Section 447 of the Companies Act, 1956 - Winding up

HIGH COURT OF PUNJAB AND HARYANA

Coventry Coil-O-Matic (Haryana) Ltd.

v.

ICICI Bank Ltd.

M.M. KUMAR AND H.S. BHALLA, JJ.

CAPP NO. 15 OF 2008

FEBRUARY 10, 2009

Section 447 of the Companies Act, 1956 - Winding up - Effect of winding up order - Respondent-bank filed winding up petition against appellant, company-in-liquidation - Company Judge admitted said petition - Appellant’s appeal against said order along with application for condonation of delay of 1050 days in filing appeal was dismissed by Appellate Bench on ground that no sufficient cause within meaning of section 5 of Limitation Act, 1963 was shown by appellant warranting condonation of delay - Appellant filed application seeking direction to respondent to furnish details of account to appellant so that account could be settled - However, Company Judge passed an order of publication of factum of admission of petition - Appellant challenged that order, contending that Company Judge without passing any order on application had directed publication of factum of admission of petition - Whether since as soon as order of winding up order was passed nature of winding up petition underwent a transformation from an individual petition to a petition on behalf of all creditors and all contributories, Company Judge was justified in not passing any order on application so filed by appellant and in directing order of publication of admission of petition - Held, yes

Section 433 of the Companies Act, 1956, read with rule 96, of the Companies (Court) Rules, 1959 - Winding up - Circumstances in which a company may be wound up - Whether after admission and before issuing direction for advertisement of petition by publication, there is no requirement of issuing a notice in terms of rule 96 to company-in-liquidation - Held, yes

FACTS

The respondent-bank filed a winding up petition against the appellant-company. The High Court admitted the petition on the ground that the appellant failed to file reply despite repeated opportunities given to it. Against the said order, the appellant filed an appeal along with an application for condonation of delay of 1050 days in filing of appeal and 72 days in refiling of the same, contending, that it was not aware of the order passed by the Company Court. The Appellate Bench condoned the delay of 72 days in refiling the appeal. However, in respect of condonation of delay of 1050 days, the Appellate Bench held that no sufficient cause within the meaning of section 5 of the Limitation Act, 1963 was shown by the appellant warranting condonation of delay. The Appellate Bench also noticed that the order of admission was passed in presence of the appellant and, therefore, it could not be said that it was not aware of the order passed by the Company Court. The Appellate Bench, accordingly, dismissed the appeal. Subsequently, the appellant filed application seeking directions to the respondent to furnish the details of the account to the appellant so that the account could be settled in accordance with the details to be provided. However, the Company Judge passed an order of publication of the factum of admission of winding up petition. In the instant appeal, the appellant contended that if directions were issued to the respondent to furnish the details of dues, then all such dues, could have been paid and settled, and the Company Judge without passing any order on the application had directed publication of factum of admission of the petition; and that the Court should have issued a notice to the appellant before directing publication of the factum of admission.

HELD

The argument of the appellant that an order should have been passed granting its prayer by issuing direction to the respondent to disclose the details of its dues so as to settle the accounts between themselves could not be accepted because such a course was not available in view of the provisions of section 447. It followed that the claim of the appellant alone was not to be considered. According to section 447 an order for winding up of a company is to operate in favour of all the creditors of the company and of all the contributories of the company as if it had been made on the joint petition by the creditors and all the contributories. The Bombay High Court in S.P. Capital Financing Ltd. v. Bagade (India) Engineering Ltd. [2002] 109 Comp. Cas. 657, rejected the application of one of the creditor who had filed a winding up petition holding that the prayer made by such creditors is not acceptable. Section 447 in its plain language provides that as soon as the order of winding up is passed the nature of the winding up petition undergoes a transformation from an individual petition to a petition on behalf of all the creditors and all the contributories. Therefore, the petitioner was not permitted to withdraw the petition without the consent of all the creditors or contributories. Therefore, it was not surprising that the Company Judge did not feel the necessity of passing any order on the application so filed by the appellant. [Para 6]

In respect of the contention that in pursuance of rule 96 of the Companies (Court) Rules, 1959 a notice is required to be issued to the appellant for publication of the petition after its admission, perusal of the rule 96 postulates that for the purposes of admission, a winding up petition is required to be fixed before the Company Judge in chambers only. After admission, the Company Judge could fix a date for hearing and for issuance of direction for advertisement of the petition. The Company Judge has also been given discretion to issue notice to the company-in-liquidation before issuance of direction as to the advertisement of the petition. It is, thus, clear that there is neither any requirement of issuing a notice to the company-in-liquidation nor any precedent warranting inference of such a proposition of law. [Paras 7 and 8]

There was no requirement for the Company Judge to forthwith advertise petition after its admission. After admission and before issuing direction for advertisement of the petition by publication, a notice to the company facing liquidation is not required to be given. Even otherwise, on the facts of the instant case, the company-petition was admitted on 26-5-2005 and direction for advertisement of the petition by publication had been issued on 7-8-2008 after appeal filed by the appellant against the order of admission had been dismissed. A perusal of the original record showed that the Company Judge after admission of the petition had kept the matter for hearing on 28-7-2005 with regard to issuance of direction for advertisement of petition by publication. On that date, the respondent had filed an application for substituting the respondent by impleading ‘K’ by asserting that the respondent had assigned all its rights, title, interest and benefits in respect of its claim against the appellant together with secured interest thereon to ‘K’. The application was kept pending by the Company Judge as the question of maintainability was required to be decided at the time of decision on the company petition. Thereafter, at the instance of the appellant adjournments were sought on the plea that after the filing of reply, joint meeting of the respondent along with other secured creditors had taken place and then application was filed and the time was further sought for challenging order of admission. After dismissal of the application seeking condonation of delay in filing the appeal was also dismissed. Therefore, there was no ground to interfere with the order issuing direction for advertisement of the petition by publication in various newspapers and in Official Gazette. Accordingly, the appeal failed and the same was to be dismissed. [Para 10]

CASE REVIEW

S.P. Capital Financing Ltd. v. Bagade (India) Engg. Ltd. [2002] 109 Comp. Cas. 657 (Bom.) (para 6) followed.

National Conduits (P.) Ltd. v. S.S. Arora AIR 1968 SC 279 (para 10) distinguished.

CASES REFERRED TO

National Conduits (P.) Ltd. v. S.S. Arora AIR 1968 SC 279 (para 3) and S.P. Capital Financing Ltd. v. Bagade (India) Engg. Ltd. [2002] 109 Comp. Cas. 657 (Bom.) (para 6).