9911796707
TMI Blog1999 (8) TMI 865X X X X Extracts X X X X X X X X Extracts X X X X ..... came on the record of this file during the pendency of the winding up petition. 2. The petitioner-company had brought the present petition on the allegations that the respondent-company has failed to pay its debits of Rs. 2,18,74,578 with interest despite statutory notice having been served upon the company. Reference was also made to the proceedings instituted under section 138 of the Negotiable Instruments Act. This petition of the petitioner-company was admitted vide order dated 11-6-1998 passed in C.P. No. 196 of 1997. Reproduction of this order would help in avoiding repetition of facts and would give a composite picture of the affairs of the respondent-company. The order dated 11-6-1998 is reproduced hereunder : "Present : Mr. P.S. Patwalia, Advocate. Mr. L.M. Suri, Senior Advocate with Mr. Deepak Suri, Advocate. Swatantar Kumar, J. Bharti Telecom Ltd. has filed this petition under sections 433, 434 and 439 of the Companies Act (hereinafter referred to as the Act) praying that Altos India Ltd. (hereinafter referred to as the respondent-company) be ordered to be wound up. In this petition it is averred that the respondent-company was incorporated on 25-9-1987 u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that they be not presented till 30-4-1997 as the respondent-company was in serious financial problem. Copy of this letter has been placed on record as Annexure P. 12. These very cheques were dishonoured on presentation and the petitioner-company filed proceedings under section 138 of the Negotiable Instruments Act, which are stated to be pending before the Court of competent jurisdiction. As the cheques were dishonoured and no payment was forthcoming from the respondent-company, the petitioner-company issued a notice under section 433 of the Companies Act on 31-5-1997 claiming a sum of Rs. 2,18,17,578, copy whereof is placed on record as Annexure P. 15. This notice was received by the respondent-company but no reply was sent compelling the petitioner-company to file the company petition No. 103 of 1997. C.P. No. 103 of 1997 was disposed of by this Court vide order dated 24-10-1997, which reads as : CA No. 427 of 1997 in CP No. 103 of 1997 Present : Mr. P.S. Patwalia, Advocate. Mr. Arvind Kashyap, Advocate. This is an application filed by the petitioner seeking permission to withdraw the company petition with liberty to file one on the same cause of action. Learned cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, 2001 and June, 2002). 2. Simple interest @ 12 per cent accrued on the diminishing value of principal amount till the payment of principal amount in full shall be paid within one year from the date of last payment on account of the principal amount." 5. Though it was not accepted by the learned counsel appearing for the petitioner-company but still the matter was adjourned as aforestated. On 24-4-1998 the respondent-company while admitting the liability towards the petitioner-company attempted to paint a very fascinated picture in regard to the mode of clearing his liability, as such at this juncture it may be relevant to reproduce the entire order passed on 24-4-1998 which reads as : "Learned counsel appearing for the respondent-company submits that there is no dispute to the liability raised in this winding up petition. He further submits that because of financial crunch which is fixed by the company. The company bona fidely and genuinely seeks further time to discharge its liability. Maybe the respondents have not disputed the liability but the necessary result thereof is why a company should not be wound up forthwith. Keeping in view the peculiar facts and circums ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 To The Secretary, Board for Industrial and Financial Reconstruction, Jawahar Vyapar Bhawan, No. 1, Tolstoy Marg, New Delhi - 110 001. Dear Sir, Sub : - Filing of Form A - Altos India Ltd. We are enclosing herewith six sets of Form A along with all the annexures as required under section 15(1) of the Sick Industrial Companies (Special Provisions) Act, 1985. Kindly acknowledge receipt of the said Form. Thanking you, Yours faithfully, for Altos India Ltd. Sd/- Dadan Bhai Managing Director Encl. Form A (Six sets) Power of Attorney SealSd/- 27-5-1998 BIFR Received Subject to Verification that the reference is complete in all respects." 9. In order to appreciate this contention it needs to be reiterated that present case is not one where the respondent-company is disputing its liability. The debt is admitted. It was never contested either in the previous company petition, in reply to the notice served upon the respondent-company under section 433 and even in the present company petition. During the course of hearing on various dates it was only repayment schedule and the dues of the petitioner-company and the manner in which the respondent- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sponge Iron Ltd. v. Rishab Ispat Ltd. [1993] 78 Comp. Cas. 264 are right in rejecting such a contention and holding that the inquiry must be treated as having commenced as soon as the registration of the reference is complete after scrutiny and that from that time, action against the company s assets must remain stayed as stated in section 22 till final decisions are taken by the BIFR." Thus, the clear mandate which flows from the judgment of the Apex Court is that mere writing a letter and its acknowledgement by the BIFR on behalf of the company is neither the commencement nor a registration of reference with the BIFR, which would operate as an automatic suspension or stay of other proceedings. In the present case on 26-5-1998 letter was written by the company to the BIFR making reference of its own under section 15(1) of the Act which was acknowledged by the BIFR on 27-5-1998 with the endorsement revealed subject to verification. It is not disputed that no action had been taken by the BIFR on the reference made by the company as on the date of hearing before this Court. The receipt of such a request by the BIFR, ipso facto cannot operate as a statutory directive for suspen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red as promised. 