1992 (3) TMI 302 - HC - Companies Law

Summary

Issues Involved:
1. Petition for winding up under sections 439, 433(e), and 434 of the Companies Act, 1956.
2. Liability and inability of the company to pay its debts.
3. Protective umbrella of the Board for Industrial and Financial Reconstruction (BIFR) and its applicability.
4. Discretionary power of the court under section 433 of the Companies Act, 1956.
5. Equitable grounds for denying or delaying a winding-up order.

Detailed Analysis:

1. Petition for Winding Up:
The petitioners filed a creditors' petition for winding up Khatau Dyes and Fibres Ltd. under sections 439, 433(e), and 434 of the Companies Act, 1956. The company, a wholly-owned subsidiary of Khatau Makanji Spinning and Weaving Co. Ltd., had drawn several D.A. bills of exchange which were dishonored, leading to significant unpaid amounts. The company also failed to repay a cash credit hypothecation facility. Despite several demands, including a final advocate's letter, the company failed to make the payments, leading to the winding-up petition.

2. Liability and Inability to Pay Debts:
On August 7, 1989, the company acknowledged its liability of Rs. 2,30,43,588 to the petitioners and agreed to pay in installments as per consent terms filed in court. However, the company failed to honor these terms. The petitioners argued that the company's inability to pay its debts justified winding up under the said Act. The company admitted the debt but resisted the winding-up order, citing its status as a subsidiary of Khatau Mills, which was under BIFR protection.

3. Protective Umbrella of BIFR:
The company contended that, as a subsidiary of Khatau Mills under BIFR protection, it should also be shielded from recovery proceedings, including winding up. However, the court noted that the protective umbrella of BIFR over Khatau Mills did not extend to the company, as they are distinct legal entities. Therefore, the proceedings for winding up the company were not suspended by Khatau Mills' BIFR status.

4. Discretionary Power of the Court:
The court acknowledged its discretionary power under section 433 of the Companies Act, 1956, to refuse or conditionally pass a winding-up order even if the company is unable to pay its debts. The principles derived from precedents emphasized that winding up is generally ordered for companies that are commercially insolvent, to uphold commercial morality. The court must consider whether the company is solvent in a commercial sense, not merely if it can convert assets to cash to pay debts.

5. Equitable Grounds for Denying or Delaying Winding Up:
The court considered equitable grounds and precedents where winding-up orders were stayed or refused despite the company's inability to pay debts. However, in this case, the company had not paid any amount to the petitioners since the filing of the consent terms and had not satisfied the demands for over three years. The court found that the company's continued non-payment and inability to offer repayment indicated it was unable to pay its debts. Thus, it was neither appropriate nor just to stay or postpone the winding-up order.

Conclusion:
The court concluded that the company's debt to the petitioners was clear, valid, and undisputed. The company's failure to pay within the statutory demand period deemed it unable to pay its debts, warranting a winding-up order in the public interest to prevent the public from dealing with an insolvent company. The petition was made absolute, and the court ordered the winding-up of the company, granting a three-week stay on the operation of the order at the request of the company's counsel.