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TMI Blog2013 (10) TMI 1470X X X X Extracts X X X X X X X X Extracts X X X X ..... thalakshmi also filed a similar petition for winding up in C.P.No.180 of 2001. Both the petitions were presented on 2.7.2001 and this Court ordered notice in both the petitions on 9.8.2001. 4. After completion of service of notice in both the company petitions, they came up for hearing on 5.12.2001. At that time, it was pointed out by the learned counsel, who entered appearance for the Company, that more than about 400 criminal complaints had been lodged against the company by various depositors and that lot of complaints were also filed before the Consumer Fora. The learned counsel appearing for the Company also submitted that they were unable to pay the debts and that the liability was more than the value of the assets. The counter affidavit filed by the Company itself disclosed that the Company was commercially insolvent. 5. The third respondent herein, who is the Chairman of the Company, came forward at that time to settle the claims of depositors, under two alternative Schemes, within a period of 3 to 4 years. Since the same was not acceptable to the creditors, the third respondent agreed to bring his own personal funds to pay the depositors in instalments. He also filed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an appeal in OSA No.284 of 2003. The appeal was dismissed by the Division Bench, by an order dated 17.8.2009. During the pendency of the appeal, the United Western Bank Limited, got amalgamated with IDBI, which is the applicant herein, with effect from 3.10.2006. 12. Therefore, the applicant filed a special leave petition in SLP(Civil) No. 33825 of 2009 on the file of the Supreme Court. It appears that the Supreme Court ordered notice in the said special leave petition and the same is pending. 13. During the pendency of the original side appeal filed by the applicant Bank against the rejection of their prayer for execution of a Sale Deed, the third respondent herein took out 4 applications in C.A.Nos.2482 to 2485 of 2007, praying inter alia for (i) permission to deposit a sum of ₹ 1,76,10,277/-, representing 30% of the amount payable to 4504 depositors; (ii) permission to furnish Bank Guarantee in favour of the Administrator for a sum of ₹ 2,93,50,461/-, representing 50% of the monies payable to 4504 depositors; (iii) recording full and final settlement to all the depositors of the Company and to discharge the Chairman (the 3rd respondent herein) from any liabili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure that the third respondent stuck to his undertaking, the Court directed him to make a fixed deposit of ₹ 25 lakhs and hand over the deposit receipt to the Official Liquidator. The Administrator was also discharged by this Court by the said order. 17. After the expiry of one year from the date of the said order viz., 23.6.2009, the third respondent filed an application in C.A.No.1716 of 2010 for refund of the fixed deposit of ₹ 25 lakhs, on the ground that after the order dated 23.6.2009, no depositor came up with any claim. The said application was allowed by this Court on 2.12.2010. 18. Thereafter, the applicant has come up with the present application, praying for a direction to discharge the Official Liquidator. The short grounds on which the applicant seeks the discharge of the Official Liquidator are (i) that even according to the third respondent (Chairman and Managing Director of the company-in-liquidation) and the Official Liquidator, the claims of 6464 depositors were settled out of Court by the Chairman and the claims of 4504 depositors were settled by the Administrator with 100% payment; (ii) that though the cheques issued to 1782 depositors returned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tiated recovery proceedings in O.A.Nos.978 of 2000, 139 of 2001 and 14 of 2002 on the file of the Debts Recovery Tribunal; (iii) that the Official Liquidator has not so far invited claims from the secured and unsecured creditors as well as the workmen and hence he is not in a position to ascertain the quantum of debts to be settled; (iv) that as per the claims made by the Banks in the recovery applications, a sum of ₹ 535 lakhs was due as on 13.8.1998; (v) that Income Tax Assessment was pending for several years; (vi) that as on 1.1.2013, the Official Liquidator has funds to the extent of ₹ 1,27,00,000/- by way of investments, ₹ 3,29,441/- at Bank and ₹ 22/- at cash; (vii) that the Bank has come up with the present application with the mala fide intention of succeeding in retaining a valuable property, after having lost their application C.A.No.1208 of 2002, both before the Company Court and before the Division Bench; (viii) that the Official Liquidator is obliged to discharge certain duties envisaged under Section 457; and (ix) that the applicant cannot be allowed to score a march over all the other 7 Banks. 22. I have carefully considered the rival subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial leave petition in the Supreme Court, since the question of validation of the transaction in terms of Section 536(2) would not arise, after the company had gone out of winding up. Therefore, the present application is, in effect, an attempt to take a short cut to success. But, the applicant-bank is raising certain legal grounds and if I find those grounds to be valid in the eye of law, it is not for me to get obsessed with the fact that the applicant is taking a short cut. 24. Having found out the real reason behind the applicant-bank seeking the dismissal of the winding up petition, let me now explore if the third respondent has any hidden agenda, in opposing this application. 