1. This is an appeal against the judgment and order of Panchapakesa Aiyar J. directing the winding up of a company called the Karnataka Vegetable Oils and Refineries Ltd.
The company is the appellant. It was incorporated under the Indian Companies Act as a public limited company. Its authorised capital is Rs. 20 lakhs, out of which a capital of Rs. 10,13,519, was paid up. The registered office of the company is at Hagari Bommanahalli, Bellary district. The respondent who was the petitioning creditor is the Madras Industrial Investment Corporation Ltd.
The company borrowed from the respondent a sum of Rs. 6,50,000 and secured the said sum by a mortgage dated 24-10-1950. The hypothecs included lands situated at Hospet in the Bellary district and the engines, machinery, plant and factories belonging to the company and which might be erected at any time during the continuance of the mortgage.
The principal amount was repayable in 16 equal annual instalments, the first of such instalments to be paid on. 30-6-1953. Interest was payable at the rate of 6 1/2 per cent, twice each year on the 15th Juno and 15th December. If the interest was paid regularly, there was provision for a rebate of 1 per cent, and in case of default, there was provision for compound interest with hall yearly rests.
It is common ground that the instalments due on 15-12-1950 and 15-6-1951 were duly paid. But the company defaulted in payment of interest due on 15-12-1951. Though there were several demands by the respondent, the company failed to pay the same. On 14-6-1952, the company sent cheques for Rs. 21,554-15-3 and asked that the said amount may be credited towards the interest due for the half year ending 30-6-1952 and also claimed a rebate. The respondent refused to adjust the said sum towards interest for a. subsequent instalment when interest due for a previous instalment was in arrear.
Meanwhile the Chief Accountant of the respondent Corporation inspected the accounts of the company and submitted a report. Thereupon, the respondent filed an application under Sections 162 and 166, Companies Act praying that the company may be wound up. The grounds on which the winding up was sought fell within one or other of the following clauses of Section 162, viz., Clauses (iii), (v) and (vi).
The respondent alleged that the company had suspended its business from the end of the year 1951, that it was unable to pay its debts, that the affairs of the company were in a chaotic condition, that . there was a deadlock in its management, that the accounts of the company had not been properly kept, and that the financial position of the company was such that it was not possible any longer to work the concern for a profit.
The petition was opposed by the company. Though the default in payment of interest was admitted the allegations of mismanagement and deadlock were denied. The company 'inter alia' stated that the petitioning creditor had other rights and remedies which could be pursued to enforce its rights, that the financial embarrassment of the company was only temporary and due to causes beyond their control, and that a winding up of an industrial concern like the company would not be in the best interests of the country.
The company also stated that the creditors of the company other than the petitioner were not in support of the petition and were not pressing for their debts.
2. The application was heard and disposed of by Panchapakesa Aiyar J. who considered that the company deserved to be wound up mainly for two reasons, (1) that the company had suspended production and business since Christmas 1951 and there was no prospect of resumption of business or production, and (2) that the company was unable to pay its debts.
The learned Judge recognised that it was an unfortunate case where the company had erected a building costing more than the loan advanced by the petitioning creditor but where due to the world conditions and world depression in general the company had fallen on evil days. But, he. thought that it was not a circumstance which would prevent a creditor who had not been paid his debt from obtaining a winding up order.
The learned Judge also referred to certain irregularities in the accounts. He, therefore, directed that the company be wound up and appointed the Official Receiver, Bellary, as the Official Liquidator.
3. The learned counsel for the appellant company rested his case entirely on the position that this Court should not exercise its discretion to order a winding up at the instance of a creditor like the respondent in the circumstances of this case.
He did not, and indeed he could not, contend that a secured creditor had no locus standi' to present a petition for winding up. Nor did he invoke the rule in bankruptcy that before a secured creditor could file a petition for winding up he had to abandon his security or to value the security and aver that after giving credit to such value there would be a balance due and payable to him.
It is well established that a secured creditor is as much entitled as of right to file a petition for winding up as an" unsecured creditor. --'Moor v. Anglo-Italian Bank', (1879) 10 Ch D 681 (A) is the leading decision on the point. Jessel M.R. observed thus:
"What the plaintiffs say is this: they say that a petitioning creditor in bankruptcy in order to obtain adjudication, must be an unsecured Creditor. That is quite correct in this sense, that he must be a creditor who either never had security, or, if he has one, has given it up or valued it, asserting it to be less in value than the debt, and who presents his petition as being well founded on the balance of me debt after setting off. the value of the security, and that balance must amount to a certain sum.
That is quite true in bankruptcy to obtain adjudication, but there arc no such rules in winding up ..... The winding up is equally good whether it is obtained by a secured creditor or an unsecured creditor."
On the authority of the above and other cases, Buckley, Edn. 12, states the law thus:
"A secured creditor may present a petition and he does not, presenting one, elect to give up his security or in any way lose his right to it." .
But Mr. C. Venugopalachari, learned counsel for the appellant, contended that though the petition as such may be maintainable, this Court would not grant the prayer for winding up at the instance of a creditor like the respondent in this case.
He relied upon the following facts, namely, that the respondent has ample security for his debt, that there is no averment that his security is insufficient, that he never demanded additional security of the company on the ground that the security had become insufficient, though the mortgage deed contained. a provision enabling the respondent to demand such additional security that except for the respondent no other creditor desired that the company should be wound up and that no useful purpose will be served by the winding up except the realisation by the respondent of his security.
