Mumbai, Feb 26: Holding that a revival proposal cannot be used as a means to secure valuable real estate assets of a company under liquidation, the Bombay High Court has refused to stay the winding up of Swadeshi Mills Company Ltd.
The court has rejected a scheme proposed by Grand View Estates Pvt Ltd, a firm belonging to the Shapoorji Pallonji Group.
Court questions bona fides of revival plan
Justice Sharmila Deshmukh, on February 23, ruled that the proposal was not a genuine attempt to revive the textile undertaking but a move aimed at securing control over the company’s prime 48-acre land parcel at Chunabhatti for redevelopment gains.
“The facts would reveal that the present application is nothing but a ruse to obtain valuable land for exploitation in the real estate market,” the court observed.
Background of liquidation
Swadeshi Mills, established in 1890 by Jamsetji Tata to promote indigenous textile production during British rule, has been in liquidation for more than two decades. Winding-up proceedings were initiated in 1997 after creditors moved the high court.
Following erosion of its net worth, the company was declared sick by the Board for Industrial and Financial Reconstruction (BIFR), which recommended liquidation in February 2001. A provisional liquidator was appointed in 2002, and the high court ordered winding up on September 5, 2005.
Revival scheme proposal
Grand View Estates and its sister concern, Forbes and Company Ltd, together holding over 52% shares in the company, approached the court under Section 466 of the Companies Act, 1956, seeking a stay on liquidation and approval of a revival scheme.
The applicants proposed immediate payment of about Rs 252 crore, including Rs 237 crore towards workers’ dues, settlement of certain unsecured creditors, and deferment of their own dues amounting to nearly Rs 1,100 crore to future dates.
They contended that restarting textile manufacturing was technically unviable but argued that the plan would still serve public and economic interest and had labour union backing.
Two shareholders opposed the plea, pointing out that a similar revival proposal had already been rejected by a division bench in 2022, which had found the scheme to be an attempt to acquire the company’s valuable land at a concessional cost.
Court declines to stay winding up
Accepting these objections, Justice Deshmukh held that the proposal failed to meet the test of “bona fides, commercial morality and public interest”. The court noted that the repayment funds were proposed to be raised by encumbering the company’s own assets.
“The revival proposal is required to meet the test of bona fides, commercial morality and public interest, which is not met in the present case, and the scheme in the present case is a ruse to reap the benefits of the development without sharing the same with the other stakeholders.”
“In return, without expending any of its funds, by way of backdoor method, the applicant seeks to utilise the valuable asset of the company in liquidation without having to face public auction,” the court said.
Observing that the Chunabhatti land would “command astronomical prices” owing to its redevelopment potential, the court said profits from redevelopment would first be used to repay the applicants’ substantial dues, leaving other stakeholders at a disadvantage.
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Terming the revival plan neither credible nor comprehensive, the court refused to halt the winding up and noted that valuation of the property by the Official Liquidator is underway, leaving scope for value maximisation through a transparent public auction.
“There is no credible and comprehensive revival plan presented for this Court to be satisfied that the winding up ought to be stayed,” the judge added.
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