1961 (7) TMI 29 - HC - Companies Law

Company when deemed unable to pay its debts, Winding up Company when deemed unable to pay its debts

Issues Involved:
1. Conduct of the company's affairs prejudicial to the interests of the company and oppressive to the minority shareholders.
2. Disputes and deadlock among the board of directors.
3. Commercial insolvency of the company.
4. Closure of the company's business and leasing of its factory.
5. Substratum of the company being gone.

Issue-wise Detailed Analysis:

1. Conduct of the Company's Affairs Prejudicial to the Interests of the Company and Oppressive to the Minority Shareholders:
The learned Advocate-General did not press this ground. The contention that the company should be wound up on the ground of oppression of minority shareholders and that respondent No. 2 advanced personal interests at the expense of the company and minority shareholders was not substantiated. The allegation that leasing the factory to Messrs. Commercial Sales Agency constituted advancement of personal interests was not proven, and thus, this ground was rightly abandoned.

2. Disputes and Deadlock Among the Board of Directors:
The ground based on deadlock was also not pressed by the learned Advocate-General. Although there might have been a deadlock at the time of filing the petition, it was clear that no deadlock existed at the time of the hearing. Therefore, this ground could not be used to support the petition.

3. Commercial Insolvency of the Company:
The financial position of the company, as evidenced by the balance sheets produced, showed that the company was solvent and had no creditors at the time of the hearing. Thus, the ground based on commercial insolvency did not avail the petitioner.

4. Closure of the Company's Business and Leasing of Its Factory:
The learned Advocate-General contended that the business closure from March 31, 1955, and the leasing of the factory to Messrs. Commercial Sales Agency constituted sufficient grounds for winding up the company. However, this ground was not seen as an independent reason for making a compulsory winding-up order. The closure and leasing were considered more as circumstances showing why it might be just and equitable to wind up the company rather than independent grounds.

5. Substratum of the Company Being Gone:
The main argument pressed was that the substratum of the company was gone. The principle that if the substratum of the company is gone, it is just and equitable to wind up the company was discussed extensively. The court examined whether the main or primary object of the company had become impossible to achieve. The learned Advocate-General argued that the company's main object was to carry on the business specified in paragraphs 1 to 6 of clause 3 of the memorandum and that the leasing of the factory indicated an abandonment of this main object. However, the court held that the objects specified in the memorandum were independent and not ancillary to each other. The leasing of the factory was authorized under paragraph 30 of clause 3 and did not mean the main object of the company failed. The court concluded that the company did not abandon its business and intended to resume it when conditions improved. The company's actions, such as obtaining a license for a solvent extraction plant and applying for a loan, indicated an intention to continue business. Therefore, the substratum of the company was not deemed to be gone.

Conclusion:
The court concluded that none of the grounds for winding up the company were substantiated. The substratum of the company was not gone, and it was not just and equitable to wind up the company. The petition was dismissed, and the petitioner was ordered to pay the costs of the company and the shareholders opposing the petition.

← Previous Next →