2014 (4) TMI 1298 - HC - Companies Law

Winding up under section 433(f) of the Companies Act 1956 - petitioner contended that it is just and equitable to wind up the company inter-alia on the ground that the substratum of the company has almost completely been eroded - seeking grant of interim relief - HELD THAT - The power of the company court to pass interim orders commences from the time the petition for winding-up is presented/lodged/filed. There are cases where it is necessary to pass urgent interim orders the moment the petition is filed. This would be so irrespective of whether the petition for winding up is on the ground that the company is unable to pay its dues or on the ground that it is just and equitable to do so. The contention that power of the company court to pass interim relief is only when the company petition is finally heard is rejected. The power of the company court to grant interim reliefs commences upon the presentation of the petition itself. Appeal disposed off.

Summary

Issues Involved:
1. Just and equitable grounds for winding up the company.
2. Deadlock in the management and Board of Directors.
3. Loss of faith and trust between major shareholders.
4. Financial viability of the company post-cancellation of 2G licenses.
5. Petitioner's conduct before and after filing the winding-up petition.
6. Admission of subsequent facts in the petition.
7. Appointment of an Authorized Person and Provisional Liquidator.

Detailed Analysis:

1. Just and Equitable Grounds for Winding Up the Company:
The petitioner argued that the company should be wound up under section 433(f) of the Companies Act, 1956, as it is just and equitable to do so. The court found the submissions well-founded, noting that the company's main assets, thirteen 2G licenses, were canceled by the Supreme Court, leading to an erosion of the company's substratum. The company's debts exceeded Rs. 4500 crores, with no possibility of revival. The court held that the petition for winding up must be sustained on these grounds, which require further consideration at the final hearing.

2. Deadlock in the Management and Board of Directors:
The court observed a complete deadlock in the management and on the Board of Directors, with the petitioner and the appellant holding about 45% each of the shareholding. The Articles of Association and agreements between the parties made it impossible for the company to function unless the major shareholders cooperated, which was not happening. The court noted that the deadlock justified the admission of the winding-up petition.

3. Loss of Faith and Trust Between Major Shareholders:
The court found a complete loss of faith and trust between the petitioner and the appellant, exacerbated by the Supreme Court's judgment and ongoing criminal proceedings. The petitioner's loss of confidence in the appellant was deemed justified, contributing to the decision to admit the winding-up petition.

4. Financial Viability of the Company Post-Cancellation of 2G Licenses:
The court noted that the company's financial viability was severely compromised after the cancellation of the 2G licenses, which were its most valuable assets. The appellant's argument that the company could continue operations based on three remaining licenses was dismissed as unrealistic. The court emphasized that the value of the remaining licenses was negligible compared to the 2G licenses, and there was no viable plan for the company's revival.

5. Petitioner's Conduct Before and After Filing the Winding-Up Petition:
The appellant contended that the petition should be dismissed due to the petitioner's conduct, both before and after filing the petition. The court rejected this argument, finding no substance in the allegations against the petitioner. The court noted that the petitioner's management of the company was in accordance with the agreements and that the appellant had also participated in the management.

6. Admission of Subsequent Facts in the Petition:
The court held that subsequent facts could be considered in deciding the winding-up petition. It emphasized that the provisions of the Companies Act do not preclude the court from considering subsequent events, which are relevant to ascertain whether winding up the company is in the interest of all parties involved.

7. Appointment of an Authorized Person and Provisional Liquidator:
The court continued the appointment of an Authorized Person to manage the company's affairs during the pendency of the petition. It also appointed the Official Liquidator as the Provisional Liquidator, directing the Provisional Liquidator to appoint the Authorized Person as a legal advisor to assist in managing the company's affairs.

Conclusion:
The court upheld the admission of the winding-up petition on the grounds that the substratum of the company was eroded, there was a complete deadlock in management, and a total loss of faith and trust between the major shareholders. The court also addressed the financial viability of the company, the petitioner's conduct, and the admissibility of subsequent facts, ultimately appointing a Provisional Liquidator and an Authorized Person to manage the company's affairs.