TMI Blog2017 (9) TMI 129X X X X Extracts X X X X X X X X Extracts X X X X ..... ced before us to suggest that the appellant had defalcated KOFL's funds. Therefore, the appellant's motivation in infusing his personal funds cannot, to our minds, be the basis for coming to the conclusion that keeping the winding up petition in play works to his benefit. Whatever may have been the reasons for the appellant to infuse funds, the fact of the matter is that, claims of a vast majority of depositors were settled with help of funds brought in by him and therefore, if criminal proceedings initiated against the appellant were closed on account of settlement of dues of depositors is any issue on which, we cannot comment as that aspect of the matter is not within the scope of the present proceedings. What is clear though the motivation of the appellant to keep the company petition ongoing cannot impinge upon construction of the Rules adverted to above by us. Having said so we make it abundantly clear that nothing that we said above will come in the way of prosecution of the appellant in civil and criminal proceedings, if, otherwise they are tenable in law. Therefore, for the foregoing reasons, we are of the view that the impugned judgement and decree cannot be sustaine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be filed by one Mr.S.Ramaiah, who is arrayed as respondent No.3 in the instant appeal. He, along with his wife, had deposited monies with KOFL. Since, there was a default not only qua the deposits made by respondent No.3 and his wife, but also vis-a-vis other depositors, several criminal complaints were filed by depositors, which numbered nearly 400, at one point in time. 4.2. In so far as respondent No.3 and his wife are concerned, they, as it appears, preferred aforementioned Company Petitions. As indicated above, respondent No.3's Company Petition is numbered as: C.P.No.179 of 2001. In so far as respondent No.3's wife, i.e., Mrs.R.Seethalakshmi, is concerned, her Company Petition is numbered as:C.P.No.180 of 2001. Both the Company Petitions, evidently, were filed under the provisions of Section 433 (e) and (f) and 434 of the Companies Act, 1956 (in short 'the 1956 Act'). 4.3. The record shows that the aforementioned Company Petitions were presented on 02.07.2001 and numbered on 01.08.2001. The Company Petitions came up for admission before the learned Company Judge on 05.12.2001, at which point they were admitted and directions were issued for appointme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed above, is, principally, contested by respondent No.1, i.e., United Western Bank, predecessor-in-interest of Investment Development Bank Limited (hereafter referred to as 'UWB/IDBI') and to some extent by the OL. 5.2. The contest amongst these three parties, i.e., the appellant, UWB/IDBI and OL, is pivoted around an immovable property, which at one point in time, was owned by KOFL. The property in issue, which ad-measures 2056.89 sq.ft., [inclusive of undivided share of land and office space bearing No.102 and 103, measuring 4263 sq.ft. is located on the First Floor of the building, known as, Prestige Point , which is situate at No.33, Haddows Road, Nungambakkam, Chennai-600 006 (hereafter referred to, as 'the subject property')], was bought by KOFL on 19.04.1991. 5.3. Evidently, on 31.03.1999, the Board of Directors (in short, BOD ) of KOFL passed a resolution to sell the subject property. The reason it chose to take this step, was, perhaps, on account of the fact that KOFL, which had taken a working capital loan aggregating to ₹ 55,00,000/- (Rupees Fifty five lakhs only) was unable to pay the loan. Pertinently, this loan had been advanced by UWB/ID ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filed Comp.A.No.1208 of 2002, with the learned Single Judge, wherein, the prayer made was, for issuance of a direction to the Administrator, to execute a sale deed in its favour under the provisions of Section 536 of the 1956 Act. This application was filed, in and about, September 2002. 6. Comp.A.No.1208 of 2002 was, however, dismissed by the learned Company Judge, via the judgement and order dated 21.04.2003, on the principal ground that the subject transaction amounted to a fraudulent preference. 6.1. UWB/IDBI, being aggrieved, preferred an appeal with the Division Bench, which was numbered O.S.A.No.284 of 2003. This appeal was filed in and about August 2003. O.S.A.No.284 of 2003, met the same fate, that is, it was dismissed by the Division Bench, vide judgement and order dated 17.08.2009. 6.2. Being aggrieved, UWB/IDBI, preferred a Special Leave Petition (SLP) bearing No.33825 of 2009, against the judgement and order dated 17.08.2009, passed by the Division Bench. 7. We are informed that the said SLP is pending. In the SLP, the Supreme Court, vide order dated 10.01.2017, has directed this Court to dispose of the captioned appeal (i.e., O.S.A.No.396 of 2013) expediti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so recorded that the appellant had made, via cheques issued on various dates between January 2003 and December 2007, remittances to the Administrator amounting to ₹ 7,41,60,738/-. 