HIGH
COURT OF ANDHRA PRADESH,
Charminar
Papers Ltd., In re
Ramesh
Ranganathan, J.
R.
C. C. No. 13 of 2001
October
3, 2007
Section 433 of the Companies Act, 1956, read with rules 99 of the Companies (Court) Rules, 1959 - Winding up - Circumstances in which a company may be wound up - Whether BIFR’s opinion that company be wound up on just and equitable ground merely forms basis for continuance of proceedings for winding up of sick industrial company and further proceedings, after receipt of opinion of BIFR, are to be conducted by Company Court in accordance with provisions of Act and Rules made thereunder - Held, yes - Whether, however, while exercising its discretion, whether or not winding up petition should be admitted, Company Court can only examine contents of opinion and recommendation of BIFR and nothing else; any other matter extraneous to opinion and recommendation of BIFR including subsequent events can only be examined after admission of petition on an advertisement being issued putting creditors, contributors and others on notice of BIFR having recommended winding up of company on just and equitable grounds - Held, yes
The BIFR forwarded its opinion to the High Court that it was just and equitable that company be wound up as the company could not be revived. The High Court, by an order, appointed the Official Liquidator attached to the Court as provisional liquidator of the company and directed him to take possession of the assets of the company. The erstwhile managing director of company filed an application seeking recall of the said order of the Court; for discharge of the provisional liquidator; and for a consequential direction that the management of the company be handed over to the former board of directors of the company represented by its ex-managing director. In the affidavit, filed in support of the company application, it was stated that while the reference of the BIFR recommending winding up of the company was pending before the High Court, the erstwhile management of the company had reached an one time settlement of their outstanding dues with the three secured creditors, in terms of which the former management had raised the required finance and had settled the dues of all the secured creditors; and that in addition they had settled the claims of the workmen and majority of claims of the unsecured creditors.
On a conjoint reading of rule 99
of the Companies (Courts) Rules, 1959 and Form No. 48, it is evident that
creditors, contributories and others, desirous of supporting or opposing the
making of an order for winding up of the company petition, are put on notice of
a petition for winding up having been presented before the High Court. The
purpose, which the advertisement seeks to serve, is to enable a creditor,
contributory or any other person either to support or to oppose the making of
an order of winding up. On being put on notice, contributories, creditors and
others are entitled to file their affidavits in opposition to the petition for
winding up. [
As held by the Supreme Court, in
V.R. Rama Raju v. Union of India [1997] 89
Company Case 610, sub-section (2) of section 20 of the 1985 Act, has to be
construed to mean that the High Court, while deciding the question of winding
up of the company, has to take into account the opinion of the BIFR forwarded
to it under section 20(1) and is not to abdicate its own function of
determining the question of winding up. [
The BIFR is an expert body
constituted to examine and explore avenues for revival of sick industrial
companies. It is only when it is of the opinion that the company cannot make
its net worth exceed its accumulated losses within a reasonable time can it
recommend that the company be wound up. While the opinion of such an expert
body is entitled to great weight, it is, nonetheless, neither conclusive nor
binding on the High Court. [
The power conferred on the High
Court under section 433 read with section 443, to order winding up of a
company, is judicial in nature. The
The very fact that, under
section 20(2), the High Court is required to proceed with the winding up in
accordance with the provisions of the Companies Act, 1956 would necessitate the
conclusion that the High Court, even after receipt of the opinion of BIFR,
still has the discretion under section 433, read with section 443 thereof,
either to order or to refuse winding up of the company. Section 439 permits an
application for winding of a company to be made by the company itself, its
creditors, its contributories or by the Registrar of
companies. Except for the aforesaid, none other can file an application. What
sub-sections (1) and (2) of section 20, in effect, dispense with are the
requirements of section 439 for the purpose of initiating proceedings for
winding up of the company under part VII Chapter II of the Companies Act.
Proceeding for winding up shall have to be conducted, after receipt of the
opinion of the BIFR, in accordance with the provisions of the Companies Act and
the Companies (Court) Rules, 1959. If the
Prior to admission of the
company petition, the Companies (Court) Rules, do not require an advertisement
to be issued. Ordinarily, a petition for winding up under section 433, read
with section 439, is posted for ‘hearing on admission’ after notice is given to
the respondent-company, and it is only after the petitioner and the respondents
are heard, and the Court is prima
facie satisfied that the company
petition justifies admission, would admission and an advertisement, as
prescribed under the Companies (Court) Rules, follow. While exercising its
discretion, whether or not the winding up petition should be admitted, the
In the instant case, it was not
even the case of the ex-management of the company that the opinion of the BIFR
was erroneous. The submission, on the other hand, was that while the opinion of
the BIFR might be justified on the facts as existed then, events subsequent
thereto would necessitate the Court to refrain from exercising its
discretionary jurisdiction under section 433, to wind up the company. Truth or
otherwise of the factual assertions that a one time settlement had been entered
into with all the secured creditors, that the dues of a majority of the
unsecured creditors had already been paid; that the workmen dues had been
settled, etc., could only be ascertained after the prescribed notice was
advertised informing all concerned that the BIFR had recommended winding up of
company-in-liquidation on just and equitable grounds; affidavits were filed
either in support or in opposition to the winding up, and evidence, both oral
and documentary, was adduced in the course of winding up proceedings. [
Therefore, the company petition was to be admitted. [