Rajasthan High Court - Jaipur
Sand Plast (India) Ltd. vs I.T.C. Bhadrachalam Finance And ... on 12 April, 2001
Equivalent citations: 2003(1)WLN81
JUDGMENT V.S. Kokje, J.
1. This is an appeal filed by M/s. Sand Plast (India) Ltd., (hereinafter referred to as the 'appellant-Company') which is a Company registered under the provisions of the Companies Act, 1956 (in short 'the Act') against an order dated 19.3.2001 admitting a petition for its winding up, filed by M/s. I.T.C Bhadrachalam Finance and Investment Ltd. (hereinafter referred to as 'the Company-petitioner'), on the ground that the appellant-Company is unable to pay its debt. The company petition was filed in the High Court on 9.1.1997. On 6.2.1997, notice was directed to be issued to the appellant-Company to show cause as to why the petition be not admitted. Reply was filed by the appellant-Company in answer to the show cause notice and meeting the new points raised in the reply, rejoinder was filed by the Company-petitioner. In its reply to the winding up petition, the appellant-Company had raised certain preliminary objections. Learned Company Judge decided those objections by his order dated 15.9.1998. The preliminary objections raised were in respect of the defective affidavit filed in support of the petition in violation of Rules 18 and 21 of the Companies (Court) Rules, 1959 without any authority of law, affidavit not being in the specified form No. 3 of the Rules, affidavit not disclosing source of information on the basis of which contents of the petition were verified, absence of resolution of the Board of Directors of the Company-petitioner which filed the winding up petition etc. The preliminary objections were rejected by the learned Company Judge. An appeal was filed against the aforesaid order dated 15.9.1998 before the Division Bench of this Court which rejected the appeal on 14.12.2000 regreting the delay in disposal of the company petition and making the following observations:
Under such circumstances, we direct that the company petition be posted before the Judge for formal admission of the petition and fixing of a date for hearing and for a direction as to the advertisement to be published and proceed further in accordance with the provisions of the Act and the rules made thereunder. We request the Hon'ble Company Judge to dispose of this matter within three months in view of the reasons mentioned in paragraphs, supra.
2. the case was thereupon listed before the learned Company Judge who permitted the appellant-Company to file its reply on merits and passed order dated 19.3.2001, after hearing both the parties, admitting the petition and directing advertisement to be issued. It is this order, which passed order dated 19.3.2001, after hearing both the parties, admitting the petition and directing advertisement to be issued. It is this order, which is under challenge in this appeal. It is noteworthy that though the Division Bench had indicated that the Judge had to pass a formal order of admission and fix a date of hearing and for direction as to advertisement, the learned Company Judge gave full hearing on admission and then passed the order admitting the petition.
3. The appellant-Company contends that mere inability to pay debt is not enough for admitting a petition for winding up or to order winding up of a Company. It is contended that the learned Company Judge, while admitting the petition, was obliged to consider as to whether the inability to pay debt is an outcome of any deliberate or designed action or mere temporary set-back affecting the economy and the market. It was further contended that the learned Company Judge was obliged to take into consideration not only the temporary inability to pay debts but the entire status and position of the appellant-Company in the market had to be taken into account. It is further contended that a petitioner claiming winding up is obliged to show that the financial status or monetary substratum or the commercial viability of the Company has gone so low and down that winding up is obviously unavoidable. It was contended that the appellant-Company was a running concern and even after passing through a critical phase, its viability had remained un-affected. It was also contended that the appellant-Company received concrete proposals on behalf of public sector as well as private sector undertakings for turn key plants for the manufacture of fly-ash bricks as also proposals from financial institutions and the Government of Kazakasthan for certain projects which showed that the services rendered by the Company were very much in demand and it was not a dead concern. It was further contended that the appellant-Company had almost a monopoly in the requisite technology for manufacture of bricks with the use of fly-ash. The need for promoting the fly-ash project was recognised by the Government of India as also by the Supreme Court and other High Courts and the Government of India had also made it mandatory to all thermal power plants to facilitate the setting up of fly-ash utilisation units and in view of this, the technology developed by the appellant-Company was very much in demand. In view of the utility of the company's service, the Delhi Development Authority had made available free of cost prime land in the heart of Delhi for setting up the fly-ash brick plant and for that very reason, the financial institutions and the Government had already granted permission for installation of the fly-ash brick plant at New Delhi and for shifting the plant from Behror. All these things were not considered, according to the learned Counsel for the appellant-Company, by the learned Company Judge, while admitting the company petition.
