Fraudulent purpose requires actual dishonesty; absence of proof defeats relief, and solvent means ability to pay debts as due.

The article addresses two issues: whether carrying on a company's business amounted to a "fraudulent purpose" under section 275, and the meaning of "solvent" in section 266. The commentary explains that "fraudulent purpose" requires proof of actual dishonesty involving moral blame and the burden of proof lies on the party alleging fraud; on the facts the alleged deliberate intent to defraud creditors was not established so fraud relief was denied. On solvency, the piece adopts a functional payment-capacity test: a company is "solvent" only if it can pay debts as they become due, and a debenture holder must prove such solvency when supporting a recent floating charge.

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Issues: (i) Whether, within the meaning of section 275 of the Companies Act, 1929, the company's business was carried on for a fraudulent purpose; (ii) What is the meaning of "solvent" in section 266 of the Companies Act, 1929.

Issue (i): Whether the business was carried on for a fraudulent purpose under section 275 of the Companies Act, 1929.

Analysis: The Court held that the word "fraud" and the phrase "fraudulent purpose" in section 275 connote actual dishonesty involving moral blame and are not to be equated with statutory "fraudulent preference" under other provisions. The burden of proof lies on the party asserting fraud. The Court examined the facts and found that, during the relevant period, the company's activities were directed to realising debts and selling stock rather than creating assets to secure debentures, and that the evidence did not satisfactorily establish deliberate dishonest intent to defraud creditors.

Conclusion: The Court concluded that the charge of carrying on the business for a fraudulent purpose under section 275 was not made out and ruled against the applicant on this issue (in favour of the respondent).

Issue (ii): The meaning of "solvent" in section 266 of the Companies Act, 1929.

Analysis: Considering statutory context and authorities, including provisions in the Bankruptcy Acts concerning preferences, the Court rejected a purely balance-sheet or "commercially solvent" test. Instead the Court adopted a functional test tied to payment capacity, emphasizing the onus on a debenture holder to prove solvency when supporting a floating charge created shortly before liquidation.

Conclusion: The Court concluded that for the purposes of section 266 a company is "solvent" only if it can pay its debts as they become due.

Final Conclusion: The Court refused to grant relief under section 275 on the facts while adopting the interpretation that "solvent" in section 266 means the ability to pay debts as they become due; accordingly no fraud-based relief was awarded to the applicants.

Ratio Decidendi: For section 275 of the Companies Act, 1929, liability for a "fraudulent purpose" requires proof of actual dishonesty; for section 266 "solvent" means able to pay debts as they become due and the onus of proving solvency lies on the debenture holder.

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