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In the High Court of Madras
V. Ramasubramanian, J.
IDBI Bank Limited, Prestige Point, No. 3, Haddows Road, Chennai - Applicant;
Versus
The Official Liquidator, High Court of Judicature at Madras as a Liquidator of Kothari Orient Finance Limited (in liquidation). - Respondents.
Comp.A. No. 734 of 2011 in C.P. No. 179 of 2001
Decided on : October 4, 2013
COMPANY - WINDING UP - PETITION - ADVERTISEMENT - FAILURE TO ADVERTISE - SUBSTITUTION OF PETITIONER - CONDITIONS - RIGHT TO PRESENT PETITION - DISCRETION OF COURT - INTERPRETATION OF RULES 96, 99 & 101 OF THE COMPANIES (COURT) RULES, 1959 - HELD, ADVERTISEMENT OF PETITION IS MANDATORY - FAILURE TO ADVERTISE FATAL TO PETITION - SUBSTITUTION OF PETITIONER NOT PERMISSIBLE IN ABSENCE OF RIGHT TO PRESENT PETITION - COMPANY PETITION DISMISSED.
Fact of the Case:
Petitioner-Bank filed an Application seeking discharge of the Official Liquidator appointed in the winding up proceedings of a Company. The Company was admitted to winding up on its own admission that it was commercially insolvent. The Third Respondent, who was the Chairman of the Company, came forward to settle the claims of depositors by pumping in his own personal funds. The Third Respondent appears to have enjoyed a special privilege (i) by securing the permission of this Court to settle about 10,000 Depositors, partly through the Official Liquidator and partly outside this Court (ii) by bringing in his own personal funds to settle 4,504 Depositors at the rate of 30% (iii) by getting his property released from attachment not only from this Court, but also from the Criminal Court in Crl.O.P. No. 3 of 2004, and (iv) by getting the original Title Deeds relating to his documents released from the Administrator. The Third Respondent walked out with a refund of Rs. 1,95,73,682.44, under an Order dated 23.6.2009 passed by this Court in C.A. No. 2482 to 2485 of 2007. The petitioning Creditor failed to advertise the Petition for winding up as directed by the Court. The Third Respondent opposed the Application of the Bank on the ground that the proceedings for winding up intended to go for the benefit of the entire body of Creditors, cannot be dismissed behind the back of the Creditors; that in view of the finding recorded in the earliest Order of this Court dated 5.12.2001 that the Company has become commercially insolvent, there is no alternative but to wind up; that the failure of the petitioning Creditor to effect publication cannot result in injury to the other Creditors; and that the Applicant is now attempting to achieve what they could not achieve in their Application under Section 536(2). The Official Liquidator opposed the Application on the ground that a Consortium of 8 bankers had lent money to the Company-in-liquidation and that some of them are before the Debts Recovery Tribunal; that the dismissal of the Company Petition is not going to have an impact upon those proceedings; that if the Banks are Secured Creditors, they will only be happy about the dismissal of the Winding up Petition, since they do not have to associate the Official Liquidator anymore with any coercive steps that they take; that if they are unsecured Creditors, their position is not going to become worse by the rejection of the Company Petition; that in so far as the workmen are concerned, what they would get after a Company is wound up, is only a distribution as provided in Section 529-A of the Companies Act; that the pendency of Income Tax Assessment need not be a concern for the Official Liquidator; and that by allowing the Application of the Bank, the Court would be allowing one Creditor bank to score a march over 8 other financial institutions as well as other Creditors.
Finding of the Court:
The Court held that advertisement of a Petition for winding up is mandatory, even in respect of the Official Gazette. The Court further held that the failure of the petitioning Creditor to comply with the requirement of publication of advertisements, despite a positive order to that effect, is fatal to his Petition. The Court also held that substitution of a Creditor in the place of the original petitioning Creditor, is permissible only if in its opinion, the substituted Petitioner would have the right to present a Petition by himself. The Court further held that the right to present a Petition accrues only upon the satisfactory compliance with the mandate of law.
Issues: Whether the advertisement of a Petition for winding up is mandatory? Whether the failure of the petitioning Creditor to comply with the requirement of publication of advertisements, despite a positive order to that effect, is fatal to his Petition? Whether substitution of a Creditor in the place of the original petitioning Creditor, is permissible only if in its opinion, the substituted Petitioner would have the right to present a Petition by himself? Whether the right to present a Petition accrues only upon the satisfactory compliance with the mandate of law?
