Telangana High Court

M/ S. Sree Giri Tej Iron And Steel ... vs M/S. R. K. Steel Udyog Private Ltd on 25 November, 2022

Bench: P Naveen Rao, Sambasivarao Naidu

             HONOURABLE SRI JUSTICE P.NAVEEN RAO
                               &
            HON'BLE SRI JUSTICE SAMBASIVARAO NAIDU

               ORIGINAL SIDE APPEAL NO.2 OF 2022


                           Date: 25.11.2022

Between:

M/s. Sree Giri Tej Iron and Steel Private Limited,
Rep.by its Managing Director, Savitha Bai,
Office at D.No.43-20-24a, Near Erukamamba Temple,
Dondaparthy Junction, Visakhapatnam,
Visakhapatnam district, A.P.

                                              ..... Appellant/respondent

And

M/s. R.K.Steel Udyog Private Limited, Rep.by its Executive Director, Mr.Sunil Surana, Office at 602/A, 6th Floor, AI-Karim Trade Centre, M.G.Road, Ranigunj, Secunderabad, Hyderabad,

.... Respondent/petitioner The Official Liquidator, High Court of Judicature at Hyderabad for the State of Telangana .... Respondent

This Court made the following:

PNR,J & SSRN,J O.S.A.No.2 of 2022

HONOURABLE SRI JUSTICE P.NAVEEN RAO & HON'BLE SRI JUSTICE SAMBASIVARAO NAIDU

ORIGINAL SIDE APPEAL NO.2 OF 2022

JUDGMENT: (per5 Hon'ble Sri Justice P Naveen Rao)

Heard learned senior counsel Sri Dammalapati Srinivas for

learned counsel Sri P.Kasi Nageswara Rao for the appellant, the learned

counsel Sri Raghuram Mahadev for the respondent no.1 and the

learned counsel Sri J.Srinadha Reddy for the respondent no.2. Parties

are referred to as arrayed in the Company Petition.

2. According to the petitioner, respondent is incorporated as a

Company under the Companies Act, 2013 (for short, 'the Act').

Petitioner supplied iron and steel worth 23,99,910/- to the

respondent under a running credit account. The respondent defaulted

in payments. On 03.07.2013, notice was issued by petitioner calling

upon the respondent to pay sum of 34,17,917/-. The said notice

was returned with endorsement 'not claimed returned to sender'. In

those circumstances, petitioner filed Company Petition No.50 of 2014.

3. In C.P. No. 50 of 2014, notices sent to respondent returned un-

served. Court permitted the petitioner to take out substituted service

by publishing in two daily newspapers. Even after publication of notice PNR,J & SSRN,J O.S.A.No.2 of 2022

in two daily newspapers, no appearance was entered for respondent.

The learned single Judge has adjourned the petition to enable

respondent to enter appearance, but to no avail. Though Company

Petition was admitted on 27.10.2014, but deferred publication of

advertisement only to enable respondent to pay the due amounts. On

18.11.2014, Court permitted the petitioner to carry out publication with

regard to admission of Company Petition in two newspapers and

accordingly the same was published. Still there was no representation

for respondent. Petitioner adduced evidence by examining P.W.1 and

marked Exs.A1 to A15. The respondent was set ex parte.

4. On evaluating evidence relied by the petitioner, the learned single

Judge held that having received goods from the petitioner, respondent

failed to pay the value of the goods. The learned single Judge also

faulted the respondent in not responding to the statutory notices and

notices issued in the Company Petition and observed that not

contesting the Company Petition shows that respondent was evading

the payment of admitted debt. The learned single Judge ordered

winding up of respondent. The Official Liquidator was appointed as

Liquidator. Aggrieved thereby, this appeal is filed.

5. Learned senior counsel appearing for counsel for appellant would

contend that the respondent has not received statutory notice and PNR,J & SSRN,J O.S.A.No.2 of 2022

notices in Company Petition. As there was no notice, it cannot be said

that respondent was avoiding to appear before this Court. He would

further submit that the documents marked on behalf of petitioner do

not constitute evidence of proof of insolvency. Company has sufficient

means to handle its obligations.

6. He would submit that petitioner and respondent have entered

into Memorandum of Understanding on 19.03.2021, where under the

inter se dispute was amicably settled and entire dues were paid. The

petitioner also filed Memo vide USR No.41508 of 2022 dated 29.04.2022

in proof of resolution of dispute. He therefore prays to set aside the

ex parte order.

7. It is further contended that the amount borrowed from Union

Bank of India was also cleared and that there are no more liabilities.

