Bharti Telecom Ltd. vs Altos India Ltd.

Altos India Ltd., a public limited company, duly incorporated under the provisions of Companies Act, 1956, hereinafter referred to as the respondent-company, hardly raised any dispute to its liability to pay the amounts claimed by Bharti Telecom Ltd. hereinafter referred to as the petitioner-company. The respondent-company always pressed for considering revival of rehabilitation schemes put forward by it with the aid of the various financial institutions and banks to which the respondent-company was highly indebted. Thus, this court was primarily not only concerned with the winding up of the respondent-company for its inability to pay its debts despite service of a statutory notice within the preview and scope of sections 433, 434 and 439 of the Companies Act, 1956 (''the Act'') but was obliged to consider with definite emphasis whether it was just, fair and equitable to wind up this respondent-company for various reasons and causes, which came to on the record of this file during the pendency of the winding up petition.

The petitioner-company had brought the present petition on the allegations that the respondent-company has failed to pay its debts of Rs. 2,18,74,578 with interest despite statutory notice having been served upon the company. Reference was also made to the proceedings instituted u/s 138 of the Negotiable Instruments Act. This petition of the petitioner-company was admitted vide order dated 11th June, 1998 passed in CP No. 196 of 1997. Reproduction of this order would help in avoiding repetition of facts and would give a composite picture of the affairs of the respondent-company. The order dated 11th June, 1998 is reproduced hereunder :

''.... Bharti Telecom Ltd. has filed this petition under sections 433, 434 and 439 of the Companies Act (hereinafter referred to as ''the Act'') praying that Altos India Ltd. (hereinafter referred to as the respondent-company) be ordered to be wound up.

In this petition it is averred that the respondent-company was incorporated on 25th September, 1987 under the name of Altos India (P.) Ltd. Its name was subsequently changed to Altos India Ltd. and a fresh certificate of incorporation was issued to this company on 16th June, 1983. Respondent-company is stated to have approached the petitioner-company to advance a sum of Rs. 1 crore as inter-corporate deposit for a period of 90 days and agreed to pay interest at the rate of 27 per cent per annum for which different documents including Demand promissory note, stamped receipt and security by way of deposit share of the company were executed by and on behalf of the respondent-company. The terms and conditions as stated in the letter dated 12th August, 1996 were accepted between the parties and thereupon petitioner-company released a sum of Rs. 1 crore vide cheque No. 441977, which was duly encashed. The sum of Rs. 1 crore was released to the respondent-company by the aforesaid cheque by Bharti Tele Ventures Ltd., a subsidiary company of the petitioner-company. Respondent-company is stated to have further approached the petitioner-company with a request that the said company has decided to issue 20 per cent redeemable non-convertible preferential shares carrying a dividend of 20 per cent per annum and maturity date being 31st March, 1997 requested for conversion of inter-corporate deposit of Rs. 1 crore advanced on 14th August, 1996 as subscription amount, towards the issue of 10 lakh 20 per cent redeemable non-convertible preferential shares. Based on this request the petitioner-company further issued a cheque of Rs. 1 crore bearing No. 441979 dated 20th August, 1996 as subscription amount on the aforesaid basis. In this manner the respondent-company had accepted the financial benefits to the extent of Rs. 2 crore from the petitioner-company.

In furtherance to the agreement between the parties the respondent-company had issued post dated cheques for repayment of the amounts and it also issued cheque bearing No. 500992 dated 20th August, 1996 for a sum of Rs. 61,177 towards interest for 7 days on inter-corporate deposit. The total liability was accepted by the respondent-company vide its letter dated 20th August, 1996, the copy of which has been placed on record as Annexure P-9. Further vide letter dated 31st March, 1997 the respondent-company wrote a letter to the petitioner-company calling upon them not to present the two cheques given earlier i.e., one for Rs. 2 crore and other for Rs. 18,80,578 and requested that they be not presented till 30th April, 1997 as the respondent-company was in serious financial problem. Copy of this letter has been placed on record as Annexure P-12. These very cheques were dishonoured on presentation and the petitioner-company filed proceedings u/s 138 of the Negotiable Instrument Act, which are stated to be pending before the court of competent jurisdiction. As the cheques were dishonoured and no payment was forthcoming from the respondent-company, the petitioner-company issued a notice u/s 433 of the Companies Act on 31st May, 1997 claiming a sum of Rs. 2,18,17,578, copy whereof is placed on record as Annexure P-15. This notice was received by the respondent-company but no reply was sent compelling the petitioner-company to file the Company Petition No. 103 of 1997. CP No. 103 of 1997 was disposed of by this court vide order dated 24th October, 1997, which reads as :

"CA No. 427 of 1997 in CP No. 103 of 1997 ....

This is an application filed by the petitioner seeking permission to withdraw the company petition with liberty to file one on the same cause of action. Learned counsel for the respondent has no objection if the petition is allowed to withdraw.

In view of the stand taken by the counsel for the respondent as well as the fact that the errors stated to have occurred in filing of the company petition are mere technical in nature CM is allowed.

"In view of the order passed in CA No. 427 of 1997 this petition is dismissed as withdrawn".''

