IN THE HIGH COURT OF KARNATAKA AT BENGALURU. Present THE HON BLE MR JUSTICE VINEET SARAN THE HON BLE MR JUSTICE B MANOHAR O S A 1 / 2015

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1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU Dated this the 26 th day of August, 2015 Present THE HON BLE MR JUSTICE VINEET SARAN & THE HON BLE MR JUSTICE B MANOHAR O S A 1 / 2015 Between M/s Shah Polymers # 1, M S Ramaiah Industrial Estate Gokul, Bangalore North Partnership Firm represented by Managing Partner Sri Deepak Shah Appellant (By Sri K A Ariga, Adv.) And 1 Official Liquidator M/s Canara Polypack LTd (In Liquidation) Attached at High Court of Karnataka # 26-27, Corporation Bhavan 12 th Raheja Towers, M G Road Bangalroe 1 2 Sri Baldev L Boolani 3 Sri Vijay B Boolani 2-3 at # 7, Monolith Apartments Napeansea Road, Mumbai 36 Maharashtra

2 2 4 Sri Karan Vijay Boolani S/o Vijay Baldev Boolani 6A, Monolith Apartments # 7, Napeansea Road Mumbai Maharashtra Respondents (By Sri Suraj Govindaraj, Adv. For M/s Anup S Shah Law Firm for C/R3) OSA is filed under S.4 of the High Court Act r/w S.483 of the Companies Act praying to set aside the order dated by the learned Single Judge in Company Application 21/2014 and Company Application 22/2014 in Company Petition 191/2009, etc. Appeal coming on for final disposal this day, Vineet Saran J., delivered the following: JUDGMENT This is an appeal filed by the company petitioner-m/s Shah Polymers challenging the order dated passed by the Company Court, whereby the application of respondents 2 to 4 (Directors of M/s Canara Polypack Ltd) filed under Order 9 Rule 13, CPC read with Rule 6 and 9 of the Companies (Court) Rules, 1959 for setting aside the exparte order of winding up of the company (M/s Canara Polypack Ltd) passed by the Company Court on , has been allowed. Brief facts of the case are:

3 3 Company Petition 191/2009 was filed by M/s Shah Polymers under section 433 (e) of the Companies Act on the ground that the company was unable to pay its debts due to the appellant/petitioner M/s Shah Polymers. Notice of the said company petition was served at the Mumbai Office of the respondent company, which was also deemed to be sufficient by order dated Such position is not denied by the respondent. However, despite such service, the company remained unrepresented before the Company Court. The Company Petition was admitted by order passed on after which, an advertisement was published in two newspapers namely, The Hindu and Vijaya Karnataka wherein the date of hearing of Company Petition was notified as Even after publication of such notice, the company remained unrepresented. In such circumstance, learned Company Judge proceeded to hear the matter and held that the company was unable to pay its admitted debts. Such finding was primarily based on the auditor s report, as well as the annual accounts of the company as on , whereby a clear admission of liability of the

4 4 company to pay an amount of over Rs.21 lakhs was accepted. After the order dated was passed, another advertisement was taken out in the same two newspapers on Thereafter, after almost one year, on , the Official Liquidator initiated proceedings under section 454 of the Companies Act by filing an application which was numbered as CA 1636/2013, notice of which was also served on respondents 2 to 4 on Then, on , an application under Order 9 Rule 13 read with Rules 6 and 9 of the Companies (Court) Rules was filed with the prayer for setting aside the order dated The said application having been allowed on , this appeal has been filed. We have heard Sri K A Ariga, learned counsel for the appellant as well as Sri Suraj Govindaraj, learned counsel for the contesting respondents 2 to 4 and have perused the record.

5 5 From the record, it is clear that notice of winding up petition was served at the Mumbai Office of the company prior to , on which date service was held to be sufficient by the learned Company Judge. Learned counsel for the respondents had submitted that the registered office of the company at Bangalore has been locked up by one of its erstwhile director. It has, however, been accepted that the respondents are in control of the affairs of the company. The explanation given by respondents that the said notice was forwarded to their advocate at Bangalore which did not get delivered to their advocate, does not appear worthy of acceptance especially when the winding up order was passed after about an year of such service of notice and during this period, the respondents did not find out about the progress of the winding up petition filed against the company. Notice for winding up of a company would be one of the most important notices for the company or its directors, because if the same is not attended to and taken up seriously, it could bring an end to the company. Even after receiving such an important notice for winding up, if the directors of the company did

6 6 not inquire about the progress of the petition for one year, it would only go to show that the company and its directors were not interested in contesting the winding up petition and knowing its fate. Merely stating that there were several other cases also going on, because of which they could not pay attention to the winding up petition, would not be sufficient. Once summons are served in a winding up petition, the party is expected to follow it up and immediately take necessary steps and by having not done so, respondents had been grossly negligent, which would not constitute sufficient cause for preventing them from appearing before the Company Court. In our view, the respondents, firstly, did not appear before the Company Court despite having notice of the same and without there being sufficient cause preventing them from appearance; and secondly, even thereafter when the winding up order was passed and if the stand of the respondent is accepted that notice was received by them on , then too, the application for setting aside the exparte order of winding up was filed

7 7 after more than 3 ½ months, without there being any adequate explanation, except that they were collecting papers of the petition, which in our opinion would not take such a long time. Order 9, Rule 13 of CPC provides for the Court to set aside the decree if the court is satisfied that the summons was not duly served, or that the party was prevented by any sufficient cause from appearing when the case was called for hearing. If the court is satisfied on either of the two grounds, it shall then only make an order setting aside the decree as against such party, upon such terms as to costs, payment into court or otherwise as it thinks fit. In the present case, in our view, even if the cause for non-appearance, despite notice, is held to be sufficient, yet the exparte order could not have been recalled without putting the respondents to suitable terms. Balancing the equities between the parties and taking into account that there were genuine differences between

8 8 the respondents herein as well as certain other Directors who were located in Bangalore who were earlier controlling the affairs of the company, in the interest of justice, we find that the order of winding up could have been recalled, but only after putting the respondents to terms, which according to us, would be after requiring them to deposit suitable amount commensurate with the amount admitted by the company to be due to be paid to the petitioner in its balance sheet of the year Considering the totality of the circumstances and in the interest of justice, we thus direct that the order dated shall be set aside only on the condition that respondents deposit a sum of Rs.10 lakhs with the Registrar General of this Court within six weeks from today. The amount so deposited shall be subject to further orders which may be passed by the Company Court in the Company Petition for winding up. In case of failure of the respondents to deposit such amount within the aforementioned period, the order dated which is

9 9 challenged in this appeal, shall stand set aside and the order dated be restored. Appeal stands disposed of and the order dated stands modified to the extent as indicated hereinabove. No order as to costs. Sd/- Judge An Sd/- Judge