25. As pointed out in the sequence of events, the second respondent herein viz., S.Ramaiah and his wife R.Seethalakshmi, had invested monies in fixed deposits in the company-in-liquidation. After the fixed deposits matured for payment, they made demand for repayment. Since the company could not make payment, these poor depositors came up with the main company petitions C.P.Nos.179 and 180 of 2001 for the winding up of the company. 26. On 9.8.2001, this Court ordered notice in both the company pet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ividend to the creditors out of the sale proceeds, falls upon the Official Liquidator. 30. Interestingly, the petitioning creditors in the main winding up petitions, were also depositors only. Therefore, the third respondent appears to have settled their dues also and hence they are not interested in pursuing the winding up petitions. But the third respondent is interested in the continuation of the winding up proceedings, for one simple reason. If the company goes out of liquidation, all the remaining secured and unsecured creditors would naturally pounce upon the company and the third respondent and they have to face a spate of litigation. But if the winding up proceedings continue, all that is required of the ex-directors including the third respondent, is to file some statement of affairs and throw their hands up in the air, leaving it entirely to the Official Liquidator to deal with the creditors. Therefore, the real reason behind the third respondent opposing the present application, is to save himself and the company from the onslaught of claims by creditors other than depositors. 31. As a matter of fact, whatever had happened so far in these proceedings, could not be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y to extract the relevant portion of the order dated 5.12.2001. Hence it is extracted as follows:- 3. Mr.R.Saseedharan, learned counsel entered appearance for the respondent-Company, Mr.Saseedharan, filed counter affidavit and additional affidavit of the respondent, besides a report as to the state of affairs as disclosed by the respondent-Company. 4. It is also admitted that around four hundred and odd criminal complaints against the respondent-Company been registered by various depositors, with police besides the Company is facing proceedings before various District Consumer Disputes Redressal Forums. The respondent-Company had also instituted number of suits and they are pending. 5. It is fairly admitted on behalf of the respondent-Company by Mr.R.Saseedharan that the Company is factually unable to pay its debts. Concedingly, the liability is more than the available assets as well as what is receivable. The Company has not only received substantial deposits but also raised various secured loans, the details of which, we are not concerned, at this stage. 6. It is seen from the counter affidavit and the additional counter affidavit that the Company is not only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany Petitions in the Government Gazette returnable on the same date. (iii) The respondent-Company is directed to deposit ₹ 10,000/- (Rupees Ten Thousand only) with the Official Liquidator forthwith, which Mr.R.Sashidharan readily agreed to deposit shortly. (iv) All the Directors of the respondent-Company and its Principal Officer, Chief Officer and Officers as of today, are directed to file affidavits setting out the affairs as hitherto carried on by the respondent-Company, within two weeks from today. (v) All the Directors, Principal Officer, Chief Executive and Officers shall also file the full particulars of the properties held or owned by them or acquired disposed of by them, within the last five years, value of properties, investments, all valuable assets both immovables and movables, by filing a separate statement. (vi) This Court appoints M/s.Rengal Krishnan, Chartered Accountants, No.17, Kennady Ist Street, Mylapore, Madras-4 to go into the accounts, ledgers, alla transactions, advances, deposits, investments and entire affairs of the respondent-Company, investigate the legality or otherwise of each transaction and file a report. The Auditor sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ors Act, 1997. 38. Therefore, it is in the above background of facts and the special privilege that the third respondent had enjoyed from this Court, that his opposition to the application of the bank has to be considered. The first ground on which the applicant seeks a discharge of the Official Liquidator is that more than about 10,000 depositors have admittedly received 100% payment and that even the Administrator appointed by this Court has already been discharged. But on this ground, I cannot discharge the Official Liquidator, since there are other creditors such as banks who have gone before the Debts Recovery Tribunal. The Official Liquidator is yet to invite claims from the creditors of the company. Only one set of creditors viz., the depositors have received payments either in full or in full and final settlement. None of the other creditors has received any payment. Therefore, on the ground that nothing more remains to be done, the Official Liquidator cannot be discharged. 