Introduction
The Hon’ble High Court of Bombay has, in the case of Bipin J. Bagadia v. Grand View Estates (P.) Ltd.[i] struck down a Company Court order staying liquidation proceedings, citing non-compliance with binding precedents from the Appeal Court and Supreme Court of India.
Facts
The company was declared a sick company under the Sick Industrial Companies (Special Provisions) Act, 1985, following a reference to the Board for Industrial and Financial Reconstruction (‘BIFR’). The BIFR recommended its winding up.
The Bombay High Court ordered the winding up of the company and appointed an Official Liquidator to oversee the process.
Respondents 1 and 3, who collectively held 52% of the company’s shares, filed an application seeking a stay on the liquidation proceedings, but the Company Court rejected the application.
Respondents 1 and 3 appealed to the Supreme Court, which dismissed their challenge. A Special Leave Petition (SLP) was also rejected.
On 28.02.2020, Respondent 1 entered into an agreement with Respondent 4 (a trade union representing the company's former workmen) regarding the settlement of dues.
Based on this settlement, an Interim Application was filed seeking a stay on the liquidation. The Company Court granted the stay, reversing its earlier stance.
Dissenting shareholders challenged the stay order, arguing that the Company Court had disregarded binding judicial precedents from the Appeal Court and Supreme Court and that the mere settlement of dues could not justify a stay on liquidation.
Held
The High Court allowed the appeal and directed the Official Liquidator to assume control over the company’s affairs.
The Court reaffirmed that, while the settlement of creditors' dues is a relevant consideration under s. 466 of the Companies Act, 1956 (‘Act’), it cannot serve as the sole justification for staying liquidation proceedings. The High Court held that the Company Court’s order lacked a sound legal foundation, as there was no demonstrated material change in circumstances warranting a departure from the settled judicial precedent on winding-up stays.
It was further observed that the Company Court’s order failed to take into consideration the orders passed by the Appeal Court and the Supreme Court. The High Court opined that the absence of reference to prior judicial determinations indicated that these crucial decisions had not been brought to the Tribunal’s attention. Consequently, the impugned order was held to be contrary to established legal principles governing the grant of a stay under s. 466 of the Act.
The High Court found that the Company Court’s order facilitated an indirect takeover of company assets under the pretence of a settlement. It noted that the stay application lacked genuine intent to revive the company and instead sought to bypass liquidation laws to acquire its immovable properties.
Our Analysis
The High Court reaffirmed that public interest, commercial morality, and judicial discipline are paramount in deciding stay applications under s. 466 of the Act. It ruled that a settlement with creditors alone does not constitute a ‘material change in circumstances’ sufficient to justify a stay, particularly when prior court orders had already rejected similar applications.
The judgment reinforces the principle that liquidation stays must not serve as a pretext for asset acquisition by controlling shareholders. Courts must ensure that winding-up stays are granted only in cases of genuine revival efforts, not as a means to circumvent liquidation laws for private gain.
End Note
[i] 2025 SCC OnLine Bom 112 dated 22.01.2025.
Authored by Rosy Gupta, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinions.