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of <h1>Statutory notice valid despite short period; company ordered to pay in installments.</h1> <h3>Dytron (India) Ltd., In re</h3> Dytron (India) Ltd., In re - [1990] 69 COMP. CAS. 757 (CAL.) Issues Involved:1. Inability to pay debts2. Validity of the statutory notice under Section 434(1)(a) of the Companies Act, 19563. Admission of liability by the company4. Commercial insolvency of the companyIssue-wise Detailed Analysis:1. Inability to Pay Debts:The petitioning creditor, N.K. Gossain and Co. Pvt. Ltd., sought the winding up of Dytron (India) Ltd. due to its inability to pay debts. The creditor had completed a printing job for the company and raised bills amounting to Rs. 3,68,670.02 on March 28, 1986. Despite a part payment of Rs. 50,000 on September 20, 1986, the company failed to settle the remaining dues. The company acknowledged its debt and assured payment upon receiving funds from financial institutions, but no payment was made, leading to the issuance of a statutory notice under Section 434 of the Companies Act on October 17, 1987. The creditor filed the petition for winding up on December 18, 1987, after not receiving any reply.2. Validity of the Statutory Notice under Section 434(1)(a) of the Companies Act, 1956:Mr. Sarkar, representing the petitioning creditor, argued that the statutory notice did not need to specify a 21-day period for payment. The true import of Section 434(1)(a) is that a company is deemed unable to pay its debts if it neglects to pay within three weeks after service of the notice. The notice's validity remains unaffected even if a shorter period is mentioned. Mr. Sarkar cited the case of Babu Ram v. Krishna Bharadwaj Cold Stores and General Mills Co. P. Ltd. to support his argument, emphasizing that the demand remains valid irrespective of the period mentioned in the notice.Conversely, Mr. Mitra, representing the company, contended that the notice was invalid as it mentioned a period shorter than 21 days. He relied on the case of Parry and Co. Ltd. v. India Machinery Stores (P.) Ltd., which held that a notice allowing less than the statutory period is not valid. However, the court found that the notice was served correctly and the company had 55 days to pay the dues, thus validating the notice.3. Admission of Liability by the Company:The company admitted its liability in letters dated December 11, 1986, and January 28, 1987, acknowledging the debt and explaining delays in receiving funds from financial institutions. Mr. Sarkar argued that these admissions were unqualified and unconditional, proving the company's inability to pay its debts. Mr. Mitra countered that these admissions did not prove insolvency and that negligence to pay was not equivalent to an inability to pay. The court, however, found that the company's admissions and failure to dispute the claim supported the creditor's case.4. Commercial Insolvency of the Company:Mr. Mitra argued that the petitioning creditor had not proven the company's commercial insolvency, which is necessary for a winding-up order under Section 434(1)(c). He contended that the company must be shown to be unable to pay its debts, considering its contingent and prospective liabilities. Mr. Sarkar cited cases like Bengal Luxmi Cotton Mills Ltd. v. Mahaluxmi Cotton Mills Ltd., which held that insolvency could be presumed from failure to pay a debt following a statutory notice. The court agreed with Mr. Sarkar's submissions, holding that the company's failure to pay within the statutory period indicated insolvency.Judgment:The court held that the statutory notice under Section 434(1)(a) of the Companies Act was valid, as the mention of a lesser period did not invalidate it. The company had more than 21 days to pay the dues, and its failure to do so supported the creditor's petition for winding up. The court ordered the company to pay the principal sum of Rs. 2,08,670.00 in monthly installments of Rs. 25,000, along with interest at 12% per annum on the reducing balance and costs of the application. If the company failed to make any two consecutive installments or the last installment, the creditor could execute the order as a decree of the court. The winding-up petition would remain permanently stayed if payments were made as ordered.
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