Bharat Petroleum Corporation ... vs National Organic Chemical ...
2003 Latest Caselaw 1216 Bom

JUDGMENT

D.Y. Chandrachud, J.

1. These company applications have been taken out by several secured creditors who assert their right to be heard at the stage of admission of the Company Petition for winding up. The right of the secured creditors to be heard at the stage of admission is questioned by Bharat Petroleum Corporation Limited who is the petitioner before the Court in the Company Petition.

2. Insofar as the legal position is concerned, Section 557 of the Companies Act, 1956 provides in Clause (a) of Sub-section (1) that in all matters relating to the winding up of a company, the Court may, inter alia, have regard to the wishes of creditor's or contributories of the company, as proved to it by any sufficient evidence. The words "relating to the winding up of a company," used in Sub-section (1) of Section 557 are broad enough to comprehend within its purview the stages of admission and of the final hearing of a Company Petition for winding up. Therefore, as a matter of statutory interpretation, the right of the creditors to appear and be heard in all matters relating to the winding up of a company is recognised by law. That right to appear and be heard comprehends the stage of admission as well.

3. There can be no gainsaying the fact on the order passed by the Company Court admitting a petition for winding up by itself has serious consequences for a Company. An order of admission seriously affects the market position of a company-subject to the order. The confidence of the business or trade in the ability of a company to meet its liabilities is liable to be affected upon an order of admission with the consequential advertising of the petition which follows. Hence, the admission of a petition for winding up is a serious matter.

4. In National Textile Workers Union and Ors. v. P.R. Ramakrishnan , the Supreme Court laid down the principle that the workers are entitled to appear at the admission of a winding up petition, either to support or oppose it and so long as no winding up order is made by the Court. Justice P.N. Bhagwati (as the learned Chief Justice then was), speaking for the Constitution Bench of the Supreme Court held that the workers have a locus to appear and be heard in the winding up petition both before the winding up petition is admitted and an order for advertisement is made and after the admission and advertisement of the petition until an order is made for winding up of the company. Having due regard to the provisions of Section 557(1) of the Companies Act, 1956, the principle which has been laid down by the Supreme Court in the case of the workers must necessarily apply in the case of the creditors. There is an express statutory recognition of the position that this Court must have regard to the wishes of creditors and contributories in all matters relating to the winding up of a company.

5. In Madhusudan Gordhandas & Co. v. Madhu Woolen Industries Private Ltd., , the Supreme Court was considering a case where after a petition for winding up came to be accepted and, at the stage of admission, a large number of creditors of the company appeared to oppose the petition for winding up. A learned single Judge of this Court refused to wind up the company and directed it to deposit the disputed amount of Rs. 72,556.02 with a consequential direction for institution of a suit. The judgment was affirmed in appeal by a Division Bench of this Court. The principle insofar as the intervention of creditors is concerned was formulated in para 22 of the judgment of the Supreme Court thus:

"Another rule which the Court follows is that if there is opposition to the making of the winding up order by the creditors the Court will consider their wishes and may decline to make the winding up order. Under Section 557 of the Companies Act, 1956 in all matters relating to the winding up of the company the Court may ascertain the wishes of the creditors. The wishes of the shareholders are also considered though perhaps the Court may attach greater weight to the views of the creditors. The law on this point is stated in Palmer's Company Law, 21st Edition page 742 as follows: 'This right to a winding up order is, however, qualified by another rule, viz. that the Court will regard the wishes of the majority in value of the creditors, and if, for some good reason, they object to a winding up order, the Court in its discretion may refuse the order." The wishes of the creditors will however be tested by the Court on the grounds as to whether the case of the persons opposing the winding up is reasonable; secondly, whether there are matters which should be inquired into and investigated if a winding up order is made. It is also well settled that a winding up order will not be made on a creditor's petition if it would not benefit him or the company's creditors generally. The grounds furnished by the creditors opposing the winding up will have an important bearing on the reasonableness of the case."

6. Counsel appearing on behalf of the petitioners relied upon a judgment of a learned single Judge of the Delhi High Court in Bipla Chemical Industries v. Shree Keshariya Investment Ltd., (1977) 47 Company Cases 211, T. P. S. Chawla, J. was of the view that the creditors who are inclined to oppose a petition for winding up are not entitled to be heard at the stage of admission. Relying upon the provisions of Rule 96 of the Companies Rules, 1959, the learned Judge held that the creditors would be entitled to be heard after the petition has already been admitted but, there is no rule which envisages that anyone other than the company may be heard to oppose the admission of the petition. With great respect, I must hold that it is not possible to accept this view. The circumstance that there is no rule which envisages that the creditors may be heard to oppose the admission of a petition does not interpose any bar to the Company Court even at the stage of admission in view of the clear mandate of Section 557 that in all matters relating to the winding up of a company, the Court will have regard to the wishes of creditors and contributories. Sub-section (1) of Section 557 provides a clear statutory principle for the Court to follow. As a matter of fact there is no reason why the mandate of Sub-section (1) of Section 557 should not be applied even to the stage of admission. Chawla, J. held that the interests of creditors are not in any manner affected or prejudiced by a "mere" admission of the petition and that they have an opportunity to have their say at the time of admission. In my view, the interest of creditors has to be considered by the Court even at the stage of admission. The reasons are not far to seek and the facts of the case are fairly typical. In the present case, in the affidavit in support of the company application (Company Application No. 352 of 2003), it has been averred that State Bank of India leads the consortium of banks that advanced large sums of money to the respondent Company towards working capital facilities. The consortium consists of State Bank of India, Bank of Baroda, Canara Bank, Union Bank of India, State Bank of Indore, Corporation Bank. ABN Amro Bank N. V., Central Bank of India, Standard Chartered Bank, Bank of India, HDFC Bank and Barclays Bank. As of 31st March, 2002, an amount of approximately Rs. 250 crores is stated to be outstanding from the company to the consortium. The outstandings of the intervenor. State Bank of India, are estimated at Rs. 79 crores exclusive of interest. Apart from this, it has been averred that a comprehensive restructuring proposal was prepared by the company and has been submitted by the Bank to the financial institutions. The State Bank of India has granted its in-principle approval by a letter dated 19th April, 2003 for the acceptance of the restructuring package by other members of the consortium. State Bank avers that care has been taken to protect the interest of the petitioners, of the workers and of the banks and financial institutions. On these averments made by State Bank of India and in view of similar averments made by other creditors, the applications for intervention must be allowed. That is in consonance with the legal position. Whether, in fact, an order admitting the winding up petition should or should not be passed does not fall for consideration at this stage. At the present stage the Court has only to consider the question whether the creditors should be heard in the company petition. For the reasons recorded hereinabove. I am of the view that the creditors should be permitted to intervene.

7. The company applications are accordingly made absolute in terms of prayer (a).