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Bakemans Industries (P.) Ltd. Versus New Cawnpore Flour Mills

2008 (5) TMI 419 - SUPREME COURT OF INDIA

Whether power of a Company Court to sell the property of a company vis-a-vis the power of the Financial Corporation can be merged is the question involved in these appeals which arise out of the judgments and orders dated 2-7-2007 and 6-7-2007 passed by the Division Benches of the Delhi High Court? - Held that:- Appeal allowed. The Company Judge was not correct in its view and passed the impugned judgments only having regard to the wrongful conduct on the part of the appellant in obtaining a .....

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rain ourselves from granting any relief ? Direction issued by this Court in a case of this nature need not be a narrow one. - The court has to take into consideration the fate of not only those workmen who are working but also those who have a claim against the Company. We must also take into consideration the fate of the other creditors. - Thus interest of justice would be subserved if while allowing the appeal, the learned Company Judge is requested to go into the question afresh in ac .....

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pany Appeal No. 27 of 2004 and Company Appeal No. 2 of 2007 respectively passed by the Division Benches of the Delhi High Court. 3. Certain basic facts are not in dispute which are as under : SICOM Ltd. (SICOM) advanced a loan of Rs. 17 crores to the appellant (Bakemans Industries Pvt. Ltd.). It became a defaulter. SICOM issued a notice under section 29 of the State Financial Corporations Act ( 1951 Act ) on 22-1-2003. Another notice was issued for taking over possession of the properties of the .....

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appellant was an ongoing concern. SICOM took over the possession of the appellant s factory at Patiala on 18-7-2003. It was at that time in operation. It had finished bakery products which were perishable in nature. Allegedly the operations were shut down and the factory was locked. 6. We may notice here that different proceedings were initiated either at the instance of the appellant or at the instance of some of the respondents. 7. Appellant evidently took recourse to a proceeding which was u .....

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instrument dated 14-8-2003 was referred on 16-8-2003. It was accepted by the Tribunal on 18-8-2003 and notices were issued. The majority of the Tribunal opined that there was no genuine arbitration agreement. The arbitration proceeding was closed on 23-8-2003. 8. A new set of Arbitrators was constituted by the Tribunal who rendered an award on 16-8-2003 upon holding a day s sitting only opining that (i) taking over of the unit was illegal and (ii) a direction was issued to handover possession t .....

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la, and Punjab State Industrial Development Corporation Ltd. were also impleaded as parties therein. 11. We shall deal with the factual matrix thereabout a little later. 12. However, in the meantime, another proceeding by way of an application under section 9 of the Arbitration and Conciliation Act, 1996 was filed before the Tis Hazari Courts, Delhi. It was registered as Misc. Suit No. 139 of 2003. Inter alia, a prayer was made therein to appoint a receiver. However, it appears that another Bank .....

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in the said purported execution proceeding seeking for the following directions : (i)to withdraw the proceeding before the learned Additional District Judge; (ii)to vacate and handover the premises; (iii)to grant prohibitory injunction; and (iv)to stay the operation of the Arbitration Award. 16. An order of status quo which had been passed earlier was directed to be maintained by the parties by the High Court on 15-9-2003. 17. An application for modification of the order dated 15-9-2003 was fil .....

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an order dated 18-12-2003 the High Court directed the appellant to deposit a sum of Rupees two crores failing which SICOM was given a liberty to proceed with the statutory remedies available to it under the Act for sale of the properties. An undertaking was given to the Court by the Managing Director of the appellant in the following terms :- Mr. Rajiv Kumar Gupta, Managing Director of judgment debtor No. 1 and Director of judgment debtor No. 2, who is present in Court, undertakes to the Court t .....

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for sale of the property. Counsel for the parties also pray that the modalities of restoration of possession be got done under the supervision of officers of this Court, so as to avoid unseemly controversies and a clear account of the equipments, machinery and the assets, of which possession is taken over at the factory premises is available. Considering the quantum of work required, counsel for the parties pray that at least three Local Commissioners be appointed. Accordingly, I appoint Mr. D. .....

