1. This is an appeal against the order passed by the learned single judge dated May 6, 1982, by which a petition filed by the respondents for winding up of the appellant company has been admitted and citation was directed to be issued. The appeal was admitted and publication of citation stayed by our admission order.
2. Broadly, the case of the respondent company was that the appellants were their agents for supply of goods, which were manufactured by the respondents. It was claimed that over a sum of Rs. 43 lakhs was due which it was said was also to be found reflected in the books of account of the appellant company. The further case was that no business of the appellant company was being carried on excepting shipping brokerage and hardly to the extent of a couple of lakhs of rupees a year. The liability of the company was said to be Rs. 25 lakhs as against the small share capital of Rs. 1 lakh and 24 thousand. The plea being that even the substratum of the company was no longer in existence and apart from this ground as the dues of the respondents, after the statutory notice had been given under the Companies Act had not been paid, it deserves to be wound up.
3. The appellant's case before the learned single judge and before us has been that the amount said to be due of Rs. 43 lakhs has been inflated out of proportion. It was their plea that accounts shown by the respondent did not correctly reflect the statement of account between the parties. The matter came up before us a number of times and in order to clarify the situation we directed the parties to file statement of transaction and accounts between them. It is common case that the respondents sell turpentine and rosin. The appellants were sole selling agents for the Northern and Eastern India. The areas prominent being Delhi, Kanpur and Calcutta. Apart from the other conditions of agency, the appellants were to be paid a commission on the total sales amount, and the rest of the amount was to be remitted to the respondent company. According to the latest affidavit filed by the respondent company on November 16, 1982, the total sales said to have been effected through the appellants for the periods 1972-73 to 1979-80 (it is agreed that after August 31, 1979, the appellants have ceased to be the selling agents of the respondent company) are Rs. 5,55,01,354.79 of which remittances sent by the appellant to the respondent company are Rs. 5,23,71,460.70, and on which a commission of Rs. 22,44,790.34 was adjusted by the appellants. Adding an amount of Rs. 16,48,680.27 as interest the total outstanding claimed by the respondent company from the appellants are shown as Rs. 28,41,571.70. To this is added the amounts said to be due from 1968-69 including interest, thus making a total of Rs. 34,42,867.77.
4. The appellants have also filed on October 7, 1982, an affidavit along with a statement which, however, shows sales in the territory of Kanpur, Calcutta and Delhi, for the periods 1972-73 to 1979-80 to be of Rs. 5,31,38,676 as against Rs. 5,55,01,354.79. Surprisingly the appellant's figures show less remittances made by them then the respondents admit because their figure is Rs. 5,24,69,069. There is also a difference in the commission adjusted by the appellants which is Rs. 20,76,581 while the figure of commission to the appellant by the respondents is much more. Of course, Mr. Shah, counsel for the respondents, says that the statements given by the appellants are not borne from the record and they must be held to be bound by the statement given in the list of creditors filed by them which along will show that they have admitted that as on March 31, 1981, there was an amount of over Rs. 22/21 lakhs due to the respondents. Mr. Kumar, the learned counsel for the appellant, however, points out that the statement given of the list of creditors does not represent the up to date situation after adjusting the amount due from various persons and in that connection he referred us to a list of debtors filed by the appellant company which has an entry of about Rs. 6 or 7 lakhs said to be due from the respondent company. Of course, Mr. Shah does not accept the correctness of this entry. It is obvious that there is no admitted figure of liability which is agreed to. We had none the less during the pendency of appeal directed the payment of Rs. 2 lakhs on account to the respondent (which has been paid). We had thought that one way of clarifying the position was that both the parties may be asked to file further statement of transactions on the basis of which the total of the sales had been worked out. It is apparent that the appellants and the respondents have arrived at their respective figure, i.e., Rs. 5,55,01,354.79 and Rs. 5,31,38,676 on the basis of certain transactions. Without examining this matter in detail it is hazardous to come to the conclusion that the appellants are unable to pay its debts because unless the amount of debt is undoubted or admitted, remedy by way of winding up is seldom favored. It is true as yet only a citation has been directed to be issued, and not winding up. But it must never be overlooked that order of citation is a very serious matter and even a good company, if a citation is wrongly published may be put to the risk of running into financial difficulty and actually expedite winding up. The requirement of law is not to rush into liquidation of the companies. Efforts, no doubt based on sound data must always be made to keep a company growing, because liquidation must bring in its train unsavoury result for economy and corporate sector. As far as possible it should be the effort to save the companies from going into liquidation subject, of course, to the interest of seeing that the innocent parties do not suffer in the process. We feel that in such a state of uncertain data it will be in the interest of justice if the matter was examined in greater detail before coming prima facie to a conclusion that the appellant is unable to pay its debts or that its substratum has gone. Temporary difficulties, even somewhat serious, do not always spell the liquidation of the company. That is why that before citation is ordered, and especially in view of further material placed before us and of which the learned judge did not have the advantage would be helpful if this matter was further examined by the learned single judge before arriving at a conclusion that the citation should be issued or not. We would, thereforee, set aside the order of the learned single judge, directing the issue of citation and remit the matter back to him, who will in the light of the matter placed before us in appeal by both the parties and any further material that he may feel proper to ask for, decide afresh whether the citation should or should not be issued.
