Mk Mahajan & Anr. vs Indo Rollhard Indust. Ltd.
2014 Latest Caselaw 830 Del

               THE HIGH COURT OF DELHI AT NEW DELHI

%                                  Judgment delivered on: 13.02.2014

+        CO. APPL. 898/2013 in CO. PET. 136/2005

MK MAHAJAN & ANR.                                            ..... Petitioners

                                      versus

INDO ROLLHARD INDUST. LTD.                                   ..... Respondent

Advocates who appeared in this case:
For the Petitioner   : Ms Vibha Mahajan Seth
For the Respondent   : Mr Sarat Chandra, Mr Manoj Kumar Garg
                       & Mr Rahul Kumar.

CORAM:-
HON'BLE MR JUSTICE VIBHU BAKHRU

                                  JUDGMENT

VIBHU BAKHRU, J

1. The present application has been filed by the petitioners under Rule 9 read with Rule 29 of the Companies (Court) Rules, 1959, inter alia, seeking the following prayers:-

"(i) re-call the order dated 27.02.2013 passed by this Hon‟ble Court in Co Appls. No.84 of 2013 & 90 of 2013;

(ii) direct the Provisional Liquidator attached to this Court to take over the possession of all the assets of the Respondent Company, including the registered office of the Company, that is, 1-E/2, Jhandewalan Extension, New Delhi-110055;

(iii) direct the Respondent Company to advertise / publish the citation for the admission of the present winding up petition;

(iv) any other or further order(s) that this Hon‟ble Court may deem fit in the facts & circumstances of the present case."

2. The controversy that arises in the present matter is whether an order under Rule 96 of the Companies (Court) Rules, 1959 (hereinafter referred to as the „Rules‟) for advertisement of admission of winding up petition should be directed and whether an order under Rule 106 of the Rules for appointing the Official Liquidator as the Provisional Liquidator should be passed.

3. The present Company Petition has been filed by the petitioners alleging that the respondent company is liable to be wound up under Sections 433 (c), (e) & (f) read with Section 434 (1)(a) & (c) of the Companies Act, 1956 (hereinafter referred to as the „Act‟). The petitioners are shareholders of the respondent company and petitioner no. 1 is also claiming to be a creditor of the respondent company. By an order dated 16.02.2009, this court admitted the winding up petition and ordered that the respondent company be wound up. The court appointed the Official Liquidator as a Liquidator of the company and directed him to take over all the assets and records of the respondent company. The court also directed that citations be published in the "Statesman" (English) and "Jansatta" (Hindi). The relevant extract of the said order is quoted below:-

"18. From the record, it is thus clear that there is a bona fide debt of Rs.7,50,000/- outstanding and payable by the respondent company to the petitioner no.1 and the said debt

has not been discharged despite service of a statutory notice upon the respondent company within the period of three weeks from the date of service of the notice. I am, therefore, of the view that the ingredients of Section 433 (e) are made out in the present case.

xxxx xxxx xxxx xxxx xxxx

45. In view of the law discussed above and by carefully analysing the facts and records relied upon by both counsels, I am of the considered view that it is just and equitable to wind up the Company and allow this petition, under Sections 433(e), Section 433(f) & 433(c) read with Section 434 and 439 of the Act.

46. I, accordingly, admit this petition and direct that the respondent company be wound up. The official liquidator attached to this Court is appointed as the liquidator in respect of the respondent company. He shall forthwith take over all the assets and records of the respondent company and proceed according to law. Citation shall be published in the „Statesman‟ (English) and „Jansatta‟ (Hindi) for 16.03.2009. Petitioner may take steps accordingly."

4. The respondent company filed a Company Appeal No.19/2009 before a Division Bench of this Court impugning the order dated 16.02.2009. The Division Bench, by an order dated 07.01.2013, allowed the said appeal and set aside the order dated 16.02.2009 and remanded the matter with a direction that the company petition be disposed of in accordance with law. A liberty was also given to the respondent company to move an application under Rule 9 of the Companies (Court) Rules, 1959 within seven days for dispensing with the advertisement of the petition.

5. Admittedly, the respondent company has not filed any application seeking that the advertisement of the petition be dispensed with. Since no such application was filed within the period of seven days, the petitioners filed an application (CA No.84/2013) seeking advertisement of admission of the winding up petition. The respondent company also filed an application (CA No.90/2013) seeking restoration of the possession of the registered office of the respondent company as the winding up order dated 16.02.2009 had been set aside by the Division Bench. The said application was contested by the petitioners and it was contended by the petitioners that the order dated 16.02.2009 had been set aside only because the said order had directed the final winding up of the company instead of admitting the petition. It was contended that the findings recorded in the order dated 16.02.2009 had not been interfered with by the Division Bench. It was further contended on behalf of the petitioners that the admission of the winding up petition and the direction to the Official Liquidator to take over the books and accounts of the company continued to be in effect notwithstanding the orders passed by the division bench on 07.01.2013. By a common order dated 27.02.2013, this court disposed of both the applications (being CA no. 84/2013 and C.A. No. 90/2013) by directing that the possession of the registered office of the respondent company and the records of the company be restored to its directors. By the said order, this court rejected the contention of the petitioners that the admission of winding up petition and direction to Official Liquidator to take over possession of premises of respondent company was not set aside. However, the court granted the liberty to the petitioners to seek a clarification from the Division Bench of this Court in this regard.

