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TMI Blog2017 (9) TMI 129X X X X Extracts X X X X X X X X Extracts X X X X ..... tor (in short, 'the PL') was discharged, was passed only in C.P.No.179 of 2001, whereas, on the record of the Company Judge, there is, even now, another petition pending, whereby, winding up of KOFL is sought. In other words, the argument advanced is that dismissal of C.P.No.179 of 2001 will not bring about an efficacious conclusion even from the point view of KOFL. 2.1. We may also note that, the learned Company Judge, while passing the impugned judgement and decree, has also gone on to dismiss C.P.No.179 of 2001, though the prayer in C.A.No.734 of 2011 was confined only to the discharge of OL. 3. As to whether, such a direction could have been passed or not by the learned Company Judge, is also a matter in issue, as submissions, in this behalf, have been advanced on behalf of the appellant. 4. Before we proceed further, and in order to adjudicate upon the instant appeal, the following, broad, facts are required to be noticed. 4.1. C.P.No.179 of 2001 came to be filed by one Mr.S.Ramaiah, who is arrayed as respondent No.3 in the instant appeal. He, along with his wife, had deposited monies with KOFL. Since, there was a default not only qua the deposits made by responden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , in instalments, was too small an amount, given the extent of monies owed. 4.7. The Court, however, went on to state that the appellant, based on an additional affidavit filed by him, shall bring in the assured amounts and assets for repayment of debt for the benefit of depositors and other creditors. The Court, thus, restrained the appellant from alienating his immovable properties and other valuable assets, shares, deposits, investments and other movables without the leave of the Court, even while, noting the fact that KOFL had become insolvent and had lost its substratum. As alluded to above, the Court came to the conclusion that it was a fit case for admitting the Company Petitions. 5. As would be obvious, the aforementioned facts present only a broad preface as to how, the two, Company Petitions, i.e., C.P.Nos.179 and 180 of 2001, came to be filed. 5.1. The instant appeal, which has been filed by the erstwhile Chairman of KOFL, as indicated above, is, principally, contested by respondent No.1, i.e., United Western Bank, predecessor-in-interest of Investment Development Bank Limited (hereafter referred to as 'UWB/IDBI') and to some extent by the OL. 5.2. The contes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, 1961, the agreement for sale was presented before the concerned income tax authority. According to UWB/IDBI, the concerned income tax authority gave its No Objection Certificate (NOC) for sale of the subject property on 18.04.2000. 5.8. We may, however, note that in the application filed by UWB/IDBI, qua which the impugned judgement and order has been passed by the learned Company Judge, i.e., Comp.A.No.734 of 2011, UWB/IDBI avers that the income tax authority had attached the subject premises, whereupon, a sum of Rs. 2,02,322/- was paid by UWB/IDBI, out of the balance sale consideration payable to KOFL. It is further averred that the attachment vis-a-vis, the subject property, was lifted only thereafter. 5.9. Be that as it may, UWB/IDBI, on 24.07.2002, requested the Administrator appointed by this Court to execute the sale in its favour vis-a-vis the subject property. Since, there was no response, UWB/IDBI filed Comp.A.No.1208 of 2002, with the learned Single Judge, wherein, the prayer made was, for issuance of a direction to the Administrator, to execute a sale deed in its favour under the provisions of Section 536 of the 1956 Act. This application was filed, in and about, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... istrator had reported to him that the appellant had paid the entire amount, as directed by the Court on 09.10.2007, he was inclined to lift the attachment order and direct the Administrator to return the sale deed dated 17.09.1993, and other relevant papers pertaining to the property situate at No.9, Mohan Kumaramangalam Road, Poineer Sudarsan Plaza, Nungambakkam, Chennai-600 034. To be noted, these were title documents, which, the appellant had deposited with the Administrator. 8.3. Consequent thereto, the Administrator filed a report dated 08.06.2009. The report filed showed that the learned Administrator had made recoveries from the debtors of KOFL to the extent of Rs. 1,03,44,559/-. In addition thereto, the Administrator had transferred a sum of Rs. 7,64,363/- to the OL. The total recoveries, which the Administrator had made was Rs. 1,11,08,922/-. Furthermore, the report also recorded that the appellant had made, via cheques issued on various dates between January 2003 and December 2007, remittances to the Administrator amounting to Rs. 7,41,60,738/-. 