T.Narayanan v. The Official Liquidator High Court, Madras

Srinivasa Murthy for M/s.Row and Reddy for Workmen - Petitioner in Implead Petition - M.P.No.2 of 2011 Mr.Jayesh B.Dolia of M/s.Aiyar & Dola for Indian Bank - Petitioner in Implead Petition in M.P.No.3 of 2011 Mr.G.R.Lakshmanan for Dena Bank JUDGMENTR.BANUMATHI,J.Can the appellant – son of the Managing Director of theCompany in liquidation seek to set aside the winding up order dated3.12.2008 made in C.P.No.78 of 2008 invoking inherent powers of theCompany Court under Rule 9 of the Companies Court Rules on thetechnical plea of irregularity in the advertisement of publicationof the Company Petition for winding up is the question falling forconsideration in this appeal, which arises out of the Order ofdismissal of the application – C.A.No.1286 of 2010 (30.03.2011)preferred by the appellant.2. The Company – Sri Visalakshi Mills Private Limited owes anamount of Rs.79.35 Crores to the secured creditors – Indian Bank,ARM, Madurai, Dena Bank, Madurai, workmen and other claims payableto E.S.I.Corporation and E.P.F.Organisation. For recovery of theamount of Rs.13,18,88,090/-, Indian Bank has initiated SARFAESIproceedings in 2004. After long drawn litigation, unit 'C' was soldin 2007. In respect of 'A' and 'B' units, the SARFAESI proceedingsare pending. Earlier, the Company challenged the order ofappointment of the Official Liquidator to take possession of theproperties and to give police protection and the Company failed tocomply with the Order of the Court made in O.S.A.No.312 of 2008. Inthe second round of litigation, the Company also challenged thesale of assets of the Company. In these circumstances, can theappellant claiming to be the Contributory invoke the inherentjurisdiction of the Company Court to re-agitate the matter on theground of irregularity in the initial advertisement in the twonewspapers dated 3.7.2008 and that the said irregularity in thepublication in the news papers would vitiate the order of windingup (3.12.2008) are the questions to be resolved in this appeal. https://hcservices.ecourts.gov.in/hcservices/

3. We have heard Senior Counsel Mr.T.R.Rajagopalan appearingalong with Mr.Anand for the appellant. We have also heardMr.V.Prakash, learned Senior Counsel appearing for the OfficialLiquidator along with Mr.S.R.Sundar and Mr.Vijay Narayan, learnedSenior Counsel appearing for the 2nd respondent/petitioning creditoralong with Mr.R.Parthiban. We have also heard Mr.N.G.R.Prasad,learned counsel appearing for the workmen along with Mr.SrinvasaMurthy, who filed impleading petition. We have also heard Mr.JayeshB.Dolia, learned counsel appearing for Indian Bank andMr.G.R.Lakshmanan, learned counsel appearing for Dena Bank. 4. Sri Visalakshi Mills private limited – Company inliquidation availed loan from Indian Bank in consortium with DenaBank in the ratio of 52:48 in the year 1995. In 2000, Indian Bankfiled original Application in O.A.No.1040 of 2000 before DRT forrecovery including the claim of Dena Bank – consortium member.Notice under Section 13(2) of the SARFAESI Act was also issued inMarch 2004. After several rounds of litigation before DRT and inthe High Court, Madurai Bench and fighting out the litigation uptothe level of Supreme Court, Unit 'C' was sold and in respect of 'C'unit, Bank issued sale certificate to the auction purchaser. InNovember 2007, for sale of units 'B' and 'C', proceedings continuesto be pending before DRT and DRAT. In these circumstances, CompanyPetition – C.P.No.78 of 2008 came to be filed by the 2ndrespondent. 5. Factual background in brief:- C.P.No.78 of 2008:- Alleging that the Company is not in aposition to pay off its debts, the 2nd respondent filed CompanyPetition – C.P.No.78 of 2008. On 24.6.2008, an order was passedappointing Official Liquidator as the provisional liquidator andalso to take charge of the assets of the Company and advertisementwas directed to be listed in the English Daily and Tamil daily andalso in Tamil Nadu Government Gazette fixing the date of hearing as22.07.2008 with 14 days clear advance notice. Publication in newspapers as well as Gazette notification was effected, which wasproduced before the Court by Petitioning Creditor. On 22.7.2008,the Official Liquidator, who had been appointed as a provisionalliquidator, had convened a meeting of the secured creditors,Ex.Directors and petitioning creditor for the purpose of takingcharge of the assets. In pursuance of the Order of the Court, theprovisional liquidator effected publication calling for claimsagainst the Company. The Official Liquidator was directed to valuethe assets in 'A' and 'B' Units through ITCOT. 6. Direction to Official Liquidator to take possession of theproperties and O.S.A.No.312 of 2008:- By the Order dated 24.9.2008, https://hcservices.ecourts.gov.in/hcservices/ the Court directed the Official Liquidator to take possession ofthe properties of the Company and also directed the Directors tohand over the keys of the Company and permission was granted to theOfficial Liquidator to break open and take possession in case ofnon-co-operation. As against the Order dated 24.9.2008, Companyfiled O.S.A.No.312 of 2008. In the appeal, the Company handed overa Cheque (dated 19.11.2008) for Rs.5,00,000/- in favour of thePetitioning Creditor and the counsel appearing for the Company tooktime for getting instructions for repayment of the balance amountto the Petitioning Creditor. The Cheque for Rs.5,00,000/- issued tothe 2nd respondent/petitioning creditor was dishonoured for thereason “Account Closed”. Since the Order of the Court was notcomplied with, observing that the Company had falsely representedto the Court and issued Cheque for Rs.5,00,000/- without currentaccount and that it is not a fit case to show indulgence in favourof the Company, the Bench has dismissed the O.S.A.No.312 of 2008(1.12.2008). 