Prem Chand Jain, J.@mdashRonaq Singh and others have filed this petition under Sections 433, 434 and 439 of the Companies Act, 1956 (hereinafter referred to as " the Act"), for the winding up of the respondent-company. The facts stated therein may briefly be recapitulated.
2. The Ambala Bus Syndicate (Private) Ltd. (hereinafter referred to as "the company") was registered under the Indian Companies Act, 1913, and is an existing company under the Act. The company was registered as a private limited company. The registered office of the company is situate at Rup-nagar in the State of Punjab. The authorised capital of the company is Rs. 15,00,000 divided into 60,000 shares of Rs. 25 each. The paid-up capital of the company is Rs. 12,13,700 of 42,548 subscribed shares.
3. The petitioners are the shareholders of the company, except petitioners Nos. 9, 14 and 21. The total share of the petitioners is Rs. 2,17,200. The petitioners are also creditors of the company for a sum of rupees 4,98,758.25. The petitioners sent a notice on the 2nd and 3rd of August, 1977 (copy annex. " D " to the petition), demanding their amount from the company, to which a reply was sent through a counsel by the company saying that the amount of the petitioners was being used as a working capital and that the interest had been reduced by the company, vide resolution of the board of directors, dated 29th of September, 1972, from 18 percent, to 15 per cent. Again, a notice was sent on 7th of September, 1977, requiring the respondent-company to pay the amount of Rs. 5,54,225.25. In reply dated 30th of September, 1977, 23 cheques of the value of Rs. 34,897.50 calculated at the rate of 8.33 per cent, of the total deposits, were sent. The total liability had been calculated by the company by reducing the rate of interest from 18 percent, to 15 per cent, on the basis of the directors resolution dated 29th of September, 1972, which was a unilateral resolution and the petitioner-creditors were not bound by the same. The petitioners did not encash the 23 cheques sent by the respondent-company.
4. It is further stated in the petition that the total indebtedness of the respondent-company towards petitioners Nos. 9, 14 and 21 as on 31st of August, 1977, comes to Rs. 25,258, Rs. 31,394 and Rs. 20,487.70, respectively, whereas their credits are shown by the respondent-company as on 31st of March 1977, at Rs. 21,737.90, Rs. 28,105.60, and Rs. 18,330.90, respectively.
5. It is further averred that the latest balance-sheet of the company for the year ending on 31st of March, 1977, shows a sorry state of affairs with regard to the financial stability of the company. The copy of the balance- sheet, which is attached with the petition as annex. " H ", goes to show that a sum of Rs. 2,97,940 had been paid to the directors as against Rs. 1,76,840 for the year ending 31st of March, 1976. It is further stated that since December, 1974, the financial position of the company has further deteriorated as finances are being frittered away by sanctioning payment of salaries to the various shareholders of the company who are siding with Harminder Singh Bala and his group. Except Harminder Singh Bala, all the directors are either uneducated or are non-matric and are being paid high salaries without rendering any service to the company. The business of the company was being conducted in a fraudulent manner.
6. After giving the details in respect of the above allegations, the petitioners have ultimately stated that the company was unable to pay its debts and was liable to be wound up under Clause (e) of Section 433 of the Act.
7. The petition came up for preliminary hearing on 20th of October, 1977, when notice was issued to the respondents. In pursuance of the notice, the respondents put in appearance and written statement in the shape of an affidavit of Harminder Singh Bala, managing director of the company, has been filed. Besides raising preliminary objections, the material allegations made in the petition have been controverted. It has been averred that the financial position of the company is extremely sound and that the petition is wholly misconceived.
8. The petitioners chose to file a counter-affidavit in reply to the affidavit of Harminder Singh Bala in which the stand taken in the petition has been reiterated.
9. Before I deal with the contentions raised by the learned counsel for the parties, a little background of this case may be noticed as the same would be relevant while dealing with the contentions of the learned counsel for the respondents.
10. Prem Singh and others have filed against the company, its managing director and the directors, a petition (C. P. No. 188/1974) under Sections 397 and 398 of the Act. In that petition, petitioners Nos. 1 to 5, 7, 8, 11 and 12 of the present petition were also petitioners. They, along with a few other persons, made a request on August 1, 1975, that they be permitted to withdraw as petitioners. The prayer of these petitioners was allowed on August 22, 1975, and they were permitted to withdraw from that petition. Later on, these petitioners, along with some other persons, filed an application, C. A. No. 113 of 1977, under Order 1, Rule 10, read with Section 151 of the CPC, praying that they may be made petitioners again in C. P. No. 188 of 1974 and be allowed to lead evidence. That application came up for hearing before B.S. Dhillon J., who, vide a detailed order dated August 26, 1977, declined the prayer of the petitioners and dismissed C. A. No. 113 of 1977- It is thereafter that the present petition was filed on October 17, 1977, for the winding up of the respondent-company.
