Bombay High Court
Bipin J. Bagadia vs Grand View Estates Pvt Ltd on 22 January, 2025
Author: M.S.Sonak
Bench: M.S.Sonak
appl.421-2024 (F).docx
2025:BHC-OS:908-DB
Darshan Patil
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
APPEAL (L) NO. 421 OF 2024
IN
INTERIM APPLICATION NO. 3663 OF 2022
IN
COMPANY PETITION NO. 385 OF 2002
1. Bipin J. Bagadia, ]
Shareholder of Swadeshi ]
Mill Co. Ltd. (in liquidation), ]
Residing at 803, Alaknanda, ]
8th Floor, Neelkanth Valley, ]
Rajawadi, Ghatkopar (E), ]
Mumbai-77 ]
2. Ashish Jagmohan Mooni alias ]
Ashish Jagmohan Muni ]
Shareholder of Swadeshi ]
Mill Co. Ltd. (in liquidation), ]
Residing at, 101, Alaknanda, ]
Neelkanth Valley, Rajawadi, ]
Ghatkopar (E), Mumbai-400077 ] ...Appellants
VERSUS
1. Grand View Estates Private Limited]
A company incorporated under the]
Provisions of the Companies Act, ]
1956, Having its registered ]
address at 70, Nagindas Master ]
Road, Fort, Mumbai - 23 ]
2. The Official Liquidator of the ]
Swadeshi Mills Company Limited, ]
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having its office At Bank of India ]
Building, 5th Floor, M. G. Road, ]
Fort, Mumbai - 23 ]
3. Forbes and Co. Ltd., ]
a Company Incorporated under ]
Indian Companies Act VII of 1913, ]
having its registered Office at ]
Forbes Building, Charanjit Rai ]
Marg, Mumbai - 01 ]
4. Rashtriya Mill Mazdoor Sangh, ]
A representative Union under the ]
Provisions of the Maharashtra ]
Industrial Relations Act, 1946, ]
Having its address at Mazdoor ]
Manzil, GD Ambekar Marg, ]
Bhoiwada, Parel, ]
Mumbai - 400 012 ]
5. The Svadeshi Mills Company ]
Limited, Having registered office ]
at, Svadeshi Mills Compound, ]
Chunabhatti, Sion, ]
Mumbai - 400022 ] ...Respondents
__________________________________________________________
A PPEARANCES -
Mr Mohit Khanna, i/b Mr Vaibhav Jagdale, for the Appellants.
Mr Virag Tulzapurkar, Senior Advocate, a/w S. A. K. Najam-es-
sani, Ms Pooja Shah, i/b Maneksha & Sethna Advocates,
for Respondents No.1.
Mr Ranjiv Carvalho, a/w Smt Aparna Thipsay, for Respondent
No.2/Official Liquidator.
Mr Amir Arsiwala, a/w Mr Rahul Gupta, for Respondent Nos.3
and 5.
Mr Cyrus Ardeshir, Senior Advocate, i/b Yash Jariwala a/w
Neha Samji, for Respondent No.4.
__________________________________________________________
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CORAM : M.S.Sonak &
Jitendra Jain, JJ.
RESERVED ON : 13 January 2025
PRONOUNCED ON : 22 January 2025
JUDGMENT (Per MS Sonak J):
–
1. Heard learned counsel for the parties.
2. By order dated 02 September 2024, this appeal was
posted for final disposal at the admission stage, subject to any
overnight part-heard matters.
3. Admit. Considering the orders made from time to time
earlier and with the consent of the learned counsel for the
parties, the appeal was heard finally.
4. This appeal questions the order of 09 October 2023,
read with the order dated 21 December 2022, made by the
Company Court disposing of the Interim Application No. 3663
of 2022 made by the first Respondent under Section 466 of
the Company’s Act, 1956, and staying the proceedings for the
winding up of Swadeshi Mills Company Limited (in
liquidation) (“said company”).
5. The first and second Appellants hold 5400 and 250
shares, respectively, in the said company. The first Respondent
is a group company of the Shapoorji Pallonji Group of
Companies and has 29.29% shares in the said company. The
third Respondent is also a group company of Shapoorji
Pallonji Group of Companies and holds 22.72% shares in the
said company. Collectively, the first and third Respondents
hold 52% of the shares in this said company. The fourth
Respondent is a trade union of the erstwhile workers of the
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said company. The second respondent is the Official
Liquidator.
6. Under a reference made by the said company to the
Board for Industrial and Financial Reconstruction (BIFR), the
BIFR declared the said company as a “sick company” under
the provisions of the Sick Industrial Companies (Special
Provisions) Act, 1985 and recommended the winding up of
the said company. By a composite order dated 05 September
2002, this Court, ordered the said company to be wound up
and directed the provisional liquidator to act as the Official
Liquidator and exercise all the powers under the Companies
Act.
7. When the winding up under this Court’s order dated 05
September 2002 was in progress, the first and third
Respondents jointly filed Company Application No. 243 of
2011, seeking an order staying the winding up proceedings.
By a detailed order dated 14 October 2011, the learned
Company Judge (S C Dharmadhikari, J) rejected Company
Application No. 243 of 2011. The Appeal No. 34 of 2012
instituted by the first and third Respondents before the Appeal
Court comprising Dr D Y Chandrachud J., as his Lordship then
was, and S C Gupte J. challenging the Company Court’s order
dated 14 October 2011 was dismissed on 23 August 2013.
The Special Leave Petition against the Appeal Court’s
judgment and order dated 23 August 2013 was dismissed by
the Hon’ble Supreme Court on 23 February 2016, noting that
the Court did not find any legal and valid grounds for
interference.
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8. After about four years, the first and fourth Respondents
entered into an agreement dated 28 February 2020 and a
supplementary agreement dated 29 June 2021 concerning the
settlement of dues of the company’s ex-workmen. This was
possibly because the workmen represented by the fourth
Respondent had opposed Company Application No. 243 of
2011, instituted by the first and third Respondents, for the
stay of the winding-up proceedings.
9. Based on, inter alia, the above agreements, the first
Respondent instituted yet another Interim Application No.
3663 of 2022 sometime in 2022 under Section 466 of the
Companies Act, seeking a stay on the winding-up proceedings.
The third and fourth Respondents supported the prayers in
Interim Application No. 3663 of 2022.
10. On 21 December 2022, the learned Company Court (N J
Jamadar, J) made an order and issued the following
directions.
“(i) The Applicant in IA No.3663 of 2022 – Grand View,
shall deposit an amount of Rs.240 Crores with the Official
Liquidator within a period of six weeks from the date of
uploading of this order.
(ii) The Applicant shall file undertakings to the effect :
(a) that in case the amount of Rs.240 Crores, to be
deposited by the Applicant with the Official Liquidator,
falls short to satisfy the liabilities of the Company in
liquidation, the Applicant will deposit such further amount
as may be necessary to discharge those liabilities;
(b) that it will pay to any individual ex-worker who is not
willing to accept the amount in accordance with the
Agreement for Settlement, higher of the amount that may
be adjudicated by the Official Liquidator in accordance
with the order of the Division Bench dated 22 December5
appl.421-2024 (F).docx2015 and the amount which is payable under the
Agreement for Settlement;
(c) that it will make necessary provision for rehabilitation
of the SSP ex-workers and/or their families who are in
occupation of the residential quarters/chawls situated on
the premises of the company and also those ex-workers
and/or their families who were made to vacate the
residential quarters/chawls, as they were rendered
inhabitable and dilapidated.
(iii) The Official Liquidator shall publish a notice in two
local newspapers i.e. Free Press Journal (English) and
Navshakti ( Marathi), inviting the attention of the stake
holders of the company in liquidation to the proposal for
permanent stay of the winding up order and revival of the
company in liquidation and the aforesaid directions passed
by this Court.
(iv) Such notices be also pasted at the premises of the
company in liquidation and given to the claimants whose
names are mentioned in the list of claims Exhibit S to the
Application.
(v) The Applicant shall deposit a sum of Rs.1,00,000/-
with the Official Liquidator for the publication of the
aforesaid notices on or before 7 January 2023.
(vi) List on 8 February, 2023.
(vii) Based on the aforesaid compliances and response, if
any, the Court would consider the prayer for permanently
staying the winding up order and revival of the Company,
and consequential reliefs.”