4. It was further contended that the relief of winding up was a discretionary relief and the Court had to find out whether the winding up would be in the interest of justice and also in the public interest. As the Company was viable and solvent, it would not be in the interest of justice to wind it up. Also in view of the country's need to tackle the fly-ash issue, it was contended that it would not be in public interest to wind up the Appellant-Company at a stage when the Company was undergoing revival process. This aspect was also lost sight of by the learned Company Judge, according to the learned Counsel for the appellant-Company.
5. It was also contended that the learned Company Judge failed to consider the fact that the claim against the appellant-Company had already become barred by limitation and therefore, the company petition did not deserve to be admitted and it should have been summarily dismissed.
6. It was also contended that mere failure to pay debts is not enough to raise a presumption of the Company's inability to pay its debts. According to the learned Counsel, it was not enough merely to show that the appellant-Company had omitted to pay the debt despite service of statutory notice. It has further to be shown that the appellant-Company omitted to pay debt without reasonable excuse and the condition of insolvency in the commercial sense existed. It was contended that no material was placed on record proving the commercial insolvency of the appellant-Company. On the contrary, the appellant-Company had placed on record prima facie evidence showing that it was solvent and viable Company and there were full chances of its business being carried on profitably. According to the learned Counsel, the material placed by the appellant-Company before the learned Company Judge was not taken into consideration while admitting the petition for winding up.
7. It was further contended that other secured creditors of the appellant-Company had already proposed and agreed for the restructuring of all loans and the Company was having extensive financial commitments including the export orders and thus, it was in the interest of justice that the winding up petition was not admitted and admission order did not deserve to be advertised. These submissions also were not taken into consideration by the learned Company Judge, according to the learned Counsel for the appellant-Company.
8. It was further contended that advertisement of the winding up was a drastic measure which was bound to affect the reputation of the appellant-Company and would entail serious consequences. While the appellant-Company was going through the revival process, it was not in the interest of justice to allow it to be wound up. It was also contended that the appellant-Company could not make payments because of genuine financial crisis being faced by it.
9. On the contrary, it was contended on behalf of the Company-petitioner that at the time of admission of the company petition, it is only to be seen that the petition for winding up has not been made on, prima facie, false and frivolous grounds. The decision whether to admit the petition or not is, in the very nature of things, not a final decision in the matter. In cannot, therefore, be said that the learned Company Judge could not even have admitted the petition in the circumstances of the case in view of the factual allegations made in the petition which were not denied by the appellant-Company.
10. It was further submitted that a show cause notice was issued by the learned Company Judge even before admission and in response to that, a detailed reply was filed by the appellant - Company. The learned Company Judge admitted the petition after hearing both the parties at length and it cannot be said that the discretion to admit the petition was exercised lightly or without applying mind to the consequences of the admission of the winding up petition. It was further contended that the liability of Rs. 1,00,51,237/- as on 31.12.1996 was an admitted liability and the appellant-Company had expressed its inability to pay the amount. Various cheques given by the appellant-Company towards repayment of the loan were not honoured. This was sufficient proof of the fact that the appellant-Company was unable to pay its debt. It was further contended that assuming that the appellant-Company had no malafide intention not to pay the amount, it is equally true that the Company-petitioner was entitled to repayment of loan amounts advanced by it and the claim of the Company-petitioner was also genuine and bonafide. It was contended that because of the financial constraints of the appellant-Company, the Company-petitioner cannot be made to suffer and be deprived of his remedy of applying for winding up the appellant-Company.
11. As regards the claim being time-barred, it was contended that it was not so when the winding up proceedings commenced by filing the winding up petition. It was also contended that because of the acknowledgement of liability in writing, within limitation, the claim has not become time barred as yet. It was further contended that the claim of the appellant-Company that it is still commercially viable has yet to be proved by adducing evidence and putting proper material before the Court. Till this is done, the presumption that the appellant-Company was unable to pay its debt because of non-payment after the statutory notice under Section 434 of the Act, shall arise and prevail. It was also contended that the appellant-Company is unnecessarily bringing in public interest element in a purely commercial and statutory matter. According to the learned Counsel for the respondent- Company, it may be permissible to look into the over all situation of the Company and its utility to the public while ordering winding up of the Company, but it is not the primary consideration which should govern the winding up proceedings. It was also submitted that all these aspects may be relevant while making a final order of winding up but all such defences cannot be looked into in detail at the time of deciding whether the petition should be admitted or not.