Consequently, the present winding up petition was filed. Notice of this petition was issued to the respondent vide order dated 21st November, 1997. The respondents were served and they put in appearance on 29th January, 1998. The respondents were granted time to file reply within one week which was not filed. The matter was adjourned to 13th February, 1998. Vide order dated 20th February, 1998 it was mentioned that there is a likelihood of the parties settling the matter amicably and as such the matter was adjourned to 6th March, 1998. Thus, there was no question of filing any reply nor request for filing of a reply was ever made after 29th January, 1998 as liability was clearly admitted thereafter. Learned counsel appearing for the respondent-company submitted that the matter practically has been settled and it is only the question of instalments and the period in which such instalments has to be made that remains to be settled. As such the matter was adjourned to 20th March, 1998. Adjournment was again sought and the matter was fixed on 3rd April, 1998. Parties intended to discuss the matter and consider the possibility of payment to the petitioner-company and as such the matter was adjourned to 24th April, 1998 vide order dated 3rd April, 1998.

A note was filed on behalf of the respondent-company in court on that date. Proposed schedule of payment of the amount due to the petitioner-company was put forward by the respondent-company and it reads as under :

"Proposed schedule of payment in the matter of Bharti Telecom Ltd. v. Altos India Ltd. pending in High Court, Chandigarh.

Principal amount : 2,18,70,578. The payment of the principal amount is proposed to be made in 16 quarterly instalments commencing from the quarter of July-September, 1998 and ending on the quarter of April-June, 2002 with a minimum payment of 25 per cent principal amount every year (i.e., June, 2001 and June, 2002).

Simple interest at the rate of 12 per cent accrued on the diminishing value of principal amount till the payment of principal amount in full shall be paid within one year from the date of last payment on account of the principal amount."

Though it was not accepted by the learned counsel appearing for the petitioner-company but still the matter was adjourned as aforesaid. On 24th April, 1998 the respondent-company while admitting the liability towards the petitioner-company attempted to paint a very fascinated picture in regard to the mode of clearing his liability, as such at this juncture it may be relevant to reproduce the entire order passed on 24th April, 1998, which reads as :

"Learned counsel appearing for the respondent-company submits that there is no dispute to the liability raised in this winding up petition. He further submits that because of financial crunch which is faced by the company, the company bona fidely and genuinely seeks further time to discharge its liability. May be the respondents have not disputed the liability but the necessary result thereof is why a company should not be wound up forthwith.

Keeping in view the peculiar facts and circumstances of this case the court would like to grant time to the respondents to pay their liability, if they so wish. There is no dispute that it is a growing unit and has three factories and lot of people are dependent for their livelihood on this company. But, equally true is that this cannot be raised a universal defence to a petition for winding up.

In the interest of justice this matter is directed to be listed on 8th May, 1998 on which date the authorised signatory of the respondent-company shall be present in court with a bank draft of Rs. 10 lakh, at least may be more and they shall file an affidavit in court as to the mode of repayment of the liability without varying the terms of contract between the parties. Order Dasti."

In order to establish its bona fides and to press upon the court to avoid the winding up order on these dates, the respondent-company took further time to produce in court a sum of Rs. 10 lakh, as noticed in the order of 24th April, 1998. This time as prayed was granted and the matter was listed on 28th May, 1998.

On this date the respondent-company took a somersault. The bona fides of the respondent-company were found not only lacking in all respects but to the court it appears that all this time was being gained to achieve such ends which would frustrate the proceedings before this court. On 28th May, 1998 there was a complete silence in regard to the steps taken by the respondent - company in furtherance to the order dated 24th April, 1998. Complete silence was observed in regard to the cause for not tendering in court even the sum of Rs. 10 lakh for which the time was sought from the court by a definite request on behalf of the respondent-company. All that was stated on behalf of the respondent-company is that the court should suspend the proceedings in view of the letter produced by the learned counsel for the respondent in court. On 28th May, 1998 arguments were heard and order was reserved.

As the entire controversy now revolves as to whether this court is bound to suspend the proceedings in face of the letter dated 26th May, 1998 state to be written to the Secretary Board for Industrial and Financial Reconstruction (BIFR), Tolstoy Marg, New Delhi, it will be more appropriate to reproduce the entire letter, which reads as :

"...... We are enclosing herewith six sets of Form A along with all the annexures as required u/s 15(1) of the Sick Industrial Companies (Special Provisions) Act, 1985.

Kindly acknowledge receipt of the said Form."

In order to appreciate this contention it needs to be reiterated that present case is not one where the respondent-company is disputing its liability. The debt is admitted. It was never contested either in the previous company petition, in reply to the notice served upon the respondent-company u/s 433 of the Act and even in the present company petition. During the course of hearing on various dates it was only repayment schedule and the dues of the petitioner-company and the manner in which the respondent-company was proposing to generate funds to repay the funds which was subject-matter of discussion. Keeping in view the larger interest of the company, the court had been granting time to the respondent-company to pay amounts and to show its bona fides in that regard but the above attitude of the company clearly shows that the time sought for all this period was primarily to frustrate the proceedings before this court. On 3rd April, 1998 the learned counsel appearing for the petitioner had expressed his serious doubts about the intention of the respondent-company to repay the amount and the bona fides of the proposals which were being put forward before the court. However, in the interest of justice still another opportunity was granted to discuss the matters, the result of which is apparent from the aforenarrated facts.