11. The first Respondent, claiming to have complied with
the above directions, sought an order to stay the winding up
proceedings against the said company, which was the main
relief in Interim Application No. 3663 of 2022. By the
impugned order dated 09 October 2023 (Manish Pitale, J),
Interim Application No. 3663 of 2022 was allowed (paragraph
No.7); consequential directions were issued (paragraph No.8),
and even the Official Liquidator’s Report No. 149 of 2023 was
allowed in terms of prayers A, B, C and D and Official
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Liquidator’s Report No. 56 of 2022 was allowed in terms of
prayer clause E. Directions were also issued to distribute the
funds to the creditors of the said company after handing over
the company and its affairs to the first Respondent and its
reconstituted board of directors.
12. Aggrieved by the impugned order dated 09 October
2023, read with the order dated 21 December 2022, the
Appellants instituted this appeal. The order dated 01 August
2024 granted no interim relief, but directions were issued to
dispose of this appeal at the admission stage.
13. Between 01 August 2024 and the final hearing of the
appeal in January 2025, the articles and memorandum of
association of the said company were amended to enable the
said company to undertake the business of real estate,
construction and development.
14. Mr Mohit Khanna, learned counsel for the Appellants,
raised several grounds, including that the impugned order
dated 09 October 2023 does not even advert to Section 466 of
the Companies Act and the principles to be followed for
deciding such an application. He submitted that the impugned
order dated 09 October 2023 also does not take any
cognizance of the Company Court’s order dated 14 October
2011, the Appeal Court’s judgment and order dated 23 August
2013 and the Hon’ble Supreme Court’s order dated 23
February 2016, by which the Company Application No. 243 of
2011, again seeking a stay on the winding up proceedings
under Section 466 of the Companies Act was dismissed with
strong observations and findings.
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15. Mr Khanna submitted that such non-consideration
vitiates the impugned order dated 09 October 2023, even if
such order is read along with the order dated 21 December
2022. He submitted that even the order dated 21 December
2022, apart from making a cursory reference to the dismissal
of an earlier application under Section 466 of the Companies
Act, does not advert to or in any event consider the orders
made by the Company Court, Appeal Court and the Hon’ble
Supreme Court declining to stay the winding up of
proceedings on the behest of the first and third Respondents.
16. Mr Khanna submitted that even if it were to be assumed
that the principles of res-judicata would not apply to the
second application under Section 466 of the Companies Act,
still, the first Respondent was duty bound to plead and
demonstrate a change of circumstances (if any)and further,
that the findings recorded in the earlier order disposing of a
similar application under Section 466 of the Companies Act,
were no longer valid. He submitted that in all probabilities,
the orders dismissing the earlier application under Section
466 of the Companies Act were not shown by the first
Respondent to the Company Court when the impugned order
dated 09 October 2023 or the order dated 21 December 2022
was made by the Company Court. He submitted that the non-
consideration of such vital orders/material vitiates the
impugned orders. He submitted that the non-consideration of
the provisions of Section 466 and the principles based upon
which an application under Section 466 of the Companies Act
may be granted also vitiate the impugned order and the
orders.
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17. Mr Khanna submitted that the first Respondent could
not have been permitted to stay out of the winding-up
proceedings based merely on a private settlement with the
workmen or some of the company’s creditors. He submitted
that the application under Section 466 of the Companies Act
could not have been allowed based only upon such
settlements. He submitted that there were clear and
categorical findings that the first and third Respondents were
in the real estate business. Their entire objective was to
acquire the said company’s properties for real estate purposes
without facing any public auction through which the best
possible price could have been realized for the benefit of all
the company’s shareholders. He submitted that there are no
circumstances to displace the clear and categorical findings
recorded in the earlier proceedings. Accordingly, he submitted
that the impugned orders may be set aside.
18. Mr Khanna strongly relied on the orders made by the
Company Court, Appeal Court, and the Hon’ble Supreme
Court dismissing the earlier application under Section 466 of
the Companies Act and submitted that the law laid down
therein was wholly ignored in passing the impugned orders
were made. Mr Khanna also relied upon certain precedents
concerning the scope of Section 466 of the Companies Act. He
submitted that the Company Court was not even alive to the
principles laid down in the decisions.
19. For the above reasons, Mr Khanna submitted that the
impugned orders should be quashed and set aside.
20. Mr Tulzapurkar, learned Senior Advocate for the first
Respondent; Mr Amir Arshiwalla, learned counsel for the third
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and fifth Respondents; and Mr Cuyrus Ardeshir, the learned
Senior Advocate for the fourth Respondent, defended the
impugned orders based on the reasoning reflected therein.
21. The learned counsel for the above Respondents
submitted that though the impugned order dated 09 October
2023 may not have referred to the orders dismissing the
earlier application under Section 466 of the Companies Act,
the order dated 21 December 2022 did refer to the rejection
of an identical prayer in the past in paragraph 16. The
learned counsel, therefore, urged that the orders dated 21
December 2022 and 09 October 2023 must be considered
together, and based upon the same, no case is made out to
warrant interference in this Appeal.
22. The learned counsel for the above Respondents
submitted that the earlier application under Section 466 of
the Companies Act was rejected due to the opposition of the
workmen, with whom there were no agreements at the
relevant time. The learned counsel submitted that the
workman’s dues were substantially settled by Agreements
dated 28 February 2020 and 29 June 2021. They submitted
that the dues of even the other creditors were settled
significantly. Pursuant to the directions in the order dated 21
December 2022, the first Respondent deposited an amount of
Rs.240 Crores in the Court, which amount was then
distributed amongst the workmen. The learned counsel,
therefore, submitted that there was a drastic change of
circumstances since the dismissal of the earlier application
under Section 466 of the Companies Act. The learned counsel
submitted that principles of res-judicata do not apply in a
matter of this nature. In any event, given the drastic change in
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circumstances implicitly noted in the orders dated 21
December 2022 and 09 October 2023, there was no legal
infirmity in the orders made warranting interference in this
Appeal.
23. The learned counsel for the above Respondents, without
prejudice, submitted that if this Court felt that the orders
dated 21 December 2022 and 09 October 2023 may not have
articulated the principles required to be followed when
disposing of an application under Section 466 of the
Companies Act or may not have elaborately expressed their
consideration of the orders disposing of the earlier application
under Section 466 of the Companies Act, still, in the peculiar
facts of this case, this Appellate Court, could as well consider
all these matters and not interfere with the impugned orders.
24. The learned counsel submitted that since no interim
relief was granted in this Appeal, the first Respondent
consented to the disbursal of Rs.240 Crores to the workmen.
Therefore, it would be quite harsh and inequitable at this
stage to interfere with the impugned orders and set the clock
back. Accordingly, they submitted that the Appeal Court
should consider the entire material afresh and, if satisfied that
a case was made out for grant of stay under Section 466 of
the Companies Act, then refrain from interfering with the
impugned orders either because such orders contained no
reasons or that the consideration of material facts and
circumstances may not have been adequately articulated in
the impugned orders.
25. Mr Tulzapurkar referred to the discussions in paragraphs
25, 26 and 27 of the Appeal Court’s order dated 23 August
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2013. He submitted that in appropriate cases and for a good
cause, the Court may still order a stay of winding up even if
none of the three criteria for grant of stay in normal
circumstances are made out. He submitted that in the present
case, the first Respondent had shown sufficient cause for
making an exception to the normal rule regarding grant of
stay to the winding up proceedings. He submitted that this
Appeal Court should consider this case, and based upon such
consideration, this Appeal should be dismissed instead of
remanding the matter to the Company Court for fresh
consideration.
26. The learned counsel for the above Respondents
submitted that the Appellants hold a miniscule percentage of
shares in the said company. They submitted that some shares
were purchased even after an order for a winding up was
made. Accordingly, they submitted that there were no
bonafide in instituting this Appeal. The learned counsel for
the above Respondents submitted that the Appellants’
insistence about the said company carrying on the mill
business smacks of unreasonableness. They pointed out that
such a business is now banned. They submitted that the
Articles and Memorandum have been suitably amended after
following the due procedure and obtaining the consent from a
majority of shareholders present at the AGM. Accordingly,
they submitted that there is no merit in this Appeal.
27. Mr Tulzapurkar also submitted that the Company
Court’s order dated 14 October 2011 has been merged with
the Appeal Court’s Judgment and Order dated 23 August
2013. He also submitted that the Hon’ble Supreme Court’s
order dated 23 February 2016, by which the SLP was
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dismissed, does not constitute a merger. Based on this, Mr
Tulzapurkar submitted that we should not even look into the
Company Court’s order dated 14 October 2011 or consider the
findings recorded therein.
28. For all the above reasons, the learned counsel for the
above Respondents submitted that this Appeal may be
dismissed.
