1953 (12) TMI 15 - HC - Companies Law

Winding up Circumstances in which a company may be would up and Company when deemed unable to pay its debts

Summary

Issues Involved:
1. Validity of statutory notice of demand.
2. Bona fide dispute about the alleged dues.
3. Whether the company was unable to pay its debts.
4. Whether the substratum of the company was gone.

Detailed Analysis:

1. Validity of Statutory Notice of Demand:
The appellant argued that there had been no valid statutory notice of demand. The court noted that the registered office of the Railway Company was situated at No. 136 Canning Street, Calcutta. The notice of demand dated June 6, 1950, was addressed to "Fraser Road, Patna," which was not the registered office. This fact was sufficient to prevent the Union of India from relying upon the notice for the purposes of section 163(1)(i) of the Indian Companies Act. Although a second notice was delivered at the registered office on June 30, 1950, the interval between this notice and the petition for winding up on July 18 was less than three weeks, thus invalidating it as a statutory notice. The court concluded that the Union of India could not rely on any statutory notice of demand, eliminating presumptive or constructive liability to pay the debts under section 163(1)(i).

2. Bona Fide Dispute About the Alleged Dues:
The appellant contended that there was a bona fide dispute regarding the alleged dues. The court observed that the Union of India demanded a sum of Rs. 5,91,784-2-0, and the Bengal Nagpur Railway Administration also claimed Rs. 1,78,498-14-0. However, the appellant company had admitted assets of Rs. 10,00,623. The court found it impossible for the Union of India to argue that the company was unable to pay its debts when it had sufficient assets to cover the claimed amounts. The court held that the case was not one of inability to pay but rather a failure or neglect to pay, which required a closer examination of facts. The court concluded that the company was not unable to pay its debts within the meaning of section 162(v) of the Companies Act.

3. Whether the Company Was Unable to Pay Its Debts:
The court examined whether the company was unable to pay its debts. The Union of India failed to establish that the company was unable to pay its debts, considering the company's admitted assets exceeded the claimed debts. The court referenced Palmer's Company Law, noting that commercial solvency is recognized by company law. However, the court found that the Union of India could not prove the company's inability to pay its debts, given the admitted assets of Rs. 10,00,623 against a debt of Rs. 8,00,000.

4. Whether the Substratum of the Company Was Gone:
The Union of India argued that the substratum of the company was gone, making it just and equitable to pass a winding up order. The court expressed doubt about whether a creditor could ordinarily urge this ground, as it is typically a concern for shareholders and contributories. The court referenced the case In re Eastern Telegraph Co. Ltd., noting that the circumstances were similar. The court found that the transaction of acquisition had not been completed, as the compensation amount was not finally settled or accepted. The court emphasized that it was preferable for the directors of the company to negotiate the compensation rather than an official liquidator. The court concluded that there was no equity in making a winding up order when the debt was not in peril, and the company's assets were sufficient to cover the debts.

Conclusion:
The appeal was allowed, the order of Mr. Justice Bachawat dated August 29, 1950, was set aside, and the application for a winding up order made by the Union of India on July 18, 1950, was dismissed. The court noted that the affidavit-in-opposition filed by the appellant-company was infirm and not fit to be looked at. Although the appellant-company was awarded the costs of the appeal, there was no order for costs at the trial court. The judgment was certified for two counsel in the appeal.