In view of the recent pronouncement by the hon''ble Apex Court in the case of Real Value Appliances Ltd. v. Canara Bank [1998] 29 CLA 434:[1998] 119 PLR 553 (SC) such controversies stand fully settled and does not leave much of scope for interpretation on diverse submissions. In this case the hon''ble Supreme Court held that the stage of enquiry as contemplated under the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985 (''SICA'') begins or is reached when it is registered. Further the registration of the reference is after scrutiny as it is mandatory for BIFR to conduct an enquiry. Though in this case the hon''ble court took the view that on registration other proceedings must be suspended, the court noticed the date on which the company made a reference, i.e., 17th July, 1997 and the date of the registration of such reference which was on 24th July, 1997 as (Case No. 97 of 1997). The court held that on or after 24th July, 1997 the proceedings before the court ought to be suspended and also deprecated the attitude of the company making incorrect statement to avoid the orders adverse to the company in proceedings. It will be appropriate to refer to the following observations of the hon''ble Supreme Court of India which would have a direct bearing on the matter in this petition :

"Therefore, in our view, the High Court of Allahabad in Industrial Finance Corporation of India and Another Vs. Maharashtra Steel Ltd. and Others, , the High Court of Andhra Pradesh in Sponge Iron India Ltd. Vs. Neelima Steels Ltd., , the High Court of Himachal Pradesh in Orissa Sponge Iron Ltd. v. Rishab Ispat Ltd. [1993] 78 Comp Cas 264(ORI) are right in rejecting such a contention and holding that the inquiry must be treated as having commenced as soon as the registration of the reference is completed after scrutiny and that from that time, action against the company''s assets must remain stayed as stated in section 22 till final decisions are taken by the BIFR."

Thus, the clear mandate which flows from the judgment of the hon''ble Apex Court is that mere writing a letter and its acknowledgement by BIFR on behalf of the company is neither the commencement nor a registration of reference with the BIFR, which would operate as an automatic suspension or stay of other proceedings. In the present case on 26th May, 1998 letter was written by the company to the BIFR making reference of its own u/s 15(1) of the SICA which was acknowledged by BIFR on 27th May, 1998 with the endorsement received subject to verification. It is not disputed that no action had been taken by the BIFR on the reference made by the company as on the date of hearing before this court. The receipt of such a request by the BIFR, ipso facto, cannot operate as a statutory directive for suspension of other legal proceedings. The respondent-company, therefore, cannot derive any benefit by producing this document on record to suspend the proceedings before this court. In any case, the request of the respondent-company lacks bona fides and is a clear attempt to undermine the administration of justice under this special Act, i.e., the Companies Act. The SICA was enacted keeping larger public interest in mind and these special provisions were enacted with a view to secure the timely detection of sick and potentially sick companies owing industrial undertakings. The speedy determination by a Board of experts and to remedy and revive financial stability in the company were the prime functions vested in the Board under the provisions of the SICA. The purpose of this special legislation was, thus, to embark upon reconstruction of industries which were sick or likely to get sick. The legislation never intended that the provisions of this Act should be used to defraud the creditors and apply as an instrument to abuse the process of law established under any other general or special enactment. The application of mind by the Board, therefore, has been determined as a condition precedent to the stay or suspension of other legal proceedings by the hon''ble Apex Court in Real Value Appliances case (supra). Even statutory provisions are founded on a basic principle of legislation intendment that there should be correct application of such provisions to redress the grievances for which such remedy is provided and there could be no presumption of safeguard to the abuse of such provisions. The conduct of the respondent-company herein is certainly not worthy of any appreciation and in fact clearly indicates lack of bona fides in their requests even for adjournment before this court. A person abusing the process of law may be under a special or a general law cannot claim relief in equity from the court of competent jurisdiction or authority in equity.

During the course of hearing it was pointed out that the respondent-company is trying to avoid the inevitable results of this winding up petition and thus, the statement recorded on behalf of the respondent-company in the order dated 24th April, 1998 was a mere camouflage to gain time and that is why no relevant documents were placed on record to show that the company was arranging funds nor any payment was tendered as promised.

In view of the above discussion, I am of the considered view that the respondent-company is unable to pay its debt. The liability is admitted. The company had never approached the BIFR for all this period though admittedly the company has been in delicate financial crisis for quite some time as is clear from the various letters which have been placed on record. In order to afford an opportunity to the company to show its bona fides and consider the possibility of amicably settling the matter, the court had shown more than the needed indulgence to the respondent-company.

At this stage it may also be relevant to mention that there are other two company petitions filed by other creditors being CP No. 128 of 1997 and CP No. 216 of 1997 where the petitioners in those cases have claimed $ 9,50,000 and is equivalent in Indian currency and Rs. 37,07,877 respectively. These petitions were also listed for hearing on the same dates and as such possibility of the respondent-company to clear its debt in future seems to be very uncertain. However, I am not proceeding to discuss the merits of these two petitions in view of the order being passed in the present petition. Inability to pay debt coupled with a defence which lacks bona fides would have to result in admission of the petition for winding up. Consequently, while rejecting the contention raised on behalf of the respondent-company that proceedings in this company petition are liable to be suspended in view of the letter dated 26th May, 1998, I direct the admission of CP No. 196 of 1997. Let notice of admission of this petition be published in Tribune, Indian Express, Jansatta and Haryana Gazette in accordance with Rules. Clear 14 days notice prior to the next date of hearing shall be given in the publications.