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of respondent No. 3. Inventory be also got signed by the parties. The Local Commissioners may in their discretion also make any observation with regard to the condition or state of equipment, assets etc. The Local Commissioners to execute the commission on 23-12-2003 at 11.00 a.m. The fee of the Local Commissioners, Mr. D.K. Batra is fixed as Rs. 22,000, Mr. S.P. Tara is fixed as Rs. 20,000 and Mr. Anil Kumar Arora is fixed as Rs. 18,000, exclusive of out of pocket, travel and lodging expenses. .....

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e arbitration proceedings, initiated before the ADR, Arbitral Tribunal No. 3. Mr. Arun Bhardwaj, counsel for judgment debtor No. 1, further states that judgment debtor No. 1 would not proceed with Suit No. 139/2003, pending in the Court of Sh. S.K. Sarvaria, A.D.J., Delhi. 19. In the meantime, SICOM obtained a valuation report in respect of the factory form a Public Sector Organization known as Northern India Technical Consultancy Organization Ltd. (NITCOL). In the said proceeding, SICOM had als .....

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ial which had been imported from abroad. Pursuant to the permission granted by the Court to SICOM to make an advertisement, one was issued in Economic Times (All Editions), Business Standard (All Editions), Tribune (Chandigarh Edition) and Dainik Bhaskar (Chandigarh and Patiala Editions). As the appellant failed to deposit the said sum of Rupees two crores and never submitted the definite proposal in terms of the order dated 28-11-2003, SICOM was given the liberty to proceed with the sale. 21. O .....

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d 16-3-2004, the Court noticed the bids submitted by the ITC Limited and Britannia Industries Ltd. not only on the entire plant but also on item wise basis. The Court rejected the contention of the appellant both in regard to its jurisdiction as also its valuation report inter alia opining that it had failed to deposit a sum of Rupees two crores and submitted the repayment schedule in terms of its earlier order as such there was no other option but to proceed with the sale process. In regard to .....

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omply with the formalities and the terms that have been advertised on 23-2-2004. 23. Ceylon Biscuits Pvt. Ltd. on or about 24-3-2004 offered the bid price at Rs. 12.5 crores. It also deposited the earnest money of Rs. 25 lakhs. There was another bidder Longful Trading (India) Pvt. Ltd. who had made a bid of Rs. 11.7 crores. It had also deposited the earnest money of Rs. 25 lakhs. In regard to the valuation of the properties both in respect of the factory of the appellant as also its sister conce .....

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vt. Ltd., however, disputes the aforesaid valuation. In order to ascertain the valuation of the aforesaid assets, it would be appropriate to pass an order directing for re-evaluation of the entire aforesaid assets of the said company. M/s. SICOM Ltd. is directed to get the entire assets re-evaluated by appointing an approved valuer. The said valuation report shall be submitted before the next date. The approved valuer shall visit the factory premises on 29-3-2004 at 11.00 A.M. when the represent .....

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espect of various assets from other sources as well like custom authorities, Director General Foreign Trade and such like authorities. He shall also give a separate valuation report for un-installed plant and machinery, if any, so as to enable this Court to ascertain the break-up value of the various plants and machineries and to facilitate the process of sale by this Court. It shall be open to any other willing purchasers also to submit their fresh bids, if so desired, on or before the next dat .....

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e of the properties and books of account of the company. On an application made by SICOM, however, the learned Company Judge by order dated 16-4-2004 directed that its possession may not be disturbed. 27. As the Provisional Liquidator had been appointed, the Executing Court transferred the petition to the Company Judge by an order dated 19-4-2004. 28. Some correspondences appear to have passed between the Advocate of the appellant Official Liquidator and SICOM as regards the effect of the provis .....

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an opportunity to bring a better offer. Second report of NITCON as regards valuation was also accepted. 30. Before the learned Company Judge a valuation report of a Chartered Accountant was submitted which was rejected stating that they were not the approved valuers and they had only taken into account the book value and not the market value of the assets. 31. The matter was posted for hearing on 22-7-2004. On that date, proceedings before the learned Company Judge were in two sessions - one bef .....

