2017 (8) TMI 1670 - HC - Companies Law

Jurisdiction of the impugned order - assignment of debts - convention of meeting of a few creditors of the company (in liquidation) without even indicating the values of the debts of such creditors - HELD THAT - Section 391 of the Companies Act, 1956 permits a compromise or arrangement to be proposed between a company and its creditors or a class of creditors or between a company and its members or a class of members on the application of the company, or any creditor or member of the company. However, in the case of a company which is being wound up , Section 391(1) of the Act permits only an application of the liquidator to be received under such provision. Applications for meetings to be held of creditors of a company (in liquidation) ought to be seen with a lot more circumspection than is evident from the order impugned. In the scheme of things that existed prior to the Companies Act, 2013 and as is still applicable to the company (in liquidation), this Court is in seisin of the company (in liquidation) and its assets and properties and is answerable to all its creditors. A bystander or a passerby cannot be allowed to hijack the assets of the company (in liquidation) by convening an illegal meeting. The Court has to guard against such mala fide attempts as the present one and the Court is duty-bound to do so. Since the very application carried to the company Court, without any reference to a company petition number, was under a provision that does not authorise the making or the receipt of such application, CA No. 107 of 2016 is dismissed with costs assessed at Rs. 1 lakh for such irresponsible application. The order impugned dated December 5, 2016 stands set aside - Application disposed off.

Issues:
1. Jurisdiction of the court in convening meetings of creditors of a company in liquidation without proper authority.
2. Application filed by an assignee of debts of secured creditors without following legal provisions.
3. Interpretation of Section 391 of the Companies Act, 1956 regarding the application process for proposing compromise or arrangement.
4. Lack of involvement of the official liquidator in the application and order for convening meetings of creditors.
5. Failure to ascertain the debts of creditors before directing meetings and determining voting rights.
6. Responsibility of the court to prevent unauthorized attempts to convene meetings and safeguard company assets.
7. Dismissal of CA No. 107 of 2016 with costs and prohibition on obtaining similar orders without specific court notice.
8. Setting aside the impugned order and declaring all steps taken pursuant to it as illegal and ineffective.

Analysis:
1. The judgment addressed the issue of jurisdiction, emphasizing that the impugned order was completely without jurisdiction and therefore liable to be set aside. It highlighted the importance of proper authority in convening meetings of creditors of a company in liquidation to prevent unauthorized attempts to influence the process.

2. The court discussed the application filed by an assignee of debts of secured creditors, pointing out that the application was made without following legal provisions and without reference to the parent matter. The order passed lacked any reference to the parent matter and invoked a provision of law without proper authorization, leading to its dismissal.

3. Regarding the interpretation of Section 391 of the Companies Act, 1956, the judgment clarified that the section permits a compromise or arrangement to be proposed between a company and its creditors or members. However, in the case of a company in liquidation, only the liquidator is authorized to make such an application, which was not the case in this instance.

4. The court noted the absence of involvement of the official liquidator in the application and order for convening meetings of creditors. It highlighted the significance of the official liquidator in such matters and pointed out that the order did not refer to the official liquidator or consider representation on their behalf.

5. Emphasizing the importance of ascertaining the debts of creditors before directing meetings, the judgment criticized the lack of indication of creditors' debts in the application. It highlighted that the voting rights of creditors are determined based on the values of their debts, which were not provided for in the application or order.

6. The judgment underscored the court's responsibility to prevent unauthorized attempts to convene meetings and safeguard company assets. It stated that the court must guard against mala fide attempts to hijack company assets and emphasized the duty of the court to protect the interests of all creditors.

7. CA No. 107 of 2016 was dismissed with costs assessed at Rs. 1 lakh for the irresponsible application made without proper authorization. The court prohibited the applicant from obtaining similar orders without specifically bringing the current order to the notice of the court or forum where such orders may be sought.

8. Finally, the impugned order dated December 5, 2016, was set aside, and all steps taken pursuant to it were declared illegal and of no effect. Several other related applications were disposed of accordingly, bringing a comprehensive resolution to the legal issues discussed in the judgment.

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