7. Order of winding up and direction to auction:- Afterdismissal of the appeal, the matter came up before the single Judgeand on 3.12.2008, the Court passed an order winding up the Companyand appointing the Official Liquidator, who was appointed as aprovisional liquidator, as Official Liquidator of the Company inliquidation. By separate order, on the same day (3.12.2008) inA.No.2107 of 2008, direction was given for sale of certain assetsfixing upset price of the property at Rs.48.44 Crores. On the basisof the winding up order as well as further directions,advertisement was effected by the Official Liquidator on17.12.2008. Thereafter a memo (19.02.2009) was filed by the counselfor the Company in liquidation that a sum of Rs.9,93,000/- was paidto the 2nd respondent/ Petitioning creditor and assured to pay thebalance amount of Rs.45,015.50ps to the Petitioning Creditor. On19.2.2009, Order was passed directing the Company to payRs.25,08,395/- before 4.3.2009 to the Official Liquidator towardsadvertisement, valuation charges and other incidental charges. On13.4.2009, an application was filed to implead the workers throughits Union. The direction of the Court to pay the amount to theOfficial Liquidator was not complied with. On 29.06.2009, Courtpassed an order directing the Official Liquidator to proceed withthe sale and auction was fixed on 30.07.2009. In the meanwhile on27.08.2009, a joint memorandum was filed by the Company inliquidation and the 2nd respondent stating that the entire amountto the 2nd respondent was settled and that the Company Petition isnot being pressed.8. A.Nos.1238 and 1239 of 2008 and O.S.A.Nos.370 and 372 of2008:- The two applications – A.Nos.1238 and 1239 of 2008 werefiled by the Company to stay all further proceedings and also to https://hcservices.ecourts.gov.in/hcservices/ set aside the auction proceedings. Both the applications came to bedismissed on 7.9.2009 and the date of auction was fixed on10.09.2009. On 15.09.2009, sale was confirmed by the Court andconsequential order was passed on 14.10.2009 allowing the OfficialLiquidator to hand over the properties.9. Being aggrieved by dismissal of the applications –C.A.Nos.1238 and 1239 of 2009, the appellant preferred appeals inO.S.A.Nos.370 and 372 of 2009. Both in the applications as well asin the appeal, the appellant challenged the auction and auctionproceedings mainly on the grounds that the properties are in theborder of Madurai Corporation limit very near to schools andcolleges and the properties are very valuable properties and thatthe valuation was not properly done and that the auction isvitiated on account of the error apparent on the face of therecords in fixing the upset price. It was further averred that aSyndicate had been formed to knock away the property at a very lowprice. Yet another objection raised was that many Indian Companies,textile industries all over India and even the foreign companieshave the proposal to start their Companies at Madurai andtherefore global tenders should have been sought before proceedingwith the auction. The grievance was that the publication made inthe local dailies suffers grave irregularity. 10. Observing that there was no proper publication for thesale and that sufficient number of bidders were not present andonly two bidders were present, by the Order dated 12.1.2010 inO.S.A.No.370 of 2009, Division Bench has set aside the auction saleand directed the matter to be posted before the single Judge toproceed with the sale process afresh after making necessary action.The S.L.P.Civil (C.C.7452-7454/2010) filed by the auction purchaser– True Value Homes India Private Limited came to be dismissed byOrder dated 19.7.2010.11. A.No.1286 of 2010:- In the above factual backdrop ofearlier two rounds of litigations, the appellant, who is none otherthan the son of Managing Director of the Company in liquidation,has filed this petition seeking leave to file the application andalso to set aside the order of winding up dated 3.12.2008 on theground that he is a substantial shareholder in the Company inliquidation and that he is holding around 10 percent of total paidup capital of the Company in liquidation and is competent tomaintain the petition. The appellant alleged that he is asubstantial shareholder in the Company and since he was working inBangalore he was not aware of the proceedings in relation to thewinding up of the Company and that only recently he came to knowthat a winding up order had been passed in December 2008. Theappellant further alleged that upon inspecting the records he found https://hcservices.ecourts.gov.in/hcservices/ there was material irregularities in non-compliance of theprovisions of law and that the publication in Deccan Chronicle andDina Thanthi was without cause title of the Company Petition andthat the advertisement was not in the prescribed form. Theappellant alleged that the advertisement is a mandatory requirementand the failure to advertise the Company Petition in a statutoryform vitiates the order of winding up and that winding up order waspassed without adequate opportunity to the persons interested torepresent their case before the Company Court. Stating that theamount due to the 2nd respondent has also been paid, the appellantsought for setting aside the order of winding up dated 3.12.2008made in C.P.No.78 of 2008. 12. Before the single Judge, referring to the variousproceedings, the Official Liquidator has filed the report and alsostatement of expenses incurred by the Official Liqudiator statingthat the Official Liquidator has incurred expenses to the tune ofRs.91,32,559/- towards valuation charges, professional charges andthe payment to the security and other incidental expenses. The 2ndrespondent – Petitioning creditor also filed an elaborate counteraffidavit stating that the appellant very well knew about thependency of the proceedings all along since his own father wasdefending the proceedings and that the appellant was residing atMadurai and knew that possession had been taken over by theOfficial Liquidator and that the appellant cannot take advantage ofthe trivial irregularity in the advertisement. The workmen, whofiled impleading petition, also strongly opposed the application bycontending that the appellant is residing along with his father –N.Thiagarajan, who was defending the Company Petition all theseyears and that the application has been filed only to drag on theproceedings and to evade the workmen's claim.13. Even though the appellant claimed that he is a shareholderbefore the single Judge, the appellant did not produce any sharecertificates, but only relied upon entry in the dividend registerregarding payment of dividend of Rs.33,000/-. The learned singleJudge held that the appellant failed to satisfy the officialliquidator that he holds 10 percent shares in the Company asclaimed by him in the affidavit and inspite of the time granted bythe Official Liquidator, appellant has failed to produce theprimary evidence showing holding of shares by the appellant in theCompany. In so far as the alleged irregularity in the publication,the learned single Judge held that the winding up order could beset aside only in the appeal by the appellate Court and not anapplication filed before the Company Court. The learned singleJudge held that when specific remedy is available the inherentjurisdiction under Rule 9 of the