Orissa High Court
Hindon Foods (Pvt.) Ltd. And Anr. vs Golden Dragon Sea Food Factory (Pvt.) ... on 3 April, 1989
Equivalent citations: [1991]70COMPCAS335(ORISSA)
JUDGMENT S.C. Mohapatra, J.
1. This is an application under Section 439 of the Companies Act, 1956 (hereinafter referred to as "the Act"), for an order to wind up the opposite party company.
2. The two petitioner-companies were carrying on business in relation to fish. Both the companies have one chairman. For the purpose of carrying on the business, both the companies entered into agreements with the opposite party-company in order to facilitate the business and advanced huge amounts. After some time, opposite party issued notices to the petitioners to terminate the agreements. While assailing the power of termination of agreements, in reply, petitioners requested the opposite party to repay the advances taken unless processing commenced from December 31, 1986. After some correspondence, the opposite party stopped accepting the stock of petitioner No. 1 and processing the same from May 10, 1987. Petitioner No. 1 tried for an amicable settlement. However, there was no settlement. Thereupon, petitioner No. 2 demanded immediate refund of the amount advanced. When there was no chance to bridge the gap, notice under Section 434 of the Act was issued demanding refund of Rs. 5,30,678.85 with interest at the rate of 18 per cent. per annum from the dates of advance till return of the amount. Despite notice, when the amount; demanded or any part thereof was not paid, this application has been filed.
3. After the opposite party appeared in this court, an application under Section 391 of the Act was filed by the petitioners for giving opportunity to the parties for entering into a compromise. It was stated by learned counsel for the opposite party that, in fact, talk of compromise was going on and a sitting was scheduled to be held in the chamber of Mr. R. Mohanty, senior advocate, for this purpose on June 30, 1988. Accordingly, I directed a sitting to settle the dispute on June 30, 1988, at 5 p. m. in the professional chamber of Mr. R. Mohanty, senior advocate, as agreed to by learned counsel for both the parties. Thereafter, no settlement was intimated to this court and, accordingly, I proceeded to hear the petition.
In this application, the following questions are to be decided :
(a) Whether there were advances as claimed by the petitioners ?
(b) Whether any amount has been paid ?
(c) Whether the opposite party is unable to pay back the amount?
(d) Whether the opposite party company is to be wound up ?
4. PW-1 has been examined by the petitioner. He is the managing director of both the petitioner-companies. He has proved the documents from the stage of agreement till the stage of refusal as well as the notice demanding refund of money taken in advance by the opposite party. Opposite party who had not filed any written statement or objection to the petition did not appear to contest the petition or to cross-examine PW-1. Thus, the statement of PW-1 remains unchallenged.
5. Question (a) : PW-1, in his deposition, proved the agreements and the receipts granted by opposite party as evidence of receiving advances. There is no reason to disbelieve the statement of PW-1 and the receipts. They clearly proved that amounts as indicated in the receipts have been advanced by the two petitioner-companies. This question, accordingly, is answered in favour of the petitioners.
6. Question (b) : No written statement or objection has been filed by the opposite party claiming that it has paid the amounts or is not liable to repay the amounts advanced. The agreements clearly show that the advances are to be repaid. In the absence of any material, the statement of PW-1 can be accepted safely that the amounts have not been paid and are still remaining due. This question is also answered in favour of the petitioners.
7. Question (c): This is the main question to be considered since inability to pay debts is a ground to wind up a company under Section 433(e) of the Act. There can be no doubt that the machinery under the Act is not to be allowed by a court to be utilised for realisation of money where there is a legitimate dispute with regard to the liability of the company. Where, however, the debt is not disputed on any legitimate ground, the court may order the winding up of the company. In this case, the agreement dated September 15, 1986 (exhibit 1), in Clause 28 provides that petitioner No. 1 shall pay an advance of Rs. 10,000 to the opposite party and on that basis opposite party No. 1 received the amount of Rs. 10,000 on September 22, 1986, under exhibit 5. Besides, some more amounts were advanced as per exhibits 6 and 7. There is also provision for refund in Clause 29. Similarly, in Clause 28 of the agreement (exhibit 3), petitioner No. 2 was to pay an advance of Rs. 2,50,000 to the opposite party and amounts were received as per exhibits 8, 9, 10 and 11. Despite the same, the opposite party refused to process the goods. Thus it was liable to repay the amount. If the opposite party had appeared in this court to explain its stand, I would have been in a position to consider whether the amount claimed by the petitioners were to be refunded. The opposite party, however, after appearance, did not feel advised to contest the claim. In such circumstances, there is no material before me to hold that the petitioners have initiated this proceeding just for realisation of the amount The petitioners have stated in the petition" that opposite party company is insolvent. In deposition, PW-1 has also stated the same. There is no material or cross-examination to controvert the same. Accordingly, I am satisfied that opposite party company is unable to pay the dues as demanded by the petitioners and grounds for winding up of opposite party have been made out. This question is answered in favour of the petitioners.
8. Question (d): The court is to consider under Section 433(f) of the Act whether it is just and equitable that the company should be wound up. In Misrilal Dharamchand P. Ltd. v. B. Patnaik Mines (P.) Ltd., ILR 1974 Cuttack 1355 ; [1978] 48 Comp Cas 494, it has been held (at page 501 of 48 Comp Cas) :
"From a discussion of these precedents, the following principles can be culled out:
(i) The court's jurisdiction under Section 433(e) of the Act is discretionary ;
(ii) An order of winding up is made only when it is shown that the company is commercially insolvent and it is not just and proper to allow such an insolvent company to be in existence in the broader interests of commercial morality;
(iii) A company may have liabilities more than its assets, but still may have, in particular circumstances, the capacity to meet the demands from its creditors ; and
(iv) On an application to wind up a company on the ground that it cannot meet its debts, what has to be ascertained 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 solvent."
9. In this case, as has been held earlier, there is no material to come to the conclusion that the claim of the petitioners is disputed. If such a conclusion could have been possible, I would have applied the decision in Bengal Builders and Traders P. Ltd. v. Orissa Textile Mills Ltd., ILR 1977 2 Cuttack 703 ; [1978] Tax LR 1862, and would have rejected the petition. In this case, there is no dispute by the opposite party to the claims of the petitioners in court. The amount due is huge and the claim is continuing since 1987. The opposite party company is not able to pay the amount. It is not just and proper to allow such a company to be in existence in the broader interests of commercial morality. There are no extraordinary circumstances why I should not exercise my power to direct winding up of the company. However, in this court, as was the case in Mis-rilal Dharamchand P. Ltd. v. B. Paynaik Mines (P.) Ltd., ILR 1974 Cuttack 1355 ; [1978] 48 Comp Cas 494, some time was granted to the company to discharge the debt. I am inclined to take a similar liberal view in the matter so that the opposite party company may make an attempt to refund the amount as per the demand of the petitioner companies to protect itself from being wound up. The amount being heavy, a time of one year should meet the ends of justice. Accordingly, while directing winding up of the opposite party company, I direct stay of operation of this order for one year within which time the opposite party company shall get breathing space to refund the amount to the petitioner-companies.
10. In the result, subject to the aforesaid direction, the petition is allowed. Since there is no appearance by the opposite party, there is no order as to costs.