2022 (12) TMI 227 - HC - Companies Law

Winding up of company - Default in payment of value of the goods - statutory notices not responded - matter later on settled between the petition creditor and the appellant company - HELD THAT - The company Court ordered winding up of the company only on the ground that the Company Petition was not contested and that the liability with the petitioner was proved. There was no other material to hold that the company was in doldrums and there was no other option but to windup. As required by Section 434 (1) (c) of the Act, there was no occasion to learned single Judge to take into account the contingent and prospective liabilities of the company. Since the matter is settled between the petition creditor and the appellant company and that settlement has been placed on record and no one has raised objection against recalling the windup order and since dues of the secured creditor have already been satisfied, no useful purpose would be served keeping alive the winding up order. Winding up a company is a last resort. Every effort should be made to ensure that the company revives and business of a company continues in accordance with law. Operation of a company also generates employment. But, for the fact that the appellant was set ex parte there was no substantial material to show that the financial position of the appellant was so poor there was no other option but to windup the company. As it now stands the appellant has settled its accounts with the petitioner and the secured creditor bank and assert that there are no other liabilities. It is not disputed by the Official Liquidator that there are no other claims received by his Office. The appellant made out a strong case to set aside winding up order - Application allowed.

Summary

Issues:
1. Failure of respondent to pay for goods supplied by petitioner.
2. Uncontested winding up order against respondent.
3. Failure of Ex-Directors to comply with liquidator's notices.
4. Dispute resolution and clearance of dues between petitioner and respondent.
5. Allegations of poor financial position of respondent.

Analysis:
1. The petitioner supplied goods worth a specific amount to the respondent under a running credit account, which the respondent failed to pay, leading to the petitioner filing a Company Petition against the respondent for recovery of dues. Despite various attempts at serving notices and publication in newspapers, the respondent did not appear, and the Company Petition was admitted, resulting in a winding up order by the learned single Judge based on evidence of non-payment by the respondent.

2. The respondent, through its senior counsel, argued that a Memorandum of Understanding was executed with the petitioner, settling the dispute and clearing all dues. The respondent also emphasized the clearance of liabilities with the Union Bank of India, asserting that no outstanding liabilities exist. The Official Liquidator, however, highlighted the non-compliance of Ex-Directors with the liquidator's notices, indicating a lack of cooperation in handing over assets and records.

3. The Official Liquidator's efforts to secure assets and information regarding financial institutions or secured creditors of the respondent have been hindered by the non-cooperation of Ex-Directors and the absence of crucial details. The respondent's claims regarding the resolution of disputes with the petitioner and the Union Bank of India were supported by the absence of any other claims against the respondent in the last seven years, as confirmed by the Official Liquidator.

4. The judgment emphasized that the winding up order was primarily based on the respondent's failure to contest the Company Petition and the proof of liability to the petitioner, without considering other factors such as the overall financial health of the company or potential liabilities as required by the Companies Act. Citing legal precedent, the judgment highlighted the possibility of accepting a revival scheme for the company before final liquidation, especially when disputes are resolved and dues are cleared.

5. Considering the settlement between the petitioner and respondent, the satisfaction of dues with the secured creditor, and the absence of any other claims against the respondent, the Court found merit in setting aside the winding up order, as the respondent demonstrated the ability to settle accounts and asserted the absence of further liabilities. The judgment emphasized the importance of exploring options for company revival before resorting to winding up, especially when no substantial evidence of financial distress exists beyond the uncontested liability to the petitioner.