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S. Krishnamurthy, Registrar of Companies Vs. Rohtak Hissar Transport Company (P.) Ltd. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtPunjab and Haryana High Court
Decided On
Case NumberCivil Original No. 6 of 1964
Judge
Reported in[1966]36CompCas9(P& H)
ActsCompanies Act, 1956 - Sections 433 and 439
AppellantS. Krishnamurthy, Registrar of Companies
RespondentRohtak Hissar Transport Company (P.) Ltd.
Appellant Advocate C.D. Dewan, Assistant Adv.-General
Respondent Advocate D.R. Nanda, Adv.
DispositionPetition dismissed
Cases ReferredIn A. C. K. Krishnaswami v. Stressed Concrete Constructions Private Ltd.
Excerpt:
.....creditor against the company been returned as unsatisfied. it is not, however, denied that in that balance-sheet the financial condition of the company was not very bright and the reason suggested is that there were two groups of shareholders, who were not pulling on well. the previous managing director having suddenly died, the company's management was not at its best. 2,90,000. the learned counsel for the registrar urged that in arriving at this figure under the heading of 'loans and advances (unsecured but considered good)',one of the items is pre-paid interest amounting to rs. 1,76,000. the balance-sheet as on 3oth of june, 1965, discloses a better financial position. 50,000. these two balance-sheets also give a glimpse of the working of the company and the chances of its showing..........(private) ltd. (hereinafter referred to as the company) on the ground that, as disclosed in its balance-sheet ending 30th of june, 1962, the company is unable to pay its debts. the application was resisted, inter alia, on the ground that the company's position was sound and, in particular, after the demise of its previous managing director, the company has been put on a sound basis because the shares were now held by the members of the same family, being two brothers and their mother, that there were no longer any dissensions amongst the shareholders and that the expenses have been cut down and all the creditors are quite satisfied with the present working of the company which has started showing profits. it was further prayed that the citations may not be issued because that would.....
Judgment:

Harbans Singh, J.

1. This application filed by the Registrar of Companies, Punjab and Himachal Pradesh, under Clause (e) of Section 433 read with Section 439 of the Companies Act, after obtaining the previous sanction of the Central Government is for winding up of the Rohtak Hissar Transport Company (Private) Ltd. (hereinafter referred to as the company) on the ground that, as disclosed in its balance-sheet ending 30th of June, 1962, the company is unable to pay its debts. The application was resisted, inter alia, on the ground that the company's position was sound and, in particular, after the demise of its previous managing director, the company has been put on a sound basis because the shares were now held by the members of the same family, being two brothers and their mother, that there were no longer any dissensions amongst the shareholders and that the expenses have been cut down and all the creditors are quite satisfied with the present working of the company which has started showing profits. It was further prayed that the citations may not be issued because that would adversely affect the credit of the company in the market. An undertaking was given on behalf of the company that it will submit a complete list of its secured, unsecured and sundry creditors and would produce evidence before the court that the majority of the creditors are satisfied with the working of the company.

2. According to the list supplied as directed by the court, the total debts due to the secured creditors as on 31st of August, 1964, amounted to Rs. 2,70,000 odd, out of which Messrs. Anand Finance (Private) Ltd. alone was a creditor to the extent of Rs. 2,12,000 odd. R.W. I, Tilak Raj Anand, director of this company, came into the witness box and stated that his firm had dealings with the company for the last eight years and it had been paying the instalments regularly and that his firm felt that its amount was quite safe. He further stated that even in the year 1964, another sum of Rs. 50,000 was advanced by this finance company to the present shareholders for purchase of the shares in the company and that it was in the interest of the finance company that the company should go on working. An affidavit on behalf of another secured creditor, Ganesh Finance Corporation, who are creditors of the company to the extent of Rs. 36,000 was also produced, more less, to the same effect. The list of unsecured creditors showed that there were 41 creditors and the total debt due to them amounted to Rs. 1,23,000 odd. To the sundry creditors, 17 in number, Rs. 44,800 odd were due. Out of the sundry creditors, affidavits of Kapur Chand and Fateh Chand to whom Rs. 4,983 wore due were put in to the effect that they were quite happy with their investment. Out of the unsecured creditors, the affidavit of Gobind Ram was produced to the same effect. To him the company owed Rs. 5,000.

