T.C. Nagree (A Firm)

This is a petition for the winding-up of a company named Asnew Drums Company Limited by the court on the ground that it must be deemed to be unable to pay its debts within the meaning of clause (a) of section 434(1) of the Companies Act, 1956.

The petitioning creditor is a firm which has carried out plumbing work in the company''s factory at Thana, in respect of which it has a claim for Rs. 11,350. The petitioners served a notice of demand under clause (a) of section 434(1) of the Companies Act upon the company, and it is common ground that the company has not paid their claim within three weeks from the service of the said notice. The petitioners have, therefore, filed the present petition for the winding-up of the said company by the court.

Mr. Mody, who appears for the company, applies for an adjournment of the hearing of the petition for a period of eight weeks in order to enable the company to arrive at some compromise or arrangement with its creditors for payment of their claims.

This application has been stoutly opposed by Mr. Nariman for the petitioners who has contended that, once a clear case for the winding up of a company is made out, the court should not adjourn the hearing of the petition merely because the company proposes to arrive at some compromise or arrangement with its creditors. Mr. Nariman has relied on a decision of a division bench of this court in the case of Bachharaj Factories Ltd. v. Hirjee Mills Ltd. [1955] 25 Comp. Cas. 227; 57 Bom. L.R. 378 in which a similar application for adjournment, though on a different ground, was granted by the trial judge, Coyajee J., but the appeal court reversed that decision and held that the learned judge should not have adjourned the hearing of the petition but should have passed a winding-up order, since there was overwhelming material before the court which made out a case for the winding-up of the company by the court.

As far as the decision in Bachharaj Factories case [1955] 25 Comp. Cas. 227; 57 Bom. L.R. 378 is concerned, the first observation that I desire to make is that, whilst the grounds for the winding-up of a company by the court are a matter governed by the statute, which of the several alternative orders mentioned in section 443 of the Companies Act should be passed on a winding-up petition in a particular case, is not a matter which can possibly be governed by authority, but is a matter which must depend on the facts of each particular case. Even in Bachharaj Factories case [1955] 25 Comp. Cas. 227; 57 Bom. L.R. 378 , it was sought to be contended before the appeal court that the learned trial judge having exercised a discretion, the appeal court should not interfere with the exercise of that discretion by the trial court. It is true that that contention was negatived by the appeal court on the ground that, on the facts of the case before it, there was no answer whatsoever to the allegations made by the petitioners, and if those allegations were admitted, the only order that could be made was an order for winding-up. There is, however, a difference between the question as to whether an appeal court should interfere with the discretion exercised by the trial court on the facts of a particular case, and the wider question as to whether, in a matter which must depend on the facts of each particular case, one case could be an authority for another. It is no doubt true, as Mr. Nariman has contended, that the facts in Bachharaj Factories case were similar to the facts of the present case, but, in my opinion, there are material points of distinction between the facts of that case and the facts of the case before me. If one analyses the decision in Bachharaj Factories case [1955] 25 Comp. Cas. 227; 57 Bom. L.R. 378 , it is clear that the first point that the appeal court decided was that there were overwhelming and indisputable material placed before the court on which an emphatic case had been made out by the petitioners for the winding-up of the company. In the present case also, there is no doubt that a clear and emphatic case has been made out for the winding-up of the company, though the same is based only on clause (e) of section 433 of the Companies Act, instead of being based both on clauses (e) and (f) of section 433 of the Companies Act, as in Bachharaj Factories case [1955] 25 Comp. Cas. 227; 57 Bom. L.R. 378 . That, however, makes no difference in regard to the question which I am now considering. The second point that was decided by the appeal court in Bachharaj Factories case [1955] 25 Comp. Cas. 227; 57 Bom. L.R. 378 was that the question as regards the mala fides or motive of the petitioners in presenting the petition and pursuing it is entirely irrelevant. There is no allegation in the present case of any improper motive on the part of the petitioners in presenting or pursuing this petition, and that question, therefore, does not arise before me. The third point which the appeal court considered in arriving at its decision is, however, of considerable importance in so far as there is a material difference on facts between the said case and the present case in regard to the same. The point is, as Mr. Mody pointed out, that in Bachharaj Factories case [1955] 25 Comp. Cas. 227; 57 Bom. L.R. 378 the appeal court proceeded to consider how the shareholders and the creditors were arrayed on either side in regard to the question as to whether a winding-up order should be made or an adjournment granted. The figures mentioned in the judgment of the appeal court show that creditors worth about Rs. 1 crore and 23 lakhs were on the side of the petitioners and desired a winding-up by the court, whereas, apart from the shareholders who were all members of a particular family in Bachharaj Factories case [1955] 25 Comp. Cas. 227; 57 Bom. L.R. 378 , depositors and creditors to the tune only of about Rs. 26 lakhs opposed the winding-up. The position in the case before me is entirely different. Unlike Bachharaj Factories case [1955] 25 Comp. Cas. 227; 57 Bom. L.R. 378 in which the petitioners as debenture-holders claimed to be creditors to the tune of Rs. 8 lakhs, the petitioners'' claim in the present case is a very small one, viz., of only Rs. 11,350, and, apart from the petitioners, there is no other creditor who desires that I should pass a winding-up order forthwith. This must be considered in the context of the fact that the total unsecured creditors of the company comprise Chamanlal Brothers who have a large claim of about Rs. 39,51,000, plus other unsecured creditors, including the petitioners, of the aggregate value of about Rs. 4,08,000 making together unsecured creditors of the value of about Rs. 43,59,000. In addition to this huge unsecured liability, the company has a secured liability of Rs. 35.05 lakhs comprising Rs. 10.12 lakhs due to the Maharashtra State Finance Corporation and Rs. 24.93 lakhs due to the Dena Bank. The total liability of the company, secured and unsecured, including the unsecured claim of the petitioners, therefore, aggregates to over Rs. 78 lakhs, of which it is only the petitioners with a small claim of Rs. 11,350, who apply that the adjournment asked for by the company should be refused and the company wound-up immediately. If, therefore, this essential distinction on facts between Bachharaj Factories case [1955] 25 Comp. Cas. 227; 57 Bom. L.R. 378 and the present case is taken into consideration, it is apparent that the present case does not call for the same order as was made by the appeal court in Bachharaj Factories [1955] 25 Comp. Cas. 227; 57 Bom. L.R. 378 case.

