Rajasthan High Court - Jaipur
Falcon Gulf Ceramics Ltd. vs Industrial Designs Bureau on 22 March, 1993
Equivalent citations: AIR1994RAJ120, [1996]86COMPCAS207(RAJ), 1993(3)WLC47
JUDGMENT
K.C. Agrawal, C. J.
1. A petition, under Section 434 of the Companies Act (hereinafter to be referred to as 'the Act"), was filed by Industrial Designs Bureau for winding up of Falcon Gulf Ceramic Limited. The respondent entered into a Consultancy Services Contract with the appellant-company for layout, drawings, engineering, tender-invitation and supervision of construction of its factory, office and connected buildings of their project in Plot No. 223 to 226, Matsya Industrial Area. Desula, Alwar. The appellant-company was registered under the Companies Act vide Certificate of Incorporation No. 3461 of 1985-86 dated 29-11-1985 as a public company limited by shares. On the basis offenders received, the work for the construction of the factory, office and buildings connected with the project of the company at Alwar was awarded on 15-6-1987 to M/s. Nucon India Pvt. Ltd., a Construction Contractor. The work under consultancy services contract stood completed on 14-5-1991. Prior to submission of the final bill for consultancy work, the credit balance of the respondent with the appellant-company was Rs. 1,76,646.41 which had been outstanding since 31-1-1990.
2. The respondent gave a notice under Section 434 of the Act dated 19-5-1991 claiming the aforesaid amount. The notice was received by the appellant-company on 25-5-1991. The company wrote in reply after the receipt of the notice under Section 434 of the Act that "the Company has been incurring losses from its inception and hence, the cash flow of the Company is under heavy strain". It is added that "although efforts are afoot to arrest the losses, no significant break through has been achieved". The respondent despite the repeated request could not receive the amount due to it from the appellant-company which was as stated above in the sum of Rs. 1,76,646.41 filed the petition giving rise to the present appeal under Section 434 of the Act claiming that the appellant-company be wound up compulsorily.
3. When the petition bearing No. 12/1991 was presented in this Court, Hon'ble Mr. Justice M. B. Sharma, who was the learned Company Judge, passed the following order on 12-7-1991:
"It is a winding up petition in respect of which today under an order just now, J have already ordered that the company petition is admitted and it is directed that the notices be issued to the respondent company as to why the company petition be not advertised. I have already issued an injunction order in that case and that injunction order, in my opinion, will also safeguard the interest of the petitioner.
Connect this case with company petition No. 11 /1991 and issue notice to the respondent company returnable within two weeks as to why provisional liquidator may not be appointed."
4. The appellant-company filed a counter-affidavit asserting that the petition filed was nol bona fide having been filed with the sole object of coercing the appellant company into making payment of amounts that was not legally due or pay able, hence, the petition was liable to be rejected. The appellant-company also asserted that the claim was pre-mature and unjustifiable and there was no neglect to pay the debt due from it. The claim of the respondent was also alleged to be false.
5. The petition was, thereafter, transferred to Hon'ble Mr. Justice I.S. Israni, who became the Company Judge, who by the judgment challenged by means of this appeal, allowed the petition of the respondent filed under Section 434 of the Act directing the winding up of the appellant-company. While directing for the winding up, the learned Company Judge found that a sum of Rs. 1,76,646.41 was due to the respondent and the disputes in regard to the debt as well as the quantum raised by the appellant-company was not bona fide, as they are only manufactured to harass the respondent.
6. Against the aforesaid judgment, the present appeal has been filed. On 14-12-1992, this Court directed the appellant-company to give a bank draft of Rs. 50,000/- to the respondent and further directed respondent to furnish the bank guarantee for the said amount.
7. The learned counsel for the appellant urged that as the compliance of Rule 96 of the Companies (Court) Rules, 1959 (hereinafter to be referred to as 'the Rules') had not been made, the petition was liable to be rejected. The learned counsel urged that the learned Company Judge did not consider as to whether the petition was liable to be admitted and for advertisement to be published, the mandatory provision has not been complied with and the consequence of the same was that the order (of) winding up was illegal. The learned counsel for the appellant also referred to Rule 99 of the Rules and submitted that the advertisement had not since been made, the learned Company Judge had no jurisdiction to go into the merits of the winding up petition and direct for winding up.
8. Rules 96 and 99 of the Companies (Court) Rules, 1959 are reproduced below :
"96. Admission of petition and directions as to advertisement:-- Upon the filing of the petition, it shall be posted before the Judge in Chambers for admission of the petition and fixing a date for the hearing thereof and for directions as to the advertisements to be published and the persons, if any, upon whom copies of the petition are to be served. The Judge may, if he thinks fit, direct notice to be given to the company before giving directions as to the advertisement of the petition."
"Advertisement of petition;-- Subject to any directions of the Court, the petition shall be advertised within the time and in the manner provided by Rule 24 of these rules. The advertisement shall be in Form No. 48."
