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TMI Blog2011 (10) TMI 764X X X X Extracts X X X X X X X X Extracts X X X X ..... s out of the Order of dismissal of the application - C.A. No. 1286 of 2010 (30.03.2011) preferred by the appellant. 2. The Company - Sri Visalakshi Mills Private Limited owes an amount of ₹ 79.35 Crores to the secured creditors - Indian Bank, ARM, Madurai, Dena Bank, Madurai, workmen and other claims payable to E.S.I. Corporation and E.P.F. Organisation. For recovery of the amount of ₹ 13,18,88,090/-, Indian Bank has initiated SARFAESI proceedings in 2004. After long drawn litigation, unit 'C' was sold in 2007. In respect of 'A' and 'B' units, the SARFAESI proceedings are pending. Earlier, the Company challenged the order of appointment of the Official Liquidator to take possession of the properties and to give police protection and the Company failed to comply with the Order of the Court made in O.S.A. No. 312 of 2008. In the second round of litigation, the Company also challenged the sale of assets of the Company. In these circumstances, can the appellant claiming to be the Contributory invoke the inherent jurisdiction of the Company Court to re-agitate the matter on the ground of irregularity in the initial advertisement in the two newspape ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.7.2008, the Official Liquidator, who had been appointed as a provisional liquidator, had convened a meeting of the secured creditors, Ex. Directors and petitioning creditor for the purpose of taking charge of the assets. In pursuance of the Order of the Court, the provisional liquidator effected publication calling for claims against the Company. The Official Liquidator was directed to value the assets in 'A' and 'B' Units through ITCOT. 6. Direction to Official Liquidator to take possession of the properties and O.S.A. No. 312 of 2008:-By the Order dated 24.9.2008, the Court directed the Official Liquidator to take possession of the properties of the Company and also directed the Directors to hand over the keys of the Company and permission was granted to the Official Liquidator to break open and take possession in case of non-co-operation. As against the Order dated 24.9.2008, Company filed O.S.A. No. 312 of 2008. In the appeal, the Company handed over a Cheque (dated 19.11.2008) for ₹ 5,00,000/-in favour of the Petitioning Creditor and the counsel appearing for the Company took time for getting instructions for repayment of the balance amount to the Pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the date of auction was fixed on 10.09.2009. On 15.09.2009, sale was confirmed by the Court and consequential order was passed on 14.10.2009 allowing the Official Liquidator to hand over the properties. 9. Being aggrieved by dismissal of the applications - C.A. Nos. 1238 and 1239 of 2009, the appellant preferred appeals in O.S.A. Nos. 370 and 372 of 2009. Both in the applications as well as in the appeal, the appellant challenged the auction and auction proceedings mainly on the grounds that the properties are in the border of Madurai Corporation limit very near to schools and colleges and the properties are very valuable properties and that the valuation was not properly done and that the auction is vitiated on account of the error apparent on the face of the records in fixing the upset price. It was further averred that a Syndicate had been formed to knock away the property at a very low price. Yet another objection raised was that many Indian Companies, textile industries all over India and even the foreign companies have the proposal to start their Companies at Madurai and therefore global tenders should have been sought before proceeding with the auction. The grievance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of expenses incurred by the Official Liquidator stating that the Official Liquidator has incurred expenses to the tune of ₹ 91,32,559/-towards valuation charges, professional charges and the payment to the security and other incidental expenses. The 2nd respondent - Petitioning creditor also filed an elaborate counter affidavit stating that the appellant very well knew about the pendency of the proceedings all along since his own father was defending the proceedings and that the appellant was residing at Madurai and knew that possession had been taken over by the Official Liquidator and that the appellant cannot take advantage of the trivial irregularity in the advertisement. The workmen, who filed impleading petition, also strongly opposed the application by contending that the appellant is residing along with his father - N. Thiagarajan, who was defending the Company Petition all these years and that the application has been filed only to drag on the proceedings and to evade the workmen's claim. 13. Even though the appellant claimed that he is a shareholder before the single Judge, the appellant did not produce any share certificates, but only relied upon entry in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gs would also apply to judicial proceedings such as a petition for winding up of a Company. 15. Per contra, Mr. V. Prakash, learned Senior Counsel for the official liquidator has raised strong objection as to the locus standi of the appellant as the 'contributory' in terms of Section 428 of the Companies Act. The learned Senior counsel has submitted that in terms of Section 439(1), only those persons mentioned therein are entitled to present a Petition for winding up of a Company and a person as a 'contributory' is entitled to file an application only if he satisfies the requisites of Section 439(4)(b). Learned Senior Counsel would mainly contend that only a person as a 'contributory' in terms of Section 439(4)(b), is entitled to file application relating to the winding up petition including a petition to set aside/recall the order of winding up and the appellant was not a shareholder as on date of winding up and therefore he has no locus standi to file any petition for setting aside the order of winding up. 16. Locus standi:-The appellant claims that he holds 30,000 shares in the Company and that he is substantial shareholder in the Company in liquid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 12.8.2011, Official Liquidator has filed a detailed report stating that the contention of the appellant that he held 9,000 shares of the Company in liquidation is not correct. 