39. The next ground on which the applicant seeks the discharge of the Official Liquidator and the dismissal of the company petition is that so far no publication has been effected in the newspapers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce Rule 99 makes a reference to Rule 24, let us also take a look at Rule 24, which reads as follows:- R.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 issue of the Official Gazette of the State or the Union Territory concerned, and in one issue each of a daily newspaper in the English language and a daily newspaper in the regional language circulating in the State or the Union Territory concerned, as may be fixed by the Judge. (2) Except in the case of a petition to wind-up a company the Judge may, if he thinks fit, dispense with any advertisement required by these rules. 44. The use of the expression shall in Rule 99 indicates that advertisement is mandatory. But sometimes Courts have interpreted the expression shall to mean may and vice-versa. Therefore, for the present, I would keep aside the expression shall appearing in Rule 99. 45. Even then Rule 24(2) shows that the Company Court does not even have the power to dispense with any advertisement, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioning creditor. But two conditions are to be satisfied for the invocation of Rule 101. They are (i) the person who gets substituted, should have a right to present a petition and (ii) such person is desirous of prosecuting the petition. 50. Today, no other creditor or contributory has come to this Court expressing a desire to prosecute the original petition for winding up. Interestingly, the third respondent has not made any offer to prosecute the original petition. Even in the course of hearing of the present application, the third respondent who was the Chairman of the company, could have made an offer to prosecute the petition, by getting substituted in the place of the original petitioning creditor. But he did not do so. The banks have already gone to the Debts Recovery Tribunal and they have also not chosen to come before this Court, despite the fact that the above company petition is pending for the past about 12 years and many things have happened both within and without the purview of the provisions of the Companies Act. Therefore, I do not think that the third respondent can today take umbrage under Rule 101. 51. Way back in 1967, the Supreme Court made it clear in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the views expressed by the Allahabad and Gujarat High Courts, with regard to the power of the Company Court to dispense with the publication of advertisement in the Official Gazette. In Lt. Col. R.K.Saxena vs. Imperial Forestry Corporation {2001 (107) CC 401 (Del.)}, a Division Bench of the Delhi High Court, after a careful consideration of Rules 96, 99 and 24 held that the publication of the advertisement of a petition for winding up is mandatory, even in respect of the Official Gazette . On the scope of the discretion conferred by Rule 99, the Delhi High Court held that the discretion is limited only to the extent of deciding at what stage the petition is to be advertised. The contention that the Company Court has inherent powers by virtue of Rule 9 even to dispense with the requirement of Rule 24, was also rejected by the Delhi High Court on the ground that if a statute requires a thing to be done in a particular manner, it shall be done in that manner or not at all . 54. Though there was a difference of opinion between the Allahabad and Gujarat High Courts on the one hand and the Delhi High Court on the other hand, with regard to the power to dispense with the public ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n for winding up, whether initiated at the instance of one creditor or at the instance of the company or at the instance of a contributory, takes the shape of a proceeding of a representative character. This is why a petition for winding up cannot even be withdrawn without the leave of the Court, as per Rule 100(1). A proceeding for winding up is almost like a proceeding under Order I, Rule 8, though the institution of such a proceeding does not require the permission of the Court as required by Order I, Rule 8 (1)(a) of the Code of Civil Procedure. But there is one striking difference. Under Order I, Rule 8(5) of the Code, the Court has the power to substitute any other person who has the same interest in the suit, if the person suing does not proceed with due diligence. To exercise the power under Order I, Rule 8(5), the Court is merely obliged to see if any one is having the same interest in the suit. In contrast, a Company Court is obliged under Rule 101, before ordering substitution, to see (i) if the person proposed to be substituted, otherwise has a right to present the petition for winding up and (ii) if such person is desirous of prosecuting the same. 58. It is not without ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Court) Rules, cannot postulate a situation where a person who has issued a notice and is waiting for filing company petition is to be transposed as an original petitioner. Such a petitioner need not come as a petitioner by way of transposition. He has got every right to file a petition. The transposition comes into play only in a situation where the original applicant disappears from the scene for some reason or other and there are other parties to the petition who have got similar interest in the prosecution of the petition. Therefore, it is only to be noticed whether the Coffee Board is really a creditor of the company or not. Only in that sense the word creditor in Rule 101 is to be interpreted. Otherwise as indicated earlier there is no scope for a creditor who satisfies the ingredients of sections 433 and 434 to seek permission for transposition. Considering this matter in the above perspective I am of the view that the Coffee Board satisfies the ingredients of Rule 101 for transposition in the original petition in order to prosecute the petition. 