29. No submissions were made on behalf of the Official
Liquidator.
30. Mr Khanna, by way of rejoinder, pointed out that even
the first and third Respondents had purchased shares in the
said company after the winding up order. He submitted that
the entire endeavours of the first and third Respondents, who
were well-known builders and real estate developers, was to
acquire the said company’s prime properties for a throwaway
price, thereby prejudicing the company’s remaining
shareholders. He submitted that the findings to this effect
were recorded while dismissing the earlier application under
Section 466 of the Companies Act. There is no change of
circumstance to re-visit such findings.
31. Mr. Khanna, therefore, submitted that this Appeal ought
to be allowed and that the impugned orders be set aside.
32. The rival contentions now fall for our determination.
33. The impugned orders are made in Interim Application
No.3663 of 2022 in Company Petition No.385 of 2002 (on
Pages 258 to 450 of the Compilation of Documents).
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34. On perusing the said application, we find that the first
Respondent has mainly stressed the settlements with the
erstwhile workers and secured and unsecured creditors of the
said company. The first Respondent pointed out that together
with the third Respondent, they owned around 52% of the
total shareholdings of the said company, and if the company is
out of liquidation, even the remaining shareholders would
benefit from the process. The first Respondent has referred to
its incurring security charges and offering to pay liquidation
costs.
35. In the Interim Application No.3663 of 2002, the first
Respondent also referred to the public interest involved in
reviving the said company. Here, the first Respondent has
pleaded that the revival of the said company will allow the re-
development of chawls located on its lands and the re-
development of the land, which will lead to the construction
of low-cost housing by MHADA as per law. There is also a
statement that erstwhile workers would be entitled to
participate and apply for these low-cost housing units, a
portion of which will also be offered free of cost to eligible
erstwhile workers. The first Respondent also stated that it
proposes establishing and operating a textile educational
institution on the company’s property.
36. The first Respondent has also referred to ” future
business” that could be undertaken after the revival of the
said company. Again, the emphasis is on diversifying its
business activities into other fields, ” including real estate
development”. The first Respondent has explained how
continuing the company’s earlier business of manufacturing
textiles is no longer feasible. The first Respondent has
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reiterated how the company can utilize its immovable
property “for the purposes of real estate development as per
law” and how the first Respondent, being a part of the
Shapoorji Pallonji Group, which has expertise in real estate
business, is competent to guide the company in undertaking
real estate development.
37. The first Respondent also offered to deposit
approximately Rs.240 crores within ninety days of an order
passing for the permanent stay of winding up of the said
company. This amount could then be used to clear certain
immediate liabilities of the said company. The first
Respondent admitted that the company’s total liability as of
31 March 2022 was approximately Rs.1100.52 crores.
38. The first Respondent, along with the Interim Application
No.3663 of 2022, annexed several exhibits and charts.
However, though a reference was made in paragraph 23 about
the dismissal of the earlier application under Section 466 of
the Companies Act, the copies of the orders of the Company
Court, Appeal Court and the Hon’ble Supreme Court rejecting
the said application do not appear to have been annexed.
Only leave was sought to refer to and rely upon the papers
and proceedings of the Company Application No.243 of 2011,
order dated 14 October 2011 and further proceedings arising
out of the same.
39. The first Respondent’s central prayer in Interim
Application No. 3663 of 2022 was for a permanent stay on the
order dated 05 September 2005, by which the said company
was ordered to be wound up. For this, the first Respondent
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had invoked the provisions of Section 466 of the Companies
Act.
40. Accordingly, reference is necessary to the provisions of
Section 466 of the Companies Act, which read as follows: –
“466. Power of Tribunal to stay winding up.-(1) The Tribunal
may at any time after making a winding up order, on the
application either of the Official Liquidator or of any creditor
or contributory, and on proof to the satisfaction of the
Tribunal that all proceedings in relation to the winding up
ought to be stayed, make an order staying the proceedings,
either altogether or for a limited time, on such terms and
conditions as the Tribunal thinks fit.
(2) On any application under this section, the Tribunal
may, before making an order, require the Official Liquidator
to furnish to the Tribunal a report with respect to any facts or
matters which are in his opinion relevant to the application.
(3) A copy of every order made under this section shall
forthwith be forwarded by the company, or otherwise as may
be prescribed, to the Registrar, who shall make a minute of
the order in his books relating to the company.”
41. The principles based on which an application under
Section 466 of the Companies Act ought to be decided were
summarized by the learned Single Judge of the Calcutta High
Court in Neelkantha Kolay Vs. The Official Liquidator1 in the
following terms: –
“23 ….
“Therefore, from the above principles which have been
summarised in different authorities and the decision referred
to hereinbefore it appears that the discretion for stay under
Section 466 can only be exercised by the Court (1) if the
Court is satisfied on the materials before it that the
application is bonafide; (2) the Court would be guided by the
principles and definitely come to the finding that the
principles are applicable to the facts of a particular case; (3)
mere consent of all the creditors for stay of winding up is not
1
AIR 1996 Calcutta 17116
appl.421-2024 (F).docxenough; (4) that offer to pay in full or make satisfactory
provisions for the payment of the creditors is not enough; (5)
Court will consider the interest of commercial morality and
not merely the wishes of the creditors and contributories; (6)
Court will refuse an order if there is evidence of misfeasance
or of irregularity demanding investigation; (7) a firm had
accepted proposal for satisfying all the creditors must be
before the Court with material particulars; (8) the
jurisdiction for say can be used only to allow in proper
circumstances a resumption of the business of the Company;
(9) the Court is to consider whether the proposal for revival
of the company is for benefit of the creditor but also whether
the stay will be conducive or detrimental to commercial
morality and to the interest of the public at large; (10) before
making any order Court must see whether the Ex-Directors
have complied with their statutory duties as to giving
information to the Official Liquidator by furnishing the
statement of affairs; (11) and any other relevant fact which
the Court thinks fit to be considered for granting or not
granting the stay having regard to the peculiar facts of a
particular case.”
42. The learned Single Judge of the Calcutta High Court
relied upon the decision of another learned Single Judge,
Justice S. R. Das (as His Lordship then was), in the matter of
East Indian Cotton Mills Ltd2.
43. Nilkanta Kolay (Supra) was reiterated in Mahabir
Prasad Agarwalla v. Ashkaran Chattar Singh3. The Courts have
held that bonafide must be established before a stay on
winding up proceedings can be granted. Mere consent of the
creditors or an offer of full payment to them is insufficient.
The Court must consider the interests of commercial morality,
not merely the wishes of the creditors or contributories. The
jurisdiction to stay can be used to revive the company or its
business and not merely for the benefit of its creditors. This
jurisdiction certainly cannot be used to acquire immovable
2
AIR 1949 Calcutta 69
3
(1980-81) 85 CWN 581
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properties or assets of the company at some throwaway price
or at a price that bears no proportion to the price that the
liquidator could have obtained at a free, fair, transparent
public auction.
44. Both the decisions of the Calcutta High Court were
followed by the Company Court in this matter (S. C.
Dharmadhikari, J) when dismissing the earlier application
under Section 466 of the Companies Act vide order dated 14
October 2011. In paragraph 29, the learned Company Judge
broadly summarised the principles to be adopted while
dealing with an application under Section 466 of the
Companies Act. Paragraph 29 of the Company Court’s order
dated 14 October 2011 reads as follows: –
“29. Thus, the broad principles are that the Court must be
satisfied on the materials before it that the application is
bonafide, mere consent of all creditors for stay of winding up
is not enough; that offer to pay in full or make satisfactory
provisions for payment of the creditors is not enough; the
Court will consider the interest of commercial morality and
not merely the wishes of the creditors and contributories; the
Court will refuse an order if there is evidence of misfeasance
or of irregularity demanding investigation; the jurisdiction for
stay can be used only to allow in proper circumstances a
resumption of the business of the company and the Court is
to consider whether proposal for revival of the company is for
the benefit of the creditor but also whether the stay will be
conducive or detrimental to commercial morality and to the
interest of the public at large; any other relevant fact which
the Court thinks fit be considered for granting or not granting
the stay having regard to the peculiar facts in a particular
case also would govern the exercise of the power.”
45. The Company Court, in its order dated 14 October 2011,
while rejecting the earlier application under Section 466,
observed that public interest, commercial morality and
corporate responsibilities are not alien concepts in the era of
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globalisation, liberalisation and privatisation. So therefore, the
Courts must apply the above principles and be vigilant and on
guard against any action by which its control over companies
as envisaged by the statute, particularly when companies
under liquidation, are sought to be interfered with. The
Company Court held that it could not permit, even by the
exercise of discretion, any shareholder or creditor to carry
forward a scheme or proposal by which the matter gets out of
its hands and control altogether.
