Case Note & Summary
The appellants, Maharashtra Antibiotics and Pharmaceuticals Ltd. (MAPL) and Hindustan Antibiotics Ltd., challenged an order of the Company Law Board (CLB) dated 27-10-2006. The CLB had directed MAPL and SICOM Ltd. to transfer 40,530 equity shares of MAPL to the respondent, Environmental Engineers Inc., who had purchased those shares from SICOM on 8-9-2002. MAPL is a joint venture of the Government of India, with Hindustan Antibiotics holding 59% shares, SICOM holding 33%, and IDBI Bank holding 8%. The Board for Industrial and Financial Reconstruction (BIFR) had, on 4-7-2000, passed an order under Section 20 of the Sick Industrial Companies Act recommending winding up of MAPL. This recommendation was forwarded to the Bombay High Court and registered as Company Petition No. 15/2000. The respondent purchased the shares after this recommendation and after the company petition was registered. The appellants contended that under Section 536(2) read with Section 441(2) of the Companies Act, 1956, any transfer of shares after the commencement of winding up is void unless the court otherwise orders. They argued that winding up commenced in 2000 when the BIFR recommendation was made and the petition was presented. The CLB, however, held that winding up commences only upon passing of the winding up order, and since no such order had been passed, the transfer was valid. The High Court, relying on Supreme Court judgments in NGEF Ltd. v. Chandra Developers (P) Ltd. and Rishab Agro Industries Ltd. v. P.N.B. Capital Services Ltd., held that winding up proceedings are deemed to commence from the date of presentation of the petition or, in cases arising from BIFR recommendations, from the date of the recommendation. Therefore, the transfer of shares on 8-9-2002 was after the commencement of winding up and was void under Section 536(2) as no court approval was obtained. The High Court allowed the appeal, set aside the CLB order, and dismissed the respondent's petition.
Headnote
A) Company Law - Winding Up - Commencement of Winding Up - Section 441(2) Companies Act, 1956 - Section 20 Sick Industrial Companies (Special Provisions) Act, 1985 - The winding up of a company is deemed to commence from the date of presentation of the petition for winding up. In cases arising from BIFR recommendations, the proceeding for winding up is deemed to have started on the date the BIFR makes its recommendation. The Company Law Board erred in holding that winding up commences only upon passing of the winding up order. (Paras 10-14) B) Company Law - Transfer of Shares - Void Disposition - Section 536(2) Companies Act, 1956 - Any transfer of shares made after the commencement of winding up is void unless the Tribunal otherwise orders. Since the transfer of shares in this case occurred after the BIFR recommendation (which marks the commencement of winding up) and without court approval, the transfer is void. The Company Law Board's direction to transfer shares was therefore unsustainable. (Paras 6-8, 15-16) C) Sick Industrial Companies - BIFR Recommendation - Custody of Assets - Section 20 Sick Industrial Companies (Special Provisions) Act, 1985 - BIFR remains the custodian of the company's assets until the winding up order is passed by the High Court. The Company Court cannot pass interim orders for sale of assets or transfer of shares without BIFR's involvement. (Paras 12-13)
Issue of Consideration
Whether the transfer of shares made after the BIFR recommendation for winding up but before the winding up order is void under Section 536(2) of the Companies Act, 1956, and whether the Company Law Board could direct such transfer.
Final Decision
Appeal allowed. Order dated 27-10-2006 passed by Company Law Board, Western Region, Bench at Mumbai in Company Petition No. 7/111A/CLB/WR/2004 is set aside. The petition filed by respondent no. 1 before the Company Law Board stands dismissed.
Law Points
- Section 536(2) Companies Act
- 1956
- Section 441(2) Companies Act
- Section 20 SICA
- Winding up commences from date of BIFR recommendation
- Transfer of shares after commencement of winding up void unless court orders otherwise
