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TMI Blog1984 (7) TMI 330X X X X Extracts X X X X X X X X Extracts X X X X ..... f of the company. When the case came up for hearing on September 20, 1983, and at subsequent stages, it was represented by counsel that negotiations were going on to pay off the creditor bank. The bank has also filed Application No. 218 of 1983 under section 450 of the Act read with rule 106 of the Companies (Court) Rules, 1959, for appointing a provisional liquidator to take immediate possession and assume management of the company. Rule 106 of the Companies (Court) Rules, 1959, is as follows: "106. Appointment of provisional liquidator. (1) After the admission of a petition for the winding-up of a company by the court, upon the application of a creditor, or a contributory, or of the company, and upon proof by affidavit of sufficient ground for the appointment of a provisional liquidator, the court, if it thinks fit, and upon such terms as in the opinion of the court shall be just and necessary, may appoint the official liquidator to be provisional liquidator of the company pending final orders on the winding-up petition. Where the company is not the applicant, notice of the application for appointment of provisional liquidator shall be given to the company unless the cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice since July, 1982. The salary for the subsequent periods is also in arrears. There are huge statutory liabilities by way of arrears of provident fund, employees' State insurance, income-tax, property tax, etc ., besides the salary and wages aforesaid. The company has also failed to pay electricity charges, telephone charges and water charges due. So, these essential utilities were disconnected by the concerned authorities. Even the watch and ward staff of the company are unpaid. They could not discharge their duties effectively. This situation has led to loss of materials worth lakhs of rupees by way of theft, burglary, etc . Stores and spares have been stolen away and a few of such items recovered by the police are lying in Mattancherry Circle Police Station. The accumulated loss of the company up to the end of December, 1981, stands at Rs 63.27 lakhs. The loss is increasing ever since December 31, 1981, year after year. This was due to the utter indifferent attitude of the management. The company has entered into certain contracts for some jobs. It has already spent a considerable amount. Out of the realisable sum of Rs. 57.55 lakhs, the amount already spent is Rs. 58.82 lak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orking capital became sticky. The immovable property of the company as per exhibit R-1 filed along with the counter is estimated at Rs. 193.20 lakhs. By disposing of the load, the bank could be paid off. The company intends to restart its working. It is one of the oldest engineering firms having world-wide reputation. Including the workers under sub-contractors, there are more than 500 persons who are directly and indirectly connected with the company earning their livelihood. The company can repay its loan at the rate of Rs. 10 lakhs in every six months to avoid distress sale. The company is negotiating in that behalf with the bank. The appointment of a provisional liquidator will adversely affect the reputation and goodwill of the company. The company is not insolvent. To show the bona fides of the company, it is prepared to make cash down payment of any reasonable amount that may be fixed by the court. There are some pending contracts. The management does not have any access to the records after July, 1982. If the provisional liquidator is appointed, the guarantees given by the bank will be enforced exposing the directors to personal liability. In view of the strike, it was impo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one of the directors have got even access to the office or the key. The company moved for the appointment of a commissioner by court for getting the records. This resulted in the appointment of an advocate commissioner. The proceedings therein ultimately led to the position whereby the locks had to be broken open and police assistance had also to be given to the advocate commissioner for the said purpose. (Vide further order dated December 23, 1983, in C. R. and C. A. No. 257 of 1983). I heard counsel for the petitioner in the company petition the applicant in Application No. 218 of 1983 (the bank), Sri. T. R. Govinda Warrier, Sri. K. A. Nayar of M/s. Menon and Pai representing the company, learned Advocate-General and Government Pleader representing the State Government, Mr. M. Ramachandran and Mr. P. V. Abraham, advocates, representing the Cochin Commercial Employees' Association and Mr. V. I. Joseph, advocate, representing Brunton and Company (Engineers) Ltd. Shipyard Workers' Union. The matter was posted even after the hearing of the application was over, on a few occasions, as requested by Mr. K. A. Nayar, who submitted that the entire matter will be amicably settled. But, e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding of the various paragraphs of the counter-affidavit shows that the working of the company is at a standstill since July, 1982, and that there is commercial insolvency. The various lapses and state of affairs adverted to above have not been effectively denied or met in the counter-affidavit. It is evident from a perusal of the state of affairs, as could be seen from the above, that it is highly necessary in the interests of all creditors that proper steps should be taken to safeguard the assets and other properties of the company. The prospect of the company being revived or re-commencing its business is too remote. Prima facie I am satisfied that the company is commercially insolvent. The state of affairs adverted to also discloses that substantial properties of the company are in medio, that there is no proper safeguard for the assets, that properties are frittered away and removed by way of theft, burglary, loss, etc ., that the liabilities of the company are mounting up, and that there is a total disregard, indifference and carelessness on the part of the various officers and directors of the company who have failed to take proper care about the assets and affairs of the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he appointment will only be made where the company consents or the petition is unopposed. However where the company opposes or does not appear the order may now be made if there are special circumstances such as danger to the assets or obvious insolvency or the company has admitted that it has no defence to the petition. This is not an exhaustive list of examples." Pennington's Company Law, fourth edition, at page 697, states : "The purpose of making the appointment is to preserve the company's assets and to prevent the directors from dissipating them before a winding up order can be made. It has been said that a provisional liquidator will only be appointed if the company is the petitioner or if it consents to the appointment, or if the company is clearly insolvent, or if it is obvious to the court that a winding up order will be made. These dicta show the court's reluctance to pre-judge the issue between the petitioner and the company by appointing a provisional liquidator before the hearing of the petition, but it has also been held that the court's power to appoint a provisional liquidator is not limited to such cases, and may be exercised if there is an interest of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... necessary to preserve the assets of the company. In the circumstances, I hereby appoint the official liquidator as the provisional liquidator of M/s. Brunton and Company (Engineers) Ltd. under section 450 of the Companies Act. Mr. K. A. Nayar, counsel for the company, while opposing the petition, brought to my notice the decision in Virendrasingh Bhandari v. Nandlal Bhandari and Sons P. Ltd. [1970] 49 Comp. Cas. 532 (MP). Counsel placed reliance on the oft-quoted passage of Lord Romilly in London, Hamburg and Continental Exchange Bank, In re : Emmerson's case [1866] LR 2 Eq. 231, 236, seen at page 543 of the reports. I should say that the observations of Lord Romilly as well as the decision in Virendrasingh Bhandari's case [1979] 49 Comp. Cas. 532 (MP) are distinguishable. As could be seen from Vadilal Laldas Patel, In re, AIR 1949 Mad 107, at page 108, Lord Romilly M.R. himself stated Railway Finance Co., In re, [1866] 14 LT 507 ; 14 WR 754 that if it appears that the company cannot go on, a provisional liquidator can be appointed. In the decision in Virendra Singh Bhandari's case [1979] 49 Comp. Cas. 532 (MP), the application was by a contributory and the com ..... X X X X Extracts X X X X X X X X Extracts X X X X
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