Full Judgment Text
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PETITIONER:
MADHUSUDAN GORDHANDAS & CO.
Vs.
RESPONDENT:
MADHU WOOLLEN INDUSTRIES PVT. LTD.
DATE OF JUDGMENT29/10/1971
BENCH:
RAY, A.N.
BENCH:
RAY, A.N.
PALEKAR, D.G.
CITATION:
1971 AIR 2600 1972 SCR (2) 201
ACT:
Companies Act (1 of 1956), ss. 433(c) and 557--Principles
for ordering winding up of company.
HEADNOTE:
The appellants filed a petition for winding up of the
respondent company, on the grounds : (1) that the company
was unable to pay the debts due to the appellants, (2) that
the company showed their indebtedness in their books of
account for a much smaller amount, (3) that the company was
indebted to other creditors, (4) that the company was
effecting an unauthorised sale of its machinery, and (5)
that the company had incurred losses and stopped
functioning, and therefore the substratum of the company
disappeared and there was no possibility of the company
doing any business at profit.
The High Court dismissed the petition.
Dismissing the appeal to this Court,
HELD : The rules for winding up on a creditor’s petition are
if there is a bona fide dispute about a debt and the defence
is a substantial one, the court would not’ order winding up.
The defence of the company should be in good faith and one
of substance. if the defence is likely to succeed on a point
of law and the company adduced prima facie proof of the
facts on which the defence depends, no order of winding up
would be made by the Court. Further under s. 557 of the
Companies Act, 1956, in all matters relating to winding up
of a company the court may ascertain the wishes of the
creditors. If, for some good reason the creditors object to
a winding up order, the court, in its discretion, may refuse
to pass such an order. Also, the winding up order will not
be made on a creditor’s petition if it would not benefit the
creditor or the company’s creditors generally. [207 D, G-H;
208 C-D]
(1) In the present case, the claims of the appellants were
disputed both in fact and in law. The company had given
prima facie evidence that the appellants were not entitled
to any claim. The company had also raised the defence of
lack of privity and of limitation. [208 D-F]
(2) One of the claims of the appellants was proved by the
company to be unmeritorious and ’false, and as regards the
admitted debt the company had stated that there was a
settlement between the company and the appellants that the
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appellants would receive a lesser amount and that the
company would pay it off out of the proceeds of sale of the
company’s properties. [208 F-G]
(3) The creditors of the company for the sum of Rs. 7,50,000
supported the company and resisted the appellants’
application for winding up. [209 G]
(4) The cumulative evidence in support of the case of the
company is that the appellants consented to any approved of
the sale of the machinery. As shareholders, they had
expressly written that they had no objection to the sale of
the machinery and the letter was issued in order to enable
the company to hold an extraordinary general meeting on the
subject. The company passed a resolution authorising the
sale. The
256 Sup.Cl/72
202
appellants themselves were parties to the proposed sale and
wanted to buy the machinery. Where the shareholders had
approved of the sale it could not be said that the
transaction was unauthorised or improvident.[209 A-F]
(5) In determining whether or not the substratum of the
company had gone, the objects of the company and the case of
the company on that question would have to be looked into.
In the present case, the company alleged that with the
proceeds of sale the Company intend to enter into some other
profitable business. such as export business which was
within its objects. The mere fact that it had suffered
trading losses will not destroy its substratum unless there
is no reasonable prospect of it ever making a profit in the
future. A court would not draw such an inference normally.
One of its largest creditors, who opposed the winding up
petition would help it in the export business. The company
had not abandoned the objects of its business. Their-,fore,
on the facts and circumstances of the present case it could
not be held that the substratum of the company had gone.
