended, and the present contract did not fall under those laws.

7. Precedents and Case Law Analysis Including Binod Mills Co. Ltd. and Baroda Rayon Corporation Ltd.
The court referred to the Supreme Court judgment in Binod Mills Co. Ltd. and the Bombay High Court judgment in Baroda Rayon Corporation Ltd. to support the interpretation that execution of decrees and proceedings remain stayed during the period a company is declared a relief undertaking. However, this does not preclude the granting of interim relief to protect the property.

8. Grant of Interim Relief Despite the Stay on Proceedings
The court held that interim relief could be granted to preserve the property pending adjudication of rights and liabilities, ensuring that the final order's fruits are not denied to the successful party. The interim relief sought in the present petition aimed to protect the company's property from being dissipated, which aligned with the purpose of the relief undertaking declaration.

Order:
1. Pending admission of the petition and until further orders, the Respondent shall not dispose of any of its assets or create any third-party rights therein, except in the usual course of its business, without leave of the Court.
2. The Respondent shall keep the Petitioner informed about the progress and status of the CDR Scheme and important developments related to the relief undertaking declaration.
3. The Petitioner may press for admission of the petition and further relief once the relief undertaking notification ceases to apply.
4. The petition is adjourned sine die.
5. The Company Application is disposed of accordingly.
6. Liberty to apply.

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