1971 (8) TMI 126 - HC - Companies Law

Summary

Issues Involved:

1. Whether the company was unable to pay its debts within the meaning of section 433(e) of the Companies Act, 1956.
2. The financial position of the company at the time of the winding-up petition and at the date of hearing.
3. The consideration of contingent and prospective liabilities of the company.
4. The relevance of uncalled capital in determining the company's ability to pay its debts.
5. The impact of creditors extending the time for payment on the company's solvency.

Issue-wise Detailed Analysis:

1. Inability to Pay Debts:
The petition for the winding-up of the company was presented by the Registrar of Companies on the ground that the company was unable to pay its debts within the meaning of section 433(e) of the Companies Act, 1956. The financial records indicated significant losses, and the balance-sheet as of August 31, 1962, showed a total loss of Rs. 8,50,067.13 against realisable assets of Rs. 84,300.10. The Registrar stated that the company's liabilities, excluding the paid-up capital, amounted to Rs. 8,84,367.23. The court had to determine if the company was unable to pay its debts as they became due.

2. Financial Position at Relevant Times:
The court examined whether the company's inability to pay its debts should be assessed based on the financial position revealed in the balance-sheet as of August 31, 1962, or on the date of the winding-up petition (May 13, 1964). The court decided that the determination should be made with reference to the date when the debts became absolutely due for payment, considering both contingent and prospective liabilities.

3. Contingent and Prospective Liabilities:
The court emphasized that it is necessary to account for the "contingent and prospective liabilities of the company" as provided in section 434(1)(c). The inability to pay debts must be examined with reference to the period of time when "they become due." The court cited Halsbury's Laws of England and Buckley on the Companies Acts to support the view that commercial insolvency includes the inability to meet current demands and liabilities that are contingent and prospective.

4. Uncalled Capital:
Mr. Kasliwal argued that the uncalled capital of Rs. 4,50,000 should be considered in determining the company's ability to pay its debts. However, the court found this contention untenable for two reasons: the uncalled capital was insufficient to cover the liabilities exceeding Rs. 8 lakhs, and it was established that the shareholders were not inclined to pay the uncalled capital. The company had not called up the uncalled capital despite its financial distress and the Central Government's notice under section 439(6) of the Act.

5. Creditors Extending Time for Payment:
The company contended that creditors had extended the time for payment, implying that the company was not insolvent. However, the court found no evidence to support this claim. The financial records and the company's admissions indicated that it was unable to meet its liabilities as and when they arose.

Conclusion:
The court concluded that the company's existing and probable assets were insufficient to meet its liabilities, taking into account both present and contingent liabilities. The company was found to be commercially insolvent. Consequently, the court ordered the winding-up of the company, with the official liquidator appointed to oversee the process. The winding-up was deemed to commence from May 13, 1964, the date of the petition's presentation. The order was to be advertised in the State Gazette, the Hindustan Times, and the Rashtradoot, with the petitioner entitled to costs from the company.