8.4. A perusal of the interim and final report filed by the Administrator, the contents of which, were noticed by the Court in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tial period, for which, deposits were to be kept alive was pegged at one year. The appellant was given liberty to approach the Court, upon the expiry of the tenure fixed vis-a-vis Fixed Deposit, for issuance of appropriate orders. (ix).The OL was directed to depute one of his officials to take inventory of the entire material belonging to KOFL, albeit, in the presence of the nominee of the Administrator and to take possession of the same thereafter. The time frame given, for the said purpose, was four (4) weeks from the date of receipt of the order and upon filing of the report, in that behalf. (x).The Administrator was discharged of his obligation to manage the affairs of KOFL, which, essentially, pertained to redemption of dues of depositors. The Administrator was, however, directed to prosecute the appeal, and in that behalf, take assistance, if necessary from the OL. 10. It appears that the Company Petition, in this background, came up before the Court, for hearing, on 21.06.2010, when, upon the submission advanced by the petitioning creditor's counsel, that he had returned the papers, notice was issued by the Court to the party, i.e., respondent No.3, in the present a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct the second respondent to pay the aforesaid amount of Rs. 1,30,29,441.00 together with accrued interest to the Petitioner Bank towards the recovery of the Certificate amount. 14.2. The aforementioned reliefs were sought for by SBI, in view of the consequential directions contained in the impugned judgement dated 04.10.2013, whereby, the OL, upon his discharge, was directed to transfer the sum of Rs. 1,27,00,000/- lying with him by way of investment and Rs. 3,29,441/- available with him in the form of Bank Deposits, to the appellant herein. 14.3. The DRT, taking into account, the directions contained in the impugned judgement and order dated 04.10.2013, vide its order dated 13.12.2013, granted only one of the three (3) reliefs, which is, the order of attachment prayed for by SBI. 14.4. Accordingly, the sum available with the OL, in the form of investment and bank deposits amounting to Rs. 1,30,29,441/- was directed to be attached along with accrued interest, upon transfer of the said sum being effected by the OL in favour of the appellant herein. 14.5. The fact that SBI is aware of the present proceedings is borne out from the communication dated 07.07.2017, addressed by it to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ertificate for a sum of Rs. 1,40,81,030.75. (v)(b)We have, though, not been told, what was the fate of the other two original applications. 16. At this stage, it would be relevant to note that in the final report, a tabular chart has been set out by the OL with regard to the working capital limit sanctioned by each bank. For the sake of convenience, the details as given therein are set out hereafter : Sl. No. Name of the Bank Limit (Rs. In lakhs) 1. State Bank of India 75.00 2. Bank of India 125.00 3. Catholic Syrian Bank Ltd. 35.00 4. Bank of Madura Ltd. 25.00 5. Bank of Baroda Ltd. 75.00 6. United Western Bank Ltd. 50.00 7. Karur Vysya Bank Ltd. 100.00 8. The Federal Bank Ltd. 50.00 17. Apart from the OL, the appellant, as it appears, also, filed a counter affidavit to Comp.A.No.734 of 2011, wherein, he, broadly, made the following averments : (i).That the application was not maintainable, and therefore, was liable to be dismissed. (ii).KOFL was engaged in the business of Non-Banking Finance and towards this end, it accepted deposits from the public, which were advanced in the form of loans to various parties. (iii).At one point in time, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he outstanding creditors in the absence of a revival scheme or resumption of business of KOFL in view of the directions issued by this Court vide order dated 05.12.2001. 18. It is, in this background, that the learned Company Judge was called upon the pass orders in Comp.A.No.734 of 2011. 19. What, thus, emerges, upon the perusal of the record, which includes the impugned order, is as follows : (i).That KOFL owed a sum of Rs. 66,55,055/-, to UWB/IDBI as on 31.03.1999. (ii).A resolution was passed by the BOD of KOFL on 31.03.1999, authorising one of its Directors to negotiate the sale of the subject property with UWB/IDBI. Accordingly, the letter dated 02.02.2000, was issued by KOFL to UWB/IDBI expressing its willingness to sell the subject property to UWB/IDBI. (iii).Consequent thereto, an agreement for sale dated 17.02.2000, was executed between KOFL and UWB. The total consideration fixed was Rs. 1,05,00,000/-, against which, KOFL received a sum of Rs. 41,00,000/-. (iv).As per (That the PURCHASER has paid a sum of Rs. 41 lakhs (Rupees forty one lakhs only) vide pay order No.177674, dated 17th February 2000 drawn on The United Western Bank Ltd., Broadway Branch, to the VE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h