12. We have heard learned Counsel for the parties and perused the record.
13. Section 433 of the Act enumerates the circumstances in which a Company may be wound up by the Court. It reads as under:
Section 433. Circumstances in which company may be wound up by Court--A company may be wound up by the court,--
(a) if the company has, by special resolution, resolved that the company may be wound up by the court;
(b) if default is made in delivering the statutory report to the Registrar or in holding the statutory meeting;
(c) if the company does not commence its business within a year from its incorporation, or suspends its business for a whole year;
(d) if the number of members is reduced, in the case of a public company, below seven, and in the case of a private company, below two;
(e) if the company is unable to pay its debts;
(f) if the court is of opinion that it is just and equitable that the company should be wound up.
For the purpose of present appeal, Clauses (e) and (f) above only are relevant as the petition has been filed on the ground that the appellant-Company was unable to pay its debt.
14. Section 434 of the Act provides for the presumption as to when the Company shall be deemed to be unable to pay its debt. It reads as under:
Section 434. Company when deemed unable to pay its debts.--(1) A company shall be deemed to be unable to pay its debts--
(a) if a creditor, by assignment or otherwise, to whom the company is indebted in a sum exceeding five hundred rupees then due, has served on the company, by causing it to be delivered as its registered office, by registered post of otherwise, a demand under his hand requiring the company to pay the sum so due and the company has for three weeks thereafter neglected to pay the sum, or to secure or compound for it to the reasonable satisfaction of the creditor;
(b) if execution or other process issued on a decree or order of any court in favour of a creditor of the company is returned unsatisfied in whole or in part; or
(c) if it is proved to the satisfaction of the court that the company is unable to pay its debts, and, in determing whether a company is unable to pay its debts, the court shall take into account the contingent and prospective liabilities of the company.
(2) The demand referred to in Clause (a) of Sub-section (1) shall be deemed to have been duly given under the hand of the creditor if it is signed by any agent or legal adviser duly authorised on his behalf, or in the case of a firm, if it is signed by any such agent or legal adviser or by any member of the firm.
15. There is no dispute that a notice under Section 434 of the Act was served on the appellant-Company by the Company-petitioner and in answer to that notice, the apellant-Company has not paid the amount.
16. The procedure for dealing with a petition for winding up by a Court is provided by Part-III of the Companies (Court) Rules, 1959. Rule 96 is relevant and reads as under:
96. Admission of petition and directions as to advertisement.--Upon the filing of the petition, it shall be posted before the Judge in Chambers for admission of the petition and fixing a date for the hearing thereof and for directions as to the advertisements to be published and the persons, if any, upon whom copies of the petition are to be served. The Judge may, if he thinks fit, direct notice to be given to the company before giving directions as to the advertisement of the petition.
17. It will be clear from the rule that notice before admission of the petition is not mandatory under the rule and it is the discretion of the Judge whether to direct notice to be given to the Company before giving directions for the advertisement of the petition.
18. Rule 99 provides for advertisement of the petition and it reads as under:
99. Advertisement of petition.--Subject to any directions of the Court, the petition shall be advertised within the time and in the manner provided by Rule 24 of these rules. The advertisement shall be in Form No. 48.
19. Rule 24 referred to in Rule 99 also relates to the advertisement of the petition and is quoted below:
24. Advertisement of petition.--(1) Where any petition is required to be advertised, it shall, unless the Judge otherwise orders, or these rules otherwise provide, be advertised not less than fourteen days before the date fixed for hearing, in one issue of the Official Gazette of the State or the Union Territory concerned, and in one issue each of a daily newspaper in the English language and a daily newspaper in the regional language circulating in the State or the Union Territory concerned, as may be fixed by the Judge.
(2) Except in the case of a petition to wind up a company, the Judge may if he thinks fit, dispense with any advertisement required by these Rules.
learned Counsel for the parties have cited several decisions on the points involved.