List this matter for further proceedings and directions on 24th July, 1998.

The result of the admission notice being published in the newspapers was that another company by the name of Onward Novell Software (I) Ltd., a company duly incorporated under the Companies Act, filed another winding up petition before this court being CP No. 277 of 1998, under sections 433(e) and 434, praying for the winding up of the respondent-company. It was averred in this petition that a sum of Rs. 53,95,541 was due to this petitioner company for the material supplied, with interest, which the respondent-company had failed to pay despite service of statutory notice.

Notice to show cause why petition be not admitted was issued by this court on 6th November, 1998. The counsel appearing for the respondents as well as for the official liquidator had put in appearance in the present case and no reply was filed even in this petition. That is how CP No. 277 of 1998 has also been heard and is being decided by this very judgment.

As I have already noticed, the respondent-company has raised no dispute much less a bona fide or a genuine dispute towards its liability to pay the amounts claimed by the petitioner-companies in both the petitions. After publication, again no objections were filed by the respondent-company to either of the company petitions claiming its winding up under the provisions of sections 433(e) and 434. This court as such would have no choice but to wind up the company for its inability to pay its admitted debts.

It is a settled principle of law that merely because a company is unable to pay its debt despite service of statutory notice, necessarily would not in all cases result in winding up of the company. If the court comes to the conclusion that it would not be just, fair or equitable to wind up the company despite inability to pay the debt, the company court would commit no error of jurisdiction in declining winding up. In the present case consideration of this issue is more pertinent and necessary because there is a definite plea raised by the company that it would not be just, fair, equitable and proper to wind up the company. According to them the company should be ordered to be revived or rehabilitated under the proposed scheme which has been filed on record.

I must notice at this stage that this court vide its order dated 11th June, 1998 had appointed a provisional liquidator of the respondent-company. This order was challenged by the respondent-company before the hon''ble Division Bench in Company Appeal No. 7 of 1998. The hon''ble Division Bench noticed the contention of the respondent company that they were not given an opportunity of being heard as far as the question of appointing the provisional liquidator is concerned and vide its order dated 8th July, 1998, the hon''ble Division Bench observed as under :

"If that is so, we are of the view that an appropriate application should be moved before the Company Judge in that regard that the order dated 11th June, 1998 in CA No. 442 of 1997 has been passed without hearing the appellant or its counsel. We are adjourning this appeal to 13th July, 1998. However, the pendency of this appeal would not debar the learned Company Judge to decide any application that may be moved by the appellant."

In furtherance to the observations of the hon''ble Division Bench the respondent-company filed review application being RA No. 2 of 1998. This review application was dismissed by a very detailed order dated 3rd August, 1998 passed by this court. It is conceded at the bar that the order dated 3rd August, 1998 has not been assailed in appeal by any of the parties to these proceedings. While sustaining the appointment of the provisional liquidator the court had passed further direction in regard to examining the possibility of selling the properties of the respondent-company during the pendency of the winding up petition and to examine any other workable revival scheme and even had permitted the respondent-company to see the record. The relevant extract of the order dated 3rd August, 1998 reads as under :

"While declining to review the order dated 11th June, 1998 or recalling the said order or cancelling the appointment of the provisional liquidator, I would issue the following directions to the provisional liquidator for compliance forthwith :

(a) The official liquidator shall associate three members from the secured creditors (banks to whom the properties of the company has been charged, hypothecated) one representative from the respondent-company for carrying out these directions. The officers shall not be below the rank of senior manager/managing director/official liquidator.

(b) At the outset, the official liquidator shall prepare inventory of all the movable and immovable property belonging to the respondent-company and or lying in the premises rented or belonging to the respondent-company.

(c) He shall prepare complete inventories of the record of the company.

(d) If any records are requested for by the respondent-company, copies thereof shall be given by the official liquidator to enable the company to pursue its matters before the competent forum including BIFR.

(e) The committee of the aforestated persons within four weeks from today shall place before the court (in CP No. 196 of 1997) a detailed report. This committee would suggest whether it is possible to consider and implement any viable or workable scheme by which the company could revive its business and provide modes of repayment of the secured and unsecured creditors of the company simultaneously."

The company court had given different directions to the committee so constituted (expert committee consisting of very high officials of the banks, public undertakings, who had to recover huge amount to the extent of more than Rs. 300 crore : representative of the respondent-company (managing director) and provisional liquidator of the respondent-company. These directions were multi-dimensional in their nature and scope, and the committee was directed to implement the directions in true spirit. Amongst others, main orders passed in this regard were orders dated 9th October, 1998, 26th October, 1998, 10th November, 1998, 26th November, 1998 and 24th December, 1998.

