1960 (9) TMI 24 - HC - Companies Law

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

Summary

Issues Involved:
1. Locus standi of the petitioner to present the petition.
2. Liability of the company to be wound up under clauses (c) and (f) of section 433 of the Companies Act.

Issue-wise Detailed Analysis:

1. Locus Standi of the Petitioner:
The first issue regarding the locus standi of the petitioner to present the petition was not pressed, and no arguments were addressed on this issue. Therefore, it did not require determination.

2. Liability of the Company to be Wound Up:
The primary issue requiring determination was whether the company is liable to be wound up under clauses (c) and (f) of section 433 of the Companies Act. The petitioners alleged that the company did not commence its business within a year from its incorporation, despite obtaining a commencement certificate on August 11, 1956. It was admitted that the company had not done any active business from its incorporation in March 1955 up to the date of the petition on May 9, 1959. According to section 433(c), a company may be wound up by the court "if the company does not commence its business within a year from its incorporation, or suspends its business for a whole year."

The company argued that the court's power to wind up the company is discretionary and sought condonation for the failure to commence business, citing the revocation of the licence by the Central Government and harassment of the managing agent by disgruntled shareholders. However, the court found this reason insufficient. The court noted that if no business has been or is likely to be commenced, it should pass an order for winding up on the petition of the shareholders. The company had not commenced any business since its inception, and the court decided not to exercise its discretionary power in the company's favor.

Substratum of the Company:
The court examined whether it was just and equitable to wind up the company under clause (f) of section 433. The managing agent admitted that the company's licence was revoked in December 1958 and that the company had incurred significant losses. The company's assets mainly consisted of uncalled capital, money due from defaulting shareholders, a plot of land, and some chaff-cutting machinery. The court found that the company had done no business, had not set up any factory, and had not purchased any significant plant or machinery. The company had incurred losses exceeding Rs. 76,000 by the end of the financial year 1958, and its assets were minimal.

The court referred to the principle that if the main object for which the company was formed has substantially failed or the substratum is gone, it would be just and equitable to wind up the company. The court cited precedents where the substratum was deemed gone when the principal object of the company became impracticable. The court found that the main object of setting up a cotton mill had failed, and the company had not engaged in any other industrial activity. The recent chaff-cutting activity was insufficient to demonstrate a viable business.

Conclusion:
The court concluded that the substratum of the company was gone, and it was just and equitable to wind up the company. The court rejected the suggestion to place the matter before a domestic forum or call a meeting of shareholders, noting the lack of vigilance by shareholders in the past. The court ordered the winding up of the respondent company under clauses (c) and (f) of section 433 and appointed the official liquidator to carry out the liquidation process.