Mumbai: In a pivotal decision, the Bombay High Court on Wednesday overturned an earlier order staying the winding-up proceedings of Swadeshi Mills Company Limited, effectively reviving its liquidation process.
The judgment followed an appeal by shareholders Bipin Bagadia and Ashish Mooni, challenging the stay granted by a lower court. The stay had been sought by Grand View Estates Private Limited and Forbes & Co. Ltd., entities within the Shapoorji Pallonji Group, which together hold a 52% stake in the company.
Advocates for the minority shareholders, Mohit Khanna and Vaibhav Jagdale, contended that the stay orders violated established legal principles. They cited Supreme Court judgments upholding Swadeshi Mills’ liquidation.
Observation Made By The High Court
The HC observed that the lower court’s orders failed to consider these precedents or the legal framework governing stays under Section 466 of the Companies Act, 1956. Declared a “sick company” by the Board for Industrial and Financial Reconstruction (BIFR) in 2002, Swadeshi Mills was ordered to undergo liquidation by the Bombay HC on September 5, 2002, with an Official Liquidator appointed. Efforts by the Shapoorji Pallonji Group to stall the process in 2011 were rejected by all judicial levels, including the Supreme Court in 2016.
In 2022, Grand View Estates filed another plea with the Company Court, citing settlements with workers and creditors, and claiming a deposit of ₹240 crore for distribution to workers. The company court granted a stay in October 2023, sparking the shareholders’ appeal. A bench comprising Justices M.S. Sonak and Jitendra Jain noted that the stay order ignored strong findings from previous rulings, which criticized efforts to derail liquidation to acquire assets at undervalued prices.
The bench emphasized that Section 466 could not be invoked solely based on private settlements without safeguarding all stakeholders, including minority shareholders. “Continuing the stay on the winding-up proceedings would not serve the company or its remaining shareholders, who have been sidelined under the stay,” the court stated.
Bombay HC Criticises The Shapoorji Pallonji Group
The HC criticized the Shapoorji Pallonji Group for failing to secure consent from 75% of shareholders, a statutory requirement, and noted its intention to repurpose the company’s assets for real estate rather than reviving its textile operations.
Bombay HC Dissolves The Stay
The court dissolved the stay, reinstated the Official Liquidator, and ordered an immediate resumption of liquidation proceedings. It also directed that no transactions involving the company’s properties could proceed without court approval. “The stay on the winding-up proceedings is dissolved. The liquidation process, which was in abeyance, is now reinstated along with the liquidator’s appointment,” the bench concluded.
