HMT Ltd. vs N.T. Rahamatulla Khan and Associates

D.V. Shylendra Kumar, J.—Though this appeal has come up for orders on the applications for vacating stay, with the consent of learned-counsel for the parties, the main matter itself is taken up for disposal.

This original side appeal u/s 4 of the Karnataka High Court Act, 1961, read with Section 483 of the Companies Act, 1956 (for short "the Act"), is directed against the following order passed by the learned company judge on October 29, 2009, while passing an order for admission and advertisement in Company Petition No. 74 of 2009.

Heard learned Counsel for the parties, perused the pleadings, more appropriately the minutes of the meeting annexure E and in view of Clause 5 therein, the petition is admitted. The petitioner is permitted to cause advertisement of the petition in one English edition of The Hindu and Prajavani, Kannada daily on or before November 11, 2009, fixing the date of hearing as December 9, 2009.

It is aggrieved by this order, the respondent-company is in appeal before us, contending, inter alia, that the learned company judge has not bestowed attention to the possible defences that were available to the respondent-company; that the act of admitting the company petition and permitting the company to take out advertisement to advertise that the company petition has been admitted and inviting response or reactions from interested persons is a very serious matter; that it can affect the affairs of the company in a very adverse manner; that it can financially act to the great detriment of a company which is active and functioning and could result in disaster to the company on financial side and a matter of serious repercussions even on the investors in the company if the company is a listed company and that the share value in the stock market taking the nose-dive, all investors can be ruined and a potential order of such possible disastrous consequence should be one passed only after bestowing sufficient attention to all aspects of the matter and at any rate can be passed only after giving proper and adequate opportunity of hearing to the company against which an order is intended and such course of action having not been done by the learned single judge, the order of the learned single judge is not sustainable and liable to be set aside.

The original side appeal having come up for admission before this Court as on November 6, 2009 and particularly for orders on Misc. Cvl. No. 20136 of 2009 for stay of further proceedings pursuant to the impugned order, we had issued notice regarding admission and stayed the impugned order for a limited period and directed the matter to be listed on November 11, 2009, for further orders. The order dated November 6, 2009, passed on Misc. Cvl. No. 20136 of 2009 reads as under:

Issue emergent notice regarding admission. All modes of services permitted. Sri Joshua, learned Counsel for the appellant permitted to serve on counsel who had appeared for the respondent before the learned company judge.

Issue interim order staying the operation of the order dated October 29, 2009, passed by the learned company judge in Company Petition No. 74 of 2009 for a period of one week.

Misc. Cvl. No. 20136 of 2009 is disposed of.

Learned Counsel for the appellant to file a memo of service on counsel and the party. Hand summons also permitted.

Hand delivery of this order is permitted.

List on November 11, 2009, for further orders. Registry may indicate that to be the date of hearing.

When the matter came up for further orders on November 11, 2009, the outcome of the proceedings in Company Petition No. 74 of 2009 was stayed in terms of the order passed on Misc. Cvl. No. 20137 of 2009 which reads as under:

Though notice had been issued to the respondent and respondent is represented by counsel, none appears for the respondent.

In the circumstances, the appeal is admitted. The interim order granted earlier is continued until further orders.

List the matter only if the matter is moved by any.of the parties.

Issue interim stay of further proceedings in Company Petition No. 74 of 2009 pending on the file of the company court pending further orders in O.S.A. No. 41 of 2009.

Thereafter, the company petitioner who has been served has come up with the present applications one Misc. Cvl. No. 22207 of 2009 seeking to vacate the interim order granted on November 6, 2009, to stay the advertisement order passed in Company Petition No. 74 of 2009, and the other Misc. Cvl. No. 22208 of 2009 is filed to vacate the interim order granted on November 11, 2009, in respect of further proceedings in Company Petition No. 74 of 2009.

We have heard Sri S. Shaker Shetty, learned Counsel appearing for the respondent on merits of both the applications and also Sri Joshua, learned Counsel for the appellant-company which is sought to be wound up in terms of Company Petition No. 74 of 2009.

