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Smt. Mridula Bhaskar Vs. Ishwar Industries Ltd. - Court Judgment

LegalCrystal Citation
Subject Company
CourtDelhi High Court
Decided On
Case NumberCompany Petition No. 31 of 1979
Judge
Reported in[1985]58CompCas442(Delhi); 1983RLR213
ActsCompanies Act, 1956 - Sections 433, 434, 439 and 450
AppellantSmt. Mridula Bhaskar
Respondentishwar Industries Ltd.
Cases ReferredHind Overseas P. Ltd. v. Raghunath Prasad Jhunjhunwalla
Excerpt:
.....a manner prejudicial not only to the company but also to its shareholders. 17.20 lakhs during the year ending june 30, 1978, was due to heavy recession in the refractory industry and also due to the fact that the mini steel plant of the company at jabalpur remained closed till about the end of the relevant year while at the same time the company was incurring fixed costs like payment of interest, salaries of staff and workmen, etc. the expression 'commercially insolvent' means that the existing assets and liabilities of the company are such as to make it reasonably certain, as to make the court satisfied that the existing and probable assets would be insufficient to meet the existing liabilities. it is for the petitioner to prove that the test is satisfied in the case of a particular..........providing for depreciation on fixed assets which comes to rs. 5.25 lakhs. the turnover during the year june 30, 1978, has come down to rs. 98.28 lakhs as against rs. 120.05 lakhs, in the immediate preceding year ending june 30, 1977. similarly, the borrowings of the company has gone up and the figures have also been stated in the petition. it is stated that the company has neither paid interest nor installments due on the borrowings and suits have been filed by the city bank for the recovery of the dues. it is also alleged that the borrowing power of the company was raised from rs. 75 lakhs to rs. 1.25 crore by a resolution of the company. however, in spite of the said resolution, the borrowing has exceeded the said amount of rs. 1.25 crores. for these reasons, it has been stated that.....
Judgment:

M.N. Goswamy, J.

1. In this petition under ss. 433, 434, 439 and 450 of the Companies Act, 1956, the winding up of M/s. Ishwar Industries Ltd. (hereinafter referred to as 'the company') has been sought on three grounds. Firstly, that the company is unable to pay debts, secondly, that the affairs of the company are being conducted in a manner prejudicial to the interests of the general body of the shareholders and, finally, that the financial position of the company is deteriorating at quite a fast pace and this had raised a grave apprehension in the minds of the shareholders and creditors of the company. It is alleged that the company has even exceeded the maximum borrowing power which, according to the resolution of the company, is Rs. 1.25 crores.

2. It is well settled that a prima facie case has to be made out before the court can take any action in the matter. Even admission of a petition which will lead to advertisement of the winding-up proceedings is likely to cause immense injury to the company if ultimately the petition has to be dismissed. In view of that, the proceedings of the petition, which have been pending for quite some time, are only at the stage of show-cause notice as to why the petition be not admitted.

3. It is alleged in the petition that the authorised capital of the company is Rs. 1,00,00,000 divided into 24,000, 9% redeemable cumulative preference shares of Rs. 100 each, redeemable at the option of the company at a premium of not less than Rs. 10 per share and 7,60,000 equity shares of Rs. 10 each. The issued, subscribed and paid-up capital is Rs. 21,82,524 divided into 3,051 redeemable cumulative preference shares of Rs. 100 each, fully paid-up and 1,84,236 equity shares of Rs. 10 each fully paid-up, out of which 92,118 equity shares were allotted as fully paid-up bonus shares by capitalisation of reserves. Further, an amount of Rs. 31,259 paid for equity shares and an amount of Rs. 3,805 paid for preference shares was forfeited by the company. The petitioner holds 7,698 shares in her own name, which is just about 3% of the total capital of the company.