6. Thereafter, the petitioners filed a Company Appeal No.21/2013 before a Division Bench of this Court impugning the order dated 27.02.2013 and by an order dated 18.03.2013, the Division Bench disposed of the said appeal by permitting the petitioners to seek clarification from the Division Bench which passed the order dated 07.01.2013.

7. Thereafter, the petitioners filed a Review Petition No.116/2013 before the Division Bench which passed the order dated 07.01.2013 seeking a review of the order dated 07.01.2013 passed in Company Appeal 19/2009. By its order dated 05.04.2013, the Division Bench disposed of the review petition and clarified that the prima facie observations, of the learned Single Judge‟s order dated 16.02.2009, with regard to the admission of the petition would continue to stand. The relevant extract of the order dated 05.04.2013 is extracted hereinbelow:-

"This Court has considered the submissions and also the judgment dated 16.02.2009. As is evident from the discussion in the final judgment of the Division Bench dated 07.01.2013, the point which persuaded the Court to set aside the earlier Single Judge's order (dated 16.02.2009) was the rolled up procedure adopted by him in discussing the merits of the case, not advertising the proceedings and straightaway directing winding up. The Court did not, however, comment and decide the merits of the observations of the learned Single Judge which undoubtedly point to the fact that the petition needed to be admitted. In these circumstances, the final direction contained in paragraph 8 is clarified appropriately; it stands modified to the effect that the judgment and order dated 16.02.2009 to the extent it records findings and prima facie observations warranting admission of the petition would stand.

No further clarification is required. The said judgment dated 7.1.2013 shall be read in the light of the present clarification.

The review petition is disposed of in the above terms."

(emphasis supplied)

8. Thereafter, the petitioners filed the present application (CA No.898/2013) seeking appointment of the provisional liquidator and publication of the citation. Notice was issued by the court in the application on 24.05.2013 and the said application was considered by this court on several occasions. Before the said application could be decided, the respondent filed two applications (CA No.2159/2013 for bringing on record additional documents and CA No.2160/2013 for cross-examination of the petitioner no.1). By an order dated 17.01.2014, both the applications filed by the respondent were dismissed by this court. With regard to CA No.2159/2013, it was observed by the court that the additional documents which the respondent has relied upon have already been considered by this court while passing the order dated 16.02.2009 and nothing new has been agitated by the respondent. With regard to CA No.2160/2013, the court made the following observations:-

"26. In the aforesaid conspectus of the facts and in my perception it seems to me that the present application filed under Order XIX, Rule 2 of the CPC read with Rule 9 of the CCR, 1959 is an afterthought and has been filed only to prolong or delay the proceedings relating to the winding-up. No case has been made out by the respondent-company as to why the Court should exercise the discretion in its favour. I have considerable doubt regarding the bona fide of the respondent-company in filing the present application in C.A. No.2160/2013. It has made the same or substantially the same allegations which it made in the winding-up proceedings resulting in the admission order passed on 16.02.2009. No such pleas or allegations were made in the

appeal filed against the admission order dated 16.02.2009 which appeal in any case was only against the rolled up procedure followed by the learned Company Judge, and which did not question the admission order on merits. The order of the Division Bench dated 05.04.2013 passed in the review petition filed by the petitioners attained finality; this Court clarified that the admission order made by the learned Company Judge would remain undisturbed and it was only the question of appointing the provisional liquidator and advertisement of the winding-up proceedings that will have to be decided by the learned Company Judge. Thus even after the merits of the admission order became final, the respondent-company is making a last ditch or desperate attempt to stall the proceedings by making the present application seeking to enforce the attendance of petitioner No.1, taking advantage of some orders passed by the disciplinary committee of the ICAI in the case of the petitioner No.1. Such a conduct on the part of the respondent- company cannot be countenanced.

27. For the aforesaid reasons I do not think I would be justified in issuing notice to the petitioners in C.A. No.2159/2013 and 2160/2013 filed by the respondent- company. The applications are dismissed in limine."

(emphasis supplied)

9. By way of the present application (CA No.898/2013), the learned counsel for the applicants (petitioners) contented that this Court by an order dated 16.02.2009 had categorically observed that the present company petition needs to be admitted under Sections 433(e), (f) & (c) of the Act.

