TMI Blog1998 (8) TMI 446X X X X Extracts X X X X X X X X Extracts X X X X ..... We are adjourning this appeal to July 13, 1998. However, the pendency of this appeal would not debar the learned company judge to decide any application that may be moved by the appellant." In furtherance of the above-quoted order of the Division Bench, the company filed the present Review Application No. 2 of 1998, under rule 9 of the Companies (Court) Rules, 1959, for recalling of order dated June 11, 1998, passed in C.A. No. 442 of 1997. The two reasons for recalling of the order dated June 11, 1998, as stated in paragraphs 3 and 5 of the application, read as under : " 3. That during the summer vacation on June 11, 1998, counsel was informed that the order in the company petition has been announced. Counsel also come to know that the order in C.A. No. 442 of 1997 has also been passed and appointed the provisional liquidator of the respondent company and also ordered that he shall take over all the assets and complete management of the respondent-company without any further delay. 5. That when the case came up for hearing on May 28, 1998, there was no occasion for counsel to argue the matter nor was C.A. No. 442 of 1997 was argued and even in the order dated June 11, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een passed in consonance with the statutory provisions and no ground has been made out for reviewing the order dated 11-6-1998. The application in the present form is not maintainable. There is complete instability in the financial status of the company. Its liabilities are much in excess of its assets. The liability is accruing disproportionate to its assets every day and in the near future there would be no possibility even of proportionate payments to its creditors. The assets of the company are already mortgaged to financial institutions on account of heavy financial assistance admittedly taken by the company. It is contended that conduct of the company fully justifies the appointment and continuation of the provisional liquidator. 7. The learned counsel appearing for the non-applicants Mr. Patwalia at the very outset took a preliminary objection with regard to the maintainability of this application. He contended that under the provisions of Order 47, rule 1 ( a ) of the Code of Civil Procedure, 1908 as applicable to the Companies Act, 1956, an application for review is not maintainable if the appeal is pending for hearing against the same order, before the appellate court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irit of the provisions of section 450 were fully satisfied. Nobody else can be blamed if the company fails to take benefit of opportunities repeatedly granted to it. At this stage even it would be appropriate to make a reference to the case of Punjab Pictures Ltd. v. Jhabbar Mal Chokhani [1948] 18 Comp. Cas. 274 (East Punj.) where, of course, it was held that notice should be given to the company for appointment of provisional liquidator but for reasons to be recorded by the court, even notice for appointment of provisional liquidator can be dispensed with. However, that question does not arise in the present case. 10. In any case this contention raised on behalf of the applicant remains of no consequence now because the counsel for the applicant has been heard at great length and whatever documents the company wanted to place on record have been placed on record by them with affidavit in C.A. No. 416 of 1998. Contention No. II. Relying upon the case of Northern Airways Ltd., In re. AIR 1949 Lahore 9, and Jhabbar Mal Chokhani s case ( supra ) the learned counsel contended that there have to be serious allegations and grounds for appointment of a provisional/official ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ones which were nearly two years old. In the affidavit it has been averred that the company has different units working at Gurgaon, Delhi and at Narnaul. It is stated that in the factory the work had come to a standstill and stopped on 27-2-1998. The other unit is stated to have been closed on the same date. The entire affidavit does not even mention properly much less in complete details with financial data and financial status of the company of any viable or workable scheme to discharge its debts and revival of the company in its manufacturing and sale activities. Undisputedly the working units of the company are lying closed since February, 1998. The falsehood of this affidavit is demonstrably apparent on the face of the record. The official liquidator had filed a short affidavit and it may be relevant to refer to the contents of the said affidavit at this stage : " 1. That the respondent-company s unit at 278, Udyog Vihar, Gurgaon, was sealed on July, 7, 1998, and the said unit was located in a rented premises and its manufacturing operations were stopped since October, 1997. That similarly, the unit at Plot No. 300, Udyog Vihar, Gurgaon, was sealed on July 7, 1998, and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the company at Narnaul which consists of one room, a table and a chair there, indicates the seriousness with which this company claims to be functioning. 14. During the course of arguments, it was conceded by the learned counsel for the applicant that whatever assets the company possesses have been mortgaged or hypothecated to the financial institutions from whom loans running into crores have been taken by the company. As such the company admittedly is in heavy debts. The manager intentionally concealed the information as to whether there were any movable assets owned by the company. As is clear from the report of the official liquidator the units of the company are located in rented premises and even there the company is indebted to the landlord to the extent of Rs. 21,83,882 on account of rent. The court cannot lose sight of the facts stated in the order of admission dated 11-6-1998, passed in C.P. No. 196 of 1997, including that other winding up petitions for considerable heavy amounts were also filed against the respondent-company. In addition to showing its bona fides the onus was on the respondent-company to show that it has means and capacity to repay its debts an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idator unless there were compelling circumstances. I have no doubt in my mind that the present case is one which certainly falls within the exception applicable to the general rule. In order to protect the interest of the creditors, secured or unsecured, and to prevent pilferage and disposal of assets of the company which in any case are very limited keeping in mind the undisputed heavy liability, it is necessary to continue the provisional liquidator. In other words in order to protect the interest of the company itself and its properties, and even to consider workable solution in that regard, it is pertinent that prevention must be taken at this stage itself. 17. The learned counsel for the petitioner while placing reliance upon the case of Kailash Prasad Mishra v. Medwin Laboratory (P.) Ltd. [1988] 63 Comp. Cas. 810 (MP) and Virendrasingh Bhandari v. Nandlal Bhandari Sons (P.) Ltd. [1979] 49 Comp. Cas. 532 (MP) argued that the appointment of a provisional liquidator is a drastic step and keeping the public interest in mind the order of the provisional liquidator should be recalled. He further contended that it will put a stop to the business of the company. 18. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not completely oust the powers of the board : it may still cause the company to oppose the winding up petition or to apply to discharge the provisional liquidator." 20. In the case of Union Accident Insurance Co. Ltd., In re [1972] 1 All ER 1105, Plowman, J. had enunciated the above principles and had observed that appointment of a provisional or official liquidator was not controlled by the limitation of public interest alone. It may be in the interest of all concerned to make such appointment before the liabilities of the company exceed a limit of manageable schedule of payment. 21. In the case of Andhra Paper Mills Co. Ltd., In re [1948] 18 Comp. Cas. 8 (Mad.), though the company had no serious objections but the appointment of a provisional liquidator was seriously opposed by the shareholders and Clark, J. observed as under : ". . . The matters stated by him in the counter-affidavit are all matters which it may be necessary to consider when the main petition is heard. I cannot regard those matters as relevant in the consideration of the present application. Shortly stated his objection is that the company might be successful if it were suitably and properly manag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een placed on record. However, in order to avoid any such misapprehension on the part of the respondent-company. I would proceed to give certain directions to the provisional liquidator which would certainly be in the interest of all concerned and even would not cause any avoidable prejudice to the respondent-company. 25. While declining to review the order dated 11-6-1998, or recalling the said order or cancelling the appointment of the provisional liquidator, I would issue the following directions to the provisional liquidator for compliance forthwith : ( a )The official liquidator shall associate three members from the secured creditors (banks to whom the properties of the company has been charged, hypothecated) one representative from the respondent company for carrying out these directions. The officers shall not be below the rank of senior manager/managing director/official liquidator. ( b )At the outset the official liquidator shall prepare an inventory of all the movable and immovable properties belonging to the respondent company and/or lying in the premises rented or belonging to the respondent-company. ( c )He shall prepare complete inventories of the record of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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