Greaves Fesesco Ltd. vs Ratlam Ispat Ltd. (In ...
1993 Latest Caselaw 407 Del

JUDGMENT

J.K. Mehra, J.

1. This is an application filed on behalf of the Industrial Credit and Investment Corporation of India (hereinafter referred to as "the ICICI") for vacation of order dated May 28, 1992, and permission to remit pro rata the shares of the State Government of Madhya Pradesh and the State Bank of Bikaner and Jaipur out of the sale proceeds held by them. In this application there is no case made out for or prayer for approval or leave of the company court of the sale effected after commencement of winding up proceedings.

2. Some of the salient facts of this case are as under :

On April 9, 1988, the Board for Industrial and Financial Reconstruction (BIFR) formed a prima facie opinion that the company should be wound up and appointed the ICICI as the operating agency. The said opinion of the BIFR for winding up was forwarded to this court on June 23, 1988. In the meantime proceedings for the winding up of the company, Ratlam Ispat Limited, were instituted, vide a substantive petition filed in this court on March 31, 1989. While both the petition as well as the recommendations of the BIFR were pending in this court, the ICICI who had acted as operating agency before the BIFR in those proceedings, instituted a suit in the Bombay High Court being Suit No. 158 of 1989 and got a court receiver appointed for the assets of the company who locked and sealed the factory premises of the company. The winding up petition filed in this court was admitted on July 11, 1989, and the same was advertised. This court ultimately ordered winding up of the company on the basis of the petition already admitted. The order for winding up was passed on August 31, 1990. The said order for winding up was challenged in appeal before the Division Bench. The said appeal was admitted and the operation of the winding up order was stayed. It only meant that the winding up order was held in abeyance, but it did not put an end to the winding up proceedings which had been instituted on March 31, 1989, or the recommendations of the BIFR which had been received in this court and were pending consideration since June 23, 1988. The said appeal was finally disposed of, vide order dated May 10, 1991 [See Ratlam Ispat Ltd. v. Greaves Feseco Ltd. [1991] 72 Comp Case 548 (Delhi)], whereby the only change introduced was at the instance of the applicant that the winding up order should have been passed under section 20 of the Sick Industrial Companies (Special Provisions) Act, 1985 (hereinafter referred to as "the SICA"), because if an order had been passed under the provision then under sub-section (3) of section 20 of that Act this court would appoint an officer of the operating agency if the operating agency gives its consent to act as liquidator of the sick industrial company. If such an appointment is made the officer shall be deemed to be and have all the powers of the official liquidator under the Companies Act. The Division Bench further recorded that "the sick industrial company, i.e., the appellant had to be wound up but now it would be taken that the appellant company has been wound up under section 20 of the aforesaid Act and the company judge shall proceed as if the company has been wound up under section 20". Thus in effect, the winding up was allowed to continue and the order of winding up was modified only to the extent that the company judge was directed to proceed in accordance with section 20 of the SICA. The winding up has to take place in accordance with the provisions of the Companies Act.

As the subsequent proceedings before the company judge reveal, the operating agency, i.e., the applicant before this court did not give its consent to act as liquidator as a consequence whereof the official liquidator attached to this court had to be appointed the liquidator for this company also. In effect the variation introduced by the Division Bench did not have any effect on the winding up except for the change that the company court should ask the operating agency to give its consent whereby its officer could be appointed as the liquidator of the company. That consent having not been given, the net result of the exercise was that the official liquidator attached to this court had to be re-appointed as liquidator for this company.

While the stay of the winding up order was in operation, the applicant along with other financial institutions entered into a certain agreement as a consequence whereof the Bombay High Court passed the consent decree against the company. It appears that the company and the financial institutions used the time between the grant of stay of the operation of the winding up order and disposal of the appeal in entering into private treaty whereby the company conceded a decree in favor of the financial institutions led by the ICICI, and got its assets attached and sold on the plea that they (the financial institutions) were secured creditors and were outside the winding up. The Bombay High Court took on record the terms of agreement and passed a consent decree and directed sale of all the properties of the company in liquidation and confirmed the appointment of the court receiver notwithstanding the pendency of the winding up proceedings and the appeal against the winding up order. On February 27, 1991, before the appeal before the Division Bench of this court could be disposed of, the decree-holders obtained sanction for sale from the Bombay High Court on the lines indicated in the application under consideration.

The effect of the order in appeal immediately brought into operation the provisions of section 441(2) of the Companies Act, i.e., the winding up of the company by the court would be deemed to have commenced at the time of presentation of the petition for the winding up or the time when the recommendations of the BIFR were received in this court. The result of this restoration of the winding up order by the appellate court would be to bring into operation the provisions of sections 446, 447 and 537 apart from other provisions of the Companies Act.

Under section 447, it is provided that an order for winding up of a company shall operate in favor of all the creditors and all contributories of the company as if it had been made on the joint petition of the creditors and/or a contributory. After the winding up order no suit or other legal proceedings could be proceeded with against the company except by the leave of the court subject to such terms as this court may impose under section 446 of the Companies Act. In that view of the matter, no proceedings could go on against the company after the disposal of the appeal and that any sale of the property effected without leave of the court shall be void under section 537 of the Companies Act which provides as under :

"537. (1) Where any company is being wound up by or subject to the supervision of the court -

(a) any attachment, distress or execution put in force, without leave of the court, against the estate or effects of the company, after the commencement of the winding up; or

(b) any sale held, without leave of the court, of any of the properties or effects of the company after such commencement;

shall be void.

2. Nothing in this section applies to any proceedings for the recovery of any tax or impost or any dues payable to the Government."

3. The court here means the "company court" which had passed the winding up order. The provisions of section 537 are in absolute terms and do not admit of any exception and would relate back to the date of commencement of the proceedings for winding up. The expression contained in clause (b) of sub-section (1) of section 537 provides that if any sale is held without the leave of the court of any of the properties or effects of the company after the commencement of the winding up proceedings it shall be void. I may further add that there is no application moved by any one for leave of the court in respect of the sale in question. The matter will have to be considered in the light of the above legal position and after giving opportunity to the parties to address arguments on the question of the present sale being void. In the present application the only prayer made to the court is as under :

"In the circumstances, it is respectfully prayed that the order dated May 28, 1992, be vacated and ICICI be permitted to remit respective pro rata shares of the State Government of Madhya Pradesh and SBBJ out of the sale proceeds."

4. As a result of the above discussion and the prayer made in this application, I am of the view that the applicant has not made out any case for grant of the application. Accordingly, the application is dismissed. J.K. MEHRA J. - This is an application filed on behalf of the Industrial Credit and Investment Corporation of India (hereinafter referred to as "the ICICI") for vacation of order dated May 28, 1992, and permission to remit pro rata the shares of the State Government of Madhya Pradesh and the State Bank of Bikaner and Jaipur out of the sale proceeds held by them. In this application there is no case made out for or prayer for approval or leave of the company court of the sale effected after commencement of winding up proceedings.

5. Some of the salient facts of this case are as under :

On April 9, 1988, the Board for Industrial and Financial Reconstruction (BIFR) formed a prima facie opinion that the company should be wound up and appointed the ICICI as the operating agency. The said opinion of the BIFR for winding up was forwarded to this court on June 23, 1988. In the meantime proceedings for the winding up of the company, Ratlam Ispat Limited, were instituted, vide a substantive petition filed in this court on March 31, 1989. While both the petition as well as the recommendations of the BIFR were pending in this court, the ICICI who had acted as operating agency before the BIFR in those proceedings, instituted a suit in the Bombay High Court being Suit No. 158 of 1989 and got a court receiver appointed for the assets of the company who locked and sealed the factory premises of the company. The winding up petition filed in this court was admitted on July 11, 1989, and the same was advertised. This court ultimately ordered winding up of the company on the basis of the petition already admitted. The order for winding up was passed on August 31, 1990. The said order for winding up was challenged in appeal before the Division Bench. The said appeal was admitted and the operation of the winding up order was stayed. It only meant that the winding up order was held in abeyance, but it did not put an end to the winding up proceedings which had been instituted on March 31, 1989, or the recommendations of the BIFR which had been received in this court and were pending consideration since June 23, 1988. The said appeal was finally disposed of, vide order dated May 10, 1991 [See Ratlam Ispat Ltd. v. Greaves Feseco Ltd. [1991] 72 Comp Case 548 (Delhi)], whereby the only change introduced was at the instance of the applicant that the winding up order should have been passed under section 20(c) of the Sick Industrial Companies (Special Provisions) Act, 1985 (hereinafter referred to as "the SICA"), because if an order had been passed under the provision then under sub-section (3) of section 20 of that Act this court would appoint an officer of the operating agency if the operating agency gives its consent to act as liquidator of the sick industrial company. If such an appointment is made the officer shall be deemed to be and have all the powers of the official liquidator under the Companies Act. The Division Bench further recorded that "the sick industrial company, i.e., the appellant had to be wound up but now it would be taken that the appellant company has been wound up under section 20 of the aforesaid Act and the company judge shall proceed as if the company has been wound up under section 20". Thus in effect, the winding up was allowed to continue and the order of winding up was modified only to the extent that the company judge was directed to proceed in accordance with section 20 of the SICA. The winding up has to take place in accordance with the provisions of the Companies Act.

