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TMI Blog1986 (10) TMI 289X X X X Extracts X X X X X X X X Extracts X X X X ..... g unit. Both these applications were dismissed on the ground that Application No. 56 of 1985 filed by the contributory for a direction to call for a meeting has been ordered. Palani Sri Murugan Textiles Ltd., a company incorporated under the Companies Act, was ordered to be wound up by an order dated November 14, 1969, on a petition filed by a creditor on the ground that the company was unable to pay its creditors. The authorised capital of the company is Rs. 25,00,000. The issued, subscribed and paid up capital of the company is Rs. 6,19,100 inclusive of arrears of call money amounting to Rs. 24,000 consisting of 12,862 equity shares of Rs. 50 each. The first respondent is a contributory holding 100 shares of Rs. 50 each. He was one of the directors of the company before the order of winding up was made. Pending the winding up and in the winding up proceedings, the appellant took the company on lease on "as is where is" condition. The first lease was granted for a period of 5 years with effect from January 1, 1972. The lease was extended for a further period of 5 years in Company Application No. 427 of 1976 and later for a further period of 3 years. The lease period ended on Mar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1956 ; (5)On confirmation of the scheme by the High Court, Madras, the following three persons shall be the directors of the company who will take charge of the affairs of the company in liquidation from the official liquidator, Madras. 1. R. Ramanathan of Udumalpet, 2. R.V. Parthasarathy Coimbatore district. 3. U.S. Sridhar (6)On confirmation of the scheme by the High Court, the official liquidator shall hand over all the assets, books and records of the company in liquidation in the possession of the official liquidator to the three directors mentioned above. (7)After adjusting the Government commission which the official liquidator has utilised under the Companies (Court) Rules, the official liquidator may be directed to handover to the company the balance of the amount standing to the credit of the company in liquidation. (8)All the licences, privileges and quotations to which the company was entitled prior to the date of winding up and on the date of the approval of the scheme will be restored in the name of the company. (9)On approval of the scheme, the three directors are jointly and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the said shares had been dismissed, that they had not become the shareholders of the company in liquidation, that, therefore, the respondent cannot file the application on their behalf and that since he purports to file an application only on their behalf and he was not filing the affidavit in his own right as a shareholder, the application was not maintainable and was liable to be dismissed. The official liquidator has also stated that he does not admit those three persons as having any substantial stake in the company in liquidation and that according to the records they are neither creditors nor shareholders. It was also not made clear in the application in which capacity those three people have given any affidavit to undertake to advance the required funds and that they have not disclosed how they are going to advance the money and what was their financial position as on date. The report also pointed out that the scheme is silent about the payment of interest to the preferential creditors as also to the ordinary creditors from the date of winding up order. The learned judge observed that though the application on behalf of others cannot be sustained, still, as long as the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, or, in the case of a company which is being wound up, on the liquidator and contributories of the company : Provided that no order sanctioning any compromise or arrangement shall be made by the court unless the court is satisfied that the company or any other person by whom an application has been made under subsection (1) has disclosed to the court, by affidavit or otherwise, all material facts relating to the company, such as the latest financial position of the company, the latest auditor's report on the accounts of the company, the pendency of any investigation proceedings in relation to the company under sections 235 to 251 and the like". The question for consideration is whether in the case of a company which is being wound-up, only the official liquidator can file the application under section 391 or even in such a case, a creditor or any class of creditors or any member of the company can file an application under section 391(1). Learned counsel for the first respondent referred to rule 68 of the Companies (Court) Rules, 1959, framed by the Supreme Court in exercise of the powers under section 643 of the Companies Act and contended that the fact that the rule contemp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Travancore National and Quilon Bank, In re [1939] 9 Comp. Cas. 14 ; AIR 1939 Mad 318, under the corresponding provision in section 153 of the Indian Companies Act, 1913. The objection that was raised as to the maintainability of the petition under section 153 was that the application, after a winding-up order, could only be made by the liquidator and not by a creditor of a company and this argument is