4. It is alleged that the husband of the petitioner, namely, Shri R. N. Bhaskar, since deceased, was serving as secretary of the company. He died on November 8, 1976, and under the gratuity scheme of the company, as sum of Rs. 1 lakh was payable to his legal representatives by way of gratuity. A certificate to that effect was also issued by the company on February 8, 1978, wherein it was admitted that this amount was standing to the credit of the petitioner on June 30, 1977. However, in spite of a statutory notice of demand dated April 30, 1979, issued and received by the company, the said amount has not been paid. It is further alleged that the petitioner also holds deposit to the extent of Rs. 1,30,000 in the company and in spite of repeated demands, the company has failed to repay the said debts. It is also stated in the petition that the company has reached a stage where it is plainly and commercially insolvent as against the capital of Rs. 21,82,524, it is alleged that the company has incurred a net loss of Rs. 17.20 lakhs during the year ending June 30, 1978. This loss is before providing for depreciation on fixed assets which comes to Rs. 5.25 lakhs. The turnover during the year June 30, 1978, has come down to Rs. 98.28 lakhs as against Rs. 120.05 lakhs, in the immediate preceding year ending June 30, 1977. Similarly, the borrowings of the company has gone up and the figures have also been stated in the petition. It is stated that the company has neither paid interest nor Installments due on the borrowings and suits have been filed by the City Bank for the recovery of the dues. It is also alleged that the borrowing power of the company was raised from Rs. 75 lakhs to Rs. 1.25 crore by a resolution of the company. However, in spite of the said resolution, the borrowing has exceeded the said amount of Rs. 1.25 crores. For these reasons, it has been stated that the figures clearly indicate that the affairs of the company are being conducted in a manner prejudicial not only to the company but also to its shareholders. It has further been alleged in the petition that the company is trying to divert its profits to other sister concerns such as M/s. Dutt Minerals P. Ltd., M/s. Bhaskar Stoneware Pipes P. Ltd. and various other companies in which Shri Vivek Bhaskar has a controlling interest.

5. In the reply filed by the company, the allegations of mismanagement, company being unable to pay its debts and deterioration in the financial position of the company have been denied. It has been stated that the company is fully in a position to meet all its liabilities. The claim of the petitioner to the extent of Rs. 1 lakh payable as gratuity to the legal heirs of Shri R. N. Bhaskar has not been denied. It has, however, been stated that the said amount is subject to income-tax and the amount payable as such is less than Rs. 1 lakh. The ground of being unable to pay its debts does not survive any longer as the amount due to the petitioner already stands paid. This fact was not disputed. It was, however, submitted that a small amount of interest amounting to Rs. 3,000 or Rs. 4,000 still remains to be paid which amount is disputed. The learned counsel for the company had made a submission that the accounts can be settled, and if anything further is due, the same will be paid to the petitioner without any hesitation. In this situation, it cannot be said that the company is unable to pay its debts. The company has also explained the delay in making such payments. A telegraphic reply was sent to the statutory notice issued by the petitioner. The said telegram is to the following effect :

'Your notice 30th April, 1979, on behalf of the legal heirs of late Shri R. N. Bhaskar stop gratuity payment withheld pending report of investigation committee into certain financial transactions of his time and recovery of dues from his heirs letter follows - Ishwarinds.'

6. It is stated in the reply that the investigations mentioned in the above telegram were decided upon by the board of directors of the company, vide its resolution dated January 28, 1979. The investigation remained at the preliminary stage when the petition was filed and it was expected that the investigation officer may, in due course, give an opportunity to the petitioner and other heirs of later Shri R. N. Bhaskar, if there are any materials requiring Explanationn or clarification from them. In view of the Explanationns and late payment of the amount, the grievance of the petitioner does not survive.

7. Regarding the working of the company it has been stated in the reply that the petitioner has deliberately suppressed the material fact that the company had built-up a reserve of over Rs. 37 lakhs as on June 30, 1977. The loss of Rs. 17.20 lakhs during the year ending June 30, 1978, was due to heavy recession in the refractory industry and also due to the fact that the mini steel plant of the company at Jabalpur remained closed till about the end of the relevant year while at the same time the company was incurring fixed costs like payment of interest, salaries of staff and workmen, etc. The mini steel plant was restarted during the current year and has already made a sale of over Rs. 79 lakhs during the current year. Even after adjusting the losses referred to, the company has a substantial reserve of nearly Rs. 14 lakhs in addition to its paid-up capital of Rs. 21.82 lakhs. During the period from July, 1978, to June, 1979, the company has carried out sales of about Rs. 1,85,00,000 as compared to the sales Rs. 98.28 lakhs only a in the whole of the previous year. The sales of the current year have thus increased by 88% from that of the last year. It is also stated in the reply that the company is likely to earn a profit of Rs. 10.11 lakhs.

