JUDGMENT Sunil Ambwani, J.
1. Heard Shri R.P. Agarwal, learned Counsel for the petitioner and Shri Arnab Banerjee for the Official Liquidator, U.P. and Uttaranchal.
2. Dhankari Investments Ltd., a company incorporated under the Companies Act, 1956 with its registered office at IInd Floor, Dharam Market, Section-27, Atta, NOIDA, UP (in short the company) through its Liquidator Sri V.P. Ghuliani, has filed this company petition under Section 466/518 of the Companies Act, 1956 (in short, the Act) to permanently stay the especial resolutions of voluntary winding up passed by the shareholders of the company in their meeting held on 2.6.2005; to restore the powers to the management of the affairs of the company to the directors; to permit the Liquidator to handover charge of the company to the directors and to discharge him from proceeding further with the winding up of the company and to pass such other and further orders as the Court may deem fit, to give effect to the special resolution passed by the shareholders/ contributories in their meeting held on 31.1.2006, rescinding the resolution for voluntary winding up and to commence the business of the company as well as directing the liquidator to hand over the charge of the company to its directors and if necessary file a petition in the High Court of Judicature at Allahabad under Section 466/518 and other applicable provisions of the Companies Act for seeking permanent stay of voluntary winding up of the company.
3. The company was incorporated on 18.4.1984 in the name of Charisma Investment (India) Limited and. commenced its business on 24.1.1985. The name of the company was changed to its present name i.e. Dhankari Investments Ltd. on 24.11.1994 and a fresh certificate of incorporation was issued by the Registrar of Companies, Delhi and Haryana on 24.11.1994. The company shifted its registered office to the State of U.P. after complying with the provisions of the Companies Act, vide order of the Company Law Board dated 13.3.2001 registered with the Registrar of Companies on 21.5.2001. It is mainly engaged in the business of investment and is earning profits. The latest audited balance sheet and profit and loss account of the financial year 2004-05 discloses that the company has issued, subscribed and paid up capital of Rs. 24,75,000/- (2,47,500 equity shares of Rs. 10 each, fully paid up), fixed assets of Rs. 36,13,681/-, investments of Rs. 180,35,360 and current liabilities of Rs. 3,15,212/-. The aggregate amount due to the creditors was only Rs. 55,012/- and that the company has incurred expenses of Rs. 26,916/- after the resolution for voluntary winding up was passed. The company earned profits before income tax of Rs. 5,654,566.71 for the year ended on 31.3.2005, and the earning per share (basic) is Rs. 20.97. The company is as such solvent, and is earning profits from its investment business.
4. Shri V.P. Ghuliani, the liquidator was required by the Court and has disclosed the reasons for special resolution for winding up passed by the shareholders. He states that the company acquired about 20 acres of land in the year 2004 in Village Kharar, Tehsil Budhana, District Muzaffarnagar to set up a sugar factory. An Industrial Entrepreneur Memorandum was filed with the Secretariat of Industrial Assistance, Ministry of Industry in the year 1998. The Bajaj Hindusthan Limited opposed the approval for setting up sugar factory from the Central Government. The company filed writ petition No. 54972 of 2004 in the High Court but did not succeed and withdrew the same on 21.7.2005. Having failed to set up the sugar factory one group of the shareholders pressed the Directors to sell the land. The other group opposed the move and wanted the company to consider the utilization of land for some other project. The irreconcilable differences resulted in serious acrimony, and compelled the then Directors to withdraw from the management, and that in view of these differences the special resolution was passed at a meeting on 2.6.2005 to voluntary wind up the company attended by 35.133% in number, and 61.13% of the value of the shareholders.
5. Shri V.P. Ghuliani was appointed as Liquidator with all powers under Section 512 of the Act. Notice of the resolution in accordance with Section 485(1) of the Act was published in the official gazette dated 11.6.2005. The notice of appointment of Liquidator was also given in Form No. 151 and 152 on 9.6.2005 to the Registrar of Companies and on 30.4.2005 the declaration of solvency was filed by the Directors with the Registrar of Companies completing the formalities of voluntary winding up. Shri V.P. Ghuliani, however, has not taken any further steps for dissolution of the company. He has not proceeded for sale of assets and distribution of sale proceeds.