We find that the impugned order which undoubtedly has very serious and some time could be disastrous repercussions on the company which is sought to be wound up if it is to be indicated that the company petition is admitted for examining the winding up affairs of the company and for such purpose, paper publication is to be taken out to apprise all persons interested in the company, mainly, creditors and shareholders who can look up to the distribution of the assets of the company in the event of the company being ordered to be wound up, is a serious matter even in terms of the settled proposition of law and has been so recognised by good number of authorities of not only this Court but also of the Supreme Court.

In a matter of such grave consequences if a company like the present appellant which is a giant public sector undertaking should be ordered to be wound up and initial step for such eventuality of passing an order to wind up the company being to admit the company petition and to order for paper publication is undoubtedly a matter of great public concern and also of considerable concern for the very company itself.

In such matters, the mere possibility of the fiction being employed to deem that the company being unable to pay its debts cannot by itself ipso facto lead to the inference that the company can be ordered to be wound up. Section 433 of the Companies Act, 1956, reads as under:

Circumstances in which company may be wound up by the Tribunal.--A company may be wound up by the Tribunal--

(a) if the company has by special resolution, resolved that the company be wound up by the Tribunal;

(b) if default is made in delivering the statutory report to the Registrar or in holding the statutory meeting ;

(c) if the company does not commence its business within a year from its incorporation, or suspends its business for a whole year ;

(d) if the number of members is reduced, in the case of a public company, below seven, and in the case of a private company, below two ;

(e) if the company is unable to pay its debts ;

(f) if the Tribunal is of opinion that it is just and equitable that the company should be wound up ;

(g) if the company has made a default in filing with the Registrar its balance-sheet and profit and loss account or annual return for any five consecutive financial years ;

(h) if the company has acted against the interests of the sovereignty and integrity of India, the security of the State, friendly relations with foreign States, public order, decency or morality ;

(i) if the Tribunal is of the opinion that the company should be wound up under the circumstances specified in Section 424G:

Provided, that the Tribunal shall make an order for winding up of a company under Clause (h) on application made by the Central Government or a State Government.

In fact, a look at the statutory provision of Section 433 of the Act indicates that it is in the discretion of the company court to pass an order to wind up or otherwise in the circumstances mentioned in several Clauses of Section 433 of the Act.

While the circumstances stipulated in Clauses (a) to (i) of Section 433 of the Act should necessarily be fulfilled even for the court, to examine as to whether it is a situation warranting an order to wind up the affairs of the company or otherwise, even if such circumstances are not complied with, there is no question of the court proceeding to pass such an order. Even if the circumstances stipulated in any one of the clauses of Section 433 of the Act still it is in the discretion of the court to pass or not to pass an order of winding up of the company. It is for the court to bestow its attention to the object of the provision to pass the order to wind up the affairs of the company which is mainly to protect the public interest and not necessarily from the angle of the company surviving or not.

If a gigantic public sector undertaking like the appellant-company is to be ordered for winding up, even in the matter of passing an order to wind up from the company''s angle also, public interest is involved as the company itself is a public sector undertaking and with the Government of India owning 99 per cent, of the shares, it is definitely a matter for great public concern as to whether the company of this nature should be allowed to exist or should be ordered to be wound up irrespective of the fact as to whether it is a company which is unable to pay its admitted debts.

When such aspects are involved in passing an order of wind up in respect of the company with the initial stage as in the impugned order not bestowing such attention, in our opinion, clearly vitiates the law and inevitably we have to set aside the impugned order and it is necessary that the appellant-company is given a proper opportunity to put forth its version before the petition presented u/s 433(e) of the Act is examined by the company judge and appropriate orders are passed thereafter and for such purpose the matter is remanded. It is for the parties to appear before the learned company judge and make good their versions.

Accordingly, this appeal is allowed.

The impugned order is set aside and the matter remanded to the learned company judge to examine the matter as indicated above.

The matter may be listed before the learned company judge for further proceedings in eight weeks.

In the light of the view that we are taking in the main appeal, Misc. Cvl. Nos. 22207 and 22208 of 2009 for vacating stay do not survive for consideration, and hence are hereby dismissed.