8.4. A perusal of the interim and final report filed by the Administrator, the contents of which, were noticed by the Court in its order dated 23.06.2009, made in Comp.A.Nos.2482 to 2485 of 2002, would show that KOFL in all had on its books 10,968 depositors, out of which, 6,464 depositors were paid by the learned Administrator at the rate of 20%. A further amount, equivalent to 30% of the dues, was brought in by the appellant from his private resources. In other words, this part of the claim made by the depositors was settled by the appellant privately. In so far as the remaining 4,504 depositors were concerned, whose claim are valued at ₹ 5,87,00,922/-, the Administrator, in the first instance, paid 20% of the claim, amounting in all, to ₹ 1,17,40,184/- while the balance sum amounting to ₹ 4,69,60,738/-, was paid by the appellant pursuant to the order dated 09.10.2007, passed in Comp.A.Nos.2482 to 2485 of 2007. The Court, also noted, that cheques amounting to ₹ 1,00,25,2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat behalf, take assistance, if necessary from the OL. 10. It appears that the Company Petition, in this background, came up before the Court, for hearing, on 21.06.2010, when, upon the submission advanced by the petitioning creditor's counsel, that he had returned the papers, notice was issued by the Court to the party, i.e., respondent No.3, in the present appeal. 11. In the meanwhile, consistent, with the direction contained in the order dated 23.06.2009, the appellant moved Comp.A.No.1716 of 2010, whereby, he sought returns of FDR worth ₹ 25,00,000/-, furnished on his behalf by HDFC Limited, Chennai. The consequent direction, which, the appellant sought in the said application, was for appropriation of the said amount along with the accrued interest. 11.1. The said application, which was moved in C.P.No.179 of 2001, was disposed of, by the learned Company Judge, vide order dated 02.12.2010, with the direction that the OL would return the FDR to the appellant, so as to enable him to receive the amounts due and payable on the FD, with the caveat that if, in future, any claims were made by the depositors, the same shall be honoured by him. The appellant was aske ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... BI. 14.4. Accordingly, the sum available with the OL, in the form of investment and bank deposits amounting to ₹ 1,30,29,441/- was directed to be attached along with accrued interest, upon transfer of the said sum being effected by the OL in favour of the appellant herein. 14.5. The fact that SBI is aware of the present proceedings is borne out from the communication dated 07.07.2017, addressed by it to the OL, whereby, it has requested the OL to bring to the notice of this Court, the aforementioned order of the DRT. 15. The record further shows that in response to Comp.A.No.734 of 2011, the OL filed two reports. The first report appears to be an interim report, which is dated 23.09.2011. The second report is a final report, which is dated 04.01.2013. A perusal of the two reports would show that the OL, broadly, took the following stand : (i).That the Comp.A.No.734 of 2011 was not maintainable, as at the time of admission of the Company Petition, this Court had categorically held that KOFL had lost its substratum and was unable to pay its debts. (ii).That the entire purpose of filing Comp.A.No.734 of 2011 was to enable KOFL to obtain interest in the subject pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. Bank of Madura Ltd. 25.00 5. Bank of Baroda Ltd. 75.00 6. United Western Bank Ltd. 50.00 7. Karur Vysya Bank Ltd. 100.00 8. The Federal Bank Ltd. 50.00 17. Apart from the OL, the appellant, as it appears, also, filed a counter affidavit to Comp.A.No.734 of 2011, wherein, he, broadly, made the following averments : (i).That the application was not maintainable, and therefore, was liable to be dismissed. (ii).KOFL was engaged in the business of Non-Banking Finance and towards this end, it accepted deposits from the public, which were advanced in the form of loans to various parties. (iii).At one point in time, the dues owed to KOFL by its debtors amounted to ₹ 17.63 Crores, and because, the recovery of dues was slow, KOFL could not pay its depositors. (iv).The consequences of this circumstance was that, dissatisfied depositors filed various forms of actions against KOFL, which included ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in Comp.A.No.734 of 2011. 