6. It is contended that after protracted negotiations and discussions the differences between the Directors have been resolved, and that the Directors have decided to explore the possibility of some suitable new project or alternate use of land to rescind the voluntary winding up resolution and to revive the company. The resolution dated 31.1.2006 was passed unanimously in a meting attended by shareholders representing 89.18% in number and 99.05% of the total voting power.
7. Notices were issued to the Official Liquidator, U.P. and Uttaranchal and the Registrar of Companies, U.P. and Uttaranchal at Kanpur and were also directed to be published in 'Statesman' and 'Amar Ujala'. The affidavit of service publishing the notice in 'Statesman' and 'Amar Ujala' on 3.3.2006 has been filed on record on 22.3.2006. The Registrar of Companies by his letter dated 29.3.2006 has communicated to the Deputy Registrar of the Court that his office has nothing to support or oppose the petition at the hearing.
8. Shri Arnab Banerjee has filed reply of the Official Liquidator, who had nothing to comment except that since the winding up order was not passed by the Court, there is no provision in the Companies Act that empowers the Court to recall the order. Shri Arnab Banerjee, learned Counsel for the Official Liquidator after hearing the submissions of the counsel for the company submits that in case the Court finds that it has power to do so, it may stay the proceedings of voluntary winding up for a limited period and thereafter pass final order only on its satisfaction that the company has made sincere efforts to carry on its business.
9. Shri R.P. Agarwal, learned Counsel for the company states that the company is making profits and has no secured creditors. The liabilities of the company are negligible as against its assets and that after the differences between the Directors, which led to passing of the resolution for voluntary winding up in the meeting dated 2.6.2005, has been resolved, and that the shareholders of the value of 95.05% have passed unanimous resolution on 31.1.2006 to rescind the resolution to voluntary winding up the company and for its revival, the Court may exercise its powers under Section 518(1)(b) of the Companies Act, 1956, which gives power to the Court to stay the proceedings or any other matter, all or any of the power, which the Court might exercise, if the company were being wound up by the Court. According to him the powers of the Court under Section 466 to stay winding up, have been made applicable to the cases of voluntary winding up as well and that if the circumstances so justify, the Court may stay the proceeding of voluntary winding up altogether, or for a limited time on such terms and conditions as the Court thinks fit.
10. Shri R.P. Agarwal submits that the Companies Act, 1956 does not provide for rescinding the resolution passed by the members of the company to voluntary wind up the company. The company can, however, in the circumstances when it is just and beneficial to do so either bring a scheme under Section 391 of the Companies Act, 1956 for its revival or request the Court, to stay the proceedings of voluntary winding up altogether. He has relied upon Voluntary Liquidator, Dimples Pvt. Ltd. v. Registrar of Companies (Delhi High Court) (1978) 48 Company Cases 98 and V.B. Purohit v. Gadag and Jambukeshwara and Anr. (Karnataka High Court) (1984) 56 Company Cases 360. In these two cases the Delhi High Court and Karnataka High Court considered the powers of the Court to stay the winding up exercisable under Section 466 in relation to companies being wound up by the Court, to be applicable when a company is in a voluntary winding up. Relying upon East India Cotton Mills Ltd., AIR 1949 Cal 69; In re, South Barrule Slate Quarry Co. (1869) LR 8 Eq 688, In re, Titian Steamship Co. (1888) WN 17 and In re Telescriptor Syndicate Ltd. (1903) 2 Ch 174, the Delhi High Court held that there is no doubt that the Court does possess the power to stay the winding up even when it is a case of voluntary winding up. The Delhi High Court in the facts and circumstances before it held that the management and the shareholders were keen to revive the business of the company and were also willing to provide necessary funds for the business if the voluntary winding up was stayed and that since the company had no liabilities and no assets to be realized and enjoyed a lot of goodwill amongst its clients, and had facilities to start business, the circumstances were fit to justify the stay of proceedings of voluntary winding up altogether.