Companies Court Rules cannot beinvoked. The learned single Judge further observed that in any https://hcservices.ecourts.gov.in/hcservices/ event, the appellant has no proposal to revive the Company noranything is produced as to how the appellant proposed to meet themounting liabilities of the Company in liquidation and on thosefindings dismissed the application.14. Challenging the impugned order, the learned Senior Counselfor appellant Mr.T.R.Rajagopalan has submitted that Rule 113 ofCompanies Court Rules in relation to the advertisement to bepublished in Form No.53, is one of the most important requisite ofa Company Petition prior to the passing of order of winding up ofthe Company and the failure of advertisement of the CompanyPetition in compliance with the statutory form vitiates the orderof winding up. It was further submitted that having noted thedefect in the application, Court ought to have directed freshpublication fixing the fresh date of hearing. It was furthersubmitted that since the order of winding up dated 3.12.2008 is inviolation of the provision of the law, the appellant is entitled toinvoke inherent jurisdiction of the Company Court in praying to setaside the winding up order dated 3.12.2008. Placing reliance upon adecision of the Supreme Court in NATIONAL TEXTILE WORKERS' UNIONAND OTHERS VS. P.R.RAMAKRISHNAN AND OTHERS, (1983) 1 SCC 228), itwas contended that “no order involving adverse civil consequencescan be passed against any person without giving him an opportunityto be heard against the passing of such order and this rule ofnatural justice applicable to quasi-judicial and administrativeproceedings would also apply to judicial proceedings such as apetition for winding up of a Company. 15. Per contra, Mr.V.Prakash, learned Senior Counsel for theofficial liquidator has raised strong objection as to the locusstandi of the appellant as the 'contributory' in terms of Section428 of the Companies Act. The learned Senior counsel has submittedthat in terms of Section 439(1), only those persons mentionedtherein are entitled to present a Petition for winding up of aCompany and a person as a 'contributory' is entitled to file anapplication only if he satisfies the requisites of Section 439(4)(b). Learned Senior Counsel would mainly contend that only a personas a 'contributory' in terms of Section 439(4)(b), is entitled tofile application relating to the winding up petition including apetition to set aside/recall the order of winding up and theappellant was not a shareholder as on date of winding up andtherefore he has no locus standi to file any petition for settingaside the order of winding up.16. Locus standi:- The appellant claims that he holds 30,000shares in the Company and that “he is substantial shareholder inthe Company in liquidation and therefore he is a 'contributory'within the meaning of the Companies Act and being a 'contributory' https://hcservices.ecourts.gov.in/hcservices/ entitled to file Petition to set aside the winding up order on theground of defective publication. 17. It is seen from the impugned order, that when matter waspending before the single Judge, inspite of assurance to producethe share certificate before the Official Liquidator by 18.2.2011,the appellant did not produce any share certificate. ParagraphNo.14 of the impugned order refers to the statement of the OfficialLiquidator that inspite of the time taken the appellant failed toprove by primary evidence showing his holding of shares in theCompany. At the time when the matter was argued before the singleJudge, the learned counsel for appellant only relied upon the entryin the dividend register regarding the payment of dividend ofRs.33,000/- to the appellant. The learned single judge held thatthe entry regarding payment of dividend in the dividend register isnot sufficient to accept the contention of the appellant that he isthe contributory. 18. When this O.S.A came up for admission, onbehalf of theappellant, learned Senior Counsel Mr.T.K.Seshadri made a requestthat the appellant may be permitted to inspect the Record Room toknow about the availability of the share certificates. By Orderdated 27.6.2011, this Court directed the Official Liquidator topermit the appellant to inspect the Record Room on 29.6.2011 in thepresence of Official Liquidator as well as representatives/counselfor the secured creditors and Mr.P.Muthuraja, representative of theworkmen. The Official Liquidator filed a report after theinspection of the Record Room that no share certificate wasavailable in the name of appellant and the same was recorded in oursubsequent Order dated 30.06.2011. Subsequently, when the matterwas taken up for hearing on 12.7.2011, the appellant has producedtwo share certificates bearing Numbers from 26290 to 31289 (ShareCertificate No.69) and 63410 to 67409 (Share Certificate No.71)standing in the name of L.Narayanan Chettiar and we have directedthe appellant to produce the Original Certificates before theOfficial Liquidator and the Official Liquidator was directed toverify the same and report to the Court. After verifying the sharecertificates with reference to the records of the company, on12.8.2011, Official Liquidator has filed a detailed report statingthat the contention of the appellant that he held 9,000 shares ofthe Company in liquidation is not correct.19. We may briefly refer to the report of the OfficialLiquidator refuting the contention of the appellant that he is theshareholder of the Company in liquidation. Share certificate No.69for 5000 shares with distinctive numbers 26290 to 31289 was shownto have been transferred thrice as detailed below:- https://hcservices.ecourts.gov.in/hcservices/ Sl.No.TransfereeTransferorTransferNo.Date ofRegistration1N.PalaniappanL.NarayananChettiar818.12.19572N.ThiagarajanN.Palaniappan2510.9.19803T.NarayananN.Thiagarajan3114.9.1990Share Certificate No.71 for 4000 shares with distinctivenos.63410 to 67409 was issued to Sri L.Narayanan Chettiar and theshares were shown to have been transferred thrice as detailedbelow:Sl.No.TransfereeTransferorTransfer No.Date ofRegistration1N.PalaniappanL.NarayananChettiar818.12.19572N.ThiagarajanN.Palaniappan2410.9.19803T.NarayananN.Thiagarajan3114.9.199020. Upon verification of share certificates, the OfficialLiquidator filed the report dated 12.8.2011 stating that there wasno transfer of 9000 shares from N.Palaniappan to N.Thiagarajan. Insupport of the report, the Official Liquidator has produced xeroxcopy of the relevant pages of the Share Transfer Register. ShareCertificate is the prima facie evidence of title of the member.When there was no transfer of 9,000 shares from N.Palaniappan toN.Thiagarajan on 10.09.1980, the question of transfer of these 9000shares to the appellant does not arise. 