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gotiating with some buyers. An affidavit of the prospective buyer and its Managing Director was directed to be filed in this behalf along with an undertaking to honour the bid quoted by the prospective buyer. The matter came up before the learned Company Judge on 30-7-2004. A prayer for adjournment was made. An affidavit of the Ex-Managing Director of the appellant was filed. However, adjournment was refused. The affidavit was called from the registry and the matter was heard. The Court is said .....

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and the first instalment would be received on or before 5-8-2004 on which date a pay order of Rs. 50 lakhs shall be produced in the court. It is also stated that the management and associates thereafter would be definitely for the welfare of all the financial institutions and workers and would be a far better than which is being offered by the bidder. This affidavit, obviously, is not in compliance with the directions contained in the earlier orders and Mr. Chhabra s own statement to the effect .....

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nner and within how much time it would be in a position to discharge the entire liability. It is also not stated as to from where it would generate the resources/finances for this purpose. It is, thus, clear that in spite of giving various opportunities to the respondent company and its Managing Director the respondent company has not been able to produce better bid. Property in question, which is subject-matter of sale, has been valued at Rs. 10 crores. Bid of Rs. 12.50 crores of M/s. Ceylon Bi .....

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4 and 30-7-2004. The matter was listed on 26-8-2004. Before the appellate court also an offer was made by the appellant to bring a higher offer of Rs. 15 crores. Pursuant to an order made in this regard, a sum of Rs. 50 lakhs was directed to be deposited. The Division Bench also directed maintenance of status quo in the meantime. 33. In the meantime, SICOM and Ceylon Biscuits both filed applications for possession of the factory to be handed over. Such permission was granted on 13-10-2004. 34. V .....

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ted 6-7-2007 the sale certificate was directed to be issued to M/s. Ceylon Biscuits. It is these orders which are in question before us. 35. Mr. Kapur, the learned senior counsel appearing on behalf of the appellant inter alia would submit :- (i)The learned Company Judge while proceeding to direct sale committed a serious illegality in not directing a fresh valuation of the assets of the company and upon taking into consideration the interest of other creditors as also that SICOM itself before a .....

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he law laid down by this Court in a series of decisions in each and every respect concerning the sale of the assets of a company, insofar as :- (a)it did not issue any fresh advertisement; (b)the advertisement issued being in small print and no guidelines having been issued, the same was irrelevant; (c)the Company Court did not fix any reserve price; (d)the Company Court did not make any attempt to secure the best possible market price which was its duty to do for the sake of the general body of .....

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ed into by and between the appellant and Ceylon Biscuits show that the actual value of the factory was very high as per the Ceylon Biscuits own valuation report dated 9-9-2005. (vii)The learned Company Judge as also the Division Bench of the High Court proceeded to determine the entire dispute only on the conduct of the appellant both in respect of obtaining the Award of the Board of Conciliators as also its failure to secure a better price and not on the basis of the legal principles involved i .....

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hand, urged :- (i)SICOM had never been averse to obtaining any higher price as would appear from the proceedings before the High Court both in Execution Proceeding as also the Winding-up Proceeding. (ii)SICOM had all along exercised its right to sell the mortgaged assets in exercise of its statutory powers under section 29 of the 1951 Act which being in consonance with the principles and guidelines laid by this Court, could not have been interfered with. (iii)The appellant having questioned the .....

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d but also filing an application under section 9 of the Arbitration and Conciliation Act, 1996 with a view to get a Receiver appointed, although it did not succeed in that attempt. (vi)It is not correct to contend that a Receiver was appointed by the Court in the Arbitration proceeding but the Receiver was appointed by Debt Recovery Tribunal in respect of perishable articles only. (vii)The Executing Court at the initial stage and subsequently the learned Company Judge, merely supervised the sale .....

