2017 (3) TMI 1718 - HC - Companies Law

Corporate insolvency procedure - Official Liquidator appointment - winding up the respondent company - Held that - The respondent company in spite of issuance of the notice by the petitioner is unable to pay its debts. From the perusal of the material placed on record, it is clear that the respondent company is commercially insolvent and admittedly not in a position to discharge its liability and continuation of the respondent company would be detrimental to the interest of its creditors. The insolvency of the respondent company is reflected from the fact that there are as many as six company petitions filed in this Court for winding up the respondent company. In view these facts, this Court hereby appoints the Official Liquidator attached to this Court to be the Provisional Liquidator on the respondent company. Provisional Liquidator to submit report within 60 days from the date of order of this Court. The Provisional Liquidator is hereby directed to take charge of all the property and effects of the respondent company with immediate effect. The respondent company to submit state of affairs before the Provisional Liquidator within a period stipulated by the Provisional Liquidator.

Summary

Issues:
Appointment of Provisional Liquidator under Section 450 of the Companies Act, 1956 for winding up the respondent company due to insolvency and failure to pay outstanding debts.

Analysis:
The petitioner, a reputed company engaged in the manufacture and supply of paper products, entered into a transaction with the respondent company, which subsequently failed to pay an outstanding amount of ?11,74,270 for the supplied waste paper. Despite various communications and admissions of financial crisis by the respondent, the outstanding dues remained unpaid. The respondent's alleged counterclaim was denied by the petitioner. The petitioner argued that the respondent's financial situation and failure to pay its debts warranted the winding up of the respondent company.

In a meeting dated 9.2.2011, the respondent company had admitted to paying the outstanding amount, but failed to do so. The petitioner contended that the respondent's inability to pay its debts, despite admissions and communications, justified the winding up of the company as per Section 450 of the Companies Act, 1956. The petitioner requested the appointment of a provisional liquidator.

After reviewing the material and hearing the petitioner's counsel, the court found that the respondent company was commercially insolvent and incapable of discharging its liabilities. With six winding-up petitions already filed against the respondent, the court concluded that the continuation of the respondent company would be detrimental to its creditors' interests. Consequently, the court appointed the Official Liquidator as the Provisional Liquidator of the respondent company.

The Provisional Liquidator was directed to submit a report within 60 days and take charge of all the company's property and effects immediately. The respondent company was instructed to provide a state of affairs report to the Provisional Liquidator within the specified period.