11. In V.B. Purohit (Supra), the Karnataka High Court relying upon the same judgments and the judgment of the Delhi High Court, found that the company had acquired the lease of limestone quarry to the extent of 255 acres of land from the Government. It was not able to get the necessary finances in spite of the best efforts of the directors and thus, the company had resolved for voluntary winding up. Some of the shareholders decided to revive the company and unanimously resolved to revive it for establishing cement plant and then to approach the High Court for stay of proceedings for voluntary winding up. It was found from the pleadings of the company that it has a lease of limestone quarry with great potential and with estimated resources of 15 million tones of limestone, the increased production of cement will be in national interest and thus allowed the proceedings to be stayed absolutely.
12. In case of winding up by or under the supervision of the Court, Section 466 of the Companies Act, 1956 provides general powers to the Courts, to stay the winding up either altogether or for a limited time and on such terms and conditions as the Court thinks fit, on an application either by the Official Liquidator or of any creditor or contributories, after making a winding up order, on proof of the satisfaction of the Court for grant of such stay. The object is to allow a company, which after an order of winding up has been able to set right the matters and to resume business, or enter into some sort of settlement or arrangement or reconstruction and wants to avoid dissolution. The Court has no jurisdiction to rescind the order of winding up passed either rightly or wrongly but it can stay the proceedings either indefinitely or for a limited period. This power, by reference in Section 518(1)(b) of the Act is applicable to the voluntary winding up as well.
13. The Court does not have much to say in the matter of members voluntary winding up, which gives the company, its contributories and creditors, to settle their affairs, without coming to the Court. The Act, however, confers limited powers to have questions determined or power exercised even in case of voluntary winding up without resorting to compulsory winding up or a supervision order. The scope of the section is, however, limited. The High Court on such an application cannot determine the questions, which primarily involve questions of facts. The resolution of voluntary winding up does not, like an order of winding up by, or under the supervision of the Court, stay the proceedings or prevent suits or proceedings brought or continued against the company without reference to the Court. The Court, however, under Sub-section (2) has powers on an application by liquidator, creditor or contributory to stay and set aside any attachment, distress or execution against the company, which has passed resolution for voluntary winding up after the commencement of the winding up. The Court will not determine the disputes between the liquidator and creditor. It may, however, interfere if the interference is for just, beneficial and effective liquidation. The expression, 'any other matter', in Sub-section (1)(b) of Section 518 not to be read ejusdem generis, to the expressions used in the same sub-section namely enforcing the calls, as many situation may arise where the Court may have to intervene on the application of liquidator, contributories or creditors in case of voluntary winding up, for just, beneficial and effective liquidation. The Court may in the special circumstances stay execution proceedings against a company in voluntary liquidation, to ensure fair distribution of the assets. The Delhi High Court and Karnataka High Court have interpreted these powers to enable the management to revive the company by permanently staying the voluntary winding up proceedings.
14. The Pennlngton's Company Law, Vth Edition compares the powers of the Court in a voluntary winding up with compulsory winding up at page 885, as under:
There is a useful provision in the Companies Act 1985, however, by which the aid of the court may be invoked in a voluntary winding up. The liquidator or any contributory or creditor may apply to the court to determine any question arising in the winding up, or to exercise any of the powers which the Court could exercise if the company were in compulsory liquidation, and the court may make such order as it thinks just. Under its jurisdiction to determine questions, the court may, for example, compel the liquidator to pay regard to the wishes of the committee of inspection or the creditors or members in exercising his powers. Under its jurisdiction to exercise the powers which it has in a compulsory winding up, the Court may stay the voluntary winding up itself, (Re Calgary and Edmonton Land Co Ltd. [1975] I All ER 1046 : [1975] 355) or may stay actions or proceedings which were pending against the company when the winding up resolution was passed, or which are brought against it thereafter, or may transfer any such pending action brought by or against the company to the Companies Court. In a voluntary winding up actions and proceedings against the company are not automatically stayed, as they are on the making of a winding up order, and so it is always necessary for the liquidator to apply to the court for an order imposing a stay. The liquidator must show good cause for the proceedings being stayed, and the court will not impose a stay if the liquidator repudiates all liability of the company to the plaintiff, for in that event if the plaintiff were remitted to proving in the winding up, the liquidator would reject his proof, and the court would have to try the issue on an appeal from the liquidator's decision. Furthermore, in no circumstances will the court stay an action by a creditor if the company is solvent, because it will not prejudice the other creditors to allow him to proceed, and the members have no justification for depriving him of his right to exact payment by obtaining judgment and levying execution in the normal way. Finally, the Court may make an order on an application in a voluntary winding up only if it would be just and beneficial to do so: this means just and beneficial to the creditors or contributories generally or, at least, to certain of them, and the court will not make an order if its only effect will be to protect directors of the company from a personal liability to a creditor by statute or otherwise.
