1954 (12) TMI 11 - HC - Companies Law

Right to obtain copies and inspect trust deed Winding up - Company when deemed unable to pay its debts Appeals from orders and Application for

Issues Involved:
1. Maintainability of the appeal.
2. Interpretation of Section 202 of the Indian Companies Act.
3. Procedural versus substantive orders.
4. Merits of the winding-up petition.
5. Privity and creditor status of the petitioners.
6. Commercial insolvency and just and equitable grounds for winding up.
7. Discretion and judicial considerations in winding up.

Detailed Analysis:

1. Maintainability of the Appeal:
The first contention raised was whether the appeal against the order adjourning the winding-up petition was maintainable. The court noted that Section 202 of the Indian Companies Act provides for appeals from orders made or decisions given in the matter of winding up a company. The order in question was made under Section 170, which allows the court to dismiss, adjourn, or make any interim order as it deems fit. The argument presented was that the order by Mr. Justice Coyajee did not constitute a "judgment" within the meaning of clause 15 of the Letters Patent, and thus, no appeal lies. The court rejected this argument, emphasizing that Section 202 confers a substantive right of appeal against any order or decision in the matter of winding up, not limited by the definition of "judgment" in clause 15 of the Letters Patent.

2. Interpretation of Section 202 of the Indian Companies Act:
The court analyzed the scheme of the Indian Companies Act, noting that Section 202 is general in nature and provides for appeals against any order or decision in the matter of winding up. The court emphasized the importance of not impairing the substantive right of appeal conferred by Section 202. The court concluded that the right of appeal under Section 202 should not be restricted by the procedural conditions of clause 15 of the Letters Patent or the Civil Procedure Code, which would result in an anomalous situation where identical orders by different courts could have different appealabilities.

3. Procedural versus Substantive Orders:
The court distinguished between procedural orders and substantive orders affecting rights or liabilities. It held that only such orders or decisions that affect the rights or liabilities of parties are appealable under Section 202. The order by Mr. Justice Coyajee, which adjourned the winding-up petition after considering its merits, was deemed substantive as it affected the petitioners' right to obtain a winding-up order.

4. Merits of the Winding-Up Petition:
The court reviewed the financial position of the Hirjee Mills, noting its significant liabilities and lack of assets. The court found that the mills were commercially insolvent and that no viable scheme was proposed to meet its liabilities. The court emphasized that the petitioners had made a clear and emphatic case for winding up on the grounds of inability to pay debts and that it was just and equitable to do so.

5. Privity and Creditor Status of the Petitioners:
An objection was raised regarding the privity between the petitioners and the company, arguing that the petitioners were not creditors of the company. The court rejected this objection, distinguishing the present case from the cited English case (Dunderland Iron Ore Company) by noting that the debentures in question contained a personal covenant by the mills to pay the debenture holders, making the petitioners creditors of the company.

6. Commercial Insolvency and Just and Equitable Grounds for Winding Up:
The court reiterated the principle that commercial insolvency under the Companies Act means that the company should be plainly and commercially insolvent. The court found that the Hirjee Mills were hopelessly insolvent with liabilities far exceeding assets. The court also found that the substratum of the company had disappeared, as it was impossible to carry on its business except at a loss, and there was no reasonable hope of trading at a profit.

7. Discretion and Judicial Considerations in Winding Up:
The court criticized the lower court's consideration of the petitioners' motives and the potential suit to challenge the debentures. The court held that the motive of the petitioners was irrelevant if a case for winding up was made out. The court also found that the learned Judge's reasons for refusing the winding-up order were not valid, as the mills had no money to resume operations, and the allegations of mismanagement should be investigated by the liquidator.

Conclusion:
The court allowed the appeal, set aside the order of the learned Judge, and made an order for winding up the company. The court appointed the court liquidator as the official liquidator with all powers under Section 179 of the Companies Act. The costs of the appeal and the petition were to be borne out of the assets of the mills, with specific directions regarding the costs for various parties involved.

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