1995 (7) TMI 435 - HC - Companies Law

Summary

Issues Involved:
1. Whether the lease agreement dated 6-2-1988 is in effect and in substance a loan transaction.
2. The maintainability of the petition for winding up the company on the grounds of inability to pay its debts.
3. The applicability of the Usurious Loans Act and the Punjab Relief of Indebtedness Act to the transaction.
4. The bona fides of the company's defense against the petitioner's claim.

Detailed Analysis:

1. Nature of the Lease Agreement:
The primary issue was whether the lease agreement dated 6-2-1988 between the petitioner and the respondent company was essentially a loan transaction. The court examined the lease agreement in its entirety and considered the surrounding circumstances. The petitioner, a leasing and hire-purchase company, purchased equipment from specified suppliers and leased it to the respondent. The lease agreement contained detailed terms indicating that the petitioner retained ownership of the equipment, and the respondent acknowledged holding the equipment as a bailee without any proprietary rights. The lease period was five years, with specific lease charges and conditions for equipment maintenance and return. The court concluded that the transaction was a bona fide lease agreement, not a loan, as the petitioner never intended to transfer ownership to the respondent.

2. Maintainability of the Petition:
The petition was filed under Sections 433, 434, and 439 of the Companies Act, 1956, for winding up the company on the grounds of its inability to pay debts. The petitioner alleged that the respondent defaulted on lease payments, issuing dishonored cheques and failing to pay despite statutory notices. The court found that the respondent's defense, claiming the lease was a loan agreement, was raised only after the statutory notice and appeared to be an afterthought to evade liability. The court held that the respondent was unable to pay its debts, making the petition maintainable.

3. Applicability of Usurious Loans Act and Punjab Relief of Indebtedness Act:
The respondent argued that the lease agreement was a loan transaction subject to the Usurious Loans Act and the Punjab Relief of Indebtedness Act, which limit interest rates on loans. The court determined that since the transaction was a lease, not a loan, these Acts did not apply. The lease agreement's terms, including the interest rate on defaulted payments, were valid and enforceable.

4. Bona Fides of the Company's Defense:
The court scrutinized the respondent's defense, noting that the plea of the lease being a loan was raised only in response to the winding-up petition and after statutory notices. The respondent had acknowledged the lease terms and defaulted on payments without disputing the nature of the agreement until the petition was filed. The court found the defense lacked bona fides and was an attempt to avoid payment obligations. The respondent's inability to pay the claimed amount, which exceeded Rs. 500, further supported the petitioner's case.

Conclusion:
The court admitted the petition for winding up the company, ordering it to be advertised and scheduling further proceedings. The petition was allowed, and the respondent's defense was dismissed as unmeritorious and an afterthought to delay payment.