2005 (6) TMI 290 - HC - Companies Law

Summary

Issues Involved:
1. Failure of respondent-company to discharge financial liability.
2. Validity and enforcement of lease agreement and revised lease rentals.
3. Jurisdiction of the High Court of Gujarat.
4. Impact of subsequent notices on the original winding-up petition.
5. Maintainability of the winding-up petition alongside a civil suit.
6. Existence of a plausible defense by the respondent-company.

Detailed Analysis:

1. Failure of respondent-company to discharge financial liability:
The petitioner filed the petition under sections 433, 434, and 439 of the Companies Act, 1956, for winding up the respondent-company due to its failure to discharge financial liabilities. The respondent-company failed to pay the agreed monthly lease rentals from 1-8-1991, despite using the leased equipment. The petitioner issued a statutory notice on 9-7-1992 demanding arrears of Rs. 11,80,708 and the balance for the remaining lease period. The company did not respond or settle the dues, leading to the filing of the petition.

2. Validity and enforcement of lease agreement and revised lease rentals:
The lease agreement dated 22-3-1990 stipulated a non-cancellable lease period of 60 months with monthly rentals of Rs. 89,535, later revised to Rs. 98,700 effective from 1-12-1991. The respondent-company accepted the revised rentals without objection but defaulted on payments from 1-8-1991. The petitioner's right to revise rentals was upheld by clause 10.4 of the Lease Agreement.

3. Jurisdiction of the High Court of Gujarat:
The respondent argued that the lease agreement stipulated jurisdiction of Civil Court in Bombay, excluding the High Court of Gujarat. However, the Court held that section 10 of the Companies Act confers exclusive jurisdiction on the High Court where the company's registered office is situated, which in this case is Gujarat. The agreement to choose a forum for contractual disputes does not affect statutory rights under the Companies Act.

4. Impact of subsequent notices on the original winding-up petition:
The respondent contended that subsequent notices dated 21-1-1993 and 15-5-1993 superseded the original notice dated 9-7-1992, invalidating the winding-up petition. The Court found that the later notices related to dishonored cheques and proceedings under section 138 of the Negotiable Instruments Act, not the winding-up proceedings. Thus, the original notice remained valid.

5. Maintainability of the winding-up petition alongside a civil suit:
The respondent claimed that the petitioner's civil suit in the High Court of Judicature at Bombay for the same amount rendered the winding-up petition invalid. The Court clarified that a civil suit for recovery and a winding-up petition are independent remedies. The civil suit aims to enforce contractual obligations, while the winding-up petition seeks to dissolve the company due to its inability to pay debts. Filing a civil suit does not preclude pursuing a winding-up petition.

6. Existence of a plausible defense by the respondent-company:
The respondent argued that the claim was under trial in a civil suit, and the Court should not order winding up. However, the Court noted the admission of Rs. 19 lakhs outstanding and held that disputes over the balance did not affect the presumption of the company's inability to pay its debts under section 434 of the Companies Act.

Conclusion:
After considering all submissions, pleadings, and evidence, the Court concluded that the respondent-company failed to discharge its financial liabilities. The financial substratum of the company had deteriorated, and settlement talks were unproductive. The Court ordered the winding up of the respondent-company and appointed the Official Liquidator to take charge of the company's assets, with specific directions for notifying secured creditors and directors before taking inventory. The petition was thus disposed of with these directions.