3. The company also put on the record copies of its balance-sheets as on 30th of June, 1964, and 30th of June, 1965, which they had filed with the Registrar. Dharam Chand, accountant of the company, appeared as R.W. 3 and, inter alia, stated that in the general meeting of the company held on 22nd of February, 1965, the capital of the company was increased from Rs. 2,00,000 to Rs. 3,00,000, and that this additional capital of Rs. 1,00,000 was contributed in cash and has been paid in full and that return of the allotment had been duly filed. It was further stated that on May 13, 1965, two further route permits have been granted to the company making a total of 12 route permits and that the value of each of the permits varies from Rs. 30,000 to Rs. 50,000. Furthermore, the balance-sheet of 1964 disclosed a profit of Rs. 44,000 and that of 1965 a profit of more than Rs. 51,000 whereas previously the company was running at a loss. The only thing brought out in his cross-examination was that a sum of Rs. 11,000 was due to one creditor, Snit. Jamna Bai, and another sum of Rs. 3,000 was being claimed by Krishan Dutt, ex-cashier of the company. He, however, averred that no demands of these amounts have been made in writing and that Rs. 5,000 had already been paid to Jamna Bai as part payment of the debt due to her and similarly Rs. 1,000 had been paid to Krishan Dutt, though the debt of Krishan Dutt was also under dispute.

4. On behalf of the Registrar no evidence was led ; not even the balance-sheet of 1962, on which the petition was based, was put on the record.

5. As already indicated, the present petition is brought under Clause (e) of Section 433 on the ground that the company is unable to pay its debts. Section 434 details a number of circumstances under which a presumption arises that the company is unable to pay its debts. It is admitted that none of those circumstances exist in the present case. No creditors, to whom the company is indebted in a sum exceeding Rs. 500 has served on the company a demand requiring the company to pay the sum so due which the company has failed to meet within three weeks thereafter, nor has any execution or process issued by a court in favour of a creditor against the company been returned as unsatisfied. Consequently, the company can be said to have been unable to pay its debts only if it is otherwise proved to the satisfaction of the court that the company is not able to pay its debts.

6. The only argument of the learned counsel for the Registrar is that even the balance-sheets as on June, 1964, and June, 1965, disclose that the assets of the company are less than its liability and for that reason alone it is urged that it is a fit case in which the company should be ordered to be wound up.

7. As already indicated, the balance-sheet of 1962 is not on the record. It is not, however, denied that in that balance-sheet the financial condition of the company was not very bright and the reason suggested is that there were two groups of shareholders, who were not pulling on well. The previous managing director having suddenly died, the company's management was not at its best. The balance-sheet of 1964 (there are two copies of this balance-sheet on the record, one is marked R.W. 5 and the other R.W. 2/1) shows that, apart from the liability in respect of the share capital of the company, the other liabilities, taken in round figures were as follows :

Rs. (i) Secured loans

2,82,000 (ii) Unsecured loans

1,27,000(iii) Sundry liabilities

57,000

4,66,000

8. On the other side, the total assets were Rs. 2,90,000. The learned counsel for the Registrar urged that in arriving at this figure under the heading of ' loans and advances (unsecured but considered good)', one of the items is pre-paid interest amounting to Rs. 44,000 and that this could not be treated as assets. It was, however, explained on behalf of the company that when finance companies advance money to the transport companies for the purchase of trucks and buses, they add the interest which would become payable during the period of 24 months, which is the normal period allowed for repayment by instalments, and the total amount is arrived at by adding this interest to the principal amount and then it is divided by the number of instalments. Thus, the interest, which, in fact, is to be paid over a period of 24 months, is treated as a liability of the company from the very beginning. Consequently, in the balance-sheet the pre-paid interest is always shown as assets. I feel the explanation given seems to be a reasonable one. However, even taking the assets at a figure of Rs. 2,90,000, these assets are short of the liabilities by nearly Rs. 1,76,000. The balance-sheet as on 3oth of June, 1965, discloses a better financial position. On the side of the liability the following are the figures :

