2013 (6) TMI 242 - HC - Companies Law

Winding up petition - appointment of provisional Liquidator pending disposal of the winding up petition. - held that - strong case for indebtedness has been made out. Equally strong case has been made out about the act of waste of the present management. They are not trustworthy nor do they inspire any confidence in the mind of the Court to keep the properties with them with free hands. But when we take note of argument of Learned Advocate General, we find State Government is keen to lend support for putting back the company in running. Hence judgment and order of the learned Trial Judge appointing Official Liquidator as Provisional Liquidator for taking full control and management of the company is not warranted at this stage. Official Liquidator directed to make inventory of all the books of account of the company and the Special Officer shall paymonthly visit and preserve in all respect upon taking symbolic possession to preserve all the properties. However symbolic possession of the Special Officer will not prejudice the present management of the company to take lawful steps for the revival of the company but the company will not approach BIFR once again without leave of the learned Trial Judge.

Issues Involved:
1. Maintainability of the winding up petition.
2. Appointment of a provisional liquidator.
3. Validity and legality of asset transfers by the company.
4. Preservation of the company's assets.
5. Public interest and the interest of creditors and employees.

Detailed Analysis:

1. Maintainability of the Winding Up Petition:
The respondent, claiming to be a creditor, filed a winding up petition based on an admission of debt by the appellant company during BIFR proceedings. The appellant contested the petition, arguing that the claim was part of a civil suit and that the winding up petition was not maintainable. The court found a prima facie case for the maintainability of the winding up petition, noting that the claim in the petition was distinct from the civil suit and related to amounts covered by a draft rehabilitation scheme.

2. Appointment of a Provisional Liquidator:
The respondent sought the appointment of a provisional liquidator under Section 450 of the Companies Act, 1956, to preserve the company's assets. The trial judge found a strong prima facie case for the respondent and noted that the company's assets had been transferred in a clandestine manner, making it unsafe to leave the assets with the current management. The court agreed that a strong prima facie case for indebtedness and waste by the management had been made out, but decided that appointing a provisional liquidator with full control was not warranted at this stage. Instead, the Official Liquidator was appointed as a Special Officer to oversee the preservation of assets.

3. Validity and Legality of Asset Transfers by the Company:
The respondent alleged that the company had transferred assets worth Rs. 320 crores to its subsidiaries without proper consideration and in violation of BIFR orders. The trial judge found that the transfers were made without monetary consideration and were undervalued, and that the management had no regard for statutory orders. The court noted that while the transfers occurred before the winding up petition, they were in violation of BIFR orders, which raised concerns about the management's conduct. However, the court did not support the trial judge's finding that the transfers were fraudulent and invalid in insolvency jurisdiction.

4. Preservation of the Company's Assets:
The court emphasized the need to preserve the company's assets to protect the interests of creditors and employees. The trial judge's order to appoint a provisional liquidator with full control was modified to appoint the Official Liquidator as a Special Officer, who would make an inventory of the company's books and pay monthly visits to ensure the preservation of assets. This approach allowed the current management to take lawful steps for the company's revival while ensuring oversight.

5. Public Interest and the Interest of Creditors and Employees:
The court considered the public interest and the interests of creditors and employees. The State Government expressed its willingness to support the company's revival, and the court decided to give the company a chance to revive under strict oversight. The Official Liquidator's role as a Special Officer was intended to balance the need for asset preservation with the possibility of the company's revival, benefiting all stakeholders.

Conclusion:
The court found a prima facie case for the maintainability of the winding up petition and the need for asset preservation due to the management's conduct. However, it modified the trial judge's order to appoint the Official Liquidator as a Special Officer instead of a provisional liquidator with full control, allowing the company a chance for revival under strict oversight. The court's decision aimed to protect the interests of creditors, employees, and the public while ensuring the company's assets were preserved.

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