2017 (2) TMI 519 - HC - Companies Law

Winding up petition - Held that - The record of the instant appeal would show, and we highlight that it is the case of the appellant itself, that it had entered into settlement agreement with 14 other petitioners who had filed company petitions seeking winding up of the appellant. It is the case of the appellant that it is actively negotiating to settle the disputes with 8 other petitioners who have likewise filed the company petitions. We find that the appellant filed an affidavit on July 19, 2016 bringing to the notice of the learned Company Judge the endeavours made to settle the claims of the creditors. The conduct of the appellant before the learned Company Judge is clearly indicative of the appellant acquiescing in the order admitting the winding up petition and proceeding to settle the disputes with a number of creditors. This itself establishes that the appellant company is heavily in debt. Learned Senior Counsel for the appellant urge that merely because the appellant is in debt would be no ground to wind up the appellant if it otherwise is a viable company. We have serious doubts on that. From the statement of affairs filed, the manner of giving the information is primafacie suggestive of diversion of funds. Petition under Section 9 of the Arbitration and Conciliation Act, 1996 - Held that - Surprisingly, in the appeal, the appellant itself has pleaded that the learned Company Judge had directed the appellant to formulate a scheme of compromise/arrangement with other creditors and if such a scheme was filed the learned Judge would consider removing the Provisional Liquidator. The appellant did not file any scheme but chose to selectively settle the disputes with a few creditors. During arguments in appeal Sh.Atul Nanda, learned Senior Counsel for the appellant, had requested us to defer hearing of the appeal to enable appellant to file a scheme of compromise/arrangement with the other creditors. The appellant is free to do so before the learned Single Judge. The facts which we have noted, which emanate from the statement of affairs filed by the directors of the appellant do not warrant any of the impugned order to be set aside in appeal. The debts owned by the appellant are much. The rosy picture painted in the balance sheet, is not so rosy. The situs of the assets of the appellant is not known. The persons who have to pay money to the appellant are unknown as of today. The persons with whom deposits have been made are unknown today. As regards the interim applications filed we decline relief for the reason any direction by way of an interim order to honour the settlement which the directors of the appellant have entered into after the Provisional Liquidator was appointed would require either payments to be made or flats to be handed over to the persons with whom the appellant through its directors has entered into a settlement and this would prima-facie amount to a preferential payment to an unsecured creditor. We dismiss the appeal and CM for the reason compromise orders obtained by the applicants would be in the nature of a decree and the applicants are free to file applications before the learned Company Judge seeking permission to institute execution proceedings. The appellant which is under provisional liquidation cannot be now represented by any of its ex-Directors and no settlement or undertaking by any ex-Director would bind the appellant company.

Summary

Issues Involved:
1. Impugned orders and winding up petitions.
2. Settlement agreements and company’s financial status.
3. Appellant’s challenge to the winding-up order.
4. Conduct and financial disclosures by the appellant.
5. Preferential treatment of creditors.
6. Interim applications and provisional liquidation.

Detailed Analysis:

1. Impugned Orders and Winding Up Petitions:
The appellant challenged several orders dated February 08, 2016, February 26, 2016, March 23, 2016, April 21, 2016, May 05, 2016, and August 08, 2016, issued by the learned Company Judge. The Company Judge noted that cheques totaling over ?4 crores issued by the appellant were dishonored, leading to the admission of the first Company Petition No.357/2015 and the appointment of the Official Liquidator as the Provisional Liquidator.

2. Settlement Agreements and Company’s Financial Status:
The appellant sought to keep the order dated February 08, 2016, in abeyance and requested the de-sealing of its office premises, claiming it had finalized a deal for selling an immovable property to generate funds. The Company Judge noted that a piecemeal approach for settling with a few creditors was inappropriate and suggested formulating a comprehensive scheme of compromise/arrangement with all creditors. The appellant’s statement of affairs indicated substantial debts and assets, but with incomplete details, raising concerns about the financial disclosures.

3. Appellant’s Challenge to the Winding-Up Order:
The appellant argued that the dishonor of cheques alone did not justify winding up the company and criticized the admission of CP No.357/2015 and the appointment of the Official Liquidator. The appellant claimed to have settled dues with 80% of creditors and argued that the Company Judge should have considered these settlements instead of proceeding with the winding-up process.

4. Conduct and Financial Disclosures by the Appellant:
The appellant’s conduct indicated acquiescence in the winding-up order as it proceeded to settle disputes with several creditors. The statement of affairs filed by the appellant showed significant debts and assets but lacked detailed information, suggesting possible diversion of funds. The learned Company Judge’s prima facie view was that there was a credible apprehension of the appellant’s assets being imperiled.

5. Preferential Treatment of Creditors:
The appellant was found to have selectively settled disputes with a few creditors, which could result in preferential treatment and leave many unsecured creditors without recourse. The court emphasized that the appellant should not be allowed to satisfy claims on a preferential basis, as this would be unfair to other creditors.

6. Interim Applications and Provisional Liquidation:
The court declined interim relief sought by the appellant, stating that any direction to honor settlements after the appointment of the Provisional Liquidator would amount to preferential payments to unsecured creditors. The appeal and interim applications were dismissed, and the court noted that the appellant’s ex-Directors could file a comprehensive scheme of arrangement disclosing all admitted creditors and debts.

Conclusion:
The court dismissed the appeal and related interim applications, emphasizing that the appellant’s financial disclosures raised concerns about potential diversion of funds. The appellant was advised to file a comprehensive scheme of arrangement with all creditors. All interim orders passed in the appeal were vacated, and no costs were awarded.