1991 (6) TMI 200 - HC - Companies Law

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

Summary

Issues:
Winding up of respondent-company on grounds of inability to pay debts and just and equitable reasons.

Analysis:
The petitioner-firm filed an application for the winding up of the respondent-company, alleging non-payment of debts and seeking justice and equity. The petitioner-firm supplied goods to the respondent-company on credit, with payment terms of 30 to 60 days. Despite reminders and legal notices, the respondent-company failed to pay the outstanding amount of Rs. 2,85,815 along with interest. The respondent-company only made a partial payment of Rs. 25,000 out of the total bill amount of Rs. 3,10,815. The court noted that the respondent-company did not file a counter-affidavit, leading to the presumption that the allegations made in the petition were admitted. The court found that the respondent-company was unable to pay its debts, meeting the criteria for winding up under section 433(e).

The court considered whether a winding up order should be made, citing section 443 which provides various options for the court upon hearing a winding up petition. While the grounds for winding up under section 433 were met, the court emphasized its discretion in deciding whether to issue a winding up order. In this case, the court decided to give the respondent-company an opportunity to settle its debts with the petitioner-firm within three months, considering the company's authorized share capital of Rs. 2,00,00,000. The court aimed to promote commercial morality by allowing the respondent-company a chance to pay its dues. The winding up petition was not closed, and the matter was scheduled for further orders on a future date.

In conclusion, the court found the respondent-company unable to pay its debts, meeting the criteria for winding up under section 433(e). However, instead of immediately issuing a winding up order, the court exercised its discretion to give the respondent-company a chance to settle its debts within a specified timeframe, emphasizing the importance of commercial morality in such matters.