2016 (2) TMI 435 - HC - Companies Law

Application for winding up of the respondent Company-Sumatex Limited - Failure to pay salary - The petitioner requested the Respondent Company to release his salary since February, 2013 by way of numerous e-mails, but to no avail. - whether unpaid salary of an employee would constitute debt. Held that - Indisputably, the petitioner had resigned from service on 7.8.12. According to the Respondent Company, the resignation tendered by the petitioner was accepted on the same day, but he continued to attend the office of the Company intermittently uptil January, 2013, for completing the pending work and he has been paid the salary upto the month of January, 2013. As per the stand of the Respondent Company, the petitioner deliberately did not file Form 32 and thus, failed to comply with legal and statutory obligation for a period of 4 months and therefore, the Company had no option but to file Form 32 on its own showing the cessation of the petitioner on 6.3.13 and on that account, suffered penalty for late filing. Looking to the dispute sought to be raised by the Respondent Company regarding the petitioner s entitlement for various reason, it cannot be concluded that the liability regarding payment of salary as claimed by the petitioner stands proved/admitted by the Respondent Company and therefore, this Court is not inclined to direct winding up of the Respondent Company in terms of provisions of Section 433(e) of the Act. Merely because a company has suffered loss in a particular financial year, it does not lead to conclusion that the position is irreversible and the financial condition of the company is deteriorated to such an extent that there is no possibility of revival. On the facts and the circumstances of the case, this Court is of the considered opinion that no just and equitable grounds exist for winding up of the company in terms of provisions of Section 433(f) of the Act either. Petition dismissed - Decided against the appellant.

Summary

Issues Involved:
1. Whether the unpaid salary of the petitioner constitutes a "debt" under Section 433(e) of the Companies Act, 1956.
2. Whether the financial condition of the Respondent Company warrants winding up under Section 433(f) of the Companies Act, 1956.
3. Whether the petitioner remained in continuous employment with the Respondent Company until July 2013.
4. Whether the Respondent Company's alleged financial instability justifies its winding up.

Issue-wise Detailed Analysis:

1. Unpaid Salary as Debt:
The petitioner sought the winding up of the Respondent Company under Section 433(e) on the grounds of unpaid salary, which he claimed constituted a "debt." The petitioner argued that his resignation was not accepted, and he continued to work until July 2013, for which he was not paid. The Respondent Company contended that the petitioner resigned in August 2012, and any subsequent work was intermittent and related to pending projects. The court noted that while the petitioner was paid until January 2013, there was no cogent evidence to support his claim of continuous employment until July 2013. Therefore, the court concluded that the liability regarding the unpaid salary was not proven or admitted by the Respondent Company.

2. Financial Condition of the Respondent Company:
The petitioner also sought winding up under Section 433(f), arguing that the Respondent Company was in poor financial health, evidenced by significant losses and reduced assets. However, the Respondent Company countered that it had received additional term loans for expansion from the Bank of Baroda, indicating ongoing financial support. The court held that a single financial year's loss does not necessarily imply irreversible financial deterioration. Thus, no just and equitable grounds for winding up under Section 433(f) were found.

3. Continuous Employment Until July 2013:
The petitioner claimed that his resignation was not accepted, and he continued to work until July 2013. The Respondent Company maintained that the resignation was accepted in August 2012, and any subsequent work was for pending projects. The court found that, while the petitioner was paid until January 2013, there was no evidence to suggest continuous employment until July 2013. The petitioner's claim of entitlement to salary for the period from March to July 2013 was not substantiated by the evidence.

4. Alleged Financial Instability:
The petitioner argued that the Respondent Company's financial instability justified its winding up. The court noted that the financial health of the company, as indicated by a single year's loss, did not warrant winding up, especially given the additional term loan from the Bank of Baroda. The court concluded that the financial condition did not meet the threshold for winding up under Section 433(f).

Conclusion:
The court dismissed the company petition, finding no grounds for winding up the Respondent Company under Sections 433(e) or 433(f) of the Companies Act, 1956. The petitioner's claims regarding unpaid salary and financial instability were not sufficiently substantiated. Consequently, the petition was dismissed with no order as to costs.