Mandatory winding up for insolvent banking companies prevails over general company discretion; compromise schemes may still be examined.

A banking company found unable to pay its debts was held subject to the mandatory winding-up mandate in the Banking Companies Act, and the general discretion under the Companies Act did not survive to that extent. The court also held that a scheme of composition under Section 391 of the Companies Act was not barred merely because winding up was in contemplation, but the proposed scheme failed because it rested on an unrealistic asset-liability assumption and no workable means of meeting creditors and depositors was shown. A formal winding-up petition was not indispensable where sufficient material, including the company's moratorium application and the Reserve Bank's report, established insolvency; on those facts, winding up could be directed.

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Issues: (i) whether a banking company found unable to pay its debts must be wound up and whether the Companies Act discretion survives; (ii) whether the court can entertain and send for consideration a scheme of composition under Section 391 notwithstanding a pending winding up situation; (iii) whether a winding up order can be made in the absence of a formal petition where the matter comes before the court on an application for moratorium.

Issue (i): whether a banking company found unable to pay its debts must be wound up and whether the Companies Act discretion survives.

Analysis: Section 38 of the Banking Companies Act, 1949 was treated as mandatory where a banking company is unable to pay its debts. The opening words preserving the Companies Act were held not to save the discretion under Section 433 of the Companies Act, 1956 in relation to inability to pay debts, because the special banking provision prevails where there is inconsistency. The court further held that inability to pay debts may arise not only within the narrow situations described in Section 38(3) but also under the broader winding-up test in Section 434 of the Companies Act, 1956, including a case where liabilities exceed assets.

Conclusion: The court held that, once the banking company was found unable to pay its debts, winding up became obligatory and the Companies Act discretion did not survive to that extent.

Issue (ii): whether the court can entertain and send for consideration a scheme of composition under Section 391 notwithstanding a pending winding up situation.

Analysis: The court held that Section 391 of the Companies Act, 1956 is not barred merely because a banking company is liable to be wound up under Section 38 of the Banking Companies Act, 1949. A compromise or arrangement can still be entertained and considered by the court. However, on the facts, the proposed scheme was found to proceed on an incorrect assumption that assets exceeded liabilities, and it did not disclose any realistic means of generating funds to satisfy creditors and depositors. The scheme was therefore held to be commercially and legally unworkable.

Conclusion: There was no legal bar to entertaining the scheme, but the proposed scheme was rejected as unworkable and unworthy of being sent for consideration.

Issue (iii): whether a winding up order can be made in the absence of a formal petition where the matter comes before the court on an application for moratorium.

Analysis: The court held that although winding up ordinarily proceeds on a petition under Section 439 of the Companies Act, 1956, that requirement was not indispensable where the banking company itself had moved for moratorium and the Reserve Bank's report before the court established inability to pay debts. In such circumstances, the court had sufficient materials and was bound to act under Section 38 of the Banking Companies Act, 1949.

Conclusion: A formal winding up petition was held unnecessary on the facts, and the court could direct winding up on the materials already before it.

Final Conclusion: The court concluded that the banking company was insolvent in the relevant legal sense, the proposed composition scheme was unsustainable, and the company had to be wound up.

Ratio Decidendi: In the case of a banking company, the special winding-up mandate under the Banking Companies Act prevails over the general discretion under the Companies Act when the company is unable to pay its debts, and the court may act on sufficient materials already before it even without a formal winding-up petition.

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