TMI Blog1984 (11) TMI 243X X X X Extracts X X X X X X X X Extracts X X X X ..... titions which have been stayed and the date of the order of winding up, if at all made on one or more of such of the petitions and no disposition of any property or assets which may be effected by the company during the aforesaid period in favour of any person in the ordinary course of business may not be avoided in future in case the applicant-company is ordered to be wound up on the aforesaid petitions for winding up. The copies of this summons have been served upon the creditors who have filed the winding-up petition against the applicant-company and have also been published in two newspapers, namely, " Sandesh" dated June 23, 1984, and " The Times of India" dated June 24, 1984, in pursuance of the directions issued by this court, vide its order dated June 21, 1984. Except one creditor, no other shareholder or creditor interested in opposing or supporting the directions as prayed for by the applicant-company, has filed appearance in this court in response to the aforesaid notice. M/s. Bharat Textile Traders of Ahmedabad has filed an affidavit of its partner, Shri Nalinbhai Babubhai Parikh, supporting the directions which have been sought for by the applicant company. As stated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ank of India, the Indian Credit and Investment Corporation of India Ltd., Industrial Finance Corporation of India, the Industrial Reconstruction Corporation of India Ltd. and the Bank of India on the other, so as to ensure the said institutions that the dispositions of the properties in their favour by the applicant company as a security for the advances granted to it may not be avoided in future and no payments of monies made by the company at any time between the presentation of the winding-up petitions which have been stayed and the date of the order of winding up, if at all made on one or more of such petitions, shall be voided under the aforesaid section. The reasons which weighed with us far granting the directions aforesaid are as under : At the outset, it should be recalled that the Division Bench of this court consisting of myself and brother, R.J. Shah, J., allowed O.J. Appeals Nos. 3 and 4 1984 setting aside the orders for admission and usual advertisement as well as the orders appointing provisional liquidator for the applicant company made by the learned company judge (Coram : S.L. Talati J) for the reasons which we have separately recorded in our order of June 19, 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the managing director of the applicant company. The order of admission of company petition and the usual advertisement also were set aside having regard to the fact that the applicant company was declared a relief undertaking by the Govt. of Gujarat, vide its resolution issued in the Industries, Mines, and Power Department dated April 19, 1984, in exercise of its powers under section 3 of the Bombay Relief Undertakings (Special Provisions) Act, 1958, for a period of 12 months from the date of the said resolution. The State Government, almost simultaneously but on a day earlier, i.e ., on April 18, 1984, announced filip so as to enable the sick units to recommence their activities and also with a view to prevent further closure of other marginal/sick units formulated a package deal of concessions in terms of the recommendations made by the committee which was set up by the Government to study technical financial viability and other problems of each of such units and to make recommendations in that behalf in respect of each such unit. In view of the development, namely, declaration of the applicant company as a relief undertaking while setting aside the orders of the learned sing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s willingness to release the funds only on such directions being obtained under section 536 (2) of the Companies Act. Incidentally in the note, a reference was made to the decision of the learned single judge of this court (Coram : D.A. Desai J) in the case of R.C. Mehta and Co. v. Himabhai Mfg. Co. Ltd. [1970] 40 Comp. Cas. 1230 , that an application under section 536(2) is competent only after the winding-up order is made which decision in the submission of the learned advocate requires reconsideration and, therefore, it was prayed that Company Application No. 95 of 1984 be placed before a Division Bench. In view of the note, I directed the office that the matter be placed immediately on the opening after vacation before the Division Bench. It is in these circumstances that the present application came to be placed before us. Two questions arise for our consideration. Firstly, whether the application under section 536(2) of the Companies Act, 1956, is competent at this stage when no winding-up order is made and, consequently, therefore, whether the decision of the single judge in R.C. Mehta and Co. v. Himabhai Mfg. Co. Ltd. [1979] 40 Comp. Cas. 1230 (Guj.), requires rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he object and scope of section 227(2) of the Indian Companies Act, 1913, which is in pari materia with section 536 of the Companies Act, 1956, in Tulsidas Jasraj Parekh v. Industrial Bank of Western India, AIR 1931 Bom. 2 ; 32 Bom. LR 953 ; 127 IC 82, and held as under (headnote of AIR 1931 Bom. 2): "Section 227 (2) intends to prevent any improper alienation and disposition of the property of a company in extremes, during the period which must elapse before a winding-up petition can be heard. However, any bona fide transaction carried out and completed in the ordinary course of current business can be sanctioned. This power is given for the benefit and the interest of the company so as to ensure that a company which is made the subject of winding-up petition may nevertheless obtain money necessary for carrying out its business and so avoid its business being paralysed : but the court will not allow the assets of the company to be disposed of at the mere pleasure of the company and thus cause the fundamental principles of equity amongst its creditors to be violated."