20. Division Bench decision of the Gujarat High Court in Tata Iron and Steel Co. v. Micro Forge (India) Ltd. (2001) Vol. 104 Company Cases 533 was cited for the purpose of impressing upon the Court the serious consequences of an order admitting the winding up petition. It has been observed in this case that an order admitting a winding up petition and the resultant order for the publication of advertisement inviting claims from respective parties by public notice in many cases, from the commercial point of view, the business point of view, from the marketability point of view is no less injurious than winding up and therefore, even at the stage of admitting the petition unlike other petitions, the Company court has to be very alive to the relevant aspects and is obliged to consider many circumstances. Then the Division Bench went on to chronical as many as 24 circumstances which were recommended to be taken into account by the court ordering winding up of a Company. Clauses (3), (4), (7) and 13 were specificially pressed into service by the learned Counsel for the appellant-Company. For the sake of convenience, they are reproduced hereunder:
(3) A debt is money which is payable or will be payable in future by reason of a person's obligation. The expression "debt" would refer to liability to pay and it rests on certain contingencies, conditions and causalities. Even if the debt is proved and even if the inability to pay the debt is also shown, it is not a launching pad, in all cases, for a successful winding up order. Inability may arise for a variety of reasons and the court is obliged to consider whether the inability is the outcome of any deliberate or designed action or mere temporary shock and effect of economy and market. In a given case, it may happen that a party may become unable to pay its debts for a while, but that by itself is not a criterion for exercise of the power to wind up, ipso facto.
(4) It is necessary for the company court to consider the financial status, strength and substratum of the company, in the overall context. It is possible, at times, that there may be a cash crunch. It may be also, possible, at times, that there is temporary cash crisis despite high sales and heavy turnover and, therefore, in such a situation, mere disability or only on the ground of inability to pay would not constitute a ground empowering the court to wind up the company.
(7) Winding up of a company, as such, is nothing but a commercial death or insolvency and, therefore, the company court is obliged to take into consideration not only the temporary inability, or disability to make the payment of debts, but the entire status and position of the company in the market.
(13) It is also well settled that a winding up order shall not be made on a creditor's petition, if it would not benefit him or the company's creditors in general.
21. The order of admission of the petition was set aside in the aforesaid case but it appears it was mainly on the ground that there was a bonafide dispute about the debt itself. It was observed at page 548 of the report as follows:
In the present case, there is a bonafide dispute of debt and also substantial dispute of counter-claim. The principles, which we have enunciated hereinabove, are extensively, explored in a catena of judicial pronouncements.
22. The Single Bench decision of the Allahabad High Court in EMA India Limited v. Track Parts of India Limited (1998) 4 Comp. L.J. 24 (All) was a case in which there was no dispute that the debt was to be paid by the Company to the petitioner and that the defence set up by the Company was not bonafide nor substantial nor in good faith. Even then, even after holding that the Company had neglected to pay its debt to the petitioner and even after holding that the case for admitting the petition and for advertising the same was made out, the Company being a running concern employing large number of employees and having extensive business commitments including export orders, in the interest of justice, the petition was ordered not to be advertised on payment by Company, of the amounts as ordered by the Court. There is no discussion in the decision as to in which circumstances, such an order could be passed but obviously, the decision applied to the facts of that case alone and was a via-media adopted by the Court to meet the requirements of that case. It was clearly stated in para 13 of the decision that the order was being passed to test the bona fides of the Company sought to be wound up without prejudice to the rights and contentions of the parties to be advanced at the hearing of the case. It was further ordered that in case there was any default in deposit of any of the instalments, the petition shall be advertised under Rule 24 of the Companies (Court) Rules, 1959. Thus, it was only a case of keeping advertisement of the winding up petition in abeyance and not rejecting the prayer for admission of the petition.