At the request of the parties to the various petitions, vide order dated 2nd November, 1998 the court had ordered inclusion of two other members of the financial institutions in the committee so as to give it broader prospective and fair consideration of the proposal put forward by the respondent-company. In fact the court had directed the committee not to only consider the revival scheme put forward by the respondent-company, but also any other scheme which, in their wisdom, may make it feasible for rehabilitating the respondent-company.

The illusion of profit earning were found to be totally baseless by the committee. It was considered by this court to seek assistance of this committee before arriving at any final conclusion in regard to revival or rehabilitation of the respondent-company. It appears that the respondent-company had no chance of revival and the managing director of the respondent-company was unable to put forward any feasible proposal even for arranging any funds as all financial institutions had totally declined to invest even a single penny in the affairs of the respondent-company. The indebtedness of the respondent-company is much more than what it could think even much less it could arrange to repay the said loans immediately or even within any reasonable time. Until and unless strong exceptions were shown to the recommendations of this expert committee, this court should have no hesitation in accepting the said report.

At this stage it will be appropriate to reproduce the order passed by this court on 26th November, 1998 as under :

''It is a petition u/s 433, 434 and 439 of the Companies Act filed by Bharti Telecom Ltd. praying that Altos India Ltd. be ordered to be wound up. Vide a detailed order dated 11th June, 1998 the petition for winding up was ordered to be admitted and provisional liquidator was ordered to be appointed by a separate order of the same date. It is conceded by Mr. L. M. Suri, senior advocate, that the appeal against this order, i.e., admitting the petition was dismissed by hon''ble Letters Patent Bench and this order has become final between the parties.

The order in regard to the appointment of provisional liquidator passed in CA No. 442 of 1997 was assailed in appeal where the hon''ble Division Bench of this court had granted liberty to the company to move for review before this court. This resulted in filing of the review application No. 2 of 1998. By a detailed order dated 3rd August, 1998 the review application was dismissed on merits and certain directions were issued during the pendency of the winding up petition. It is also conceded by Mr. L. M. Suri, senior advocate, that the order dated 3rd August, 1998 has not been assailed in any appeal and obviously has become final between the parties.

It must be noticed at the very outset that during the pendency of this company petition, i.e., 196 of 1997 to implement the order dated 3rd August, 1998 in its true spirit and substance, notice was issued to the various financial institutions. Some of the institutions have also filed applications for being impleaded as party because heavy amounts are due to them. Consequently, the financial institutions were impleaded as parties to this petition and vide order dated 9th October, 1998 a committee was constituted to submit a report whether it was possible to revive this company either with the management existing pre-appointment of provisional liquidator or even with the change in the management of the company. The committee had various meetings and had submitted a report which was not found satisfactory by this court as it did not clearly indicate what should be the status and future of this company which was obviously in financial crisis. Vide order dated 10th November, 1998 the committee was further directed to file a more definite and complete report and also to supply the data on the basis of which it could be ascertained whether the respondent-company was a workable unit in the event of complete or partial revival or the company was only required to be wound up.

It also needs to be pointed out that the managing director of the company who had been attending the hearings on all dates stated that the company could be revived and it could work profitably on job work basis and for this purpose he needed nearly 10 crore rupees which he could arrange in due course of time. The committee was also required to consider the suggestion put forward by the managing director following which the committee submitted its report after due deliberation on 10th November, 1998, 17th November, 1998, 19th November, 1998 and the final report dated 20th November, 1998. The conclusion of the report reads as under :

"Conclusion - After assuming that the above mentioned factors have been satisfactorily addressed, the committee has recast the projections assuming the same level of turnover and expenses as estimated by the management and after assuming that the company would need working capital assistance of Rs. 75 crore in 2001 to sustain the envisaged level of operations. A copy of the projections is at Annexure. It may be observed, therefore, that the net present value releasable by the secured lenders from the revival plan would be in the region of Rs. 35 crore only which incidentally, corresponds to the estimated realisable value of the assets of the company as already assessed by the secured creditors recently. It may be noted that the company''s management has submitted proposal earlier including the proposal submitted to IDBI in 1997. The deficiencies in the proposals identified by the institutions and banks have not been satisfactorily addressed. Hence in view of the aforementioned reasons, it is not possible to revive the company and the only option appears to be disposal of assets/winding up of the company subject to the directive of the High Court. ..."''

It was pointed out that the financial liabilities of the respondent-company towards the financial institutions and banks which are secured creditors is more than Rs. 300 crore. All the counsel appearing upon instructions from their respective clients reiterated in court that the scheme put forward by managing director of the company was not workable and they, in any case, were not willing to advance any money to the respondent-company. It was further the view of the committee that the requirement of Rs. 10 crore for running the company partially is totally an under estimation as it would at least need Rs. 30-40 crore. However, the managing director of the respondent-company was unable to give any definite suggestion as to from where and within how much definite period would he be able to arrange Rs. 10 crore. For the purpose of arranging the fund, according to him, he needed to prepare and maintain the accounts of the company. In other words, statement of accounts has to be prepared; it is required to be scrutinised, audited and finalised and then it has to be laid before the perspective purchasers or investors and thereafter the perspective purchasers or investors would decide whether they are willing to grant Rs. 10 crore on such terms as may be agreed upon among them or not. This suggestion even to the court seems a little impracticable. This is more so, for the reason that it is a unit which is modern unit dealing in computers on job work basis, computer hardware and its assembling, etc. It is certainly stated to be little modern and sophisticated unit and consensus is that by the lapse of time the value of the unit is bound to fall and it may ultimately become junk in the wake of its present functioning.

