2013 (3) TMI 65 - HC - Companies Law

Winding up petition - two manufacturing facilities not having functioned for years and its workers and employees imploring for their dues to come out of the assets of the company upon the company being wound up - Held that - The company admits that there has been no production at its manufacturing facilities at Sahaganj and Ambattur for several years and has been completely closed for more than a year. The company also admits that notwithstanding its settlement with a number of creditors, it is evident that the majority creditors in value press for the company to be wound up. The company s offer to pay Rs.50 lakh per month to its workers is laced with a condition that it must have a chance to open its manufacturing facilities and the court must facilitate the same. The State Government says that the land which is blocked in the unproductive Sahaganj unit of the company should be freed for industrial activity thereat and the State Government is open to either the company commencing industrial activity thereat or any subsequent purchaser of the company s assets doing so. It must be recorded that several parleys were held between the representatives of the State Government and the company for opening the Sahaganj unit, but nothing has come of the conciliation proceedings following the company s staunch refusal to put any concrete proposal on the table for the payment of the workers dues. The State Government refers to the affidavit filed in course of the present proceedings saying that its electricity utility has a claim of Rs.11.20 crore in respect of the Sahaganj factory, the West Bengal Development Corporation Limited has a claim of Rs.14 crore, and a sum in excess of Rs.7.95 crore is due by way of land revenue apart from sales tax dues in excess of Rs.40 crore. Also provident fund authorities suggest that a siezable sum in crores is due from the company but quantification of the amount has not been made. The appearing workers of the company that an amount in excess of Rs.46.27 lakh is due from the company as at December 31, 2012. The company suggests that it has reached a settlement with its creditors who had come to court and who have a combined principal claim of about Rs.32 crore. The company has made no attempt to detract from the claims of the various creditors who are represented in court and seek the winding-up of the company. Since the company s manufacturing facilities are not operational and the company does not demonstrate that they are likely to be opened or any manufacturing activity conducted thereat in the near future, there is no indication of how the massive debts of the company would be met. Despite directions, the annual accounts of the company have not been produced. It must also not be forgotten that the net worth of the company effectively remains negative since it only revalued its assets to create the illusion of a positive net worth on paper to slip out of the BIFR, but there were no profits or share premia to back the apparent improvement in the company s net worth position. No workmen or employee of the company has appeared to resist the order of winding-up. The conduct of those in management of the company in fraudulently selling off assets conservatively estimated at Rs.2,300 crore makes it just and equitable for the company to be wound up. The company has been unable to show any prospects of it carrying on any business in the near or the distant future. The company s inability to pay its debts is established and no ground is shown for the company court to exercise its discretion to not wind up the company despite its obvious insolvency. Company Dunlop India Limited is directed to be wound up with immediate effect under the provisions of the Companies Act, 1956. The official liquidator will forthwith take charge of all books, records, documents, assets and transactions of the company, now in liquidation.

Issues Involved:
1. Whether Dunlop India Limited should be wound up.
2. Settlement of creditors' claims.
3. Appointment of a provisional liquidator.
4. Allegations of fraudulent asset transfers by the company.
5. Compliance with statutory requirements and court orders.
6. Role of the State Government and other stakeholders.
7. Conduct and credibility of the company's management.
8. Protection of employees' and workers' dues.
9. Appeals against the winding-up order.

Issue-wise Detailed Analysis:

1. Whether Dunlop India Limited should be wound up:
The court assessed the dire financial situation of Dunlop India Limited, noting that its manufacturing facilities had not been operational for years, and the company was unable to pay its creditors and employees. The court concluded that the company should be wound up under the provisions of the Companies Act, 1956, as it was unable to demonstrate any prospects of resuming operations or paying its debts.

2. Settlement of creditors' claims:
Several creditors had filed winding-up petitions against the company, with some claims being settled and others remaining unresolved. The court noted that the company had failed to present a credible repayment plan for its creditors, and the majority of creditors supported the winding-up of the company. The court directed that all creditors could press their claims before the official liquidator.

3. Appointment of a provisional liquidator:
The court appointed the official liquidator as the provisional liquidator with full powers under the Companies Act, 1956. The liquidator was tasked with protecting the company's assets, recovering alienated properties, and ensuring the interests of creditors, employees, and workmen were safeguarded.

4. Allegations of fraudulent asset transfers by the company:
The court found that the company had fraudulently transferred valuable properties worth over Rs. 2,300 crore to entities under the same management without receiving adequate consideration. These transactions were deemed to be in breach of statutory provisions and amounted to gross mismanagement and fraud on the shareholders. The court directed the liquidator to recover these assets.

5. Compliance with statutory requirements and court orders:
The company had failed to comply with various court orders, including providing details of its assets and liabilities and disclosing payments made to creditors. The court expressed its disappointment with the company's repeated adjournment requests and lack of cooperation.

6. Role of the State Government and other stakeholders:
The State Government expressed its willingness to support the revival of the company's operations but emphasized the need for a concrete proposal from the company. The court noted the State Government's claims for unpaid dues, including electricity charges, land revenue, and sales tax.

7. Conduct and credibility of the company's management:
The court found that the company's management had acted in bad faith by fraudulently transferring assets and failing to pay creditors and employees. The appellate court also observed that the management was not trustworthy and had engaged in acts of waste.

8. Protection of employees' and workers' dues:
The court noted that the workers and employees had not been paid their wages for several months and supported the winding-up of the company to recover their dues. The court directed the liquidator to prioritize the claims of workers and employees.

9. Appeals against the winding-up order:
Two sets of appeals were filed against the winding-up order, one by the company and another by ICICI Bank Limited. The appellate court confirmed the appointment of the official liquidator as a special officer and directed the liquidator to make an inventory of the company's books and properties. The appeals did not alter the court's decision to wind up the company.

Conclusion:
The court ordered the winding-up of Dunlop India Limited, appointed the official liquidator with full powers, and directed the recovery of fraudulently transferred assets. The court emphasized the protection of creditors' and employees' interests and condemned the management's fraudulent conduct. The order was passed on CP No. 233 of 2008, with all related petitions and applications disposed of accordingly.

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