He relied on the decision in -- 'In re Great Western (Forest of Dean) Coal Consumers' Co.', (1882) 21 Ch D 769 (R). There is considerable force in this argument of the appellant's counsel, and the decision in (1882) 21 Ch D 769 (B) appears to be apposite to this case. In that case, there was a creditors' petition for the winding up of a company. The petitioners represented a moiety of the first mortgage debt and debentures for a large sum of money. It was contended that the company was admittedly and clearly insolvent and therefore a winding up order was to be made.
For the company, it was contended that the petitioners held security for their debt, that if their security was sufficient, they bad no interest in a winding up, as they could realise their security; but if their security was insufficient, then the winding up could do no good to anyone except to the petitioners and it would prevent the company from continuing. The petition was dismissed.
Fry J. gave two reasons for his order. One was that creditors whose debts amounted to a much larger sum than the sum due to the petitioning creditors, were opposed to the winding up, and me other that as matters stood, nothing would be gained by a winding up. The learned Judge said:
"I come to the same conclusion on another ground, viz., that, as matters now stand, it appears to me the petitioners would gain nothing if the company were wound up, -- I mean, nothing beyond the realisation of their securities. In the winding up I should have to administer only the equity of redemption of the company's property after satisfying the securities. Now, so far as I can learn from the evidence before me, all the substantial property of the company is included either in the first or the second mortgage, or in the futher charge, and whatever is not included in them is swept up by the debentures. The debentures are largely held by the petitioners themselves, or rather by the estate which they represent. I think, therefore, that at the pre sent time, no practical good can result from a winding up order. And this is the second reason why I decline at the present moment to grant the prayer of the petition."
These observations equally apply to the present case. Here too, we think that nothing would be gained by a winding up beyond the realisation of the respondent's security. Fry J. while conceding that 'prima facie' a person having an unsatis-fied debt duo from a company had a right 'ex debito justitiac' to a winding up order, pointed out that nevertheless the Court would not make an order for the winding up if there was a large mass of other creditors opposed to the winding up.
In the present case, too, we are of opinion that it must be held that except the respondent creditor the other creditors are opposed to the winding up. According to the respondent, there are unsecured creditors to the extent of Rs. 4,76,628. The company stated that out of the total amount due to creditors a sum of nearly Rs. three lakhs was due to the managing agents and they were neither pressing for the repayment of their debt, nor were they anxious that the company should be wound up.
The company also stated definitely that the other creditors to whom a sum of about. Rs. 1,60,000 was due were not supporting the petition for winding up. These statements of the company have not been proved to be wrong or inaccurate. We must, therefore, take it that excepting the respondent, no other creditor is in support of the petition for winding up. Before us, two creditors have sought to be impleaded to oppose the petition for winding up.
4. Mr. Venugopalachari referred us also to the decision in -- In re Greenwood and Co.', 1900-2 QB 306 (C) where the following proposition was laid down:
"An unpaid creditor of a company is not entitled to a winding up order unless he can show that the general body of the creditors will derive benefit from the order being made; it is not enough for him to shew that he himself will be benefited by it."
In the present case, too, it looks as if the only person to he -benefited by the winding up order would be the respondent.
5. Mr. C.R. Pattabhiraman for the respondent urged upon us strongly the general rule that a creditor who cannot get paid has a right to a Winding up order, whether he ho a secured or an unsecured creditor. Undoubtedly, this is the general rule. But this right of the creditor is always subject to the discretion of the Court. The Court may, nevertheless refuse to make a winding up order having regard to the wishes of the majority of the creditors. (Halsbury's Laws of England, Vol. V, Edn. 2, para 889).
The order will also he refused if it would not benefit the creditors generally hut only the petitioning creditor (Palmer's Company Law, Edn. 19, p. 381). Both these circumstances are p resent in this case, and the Court will, therefore, justified in refusing to make the order.
6. Mr. Pattabhiraman, learned counsel for the respondent, was unable to cite any instance in India or in England in which in a case like the present, at the instance of a creditor holding ample security, he has been held to be entitled to an order of winding up without having had. recourse to the other remedies open to him at law. He cited the decision in -- 'In re, Borough of Portsmouth Trainways Co', 1892-2 Ch 362 (D)
But there, the debenture-holder who eventually filed a petition for winding up had previously brought an action to enforce his security and has obtained the appointment of a receiver. Stirling J. in repelling the contention that the petition was not maintainable; said:
'It is admitted that an ordinary creditor of a company might present a petition to wind up the company and obtain an order upon it. I fail to see why a debenture holder, whose debt is payable and who has exhausted all his remedies except a winding up petition without obtaining payment of his debt, should be in a worse position than an ordinary creditor who has got no security upon the undertaking. It seems to the that the remedy given to him to enfore his security upon the undertaking as a going concern, does not deprive him of his remedy as. a creditor who has obtained a judgment for his debt, but cannot obtain payment."
So that was a case in which the petitioning creditor could not enforce payment of his debt in any way other than by a winding up order. That is not the case here.
7. For the reasons above mentioned, we allow the appeal and set aside the order of Panchapakesa Aiyar J. directing the appellant company to be wound up. We, however, think it just and necessary that we should direct the Official Liquidator not to hand over possession of the properties of the company in his possession to the company till the expiry of a period of three months iron* today. There will he no order as to costs.