has formed a view that the subject transaction is a case of fraudulent preference, and while doing so, has returned the following findings of fact and law : (i).That the only immovable asset, which KOFL had, was the subject property. (ii).The aspect of sale of the subject property had not received the approval of its shareholders in accordance with the provisions of Section 293 of the 1956 Act. In other words, the Division Bench came to the conclusion that the said provision was applicable, as the subject property formed the whole or, substantially the whole of the undertaking of KOFL and therefore, its sale could only have been conducted with the approval of the shareholders at the general meeting. (iii).The provisions of Section 531 of the 1956 Act, pertaining to, fraudulent preference were applicable, as the transfer of right and/or interest in the subject property had not taken place. This finding was returned in the context of the argument advanced on behalf of UWB/IDBI that the subject transaction took place on 17.02.2000, which was more than six (6) months prior to the date of presentation of the winding up petition, i.e. 02.07.2001 and hence would not amount to frau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m, the learned Company Judge's assessment vis-a-vis the appellant is that the only reason he opposed Comp.A.No.734 of 2011, was that he did not want the creditors to take recourse to his personal assets. 21.3. In so far as UWB/IDBI is concerned, the learned Company Judge recognised the fact that Comp.A.No.734 of 2011, had been filed only to remove one of the impediments in its way in securing the title to the subject property. The present application, according to the learned Company Judge, was in effect an attempt to take a shortcut to success. 22. Having adverted to the motivation of the contesting parties, the learned Company Judge held that a conjoint reading of the provisions of Rules 95, 96, 99 and 24 of the Companies (Court) Rules, 1959, (hereafter referred to as "the 1959 Rules") would show that the Company Court had no discretion to dispense with the advertisement of the Company Petition. This view was supported by the learned Company Judge by referring to sub-rule (2) of Rule 100, which prohibits hearing of an application filed to seek leave to withdraw a winding up petition, before the date fixed in the advertisement for hearing of the said petition is reached. 22 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 2001, was also pending adjudication. Therefore, notwithstanding the impugned judgement, the OL, who was appointed to act as a PL, vide order dated 05.12.2001, would continue to do so in C.P.No.180 of 2001, as the said order was passed, both in C.P.Nos.179 and 180 of 2001. In order to buttress this submission, our attention was drawn to the Decree dated 04.10.2013, which adverts to the fact that only C.P.No.179 of 2001 stands dismissed. (iv). Fourth, the learned Company Judge, ought to have given an opportunity, not only to the appellant, but also other creditors and contributories, to step into the shoes of the petitioning creditor in terms of Rule 101 of the 1959 Rules, by having the Company Petition posted on another date. (v).Fifth, the impugned judgement was flawed, as it failed to take into account that the order of admittance, that is, order dated 05.12.2001, alluded to the fact that C.P.Nos.179 and 180 of 2001 were being admitted, inter alia, for the reason that KOFL had become insolvent and had lost its substratum. The impugned judgement and order had impacted these findings without dealing with them. (vi).Sixth, the undisputed position is that KOFL always owned on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... circumstances, in which, a company can be wound up by Court are provided for under Section 433 of the 1956 Act. At the relevant point in time, the said section contained six (6) clauses. These clauses enumerated the circumstances, in which, a company could be wound up. The subject Company Petition, i.e., C.P.No.179 of 2001, was filed under the provisions of Clause (e) and (f) of Section 433. 26.2. Clause (e) speaks of a circumstance, whereby, a company is unable to pay its debts. Clause (f), on the other hand, empowers the Court to wind up a company, if it is, in its opinion, just and equitable to do so. Since, we are not concerned with other circumstances, we do not think it necessary to advert to, those circumstances that are referred to in the remaining clauses. Suffice it to say that clause (e) of Section 433 is required to be read with Section 434 of the 1956 Act, as it articulates as to when a company is deemed to be unable to pay its debts. 