Rajinder Singla and Another vs Sumac Engineering P. Ltd. (In Liquidation) and Others

K. Kannan, J.—The petition for revival of the company has been moved at the instance of the ex-executive director and ex-managing director of M/s. Sumac Engineering P. Ltd., which was ordered to be wound up by an order of this Court in C.P. No. 59 of 1991 on May 29, 1992. The averments in the petition seeking for revival are as under.

The company was a closely held company where the applicants had become shareholders of the company holding 175 equity shares of Rs. 100 each and along with other immediate relations they held 1,663 equity shares of Rs. 100 each. They also held 1,550 preferential shares of the company along with their relations. They had themselves given unsecured loans to the tune of Rs. 1,54,199.77 to the company prior to its winding up.

The company had four industrial sheds allotted to them by the Haryana State Small Scale Industries and Export Corporation, later merged with the Haryana State Industrial Infrastructure Development Corporation. The original allotment of shed Nos. 429 to 432 made on January 5, 1988, was subsequently replaced by allotment of shed Nos. 439 to 442 by letter dated June 23, 1989. The company was an ancillary unit of HMT Ltd., Pinjore and the industrial sheds were put to use by establishing a factory for manufacturing goods. The company had availed of financial assistance from the UCO Bank to the tune of Rs. 57.50 lakhs and had also obtained other loans for their production needs. One of the creditors of the company Shri Mela Ram filed a petition for winding up and an ex parte order was passed on May 29,1992. On the date of the winding up order, the unsecured creditors were to the tune of Rs. 43,02,884.33, preferential creditors were to the tune of Rs. 14,87,862.80 and secured creditors were to the tune of Rs. 33,75,649.33. To its own shareholders, it owed about Rs. 10 lakhs. The list of unsecured creditors and equity shareholders of the company have been enclosed as annexures P4 and P5.

The cost of the four industrial sheds allotted by the HSSIEC was Rs. 14,88,000 at Rs. 3,72,000 each and the company was expected to make the payment in instalments. Till the date of the order of winding up, the company had paid Rs. 1,62,000 and the company still owed a sum of Rs. 13,26,000 at the time when the company was ordered to be wound up. The industrial sheds were put up for auction pursuant to an order of the court permitting such sale on June 30, 1993 and July 28,1993, but since the offers for purchase were very poor, when the highest offer was Rs. 8 lakhs, the offer itself was rejected by the court auctioneer.

The proposal for revival comes through the ex-management by entering into individual negotiations for paying off all the debts due by the company to various persons. As regards the claim of the UCO Bank, the ex-directors had entered into a one-time settlement. No objection certificate had been issued by the UCO Bank towards settlement pursuant to which, the Presiding Officer, Debts Recovery Tribunal has permitted the compromise to be entered into between the parties and has allowed the bank to withdraw the recovery certificate. The bank has given a certificate regarding the fact that the borrowers have deposited the compromise amount of Rs. 10 lakhs in the loan account. The petitioners have also stated that they are willing to pay all the amounts that stand due to the HSIIDC, which as on today, at the time when the case was argued, was Rs. 29,74,000. The scheme of revival, which the petitioner has submitted is that it would pay up all the amounts, which are respectively due to the persons from whom the claims have been received by the official liquidator. Noting that the share value of the shares of the company on the date of the winding up is zero, the petitioners have expressed themselves willing to purchase the shares at the face value, i.e., at Rs. 10 and also undertaken to pay all the statutory dues to the company as and when the final statement is effectuated and the winding up order is recalled.

