1987 (9) TMI 369 - HC - Companies Law

Investigation of the affairs of a company Winding up Circumstances in which a company may be would up

Issues Involved:
1. Maintainability of the company petition under Section 583 of the Companies Act.
2. Justification for winding up the company based on admitted debt.
3. Objections by the workmen regarding the viability and management of the company.
4. Applicability of the Sick Industrial Companies (Special Provisions) Act, 1985.
5. Request for investigation into the affairs of the company under Section 237 of the Companies Act.

Detailed Analysis:

1. Maintainability of the Company Petition under Section 583 of the Companies Act:
A preliminary objection was raised by the company regarding the maintainability of the petition under Section 583 of the Companies Act. This objection was overruled by the court in its order dated August 8, 1986, as referenced in Bangalore Timber Industries v. Madras Sapper Ex-servicemen's Rehabilitation Association [1988] 63 Comp. Cas. 733 (Kar.).

2. Justification for Winding Up the Company Based on Admitted Debt:
The petitioners, creditors of the unregistered company, sought the winding up of the company due to an aggregate admitted debt of Rs. 33,49,262.58. The company did not dispute this debt. The court noted that the company had already resolved to close down its operations and had approached the authorities for necessary permissions. The Union of India and the State Government, as supporting creditors, did not oppose the winding up. Given the admitted debt and the lack of opposition from other creditors, the court found it justifiable to order the winding up of the company.

3. Objections by the Workmen Regarding the Viability and Management of the Company:
The workmen opposed the winding up, arguing that the company was still a viable business undertaking and that proper management and sufficient infusion of working capital could revive it. They attributed the company's losses to mismanagement and lack of professional expertise. The court acknowledged the workmen's concerns but noted that the company had sustained cumulative losses of Rs. 2.50 crores and total liabilities of Rs. 3.25 crores. The court found that the suggestions for better management, while laudable, were not feasible without substantial aid from the Central and State Governments. The court concluded that it could not allow the petitioners to wait indefinitely to recover their debts by refusing an order of winding up.

4. Applicability of the Sick Industrial Companies (Special Provisions) Act, 1985:
The court examined the applicability of the Sick Industrial Companies (Special Provisions) Act, 1985 (Sick Companies Act). The Act aims to revive and rehabilitate potentially viable sick industrial companies. However, the court determined that the Sick Companies Act does not apply to unregistered companies like the respondent. Therefore, the provisions of the Sick Companies Act were not relevant to the winding up petition.

5. Request for Investigation into the Affairs of the Company under Section 237 of the Companies Act:
The workmen requested an investigation into the affairs of the company under Section 237 of the Companies Act. The court noted that Section 235, which authorizes the Central Government to appoint inspectors, does not apply to unregistered companies. Consequently, Section 237, which relates to investigations declared by the court, was also deemed inapplicable. The court further observed that the company was managed by a board consisting of Central Government officials, making an investigation unnecessary.

Conclusion:
The court concluded that the objections of the company and the workmen did not merit serious consideration. Given the admitted debt, the cumulative losses, and the lack of a feasible plan for revival without government aid, the court ordered the winding up of the company. The petitioners were directed to deposit Rs. 2,000 with the official liquidator for contingent expenses and to advertise the order in one issue of Deccan Herald. The parties were instructed to bear their own costs.

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