46. The Company Court, in its order dated 14 October 2011,
also made the following significant observations: –
“When an order of winding up is passed by a Court and an
Liquidator is appointed to manage and administer the
affairs of a company, the matter comes under supervision
and control of the company Court. Parties who have a
vested interest and particularly in valuable assets and
properties of the company in liquidation will always make
an attempt to get out of the clutches of the company Court
so as to have a free hand in dealing with the assets and
properties of the company. The erstwhile directors,
shareholders and other stake-holders including influential
secured creditors would be interested in either putting an
early end to the affairs of the company in liquidation or by
taking advantage of the delay seek to take charge or
intermeddle in the affairs and matters relating to winding
up in an indirect or oblique manner. The very purpose of
the Act is defeated if such attempts are allowed to succeed.
Section 447 of the Companies Act, 1956 states that an
order for winding up of a company shall operate in favour
of all the creditors and all the contributories of the
company as if it had been made on the joint petition of a
creditor and of a contributory.” (See para 33)“As held by the Hon’ble Supreme Court, the
Company Court cannot take a narrow and pedantic view of
the matter and proceed on the basis that the company is
the property of the shareholders and it is their wish which
has to be given effect to. Similarly, it is only the interest of
the shareholders and the creditors which has to be borne
in mind. The larger role that has now been highlighted19
appl.421-2024 (F).docxmakes it abundantly clear that a company is a social
institution. It is not the interest of those who invest their
money in a company which has primacy or they alone have
to be placed in the forefront. Once the society as a whole
has a stake in a company, then, the company Court cannot
overlook that aspect, for it would be shirking its duty and
ignoring public interest. The company Court has to keep
public interest and public good in the forefront as well.
Therefore, while exercising its powers under section 466,
the company Court cannot do anything which shakes the
confidence of the public at large in the functioning or
working of the company Court or that of the Liquidator.
Once commercial morality and corporate responsibility are
inbuilt in the administration and management of
companies, then, these principles would have to be applied
even by the company Court. We, in India, follow the
principle and philosophy emphasised by the Father of
Nation, namely, “Commerce Without Morality is a Social
Sin”. The company Court cannot permit any arrangement
or scheme or grant any relief which would defeat public
interest or would contravene public policy. Ultimately,
whether it is a compromise between conflicting stake
holders or persons having same interests, when it comes to
winding up the affairs of a company, the Court must
necessarily act for public good and in public interest. If the
discretion vested in the company Court is not exercised on
sound judicial and social principles, then, people at large
would lose faith in the administration of justice itself. They
would carry an impression that the company Court places
its seal of approval on any arrangements or schemes
brought before it by interested parties, mechanically.”(See
para 37)“What is further interesting and relevant to note is,
that the Supreme Court frowned upon an arrangement
which was of a like nature. There, Supreme Court was
considering the correctness of the view taken by the
Division Bench under which it permitted modification or
replacement of an earlier scheme. That earlier scheme
envisaged revival of the company in liquidation. However,
the modifications that were suggested in the compromise
or arrangement envisaged not revival, but taking over of
the lands of the company which was carrying on identical,
viz., textile business and placing them in the hands of
developers and builders, namely, M/s. Lodha Builders Pvt
Ltd. The said M/s. Lodha Builders Pvt Ltd were not at all
interested in revival of the company or its business by20
appl.421-2024 (F).docxtaking over the undertaking of the company as a going or
running union. It was interested in starting an industry of
its own in that property. This was not approved by the
Supreme Court as a modification in the scheme necessary
for proper working of the compromise or arrangement
earlier arrived at. This was a substitution of the scheme
itself. Therefore, unless the scheme with the modifications
was placed before the general body by reconvening the
meeting in terms of section 391 of the Act, the
modification could not have been sanctioned, was the view
taken by the Supreme Court. Therefore, howsoever
laudable the object may be, the company Court cannot
approve an arrangement by which the assets of the
company in liquidation are disposed off or taken over by
some private arrangement and to put it more clearly by
circumventing the company Court itself. The Court even in
matters of sections 391 to 394 and 466 of the Companies
Act, 1956 has to take into consideration the aspect of
public interest, commercial morality and the intention to
revive the company.” (See para 39)
47. Apart from laying down the above principles and
observations, in the precise context of Company Application
No. 243 of 2011 filed by the first and third Respondents, the
Company Court, in its order dated 14 October 2011, held the
following:-
“I will have to test the present application and the request
of the applicants therein on the touchstone of the above
principles. All discretion has to be exercised judiciously
and not arbitrarily. The Court cannot pick and choose
shareholders and creditors. The Court cannot in the garb
of conflicting claims of workers or because of any rift inter-
se between them, allow the claims of the said workers and
other creditors to be compromised or defeated altogether.
Ultimately, the applicants may claim to be shareholders
and substantial secured creditors, but if the purpose in
presenting this application is to enable them to take over
the company’s properties and assets which are indeed
valuable at a price or value which they unilaterally
determine, then, that cannot be permitted. A careful
scrutiny of this application would reveal that what the
applicants are projecting is, that they have the necessary
wherewithal and strength. The applicant No.1 claims to be
a promoter, secured creditor and unsecured creditor of the21
appl.421-2024 (F).docxcompany in liquidation. It has projected that it alongwith
its wholly owned subsidiary owns 17,64,430 shares of the
company in liquidation constituting 22.70% of the total
equity shares of the company in liquidation, whereas the
applicant No.2 owns 22,83,210 equity shares of the
company constituting 29.29% of the total shareholding of
the company in liquidation. On the own showing of the
applicants, applicant No.2 has acquired this shareholding
after the winding up order. Therefore, they may be owning
in aggregate about 52% of the total equity shares of the
company, they may claim to be vitally interested in its
affairs as well, but they are part of a distinct group of
companies, viz., Shapoorji Pallonji Group which is not in
textile business admittedly. That group is in the business of
Construction, Infrastructure and Real Estate Development
Business.” (See para 40)“The initiative alongwith available immovable
properties of the company together, offer a favourable
platform for the company to undertake real estate
development operation. Now, if para 7 of the affidavit in
support, which is reproduced herein above is carefully
perused, it is apparent that the applicants do not desire to
revive the business of the company in liquidation by
developing part of its properties or portions of its lands,
but desire to take over the said lands for exploitation in the
real estate market. It is clearly their motive that these
lands should be taken over without offering the market
price, but via this application so that once the permanent
stay of winding up is obtained or granted, that would
mean that the company’s prime assets and properties can
no longer be controlled by the Court. They would develop
these lands by constructing buildings and sell off the units
therein and earn profits.” (See para 41)“However, the desire to cash on the lands with a
view to fully exploit their potential is not matched with the
same approach as far as the creditors of the company. By
not reviving the company after taking it out of winding up
shows that the applicants are primarily concerned with the
benefits attached to these lands. By exploiting and utilising
them to their advantage, the applicants are not agreeable
to the Liquidator and the Court controlling their actions in
interest of all creditors and general public. The business
opportunities on account of spiraling prices in the Real
Estate Market is the only attraction for the applicants. The
proceeds and gains from such opportunities ought to have22
appl.421-2024 (F).docxbeen shared by them with all. However, that is not their
intent, is clear from their stand. If these lands are sold by
the Official Liquidator under the supervision of this Court
and at open, fair and transparent public auction, the
applicants may not stand any chance and hence they desire
to obtain the lands at a throwaway price by a back-door
method. That is the sole intent in making this application.
