Real Value Appliances Ltd. . vs Vardhaman Spinning and General Mills Ltd.

Judicial Analysis Court Copy Headnote Facts Arguments Court observation

1997 Supreme(Bom) 420

IN THE HIGH COURT OF BOMBAY
Dr. B.P. Saraf Dr. Pratibha Upasani, JJ.
Real Value Appliances Ltd. ..... Appellants.
Versus
Vardhaman Spinning General Mills Limited ......Respondents.
Appeal No. 1193 of 1996 from Company Application No. 525 of 1996 in Company Petition
No. 415 of 1996, decided on 8-8-1997.
Advocates appeared :
R.A. Kapadia, S.A. with A.N. Desai i/b. Shah, Desai, Doijode, Phatarphekar, for appellants.
S. Rahimtoola with Vikram Trivedi and Mrs. Rita Rahimtoola i/b. Manilal Kher, Ambalal Co., for respondents.
Salil M. Shah i/b. Mulla Mulla C.B. C., for B.S. Industries, F.A.G. Precision Bearings Company, I.T.C. Classic Ltd., for Interveners.
S. Shety i/b. S. Satpute Co., for Interveners.
D.L. Amin i/b. Mulla Mulla C.B.C., for Central Bank of India, - Interveners.
Z.P. Bharucha, for L.I.C. Mutual Fund Interveners.
P.K. Samdani, for U.T.I. G.I.C. housing i/b. Dave Girish Co., for Interveners.
P.K. Samdani i/b. Dhru Co. Bajaj Auto Limited, for Interveners.
R.S. Syed i/b., Srivastav Co., for I.I.T. Capital Services Limited, for Interveners.
Dharmadhikari i/b. Ajay Khandhan, for Interveners.
M.K. Shetty, M.D. Parekh, M/s. Miko Enterprises, Lalit F. Kothari, M/s. M.K. Engineers Co.
Ms. Neeta Gaglani i/b. I.C.I.C.I. Securities Finance Ltd., Gujarat.
Ms. V. Mirasee i/b. Shah Sanghi, for Interveners.
H.D. Buch with Ms. N.D. Buch, for Bhor Employees Union Shramik Sena, for Interveners.

Headnote:Section 446-Sick Industrial Companies Act, 1985, Sections 15, 16 and 2-Challenge to winding up-Jurisdiction of company court challenged-Ground-Enquiry under Section 15 already pending against appellant-Held-Only a registration under Section 15 does not mean an enquiry against appellant-Enquiry under Section 16 requires a lengthy process by Board.-It is clear from Regulation 21 that after registration of the reference under Section 15, the first step, is to determine or decide whether to make inquiry or to direct the operating agency to do the same. That being so, an inquiry under Section 16 can be said to have commenced only when the Bench of the BIFR, to which the reference is assigned by the Chairman after its registration, deems it fit to make inquiry or to cause an inquiry to be made by the operating agency. Till that stage, it is merely a reference registered by the office of the Board. It cannot be said that an inquiry has commenced and is opening.
       Section 446 Sick Industrial Companies Act, 1985, Sections 15 and 22-Reasonableness of-Appointment of receiver-Winding up operations-Contention-Financial trouble only temporary-Held-Matter of winding up already pending with BIFR Contempt proceedings initiated Petition liable to be rejected.-It is clear that the appellant company is not in a sound financial condition and on that account, it is not in a position to pay its unsecured creditors. That being so, it is clear that the learned Single Judge was correct in his opinion that the appellant company was not in sound financial condition and with a view to protecting the interest of the unsecured creditors, it was necessary to appoint a provisional liquidator of the appellant company. This appeal, therefore, is totally devoid of any merit and the same is liable to be dismissed with costs.
       Sick Industrial Companies (Special Provisions) Act, 1985
       Sections 15 and 22-See Companies Ad, 1956, Section 446.
       Sections 15, 16 and 22-See Companies Act, 1956.

JUDGMENT - Dr. B.P. SARAF, J.:---This appeal is directed against the order of the learned Single Judge dated 18th October, 1996 on the company petition filed by the respondents for winding up of the appellant company, by which the learned Single Judge appointed the Official Liquidator as the provisional liquidator of the appellant company. When this appeal came up for admission on 4th November 1996, it was contended before us on behalf of the appellant company that its financial condition was quite sound and the interest of the unsecured creditors was fully secured. It was submitted that failure of the appellant company to pay its creditors in time was only because of temporary liquidity crunch and for no other reason. We were told that the appellant company was in a position to pay all its unsecured creditors. Time was sought till 2nd December 1996 to submit a scheme for paying the unsecured creditors. In view of these submissions of the appellant company, the hearing of this appeal for admission was adjourned till 9th December 1996 with a direction to the appellant company not to incur any fresh liability in the meantime. It was further adjourned to 18th December, 1996. Finally this appeal was taken up for admission on 20th December 1996. At that time also, the learned Counsel for the appellant company reiterated the submissions made earlier on 4th November 1996 about financial soundness of the appellant company and its capacity to pay its unsecured creditors and others. We were told that failure of the appellant company to pay its unsecured creditors was only because of "temporary liquidity crunch". It was urged before us that the learned Single Judge erred in arriving at a finding that the financial condition of the appellant company was commercially not sound and that with a view to protecting the interests of the unsecured creditors it was necessary to appoint the Official Liquidator as the provisional liquidator.

2.We considered the above submissions of learned Counsel for the appellant company in the light of the affidavits filed in this Court by the Executive Director and the General Manager of the appellant company in support thereof from time to time. The first affidavit noticed by us was the affidavit dated 29th August 1996 of Mr. Vinod Pandya, Executive Director of the appellant company, in reply to the company application filed by the respondents seeking appointment of provisional liquidator. In para 2 of the said affidavit, it was stated :

"At the outset, I submit that the above petition has been filed by the petitioners only to pressurise the company into making payment of the petitioners' dues. As repeatedly explained to the petitioners in correspondence, copies of some of which are annexed to the petition, the company is going through a temporary liquidity shortage., However, the Company is sound having a paid-up capital of Rs. 12.4 Crores and reserves and surplus as on 30-6-1995 of about Rs. 64 crores." (Emphasis added).

Denying the allegations that the appellant company had no resources to pay the debts of its creditors, it was stated :

"I say that the financial crunch felt by the company is only temporary as the entire economy is in bad shape."

In another affidavit filed by Mr. Pandya on 11th October 1996, purporting to place on record certain relevant facts and to clarify the financial position of the company over the last two years, it was stated, inter alia, :

"......... the loss has been curtailed due to various measures adopted by the company in terms of massive reduction in overheads which started yielding results from the second quarter of the second half i.e. from April 1996 onwards. Thus, through these measures, the company is now in a situation of breaking even in terms of operations.

The company is optimistic that from November 1996 onwards it can start repayment in instalments as may be decided with each party."(Emphasis supplied).

In an affidavit dated 2nd December 1996, Mr. A.R. Srinivasan, Gene

Click Here to Read the rest of this document

1997 Supreme(Bom) 420

Cases Referred (1)