1999 (9) TMI 833 - HC - Companies Law

Court rejects winding up petitions due to lack of legal standing, arrears not 'debt,' and ongoing efforts

The court dismissed both winding up petitions as the petitioner-unions lacked legal standing, the arrears of salary did not meet the definition of 'debt,' ... Winding up - Circumstances in which a company may be wound up Issues Involved:1. Locus standi of the petitioner-unions to present winding up applications.2. Whether the arrears of salary and other dues constitute a 'debt' under Section 433(e) read with Section 434 of the Companies Act, 1956.3. Compliance with the demand notice requirement under Section 434(1)(a) of the Companies Act.4. Justifiability and equity of winding up the company.Detailed Analysis:1. Locus Standi of the Petitioner-Unions:The court examined whether the petitioner-unions had the legal standing to present the winding up petitions. Section 439(1) of the Companies Act specifies who can file for winding up, including the company, creditors, contributories, and others, but does not explicitly include employees or their unions. The court referred to the Supreme Court's ruling in National Textile Workers' Union v. P.R. Ramakrishna, which clarified that workers do not have the right to file a winding up petition. Consequently, the court found that the petitioner-unions did not have locus standi to present the applications for winding up.2. Arrears of Salary as 'Debt':The court analyzed whether the arrears of salary and other dues owed to the workers constituted a 'debt' under Section 433(e) read with Section 434. The term 'debt' was interpreted to mean a liquidated and quantified sum. The court found that the dues claimed by the petitioner-unions were not quantified and were merely estimates, thus not satisfying the criteria of a 'debt' under Section 434(1)(a). Additionally, the court noted that wages or salary become a 'debt' only when quantified at the end of the month, and there was no evidence of such quantification.3. Compliance with Demand Notice Requirement:The court emphasized the necessity of a written demand notice under the creditor's hand as stipulated by Section 434(1)(a). The petitioner-unions failed to show that such a notice was delivered to the registered office of the company. The court highlighted that representations and writ applications made by the unions did not satisfy the requirement of a demand notice under Section 434(1)(a), as there was no evidence that the workers had authorized the unions to deliver such notices.4. Justifiability and Equity of Winding Up:The court considered whether it was just and equitable to wind up the company due to its inability to pay its debts. The court noted that the units in question were facing financial constraints and attempts were being made to absorb the employees in other viable units or departments. The court also referred to a Full Bench decision in Manikant Pathak v. State of Bihar, which suggested that winding up might be appropriate if a company is unable to pay its debts. However, the court found that winding up the Bihar State Industrial Development Corporation (BSIDC) would not be in the interest of the workers or the public, especially since efforts were being made to revive the units and absorb the employees elsewhere.Conclusion:The court dismissed both petitions, concluding that the petitioner-unions did not have the legal standing to file for winding up, the arrears of salary did not constitute a 'debt' under the relevant sections, and the demand notice requirement was not met. Additionally, the court found that winding up the company would not be just and equitable given the ongoing efforts to address the financial issues and absorb the employees in other units. The court emphasized the larger interest of the workers and the public in its decision to decline the prayer for winding up.