11. As earlier observed, notice of the petition had been issued by B.S. Dhillon J., on October 20, 1977.
12. The short question which deserves determination and on which contentions were advanced at great length by the learned counsel for the parties, is whether the petition should be advertised or not, as provided under Rule 24, read with Rule 96 of the Companies (Court) Rules, 1959 ?
13. The case of the petitioners for the winding up of the company is based on Clauses (e) and (f) of Section 433 of the Act, which read as under :
" 433. A company may be wound by the court.......
(e) if the company is unable to pay its debts ;
(f) if the court is of opinion that it is just and equitable that the company should be, wound up."
14. What was sought to be argued by Mr. Seth, learned counsel for the petitioners, was that the company was unable to pay its debts and that circumstances existed on the basis of which it could straightaway be held that it was just and equitable that the company should be wound up.
15. Adverting to Clause (e), reproduced above, the learned counsel drew my attention to Section 434(1)(a), which is in the following terms :
" 434. (1) A company shall be deemed to be unable to pay its debts-
(a) if a creditor, by assignment or otherwise, to whom the company is indebted in a sum exceeding five hundred rupees then due, has served on the company, by causing it to be delivered at its registered office, by registered post or otherwise, a demand under his hand requiring the company to .pay the sum so due and the company has for three weeks thereafter neglected to pay the sum, or to secure or compound for it to the reasonable satisfaction of the creditor ;......"
16. According to Mr. Seth, a demand was served on the managing director of the company, vide notice dated September 7, 1977 (copy annex. F to the petition), calling upon the company to pay the amount within three weeks from the date of the service of the notice ; that the company had for three weeks thereafter neglected to pay the same and that in view of the provisions of Section 434(1)(a) it would be deemed that the company was unable to pay its debts.
17. On the other hand, it was contended by Mr. Majithia, learned counsel for the respondent-company, that the ground under Clause (e) was no more available to the petitioners in view of my order dated December 1, 1977, as the petitioners on the basis of an arrangement arrived at in the court and noticed in the said order, had accepted payment of the sum due to them ; that the company had paid the entire amount in accordance with the order dated December 1, 1977, and that the petitioners could not claim, any relief on the ground that the company was unable to pay its debts.
18. After giving my thoughtful consideration to the entire matter, I am of the view that there is considerable force in the contention of the learned counsel for the respondent-company.
19. At the outset, it may be observed, as has been noticed earlier, that at present the only short question that has to be decided is whether circumstances exist which may warrant the advertisement of the petition ?
20. In my view the answer to the aforesaid question has to be in the negative.
21. The petitioners had addressed a notice dated September 7, 1977, requiring the company to make payment of the amount within three weeks of the receipt of the notice, to which a reply was sent on behalf of the company dated September 30, 1977 (copy annex. " G " to the petition). In the reply, the allegations made in the notice (copy annex. " F ") were denied and reasons have been given to show that the amount was not payable to the petitioners and that no ground existed for the winding up of the company. Thus, from the reply it is evident that the company did not show its inability to pay the amount and in turn raised certain objections which did not permit, in the opinion of the company, immediate payment to the petitioners. What was sought to be argued by Mr. Seth was that as payment was not made within three weeks of the service of the demand notice, the provisions of Clause (e) of Section 433 stood attracted and that straightaway a finding deserved to be recorded that the company was unable to pay its debts.
22. In the circumstances of this case, I am unable to agree with this approach of the learned counsel. The company is a running concern. The petitioners have not been able to show that the substratum of the company has been destroyed or that the company is running in a loss or that in case the company is running in loss there is no reasonable prospect of making profit in the future. The learned counsel, during the course of arguments, tried to show from the balance-sheet that the financial condition of the company was not sound and there were many outstanding payments, and that is why the company could not pay the amounts to the petitioners which were to be paid within three weeks of the service of the notice. This contention of the learned counsel is belied from the arrangement which was arrived at in the court between the parties and was incorporated in my order dated December 1, 1977, which is in the following terms:
" The learned counsel for the parties agree that 8 equal instalments of the sum of Rs. 3,98,940''40 shall be paid to the petitioners by the 10th of every month. So far as the instalment payable in December, 1977, is concerned, the same may be paid by the 20th of this month while the remaining 7 instalments shall be payable by the 10th of each month failing which the advertisement for the winding up of the company will be published in accordance with the Companies (Court) Rules. The learned counsel further agree that the crossed bank draft of the instalment may be sent in the name of Brinder Singh Bala Kurali who would be responsible to distribute the amount according to the deposits to the other petitioners. In view of the statement made by the learned counsel for the parties, I direct that the amount may be paid as agreed to by the learned counsel for the parties. It may, however, be observed that this would not prejudice the claim of the petitioners on the difference in respect of interest which they are claiming in this petition. However, the question whether still grounds exist for issuing publication for the winding up of the company would now be argued on January 20, 1978."