Nor could it be held that the company was unable to meet the
outstandings of any of its admitted creditors.The company
had deposited money in court as per the directions of the
Court and had not ceased carrying on its business. [211A-G]
(6) On the facts of the case it is apparent that the
appellants had presented the petition with improper motives
and not for any legitimate purpose. The appellants were its
directors, had full knowledge of the company’s affairs and
never made demands ’for their alleged debts. They sold
their shares, went out of management of the company and just
when the sale of the machinery was going to be effected
presented the petition for winding up. [211 A; 212 A-C]
Amalgamated Commercial Traders (P.) Ltd. v. A. C. K.
Krishnaswami & Anr., 35 Company Cases 456, London & Paris
Banking Corporation, (1874) L.R. 19 Eq. 444, Re. Brighton
Club & Norfold Hotel Co. Ltd., (1865) 35 Beav. 204, Re. A.
Company, 94 S.J. 369, Re. Tweeds Garages Ltd., (1962) Ch.
406, Re. P. & J. Macrae Ltd., (1961) 1 All. E.R. 302, Re.
Suburban Hotel Co. (1867) 2 Ch. App. 737 and Davis & Co.v.
Burnswick (Australia) Ltd., (1936) 1 A.E.R. 299, and Mann &
Am-.v. Goldstein & Anr., (1968) 1 W.L.R. 1091, referred to.
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1113 of 1970.
Appeal from the judgment and order dated April 3, 1970 of
the Bombay High Court in Company Appeal No. 1 of 1970.
V. M. Tarkunde, R. L. Mehta and 1. N. Shroff, for the
appellant.
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M. C. Chagla and S. N. Prasad, for Creditors Nos. 1, 3 to 6
and 10.
A. K. Sen and E. C. Agrawala, for creditor No. 9.
The Judgment of the Court was delivered by
Ray, J. This is an appeal by certificate, from the judgment
dated 3 April, 1970 of the High Court of Bombay confirming
203
the order of the learned Single Judge refusing to wind up
the respondent company.
The appellants are a partnership firm. The partners are the
Katakias. They are three brothers. The appellants carry on
partnership business in the name of Madhu Wool Spinning
Mills.
The respondent company has the nominal. capital of Rs.
10,00,000 divided into 2000 shares of Rs. 500 each. The
issued subscribed and fully paid up capital of the company
is Rs. 5,51,000 divided into 1,103 Equity shares of Rs. 500
each. The three Katakia brothers had three shares in the
company. The other 1,100 shares were owned by N.C. Shah and
other members described as the group of Bombay Traders.
Prior to the incorporation of the company there was an
agreement between the Bombay Traders and the appellants in
the month of May, 1965. The Bombay Traders consisted of two
groups known as the Nandkishore and the Valia groups. The
Bombay Traders was floating a new company for the purpose of
running a Shoddy Wool Plant. The Bombay Traders agreed to
pay about Rs. 6,00,000 to the appellants for acquisition of
machinery and installation charges thereof. The appellants
had imported some machinery and were in the process of
importing some more. The agreement provided that the
erection expenses of the machinery would be treated as a
loan to the new company. Another part of the agreement was
that the machinery was to be erected in portions of a shed
in the compound of Ravi Industries Private Limited. The
company was to pay Rs. 3,100 as the monthly rent of the
portion of the shed occupied by them. The amount which the
Bombay Traders would advance as loan to the company was
agreed to be converted into Equity capital of the company.
Similar option was given to the appellants to convert the
amount spent by them for erection expenses into equity
capital.
The company was incorporated in the month of July, 1965.
The appellants allege that the company adopted the agreement
between the Bombay Traders and the appellants. The company
however denied that the company adopted the agreement.
The appellants filed a petition for winding up in the month
of January, 1970. The appellants alleged that the company
was liable to be wound up under the provisions of section 43
3 (c) of the Companies Act, 1956 as the company is unable to
pay the following debts.
