1976 (12) TMI 147 - HC - Companies Law

Custody of company s property, Winding up - Powers of liquidator, Power of court to assess damages against delinquent directors, etc.

Summary

Issues Involved:
1. Impact of legislative provisions on liquidation proceedings.
2. Requirement of Central Government's consent for continuance of liquidation proceedings.
3. Withdrawal of misfeasance summons against former directors and officers.

Detailed Analysis:

1. Impact of Legislative Provisions on Liquidation Proceedings:
The official liquidator sought direction on whether to obtain consent from the Central Government under Section 35 of the Sick Textile Undertakings (Nationalisation) Act, 1974, for continuing liquidation proceedings of the company. The court examined the legislative framework, noting that the Sick Textile Undertakings (Taking Over of Management) Ordinance, 1972, and the subsequent Act nationalized the sick textile undertakings, transferring management to the Central Government. Section 3 of the 1974 Act transferred "every sick textile undertaking and the right, title and interest of the owner" to the Central Government. The company's claims in respect of the nationalized undertaking fell within the ambit of the Sick Textile Undertakings (Nationalisation) Act, 1974. The court concluded that the misfeasance proceedings pertained to rights that vested in the Central Government and the National Textile Corporation under the 1974 Act.

2. Requirement of Central Government's Consent for Continuance of Liquidation Proceedings:
The court considered whether the official liquidator needed the Central Government's consent to continue the misfeasance proceedings. Section 35 of the 1974 Act interdicts "a proceeding for the winding up of a textile company" without such consent. The court distinguished between a "proceeding for winding up" and a "proceeding in the course of winding up." It concluded that the misfeasance proceedings were not "for winding up" but were in the course of winding up, thus not requiring Central Government consent. The court noted that the legislative intent was to treat pre-winding-up order situations differently from post-winding-up order situations, as evidenced by the non-re-enactment of Section 8(2) of the 1972 Act in the 1974 Act.

3. Withdrawal of Misfeasance Summons Against Former Directors and Officers:
The official liquidator also sought direction on whether to withdraw the misfeasance summons against former directors and officers of the company. The court observed that the National Textile Corporation was not inclined to fund the official liquidator for prosecuting the misfeasance summons, despite the benefits of such proceedings accruing to the Corporation and the Central Government. The court found it inequitable to require the official liquidator to proceed without being provided funds. Consequently, the court authorized the official liquidator to withdraw the misfeasance summons, considering it unjust to continue without financial support from the National Textile Corporation or the Central Government.

Conclusion:
The court concluded that the official liquidator need not obtain the Central Government's consent under Section 35 of the 1974 Act for continuing the liquidation proceedings. It also authorized the withdrawal of the misfeasance summons due to the lack of funding from the National Textile Corporation or the Central Government, deeming it inequitable to proceed otherwise.