1975 (7) TMI 110 - HC - Companies Law

Circumstances in which a company may be wound up, Admission of petition and directions as to advertisement

Issues Involved:
1. Admission of creditors' petitions for winding up.
2. Company's financial position and ability to pay debts.
3. Company's request for adjournment to secure loans.
4. Opposition to winding up by a majority of creditors.
5. Locus standi of opposing creditors at the admission stage.
6. Prima facie case for winding up and court's discretion at admission stage.

Detailed Analysis:

1. Admission of Creditors' Petitions for Winding Up:
The primary question before the court was whether the creditors' petitions for winding up should be admitted and what further directions should be given. The company admitted that a sum of about Rs. 10 lakhs was due to the petitioning creditors and that it was unable to pay these amounts. The creditors, prima facie, were entitled to an order for winding up based on these facts.

2. Company's Financial Position and Ability to Pay Debts:
The company argued against the admission of the petitions on the grounds that it had assets worth about Rs. 5 crores, which was more than sufficient to meet its liabilities. However, the court noted that no material evidence, such as the latest balance-sheet, was provided to substantiate this claim. The absence of such documents led to an adverse inference against the company.

3. Company's Request for Adjournment to Secure Loans:
The company requested a four-month adjournment to secure loans from the Bank of Baroda and the Central Bank of India. The court found this position uncertain, as no documents or correspondence were provided to show the stage of negotiations. The court held that the mere application for loans did not justify denying the petitioning creditors entry to the court.

4. Opposition to Winding Up by a Majority of Creditors:
It was asserted that the majority of creditors, in value, were opposed to winding up the company. Applications were filed by other creditors claiming to be owed Rs. 96 lakhs, opposing the winding up on similar grounds as the company. The court noted that while it was material to know that there were creditors opposed to winding up, this alone was not sufficient to refuse an order for winding up. Such creditors would need to provide good reasons beyond their belief in the company's solvency and management.

5. Locus Standi of Opposing Creditors at the Admission Stage:
An objection was raised regarding the locus standi of the opposing creditors to be heard at the admission stage. The court held that inherent power under Rule 9 of the Companies (Court) Rules, 1959, could not be used to upset the scheme of things under the Companies Act. It was determined that creditors opposed to winding up had no right to intervene at the admission stage, as their interests were not prejudiced by the mere admission of the petition. They would have an opportunity to be heard after the petition was admitted.

6. Prima Facie Case for Winding Up and Court's Discretion at Admission Stage:
The court emphasized that once a prima facie case for winding up was made out, the petition ought to be admitted. The approach at the admission stage differs from that at the hearing, where all facts would be considered to decide the best order. The court held that the company's inability to pay its debts, despite having assets, entitled the petitioning creditors to a winding-up order. The court admitted the petitions and ordered their advertisement, noting that no real prejudice would be caused to the company by such an order.

Conclusion:
The petitions for winding up were admitted, and further proceedings were consolidated in C.P. No. 26 of 1975. The petition was to be advertised in specified newspapers and notices served on relevant authorities. The court's decision was based on the company's failure to substantiate its claims of solvency and the need to ensure justice for the petitioning creditors.

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