1995 (11) TMI 373 - HC - Companies Law

Summary

Issues Involved:
1. Petition for winding up under Section 433(e) and (f) of the Companies Act, 1956.
2. Admitted debt and interest rate dispute.
3. Respondent's financial position and solvency.
4. Respondent's defense against winding up.
5. Legal principles regarding winding up petitions.

Detailed Analysis:

1. Petition for Winding Up under Section 433(e) and (f) of the Companies Act, 1956:
The petitioner sought the winding up of the respondent company under Section 433(e) and (f) of the Companies Act, 1956, on the grounds of the respondent's inability to pay an admitted debt of Rs. 5 crores, despite statutory demand. The petitioner claimed an interest rate of 21% per annum, while the respondent contended it was 15% per annum.

2. Admitted Debt and Interest Rate Dispute:
The petitioner, a public sector company, had advanced inter-corporate loans to the respondent starting from 1984, with the first loan being Rs. 5 crores. An agreement dated 22-12-1985 specified repayment terms and interest rates, including a penal interest clause. Despite partial repayments, a balance of Rs. 5 crores remained unpaid as of November 1992. The respondent admitted the debt but disputed the interest rate and claimed to have paid Rs. 78.54 lakhs as excess interest.

3. Respondent's Financial Position and Solvency:
The respondent's financial position was scrutinized, revealing a loss of Rs. 115.54 crores in 1992-93, despite earlier profits. The net worth had significantly declined, raising doubts about the company's solvency. The respondent's failure to provide financial data for 1993-94 and subsequent periods was seen as deliberate, indicating a worsening financial situation.

4. Respondent's Defense Against Winding Up:
The respondent argued that the petition should not be admitted, suggesting that the petitioner should pursue a money suit instead. They contended that winding up should only be considered when the company is permanently unable to meet its obligations. The respondent also highlighted its status as a Government of India undertaking and the potential adverse impact of winding up on its operations and employees.

5. Legal Principles Regarding Winding Up Petitions:
The court referred to Sections 433 and 434 of the Companies Act, which outline the grounds and circumstances for deeming a company unable to pay its debts. The court emphasized that a petition for winding up is not a legitimate means of enforcing payment of a disputed debt and should be dismissed if the debt is bona fide disputed. However, in this case, the debt was not disputed, and the respondent's failure to pay or secure the debt despite statutory notice demonstrated an inability to pay.

Conclusion:
The court found that the petitioner had established its status as a creditor and that the respondent's inability to pay the debt was both deemed and demonstrated. The financial position of the respondent was precarious, and the attitude of refusing to pay an admitted debt was not acceptable. The petition for winding up was admitted, but the advertisement of the petition was deferred until 1-1-1996 to allow the respondent to pay the admitted amount with interest.

Final Judgment:
The petition was admitted, with the advertisement deferred to provide the respondent an opportunity to settle the admitted dues. The court concluded that this was a fit case for admission based on the facts presented.