9911796707
TMI Blog1995 (3) TMI 403X X X X Extracts X X X X X X X X Extracts X X X X ..... 434 of the Act. There is a demand for payment of debt. After the expiry of the statutory period this company petition has been presented for winding up of the company on the averments that the company is unable to pay its debts. The relevant averments are found at para 11 of the petition. It reads: "The petitioner submits that the company is in dire financial distress. The total liabilities of the company far exceed its assets. The company has sustained losses of over Rs. 200 lakhs as on date. The company is not in a position to pay its debts and is commercially insolvent. Under these circumstances, it is just and proper to wind up the company." In support of the petition, the following documents are produced: Documents Annexures (1) Copy of the letter of confirmation, dated December 3, 1988, issued by the company acknowledging indebtedness in a sum of Rs. 76,141.02 A (2) Copy of the letter dated, November 30, 1994, issued by the company confirming the outstanding balance amount as on July 31, 1988, at Rs. 77,141.02 B (3) Copy of the notice dated, December 3, 1994, issued to the company by the petitioner demanding payment of outstandings purported to be issued under secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titiae to a winding-up order, clause (a) of sub-section (1) gives a statutory right to a creditor to have the company wound-up. To raise the presumption of inability to pay, it is not enough merely to show that the company has omitted to pay the debt despite service of statutory notice, it must be further be shown that the company omitted to pay without reasonable excuse and the condition of insolvency in the commercial sense exists. Machinery for winding-up will not be allowed to be utilised merely as a means for realising debts due from a company. It is also well settled that a winding-up petition is not a legitimate means of seeking to enforce payment of debt. An order will not be made if a sufficient case is not stated in the petition even if such a case is proved in evidence. The petition must disclose the assets of the company and whether they are insufficient to meet the liabilities including contingent and prospective liabilities, and further it must disclose the position of fixed assets as well as valuation of plant and machinery of the company. The question is not whether at given time the company can pay all its debts whether presently due or only in future and still t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y's documents for ulterior purposes. The question for consideration therefore is whether in the light of the working of the company as disclosed by the pleadings, supporting documents on record any case has been made out for ordering winding up. Further, it is to be noted that the mere fact that the company's assets are less than its liabilities is by itself no ground for sending the company for winding up. When the court is called upon to wind-up a company under clause (e) of section 433 what is to be considered is not whether the company if it converted all its assets into cash would be able to discharge its debts but whether in a commercial sense the company is insolvent, that is, whether it is unable to meet its current demands although the assets when released may exceed its liabilities. The petitioner has to place prima facie evidence that the company is commercially insolvent, that its existing assets, probable assets are insufficient to meet the existing liabilities, that the company is heavily indebted to various creditors, its assets being in mortgage or in pledge and that there is no possible chance of profit being made or its business being carried out. In considering ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i)Before even admitting the petition, a show-cause notice can be issued to the company; (ii)The court may admit the petition, fix the date for hearing and issue notice to the company before giving directions about advertisement; and (iii)The petition may be admitted, the date of hearing may be fixed and also the petition may be directed to be advertised and all these exercises can be undertaken without issuing notice to the company. It becomes at once clear, therefore, that though nowhere in the Rules or the Act it is provided that notice to show cause to the company can be issued prior to admission and advertisement, the Supreme Court by judicial interpretation of the relevant schemes of the Act and the Rules, has taken the aforesaid view which has held the field throughout till date. But the moot question is under what circumstances, the last course can be adopted by the company court, namely, after hearing the petitioning creditor, the company court can order admission and advertisement without hearing the respondent-company. In our view, such a course can be adopted safely in a case where after hearing the petitioner and assessing the material produced by the petitioning cre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... compulsory winding-up of the company. This procedure will get expedited in such circumstances." Similarly, the Supreme Court in Hind Overseas Pvt. Ltd. v. R.P. Jhunjhunwalla [1976] 46 Comp Cas 91 , 105; AIR 1976 SC 565, 574, has observed. The relevant report is at para 34, which reads: "In an application of this type allegations in the petition are of primary importance. A prima facie case has to be made out before the court can take any action in the matter. Even admission of a petition which will lead to advertisement of the winding-up proceedings is likely to cause immense injury to the company if ultimately the application has to be dismissed. The interest of the applicant alone is not of predominant consideration. The interest of the shareholders of the company as a whole apart from those of other interests have to be kept in mind at the time of consideration as to whether the application should be admitted on the allegations mentioned in the petition." In Pradeshiya Industrial and Investment Corporation of Uttar Pradesh v. North India Petro Chemical Ltd. [1994] 79 Comp Cas 835 (SC), the Supreme Court has in detail laid down the requirements to be established even prima fac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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