M/S Kotak Mahindra Bank Limited vs M/S Elgin Mills Company Ltd
2011 Latest Caselaw 4383 ALL

HIGH COURT OF JUDICATURE AT ALLAHABAD
 
 

?Court No. - 10
 

 
Case :- COMPANY PETITION No. - 24 of 2009
 

 
Petitioner :- M/S Kotak Mahindra Bank Limited
 
Respondent :- M/S Elgin Mills Company Ltd
 
Petitioner Counsel :- Om Prakash Mishra
 
Respondent Counsel :- Kirtika Singh
 
Order on the Application dated 05.09.2011.
 

 
Hon'ble Arun Tandon,J.

Heard Shri Om Prakash Mishra, Advocate on behalf of Kotak Mahindra Bank Ltd., Mrs. Kirtika Singh, Advocate on behalf of Elgin Mills Company Ltd. and Shri Shubham Agrawal, Advocate on behalf of Official Liquidator.

This Company Petition has a chequered history as would be clear from the facts noticed in the order of the Division Bench of this Court passed in Special Appeal No. 439 of 2011 which is quoted herein below :

?On 25.10.2010 M/s Elgin Mills Company Ltd. was wound up by the learned Company Judge under Section 433 (e) (f) and 434 of the Companies Act, 1956 with the following order:-

"This is a petition for the winding up of Company M/s Elgin Mills Company Ltd, 16/8, Sutherland House, Civil Lines, Kanpur U.P. under Section 433 (e) (f) and 434 of the Companies Act, 1956.

The allegations made by the petitioner Company stand un-answered with regard to the failure and neglect of the Company to pay sum of Rs.8,29,63,420/- only. Thus, the Company is liable to be wound up under the provisions of Section 434 of the Act.

This Company petition has been advertised under Rule XXIV of the Companies (Court) Rules in two newspapers on 8th of May, 2010 and has also been published in the Gazette of Uttar Pradesh on 5th of June, 2010. The affidavit of service has been filed on record. Thus, the procedural aspect is complete.

This Company may be wound up under Section 434 of the Act. The Official Liquidator to take charge of the Company. The petitioner may now publish the winding up order under Rule 113. He may take steps to do so within a period of two weeks."

An application was filed by Ms. Kritika Singh on 9.11.2010 alleging that she could not contact Shri R.K. Misra, G.M., who was looking after the case. There was no deliberate negligence and that the absence of the counsel is regretted. The company judge accepted the explanation given by Ms. Kritika Singh and recalled the order dated 25.10.2010. The order impugned in this appeal recalling the winding up order is quoted as below:-

"Heard learned counsels for both sides and I have perused the recall application, the supplementary affidavit filed in support of the recall application as well as the counter affidavit filed by Sri O.P.Mishra, who appears for M/s Kotak Mahindra Bank Limited.

The order dated 25.10.2010 records that the allegations made in the petition have not been answered and no one appeared on behalf of the respondent-company on that date.

The circumstances on account of which counsel for the respondent-company Mrs. Kirtika Singh was not able to appear on that particular date have been explained by Sri V.B.Singh, Senior Advocate. The explanation given by Mrs. Kirtika Singh is accepted by this court for this one instance. The order passed on 25.10.2010 is recalled. The matter may not be treated as part heard or tied up to me. It may be listed before the appropriate court in the next cause list."

The Kotak Mahindra Bank Ltd. filed this appeal, in which on 24.3.2011 following order was passed:-

"We have heard Shri Navin Sinha, Sr. Advocate assisted by Shri O.P. Misra for the appellant.

This special appeal under Section 483 of the Companies Act, 1956 has been preferred against the order dated 18.2.2011 recalling the order dated 25.10.2010, by which M/s Elgin Mills Company Ltd. (the company) was wound up on the allegations of the appellant as a creditor bank after giving notice under Section 433 (e) (f) and Section 434 of the Companies Act, 1956, that the company is unable to pay its debts.

Shri Navin Sinha, learned counsel for the appellant submits that the company has been wound up after almost 18 years of legal proceeding. The company was registered by the Board of Industrial Finance & Reconstructions (BIFR) under the Sick Industrial Company (Special Provisions) Act, 1985 in 1992. It was recommended for winding up by BIFR on 29th September, 1994. The company went in appeal. After years of the proceedings in the BIFR, AAIFR and the High Court, ultimately by order dated 13th March, 2007 the BIFR found that despite the order dated 14.11.2005, of AAIFR that the company has not been able to arrange for strategic partner, the proceedings are pending to the detriment of the secured creditors and in public interest at large. The manufacturing activity in the company lying closed since 1994 and it had only 36 employees in the year 2005. The BIFR found that the company at that moment could not be construed to be an industrial undertaking under the relevant provisions of the Act and thus de-registered the reference filed by the company.