In the circumstances aforestated in order to protect the interest of all concerned and without winding up the company at this stage and to implement the order of the court dated 3rd August, 1998 which has become final, the sale of the unit at this stage has become inevitable. Learned counsel appearing for the respondent-company submitted that it will be appropriate for this court to sell the unit only after the company has actually wound up. Firstly, I am of the considered view that this is not the correct perspective of law. It is more an imaginary situation because there is hardly any difference between the present status of the company and would be status of the company once it has actually wound up. The official liquidator attached to this court is already working as provisional liquidator of this company. This unit heavily owes financial liability to various financial institutions which are dealing in public money. Thus, it is more important that a method of sale is adopted at this stage, i.e., the manner which would fetch maximum benefit to all concerned and would help the respondent-company to reduce its liability to the maximum extent. It is settled principle of law that secured creditors stand outside the winding up petition and it would be the exception to the rule that they are governed by the proceedings in the winding up petition.

In order to implement the order dated 3rd August, 1998 which is based upon the concurrent view of the committee which they have reiterated on various occasions in their interim report and final report as well and through their counsel in the court, the following directions are issued :

"(1) That the committee already constituted vide the orders of this court which has not gone in any court of appeal, shall proceed with the matter of sale of this unit.

(2) The committee shall be held responsible for continuous implementation of courts directions and sale of the market/hypothecated assets of the company to its best advantage and with an intent to fetch maximum price.

(3) The committee will meet to discuss all the modalities and mode of selling the mortgaged/hypothecated property with the rights and interest of the company protected so as to fetch the maximum price.

(4) The committee is at liberty to consult such experts as it may deem necessary. It will be certainly in the fitness of things and these financial institutions consult and get the work executed through its own staff or agencies to prevent external influences as well as unnecessary expenditure. The financial institutions are supposed to have their own facilities and infrastructure for such purposes. The institution will be able to exercise better control and fix responsibility of such experts if they are from their own institution.

(5) In order to give it wide publicity the advertisement shall be inserted at least in five national newspapers, viz., Hindustan Times, Indian Express, The Tribune, Economic Times and Hindu, in all or any of the edition of these papers, which the committee may deem fit and proper.

(6) The meeting of the committee shall be held at Punjab National Bank. Sector 17, Chandigarh at 11 A.M. on 28th November, 1998.

(7) The tenders shall be submitted on 23rd November, 1998 in the office of the official liquidator between 10 A.M. to 5 P.M. The tenders shall not be opened without specific orders of the court in this regard. On receipt of the tenders in a sealed cover, each envelope shall be signed by the official liquidator and DGM, Punjab National Bank. The tenders would obviously call for earnest money. The amount of such earnest money would obviously be at the discretion of high power financial committee constituted by this court.

The advertisement for the sale of the unit shall contain complete details with regard to nature of property, plant, machinery and its capacity and even state as to what returns the company was showing and also indicating the capacity of this unit to do exports as well as to do job work. According to the managing director of the company, the company had attained nearly Rs. 200 crore export target in one financial year, i.e., 1995-96.

The date of inspection shall be stated in the advertisement. The inspection period shall be fixed for a period of 10 days. The committee shall ensure that the perspective purchasers are fairly dealt with and are informed of the technical matters relating to the unit. The managing director would be at liberty to participate in these deliberations. The committee would also consider the possibility to secure the protection with regard to leasehold rights of the company in accordance with law.

List the matter for further directions on 4th December, 1998.

Copy of order be given dasti."

In furtherance to the order dated 26th November, 1998 when the matter was heard in court on 24th December, 1998, the members of the committee had opened the tenders received by them in court. The tenders received showed a very pathetic picture of the respondent-company. Firstly, no tenderer was interested in buying the unit as a whole and, secondly, again the financial institutions pressed that the company should be ordered to be wound up. It must also be noticed that it had already come on record that the proposal of selling the finished, unfinished and raw-material products stored with the respondent-company had also not brought any results. The members of the committee had put in their best by holding different meetings on different dates and considering all the relevant aspects in relation to the affairs of the respondent-company and its possible revival, and they had placed as many as four interim reports before the court, prior to their submitting the final report, recommending winding up of the respondent-company as the only panacea to the multifarious problems of the respondent-company.

In the meanwhile number of other financial institutions like Punjab National Bank, State Bank of Hyderabad, State Bank of Travancore, Bank of India, SBI Commercial and International Bank Ltd. and State Bank of Mysore, etc., had filed petitions u/s 446 of the Companies Act seeking leave to institute and pursue their legal remedies for recovering the huge amounts which the respondent-company owed to them.