19. We may briefly refer to the report of the Official Liquidator refuting the contention of the appellant that he is the shareholder of the Company in liquidation. Share certificate No. 69 for 5000 shares with distinctive numbers 26290 to 31289 was shown to have been transferred thrice as detailed below: Sl. No. Transferee Transferor Transfer No. Date of Registration 1 N. Palaniappan L. Narayanan Chettiar 8 18.12.1957 2 N. Thiagarajan N. Palaniappan 25 10.9.1980 3 T.Narayanan N. Thiagarajan 31 14.9.1990 Share Certificate No. 71 for 4000 shares with distinctive Nos. 63410 to 67409 was issued to Sri L. Narayanan Chettiar and the shares were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant whether he was 'contributory' or not. Merely accepting the averments in the Petition, the Court has granted permission to the appellant to file application/appeals. While so, the appellant cannot take advantage of the orders passed in the applications. 24. In so far as the documents produced by the appellant, the documents relate to the period from 1990-2003. In terms of Section 439(1) of Companies Act, only those persons mentioned therein are entitled to present a petition for winding up of a Company. Only a person as a contributory in terms of Section 439(4)(b) is entitled to file application as petitioner relating to winding up of the Petition. In terms of Section 439(4)(b), a contributory can maintain a petition only if he has held the shares for at least six months during the eighteen months immediately before the commencement of the winding up proceedings. 25. In order to file a Petition for winding up, a contributory has to satisfy the requirements of Section 439(4)(b). As per Section 439(4)(b), the name should have been registered as a shareholder for atleast six months during the 18 months immediately before the commencement of the winding up. Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would further submit that if we dilute the rigour of Section 439(4)(b), anybody claiming to be the contributory can come to the Court and try to file the winding up petition, thereby jeopardising the functioning of the Company. It was further argued that when such is the statutory inbuilt for filing of winding up petition, the same inbuilt safeguard would vice-versa apply to the contributories for filing the petition to set aside the winding up order. 29. We find much force in the submission of the learned Senior Counsel for Official Liquidator. Emphasising on the durational requirement , when a statute prescribes that only a certain class of contributories can seek relief of filing winding up petition, the same stipulation applies vice versa for filing petition to set aside the winding up order. When the Act emphasises the durational requirement of holding shares by the contributory for filing winding up petition, only those persons are empowered to undo the same. If we dilute the rigour of Section 439(4)(b) either for filing winding up or for setting aside the order of winding up, it would affect the stabilised functioning of the Company. In the absence of necessary proof t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Liquidator has submitted that the non-mentioning of the number of the Company Petition and name of the Company in the advertisement could only be an irregularity in the initial advertisement and such procedural irregularity in compliance with the mandatory requirements would not vitiate the order of winding up. It was further submitted that even though the cause title and the Company Petition number were not given in the advertisement made in the news papers, the Gazette publication was totally in accordance with law. Placing reliance upon decisions of Supreme Court in Syndicate Bank and Others vs. Venkatesh Gururao Kurati, (2006) 3 SCC 150 and Union of India and Others vs. Bishamber Das Dogra, (2009) 13 SCC 102, the learned Senior Counsel would further submit that to sustain the allegations of violation of principles of natural justice, one must establish prejudice and no such prejudice was shown to have been caused to the appellant. 32. Mr. Vijay Narayan, the learned Senior Counsel for the petitioning creditor/2nd respondent would submit that the agent, who has been entrusted the job of giving advertisement by the petitioning creditor misunderstood the scope of publicati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng of the petition, and order that the petition be advertised and direct that the petition be served upon persons specified in the order. A petition for winding up cannot be placed for hearing before the Court, unless the petition is advertised: that is clear from the terms of Rule 24(2). But that is not to say that as soon as the petition is admitted, it must be advertised. In answer to a notice to show cause why a petition for winding up be not admitted, the Company may show cause and contend that the filing of the petition amounts to an abuse of the process of the Court. If the petition is admitted, it is still open to the Company to move the Court that in the interest of justice or to prevent abuse of the process of Court, the petition be not advertised.... 