The Kotak Mahindra Bank gave notice of demand dated 26.3.2009 for outstanding amount of secured loan of Rs.8,29,63,420/- and filed company petition. The Court issued notices on 11.8.2009. On 21.4.2010 the Court observed that though vakalatnama has been filed by Ms Kritika Singh on behalf of the company, she has been seeking adjournments and that since no one has appeared on that date, the petition be advertised under Rule 24 of the Companies (Court) Rules, in two newspapers namely 'Dainik Jagran' and 'Times of India' as well as official gazette. The advertisements and publications were carried out. The company did not file any counter affidavit and thus after recording satisfaction that the notices have been published in two newspapers and the gazette, and that no one including the company has come forward to oppose the winding up petition, the Court by its order dated 25.10.2010 wound up the respondent company and the Official Liquidator was appointed as liquidator of the company.

Mrs. Kritika Singh appearing for the company filed a restoration application stating therein that the company was closed and its manufacturing activities had come to grinding halt since 1994; gradually through liberal scheme all the employees services have been dispensed with and they have been offerred VSS by June 2001 and they have voluntarily accepted the same. It was further stated in para 3 that the administrative office of the company situated in 16/8, Sutherland House, civil Lines, Kanpur was sold away in 2001. There was no office staff of the company. In para 8 it was stated that on 26.11.2009 the Board of Reconstruction of Public Sector Enterprises (BRPSE) in the 75th meeting had considered the revival of Elgin Mill and raising of finance was also considered and in the circumstances the order be recalled.

The counsel for the respondent company was asked to file better affidavit, on which she filed an affidavit stating therein that on the date, when the company was wound up, she was advised and gone for medical check up and thus could not appear, when the case was called out and the order was passed.

Shri Navin Sinha, learned counsel for the appellant submits that the company has been deliberately trying to avoid the winding up. The company entered appearance on 5.10.2009 but did not file any reply. The manufacturing activity of the company is lying closed since 1994. The financial liabilities of the company have far exceeded, its net worth. The entire substratum of the company has been lost. The company admits that there are secured and unsecured creditors of the value totalling Rs.5001.2 lacs as on 31.3.2003 and in the circumstances winding up order passed after publication, in the interest of all the creditors and general public could not have been recalled by the Court. The illness of the counsel, who had not cared to file a reply, could not be a ground in the circumstances to recall the winding up order.

We also find from the record that the Official Liquidator was appointed as liquidator of the company, who had taken steps to take possession. He was not allowed to take possession by the persons, who were interested in the properties of the company along with some alleged antisocial element. The petitioner-Bank and the Official Liquidator was not issued notice, nor heard before recalling the order.

On the aforesaid facts pleaded on record, we prima facie find that the application to recall the winding up has been passed with a design to delay the proceedings, and that recall of the winding up cannot be said to be either in the interest of the creditors or shareholders and general public. Learned Single Judge, instead of putting the winding up order in suspension, which could be the only course available to her and to hear the respondents, who had not filed detailed counter affidavit, proceeded to treat the matter as a civil case and recalled the order. Such a course of action is not permissible in company matters.

Notices have been served upon Smt. Kritika Singh, learned counsel for the respondent company. She is allowed four weeks' time to file counter affidavit. The appellant will have one week, thereafter to file rejoinder affidavit. List on 2nd May, 2011.

Until further orders, the effect and operation of the impugned order dated 18.2.2011 recalling the winding up order dated 25.10.2010 shall remain stayed. The Official Liquidator will proceed in the matter in accordance with the Companies (Court) Rules, 1959 under the supervision of the Hon'ble Company Judge of the Court."

M/s Elgin Mills Company Ltd. (the company) apprehending that the Official Liquidator will take over possession filed Special Leave to Appeal (C) Nos.11162-11163/2011. The Special Leave Petitions were disposed of by the Supreme Court with the following order:-

"Learned Additional Solicitor General has furnished letter dated 7th April, 2011, from Controller of Accounts to the Chairman and Managing Director of BIC Limited. We direct the petitioner herein to place this letter before the Division Bench of the High Court, particularly in view of the fact that the Ministry has taken a decision to clear all outstanding dues of the Financial Institutions/ Nationalised Banks which, if cleared, would obviously avoid winding up of the Company. In the meantime, even if the Liquidator takes charge of the assets, he will not proceed further to dispose them off pending appeal before the Division Bench.