The provisional liquidator of the respondent company had also filed CP No. 15 of 1999 under sections 456, 468 read with section 538, of the Act praying for a direction to the respondents therein to deposit the amounts due and payable to the respondent-company in the name of official liquidator. One amount of Rs. 45,06,080 is payable by Life Insurance Corporation to the Trust created by the employees of the respondent-company. The premiums of which were paid by the company itself. This position is conceded by all concerned at the bar. The other amount claimed of Rs. 39,74,776 is payable by United India Insurance Co. Ltd. to the company in settlement of a claim with regard to burglary that had taken place in the premises of the respondent-company under liquidator. It is averred by the provisional liquidator that this matter is a serious one and besides payment of amount to the company, other directions for investigating aspect are also called for.

I must notice that the managing director of the respondent-company was present in all the crucial meetings of this committee which had considered various aspects of this case.

Learned counsel appearing for the managing director of the respondent-company had placed lot of emphasis on his submission that the pendency of this winding up petition is hampering their right to approach the BIFR.

This contention, on facts, is misconceived one. Vide order dated 3rd August, 1998 the respondent-company was permitted to inspect records and in any case the record till the year 1997 were always with the respondent-company (its managing director), as the present petition for winding up itself was filed in the end of 1997. Nobody else need to be blamed for the misdeeds of the managing director of the respondent-company in this regard. He was not able to co-ordinate with the provisional liquidator to inspect the said record though the relevancy of the records after the presentation of the winding up petition would hardly be of much consequences. It was a conceded position on record that the company was lying closed for more than one year when the winding up petition was filed. The company was obliged in law to prepare its balance-sheets for the period ending 31st March, 1997 and getting them audited in accordance with law much prior to the filing of the winding up petition, which was filed on 6th November, 1997. The order dated 26th November, 1998 passed by this court was challenged in appeal (Company Application No. 1 of 1999), which was dismissed by the hon''ble Division Bench vide its order dated 8th January, 1999. The Division Bench had left it open to the managing director of the respondent-company to raise this issue before this court.

As I have already noticed, it was the obligation of the then managing director of the respondent-company to maintain proper accounts and file its returns within the prescribed period. They cannot be permitted to take benefit of their own default. In any case, the managing director was fully aware of the assets and liabilities of the company and its financial status. That is how it could prepare its proposed scheme of revival which was presented to the committee as aforenoted. Having participated in those meetings of the committee and having failed to satisfy the members of the committee, as well as the court, of any viable revival scheme, the respondent-company cannot be permitted to raise this argument at this belated stage.

The conduct of the then managing director of the respondent-company has not been fair even before the company court. All through it was stressed that they wish to approach the BIFR and the accounts be permitted to be inspected. However, they had filed the reference before the BIFR quite sometime back and which was rejected by the order of the Secretary dated 31st March, 1999 declining to register the reference. Appeal was preferred before the Board which was dismissed by the order of the Chairman of the BIFR vide order dated 7th July, 1999. The conduct of the respondent-company through its erstwhile managing director certainly deserves to be deprecated. He having failed to bring any viable proposal before the court can hardly be permitted to raise this issue. The financial institutions to whom the respondent-company owes more than rupees 300 crore, do not wish to give any further finance and they have so stated before this court in no uncertain terms. They have a right over the properties of the company being the mortgagees of all the properties of the respondent-company. The expert finance committee has considered the entire matter and has found that revival of the respondent-company is not financially feasible idea.

During the course of hearing it was pointed out by the expert finance committee consisting of as many as 9 members, that the respondent-company would at least need Rs. 40-50 lakh of inflow of liquid money before any plausible scheme, which ultimately prove profitable or not, can be considered. However, according to the managing director of the company, he required only Rs. 20 lakh. Time was granted to him on various occasions to arrange for the said money in view of the stand taken by the financial institutions not to finance the respondent-company any further. The managing director failed to bring any such investor.

From the above discussion, it is clear that the respondent-company has failed to bring any revival scheme which was viable in terms of finances or even management. The idea of the managing director of the respondent-company that company was capable of making profits with all the ifs and buts attached to it, is nothing but an illusion and an attempt to prevent the present proceedings coming to its only logical end of winding up of the company. The hon''ble Supreme Court of India in the case of Needle Industries (India) Ltd. and Others Vs. Needle Industries Newey (India) Holding Ltd. and Others, has held that the mere fact that the company is prosperous and makes substantial profits is no obstacle to its being wound up if it is just and equitable to do so. In the facts of the present case, this ground hardly exists.

Mismanagement and misconduct on the part of the directors of the company in regard to affairs of the company affecting its financial position, would also be a definite consideration for the court to determine such an issue. The provisional liquidator in his different reports and even the expert finance committee has pointed out that there has been mismanagement of the company which has resulted in the present financial instability of the company as a whole. (This factor is just being noticed and would not be treated as a conclusion of the court.)

Deadlock in the management of the company is one of the grounds which may make it equitable and just for the court to wind up a company. Varied instance of total deadlock in the management of the company also arises when no other practical remedy is available before the court but for an order of winding up. The detailed circumstances explained above squarely fall in this principle as there is complete deadlock in the management of the affairs of the company resulting from financial crisis, company having no liquidity, the creditors seriously opposed to further investment and inability on the part of the company to create any resources to invest further liquidity in the company. It may not, as such, be a total deadlock in the management of the affairs of the company, but it has become totally impracticable for the company to carry on its business in normal course.

