1974 (7) TMI 76 - HC - Companies Law

Winding-up petition dismissed as company showed financial improvement

The court found that the winding-up petition was maintainable as the respondent-company failed to demonstrate otherwise. It was established that the ... Company when deemed unable to pay its debts, Winding up - Application for Issues Involved:1. Maintainability of the winding-up petition.2. Whether the company is liable to be wound up under section 433(e) of the Companies Act, 1956.Detailed Analysis:Issue No. 1: Maintainability of the PetitionThe respondent-company argued that the petition for winding-up is not maintainable on three grounds. First, the mere circumstance that the assets of a company are less than its liabilities is no ground for winding it up. The court referenced multiple precedents, including *A. C. K. Krishnaswami v. Stressed Concrete Constructions P. Ltd.* and *S. Krishnamurthy, Registrar of Companies v. Rohtak Hissar Transport Co. Pvt. Ltd.*, which established that a company may have liabilities exceeding its assets but still be able to meet creditor demands and thus be commercially solvent. The court found that the Registrar considered not just the liabilities but also the accumulated loss and the capacity to wipe it off. Thus, the first ground was rejected.Second, the respondent-company contended that the company cannot be deemed unable to pay its debts because the requirements of section 434 of the Act were not satisfied. The court clarified that for a Registrar's petition under section 439(5), it is sufficient if the Registrar is satisfied from the financial condition disclosed in the balance-sheet that the company cannot pay its debts, without needing to meet the conditions of section 434. Thus, the second ground was also rejected.Third, it was argued that the Central Government's sanction was invalid as it did not consider the balance-sheet for the period ending September 30, 1966. The court found no clear evidence that the balance-sheet was considered or ignored by the Central Government, and thus rejected this ground as well.The court concluded that the respondent-company failed to show that the petition is not maintainable, answering Issue No. 1 against the respondent-company.Issue No. 2: Whether the Company is Liable to be Wound UpThe petitioner attempted to show that the financial position of the respondent-company was such that it was unable to pay its debts. However, the respondent-company provided evidence indicating that it had embarked on a course of making profits since the reconstitution of its board in 1965. The court noted the increase in the number of vehicles, the reduction in liabilities, and the improved potential for profit-making. The respondent-company had generally earned profits, and the volume of traffic and assets had increased.The court also considered the argument regarding the debt to the parent-company, Valley View Transport Co. Private Ltd. The respondent-company claimed an agreement in 1965 postponed the discharge of this liability. The petitioner and an intervener disputed the validity of this agreement. The court found insufficient material to conclusively determine the agreement's validity but noted that the creditor-company could challenge it in a civil court.The court emphasized that the respondent-company's financial position had improved and that it was not financially insolvent. Additionally, the court highlighted the public interest aspect, given that the respondent-company provided transport services in a backward and hilly area of Himachal Pradesh. The court cited *Dundappa Shivalingappa Adi v. S. G. Motor Transport Company (P.) Ltd.*, emphasizing the court's discretion in ordering winding-up and the consideration of public interest.The court concluded that it had not been proven that the company should be wound up under section 433(e) of the Companies Act, 1956. Therefore, the petition was dismissed with no order as to costs.