1995 Supreme(Raj) 1040

RAJASTHAN HIGH COURT
V.K.Singhal, J.
Swedfund International - Appellant
Versus
Aditya Gustavsberg Ltd. - Respondent
S.B. Company Petition No. 2 of 1994.
Decided On : 09-10-1995

The court held that the amount of Rs. 35.25 lakhs remitted by the petitioner was not a debt but was in the nature of a trust and the respondent company was a trustee in receiving the share application money.

Headnote:

COMPANY - WINDING UP - PETITION - GROUNDS - FAILURE TO COMMENCE BUSINESS WITHIN A YEAR - INABILITY TO PAY DEBTS - JUST AND EQUITABLE - SHARE APPLICATION MONEY - DEBT - LIMITATION - NOTICE - DISPUTE - SUBSTRATUM OF COMPANY GONE - DIRECTORS' REPORT - BALANCE SHEET - COUNTER CLAIM - PARTNERSHIP PRINCIPLES - COMPANY COURT JURISDICTION - ARBITRATION.

Fact of the Case:

Petition filed under section 433(c), (e) and (f) of the Companies Act, 1956, for winding up of the respondent company on the ground that a sum of Rs. 35,25,000 is payable which the respondent company failed to pay despite demand. The respondent company was incorporated as Aditya Sanitary Ware Ltd. and entered into a technical knowhow and license agreement with AB Gustavsberg, another company incorporated under the laws of Sweden. Both the companies agreed to change the name of the respondent company to Aditya Gustavsberg Ltd. The capital of the said company was Rs. 10,00,000 which was increased to Rs. 6,00,00,000 for equity shares of Rs. 10 each. The paid up capital was Rs. 3,400 and there were seven subscribers to the memorandum of association at the time when the said company was incorporated. In the agreement, the Gustavsberg agreed to provide to the respondent company technical information pertaining to ceramic sanitary wares and technical services for establishment of quality control programme and knowhow and technical documents for the improvement of plant, machinery and equipment and an exclusive license to manufacture, use and sell the said products in India. For providing technical information, knowhow and the license as aforesaid, Gustavsberg was to receive from the respondent company [technical knowhow fee of US $ one lakh] (sic). Industrial Credit and Investment Corporation of India [ICICI] in participation with the Industrial Development Bank of India and Industrial Finance Corporation of India along with foreign currency loan equivalent to about Rs. 77,00,000 each and Punjab National Bank and State Bank of India and State Bank of Patiala granted the term loan of Rs. 50 lakhs, Rs. 25 lakhs, Rs. 25 lakhs each respectively. Subsequently, it was found that the condition laid down by ICICI in the letter, dated 14.8.1986 for providing the facility have not been fulfilled and accordingly, the loan/assistance sanctioned by ICICI was cancelled vide letter, dated 28.5.1987. The other financial institutions also followed the same steps. It is stated that alternative arrangements were tried, but of no avail and in these circumstances, when the assistance was finally cancelled, Swedfund asked to refund Rs. 35,25,000 vide their letter, dated 2.10.1989. Similar letter was also sent by Gustavsberg on 15.8.1989. The respondent company vide its letter, dated 22.5.1990 alleged that Swedfund and Gustavsberg had sabotaged the entire project and that they were wrongly trying to withdraw the money remitted. It is submitted that the company which was registered on 14.3.1985 had not commenced its business within a year from its incorporation and has never conducted any business at all right from the date of its incorporation, and there is no likelihood of its commencing business in future. There is a drastic change in the situation because of its extraordinary delay. The industrial licence as also the approval for foreign collaboration granted to the respondent company which has lapsed and as such the substratum of the company has disappeared. The provisions of section 433(c) of the Companies Act have been relied on to show that in such a situation, the company should be directed to be wound up. The submission has also been made that since the company has neglected to pay the sum of Rs. 35,25,000 after the demand having been raised, it is unable to pay its debt and as such, in accordance with the provisions of section 433(e), the company should be directed to be wound up. A prayer has also been made that it is just and equitable that the respondent company be wound up in accordance with the provisions of section 433(f) of the Companies Act.

Finding of the Court:

The court found that the amount of Rs. 35.25 lakhs remitted by the petitioner was not a loan but was in the nature of a trust and the respondent company was a trustee in receiving the share application money. The court also found that the company had failed to commence its business within a year from its incorporation and that the substratum of the company had disappeared. The court further found that it was just and equitable to wind up the company.

Issues: Whether the amount of Rs. 35.25 lakhs remitted by the petitioner was a debt or not.

Ratio Decidendi: The court held that the amount of Rs. 35.25 lakhs remitted by the petitioner was not a debt but was in the nature of a trust and the respondent company was a trustee in receiving the share application money. The court also held that the company had failed to commence its business within a year from its incorporation and that the substratum of the company had disappeared. The court further held that it was just and equitable to wind up the company.

Final Decision: The company petition was allowed and the respondent company was directed to be wound up.