HMT Ltd v. N.T. Rahamatullah Khan & Associates

Name of the caseHmt Ltd. v. N.T. Rahamatulla Khan and Associates
Citation(2010) 155 Comp Cas 169 (Kar)
Year of the case2010
AppellantHmt Ltd.
RespondentN.T. Rahamatulla Khan and Associates
BenchJustice D.V. Shylendra Kuma Justice N. Ananda
Acts involvedKarnataka High Court, 1961 Companies Act, 1956
Important sectionsSection 4, Karnataka High Court, 1961.  Section 433 & 483 of Companies Act, 1956.

Background

This case revolves around HMT Limited, formerly known as Hindustan Machine Tools Limited, is a state-owned holding company that faces the proceedings of winding up due to the inability of payment of debts. The company appeals to the High Court of Karnataka when an order of publication was given by the Company Court. The case was before 2013 and therefore, the provisions of the Companies Act 1956 were applied. The court had a broad approach while analyzing the issue in this case.

Facts

HMT Ltd., the respondent-appellant was in the middle of the proceedings of winding up of the company due to the inability to pay debts. Following the steps of the procedure the Company Court, further permitted to cause advertisement of the petition in one English edition of The Hindu and Prajavani, Kannada daily on or before November 11, 2009, fixing the date of hearing as December 9, 2009. Aggrieved by this order, the company appealed to the Karnataka High Court under Section 4 of the Karnataka High Court Act, 1961 and Section 483 of Companies Act, 1956. The grounds of the appeal were that the Tribunal did not address the ‘possible defences’ available to the company. The company through this advertisement of the petition can face huge repercussions and losses along with the investors of the company and other interested persons. It could harm the company financially and in the stock market. The Company challenged the order of the Single Judge of the Tribunal. 

Issues

Whether the Order given by the Company Court is valid or not?

Relevant Provisions

Section 4, Karnataka High Court Act, 1961: Appeals from decisions of a single Judge of the High Court.       

Section 483, Companies Act, 1956: Appeals from orders.

Section 433, Companies Act, 1956: Circumstances in which company may be wound up by Court.

Section 433(e) Companies Act, 1956: if the company is unable to pay its debts.

Judgment

The Karnataka High Court set aside the order by the Company Court and allowed the appeal and further ordered the Company Court to examine the case again. The court agreed with the appellant and stated that such an advertisement for the company winding-up can affect persons interested in the company, majorly the creditors and the shareholders. They hold a significant position in winding up of the company as they can distribute the assets of the company while winding up. 

The next aspect analyzed by the Court was that 99% of the Shares are owned by the Government of India and holds a significant position in the public sector. Therefore, the Company attracts the issue of public interest as well. If such a vital public sector undertaking will be ordered to wound up and will be ordered to publish it, this matter will become a matter great of public interest. Therefore, the nature of the company, i.e. a huge public sector company has a significant effect in deciding the issue of winding up. 

Further, the court interpreted Section 433, Companies Act, 1956 which lays down the circumstances in which a company may be wound up. The court said that absolute discretionary power has been given to the Tribunal under this section, and therefore the Company Court has to be more careful in deciding when a company has to wound up. 

The Company Court has to acknowledge the object of the provision along with other factors like public interest, the impact of winding up on the Company as well as the people interested in the Company. Setting aside the Company Court’s order. 

Concept Highlighted

This case highlights an important aspect concerning companies as well. The first aspect is the responsibility of the Tribunal to decide the winding up of the companies. The company is the result of huge efforts, investments, capitals, and people, and winding up the company affects all these factors. Therefore, the Tribunal has to analyze the case critically to see if any other action or remedy can be taken other than to wind up the Company. Further, there can be no effect in the sectors of the economy in winding up a company, and on the other hand, there can be a huge effect. Therefore, this becomes a crucial decision to be made. The Tribunal being the absolute authority cannot misuse the provisions of the statute, for instance, section 433 of Companies Act in this case.

India is a follower of Natural Justice. The two principles Audi Alterm Partem & Nemo judex in causa sua has a huge influence on the laws of India. Audi Alaterem Partem is a rule that no one should be condemned unheard; it gives the Right of an opportunity of being heard. The fact that the Company Court did not address the possible defenses hampered the Right of the opportunity of being heard of the Company. Therefore, having unrestricted powers does not mean to curtail the rights of others. The Company has to allow presenting their side of the version[i].


[i] Vide Kapil N. Mehta v. Shree Laxmi MotorsLtd.

(2001) 103 Comp Cas 498 (Guj)

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