By invoking sympathy of some creditors and stating that
the monies to meet the claims of the workers would be
brought in immediately, what the applicants are seeking to
do is to take away entire proceedings in winding up from
the supervision and control of this Court. They may make
give or seek some concessions here and there. However,
their object is not to run the business of the company in
liquidation. They have not brought anything on record by
which it could be conclusively held that textile
manufacturing business is altogether prohibited or not
permitted in the Island city. In fact, if the affidavit in
support is perused carefully, it is evident that the Shapoorji
Pallonji Group is interested in the lands of this textile
company and if they have to obtain the same at public
auction or by bidding at a sale of this land and assets of
the company in liquidation under the aegis of the
Liquidator and pursuant to the sanction of this Court, they
may not be able to acquire these lands. Thus, to avoid
participation at a public auction and at a sale which will be
conducted in a transparent and fair manner, that the
application has been filed. The applicants have not come
out with a positive case that business of the company in
liquidation cannot be revived at all. They do not say that
the textile business cannot be carried on or is totally
prohibited. They claim that it is not practicable and
feasible to carry on such business. However, it is their
perception. The Liquidator has not come forward with any
conclusive or decisive report on this aspect. In such
circumstances, if all the above tests and principles are
applied, it is evident that this company application is filed
for seeking a stay of the winding up not for revival of the
company’s business or to smoothen the process of
liquidation and winding up, but to take over the company
itself in an indirect and oblique manner. There is substance
in the objection of Ms.Cox that this is a take over of the
company without recourse to the provisions in law
enabling such take over and particularly sections 391, 392
to 394 of the Act. To by pass and avoid compliance with
such provisions, that this application is filed. Once such is
the motive, then, the enormity of the funds, the applicants23
appl.421-2024 (F).docxare willing to pump in, the schemes or arrangements of
settlement of the dues of creditors, cannot persuade this
Court to grant any discretionary relief to them and prevent
the Liquidator from proceeding to wind up the company in
accordance with law. If ultimately it is impossible to revive
the company, then, it is better that the Liquidator carries
on its affairs till the dissolution of the company. It is only
through the mechanism and participation of the Liquidator,
that the Court can ensure settlement of claims of the
secured and unsecured creditors in accordance with law.”
(See para 42)
48. After explaining the principles that should guide a
Company Court in deciding application under Section 466 of
the Companies Act and after recording clear and categorical
findings that the first and third Respondents, who are a part
of the Shapoorji Pallonji Group, were only interested in
acquiring the said company’s immovable properties at a
throwaway price and by a backdoor method by taking away
the entire proceedings in winding up from the supervision and
control of the Court, the Company Court, dismissed the
application under Section 466 of the Companies Act.
49. The Company Court also held that if the affidavits of the
first and third Respondents were perused carefully, it was
evident that it was the Shapoorji Pallonji Group that was
interested in the lands of the said company, and if they had to
obtain such lands at a public auction or by bidding at a sale of
these lands and assets of the said company in liquidation
under the aegis of the liquidator and pursuant to the sanction
of the Company Court, they may not be able to acquire these
lands. Thus, to avoid participation at a public auction and at
the sale, which would be conducted transparently and fairly,
the application under Section 466 was filed. The Court held
that once this was found to be the motive for filling the
24
appl.421-2024 (F).docx
application under Section 466 of the Companies Act, then the
enormity of the funds that the first and third Respondents had
stated that they were willing to pump in, could not persuade
the Company Court to grant any discretionary relief and
displaced the liquidator from proceeding to wind-up the
company in accordance with the law.
50. The Company Court, in its order dated 14 October 2011
also referred to the interplay between Sections 391 to 394 and
Section 466 of the Companies Act. The Company Court held
that there was no incongruity in looking into the aspect of
public interest, commercial morality and the bonafide
intention to revive a company while considering whether a
compromise or an arrangement put forward in terms of
Section 391 of the Companies Act should be accepted or not.
Accordingly, the Court saw no conflict in applying the
provisions of Sections 391 to 394 and Section 466 of the
Companies Act and in harmoniously construing them.
51. The Company Court, after considering the matter
involving M/s Lodha Builders Pvt Ltd and noticing that the
builders were not at all interested in the revival of the
company or its business by taking over the undertaking of the
company as a going or a running concern but the real interest
was in acquiring the property of the company for real estate
exploitation, held that such attempts should not be allowed to
pass muster. The Company Court also held that howsoever
laudable the object may be; the Company Court cannot
approve an arrangement by which the assets of the company
in liquidation are disposed of or taken over by some private
arrangement and, to put it more clearly by circumventing the
Company Court itself. The Court held even in matters of
25
appl.421-2024 (F).docx
Section 391 to 394 and 466 of the Companies Act, the Court
must consider the aspects of public interest, commercial
morality and the intention to revive the company.
52. In all probabilities, despite vague contentions to the
contrary, we suspect that the Company Court’s order dated 14
October 2011 and the strong observations therein concerning
precisely the first and third Respondents and their attempt to
stay the winding up proceedings with the intent to obtain the
said company’s immovable properties, without having to go
through the process prescribed under Sections 391 to 394 of
the Companies Act or without having to purchase such
property in free, fair and transparent auction proceedings that
the Official Liquidator would be obliged to hold, was not
brought to the notice of the Company Court when the
Company Court made the impugned order dated 09 October
2023 and for that matter the order dated 21 December 2022.
If this order were brought to the notice of the Company Court,
we are quite sure that at least the same would have been
referred to and some attempt made to distinguish the same
before allowing the application under Section 466 of the
Companies Act.
53. The Company Court’s detailed order, running into 68
pages, was challenged by the first and third Respondents by
instituting Appeal No. 34 of 2012. By yet another detailed
order that ran into almost 24 pages, the Appeal Court upheld
the Company Court’s order dated 14 October 2011 and
dismissed the Appeal.
54. Mr Tulzapurkar’s contention that since the Company
Court’s order dated 14 October 2011 had merged with the
26
appl.421-2024 (F).docx
Appeal Court’s judgment and order dated 23 August 2013, we
must not even “look into or refer the Company Court’s order
dated 14 October 2011” cannot be accepted. This is more so
because the Appeal Court, in its judgment and order dated 23
August 2013 clarified that its non-interference with the
Company Court’s order dated 14 October 2011 was not on the
ground that the view taken by the Company Court was merely
“a possible view” but the Appeal Court held that the view was
“the only correct view” based on the facts and circumstances
of the case.
55. It was not as if any execution was claimed based on the
merged order dated 14 October 2011 or that there was a
variance between the original and appeal Court order on a
principle or facts. We believe the two orders could not have
been lightly ignored or departed from unless some significant
circumstance variation was pleaded and established. Perhaps
a chance was taken after settling the worker’s demands and
hoping that none of the parties would point out the contents
of the earlier orders. Therefore, to now say that we must not
even look at the Company Court’s order dated 14 October
2011 for any purpose is not a suggestion that appeals to us in
the facts and circumstances of this case.
56. In the above regard, we refer to paragraph 17 of the
Appeal Court’s order, which reads as follows: –
“17. Now it is in this background that the court would have
to consider whether the exercise of the discretionary
jurisdiction of the company court under Section 466 has to be
interfered with in appeal. At the outset, it must be noted that
this Court in appeal is not called upon to determine in the
first instance as to whether a case was made out for the
exercise of the discretion under Section 466 but whether the
judgment of the learned Single Judge would warrant27
appl.421-2024 (F).docxinterference in appeal, based on well settled principle of law
that the court in the exercise of its jurisdiction under Clause
15 of the Letters Patent would not interfere with an order of
the learned Single Judge even if the learned Single Judge has
taken a possible view. The judgment of the learned Single
Judge is, in our view, not merely a possible view to take but
the only correct view based on the facts and circumstances of
the case.”
57. The Appeal Court also discusses, in some detail, the
scope and import of Section 466 of the Companies Act and the
principles on which the Company Court would exercise its
powers to stay the proceedings in winding up either
altogether or for a limited time on such terms and conditions
as it thinks fit. The Appeal Court has held that Section 466(1)
confers a discretion on the Court and not a mandate. The
discretion must be exercised on the satisfaction that a stay of
the proceedings in relation to winding up ought to be granted.
The legislature has carefully used the expressions “on proof to
the satisfaction” and “ought to be stayed”. Before the Court
grants a stay, the statutory requirement is that there must be
proof brought before the Court based on which it is satisfied
that the proceedings ought to be stayed.
58. The Appeal Court referred to several decisions of the
English Courts and the Indian Courts interpreting provisions
like Section 466 of the Companies Act. Reference was made to
an early decision of Lord Esher, M.R., speaking for the Court
of Appeal in Re Flatau4.
“The judgment of the Court of Appeal followed an earlier
decision in re Hester5 which had laid down the rules for a
rescission of a receiving order in bankruptcy. In that context,
Lord Esher had held as follows:
4
1893 (2) Queen’s Bench 219
5
22 Q.B.D. 63228
appl.421-2024 (F).docx“18-A. In the Court of Appeal, Lord Esher, M.R., stated
(p.639):
“Although the consent of all the creditors has
been obtained, the Court will still consider whether
what they have agreed to is for the benefit of the
creditors as a whole. The Court has gone still further,
and, I think rightly so, and has said that under the
present Bankruptcy Act it will consider not only whether
what is proposed is for the benefit of the creditors, but
also whether it is condusive or detrimental to
commercial morality and to the interests of the public at
large; and they will take into consideration the position
of the bankrupt with regard to his creditors, and see
whether what is proposed will not place his future
creditors, who must come into existence immediately, in
a position of imminent danger. The Court has said this
before, and I adhere to it now.”