It was pointed out by the appeal court in Bachharaj Factories case that the learned trial judge had taken four other factors into consideration, and the appeal court proceeded to deal with each one of them. It is necessary for me to refer only to one of them, and it is that the adjournment in that case was sought for the purpose of filing what the appeal court considered to be a "hopeless suit" challenging the validity of the debenture under which the petitioner claimed to be a creditor of the company. As already stated by me above, the adjournment sought in the present case is for the purpose of arriving at a compromise or arrangement with all the creditors of the company, by first calling a meeting and then resorting to the procedure laid down in section 391 of the Companies Act. It is no doubt true, as Mr. Nariman has contended, that there is nothing concrete placed before the court to show as to how and out of what resources such a compromise or arrangement is proposed to be arrived at or implemented, but I do not agree with Mr. Nariman that, merely because the assets of the company are stated in paragraph 5 of the affidavit-in-reply itself as aggregating only to Rs. 67,47,773, as against the huge liability of the company aggregating to over Rs. 78 lakhs, as already stated by me above, the attempt of the company to settle with its creditors should be regarded as hopeless. After-all, what is sought to be done by the company is not to pay the creditors in full but to arrive at a compromise or arrangement which, if accepted by them, would settle the liabilities of the company for a lesser amount. There are large creditors, as for instance, Chamanlal Brothers, who might very well be interested in financing the company and getting it out of troubled waters in their own interest, and that would perhaps be the only way in which they could salvage their money. Moreover, Mr. Mody has stated that the company is prepared to give an undertaking that it would not deal with or dispose of its assets during the period of the adjournment, and is prepared to give a further undertaking that it would call a meeting of its creditors within such period as the court may specify. On these facts, having regard to the small amount of the claim of the petitioners, and having regard to the fact that there is no other creditor of the company who is pressing for an immediate winding-up order, as well as the fact that I do not consider the attempt of the company to settle with its creditors to be in the nature of a hopeless attempt, I feel that, unlike the conclusion to which the appeal court came in Bachharaj Factories case [1955] 25 Comp. Cas. 227, this is a fit case in which the company should be given a chance to settle with its creditors. Such a course would be advantageous both to the company as well as to the creditors as a whole. In my opinion, Bachharaj Factories case [1955] 25 Comp. Cas. 227 is distinguishable on the facts stated by me above, and, in any event, as already observed by me, in the matter of the winding-up of a company, each case must depend on its own facts. It is hardly a matter which could be governed by authority.

Mr. Nariman has stated that the Maharashtra State Finance Corporation, who are secured creditors, are proceeding to sell the entire property and assets of the company under the powers reserved to them under the State Finance Corporation Act, and that the adjournment sought should not be granted, since, if that sale goes through, all the assets of the company will be wiped out. Mr. Nariman has also stated that, if a winding-up order is made, the petitioners might be in a position to persuade the Maharashtra State Finance Corporation not to proceed with the sale. I do not see how the unsecured creditors of the company would be affected by a sale by a secured creditor who chooses to rely on his own security. It would be for the Maharashtra State Finance Corporation itself to consider whether it should not accede to the request of the petitioners and other creditors not to proceed with the sale, but to come in the liquidation proceedings later on, in the event of a winding-up order being ultimately passed. That, however, is a matter which should not come in the way of my granting an adjournment of the petition to-day.

In the result, I grant an adjournment of this petition to the 9th of October 1967, on the company giving an undertaking, through counsel, not to deal with or dispose of any of its assets in the meantime, and also giving an undertaking to the court to call a meeting of the creditors within three weeks from to-day.

The company should pay the petitioner''s costs of the adjournment fixed at Rs. 75.