21. Refuting the report of the Official Liquidator andcontending that the appellant holds 30,000 shares in the Company,appellant has produced the following documents:- ●Partition Deed dated 26.03.90 evidencing allotment of 30000shares;●Letter dated 20.09.90 addressed by the “Company”; https://hcservices.ecourts.gov.in/hcservices/ ●Two Proceedings of the Income Tax Officer, Madurai dated04.06.1993;●Name of the Share holders list as on 31.04.02 given by the“Company” for renewal of factory licence;●Dividend Register from 1970 onwards;●Application dated 26.02.03 filed before BIFR wherein appellantwas shown as a shareholder.22. The appellant also placed reliance upon following twoorders:- (i) Order dated 22.07.2010 passed in C.A.No.1254 of2010 granting leave to the appellant to file applicationas a 'contributory' of the Company; (ii) Order of the Court dated 9.11.2009 in M.P.No.1of 2009 in O.S.A.Nos.370 to 372 of 2009 in which theappellant was granted leave by the Division Bench tochallenge the auction proceedings as a 'contributory' ofthe company. 23. In so far as the above Court orders are concerned, theCourt did not go into the merits of the contentions of theappellant whether he was 'contributory' or not. Merely acceptingthe averments in the Petition, the Court has granted permission tothe appellant to file application/appeals. While so, the appellantcannot take advantage of the orders passed in the applications.24. In so far as the documents produced by the appellant, thedocuments relate to the period from 1990-2003. In terms of Section439(1) of Companies Act, only those persons mentioned therein areentitled to present a petition for winding up of a Company. Only aperson as a contributory in terms of Section 439(4)(b) is entitledto file application as petitioner relating to winding up of thePetition. In terms of Section 439(4)(b), a contributory canmaintain a petition only if he has held the shares for at least sixmonths during the eighteen months immediately before thecommencement of the winding up proceedings. https://hcservices.ecourts.gov.in/hcservices/

25. In order to file a Petition for winding up, a contributoryhas to satisfy the requirements of Section 439(4)(b). As perSection 439(4)(b), the name should have been registered as ashareholder for atleast six months during the 18 months immediatelybefore the commencement of the winding up. Section 439(4)(b) readsas under:-“439. Provisions as to applications for winding up. - (1) to (3) .....(4) A contributory shall not be entitled to present apetition for winding up a company unless—(a).....(b) the shares in respect of which he is acontributory, or some of them, either were originallyallotted to him or have been held by him, and registeredin his name, for at least six months during the eighteenmonths immediately before the commencement of the windingup, or have devolved on him through the death of a formerholder.”26. By a reading of Section 439(4)(b), it is clear that aperson has to satisfy the requirements of Section 439(4)(b) inorder to be able to file a petition for winding up subject to thesatisfaction of sub-section (4)(b). That is to say that he musthave been a member in the Register for any six months during theeighteen months immediately preceding the winding up. As pointedout earlier, all the documents filed by the appellant relate to1990-2003. The Company Petition was filed on 13.2.2008 and windingup order came to be passed on 3.12.2008. From December 2006, i.e.,eighteen months prior to the filing of Company Petition for windingup, the appellant must have held the shares atleast for a period ofsix months. Absolutely no materials are forthcoming to show thatthe appellant held shares for six months within a period ofeighteen months prior to the filing of winding up petition. 27. Mr.T.R.Rajagopalan, learned Senior Counsel appearing forthe appellant has contended that the 'durational requirement'requisite under Section 439(4)(b) is only for filing winding uppetition by contributory and the said 'durational requirement' isnot for filing petition for setting aside the winding up order. Itwas further submitted that in the absence of any such statutory https://hcservices.ecourts.gov.in/hcservices/ requirement, the Court cannot presume any such 'durationalrequirement' for filing a petition to set aside the winding uporder. 28. Per contra, Mr.Prakash, the learned Senior Counsel for theOfficial Liquidator has submitted that the Act stipulates certainclass of persons satisfying the requirements of Section 439(4)(b)to file a petition for winding up; lest, there may be speculativetransfers and the persons recently held the shares also might comeforward to file a petition for winding up. The learned SeniorCounsel would further submit that if we dilute the rigour ofSection 439(4)(b), anybody claiming to be the contributory can cometo the Court and try to file the winding up petition, therebyjeopardising the functioning of the Company. It was further arguedthat when such is the statutory inbuilt for filing of winding uppetition, the same inbuilt safeguard would vice-versa apply to thecontributories for filing the petition to set aside the winding uporder. 29. We find much force in the submission of the learnedSenior Counsel for Official Liquidator. Emphasising on the“durational requirement”, when a statute prescribes that only acertain class of contributories can seek relief of filing windingup petition, the same stipulation applies vice versa for filingpetition to set aside the winding up order. When the Act emphasisesthe “durational requirement” of holding shares by the contributoryfor filing winding up petition, only those persons are empowered toundo the same. If we dilute the rigour of Section 439(4)(b) eitherfor filing winding up or for setting aside the order of winding up,it would affect the stabilised functioning of the Company. In theabsence of necessary proof that the appellant held the sharecertificates for atleast six months during the eighteen monthsimmediately before the commencement of winding up proceedings, theappellant, who has not satisfied the requirement of Section 439(4)(b), could not have filed the petition to set aside the winding uporder dated 3.12.2008. 