1999 (4) TMI 504 - HC - Companies Law

Issues Involved:
1. Petition for winding up under sections 433 and 434 of the Companies Act, 1956.
2. Alleged inability of the company to pay its debts.
3. Dishonour of cheque issued by the company.
4. Arguments regarding the necessity of notice of dishonour under section 106 of the Negotiable Instruments Act, 1881.
5. Defences raised by the company regarding the cheque and the bills of exchange.
6. Legal implications of the cheque issued as security.

Issue-wise Detailed Analysis:

1. Petition for Winding Up Under Sections 433 and 434 of the Companies Act, 1956:
The petition was filed seeking the winding up of the company on the grounds that it was unable to pay its debts. The petitioners had granted a packing credit facility to the company, which had become overdue. Despite repeated demands, the company failed to clear the dues, leading to the filing of this petition.

2. Alleged Inability of the Company to Pay Its Debts:
The petitioners claimed that the company owed them Rs. 3,20,91,096.02 towards the principal and Rs. 37,34,234.27 towards interest. A cheque issued by the company to settle these dues was dishonoured due to insufficient funds. The company argued that it was financially sound and attributed the delay in payment to cash flow problems caused by outstanding receivables from other debtors.

3. Dishonour of Cheque Issued by the Company:
The company issued a cheque for Rs. 3,37,65,064, which was dishonoured. The petitioners contended that this dishonour indicated the company's inability to pay its debts. The company argued that the cheque was given as security and not intended for encashment, as the bills of exchange were drawn directly in favour of the petitioners.

4. Arguments Regarding the Necessity of Notice of Dishonour Under Section 106 of the Negotiable Instruments Act, 1881:
The company argued that the petitioners failed to present the bills of exchange for acceptance and payment and did not serve a notice of dishonour as required under section 106 of the Act. The petitioners countered that no notice of dishonour was necessary under section 98 of the Act, as the company was aware of the liability and had issued the cheque as an unconditional promise to pay.

5. Defences Raised by the Company Regarding the Cheque and the Bills of Exchange:
The company claimed that the petitioners had not come to court with clean hands and had suppressed material facts. It argued that the liability was only on the bills of exchange executed in favour of the petitioners and that the cheque was given merely as security. The petitioners, however, argued that the cheque was issued to adjust the overdue export bills and that the company's defences were not bona fide.

6. Legal Implications of the Cheque Issued as Security:
The court found that the cheque was issued for the purpose mentioned in the letter dated 27-3-1997, i.e., "towards adjustment of overdue export bills purchased." The court rejected the company's argument that the cheque was given as security, stating that if the petitioner's debt was fully secured, there would be no need for additional security. The court held that the petitioners were justified in filing the petition based on the dishonour of the cheque.

Conclusion:
The court concluded that the company was unable to pay its debts and that the defences raised were without substance. The petition was made absolute, and the court ordered the winding up of the company, appointing the official liquidator to take charge of the company's assets. The petitioner was directed to publish the winding-up order in specified newspapers within four weeks.

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