Creditor dues cannot be adjusted against company losses without consent; winding-up rejection set aside and remanded.

A creditor's dues shown in a company's balance-sheet as unsecured loans could not be treated as adjusted against the company's losses without the creditor's concurrence. The Gujarat HC held that any arrangement said to have been made by outgoing directors after a change in management could not bind the creditors, and the company court's reliance on alleged silence to support that adjustment was unsound. Because several factual matters needed reconsideration on the existing record, the rejection of the company petitions for winding up was unsustainable and the matter was remanded for fresh consideration.

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Issues: Whether the order rejecting the company petitions for winding up on the basis of an alleged arrangement for adjustment of the appellants' dues and on the footing of delay and inaction was sustainable.

Analysis: The appellants' dues were shown in the company's balance-sheet as unsecured loans, and the company relied on an alleged understanding said to have been reached when the management changed, under which the appellants' claims were treated as adjusted against the company's losses. The Court held that dues of third parties could not be adjusted against the losses of the company without the creditors' concurrence, and any such arrangement by outgoing directors could not bind the appellants. The order under appeal had proceeded substantially on the assumption that the appellants' silence supported the company's version, but that premise was incorrect. Since several factual aspects required reconsideration on the material already on record, the matter warranted a fresh decision.

Conclusion: The rejection of the company petitions could not be sustained and the matter was remanded to the company judge for fresh consideration.

Ratio Decidendi: A creditor's dues cannot be validly adjusted against a company's losses without the creditor's concurrence, and an order based on such an unauthorised adjustment is unsustainable.

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