IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 19.10.2011 CORAM THE HON'BLE MRS. JUSTICE R.BANUMATHI and THE HON'BLE MR. JUSTICE B.RAJENDRAN O.S.A.NO.155 OF 2011 AND M.P.NOS.1 TO 3 OF 2011 T.Narayanan ... Appellant Vs. 1.The Official Liquidator High Court, Madras as the liquidator of Sri Visalakshi Mills Private Limited (in liquidation) 2.K.R.Palaniappan, Proprietor K.R.S.A.Karuppan Chettiar & Co., No.443, K.K.Nagar, Madurai – 625 020. ... Respondents Prayer:- Original Side Appeal is filed under Order XXXVI Rule 11 of the Original Side Rules read with Clause 15 of the Letters Patent against the order dated 30.03.2011 made in C.A.No.1286 of 2010 in C.P.No.78 of 2008 on the file of this Court. For Appellant : Mr.T.R.Rajagopalan, Sr.Counsel for Mr.Anand, Abdul and Vinod Associates For Respondents : Mr.V.Prakash,Sr.Counsel for Mr.S.R.Sundar. Official Liquidator for R.1 Mr.Vijay Narayanan, Senior Counsel for Mr.R.Parthiban for R.2 Mr.N.G.R.Prasad and https://hcservices.ecourts.gov.in/hcservices/ Srinivasa Murthy for M/s.Row and Reddy for Workmen - Petitioner in Implead Petition - M.P.No.2 of 2011 Mr.Jayesh B.Dolia of M/s.Aiyar & Dola for Indian Bank - Petitioner in Implead Petition in M.P.No.3 of 2011 Mr.G.R.Lakshmanan for Dena Bank JUDGMENT R.BANUMATHI,J. Can the appellant – son of the Managing Director of the Company in liquidation seek to set aside the winding up order dated 3.12.2008 made in C.P.No.78 of 2008 invoking inherent powers of the Company Court under Rule 9 of the Companies Court Rules on the technical plea of irregularity in the advertisement of publication of the Company Petition for winding up is the question falling for consideration in this appeal, which arises out of the Order of dismissal of the application – C.A.No.1286 of 2010 (30.03.2011) preferred by the appellant. 2. The Company – Sri Visalakshi Mills Private Limited owes an amount of Rs.79.35 Crores to the secured creditors – Indian Bank, ARM, Madurai, Dena Bank, Madurai, workmen and other claims payable to E.S.I.Corporation and E.P.F.Organisation. For recovery of the amount of Rs.13,18,88,090/-, Indian Bank has initiated SARFAESI proceedings in 2004. After long drawn litigation, unit 'C' was sold in 2007. In respect of 'A' and 'B' units, the SARFAESI proceedings are pending. Earlier, the Company challenged the order of appointment of the Official Liquidator to take possession of the properties and to give police protection and the Company failed to comply with the Order of the Court made in O.S.A.No.312 of 2008. In the second round of litigation, the Company also challenged the sale of assets of the Company. In these circumstances, can the appellant claiming to be the Contributory invoke the inherent jurisdiction of the Company Court to re-agitate the matter on the ground of irregularity in the initial advertisement in the two newspapers dated 3.7.2008 and that the said irregularity in the publication in the news papers would vitiate the order of winding up (3.12.2008) are the questions to be resolved in this appeal. https://hcservices.ecourts.gov.in/hcservices/ 3. We have heard Senior Counsel Mr.T.R.Rajagopalan appearing along with Mr.Anand for the appellant. We have also heard Mr.V.Prakash, learned Senior Counsel appearing for the Official Liquidator along with Mr.S.R.Sundar and Mr.Vijay Narayan, learned Senior Counsel appearing for the 2nd respondent/petitioning creditor along with Mr.R.Parthiban. We have also heard Mr.N.G.R.Prasad, learned counsel appearing for the workmen along with Mr.Srinvasa Murthy, who filed impleading petition. We have also heard Mr.Jayesh B.Dolia, learned counsel appearing for Indian Bank and Mr.G.R.Lakshmanan, learned counsel appearing for Dena Bank. 4. Sri Visalakshi Mills private limited – Company in liquidation availed loan from Indian Bank in consortium with Dena Bank in the ratio of 52:48 in the year 1995. In 2000, Indian Bank filed original Application in O.A.No.1040 of 2000 before DRT for recovery including the claim of Dena Bank – consortium member. Notice under Section 13(2) of the SARFAESI Act was also issued in March 2004. After several rounds of litigation before DRT and in the High Court, Madurai Bench and fighting out the litigation upto the level of Supreme Court, Unit 'C' was sold and in respect of 'C' unit, Bank issued sale certificate to the auction purchaser. In November 2007, for sale of units 'B' and 'C', proceedings continues to be pending before DRT and DRAT. In these circumstances, Company Petition – C.P.No.78 of 2008 came to be filed by the 2nd respondent. 