Proper Service of Winding Up Notice Upheld; Respondent Liable as Guarantor under Agreement

The Court held that the petitioner properly served the statutory winding up notice to the respondent company's last known registered office, finding the respondent liable as a guarantor under the Agreement-cum-Pledge. The Court rejected the respondent's argument to encash securities before filing the winding up petition, determining the respondent's liability extended beyond the pledged shares. As the respondent was unable to pay its debts, the Court admitted the winding up petition, appointing the Official Liquidator as Provisional Liquidator to take over the company's assets and records. The respondent company was directed to comply with statutory requirements.

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Issues Involved:
1. Whether the respondent company was served with a statutory winding up notice as required under Section 434 of the Companies Act, 1956.
2. Whether the respondent company was a guarantor under the Agreement-cum-Pledge.
3. Whether the petitioner was required to first encash the securities before filing the winding up petition.
4. Whether the respondent company's liability was limited to the pledged shares.
5. Whether the respondent company is unable to pay its debts.

Issue-wise Detailed Analysis:

1. Service of Statutory Winding Up Notice:
The petitioner issued a statutory winding up notice to both the principal debtor and the respondent guarantor at their respective registered office and administrative office. The notices sent to the respondent by registered A.D. at its registered office were returned unserved with the remark "no such firm at such address." The Court held that the petitioner had discharged its duty under the Act by sending the winding up notice to the respondent's last known registered office. The respondent's argument that the notice should have been served at its registered address even when none was present on behalf of the respondent was rejected as it would amount to asking a party to do an impossible act. The judgment in Nuchem Ltd. v. C.S. Modi And Co. Pvt. Ltd. was found inapplicable as in the present case, the notice was dispatched to both the administrative office and the last known registered office of the respondent.

2. Status of Respondent as Guarantor:
The Court examined the Agreement-cum-Pledge and concluded that the respondent was a guarantor. The respondent had pledged shares owned by it in consideration of the loan advanced by the petitioner to the principal debtor. The Agreement-cum-Pledge was found to be a composite Tripartite Agreement among the Lender, Principal Debtor, and Guarantor. The Board Resolution dated 04 September, 1996, passed by the respondent company, also confirmed the respondent's status as a guarantor. The judgment of the Bombay High Court in Ramchandra B. Loyalka was distinguished as it involved a settlement agreement directly with the client without involving the sub-contractor who was the guarantor.

3. Requirement to Encash Securities First:
The respondent's submission that the petitioner was required to first encash the securities before filing the winding up petition was rejected. The Court referred to Sections 172 to 176 of the Indian Contract Act, 1872, which define the rights of the Pawnee when the Pawnor commits a default. The petitioner was entitled to either sell the pledged shares or sue the respondent-guarantor for the recovery of the amount due under the loan agreement. The Bombay High Court in State Bank of India vs. Smt. Neela Ashok Naik & Anr. and the Supreme Court in State Bank of India vs. Indexport Registered and others supported this view.

4. Limitation of Respondent's Liability to Pledged Shares:
The respondent's argument that its liability was limited to the pledged shares was found to be contrary to facts and untenable in law. The Court held that the respondent's liability was co-extensive with that of the principal debtor by virtue of Section 128 of the Indian Contract Act, 1872. The Agreement-cum-Pledge did not limit the respondent-guarantor's liability, and the respondent was liable for the entire debt, not just the value of the pledged shares.

5. Respondent Company's Inability to Pay Debts:
The Court concluded that the defense set up by the respondent was a sham and moonshine. Consequently, it was apparent that the respondent company was unable to pay its debts. The Court admitted the winding up petition and directed the respondent company to be wound up. The Official Liquidator attached to the Court was appointed as Provisional Liquidator of the respondent company to take over its assets and records. The respondent company, its Directors, officers, and authorized representatives were restrained from selling, transferring, alienating, encumbering, and parting with the possession of any movable and immovable assets and funds of the respondent company. The Directors were directed to hand over all records and provide statements of affairs within twenty-one days.

Conclusion:
The winding up petition was admitted, and the respondent company was directed to be wound up due to its inability to pay its debts. The Official Liquidator was appointed to take over the company's assets and records, and the respondent's Directors were directed to comply with the statutory requirements.

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