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TMI Blog1974 (7) TMI 76X X X X Extracts X X X X X X X X Extracts X X X X ..... nd goods. The original board of directors of the company included Shri V. P. Narula and Shri Harnam Singh, and alter their resignation from the board on January 20, 1967, the present board consists of Shri Rattan Singh Bedi, Shri Punjab Singh, Shri Nasib Singh and Shri Gulzar Singh. The balance-sheet and the profit and loss account of the company as on September 30, 1965, discloses that the total realisable assets were Rs. 3,48,262 while the liabilities amounted to Rs. 5,23,494 and there was an accumulated loss of Rs. 2,55,791. The petitioner, being of the opinion that the company was unable to pay its debts, applied to the Central Government for sanction under section 439(5) of the Act to enable him to present a petition in court for the winding-up of the company under section 433(e) of the Act. Pursuant to section 439(6) of the Act, the Regional Director, Company Law Board, Kanpur, issued notice to the respondent-company to make its representation against the grant of sanction. The administrative officer of the company represented that the company was not insolvent and no proceeding for winding it up was called for. It appears that the representation was not considered sufficient ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to the balance of Rs. 39,000 due in respect of outside liabilities the payment has been guaranteed by the managing director. It is pointed out that the liability of Rs. 1,09,000 shown in the balance-sheet for the year ending September 30, 1965, represents a sum due to the Valley View Transport Private Ltd., the parent of the respondent-company. In respect of that liability, it is alleged, an agreement has been entered into that the parent-company would not recover the sum due to it until the respondent-company was in a position to pay off its other liabilities. It is also urged that by reason of the improved financial position of the company the interest payable on the loans raised for the business of the company has been reduced from Rs. 59,000 due on September 30, 1965, to Rs. 40,000 as on September 30, 1967. The establishment expenses of the company have also been reduced from Rs. 1,05,000 as on September 20, 1965, to Rs. 90,000 as on September 30, 1967. The company earned profits totalling Rs. 13,527 during the years 1966 and 1967. It is not denied that the company was running in loss during the previous seven years but, it is asserted, that with the change in the constitutio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is disputed and it is alleged that the agreement was not confirmed either by the board of directors or by the shareholders or by the creditors of the company. On November 1, 1968, the following two issues were framed by the court: "1. Whether the petition for winding up of the respondent-company is not maintainable ? 2. Whether the company is liable to be wound up under section 433(e) of the Companies Act, 1956, for the reason given in the petition?" The parties led oral evidence ; Shri V. S. Bhargava, Registrar of Companies, Shri Krishan Kumar, Senior Technical Assistant in the Registrar's office, and Shri V. S. Parmar, a director of the Valley View Transport Company Ltd., were examined for the petitioner and Shri Nasib Singh, a director of the Transport Finance Private Ltd., Jullundur, Shri Rattan Singh, a director of the respondent-company, Shri Joginder Singh, general manager of the respondent-company, and Shri Nuradh Chand, former chairman of the Valley View Transport Company Private Ltd., were examined for the respondent-company. Documentary evidence was also filed by the parties in support of their respective cases. It may be mentioned at this stage that Shri Chuni Lal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,02,381 It has been alleged that the rate of profit would have been maintained in subsequent years but the company was unable to purchase new vehicles pursuant to an undertaking given in court that no old vehicles would be replaced or transferred until the decision of the case. The position in respect of booking of traffic shows a progressive increase from Rs. 6.12 lakhs in 1965 to Rs. 8.72 lakhs in 1969. (d)The respondent-company held ten route permits granted by the transport authority of Himachal Pradesh, which, according to the respondent-company, represents an asset of Rs. 1,50,000. (e)The position in respect of losses of the company shows that the losses have been reduced from Rs. 2,55,971 in the year 1965 to Rs. 1,84,017 as at present. On the basis of the balance-sheet for the year ending September 30, 1971, the following statement has been shown : Rs. (i) Total liabilities 5,17,088 Less capital paid-up 85,500 Balance 4,31,588 (ii) Debts due to directors & their associates 1,60,000 (iii) Debts due to finance companies represented by the chairman 68,995 (Rounded 69,000) (iv)Total of (ii) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 and 1972 as well as the decrease in the number of route permits held by the respondent-company. In its replication the respondent-company has explained that the loss of Rs. 29,349 suffered in the year 1971 by the respondent-company was primarily due to the fact that it has to meet the charges of toll tax imposed by the Himachal Pradesh Government to the extent of Rs. 31,325, but for which liability the respondent-company would have declared a profit. The issues framed may now be considered. Issue No. 1.-This issue relates to the maintainability of the petition. The first ground for urging that the petition is not maintainable is that the mere circumstance that the assets of a company are less than its liabilities is no ground for winding up. There is no doubt that merely because the liabilities of a company exceed its assets it cannot be presumed that the company is unable to pay its debts. It was pointed out by the Madras High Court in A. C. K. Krishnaswami v. Stressed Concrete Constructions P. Ltd. [1964] 34 Comp Cas 6 (Mad.) that : "A company may have liabilities more than its assets ; but still may have, in particular circumstances, the capacity to meet demands from its c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the company cannot be deemed unable to pay its debts inasmuch as the. requirements of section 434 of the Act are not satisfied. This is not a case, it is said, where a demand has been made by a creditor for pay me at of his debt and the respondent-company has omitted to pay it within the statutory period. As regards that, it seems to me that the circumstances set out in the proviso to section 439(5) of the Act should be construed as an alternative to the requirements of section 434. To maintain a winding-up petition on the ground that the company is unable to pay its debts it is sufficient if the Registrar satisfies himself from the financial condition of the company as disclosed in its balance-sheet that the company cannot pay off its debts. He must also obtain the sanction of the Central Government for presenting the petition. It is not necessary in addition that the Registrar should satisfy himself that the conditions enumerated in section 434 are fulfilled. A company may be deemed unable to pay its debts either upon proof that the conditions of section 434 are made out or, in the case of a petition by the Registrar, that the proviso to section 439(5) is satisfied. Each set of c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany has been generally increasing. The quantum of liability has also decreased. The potential for earning profits has improved, and that is evident from the increase in the number of vehicles and other assets of the respondent-company. The losses accumulated in past years have shown an appreciative reduction. There was considerable argument on the capacity of the respondent-company to pay up a debt of over rupees one lakh to the parent-company, the Valley View Transport Co. Private Ltd. For the respondent-company it is urged that an agreement was entered into in 1965 between the two companies postponing the discharge of that liability. The petitioner and Shri Chunni Lal contend that the agreement is void and has not been accepted by the board of directors of the creditor-company. Now, on the question whether the agreement is valid or not, the material on the record is insufficient for coming to any definite conclusion that Shri Nuradh Chand, who entered into the agreement of behalf of the creditor-company, was not duly authorised to do so, that, the agreement was subject to ratification by the board and that it was void for uncertainty. It is always open to the creditor-company ..... X X X X Extracts X X X X X X X X Extracts X X X X
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