204
The appellants claimed that they were the creditors of the
company for the following sums of money :-
A.(a) Expenses incurred by the appellants
in connection with the erection of
the plant and machinery. . . Rs. 1,14,344.97
(b) Interest on the sum of
Rs. 1,14,344.97 from 1 April,
1966 till 31 December, 1969
at 1% per mensem. Rs. 51,453.13
(c) Commission on the sum of
Rs. 1,14,344. 97 due to the app-
ellants at the rate of Ipercent
per mensem from 1 April 1966
till 13 December,1969. Rs. 51,453.12
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B. (a) Compensation payable by the
company to the appellants at the
rate of Rs. 3,100 per month for
22 months and 14 days in respect
of occupation of the portion of
the shed given by the appellants to
the company on the basis of leave
and licence. . . Rs.69,600.00
(b) Interest on the amount of com-
pensation from time to time by the
said company to the appellants
till 12 April, 1967. Rs. 7,857.00
(c) Further interest on compensation
from 13 April, 1967 to 31 December,
1969. Rs. 21,576.00
C. (a) Invoices in respect of 3 machines. Rs. 85,250.00
(b) Interest on Rs. 85,250 Rs. 37,596.00
(c) Commission at the rate of
1% per cent or Rs.85,250 Rs. 37,596.00
The appellants alleged that the company failed and neglected
to show the aforesaid indebtedness in the books of account
save and except the sum of Rs. 72,556.01.
The other allegations of the appellants were these. The
company incurred losses upto 31 March, 1969 for the sum of
Rs. 6,21,177.53 and thereafter incurred further losses. The
company stopped functioning since about the month of Septem-
ber, 1969. The company is indebted to a Director and the
firms of M/s Nandkishore & Co. and M/s Bhupendra & Co. in
which some of the Directors of the company are interested.
The in-, debtedness of the company to the creditors
including the appellant’s claim as shown by the company at
the figure of Rs. 72,556.01 is for the sum of Rs.
9,56,829.47. The liability of the company including the
share capital amounted to Rs. 14,98,923.3 3. The liability
excluding the share capital of the company is Rs.
9,56,829.47 and the assets of the company on the valuation
put by the company on the balance sheet amount to Rs.
8,81,171.96. The value of the current and liquid assets is
about Rs. 2,74,247.38. The appellants on these allegations
alleged that even after the proposed sale of the machinery
at Rs. 4,50,000 the company would not be in a position to
discharge the indebtedness of the company. The proposed
sale, of machinery for the sum of Rs. 4,50,000 was at a
undervalue. The market value was Rs. 6,00,000. The Board
did not sanction such a sale.
It was alleged that the substratum of the company disappear-
ed and there was no possibility of the company doing any
business at profit. The company was insolvent and it was
just and equitable to wind up the company.
205
When the petition was presented to the High Court of Bombay
the learned Single Judge made a preliminary order accepting
the petition and directing notice to the company. When the
company appeared all the shareholders and a large number of
creditors of the company of the, aggregate value of Rs.
7,50,000 supported the company and opposed winding up.
The company disputed the claims of the appellants under all
the heads save the two amounts of Rs. 14,650 and Rs. 36,000
being the amounts of the second and third invoices. The
company produced-books of account showing a sum of Rs.
72,556.01 due to the appellants, as on 31 March, 1969. The
company alleged that the appellants had agreed to reduction
of the debt to a sum of Rs. 14,850 and to accept payment of
the same out of proceeds of sale of the machinery.
The learned Single Judge held that the claims of the appel-
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lants were disputed save that a sum of Rs. 72,556,.01 was
payable by ’the company to the appellants and with regard to
the sum of Rs. 72,556.01 the company alleged that there was
a settlement at Rs. 14,850 whereas the appellants. denied
that there was any such compromise. The learned Single
Judge refused to wind up the company and asked the company
to deposit the disputed amount of Rs. 72,556.01 in court.
The further order was that if within six weeks the
appellants did not file the suit in respect of the recovery
of the amount the company would be able to withdraw the
amount and if the suit would be filed the amount would stand
credited to the suit.
The High Court on appeal upheld the judgment and order and
found that the alleged claims of the appellants were very
strongly and substantially denied and disputed.
