1976 (9) TMI 118 - HC - Companies Law

Shares Allotment of, Winding up - Company when deemed unable to pay its debts, Powers of tribunal on hearing petition, Meetings to ascertain wishes of creditors or contributors

Issues Involved:
1. Refusal to Adjourn the Petition
2. Financial Constraints of the Company
3. Interests of General Body of Creditors
4. Compliance with Section 73 of the Companies Act
5. Suitability of Winding-Up Petition vs. Debt Recovery through Suit

Detailed Analysis:

1. Refusal to Adjourn the Petition:
The appellant-company contended that the petition should have been adjourned as their new attorneys had come on record only on 24th November 1975, and needed time to review the case and consider presenting a scheme. The court found no merit in this contention, noting that the petition had been admitted without contest on 5th February 1975 and advertised thereafter. Several adjournments had already been granted, including the last one on 12th November 1975. The court held that changing attorneys just before the hearing was not a valid ground for adjournment.

2. Financial Constraints of the Company:
The company argued that it had no funds to defend itself or to take action against the police and the Bombay Stock Exchange due to frozen bank accounts. The court found this argument unconvincing, noting that the company had continued to make applications for withdrawal of funds during the appeal. It was observed that the company had misused funds meant to be kept in a separate account under Section 73 of the Companies Act, which should be repaid to the applicants with interest. The court doubted the company's bona fides as it had made payments to other creditors, indicating available resources.

3. Interests of General Body of Creditors:
The appellant argued that the winding-up order was not in the interest of the general body of creditors. The court referred to the wishes of creditors under Section 557 of the Companies Act, noting that there was no evidence of opposition from creditors at the time of the winding-up order. On the contrary, three creditors supported the petition. The court emphasized that the discretion to wind up a company is judicial and must consider the interests of all creditors. The court found that the learned company judge had exercised discretion properly.

4. Compliance with Section 73 of the Companies Act:
The court highlighted that the company had violated Section 73 by using funds meant to be kept in a separate account for purposes other than those specified. The permission to list shares on the Bombay Stock Exchange was conditional and later revoked, making the allotment of shares void. The company had not repaid the money to the applicants as required, and the court stressed the need for stricter safeguards to protect investors. The court found that the company's directors had misapplied the funds, further justifying the winding-up order.

5. Suitability of Winding-Up Petition vs. Debt Recovery through Suit:
The company contended that the petitioning creditor should have filed a suit for debt recovery instead of a winding-up petition. The court noted that a winding-up petition is not a legitimate means of enforcing payment unless the debt is undisputed. In this case, the debt was admitted by the company in response to the statutory notice and in subsequent proceedings. The court found no ulterior motive on the part of the petitioner and held that the petitioner was entitled to the remedy provided under the Companies Act.

Conclusion:
The court dismissed the appeal, directing the appellant-company to hand over all articles and things to the official liquidator immediately. The appellant-company was ordered to pay the respondent's costs, which would come out of the company's assets. The court refused the company's application for leave to appeal to the Supreme Court.

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