In the case of George v. Athimattam Rubber Co. Ltd. [1965] 35 Comp Cas 17, the court held that substratum of a company will be deemed to be gone when (a) the subject-matter of the company is gone, or (b) the object for which it was incorporated has substantially failed, or (c) it is impossible to carry on the business of the company except at a loss, that is, there is no reasonable hope of trading at a profit. These are the precepts pervasively described by the court which would guide the company court to determine the possibility of avoiding a winding up order. If the company looses its substratum for any of the aforestated reasons, this by itself would become just and equitable to winding up the company. What to talk of making profits at the rate which would help in diminishing the huge liability of the respondent-company, but there has been no viable proposal before the court which could even justify the commencement of the business, which, admittedly, is lying closed for more than two years now.

The court had granted more than sufficient opportunity for the erstwhile management of the company to make concrete proposals for revival of the company. Their proposals have been examined by expert finance committee, which itself is interested in the management of the company to the extent that they have to recover their heavy dues from the respondent-company. One can hardly see any reason for these financial institutions and public undertakings to act with element of bias. Winding up being a legal death of the company, the financial institutions would hardly prefer that if there was any other possibility of recovering their dues by permitting the respondent-company to carry on the business. I see no reason why the court should not accept the view put forward by the financial institutions upon due consideration of various pros and cons of this multi dimensional problem.

The workmen have also filed a petition for direction to the management to pay their dues or other claims. This clearly shows that the company is not only unable to pay its debts to the financial institutions and public undertakings but has even failed to discharge its financial obligations towards its workmen for a considerable period.

The court having appointed the liquidator and for the reason that certain other ancillary applications are pending before the court, it is but necessary for the court to issue appropriate directions in that regard. The following directions are issued for implementation in accordance with law :

"(a) The official liquidator of the respondent-company shall put up a report before the court within four weeks from today in regard to the affairs of the company, the properties, assets and records of the company, the possession of which he has taken or is likely to take within the stipulated period;

(b) The official liquidator shall act in consultation with Nodal Officer, not below the rank of a DGM to be appointed collectively by all the financial institutions, public undertakings (who are the creditors of the respondent-company and three members of the expert finance committee appointed by this court in regard to all affairs of the respondent company;

(c) The official liquidator shall be free to take advice from technical expert in relation to such factors as may be necessary in regard to discharge of his duties;

(d) As already noticed, the official liquidator had filed CP No. 15 of 1999 praying that the United India Insurance Co. Ltd. was liable to pay a sum of Rs. 47,33,785 on account of loss of material for which the survey was conducted, verifying the loss to the extent of Rs. 39,77,841. To this petition, reply was filed by the United India Insurance Co. Ltd. and they stated that they had no objection to settle the claim of the company and they would pay the claim upon completion of formalities required for that purpose. The official liquidator is directed to comply with the formalities. The United India Insurance Co. Ltd. is hereby directed to pay the claim to the official liquidator in the name of the respondent-company, CP No. 15 of 1999 stands disposed of with the following directions :

(i) The official liquidator shall create a fixed deposit receipt with any of the nationalised banks so as to earn the maximum permissible interest, with leave of the court.

(ii) The official liquidator is further directed to file a detailed report before the court in regard to the fate of the FIR, which was lodged in regard to the loss/theft of the properties of the respondent-company. He shall also indicate in the report the reasons and responsibility for such a theft and its background as is disclosed from the records of the respondent-company or by his physical inspection of the premises of the respondent-company.

(e) The Life Insurance Corporation of India has also to pay an amount of Rs. 48,78,925 to the respondent-company, which it was going to pay to the managing director of respondent-company in the name of the trust created by the employees and where all contributions were undisputedly made by the respondent-company. The Life Insurance Corporation of India is hereby directed to pay the said amount to the official liquidator in the name of the respondent trust immediately. The official liquidator shall create a fixed deposit receipt from this amount with the nationalised bank to earn the maximum permissible interest and the fixed deposits so created shall not be encashed without specific leave of the court.

(f) The official liquidator will not incur any expenditure from the moneys received by him in relation to the properties of the respondent-company, claims of the respondent-company, or money otherwise payable to the respondent-company, without specific permission of the court except for incurring necessary expenses to the maximum of Rs. 1,000 at one point of time in the event of need emergent.

(g) In the above circumstances it is also directed that the official liquidator must invite claims from the public including the workmen and financial institutions expeditiously and in any case deal with them and put up a report before the court within a period of six months. The official liquidator is also at liberty to place before the court any appropriate scheme in regard to the affairs of the company."

In view of the detailed discussion above, I have no hesitation in coming to the conclusion that the respondent-company is liable to be wound up finally under sections 433(e) and 433(f) the petitions are allowed and the respondent-company is ordered to be wound up. The provisional liquidator appointed by this court vide its order dated 11th June, 1998 is hereby appointed official liquidator of the respondent company. He shall take final charge of all the properties, assets and records of the respondent-company forthwith and act in accordance with law. The order of winding up of the respondent-company be published in Indian Express, The Tribune (Chandigarh editions), and the Hindustan Times (National edition). The order shall also be published in the Official Gazette of the State of Haryana in accordance with rules. Accordingly, these petitions are disposed of without any order as to costs.

Order accordingly.