5. Factual background in brief:- C.P.No.78 of 2008:- Alleging that the Company is not in a position to pay off its debts, the 2nd respondent filed Company Petition – C.P.No.78 of 2008. On 24.6.2008, an order was passed appointing Official Liquidator as the provisional liquidator and also to take charge of the assets of the Company and advertisement was directed to be listed in the English Daily and Tamil daily and also in Tamil Nadu Government Gazette fixing the date of hearing as 22.07.2008 with 14 days clear advance notice. Publication in news papers as well as Gazette notification was effected, which was produced before the Court by Petitioning Creditor. On 22.7.2008, the Official Liquidator, who had been appointed as a provisional liquidator, had convened a meeting of the secured creditors, Ex.Directors and petitioning creditor for the purpose of taking charge of the assets. In pursuance of the Order of the Court, the provisional liquidator effected publication calling for claims against the Company. The Official Liquidator was directed to value the assets in 'A' and 'B' Units through ITCOT. 6. Direction to Official Liquidator to take possession of the properties and O.S.A.No.312 of 2008:- By the Order dated 24.9.2008, https://hcservices.ecourts.gov.in/hcservices/ the Court directed the Official Liquidator to take possession of the properties of the Company and also directed the Directors to hand over the keys of the Company and permission was granted to the Official Liquidator to break open and take possession in case of non-co-operation. As against the Order dated 24.9.2008, Company filed O.S.A.No.312 of 2008. In the appeal, the Company handed over a Cheque (dated 19.11.2008) for Rs.5,00,000/- in favour of the Petitioning Creditor and the counsel appearing for the Company took time for getting instructions for repayment of the balance amount to the Petitioning Creditor. The Cheque for Rs.5,00,000/- issued to the 2nd respondent/petitioning creditor was dishonoured for the reason “Account Closed”. Since the Order of the Court was not complied with, observing that the Company had falsely represented to the Court and issued Cheque for Rs.5,00,000/- without current account and that it is not a fit case to show indulgence in favour of the Company, the Bench has dismissed the O.S.A.No.312 of 2008 (1.12.2008). 7. Order of winding up and direction to auction:- After dismissal of the appeal, the matter came up before the single Judge and on 3.12.2008, the Court passed an order winding up the Company and appointing the Official Liquidator, who was appointed as a provisional liquidator, as Official Liquidator of the Company in liquidation. By separate order, on the same day (3.12.2008) in A.No.2107 of 2008, direction was given for sale of certain assets fixing upset price of the property at Rs.48.44 Crores. On the basis of the winding up order as well as further directions, advertisement was effected by the Official Liquidator on 17.12.2008. Thereafter a memo (19.02.2009) was filed by the counsel for the Company in liquidation that a sum of Rs.9,93,000/- was paid to the 2nd respondent/ Petitioning creditor and assured to pay the balance amount of Rs.45,015.50ps to the Petitioning Creditor. On 19.2.2009, Order was passed directing the Company to pay Rs.25,08,395/- before 4.3.2009 to the Official Liquidator towards advertisement, valuation charges and other incidental charges. On 13.4.2009, an application was filed to implead the workers through its Union. The direction of the Court to pay the amount to the Official Liquidator was not complied with. On 29.06.2009, Court passed an order directing the Official Liquidator to proceed with the sale and auction was fixed on 30.07.2009. In the meanwhile on 27.08.2009, a joint memorandum was filed by the Company in liquidation and the 2nd respondent stating that the entire amount to the 2nd respondent was settled and that the Company Petition is not being pressed. 8. A.Nos.1238 and 1239 of 2008 and O.S.A.Nos.370 and 372 of 2008:- The two applications – A.Nos.1238 and 1239 of 2008 were filed by the Company to stay all further proceedings and also to https://hcservices.ecourts.gov.in/hcservices/ set aside the auction proceedings. Both the applications came to be dismissed on 7.9.2009 and the date of auction was fixed on 10.09.2009. On 15.09.2009, sale was confirmed by the Court and consequential order was passed on 14.10.2009 allowing the Official Liquidator to hand over the properties. 9. Being aggrieved by dismissal of the applications – C.A.Nos.1238 and 1239 of 2009, the appellant preferred appeals in O.S.A.Nos.370 and 372 of 2009. Both in the applications as well as in the appeal, the appellant challenged the auction and auction proceedings mainly on the grounds that the properties are in the border of Madurai Corporation limit very near to schools and colleges and the properties are very valuable properties and that the valuation was not properly done and that the auction is vitiated on account of the error apparent on the face of the records in fixing the upset price. It was further averred that a Syndicate had been formed to knock away the property at a very low price. Yet another objection raised was that many Indian Companies, textile industries all over India and even the foreign companies have the proposal to start their Companies at Madurai and therefore global tenders should have been sought before proceeding with the auction. The grievance was that the publication made in the local dailies suffers grave irregularity. 