We request the Division Bench to expeditiously hear and decide the appeal within six weeks.

The special leave petitions, accordingly, stand disposed of."

It is submitted by Shri Navin Sinha that the company has not made any offer nor there is any chance of clearing the outstanding of the appellant-bank. The company was wound up after almost 18 years of long and circuitous proceedings. The company was recommended for winding up by the BIFR on 29th September, 1994. The company spent 13 long years in BIFR and AAIFR. When it failed to revive itself or to arrange for strategic partner, the recommendation to wind up the company was confirmed. The proceedings were pending to the detriment of the secured creditors and in public interest at large. The manufacturing activity of the company is closed since 1994. It had only 36 employees in the year 2005. In the circumstances, the BIFR finding that the company is underlying industrial company deregistered the reference. The Kotak Mahindra Bank after giving notice of demand dated 26.3.2009 for outstanding amount of secured loan of Rs.8,29,63,420/- filed the company petition. The company was advertised under Rule 24 of the Companies (Court) Rules by the High Court. The advertisement and publications were carried out. The company did not file any reply to the notices nor gave any good reasons not to wind it up. The counsel repeatedly took adjournment in the matter. Finally the Court by its order dated 25.10.2010 accepted the application of the creditor-M/s Kotak Mahindra Bank and wound up the company. Learned Single Judge has treated the proceedings of the Company Court like any civil proceedings and has allowed the recall application mechanically.

Shri Navin Sinha submits that ordinarily the company court does not exercise powers to recall winding up order. Once the company petition is advertised, and winding up order is passed, it enures to the benefit of all the creditors, workmen, shareholders, unsecured creditors and also for general public, which is not interested in allowing the sick companies to continue to drain the public money. He relies upon the Halsbury's Laws of England, 4th Edn., 1996 Reissue, Vol. 7 (3) para 2248: 'An order for winding up a company operates in favour of all creditors and of all contributories of the company, as if made on the joint petition of a creditor and of a contributory. The Court may rescind the order at any time before it has been passed and entered, but only on the application of a creditor, a contributory or the company jointly with a creditor or contributory [quoting the practice direction (1990) 1 All ER 1056]. The court has jurisdiction to rescind the winding up order after it has been entered and passed in appropriate circumstances. The court's jurisdiction is not restricted to its statutory jurisdiction to grant a permanent stay of the winding up. [(1997) 2 BCLC 230 at p.236].'

Shri Sinha submits that in the present case since no offer has been received, and that in all the meetings only assurances have been given to the bank, it is not in the interest of any stake holder to allow the company to continue. A company, which is not in business for last 17 years and has accepted the offers of voluntary retirement from almost all its employees, may not be allowed to survive, only to avoid the payment to its creditors.

Shri V.B. Singh, learned counsel for the company submits that the Central Government has taken a decision to clear all the outstanding dues of the financial institutions/ nationalised bank. He submits that most of the nationalised bank have accepted the one time settlement. M/s Kotak Mahindra Bank Ltd. is in private management and is not accepting the same terms and conditions as have been accepted by the nationalised banks. If the Kotak Mahindra Bank Ltd. also accepts the same terms, the winding up may be avoided.

Shri V.B. Singh submits that winding up order was passed exparte without hearing the company. The counsel appearing for the company had given sufficient reasons for her absence, which were accepted by the learned Company Judge. He submits that the Appellate Court should not interfere with an order regulating the winding up on the personal ground of the counsel appearing for the company.

In the present case the company has stopped production since 1994 and did not challenge the opinion of the BIFR to deregister the reference as the company was no longer industrial undertaking. The company has accepted the VRS from almost all its employees and is surviving only to keep its valuable property situated in heart of the city. In these proceedings the company had made several offers for settlement of the outstanding dues to its creditors but has not succeeded in persuading all the creditors, including M/s Kotak Mahindra Bank Ltd. to accept the offer. It is holding over the properties, which are charged with the dues of the creditors, indefinitely.

The company did not challenge the order of BIFR nor filed any reply in pursuance to the advertisement under Rule 24 of the Companies (Court) Rules. In the circumstances, the Company Court did not commit any error in winding up the company.

