1971 (10) TMI 49 - SC - Companies Law

Winding up Company when deemed unable to pay its debts Meetings to ascertain wishes of creditors or contributors

Issues Involved
1. Whether the respondent-company should be wound up under Section 433(e) of the Companies Act, 1956, due to its inability to pay debts.
2. Whether the claims made by the appellants are bona fide and substantiated.
3. Whether the substratum of the company has disappeared and if the company is insolvent.
4. Whether the petition for winding up was presented with an improper motive.

Detailed Analysis

Issue 1: Winding Up under Section 433(e)
The appellants filed a petition for winding up the respondent-company, alleging it was unable to pay its debts under Section 433(e) of the Companies Act, 1956. The High Court of Bombay and the learned single judge refused to wind up the company. The High Court found that the claims of the appellants were strongly and substantially denied and disputed by the company. The company produced books of account showing a sum of Rs. 72,556.01 due to the appellants, which was disputed by the appellants. The High Court upheld the judgment and order of the single judge, finding no merit in the appellants' claims.

Issue 2: Bona Fides and Substantiation of Claims
The appellants claimed various sums for expenses, interest, commission, compensation for shed occupation, and invoices for machinery. The company disputed these claims on several grounds, including lack of privity, limitation, and absence of transactions in the company's books. The High Court noted that the appellants' claims were not reflected in the company's books except for two invoices. The court found the appellants' claims to be tainted by dishonesty, particularly noting a receipt granted by the appellants for one of the invoice amounts, proving the claim to be false. The court emphasized that if the debt is bona fide disputed and the defense is substantial, the court will not wind up the company.

Issue 3: Substratum and Insolvency of the Company
The appellants contended that the substratum of the company had disappeared and that the company was insolvent. The High Court found that the company intended to enter into other profitable businesses with the proceeds from the sale of machinery. The court held that trading losses alone do not destroy the substratum unless there is no reasonable prospect of future profit. The company had reasonable prospects of business and resources, and the court found no evidence that the company had abandoned its business objects. The balance-sheet showed liabilities exceeding assets, but the company had not ceased carrying on its business and had deposited the disputed amount in court.

Issue 4: Improper Motive
The company argued that the appellants presented the petition out of improper motive, aiming to coerce the company into satisfying groundless claims. The court noted that the appellants, who were former directors and shareholders, presented the petition just as the sale of machinery was about to be effected. The court inferred an improper motive, referencing the English decision in Mann v. Goldstein, which held that even if a company is insolvent, a petition should be restrained if the debts are substantially disputed and the petition is an abuse of process.

Conclusion
The appeal was dismissed with costs, and the company and supporting creditors were awarded one hearing fee. The court ordered that the amount of Rs. 72,000 deposited in court would remain for eight weeks, during which the appellants could file a suit. If no suit was filed within that period, the company could withdraw the amount. The court found no legitimate purpose behind the appellants' petition, affirming the High Court's decision to refuse the winding-up order.

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