10. Observing that there was no proper publication for the sale and that sufficient number of bidders were not present and only two bidders were present, by the Order dated 12.1.2010 in O.S.A.No.370 of 2009, Division Bench has set aside the auction sale and directed the matter to be posted before the single Judge to proceed with the sale process afresh after making necessary action. The S.L.P.Civil (C.C.7452-7454/2010) filed by the auction purchaser – True Value Homes India Private Limited came to be dismissed by Order dated 19.7.2010. 11. A.No.1286 of 2010:- In the above factual backdrop of earlier two rounds of litigations, the appellant, who is none other than the son of Managing Director of the Company in liquidation, has filed this petition seeking leave to file the application and also to set aside the order of winding up dated 3.12.2008 on the ground that he is a substantial shareholder in the Company in liquidation and that he is holding around 10 percent of total paid up capital of the Company in liquidation and is competent to maintain the petition. The appellant alleged that he is a substantial shareholder in the Company and since he was working in Bangalore he was not aware of the proceedings in relation to the winding up of the Company and that only recently he came to know that a winding up order had been passed in December 2008. The appellant further alleged that upon inspecting the records he found https://hcservices.ecourts.gov.in/hcservices/ there was material irregularities in non-compliance of the provisions of law and that the publication in Deccan Chronicle and Dina Thanthi was without cause title of the Company Petition and that the advertisement was not in the prescribed form. The appellant alleged that the advertisement is a mandatory requirement and the failure to advertise the Company Petition in a statutory form vitiates the order of winding up and that winding up order was passed without adequate opportunity to the persons interested to represent their case before the Company Court. Stating that the amount due to the 2nd respondent has also been paid, the appellant sought for setting aside the order of winding up dated 3.12.2008 made in C.P.No.78 of 2008. 12. Before the single Judge, referring to the various proceedings, the Official Liquidator has filed the report and also statement of expenses incurred by the Official Liqudiator stating that the Official Liquidator has incurred expenses to the tune of Rs.91,32,559/- towards valuation charges, professional charges and the payment to the security and other incidental expenses. The 2nd respondent – Petitioning creditor also filed an elaborate counter affidavit stating that the appellant very well knew about the pendency of the proceedings all along since his own father was defending the proceedings and that the appellant was residing at Madurai and knew that possession had been taken over by the Official Liquidator and that the appellant cannot take advantage of the trivial irregularity in the advertisement. The workmen, who filed impleading petition, also strongly opposed the application by contending that the appellant is residing along with his father – N.Thiagarajan, who was defending the Company Petition all these years and that the application has been filed only to drag on the proceedings and to evade the workmen's claim. 13. Even though the appellant claimed that he is a shareholder before the single Judge, the appellant did not produce any share certificates, but only relied upon entry in the dividend register regarding payment of dividend of Rs.33,000/-. The learned single Judge held that the appellant failed to satisfy the official liquidator that he holds 10 percent shares in the Company as claimed by him in the affidavit and inspite of the time granted by the Official Liquidator, appellant has failed to produce the primary evidence showing holding of shares by the appellant in the Company. In so far as the alleged irregularity in the publication, the learned single Judge held that the winding up order could be set aside only in the appeal by the appellate Court and not an application filed before the Company Court. The learned single Judge held that when specific remedy is available the inherent jurisdiction under Rule 9 of the Companies Court Rules cannot be invoked. The learned single Judge further observed that in any https://hcservices.ecourts.gov.in/hcservices/ event, the appellant has no proposal to revive the Company nor anything is produced as to how the appellant proposed to meet the mounting liabilities of the Company in liquidation and on those findings dismissed the application. 