30. Alleged defect in compliance of the mandatory requirementsof advertisement (Form 48):- Be that as it may, assuming that theappellant is 'any person whose interest was likely to be affectedby the winding up petition and is entitled to oppose the winding uppetition, let us consider the merits of the arguments advanced onbehalf of the appellant. The learned Senior Counsel for theappellant contended that winding up order is a drastic orderoperating against creditors/debtors/contributories affecting theirrights vis-a-vis the Company and therefore the advertisements areto be effected as mandated under Rule 99 in terms of Form No.49 so https://hcservices.ecourts.gov.in/hcservices/ that all concerned are put on notice regarding the winding upproceedings against the Company and none can complain of violationof principles of natural justice of not being heard before theorder of affecting their rights is being passed. The grievance ofthe appellant is that in the case on hand, the advertisement wasnot effected as mandated under Rule 99 and the advertisementeffected did not contain the “number of the Company Petition” and“name of the Company" and thus not in terms of Form 48 of theCompanies (Court) Rules. In support of his contention, the learnedSenior Counsel placed reliance upon a decision of the Supreme Courtin the case of NATIONAL CONDUITS (P) LIMITED VS. S.S.ARORA, (AIR1968 SC 279). Placing reliance upon a decision of Division Bench ofthis Court in NEPC MICON LTD. VS. HINDUSTAN THOMPSON ASSOCIATESLTD., (1998(II) CTC 709), the learned Senior Counsel furthercontended that winding up petition has certain consequences on thestatus, standard, financial viability and stability and the Orderof winding up has serious repercussions on the stability of theCompany. It was further argued that when a statute prescribescertain things to be done in a certain manner, such mandatoryrequirements have to be strictly followed and any violation of themandatory requirements would vitiate the winding up order. 31. Countering the submissions, the learned Senior Counsel forOfficial Liquidator has submitted that the non-mentioning of the“number of the Company Petition” and “name of the Company” in theadvertisement could only be an irregularity in the initialadvertisement and such procedural irregularity in compliance withthe mandatory requirements would not vitiate the order of windingup. It was further submitted that even though the cause title andthe Company Petition number were not given in the advertisementmade in the news papers, the Gazette publication was totally inaccordance with law. Placing reliance upon decisions of SupremeCourt in SYNDICATE BANK AND OTHERS VS. VENKATESH GURURAO KURATI,((2006) 3 SCC 150) and UNION OF INDIA AND OTHERS VS. BISHAMBER DASDOGRA, ((2009) 13 SCC 102), the learned Senior Counsel wouldfurther submit that to sustain the allegations of violation ofprinciples of natural justice, one must establish prejudice and nosuch prejudice was shown to have been caused to the appellant. 32. Mr.Vijay Narayan, the learned Senior Counsel for thepetitioning creditor/2nd respondent would submit that the agent, whohas been entrusted the job of giving advertisement by thepetitioning creditor misunderstood the scope of publication and hepublished the matter, which appeared after the title “advertisementof publication” and the non-mentioning of the cause title and thecompany petition number was only an inadvertent mistake done by the https://hcservices.ecourts.gov.in/hcservices/ agent on account of ignorance of the legal provisions. 33. Reiterating the submissions made by Mr.Vijay Narayan,learned Senior counsel appearing for the petitioning creditor andMr.V.Prakash, learned Senior Counsel appearing for the OfficialLiqudiator, learned Counsel appearing for the workmen Mr.SrinivasaMurthy would submit that the appellant was aware of the happeningsin the Company and taking possession by the Official Liquidator andthe appellant, being son of the Director - Thiagarajan, who wasdefending the Company Petition all these years, cannot complain ofany irregularity in the advertisement and prejudice being caused tohim. 34. The Companies (Court) Rules envisage:- (i) thepresentation of an application for winding up in the mannerprescribed in Rule 95; (ii) the admission of the winding uppetition after such presentation under Rule 96 and (iii) theduration as to advertisement under Rule 96. Rule 96 envisages afourth step – namely the hearing. Rule 99 specifically deals withadvertisement of petition for winding up. As per Rule 99, subjectto any directions of the Court, the petition shall be advertisedwithin the time and in the manner prescribed by Rule 24. The formof advertisement is set out in Form No.48 to the Rules. That is theheading as in Form No.1 containing “Company Petition Number”, “nameof the petitioner”, and “presentation of the Petition for windingup”, etc., 35. Considering the scope of Rules 96 and 24 of the CompanyCourt Rules and the steps to be taken, in National Conduits case(AIR 1968 SC 279), the Supreme Court has held as under:- “... (2) Except in the case of a petition to wind upa company, the Judge may, if he thinks fit, dispense withany advertisement required by these Rules.” When a petition is filed before the High Court forwinding up of a company under the order of the Court, theHigh Court (i) may issue notice to the Company to showcause why the petition should not be admitted; (ii) mayadmit the petition and fix a date for hearing, and issue anotice to the Company before giving directions aboutadvertisement of the petition; or (iii) may admit thepetition, fix the date of hearing of the petition, andorder that the petition be advertised and direct that thepetition be served upon persons specified in the order. Apetition for winding up cannot be placed for hearing https://hcservices.ecourts.gov.in/hcservices/ before the Court, unless the petition is advertised: thatis clear from the terms of Rule 24(2). But that is not tosay that as soon as the petition is admitted, it must beadvertised. In answer to a notice to show cause why apetition for winding up be not admitted, the Company mayshow cause and contend that the filing of the petitionamounts to an abuse of the process of the Court. If thepetition is admitted, it is still open to the Company tomove the Court that in the interest of justice or toprevent abuse of the process of Court, the petition be notadvertised....”36. C.P.No.78 of 2008 was filed on 13.2.2008 and on 7.3.2008,notice regarding admission was directed to be served on theCompany. On 13.6.2008, after the notice was duly served on theCompany, the matter was listed for hearing; but there was norepresentation on behalf of the Company and the matter wasadjourned to 24.06.2008. On 24.06.2008, order was passed that theOfficial Liquidator be appointed as the provisional liquidator