1983 (2) TMI 224 - HC - Companies Law

Circumstances in which a company may be wound up, Winding up Company when deemed unable to pay its debts

Issues Involved:

1. Whether the petition is maintainable in law or not?
2. Whether the notice given by the petitioner is valid under section 434 of the Companies Act? If the notice is not valid, whether the petition is maintainable or not?
3. Whether the company has suspended its business for more than one year? If so, whether the company is liable to be wound up under section 433(c) of the Companies Act?
4. Whether the company is unable to pay its debts under section 433(e) of the Companies Act?
5. Whether the company has lost its substratum?
6. Whether the company is commercially insolvent?
7. Whether it is just and equitable that the company should be wound up?
8. Whether the alleged agreement of sale, dated January 20, 1981, executed in favour of G.T. Oil Mills is valid in law or not under the Companies Act?
9. Whether the petition is bad on account of mala fides?
10. To what relief is the petitioner entitled?

Detailed Analysis:

Issue No. 1: Maintainability of the Petition
The petitioner, being a holder of 76 fully paid-up shares, qualifies as a "contributory" under Section 439(1)(c) of the Companies Act, 1956. Thus, the petition is maintainable.

Issue No. 2: Validity of Notice under Section 434 of the Companies Act
The notice given by the petitioner on January 28, 1981, does not constitute a valid notice under Section 434(1)(a) of the Companies Act as it lacks any indication that it is a statutory notice for winding up. Despite the invalidity of the notice, the petition remains maintainable, and the petitioner can still challenge the company's inability to pay its debts.

Issues Nos. 3, 5, and 7: Suspension of Business, Loss of Substratum, and Just and Equitable Grounds for Winding Up
The company has indeed suspended its business activities; however, the suspension of business alone does not mandate winding up. The company has not lost its substratum as it still possesses significant assets, including one lakh square meters of land and buildings worth over Rs. 50 lakhs. The company also has other objects in its memorandum of association that it can pursue. Given the majority shareholders oppose winding up and the company has plans to revive its business, it is not just and equitable to wind up the company.

Issue No. 4: Company's Inability to Pay its Debts
The company's liabilities are bona fide disputed. The balance sheets for the years ending March 31, 1980, 1981, and 1982, show that the company can meet its liabilities if it receives the remaining Rs. 20 lakhs from G.T. Oil Mills. Thus, the company is not unable to pay its debts under Section 433(e) of the Companies Act.

Issue No. 6: Commercial Insolvency
The company is not commercially insolvent. It has sufficient assets to meet its current liabilities, and the sale of the straw board unit will provide the necessary funds to cover its debts. The affidavits from creditors indicate they will not demand immediate repayment, further supporting the company's solvency.

Issue No. 8: Validity of the Sale Agreement with G.T. Oil Mills
The sale agreement dated January 20, 1981, with G.T. Oil Mills is valid. The transaction was conducted in good faith and for valuable consideration, and no provisions of the Companies Act were violated.

Issue No. 9: Mala Fides
The petition appears to be filed with mala fide intentions. The petitioner, who was the secretary-cum-manager of the company, has a personal and political rivalry with the partners of G.T. Oil Mills. The timing of the petition and the petitioner's small shareholding compared to the majority shareholders suggest an ulterior motive.

Issue No. 10: Relief to the Petitioner
Given the findings on the above issues, the petitioner is not entitled to any relief. The company is not commercially insolvent, has not lost its substratum, and it is not just and equitable to wind it up.

Conclusion:
The petition for winding up the company is dismissed. Each party shall bear its own costs. The application under Section 557 of the Companies Act for holding a meeting of the contributories is also filed.

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