Company in Liquidation Can’t Be Revived Solely for Real Estate Development: Bombay High Court

The Bombay High Court has delivered a detailed ruling examining the scope of Section 466 of the Companies Act, 1956, in the context of a plea to stay the winding-up of Swadeshi Mills Company Ltd. The principal question before the Court was whether a company ordered to be wound up can be brought out of liquidation not to resume its original business, but to undertake large-scale real estate development of its prime mill lands. The bench of Justice Sharmila U. Deshmukh considered extensive submissions from secured creditors, minority shareholders, the Official Liquidator, and the recognized workers’ union before addressing the statutory contours of revival under Section 466. Swadeshi Mills, once a composite textile mill operating in Mumbai, was declared a sick industrial company by the Board for Industrial and Financial Reconstruction in 2001 after its net worth eroded. Acting on BIFR’s recommendation, the High Court ordered its winding-up on September 5, 2005. Even prior to the final order, a provisional liquidator had been appointed in 2002. A High Power Committee constituted by the Maharashtra Government sold the plant and machinery, and part payments were made to workers and secured creditors. However, the principal immovable asset — approximately 48 acres of mill land at Chunabhatti — remained unsold due to encroachments, structural complications, and repeated valuation issues. The Official Liquidator reported persistent impediments in completing surveys and valuations. While some immovable properties were disposed of, the mill land — carrying significant redevelopment potential under DCPR 2034 — remained under liquidation custody. Grand View Estates Pvt. Ltd., part of the Shapoorji Pallonji Group, moved the present application under Section 466 seeking a stay of winding-up. The applicant and another group entity together hold approximately 52% shareholding in Swadeshi Mills. They also claim secured creditor status after acquiring assigned debts originally held by IDBI and Bank of Baroda. The revival plan projected settlement of total liabilities estimated at approximately ₹1,572 crore as of January 2025, including Rs. 237 crore toward 100% workers’ dues plus additional compensation. Settlement of unsecured creditors. Payment of statutory dues and cooperative society claims. Deferment of secured creditor dues exceeding ₹1,100 crore. Bearing of liquidation costs. An amount of Rs. 240 crore was deposited with the Official Liquidator, out of which over ₹169 crore has already been disbursed to workers and creditors. Significantly, the applicant acknowledged that textile revival was commercially unviable, relying on a technical feasibility report. Instead, the proposal sought to amend the Memorandum of Association to permit real estate development. An Extraordinary General Meeting (EOGM) held in May 2024 approved alteration of the object clause with 99.85% of votes cast in favor. The applicant contended that revival under Section 466 does not require restoration of original manufacturing activity but merely the continuation of the corporate entity through viable business operations. They argued that liabilities were artificially inflated from ₹366 crore in 2011 to over ₹1,400 crore in 2025 by adding post-liquidation interest at 16%, allegedly contrary to Rule 179 of the Company Court Rules. The objectors claimed that public auction of the 48-acre land could fetch over ₹3,000 crore, ensuring surplus distribution to contributories after satisfying creditors. It was argued that Section 466 contemplates genuine revival of business, not transformation into a real estate venture unrelated to the company’s original textile operations. They relied on earlier Division Bench findings that similar proposals amounted to attempts to acquire valuable land without competitive bidding. The recognized workers’ union supported the revival, emphasizing that over 2,600 ex-workers consented to the settlement. Compensation under the agreement exceeds likely liquidation recoveries. The agreement provides timelines and housing benefits unavailable in liquidation. Secured creditors argued that prolonged liquidation for over two decades has yielded little progress and that revival would prevent institutionalized value destruction. The Court examined the statutory scheme of winding-up and the discretionary power under Section 466. The Court held that contributories have a right to oppose a stay if their potential share in surplus distribution may be prejudiced. The small percentage of shareholding does not extinguish that right. Upon winding-up, company assets vest in the Official Liquidator and become custodia legis. Any revival must not undermine statutory safeguards for equitable distribution. The Court examined the Supreme Court’s decision in Meghal Homes Pvt. Ltd. v. Shree Niwas Girni K.K. Samiti, which laid down that revival schemes must satisfy commercial morality, bona fide intent, and public interest. The Supreme Court cautioned against schemes that merely facilitate disposal of assets rather than genuine revival. A central observation was that revival under Section 466 does not automatically mean restoration of original business activity. However, the Court emphasized that revival must demonstrate bona fide continuation of corporate existence in a manner consistent with public interest and fairness to stakeholders. The Court noted the competing models: Public auction route: Transparent value maximization but uncertain timelines and encumbrance risks. Revival route: Structured settlement and redevelopment with majority support but raises concerns about bypassing open market discovery. The Court acknowledged disputes regarding post-liquidation interest and assignment of debt but indicated that such issues fall within appropriate adjudicatory frameworks and cannot alone determine the Section 466 application. Case Details Case Title: Grand View Estates Private Limited Versus The Official Liquidator of the Swadeshi Mills Company Limited Citation: JURISHOUR-130-HC-2026(Bom) Case No.: Company Petition No. 385 Of 2002 Date: 23rd February, 2026 Counsel For Petitioner: Janak Dwarkadas, Senior Advocate Counsel For Respondent: Dr. Virag Tulzapurkar, Senior Advocate Click Here To Read Order Read More: Idle Capacity Compensation Of Installed Production Capacity Not Taxable as ‘Declared Service’ U/S 66E(e) of Finance Act 1994: CESTAT

Company in Liquidation Can’t Be Revived Solely for Real Estate Development: Bombay High Court

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