60. The said decision of the Company Court was taken on appeal before a Division Bench. The Division Bench upheld the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filing an affidavit in opposition to the eligibility of the Coffee Board to pursue the original petition for winding up. This was on the ground that the Coffee Board did not qualify to file a petition under Section 433, as they had not issued the statutory notice as contemplated by Section 434. Rejecting the objection relating to maintainability, another learned Judge of the Kerala High Court held in Perfect Gunny Stores vs. L.R.Rangaier Sons P. Ltd. {2003 (115) CC 354}, that the compliance with the requirements of Section 434 (issue of statutory notice) cannot be insisted upon, for the purpose of transposition of one creditor in the place of the original petitioning creditor. The Court pointed out that the Coffee Board (substituted petitioner) got impleaded as the 22nd respondent in the original petition and had waited for 10 years and that therefore, it would not be appropriate to direct the Coffee Board to go to the Civil Court at that stage. 62. But, there are two difficulties in accepting the above decision of the Kerala High Court, as settling the law relating to the twin requirements of Rule 101. The first is that rule 101 is not about transposition, but about substitutio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... get substituted. A creditor gets a right to present a petition for winding up only after the issue of statutory notice. If a creditor who did not issue the statutory notice, is substituted, it may not, as opined by the Kerala High Court, hit at the maintainability of the original petition. But it will strike at the root of his entitlement to be substituted. As I have pointed out earlier, the Division Bench of the Kerala High Court, even while upholding the first order under Rule 101, made it clear that even after substitution, the substituted person should establish his entitlement to proceed with the petition. But if this view is accepted, the Company Court would be compelled to consider post facto the question as to whether there was a legally enforceable debt due to the substituted person, so as to entitle him to an order for advertisement of the petition. This will only lead to one uncertainty followed by another. An interpretation to a Rule cannot result in a position where the proceedings are plunged in several uncertainties. Therefore, there is no question of following Rule 101 in this case. Consequently, the company petition is liable to be thrown out, for the failure of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion that the company petition cannot be dismissed behind the back of the entire body of creditors coming as it does from the third respondent, is only like the Wolf shedding tears for the lamb. 69. The second contention that in the light of the finding recorded in the order dated 5.12.2001 that the company has become commercially insolvent, there is no alternative except to wind up the company, cannot also be accepted. Admittedly, more than 10,000 depositors had been settled both inside and outside this Court to the tune of more than ₹ 7 crores. The third respondent may claim that all the money used to settle the claims of depositors were his own personal funds. But the fact remains that the third respondent, as a contributory, could pump in so much of money to save the company and the Directors from the criminal prosecution under the provisions of the Indian Penal Code and the Tamil Nadu Protection of Interest of Depositors Act, 1997. The question as to whether the monies brought in by the third respondent were actually his personal funds or the funds that earlier belonged to the company, is a moot question into which I would not go. But a perusal of the order dated 5.12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... true that a Consortium of 8 bankers had lent money to the company-in-liquidation and that some of them are before the Debts Recovery Tribunal. The dismissal of the company petition is not going to have an impact upon those proceedings. If the banks are secured creditors, they will only be happy about the dismissal of the winding up petition, since they do not have to associate the Official Liquidator anymore with any coercive steps that they take. If they are unsecured creditors, their position is not going to become worse by the rejection of the company petition. In so far as the workmen are concerned, what they would get after a company is wound up, is only a distribution as provided in Section 529-A of the Companies Act. But once the petition for winding up is rejected, their remedies against the company are not limited by any such factor. 73. The pendency of Income Tax Assessment need not be a concern for the Official Liquidator. Once the winding up petition goes, the provisions of the Income Tax Act, could easily be set in motion, both for recovery as well as for penal action. 74. The last contention of the learned Official Liquidator that by allowing the application of ..... 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