Since, it has been clarified by the order dated 05.04.2013 passed in the Review Petition No.116/2013 that the prima facie observations with regard to the admission of the winding up petition stand, the, Official Liquidator be appointed as the provisional liquidator and the citation of the admission should be published.

10. The respondent has sought to contest the said application by filing a reply to the said application. Although, the said reply was lying under objections and was not placed on record, the same has been called and perused. It is stated by the respondent that the order dated 05.04.2013 passed by the Division Bench in Review Petition No.116/2013 could not be interpreted to mean that the petition was admitted. It is further stated that the Division Bench, by an order dated 07.01.2013, has set-aside the winding up order and has remanded the petition to be decided afresh, therefore, the matter has to be decided afresh. It is further stated that the respondent was not supposed to file any application for dispensing with the requirement of advertisement of the petition. It is also stated that since the Division Bench had not specifically mentioned anything with regard to handing over of the possession of the registered office to the Official Liquidator and the prayer was impliedly denied and thus could not be allowed.

11. I have examined the facts of the present case in detail and have also gone through various orders passed by this court and by the Division Bench of this court. The fact is that, by an order dated 16.02.2009, this court has examined the facts in great detail and made a prima facie observations with regard to the admission of the winding up petition under Sections 433(e),

(f) & (c) read with Section 434 and 439 of the Act. After making the aforesaid observations, the court admitted the company petition and ordered that the respondent company be wound up and appointed the Official Liquidator with a direction to take over all the assets and records of the respondent company. The relevant factual observations of the court with

regard to the admission of the winding up petition under section 433(e) of the Act are extracted below:-

"12. The undisputed position, which emerges from the documents filed on record and the respective averments of the parties, is that the respondent company in its Balance Sheet as on 31.03.2000 showed a closing balance of Rs.9,50,000/- outstanding and payable to the petitioner no.1. This Balance Sheet is signed by the then Managing Director of the company. The argument that no amount whatsoever was due and payable to petitioner no.1, and that he was not a creditor of the company cannot, therefore, be accepted. The defence that the brother of petitioner no.1 was a partner of the firm that acted as the statutory auditors of the company till March 2003 does not explain the conduct of the Managing Director in signing the Balance Sheet as on 31.03.2000 which showed an outstanding amount of Rs.9,50,000/- payable to the petitioner no.1. As rightly contended by learned counsel for the petitioner, the accounts are maintained by the company. The auditor merely audits the accounts as maintained by the company. It was certified by the Managing Director of the Company that an amount of Rs.9,50,000/- is payable to the petitioner no.1 as on 31.03.2000.

13. It is also pertinent to note that the respondents do not explain as to why, on what account, payment of Rs. 1,80,000/- as reflected by various cheques issued in the name of petitioner no. 1 was made to him. In fact, in the statement of account pertaining to petitioner no. 1 the respondent company shows payment of Rs. 2,00,000/- in the year 2002- 03 reducing the outstanding balance from Rs. 9,50,000/- to Rs. 7,50,000/- as on 06.09.2002. Merely stating that the payment was made on account of certain other transactions is not sufficient. The respondent could well have placed on record the documents to show the existence of any other transaction in relation to which the amount of Rs.1,80,000/- or Rs.2,00,000/- was paid to the petitioner. However, apart

from making a vague assertion as aforesaid, no other document has been placed on record by the respondent in support of their submission. On the other hand, the petitioner no. 1 has placed on record the Income Tax returns filed by him, inter alia, for the assessment years 1999-00 and 2000-01 showing the details of loans and advances as on 31.03.1999 and 31.03.2000. According to the said returns, as on 31.03.1999, the loans advanced to the respondent company have been shown as Rs.11,00,000/- and as on 31.03.2000 the said amount has been shown as Rs.9,50,000/-. I may notice that as on 31.03.1999, according to the affidavit filed by the petitioner in compliance of the order dated 31.07.2000, the outstanding amount was Rs.9,50,000/- whereas in the income tax returns for the period ending 31.03.1999 the outstanding amount shown by the petitioner is Rs. 11,00,000/-. However, for the next year i.e. financial year ending 31.03.2000, the amount as shown in the income tax return tallies with the amount shown in the Balance Sheet of the respondent company as at 31.03.2000. Had the petitioner not advanced the amounts, as aforesaid, to the respondent company from time to time, it does not stand to reason as to why the petitioner no.1 would have reflected the aforesaid amount as credited to the respondent company in the Income Tax returns filed by the said petitioner from time to time, contemporaneously.

14. I am also satisfied with the explanation furnished by the petitioner for the discrepancy in the amount claimed to be outstanding in the petition, and in the amount subsequently stated to be outstanding by the petitioner. The amount as claimed in the petition was Rs. 59,06,780/-. This amount was stated to be due to petitioner no.1 and his various other concerns. The petitioner has given the breakup of the aforesaid amount in his rejoinder to the reply filed by the respondent company, to the additional affidavit of the petitioner.