19. What, thus, emerges, upon the perusal of the record, which includes the impugned order, is as follows : (i).That KOFL owed a sum of ₹ 66,55,055/-, to UWB/IDBI as on 31.03.1999. (ii).A resolution was passed by the BOD of KOFL on 31.03.1999, authorising one of its Directors to negotiate the sale of the subject property with UWB/IDBI. Accordingly, the letter dated 02.02.2000, was issued by KOFL to UWB/IDBI expressing its willingness to sell the subject property to UWB/IDBI. (iii).Consequent thereto, an agreement for sale dated 17.02.2000, was executed between KOFL and UWB. The total consideration fixed was ₹ 1,05,00,000/-, against which, KOFL received a sum of ₹ 41,00,000/-. (iv).As per (That the PURCHASER has paid a sum of ₹ 41 lakhs (Rupees forty one lakhs only) vide pay order No.177674, dated 17th February 2000 drawn on The United Western Bank Ltd., Broadway Branch, to the VENDOR as and by way of advance towards sale consideration on signing of this Agreement and the balance of the purchase money amounting to ₹ 64 lakhs (Rupees Sixty four lakhs only) shall be paid at the time of completion of the transacti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subject property. (ii).The aspect of sale of the subject property had not received the approval of its shareholders in accordance with the provisions of Section 293 of the 1956 Act. In other words, the Division Bench came to the conclusion that the said provision was applicable, as the subject property formed the whole or, substantially the whole of the undertaking of KOFL and therefore, its sale could only have been conducted with the approval of the shareholders at the general meeting. (iii).The provisions of Section 531 of the 1956 Act, pertaining to, fraudulent preference were applicable, as the transfer of right and/or interest in the subject property had not taken place. This finding was returned in the context of the argument advanced on behalf of UWB/IDBI that the subject transaction took place on 17.02.2000, which was more than six (6) months prior to the date of presentation of the winding up petition, i.e. 02.07.2001 and hence would not amount to fraudulent preference. (iv).The Court also observed that, if, as on 31.03.1999, KOFL owed a sum of ₹ 66,55,055/- to UWB/IDBI, it could have in the normal course sought for adjustment of the said sum towards balan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al assets. 21.3. In so far as UWB/IDBI is concerned, the learned Company Judge recognised the fact that Comp.A.No.734 of 2011, had been filed only to remove one of the impediments in its way in securing the title to the subject property. The present application, according to the learned Company Judge, was in effect an attempt to take a shortcut to success. 22. Having adverted to the motivation of the contesting parties, the learned Company Judge held that a conjoint reading of the provisions of Rules 95, 96, 99 and 24 of the Companies (Court) Rules, 1959, (hereafter referred to as the 1959 Rules ) would show that the Company Court had no discretion to dispense with the advertisement of the Company Petition. This view was supported by the learned Company Judge by referring to sub-rule (2) of Rule 100, which prohibits hearing of an application filed to seek leave to withdraw a winding up petition, before the date fixed in the advertisement for hearing of the said petition is reached. 22.1. In answer to the poser as what would happen, if, the petitioner were to fail in advertising the Company Petition, the learned Company Judge, relied upon on the provisions of Rule 101 of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to do so in C.P.No.180 of 2001, as the said order was passed, both in C.P.Nos.179 and 180 of 2001. In order to buttress this submission, our attention was drawn to the Decree dated 04.10.2013, which adverts to the fact that only C.P.No.179 of 2001 stands dismissed. (iv). Fourth, the learned Company Judge, ought to have given an opportunity, not only to the appellant, but also other creditors and contributories, to step into the shoes of the petitioning creditor in terms of Rule 101 of the 1959 Rules, by having the Company Petition posted on another date. (v).Fifth, the impugned judgement was flawed, as it failed to take into account that the order of admittance, that is, order dated 05.12.2001, alluded to the fact that C.P.Nos.179 and 180 of 2001 were being admitted, inter alia, for the reason that KOFL had become insolvent and had lost its substratum. The impugned judgement and order had impacted these findings without dealing with them. (vi).Sixth, the undisputed position is that KOFL always owned only one immovable property, which is the subject property and that, there were secured creditors in position, which included banks and financial institutions, apart from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said section contained six (6) clauses. These clauses enumerated the circumstances, in which, a company could be wound up. The subject Company Petition, i.e., C.P.No.179 of 2001, was filed under the provisions of Clause (e) and (f) of Section 433. 26.2. Clause (e) speaks of a circumstance, whereby, a company is unable to pay its debts. Clause (f), on the other hand, empowers the Court to wind up a company, if it is, in its opinion, just and equitable to do so. Since, we are not concerned with other circumstances, we do not think it necessary to advert to, those circumstances that are referred to in the remaining clauses. Suffice it to say that clause (e) of Section 433 is required to be read with Section 434 of the 1956 Act, as it articulates as to when a company is deemed to be unable to pay its debts. 