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Issues Involved:
1. Whether the company is unable to pay its debts. 2. Whether it is just and equitable to wind up the company. Issue 1: Whether the company is unable to pay its debts The applicant sought the winding up of the Bihar National Insurance Co. Ltd. on the grounds that the company is unable to pay its debts. The applicant relied on the company's balance sheet for the half-year ending 31st December 1939. The liabilities listed were: calls in advance (Rs. 5,250), shares suspense (Rs. 4,573-10-0), forfeited shares account (Rs. 3,187-8-0), loans and advances (Rs. 66,850-12-10), deposit against premium (Rs. 2,085-4-0), claims outstanding (Rs. 13,492-8-0), and outstanding liabilities (Rs. 2,372-6-0). The court found that certain items such as calls in advance, shares suspense, forfeited shares account, and deposit against premium should not be considered as immediate debts the company must pay. The remaining debts amounted to Rs. 82,715-10-10. The assets listed included loans, investments, furniture and fittings, motor-cars, library, stock of stationery, balances with agents, outstanding premiums, outstanding interest, deposits, and cash and bank balances. The court emphasized that the company's ability to pay debts should be assessed in a commercial sense, not by liquidating all assets. The applicant argued that loans were advanced on personal security and might not be recoverable, and investments were deposits with the Reserve Bank of India under Section 7 of the Insurance Act, 1938, which are not available for discharging liabilities other than insurance policies. The court noted that tangible assets like furniture and motor-cars are not immediately available for debt payment. The cash available was Rs. 15,233-6-1, leaving a deficit of Rs. 66,577-5-9. However, the company had Rs. 70,000 in unpaid subscribed capital that could be called up. Citing In re National Live Stock Insurance Co., the court held that the company could regard this callable capital as available for debt discharge, concluding that the applicant did not prove the company's inability to pay its debts. Issue 2: Whether it is just and equitable to wind up the company The second ground was that it is just and equitable to wind up the company. The court referenced D. Davis & Co., Ltd. v. Brunswick (Australia), Ltd., stating that the decisive question is whether there was any reasonable hope of the company trading at a profit at the date of the petition. The onus of proof was on the petitioner. The court noted that there was no evidence from persons with practical business knowledge, and the case was based solely on the balance sheet. The court also mentioned the role of the Superintendent of Insurance under the Insurance Act of 1938, who had not taken any steps to wind up the company, indicating no immediate need for such action. The principal ground for winding up was that a significant portion of the subscribed capital was not represented by tangible assets, with Rs. 1,73,916-15-3 listed as preliminary expenses, organization expenses, and bad debt due to misappropriation by a managing agent. The court found no evidence of fraud or objection by shareholders to these expenses. The court compared the situation to In re Bristol Joint Stock Bank, where winding up was ordered due to the company's inability to carry on business with reasonable hope of success. However, the court in the present case found no evidence of reckless expenditure and noted that the shareholders had approved the balance sheet, indicating satisfaction with the directors' management. The court concluded that the balance sheet did not show such poor prospects as to warrant compulsory winding up and dismissed the petition with costs, including a hearing fee of ten gold mohurs.
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