9. The learned counsel for the respondent urged that this obligation ought to have been raised before the learned Company Judge and as it had not been done, the appellant was estopped from raising it in the appeal. In the alternative, counsel contended that since the power of a court of appeal is the same as that of the first court, the appellate court can direct for the advertisement in accordance with Rule 96 of the Rules and could not be pleased in that event to set aside the order of the learned Company Judge and send the case back for trial to him, inasmuch as, to do so would be inequitable and unjust. The learned counsel urged that once a petition for compulsorily winding up of a company was admitted, the Court was not bound forthwith to advertise the petition. That being so, the Rule 96 was not mandatory and had to be held as directory.
10. We have heard learned counsel for the parties and are of the opinion that since the compliance of Rule 96 of the Rules was a must before any order of compulsorily winding up made, the order of the learned Company I Judge has to be set aside. It may be true that the Court of appeal has the same powers as the first court. We would have certainly acted on that principle had the defect been of technical nature and would have not affected the merits. The steps required by Rule 96 are of vital nature and compliance of the same appears to be mandatory. The purpose of advertisement contemplated by Rule 96 is very whole some and is meant for the benefit of all the creditors and shareholders.
11. Winding up or liquidation is the process by which the management of a company's affairs is taken out of its directors' hands and its assets are realised by a liquidator. A company may be wound up under the Companies Act by the Court on the grounds laid down in Section 433. Before the winding up proceedings are taken by the creditors, not only a petition must be served upon the company, but also it must be advertised in the manner prescribed in Rule 24 of the Rules.
12. In Halsbury's Laws of England (Fourth Edition at paragraph 1463), it has been said that non-compiiance with these provisions is a ground on which, the court shall reject the petition. An order for winding up of a company operates in favour of all the creditors and all the contributories of the company as if made on the joint petition of a creditor and of a contributory. After the order for winding up of a company is made, an application to t he Court for appointment of a provisional liquidator may be made by the petitioner or by a creditor of the company or by a contributory or by the company itself.
13. In the instant case, as stated above, Rules 96 and 99 of the Rules had not been complied with. Admittedly, the petition had not been advertised.
14. The learned counsel for the appellant urged that in the absence of advertisement of the petition, the same was liable to be rejected. For the submission made, the learned counsel relied oh a decision reported in National Conduits (P) Ltd. v. S.S. Arora (1967) 37 CC 786 : (AIR 1968 SC 279). In this case, the Supreme Court held (at page 281; of AIR):--
"When a petition is filed before the High Court for winding up of a company under the order of the Court, High Court (i) may issue notice to the company to show cause why the petition should not be admitted (ii) may admit the petition and fix a date for hearing, and issue a notice to the company before giving directions about advertisement of the petition, or (iii) may admit the petition, fix the date of hearing of the petition, and order that the petition be advertised and direct that the petition be served upon persons specified in the order. A petition for winding up cannot be placed for hearing before the court, unless the petition is advertised; that is clear from the terms of Rule 24(2). But that is not to say that as soon as the petition is admitted, it must be advertised. In answer to a notice to show cause why a petition for winding up be not admitted, the company may show cause and contend that the filing of the petition amounts to an abuse of the process of the court. If the petition is admitted, it is still open to the company to move the court that the interest of justice or to prevent abuse of the process of the court, the petition be not advertised. Such an application may be made where the court has issued notice under the last clause of Rule96, and even when there is an unconditional admission of the petition for winding up."
15. The Supreme Court further held :--
"For reasons already set out, in our judgment, the High Court erred in holding that a petition for winding up must be advertised even before the application filed by the company for staying the proceeding for the ends of justice, or to prevent abuse of the process of the court. The view taken by the High Court that the court must, as soon as the petition is admitted, advertise the petition is contrary to the plain terms of Rule 96. Such a view, if accepted, would make the court an instrument, in possible cases, of harassment and even of blackmail, for once a petition is advertised, the business of the company is bound to suffer serious loss and injury."
16. From the aforesaid decision of the Supreme Court, it is clear that advertisement was a must and in the absence of advertisement and its admission, the petition was bound to be rejected. The learned counsel for the appellant also urged that a winding up petition should not be allowed to be taken recourse of as a means to recover debts from the company. It is not a legtimate way to enforce payment of debts which are not bona fide. If such a position is entertained, the proceeding would become a weapon to pressurise. However, this is not necessary in this case. When we are allowing the appeal on the preliminary ground mentioned above, it is not necessary for us at this stage to go into the question as to whether the amount for which recovery was sought in the winding up petition was bona fide or not.
17. In the appeal, the appellant-company was directed to hand over a bank draft of Rs. 50,000/- and respondent was directed to furnish bank guarantee for the said amount. The appellant-company has complied with the order. We consider it appropriate to direct that the bank guarantee shall not be withdrawn by the respondent till further orders of the Court.
18. In the beginning, we have noted the order of the then learned Company Judge, who being of the opinion that as the company petition filed in the connected case No. 11/ 1991 had been advertised, it was not necessary to advertise the present petition. Two matters were different. Advertisement of one petition No. 11/1991 was for the purpose of that alone. The requirement of law needed advertisement of other as well. As this had not been done, the order of the learned Company Judge is liable to be set aside.
19. For what we have said above, the only course left is to set aside the order of the learned Company Judge and send the case back to him for decision after getting the winding up petition advertised in accordance with the Companies (Court) Rules, 1959.
20. In the result, the appeal is allowed.