K.K. Desai, J.
1. This is a debenture holder's petition for winding up of the Sholapur Spinning and Weaving Co. Ltd. (hereinafter referred to as 'the company'). I propose to record shortly the reasons why it is necessary to make the order as prayed for in the petition. In March 1958, the company was completely closed down. Prior to that date, a petition, being I.C. No. 190 of 1957, was filed for winding up of the company. The company filed a petition, being I. C. No. 84 of 1958, in June 1958 for sanction of a scheme of arrangement. The order sanctioning the scheme proposed was passed on July 17, 1958. A copy of the order and the scheme is annexed as exh. A to the petition. The contents of the scheme show that at the date of the order sanctioning the scheme, the liabilities of the company consisted of (i) secured creditors of the value of Rs. 1,34,80,000 and (ii) unsecured creditors of the value of Rs. 1,82,58,000. Under the scheme, the unsecured creditors, who were not the workers, agreed to receive 15 per cent, of their dues in cash and 10 per cent, on or before December 31, 1958. As regards the balance of 75 per cent, of the dues, they agreed to accept debentures to be issued by the company.
2. The petitioner Company was an unsecured creditor in respect of unpaid price of goods sold by it to the company. The price payable to it was Rs. 13,017-12-0. Having regard to the scheme that was sanctioned, it was paid, in the first instance, 15 per cent, of the debt and thereafter 10 per cent, of the debt. For the balance of 75 per cent., i.e. Rs. 9,700, it was given debentures. The form of the debentures recites, inter alia, the issue of 35,000 third mortgage debentures of Rs. 100 each, the issue having been made in terms of the trust deed dated December 31, 1958. The operative part of the debentures provides as follows:
The Sholapur Spinning and Weaving Company Limited...will on the first day of January 1964...as the principal moneys become payable in accordance with the provisions of the said Trust Deed dated 31st day of December 1958.
Pay to (the Petitioner) or other Registered-holder for the time being hereof the sum of Rupees one hundred only.
2. The Company will in the meantime or during the continuance of this security pay to such Registered-holder interest thereon at the rate of 6 per cent per annum by half yearly payments on the first day of July and on the first day of January in each year the first of such payments to be made on the first day of July 1959.
3. This Debenture is issued subject to and with the benefit of the conditions endorsed hereon, which are to be deemed part of it.
The conditions, which are annexed to the debentures, inter alia, mention that the debenture is one of 35,000 debentures of the company for securing the principal sum not exceeding in the aggregate rupees thirty five lacs. Relevant parts of conditions 7 and 9 provide that:
7. In respect of each half year's interest on this Debenture a warrant on the Company's Bankers payable to the order of the Registered-holder thereof,...may be sent by post to the registered address of each Registered-holder and the Company shall not be responsible for any loss in transmission....
9. This Debenture is issued subject to the provisions of the above-mentioned Trust Deed whereby all remedies for the recovery of the principal money and interest secured by the Debentures are vested in the Trustees on behalf of the Debenture holders....
3. Admittedly, the petitioner Company in this case is the holder of 97 debentures of the aggregate value of Rs. 9,700 and in respect of these debentures, it was entitled to interest at 6 per cent, per annum beginning with July 1, 1959. The interest was payable every 6 months beginning with July 1, 1959. Nothing was paid to the petitioner towards the interest that became payable to it on July 1, 1959, and every six months thereafter. The petition was filed on August 30, 1963. Thereafter, on January 1, 1964, the whole of the principal amount of Rs. 9,700 also has become payable to the petitioner. The aggregate principal amount of Rs. 35,00,000 has become payable to Third Debenture Holders. The petitioner's case is that the company has failed to pay to it Rs. 2,910 in respect of the interest that accrued due on the debentures held by it. The company has failed to pay to other debenture-holders who were unsecured creditors of the company in 1958 interest aggregating to Rs, 9,50,000. The company has been incurring heavy losses since the sanction of the scheme. In 1958, the company incurred huge loss of Rs. 5,55,795. The company has not been able to pay the company's contributions for Provident Fund to the Commissioner of Provident Funds. The company is unable to carry on its business without incurring heavy losses and is otherwise in insolvent circumstances. The company is unable to pay its debts, its substratum is gone and the company is commercially insolvent. Under these circumstances, the petitioner's case is that it is just and equitable that the company should be ordered to be wound up.