26.3. Clauses (a) of Sub-section (1) of Section 434, sets up a statutory presumption qua inability to pay debts qua a company if, after it is served with a demand notice by a creditor in the manner prescribed, it neglects to pay the sai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esentation of a winding up petition, but before making an order of winding up, to appoint the OL attached to the concerned Court, as the PL. However, before appointing a PL, the Court is required to give notice and reasonable opportunity to the company, to make a representation, unless for special reasons, which are to be recorded in writing, the Court deems it fit to dispense with such notice. 27.3. The Court is also empowered to decide on the contours of the powers, it wishes to confer on the PL. In case, the Court places no fetters, the PL would be invested with the same power as that of the liquidator of a company. The provision with regard to this aspect of the matter has been made in Sub-section (3) of Section 450 of the 1956 Act. 27.4. Sub-section (4) of Section 450 makes it clear that, once, the winding up order is passed, the OL will cease to hold office as the PL and shall don the role of the liquidator of the company. This provision in line with the provision made in Section 449 of the 1956 Act. 28. Therefore, what comes through is that, both the creditor as well as the contributory can file a petition. In so far as the contributory is concerned, unlike a creditor, he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e both before and after admission are provided for in an indirect manner in Rule 96. Rule 96 states that the Company Judge may, if he thinks fit, give notice to the Company before giving directions as regards the advertisement of the petition. In other words, if, there is an admission of the Company Petition, then, a direction for advertisement has to be, necessarily, given, wherein, the date of hearing of the Company Petition would have to be indicated with a caveat that issuance can be delayed till after return of notice issued to the Company. 29.4. Moving further, 99. Advertisement of petition Subject to any directions of the Court, the petition shall be advertised within the time and in the manner provided by rule 24 of these rules. The advertisement shall be in Form No. 48. Rule 99 provides that subject to any directions that the Court may give, the Company Petition shall be advertised within the time and in the manner provided in 24. Advertisement of petition ((1) Where any petition is required to be advertised, it shall, unless the Judge otherwise orders, or these rules otherwise provide, be advertised not less than fourteen days before the date fixed for hearing, in one is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of failure to advertise the petition, as mandated under Rule 99 read with the provisions of Rule 24 of the 1959 Rules. It is also be worthwhile to note that a conjoint reading of Rule 99 along with Rule 24(2) would demonstrate that advertisement of the winding up petition cannot be dispensed with, by the Company Judge, and therefore, in that sense, makes advertisement compulsory given the nature of the proceedings. 29.8. Pertinently, though, neither Rule 99 nor Rule 24 stipulate the advertisement can only be published by the person or entity, which instituted the Company Petition. 29.9. The learned Company Judge does pose a question as to what would happen, if, the petitioner, who filed the Company Petition, failed to advertise the same, within the time prescribed by the Court. 30. The learned Company Judge answers this question by adverting to (101. Substitution of creditor or contributory for original petitioner Where a petitioner,- (1) is not entitled to present a petition, or (2) fails to advertise his petition within the time prescribed by these rules or by order of Court or such extended time as the Court may allow, or (3) consents to withdraw the petition, or to al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the Court has also gone on to observe that the appellant had not offered to prosecute the original petition. As a matter of fact, we may note that the Court further observed that even during the course of the hearing, the appellant made no such offer, even though, he could have made such an offer. 31. Therefore, to our minds, two aspects would arise for consideration given the fact and circumstances obtaining in the instant case. First, if, winding up is not advertised, by the original petitioner as directed, can the Court direct the PL to advertise the petition, having regard to the fact that the proceedings are inter alia for the benefit of creditors at large and not one single creditor ? 31.1. The answer to this poser, to our minds, has to be in affirmative as there is no bar in the Rules which prohibits a PL from advertising the Company Petition in such like circumstances, though, ordinarily, in practice, Company Petitions are advertised by the petitioner who institutes the action. As alluded to above, the Rules do not bar the Company Court from directing the PL to advertise the petition. The reason, why we hold this view is plainly this, that, while, advertisement of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he direction that the Court had reached, at that point in time, at least, to a prima facie conclusion that the liabilities of KOFL were substantially more than its assets, and that, KOFL had lost its substratum. 