Fry, L.J., observed (at p. 641):
‘We are not only bound to regard the interests of the
creditors themselves, who are sometimes careless of
their best interests, but we have a duty with regard to
the commercial morality of the country.”
(emphasis supplied)
The same principle was followed in the subsequent
decision in Flatau by Lord Esher, M.R. while holding
that even though the present creditors are fully satisfied
and are entirely indemnified, the court must yet
consider as to whether its jurisdiction should be
exercised. This principle was subsequently followed in a
judgment of Buckley J. in re Telescriptor Syndicate Ltd.6
Buckley, J held as follows :
“I have here to see whether it is proved to my
satisfaction that all proceedings in relation to
this winding-up ought to be stayed. I decline
to say that I am satisfied as to that by the
mere fact that since the winding-up order
was made the assent of all the creditors and
of a large majority of shareholders has been
obtained.”
6
1903 2 Chancery Division 174
29
appl.421-2024 (F).docx
59. The Appeal Court also referred to a more recent
judgment in the UK, Megarry, J., in Re Calgary and Edmonton
Land Co. Ltd. (In Liquidation)7.
“Under Section 256 itself the court
“may … on proof to the satisfaction of the court that all
proceedings in relation to the winding up ought to be stayed”
make an order for the stay “on such terms and conditions as
the court thinks fit.”
Quite apart from any authority (and I may mention In re
Telescriptor Syndicate Ltd. [1903] 2 Ch. 174) this language
seems to me to make it abundantly clear that the jurisdiction
is discretionary, and that it lies on those who seek a stay to
make out a sufficient case for it. In particular, the words
“satisfied,” “just and beneficial,” “satisfaction of the court”
and “ought to be stayed” seem to me to indicate that the
applicant for a stay must make out a case that carries
conviction.”
(emphasis supplied)”
60. The Appeal Court also referred to and approved the
decision of Justice S R Das (as the learned Judge then was) in
the matter of East India Cotton Mills Ltd (supra). The Appeal
Court also referred to the Hon’ble Supreme Court’s decision in
Sudarsan Chits (I) Ltd Vs. G. Sukumaran Pillai & Ors 8 in
which it was held that an order of stay under Section 466 is to
place the order of winding up in a state of suspended
animation. In other words, despite the grant of the stay, the
order of winding up continues to exist but is rendered
inoperative. The Appeal Court also referred to the decision in
Mahavir Prasad Agarwala (supra) in which the principles for
exercising discretion under Section 466 had been
summarized.
7
1975 1 W.L.R. 355
8
AIR 1984 SC 1579
30
appl.421-2024 (F).docx
61. The Appeal Court also referred to the decision of the
Delhi High Court in Shyam S. Rastogi Vs. Nona Sona Exports
P. Ltd.9 dealing with the importance of the role of the
Company Court in relation to the exercise of discretion while
ordering a stay of winding up:-
“Company court is not a mere conduit pipe or stamping
authority to whatever scheme that may be laid before it. Not
unoften, motivations in the moving of such schemes are
oblique. It is in fact for the court to first look at the scheme
whether it has any strength or merits of its own and is
financially viable or a mere attempt to take back the affairs
and the assets of the company which had been earlier
perforce taken over at the time of winding up. In my
considered opinion, there is no scheme worth giving a trial
which has been put forth by the applicant and, therefore, has
to be rejected.”
62. The Company Court also referred to a decision of the
Gujarat High Court in Shaan Zaveri and Others vs. Gautam
Sarabhai (P) Limited10, which emphasised the principle that
mere creditors’ consent is not sufficient to grant a stay under
Section 466 of the Companies Act.
63. The Appeal Court, after explaining the principles on
which the Company Court must act when dealing with an
application under Section 466 of the Companies Act,
considered the facts of the present case in some detail in
paragraphs 18, 19, 20, 21, 22, 23 and 24 of its judgment and
order dated 23 August 2013. The Appeal Court, in its
judgment and order dated 23 August 2013, appears to have
rejected the first and third Respondents’ contention that when
the court exercises its discretion for the purposes of Section
466, what is postulated is the revival of the corporate
9
1986 59 Company Cases 832
10
(2010) I Company Law Journal 74 (Guj.)
31
appl.421-2024 (F).docx
existence of the company, and not necessarily the revival of
the business activity, which the company carried on before its
liquidation.
64. The Appeal Court held that the law laid down by the
Supreme Court does not support such a proposition as a
matter of principle. But even as a matter of first principle, it
was not possible to accept the submission at a near revival of
the corporate existence of the erstwhile company in
liquidation, which would be sufficient for the intervention of
the court to grant a stay on winding up. The Court held that
once the stay is issued under Section 466, that would
necessarily result in the revival of the corporate existence.
Hence, that, itself, is not sufficient for the exercise of
discretion. When winding up has been ordered under the
direction of the Court, the provisions of Section 466 mandate
that the Court must be satisfied on proof that an order of stay
ought to be granted. These words place an affirmative duty
and obligation on the Court to consider several aspects of the
case, not just the interests of the creditors in determining as to
whether an order of stay should be granted.
65. The Appeal Court considered in detail the decision of
the Hon’ble Supreme Court in the case of M/s Meghal Homes
Pvt. Ltd. Vs. Shree Niwas Girni K.K.Samiti & Ors 11 in which it
was held the Company Court was bound to consider whether
the liquidation was liable to be stayed for a period or
permanently while adverting to the question whether the
scheme is one for the revival of the company or that part of
the business of the company which it is permissible to revive
11
AIR 2007 SC 3079
32
appl.421-2024 (F).docx
under the relevant laws or whether it is a ruse to dispose of
the assets of the company by private arrangement. If it comes
to a later conclusion, then it is the duty of the Court in which
the properties are vested on liquidation to dispose of the
properties, realise the assets and distribute them following the
law.
66. The Appeal Court thwarted the attempt of the first and
third Respondents to distinguish the judgment of the Hon’ble
Supreme Court in the case of Meghal Homes Pvt. Ltd. (supra)
by giving cogent reasons in paragraph 22 of its judgment and
order dated 23 August 2013. Applying the test enunciated by
the Supreme Court in Meghal Homes Pvt. Ltd. (supra), the
Appeal Court held that the exercise of discretion by the
Company Court was correct and proper. The Appeal Court
also held that the object of the company application was not
to revive the company’s business, but its whole purpose was to
dispose of the assets by embarking upon real estate
construction and development.
67. The Appeal Court considered in detail the judgment of
Megarry J. in Re Calgary (supra). It held that this decision
was a clear authority for the proposition that in normal
circumstances, no stay should be granted of winding up unless
each member (1) either consents to it; (2) or is otherwise
bound not to object to it, (3) or else there is secured to him
the right to receive all that he would have received had the
winding up proceeded to its conclusion. The expression ” in
normal circumstance” in this formulation also recognises that
in an appropriate case and for a good cause, the Court may
still order a stay of winding up even if none of the three
33
appl.421-2024 (F).docx
criteria are met. But that still requires a sufficient cause to be
made out to the satisfaction of the Court to make an exception
to the normal rule. At the very minimum, this would indicate
that the non-existence of any of these conditions is an
important criterion that would contribute to the exercise of
discretion by the Court on an application for a stay of winding
up.
68. The Appeal Court noted that the formulation of Megarry
J. in Re Calgary (supra), was accepted in a judgment of this
court delivered by Mrs Justice Sujata Manohar (as the learned
judge then was) in Vasant Investment Corporation Ltd. Vs.
Official Liquidator, Colaba Land and Mill Co. Ltd.12.
69. In paragraph 27 of its judgment and order dated 23
August 2013, the Appeal Court made the following significant
observations in the context of the provisions of Sections 391
to 394 of the Companies Act.
