Case Note & Summary
The judgment arises from a winding-up petition filed by Shri Basant Lal Agarwal against M/s. Lloyds Finance Ltd. for recovery of Rs. 3,75,00,000 advanced as a fixed deposit for three years at 18% interest. By order dated 21.11.2003, the court directed the company to deposit the amount with interest, failing which the petition would be admitted. The company did not deposit, so the petition stood admitted. Subsequently, an application (Company Application No. 231 of 2004) was moved on behalf of various creditors and small fixed deposit holders seeking that instead of winding up, a scheme be framed for return of money to small fixed deposit holders. It was contended that small depositors had invested their hard-earned money for future security, and if the company was wound up, no one would receive any amount. The court considered the interest of justice and held that winding up would leave no recovery for any creditor, and therefore a scheme should be framed for repayment of small fixed deposit holders. The court directed the framing of a scheme to repay small depositors, thereby avoiding winding up.
Headnote
A) Company Law - Winding Up - Scheme for Repayment of Small Fixed Deposit Holders - Companies Act, 1956, Sections 433, 434, 443 - The court considered whether to wind up a company or frame a scheme for repayment of small fixed deposit holders. It was held that winding up would result in no recovery for any creditor, and therefore a scheme should be framed to repay small depositors in the interest of justice (Paras 1-3).
Issue of Consideration
Whether in a winding-up petition, the court should order winding up or instead frame a scheme for repayment of small fixed deposit holders in the interest of justice.
Final Decision
The court allowed the application and directed that a scheme be framed for repayment of small fixed deposit holders instead of winding up the company.
Law Points
- Winding up
- Scheme for repayment
- Small fixed deposit holders
- Interest of creditors
- Company law
Case Details
2005 LawText (BOM) (02) 168
Company Application No. 231 of 2004 in Company Petition No. 1017 of 2002
Shri D.J. Kambhatta with M.S. Doctor i/b. Hariani and Co. for the special committee; Shri Janak Dwarkadas with Jal Andhyarujunia i/b. Gagrat and Co. for the Respondent company; Shri Anoop Khaitan and Co. for group of investors; Shri M.P. Rao i/b. Federal Bank Ltd one of the secured creditors; Shri O.A. Das for Bank of India one of the secured creditors; Shri Prakash Shinde i/b. M. Dhruva and Co. for State Bank of Travancore one of the secured creditors; Shri B.K. Bali of Thakkar and Bali one of the secured creditors/Bank of Baroda.
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Nature of Litigation
Winding-up petition and application for framing a scheme for repayment of small fixed deposit holders.
Remedy Sought
The applicant (small fixed deposit holders) sought that instead of winding up the company, a scheme be framed for return of money to small fixed deposit holders.
Filing Reason
The original petitioner filed a winding-up petition for recovery of Rs. 3,75,00,000 advanced as fixed deposit. The company failed to deposit the amount as directed by court, leading to admission of the petition. Small fixed deposit holders then sought a scheme to avoid winding up.
Previous Decisions
By order dated 21.11.2003, the court directed the company to deposit Rs. 3,75,00,000 with interest at 18% per annum, failing which the petition would be admitted. The company did not deposit, so the petition stood admitted.
Issues
Whether the court should order winding up of the company or frame a scheme for repayment of small fixed deposit holders.
Submissions/Arguments
Small fixed deposit holders contended that they invested hard-earned money for future security and if the company is wound up, no one will receive any amount.
It was argued that it is in the interest of justice that a scheme be framed for repayment of small fixed deposit holders.
Ratio Decidendi
In a winding-up petition, if winding up would result in no recovery for any creditor, the court may, in the interest of justice, frame a scheme for repayment of small fixed deposit holders instead of ordering winding up.
Judgment Excerpts
It was contended that the small fixed deposit holders have put in their hard earned money with a view to secure their future in these kind of financial companies because at the relevant time they were offering an attractive rate of interest.
It was further contended that if the company is wound-up then no persons are likely to receive any amount. However it is in the interest of justice that small fixed deposit holders should be repaid.
Procedural History
Original winding-up petition filed by Shri Basant Lal Agarwal. By order dated 21.11.2003, court directed deposit of amount, failing which petition to be admitted. Company did not deposit, so petition admitted. Then Company Application No. 231 of 2004 filed by small fixed deposit holders seeking scheme instead of winding up. Court heard the application and passed order on 3rd February 2005.
Acts & Sections
- Companies Act, 1956: 433, 434, 443