The first claim for erection of plant- and machinery was to-
tally denied by the company. The defences were first that
the books of the company showed no such transactions;
secondly, there was no privity between the company and the
persons in whose names the appellants made the claims;
thirdly, the alleged claims were barred by limitation; and,
fourthly, there was never any demand for the alleged claims
either by those persons or by ,the appellants. The alleged
claims for interest and commission were therefore equally
baseless according to the defence of the Company.
The second claim for compensation was denied on the grounds
,that the appellants were not entitled to any compensation
for use of The portion of the shed ’and the alleged claim
was barred by imitation. As to the claim for compensation
the company relied on the resolution of the Board of
Directors at which the Katakia brothers were present as
Directors The Board resolved
206
confirmation of the arrangement with M/s Ravi Industries for
use of the premises for the running of the industry at their
shed at a monthly rent of Rs. 4,250: Prima facie the
resolution repelled any claim for compensation or interest
on compensation.
With regard to the claim of invoices the High Court held
that the first invoice for Rs. 34,600 was paid by the
company to the appellants. The receipt for such payment was
produced before the learned trial Judge. The appellants
also admitted the same. As to the other two invoices for
Rs. 14,650 and for Rs. 36,000 the amounts appeared in the
company’s books. According to the company the claim of the
appellants was for Rs. 72,556.01 and the case of the company
was that there was a settlement of the claim at Rs.
14,850.00.
The High Court correctly gave four principal reasons to re-
ject the claims of the appellants to wind up the company as
creditors. First, that the books of account of the company
did not show the alleged claims of the appellants save and
except the sum of Rs. 72,556.01. Second, many of the alleged
claims are barred by limitation. There is no allegation by
the appellants to support acknowledgement of any claim to
oust the plea of limitation. Thirdly, the Katakia brothers
who were the Directors resigned in the month of August, 1969
and their three shares were transferred in the month of
December, 1969 and up to the month of December, 1969 there
was not a single letter of demand to the company in respect
of any claim. Fourthly, one of the Katakia brother was the
Chairman of the Board of Directors and therefore the
Katakias were in the knowledge as to the affairs of the
company and the books of accounts and they signed the
balance sheets which did not reflect any claim of the
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appellants except the two invoices for the amounts of Rs.
14,650 and Rs. 36,000. The High Court characterised the
claim of the appellants as tainted by the vice of
dishonesty.
The alleged debts of the appellants are disputed, denied,
doubted and at least in one instance proved to be dishonest
by the production of a receipt granted by the appellants.
The books of the company do not show any of the claims
excepting in respect of two invoices for Rs. 14,650 and Rs.
36,000. It was said by the appellants that the books would
not bind the appellants. The appellants did not give any
statutory notice to raise any presumption of inability to
pay debt. The appellants would therefore be required to
prove their claim.
This Court in Amalgamated COmmercial Traders (P) Ltd. v.A.
C. K. Krishnaswami and Anr. (1) dealt with a petition to
wind up the company on the ground that the company was
indebted to the petitioner there for a sum of Rs. 1,750
being the net dividend
(1) 35 Company cases 456.
207
amount payable on 25 equity shares which sum the company
failed and neglected to pay in spite of notice of demand.
There were other shareholders supporting the winding up on
identical grounds. The company alleged that there was no
debt due and that the company Was in a sound financial
position. The resolution of the company declaring a
dividend made the payment of the dividend contingent on the-
receipt of the commission from two sugar mills. The
commission was not received till the month of May, 1960.
The resolution was in the month of December-, 1959. Under
section 207 of the Companies Act a company was required to
pay a dividend which had been declared within three months
from the date of the declaration. A company cannot declare
a dividend payable beyond three months. This Court held
that the non-payment of dividend was bona fide disputed by
the company. It was not a dispute ’to hide’ its inability
to pay the debts.
