1968 Supreme(Cal) 196

HIGH COURT OF CALCUTTA
K. L. RAY
IINDIA ELECTRIC WORKS LTD. - Appellant
Versus
STATE - Respondent
Company Petn.  261  Of  1967
Decided On : AUGUST 27, 1968

A secured creditor is not debarred from presenting a petition for winding-up without giving up his security or without valuing the security and proving for the balance.

Headnote:

INDIA ELECTRIC WORKS LTD. - WINDING-UP - COMPANY IN HOPELESSLY INSOLVENT CONDITION - NO REASONABLE HOPE OF CARRYING ON BUSINESS AT A PROFIT - WINDING-UP ORDER GRANTED.

Fact of the Case:

The company, India Electric Works Ltd., was incorporated in 1930 as a public company limited by shares with its registered office at Diamond Harbour Road, Behala. The company was incorporated for the purpose of taking over the business carried on by a firm or the name of the India Electric Works, which had been manufacturing electric fans and other electric goods and had acquired a reputation in the market for their product the 'India Fans'. Disputes and differences arose between two groups of shareholders of the company as a result of which the company started incurring heavy losses. In or about January, 1959 the Government of India appointed a committee under the provisions of the Industries (Development and Regulation) Act, 1951 to investigate the financial position of the company and on the recommendation of the said Committee, the company raised an additional capital of Rs. 9 lacs. Even after the increment in the capital as aforesaid there was no improvement in the company's affairs and the then bankers of the Company, M/s. Punjab National Bank Ltd. , in or about June 1960 withdrew the financial accommodation accorded to the company resulting in the closure of the Company's factory. Thereafter by an order dated the 11th July, 1960, in exercise of the powers conferred by Section 18a of the Industries (Development and Regulation) Act, 1951, the Central Government appointed one S. C. Banerji, a Central Government Officer, as the authorised controller to take over the management of the affairs of the company in consultation with the Advisory Board. The financial arrangements with the Punjab National Bank Ltd. were revived after the Central Government took over the management of the company. Subsequently by an order dated the 8th November, 1960 one P. C. Basu, another officer was appointed the authorised controller of the company. The taking over of the management of the company by the Central Government did not result in any improvement in the affairs of the company and by the month of January, 1963 the liabilities of the company to M/s. Punjab National Bank Ltd. had amounted to Rs. 85,00,000 and the company had used for working capital purposes the employees' provident fund to the tune of Rs. 24,00,000. In January, 1963 the petitioner, State Bank of India, was appointed the bankers of the company by the Government of India and the liability of Rs. 85,00,000 of the company to its previous bankers M/s, Punjab National Bank Ltd. was transferred to the petitioner. Thereafter by an agreement dated the 2nd January, 1963, the petitioner agreed to advance monies and grant accommodation to the company to the extent of Rs. 85,00,000 with interest at 1/2% over the State Bank of India Advance Rate with a minimum of 5 1/2%. As security therefor the authorised controller, for and on behalf of the company, executed a promissory note for Rs. 85,00,000 payable on demand in favour of the President of India which was in turn assigned to the petitioner and on the same date the President of India executed a deed guaranteeing the due re-payment of the amount of the principal and interest due on tie aforesaid promissory note by the company in favour of the petitioner. By way of further security the company, on the same date, also hypothecated its stock-in-trade and various other goods and also created a first charge on book debts, outstandings, claims, bills, contracts etc. by an agreement for Cash Credit Account Hypothecation of Debts and Assets. By a further agreement entered into in January, 1963 the petitioner agreed to advance monies or grant accommodation to the company by way of Cash Credit called the Second Cash Credit Account, to the extent of Rs. 55,00,000 and the said limit was subsequently raised upto Rs. 70,00,000 during the year 1966. The amounts advanced or to be advanced to the company under the Second Cash Credit Account were secured by an equitable mortgage by deposit of title deeds on the 4th January, 1963 in respect of the lands and buildings comprising the factory, fixed, plant and machinery belonging to the company with intent to create a first mortgage on the said lands, buildings, factory, plant and machinery as continuing security for payment of all moneys due in respect of the said account No. 2. The company also executed an on-demand promissory note for Rs. 70,00,000 on 5th April, 1967 payable to the President of India which was in turn duly assigned to the petitioner and the President of India also executed a deed of guarantee on the 5th April, 1967 in favour of the petitioner for Rs. 70,00,000, The petitioner advanced various sums to the company in the said two Cash Credit Accounts and the said Accounts were at all material times maintained as mutual open current and continuous accounts according to the English calendar. As the company failed to abide by the terms of the said Cash Credit Account agreements, the petitioner by two letters both dated the 18th April, 1967 informed the company that the company would not be allowed to draw on the said two Cash Credit Accounts after the close of business on the 22nd April, 1967. On April 22, 1967 the petitioner stopped further operation of the said two accounts by the company and after adjusting the said two accounts the outstanding debit balance with interest on that date in the said Cash Credit Accounts Nos. 1 and 2 were Rs. 85,29,768 and Rs. 69,17,632. 53 respectively. The petitioner duly notified the company that the said two amounts had become due in respect of the said two accounts. According to the petitioner upto the 5th November, 1967, a total of Rs. 1,01,30,623 became due and owing by the company to the petitioner in respect of the said two accounts. On the 22nd September, 1967 the petitioner's solicitors demanded the repayment of the said amount of Rs. 1,59,72,953 then due on account of principal and interest and the said notice of demand was received by the company on the 23rd September, 1967. In spite of the said notice the company failed and neglected to pay the petitioner the amounts aforementioned. The petitioner further states that the company had been incurring heavy losses year after year and such losses for the years ending 30. 9. 62, 30. 9. 63 and 30. 9. 64 amounted to Rs. 13,62,000, Rs. 9,05,000 and Rs. 12,67,000 respectively. The petitioner claims that the company is hopelessly insolvent and it is just and equitable that the company should be wound up.

Finding of the Court:

The court found that the company was hopelessly insolvent and unable to carry on its business due to recurrent losses in the past years. The court also found that the company had been incurring heavy losses year after year and that there was no reasonable hope that the object of trading at a profit, with a view to which the company was formed, would ever be attained.

Issues: 1. Whether the company is unable to pay its debts. 2. Whether the company is unable to carry on its business due to recurrent losses in the past years.

Ratio Decidendi: The court held that a secured creditor is not debarred from presenting a petition for winding-up without giving up his security or without valuing the security and proving for the balance. The court also held that the mere fact that the majority of the creditors oppose the petition does not by itself make it incumbent on the Court to refuse an order for winding-up. The court further held that in determining whether a company should be wound up, the Court ought to consider not only the number of creditors and the amount of their debts, but also the reasons which they assign for their conclusion.

Final Decision: The court ordered that the company be wound up.