andto take charge of the assets of the Company. Advertisement wasdirected to be published in English daily – Deccan Chronicle andTamil Daily – Dina Thanthi and Tamil Nadu Government Gazette fixingthe date of hearing as 22.07.2008 with the 14 days of clear advancenotice. The advertisement was published in English daily and Tamildaily on 3.7.2008. In the advertisement so effected, the causetitle and the company petition number were not given in thepublication. In Paragraph No.7 of the counter affidavit filed inC.A.No.1286 of 2010, the petitioning creditor has clearly statedthat while publishing the notice, the agent, who had been entrustedthe job misunderstood the scope of the publication and publishedthe matter, which appeared after the title “Advertisement ofPetition” and the inadvertent mistake was done by the agent onaccount of ignorance of the legal provisions. Even though theCompany Petition number and cause title was not given in theadvertisement, the Gazette publication effected on 9.7.2008contained the full cause title and other details in Form No.48,which is in accordance with the Rules. Even though the Gazettenotification was short of two days notice, we find that the Gazettenotification was in accordance with the rules. 37. The appellant alleges two procedural irregularities ineffecting the advertisement:- (i) omission to mention the Company Petition Numberand cause title; and (ii) short of two days in effecting Gazette https://hcservices.ecourts.gov.in/hcservices/ publication. Rules 24 and 96 are mandatory. 38. Assuming that the mandatory requirement was not compliedwith, the question falling for consideration is, “can the non-compliance of procedural mandatory requirement would ipso factovitiate the winding up order and stall further proceedings?”. Thenext question falling for consideration is. “can the non-complianceof a procedural mandatory requirement be a ground to set aside thewinding up order after three years, especially when the appellanthad the opportunity of fighting out the litigation in the earlierround?.” 39. The purpose of advertisement is to give an opportunity tothe creditors/debtors/Company to put forth their case before theCourt. Assuming that the procedural mandatory requirement was notcomplied with, in our considered view, it cannot be a ground to setaside the winding up order after three years. As rightly contendedby the learned Senior Counsel for the Official Liquidator, tosustain the allegations of violation of principles of naturaljustice, one must establish prejudice. When fairness is shown andif the facts and circumstances indicate that theCompany/contributory were put on notice and that no prejudice wascaused to them, the Company/contributory cannot complain of anyprocedural irregularity. The facts and circumstances clearly showthat the appellant was not put to any prejudice by the proceduralirregularity in the advertisement – non-mentioning of the CompanyPetition number and cause title in the paper publication. Theappellant, being son of the Director of the Company, knew aboutthe pendency of the proceedings all along since his father wasdefending the same. It is stated that the appellant was aware thatthe possession of the properties had been taken over by theOfficial Liquidator. Earlier, by the Order dated 24.9.2008, theCourt directed the Official Liquidator to take possession of theproperties of the Company. As against the said order dated24.09.2008, the Company preferred appeal in O.S.A.No.312 of 2008.Because of non-compliance of the direction of the Court to pay Rs.5lakhs to the petitioning creditor, by the order dated 1.12.2008,the said O.S.A.No.312 of 2008 came to be dismissed. Subsequently,when the matter came before the single Judge, the appellant paid asum of Rs.9,93,000/- to the petitioning creditor and assured to paythe balance amount of Rs.45,015.50ps and subsequently the entireamount was settled to the petitioning creditor. On 19.2.2009, theCourt directed the Company to pay Rs.25,08,395/- to the OfficialLiquidator. Inspite of direction from the Court the amount due tothe Official Liquidator was not paid and the Court directed theOfficial Liquidator to proceed with the sale. The property was soldin the public auction and on 15.09.2009, the sale was confirmed by https://hcservices.ecourts.gov.in/hcservices/ the Court and consequent order was passed on 14.10.2009 allowingthe Official Liquidator to hand over the properties. Challengingthe sale, appellant filed appeals – O.S.A.Nos.370 and 372 of 2009.Having challenged auction sale, in the earlier round of appeals –O.S.A.Nos.370 and 372 of 2009, it is not open to the appellant tocontend that he was not aware of the proceedings and that thedefect in the advertisement has caused prejudice to him. 40. It is pertinent to note that while setting aside theauction sale, the Division bench ordered that the Company Court hasto proceed with the sale process afresh after making necessarypublication. In the earlier O.S.As, the contention of the allegedirregularity in the advertisement in Form 48 was not at all raised.The appellant challenged the auction sale mainly on the groundsthat (i) the properties are in the border of Madurai corporationlimit and are very valuable properties and upset prices fixed arevery much less; (ii) property was brought to auction in undue hasteand in the open court parties were permitted to bid up to the upsetprice. At the time when the earlier O.S.A.Nos.370 and 372 of 2009were filed, the appellant was well aware of the winding up orderdated 3.12.2008. But the appellant has not challenged the windingup order dated 3.12.2008 on the ground of procedural irregularity. 41. In the affidavit filed along with the impleading petitionfiled by the workmen, it is clearly averred that the appellantresides along with his father -Thiagarajan, who was defending theCompany Petition all these years and that the appellant was wellaware of the proceedings. It is further averred that when therepresentatives of the Official Liquidator came to take possessionof the mill in September 2009 and the Time Keeper handed over thekeys only after getting permission from the appellant. In theearlier appeals, the alleged procedural irregularity in theadvertisement was not raised. The omission to raise the same in theearlier appeals would certainly be a deliberate waiver of thoseobjections. Having omitted to raise the objections, the appellantis now precluded from challenging the winding up order. 