Objections have been placed at the instance of all the respondents. The objection of the second respondent is that the petition itself is not bona fide and the attempt is only to get back the industrial sheds, which have been lost by the non-payment of the instalments payable as per the terms of the allotment. The terms of allotment provided for payment of rent for the sheds for the period of four years and after the said period, the amounts payable were to be changed into hire purchase basis. In view of the default committed by the company, the allotment of sheds was cancelled by the second respondent by its letter dated June 29, 1993. In view of the cancellation of allotment, the petitioners had ceased to have any right or title in the sheds. The attempt of the official liquidator to bring the property to sale itself was opposed by the HSSIEC and this Court by order dated December 22, 2000, passed in C.P. No. 91 of 1991 in C.P. No. III of 1992 in C.P. No. 59 of 1991 transferred the proceedings pending before it to the Debts Recovery Tribunal, Chandigarh and left the issue as regards the right of the official liquidator to effect the sale of sheds to the Tribunal. The attempt of the second respondent was, therefore, to show that the industrial sheds even on revival could not be handed over back to the petitioner-company. The third respondent at whose instance originally the petition for winding up had been filed, states in his objections that the petitioner-company had not settled the claims of the creditors and the petition itself was not bona fide. A company that is commercially insolvent ought not to be handed over to the present petitioners and further expose the persons, who are not parties to the present petition with the risk of entering into transaction with the company. According to him, it would be neither just nor equitable to recall the order of winding up. The official liquidator has also filed his reply pointing out to the fact that the petitioners had earlier sought for permission of revival of the company by filing a C.P. No. 22 of 1995, which was ultimately dismissed on September 15, 1995, when it was noticed that the payments undertaken to be paid to several creditors had not been paid. As per the statement of affairs, the list of unsecured creditors enclosed showed claims to the tune of Rs. 43,02,884 when the petition was filed by the petitioner. The official liquidator had also stated that Rs. 2,83,213 has been incurred as liquidation expenses, besides watch and ward expenses and other miscellaneous expenses were still to be paid. According to him, the revival sought to be made after 16 years from the date of winding up with no particulars of revival of the operations ought not to be granted.

By enumeration of the objections of all the parties to the proposal of revival, it could be noticed that the objections have come essentially from two quarters. One, from the HSSIEC stating that allotment of the industrial sheds has already been cancelled and without any definite plans about revival of the affairs of the company, the attempt is only to get back the industrial sheds, which is not possible in view of the subsequent allotments. Two, the objection has come from the person who had earlier applied for winding up, pointing out that even the amount as claimed by him had not been paid and if at all, the revival should be ordered, the petitioners shall be directed to pay the entire principal amount with interest till date and not merely up to the date of filing of the petition for winding up.

Learned Counsel appearing for the petitioners produced before me, in expression of his bona fides, demand drafts drawn in favour of the official liquidator for Rs. 2,83,213 as claimed by him, a demand draft of Rs. 29,74,000 in favour of the petitioning creditor, who is arrayed as respondent-Corpo-ration-second respondent, the sum as would be due as per the terms of the allotment, Rs. 18,97,800 as due to the unsecured creditors and the petitioner shall file an affidavit to the effect that he has paid Rs. 21,20,653 to the unsecured creditors and shall submit the same to the official liquidator. Responding to the contention of the second respondent, he would state that after the winding up order was passed on May 29,1992, all the assets of the company had stood vested with the official liquidator appointed by the court and no proceedings in relation to the assets of the company could have been taken by HSSIEC without taking appropriate permission u/s 446 of the Companies Act. According to him, the order cancelling the allotment, which was alleged to have been made on June 29, 1993, i.e., after the date of the order of winding up is void ab initio. He relies on a decision of this Court in Haryana Financial Corporation v. Dev Papers P. Ltd. (in liquidation) passed in C.A. No. 14 of 2007 in C.P. No. 120 of 2000 in C.P. No. 197 of 1999 dated December 11, 2008 -- Haryana Financial Corporation Vs. Dev Papers P. Ltd. (In Liquidation) and Others, , referring to Section 446 of the Companies Act and its effect. This hon''ble court had held that a decree obtained subsequent to the order of winding up without resorting to a procedure u/s 446 shall be void. Reading Section 537 of the Companies Act, the court ruled (page 409) : "Mere enforcing execution is impermissible under this section what to say of attachment or sale of such property without the leave of the court. Even if, it is assumed that Section 446 is not attracted in the present case, for want of action at the hands of the official liquidator, the attachment of the property and sale thereof in execution of the decree of the civil court without the leave of the court is rendered void by operation of Section 537 of the Companies Act, even though the decree may be valid". The action directing cancellation of the allotment under terms of letter of allotment made by the second respondent, according to the counsel for the petitioner, was totally void.

