2017 (3) TMI 1719 - HC - Companies Law

Corporate insolvency process - respondent company is commercially insolvent - appointment of Provisional Liquidator - 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:
- Failure to pay outstanding dues by the respondent company
- Financial viability of the respondent company
- Appointment of provisional liquidator under Section 450 of the Companies Act, 1956

Analysis:
1. Failure to pay outstanding dues: The petitioner, a reputed company engaged in the manufacturing and supply of paper products, entered into a business transaction with the respondent company for the supply of waste paper. Despite supplying the agreed quantity, the respondent failed to pay an outstanding amount of ?24,38,575. Various communications and documents, including an email admitting financial crisis, were presented as evidence of the respondent's default in payment. The respondent raised objections but did not deny the documents, indicating a lack of financial viability.

2. Financial viability of the respondent company: The petitioner contended that the respondent company, despite admitting the outstanding dues and liability, was unable to pay its debts. The petitioner highlighted that the respondent's alleged counterclaim was refuted, and the respondent's failure to settle the dues warranted winding up proceedings. The court, after considering the material on record, concluded that the respondent was commercially insolvent and incapable of discharging its liabilities, posing a risk to its creditors' interests.

3. Appointment of provisional liquidator: Based on the petitioner's submissions and the court's assessment of the respondent's financial state, the court invoked Section 450 of the Companies Act, 1956, to appoint the Official Liquidator as the Provisional Liquidator of the respondent company. The appointment aimed to safeguard the interests of creditors and manage the company's affairs during the insolvency proceedings. The Provisional Liquidator was tasked with taking charge of the company's assets and submitting a report within 60 days, while the respondent was directed to provide a state of affairs to the Provisional Liquidator within a specified period. The court's decision reflected the gravity of the respondent's financial situation and the need for immediate intervention to address the insolvency issue effectively.