Gauhati High Court
Garodia Hardware Store And Etc. vs Nimodia Plantations And Industries ... on 17 December, 1996
Equivalent citations: [1999]98COMPCAS636(GAUHATI), AIR 1998 GAUHATI 18, (1997) 1 GAU LR 230, (1999) 98 COMCAS 636, (1998) 4 COMLJ 292
ORDER D.N. Baruah, J.
1. As the subject matters of all the above company petitions involve common question of law and similar facts I propose to dispose of all these three petitions by a common judgment.
2. These company petitions have been filed under Section 433(e) and (f) read with Section 434(1)(a) and (c) and Section 439 of the Companies Act, 1956, for short, 'the Act'. All the petitioners are firms, registered under Indian Partnership Act having their principal place of business at Golaghat in the district of Golaghat (Jorhat). The respondent, viz. Nimodia Plantations and Industries Pvt. Ltd. for short 'the company' is a private limited company incorporated under the Act having its Head Office at A.T. Road, Bokaghat in the district of Jorhat.
3. The company owns and possesses a tea garden, namely, Hautley Tea Estate within the Sub-Division of Golaghat, in the district of Jorhat, Assam. According to the petitioners, the Manager of the said Tea garden as well as the company placed orders with the petitioners-firm for selling, supplying goods in respect of Company Petition Nos. 7/87 and 10/87 and for repairing certain machineries of garden, in respect of Company Petition No. 8/87 from time to time in between 1983 to 1986. The goods were duly received by the authorised agents of the Tea garden of the company. Besides the petitioner in Company Petition No. 8/87 made repairs of machineries of the garden. After supplying the goods and making repairs of machineries, the petitioner-firms submitted bills. The amount due from the company in Company Petition No. 7/87 is Rs. 1,55,183.67, in Company Petition No. 10/87 is Rs. 56,974.36 for selling the goods and in Company Petition No. 8/87 is Rs. 1,08,760.10 for repairing several machineries of garden. The company paid to the company, petitioner in Company Petition No. 8/ 87 a sum of Rs. 15,000/- leaving a balance of Rs. 94,760.10.
4. According to the petitioner-firms the company is not in a position to meet the liabilities and the company is running at a loss and there is no chance to make profit. Petitioners further state that the company having failed to manage the aforesaid Tea Garden had entered into an agreement with Sri Lalit Chandra Borah and Sri Pushpendra Nath Borah for sellins the aforesaid tea garden and on coming to know about the aforesaid agreement, petitioner-firms approached the Managing Director of the company to clear the amount due before selling the garden. The Managing Director of the company wrote a letter to the proposed purchaser to pay the aforesaid dues to the petitioners' firm with copy to the petitioners' firm. As per the aforesaid letter, the proposed purchaser did not clear the outstanding dues. Thereafter, again the petitioner-firms wrote letters and sent through their representatives demanding the aforesaid amounts from the company. The respondent-company again wrote letters to the petitioner-firms on 15-12-86 informing the firms that the outstanding amounts could not be settled for the reason that the sale of the garden was delayed due to some technical and legal difficulties. As the respondent-company failed to pay the amount for more than eight months the petitioner-firms issued further notices through their Advocates demanding the payment of outstanding amount. In spite of demands the respondent-company failed to clear the dues. It is also stated by the petitioner-firms that the respondent-company even could not pay the wages of the labourers of the tea garden on some occasions and failed to pay dues of other firms and persons. Hence the present petitions.