42. Re. Contention - Petitioning creditor's dues settled:- As pointed out earlier, the amount was paid to petitioningcreditor and on 27.8.2009, a joint memorandum was filed by theCompany and 2nd respondent stating that the entire amount wassettled and the Company Petition is not being pressed. Layingemphasis upon the same, the learned Senior Counsel for theappellant has submitted that when the amount due to the 2nd https://hcservices.ecourts.gov.in/hcservices/ respondent has been fully settled, the claim of the Bank is beingcontested before D.R.T., and the claim of the workmen is only tothe extent of 3.12 crores as per Section 12(3) settlement. It wasfurther argued that the assets of the company are worth nearlyRs.400 Crores and that the Company has been in business for aboutsixty years, and while so it would not be in the interest of anyperson to wind up the company. The learned Senior Counsel wouldfurther submit that for the sake of few lakhs payable to theOfficial Liquidator, assets of the Company cannot be brought forsale and the winding up order is totally unjustifiable. 43. The above contention cannot be countenanced. It is not asif the Company owes only a few crores payable to the workmen and tothe statutory authorities. As seen from the report of the OfficialLiquidator, in June, 2011, the amount due from the bank is aroundRs.80 Crores as under:Sl.Nos.Details of Claims/received by theOfficial LiquidatorAmount1.Indian Bank, ARM, MaduraiRs.13,18,88,090/-2.Dena Bank, MaduraiRs.24,77,93,104/-3.The Claims of the workmen Rs.28,02,40,430/-4.ESI CorporationRs.2,91,62,693/-5.EPF OrganizationRs.8,43,48,558/-6.Ordinary ClaimsRs.2,01,51,851/-TotalRs.79,35,84,726/-That apart, it is stated that a sum of Rs.1,72,92,509/- isstated to be due to the Tamil Nadu Electricity Board.44. In the proceedings initiated by the Indian Bank beforeD.R.T, the matter was hotly contested up to the level of Supremecourt and Unit 'C' was sold. In so far as the other two Units,SARFAESI proceedings are pending before DRAT. Before the DRAT, theconditional order to deposit Rs.3 Crores was not complied with. Itis stated that still an amount of Rs.15 Crores is due to Indianbank. The Company owes more than Rs.20 Crores to Dena Bank, theother secured creditor. As rightly pointed out by the learnedsingle Judge, the appellant has not spelt out any proposal forsettling the above dues and also for revival of the Company inliquidation. https://hcservices.ecourts.gov.in/hcservices/

45. Even though the Company has paid the entire dues to the2nd respondent/petitioning creditor, in pursuance of the order ofthe Court dated 19.2.2009, the company has not paid the amount ofRs.25,08,395/- to the Official Liquidator. In pursuance of thedirection of the Court, the Official Liquidator has effectedadvertisement atleast eleven times for bringing the property tosale. As per the direction of the Court, the Official Liquidatorhad also taken possession of the assets of the Company and has alsotaken possession of the properties from Indian Bank in respect of'A' and 'B' units and the Official Liquidator has appointedsecurity and incurred expenditure towards security services. As perthe report, upto 31.7.2011, the Official Liquidator has incurred asum of Rs.1,04,63,659/- towards security services, valuationcharges, advertisement charges and other expenses in winding upproceedings of the Company in liquidation. The Official Liquidatorhas spent the said amount from out of common establishment chargesaccount of the Official Liquidator. Even though the appellant seeksto set aside the winding up order, neither the company nor theappellant has come forward to settle the dues to the OfficialLiquidator, which he has spent from out of the common establishmentcharges account. 46. As pointed out earlier, in O.S.A.Nos.370 and 372 of 2009,while setting aside the auction sale, Court remitted the matterback to the company Court to proceed with the sale process afreshafter making necessary publication. It was thereafter the appellanthas filed the application – A.No.1286 of 2010 under Rule 9 of theCompanies (Court) Rules invoking the inherent jurisdiction of theCourt. 47. Claims of the Workmen:- In the report of the officialLiquidator filed in August, 2010, the claims of the workmen isstated as Rs.28.02 Crores. The statutory dues to E.S.I.Corporationand E.P.F.Organisation are Rs.2.91 Crores and Rs.8.43 Croresrespectively. On behalf of the appellant, it was contended that asper Section 12(3) settlement, only an amount of Rs.3.25 Crores isdue and while so the claim of the workmen is very much exaggerated.Mr.K.Srinivasamurthy, the learned counsel for the workmen wouldsubmit that as per Section 12(3) Settlement dated 22.4.2008, theamount of Rs.3.25 crores represents the wage, lay-off salary,Society's dues, L.I.C. Premium, dues payable to the deceasedemployees from out of the death benefit fund, gratuity for theemployees retired prior to that date and bonus due. According tothe workmen, the said Rs.3.25 Crores does not refer to the wages tothe workers working after the said date and the terminal benefits https://hcservices.ecourts.gov.in/hcservices/ and other statutory dues payable to the workers working after thatdate. In so far as the workmen's claim, the issue is to be goneinto only at the time when the workmen's claim is considered underSection 529-A of the Companies Act. 48. Can the appellant invoke Rule 9 - Inherent Powers ofCourt:- The inherent powers under Rule 9 of the Companies (Court)Rules is analogous to Section 151 of the Civil Procedure Code. Theinherent power of the Court under Rule 9 cannot be invoked whereexpress provision has been made for the relief by conferring thepower upon the authorities. The inherent powers cannot be used toupset or distort the scheme of things under the Act and Rules. Aspointed out by the learned single Judge, the winding up orderpassed on 3.12.2008 ought to have been challenged only by way ofappeal. The appellant, being son of the Director, was well aware ofthe proceedings and having challenged the same in the earlier roundof litigation, cannot invoke the inherent jurisdiction of thisCourt to set aside the winding up order passed on 3.12.2008. Theinherent power cannot be exercised to upset the scheme of thethings under the Act and the claim of the workmen. 