15. The petitioner states that while preparing the petition he relied upon only the documents/statement maintained by the respondent company provided to the petitioner, like the copy of the ledger accounts of the respondent company. The figures as reflected in the respondent‟s ledgers/books of accounts in relation to the petitioner no. 1 and the company owned/controlled by him have also been disclosed. On a comparison of these statements/tabulations it is clear that the discrepancy in the amount claimed to be due to petitioner No.1 has arisen on account of an error of accounting on the part of the Company itself.

16. Merely because the demand made by the petitioners in their notice of demand dated 07.05.2004, in relation to the amount allegedly due in favour of petitioner no.1 was for Rs.9,50,000/-, the same would not render the demand illegal and the said notice would still be considered as a valid notice for the purposes of Section 433 and 434 of the Act. Reference in this regard may be made to Devender Kumar Jain Vs. Polar Forgings & Tools Ltd. 1993 (1) CLJ 184 (Delhi). The Supreme Court has held in Madhu Woolen Industries Private Ltd. 1970 (3) SCC 632 that where the debt is bona fide, and there is no doubt that the company owes the creditor a debt, the creditor would be entitled to seek winding up of the company even if the exact amount is disputed. The Court would order winding up of the company without requiring the creditor to quantify the precise debt."

12. The relevant factual observations with regard to the mis-management by the Directors of the company and the admission of the winding up petition on just and equitable ground is as under:-

"37. ..... I shall probe whether there is justifiable lack of confidence among the shareholders in the manner the business of the company has been carried on by the directors of the company.

38. The fact that the business of the company has been carried on in a non transparent and clandestine manner is clearly evident from the contradictory stand taken by the company. Respondent company had admitted the sale of Nangloi land in April 2000 before the ROC, NCT, Delhi And Haryana and also in their reply to the petition dated 17.1.2006 they have admitted that property at Mundka, Delhi was purchased from the sale proceeds of Nangloi property to start the work at its units. But as per Form-8 it can be clearly seen that property at Nangloi was released in lieu of properties at Mundka located at Khasra No.57/17, min(1-00) and 57/17 min (0-08). The same fact is reiterated in Form -13 filed under the Act. Further in the resolution passed in the meeting of the Board of Directors on 11.01.01 (marked as Annexure-VI to the reply of the company), there is a specific admission that plot at Mundka was acquired vide sale deed dated 17.2.2000, whereas, as per admissions before Registrar Of Companies, the Nangloi land was sold in April, 2000. Thus there are serious contradictions to the claims of the respondent that the sale proceeds of the Nangloi land were used to purchase the Mundka land. It is evident that the sale proceeds of the Nangloi property were not utilized in the purchase of the plots in Mundka. How these sale proceeds have been appropriated has not been explained by the respondents. Thus in my view the manipulation and fraud are clearly established.

39. I also find no force in the contention that the land at Mundka was never hypothecated, because as evidenced from the record, it is clear that the land at Mundka was hypothecated with Vijaya Bank in lieu of Nangloi property being released. The cloud on the sale of land situated at Bahadurgarh has also not been cleared by the respondent. In the explanatory statement issued by the respondent pursuant to Section 173(2) of the Act for proposing the passing of a special resolution, it is specifically mentioned that the land was sold vide Deed of Sale Agreement dated 19.10.2001 and 24.10.2001. Even as per schedule No.4 (Fixed Assets) appended to the Balance sheet as at 31.03.03 it is clear that

the property at Bahadurgarh was sold during 2002-2003. As mentioned above, the details regarding the said property was not made available to the auditors and it is clear that they were purposely withheld to keep the shareholders in dark.

40. The respondents have not provided any satisfactory explanation as to how the proceeds of the land situated at Nangloi, Mundka and Bahadurgarh were appropriated. They have failed to produce satisfactory records before the Court. The explanations furnished by the respondents in this regard are vague and self-contradictory.

41. It is pertinent to mention here that this Court had directed the respondents, vide an order dated 16.1.2008, to file all the annexures to the balance-sheet of the Company for the year 2001 onwards. The respondents were put to notice that if the same are not filed, the Court would be free to draw adverse inference against the respondent. These annexures would have demonstrated the manner of appropriation of the sale proceeds of the aforesaid properties of the company. But the respondents have failed to comply with the directions of this Court, leading the Court to draw an adverse inference to the effect that if these documents were produced, the same would have further established the misappropriation of the funds of the company by its Directors. The aforesaid state of affairs of the company are sufficient to cause justifiable lack of confidence in the conduct and management of the company's affairs and also lack of probity in the conduct of Company's affairs.