23. As earlier observed, this order of mine has been fully complied with and all payments up to date have been made to the petitioners. I agree with Mr. Majithia, learned counsel for the company, that having arrived at an arrangement in the court, the petitioners are not justified in pleading that the company is unable to pay its debts. I also agree that having conceded to receive payments, ground (e) for the purpose of advertisement is not available to the petitioners. The respondent-company has been able to show its bona fides by making the payment of the entire amount to the petitioners and it would be unjust to hold that the company is unable to pay its debts and for that reason to order the advertisement of the petition. In this view of the matter, the contention of the learned counsel for the petitioners is repelled.
24. It was next contended by the learned counsel for the petitioners that it was just and equitable that the company should be wound up. In support of his contention, the learned counsel drew my attention to the averments made in the petition in general, and specifically to the averments made in paras. 17, 18, 22 and 24. The learned counsel also referred to the balance-sheet making pointed reference to the amount of depreciation of Rs. 7,39,382.19 having not been shown, as in case that amount had been shown, then, instead of profit of Rs. 2,789.16, a loss of Rs. 7 lakhs odd would have to be shown. It was also pointed out that up to the year ending March 31, 1977, an amount of Rs. 2,97,940 had been shown to have been paid to the directors, as against Rs. 1,76,840 paid in the previous year. On the other hand, it was contended by Mr. Majithia, learned counsel for the respondent-company, that even if all the averments made in the petition were accepted, then also there would be no justification for ordering the winding up of the company and that at best it would be a case falling under Sections 397 and 398 of the Act. The learned counsel further submitted that the company was a flourishing concern as was evident from the income shown in the balance-sheet and that even if the liabilities were more than the assets at one point of time, then also the same could not be a ground for winding up of the company, as in future the losses could be made up in a flourishing concern like that of the respondent-company. The learned counsel also contended that the conduct of some of the petitioners was such which disentitled them to claim any relief under Clause (f) of Section 433, as on practically similar grounds they had earlier filed a petition under Sections 397 and 398 of the Act, from which, after seeking permission of the court, they withdrew, and later on their prayer for being impleaded as parties in the main petition was rejected. The learned counsel tried to impress that the only purpose of the petitioners was to harass the company as they were out of power.
25. After giving my thoughtful consideration to the entire matter, I am again in agreement with the contention of the learned counsel for the respondent-company. In the earlier part of the judgment, I have given details about the filing of the petition by 9 petitioners along with some other persons under Sections 397 and 398 of the Act. Those petitioners on their own were allowed to withdraw from the petition and, subsequently, their prayer for being impleaded as a party was declined on August 26, 1977. Having failed to get any relief in the application under Sections 397 and 398 of the Act, the petitioners chose to serve a notice, copy annex. " F " to the petition, on September 7, 1977, and, thereafter, filed the present petition on October 17, 1977. The sequence of events in the present case certainly supports the contention of Mr. Majithia that the petitioners are only out to harass the respondent-company. Moreover, on the basis of the allegations made in the petition, I am not inclined to agree with Mr. Seth, learned counsel, that the petitioners have succeeded in proving that it is just and equitable to order winding up of the company and that on that ground advertisement of the petition should be ordered. Further, it may be highlighted that in the petition the prayer for winding up is based mainly on the ground that the company is unable to pay its debts, as is evident from the averments made in para. 28 of the petition, which reads as under :
" That from the resume of facts mentioned above, it is clear that the company is unable to pay its debts and is liable to be wound up under Clause (e) of Section 433 of the Companies Act, 1956. It is clear that the manner in which the affairs of the company are being conducted, the company should be wound up. No dividend whatsoever has been declared. Unnecessary remunerations are being paid to S. Harminder Singh Bala and his group which constitute a majority of the shareholders and considerable amounts of money are being misappropriated by Shri Harminder Singh Bala and his associates."
26. In view of my aforesaid discussion, I hold that no ground for ordering the advertisement of the petition has been made out, and, consequently, I decline this prayer.
27. Before parting with the judgment, I may say that a large number of judicial decisions were cited on either side by the learned counsel for the parties, but I have purposely refrained from making reference to those judgments as I have decided the limited question raised before me on the facts of the instant case, and in this situation, no useful purpose would have been served in burdening this judgment by referring to those decisions.
28. Whatever has been said in the judgment is for the limited purpose of deciding the question of the advertisement of the petition at this stage. It may, however, be made clear that the petitioners, if they so desire, would be at liberty to lead evidence and to prove their case for the winding up of the company.