4. The contentions that are made on behalf of the opposing parties, being the company and some of the creditors, are (i) that the petitioner being a debenture holder is not entitled to prosecute the petition and the petition is accordingly misconceived, (ii) that the assets, when considered in correct light, are sufficient to clear off all liabilities of the company, (iii) that having regard to the value of the assets, there is a feasibility of a scheme to be proposed to Court for running once again the business of the company and (iv) that for enabling a petition to be filed for such proposed scheme in this Court, this petition should be adjourned.
5. It is to be recorded that it is not contended by any parties appearing in this petition that the company is commercially solvent. In this connection, it is necessary to point out the present liabilities of the company from the contents of the balance sheet for the year ended March 31, 1963. The secured loans mentioned in the balance sheet aggregate to Rs. 1,68,94,419. Rupees 29,02,428, forming part of the items mentioned in the secured loans, are the arrears of interest not paid. The unsecured loans and current liabilities amount to Rs. 60,10,116. The particulars of these are mentioned in annexure 'C' to the balance sheet. The contents of this annexure show that the company has not paid debts due to sundry creditors in the sum of Rs. 38,74,630. The company has not paid interest amounting to Rs. 47,499. It has failed to pay to the Provident Funds Commissioner Rs. 16,44,156. It is emphasised on behalf of the State Government, who is one of the large creditors, that the amount now not paid to the Provident Funds Commissioner has increased to Rs. 39,17,671. It is to be recorded that under the secured loans, the debt due to the State Government is stated to be Rs. 56,83,233, because the company has sold to the State Government valuable assets consisting of power house and electrical undertakings and by such sale the State Government has realised and given credit for about Rs. 56,00,000. The company has not been able to pay during the 6 years of its existence since the sanction of the scheme in 1958 any substantial amounts to its secured creditors and the other liabilities of the company have increased in a large way. What is most important to be noted in this connection is that admittedly the company has failed to pay Rs. 39,17,671 to the Provident Funds Commissioner. The company has also failed to pay about Rs. 1,67,775 in respect of the company's contribution payable to the Regional Director, Employees' State Insurance Corporation. I have found it difficult to adjourn this matter to enable the company to make a proposal of a scheme of arrangement because it appears to me that a company which fails to pay amounts due to the Provident Funds Commissioner to the extent of Rs. 39,17,671 and allows the same to remain in arrears and also does not pay the employees' contribution amounting to Rs. 1,67,775 to the Regional Director, Employees' State Insurance Corporation, must, for all purposes, be held to be unfit to continue in existence. These are liabilities enforced against companies to provide for welfare of workers and the companies which do not make these payments and allow the arrears of these amounts to grow must always be liable to be wound up. It is impossible that such companies should be allowed to function.
6. In this connection, it may be stated that the company has failed to pay about Rs. 74,00,000 in respect of bills for electricity charges and about Rs. 2,20,000 in respect of charges for supply of water. Consequent upon this failure, the power supply has been cut off since January 1964 and the company has not been working at all since that date. The company has also failed to pay to the workers' societies various amounts collected from different workers in connection with supplies made by the societies to the workers. The company has made this default in spite of having recovered diverse amounts from the workers. Obviously, the company is not in a position to arrange for payment of ordinary debts becoming due as a result of its carrying on business of the Mills. The company is in such insolvent circumstances that it must be ordered to be wound up in usual course.
7. On behalf of the company and opposing creditors, the first submission that has been made is that the petitioner is not entitled to maintain this petition. The contention is that under condition 9 in the debentures issued by the company, it is clearly provided that the debenture is issued subject to the provisions of the trust deed, whereby all remedies for the recovery of the principal money and interest secured by the debentures are vested in the trustees on behalf of the debenture holders and it is accordingly expressly stipulated that the debentures shall operate only according to the tenor thereof and shall not confer on the holder any right of action or suit or of taking any proceedings whatsoever against the company. It is submitted that having regard to this condition 9 contained in the debentures issued, there is no right of action of any kind vested in the petitioner. The petitioner is not entitled to file either a suit or take any proceedings whatsoever against the company. The result is that the petition must be held to be misconceived. In this connection, reliance is also placed on Clauses 3 and 4 contained in the debenture trust deed. The relevant part of Clause 3 runs as follows:
3. The company hereby covenants with the Trustees that the Company will on the first day of January one thousand nine hundred and sixty-four...pay to the holders for the time being of the Debentures then outstanding the amount secured by the Debentures respectively.