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ellant to bring a better offer which it failing and/or neglected to comply with. (x)Appellant having undertaken to pay a sum of Rupees two crores and having failed to comply with the same, it was not entitled to raise any objection in regard to the legality or otherwise of the sale, particularly when it was on their suggestions, other bidders were permitted to bid and the said bids were opened in the Court itself. (xi)The advertisement issued by SICOM was in accordance with the usual practice an .....

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. Sundaram, learned counsel appearing on behalf of respondent No. 4 (Ceylon Biscuits), would submit :- (i)SICOM had all along exercised its powers under section 29 of the 1951 Act and the Court merely supervised exercise of such powers and in that view of the matter the appellant has not been prejudiced at all inasmuch as the same merely provided for additional safeguard for fetching a proper price for the assets. (ii)In view of the decision of this Court in Rajasthan Financial Corpn. Ltd. v. Of .....

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n be set to have been committed by reason thereof. (v)Respondent No. 4 being a bona fide purchaser, pursuant to an offer, it would be highly prejudiced if the auction sale is set aside at this stage. 38. The core issues which arise for our consideration in view of the rival contentions of the learned counsel are :- (1)Whether in the facts and circumstances of the case the Executing Court and consequently the Company Judge could have supervised the purported sale of the assets of the appellant on .....

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rporation as envisaged under section 29 of the 1951 Act would prevail over the proceedings before a Company Judge in a winding up proceeding ? (4)Whether involvement of the Official Liquidator in the facts and circumstances of the case and particularly in view of the fact that Official Liquidator brought to the court s notice claims of other creditors, the Company Judge ought to have dealt with the same in the manner laid down in the Companies Act and/or the Rules framed thereunder and/or the de .....

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in any event the High Court could have ignored the legal requirements as regards the conduct of sale of the assets of the appellant only on the basis of : (1) wrongful conduct on the part of the appellant in obtaining an award from the Conciliation Tribunal; and (2) its failure to bring a better offer from another bidder. 39. The 1951 Act indisputably is a special statute. If a financial corporation intends to exercise a statutory power under section 29 of the 1951 Act, the same will prevail ove .....

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under section 29 were not intended to operate in the situation of winding up of a company. Even assuming to the contrary, if a conflict arises, then we respectfully reiterate the view taken by the Division Bench of this Court in A.P. State Financial Corpn. case. This Court pointed out therein that section 29 of the SFC Act cannot override the provisions of sections 529(1) and 529A of the Companies Act, 1956, inasmuch as SFCs cannot exercise the right under section 29 ignoring a pari passu charge .....

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ough its Recovery Officer but only after notice to the Official Liquidator or the Liquidator appointed by the Company Court and after hearing him. (ii)A District Court entertaining an application under section 31 of the SFC Act will have the power to order sale of the assets of a borrower company-in-liquidation, but only after notice to the Official Liquidator or the Liquidator appointed by the Company Court and after hearing him. (iii)If a financial corporation acting under section 29 of the SF .....

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9A and section 529 of the Companies Act. (iv)In a case where proceedings under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 or the SFC Act are not set in motion, the concerned creditor is to approach the Company Court for appropriate directions regarding the realisation of its securities consistent with the relevant provisions of the Companies Act regarding distribution of the assets of the company-in-liquidation. (p. 480) [See also ICICI Bank Ltd. v. SIDCO Leathers Lt .....

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le. The sale that was conducted was purported to be interms of the Companies Act. We have noticed hereinbefore that when a provisional liquidator was appointed, the High Court instead of exercising its writ jurisdiction referred the matter to the Company Judge. It was the Company Judge, therefore, who proceeded in the matter. The Company Judge could exercise its jurisdiction only in terms of the Companies Act and not in terms of section 29 of the 1951 Act. If it did not have the power under the .....

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er bidders were also brought in. It is, therefore, not a case where the learned Company Judge had no jurisdiction to exercise supervision of sale of the assets of the appellant on behalf of SICOM in terms of the provisions of section 29 of the 1951 Act or otherwise. Respondents even never insisted to get the question of jurisdiction determined as a preliminary issue, although raised by it specifically. It, thus, for all intent and purport waived its right. 41. It is in the aforementioned situati .....