based on the language of section 153, namely, "in the case of a company which is being wound-up, of the liquidator". Repelling this contention, the learned judge observed (at page 23): "There does not seem to be much substance in this argument. The section was intended to confer rights both on the company and on the creditors and members of the company. When it is a going concern, the object will be to avert a winding up. Even after an order for winding up is made, an application can be made to cancel a winding up by the sanction of a scheme and allow the company to resume its normal business. The creditors and members are the persons vitally interested in the life of a company and are the best judges of their interests. It could not have been, therefore, the intention of the Leg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ake the necessary application and in a case where the company is being wound up, as the board has ceased to function and is no longer there and the company is represented by the liquidator, the liquidator will also be entitled to make the necessary application. The right which is conferred on the contributories or the creditors is not intended to be taken away when the company has gone into liquidation and in such a case an additional right is also conferred on the liquidator. The provisions contained in sub-section (2) which require the approval of the majority of the creditors or class of creditors or members or class of members in case of any compromise or arrangement for the same being sanctioned, even when the company is in liquidation, clearly go to indicate that the Legislature never intended that the wishes of the creditors or contributories should be ignored. In our opinion, in the case of a company in liquidation, apart from the rights which are conferred on the creditors or contributories of a company, an additional right is also conferred on the liquidator." These decisions were also followed by a single judge of the Bombay High Court in Vasant Investment Corporation L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or arrangement should be marked as an exhibit and annexed to the affidavit. Rule 68 further provided that where the company is not the applicant, a copy of the summons and of the affidavit shall be served on the company, or, where the company is being wound up, on its liquidator, not less then 14 days before the date fixed for the hearing of the summons. These provisions clearly show that if the company or the liquidator is the applicant for an order under section 391(1), the summons can be moved ex parte. However, this facts required to be set out in Form No. 34 will have to be clearly stated. But if the application is by a person other than a liquidator or a company, then notice will have to be served on the liquidator or the company and no question of the summons being moved ex parte could arise. Even in such cases, the facts will have to be disclosed in the affidavit as stated above. These detailed facts are required to be stated and notice has to be served on the company or liquidator as stated above only for the purpose of enabling the court to decide whether there are any bona fides in the application, whether the compromise is prima facie feasible and whether it is nec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the proposed scheme or settlement and the bona fides of the applicant and the application. On merits, we are unable to agree with the learned judge that the first respondent has made out a case for calling for any meeting of the shareholders, unsecured creditors, ordinary creditors and preferential creditors for the purpose of considering the proposed scheme. It is seen from the report of the official liquidator that as per the list of settled creditors, the amount payable to preferential creditors was Rs. 1,14,524.04 and that for ordinary creditors it was Rs. 10,87,726. Though the principal amount due to the preferential creditors had been paid in full, they are eligible for interest at 4% from the date of liquidation under rule 179 of the Companies (Court) Rules. In respect of the ordinary creditors, 25% dividend has been paid and the remaining 75% with interest on the entire amount including the 25% dividend paid was also payable from the date of winding up under the said rule. The amount of interest payable at 4% to the preferential creditors from the date of winding up until April 30, 1981, being the date of declaration of dividend under rule 197 was Rs. 41,234.57. The amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the lessee during 1971-85 was Rs. 13,94,000. On the terms of the lease, the lessees can make additions to the existing building, plant and machinery with the permission of the liquidator. The lessor has the option to purchase from the lessee any of the additional machineries and effects. The lessee was entitled to the value of these additions and alterations. If the lease is to be terminated and the winding up order suspended, he would be entitled either to be paid this amount or permitted to remove those assets put by him. If that is done, funds will have to be produced either for paying the lessee or replacing those machineries and equipment and value of other improvements. In fact, as seen from the report of the official liquidator filed in C.A. No. 261 of 1985, the official liquidator has informed the appellant that the additions made to