1952 (8) TMI 12 - HC - Companies Law

Court orders winding up of company, costs from assets, stresses fraud proof. Upholds section 163 of Companies Act.

The court ordered the winding up of the company, certified for counsel, with costs to come out of the assets of the company. The judgment emphasized the ... Company when deemed unable to pay its debts Issues Involved:1. Company's inability to pay its debts.2. Service of statutory notice of demand.3. Validity of the decree obtained by the judgment creditor.4. Allegations of fraud and collusion in obtaining the decree.5. Applicability of section 163 of the Indian Companies Act.Detailed Analysis:1. Company's Inability to Pay Its Debts:The judgment creditor filed for the winding up of the company on grounds that the company is unable to pay its debts. The petitioner had obtained a decree against the company on 26th May 1949, which remains unsatisfied. Despite execution proceedings where certain lands were attached and sold, the balance of the decree amounting to Rs. 11,976-9-6 remains unpaid. The company's inability to pay its debts is established under section 163(1)(ii) of the Indian Companies Act as the execution of the decree remains unsatisfied.2. Service of Statutory Notice of Demand:The statutory notice of demand was sent by registered post on 29th August 1951, as required by section 163 of the Indian Companies Act. The company's affidavit-in-opposition vaguely denied the receipt of the notice. However, evidence provided by Narendra Nath Palit, who posted the notice and received the acknowledgment, was accepted. The court held that there was proper delivery of the statutory demand notice, as no one from the company came forward to dispute the receipt of the notice.3. Validity of the Decree Obtained by the Judgment Creditor:The company challenged the decree on grounds of fraud and collusion but failed to provide specific particulars or take any legal steps to set aside the ex parte decree. The court emphasized that a judgment is prima facie evidence of a debt and carries significant weight. The company did not file an application under Order IX, rule 13, of the Civil Procedure Code to set aside the ex parte decree, nor did it file a suit to challenge the decree within the limitation period.4. Allegations of Fraud and Collusion in Obtaining the Decree:The company alleged that the decree was obtained fraudulently and in collusion with some officers and employees. However, these allegations were vague and unsupported by specific particulars. The court noted that mere assertions of fraud or collusion do not justify reopening a judgment-debt. A prima facie case of fraud requiring investigation must be shown, which the company failed to do. The court referred to the principles laid down in Lennox In re: ex parte Lennox and other cases, emphasizing that a bankruptcy court can go behind a judgment-debt only on proper grounds of fraud or collusion.5. Applicability of Section 163 of the Indian Companies Act:The court found that the petition for winding up met the grounds specified in section 163 of the Indian Companies Act. The statutory demand remained unsatisfied for three weeks, and execution of the decree was returned unsatisfied, fulfilling the conditions under section 163(1)(i) and (ii). The court concluded that the company must be deemed unable to pay its debts under the statute.Conclusion:The court ordered the winding up of the company, certified for counsel, with costs to come out of the assets of the company. The judgment emphasized the importance of specific and supported allegations of fraud or collusion and upheld the statutory requirements for deeming a company unable to pay its debts under section 163 of the Indian Companies Act.