26.3. Clauses (a) of Sub-section (1) of Section 434, sets up a statutory presumption qua inability to pay debts qua a company if, after it is served with a demand notice by a creditor in the manner prescribed, it neglects to pay the said sum, or, to secure, or, to compound for it, to the reasonable satisfaction of the creditor within a period of three (3) weeks from the date o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as the PL. However, before appointing a PL, the Court is required to give notice and reasonable opportunity to the company, to make a representation, unless for special reasons, which are to be recorded in writing, the Court deems it fit to dispense with such notice. 27.3. The Court is also empowered to decide on the contours of the powers, it wishes to confer on the PL. In case, the Court places no fetters, the PL would be invested with the same power as that of the liquidator of a company. The provision with regard to this aspect of the matter has been made in Sub-section (3) of Section 450 of the 1956 Act. 27.4. Sub-section (4) of Section 450 makes it clear that, once, the winding up order is passed, the OL will cease to hold office as the PL and shall don the role of the liquidator of the company. This provision in line with the provision made in Section 449 of the 1956 Act. 28. Therefore, what comes through is that, both the creditor as well as the contributory can file a petition. In so far as the contributory is concerned, unlike a creditor, he is not required to issue a statutory notice, as stipulated in Section 434(1)(a) of the 1956 Act. 29. The procedure for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any Judge may, if he thinks fit, give notice to the Company before giving directions as regards the advertisement of the petition. In other words, if, there is an admission of the Company Petition, then, a direction for advertisement has to be, necessarily, given, wherein, the date of hearing of the Company Petition would have to be indicated with a caveat that issuance can be delayed till after return of notice issued to the Company. 29.4. Moving further, 99. Advertisement of petition Subject to any directions of the Court, the petition shall be advertised within the time and in the manner provided by rule 24 of these rules. The advertisement shall be in Form No. 48. Rule 99 provides that subject to any directions that the Court may give, the Company Petition shall be advertised within the time and in the manner provided in 24. Advertisement of petition ((1) Where any petition is required to be advertised, it shall, unless the Judge otherwise orders, or these rules otherwise provide, be advertised not less than fourteen days before the date fixed for hearing, in one issue of the Official Gazette of the State or the Union Territory concerned, and in one issue each of a daily ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 24 of the 1959 Rules. It is also be worthwhile to note that a conjoint reading of Rule 99 along with Rule 24(2) would demonstrate that advertisement of the winding up petition cannot be dispensed with, by the Company Judge, and therefore, in that sense, makes advertisement compulsory given the nature of the proceedings. 29.8. Pertinently, though, neither Rule 99 nor Rule 24 stipulate the advertisement can only be published by the person or entity, which instituted the Company Petition. 29.9. The learned Company Judge does pose a question as to what would happen, if, the petitioner, who filed the Company Petition, failed to advertise the same, within the time prescribed by the Court. 30. The learned Company Judge answers this question by adverting to ( 101. Substitution of creditor or contributory for original petitioner Where a petitioner,- (1) is not entitled to present a petition, or (2) fails to advertise his petition within the time prescribed by these rules or by order of Court or such extended time as the Court may allow, or (3) consents to withdraw the petition, or to allow it to be dismissed, or the hearing to be adjourned, or fails to appear in support ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to prosecute the original petition. As a matter of fact, we may note that the Court further observed that even during the course of the hearing, the appellant made no such offer, even though, he could have made such an offer. 31. Therefore, to our minds, two aspects would arise for consideration given the fact and circumstances obtaining in the instant case. First, if, winding up is not advertised, by the original petitioner as directed, can the Court direct the PL to advertise the petition, having regard to the fact that the proceedings are inter alia for the benefit of creditors at large and not one single creditor ? 31.1. The answer to this poser, to our minds, has to be in affirmative as there is no bar in the Rules which prohibits a PL from advertising the Company Petition in such like circumstances, though, ordinarily, in practice, Company Petitions are advertised by the petitioner who institutes the action. As alluded to above, the Rules do not bar the Company Court from directing the PL to advertise the petition. The reason, why we hold this view is plainly this, that, while, advertisement of the petition is compulsory as winding up proceedings are proceedings in rem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... least, to a prima facie conclusion that the liabilities of KOFL were substantially more than its assets, and that, KOFL had lost its substratum. 