2018 (4) TMI 1868 - HC - Companies Law

Winding up of company - appointment of Official Liquidator - appointment is rejected on the ground that the petition for appointment of Provisional Liquidator can be entertained and an order thereon can be passed only after the admission of the Company Petition but not along with the admission - rejection also on the ground that neither any notice was issued nor any reasons for dispensing with such notice or for appointing the Provisional Liquidator have been assigned - HELD THAT - Sub-section (2) of Section 450 of the Act ordains that the Court shall not only give the Company a notice but also a reasonable opportunity to it to make its representations against the appointment of the Provisional Liquidator before such appointment is made. In our opinion sub-section (2) of Section 450 of the Act is incorporated with the avowed object of allowing the Company to make its representations before appointing a provisional liquidator for appointment of the Provisional Liquidator is drastic in nature like appointment of a receiver in respect of the property in a civil dispute. As rightly argued by the learned Senior Counsel only for special reasons to be recorded in writing issue of such notice can be dispensed with. Admittedly no such reasons have been assigned for dispensing with such notice to the appellant. The order of the learned Company Judge to the extent of appointing the Provisional Liquidator cannot be sustained and the same is accordingly set aside while confirming the order under Appeal to the extent of admission of the Company Petition - Appeal allowed in part.

Summary

Issues:
1. Appointment of Provisional Liquidator without proper procedure.
2. Lack of notice and reasons for appointing Provisional Liquidator.
3. Interpretation of Section 450 of the Companies Act, 1956.

Issue 1: Appointment of Provisional Liquidator without proper procedure

The appeal was filed against an order appointing the Official Liquidator as the Provisional Liquidator of the appellant-Company for not being able to pay the debt. The appellant did not contest the admission of the Company Petition but challenged the appointment of the Provisional Liquidator. The learned Senior Counsel argued that the appointment was premature as it should have been made after the admission of the Company Petition. The court agreed that the order admitting the Company Petition and appointing the Provisional Liquidator cannot be passed simultaneously. The statutory provisions require the appointment of a Provisional Liquidator after the admission of the petition for winding up of the Company.

Issue 2: Lack of notice and reasons for appointing Provisional Liquidator

The court noted that the Company Judge did not provide any notice or reasons for appointing the Provisional Liquidator. Section 450(2) of the Companies Act mandates that the Court must give the company a notice and a reasonable opportunity to make representations against the appointment of the Provisional Liquidator. The purpose of this provision is to allow the Company to present its case before such a drastic appointment is made. The court emphasized that notice can only be dispensed with for special reasons, which were not provided in this case.

Issue 3: Interpretation of Section 450 of the Companies Act, 1956

The court referred to Section 450 of the Companies Act, 1956, and Rule 106 of the Companies (Court) Rules, 1959, which outline the procedure for appointing a Provisional Liquidator. The court highlighted that Rule 106 specifies that the appointment should occur after the admission of the petition for winding up of a Company. The court also cited judgments from other High Courts emphasizing the careful consideration required before appointing a Provisional Liquidator and the necessity of providing notice and reasons for such appointments. In light of the procedural irregularities and lack of reasons, the court set aside the order appointing the Provisional Liquidator while confirming the admission of the Company Petition.

In conclusion, the High Court of Andhra Pradesh set aside the appointment of the Provisional Liquidator due to procedural irregularities and lack of notice and reasons. The court clarified the proper procedure outlined in the Companies Act and emphasized the importance of following due process before making such significant appointments. The appeal was partly allowed, with the respondent retaining the option to pursue the Application for the appointment of a Provisional Liquidator separately.