2001 (9) TMI 1066 - HC - Companies Law

Summary

Issues:
Petition for winding up under sections 433 and 434 of the Companies Act, 1956 based on unpaid dues by respondent-company.

Analysis:
1. The petitioner, an unsecured creditor, supplied goods to the respondent-company on credit, but post-dated cheques were dishonored. Despite reminders, the respondent failed to pay the outstanding amount. A statutory notice was served, and the respondent admitted the liability but failed to pay. The respondent made partial payments, leaving a substantial amount due with interest. The petitioner sought winding up, claiming the debt of Rs. 17,82,324.28 along with interest at 18%.

2. The respondent argued that due to financial difficulties in the market, it faced temporary financial crunch but was a running concern with employees and turnover. The respondent proposed monthly installment payments to settle the debt, showing willingness to pay. The respondent did not dispute the dues but highlighted financial constraints as the reason for non-payment, seeking time for settlement.

3. The respondent's financial situation was further revealed through bank affidavits showing outstanding dues exceeding Rs. 1 crore, creating a charge on the respondent's properties. The court restrained the respondent from dealing with properties beyond a certain limit and directed payments to the bank. The petitioner and the bank contended that the respondent's financial state indicated insolvency, with losses reflected in balance sheets annually.

4. The respondent relied on a legal precedent to argue against winding up, citing a case where the company showed profitability and potential for recovery. However, in the current case, the respondent's continuous losses and mounting debts indicated a lack of viability and ability to overcome financial crises. The court found the respondent heavily indebted, unable to pay creditors, and not a going concern, meeting the criteria for winding up under section 433 of the Companies Act.

5. Considering the uncontested debts, the court concluded that the respondent's financial state, with debts exceeding Rs. 2.5 crores and a decree against it, warranted winding up. The official liquidator was appointed to take possession of assets, and the respondent-company was ordered to be wound up. The court rejected a stay on the order, allowing the official liquidator to proceed without delay.