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bound to follow the provisions of the Companies Act and/or the Company Court Rules. The jurisdiction of a Company Court extends only to those matters which are specified in the Companies Act and apart therefrom it had no jurisdiction. It also has a duty to see that the claims of all creditors be dealt with, particularly having regard to the provisions of section 529A of the Companies Act. We are informed that the workers had also filed their claims. Their claims having regard to a series of deci .....

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es that the jurisdiction of a Companies Court extends only to those matters which are specified in the Act and apart from those matters it has no jurisdiction. 44. The matter might have been otherwise if SICOM had remained outside the winding up proceedings. If it attained, disposal of the assets of the Company would be subject to pari passu claim of unpaid workmen in terms of section 529A of the Companies Act. 45. The sale has been effected by the court treating SICOM as an agent. Factually the .....

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self. While doing so, it exercises its parens patriae power. It safeguards not only the interest of the mortgages, but also the interest of the mortgagor. It has a statutory obligation to safeguard the interest of the workmen as also other non-secured creditors. It is one thing to say as to how the assets shall be distributed but it is another thing to say that while exercising the power to cause the sale of the assets of the company, it would ignore the statutory provision. It must, while exerc .....

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that the stand of the learned counsel is mutually destructive. On the one hand, it is stated that SICOM was exercising its statutory power to cause sale of the assets of the mortgagor through the agency of the court but it is also contended that the sale was affected by the court through SICOM. Such a contradictory or inconsistent stand, in our opinion, is impermissible in law. 47. In NGEF Ltd. v. Chandra Developers (P.) Ltd. [2005] 64 SCL 1 (SC), this Court opined : The Company Judge moreover w .....

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529, the liquidator shall be entitled to represent the workmen and force the above pari passu charge. Therefore, the Company Court was fully justified in imposing above conditions to enable the Official Liquidator to discharge his function properly under supervision of the Company Court as the new section 529A of the Companies Act confers upon a Company Court a duty to ensure that the workmen s dues are paid in priority to all other debts in accordance with provisions of the above section. The .....

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pra). The questions therein, inter alia, to be decided were :- Whether after a winding-up order is passed under section 446(1) of the Companies Act or a provisional liquidator is appointed, the company court can stay proceedings under the RDB Act, transfer them to itself and also decide questions of liability, execution and priority under section 446(2) and (3) read with sections 529, 529A and 530 etc., of the Companies Act or whether these questions are all within the exclusive jurisdiction of .....

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ion as contained in proviso (c) of sub-section (3) of section 529 in relation to the security of any secured creditor means the amount which bears to the value of the security in the same proportion as the amount of the workmen s dues bears to the aggregate of (a) workmen s due, and (b) the amount of the debts due to all the creditors. . . . (p. 250) Thus, the High Court could not have disregarded the pari passu charge of the workmen upon the company s assets. 48. The role of the official liquid .....

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be deemed to commence at the time of presentation of petition for winding up. The provision has since been omitted by Companies (Amendment) Act, 2002. Section 442 provides for the power of the court to stay or restrain proceedings against the company, section 443 envisages power of the court on hearing petition. Section 446 provides for stay of all suits shall. Sub-section (3) of section 446 reads as under :- 446. Suits stayed on winding up order.-(1) & (2)****** (3) Any suit or proceeding b .....

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of section 446, therefore, has no application as the proceedings before the Executing Court was not a matter which came up in appeal from a judgment and order of another court. Section 447 provides for the effect of winding up order. 51. Section 448 provides for appointment of official liquidator . An official liquidator would be a liquidator on a winding up order being made in respect of a company. Section 450 provides for appointment and powers of provisional liquidator; sub-sections (1), (2) .....

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iting, the Tribunal thinks fit to dispense with such notice. (3) Where a provisional liquidator is appointed by the Tribunal, the Tribunal may limit and restrict his powers by the order appointing him or by a subsequent order, but otherwise he shall have the same powers as a liquidator. 52. Section 456 envisages that when a winding up order has been made or where a provisional liquidator has been appointed, the liquidator or the provisional liquidator, as the case may be, shall take into his cus .....

