TMI Blog1971 (8) TMI 126X X X X Extracts X X X X X X X X Extracts X X X X ..... n authorised capital of Rs. 5,00,000 divided into 50,000 ordinary shares of Rs. 10, but its issued and subscribed capital is Rs. 50,000 as only Re. 1 has been paid up for each share. The Registrar of Companies has stated that the working results of the company for the previous four years showed losses and that the balance-sheet as on August 31, 1962, showed a total loss of Rs. 8,50,067.13, whereas its total realisable assets were of the order of Rs. 84,300.10 including doubtful debts amounting to Rs. 24,258.19. The Registrar has, therefore, stated that, exclusive of the paid-up capital of Rs. 50,000, the liabilities of the company amounted to Rs. 8,84,367.23. It this state of the company's finances, notices were issued by the Central Government affording the company an opportunity of making its representation under section 439(6) of the Companies Act. Thereafter, further opportunity was given to the company to raise its working capital and to convert the loans into paid-up capital, but to no avail. The Central Government, therefore, accorded its sanction to the presentation of the present petition for the winding-up of the company. The company has filed a reply in which the bas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... within the meaning of clause ( b ). It has, therefore, to be examined whether it has been proved to the satisfaction of the court within the meaning of clause ( a ) of sub-section (1) of section 434 that the company is unable to pay its debts. In taking a decision, it is necessary for the court to take into account the "contingent and prospective liabilities of the company" as provided in clause ( c ). Mr. Rajnarain has argued that the question whether the company was unable to pay its debts should be decided with reference to the financial position revealed in the preceding balance-sheet of the company as on August 31, 1962, or on the date of presentation of the winding-up petition (May 13, 1964) after taking into consideration the contingent and prospective liabilities of the company in respect of the debt due to the Udaipur Mineral Development Syndicate P. Ltd. Mr. Kasliwal, learned counsel for the company, has contended, however, that this court should decide the fact of the winding-up petition on a consideration of the question whether the company is unable to pay its debts on the date of hearing. I shall, therefore, start by examining this first point of controversy. Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... becomes absolutely due in the sense that the creditor is entitled to claim its payment "presently", it will be a debt which is payable by the company within the meaning of clause ( e ) of section 433 of the Act. In addition, the court is bound to take into account the contingent and prospective liabilities of the company, for that is the express requirement of section 434 (1)( c ). It follows, therefore, that the court has to examine the company's inability to pay its debts with reference to the date when it became absolutely due for payment, along with the contingent and prospective liabilities of the company. The purpose of the provision of clause ( e ) of section 433 read with clause ( c ) of sub-section (1) of section 434 of the Act is to determine the basic question of the commercial solvency of the company, and there is no reason why that determination should be put off to so uncertain a date as the hearing of the winding-up petition. This view finds support from the decision in Sri Shanmugar Mills Ltd. v. Dharmzraja Nadar [1969] 39 Comp. Cas. 297 (Mad.) cited by Rajnarain. I have gone through S. Krishnamurthy v. Rohtak Hissar Transport Co. P Ltd. [1966] 36 Comp. Ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icate Private Ltd. passed a resolution on June 26, 1961, deferring the demand for the sum outstanding against the company for a period of three years. There is no reason to disbelieve this statement, and it follows, therefore, that the sum of Rs. 8,73,812.27, with whatever interest was payable on it, became due for payment on June 25, 1964, when the period of three years expired. The creditor could, therefore, go to the company's office and demand payment. Even otherwise, it was a prospective liability of the company when the winding-up petition was presented on May 13, 1964. The petitioner has in fact categorically stated in paragraph 9 of the petition that the balance-sheet of the company showed that its total realisable assets on August 31, 1962, were of the order of Rs. 84,300.10, including doubtful debts amounting to Rs. 84,256.19, while its liabilities amounted to Rs. 8,84,357.23 excluding the paid up capital of Rs. 50,000, and the company has, in its reply, admitted the correctness of this statement of fact, so that it is abundantly clear that the company was unable to pay its debts at that period of time. It is significant to mention in this connection that it is not the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on the company within the meaning of clause ( a ) of sub-section (1) of section 434 of the Act, and it was held that a company may have liabilities more than its assets but still may have, in particular circumstances, the capacity to meet the demands from its creditors. No such circumstance has been urged or proved in the present case. I have already made a reference to S. Krishnamurthy's case ( supra ) in another connection, and I find that it really upholds the test laid down in such cases that the company should be commercially solvent in the sense that it should be in a position to meet its liabilities as and when they arise and I do not see how that judgment could be said to be of any avail to the company. On a consideration of the financial position of the company at the relevant period of time, I have no hesitation in holding that the existing and probable assets of the company were insufficient to meet its liabilities, taking into account not only liabilities presently due, but also the contingent and prospective liabilities. The same conclusion will, in fact, be reached in this case even if the financial position of the company is examined on the basis of its last ..... X X X X Extracts X X X X X X X X Extracts X X X X
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