Two rules are well settled. First if the debt is bona fide
disputed and the defence is a substantial one, the court
will not wind up the company. The court has dismissed a
petition for winding up where the creditor claimed a sum for
goods sold to the company and the company contended that no
price had been agreed upon. and the sum demanded by the,
creditor was unreasonable (See London and Paris Banking
Corporation (1). Again, a petition for winding up by a
creditor who claimed payment of an agreed sum for work done
for the company When the company contended that the work had
not been done properly was not allowed. (See Re. Brighton
Club and Norfold Hotel Co. Ltd. (2)
Where the debt is undisputed the court will not act upon a
defence that the company has the ability to pay the debt but
the company chooses not to pay that particular debt (See Re.
A Company 94 S.J. 369). Where however there is no doubt
that the company owes the creditor a debt entitling him to a
winding up order but the exact amount of the debt is
disputed the court will make a winding up order without
requiring the creditor to quantity the debt precisely (See
Re. Tweeds Garages Ltd. (3) The principles on which the
court acts are first that the defence of the company is in
good faith and one of substance, secondly, the defence is
likely to succeed in point of law and thirdly the company
adduces prima facie proof of the facts on which the defence
depends.
Another rule which the court follows is that if there is
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opposition to the making of the winding up order by the
creditors the court will consider their wishes and may
decline to make the winding up order. Under section 557 of
the Company Act 1956
(1) [1874] L.R. 19 Eq. 444.
(3) [1962] Ch. 406.
(2) [1865] 35 Beav. 204.
208
in all matters relating to the winding up of the company the
court may ascertain the wishes of the creditors. The wishes
of the shareholders are also considered though perhaps the
court may attach greater weight to the views of the
creditors. The law on this point is stated in Palmer’s
Company Law, 21st Edition page 742 as follows : "This right
to a winding up order is, however, qualified by another
rule, viz., that the court will regard the wishes of the
majority in value of the creditors, and if, for some good
reason, they object to a winding up order, the court in its
discretion may refuse the order’. The wishes of the
creditors will however be tested by the court on the grounds
as to whether the case of the persons opposing the winding
up is reasonable; secondly, whether there are matters which
should be inquired into and investigated if a winding up
order is made. It is also well settled that a winding up
order will not be made on a creditor’s petition if it would
not benefit him or the company’s creditors generally. The
grounds furnished by the creditors opposing the winding up
will have an. important bearing on the reasonableness of the
case (See Re. P. & J. Macrae Ltd.(1).
In the present case the claims of the appellants are
disputed in fact and in law. The company has given prima
facie evidence that the appellants are not entitled to any
claim for erection work, because there was no transaction
between the company and the appellants or those persons in
whose names the appellants claimed the amounts. The company
has raised the defence of lack Of privity. The company has
raised the defence of limitation. As to the appellant’s
claim for compensation for use of shed the company denies
any privity between the company and the appellants. The
company has proved the resolution of the company that the
company will pay rent to Ravi Industries for the use of the
shed. As to the three claims of the appellants for invoices
one is proved by the company to be utterly unmeritorious.
The company- produced a receipt granted by the appellants
for the invoice amount. The falsehood of the appellants’
claim has been exposed. The company however stated that the
indebtedness is for the sum of Rs. 14,850 and the company
alleges the agreement between the company and the appellants
that payment will be made out of the proceeds of sale. On
these facts and on the principles of law to which reference
has been made the High Court was correct in refusing the
order for winding up.
Since the inception of the company Jayantilal Katakia a
partner of the appellants was the Chairman of the company
until 22 August, 1969. His two brothers were also Directors
of the company since its inception till 22 August, 1969.
The Bombay group had also Directors of the company.
(1) [1961] 1 A.E.R. 302.
209
The company proved the unanimous resolution of the Board at
a meeting held on June, 1969 for sale of machinery of the
company. The Katakia brothers were present at the meeting.