31.4. The record shows that KOFL, has at least, eight (8) secured creditors, who have outstanding dues, and that, there are, in effect, apart from the subject property, no other assets available to satisfy those dues. KOFL is thus, an entity, which is in deep financial crisis. The Court, therefore, in our view, ought to have directed the advertisement of the petition by empowering the PL to take steps in that behalf and allowed adjustment of cost incurred by him as the first charge against proceeds received on sale of assets of KOFL. 31.5. The fact that such circumstance, obtained in the instant case, is borne out by the observations made in paragraph 38 of the impugned judgement and order, wherein, the Company Judge observes that he is unable to acquiesce to the request advanced on behalf of UWB/IDBI that the OL should be discharged, as the depositors had received their dues. The learned Company Judge has opined, in our view, quite correctly, that there were other credit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h, that was not the prayer made in the application. 32.1. Mr.Seshadri, submits that since, compliance had not been made of the directions issued by the Company Judge, vide order dated 05.12.2001, requiring the original petitioner to advertise the petition, the learned Company Judge was well within his rights to dismiss the Company Petition, i.e., C.P.No.179 of 2001 as well. 32.2. We are unable to accept this submission. If the purpose of Rule 101 of the 1959 Rules, is to enable a creditor or a contributory to step into the shoes of the original petitioner, an adequate opportunity for the said purpose had to be given. Without giving adequate opportunity to creditors and contributories, the Court, in our view, could not have come to a decisive conclusion that the other creditors or contributories (apart from the appellant), would not be interested in stepping into the shoes of the original petitioner. 32.3. In fact, a perusal of the order dated 13.12.2013, passed by the DRT indicates that SBI has submitted a claim in Form 66, for a sum of Rs. 1,78,46,650.44, which is the sum due and payable according to it, as on 30.09.2006, along with future interest. This claim, evidently, was f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rein with regard to admission and other matters will continue to operate, even if, we were to sustain the impugned judgement and order vis-a-vis C.P.No.179 of 2001. 34. Before we conclude, we must also indicate that the result reached in the instant appeal would have an impact on SLP No.33825 of 2009, which arises out of O.S.A.No.284 of 2003, which was, as noticed above, dismissed by a Division Bench of this Court vide order dated 17.08.2009. In the said judgement, a coordinate Division Bench has returned a finding to the effect that the appellant, in entering into the subject transaction, had fraudulently preferred UWB/IDBI over other creditors. The fact that the appellant's motivation in keeping the winding up petition in play emanates from his desire to keep the creditors at bay, cannot, in our view, result in a situation, whereby the rights of other creditors and contributories, apart from that of UWB/IDBI, get impacted. It is another matter that looking at the liabilities of KOFL, contributories may get nothing at the end of the day. But that by itself cannot be the reason for depriving them or other creditors, the opportunity of stepping into the shoes of the original pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany Judge, whereby, winding up of the concerned company had been directed without advertising the Company Petition. The Division Bench held that the order of winding up was contrary to the statutory requirements, as stipulated in the 1959 Rules, which obligated advertisement of the winding up petition. In this regard, reference, inter alia, was made to Rule 24(2) of the 1959 Rules. This judgement, in so far it states that advertisement is mandatory, does not take a view which is very different from the one we have taken above. 35.2. As regards the judgement rendered in the matter of : Lt.Col.R.K.Saxena V. Imperial Forestry Corporation Limited, CDJ 2001 DHC 639, is concerned, the Delhi High Court, in that case, was called upon to decide as to whether publication of the advertisement in the Official Gazette was mandatory. The Court came to the conclusion that publication in the Official Gazette was mandatory, as it would give wider publicity to the factum of admission of the Company Petition. According to us, the issue involved in the present case is somewhat different. Therefore, save and except to the extent that the Court holds publication of the advertisement of a winding up p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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