23. In Alliance Credit and Investments Ltd. v. Khaitan Hostombe Spinels Ltd. (1997) 3 Comp L.J. 200 (All) a learned Single Judge of the Allahabad High Court was dealing with the questions as to whether a winding up petition is not maintainable on account of the fact that the statutory notice under Section 434(1)(a) of the Act was not served on the registered office of the Company and whether on the failure of the petitioner Company to take benefit of Section 434(1)(a) of the Act, a winding up petition on the ground mentioned under Section 433(e) could be maintained and it could be proved under Section 434(1)(c) that the Company was unable to pay its debts. The Court held that for applicability of the presumption under Section 434(1)(a) the notice must be sent to the registered office of the Company and when such notice was not sent or the notice is found to be invalid, no presumption as to inability of the Company to pay its debt could arise under Section 434(1)(a) but still, it would be open to the petitioner to satisfy the Court that the Company was unable to pay its debts under Section 434(1)(c) of the Act. It is in this context that the Court thus found that for success of a winding up petition on the ground under Section 433(1)(e) read with Section 434(1)(c) it has to be shown that the Company was commercially insolvent. The petition was dismissed as there were no sufficient pleadings to support the contention that the Company was commercially insolvent. The ruling has no application to the present case where clearly presumption under Section 434(1)(a) of the Act is available to the Company-petitioner on admitted facts.
24. The decision of a learned Single Judge of Madras High Court (Lakshmanan J. as his Lordship the Hon'ble Chief Justice of this Court then was), in B. Vishwanathan v. Seshasayee Paper and Boards Limited (1997) 3 Comp L.J. 209 (Mad) was cited for the observations that the relief of winding up was discretionary and the Court has to find out whether winding up would be in the interest of justice and also in public interest. In fact, these were not the observations of the learned author of the judgment but were extracted from the decision in Bhalchandra Dharmajee Makaji (1972) 42 Comp Cas 190, 195. In para 27 of the decision, the learned Single Judge observed as follows:
27. It is a settled principle of law that the relief of winding up is a discretionary relief and the court has to find out whether winding up would be in the interest of justice and also in the public interest. The following principle has been laid down in the case of Bhalchandra Dharmajee Makaji's case (1972) 42 Comp Cas 190, 195 as has been extracted above.
25. Actually, the company petition was dismissed as stated in para 31 of the decision, which reads as under:
31. Admittedly, in the present case, the respondent is a public limited company and the paid-up capital of the company is Rs. 7.75 crores. Nineteen per cent of the share-holdings are held by TIIC Ltd. and 39% is held by public financial institutions, nationalised insurance companies and their subsidiaries. The company is paying about Rs. 30 lakhs per month by was of excise duty to the Central Government. It is also paying about Rs. 25 lakhs as sales tax to the Government of Tamil Nadu and is paying about Rs. 61 lakhs towards electricity charges to the Tamil Nadu Electricity Board. The monthly turnover of the company is about Rs. 6.5 crores. The total number of workers in the mill are about 2,100 in number, and the monthly wage bill is about Rs. 70 lakhs. During the year 1990, the company has paid a sum of Rs. 1.69 crores to financial institutions and banks towards principal and interest. The working results of the company for the year ending 31 March, 1991, disclose that the company has made a profit of Rs. 1.57 crores after providing for depreciation and taxes. Having regard to the above uncontroverted facts, it would not, in any event, be in the interest of justice or public interest to wind up the respondent-company.
26. Moreover, this was a case not on the question of admission of winding up petition but the Court was considering finally whether the winding up order should be made or not after recording evidence and the Court had come to the conclusion that the respondent company had discharged its burden and satisfied the Court as to the existence of a bona fide dispute in regard to the matter in issue. This case, therefore, does not take the appellant-Company's case any further.
27. In M.M. Plasto Packs (P) Ltd. v. M.M. Poly Packs (P) Ltd. (1997) 1 Comp LJ 105 (AP), a learned Single Judge of the Andhra Pradesh High Court had used his discretion in allowing last opportunity to the Company to clear off its admitted outstanding dues before the publication of citation even after finding that the Company was unable to pay its debt. This is clearly a discretionary order and is not a precedent to be followed in other cases. It only supports the contention that the Court can, even after finding that the Company was unable to pay its debt, give it an opportunity to clear off the dues and for that purpose, keep the advertisement in abeyance.
28. In Kanchanaganga Chemical Industries v. Mysore Chipboards Ltd. (1998) Vol. 91 Company Cases 646, a learned Single Judge of the Karnataka High Court observed that to raise the presumption of the Company's inability to pay its debts, 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 shown that the Company omitted to pay, without reasonable excuse and conditions of insolvency in the commercial sense existed. It was further observed that the machinery for winding up will not be allowed to be utilised merely as a means for realising the debts due from a Company. It is well settled that the winding up petition is not a legitimate means of seeking to enforce payment of debt. An order will not be passed if a sufficient case is not stated in the petition even if such case is proved in evidence. The petition must disclose 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 a given time, the Company can pay all its debts whether presently due or only in future and still to continue to function but the question is whether it is able to meet the current demands. It would of course be insolvent if it cannot do that even if it has assets not presently available but more than ample to pay its debts.
