VENKATARAMAN J.

This appeal has been filed against the order dated 30th April, 1959, of Ramachandra Iyer J. (as he then was), in O.P. No. 297 of 1957 on the file of this court directing a winding-up of the appellant company, Sri Shanmugar Mills Ltd. The company was incorporated in 1945 with its registered office at Rajapalayam in Ramanathapuram District and with a share capital of rupees twenty-five lakhs of which rupees eight lakhs and odd worth of shares have been subscribed and paid up. The primary object and business of the company was to buy cotton and spin it into yarn. Dharmaraj Nadar, who filed the petition for the winding-up of the company, was a creditor of the company in a sum of Rs. 43, 548.96 as on 30th October, 1957. He had supplied cotton to the company and had not been paid therefor. The petition for winding-up was filed on 15th November, 1957. The ground stated in the petition for the winding-up was that the company was unable to pay its debts within the meaning of section 433(e) of the Companies Act, 1956. Section 434 says that a company shall be deemed to be unable to pay its debts under three contingencies numbered as (a), (b) and (c). Clause (a) deals with a case where a creditor makes a demand and the company for three weeks thereafter neglects to pay the sum. The creditor did not give any notice and did not invoke this clause. Clause (b) deals with a case where execution is returned unsatisfied in whole or in part. That also does not apply. It was clause (c) that was invoked, and which was applied by the learned judge. That says that a company shall be deemed to be unable to pay its debts, if it is proved to the satisfaction of the court that the company is unable to pay its debts, the court shall take into account the contingent and prospective liabilities of the company. The learned judge passed his order on the ground that on 31st October, 1957, the company was unable to pay its debts within the meaning of the above clause. On 31st October, 1957, the total liabilities of the company amounted to Rs. 8, 72, 414. (Vide page 49 of the typed bundle supplied by the appellant). No doubt, the book value of the assets of the company was Rs. 10, 79, 130, and mainly on that footing the company contended that the assets exceeded the liabilities and that it could not be said that the company was unable to pay its debts. The learned judge, however, repelled this argument on the following reasoning :

"As against these liabilities the assets are substantially the machinery and the building. It is admitted in the counter affidavit that the machinery is old. The company has not even been able to pay for the additional spindles allotted by the Government. The mere fact that the book value of the assets is estimated at nearly rupees ten lakhs would not mean that the company would be able to pay its debts. The question whether a company would be able to meet its present demands could not entirely depend upon the circumstances that the assets if realised might exceed the liabilities. The nature of the assets, e.g., machinery and building, is such that they should not be realised if the company were to run. They could not therefore be taken as presently realisable asset. That being so they cannot be properly taken into consideration for considering the ability of the company to pay its debts, when one is viewing the matter as to whether the company while functioning as a company would be able to pay its debts. It may be noticed that the liabilities of the company are such that it would be impossible to pay them except by the sale of the assets, which are necessary for the functioning of the company. The demands of the income-tax authorities and the other creditors have to be paid. It is not disputed that the company was unable to meet the claim of a creditor who subsequently filed a suit, O.S. No. 4 of 1957, in the District Munsif Court, Srivilliputhur. The petitioner's claim which was for cotton supplied to the