1987 (7) TMI 500 - HC - Companies Law

Company when deemed unable to pay its debts, Winding up - Company when deemed unable to pay its debts, Admission of petition and directions as to advertisement

Summary

Issues:
- Winding up petition under section 433 of the Companies Act, 1956 filed by Kerala State Industrial Development Corporation Ltd. against Poonmudi Tea Pack Ltd.

Detailed Analysis:

The petitioner, Kerala State Industrial Development Corporation Ltd. (KSIDC), filed a winding-up petition under section 433 of the Companies Act, 1956, against Poonmudi Tea Pack Ltd. The company was incorporated to carry on the business of tea manufacturing and packaging. The project cost exceeded estimates due to delays and mismanagement by the managing director, K.T. Thomas, leading to financial difficulties in obtaining term loans and implementing the project. The auditors' report highlighted irregularities, and despite suggestions for improvement, K.T. Thomas failed to take effective steps. KSIDC, having lost confidence, sought winding up under sections 433(c) and (f) of the Companies Act.

The respondent, K.T. Thomas, admitted difficulties in obtaining term loans but attributed it to lack of cooperation from KSIDC. He argued that winding up should be a last resort after exhausting all other options to avoid severe consequences for the company. The court emphasized the need for prima facie grounds before admitting a winding-up petition, considering the interests of shareholders and the company as a whole. The court clarified that mismanagement alone may not warrant winding up, as other provisions like removal of directors or relief for oppression exist as alternatives.

The court examined the facts and found valid grounds for admitting the petition. It noted the failure to commence business within a year of incorporation, the project's inability to start operations, and the inability to secure funds due to K.T. Thomas's antecedents. Despite K.T. Thomas's claims of needing KSIDC's cooperation, the court found no evidence to support revival possibilities through other means. The court concluded that the circumstances justified admitting and advertising the petition, ordering its posting for hearing after due advertisement in local gazettes.

In the judgment, the court rejected the argument of promissory estoppel, emphasizing that KSIDC's cooperation stemmed from K.T. Thomas's proposal and not any binding promise. The court highlighted the responsibility of joint promoters to ensure the company's viability and cautioned against hasty winding-up petitions, advocating for exhausting all remedies before resorting to winding up. The court's decision to admit the petition was based on the lack of viable alternatives and the inability to revive the company under the current management. The court ordered the petition to be advertised as per the Companies (Court) Rules, 1959, with a hearing scheduled for a later date.