31.4. The record shows that KOFL, has at least, eight (8) secured creditors, who have outstanding dues, and that, there are, in effect, apart from the subject property, no other assets available to satisfy those dues. KOFL is thus, an entity, which is in deep financial crisis. The Court, therefore, in our view, ought to have directed the advertisement of the petition by empowering the PL to take steps in that behalf and allowed adjustment of cost incurred by him as the first charge against proceeds received on sale of assets of KOFL. 31.5. The fact that such circumstance, obtained in the instant case, is borne out by the observations made in paragraph 38 of the impugned judgement and order, wherein, the Company Judge observes that he is unable to acquiesce to the request advanced on behalf of UWB/IDBI that the OL should be discharged, as the depositors had received their dues. The learned Company Judge has opined, in our view, quite correctly, that there were other creditors, who had approached the DRT for defrayment of their dues, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n. 32.1. Mr.Seshadri, submits that since, compliance had not been made of the directions issued by the Company Judge, vide order dated 05.12.2001, requiring the original petitioner to advertise the petition, the learned Company Judge was well within his rights to dismiss the Company Petition, i.e., C.P.No.179 of 2001 as well. 32.2. We are unable to accept this submission. If the purpose of Rule 101 of the 1959 Rules, is to enable a creditor or a contributory to step into the shoes of the original petitioner, an adequate opportunity for the said purpose had to be given. Without giving adequate opportunity to creditors and contributories, the Court, in our view, could not have come to a decisive conclusion that the other creditors or contributories (apart from the appellant), would not be interested in stepping into the shoes of the original petitioner. 32.3. In fact, a perusal of the order dated 13.12.2013, passed by the DRT indicates that SBI has submitted a claim in Form 66, for a sum of ₹ 1,78,46,650.44, which is the sum due and payable according to it, as on 30.09.2006, along with future interest. This claim, evidently, was filed by SBI with the OL's office on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other matters will continue to operate, even if, we were to sustain the impugned judgement and order vis-a-vis C.P.No.179 of 2001. 34. Before we conclude, we must also indicate that the result reached in the instant appeal would have an impact on SLP No.33825 of 2009, which arises out of O.S.A.No.284 of 2003, which was, as noticed above, dismissed by a Division Bench of this Court vide order dated 17.08.2009. In the said judgement, a coordinate Division Bench has returned a finding to the effect that the appellant, in entering into the subject transaction, had fraudulently preferred UWB/IDBI over other creditors. The fact that the appellant's motivation in keeping the winding up petition in play emanates from his desire to keep the creditors at bay, cannot, in our view, result in a situation, whereby the rights of other creditors and contributories, apart from that of UWB/IDBI, get impacted. It is another matter that looking at the liabilities of KOFL, contributories may get nothing at the end of the day. But that by itself cannot be the reason for depriving them or other creditors, the opportunity of stepping into the shoes of the original petitioner. 34.1. The matter c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... winding up of the concerned company had been directed without advertising the Company Petition. The Division Bench held that the order of winding up was contrary to the statutory requirements, as stipulated in the 1959 Rules, which obligated advertisement of the winding up petition. In this regard, reference, inter alia, was made to Rule 24(2) of the 1959 Rules. This judgement, in so far it states that advertisement is mandatory, does not take a view which is very different from the one we have taken above. 35.2. As regards the judgement rendered in the matter of : Lt.Col.R.K.Saxena V. Imperial Forestry Corporation Limited, CDJ 2001 DHC 639, is concerned, the Delhi High Court, in that case, was called upon to decide as to whether publication of the advertisement in the Official Gazette was mandatory. The Court came to the conclusion that publication in the Official Gazette was mandatory, as it would give wider publicity to the factum of admission of the Company Petition. According to us, the issue involved in the present case is somewhat different. Therefore, save and except to the extent that the Court holds publication of the advertisement of a winding up petition was nec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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