1968 (9) TMI 75 - HC - Companies Law

Company when deemed unable to pay its debts, Winding up Powers of tribunal on hearing petition, Cost and expenses payable out of assets in a winding-up by Court

Issues Involved:
1. Inability to pay debts under Section 433(e) of the Companies Act.
2. Non-compliance with statutory notice under Section 434(1)(a) of the Companies Act.
3. Allegation of commercial insolvency.
4. Bona fide dispute regarding the debt.
5. Abuse of the process of the court.
6. Discretionary nature of winding-up orders.

Issue-wise Analysis:

1. Inability to Pay Debts under Section 433(e) of the Companies Act:
The petitioners filed for the winding up of Advent Corporation Pvt. Ltd. due to its inability to pay its debts. The company had failed to refund Rs. 80,000 paid by the petitioners towards the purchase of a basement floor, leading to a consent order on 21st April 1966, which the company did not fully comply with. The court found that the company neglected to pay the sums due under the consent order, thus fulfilling the criteria under Section 433(e).

2. Non-compliance with Statutory Notice under Section 434(1)(a) of the Companies Act:
The petitioners issued a statutory notice on 28th March 1968, demanding payment of the balance due under the consent order. The company's advocate suggested a meeting but did not respond substantively to the notice. The court noted that the company's failure to respond to the statutory notice prima facie indicated its inability to pay its debts under Section 434(1)(a).

3. Allegation of Commercial Insolvency:
The company argued that it was not commercially insolvent. However, the court held that proving commercial insolvency is not necessary if the company neglects to comply with a statutory notice under Section 434(1)(a). The statutory provisions in Sections 433 and 434 do not require establishing commercial insolvency if other grounds for winding up are met.

4. Bona Fide Dispute Regarding the Debt:
The company contended that the amounts in the consent order were to be adjusted against the purchase price of a top floor flat, not paid in cash. The court found this dispute to be without substance, noting that the consent terms explicitly required cash payments and that no adjustment was mentioned. The company's failure to raise this issue promptly in response to the statutory notice further undermined its credibility. The court concluded that the dispute was not bona fide.

5. Abuse of the Process of the Court:
The company argued that the winding-up petition was an abuse of the court process, aimed at enforcing a disputed debt. The court referenced established legal principles that a winding-up petition should not be used to enforce payment of a bona fide disputed debt. However, since the dispute was not bona fide, the petition did not constitute an abuse of the court process.

6. Discretionary Nature of Winding-up Orders:
The company claimed that the court has discretion to refuse a winding-up order even if a ground under Section 433 is made out, citing the use of the word "may" in the section. The court rejected this, stating that a creditor entitled to payment ex debito justitiae must be granted a winding-up order if the statutory grounds are met. The court also noted that Section 443(2) allows discretion only in cases under Section 433(f), not for other grounds.

Conclusion:
The court admitted the winding-up petition, finding that the company neglected to pay its debts as required under Section 433(e) and did not provide a bona fide dispute to the statutory notice under Section 434(1)(a). The petition was directed to be advertised, and the company was ordered to pay the petitioners' costs. The hearing was fixed for 18th November 1968.

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