2017 (7) TMI 226 - HC - Companies Law

Call of the Winding Up order - Held that - There is no prohibition or restraint on the Company Court to recall the winding up order if the facts and circumstances requiring such a recall are established by any of the applicants, be it Official Liquidator or a Creditor or a contributory or a share holder. Here, the applicant is the majority share holder, viz. the State of Karnataka itself and this Court is not only satisfied but records its happiness for a Government Company seeking to come out of the process of winding up by this Court and for removing the impediment on the user of the assets of the Company, the big chunk of land for public purposes and for that purpose seeking its revival. The revival of Company does not necessarily mean revival and restoring of the usual manufacturing or the business activity. It is a broader term including therein, the best utilization of its assets including the vacant land. This Court is conscious of the fact that a big chunk of Government land which is presently in the custodia legis of the Official Liquidator if not properly safeguarded and utilized for the pressing public needs on the other hand may lead to even encroachments by unauthorized people on such public land, further engulfing the Government and the public authorities in a chain of litigations. Therefore, it is always appropriate and suitable if the idle immovable property of the Government Company like big chunk of land, as is available in the present case, is best utilized for the larger public interest and therefore this Court does not see any impediment or valid objection against such revival of the Company and restoring the assets of the Company to its Management under the provisions of the Companies Act, while staying the winding up process permanently at this stage subject to the compliance of the solemn Undertaking given by the State before this Court. As far as a few of the workmen are concerned, the learned counsel for the workmen also fairly submitted that such workmen whose dues have so far not been settled because of litigation by them or otherwise, they should be given an opportunity to place their claim before the concerned Nodal Agency viz. KSIIDC or the Management of the Company itself when a proper Board of Directors is reconstituted by this Company or the State of Karnataka. The learned senior counsel appearing for the Applicant State of Karnataka has fairly agreed to this submission and accordingly the remaining workmen whose claims are still pending, along with their relevant evidence, can approach either the said Nodal Agency, KSIIDC or upon transfer of assets to the Management of the Company by the Official Liquidator to the duly constituted Board of Directors, whenever such assets and Management are handed over back to the Board of Directors of the Company. The aforesaid undertaking of the learned Senior counsel for the Applicant - State of Karnataka to utilize the land of 119.665 acres only for public purposes in the form of infrastructure development etc. only would include the following and therefore this Court also directs and enjoins upon the State to undertake thick afforestation and Tree Plantation work on the said land which will maintain the ecological balance and provide additional lung capacity and fresh air to the otherwise dying Garden City of Bengaluru. In view of the aforesaid, Company Application is allowed and the winding up order dated 03/08/2004 passed by a co-ordinate bench of this Court is stayed or sisted and kept in suspension sine-die and the recommendation of the BIFR dated 02/08/2002 forwarded to this Court for winding up of the Company is also stayed permanently subject to the further orders of this Court. The Official Liquidator may now take steps to handover the assets and records of the Company with the Status Report as soon as he is informed about the constitution of the Board of Directors by the Applicant - State of Karnataka, with the approval of this Court.

Summary

Issues Involved:
1. Recall of Winding Up Order
2. Utilization of Company Assets
3. Objections by Minority Shareholder
4. Legal Provisions and Precedents
5. Role of Official Liquidator
6. Claims of Workmen
7. Public Interest and Utilization of Land

Issue-wise Detailed Analysis:

1. Recall of Winding Up Order:
The State Government of Karnataka filed Company Application No.184/2015 under Section 466 of the Companies Act, 1956, seeking the recall of the winding up order dated 03.08.2004 passed by the High Court of Karnataka. The application was supported by the fact that all secured and unsecured creditors, including workmen, had been paid, and the remaining assets, particularly 119.665 acres of land, were to be used for public purposes. The Court noted that there is no specific provision for recalling a winding up order in the Companies Act, 1956, but inherent powers under Rules 6 and 9 of the Companies (Court) Rules, 1959, can be invoked.

2. Utilization of Company Assets:
The major asset of the Company, 119.665 acres of land, was proposed to be utilized for public infrastructure projects such as BMTC, KSRTC, and Metro Rail projects. The State Government assured the Court that this land would not be sold to private parties and would be used exclusively for public purposes. The Court emphasized the importance of utilizing idle government land for public benefit and directed that the land be used for infrastructure development and afforestation.

3. Objections by Minority Shareholder:
The minority shareholder, a German Company holding 9.72% shares, opposed the recall of the winding up order, arguing that Section 466 does not provide for such recall and that no proper scheme for revival was presented. The Court dismissed these objections, noting that the German Company's interest was secondary to the larger public interest and that the State Government's plan to use the land for public purposes was valid and justified.

4. Legal Provisions and Precedents:
The Court referred to several legal precedents, including Meghal Homes (P.) Ltd. v. Shree Niwas Girni K.K. Samiti, which emphasized the need for a genuine attempt to revive a company in liquidation. The Court also cited judgments that supported the inherent power of the Court to recall or stay winding up orders under certain circumstances. The Court concluded that the revival of the company was in public interest and conformed to commercial morality.

5. Role of Official Liquidator:
The Official Liquidator filed OLR No.85/17, stating no objection to the recall or stay of the winding up order and provided a status report on the sale of assets and repayment of creditors. The Court directed the Official Liquidator to hand over the company's assets and records to the newly constituted Board of Directors once approved by the Court.

6. Claims of Workmen:
The Court acknowledged that a few workmen's claims were still pending due to litigation. It directed that these workmen could approach the Nodal Agency, KSIIDC, or the reconstituted Board of Directors to settle their claims. The State Government agreed to this arrangement.

7. Public Interest and Utilization of Land:
The Court stressed the importance of using the land for public purposes, including infrastructure projects and afforestation to maintain ecological balance. The State Government was directed to submit quarterly reports on the utilization of the land and ensure that the land was used exclusively for public projects. The Court retained jurisdiction to monitor the implementation of these directives and could recall or modify the order if the State Government failed to comply.

Conclusion:
The High Court of Karnataka allowed the recall of the winding up order dated 03.08.2004, subject to the condition that the remaining land and assets of the company be used exclusively for public purposes. The Court emphasized the need for transparency and public benefit in the utilization of the company's assets and directed the State Government to submit regular reports on the progress and implementation of the public projects.