29. It was further observed that 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 on. If from the material on record it cannot be made out that the company is commercially insolvent, then the petition could be dismissed even before issuing notice regarding admission. There is a responsibility and duty on the courts to find whether the concerned company has become commercially insolvent for purposes of winding up. At the initial stage the court would be circumspect and judicious in exercising discretion and should take all relevant facts and circumstances into consideration before even issuing process regarding admission.
30. With respect, sweeping and general observations made regarding the scope of winding up petition based on the presumption under Section 434(1)(a) cannot be accepted though it is true that despite the presumption, the Court has discretion to admit a winding up petition or not but it would be plainly against the language of the provision to say that over and above the requirement of Section 434(1)(a) it has further to be proved by a petitioner seeking winding up, that the Company was commercially insolvent. On a plain regarding of Section 434, it is clear that the presumption under Clause (a) is available on satisfaction of the conditions mentioned therein viz., that the Company legally owed the debt, the service of notice demanding the debt by registered post delivered at the registered office of the Company and the Company neglecting to pay the debt. Nothing further is required to raise a presumption under Clause (a) of Section 434(1) of the Act that the Company is unable to pay its debts. The requirement of Clause (e) of Section 433 is clearly satisfied if the petitioner proves that the Company was indebted to meet any sum exceeding Rs. 500/- then due and that he had served on the Company a notice by registered post of otherwise delivered at its registered office demanding payment and the company had neglected to pay the debt. The discretion of the Court flows from the opening words of Section 433 where it is provided that a Company may be wound up by the Court on the grounds stated in Clauses (a) to (f) of that Section. To say that under Section 433(e) also it has to be shown, in all cases, that the Company was not only unable to pay its debts but was also commercially insolvent, is not laying down the correct proposition of law. It is true that the Court has to be circumspect and judicious in exercising its discretion and should take all relevant facts and circumstances into consideration before even issuing process regarding admission but that does not mean that the Court should sit in judgment over the questions which in the very nature of things have to be decided after admitting and advertising the petition, while deciding the winding up petition finally. The view taken by the learned Single Judge amounts to obliterating the presumption under Section 434. The correct view is that on the fulfilment of the requirement of Clause (a) of Sub-section (1) of Section 434, the presumption must arise that the Company is unable to pay its debts. Whether the Company should be wound up or a winding up petition should be admitted against it, despite presumption as to its inability to pay its debts, is within the discretion of the Court and the Court, like in all cases of discretionary orders, has to judiciously use its discretion. There is a catena of case law which may be of immense help to the Judge deciding whether to admit the winding up petition or not or to wind up the Company or not despite its inability to pay its debts. The presumption under Section 434(1)(a) of the Act clearly absolves the petitioner from the burden of proving any further facts like commercial insolvency of the Company or the chances of its revival or propriety of its winding up or that the winding up would not affect public interest. Actually, since the Court has to use its discretion whether to admit a petition for winding up or to order winding up of a company judiciously, it has to look into the questions whether it would be just and equitable in the circumstances of the case to admit the petition or to order winding up. This virtually means that while considering winding up of a company under Section 433(e) not only provisions of Section 434(1)(a) are to be considered but provisions of Section 433(f) also have to be kept in mind. Of course, when the petitioner brings his case under Section 434(1)(a) by proving the essential facts enumerated above, the burden shifts on the Company to show why it would not be just and equitable to order its winding up. The circumstances militating against ordering winding up have to be brought on record by the Company and the Court has to decide upon the material placed before it whether to admit the petition for winding up or to order winding up of the Company after a judicious exercise of discretion.
31. The Division Bench decision of the Allahabad High Court in Benares Cotton and Silk Mills Ltd. v. Sulbha Devi Gupta (1986) Vol. 60 Company Cases 639 was cited by the learned Counsel for the appellant-Company, in support of his contention that if the limitation for the claim expires after the date of the filing of the winding up petition but before the order for winding up is made, the petition for winding up is not maintainable. It is contended that the material date for the purpose of suspension of the period of limitation is the date of the passing of the winding up order and not the date of making of the application for winding up. There is no question of relating back of the winding up order to the date of the making the petition for winding up.
