Bombay High Court: While hearing an application under Section 466 of the Companies Act, 1956 (Companies Act), a Single Judge Bench of Sharmila U. Deshmukh, J., declined to stay the winding up of Swadeshi Mills Company Ltd. (Swadeshi Mills). The Court reiterated that revival schemes must meet the triple test of bona fides, commercial morality, and public interest laid down in Meghal Homes (P) Ltd. v. Shree Niwas Girni K.K. Samiti, (2007) 7 SCC 753. Finding that the proposal was based on real estate development, inflated liabilities, and mortgaged assets, the Court held it lacked bona fides and rejected the application.
Background
The case arose from the winding up of Swadeshi Mills, ordered on 5 September 2005 after the Board for Industrial and Financial Reconstruction (BIFR) declared the company sick in February 2001. A provisional liquidator was appointed in February 2002, and a High Power Committee was set up by the Government of Maharashtra to oversee disposal of assets and payment of dues. Plant and machinery were sold, with proceeds partly used to pay workers and secured creditors.
Secured creditors Industrial Development Bank of India (IDBI) and Bank of Baroda (BOB) obtained recovery certificates from the Debt Recovery Tribunal in 2003. IDBI’s debt was transferred to the Stressed Assets Stabilisation Fund (SASF), and both debts were later assigned to the present applicant in 2006—07. The applicant, part of the Shapoorji Pallonji Group, holds about 52% shareholding in Swadeshi Mills and claims secured creditor status over the company’s immovable properties at Chunnabhatti, Mumbai, with liabilities around ₹985 crores.
The applicant sought revival under Section 466 of the Companies Act, 1956, proposing full payment of workers’ dues with compensation and housing, settlement of creditors, and diversification into real estate development using mill land. It was argued that circumstances had changed since earlier failed attempts, citing worker settlements, shareholder approval for alteration of the object clause to include real estate, and feasibility reports showing textile revival was not viable.
Minority shareholders opposed the scheme, contending it was materially identical to earlier rejected proposals, inflated liabilities with post-winding-up interest, and aimed at acquiring prime assets cheaply. They argued that only a public auction could ensure fair value for all stakeholders.
The official liquidator reported that movable assets had been sold and dues partly paid, but difficulties persisted in auctioning immovable properties due to encroachments. The recognised union of ex-workers supported the applicant, citing majority consent and settlements, and urged that prolonging winding up after more than two decades was unjust.
Analysis and Decision
The Court noted that Section 466 of the Companies Act empowers the National Company Law Tribunal (Tribunal) to stay winding up proceedings if they ought to be stayed. The Court observed that the shareholders upon the order of winding up being passed is entitled to a share in the distribution of the company’s assets after liabilities have been discharged and it is this right which is competing with the stay of winding up which was required to be put for consideration before the shareholders.
The Court recorded that upon passing of an order for winding up and appointment of official liquidator, the custody and control of all the property, effects and actionable claims to which the company is entitled is taken over by the official liquidator. The Court observed that the official liquidator has the powers set out in Section 457 of the Companies Act to do all acts necessary for winding up the affairs of the company and distributing its assets, including the power to sell the assets of the company by public auction or private contract.
The Court relied on Meghal Homes (supra), wherein it was held that revival must satisfy the triple tests of bona fides, commercial morality, and public interest. It was emphasised that:
“the Court has necessarily to see whether the scheme contemplates revival of business of the company, makes provision for paying off creditors, and ensures that what is put forward is not the ruse to dispose of the assets of the company (in liquidation) and while the Court will not sit in appeal over the commercial wisdom of the shareholders, it will certainly consider whether there is genuine attempt to revive the company and whether revival is in public interest and conforms to commercial morality.”
The Court noted that earlier revival applications had been dismissed by applying these principles. In considering the present proposal, the Court observed the liabilities have been inflated by including post winding up interest, and the funds deposited were raised by mortgaging company assets. The Court emphasised that for the last 20 years no steps have been taken to complete the process of liquidation. The Court held that the revival must be case specific, with application of mind, and not mechanical repetition of earlier rejected proposals.
The Court held that the proposal, which envisaged diversifying into real estate development by using the company’s immovable properties, was materially identical to the revival scheme rejected in 2011. The Court observed that the earlier finding that the proposal amounted to an attempt to take over the lands for real estate exploitation continued to bind the Court.
However, the Court rejected the argument that repayment of creditors alone justified a stay and reiterated that mere settlement of liabilities does not amount to revival of the company’s business. The Court noted that the applicant did not propose relocation or resumption of textile operations but sought revival primarily to unlock the development potential of the mill land.
The Court further observed that the proposal would enable the applicant and its group entity to take a “lion’s share” of redevelopment profits, leaving other stakeholders “high and dry.” The Court held that workers’ consent could not be the singular driving force for accepting a scheme of revival. It was further emphasised that revival must genuinely contemplate the continuation of the company’s business and not serve as a device for real estate exploitation.
Consequently, the Court concluded that the scheme does not satisfy the triple tests of bona fides, commercial morality and public interest. The application under Section 466 was therefore rejected, and the winding up of Swadeshi Mills was not stayed.
[Grand View Estates (P) Ltd. v. Swadeshi Mills Company Ltd., 2026 SCC OnLine Bom 1442, decided on 23-2-2026]
Advocates who appeared in this case:
For the Applicant: Janak Dwarkadas, Senior Advocate a/w Shansh Sengupta, Siddharth Ranade, Nishi Bhankharia, Vedant Kumar, Gaurav Jain, Neeraja Barve i/b M/s. Trilegal
For the Respondents: Virag Tulzapurkar, Senior Advocate a/w Vaishnavai Dhure i/b Amir Arsiwala, Cyrus Ardeshir, Senior Advocate i/b Yash Jariwala Mohit Khanna, Mr. Pranav Varsaria and Tejas Popat i/b Pravin Patil, Ranjeev Carvalho, Ms. Apurva Thipsay