1983 (5) TMI 196 - HC - Companies Law

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

Summary

Issues Involved:
1. Arrears of Rent and Financial Insolvency
2. Parallel Proceedings and Jurisdiction
3. Statutory Notice under Section 434 of the Companies Act
4. Commercial Insolvency and Winding-Up Petition

Issue-Wise Detailed Analysis:

1. Arrears of Rent and Financial Insolvency
The petitioning creditor sought the winding up of Siddhartha Apparels Pvt. Ltd. due to arrears of rent. By an agreement dated April 29, 1979, the petitioner let out 88,000 sq. ft. on the third floor of premises No. 24/1/1, Alipore Road, Calcutta, at Rs. 8,000 per month. The company defaulted from February 1981, resulting in dues of Rs. 1,36,000 for rent and Rs. 48,000 for taxes and other charges, totaling Rs. 1,86,000. The company admitted its inability to pay in a suit under section 17(2)(a) and (b) of the West Bengal Premises Tenancy Act, proposing to pay Rs. 1,000 per month over 15 years. The petitioner argued that this admission of financial stringency and the company's failure to submit its balance-sheet since 1976 indicated commercial insolvency.

2. Parallel Proceedings and Jurisdiction
The company contended that the winding-up petition was a pressure tactic, given the pending eviction suit in Alipore Court. It argued that this constituted parallel proceedings for the same cause of action, which should be avoided to prevent conflicting jurisdictional findings. The court, however, determined that the proceedings were not parallel since the winding-up petition addressed the company's inability to pay its debts, while the eviction suit sought possession and damages.

3. Statutory Notice under Section 434 of the Companies Act
The company argued that the petitioning creditor had not served a statutory notice under section 434, which precluded the presumption of the company's inability to pay its debts. The court acknowledged this but stated that the petitioning creditor could still prove the company's inability to pay through other evidence, including the company's admission of financial hardship.

4. Commercial Insolvency and Winding-Up Petition
Section 433 of the Companies Act allows for winding up if a company is unable to pay its debts. The court referenced multiple cases to support that a winding-up petition could proceed even without statutory notice if the company's inability to pay was evident. The court cited Central Bank of India v. Sukhani Mining and Engineering Industries Pvt. Ltd., which held that a creditor's suit for debt recovery does not bar a winding-up petition. Similarly, Pandam Tea Co. Ltd. v. Darjeeling Commercial Co. Ltd. affirmed that a creditor could prove a company's inability to pay debts through other evidence. The court also noted that the petition was not an abuse of process, as the company had admitted its financial difficulties.

The court further discussed the concept of "commercial insolvency," indicating that a company is commercially insolvent if it cannot meet its current liabilities with its existing and probable assets. The court referenced Cine Industries and Recording Co., In re, which defined commercial insolvency as the inability to pay debts as they become due, despite having assets that exceed liabilities.

Conclusion
The court concluded that the petitioning creditor had sufficiently demonstrated the company's inability to pay its debts. The petition for winding up was admitted, and advertisements were ordered to be published in Amrita Bazar Patrika and Aaz Kaal, with a stay on publication for four weeks.

This comprehensive analysis reflects the court's detailed consideration of the legal issues, statutory provisions, and relevant case law, leading to the decision to admit the winding-up petition.