the leased out properties cannot be purchased by the official liquidator as he had no authority. He had no funds also. That has not been provided for in the scheme. If the lessee is permitted to remove those improvements, whatever be the value, the mill cannot be run and there is no guarantee of any income or payment to the creditors. The li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erits of the application on the ground that he had already ordered the application filed under section 391 of the Companies Act and until a final order is made on the proposed compromise or settlement, the sale could not be ordered. However, the learned judge gave liberty to the appellant to renew the application for sale if the company is not revived pursuant to his order passed in Company Application No. 56 of 1985. Since we have allowed the appeal against the order in Company Application No. 56 of 1985 and dismissed that application, it has become necessary to consider Application No. 261 of 1985 on merits. On the other application for lease of the property pending his request for sale, the learned judge has permitted him to continue to run the mill as a lessee till March 31, 1986, and that is now being extended. On the merits of the claim for sale, learned counsel for the appellant contended that on the peculiar facts and circumstances of the case and in the light of the reports available, and since there is no case for the revival of the company, the-company should be sold as a running unit to the appellant. He also further contended that he had offered a sum of Rs. 13,08,00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d run the mill, the official liquidator filed Application No. 231 of 1970 praying for delegation of power under section 457(1) of the Act to enable him to take early steps either to make an outright sale of the mill as a running unit or to lease out the same to any prospective offerer to run the same. By an order dated July 2, 1970, powers under section 457(1) were conferred on the official liquidator. Since it was considered that the possibility of running the mill on lease has first to be explored, the official liquidator called for applications for lease of the property and ultimately the appellant was given the lease of the mill on "as is where is" condition in order to generate some more money for the administration of the liquidation proceedings and for payment of some interest to the creditors. That is how the original lease was given for a period of five years. When the application for renewal was made, the lessee placed all the facts before the court, his difficulties in running the mill, the enormous amount of funds he had to invest and pleaded that there is a case for the sale of the property and that he is willing to purchase the mill as a running unit with its machin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dia approved valuer, still the value of the land, building, machinery, etc., would be Rs. 18,10,840. The official liquidator has filed a report which showed that an amount of Rs. 8,15,793.44 was payable to the ordinary creditors. This does not include the interest payable from the date of the winding up order. The amount payable to the Government of Tamil Nadu with interest till November 14, 1986, comes to Rs. 6,66,439 63. The total outstanding liabilities thus come Rs. 14,82,233.07. This does not include the interest payable to the preferential creditors and ordinary creditors under rule 179. Learned counsel appearing for the official liquidator stated that the official liquidator has received claims from a number of persons after the filing of the settled list of creditors and the amount claimed and being processed by the official liquidator comes to Rs. 7,44,719.37. The interest payable on this amount comes to Rs. 8,06,409.42. The official liquidator has also given a memo dated September 11, 1986, in which he has given the list of liabilities including interest payable under rule 197 both on the settled list of ordinary creditors and preferential creditors and those claims whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso will have no work. That will be the period when the appellant had to remove the machinery and the time that may be taken by the third party purchaser to put the mill in a running condition again. There is also the expenses involved in public auction. Having regard to these features, we are of the view that a sum of Rs. 30 lakhs can be fixed as a reasonable price and that the mill including buildings and lands can be sold to the appellant on private sale by the official liquidator and it will not be in the interest of the creditors, shareholders or the company to sell the same by public auction. An illustrative case on this aspect of the question came up for consideration before the Calcutta High Court in the decision in Elvoc ( P. ) Ltd. In re , [1982] 52 Comp. Cas. 308. The question for consideration was whether the court is entitled to order a private sale of a company in liquidation as a running unit to the lessee. The learned judge posed the question as to whether the only object of such sale is to fetch the maximum price or whether the court at its discretion, having regard to the prevailing socio-economic questions which are involved in a welfare State like India, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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