(emphasis supplied) It should be noted that in Tulsidas Jasraj's case, AIR 1931 Bom. 2; 32 Bom. LR 953 ; 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or keeping the company going or keeping things going generally ought to be confirmed. The Allahabad High Court in Ram Lal v. Official Liquidator, Benares Bank Ltd. [1942] 12 Comp. Cas. 170 ; AIR 1942 All 141, held that the court has discretion at any time to make an order in a proper case validating a disposition, notwithstanding that it is one made after the commencement of the winding up, and the reason why the court is given a discretion under section 227(2) is that a company may not be completely paralysed by the presentation of a petition. It should be noted that an extreme contention was advanced before the Allahabad High Court that the court can competently give directions upholding the transaction only before a winding-up order is made. This is not relevant for our purposes since we are concerned with the purpose underlying the power invested in the court under section 536(2) of the Companies Act, 1956, corresponding to section 227(2) of the Indian Companies Act, 1913. The passage digested from the opinion of Cairns L.J. from In re Wiltshire Iron Co.'s case [1868] 3 Ch 443, by the Bombay High Court is relied upon by the learned author Pennington in his Compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ossible that directions could from time to time be obtained ; but when the matter is brought before the court, it must have regard to all the surrounding circumstances'. Vaisey J. agreed that the object of the section is that if a winding-up order is made, any transaction which has been entered into since the commencement of the winding up shall be subject to review by the liquidator and held that he has no jurisdiction while the petition was pending ( Miles Aircraft Ltd., In re [1948] 1 All ER 225 ; [1948] Ch 188 ; [1948] 18 Comp. Cas. 250 ). Roxburgh J. went to the other extreme and on an application made after the winding-up order refused to validate the transaction on the ground that the applicant ought to have applied before the transaction was entered into. Buckley J. held that he had jurisdiction to sanction and did sanction while the petition was pending a proposed transaction which on any possible view would be beneficial to the creditors, one of the objects of the section being to protect the interests of the creditors during the pendency of the petitions ( A.I. Levy ( Holdings ) Ltd., In re [1964] 1 Ch 19 ; [1964] 34 Comp. Cas. 720 (Ch D)). Since this last decision, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roductive in the sense that the very purpose of keeping the company as a going concern so as to ensure the interest of the shareholders and creditors would be defeated. There is no inherent indication in the section so as to warrant the conclusion that this power can be exercised only after the winding-up order is made. It is difficult to spell out the limits on the jurisdiction of the court from the opening words in the section, namely, "in the case of winding up" so as to mean that only if the company is ordered to be wound up. It would be reading more than what the Legislature intended in the said wordings. The words "in the case of winding up" are suffixed by the words "by or subject to the supervision of the court". It is in that context that where winding up is by or under the supervision of the court, as the case may be, that the disposition of the property after the commencement of the winding up would become void. It is in contradiction to a case of a voluntary winding up for which a provision is made in sub-section (1). The said words are not limiting the jurisdiction of the court as held by the Division Bench of the Bombay High Court in Kamani Metallic Oxides Ltd. v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion, and the High Court has, therefore, jurisdiction under section 536(2) to authorise a disposition, of a company's property during the pendency of a winding-up petition, notwithstanding that a winding-up order has not been made. The Division Bench of the Bombay High Court has also taken the view that the court has such a jurisdiction to validate such transactions before a winding-up order is made. The Division Bench in Kamani Metallic Oxides Ltd. v. Kamani Tubes Ltd. [1984] 56 Comp. Cas. 19 (Bom.) held that even before a winding-up order is made, the jurisdiction of the High Court can be invoked under section 536(2) for permission for disposal of the assets of the company, and it is not proper to read any limitation in the opening words of the section, namely, "in the case of winding up" so as to mean after the winding-up order is passed, because sometimes disposition would be necessary in the interest of the company and particularly of the creditors of the company during the pendency of the application for winding up, and the directors on their own would be reluctant to enter into such transactions in apprehension of the consequences and, therefore, the company court must ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the facts of this case we do not entertain any doubt that the disposition of the property intended by the company for securing the advance from the aforesaid financing agencies on security thereof and the payment of monies by the company in the ordinary course of business for carrying on its trade should be maintained. We should remind ourselves that the State Government has declared this company as a relief undertaking so as to put a moratorium on the liabilities as existing and the enforcement thereof as on the date of the notification. The State Government is very anxious to see that all sick units closed or on the verge of being closed are revived so as to maintain industrial peace in the State. It is with that anxiety in view that the State Government has announced a package deal of concessions of deferring payment of purchase tax on raw materials and the recovery of electricity duty for a period of 12 months and from observing power-cut as and when imposed on H. T. consumers by restricting it to 25% instead of 100%. The State Government has also taken necessary steps to ensure the advance from different financial institutions and unless these institutions are ensured that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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