1. This is an application under Section 175 of the Act for the appointment of a Provisional Liquidator of the Andhra Paper Mills Ltd., a Company having its registered office at Rajahmundry. The main petition is fixed for hearing on the 22nd instant. This application came before me first on the 27th of August, when I directed notice to issue to the company. The company has been duly served and is now represented before me by counsel. In addition, the trustees for the holders of the First Debentures issued by the Company are represented by counsel, and one shareholder appears by counsel.
2. The company was registered in January, 1929, and has an authorised capital of Rupees 23 lakhs divided into 20,000 ordinary and 3,000 preference shares, each of the face value of Rs. 100. The issued capital is 11,290 ordinary shares and 1,162 preference shares all of which except to a small extent of Rs. 120 are fully paid. Thus the paid-up capital of the Company amounts to Rs. 12,45,200. The petitioner is a creditor of the company for a capital sum of Rs. 1,06,465 odd plus interest. On the 15th July, he served a statutory notice demanding payment but apart from a payment on account of Rs. 25,000 the Company has failed to meet that demand. Prima facie therefore this is a case in which a compulsory winding up order will be passed ex debito justitiae.
3. What I have to consider now is whether any case is established for the appointment of a provisional liquidator. From the main pitition and the affidavit of the petitioner filed in support of the present application, it is clear that the Company is commercially insolvent, and indeed counsel appearing for the company agreed that this is so. The petitioner has filed a copy of the balance sheet of the company as at the 31st March, 1946, and the company itself has now placed before me a copy of the proposed balance sheet for the year ending 31st March, 1947. The balance sheet as at 31st March, 1946, showed a deficit of Rs. 17 lakhs. The proposed balance sheet for the following year shows that the deficit has increased to Rs. 2O lakhs.
4. The company has never paid any dividend on its shares and no interest has been paid on the first debentures which were issued prior to 31st March, 1935, or on the second debentures issued in 1940. The amount due on debentures is Rs. 11 lakhs with outstanding interest of over 4 lakhs of rupees. In addition to this, the balance sheet shows that the company has other debts amounting to over 23 lakhs of rupees. The debentures are secured by a mortgage of the buildings, machinery and plant. That charge does not extend to the, manufactured stock, raw materials and furniture said to be worth about 11 lakhs of rupees. It is common ground that the company's. Mills were closed on the 24th May this year and that since that date no business has been done. Counsel for the trustees of the first debenture-holders has explained that his clients took over the control of the business on the 14th February, 1947, for non-payment of interest. It was then arranged between the Board of the Company and the trustees that the trustees would work the mills for three months and would defer bringing their security to sale for that period. Counsel described this as a last effort to see whether the company could be run profitably. The money required (about 2 lakhs of rupees) to work the company for the three months was put up by the petitioner who was then or had previously been in the service of the trustees. That three months' working resulted in a loss, and on the 2nd May, 1947, the debenture holders at a duly convened meeting decided to take over their security. The result was the closing down of the Mills on the 24th May. The petitioner has not set out these circumstances in full in the petition but I do not regard this as due to any want of frankness.
5. The trustees for the first debenture-holders naturally have no objection to the appointment of a provisional liquidator. Their counsel states that when the business was stopped his clients had only two alternatives open to them. They might file a suit to bring their security to sale or they might take steps to secure the winding up of the company. He informs me that in point of fact they were about to file a suit. These proceedings saved them the trouble of taking that course.
6. Counsel for the company represents also the managing agents. He states that his clients have no objection to the appointment of a provisional liquidator.
7. The petitioner asks for the appointment in order to secure the assets of the company. I have already pointed out that there are assets of a value of over 11 lakhs of rupees apart from the assets charged in favour of the debenture-holders. The petitioner states that there has been serious trouble between the company and its employees and that the trouble still continues. It seems that police assistance has already been sought to secure the safety of the company's representatives, and its property at Rajahmundry. On account of these circumstances and on account of the fact that the partners of the managing agents of the company and the trustees of the debenture-holders are all residing at Bombay, the petitioner fears for the safety of the company's assets. It is not suggested that these fears are unjustified.
8. I am satisfied that this is a case in which the appointment of a provisional liquidator will be proper. Counsel for the petitioner has referred me to the following observations of Lord Romilly, M.R., in In re The Railway Finance Co. 14 L. T. 507 that learned Judge observed:
I do not appoint a provisional liquidator unless it appears that the company cannot go on.' and in In re London Hamburg and Continental Exchange Bank (Emmerson's case) (1866) E. cas. 231 His Lordship observed:It is perhaps Convenient that I should state what my practice is with reference to the appointment of provisional liquidators. Where there is no opposition to the winding up. I appoint a provisional liquidator as a matter of course, on the presentation of the petition. But where there is an opposition to it, I never do, because I might paralyse all the affairs of the Company and afterwards refuse to make the winding up order at all. But when the directors themselves apply, or do not oppose the winding up then I appoint the provisional liquidator.
In the present case not only does the company not oppose the petitioner but it supports him, as also do the trustees for the holders of the first debentures. The only opposition is by one K.K. Subba Rao, a share-holder of the company. He has filed a counter affidavit and he appears by counsel. The matters stated by him in the counter affidavit are all matters which it may be necessary to consider when the main petition is heard. I cannot regard those matters as relevant in the consideration of the present application. Shortly stated his objection is that the company might be successful if it were suitably and properly managed. What I have to consider at present is whether it is in the interests of all concerned that a provisional liquidator should be appointed. I am satisfied that it is, and accordingly I make the appointment asked for. Ordinarily, I would appoint the Official Receiver, but I am asked to appoint Mr. R.G.N. Price, late of Messrs. Fraser and Ross, Chartered Accountants of this city. The company is a large undertaking with its Mills and registered office outside Madras and I am satisfied that it would be more suitable to appoint a chartered accountant rather than the Official Receiver. Accordingly; I appoint Mr. Price as provisional liquidator of the company to take charge of the assets of the company at Rajahmundry. He will of course act in close co-operation with the trustees of the debenture-holders who are already in possession of the building, machinery and plant. Counsel for the trustees states that his clients will give the provisional liquidator all possible assistance. He will furnish security in the sum of Rupees five lakhs to the satisfaction of the Second Assistant Registrar of this Court within one week from the date of this order. At the request of the counsel for the petitioner the matter of Mr. Price's remuneration will be left over for the present. His appointment as provisional liquidator will take effect forthwith, and he will have the powers given under Section 179 of the Act except those given in Sub-clauses (c) and (g). The costs of this application will be costs in the main petition.