As the subsequent proceedings before the company judge reveal, the operating agency, i.e., the applicant before this court did not give its consent to act as liquidator as a consequence whereof the official liquidator attached to this court had to be appointed the liquidator for this company also. In effect the variation introduced by the Division Bench did not have any effect on the winding up except for the change that the company court should ask the operating agency to give its consent whereby its officer could be appointed as the liquidator of the company. That consent having not been given, the net result of the exercise was that the official liquidator attached to this court had to be re-appointed as liquidator for this company.

While the stay of the winding up order was in operation, the applicant along with other financial institutions entered into a certain agreement as a consequence whereof the Bombay High Court passed the consent decree against the company. It appears that the company and the financial institutions used the time between the grant of stay of the operation of the winding up order and disposal of the appeal in entering into private treaty whereby the company conceded a decree in favor of the financial institutions led by the ICICI, and got its assets attached and sold on the plea that they (the financial institutions) were secured creditors and were outside the winding up. The Bombay High Court took on record the terms of agreement and passed a consent decree and directed sale of all the properties of the company in liquidation and confirmed the appointment of the court receiver notwithstanding the pendency of the winding up proceedings and the appeal against the winding up order. On February 27, 1991, before the appeal before the Division Bench of this court could be disposed of, the decree-holders obtained sanction for sale from the Bombay High Court on the lines indicated in the application under consideration.

The effect of the order in appeal immediately brought into operation the provisions of section 441 of the Companies Act, i.e., the winding up of the company by the court would be deemed to have commenced at the time of presentation of the petition for the winding up or the time when the recommendations of the BIFR were received in this court. The result of this restoration of the winding up order by the appellate court would be to bring into operation the provisions of sections 446, 447 and 537 apart from other provisions of the Companies Act.

Under section 447, it is provided that an order for winding up of a company shall operate in favor of all the creditors and all contributories of the company as if it had been made on the joint petition of the creditors and/or a contributory. After the winding up order no suit or other legal proceedings could be proceeded with against the company except by the leave of the court subject to such terms as this court may impose under section 446 of the Companies Act. In that view of the matter, no proceedings could go on against the company after the disposal of the appeal and that any sale of the property effected without leave of the court shall be void under section 537 of the Companies Act which provides as under :

"537. (1) Where any company is being wound up by or subject to the supervision of the court -

(a) any attachment, distress or execution put in force, without leave of the court, against the estate or effects of the company, after the commencement of the winding up; or

(b) any sale held, without leave of the court, of any of the properties or effects of the company after such commencement;

shall be void.

2. Nothing in this section applies to any proceedings for the recovery of any tax or impost or any dues payable to the Government."

6. The court here means the "company court" which had passed the winding up order. The provisions of section 537 are in absolute terms and do not admit of any exception and would relate back to the date of commencement of the proceedings for winding up. The expression contained in clause (b) of sub-section (1) of section 537 provides that if any sale is held without the leave of the court of any of the properties or effects of the company after the commencement of the winding up proceedings it shall be void. I may further add that there is no application moved by any one for leave of the court in respect of the sale in question. The matter will have to be considered in the light of the above legal position and after giving opportunity to the parties to address arguments on the question of the present sale being void. In the present application the only prayer made to the court is as under :

"In the circumstances, it is respectfully prayed that the order dated May 28, 1992, be vacated and ICICI be permitted to remit respective pro rata shares of the State Government of Madhya Pradesh and SBBJ out of the sale proceeds."

7. As a result of the above discussion and the prayer made in this application, I am of the view that the applicant has not made out any case for grant of the application. Accordingly, the application is dismissed.