5. Respondents entered appearance and filed their affidavits-in-opposition. In the affidavits-in-opposition filed by the respondent-company it is stated that the goods were taken by the agent of the Tea garden and it was not a fact that the company was unable to pay the dues of the petitioners-firm on repeated temands. However, the amounts were not due of the respondent-company. It is further stated that in the agreement for sale all the liabilities of the garden (Hautley) including that of the petitioners had been included and it was settled between the proposed purchaser and the respondent-company. The proposed purchaser had taken all the liabilities to pay the dues to the creditors before execution of the sale deed and the said amounts would be deducted from the purchased money. The agreement was signed on 26-9-86 and the proposed purchasers had already taken over possession of the garden on the date of agreement. As the proposed purchaser had taken all the liabilities of the garden the respondent-company had nothing to do with the liabilities of the Hautley Tea Estate. However, the proposed purchasers failed to pay the balance purchase price within the stipulated time and as a result the sale deed could not be executed. Though the respondent-company demanded back the possession of the garden from the proposed purchasers, instead of giving back possession of the Tea garden they filed a suit in the Court of the Asstt. District Judge, Golaghat and obtained an injunction restraining the respondent-company from taking back possession of the garden. The proposed purchasers now without paying anything to the respondent company enjoying the Tea garden and the matter is now pending before this Court.
6. Thereafter, the respondent company filed an application to implead the proposed purchasers, viz., Sri Lalit Chandra Bora and Sri Pushpendra Nath Bora as party respondents. This Court by order dated 10-9-90 allowed the petition and the proposed purchasers were impleaded as party respondents Nos. 2 and 3 respectively.
7. The proposed purchasers, viz., respondents Nos. 2 and 3 entered appearance and filed affidavit-in-opposition. In their affidavit-in-opposition they admit that they have taken over possession of the Hautley Tea Estate on the date of execution of deed, i.e., on 26-9-86. However, in Clause 10(a) of the said agreement for sale it was specifically mentioned that the liability in respect of Hautely Tea Estate would be paid by the respondents Nos. 2 and 3, except private parties' liability. The claims of the petitioners-firm in respect of the work done/goods supplied were during the period from 1983 to 1986, which was much prior to the date of execution of agreement. Therefore, they are not liable to pay any liability to private parties prior to 26-9-86.
8. Additional affidavit-in-opposition have also been filed by the respondents Nos. 2 and 3 in all the cases.
9. In Company Petition No. 7/87 the respondents have stated that the respondent-company owned Hautley Tea Estate and was running at a loss and the liability of the company was to the tune of Rs. 1,13,32,217.46 as on 26-9-86. Apart from the said liability the company also could not pay the Provident Fund Contribution and wages to its workers. The respondent-company having found that it would be absolutely impossible for the company to run the said tea estate and the Assam Co-operative Apex Bank Ltd. which financed the Tea garden having threatened to take over the said tea estate decided to transfer the said tea estate by sale and the respondents Nos. 2 and 3, therefore, entered into an agreement with the respondent-company for sale of the said tea estate at a consideration of Rs. 2,10,00,000/ and in that connection an agreement was entered into by and between the respondent-company and the respondents Nos. 2 and 3. As per the terms of the said agreement the said tea estate was handed over to these respondents. They have further stated that at the time of execution of the sale the liability of the bank was shown at Rs. 68,36,551.30. Though the sale deed was not executed, according to these respondents, the tea estate is now the property of respondents Nos. 2 and 3 and the respondent-company has no manner of connection with the said Hautley Tea Estate, except the price agreed to be paid. These respondents have already filed a suit (TS No. 41/87) and the trial Court passed status quo order. An appeal was preferred before this Court (Misc. Appeal (F) No. 41/88), and this Court refused to interfere with the said order of status quo granted by the trial Court. According to the respondents Nos. 2 and 3 the said property of Hautley Tea Estate cannot be the subject-matter of the company petition and the said amount cannot be recovered from the said property and now the respondents Nos. 2 and 3 are holding the property by the order of this Court. That being the position, that cannot be the subject-matter of the litigation in a company petition. If the amount is due by respondent-company or any creditor that can be recovered from other properties of the respondent-company. As per the agreement entered into by the respondent-company and the respondents Nos. 2 and 3, respondent-company had given full details of the liability of the company to which the property of Hautley Tea Estate was charged, but the present liability not having been shown by the owner of the tea estate, the alleged liability cannot touch the Hautley Tea Estate and it is apparent on the face of the agreement for sale that the petitioner and the respondent No. 1 had collided to defraud the respondents Nos. 2 and 3 of the properties of Hautley Tea Estate.
