2007 (7) TMI 403 - HC - Companies Law

Circumstances in which a company may be wound up, Winding up - Company when deemed unable to pay its debts, Advertisement of petition

Issues Involved:
1. Winding up of the respondent-company under sections 433 and 434 of the Companies Act, 1956.
2. Alleged debt owed by the respondent-company to the petitioner.
3. Bona fide dispute regarding the debt.
4. Financial insolvency of the respondent-company.
5. Admission and advertisement of the company petition.

Issue-wise Detailed Analysis:

1. Winding up of the respondent-company under sections 433 and 434 of the Companies Act, 1956:
The petitioner filed for the winding up of the respondent-company, claiming that the company is insolvent and unable to pay its debts. The petition was filed under sections 433 and 434 of the Companies Act, 1956, which deal with the conditions under which a company may be wound up by the court.

2. Alleged debt owed by the respondent-company to the petitioner:
The petitioner, a retired Central Government employee, claimed that he was induced by the managing director of the respondent-company to deposit Rs. 8,30,000 with the company, promising monthly interest at 18% per annum and refund on demand. The petitioner provided receipts as evidence of the deposits. The respondent-company acknowledged the receipt of these amounts as short-term loans. The petitioner contended that the company paid interest for one month and then ceased payments, accumulating a total debt of Rs. 10,96,843 by August 31, 2005. Despite a notice of demand dated June 9, 2005, the company did not make any payments.

3. Bona fide dispute regarding the debt:
The respondent-company denied the allegations, stating that the petitioner, who was the managing director's brother-in-law, had ulterior motives and was attempting to harm the company due to personal disputes. The respondent argued that the petitioner did not provide adequate documentary proof of the alleged loans and that the receipts presented had discrepancies. The company also claimed that the petitioner had previously attempted to harm the company by discouraging business associates and making baseless complaints to various authorities.

4. Financial insolvency of the respondent-company:
The petitioner alleged that the respondent-company was heavily indebted to institutions like IDBI and the State Bank of Hyderabad, was insolvent, and unable to pay its debts. The respondent admitted to seeking a "one-time settlement" with these financial institutions, indicating financial distress. The petitioner further stated that the company had not declared dividends, the factory had been closed since 2000-01, and the company had defaulted on loans, leading to recovery suits by banks.

5. Admission and advertisement of the company petition:
The court considered whether a prima facie case for admission and advertisement of the company petition was made out. The court noted that the petitioner's claim of advancing Rs. 8,30,000 was not specifically denied by the respondent. The petitioner provided evidence, including a counterfoil of a pay-in-slip from the State Bank of Hyderabad, supporting his claim of depositing Rs. 5,00,000 in favor of the company. The court found that the debt was not time-barred and that the respondent's defense lacked substance. The court also noted that the respondent-company's financial distress was evident from its attempts to settle debts with financial institutions and its failure to pay dividends.

The court concluded that the material on record indicated that the respondent-company was commercially insolvent and unable to meet its liabilities. Therefore, the company petition was admitted, and the court ordered the advertisement of the petition in accordance with rule 24 of the Companies (Court) Rules, 1959. The court rejected the respondent's request to defer the advertisement, emphasizing that deferment is not to be ordered as a matter of course, especially in winding-up petitions.

The company petition was admitted, and the advertisement was ordered to be made in the Indian Express (English) daily and Andhra Jyothi (Telugu) daily, with the petition to be heard on August 9, 2007.

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