1985 (11) TMI 233 - HC - Companies Law

Issues Involved:

1. Maintainability of winding-up petition by a secured creditor.
2. Proof of debt by the Bank.
3. Bona fide dispute of the debt by the Company.
4. Company's inability to pay its debt.
5. Statute-barred debts.
6. Validity of balance-sheets and revival letters.
7. Effect of subsequent suits filed by the Bank.
8. Applicability of Order II Rule 2 CrPC.
9. Alleged forgery by the Bank.
10. Administration of the Company's assets in winding-up.
11. Just and equitable grounds for winding-up.

Summary:

1. Maintainability of Winding-Up Petition by a Secured Creditor:
The contention that a secured creditor must relinquish or value their security u/s 9(2) of the Provincial Insolvency Act, 1920, to maintain a winding-up petition was rejected. The court held that this rule does not apply to winding-up petitions, as supported by various legal authorities, including Palmer's Company Law and Pennington's Company Law.

2. Proof of Debt by the Bank:
The Company disputed the existence and extent of the debt. However, the court found that the Bank had established a substantial part of the debt through various documents, including promissory notes, deeds of hypothecation, and balance-sheets. The court noted that the Company had acknowledged its liability in several balance-sheets and revival letters, which were not disputed at the time of marking.

3. Bona Fide Dispute of the Debt by the Company:
The Company's defense was not considered bona fide or substantial. The court noted that the Company had not produced its own books of account or the minutes book of the Board of Directors. The court also found that the Company's claims of counter-claims and disputes regarding interest rates were not substantial.

4. Company's Inability to Pay its Debt:
The court held that the Company was unable to pay its debts within the meaning of Section 433(e) of the Act, as evidenced by the statutory demand (Ext. P. 47) and the Company's failure to traverse or comply with it. The court also noted that the Company did not have liquid cash to repay the principal amount and interest due.

5. Statute-Barred Debts:
The court held that acknowledgments of liability in the balance-sheets of a company furnish a fresh starting point of limitation. The court rejected the contention that the debts should be shown to be in time as on the date of passing the winding-up order, holding that it is sufficient if the debt is alive as on the date of filing the petition.

6. Validity of Balance-Sheets and Revival Letters:
The court rejected the contention that the balance-sheets and revival letters were void because the directors who authenticated them were themselves creditors of the Company. The court held that the directors were not creditors in the substance of the transaction and that the acknowledgments and revivals were valid.

7. Effect of Subsequent Suits Filed by the Bank:
The court held that the pendency of suits does not bar the maintainability of a winding-up petition. The court found that the sanctions of limits from time to time were distinct transactions giving rise to distinct causes of action, and the suits did not affect the winding-up petition.

8. Applicability of Order II Rule 2 CrPC:
The court rejected the contention that the Bank had split up the cause of action and relinquished part of its claim under Order II Rule 2 CrPC. The court held that the incidents of Order II Rule 2 CrPC are not attracted in winding-up proceedings.

9. Alleged Forgery by the Bank:
The court found no merit in the Company's allegations of forgery. The court noted that the documents were executed in the regular course of banking business and that the Company had ratified and adopted the accounts of the Bank through its balance-sheets and revival letters.

10. Administration of the Company's Assets in Winding-Up:
The court rejected the contention that a winding-up order would serve no purpose as all the assets were secured to the Bank. The court noted that not all assets were secured to the Bank and that the value of the security had denuded over the years.

11. Just and Equitable Grounds for Winding-Up:
The court upheld the finding of the learned Company Judge that it was just and equitable to wind up the Company, noting the Company's financial instability, the lack of dividends for 15 years, and the substantial debts owed to various creditors.

Conclusion:
The appeal was rejected, and the court refused to grant a certificate of fitness to appeal to the Supreme Court.

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