2015 (3) TMI 506 - HC - Companies Law

Appeal against order of stay of winding up proceedings - Held that - The present case would however, stand on a complete different footing. In the instant case, admittedly the order of winding up was passed on a date when there was no reference pending. Pertinent to note, the order of winding up was passed on July 30, 2010 whereas the reference was registered on September 12, 2013. Once the order of winding up was passed the lis brought by the creditor stood disposed of and the company Court would become functus officio on such issue. However the process would start for beneficial winding up through the Official Liquidator and the Company Court would have a supervisory and/or administrative role in the process as the Official Liquidator would act as custodian of the company in liquidation subject to the supervision of the Court. In the process of execution of such order of winding up, there might arise be various problems that Official Liquidator may face. Interested parties might have various conflict in the process of winding up, all such complaints would however, be dealt with by the Company Court in judicial side that would be an extension of the role of the Company Court in supervising the process of winding up. The matter may be viewed from another angle. Even on completion of the inquiry and upon consideration of the chance of revival the BIFR or AAIFR as the case may be, comes to conclusion, there was no such scope and the company was liable to be wound up, it would recommend for winding up. In the instant case order of winding up has already been passed hence in case BIFR or AAIFR ultimately comes to such a conclusion they would have to recommend winding up that would be superfluous. Such eventuality would cause an absurd situation that was never contemplated in SICA. We cannot be a mere on looker as to the deliberate disregard that the respondent had shown to this Court by making deliberate suppression. They left no stone unturned in stalling the process of winding up. However, they could not bring any plausible scheme that could take care of an effective process of discharge of debt and at the same time revival of the unit. All such attempt failed before this Court. Each and every order was passed upon giving due consideration to their contentions. Before the Court of Appeal, when they pressed their appeal against the order of winding up, they deliberately suppressed the pendency of the BIFR proceeding. When they failed they tried to stall the sale, ultimately used the last resort taking recourse to SICA. Our conscience would prick, if we uphold the judgment and order of the learned Company Judge. We have no hesitation to hold, the entire conduct of the respondent and their approach made as discussed above, was nothing but a deliberate attempt to forestall the process of winding up. If we allow the same that would be a premium to dishonesty. - Appeal allowed.

Summary

Issues Involved:
1. Entitlement of a secured creditor to pray for winding up.
2. Applicability of SICA at the post-winding up stage.
3. Suppression of BIFR proceedings by the erstwhile management.
4. Jurisdiction of BIFR and Company Court post-winding up order.

Detailed Analysis:

1. Entitlement of a Secured Creditor to Pray for Winding Up:
The appellant, Dena Bank, a secured creditor, filed for winding up of Kamlapur Sugar and Industries Limited due to its inability to pay its debts. The company opposed, arguing that as a secured creditor, the Bank should execute the decree instead. The court negated this contention, affirming the Bank's right to seek winding up.

2. Applicability of SICA at the Post-Winding Up Stage:
The court examined whether the Sick Industrial Companies Act (SICA) could be applied after a winding-up order was passed. The appellant argued that SICA could not be invoked post-winding up, relying on the precedent set in Smith Stanistreet Pharmaceuticals Limited Vs. Nester Pharmaceuticals Limited. The respondent countered with Supreme Court rulings in Rishabh Agro Industries Limited Vs. P.N.B. Capital Services Limited and Ksl and Industries Limited Vs. Arihant Threads Limited, which supported the applicability of SICA even after a winding-up order. The court concluded that SICA could apply post-winding up, but only if the reference was made before the winding-up order.

3. Suppression of BIFR Proceedings by the Erstwhile Management:
The appellant contended that the management committed fraud by not disclosing the BIFR proceedings. The court found that the management had indeed suppressed this information, aiming to forestall the winding-up process. This conduct was deemed dishonest and an attempt to misuse legal provisions.

4. Jurisdiction of BIFR and Company Court Post-Winding Up Order:
The court analyzed the jurisdictional conflict between BIFR and the Company Court. It was held that once a winding-up order is passed, the Company Court becomes functus officio regarding the issue of winding up. The Official Liquidator takes charge, and the Company Court supervises the liquidation process. The BIFR's jurisdiction to entertain references ceases post the winding-up order unless the reference was made earlier. The court emphasized that SICA aims at rehabilitation, while the Companies Act deals with liquidation.

Judgment:
The court set aside the learned Company Judge's order that stayed the winding-up proceedings, holding that the management's conduct was a deliberate attempt to forestall the winding-up process. The appeal was allowed, and the judgment and order were set aside with no order as to costs. An order of stay was granted for four weeks to allow the parties to appeal to a higher forum.