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TMI Blog1971 (10) TMI 49X X X X Extracts X X X X X X X X Extracts X X X X ..... divided into 1,103 equity shares of Rs. 500 each. The three Katakia brothers had three shares in the company. The other 1,100 shares were owned by N.C. Shah and other members described as the group of Bombay Traders. Prior to the incorporation of the company there was an agreement between the Bombay Traders and the appellants in the month of May, 1965. The Bombay Traders consisted of two groups known as the Nandkishore and the Valia groups. The Bombay Traders was floating a new company for the purpose of running a shoddy wool plant. The Bombay Traders agreed to pay about Rs. 6,00,000 to the appellants for acquisition of machinery and installation charges thereof. The appellants had imported some machinery and were in the process of importing some more. The agreement provided that the erection expenses of the machinery would be treated as a loan to the new company. Another part of the agreement was that the machinery was to be erected in portions of a shed in the compound of Ravi Industries Private Ltd. The company was to pay Rs. 3,100 as the monthly rent of the portion of the shed occupied by them. The amount which the Bombay Traders would advance as loan to the company was agreed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . and M/s Bhupendra & Co. in which some of the directors of the company are interested. The indebtedness of the company to the creditors including the appellants' claim as shown by the company at the figure of Rs. 72,55601 is for the sum of Rs. 9,56,829.47. The liability of the company including the share capital amounted to Rs. 14,98,923.33. The liability excluding the share capital of the company is Rs. 9,56,829.47 and the assets of the company on the valuation put by the company on the balance sheet amounts to Rs. 8,81,171.96. The value of the current and liquid assets is about Rs. 2,74,247.38. The appellants on these allegations alleged that even after the proposed sale of the machinery at Rs. 4,50,000 the company would not be in a position to discharge the indebtedness of the company. The proposed sale of machinery for the sum of Rs. 4,50,000 was at an undervalue. The market value was Rs. 6,00,000. The Board did not sanction such a sale. It was alleged that the substratum of the company disappeared and there was no possibility of the company doing any business at profit. The company was insolvent and it was just and equitable to wind up the company. When the petition was pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alleged claim was barred by limitation. As to the claim for compensation the company relied on the resolution of the board of directors at which the Katakia brothers were present as directors. The board resolved confirmation of the arrangement with M/s Ravi Industries for use of the premises for the running of the industry at their shed at a monthly rent of Rs. 4,250. Prima facie the resolution repelled any claim for compensation or interest on compensation. With regard to the claim of invoices the High Court held that the first invoice for Rs. 34,600 was paid by the company to the appellants. The receipt for such payment was produced before the learned trial judge. The appellants also admitted the same. As to the other two invoices for Rs. 14,650 and for Rs. 36,000 the amounts appeared in the company's books. According to the company the claim of the appellants was for Rs. 72,556.01 and the case of the company was that there was a settlement of the claim at Rs. 14,650.00. The High Court correctly gave four principal reasons to reject the claims of the appellants to wind up the company as creditors. First, that the books of account of the company did not show the alleged claims o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ividend which had been declared within three months from the date of the declaration. A company cannot declare a dividend payable beyond three months. This court held that the nonpayment of dividend was bona fide disputed by the company. It was not a dispute "to hide" its inability to pay the debts. Two rules are well settled. First, if the debt is bona fide disputed and the defence is a substantial one, the court will not wind up the company. The court has dismissed a petition for winding up where the creditor claimed a sum for goods sold to the company and the company contended that no price had been agreed upon and the sum demanded by the creditor was unreasonable. (See In re London and Paris Banking Corporation [1874] LR 19 Eq. 444). Again, a petition for winding up by a creditor who claimed payment of an agreed sum for work done for the company when the company contended that the work had not been done properly was not allowed. (See In re Brighton Club and Norfolk Hotel Co. Ltd. [1865] 35 Beav. 204). Where the debt is undisputed the court will not act upon a defence that the company has the ability to pay the debt but the company chooses not to pay that particular debt. (See ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transaction between the company and the appellants or those persons in whose names the appellants claimed the amounts. The company has raised the defence of lack of privity. The company has raised the defence of limitation. As to the appellants' claim for compensation for use of shed the company denies any privity between the company and the appellants. The company has proved the resolution of the company that the company will pay rent to Ravi Industries for the use of the shed. As to the three claims of the appellants for invoices one is proved by the company to be utterly unmeritorious. The company produced a receipt granted by the appellants for the invoice amount. The falsehood of the appellants' claim has been exposed. The company however stated that the indebtedness is for the sum of Rs. 14,850 and the company alleges the agreement between the company and the appellants that payment will be made out of the proceeds of sale. On these facts and on the principles of law to which reference has been made the High Court was correct in refusing the order for winding-up. Since the inception of the company Jayantilal Katakia, a partner of the appellants was the chairman of the compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lication for winding up. There was some controversy as to whether all the creditors appeared or not. At the hearing of this appeal the company gave a list of the creditors and notices were issued to the creditors. Apart from the appellants, two other creditors who supported the appellants were Ravi Industries Ltd. whose name appears as one of the creditors as on August 2, 1971, in the list of creditors furnished by the company and K. S. Patel & Co. with a claim for Rs. 44,477.56 though their name does not appear in the list. Among the creditors who supported the company the largest amount was represented by Nandkishore and Company with a claim for Rs. 4,95,999. The two creditors who supported the claim of the appellants in regard to the prayer for winding up were Ravi Industries Ltd. with a claim for Rs. 2,97,500 on account of rent and K. S. Patel & Co. of Bombay with a claim for Rs. 44,477.56. It may be stated here that this claim of Rs. 44,477.56 was made on account of erection work of machinery and this identical claim was included in the list of expenses claimed by the appellants on account of erection work. The company disputed the claim. The High Court correctly found that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for winding up to indicate that the substratum of the company had disappeared. It was also said that there was no possibility of the company doing business at a profit. In determining whether or not the substratum of the company has gone, the objects of the company and the case of the company on that question will have to be looked into. In the present case the company alleged that with the proceeds of sale the company intended to enter into some other profitable business. The mere fact that the company has suffered trading losses will not destroy its substratum unless there is no reasonable prospect of it ever making a profit in the future, and the court is reluctant to hold that it has no such prospect. (See In re Suburban Hotel Co. [1867] 2 Ch. App. 737 and Davis & Co. v. Brunswick (Australia) Ltd. [1936] 1 All. ER 299 ; [1936] 6 Comp. Cas. 227 (PC)). The company alleged that out of the proceeds of sale of the machinery the company would have sufficient money for carrying on export business even if the company were to take into consideration the amount of Rs. 1,45,000 alleged to be due on account of rent. Export business, buying and selling yarn and commission agency are some of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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