TMI Blog1996 (5) TMI 358X X X X Extracts X X X X X X X X Extracts X X X X ..... ed dates mentioned in the schedule to the agreement. The petitioner's' case is that the cheque dated August 5, 1995, issued by the respondent-company in respect of the lease rental was dishonoured by the bank. Subsequently, another cheque for an identical amount met with the same fate. The petitioner served a statutory notice of demand dated September 6, 1995, which was served by registered post on the branch office of the company at Calcutta. In reply to the same, the respondent sent a letter requesting for about six weeks' time to make the payments. However, only a sum of Rs. 1 lakh was paid by cheque dated October 17, 1995, and the balance amount of the two cheques which were dishonoured were not paid despite repeated demands, hence, the present winding up petition was filed in this court under the provisions of sections 433( e ), 434 and 439 of the Companies Act, 1956 (hereinafter referred to as "the Act"). In response to the notice issued by this court on the petition, the respondent-company filed an application supported by a short counter-affidavit in which a preliminary objection was raised to the effect that the statutory notice under section 434(1)( a ) of the Act dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n a realistic business-like manner and if it satisfied the essence of section 173(2) of the Act, the meeting ought not to be invalidated on the technical ground that the notice had not complied with section 173(2) of the Act. Similarly, in the case of Shailesh Harilal Shah v. Matushree Textiles Ltd. [1995] 82 Comp Cas 5 (Bom), the matter involved was where 21 clear days notice was required for holding a meeting under section 171 of the Act had not been strictly complied with and the said notice was of a shorter duration, it was held by the Bombay High Court that looking to the object, purpose and scope of the provisions of section 171(1) of the Act, the provision is merely directory and not mandatory. Learned counsel has also referred to the case of Deosaran Yadav v. State of Bihar, AIR 1972 Patna 439, and has contended that once the company has acted on the said notice, it will be deemed to have waived the irregularity, if any, by its conduct and is precluded from challenging its validity. The decision cited by learned counsel pertains to election proceedings to the post of Mukhia of Gram Panchayat and applying the principles of section 115 of the Evidence Act, the Patna H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; or ( c )if it is proved to the satisfaction of the court that the company is unable to pay its debts, and, in determining whether a company is unable to pay its debts, the court shall take into account the contingent and prospective liabilities of the company." It will be noticed from the above that the company will be deemed to be unable to pay its debts under section 434 of the Act under three conditions: (1)The company is indebted in a sum exceeding five hundred rupees then due ; (2)The company is served by causing it to be delivered at its registered office by registered post or otherwise a notice demanding the required sum to be paid by the company to the creditor giving notice; (3)The company has for three weeks thereafter neglected to pay the sum to the creditor. As evident from the above, the object of section 434 is to create a fiction as to when a company can be deemed to be unable to pay its debts. If the case is within the scope of the fiction, the company could be wound up. Learned counsel for the respondent-company has rightly contended that a legal fiction has to be strictly construed. It is well established that full effect is to be given to a statuto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd to be sent to the company at its registered office. Service of the notice at the administrative office of the company was not sufficient to raise the presumption under section 434, therefore, the petition was liable to be dismissed. It was further laid down that the requirement contained in section 434 has to be strictly complied with in order to raise the legal fiction. In the case of B. Viswanathan v. Seshasayee Paper and Boards Ltd. [1992] 73 Comp Cas 136 (Mad), where the notice under section 434(1)( a ) of the Act was not served on the company at its registered office, but on its managing director, it was held by the Madras High Court that the notice does not conform to the mandatory requirements of the section and, therefore, the presumption under this section as to the company's inability to pay its debts cannot be raised. Similarly, in Kalra Iron Stores v. Faridabad Fabricators ( P. ) Ltd. ( No. 2 ) [1991] 73 Comp Cas 337, it was held by the Delhi High Court that where the notice under section 434(1)( a ) of the Act was not proved to have been served at the registered office of the company, it was held that as the consequence of failure by a company to comply w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4(1)( c ) of the Act and, therefore, irrespective of the notice, the petitioner can show that the company is unable to pay its debts and, therefore, it should be wound up. In support of his submission, learned counsel for the petitioner has placed strong reliance upon the decision of the Calcutta High Court in Siddhartha Apparels ( P. ) Ltd., In re [1986] 59 Comp Cas 435, wherein it was held that although no statutory notice had been served on the company, however, the petitioning creditor could still prove that the company was otherwise unable to pay its debts, the court had relied upon an earlier Division Bench decision of the same court in Pandam Tea Company Ltd. v. Darjeeling Commercial Company Ltd. [1977] 47 Comp Cas 15, wherein it was held that if notice under section 434 is treated as non-existent the petitioning creditor is entitled to prove by other evidence that the company was unable to pay its debts as indebtedness can be proved aliunde. Another judge of the Calcutta High Court had taken a similar view in the case of Darjeeling Bank Ltd., In re [1949] 19 Comp Cas 1 , and held that the invalidity, if any, of a notice of demand under section 163 of the (old Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... invoked under section 433( e ) of the Act. The court may, if there are sufficient counter-balancing equitable grounds or in appropriate cases even refuse altogether the winding up of the company in spite of the proved inability of a company to pay its debts. Exercise of such discretionary power must initially be governed by justice and equity. (See Alumunium Corporation of India Ltd. v. Laxmi Ratan Cotton Mills Co. Ltd. [1970] 40 Comp Cas 259 (All). Section 434(1)( c ) of the Act lays) down that if it is proved to the satisfaction of the court that the company is unable to pay its debts and in determining whether a company is unable to pay its debts, the court shall take into account the contingent and prospective liabilities of the company. The purpose of section 434(1)(c) read with section 433(1)( e ), is to determine the basic question of commercial solvency of the company. For this purpose, the court has to examine the company's inability to pay its debts with reference to the date when it becomes absolutely due for payment along with contingent and prospective liabilities of the company. The contingent and prospective liabilities are meant to be taken into account only w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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