1952 (5) TMI 23 - HC - Companies Law

Summary

Issues Involved:
1. Proper form and verification of the winding-up application.
2. Tangible interest requirement for a fully paid-up shareholder's winding-up application.
3. Substratum of the company and its financial condition.
4. Just and equitable grounds for winding-up.
5. Impact of lease forfeiture clause on winding-up decision.

Detailed Analysis:

1. Proper Form and Verification of the Winding-Up Application:
The appellant contended that the application was not in proper form and was not supported by a separate affidavit as required by the relevant rules. The court acknowledged this defect but excused it, stating that it was a formal and technical defect that did not justify interference with the order. The verification of the application was also challenged for being defective, but the court held that since several facts were admitted by the company, it did not interfere with the order on this ground.

2. Tangible Interest Requirement for a Fully Paid-Up Shareholder's Winding-Up Application:
The appellant argued that a fully paid-up shareholder must allege and prove a tangible interest in the winding-up, i.e., a surplus available for distribution after paying all debts. This contention was based on the principle laid down in 'In re: Rica Gold Washing Co.' and reiterated in 'Re: Vron Colliery Co.' However, the court noted that the rule does not apply when creditors support the application. In this case, the application was supported by two creditors, making it a creditor's application. The court also referred to Section 170 of the Indian Companies Act, which states that a petition should not be refused merely because there are no assets.

3. Substratum of the Company and Its Financial Condition:
The court found that the substratum of the company was gone. The principal object of the company was the manufacture of tubular furniture and similar goods, which became impossible after the sale of its stock-in-trade, plants, and machinery. The company had not carried on any business since April 1950, and it was commercially insolvent, unable to pay its debts. The court held that there was no reasonable chance of the company starting business again, making it just and convenient to wind up the company.

4. Just and Equitable Grounds for Winding-Up:
The court held that it was just and equitable to make the winding-up order. The company had not carried on any business for several years, was insolvent, and its indebtedness was increasing. The court also noted that a public investigation into the affairs of the company was necessary, which could best be obtained through a compulsory winding-up.

5. Impact of Lease Forfeiture Clause on Winding-Up Decision:
There was a clause in the lease that allowed the lessor to re-enter if the company was wound up. The court considered this but held that it did not affect the decision to wind up the company. The court reasoned that the lessor might not insist on the forfeiture clause, and even if the lease was forfeited, the liquidator could still obtain a significant amount from the sale of the factory building and leasehold interest.

Conclusion:
The court concluded that the winding-up order was rightly made and dismissed the appeal. The court affirmed that the company was insolvent, its substratum was gone, and it was just and equitable to wind it up. The court also held that the application was in substance a creditor's application, supported by creditors, and that the rule requiring a tangible interest did not apply in this case. The court dismissed the appeal with costs.