1964 (4) TMI 61 - HC - Companies Law

Summary

Issues Involved:
1. Entitlement of the petitioner, a debenture-holder, to prosecute the petition.
2. Commercial solvency of the company.
3. Feasibility of a new scheme for running the business.
4. Sufficiency of the company's assets to clear liabilities.
5. Adjournment of the petition to propose a new scheme.

Detailed Analysis:

1. Entitlement of the Petitioner to Prosecute the Petition:
The opposing parties contended that the petitioner, being a debenture-holder, was not entitled to prosecute the petition due to condition 9 in the debentures and clauses 3 and 4 in the debenture trust deed, which vested all remedies for recovery in the trustees. However, the court noted that the operative part of the debentures provided a direct covenant by the company to pay the principal and interest to the debenture-holder. Citing the case of Bachharaj Factories Ltd. v. Hirjee Mills Ltd., the court affirmed that a debenture-holder with a direct covenant for payment by the company is entitled to present a petition for winding up. Additionally, section 439(2) of the Companies Act, 1956, was referenced, which confers an unconditional right on debenture-holders to file such petitions.

2. Commercial Solvency of the Company:
The court recorded that no party contended the company was commercially solvent. The balance-sheet for the year ended March 31, 1963, showed significant liabilities, including secured loans aggregating Rs. 1,68,94,419, unsecured loans and current liabilities amounting to Rs. 60,10,116, and arrears of interest and debts to sundry creditors. The company had also failed to pay substantial amounts to the Provident Fund Commissioner and the Employees' State Insurance Corporation, indicating its inability to meet current liabilities and confirming its commercial insolvency.

3. Feasibility of a New Scheme for Running the Business:
The opposing parties suggested the feasibility of a new scheme for running the business and requested adjournment of the petition. However, the court found it difficult to adjourn the matter given the company's failure to pay significant amounts to the Provident Fund Commissioner and the Employees' State Insurance Corporation. The court emphasized that companies failing to meet such statutory obligations are unfit to continue in existence and must be wound up.

4. Sufficiency of the Company's Assets to Clear Liabilities:
The opposing parties argued that the company's assets were sufficient to clear its liabilities, pointing to the increased value of certain assets like land and the Latur ginning and pressing factory. However, the court noted that the true value of the assets, even if higher than shown in the balance-sheet, would still be less than the company's liabilities when accounting for capital gains tax and other factors. The contention that the assets were worth Rs. 3,50,00,000 was found to be unfounded.

5. Adjournment of the Petition to Propose a New Scheme:
The opposing parties requested an adjournment to ascertain the wishes of all creditors regarding a new scheme of arrangement. The court held that even if a large number of creditors desired the company to continue, it would still be bound to order winding up due to the company's inability to meet current liabilities and its commercial insolvency.

Conclusion:
The court concluded that the petitioner was entitled to maintain the petition, the company was commercially insolvent, and the arguments for a new scheme and asset sufficiency were unconvincing. Consequently, the court ordered the winding up of the company, with the official liquidator to take charge of all properties and effects, and directed the petitioner to advertise the order and serve copies to relevant parties. Costs were to be paid out of the company's assets, with opposing creditors bearing their own costs.