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unal and the other which had to be exercised by itself. A liquidator, in terms of clauses (c) and (ca) is entitled to sell the movable and immovable property. Exercise of such jurisdiction by a provisional liquidator, therefore, shall not be denied of his powers only because it did not obtain possession of the properties. Section 529 of the Act which occurs in Chapter V provides for application of insolvency rules in winding up proceeding of the insolvent companies. Section 529A expressly saves .....

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official liquidator. But in a case of this nature, only because the financial institution stands outside the winding up proceedings, would it mean that the court shall, for all intent and purport, ignore its officer and concentrate on the interest of the financial institution alone? Can it be said that supervision of the court is necessary only in a post winding scenario and not prior to it? The question which should be addressed, in our opinion, by the Company Court is that the ultimate intere .....

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he 8th of March a provisional liquidator had been appointed. Now the provisional liquidator s appointment is not only provisional, but contingent in this sense, that it operates to protect the property for an equal distribution only in the event of an order for compulsory winding-up being made; and if no such order be made, then his appointment ought not to interfere with the rights of third persons. He was in the position of a receiver, whose appointment might interfere with the rights of third .....

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and it is not to be presumed or doubted, but that justice will be duly administered to them on that application. 55. The courts in India have to keep in mind different considerations. The concept of right of property which was existing in 19th Century in England would not stand the test of the act and the interpretation it deserves keeping in view the object and purport of the 1956 Act. In India, the Company Courts have a statutory duty to protect and rights of workmen keeping in view the pari .....

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sional liquidator out of its purview. It may be true that the provisional liquidator could not sell the property without the sanction of the court, but then feed back of the provisional liquidator by the Company Court was necessary for the purpose of having a complete picture before it. The official liquidator has informed us that about 373 claims have been filed. The amount of claim is about 100 crores; amongst the claimants, there are banks in whose favour also deeds of mortgages have been exe .....

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ation petition, secured creditors ought to be differently treated. A third party who has an independent right would not be affected by reason thereof. Ordinarily, even the statutory power of the said financial corporation would also not be affected. 58. We, however, are not in a position to agree with the submissions of Mr. Sundaram that provisional liquidators have no statutory powers in relation to affecting sale of a movable or immovable property. Indisputably, it is subject to the direction .....

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have before it all these facts and figures so as to enable it to pass a final order one way or the other. In so doing, the court must keep in mind that it is not only determining an issue by and between the mortgagor and one mortgagee only but could also be determining the issue between a debtor and a vast number of creditors; whether secured or non-secured. The ratio of the decision of the Madras High Court in Sri Chamundi Theatre Mysore Talkies Ltd. v. S. Chandrasekara Rao [1975] 45 Comp. Cas. .....

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ately the courts find it just and equitable to direct the winding up of a company. In that case, the application for winding up was not pressed by the petitioner-creditor. Provisional liquidator, however, was directed to continue unless he hands over the charge to the Managing Director to be elected in terms of the order passed by the learned Company Judge. The provisional liquidator, in view of the orders of the court, ceased to be in judicial control or statutory control over the properties of .....

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is not in equation to that of an official liquidator, the same, however, would not mean that even when there does not exist such limitation, the services of provisional liquidator shall not be resorted to. 59. Strong reliance has been placed on In re, A.I. Levy (Holdings) Ltd. [1964] 1 Chancery Division 19. 60. We may at this stage notice the statutory provisions as regards the provisional liquidator in the United Kingdom. The Insolvency Act, 1986 governs the winding up proceedings in England & .....

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tion 143 of the Insolvency Act describes the general functions of the liquidator in a winding up by the court as follows :- General functions in winding up by the court.-(1) The functions of the liquidator of a company which is being wound up by the court are to secure that the assets of the company are got in, realised and distributed to the company s creditors and, if there is a surplus, to the persons entitled to it. (2) It is the duty of the liquidator of a company which is being wound up by .....

