Case: M/S.Meghal Homes Pvt. Ltd Vs. Shree Niwas Girni K.K. Samiti

These appeals arise out of proceedings in the Company Court in the matter of M/s Shreeniwas Cotton Mills Limited (SCML). The Company was incorporated on 5.2.1935. It established and ran a textile mill in a land measuring 70,490 square meters in Lower Parel in the then City oflike various other textile mills located in that city, SCML also ran into difficulties. A creditor of the Company made an application C.P. No. 642 of 1983 under Section 433 of the Companies Act, for the winding up of the Company. By order dated 25.7.1984, SCML was ordered to be wound up by the Company Court. The Official Liquidator took charge of the affairs of thesignificant seems to have happened for a decade. Then, on a report of the Official Liquidator, the Company Court passed an order dated 1.9.1994 directing the Official Liquidator to issue a public notice inviting offers for the revival of the textile mills and absorption of the workmen and to purchase the assets of the Company. At that stage, Rangnath Somani, a contributory, filed Company Application No. 339 of 1994 seeking directions of the Company Court for holding a meeting of the creditors, contributories and other interested persons to consider a scheme proposed allegedly for the revival of the Company. The application was opposed. The Company Court directed the convening of the requisite meeting to consider the proposed scheme. Pending consideration thereof, the Company Court also withheld the proceedings pursuant to the public notice inviting offers. The order of the Company Court directing the convening of a meeting for the purpose of considering the scheme propounded was challenged in appeal by the workers union and three of the parties who had submitted their offers in response to the advertisement issued by the Official Liquidator pursuant to the direction of the Company Court dated 1.9.1994. Notwithstanding the pendency of the appeals, a meeting as directed by the Company Court was held and a scheme was approved by the creditors, contributories and workers. An application for sanctioning the scheme was also filed. But, meanwhile, on 4.4.1995, the Division Bench of the High Court allowed the appeal against the order dated 1.9.1994 and set aside the direction for convening a meeting to consider the scheme proposed. The Company Application filed in that behalf was thus dismissed. In the view of the Division Bench, the scheme proposed was not a bona fide one since it was not on the basis of any viability report regarding the revival of the company and there was a failure to disclose the latest financial position of the Company. The court also found that even on the showing of Rangnath Somani, the value of the land belonging to SCML would be approximately Rs. 200 crores if unencumbered and that itself was a very conservative valuation. The court was of the view that the intention behind presentation of the Scheme appeared to be to acquire the huge lands and other real estate belonging to SCML at a throw away price ostensibly in the guise of reviving the mills but with no real intention of reviving it. After the obtaining of a viability report, the Division Bench wanted the Company Judge to consider certain suggestions. TheyWhether it is possible and viable to reopen the mills and/or any portion of it and run it profitably and without disposing of immovable assets of the Company;(2) In case the mills cannot be re-started then whether any department or process of the mills could be started as viable;(3) In case any party who comes forward with an offer to pay off all the creditors, take the company out of winding up and revive and restart the mills happens to be a shareholder of the Company, such party should surrender the shareholding in the capital of the Company at the value to be determined by the Court;(4) In case above courses are not workable then whether the mills can be restarted by disposing of part of its assets to generate finance after payment to all the creditors;(5) In case even the course under clause (4) above is not possible, then the Official Liquidator may sell the assets by public auction in which even the shareholders of the Company will be at liberty tothe Division Bench emphasized what was the main object to be kept in mind by the Company Court. In that behalf, it wasis open for the learned Company Judge to give any other suitable directions in the matter keeping in mind that the whole anxiety is to revive the Company and to restart the mills which is in the interest not only of the workers and creditors of the Company but also in the general interest of public. Needless to say that the revival of the Company and restarting of the mills will generate more employment and will be for healthy economy of the country."A Petition for Special Leave to Appeal filed in this Court challenging the decision of the Division Bench as Special Leave Petition (Civil) No. 13305 of 1995 was dismissed on 10.7.1995.

Reasoning:
When a Company is ordered to be wound up, the assets of it, are put in possession of the Official Liquidator. The assets become custodia legis. The follow up, in the absence of a revival of the Company, is the realization of the assets of the company by the Official Liquidator and distribution of the proceeds to the creditors, workers, and contributories of the company ultimately resulting in the death of the company by an order under Section 481 of the Act, being passed. But, nothing stands in the way of the Company Court, before the ultimate step is taken or before the assets are disposed of, to accept a scheme or proposal for revival of the Company. In that context, the Court has necessarily to see whether the Scheme contemplates revival of the business of the company, makes provisions for paying off creditors or for satisfying their claims as agreed to by them and for meeting the liability of the workers in terms of Section 529 and Section 529A of the Act. Of course, the Court has to see to the bona fides of the scheme and to ensure that what is put forward is not a ruse to dispose of the assets of the Company in liquidationSection 392 of the Act,only gives power to the Court to make such modifications in the compromise or arrangement as it may consider necessary for the proper working of the compromise or arrangement. This is only a power that enables the court to provide for proper working of compromise or arrangement, it cannot be understood as a power to make substantial modifications in the scheme approved by the members in a meeting called in terms of Section 391 of the Act. A modification in the arrangement that may be considered necessary for the proper working of the compromise or arrangement cannot be taken as the same as a modification in the compromise or arrangement itself and any such modification in the scheme or arrangement or an essential term thereof must go back to the general meeting in terms of Section 391 of the Act and a fresh approval obtained therefor. The fact that no member or creditor opposed it in court cannot be considered as a substitute for following the requirements of Section 391 of the Companies Act for approval of the compromise or arrangement as now modified or proposed to be modified.