2004 (11) TMI 335 - HC - Companies Law

Summary

Issues:
- Challenge to winding up petition admission
- Effect of winding up order on pending appeal
- Company's financial status and profitability

Analysis:
1. Challenge to Winding Up Petition Admission: The counsel for the company argued that since the admission order was under appeal and not final, the winding up proceeding should be adjourned until the appeal's disposal. The counsel emphasized that no other supporting creditor had joined the petitioning creditor, potentially affecting the appeal's outcome. The company's contention was supported by legal precedents such as S.P.A. Annamalay Chetty v. B.A. Thornhill AIR 1931 PC 263, K. Muthuswami Gounder v. N. Palaniappa Gounder [1998] 7 SCC 327, and Mohan Lal Ghosh v. East India Wires Ltd. [2004] 52 SCL 332 (Cal.).

2. Effect of Winding Up Order on Pending Appeal: The judge noted that despite the challenge to the admission order, the Division Bench had permitted the winding up process to proceed. The judge emphasized that the specific direction from the Division Bench allowed the winding up court to continue with the process, thereby rejecting the request for adjournment based on the pending appeal.

3. Company's Financial Status and Profitability: Regarding the company's financial status, it was highlighted that the company had no tangible assets but was operational with a workforce generating an annual profit of Rs. 1 lakh. Despite the profitability, the company's debt far exceeded its assets, with a petitioning creditor claiming Rs. 22.26 lakhs plus interest. The judge concluded that the company's inability to pay its debts rendered it insolvent, justifying the winding up order under the Companies Act, 1956.

4. Final Decision and Winding Up Order: The judge, relying on recent Division Bench decisions, reiterated that the order of admission was final and binding unless overturned by the Court of Appeal. Considering the company's financial position and inability to meet its debts, the judge ruled in favor of winding up the company. The order directed the Official Liquidator to take charge of the company's assets and pay costs to the petitioner, with a temporary stay on asset possession pending appeal disposal.