8. The company has also filed two supplementary affidavits. Along with the first supplementary affidavit, a certified provisional balance-sheet and profit and loss account by the company's auditors for the period July 1, 1980, to December 31, 1980, was annexed. The balance-sheet and the profit and loss account show a profit of Rs. 12 lakhs for the said period. In addition to that, it has been stated that the company has paid during July, 1981, to June, 1982, a sum of Rs. 12.33 lakhs to three financial institutions. In the second affidavit, it has been stated that the company has been continuously working without a break for the past several years and has nearly 900 employees on its rolls.

9. Section 433 of the Companies Act, 1956, is to the following effect :

'433. A company may be wound up by the court - (a) if the company has, by special resolution, resolved that the company be wound up by the court;

(b) if default is made in delivering the statutory report to the Registrar or in holding the statutory meeting;

(c) if the company does not commence its business within a year from its incorporation, or suspends its business for a whole year;

(d) if the number of members is reduced, in the case of a public company, below seven, and in the case of a private company, below two;

(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.'

10. Admittedly, cls. (a) to (e) are not applicable in the present case and the only clause which remains is clause (f). Taking the position of the company as depicted above, the question for consideration is whether it can be said that it is just and equitable to wind up such a company. The Supreme Court in the case of Hind Overseas P. Ltd. v. Raghunath Prasad Jhunjhunwalla [1976] 46 Comp Cas 91 observed that the relief under s. 433(f) based on the just and equitable clause is in the nature of a last resort when other remedies are not efficacious enough to protect the general interests of the company. There must be materials shown for the 'just and equitable' clause to be invoked, that it is just and equitable not only to the persons applying for winding up but also to the company and to all its shareholders. The company court will have to keep in mind the position of the company as a whole and the interests of the shareholders and see that they do not suffer in a fight for power that ensues between two groups.

11. In the matter of Cine Industries and Recording Co. Ltd. [1942] 12 Comp Cas 215 Chagla laid down certain tests and explained the term 'commercially insolvent'. According to the learned judge, the test for determining whether a company should be wound up is whether the company is commercially insolvent at the date of the petition for winding up. The expression 'commercially insolvent' means that the existing assets and liabilities of the company are such as to make it reasonably certain, as to make the court satisfied that the existing and probable assets would be insufficient to meet the existing liabilities. The other test is whether at the date of the presentation of the winding-up petition, there was any reasonable hope that the object of trading at a profit, with a view to which the company was formed, could be attained. It is for the petitioner to prove that the test is satisfied in the case of a particular company when he asks the court to wind up. The substratum of the company must be deemed to be gone so as to entitle the court to pass a winding-up order when (a) the subject-matter of the company is gone, or (b) the object for which it was incorporated has substantially failed, or (c) it is impossible to carry on the business of the company except at a loss which means that there is no reasonable chance that the object of trading at a profit can be attained, or (d) the existing and probable assets are insufficient to meet the existing liabilities. When none of the aforesaid tests can be applied to the facts of a particular case, the company cannot be wound up.

12. I have given my careful consideration in the light of the aforesaid tests laid down by Chagla J. Taking into consideration the balance-sheet filed by the company, particularly the balance-sheet and the profit and loss account for the period July, 1981, to June 1982, it cannot be said that the aforesaid tests are fulfillled in the present case. The company has not only a hope of revival but has in fact been revived inasmuch as it has made profits and has also paid over Rs. 12 lakhs to the financial institutions towards its debts. Merely because the company has made losses for a certain period it can never be considered to be a ground for winding up of the company. By exercising the discretion in favor of the petitioner and winding up of the company, I would be putting over 900 persons who are working in the company on the road. Admittedly, the company has enough staff working and no grievance, in this petition, or in any other petition, has been made by the creditors or other shareholders against the company. The petitioner admittedly belongs to one of the groups of the family which had promoted the company. The group was carrying on the business in the best interests of the family and the other shareholders and at a later point of time, particularly, after the death of Shri B. N. Bhaskar, certain differences had arisen in the family and this petition seems to be a result of the same. The interest of the shareholders, financial institutions and the company cannot be allowed to suffer in a fight for power or for the disputes amongst the members of the family. This is not a forum for the said purpose.

13. For the reasons recorded above, the petition is dismissed in liming. The parties are left to bear their own costs.


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