Where winding up order is passed after the advertisement under Rule 24 of the Companies (Court) Rules, the statutory consequence given under the Companies Act come into play. The winding up order ensures to the benefit of creditors (both secured and unsecured), workmen, shareholders and all persons, who are interested in the company. The dues gets crystalised and the liabilities fixed on the date of winding up. The contracts with the creditors, are modified to the extent that only statutory interest is required to be paid after the date of winding up. The workmen get their rights to receive their dues after declaring dividend out of sale of the assets pari pasu with the creditors. The provisional liquidator of the Official Liquidator steps into the shoes of the management, and all the properties come into the possession of the Court. The proceedings pending in any Court against the company are not allowed to continue until the permission of Company Court is obtained. The winding up order having these statutory consequences cannot be ordinarily recalled as if the proceedings were of civil nature in which counsel could explain his absence and get the winding up petition revived.

In Dhankari Investements Ltd. Vs. Official Liquidator and Registrar of Companies, 2006 Company Cases (132) 749, one of us (Hon. Sunil Ambwani, J.) held as follows:-

"In case of winding up by or under the supervision of the Court, Section 466 of the Companies Act, 1956 provides general powers to the Courts, to stay the winding up either altogether or for a limited time and on such terms and conditions as the Court thinks fit, on an application either by the Official Liquidator or of any creditor or contributories, after making a winding up order, on proof of the satisfaction of the Court for grant of such stay. The object is to allow a company, which after an order of winding up has been able to set right the matters and to resume business, or enter into some sort of settlement or arrangement or reconstruction and wants to avoid dissolution. The Court has no jurisdiction to rescind the order of winding up passed either rightly or wrongly but it can stay the proceedings either indefinitely or for a limited period. This power, by reference in Section 518 (1) (b) of the Act is applicable to the voluntary winding up as well."

Where an application is filed to recall the winding up order, it is necessary for the Company Court to issue notice to all concerned including those, who have not put in appearance, either by advertisement, or by issuing notices to hear the objections to the recall of the winding up order. The order to recall the winding up cannot be passed casually by accepting the explanation of the absence of the counsel for the company.

In view of the aforesaid, we find substance in the grounds taken in the appeal and set aside the impugned order dated 18.2.2011 by which winding up order dated 25.10.2010 was recalled. The matter is remanded to the learned Company Judge to consider the application of M/s Elgin Mills Company Ltd.-respondent No.1 to consider the effect of winding up order and to keep it in abeyance. In view of the order of the Supreme Court dated 2.5.2011 we direct that until the decision of the application to be filed by M/s Elgin Mills Company Ltd.-respondent No.1 to keep winding up order in abeyance, the Official Liquidator will not take steps to take over possession, to advertise or sell its assets.

The matter will come up before the learned Company Judge on 29th July, 2011. Both the parties have taken note of the date fixed by the Court.?

From the aforesaid, it is apparently clear that the Company was directed to be wound up under the order dated 25.10.2010 passed by the Company Judge. The application filed for recall of the said order was granted by the Company Judge vide order dated 18.02.2011.

Not being satisfied, the applicant M/s. Kotak Mahindra Bank Ltd. filed Company Appeal No. 439 of 2011. The appeal was allowed and the Division Bench of this Court has specifically recorded that the Company has stopped production since 1994. It had only 36 employees in the year 2005. The BIFR has directed to de-register the Company. V.R.S. has been accepted by almost all the employees and the Company is surviving only to keep its valuable property situate in the heart of the city. The Division Bench further noticed that several offers for settlement of the outstanding dues with creditor could not succeed. M/s. Kotak Mahindra Bank Ltd., the applicant before this Court has refused to accept the limited offer. The Company is holding over the properties, which are charged with the dues of the creditors indefinitely.

The Division Bench further recorded that the Company did not respond to the proceedings even after advertisement under Rule 24 of the Companies Court Rules, therefore, there was no error in the order of winding up. The Court further held that winding up order ensures to the benefit of creditors (both secured and unsecured), workmen, shareholders and all persons, who are interest in the Company.

The Court further, after noticing the judgment in the case of Dhankari Investments Ltd. Vs. Official Liuidator and Registrar of Companies, 2006 Company Cases (132), 749 observed that an application by a creditor or contributories, after making of an order of winding up can be stayed or kept in abeyance if the Company after an order of winding up is able to set right the matters and to resume or entered into some sort of business or settlement or arrangement or reconstruction to dissolution. This power is referable to Section 518 (1) (b) of the Companies Act.