14. Challenging the impugned order, the learned Senior Counsel for appellant Mr.T.R.Rajagopalan has submitted that Rule 113 of Companies Court Rules in relation to the advertisement to be published in Form No.53, is one of the most important requisite of a Company Petition prior to the passing of order of winding up of the Company and the failure of advertisement of the Company Petition in compliance with the statutory form vitiates the order of winding up. It was further submitted that having noted the defect in the application, Court ought to have directed fresh publication fixing the fresh date of hearing. It was further submitted that since the order of winding up dated 3.12.2008 is in violation of the provision of the law, the appellant is entitled to invoke inherent jurisdiction of the Company Court in praying to set aside the winding up order dated 3.12.2008. Placing reliance upon a decision of the Supreme Court in NATIONAL TEXTILE WORKERS' UNION AND OTHERS VS. P.R.RAMAKRISHNAN AND OTHERS, (1983) 1 SCC 228), it was contended that “no order involving adverse civil consequences can be passed against any person without giving him an opportunity to be heard against the passing of such order and this rule of natural justice applicable to quasi-judicial and administrative proceedings would also apply to judicial proceedings such as a petition for winding up of a Company. 15. Per contra, Mr.V.Prakash, learned Senior Counsel for the official liquidator has raised strong objection as to the locus standi of the appellant as the 'contributory' in terms of Section 428 of the Companies Act. The learned Senior counsel has submitted that in terms of Section 439(1), only those persons mentioned therein are entitled to present a Petition for winding up of a Company and a person as a 'contributory' is entitled to file an application only if he satisfies the requisites of Section 439(4) (b). Learned Senior Counsel would mainly contend that only a person as a 'contributory' in terms of Section 439(4)(b), is entitled to file application relating to the winding up petition including a petition to set aside/recall the order of winding up and the appellant was not a shareholder as on date of winding up and therefore he has no locus standi to file any petition for setting aside the order of winding up. 16. Locus standi:- The appellant claims that he holds 30,000 shares in the Company and that “he is substantial shareholder in the Company in liquidation and therefore he is a 'contributory' within the meaning of the Companies Act and being a 'contributory' https://hcservices.ecourts.gov.in/hcservices/ entitled to file Petition to set aside the winding up order on the ground of defective publication. 17. It is seen from the impugned order, that when matter was pending before the single Judge, inspite of assurance to produce the share certificate before the Official Liquidator by 18.2.2011, the appellant did not produce any share certificate. Paragraph No.14 of the impugned order refers to the statement of the Official Liquidator that inspite of the time taken the appellant failed to prove by primary evidence showing his holding of shares in the Company. At the time when the matter was argued before the single Judge, the learned counsel for appellant only relied upon the entry in the dividend register regarding the payment of dividend of Rs.33,000/- to the appellant. The learned single judge held that the entry regarding payment of dividend in the dividend register is not sufficient to accept the contention of the appellant that he is the contributory. 18. When this O.S.A came up for admission, onbehalf of the appellant, learned Senior Counsel Mr.T.K.Seshadri made a request that the appellant may be permitted to inspect the Record Room to know about the availability of the share certificates. By Order dated 27.6.2011, this Court directed the Official Liquidator to permit the appellant to inspect the Record Room on 29.6.2011 in the presence of Official Liquidator as well as representatives/counsel for the secured creditors and Mr.P.Muthuraja, representative of the workmen. The Official Liquidator filed a report after the inspection of the Record Room that no share certificate was available in the name of appellant and the same was recorded in our subsequent Order dated 30.06.2011. Subsequently, when the matter was taken up for hearing on 12.7.2011, the appellant has produced two share certificates bearing Numbers from 26290 to 31289 (Share Certificate No.69) and 63410 to 67409 (Share Certificate No.71) standing in the name of L.Narayanan Chettiar and we have directed the appellant to produce the Original Certificates before the Official Liquidator and the Official Liquidator was directed to verify the same and report to the Court. After verifying the share certificates with reference to the records of the company, on 12.8.2011, Official Liquidator has filed a detailed report stating that the contention of the appellant that he held 9,000 shares of the Company in liquidation is not correct. 