8. According to Official Liquidator, consequent to winding up order

he had issued notice under Sections 454 and 456 of the Act to the Ex-

Directors' of the respondent-company to file statement of affairs to

handover all the assets, books and records of the company, but they

failed to respond. Therefore, Official Liquidator filed application under

Sections 454(5) and 454(5A) of the Act against Ex-Directors in the

Company Court. The Ex-Directors have not filed statement of affairs so

far.

PNR,J & SSRN,J O.S.A.No.2 of 2022

9. On 09.09.2015, when officials of Official Liquidator went to the

Registered Office premises of the respondent-company, none of the Ex-

Directors were present. Only officials of the Bank and representative of

petitioner were present. In the place also there was no building and

construction activity was going on even though the respondent-

company continues to show the same address.

10. The Official Liquidator asserts that so far assets of the

respondent-company are not handed over to him. Further, as Official

Liquidator has not received any information, he is not aware of status of

assets of the company and details of financial institutions/secured

creditors of those assets.

11. As asserted by the Official Liquidator in his counter-affidavit, the

Union Bank of India reported to the Official Liquidator that O.S.No.479

of 2014 was decreed in favour of Bank on 11.10.2019, but recovery

certificate was not issued by Debts Recovery Tribunal. The Bank took

physical possession of secured asset in the year 2015. Though several

times auction was conducted, no one evinced interest to buy the

secured asset. In the year 2019, OTS was agreed for 7.60 crores and

borrower company paid entire amount.

12. This information furnished by Union Bank of India tallies with the

assertion of the respondent-company. The averments also make it clear PNR,J & SSRN,J O.S.A.No.2 of 2022

that for the last seven years the Official Liquidator is unable to secure

the assets and books of the respondent-company. Except issuing

notices now and then, he has not taken concrete steps to implement the

orders of this Court. Insofar as Official Liquidator is concerned, matter

stands as it was.

13. However, two important developments required to be noticed.

Firstly, the dispute with the petitioner is resolved and his dues are

cleared. Thus, the genesis leading to this Court ordering winding up of

the company and appointing Official Liquidator does not survive any

more. Secondly, according to respondent-company, there was

outstanding liability only with Union Bank of India and its loan account

was regularized as per OTS and there are no other creditors. As noticed

above, the Official Liquidator has not received any other claims in the

last seven years. There appears to be no other claim against

respondent-company.

14. It is appropriate to note that the learned single Judge passed

order to wind up the respondent-company as the respondent-company

did not appear and present its version, but not on considering the

merits of the respective claims.

15. The company Court ordered winding up of the company only on

the ground that the Company Petition was not contested and that the PNR,J & SSRN,J O.S.A.No.2 of 2022

liability with the petitioner was proved. There was no other material to

hold that the company was in doldrums and there was no other option

but to windup. As required by Section 434 (1) (c ) of the Act, there was

no occasion to learned single Judge to take into account the contingent

and prospective liabilities of the company.

16. In Meghal Homes Pvt.Ltd. vs. Shree Niwas Girni K.K.Samiti and

others1, Hon'ble Supreme held as under:

"47. When a company is ordered to be wound up, the assets of it are put in possession of the Official Liquidator. The assets become custodia legis. The follow-up, in the absence of a revival of the company, is the realisation of the assets of the company by the Official Liquidator and distribution of the proceeds to the creditors, workers and contributories of the company ultimately resulting in the death of the company by an order under Section 481 of the Act, being passed. But, nothing stands in the way of the Company Court, before the ultimate step is taken or before the assets are disposed of, to accept a scheme or proposal for revival of the Company. In that context, the court has necessarily to see whether the scheme contemplates revival of the business of the company, makes provisions for paying off creditors or for satisfying their claims as agreed to by them and for meeting the liability of the workers in terms of Section 529 and Section 529-A of the Act. Of course, the court has to see to the bona fides of the scheme and to ensure that what is put forward is not a ruse to dispose of the assets of the company in liquidation."

17. Since the matter is settled between the petition creditor and the

appellant company and that settlement has been placed on record and

no one has raised objection against recalling the windup order and

since dues of the secured creditor have already been satisfied, no useful

purpose would be served keeping alive the winding up order. Winding

up a company is a last resort. Every effort should be made to ensure

that the company revives and business of a company continues in

(2007) 7 SCC 753 PNR,J & SSRN,J O.S.A.No.2 of 2022

accordance with law. Operation of a company also generates

employment. But, for the fact that the appellant was set

ex parte there was no substantial material to show that the financial

position of the appellant was so poor there was no other option but to