42. On perusal of Statement of Accounts of the company it appears to me that the substratum of the Company is lost and the business of the company can not be carried on in its current financial state. The „List of Fixed Assets‟ under Schedule 4 appended to the balance sheet for the year ending on 31.03.05, shows the entire plant and machinery, factory building, lab equipments, crane, furnace, with other assets of the Company have been disposed of during the year 2004-

2005. These are basic ingredients for running the business of this nature without which a Company cannot sustain itself as a running concern. Company is not being able to run in an efficient manner and its output has fallen drastically is evidenced from its profit and loss account for the year ended 31st March, 2005, which shows material consumed at Rs.12,55,000/- and the sales figure are at Rs.16,48,285/- whereas the corresponding figure for the year ended 31st March, 2004 shows sales at Rs.3,31,565/- as against Rs.2,94,340/- of raw material consumed. Even the directors in their Director‟s Report presented along with audited Statement of Accounts of the company for the year ended 31.03.2006 have categorically admitted that the production has come to a standstill and they do not foresee any breakthrough in its operations.

43. The Respondents have failed to account for the discrepancies found in the accounts of the Company when the accounts were audited by Mukesh Gupta & Co., an independent set of Auditors appointed by the Directors. The said auditors in Schedule No. 16 pertaining to Significant Accounting Policies and Notes on Accounts for the year 2002/03 have remarked that " The Company has sold land at Bahadurgarh and Delhi during the year for which no details/evidence is available". The said auditors have also observed and reported in their Auditor‟s Report submitted along with the audited Balance Sheet for the year ended on 31.03.05 that the Company is not regular in depositing dues and various taxes like income tax, sales tax, employees‟ state insurance, provident fund, wealth tax, customs duty, excise duty and other material dues. In fact Income Tax Department has raised demand to the tune of Rs.79,783/- for the year 2001-2002 for which the Company had filed an appeal with CIT, (A), which was dismissed and the Company has still not made any provision for this demand.

44. The income of the company has nosedived to a dismal figure of Rs.20,204/- in the year ended 31st March, 2006 as

compared to its income of Rs.1,78,88,963/- in the year ended 31st March, 2002 i.e. within a span of four years. The Balance Sheets of the Company continues to show losses year after year and there is nothing shown to suggest any improvement in the coming years.

45. In view of the law discussed above and by carefully analysing the facts and records relied upon by both counsels, I am of the considered view that it is just and equitable to wind up the Company and allow this petition, under Sections 433(e), Section 433(f) & 433(c) read with Section 434 and 439 of the Act."

13. Thereafter, the order dated 16.02.2009 was challenged by the respondent before the Division Bench. The appeal was limited to the procedure to be adopted after the admission of the winding up petition and neither the merits of the findings nor the admission of the petition were assailed by the respondent (appellant in Company Appeal No.19/2009). The same is apparent from the question framed by the Division Bench in the order dated 07.01.2013. The said question is quoted below:-

"The short question that arises in this appeal is whether the company court can order winding up of a company without ordering the petition to be advertised."

14. By an order dated 07.01.2013, the Division Bench has only set aside the said procedure and has not given any finding on the merits of the admission of the winding up petition. Therefore, the findings of facts or observations on the merits of the admission of the winding up petition would stand. This fact has also been unequivocally clarified by the Division Bench, by an order dated 05.04.2013, whereby it has been held that findings and observations in the order dated 16.02.2009 undoubtedly point

to the fact that the petition needed to be admitted. Therefore, the present winding up petition stands admitted by an order dated 16.02.2009.

15. The respondent has stated in its reply that the order dated 05.04.2013 could not be interpreted to mean that the winding up petition is admitted. This contention is no longer maintainable in view of the categorical findings of this Court recorded in the order dated 16.02.2009 and further the order dated 05.04.2013 passed by the Division Bench in Review Petition No.116/2013 expressly clarifying that the findings in relation to admission of the petition would continue to stand. The respondent had also urged this contention before this court in applications CA No.2159/2013 and CA No.2160/2013, in spite of the position having been clarified by the Division Bench of this court. By an order dated 07.01.2014, this court had framed the preliminary questions and had again dealt with the above said contention of the respondent. The relevant extract is reproduced below:-

"6. I heard arguments and reserved orders on 29.11.2013 on the preliminary questions (a) whether the respondent can raise arguments now against the admission of the winding up petition and (b) whether notices can be issued in CA 2159 and 2160 of 2013 filed by the respondent.

7. In my opinion, it is not open to the respondent-company to raise arguments now against the admission of the winding up petition. This is because of the order passed by the Division Bench on 5.4.2013 in the review petition No.116/2013 filed by the petitioners. In this order the Division Bench clarified the final direction contained in paragraph 8 of its earlier order passed on 7th January, 2013 in Company Appeal No.19/2009. In the order passed on the review petition it was clarified that the objection against the order passed by the learned Company Judge on 16.2.2009 was to the rolled-up procedure