15. The Palmer's Company Law in its 21st Edition, refers to Section 307 of the Companies Act, 1967, applicable to the companies in Great Britain Ch.75- Voluntary Winding Up, explains the power of the Court in case of voluntary winding up at page 799, as follows:
Staying proceedings The Court has power to say proceedings against the company after a voluntary winding up has commenced (s. 308 (2)). But on the principle that the plaintiff is entitled to choose his tribunal, the court will not normally order a stay of action unless the liquidator can show some sufficient reason to justify such interference, e.g., that expense will be saved, or that the existence of the liability is substantially admitted.
Staying winding up The court has power under Section 307 to stay a voluntary winding up, so that the company may resume business, and the power may be exercised, e.g., upon an arrangement with creditors. Re S.S. Titian (1885) 36 W.R. 347; Re Hafna Mining Co. (1888) 84 L.T. (o.s.) 403. The Court has no power to direct the official receiver to provide a report under Section 256(2) in a voluntary winding up.
16. Buckley on the Companies Acts, 14th Edition also explains the power of the Court under Section 307 of the Companies Act, 1948, which refers to powers under Section 226 of the Act to stay or restrain proceedings against the company after the presentation of winding up petition and before winding up order is made. The order, however, according to Buckley may be made, whenever the Court is satisfied that it will be just and beneficial.
17. The Court shall not ordinarily, in member's voluntary winding up exercise its powers as the members in such case do not choose to call the powers of the Court in aid. The members act on their own, and retain all the power with themselves except the powers, which are conferred on the liquidator appointed by them. Unlike creditors' resolution to wind up the company, the resolution of the members to voluntary wind up the company proceeds on their discretion. The members are fully conscious of the fact that in case of voluntary winding up actions, the proceedings against a company are not stayed. The Court may however in circumstances, when it is just and beneficial to do so to the creditors or contributories, make an order, if its effect is to protect the directors of the company from personal liability or a creditor by statute or otherwise. This power includes the power to stay the voluntary winding up itself altogether, when the Court is satisfied that the causes for which the voluntary winding up resolution was passed, if any disclosed to the Court, no longer exist, the company is not indebted and commercially solvent and a bonafide effort has been made to revive the company. The Court will, however, not act on a mere change of opinion of the members/ contributories and would like to be satisfied with the change in conditions in which such resolution is passed. The power should be exercised sparingly and only where it is just, beneficial and expedient to do so taking into consideration the object of formation of the company, the resolution of the differences, if any; the availability of the assets, in support of the resolution to continue with the business, and the stage at which such resolution has been passed namely that the liquidator has not proceeded to sell the assets, and to pay the creditors and contributors.
18. In the present case the company is solvent and had earned profits as on 31.3.2005. It has no secured creditors. The differences between the directors have been resolved with shareholders of the value of 95.05% have resolved to rescind the resolution of voluntary winding up. The liquidator has not proceeded any further than advertising the voluntary liquidation, notifying the Registrar of Companies and filing declaration of solvency. The company has sufficient assets including land to carry on with business to fulfill the objects of its incorporation.
19. Having considered the facts and circumstances in which the majority of the members of the company have passed a resolution to continue with the business, the assets and liability of the company and that the liquidator has not proceeded in the matter to liquidate the company so far, I find it just, beneficial and expedient to stay the proceedings of the voluntary winding up of the company initiated with a resolution in the meeting dated 2.6.2005, altogether.
20. The company petition is allowed. The voluntary winding up proceedings initiated on the member's resolution of the company dated 2.6.2005 is stayed altogether, the Directors of the company shall be restored with the powers of managing the affairs of the company, and the liquidator shall handover the charge of the company to its Directors. The liquidator shall be discharged from the proceedings. The order shall be communicated to the Registrar of Companies. There shall be no order as to costs.