178 CompCas 282 (Delhi)
A petition was filed by two shareholders for winding up of the appellant-company under section 433 of the Companies Act, 1956. The company court by the impugned order admitted the petition, directed the company to be wound up and, ordered the citation to be published in the “Statesman” (English) and “Jansatta” (Hindi).
Whether the company court can order winding up of a company without ordering the petition to be advertised.
Appellant Company: The counsel relied on National Conduits (P) Ltd. v. S.S. Arora, to argue that an order for winding up cannot be passed before publishing the advertisement.
Respondent: The purpose of the advertisement is the protection of the creditors and the shareholders of the company which is the primary consideration and the fact that the company sought to be wound up was not heard before the advertisement was ordered was not relevant. There can possibly be no damage to the reputation or business of the company since its operations have been closed down.
Cases Relied on (Precedents)
- National Conduits case refers to Rule 96 of the Companies (Court) Rules, 1959 (“Company Rules”) which states that when an application for winding up is presented before the judge “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 direct that notice be given to the company before giving directions as to the advertisement of the petition. Supreme Court in this case traced the power to entertain an application by the company (that in the interest of justice or to prevent abuse of the process of the court, the petition for winding up be not advertised), to Rule 9 of the Company Rules and laid down that such an application may be made by the company even when there is an unconditional admission of the petition for winding up.
- Punjab High Court in Lord Krishna Sugar Mills Ltd. v. Smt. Abnash Kaur observed that in an appropriate case the court has the power to suspend advertisement of a petition for winding up, pending disposal of an application for revoking the order of admission of the petition.
The appellant-company was denied the opportunity to invoke the inherent powers of the court, codified by Rule 9. Quoting paragraph 26-28 from IBA Health Ltd. v. Info-Drive Systems Sdn. Bhd., the Court held that there is sufficient justification for granting an opportunity to the appellant-company to show to the company court why an advertisement should not automatically follow the admission of the petition. It can invoke the inherent powers of the court embodied in Rule 9 and it would then be for the company court to deal with the reasons shown and take a decision.
In National Conduit case (supra), the Apex Court set aside the order of the High Court of Delhi which was of the opinion that once a petition for winding-up is admitted to the file, the Court is bound to forthwith advertise the petition. The Supreme Court further held that held that the view taken by the High Court that the court must as soon the petition is admitted, advertise the petition is contrary to the plain terms of Rule 96 and 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.
Full Text is available here
Author: Adv. Vivek Verma, B.A.LL.B, NUJS, Kolkata (2008-13)
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(1967) 37 CC 786
(1961) 31 CC 587
C.A. No. 8230/2010, dated 23.09.2010