2004 (4) TMI 322 - HC - Companies Law

Issues Involved:

1. Maintainability of the petition due to non-registration under the Money Lenders Act, 1934.
2. Dispute over liabilities and claims made by M/s. Jain Hardware Stores.
3. Consideration of the Assam Co-operative Apex Bank's claim in the winding-up proceeding.
4. Determination of the commercial insolvency of the Company and its liability to be wound up.

Issue-wise Detailed Analysis:

1. Maintainability of the petition due to non-registration under the Money Lenders Act, 1934:

The petitioner-firm, engaged in the business of banking, filed the petition under sections 433 and 434 of the Companies Act, 1956, for winding up the respondent-company. The respondent-company challenged the maintainability, arguing that the petitioner-firm was engaged in money-lending without registration under the Money Lenders Act, 1934. The court noted that section 7D of the Assam Money Lenders Act, 1934, prohibits money-lending without a valid registration certificate. The petitioner-firm admitted to not holding such a certificate, asserting that it was not engaged in regular money-lending. However, the court found that the petitioner-firm had been regularly advancing money to the respondent-company at an interest rate of 24%, indicating a money-lending business. Thus, the petition was deemed not maintainable due to the lack of registration under the Money Lenders Act.

2. Dispute over liabilities and claims made by M/s. Jain Hardware Stores:

M/s. Jain Hardware Stores claimed that the respondent-company defaulted on a payment of Rs. 12,37,741.35 for hardware goods and filed Money Suit No. 46 of 1997 for realization of Rs. 20,06,601.75 with interest and costs. The respondent-company denied the liability, arguing that the claim was sub judice and barred by limitation. The court observed that the respondent-company had filed a written statement denying the debt and the claim's existence. Since the debt was disputed and the matter was pending in a money suit, the court concluded that the winding-up petition could not be maintained as a means to secure payment of a disputed debt.

3. Consideration of the Assam Co-operative Apex Bank's claim in the winding-up proceeding:

The Assam Co-operative Apex Bank, a secured creditor, claimed an outstanding amount of Rs. 4,70,06,198.64 and had initiated a Bakijai proceeding for recovery. The respondent-company challenged the Bakijai proceeding in W.P. (C) No. 5230 of 1999, leading to a stay by the court. The court noted that the loan was secured by hypothecation/mortgage of the respondent-company's assets. Given the pending legal challenge and the secured nature of the loan, the court found it premature to conclude that the respondent-company was unable or had neglected to pay the debt.

4. Determination of the commercial insolvency of the Company and its liability to be wound up:

The court examined whether the respondent-company was commercially insolvent and liable to be wound up. The petitioner-firm argued that the company failed to liquidate a debt of around Rs. 12 lakhs, indicating insolvency. However, the respondent-company presented balance sheets showing profitability and the ability to manage its affairs despite a change in ownership. The court emphasized that a winding-up order should consider the interests of both creditors and the company, including its employees. The court found that the respondent-company was not insolvent, as it was earning profits and paying its employees regularly. Therefore, the requirements of section 434 of the Companies Act were not met, and the petition for winding up was dismissed.

Conclusion:

The court dismissed the petition for winding up the respondent-company, concluding that the petition was not maintainable due to non-registration under the Money Lenders Act, 1934, and the disputed nature of the debts. The court also noted that the respondent-company was not commercially insolvent and was capable of managing its affairs and earning profits. The interests of the company's employees and the ongoing legal proceedings further supported the decision to dismiss the petition.

← Previous Next →