32. learned Counsel for the Company-petitioner relied on the decision of the Bombay High Court in Modern Dekor Painting Contracts P. Ltd. v. Jenson and Nicholson (India) Ltd. (1985) Vol. 58 Company Cases 255 which takes a view contrary to that taken in Benares Cotton and Silk Mills Ltd. (supra). It was held that there was nothing in the Act to the effect that the petition for winding up which was properly maintainable when filed ceased to be so maintainable if, at the date of the order, the debt on which the petition was based, had become barred by limitation. Similar view was taken by the Division Bench of the Delhi High Court in Diwan Chand Kapoor v. New Rialto Cinema (P) Limited (1987) Vol. 62 Company Cases 810.
33. The case of MVI. Ahmadurrahman and Ors. v. Registrar of Companies (1973) Vol. 43 Company Cases 522 was cited for the proposition that the advertisement of a winding up petition was mandatory and winding up without advertisement would be bad. Similar view is taken by the Andhra Pradesh High Court in PSM Spinning Ltd. v. A.P. State Financial Corporation (1999) Vol. 98 Company Cases 303.
34. The decision of Delhi High Court in Bipla Chemical Industries v. Shree Kehsariya Investment Ltd. (1977) Vol. 47 Company Cases 211 was cited in support of the contention that once it is established that a debt regarding which there is no bonafide dispute, has not been paid to the creditor despite statutory notice of demand, petition for winding up ought to be admitted. Similar view is taken by a Division Bench of the Karnataka High Court in Mitsugen Glazes Limited v. Varkey Overseas Trading Company Private Limited and Anr. (2001) Vol. 103 Company Cases 117 (Karnataka).
35. Having thus surveyed the case law cited by the parties on the point, let us now turn to the facts of the present case. There is no dispute that the appellant-Company was indebted to the Company-petitioner. It is also not disputed that statutory notice was served under Section 434(1)(a) and that liability was not discharged within three weeks. These ingredients of Section 434(1)(a) are amply proved and presumption has arisen in view of that provision that the Company is unable to pay its debt. The question now is as to whether this debt has become time barred and whether despite the debt having become time barred, winding up petition could be maintained. The other question to be decided is as to whether despite inability of the appellant-Company to pay its debts, there are circumstances in which the Court could have exercised its discretion not to admit the petition for winding up.
36. So far as the question of limitation is concerned, the view taken by the Bombay and Delhi High Courts appears to us, to be the correct view. However, we need not decide this question in this appeal because the Company-petitioner has claimed extension of limitation on the basis of acknowledgement of debt in writing in answer to the plea that the debt has become time barred and that was fatal to the maintainability of the winding up petition or its continuance. It is contended that the debt was acknowledged in writing and such acknowledgement has extended the period of limitation for filing the petition. Thus, the question as to whether the debt has really become time barred, is a disputed question which will have to be decided after taking evidence in the case. At the stage of admission of the petition, therefore, we need not go into this disputed question which requires evidence to be led in support of and against the factum of acknowledgement of the debt and its effect on the limitation.
37. So far as other circumstances on which the appellant-Company has sought that the Court should use the discretion in its favour by not making an order admitting the petition are mainly based on the question of the Company being still commercially viable and its existence being necessary to serve a public interest. Having considered the over all circumstances of the case, we do not find that there are any chances of the appellant-Company becoming able to pay its dues in near future. We have to balance the interest of the creditors with that of the public, A creditor cannot be asked to wait indefinitely for payment of his dues by a Company engaged in an activity which is beneficial to the nation or of national importance. The winding up petition itself is going on for the last so many years and if the appellant-Company has not been able to pay the debt even after five years, from the filing of the petition, there is no justification in using the discretion in favour of such a Company and not admitting the petition. We are therefore, satisfied that the learned Company Judge has correctly exercised jurisdiction in admitting the winding up petition and directing its advertisement.
38. The appeal has no force and it is therefore, dismissed. In view of the time lost in this appeal, it would be difficult to adhere to the time schedule given by the learned Company Judge for advertising the petition. The date given by the learned Company Judge is therefore, changed from 27.4.2001 to 21.5.2001. Advertisement be issued accordingly.