1978 (12) TMI 134 - HC - Companies Law

Issues Involved:
1. Whether the petition for winding up the company should be advertised under rule 24, read with rule 96 of the Companies (Court) Rules, 1959.
2. Whether the company is unable to pay its debts under section 433(e) of the Companies Act, 1956.
3. Whether it is just and equitable to wind up the company under section 433(f) of the Companies Act, 1956.

Detailed Analysis:

1. Advertisement of the Petition:
The primary issue was whether the petition for winding up should be advertised. The court concluded that the circumstances did not warrant the advertisement of the petition. It was noted that the company had responded to the petitioners' demand notice, denying the allegations and providing reasons for the non-payment. The court observed that the company is a running concern and that the petitioners failed to demonstrate that the company's substratum was destroyed or that it was running at a loss with no reasonable prospect of future profits. The court also referenced an arrangement made in court, where the company agreed to pay the petitioners in installments, which was fully complied with. Therefore, the court held that the petitioners' contention for advertisement was unjustified and repelled the prayer for advertisement.

2. Company's Inability to Pay Debts:
The petitioners argued that the company was unable to pay its debts, invoking section 433(e) of the Act, which deems a company unable to pay its debts if it neglects to pay a sum exceeding five hundred rupees for three weeks after a demand notice. The court noted that the petitioners had served a demand notice on September 7, 1977, and the company had replied on September 30, 1977, denying the allegations and providing reasons for non-payment. The court found that the company's response did not indicate an inability to pay but rather raised objections preventing immediate payment. Additionally, the court referenced an arrangement made in court on December 1, 1977, where the company agreed to pay the petitioners in installments, which was fully complied with. Consequently, the court held that the ground under clause (e) was no longer available to the petitioners as the company had shown its bona fides by making the payments.

3. Just and Equitable to Wind Up the Company:
The petitioners contended that it was just and equitable to wind up the company, citing mismanagement and financial instability. They pointed to the balance-sheet, which showed significant payments to directors and depreciation amounts not accounted for, suggesting a loss instead of a profit. The court, however, found that even if the petitioners' allegations were accepted, it would not justify winding up the company. The court noted that the company was a flourishing concern and that temporary liabilities exceeding assets did not warrant winding up, as future profits could offset the losses. The court also highlighted the petitioners' conduct, noting that they had previously filed and withdrawn a petition under sections 397 and 398 of the Act and later failed to be re-impleaded. The court concluded that the petitioners' actions seemed to be aimed at harassing the company. Therefore, the court held that the petitioners had not proven that it was just and equitable to wind up the company.

Conclusion:
The court declined the prayer for advertisement of the petition and held that no ground for winding up the company under sections 433(e) or 433(f) had been made out. The petitioners were, however, given the liberty to lead evidence and prove their case for winding up the company in the future.

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