“27 That brings us to the last aspect of the present
appeal. In the present case, all the shareholders of the
erstwhile company in liquidation did not join in the
application for stay of winding up nor have they consented
to it. Learned Senior Counsel appearing on behalf of the
Appellants had, in fact, during the course of hearing
submitted that the Appellants were unaware of and had no
material available to them at present of how the other
shareholders would respond when a meeting is called. In a
situation such as the present, where all the shareholders
have not been joined in the application for the stay of an
order of winding up, it would be more appropriate if the
company court were to be moved by way of an application
for reconstruction under Section 391 to take the company
out of winding up. In such a case, the members of the
company have an opportunity to consider and vote on a
proposal and the company court has the benefit of the
commercial wisdom of the members (3/4th of them in
value) and would still consider the aspects of commercial
12
(1981) Volume 51 Company Cases 2034
appl.421-2024 (F).docxmorality and public interest in order to bind the dissenting
minority while sanctioning the scheme. The Appellants
have clearly shied away from doing that. Without
mustering a 3/4th majority, the Appellants want the court
to stay winding up so as to interfere with the proprietary
interest of a substantial percentage of members (48%)
without placing any material before the court in regard to
the exercise of preference by that substantial body of
shareholders. This, in our view, would clearly be
impermissible.”
70. Thus, the observations in paragraph 27 of the Appeal
Court’s judgment and order suggest that in a situation such as
the present one, where all shareholders have not been joined
or joined in the application for a stay of an order of winding
up, it would be more appropriate if the Company Court were
to be moved by way of an application for reconstruction,
under Section 391 to take the company out of winding up. In
such a case, the members of the company would have an
opportunity to consider and vote on the proposal, and the
Company Court has the benefit of the commercial wisdom of
the members, (3/4 of them in value) and would still consider
the aspects of commercial morality and public interest in
order to bind the dissenting minority while sanctioning the
scheme.
71. The Appeal Court noted that the first and third
Respondents “have clearly shied away from doing that.
Without mustering a 3/4 majority, the Appellants want the
Court to stay winding up so as to interfere with the
proprietary interest of a substantial percentage of members
(48%) without placing any material before the Court in
regard to the exercise of preference by that substantial body
of shareholders. This, in our view, would be clearly
impermissible”.
35
appl.421-2024 (F).docx
72. After explaining the principles governing the exercise of
discretion under Section 466 of the Companies Act and
applying those principles, the Appeal Court dismissed the
appeal against the Company Court’s order dated 14 October
2011 because there was no merit in the appeal. A Special
Leave Petition against the Appeal Court’s judgment and order
between 03 August 2013 was also dismissed by the Hon’ble
Supreme Court on 23 February 2016.
73. As noted earlier, we suspect that the Company Court’s
order and the strong observations therein, the Appeal Court’s
judgment and order dated 23 August 2013 and the reiteration
of the strong observations therein and the order of the
Hon’ble Supreme Court dated 23 February 2016 were not
brought to the notice of the Company Court when the learned
judges of the Company Court made their orders dated 21
December 2022 and 09 October 2023. If these judgments and
orders had been brought to their notice, we are sure they
would have been considered and discussed by the learned
judges before the impugned orders were made.
74. The parties’ vague reference to earlier applications being
dismissed due to the workmen’s resistance was insufficient.
The copies should have been annexed, and the judgments and
orders should have been explicitly brought to the Company
court’s attention. Since the first Respondent was seeking a
discretionary order under Section 466 of the Companies Act,
it was their duty to have placed copies of such judgments and
orders before the Company Court and not merely rest content
by the pleading in paragraph No. 23 of the Interim
Application No. 3663 of 2022 and after that, craving leave of
36
appl.421-2024 (F).docx
the Court to refer to and rely upon the papers and
proceedings of the earlier application and the orders made
therein. In Dabriwala Vanijya Udyog Ltd. v. Alka Dalmia13, a
stay of the winding-up order was obtained by suppressing
material facts, and the reasons for the grant of the stay order
were not recorded. The stay order was set aside.
75. We get an impression that the first Respondent took
advantage of the fact that there was no opposition to the
application under Section 466 of the Companies Act after
settling the matters with the workers’ union and some
creditors. It was the duty of the first respondent not only to
have placed the copies of the Company Application No. 243 of
2011 (earlier application) and the orders made by the
Company Court, Appeal Court and Hon’ble Supreme Court
before the Company Court at the time when the Company
Court was persuaded to make the orders dated 21 December
2022 and 09 October 2023.
76. Mr Tulzapurkar submitted that the order dated 21
December 2022 does contain a reference to the earlier
application and the orders made therein. For this, he referred
to paragraph No.16 of the order dated 21 December 2022,
which reads as follows: –
“16. Apart from the workers, none participated in the
instant proceedings. Having regard to the huge potential of
the assets of the company in liquidation, and the claims
which have been made by the government agencies like
MHADA, in my view, it is imperative that the Court has full
assurance that the rights of the parties who have the stake
of the winding up order is passed. An identical prayer, in
the past, came to be rejected upto the Supreme Court,
albeit on account of resistance by some workers.
13
(2010) 154 Com cases 131
37
appl.421-2024 (F).docxTherefore, to provide an opportunity to the Applicant to
establish its bonafide, it may be expedient to pass an order
calling upon the Applicant to make deposit and file
requisite undertakings and direct the Official Liquidator to
publish a notice inviting the attention of all the stake
holders to the proposal to permanently stay the winding
up order and revive the Company.”
77. From the aforesaid, we cannot decipher whether the
copies of the Company Court, Appeal Court and Hon’ble
Supreme Court orders, which would have included strong
observations made therein, were placed before the Company
Court. There was no clear answer to this issue. In any event,
even if we were to hold that such orders were placed before
the Company Court, there is nothing to suggest that the
Company Court considered such orders. The earlier
application’s rejection was not only due to the worker’s
resistance. That may have been one of the considerations. The
company court and the appeal Court recorded far weightier
reasons supporting the rejection.
78. At least regarding the Company Court’s order dated 21
December 2022, we understand that the Company Court, at
that stage, had merely issued some directions to test the
financial capacity of the first Respondent. Therefore, the order
dated 21 December 2022 (made by N J Jamadar, J.) stipulates
that “based on the aforesaid compliances and response, if any,
the Court would consider the prayer for permanently staying
the winding up order and revival of the company, and
consequential reliefs”.
79. Therefore, it could be argued that the non-application of
the various principles required to be applied when considering
an application under Section 466 of the Companies Act may
38
appl.421-2024 (F).docx
not be very relevant. Similarly, it could be argued that the
non-consideration of the orders dismissing the earlier
application, and the strong observations may not be relevant
at that stage. However, this argument could not have been
raised when the Interim Application was finally heard and
disposed of by order rated 09 October 2023. At that stage, it
was necessary to apply all the principles set out in the various
decisions of this Court, Calcutta High Court, and the Supreme
Court. Further, since the orders made by the Company Court,
Appeal Court and Hon’ble Supreme Court were highly
relevant to exercising discretion one way or the other, the
same should have been considered before making the order
dated 09 October 2023.
80. The impugned order dated 09 October 2023 refers to no
principles governing the discretion to stay proceedings in
winding up on an application under Section 466 of the
Companies Act. The Company Court’s order dated 14 October
2011, the Appeal Court’s order dated 23 August 2013 and the
Hon’ble Supreme Court’s order dated 23 February 2016 is not
even adverted to, much less considered. The impugned order
only refers to the compliance of the directions issued in the
orders dated 21 December 2022 and, based upon the same,
allows the application under Section 466 and passes various
consequential orders. Thus, the principles governing the
evaluation of a stay application were not noticed and applied
at either stage.
81. Again, we suspect that the Company Court’s order dated
14 October 2011, the Appeal Court’s order dated 23 August
2013, and the Supreme Court’s order dated 23 February 2016
39
appl.421-2024 (F).docx
were not even shown to the learned Company Judge when he
made the order dated 09 October 2023. Otherwise, we see no
reason why such relevant and material orders were not even
discussed in the impugned order dated 09 October 2023. At
that stage, we note that there was no opposition to the first
Respondent’s application under Section 466. Still, since the
first Respondent was invoking the Court’s discretion under
Section 466 of the Companies Act, it was the first
Respondent’s duty to have invited the Court’s attention to the
binding precedents explaining the scope and import of Section
466 and the principles to be adopted by the Court when
exercising discretion and under Section 466 of the Companies
Act.