36. C.P. No. 78 of 2008 was filed on 13.2.2008 and on 7.3.2008, notice regarding admission was directed to be served on the Company. On 13.6.2008, after the notice was duly served on the Company, the matter was listed for hearing; but there was no representation on behalf of the Company and the matter was adjourned to 24.06.2008. On 24.06.2008, order was passed that the Official Liquidator be appointed as the provisional ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntended by the learned Senior Counsel for the Official Liquidator, to sustain the allegations of violation of principles of natural justice, one must establish prejudice. When fairness is shown and if the facts and circumstances indicate that the Company/contributory were put on notice and that no prejudice was caused to them, the Company/contributory cannot complain of any procedural irregularity. The facts and circumstances clearly show that the appellant was not put to any prejudice by the procedural irregularity in the advertisement - non-mentioning of the Company Petition number and cause title in the paper publication. The appellant, being son of the Director of the Company, knew about the pendency of the proceedings all along since his father was defending the same. It is stated that the appellant was aware that the possession of the properties had been taken over by the Official Liquidator. Earlier, by the Order dated 24.9.2008, the Court directed the Official Liquidator to take possession of the properties of the Company. As against the said order dated 24.09.2008, the Company preferred appeal in O.S.A. No. 312 of 2008. Because of non-compliance of the direction of the Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the proceedings. It is further averred that when the representatives of the Official Liquidator came to take possession of the mill in September 2009 and the Time Keeper handed over the keys only after getting permission from the appellant. In the earlier appeals, the alleged procedural irregularity in the advertisement was not raised. The omission to raise the same in the earlier appeals would certainly be a deliberate waiver of those objections. Having omitted to raise the objections, the appellant is now precluded from challenging the winding up order. 42. Re. Contention - Petitioning creditor's dues settled: As pointed out earlier, the amount was paid to petitioning creditor and on 27.8.2009, a joint memorandum was filed by the Company and 2nd respondent stating that the entire amount was settled and the Company Petition is not being pressed. Laying emphasis upon the same, the learned Senior Counsel for the appellant has submitted that when the amount due to the 2nd respondent has been fully settled, the claim of the Bank is being contested before D.R.T., and the claim of the workmen is only to the extent of 3.12 crores as per Section 12(3) settlement. It was furt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the entire dues to the 2nd respondent/petitioning creditor, in pursuance of the order of the Court dated 19.2.2009, the company has not paid the amount of ₹ 25,08,395/-to the Official Liquidator. In pursuance of the direction of the Court, the Official Liquidator has effected advertisement atleast eleven times for bringing the property to sale. As per the direction of the Court, the Official Liquidator had also taken possession of the assets of the Company and has also taken possession of the properties from Indian Bank in respect of 'A' and 'B' units and the Official Liquidator has appointed security and incurred expenditure towards security services. As per the report, upto 31.7.2011, the Official Liquidator has incurred a sum of ₹ 1,04,63,659/-towards security services, valuation charges, advertisement charges and other expenses in winding up proceedings of the Company in liquidation. The Official Liquidator has spent the said amount from out of common establishment charges account of the Official Liquidator. Even though the appellant seeks to set aside the winding up order, neither the company nor the appellant has come forward to settle the dues to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e proceedings and having challenged the same in the earlier round of litigation, cannot invoke the inherent jurisdiction of this Court to set aside the winding up order passed on 3.12.2008. The inherent power cannot be exercised to upset the scheme of the things under the Act and the claim of the workmen. 49. If the winding up order is set aside, then the Banks would proceed under the SARFAESI Act and would appropriate the amount and in that event the workers will not have any protection under Section 529-A of the Companies Act and the 850 workers will be in the streets. The inherent power cannot be exercised to upset the claim of the workmen. 50. SARFAESI Proceedings and Directions for further proceeding:-As pointed out earlier, the Official Liquidator has incurred huge expenses for safeguarding the property by engaging the security guards and the Official Liquidator is not in a position to pay the remuneration to the security guards. In the supporting affidavit filed by the Indian Bank in the impleading petition - M.P. No. 3 of 2011, Indian Bank has expressed its readiness to tender the Official Liquidator's expenses and stated that the Indian Bank may be allowed to con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce, confirmation of the sale, holding of the sale proceeds and distribution thereof among the creditors in terms of Section 529-A and 529 of the Companies Act. 52. In the instant case, the Official Liquidator had taken possession of the assets in September 2008. The Official Liquidator has also got valuation of the assets by ITCOT Consultancy Services Limited, Chennai. The Official Liquidator has brought the property for sale and issued advertisement atleast 11 times and incurred huge expenditure of ₹ 1,04,63,659/-as on 31.7.2011 towards valuation charges, advertisement charges, security salary payment, etc., 53. We are of the view that the ends of justice would be served if Indian Bank is permitted to bring the properties to sale and associate the Official Liquidator in the proceedings before DRT. In pursuance to the readiness expressed by the Indian Bank, the Indian Bank is to be directed to pay to the Official Liquidator a sum of ₹ 1,04,63,659/-being the expenditure incurred by the Official Liquidator as on 31.7.2011 from out of the common establishment charges of the Official Liquidator (vide report of the Official Liquidator dated 12.8.2011) and the subsequ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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