5. The learned single judge had also directed provisional liquidator to seal the premises occupied by the appellant company at Delhi and also directed the seizure of the books and other accounts of the appellant company. Mr. Shah contended that this order should be allowed to continue till the matter is decided afresh by the learned single judge. We do not think that will be a proper or a fair order considering that matter is to be examined afresh and also the result of the continuance of that order would be that the premises of the company will remain sealed with the inevitable consequence that the appellant company will be unable to carry on any business in the meanwhile, thus ruining further chances, if there are any, of the company recovering and rehabilitating itself. To stop business is a sure death warrant for the company - an eventuality which cannot be calmly countenanced. Of course, certain safeguards should be provided to the respondents when passing this interim order. We, thereforee, feel that we should restrict and limit the power of the official liquidator, who is the provisional liquidator, as we are entitled to under s. 45 of the Companies Act. Though we, thereforee, upheld the order and continue the appointment of the provisional liquidator we would limit it as hereinafter indicated.
6. We direct that it is not necessary that the premises should remain sealed any longer. But the premises will, of course, remain in the custody of the court through the provisional liquidator. He is, however, directed to give the premises for use only to the appellant company. But this will be done only after the appellants have filed an affidavit from all the present directors before the learned single judge giving an undertaking to the court that as and when the court directs immediate and peaceful possession will be given back to the provisional liquidator, without any objection and only after such an undertaking has been accepted by the learned single judge. The provisional liquidator is also directed to make an inventory of the assets in Bombay & Calcutta offices which he will file in the court. The same will be done so far as Delhi office is concerned. This he will do before handing over the premises to the appellant. The appellants are restrained from transferring, subletting, parting with or in any manner alienating or allowing the user of it to any other person the leasehold rights or surrendering the premises either to the owner or to any other party. In fact, the premises are under the custody of the court and only the use of the premises is being permitted to the appellant company. There are said to be many outstanding amounts due to the company. Mr. Kumar, the learned counsel for the appellant, has agreed and we also over that all these recoveries will be made by the provisional liquidator only and the appellant company is restrained from trying to recover any such amount or deal with any other recoveries or amounts outstanding from the company. Any such dealing by the appellant company will be deemed to be an act of misfeasance resulting in further consequences. A list showing the company debtors has already been filed by the appellants along with the counter-affidavit. Our order restraining the appellant company from seeking to recover any such amount is naturally restricted to all these amounts of which list has been given and which will be pursued by the provisional liquidator. We are making this clear because it can happen that the company during its future working may have to take steps to, in the usual course of business, take proceedings for recovery of amounts, etc., which may be occasioned now that the appellant company can continue operation. But we make it clear that no assets of the company (premises or any other) will be charged for this work by the appellants. This order of restraining them from transferring, alienating or creating any charge or sub-letting or parting with the use of the premises will apply to all the premises of the company whether in Delhi, Bombay, Calcutta or anywhere else.
7. The appellant company will also file quarterly the statements of accounts relating to all the transactions done by them, before the single judge. Mr. Shah apprehends that the carrying on of the business by the appellant company may result in incurring great loss, creating a further problem and depleting the assets further. The suggestion is that the appellants may deliberately go into loss so as to spite the respondents. We can hardly take it seriously. However, if the appellants enter into any such transactions which the respondents feel are harmful to the interest of the company, it would certainly be open to them and we specifically permit them to move the learned single judge for obtaining any appropriate order. In order that there may not be any dispute between the parties as to whether any tampering of the books of account or other books of the company is done, we feel that the proper order would be that all these books which are in the premises may be collected by the provisional liquidator who may seal them in boxes and deposit in the court. This is done so that if either of the parties wish to examine any of the books for the purpose and any information, it could do so without difficulty. The provisional liquidator of course will have full access to the books, at any time.
8. Mr. Shah also mentioned that the premises which according to him is the only main income-earning asset of the appellant company has further been sub-let to a large number of persons from whom rents are being realised and he says that there should be some restraint on the appellant not to take away or utilise the whole of the rental because these are the only assets from which the respondents hope to realise their funds. Mr. Kumar, the learned counsel for the appellant, says that no rental has been realised from the sub-tenants after the restraint order was passed by the company judge. He says that the appellant will file a statement of the rental which is to be recovered from various parties within 10 days, and they will also continue to file a statement of the actual amounts that are realised from the various sub-tenants and also as to how that amount has been dealt with. Mr. Shah, if so advised, may move the learned company judge, who may, considering the circumstances, pass any appropriate order as he thinks fit.
9. There was an account No. 1 & 2 which was directed to be frozen and not operated by the appellant company. This was apparently done because there was a large amount of money lying in this account. But now, out of it, Rs. 2 lakhs have already been paid to the respondents. Mr. Kumar, the learned counsel for the appellant, says that the present balance in the bank is to the extent of only Rs. 300. The only reason why he is asking to operate this account is to avoid the inconvenience of opening a new account. There does not seem to be any reason in not permitting the appellant to operate the above account considering that no funds of the company are there which can be utilised by the appellant. Mr. Kumar appearing for the appellant says that Rs. 300 which is lying there in the account will remain as it is.
10. As far as the recoveries due to the company are concerned, we have already passed orders saying that only the liquidator is authorised to recover the said amounts or to take any steps in that connection. We also make it clear that if any amounts from such recoveries are received by the appellant or are sent direct by the debtors to this account, the same will be passed on by the appellant company to the provisional liquidator. A copy of this order be sent to the official liquidator. The appeal is disposed of as above. No costs.