1978 (3) TMI 151 - HC - Companies Law

Court orders winding up of company due to financial insolvency and failure to fulfill manufacturing objectives.

The court found the petition for winding up maintainable as no grounds were raised against it. The respondent-company failed to fulfill its primary ... Winding up – Company when deemed unable to pay its debts Issues Involved:1. Whether the petition is not maintainableRs.2. Whether there are grounds for passing the winding-up orderRs.3. Relief.Detailed Analysis:Issue No. 1: Whether the petition is not maintainableRs.No ground or contention was raised to show why the petition for winding up is not maintainable. No evidence was led on this point by the respondents. The objectors' counsel, Mr. M.S. Liberhan, conceded that he was not pressing this issue. Therefore, the court decided against the respondent-company, finding that the petition is plainly maintainable in its present form.Issue No. 2: Whether there are grounds for passing the winding-up orderRs.The court first noted that one of the main objects of the company was the manufacturing of motor cars, as evident from the memorandum of association of Maruti Ltd. It was admitted by the respondent-company that it had not been able to manufacture cars for sale to the public. P.W. 2, S.M. Rege, the secretary of the company, testified that there was no commercial manufacture or sale of cars at any stage, indicating that the company's primary object had failed, leading to the conclusion that the substratum of the company had virtually disappeared.The petitioner argued that the company was unable to meet its huge liabilities, and there was a scramble for its assets among creditors. It was also averred that the business was completely paralyzed, employees had left, and there was commercial insolvency. The respondent-company admitted in its reply that due to a paucity of funds, it was not possible to make payments to various creditors and that the business had completely collapsed. Evidence from the petitioner, including testimony from the company's secretary and financial manager, indicated that the company could not carry on its business and would operate at a loss if it did.The court found that the company's existing and possible liquid assets were insufficient to meet its current and immediate liabilities. It was noted that even the liability for employee salaries could hardly be met in March and April 1977, and capital assets had to be sold in distress to meet salary liabilities. Additionally, the managing director and two other directors had resigned, leaving the company rudderless.The petitioner argued that winding-up proceedings would better serve the interests of shareholders and creditors and that the company's assets, if prudently realized, might meet its liabilities. The respondent-company also suggested that avoiding distress sales could help meet some creditor demands.The court concluded that the tests for winding up a company, as laid down in Seth Mohan Lal v. Grain Chambers Ltd. [1968] 38 Comp. Cas. 543 (SC), were more than amply satisfied. The court was satisfied that it was just and equitable to wind up the company under section 433(f) of the Companies Act, 1956.Relief:The court directed that the company be wound up. The provisional liquidator was appointed as the liquidator of the company and was instructed to take charge of all the property and effects of the company. A formal winding-up order in accordance with Form No. 52 of the Companies (Court) Rules, 1959, was to be drawn up.