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L 49, the question which was to be decided by the House of Lords was whether the official receiver can have recourse to the powers conferred by section 236 of the Insolvency Act, 1986 ( the Insolvency Act ) for the sole purpose of obtaining evidence for use in disqualification proceedings against a former director. Observing the functions of the liquidator vis-a-vis disqualification proceedings envisaged under the section 236 of the Act, Lord Millett opined :- The first of these strands proceeds .....

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conferred on the official receiver in the winding up ; if it were, the costs of the proceedings would be payable out of the assets of the estate. It is not necessary to consider whether the gathering of evidence for the purpose of such proceedings is part of his functions in the winding up , for this formulation is unduly narrow. The liquidator s functions in relation to the company which is being wound up are not and never have been limited to the recovery and distribution of the company s asse .....

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mpossible to say that the liquidator would be acting outside his proper role in the one case and not in the other. Section 236 contains no express limitation on the purpose for which it may be invoked. Of course it may be invoked only for a legitimate purpose in relation to the company which is being wound up, and the court, which has discretion to make or refuse an order, should be astute to see that the powers conferred by the section are not abused. It would plainly be an abuse to use those p .....

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f, but in the wider public interest with a view to enabling the authorities to take appropriate action against those who are found to be guilty of misconduct in relation to the company. If the investigation yields information material to the Secretary of State s decision to bring or continue disqualification proceedings, it must be reported. It was furthermore opined :- In my opinion, the only limitation which is implicit in section 236 is that it may be invoked only for the purpose of enabling .....

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lant had defaulted in payment of its dues to various secured and non-secured creditors including SICOM, it was admittedly heading towards insolvency and in that view of the matter, the assets of the company were really in a practical sense their assets and not the assets of the creditors. We may notice the observations made by the learned author :- As we have seen, directors do not owe duties to shareholders as such. Neither do they owe duties to the company s creditors. The orthodox position be .....

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nt and future. The company owes a duty to its creditors to keep its property inviolate and available for repayment of its debts. The conscience of the company, as well as its management, is confided to its directors. A duty is owed by the directors to the company and to the creditors of the company to ensure that the affairs of the company are properly administered and that its property is not dissipated or exploited for the benefit of the directors themselves to the prejudice of the creditors . .....

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body, they authorize or ratify a particular action of the director, there can be no challenge to the validity of what the directors have done. But where a company is insolvent, the interests of the creditors intrude. They become prospectively entitled through the mechanism of liquidation, to displace the power of the shareholders and directors to deal with the company s assets. It is in a practical sense their assets and not the shareholders assets that through the medium of the company are unde .....

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t mean the whole body of the creditors and not only one of the secured creditors. The inconsistency of is self-evident, as, on the one hand, it is stated that the property of the company does not vest in the court or the official liquidator, on the other hand, it is stated that it is vested in the body of the creditors and not only in SICOM. 63. The High Court, therefore, could not have ignored the official liquidator only on the ground that a provisional official liquidator was appointed and no .....

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lf would be without jurisdiction. In this case, however, even otherwise a fair procedure was not adopted. We, however, very much appreciate the anxiety on the part of the Court to see that otherwise just dues of SICOM be realized. Conduct of a party plays an important role in the matter of grant of a relief. However, only because the conduct of a party was not fair, the same, by itself, cannot be a ground to adopt a procedure which is unjust or unfair, particularly, when by reason thereof, not o .....

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he creditors who had initiated the proceedings but also others who have something to do therewith. Even in a given case a larger public interest may have to be kept in mind. The court may direct winding up. It may prepare a scheme for its restructuring. 65. We, therefore, are of the opinion that the Company Judge was not correct in its view and passed the impugned judgments only having regard to the wrongful conduct on the part of the appellant in obtaining an award from the conciliation tribuna .....

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? Direction issued by this Court in a case of this nature need not be a narrow one. The court has to take into consideration the fate of not only those workmen who are working but also those who have a claim against the Company. We must also take into consideration the fate of the other creditors. 67. We, therefore, are of the opinion that interest of justice would be subserved if while allowing the appeal, the learned Company Judge is requested to go into the question afresh in accordance with .....

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