10. In the additional affidavit-in-opposition filed in Company Petition No. 8/87, the respondents Nos. 2 and 3 have stated that the present petition has been filed without issuing any notice. They have further stated that the claim of the petitioner is barred by law of limitation and the petition has been filed with a view to thwart the Civil Suit (Title Suit No. 18/87) filed by these respondents for specific performance of selling the garden in question.
11. In the additional affidavit-in-opposition filed in Company Petition No. 10/87 the respondents Nos. 2 and 3 reiterated the statements made in the Company Petition No. 8/87. It is further stated that it is for the Court to see whether other avenues are available for recovery of the amount and it was unreasonable for the petitioners to seek order of winding up instead of pursuing other remedy. As the petitioners have other remedy for recovery of money the company petition is not maintainable. The petition also does not disclose that the claim is not barred by limitation. The company petitions do not show any material facts necessary for invoking power under Section 434 of the Act.
12. I heard the parties.
13. Now the question to be decided in these cases is under the present facts and circumstances whether the company should be wound up or not.
14. The circumstances under which a company may be wound up have been mentioned in Section 433 of the Companies Act. Under Section 433(d) if the company is unable to pay its debts the Court has power to wind up the company. Section 434 of the Act provides that if a company is unable to pay its debts of a creditor for exceeding Rs. 500 does not get his money within 3 weeks after serving notice or any execution of a decree is returned unsatisfied or taking into account the contingent and prospective liabilities of the company the Court is satisfied that the company is unable to pay its debts. In such a case, a petition for winding up may be presented by the Registrar with previous consent of the Central Government and, inter alia, by a creditor for exceeding Rs. 500/-. Where in spite of repeated demands by a creditor the company neglects to pay, it is prima facie evidence of inability to pay. The expression "unable to pay its debts" is to be taken in the commercial sense of being unable to meet current demands though the company may be otherwise solvent. The test is whether the company' s existing liabilities are such as to make the Court feel satisfied that the existing and probable assets would be insufficient to meet the existing liabilities. In such circumstances the Court may incline to pass order of winding up but the mere fact that certain liabilities will accrue due in future which are more than present assets does not necessarily lead to the conclusion that the company will be unable to meet its liabilities when they accrue due. But in case of the debt is disputed then the provisions of winding up is not attracted, therefore, the Company Court before considering as to whether the company should be wound up or not on the ground of inability to pay its debts, is required to see whether such liability of the company is an admitted fact or a disputed one. If such debts is disputed then in that case the question of winding up by the Court would not arise. It is also necessary that before passing an order of winding up by a Court it is to be seen whether it is just and equitable for passing such order. The expression "just and equitable" indicates that a limited company is more than a mere judicial entity with a personality in law of its own. The Company Law recognises the fact that behind it, or amongst it, there are individuals, with rights, expectations and obligations inter se which are not necessarily submerged in the company structure. Such structure is defined by the Companies Act and the Articles of Association by which shareholders agree to be abide by. This is applicable in most of the companies and this definition is sufficient and exhaustive, applicable to all types of companies -- large or small. The just and equitable provision does not entitle one party to disregard the obligation he assumes by entering a company, nor the Court is to dispense him from it.
15. It is the duty of the Court to see whether it will be just and equitable to wind up the company. There is an exhaustive list of situations that may fall within the scope of the "just and equitable" clause, but it appears that although such classification may be convenient for purposes of presentation, the words "just and equitable" require a flexible interpretation. In the words of Lord Wilberforce: "Illustrations may be used, but general words should remain general and not be reduced to the sum of particular instances. By way of illustration under this clause winding-up orders have been made on the grounds: that the substratum of the company was gone. The substratum is held to be gone when the main object for which the company was formed has become impracticable. The words "just and equitable" are a recognition of the fact that a limited company is more than a mere juridical entity, with a personality in law of its own. The just and equitable provision does not entitle one party to disregard the obligation he assumes by entering a company, nor the Court to dispense him from it."
