1984 (12) TMI 247 - HC - Companies Law

Issues Involved:
1. Jurisdiction under Section 536(2) of the Companies Act, 1956.
2. Effect of the Bombay Relief Undertakings (Special Provisions) Act, 1958.
3. Merits of the financial transactions and objections raised.

Issue-wise Detailed Analysis:

1. Jurisdiction under Section 536(2) of the Companies Act, 1956:

The applicant company sought clearance from the court under Section 536(2) of the Companies Act, 1956, for borrowings and financial facilities from various financial institutions. The court noted that despite the stay of the winding-up petition due to the notification under the Bombay Relief Undertakings (Special Provisions) Act, 1958, the court still had jurisdiction to entertain and decide the application on merits. The precedent cited was the Division Bench decision in Company Application No. 95 of 1984 in Company Petition No. 105 of 1983, which supported the view that the court could grant necessary clearance to the applicant company facing a winding-up petition.

2. Effect of the Bombay Relief Undertakings (Special Provisions) Act, 1958:

The notification under the Bombay Relief Undertakings Act suspended all rights, privileges, obligations, and liabilities (except those of banks) and stayed all proceedings related to the applicant company. However, the court clarified that the present application was not for the enforcement of any pre-existing rights or obligations but was a request for clearance of financial transactions to restart the company's operations. Thus, the notification did not bar the court from entertaining the application under Section 536(2) of the Companies Act.

3. Merits of the financial transactions and objections raised:

The applicant company had approached financial institutions like the State Bank of India (SBI) and the Industrial Development Bank of India (IDBI) for financial assistance to restart its textile unit. The SBI agreed to grant Rs. 98 lakhs at a concessional interest rate of 13.5% and other financial facilities. The IDBI sanctioned term loans for labor rationalization and modernization schemes. The court noted that the financial assistance was part of a package deal involving consensus among workers' representatives, the State of Gujarat, and financial institutions.

Objections were raised by some creditors, arguing that the application was not maintainable under Section 536(2) and that the promoters were financially sound enough to secure finance from other sources. The court overruled these objections, stating that the financial assistance sought was for bona fide commercial purposes to restart the mills, which would benefit all stakeholders, including unsecured creditors. The court also addressed procedural objections, confirming that necessary documentation and guarantees were either already provided or in process.

Conclusion:

The court granted the application, declaring that the financial transactions with SBI, IDBI, and other financial institutions were bona fide and in the normal course of business. The transactions were authorized, valid, and binding on the company and its creditors. The court clarified that the funds provided should not be used to satisfy past dues of other creditors and that any disposal of assets pursuant to the order would be void if a winding-up order was eventually made. The request for a stay of the order was denied, as more finance would make the debtor company healthier, benefiting all creditors.

← Previous Next →