12. In view of the above discussion, I am of the considered view that the respondent-company is unable to pay its debt. The liability is admitted. The company had never approach the BIFR for all this period though admittedly the company has been in delicate financial crisis for quite some time as is clear from the various letters which have been placed on record. In order to afford an opportunity to the company to show its bona fides and consider the possibility of amicably settling the matter, the Court had shown more than the needed indulgence to the respondent-company. 13. At this stage it may also be relevant to mention that there are other two company petitions filed by other creditors being C.P. Nos. 128 and 216 of 1997 where the petitioners in those cases have claimed $ 9,50,000 and is equivalent in Indian currency of Rs. 37,07,877 respectively. These petitions were also listed for hearing on the same dates and as such possibility of the respondent-company to clear its debt in future seems to be very uncertain. However, I am not proceeding to discuss the merits of these two petitions in view of the order being passed in the present petition. Inabil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would not be just, fair or equitable to wind up the company despite inability to pay the debt, the Company Court would commit no error of jurisdiction in declining winding up. In the present case consideration of this issue is more pertinent and necessary because there is a definite plea raised by the company that it would not be just, fair, equitable and proper to wind up the company. According to them the company should be ordered to be revived or rehabilitated under the proposed scheme which has been filed on record. 19. I must notice at this stage that this Court vide its order dated 11-6-1998 had appointed a provisional liquidator of the respondent-company. This order was challenged by the respondent-company before the Division Bench in Company Appeal No. 7 of 1998. The Division Bench noticed the contention of the respondent-company that they were not given an opportunity of being heard as far as the question of appointing the provisional liquidator is concerned and vide its order dated 8-7-1998, the Division Bench observed as under : "If that is so, we are of the view that an appropriate application should be moved before the Company Judge in that regard that the or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mplement any viable or workable scheme by which the company could revive its business and provide modes of repayment of the secured and unsecured creditors of the com-pany simultaneously." 20. The Company Court had given different directions to the Committee so constituted (expert committee consisting of very high officials of the banks, public undertakings, who had to recover huge amount to the extent of more than Rs. 300 crores : representative of the respondent-company (Managing Director) and provisional liquidator of the (respondent-company). These directions were multi-dimentational in their nature and scope, and the Committee was directed to implement the directions in true spirit. Amongst others, main orders passed in this regard were orders dated 9-10-1998, 26-10-1998, 10-11-1998, 26-11-1998 and 24-12-1998. 21. At the request of the parties to the various petitions, vide order dated 2-11-1998 the Court had ordered inclusion of two other members of the financial institutions in the committee so as to give it broader prospective and fair consideration of the proposal put forward by the respondent-company. In fact the Court had directed the Committee not to only cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal between the parties. It must be noticed at the very outset that during the pendency of this company petition i.e. 196 of 1997 to implement the order dated 3-8-1998 in its true spirit and substance, notice was issued to the various financial institutions. Some of the institutions have also filed applications for being impleaded as party because heavy amounts are due to them. Consequently, the financial institutions were impleaded as parties to this petition and vide order dated 9-10-1998 a Committee was constituted to submit a report whether it was possible to revive this company either with the management existing pre-appointment of provisional liquidator or even with the change in the management of the company. The Committee had various meetings and had submitted a report which was found satisfactory by this Court as it did not clearly indicate what should be the status and future of this company which was obviously in financial crisis. Vide order dated 10-1-1998 the committee was further directed to file a more definite and complete report and also to supply the data on the basis of which it could be ascertained whether the respondent-company was a workable unit in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the financial institutions and banks which are secured creditors is more than Rs. 3,000 crores. All the counsels appearing upon instructions from their respective clients reiterated in the Court that the scheme put forward by Managing Director of the company was not workable and they, in any case, were not willing to advance any money to the respondent-company. It was further the view of the Committee that the requirement of Rs. 10 crores for running the company partially is totally an underestimation as it would at least need Rs. 30-40 crores. However, Managing Director of the respondent-company was unable to give any definite suggestion as to from where and within how much definite period would he be able to arrange Rs. 10 crores. For the purpose of arranging the fund, according to him, he needed to prepare and maintain the accounts of the company. In other words, statement of accounts has to be prepared; it is required to be scrutinized, audited and finalised and then it has to be laid before the perspective purchasers or investors and thereafter the perspective purchasers or investors would decide whether they were willing to grant Rs. 10 crores on such terms as may be agreed u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and sale of the market/ hypothecated assets of the company to its best advantage and with an intent to fetch maximum price. 