1990 (9) TMI 262 - HC - Companies Law

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

Issues Involved:
1. Conflict between the Companies Act, 1956 and the Industrial Disputes Act, 1947.
2. Financial incapacity and insolvency of the company.
3. Interests of the workmen and public utility services.
4. Validity of the special resolution for winding up.
5. Role of the State Government and CIDCO.

Detailed Analysis:

1. Conflict between the Companies Act, 1956 and the Industrial Disputes Act, 1947:
The primary issue was whether there is a conflict between the provisions of the Companies Act, 1956 (referred to as "the said Act") and the Industrial Disputes Act, 1947 concerning the winding up of a company that is an industrial establishment. The court held that harmoniously construed, there is no conflict between the two statutes, and they operate in distinct and separate fields. The Industrial Disputes Act applies when an employer intends to close down an undertaking while the company continues to exist. In contrast, a winding-up order under the said Act leads to the dissolution of the company, ceasing its business operations and discharging its employees by operation of law.

2. Financial incapacity and insolvency of the company:
The company had accumulated significant losses from 1980 to 1984, amounting to Rs. 4,37,41,951 by March 31, 1984. The company's liabilities far exceeded its assets, with liabilities amounting to Rs. 7,92,00,000 against assets worth Rs. 1,98,00,000. The State Government refused to provide financial assistance, and no financial institution was willing to lend funds. The court concluded that the company was insolvent and unable to pay its debts, justifying the winding-up petition.

3. Interests of the workmen and public utility services:
The court considered the interests of the workmen, noting that the company had not operated since 1984, leading to a decrease in asset value and an increase in liabilities. The consent terms between the company and the workmen ensured that the proceeds from the sale of the company's assets would first be used to pay the dues of the workmen. Additionally, the new corporation to be established would consider employing the company's former workmen, giving them preference based on suitability.

4. Validity of the special resolution for winding up:
The company passed a special resolution for winding up due to its financial incapacity to pay its debts and resume its business. The court found that the company had made out a case for winding up, satisfying the conditions under section 433 of the said Act. The motive behind the resolution and the company's mismanagement were deemed irrelevant to the winding-up decision, as the company was insolvent and unable to continue its operations.

5. Role of the State Government and CIDCO:
The State Government, represented by CIDCO, had no plans to revive the company or provide financial assistance. The court noted that the financial position of the company, and not its principal shareholder or the State Government, was relevant to the winding-up petition. The lifting of the corporate veil did not alter this position. The State Government's affidavit confirmed its decision not to support the company financially, reinforcing the justification for winding up.

Conclusion:
The appeal was allowed, the judgment and order of the learned single judge were set aside, and the petition for winding up was made absolute. The official liquidator was appointed to oversee the liquidation process, ensuring that the proceeds from the sale of assets would first satisfy the dues of the workmen. The court also provided a six-week stay on the operation of the order, maintaining the official liquidator as the provisional liquidator during this period.

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