2007 (8) TMI 454 - HC - Companies Law

Winding up - Circumstances in which a company may be wound up - Held that - In the present case, sub-sections (a) and (c) of section 433 has absolutely no application as neither there is special resolution seeking winding up of the company nor the company has failed to resume its business within one year of its incorporation. So far the claim of the petitioner that the company be wound up by resorting to sub-section (e) of section 433 of the Act is concerned, there is no determined debts as the accounts of the company, which was agreed by the parties to be reconciled under clause 18 of MoU dated 24-4-1999, have not been reconciled so far and the 5 cheques of ₹ 5 lakhs each were given to the petitioner on 4-11-1999 by way of guarantee for securing further supplies to the dealers in the market so that the dealers may clear the earlier outstanding but as is evident from Page 102 onwards of the Books of Account, Annexure-9 to flag 13 that the supplies were never continued through the company after 7-9-1999 even after receipt of 5 cheques of ₹ 5 lakhs each on 4-11-1999 then the dealers stopped clearing their earlier outstanding through the petitioner, in the circumstances, the company could not collect the dues from the market and until accounts are reconciled between the parties it would be difficult for this Court to hold that there is a determined debt of ₹ 25 lakhs as from the forwarding letter dated 4-11-1999 itself whereunder 5 cheques were forwarded to the petitioner, it is crystal clear that those 5 cheques were forwarded by the company to the petitioner by way of guarantee to be returned after collection and receipt of the outstanding dues from the different parties in the market by the petitioner through the company and the company was unable to collect the old dues on account of misrepresentation of the representatives of the petitioner as is evident from the letter dated 23-11-1999, Annexure 6/1 to flag 2 addressed to the petitioner. No merit in the winding up petition, which is dismissed, however, with liberty to the petitioner to resort to any other legal proceedings for realization of its outstanding dues, if any

Issues Involved:
1. Whether the company is unable to pay its debts under Section 433(e) of the Companies Act, 1956.
2. Validity and reconciliation of accounts and debts.
3. Role and obligations of the company as an agent or distributor.
4. Legal implications of the cheques issued as a guarantee.

Detailed Analysis:

Issue 1: Whether the company is unable to pay its debts under Section 433(e) of the Companies Act, 1956.

The petitioner, a Private Limited Company, filed a petition to wind up M/s. Deep Shikha Autos Pvt. Ltd. under Section 433(a), (c), (e) read with Section 434 of the Companies Act, 1956, on the grounds that the company failed to pay its debts amounting to Rs. 33.03 lakhs and Rs. 14.94 lakhs. The petitioner relied on the books of account maintained from 1-4-1994 to 31-3-2000. The court, however, found that Sections 433(a) and (c) were not applicable as there was no special resolution for winding up, nor had the company failed to commence business within one year of incorporation. Regarding Section 433(e), the court noted that there was no determined debt due to the lack of reconciliation of accounts as agreed upon in the MoU dated 24-4-1999.

Issue 2: Validity and reconciliation of accounts and debts.

The petitioner submitted that the debts accrued on 10-11-1999 due to the company's failure to clear determined debts. The MoU required reconciliation of accounts for the year 1998-99 by 10-5-1999, which had not been completed. The company argued that supplies were not made through it after 7-9-1999, hindering its ability to collect dues from the market. The court found that the accounts were not reconciled, and the cheques issued on 4-11-1999 were meant as a guarantee for securing further supplies, not as a settlement of determined debts.

Issue 3: Role and obligations of the company as an agent or distributor.

The company contended that it acted as a distributor and marketer, responsible only for collecting and forwarding orders and payments to the petitioner. The supplies were directly made to dealers, and the company was to collect payments from them. The court noted that the company's role was limited to collecting drafts and forwarding them to the petitioner, and it was entitled to receive a discount for these services. The court found that the company could not be held responsible for the non-collection of dues due to the petitioner's failure to continue supplies after 7-9-1999.

Issue 4: Legal implications of the cheques issued as a guarantee.

The petitioner argued that the company's inability to pay the outstanding dues of Rs. 25 lakhs, for which 5 cheques were issued, justified winding up. The company countered that the cheques were given as a guarantee to resume supplies, which did not happen. The court found that the cheques were meant as a guarantee and were not indicative of a determined debt. The company had also instructed its bankers not to clear the cheques due to the petitioner's failure to resume supplies.

Conclusion:

The court dismissed the winding-up petition, finding no merit in the petitioner's claims. It concluded that there was no determined debt due to the lack of reconciliation of accounts and the cheques issued as a guarantee. The court granted the petitioner liberty to resort to other legal proceedings for the realization of outstanding dues, if any.

← Previous Next →