3. The Committee will meet to discuss all the modalities and mode of selling the mortgaged/hypothecated property with the rights and interest of the company protected so as to fetch the maximum price. 4. The Committee is at liberty to consult such experts as it may deem necessary. It will be certainly in the fitness of things that these financial institutions consult and get the work executed through its own staff or agencies to prevent external influences as well as unnecessary expenditure. The financial institutions are supposed to have their own facilities and infrastructure for such purposes. The institution will be able to exercise better control and fix responsibility of such experts if they are from their own institution. 5. In order to give it wide publicity the advertisement shall be inserted at least in five national newspapers viz . Hindustan Times, Indian Express, The Tribune, Economic Times and Hindu , so as to allow any of the edition of these papers which the Committee may deem fit and proper. 6. The meeting of the Committee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relevant aspects in relation to the affairs of the respondent-company and its possible revival, and they had placed as many as four interim reports before the Court prior to their submitting the final report, recommending winding up of the respondent-company as the only panacea to the multi-farious problems of the respondent-company. 28. In the meanwhile number of other financial institutions like Punjab National Bank, State Bank of Hyderabad, State Bank of Travencore, Bank of India, SBI Commercial and International Bank Ltd. and State Bank of Mysore etc. had filed petitions under section 446 of the Act seeking leave to institute and pursue their legal remedies for recovering the huge amounts which the respondent-company owned to them. 29. The provisional liquidator of the respondent-company had also filed CP No. 15 of 1999 under sections 456, 468, read with section 538 of the Act praying for a direction to the respondent therein to deposit the amounts due and payable to the respondent-company in the name of Official Liquidator. One amount of Rs. 45,06,080 is payable by Life Insurance Corporation to the trust created by the employees of the respondent company, the premiums ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any and its financial status. That is how it could prepare its proposed scheme of revival which was presented to the Committee as abovenoted. Having participated in those meetings of the Committee and having failed to satisfy the members of the Committee as well as the Court, of any viable revival scheme, the respondent Company cannot be permitted to raise this argument at this belated stage. 33. The conduct of the then Managing Director of the respondent-company has not been fair even before the company Court. All through it was stressed that the wish to approach the BIFR and the accounts be permitted to be inspected. However, they had filed the reference before the BIFR quite sometime back and which was rejected by the order of the Secretary dated 31-3-1999 declining to register the reference. Appeal was preferred before the Board which was dismissed by the order of the Chairman of the BIFR vide order dated 7-7-1999. The conduct of the respondent-company through its erstwhile Managing Director certainly deserves to be deprecated. He having failed to bring any viable proposal before the Court can hardly be permitted to raise this issue. The financial institutions to whom the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted as a conclusion of the Court). 37. Deadlock in the management of the company is one of the grounds which may make it equitable and just for the Court to wind up a company. Varied instance of total deadlock in the management of the company also arises when no other practical remedy is available before the Court but for an order of winding up. The detailed circumstances explained above squarely fall in the principle as there is complete deadlock in the management of the affairs of the company resulting from financial crisis, com-pany having no liquidity, the creditors seriously opposed to further investment and inability on the part of the company to create any resources to invest further liquidity in the company. It may, not, as such, be a total deadlock in the management of the affairs of the company, but it has become totally impracticable for the company to carry on its business in normal course. 38. In the case of George v. Athimattam Rubber Co. Ltd. [1965] 35 Comp. Cas. 17 (the Court) held that substratum of a company will be deemed to be gone when ( a ) the subject-matter of the company is gone, or ( b ) the object for which it was incorporated has substantiall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ur weeks from today in regard to the affairs of the company, the properties, assets and records of the company, the possession of which he has taken or is likely to take within the stipulated period. ( b )The Official Liquidator shall act in consultation with Nodal Officer, not below the rank of a D.G.M. to be appointed collectively by all the Financial Institutions, Public Undertakings (who are the creditors of the respondent -company and three members of the Expert Finance Committee appointed by this Court in regard to all affairs of the respondent-company. ( c )The Official Liquidator shall be free to take advice from technical expert in relation to such factors as may be necessary in regard to discharging of his duties. ( d )As already noticed, the Official Liquidator had filed C.P. No. 15 of 1999 praying that the United India Insurance Co. Ltd. was liable to pay a sum of Rs. 47,33,785 on account of loss of material for which the survey was conducted varying the loss to the extent of Rs. 39,77,841. To this petition, reply was filed by the United India Insurance Company and they stated that they had no objection to settle the claim of the company and they would pay the cla ..... X X X X Extracts X X X X X X X X Extracts X X X X
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