16. In the present case the company against whom the applications have been filed did not seriously contest. The petitioners have been able to prove that the amounts payable to the petitioners were not paid in spite of repeated demands. In paragraph 8 of the petition the petitioner in Company Petition No. 10/87 has very clearly stated that the company at present is not in a position to pay the amount due. Respondent No. 2 entered into an agreement for sale of the garden, and the possession of the Tea garden was taken over by the respondents Nos. 2 and 3 pursuant to the said agreement. According to these respondents, the respondent-company was in financial crisis. The company was not in a position to run the garden properly for want of finance. The liability of the company became more than Rupees One Crore.
17. In paragraph 5 of the additional affidavit-in-opposition these respondents have stated as follows:
"5........ In other words, Hautley Tea Estate is only one of the properties of the said company. Assam Co-operative Apex Bank Ltd., a Banking Institution, in the Co-operative Sector used to finance the said Tea Estate and the present liability of the said company was about Rs. 1,13,32,217.46 as on 26-9-86. Apart from the aforesaid liability, the Tea Estate also could not pay the Provident Fund Contribution and ultimately the Tea Estate also could not pay the wages to its workers. When the industry became sick and the Estate was not in a position to pay the wages apart from other legal liabilities, the number of workers working in the Tea Estate and the number of staff working in the garden was 1000, the company having found that it is absolutely impossible for them to run the said Tea Estate and the Assam Co-operative Apex Bank Ltd. also having threatened to lake over the said Tea Estate by filing a Civil Suit for recovery of the said amount and also for appointment of the Receiver under the terms and conditions, it was decided by the company that in order to protect the huge number of workers and the staff, the only alternative is to transfer the Tea Estate by way of sale."
18. Respondent No. 1, however, denied that the company is unable to pay its debt. But considering the entire facts and circumstances of the case, it can very well be said that the company is in financial difficulties and unable to pay debt. The intention to sell the tea garden is an indication to that effect.
19. The respondent No. 2 and respondent No. 3 have opposed the winding up of the company.
20. In India agreement to sale by itself does not create any interest on the property. There may, however, be a charge only. English Law differs from Section 54. Indian Law does not recognise Legal and Equitable Estate as held by Privy Council in Chhatrakumari v. Mohanbikram, AIR 1931 PC 196. Therefore, the position of the respondents Nos. 2and 3 is that of a creditor. These respondents may have right to sue. It has also to be seen that on the strength of an agreement for sale if a suit is filed for specific performance of contract and a decree is obtained thereof and get the property in execution of the said decree nothing will be left. They will be totally deprived of their money, It is well settled that in a company there is public element. The purpose of winding up proceeding is aimed at that. Therefore, in my opinion one creditor alone should not get the benefit to the exclusion of the other creditors. It has been mentioned in this case that there is a suit pending for specific performance of contract in Civil Court filed by the respondent No. 2 against the respondent No. 1. If the suit is decreed and the 2nd respondent gets the property the other creditors will be deprived of the money that was spent as from the evidence of the respondent No. 2 as well as the petitioner no other property is left to the company. In such situation it should be the endeavour of the Court to see that all creditors should get some money out of it and the respondent No. 2 should not take the benefit. Various amounts are due to the petitioner which have not been paid by the company. It is true that no notice was issued under Section 434 of the Act. Section 434 envisages that when a notice is served under that section in the manner prescribed and if the payment is not made within a period of three weeks it will be presumed that the company is unable to pay its debts. In my opinion this only gives a presumption that the company is unable to pay its debts. Even without serving such notice if it can be provided that the company is unable to pay the amount the Court cannot ignore the fact that the company was unable to pay the amount. It is the case of the petitioner as well as the respondent No. 2 that the company is almost defunct. Therefore, merely because the notice under Section 434 was not served it cannot be said that the company is unable to pay its debts. As there are ample materials before this Court that the company is unable to pay its debts of the creditors, therefore, in the interest of all creditors, in my opinion, the company should be wound up.
21. In the result, I order that the respondent company, namely, Nimodia Plantations and Industries Private Limited, be wound up under the provisions of the Companies Act (1 of 1956) and the Companies Court Rules, 1956. The parties shall bear their own costs. Let steps be taken according to law.