Commercial insolvency and loss of substratum govern winding-up, with procedural defects and demand issues not necessarily defeating the petition.

In winding-up proceedings, the decisive test is commercial insolvency and loss of substratum rather than a mere balance-sheet surplus. The note states that procedural irregularities and defects in the demand notice do not necessarily defeat the petition where the filing substantially complies with the prescribed requirements and insolvency is otherwise shown under section 434(c) of the Companies Act, 1956. It also explains that a bank may be wound up on just and equitable grounds where it has ceased new business, cannot meet current demands, and has no reasonable prospect of returning to profit. Locus standi is treated as available to a real creditor, and current-account monies of the Union Territory administration are not treated as Central Government funds merely because of constitutional changes.

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Issues: (i) Whether the winding-up petition was liable to be rejected for alleged procedural irregularities and for want of compliance with the statutory requirements governing demand and winding-up proceedings; (ii) Whether the bank was unable to pay its debts and had lost its substratum so as to justify winding up on the grounds of commercial insolvency and that it was just and equitable to wind it up; (iii) Whether the petitioner had locus standi to maintain the petition as creditor and shareholder of the bank.

Issue (i): Whether the winding-up petition was liable to be rejected for alleged procedural irregularities and for want of compliance with the statutory requirements governing demand and winding-up proceedings.

Analysis: The petition substantially complied with the prescribed form and supporting affidavit requirements, and mere irregularities could be condoned after admission of the petition. The objection based on section 38(3) of the Banking Companies Act, 1949 was treated as not requiring separate compliance because the provision was alternative to the general winding-up route under the Companies Act. As to demand, the fixed deposit had not matured on the date of notice, but the current-account amounts were treated as recoverable debts, and even an invalid demand did not preclude proof of inability to pay debts by other evidence under section 434(c) of the Companies Act, 1956.

Conclusion: The procedural and demand-related objections failed.

Issue (ii): Whether the bank was unable to pay its debts and had lost its substratum so as to justify winding up on the grounds of commercial insolvency and that it was just and equitable to wind it up.

Analysis: The bank had ceased new business, was unable to meet current demands, and its liabilities and losses showed commercial insolvency notwithstanding arguments that assets exceeded liabilities in a balance-sheet sense. The court treated commercial solvency as the relevant test, considered contingent and prospective liabilities, and accepted that the bank's business had no reasonable prospect of returning to profit. The court further found that the substratum of the bank had gone and that continued operation would only increase losses, making winding up just and equitable.

Conclusion: The bank was commercially insolvent, its substratum had gone, and winding up was justified on just and equitable grounds.

Issue (iii): Whether the petitioner had locus standi to maintain the petition as creditor and shareholder of the bank.

Analysis: The court held that the current-account monies were assets of the Tripura Administration and not of the Central Government merely by reason of the constitutional changes. A Union Territory administration was treated as a separate entity for this purpose, and Article 239 of the Constitution of India supported the conclusion that the petition was properly filed in the name of the Tripura Administration. The late objection to locus standi was also considered unsustainable on the record.

Conclusion: The petitioner had locus standi to present the winding-up petition.

Final Conclusion: The winding-up petition succeeded, the bank was ordered to be wound up, and an official liquidator was appointed.

Ratio Decidendi: In winding-up proceedings, the decisive test is commercial insolvency and loss of substratum rather than mere balance-sheet surplus, and a petition may proceed where the petitioner is a real creditor notwithstanding objections of form or title to the debt.

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