2004 (9) TMI 391 - HC - Companies Law

Summary

Issues Involved:
1. Winding up petition under Section 433(e) read with Section 434 of the Companies Act, 1956.
2. Non-payment of dues and interest by the respondent.
3. Dishonour of cheques issued by the respondent.
4. Financial status and viability of the respondent-company.
5. Legal principles governing winding up petitions.

Detailed Analysis:

1. Winding up petition under Section 433(e) read with Section 434 of the Companies Act, 1956:
The petitioner filed a winding-up petition under Section 433(e) read with Section 434 of the Companies Act, 1956, seeking the winding up of the respondent-company due to its inability to pay its debts. The petitioner claimed that the respondent owed Rs. 1,50,23,161 for goods sold and delivered and additional interest for delayed payments.

2. Non-payment of dues and interest by the respondent:
The petitioner argued that the respondent failed to pay the principal amount and the agreed interest at the rate of 21% per annum. Despite multiple notices and attempts to recover the dues, the respondent did not make the necessary payments. The respondent acknowledged a liability of Rs. 1 crore but disputed the interest amount claimed by the petitioner.

3. Dishonour of cheques issued by the respondent:
The respondent issued two cheques totaling Rs. 1,67,55,128, which were dishonoured upon presentation. This led the petitioner to initiate criminal proceedings under Section 138 of the Negotiable Instruments Act. The dishonour of cheques further demonstrated the respondent's inability to meet its financial obligations.

4. Financial status and viability of the respondent-company:
The respondent claimed to be undergoing temporary financial difficulties due to adverse market conditions but argued that it was a going concern with significant assets and turnover. The court scrutinized the respondent's financial statements, turnover figures, and efforts to recover debts from its debtors. The respondent's failure to provide adequate financial details and balance sheets for the relevant years raised doubts about its financial health.

5. Legal principles governing winding up petitions:
The court considered the legal principles established in previous judgments, including the discretion of the court in granting winding-up orders and the importance of considering the company's overall financial status and the impact on its employees and creditors. The court referred to the decisions in American Express Bank Ltd. v. Core Health Care Ltd. and Tata Iron & Steel Co. Ltd. v. Micro Forge (India), emphasizing that winding up should be a measure of last resort and not used merely as a debt recovery tool.

Conclusion:
After considering the pleadings, submissions, and financial details, the court concluded that the respondent-company's financial difficulties were not temporary and that it had failed to discharge its liabilities towards the petitioner. The court directed the petitioner to issue public advertisements for the winding-up petition, fixing the date for final hearing. The court declined the respondent's request for a stay on the advertisement order, emphasizing the need for transparency and accountability in the respondent's financial dealings.