82. Similarly, it was the duty of the first Respondent to have
shown the Company Court the orders made on the Company
Application No. 243 of 2011 and the further proceedings
therein because most of the observations in such orders were
most relevant and material even for deciding the Interim
Application No. 3663 of 2022. After showing all this material,
it was, no doubt, open to the first Respondent and the other
supporting Respondents to attempt to distinguish the orders
or make out the case of a change of circumstances. However,
no such case was made out either in the Interim Application
No.3663 of 2022 and any discussion on the aspect of change
of circumstances, etc., is not even reflected in the orders dated
21 December 2022 and 09 October 2023.
83. Mr Tulzapurkar referred to the first Respondent’s case
falling within the exceptions referred to by Megarry J. in Re
Calgary (supra). As noted earlier, the said decision is a clear
40
appl.421-2024 (F).docx
authority for the proposition that “in normal circumstances no
stay should be granted of winding up, unless each member,
(1) either consents to it; (2) or is otherwise bound not to
object to it; (3) or else there is secured to him, the right to
receive all that he would have received had the winding up
proceeded to its conclusion.” Therefore, if the first respondent
was confident that its case fell within the exception from the
normal circumstances, then it was for the first Respondent to
have made out an exceptional case, firstly in the pleadings,
and then by placing adequate material on record regarding
the exceptional circumstances. Since the attempt before the
Appeal Court was to rely upon the exception, the first
Respondent had a very significant burden to discharge. At
least from the reading of Interim Application No. 3663 of
2022, we do not think any circumstances based on which the
normal rule could be deviated were pleaded, let alone
established.
84. At least prima facie, the only change of circumstance
that is pleaded and, to some extent, established is the
settlement of the worker’s dues. To some extent, some
pleadings and material about the creditors’ settlement exist.
However, as was repeatedly emphasised, mere settlement of
the creditors or workers does not entitle any party to a stay of
the winding up proceedings under Section 466 of the
Companies Act. That may be one of the considerations, but
surely, that could not be the sole consideration. In ARC
Holdings Ltd. v. Rishra Steels P. Ltd.14, the Court found that the
stay application did not address the gaps it had pointed out
while rejecting an earlier similar application. It held that the
14
(2010) 157 Com Cases 364 (Cal)
41
appl.421-2024 (F).docx
application was not so much for the revival of the company as
for distributing its assets through private arrangements.
85. The aspects of public interest, commercial morality, and
intention to revive the company are relevant, and all these
matters have not been considered in the impugned orders.
There are findings while rejecting the earlier application for a
stay that the first and third Respondents were never genuinely
interested in reviving the company’s business, but this was
only a ruse for acquiring the said company’s properties for
their real estate business.
86. The earlier orders specifically noted that the Shapoorji
Pallonji Groups, of which the first and third Respondents are
group companies, were interested in acquiring the properties
of the said company at a throwaway price without facing a
free, fair and transparent public auction that the Court would
have supervised. At least, Interim Application No.3663 of
2022 contains no pleadings to dispel or vary these findings. At
the cost of repetition, we add that the failure to annex copies
of the Company Court’s order dated 14 October 2011, the
Appeal Court’s judgment and order dated 23 August 2013 and
the Hon’ble Supreme Court’s order dated 23 February 2016
was the cause due to which the Company Court could make
the impugned orders without adverting to the principles
governing the exercise of discretion under Section 466 of the
Companies Act and also perhaps oblivious of the strong
observations concerning the first and third Respondents and
their attempt to acquire the said company’s immovable
properties at a throwaway price without free, fair and
42
appl.421-2024 (F).docx
transparent auction process that the Official Liquidator would
have held under the supervision of the Court.
87. The Appeal Court, in its judgment and order dated 23
August 2013 at paragraph 27, has noted that where all the
shareholders have not been joined in the application for the
stay of an order of winding up, it would be more appropriate
if the company court was to be moved by way of an
application for reconstruction under Section 391 to take the
company out of winding up. Despite such precise observations
and even though, in the Interim Application No.3663 of 2022,
not all shareholders have been joined, the impugned order has
stayed the winding up proceedings so that the first and third
Respondents are now in complete control of the assets of the
said company. This was, as observed in paragraph 27 of the
Appeal Court’s judgment and order, without evidence of the
first Applicant mustering a 3/4th majority. The shareholding
of the first and third Respondents comes to 52%. This means
that a substantial percentage of members (i.e. 48%) are not
involved in the process.
88. All this was possible, perhaps only because the Appeal
Court’s judgment and order was not shown to the Company
Court. Suppose the orders made by the Company Court,
Appeal Court and Hon’ble Supreme Court were to be shown
to the Company Court. In that case, we believe that no stay
would have been granted to the winding up process by
exercising discretion under Section 466 of the Companies Act.
Even the liquidator’s report has not sufficiently addressed the
concerns in the previous orders or opined any substantial
change in material circumstances. At least the liquidator
43
appl.421-2024 (F).docx
should have specifically invited the Court’s attention to the
strong observations in the earlier orders of the company court
and the appeal Court.
89. There is no question of this Court for the first time
considering the materials on record and deciding whether the
discretion should be exercised for grant of stay under Section
466 of the Companies Act. Perhaps, on the ground that there
was no substantial change of circumstances or that no
material was placed on record to displace the strong findings
recorded regarding the motives of the first and third
Respondents, we would have declined to exercise our
discretion and stayed the proceedings under Section 466 of
the Companies Act. But that is, to some extent, besides the
point. The impugned orders deserve to be set aside for failure
to consider vital material in the form of the order dated 14
October 2011, the judgment and order dated 23 August 2013
and the Hon’ble Supreme Court’s order dated 23 February
2016.
90. The impugned orders will also have to be set aside
because they do not even refer to the principles governing
discretion under Section 466 of the Companies Act. The
impugned orders contain no reasons why the discretion was
exercised for staying the winding up proceedings and whether
any case was made out by the Applicants based on which it
could be said that the stay ought to be granted. The impugned
orders will have to be set aside because they do not consider
binding precedents, including the law laid down by the
Appeal Court in its judgment and order dated 23 August
2013.
44
appl.421-2024 (F).docx
91. For all the above reasons, we allow this Appeal and
quash and set aside the impugned orders dated 09 October
2023 and 21 December 2022. The stay on the winding-up
proceedings of the said company is dissolved. Consequently,
the winding-up proceedings, which were in abeyance, revive.
The orders for the appointment of the liquidator also revive.
The orders concerning the liquidator’s reports were also
consequential to or in the context of the stay application.
Since the impugned orders on the stay application are
dissolved or set aside, such orders on the liquidator’s reports
would also not survive. Interim Applications, if any, would not
survive and the same are disposed of.
92. After arguments, Mr Tulzapurkar submitted that if this
Court allows the Appeal, the stay on the winding-up
proceedings should be continued for a reasonable period so
that the Respondents can challenge our judgment and order.
He pointed out that the first Respondent had already
deposited Rs.240 Crores in the Court, which has already been
disbursed to the workers.
93. The amount was deposited before the impugned order
dated 9 October 2023 was made. The disbursal was subject to
the orders in this appeal. Therefore, no equities as such could
be claimed. There would have been no difficulty continuing
the stay for, say, four weeks. However, if the stay on the
winding-up proceedings is continued. In that case, the Official
Liquidator may be powerless to exercise any control over the
assets and properties of the said company. The first and third
Respondents, who now appear to be in control of the said
company, could then fritter away the assets and immovable
45
appl.421-2024 (F).docx
properties without any restriction and control. Also, we are
not made aware of the financials of the said company and the
extent to which the first and third respondents have dealt
with the company’s properties and assets. Therefore, we are
hesitant to continue the stay on the winding up proceedings,
and that too, unconditionally.
94. Suppose the relief applied for by the first Respondent is
refused. In that case, all that will happen is that the affairs
and the properties of the said company would revert to the
Official Liquidator and remain custodia legis. If there is
anything that the first and third Respondents wish to achieve
specifically, it is always open to them to apply to the Company
Court and obtain suitable orders. But a blanket continuance of
the stay on the winding up proceedings, as was prayed, would
not be in the interest of the said company or its remaining
shareholders, who have, under the stay, been left out from the
process. Accordingly, the request for the unconditional
continuance of the stay on the winding-up proceedings is
denied.
95. Now that we have set aside the impugned orders, we
direct the Official Liquidator to forthwith re-take charge of the
affairs of the said company and its assets, properties, etc., on
the usual terms. The first and third Respondents, or those in
control of the company’s affairs, must desist from agreeing to
sell, convey, encumber, or otherwise deal with the company’s
immovable properties without the leave of the company court.
96. Nothing in this order will preclude any party from filing
a fresh application under Section 466 of the Companies Act
after complete disclosures and after annexing all relevant
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appl.421-2024 (F).docx
documents, judgments, and orders. If such an application is
made, we are sure that it will be considered in accordance
with the law and the principles that govern the discretion to
grant a stay under Section 466 of the Companies Act.
(Jitendra Jain, J) (M. S. Sonak, J)
Signed by: Darshan Patil
Designation: PA To Honourable Judge 47
Date: 22/01/2025 11:15:53