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TMI Blog1979 (8) TMI 150X X X X Extracts X X X X X X X X Extracts X X X X ..... . 9,00,000 receivable by the petitioners from M/s. Sumatilal Jamnalal was treated as credited to the account of the petitioners with the company as and by way of an advance. This arrangement, aver the petitioners, was recorded by the petitioners' letter dated 14th June, 1976, addressed to the company and duly confirmed by the company by an endorsement on the letter. By another letter dated 19th June, 1976, addressed to the petitioners, the company has stated that they had credited the petitioners' account with a sum of Rs. 9,00,000. It is further pleaded that in December, 1976, it was agreed between the petitioners and the company that the petitioners will not press the company for the recovery, inter alia , of the said sum of Rs. 9,00,000 and interest thereon for a period of one year. This agreement was placed on record by the petitioners' letter dated 22nd December, 1976. In the light of the above averments, Mr. Chagla urged that the company has confirmed the advance of Rs. 9,00,000 by making an endorsement on the said letter dated 14th June, 1976. Furthermore, the company has also by its letter dated 19th June, 1976, stated that the petitioners' account has been credited with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d and for that purpose they had maintained a very close relationship with stock brokers, amongst them being M/s. Sumatilal Jamnalal. It is also alleged that the affairs of the company were being mismanaged by the said Kapadia group. The Central Bank of India had advanced loans to the company running into several crores of rupees and in order to exercise control over the running of the company, the Central Bank of India had nominated two persons as directors from 17th June, 1976, and the said Kapadia group were aware of the decision taken by the Central Bank in this behalf. In anticipation of the control which was to be assumed by the Central Bank, it is contended with great emphasis that various manipulations were made by the Kapadia group in order to enrich themselves and to cause loss to the company liabilities were sought to be foisted on the company by making various entries in the books of account, for which the company was not really liable. It is the case of the company that these manipulations came to light subsequently and the petitioners' claim in the present petition falls in the category of manipulations and that the company is in fact not truly liable to the petitioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 000 has been credited to the petitioners' account in accordance with the petitioners' letter of even date. Mr. Bhabha submitted that there is no letter of 19th June, 1976, from the petitioners to the company and there is no entry dated 19th June, 1976, in the books of account of the company showing that a sum of Rs. 9,00,000 had been credited to the petitioners' account. The entry which appears in the books of account of the company is as on 30th June, 1976. These discrepancies are of great importance and have far-reaching consequences more particularly when the defence set up is one of manipulations and also fabrication of books of account. According to Mr. Bhabha, the letter dated 19th June, 1976, is signed by one P.H. Shah for the chief accountant. This P.H. Shah at all material times was an internal auditor-cum-accountant of the company, a man appointed by the Kapadia group, and who was a stooge of the Kapadias completely under their control and was doing things as directed by the Kapadias. These circumstances indicate that the credibility of the contents of the letters as well as their authenticity are under serious challenge. Mr. Bhabha next pointed out that the petitioners ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rties will have opportunity to lead evidence and cross-examine witnesses. The confirmation on the copy of the letter dated 14th June, 1976, is illegible and one does not know who has signed it. This is also eminently a matter of evidence and cannot be decided on affidavits. In these circumstances, the debt is not clearly established and a bona fide defence to the debt claimed is made out and, therefore, a winding-up order cannot be made upon such a debt. Hence the petition must fail. The matter does not rest here because Mr. Chagla urged that the company is in fact insolvent and also commercially insolvent as it is unable to pay its debts as and when they become due. The financial picture of the company is a dismal one and the mere fact that a bona fide dispute has been raised cannot come in the way of winding up of the company on the ground that it is insolvent. Mr. Chagla also contended that the substratum of the company is gone. Learned counsel pointed out that the entire capital and reserves of the company have been wiped out by large losses incurred by the company. The accumulated losses as per the audited balance-sheet for the year ending 31st March, 1977, were to the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omp. Cas. 353 (Ch D). In that case, the plaintiffs and the first defendant and his wife were equal shareholders in two companies, J. Co. Ltd. and C. Co. Ltd. The first plaintiff managed J. Co. and the first defendant C. Co. Proposals were made to buy each other out but no agreement could be reached. The first defendant presented a creditors' petition to wind up J. Co., alleging a debt of 1,869 for director's fees. The second defendant presented a petition to wind up C. Co. as a creditor for goods sold and delivered to that company. The plaintiffs sought an injunction to restrain the defendants from advertising or taking any further steps in the prosecution of their respective petitions on the grounds that the defendants were not creditors at all, or, alternatively, that their debts were disputed on substantial grounds, that the petitions were not bona fide but an abuse of the process of the court and that the companies were solvent. The learned judge, while granting the injunctions, held that a creditors' winding-up petition could only be presented by a creditor and since the debts upon which both the defendants founded their petitions were substantially disputed, neither of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt. Reverting to Mr. Chagla's submission that the company is insolvent or commercially insolvent or its substratum is gone, he relies on two circumstances: (1) The company is unable to pay its debts as and when they become due, and (2) the entire capital and reserves of the company have been wiped out by the losses incurred by the company as seen in the audited balance-sheet ended 31st March, 1977. Now, regarding the first circumstance, there is no material in support. Mere indebtedness of the company is not sufficient. The question whether the company is unable to pay its debts would depend on the facts of each transaction. In paying the claims of creditors, many options are open to the company under the Companies Act, 1956, and, therefore, it is not possible to judge the commercial insolvency of the company on the basis of its liabilities. The second circumstance about the wiping out of the capital and reserves by the losses cannot be considered in isolation. The accumulated losses, to which Mr. Chagla has referred, go to show that the company has been making losses for some years, but that by itself would not justify the passing of a winding-up order. The overall picture of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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