Rs.(i) Secured Joans

3,49,000(ii) Unsecured loans

62,000(iii) Sundry liabilities

48,000

4.59.000

9. On the other side, the total assets amount to Rs. 4,09,000. This figure, of course, includes Rs. 60,000 odd, which is shown as pre-paid interest. Sowe find that the assets fall short of the liabilities only by Rs. 50,000. These two balance-sheets also give a glimpse of the working of the company and the chances of its showing even better results in future. The balance-sheet of 1964 showed that loss in the accounts of the previous years was to the tune of Rs. 4,00,000 odd but during the year 1964 the company made a profit of nearly Rs. 45,000 and this profit increased to Rs. 51,000 in the year 1965. The accountant of the company placed on the record a letter of the transport authority which showed that two additional permits have also been given to the company. The balance-sheet further shows that a considerable saving has been made in the expenses of the company. For example, in 1964, the lorry repairs accounted for over Rs. 56,000, whereas in 1965, this figure has been reduced to Rs. 46,000.

10. The question for consideration, therefore, is that in the light of the working of the company, as disclosed by the above balance-sheets and the evidence on the record, has any case been made out by the Registrar of Companies for ordering the winding up of the respondent company It is significant to note that apparently the creditors are quite satisfied. As already indicated, the main secured creditors have come into the witness box and categorically stated that they are happy with the working of the company. So far as the unsecurred creditors are concerned, no doubt, no meeting of theirs has been formally called and no resolution is before the court indicating what their position is, A document, which purports to be signed by 24 of the unsecured creditors, was placed on the record stating that they feel that their investments in the company are safe. This document has not been properly proved and we do not know how these signatures were secured and by whom. However, although in 1964 a sum of Rs. 1,27,000 was due to the unsecured creditors, according to the latest balance-sheet the amount due to the unsecured creditors has been reduced to Rs. 62,000. This shows that the company has been able to pay back more than half the amount due to the unsecured creditors and, in any case, this amount of Rs. 62,000 is very insignificant as compared to the total assets and liabilities of the company. So far as the sundry creditors are concerned, they need not detain us because the amount of Rs. 48,000 due to them is hardly of any importance. Furthermore, as already indicated, none of the creditors has ever made any demand on the company or sent an application to the Registrar. The Registrar was able to produce only two letters, one purported to have been signed by Smt. Jamna Bai and the other by Krishan Dutt, the ex-cashier. The learned counsel for the company gave a solemn undertaking that if and when these persons make a formal demand, the same would be properly met.

11. The second significant thing, which is clear from the record, is that the company is on its way to progress and is not only expected to make profitsbut has actually made profits during the last two years. It is well established that the mere fact that the company's assets are less than its liabilities, is, by itself, no ground for sending the company to winding up. The test laid down is that the company should be commercially solvent which means that the company should be in a position to meet its liability as and when they arise. It is well known that the loans taken by the company from the various finance companies for the purchase of trucks, etc., are not payable immediately. They are payable over a period of two years or so, during which, as the company is a working company, it can make profits and out of which it can meet its liability irrespective of the fact whether its assets are equal to its total liabilities, present and future. In A. C. K. Krishnaswami v. Stressed Concrete Constructions Private Ltd., [1964] 34 Comp. Cas. 6 it was stated in the affidavit of the Registrar that as on 30th of June, 1962, the realisable assets were, of the value of Rs. 5,51,253 as against the liabilities of Rs. 14,59,260, yet it was observed ' but it does not necessarily follow from it that the company is unable to pay its debts. A company may have liabilities more than its assets ; but still may have, in particular circumstances, the capacity to meet demands from its creditors. No evidence has been placed before me beyond the affidavit of the Registrar that the company is really unable to pay its debts.'

12. Taking into consideration the entire evidence on the record, I am satisfied that not only there is no ground for winding up the company but also the company is working properly and is making profits and likely to make more profits in future and there is no evidence whatever that the company has failed to meet any demand of its creditors. It cannot, therefore, be held that the company is unable to pay its debts.

13. In view of the above, therefore, this petition must fail and the same is dismissed. The Registrar, however, had apparently good reasons to bring this petition because of the state of finances, as were disclosed by the balance-sheet of 1962. However, after the balance-sheets of 1964 and 1965 were put in and explanation had been furnished, I feel that the Registrar had no real justification to continue pressing this petition. In these circumstances, therefore, I feel that this is a fit case in which no costs should be granted to the Registrar except the value of the stamp he had to pay on the winding up petition. The petitioner-Registrar will, therefore, have his costs from the company only to the extent of Rs. 260 being the stamp paid by him.


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