In my view, the cancellation of the order of allotment validly made shall be done only with reference to the terms of the letter of allotment itself. If there had been no order of winding up intervening after the default, the effect would have been different. Admittedly, the order of cancellation had been made for non-payment of instalments subsequent to the date of winding up and so long as the order of cancellation had not been made prior to the filing of the petition for winding up, the only recourse that HSSIEC could have had was to apply u/s 446 for continuing with the proceedings for cancellation of the allotment. The possession in respect of the industrial sheds was a tangible right in the immovable property and any proceedings that were taken after the company was ordered to be wound up could be avoided by the official liquidator. The issue relating to the right of HSSIEC to cancel the allotment, which was directed to be taken up and disposed of by the Debts Recovery Tribunal by the earlier order of this Court has not admittedly obtained its final adjudication. The decision of this Court directing the adjudication to be made before the Debts Recovery Tribunal itself was as per the understanding of law as stated at that time. Now the hon''ble Supreme Court has held in Rajasthan Financial Corporation and Another Vs. The Official Liquidator and Another, , that although the power of the financial institutions and the State Financial Corporation could be exercised without reference to the provisions of the Companies Act, it would still not take away the powers of the company court to supervise distribution of proceeds required to be done u/s 529A of the Companies Act. This court, had occasions to deal with interplay of the State Financial Corporations Act and the Companies Act and the powers under the Companies Act in relation to action of securiti-sation of companies under the SARFAESI in Pegasus Asset Reconstruction P. Ltd. v. Haryana Concast Ltd. decided on March 20, 2009 in C.A. Nos. 704-705 of 2008 in C.P. No. 133 of 2003 -- Pegasus Asset Reconstruction P. Ltd. Vs. Haryana Concast Ltd., . The cancellation ordered by HSSIEC could be avoided merely in defence when the cancellation is put against the company by the fact that no sanction had been obtained from the company court. Having regard to the fact that the petitioner has offered the payment of Rs. 29,74,000 which is claimed by the second respondent, it is directed to be received by the second respondent and the order of cancellation made by the second respondent is hereby set aside.

The operations of winding up are essentially to ensure that all the persons who are entitled to make the claims against the company are paid off and if there is a surplus, the money shall ultimately go to the shareholders of the company itself. Now under the scheme for revival, all the creditors are sought to be paid. The objection of the third respondent has been that offer of Rs. 2,84,431 is not adequate. According to learned Counsel appearing for the second respondent, third respondent has been prosecuting the case for nearly 20 years and the offer of payment of merely the principal with interest up to the date of the order of winding up will not be just. After all, if the winding up process is to be allowed to continue, there is no scope for obtaining payment beyond the date of order of winding up. Even now, there are no other assets than the industrial sheds and the experience of attempt of recovery by sale of the sheds through court auctioneer has been but shoddy. The offer of payment of interest up to the date of winding up is the best bargain under the circumstances. By refusing revival, the third respondent gets nothing better. I, therefore, direct that the third respondent shall get no more than what he would have got as 100 per cent, settlement of his claim, if the winding up order was to be upheld. This is most just, since the third respondent could only hope for parity in treatment with other unsecured creditors who are similarly declared entitled only to amounts as determined by the official liquidator, by working out the interest as payable only up to the date of winding up order.

The ultimate disposition shall be as follows:

(i) The official liquidator shall be paid Rs. 2,83,213 that has been incurred for the liquidation expenses comprising of watch and ward expenses, valuation expenses and misc. expenses.

(ii) The third respondent shall be paid the amount as found due in the petition for winding up from the date of order of winding up till payment. However, the petitioner has volunteered to pay Rs. 2,84,431 to the third respondent which is more than what has been determined as payable. The amount offered by the petitioner shall, therefore, be deemed sufficient and constitute a full discharge against the petitioners as well as the company.

(iii) Of the unsecured creditors enumerated in list "E" enclosed as annexure "C", they shall be paid the respective amounts as drawn up by the official liquidator.

(iv) The HSSIEC shall be paid Rs. 29,74,000 the amount due till date as per the calculations submitted by the official liquidator and found expressed in annexure R2/6.

(v) All these amounts shall be made within 15 days from the date of receipt of the order and the payments shall be made either directly or through the official liquidator or at the office of the official liquidator after serving notices of the date and time of tender. The order of cancellation of the industrial sheds purported to have been made on June 29,1993, by the second respondent is set aside but the second respondent shall be at liberty to initiate fresh action if it is permissible and in terms of allotment, after giving opportunity to show cause against any proposal for resumption for committing default in payment. The direction is so made, only to allow the terms of contract relating to allotment to be worked out in full, without reference to the company court, which does no more than declare that the cancellation made already was bad in law.

The petition for revival of the company is ordered as prayed for on the above terms. Copy of order to be issued dasri on payment of usual charges.