The argument is that the covenant for payment of the moneys due under the debentures is in favour only of the trustees and the petitioner as debenture holder is not entitled to file this petition.
8. As against the above contention, it is necessary to point out that the operative part in the debentures clearly provides that the company
will on the first day of January 1946....
Pay to...or other Registered-holder for the time being hereof the sum of Rupees one hundred only.
2. The Company will in the meantime...pay to such Registered-holder interest thereon at the rate of 6 per cent per annum by half yearly payments on the first day of July and on the first day of January in each year, the first of such payments to be made on the first day of July 1959.
Having regard to the above contents of the debentures, it is clear that there is direct covenant given by the company to pay to each debenture holder the principal sum of Rs. 100 on January 1, 1964, or at an earlier date and also to pay in the meanwhile interest at 6 per cent, on July 1, and January 1, each year. The condition 9 and the deed of trust, however, provide that the remedies for recovery of principal moneys and interest secured by the debentures are exclusively vested in the trustees on behalf of the debenture holders. The operative part of the debenture, when read with condition 9, appears to me to provide that in so far as the right to enforce security created by the debenture trust deed is concerned, it is not permissible for an individual debenture holder to enforce the security and he has no right of action or suit or of taking any proceedings to enforce the security. The contention that there is no direct covenant in favour of the petitioner by the company to make payment to him of the principal amount of Rs. 100 for each debenture and the 6 monthly interest does not appear to me to be correct.
In this connection, it is relevant to point out that in the case of Bachharaj Factories Ltd. v. Hirjee Mills Ltd. (1954) 57 Bom. L.R. 378, on behalf of the company, it was contended that the debenture holder, who had filed the petition for winding up of the company, was not entitled to maintain the same. The contention was in all respects similar to the contention made in this case. On behalf of the company, reliance was placed on the case of Dunderland Iron Ore Company, Limited, In re  1 Ch. D. 446. The observations relating to that case appear at page 390-391 of the above report as follows:
In that case a trust deed for securing debenture stock was made between the company and the trustees for the stockholders. There was a certificate delivered to these stockholders stating the rate of interest and dates of payment, and that certificate certified that the stockholder was the registered holder of the stock which was issued subject to the provisions contained in the trust deed. The stockholders whose interest was in arrear presented a petition for the winding up of the company and Mr. Justice Swinfen Eady held that they were not entitled to maintain the petition. Now, the judgment of the learned Judge turned on this important fact that the certificate of stock which was issued to the petitioners did not contain any direct covenant with the stockholder to pay any interest, and the learned Judge, with respect, rightly held that as the covenant was only with the trustees, the petitioners were not the creditors of the company and no debt was due by the company to the petitioners. Now, in the case before us we have debentures and not a stock certificate issued to the debenture holders including the appellants, and when We turn to the debentures they contain a personal covenant by the Mills to pay to the debenture holders. Therefore the reason which led Mr. Justice Swinfen Eady to hold that the petition was not maintainable in the case before him is not present in this case, and that is made clear in two other English decisions to which our attention has been drawn by Mr. Manekshaw.
The two decisions are (i) In re Borough of Portsmouth (Kensington Pratton and Southsea) Tramways Company (1985) Ch. D. 362 and (ii) In re Olathe Silver Mining Company (1884) 27 Ch. D. 278. In the latter case, the English Court held that the holder of some of the debentures, the interest on which was overdue, was entitled to petition for the winding up of the company. The principle that emerges from these cases has been clearly stated in 'Buckley on the Companies Acts' (p. 465):
A holder of debenture stock constituted by trust deed in the ordinary form, under which the debenture stock certificates do not contain any direct covenants with the stockholders to pay the principal or interest of the stock to them, is not, either as to principal or interest, a creditor, either legal or equitable, of the company, so as to be entitled to present a winding up petition, his right of action being only through the trustees.
