Case Note & Summary
The judgment concerns multiple company petitions filed by creditors and the Board for Industrial and Financial Reconstruction (BIFR) seeking the winding up of M/s. Swadeshi Mills Co. Ltd. The petitions were filed under the Companies Act, 1956, alleging that the company was unable to pay its debts. The BIFR, after examining the company's financial position, had recorded a prima facie opinion that the company was not likely to make its net worth exceed its accumulated losses within a reasonable time and recommended winding up. The court heard all petitions together, including Company Petition No.385 of 2002 which emanated from the BIFR's recommendation. The creditors argued that the company had defaulted on payments and was commercially insolvent. The respondent company did not seriously contest the petitions. The court, after considering the submissions and the BIFR's recommendation, held that the company was unable to pay its debts and that there was no possibility of revival. Consequently, the court allowed the petitions and ordered the winding up of the respondent company under Sections 433(e) and 434 of the Companies Act, 1956. The court also appointed the Official Liquidator to take charge of the company's assets.
Headnote
A) Company Law - Winding Up - Inability to Pay Debts - Sections 433(e), 434, 439 Companies Act, 1956 - Petitions by creditors and BIFR seeking winding up of Swadeshi Mills Co. Ltd. on ground of inability to pay debts - Court found company commercially insolvent and unable to meet its liabilities - Held that winding up order is justified as company is not likely to revive and no viable rehabilitation scheme exists (Paras 1-3).
Issue of Consideration
Whether the respondent company should be wound up under the Companies Act, 1956, given its inability to pay debts and the BIFR's recommendation for winding up.
Final Decision
All company petitions allowed. The respondent company, M/s. Swadeshi Mills Co. Ltd., is ordered to be wound up under Sections 433(e) and 434 of the Companies Act, 1956. Official Liquidator appointed to take charge of the company's assets.
Law Points
- Winding up of company
- inability to pay debts
- sick industrial company
- BIFR recommendation
- Companies Act 1956 Sections 433(e)
- 434
- 439
Case Details
2005 LawText (BOM) (09) 103
Company Petition No.1068 of 1997, Company Petition No.17 of 1998, Company Petition No.316 of 2001, Company Petition No.1187 of 2001, Company Petition No.217 of 2002, Company Petition No.385 of 2002
Mr. Pradeep Nayak i/b. Federal & Rashmikant for petitioners in C.P.No.1068/97, Mr. Mihir Kamdar i/b. Udawadia Udeshi & Co. for respondent, Mr. B.K. Bali i/b. Thakkar & Bali for petitioner in C.P.No.316/01, Ms. N.D. Buch with Ms. B.B. Dholakia for RMMS Intervener Union (C.P.No.316/01), Mr. H.C. Mehta for petitioner in C.P.No.1187/01, Mr. Rajiv Gawde i/b. K. Ashar & Co. for IDBI, Mr. A.A. Kumbhakoni, Associate Advocate General with Ms. Geeta Shastri, A.G.P. for High Power Committee, Ms. Dipti Nazareth i/b. Prakash Janik & Co. for petitioner in C.P.No.217/02
Rally Brothers & Convey., Associated Engineers, Bank of Baroda, Nine-Chem (India), H.K.Dye-Chem Corpn., B.I.F.R.
M/s. Swadeshi Mills Co. Ltd.
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Nature of Litigation
Company petitions for winding up of respondent company on ground of inability to pay debts.
Remedy Sought
Petitioners (creditors and BIFR) sought winding up of M/s. Swadeshi Mills Co. Ltd.
Filing Reason
Respondent company was unable to pay its debts and was commercially insolvent; BIFR recommended winding up.
Previous Decisions
BIFR vide order dated 5th February 2001 recorded prima facie opinion that the company was not likely to make its net worth exceed accumulated losses within a reasonable time.
Issues
Whether the respondent company is unable to pay its debts within the meaning of Section 433(e) of the Companies Act, 1956.
Whether the BIFR's recommendation for winding up should be accepted.
Submissions/Arguments
Petitioners argued that the company had defaulted on payments and was commercially insolvent.
Respondent company did not seriously contest the petitions.
Ratio Decidendi
A company that is unable to pay its debts and is commercially insolvent, with no possibility of revival, is liable to be wound up under Section 433(e) of the Companies Act, 1956. The BIFR's recommendation for winding up, when uncontested, supports such an order.
Judgment Excerpts
This order will dispose of the above-numbered petitions including Company Petition No.385 of 2002, which is not notified on the board, for, it was heard along with the above-numbered petitions.
The said petition (C.P.385 of 2002) emanates from the recommendation made by the Board of Industrial and Financial Reconstruction (B.I.F.R.) vide order dated 5th February 2001 recording its prima-facie opinion that the respondent company was not likely to make its net worth exceed its accumulated losses within a reasonable time.
Procedural History
Multiple company petitions filed by creditors and BIFR from 1997 to 2002 seeking winding up of Swadeshi Mills Co. Ltd. BIFR recommended winding up on 5th February 2001. All petitions heard together and disposed of by this order dated 5th September 2005.
Acts & Sections
- Companies Act, 1956: 433(e), 434, 439