adopted by him in discussing the merits of the case and the direction for winding up without advertising the proceedings. It was further clarified that the Division Bench did not comment upon or decide the merits of the observations of the learned Single Judge which "undoubtedly point to the fact that the winding up petition needed to be admitted". In this view of the matter, the only modification directed by the Division Bench to its earlier order was to clarify that the judgment dated 16.2.2009 of the Company Judge "to the extent it records findings - prima facie observations warranting admission of the petition would stand". The Division Bench was thus quite categorical in holding that the order passed by the learned Company Judge on 16.2.2009 would stand insofar as it admits the winding up petition. The order passed by the Division Bench in the review petition has undisputedly become final, no appeal having been preferred against it. It is also not denied that the respondent-company did not file any application before the Company Court under Rule 9 of the CCR within 7 days from the date on which the Company Appeal was originally disposed of, seeking dispensation of the advertisement of the winding up petition. The order passed by the Division Bench in the review petition having become final, it is not open to the respondent- company to re-agitate or try to reopen the order dated 16.2.2009 passed by the learned Company Judge insofar as it admits the winding up petition. To permit the respondent- company at this stage to do so would amount to not only ignoring the finality attained in the earlier proceedings, but also to throwing to winds the salutary principles of judicial discipline. A Single Judge of the Court is bound by the orders passed by the Division Bench of the same Court and this principle is non-negotiable. [see: Tribhovandas Purushottamdas Thakkar Vs. Ratilal Motilal Patel & Ors.(AIR 1968 SC 372)] xxxx xxxx xxxx xxxx

13. In the appeal before the Division Bench the respondent- company did not question the admission of the winding up

petition on merits and therefore the same cannot be questioned now. The order passed by the learned Company Judge on 16.2.2009, on the merits of the company petition and on the question whether the petition deserves to be admitted is elaborate and it deals with all substantive contentions raised by the petitioners as well as the respondent-company.......

xxxx xxxx xxxx xxxx

15. It is thus seen from the order of the learned Company Judge passed on 16.2.2009 that all the pleas taken by the respondent-company against the petition were discussed threadbare and prima facie observations were made justifying the admission of the winding up petition. These observations have attained finality in view of the order passed by the Division Bench in the review petition filed by the petitioners. The findings of the learned Company Judge and his prima facie observations on the admission of the company petition were upheld by the Division Bench. It would thus appear that in the additional affidavit filed by the respondent-company on 30.10.2013 along with the additional documents, the same issue i.e., admission of the winding up petition, is sought to be reargued or reopened. This is not permissible.

xxxx xxxx xxxx xxxx

"26. ......I have considerable doubt regarding the bona fide of the respondent-company in filing the present application in C.A. No.2160/2013. It has made the same or substantially the same allegations which it made in the winding-up proceedings resulting in the admission order passed on 16.02.2009. No such pleas or allegations were made in the appeal filed against the admission order dated 16.02.2009 which appeal in any case was only against the rolled up procedure followed by the learned Company Judge, and which did not question the admission order on merits. The order of the Division Bench dated 05.04.2013 passed in the

review petition filed by the petitioners attained finality; this Court clarified that the admission order made by the learned Company Judge would remain undisturbed and it was only the question of appointing the provisional liquidator and advertisement of the winding-up proceedings that will have to be decided by the learned Company Judge......"

16. The second contention as raised in the reply is that the order dated 16.02.2009 passed by this Court has been set aside by the Division Bench by an order dated 07.01.2013 and the question of admission of the petition must be decided afresh. This contention is also devoid of any merit in view of the order dated 05.04.2013 passed by the Division Bench in Review Petition No.116/2013 as well as the order dated 07.01.2014 passed by this Court in applications CA No.2159/2013 and CA No.2160/2013.

17. It is further stated by the respondent in the reply that the Division Bench had set aside the order dated 16.02.2009 and the said decision must be read to mean that the Division Bench had denied the prayer that the assets and records of the respondent company be taken over by the Official Liquidator. I am unable to accept this contention as the orders passed by the Division Bench on 07.01.2013 and 05.04.2013 clearly indicates that the issue considered by the Division Bench was only with regard to the rolled- up procedure adopted by the Single Bench by the order dated 16.02.2009 and the procedure, after the admission of the winding up petition, has to dealt with in accordance of the law. The issue whether the Official Liquidator should have been appointed as a Provisional Liquidator in the facts of the present case has not been considered by the Division Bench.

18. It is further stated in the reply that the petitioner no.1 has been guilty of professional misconduct as a Chartered Accountant since his firm acted as a Statutory Auditor, while the petitioner no. 1 was holding office as a Director of the company. Be that as it may, the same would not be relevant in considering the present application. On 16.02.2009, this Court has examined the conduct of the affairs of the respondent company and found that the same were conducted in a manner showing justifiable lack of confidence in the conduct of management of the company‟s affairs and the same also lacked probity. The Court has further found that the debt of `7,50,000 is, indisputably, owed to petitioner no. 1 as the final accounts which reflected the same were also signed by the Managing Director of the company. In view of the above, the contention that the petitioner no. 1 misconducted himself as a Chartered Accountant because his firm having been found guilty of accepting the audit of the company is also not germane to the question being considered in the present application.

