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2022 (8) TMI 374 - HC - Companies LawPermanent stay of winding up proceedings - Company failed to pay the debts - going concert - BIFR sanctioned the scheme of revival - HELD THAT - A bare reading of the Section 466 of Companies Act clarifies that following two conditions are required to be satisfied for bringing an order of permanent stay of winding up in existence (i) filing of an application either of the Official Liquidator or of any creditor or contributory for stay of winding up proceedings. (ii) proof to the satisfaction of the Court that all proceedings in relation to the winding up ought to be stayed. If the above two conditions are satisfied the Company Judge has the discretion to stay the winding up proceedings either altogether or for a limited time and impose appropriate terms and conditions. A copy of the order of the stay is required to be forwarded to the Registrar forthwith who is required to make a minute of the order in his books relating to the company - In the present case applications for permanent stay of winding up proceedings being CA 191 of 2002 and CA 186 of 2001 are pending. Proof to the satisfaction of the Court as required by Section 466 is yet to be recorded by the Company Judge. It is worth noting that Section 466(1) does not use the phrase permanent stay but the expression order staying the proceedings altogether has the effect of permanent stay of proceedings. So far as the effect of order of permanent stay of winding up proceedings is concerned in the case of SUDARSAN CHITS (I.) LTD. VERSUS O. SUKUMARAN PILLAI 1984 (8) TMI 242 - SUPREME COURT Hon ble Supreme Court has held in para 14 that when winding up order is kept in abeyance it is in the state of suspended animation meaning thereby it was effectively subsisting but inoperative for the time being. This court cannot lose sight of the settled legal position that winding up should be resorted to as the last resort after exhausting all remedies. In the facts of this case and especially considering the fact that the Company is operating as a going concern it is not in the interest of justice to direct winding up of the company. It is worth noting that a large sum of Rs. 170 crores is lying in deposit with the Registrar of this Court and possibility of some of the contesting parties having an eye on it cannot be ruled out. Hence every effort is required to be made to ensure the amount is utilized for rightful purposes. In the present case for all practical purposes there is permanent stay of the winding up proceedings and only a formal order of permanent stay is required to be passed by Company Judge after obtaining audit report and recording a finding relating to satisfaction of settled conditions for such order. The appeal is disposed off with certain modifications.
Issues Involved:
1. Permanent Stay of Winding Up Proceedings 2. Management and Revival of the Company 3. Claims of Creditors and Workers 4. Role and Actions of the Official Liquidator 5. Jurisdiction and Applicability of SICA 6. Audit and Financial Health of the Company Detailed Analysis: Permanent Stay of Winding Up Proceedings The core issue was whether the winding up proceedings of Baranagore Jute Factory PLC (BJF) had been permanently stayed. The court noted that there was no formal order of permanent stay under Section 466 of the Companies Act, 1956, or Section 391 of the Act. The Division Bench of the Calcutta High Court by order dated 14th August 2014 had expressed doubt about the permanent stay and observed a grey area regarding the winding up proceedings. The Hon'ble Supreme Court in the case of Radheshyam Ajitsaria & Anr. (2006) had mentioned that the company was a going concern and that the winding up proceedings were permanently stayed, but no formal order was found. The court concluded that for all practical purposes, there was a permanent stay of the winding up proceedings, and only a formal order was required. Management and Revival of the Company The court examined the management and revival of BJF, noting that the company was functioning as a going concern under various Committees of Management (CoMs) and Joint Special Officers appointed by the court. The scheme of arrangement formulated by the High Court and approved by the Supreme Court was operational, and the company was no longer a sick company after receiving compensation from the National Highway Authority of India (NHAI). The court directed the appointment of a one-member Committee to audit the company's accounts, take an inventory of assets, and quantify claims, aiming to pass a formal order of permanent stay. Claims of Creditors and Workers The court directed that the cut-off date for filing claims by creditors and workers be treated as 28th October 1987, the date of the winding up order. The one-member Committee was tasked with inviting claims, quantifying them, and submitting a report to the Company Judge. The court emphasized the need to ensure that the funds in deposit with the Registrar were utilized for rightful purposes and directed that claims be settled accordingly. Role and Actions of the Official Liquidator The court noted that the Official Liquidator had not taken possession of the company's assets nor taken steps required under the Companies Act, 1956, for winding up. The Official Liquidator had handed over assets to the Committee of Management and was not in possession of any assets of the company. The court directed the Official Liquidator to extend cooperation to the one-member Committee in auditing and quantifying claims. Jurisdiction and Applicability of SICA The court discussed the jurisdiction of the Board for Industrial and Financial Reconstruction (BIFR) and the applicability of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA). It was noted that the BIFR had declared the company a sick industrial company and had prepared a Draft Rehabilitation Scheme. However, the Hon'ble Supreme Court in the case of Yash Deep Trexim (P) Ltd. (2014) found that the company no longer fell within the ambit of a sick industrial company and the question of SICA's applicability was academic and redundant. Audit and Financial Health of the Company The court appointed Hon'ble Justice Bhaskar Bhattacharya as a one-member Committee to get the company's accounts audited, take inventory of assets, and quantify claims. The court emphasized the importance of ensuring that the company's financial health was accurately assessed and that the funds in deposit were used appropriately. The court directed the Committee to submit its report within three months and the Company Judge to settle claims and pass a formal order of permanent stay. Conclusion: The court concluded that the winding up proceedings of BJF were effectively in a state of permanent stay and directed the necessary steps to formalize this status. The company was recognized as a going concern, and the court emphasized the need to ensure that the funds in deposit were utilized for rightful purposes. The court appointed a one-member Committee to audit the company's accounts, take inventory of assets, and quantify claims, with a view to passing a formal order of permanent stay. The court also directed the Official Liquidator to cooperate with the Committee and provide necessary support.
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