19. We may briefly refer to the report of the Official Liquidator refuting the contention of the appellant that he is the shareholder of the Company in liquidation. Share certificate No.69 for 5000 shares with distinctive numbers 26290 to 31289 was shown to have been transferred thrice as detailed below:- https://hcservices.ecourts.gov.in/hcservices/ Sl. No. Transferee Transferor Transfer No. Date of Registratio n 1 N.Palaniappan L.Narayanan Chettiar 8 18.12.1957 2 N.Thiagarajan N.Palaniappan 25 10.9.1980 3 T.Narayanan N.Thiagarajan 31 14.9.1990 Share Certificate No.71 for 4000 shares with distinctive nos.63410 to 67409 was issued to Sri L.Narayanan Chettiar and the shares were shown to have been transferred thrice as detailed below: Sl. No. Transferee Transferor Transfer No. Date of Registration 1 N.Palaniappan L.Narayanan Chettiar 8 18.12.1957 2 N.Thiagarajan N.Palaniappan 24 10.9.1980 3 T.Narayanan N.Thiagarajan 31 14.9.1990 20. Upon verification of share certificates, the Official Liquidator filed the report dated 12.8.2011 stating that there was no transfer of 9000 shares from N.Palaniappan to N.Thiagarajan. In support of the report, the Official Liquidator has produced xerox copy of the relevant pages of the Share Transfer Register. Share Certificate is the prima facie evidence of title of the member. When there was no transfer of 9,000 shares from N.Palaniappan to N.Thiagarajan on 10.09.1980, the question of transfer of these 9000 shares to the appellant does not arise. 21. Refuting the report of the Official Liquidator and contending that the appellant holds 30,000 shares in the Company, appellant has produced the following documents:- ● Partition Deed dated 26.03.90 evidencing allotment of 30000 shares; ● Letter dated 20.09.90 addressed by the “Company”; https://hcservices.ecourts.gov.in/hcservices/ ● Two Proceedings of the Income Tax Officer, Madurai dated 04.06.1993; ● Name of the Share holders list as on 31.04.02 given by the “Company” for renewal of factory licence; ● Dividend Register from 1970 onwards; ● Application dated 26.02.03 filed before BIFR wherein appellant was shown as a shareholder. 22. The appellant also placed reliance upon following two orders:- (i) Order dated 22.07.2010 passed in C.A.No.1254 of 2010 granting leave to the appellant to file application as a 'contributory' of the Company; (ii) Order of the Court dated 9.11.2009 in M.P.No.1 of 2009 in O.S.A.Nos.370 to 372 of 2009 in which the appellant was granted leave by the Division Bench to challenge the auction proceedings as a 'contributory' of the company. 23. In so far as the above Court orders are concerned, the Court did not go into the merits of the contentions of the appellant whether he was 'contributory' or not. Merely accepting the averments in the Petition, the Court has granted permission to the appellant to file application/appeals. While so, the appellant cannot take advantage of the orders passed in the applications. 24. In so far as the documents produced by the appellant, the documents relate to the period from 1990-2003. In terms of Section 439(1) of Companies Act, only those persons mentioned therein are entitled to present a petition for winding up of a Company. Only a person as a contributory in terms of Section 439(4)(b) is entitled to file application as petitioner relating to winding up of the Petition. In terms of Section 439(4)(b), a contributory can maintain a petition only if he has held the shares for at least six months during the eighteen months immediately before the commencement of the winding up proceedings. https://hcservices.ecourts.gov.in/hcservices/ 25. In order to file a Petition for winding up, a contributory has to satisfy the requirements of Section 439(4)(b). As per Section 439(4)(b), the name should have been registered as a shareholder for atleast six months during the 18 months immediately before the commencement of the winding up. Section 439(4)(b) reads as under:- “439. Provisions as to applications for winding up. - (1) to (3) ..... (4) A contributory shall not be entitled to present a petition for winding up a company unless— (a)..... (b) the shares in respect of which he is a contributory, or some of them, either were originally allotted to him or have been held by him, and registered in his name, for at least six months during the eighteen months immediately before the commencement of the winding up, or have devolved on him through the death of a former holder.” 26. By a reading of Section 439(4)(b), it is clear that a person has to satisfy the requirements of Section 439(4)(b) in order to be able to file a petition for winding up subject to the satisfaction of sub-section (4)(b). That is to say that he must have been a member in the Register for any six months during the eighteen months immediately preceding the winding up. As pointed out earlier, all the documents filed by the appellant relate to 1990-2003. The Company Petition was filed on 13.2.2008 and winding up order came to be passed on 3.12.2008. From December 2006, i.e., eighteen months prior to the filing of Company Petition for winding up, the appellant must have held the shares atleast for a period of six months. Absolutely no materials are forthcoming to show that the appellant held shares for six months