1983 (8) TMI 206 - HC - Companies Law

Wingding up Company when deemed unable to pay its pay its debts, Winding up - Company when deemed unable to pay its debts

Issues Involved:

1. Fraud and Misrepresentation
2. Title and Ownership of the Land
3. Commercial Insolvency and Financial Mismanagement
4. Limitation Period for Claims
5. Appointment of Provisional Liquidator
6. Maintainability of Winding-Up Petition

Detailed Analysis:

1. Fraud and Misrepresentation:

The petitioners alleged that the respondent company, Singhal Land and Finance P. Ltd., misrepresented itself as the absolute owner of the land in "Vijay Park" and sold plots to the petitioners based on this false representation. The sale deeds assured that the land was free from all encumbrances and that possession was handed over, which was not the case. The company had no title over the land and only had an agreement to sell, which did not confer ownership. The court found this to be a clear case of fraud and misrepresentation, noting that "the company unequivocally represented in the sale deeds to the petitioners that it was the absolute owner of the land," which was false.

2. Title and Ownership of the Land:

The respondent company admitted that it had not obtained the sale of Khasra No. 476 in its favor and thus had no title to pass on to the petitioners. The court observed that "no title has passed on to the petitioners over the plots as the company itself had no title." The petitioners could not get the land mutated in their favor as the company's name was not in the revenue records. The sale deeds misrepresented the company's ownership and the physical possession of the plots.

3. Commercial Insolvency and Financial Mismanagement:

The petitioners argued that the company was commercially insolvent, unable to pay its creditors, and had no substratum left. The balance-sheets showed continued losses, and huge amounts collected from plot purchasers were not reflected in the accounts. The court noted that "the company has been showing losses continuously" and had enacted large-scale public deception. The Registrar of Companies reported that the company had not made any substantial profit and was always running in losses.

4. Limitation Period for Claims:

The respondent argued that the claim for damages was barred by limitation as the sale deeds were executed in 1968 or 1970, and the petition was filed in 1982. The court, however, held that "petitioner No. 1 was prevented from pursuing the matter because of his absence from India," and he showed due diligence upon his return. The court applied Section 17 of the Limitation Act, granting discretionary relief, and noted that the petitioners were lulled into inaction by the company's promises.

5. Appointment of Provisional Liquidator:

A provisional liquidator was appointed to take possession of the company's records and assets. The court noted that "prima facie circumstances existed for winding-up of the company as large scale public deception appeared to have been enacted." The company's petitions to vacate the appointment of the provisional liquidator were dismissed, with the court observing that the company had no title to the land and had misled the plot holders.

6. Maintainability of Winding-Up Petition:

The respondent argued that the claim was based on damages for breach of warranty of title and could not be treated as a "debt" under Section 433(1)(e) or Section 434 of the Companies Act. The court, however, held that "there being thus total failure of title of the company, the petitioners are entitled to seek the return of the money paid along with interest." The amounts due were treated as debts, and the winding-up petition was found to be maintainable.

Conclusion:

The court ordered the winding-up of the respondent company, noting that it had enacted large-scale public deception, had no title to the land, and was commercially insolvent. The provisional liquidator was appointed as the official liquidator to take over the company's affairs, assets, and properties. The court directed that the winding-up order be published and filed with the Registrar of Companies.

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