49. If the winding up order is set aside, then the Banks wouldproceed under the SARFAESI Act and would appropriate the amount andin that event the workers will not have any protection underSection 529-A of the Companies Act and the 850 workers will be inthe streets. The inherent power cannot be exercised to upset theclaim of the workmen.50. SARFAESI Proceedings and Directions for furtherproceeding:- As pointed out earlier, the Official Liquidator hasincurred huge expenses for safeguarding the property by engagingthe security guards and the Official Liquidator is not in aposition to pay the remuneration to the security guards. In thesupporting affidavit filed by the Indian Bank in the impleadingpetition – M.P.No.3 of 2011, Indian Bank has expressed itsreadiness to tender the Official Liquidator's expenses and statedthat the Indian Bank may be allowed to continue the sale processunder SARFAESI Act. Mr.Jayesh B Dolia, learned counsel for IndianBank has submitted that as held by the Supreme Court in RajasthanState Financial Corporation case ((2005) 8 SCC 190), while dealingwith the similar provisions under DRT Act, the sale of securitiesof a Company in liquidation could be resorted to and all that isrequired is that the official liquidator should be involved in eachand every stage of sale. In its affidavit, Indian Bank hasundertaken to associate the Official Liquidator in the sale ofassets of both movables and immovables by issuing the sale noticeunder the SARFAESI Act. https://hcservices.ecourts.gov.in/hcservices/

51. Following the decision of the Supreme Court in RajasthanState Financial Corporation case, and considering the questionwhether the Asset Reconstruction Company formed under the SARFAESIAct is entitled to be associated in the process of the sale of theassets of a Company under liquidation along with the OfficialLiquidator, the First Bench of this Court in ASSET RECONSTRUCTIONCOMPANY (INDIA) LIMITED VS. THE OFFICIAL LIQUIDATOR, HIGH COURT,((2006-2-L.W. 442 = (2006) 2 MLJ 822), has held as under:“13. In the light of the law laid down by theRajasthan State Financial Corporation Case ((2005) 8 SCC190) it is clear that where the bank or the financialinstitution has initiated proceedings under the Recovery ofDebts Due to Banks and Financial Institutions Act, 1993, theDebts Recovery Tribunal would be entitled to ordersale even if a company is under liquidation through itsRecovery Officer, but only after notice to the OfficialLiquidator or the Liquidator appointed by the CompanyCourt and after hearing him. Where, however, noproceedings have been initiated under the Recovery of DebtsDue to Banks and Financial Institutions Act, 1993 the casewould fall under paragraph 18 (iii) of the judgment of theSupreme Court in Rajasthan State Financial CorporationCase ((2005) 8 SCC 190). In that event if thesecuritisation company acting under Section 13 of theSecuritisation Act seeks to sell or otherwise transfer theassets of a debtor company in liquidation, the saidpower could be exercised by it only after obtaining theappropriate permission from the Company Court andacting in terms of the directions issued by that Court asregards associating the Official Liquidator with the sale,the fixing of the upset price or the reserve price,confirmation of the sale, holding of the sale proceeds anddistribution thereof among the creditors in terms of Section529-A and 529 of the Companies Act.”52. In the instant case, the Official Liquidator had takenpossession of the assets in September 2008. The Official Liquidatorhas also got valuation of the assets by ITCOT Consultancy &Services Limited, Chennai. The Official Liquidator has brought theproperty for sale and issued advertisement atleast 11 times andincurred huge expenditure of Rs.1,04,63,659/- as on 31.7.2011towards valuation charges, advertisement charges, security salarypayment, etc., https://hcservices.ecourts.gov.in/hcservices/

53. We are of the view that the ends of justice would beserved if Indian Bank is permitted to bring the properties to saleand associate the Official Liquidator in the proceedings beforeDRT. In pursuance to the readiness expressed by the Indian Bank,the Indian Bank is to be directed to pay to the Official Liquidatora sum of Rs.1,04,63,659/- being the expenditure incurred by theOfficial Liquidator as on 31.7.2011 from out of the commonestablishment charges of the Official Liquidator (vide report ofthe Official Liquidator dated 12.8.2011) and the subsequentexpenses incurred by the Official Liquidator from out of the commonestablishment charges of official liquidator as on date. The saidamount of Rs.1,04,63,659/- shall be the first preferential claimfrom out of the sale proceeds of the assets. 54. In the result, the Appeal is dismissed with the followingdirections and observations:●The Indian Bank, Asset Recovery Management Branch, Madurai isdirected to deposit Rs.1,04,63,659/ with the OfficialLiquidator, High Court, Madras towards the expenses incurredby the Official Liquidator from out of the commonestablishment charges of the Official liquidator. On suchdeposit, the Official Liquidator shall hand over thepossession of the assets of the company in liquidation to theIndian Bank. The Indian Bank shall associate the OfficialLiquidator in the SARFAESI proceedings before DRT byimpleading the Official liquidator in the proceedings pendingbefore DRT.●The Indian Bank, being the lead Bank, is permitted to bringthe properties to sale in the SARFAESI proceedings pendingbefore DRT.●The sale proceeds shall remain with the Indian Bank and theIndian Bank shall file the report before the Single Judge inC.P.No.78 of 2008. ●Upon filing of such report, the learned single Judge shallpass appropriate orders for apportionment of the saleproceeds. Indian Bank shall file a report before the singleJudge as well as the Official Liquidator.●The Company Court shall pass appropriate orders for workingout the legitimate dues of the workers pari passu with thesecured creditors and other dues payable to the electricityBoard, E.S.I.Corporation, E.P.F.Organisation and other claims. https://hcservices.ecourts.gov.in/hcservices/ However, there is no order as to costs. Consequently, theconnected miscellaneous petition in M.P.No.1 of 2011 is closed.M.P.No.2 of 2011 filed by the Workers Union and M.P.No.3 of2011 filed by the Indian Bank, Asset Recovery Management Branch,Madurai are disposed of directing the Indian Bank and the workmento file impleading applications before the single Judge inC.P.No.78 of 2008 to implead themselves. On such applications beingfiled, the learned single Judge is required to implead the IndianBank and the workmen in the C.P. Sd/- Asst.Registrar. /true copy/ Sub Asst.Registrar.To1. The Sub Assistant Registrar, Original Side, High Court, Madras.2. The Official Liquidator High Court, Madras1 cc to Mr.S. R. Sundar, Advocate, Sr. 640361 cc to M/s. Row and Reddy, Advocate, Sr. 640521 cc to M/s. Anand Abdul and Vindoth Associats, Advocate, sr. 641521 cc to M/s. Aiyar and Dolia, Advocate, Sr. 64307 O.S.A.NO.155/2011JRG (CO)kk 21/10