1993 (2) TMI 258 - HC - Companies Law

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

Issues Involved:
1. Non-speaking order
2. Discretionary order for advertisement
3. Company's financial condition
4. Prima facie case for winding up
5. Postponement of advertisement

Detailed Analysis:

Non-speaking Order:
Mr. Raghavan, counsel for the appellants, contested the order on the grounds that it was a non-speaking order. The Supreme Court's decision in Vasudeo Vishwanath Saraf v. New Education Institute emphasized the need for a speaking order when subject to appeal. The court acknowledged this requirement but found that, given the admitted facts and the records, the order sufficiently indicated the reasons for advertisement. The court stated, "The nature of the order which should speak for itself depends upon the subject matter involved," and concluded that the order met the necessary standards.

Discretionary Order for Advertisement:
Mr. Raghavan also argued that the order directing advertisement was discretionary and unwarranted under the circumstances. The court held that a petition for winding up could be advertised if a prima facie case was made. The balance-sheet indicated the company's strained circumstances, and sufficient time had been granted to propose a settlement. The court found no error in the learned company judge's decision, stating, "In the instant case the balance-sheet of the company has been produced which itself indicates that the company is in strained circumstances."

Company's Financial Condition:
The petitioners asserted that the company was unable to pay its debts, with over 3,500 unsecured creditors and more than Rs. 4.50 crores borrowed. The company's balance-sheet and the director's affidavit supported these claims. The court noted, "The petitioners' assertions that the amounts matured have not been refunded and the cheques have bounced have also not been disputed by the company." The court emphasized that the capacity to pay debts should be tested in a commercial sense, not theoretically.

Prima Facie Case for Winding Up:
The court referred to the principles laid down in Madhusudan Gordharidas and Co. v. Madhu Woollen Industries Private Ltd., emphasizing that a prima facie case for winding up entitles a creditor to an order under section 433(e) of the Companies Act. The court stated, "If a prima facie case for winding up is made, normally, a creditor is entitled to an order of winding up under section 433(e) of the Companies Act, subject to other considerations governing the exercise of the discretion." The court found that the undisputed facts prima facie indicated the company's inability to pay its debts.

Postponement of Advertisement:
Mr. Raghavan requested a postponement of the advertisement, citing cases from the Punjab and Haryana High Court and the Bombay High Court. The court acknowledged its power to postpone the advertisement. Given the company's valuable immovable properties and the measures in place to protect creditors' interests, the court saw no immediate danger. The court concluded, "Having considered the matter in great depth, we are of the view that, the interest of all the parties would be served by upholding the order of the learned company judge, subject to the condition that the actual advertisement shall be effected during the first week of July, 1993, fixing the date of hearing as July 26, 1993."

Conclusion:
The appeal was dismissed, with the advertisement postponed to the first week of July 1993, and the date of hearing set for July 26, 1993. The court allowed parties to seek further arrangements from the learned company judge.

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