Ratio Decidendi: The Court held that advertisement of a Petition for winding up is mandatory, even in respect of the Official Gazette. The Court further held that the failure of the petitioning Creditor to comply with the requirement of publication of advertisements, despite a positive order to that effect, is fatal to his Petition. The Court also held that substitution of a Creditor in the place of the original petitioning Creditor, is permissible only if in its opinion, the substituted Petitioner would have the right to present a Petition by himself. The Court further held that the right to present a Petition accrues only upon the satisfactory compliance with the mandate of law.
Final Decision: The Court allowed the Application of the IDBI Bank and discharged the Official Liquidator, appointed as the Provisional Liquidator. The main Company Petition was dismissed and the Official Liquidator was directed to return to the Company, the amount now lying with him, after deducting all the administrative expenses so far incurred by him.
1. This is an Application filed by the IDBI Bank, which is a third party to the Original proceedings, praying for discharging the Official Liquidator, who is acting as the Provisional Liquidator, for the Company-Kothari Orient Finance Limited.
2. I have heard Mr. T.K. Seshadri, learned Senior Counsel for the Applicant, Mr. Arvind Shukla, learned Official Liquidator and Mr. Sriram Panchu, learned Senior Counsel for the Third Respondent.
3. The Second Respondent in this Application filed a Company Petition in C.P. No. 179 of 2001, for winding up the Company Kothari Orient Finance Limited. The Second Respondent's wife by name R. Seethalakshmi also filed a similar Petition for winding up in C.P. No. 180 of 2001. Both the Petitions were presented on 2.7.2001 and this Court ordered notice in both the Petitions on 9.8.2001.
4. After completion of service of Notice in both the Company Petitions, they came up for hearing on 5.12.2001. At that time, it was pointed out by the learned Counsel, who entered appearance for the Company, that more than about 400 Criminal Complaints had been lodged against the Company by various depositors and that lot of Complaints were also filed before the Consumer Fora. The learned Counsel appearing for the Company also submitted that they were unable to pay the debts and that the liability was more than the value of the assets. The Counter Affidavit filed by the Company itself disclosed that the Company was commercially insolvent.
5. The Third Respondent herein, who is the Chairman of the Company, came forward at that time to settle the claims of depositors, under two alternative Schemes, within a period of 3 to 4 years. Since the same was not acceptable to the Creditors, the Third Respondent agreed to bring his own personal funds to pay the depositors in installments. He also filed an Affidavit to the said effect.
6. On the basis of the said Affidavit of Undertaking and on their own admission that the Company was commercially insolvent, this Court passed an Order in common in both the Company Petitions, admitting the Company Petitions, directing the publication of advertisements and also appointing Auditors and Administrator.
7. It appears that the Company owed a sum of Rs. 66,55,055/- to a Bank known as “United Western Bank Limited”, as on 31.3.1999. In order to settle their dues, the Board appears to have passed a Resolution on 31.3.1999 to sell a property being office space bearing Nos. 102 & 103 in the first floor of the complex known as “Prestige Point”, at Door No. 33, Haddows Road, Nungambakkam, Chennai-6, measuring a constructed area of 4263 sq.ft., together with undivided share of land in an extent of 2056.89 sq.ft. Thereafter, an Agreement of Sale was entered into on 17.2.2000 by the Company-in-liquidation, with the United Western Bank Limited, for the sale of the said property towards discharge of their liability under a onetime settlement. A consideration of Rs. 1,05,00,000/- was fixed under the Sale Agreement, out of which a sum of Rs. 41 lakhs was paid by the Bank as advance. The balance was to be adjusted against the amounts due by the Company to the Bank.
8. The parties obtained a No Objection Certificate from the Income Tax Department for the sale of the property on 18.4.2000. The possession of the property was handed over by the Company-in-liquidation to the Bank on 6.11.2000. The original Title Deeds were also handed over to the Bank.
9. It was only after nearly about 8 months of the handing over of possession and nearly after 17 months of the execution of the Sale Agreement, that the Petitions for winding up were filed on the file of this Court. Therefore, the Bank appears to have requested the Administrator on 24.7.2002 to execute the Sale Deed. Since the Administrator did not respond, the Bank came up with an Application in C.A. No. 1208 of 2002, seeking a direction to the Administrator to execute the Sale Deed in terms of Section 536 of the Act.
10. But the Company Court dis
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