But where the obligation to debenture-holders was direct by the company to pay the bearer, the bearer could present a petition.
Having regard to that principle, in the case of Bachharaj Factories Ltd. v. Hirjee Mills Ltd., the Court came to the conclusion that the contention made by the company that the petitioner was not entitled to maintain the petition was not well conceived. In this case also, it appears to me that the contention of the company is for the same reasons ill-conceived and must be negatived.
9. Mr. Mody for the petitioner has, in this connection, pointed out that Section 439 of the Companies Act, 1956, containing provisions as to applications for winding up, in Sub-section (2) thereof provides:
A secured creditor, the holder of any debentures (including debenture stock) whether or not any trustee or trustees have been appointed in respect of such and other like debentures, and also the trustee for the holders of debentures, shall be deemed to be creditors within the meaning of Clause (b) of Sub-section (1).
He has rightly submitted that Sub-section (2) is meant to confer unconditional absolute right on all debenture holders to file applications for winding up as creditors of the company.
10. Having regard to the provisions in Sub-section (2) of Section 439, the contention made on behalf of the company that the petitioner is not entitled to maintain this petition is also liable to be negatived.
11. The other contention made on behalf of the company and opposing creditors is that this petition must be adjourned to ascertain the wishes of all creditors as to whether they desire that the company should be wound up or a scheme of arrangement should be sanctioned for carrying on business of the company. In this connection, it appears to me to be clear that even if a large number of creditors of the company desire that the company should not be wound up and should be allowed to function in some manner, the Court is not compelled to accept that position in cases like that of this company, which is commercially entirely insolvent and is unable to provide for current liabilities such as contributions for Provident Fund and Employees' State Insurance Fund and/or to pay charges for supply of electricity and water. Even if it was ascertained that a large number of creditors desired that the company should be allowed to function, the Court would be bound to exercise its powers under the Companies Act and order winding up of the company.
12. The last contention that is made on behalf of the company and opposing creditors is that the true value of the assets of the company is much larger than the value appearing in the balance sheet for the year ended March 31, 1963. The main assets shown in the balance sheet are land, buildings, plant machinery, etc. The particulars of these assets are in Schedule 'D'. The net value of these assets is shown in the balance sheet at Rs. 68,53,946 as at March 31, 1963. The value of the land is shown at Rs. 4,31,291 and the value of the Latur Ginning and Pressing Factory is shown at Rs. 24,000. It is pointed out on behalf of the company that the Pressing Factory at Latur has been sold for the price of about Rs. 4,90,000. It is also pointed out that the land value has risen precipitately and there are about 3 lacs square yards of surplus lands with the Mills and the value of these lands will be many times more than Rs. 4,21,291 shown in the balance sheet. The contention is that the true value of the assets of the company is not Rs. 68,53,946, but is about Rs. 3,50,00,000. It is obvious that in making the argument the company has not taken into consideration the capital gains tax liable to be paid by the company in respect of sudden rise in the values of certain of its assets by reason of mere efflux of time. The contention that the true value of the assets will be Rs. 3,50,00,000 appears to me to be not well founded. Even if the company is likely to receive some benefits by reason of the sudden rise in market prices of some of its properties, the assets of the company will always be found to be much less than its liabilities. There is no substance in this contention made on behalf of the company.
13. These are some of the salient points, which have induced me to make this winding up order.
14. There will be order in terms of prayers (a) and (b). The Official Liquidator to take charge of all the properties and effects of the company. The Official Liquidator to cause a sealed copy of the order to be served on the company. The petitioner do advertise within 14 days from this date a notice in the prescribed form of the making of this order in one issue of the Times of India, the Sholapur Samachar, the Bombay Samachar and the Maharashtra Gazette. The petitioner do serve a certified copy of the order on the Registrar of the company not later than one month from this date. Petitioner's costs of the petition to be paid out of the assets of the company, counsel being certified. Costs of the company to come out of the assets. Costs of the supporting creditors, i.e. the State Government (one set) and the other supporting creditors (another set), to come out of the assets of the company. The opposing creditors will bear and pay their own costs. The Official Liquidator to act on the minutes.