The Katakia brothers thereafter sold their three shares to
the Valia group. The cumulative evidence in support of the
case of the company is not only that the Katakia brothers
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consented to and approved of the sale of machinery but also
parted with their shares of the company. The three shares
were sold by the Katakia Brothers shortly after each of them
had written a letter on 27 July, 1969 expressly stating that
they had no objection to the sale of the machinery and the
letter was issued in order to enable the company to hold an
Extra-ordinary General meeting on the subject. The company
relied on the resolution of the Board meeting on 24 October,
1969 where it was recorded that the Valia group would sell
their 367 shares and 3 other shares which they had purchased
from the appellants to the Nandkishore group and the
appellants would accept Rs. 14,850 in settlement of the sum
of Rs. 72,000 due from the company and the company would
make that payment out of proceeds of sale of the machinery.
The Board at a meeting held on 17 September, 1969 resolved
that the proposal of R. K. Khanna to purchase the machinery
be accepted. On 20 December, 1969 an agreement was signed
between R. K. Khanna and the company for the sale of the
machinery. At the Annual General Meeting of the company on
8 January, 1970 the Resolution for sale of the machinery was
unanimously passed by the company.
It is in this background that the appellants impeached the
proposed sale of the machinery as unauthorised and
improvident. The appellants themselves were parties to the
proposed sale. The appellants themselves wanted to buy the
machinery at a higher figure. These matters are within the
province of the management of the company. Where the
shareholders have approved of the sale it cannot be said
that the transaction is unauthorised or improvident
according to the wishes of the shareholders.
It will appear from the judgment of the High Court that the
creditors for the sum of Rs. 7,50,000 supported the company
and resisted the appellants’ application for winding up.
There was some controversy as to whether all the creditors
appeared or not. At the hearing of this appeal the company
gave a list of the creditors and notices were issued to the
creditors. Apart from the appellants, two other creditors
who supported the appellants were Ravi Industries Ltd. whose
name appears as one of the creditors as on 2 August, 1971 in
the list of creditors furnished by the company and K. S.
Patel & Co. with a claim for Rs. 44,477.56 though their name
does not appear in the list. Among the creditors who
210
supported the company the largest amount was represented by
Nandikshore and Company with a claim for Rs. 4,95,999. The
two creditors who supported the claim of the appellants in
regard to the prayer for- winding up were Ravi Industries
Ltd. with a claim for Rs. 2,97,500 on account of rent and K.
S. Patel & Co. of Bombay with a claim for Rs.44,477.56. It
may be stated here that this claim of Rs. 44,477.56 was made
on account of erection work of machinery and this identical
claim was included in the list of expenses claimed by the
appellants on account of erection work. The company
disputed the claim. The High Court correctly found that the
appellants could not sustain the claim to support winding
up. It is surprising that a claim of the year 1965 was
never pursued until it was included as an item of debt in
the petition for winding up the company. With regard to the
claim for rent, the company pursuant to an agreement between
the company and Ravi Industries Private Ltd. credited Rowe
Industries with the sum of Rs. 1,52,000 with the result that
a sum of Rs. 1,45,500 would be payable by the company to
Ravi Industries Ltd. in respect of rent. The company
alleges that Ravi Industries Pvt. Ltd. supported the
company in the High Court and that they have taken a
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completely different position ill this Court. In this Court
the company has also relied on a piece of writing dated 24
September, 1971 wherein Ravi Industries Private Ltd.
acknowledged payment of Rs. 1,52,000 to Rowe Industries Pvt.
Ltd. and further agreed to write off the amount of Rs.
1,45,500. Ravi Industries Pvt. Ltd. is disputing the same.
This appears to be a matter of substantial dispute. The
Court cannot go into these questions to settle debts with
doubts.
Counsel for the appellants extracted observations from the
judgment of the High Court that it was never in dispute that
the company was insolvent and it was therefore contended the
company should be wound up. Broadly stated, the balance
sheet shows the share capital of the company to be Rs.
5,51,500, the liabilities to be Rs. 9,77,829.47 and the
assets to be Rs. 8,87,177.93. The assets were less than the
liability by Rs. 90,000. Accumulated losses of the company
for five years appear to be Rs. 6,21,17.53. The plant and
machinery which are shown in the balance sheet at Rs.