After having noticed the aforesaid fact, the Division Bench directed that the application made by M/s. Elgin Mills Company Ltd. to consider the effect of winding up order and to keep it in abeyance may be considered by the Company Court. An interim order was also made restraining the Official Liquidator from taking over possession or to sell the assets of the Company till such application to be filed by the Company is considered by the Company Judge. The Division Bench directed that the matter would come up on 29.07.2011 before the Company Judge.

It is worthwhile to notice that despite such orders in the presence of the counsel for the Company, no application as permitted by the Division Bench was filed for nearly 1 ½ month. It was only when this Court directed the Official Liquidator to comply with the earlier orders. An application has been filed on 05.09.2011 with the allegation that since the Government of India is interested in rehabilitating the Elgin Mills Company Ltd. and further since the Company has settled the dues with all other financial institutions, the Kotak Mahindra Bank Ltd. must also accept the settlement as proposed by the Company in respect of outstanding dues.

In support of the contention that the Government of India has taken a decision to rehabilitate the Elgin Mills Company Ltd., reference is made to paragraph nos. 11, 22 and 30 of the affidavit.

On a simple reading of the aforesaid paragraphs, it is apparently clear that till date the Government of India has not taken any decision to rehabilitate the Elgin Mills Company Ltd. or to pay of the debts of the creditors like Kotak Mahindra Bank Ltd. Any agreement with other financial institutions is of no legal consequence so far as the claim of the Kotak Mahindra Bank Ltd. is concerned nor this Court can insist upon the creditor to accept the settlement as proposed by the Company and thereby forgo part of its claim.

This Court is, therefore, of the firm opinion that the application made by the Company is only an eye wash to somehow or the other prolong the agony of the creditors by not making the payment.

The Company has grown wiser today. For the first time it has filed a counter affidavit in the Company Petition and that too without any application explaining the reasons for the same being no filed even after due publication of the proceedings under Rule 24 of the Company Court Rules. This Court holds that such attitude of the Company is unfair.

On examination of the counter affidavit, this Court finds that except for repeating what had been stated in the application dated 05.09.2011, no other relevant fact has been mentioned in the counter affidavit which could disclose any sincere attempt on the part of the Company to liquidate the outstanding dues of the present creditors i.e. Kotak Mahindra Bank Ltd.

The liability towards such payment is not in dispute. The Company only insist that Kotak Mahindra Bank Ltd. must accept the money under the OTS as has been arrived at with the other financial institutions. Counsel for the Company could not demonstrate as to under which statutory provision the creditor can be insisted upon to accept One Time Settlement (OTS) and not to seek winding up for the dues remain unpaid in terms of the agreement between the parties where the loan has been advanced. Filing of application after application inviting the Kotak Mahindra Bank Ltd. for settlement are only paper transaction.

The only additional fact mentioned is that an appeal before the A.I.F.R. has been filed against the order of B.I.F.R. Dated 17.03.2007. Whether the appeal has been admitted or not is not known.

Another aspect of the matter which has been highligted by the counsel for the Kotak Mahindra is that counter affidavit on behalf of Elgin Mills Company Ltd. has been filed by one Mr. Bhaduria who claims to be the Law Officer of the British India Corporation. Under which capacity he is representing the Company i.e. Elgin Mills Company Ltd. is not know.

This Court did not refuse to accept the counter affidavit outright only in order to ensure that if some reasonable explanation is available for this Court to not to proceed in the matter, the same may be considered but there is no case worth consideration so as to recall the order of winding up or to keep the same in abeyance in exercise of powers under Section 518(1) (b) of the Companies Act.

Repeatedly what is being stated is that the Company has been assured by the Government of India that it will provide necessary financial assistance but from the records of the present case, the assurances so referred are not of much substance.

This Court finds that no case is made out for recall of the order dated 25.10.2010 or to keep the same in abeyance. The prayer made in that regard is rejected. The application made on 05.09.2011 for granting time to Government of India to decide the rehabilitation of the Elgin Mills Company Ltd. and to settle the dues of the financial institutions like the Kotak Mahindra is also rejected.

In view of the aforesaid, the Official Liquidator is directed to take immediate possession of the properties of the Companies within two weeks from today. For the purpose, the District Magistrate, Kanpur is directed to provide all necessary assistance. The Official Liquidator shall submit a report on 26.09.2011 for the matter being proceeded further.

List on 26.09.2011.

Dated :06.09.2011

VR/Comp. Pet. 24 of 2009