1970 (10) TMI 51 - HC - Companies Law

Company when deemed unable to pay its debts, Parties to petition, Savings of orders, rules, etc., in force at commencement of the Act

Issues Involved:
1. Jurisdiction of the District Judge
2. Competence of the respondent firm after the death of some partners
3. Commercial solvency of the appellant company
4. Proper service of notice under Section 434 of the Companies Act, 1956

Issue-wise Detailed Analysis:

1. Jurisdiction of the District Judge:
The appellant contended that the District Judge had no jurisdiction to entertain the winding-up petition under Section 433 of the Companies Act, 1956. The court held that the notification dated May 29, 1959, published in the official gazette on June 6, 1959, came into effect on that date. Since the winding-up petition was presented on June 4, 1959, it was pending on the date of the enforcement of the notification. Therefore, the District Judge had jurisdiction to entertain the petition. The court also noted that the appeal against this order had been dismissed by the High Court as withdrawn, precluding the appellant from raising the same objection again. Furthermore, the court explained that the notification issued under the Indian Companies Act, 1913, continued to be in force under the Companies Act, 1956, as per Section 645 of the new Act. The court rejected the appellant's argument that the scope of jurisdiction under the old Act was wider and could not be continued under the new Act.

2. Competence of the Respondent Firm:
The appellant argued that due to the death of certain partners of the respondent firm, the firm was an entity different from the one in whose favor the money decree had been passed. The court referred to Order 30, Rule 4 of the Civil Procedure Code, which allows proceedings to continue in the firm's name even if some partners die. Therefore, it was not necessary to join the legal representatives of the deceased partners as parties. The court upheld the District Judge's decision that the respondent firm was competent to continue with the winding-up petition.

3. Commercial Solvency of the Appellant Company:
The court examined the financial condition of the appellant company and found that it had not paid the amounts of decrees passed against it in several cases, including the respondent's decree for Rs. 2,640. The company had closed its business since the beginning of 1958, had not held shareholders' meetings, and had not submitted returns or balance sheets to the Registrar of Joint Stock Companies. The company's assets were minimal, and it was not commercially solvent. The court concluded that it was just and equitable to wind up the company and upheld the District Judge's order for winding up and appointing the official liquidator.

4. Proper Service of Notice under Section 434 of the Companies Act, 1956:
The appellant contended that the respondent had not taken out execution of the decree as required under Clause (b) of Sub-section (1) of Section 434. The court clarified that Section 434 provides two alternative methods to show that a company is unable to pay its debts: (a) serving a demand notice and (b) execution returned unsatisfied. The respondent had served a three-week notice under Clause (a), which the appellant company neglected to pay. The court held that the respondent's action under Clause (a) was valid and sufficient to deem the company unable to pay its debts.

Conclusion:
The court dismissed the appeal, finding no merit in the appellant's contentions. The District Judge's order to wind up the appellant company and appoint the official liquidator was upheld. The appellant was ordered to bear the costs, with counsel's fee set at Rs. 150.

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