6,07.544.58 are agreed to be sold at Rs. 4,50,000. There
would then be a short-fall in the value of the fixed assets
by about Rs. 1,50,000 and if that amount is added to the sum
of Rs. 90,000 representing the difference between the assets
and liabilities the shortfall in the assets of the company
would be about Rs. 2,50,000.
The appellants contended that the- shortfall in the assets
of the company by about Rs. 2,50,000 after the sale of the
machinery would indicate first that the substratum of the
company was
211
gone and secondly that the company was insolvent. An
allegation that the substratum of the company is gone is to
be alleged and proved as a fact, The sale of the machinery
was alleged in the petition for winding up to indicate that
the substratum of the company had disappeared. It was also
said that there was no possibility of the company doing
business at a profit. In determining whether or not the
substratum of the company has gone, the objects of the
company and the case of the company on that question will
have to be looked into. In the present case the, company
alleged that with the proceeds of sale the company in-,
tended to enter into some other profitable business. The
mere fact that the company has suffered trading losses will
not destroy its substratum unless there is no reasonable
prospect of it ever making a profit in the future, and the
court is reluctant to hold that it has no such prospect.
(See Re. Suburban Hotel Co.(1); and Davis & Co. v.
Brunswick (Australia) Ltd. (2 ) The company alleged that out
of the proceeds of sale of the machinery the company would
have sufficient money for carrying on export business even
if the company were to take into consideration the amount of
Rs 1,45,000 alleged to be due on account of rent. Export
business, buying and selling yarn and commission agency are
some of the business which the company can carry on within
its objects. One of the Directors of the Company is Kishore
Nandlal Shah who carries on export business under the name
and style of M//’s. Nandkishore & Co. in partnership with
others. Nandkishore & Co. are creditors ’of the company to
the extent of Rs. 4,95,000. The company will not have to
meet that claim now. On the contrary, the Nandkishore group
will bring in money to the company. This Nandkishore group
is alleged by the company to help the company in the export
business. The company has not abandoned objects of
business. There is no such allegation or proof. It cannot
in the facts and circumstances of the present case be held
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that the substratum of the company is gone. Nor can it be
held in the facts and circumstances of the present case that
the company is unable to meet the outstandings of any of its
admitted creditors. The company has deposited in court the
disputed claims of the appellants. The company has not
ceased carrying on its business. Therefore, the company
will meet the dues as and when they fall due. The company
has reasonable. prospect of business and resources.
Counsel on behalf of the company contended that the appel-
lants presented the petition out of improper motive.
Improper motive can be spelt out where the position is
presented to coerce the company in satisfying some
groundless claims made against it by the petitioner. The
facts and circumstances of the present case indicate that
motive. The appellants were Directors. They sold,’
(1) [1867] 2 Ch. App. 737.
(2) [1936] 1 A.F.R. 299.
212
their shares. They went out of the management of the
company in the, month of August, 1969. They were parties to
the proposed sale. Just when the sale of the machinery was
going to be effected the appellants presented a petition for
winding up. In the recent English decision in Mann & Anr.
v. Goldstein & Anr. (1) it was held that even though it
appeared from the evidence that the company was insolvent,
as the debts were substantially ,disputed the court
restrained the prosecution of the petition as an abuse of
the process of the court. It is apparent that the
appellants did not present the petition for any legitimate
purpose.
The appeal therefore fails and is dismissed with costs. The
company and the supporting creditors will get one hearing
fee. The amount of Rs. 72,000 which was deposited in court
will remain deposited in the court for a period of eight
weeks from this date and if in the meantime no suit is filed
by the appellants within eight weeks the company will be at
liberty to withdraw the amount by filing the necessary
application. In the event of the suit being filed within
this period the amount will remain to the credits of the
suit.
V.P.S. Appeal dismissed.
(1) [1968] 1 W.L.R. 1091.
213