19. Lastly, it is stated by the respondent in the reply that the respondent was not required to file any application for dispensing with the advertisements required to be published. In the present case, the Division Bench by an order dated 07.01.2013 had granted the liberty to the respondent to file an application under Rule 9 of the Companies (Court) Rules, 1959 seeking dispensation from publication of the advertisements. There have been a number of instances where the Court had concluded that publication of an advertisement would be highly detrimental to the interest of the company and in given circumstances, has afforded an opportunity to the company to repay its debt and in such circumstances the court has

deferred the publication of the advertisement. However, it is incumbent upon the respondent company to bring such special circumstances before the Court. Admittedly, the respondent has not filed any such application and has not availed the opportunity being granted by the Division Bench and thus, cannot now say that the respondent was not supposed to file any such application.

20. Having considered the contentions of the respondent as stated in its reply, it is now necessary to examine whether, in the present case, advertisement regarding the admission of the winding up petition should be published. Rule 96 of the Companies (Court) Rules, 1959 (hereinafter referred to as the „Rules‟) deals with the manner of the admission and advertisement of the petition. Rule 96 is relevant and is quoted below:-

"96. Admission of petition and directions as to advertisement - Upon the filing of the petition, it shall be posted before the Judge in Chambers for admission of the petition and fixing a date for the hearing thereof and for directions as to the advertisements to be published and the persons, if any, upon whom copies of the petition are to be served. The Judge may, if he thinks fit, direct notice to be given to the company before giving directions as to the advertisement of the petition."

21. Rule 96 of the Rules provides that on the company petition being filed, the same will be posted before the Company Judge for (i) admission;

(ii) fixing a date for hearing the company; and (iii) for directions as to advertisement of the petition. Rule 96 of the Rules also indicate that a court may issue notice before advertising the petition. An advertisement for hearing a winding up petition can have serious adverse consequences for a

company and therefore, principles of natural justice demand that the company be heard before an order advertising the company is directed.

22. Rule 99 of the Rules provides that the petition shall be advertised in the manner as provided by Rule 24 and shall be in the Form No.48. Rule 99 reads as under:-

"99. Advertisement of petition - Subject to any directions of the Court, the petition shall be advertised within the time and in the manner provided by rule 24 of these rules. The advertisement shall be in Form No. 48."

23. Rule 24 of the Rules deals with the mode and manner of the advertisement of the petition. Rule 24 reads as under:-

"24. Advertisement of petition - (1) Where any petition is required to be advertised, it shall, unless the Judge otherwise orders, or these rules otherwise provide, be advertised not less than fourteen days before the date fixed for hearing, in one issue of the Official Gazette of the State or the Union Territory concerned, and in one issue each of a daily newspaper in the English language and a daily newspaper in the regional language circulating in the State or the Union Territory concerned, as may be fixed by the Judge.

(2) Except in the case of a petition to wind-up a company the Judge may, if he thinks fit, dispense with any advertisement required by these rules."

24. A plain reading of the aforesaid Rules indicate that once the procedure prescribed under Rule 96 of the Rules with regard to the admission of the petition has been completed and the court has directed that the petition is advertised, the petition has to be advertised as per Rule 24 of the Rules, before the same is posted for hearing. This is essential to give an

opportunity to persons desiring to support or oppose the petition to be heard. An order for winding up cannot be passed unless the petition is advertised and this is also apparent from a reading of Rule 24(2) of the Rules, which makes it expressly clear that the advertisement of a petition cannot be dispensed with.

25. The Supreme Court in the case of National Conduits (P) Ltd. v. S.S. Arora: (1967) 37 Company Cases 786, while dealing with Rule 96 and 24 of the Rules, has held that the once a winding up petition is admitted, the same cannot be placed for hearing before the Court, unless the petition is advertised, however, in certain circumstances, on an application filed by the company, the court can defer or suspend the advertisement of the petition. The relevant is quoted below:-

3. ......A petition for winding up cannot be placed for hearing before the Court, unless the petition is advertised: that is clear from the terms of Rule 24(2). But that is not to say that as soon as the petition is admitted, it must be advertised. In answer to a notice to show cause why a petition for winding up be not admitted, the Company may show cause and contend that the filing of the petition amounts to an abuse of the process of the Court. If the petition is admitted, it is still open to the Company to move the Court that in the interest of justice or to prevent abuse of the process of Court, the petition be not advertised. Such an application may be made where the Court has issued notice under the last clause of Rule 96, and even when there is an unconditional admission of the petition for winding up. The power to entertain such an application of the Company is inherent in the Court, and Rule 9 of the Companies (Court) Rules, 1959,

4. For reasons already set out, in our judgment, the High Court erred in holding that a petition for winding up must be

advertised even before the application filed by the Company for staying the proceeding for the ends of justice, or to prevent abuse of the process of the Court. The view taken by the High Court that the court must, as soon as the petition is admitted, advertise the petition is contrary to the plain terms of Rule 96. Such a view, if accepted, would make the court an instrument, in possible cases, of harassment and even of blackmail, for once a petition is advertised, the business of the Company is bound to suffer serious loss and injury."

