2003 (11) TMI 348 - HC - Companies Law

High Court admits company petition for winding up due to debt inability under Companies Act 1956.

The High Court admitted the company petition for winding up based on the respondent's inability to pay debts under Section 433(e) of the Companies Act, ... Winding up - Circumstances in which a company may be wound-up Issues Involved:1. Inability to pay debts under Section 433(e) of the Companies Act, 1956.2. Validity and conclusiveness of a foreign decree.3. Jurisdiction of the United States District Court.4. Merits of the ex-parte decree.5. Compliance with Section 73 of the Indian Contract Act.6. Financial position of the respondent-company.Issue-wise Detailed Analysis:1. Inability to Pay Debts under Section 433(e) of the Companies Act, 1956:The petitioner sought the winding up of the respondent-company on the grounds of its inability to pay its debts, as defined under Section 433(e) of the Companies Act, 1956. The debt in question arose from a decree passed by the District Court of the United States of America, which had attained finality as no appeal was filed. The petitioner argued that the decree amount constituted a debt, and the respondent's failure to pay warranted winding up.2. Validity and Conclusiveness of a Foreign Decree:The respondent contended that the decree from the US court was not conclusive under Section 13 of the Code of Civil Procedure. The respondent argued that the decree was not passed by a competent jurisdiction and was not on the merits of the case. Additionally, the respondent claimed that the damages awarded were contrary to Indian law under Section 73 of the Indian Contract Act.3. Jurisdiction of the United States District Court:The court examined the jurisdiction of the US District Court, which had assumed jurisdiction based on the visits of the respondent's representatives to North Carolina and the use of a website to promote products within the district. The High Court found that the assumption of jurisdiction by the US court was justified and not unwarranted.4. Merits of the Ex-parte Decree:The court reviewed whether the US court's decree was on the merits of the case. The US court had considered the plaintiff's case and the evidence presented, despite the respondent not filing a written statement. The High Court referred to precedents, including the Privy Council's decision in D.T. Keymer and the Supreme Court's decision in International Woollen Mills, concluding that an ex-parte decree could still be on the merits if it was based on a consideration of the plaintiff's evidence. The High Court determined that the US court's decree was indeed on the merits.5. Compliance with Section 73 of the Indian Contract Act:The respondent argued that the damages awarded by the US court violated Section 73 of the Indian Contract Act, which requires proximity between the breach and the loss suffered. The High Court found that the US court had considered the direct and proximate loss suffered by the petitioner due to the breach. Even if there was a disagreement, it would not render the decree contrary to Indian law.6. Financial Position of the Respondent-Company:The court deferred the consideration of the respondent-company's financial position to the final hearing of the winding-up proceedings, despite arguments and evidence presented regarding the company's current financial status.Conclusion:The High Court overruled the respondent's objections to the decree passed by the US District Court. The company petition for winding up was admitted, and the court directed that the petition be advertised according to the Companies (Court) Rules. The hearing was set for January 22, 2004.