(emphasis supplied)

26. It was observed by the Supreme Court that the company can invoke the inherent jurisdiction of the court under Rule 9, inter alia, seeking deferment or suspension of the advertisement of the petition in the interest of justice or to prevent abuse of the process of Court, for instance, if the petition is not presented in good faith or was filed with ulterior motive and obtaining an order for winding up was "unreasonable", then the court in such circumstances need not direct an advertisement to be issued and may proceed to reject the petition. However, the court cannot pass an order for winding up the company, unless the petition is advertised and is heard thereafter. The object being that the court must afford an opportunity to the persons who may be affected, to be heard before an order for winding a company is passed. The requirement of publication of the notice cannot be dispensed with as is apparent from the scheme of the Rules.

27. A Division Bench of this court in the case of R.K. Saxena (Lt. Col.) v. Imperial Forestry Corporation Ltd.: (2001) 60 DRJ 54 (DB) has also followed the judgment passed by the Supreme Court in the case of National Conduits (P) Ltd. (supra) has held as under:-

"9. A petition for winding up cannot be placed for hearing before the Court unless the petition is advertised, which would be clear from the terms of sub-rule (2) of Rule 24. Though there is a discretion vested in the Judge while issuing direction to advertise a petition but sub-rule (2) of Rule 24 has taken away the said discretion, which mandates that a petition to wind up a company must be advertised. Requirement the Rules is that a petition for winding up of a company is mandatory and the requirement of the Rule is that it shall be advertised in one of the issues of the Official Gazette of the State, one issue of a daily newspaper in English and daily newspaper in regional language. Submission of learned counsel for the appellant was that this mandate stands diluted because of the wording of Rule 99, which says that subject to any directions of the Court.

xxxx xxxx xxxx xxxx xxxx

11. We are not convinced by what has been urged by learned counsel for the appellant. The requirement of advertising the petition in the Official Gazette is mandatory. No doubt on reading Rule 99 it may be said that there is a discretion vested in the Court, but the said discretion is limited only to the extent that at what stage the petition be advertised. It may not be advertised forthwith or advertising the petition may be deferred for some time."

28. In the present case, as explained earlier, the Court has already considered the rival contentions and has found that the petition is required to be admitted. The next step that is required to be followed is for fixing a date for hearing of the petition after publishing a citation as required under Rule 96 and 24 of the Rules. I have examined the facts of the present case and find no reason why advertisement should be deferred. The Division Bench had also granted an opportunity to the respondent to move an application for deferment of the advertisement of the petition, however, the

respondent has neither filed any such application nor has provided any reason for deferment of the advertisement. Even otherwise, there do not appear to be any special circumstances which would warrant deferment or suspension of the publication of advertisement.

29. The present petition was filed in the year 2005 and the respondent had sufficient opportunity to settle the claims of the petitioners, however, the same was also not done by the respondent. Therefore, deferring the publication of advertisements to enable the respondent to pay the admitted dues is also not warranted in the facts of the present case. Thus, in the present case, the advertisement as required under Rule 96 is required to be published in accordance with the Companies (Court) Rules, 1959 as indicated above.

30. Accordingly, it is directed that the advertisement be issued by the petitioner in Statesman (English) and Jansatta (Hindi). The advertisement may also be published in the Delhi Gazette for hearing on 15.05.2014.

31. The present application also seeks that the assets of the company be taken over by the Provisional Liquidator. The respondent has sought to contest this prayer by contending that the prayer for appointment of a Provisional Liquidator stands impliedly rejected by the order by Division Bench dated 07.01.2013. This contention is without any merit as stated herein above. Given the, prima facie, finding in the order dated 16.02.2009 wherein this Court has found that affairs of the company are mismanaged and there is sufficient material on record to cause justifiable lack of

confidence in the conduct and management of the company‟s affairs and also lack of probity in the conduct of Company‟s affairs.

32. Therefore, I think it would be just and proper that the Official Liquidator be appointed as a Provisional Liquidator to take charge of all the assets and records of the company. Accordingly, it is hereby directed that:-

(i) the Official Liquidator shall take over the charge of the assets and books of accounts of the company.

(ii) the Directors shall file a Statement of Affairs within 21 days as required under Section 454 of the Companies Act, 1956.

(iii) the Directors shall file an affidavit before the Official Liquidator giving the correct addresses of all the Directors of the company and the address of the registered office of the company.

33. With the aforesaid directions the present application stands disposed of.

VIBHU BAKHRU, J FEBRUARY 13, 2014 RK