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IN THE HIGH COURT OF ALLAHABAD
Sudhir Narain, J.
BANARAS BEADS LTD. - Appellant
Versus
SHRISTI CARRIERS PVT.LTD. - Respondents
Company Petition 46 Of 1996
Decided On : 09/13/1999
COMPANY WINDING UP - INABILITY TO PAY DEBT - DISHONOURED CHEQUE - SECURITY PROVIDED - CRIMINAL PROCEEDINGS - [SECTION 434 COMPANIES ACT, 1956] - [SECTION 138 NEGOTIABLE INSTRUMENTS ACT, 1881] - [SECTION 108 COMPANIES ACT, 1956] - The court held that the respondent company was unable to pay its debt and was liable to be wound up. The court found that the petitioner had purchased shares as an agent for the respondent company and the respondent company was to purchase it within 180 days and for that a post-dated cheque was given which was to be presented on the due date. The respondent company had failed to pay the amount and it shall be taken as debt. The court also held that the security provided by the respondent company was inadequate and that the criminal proceedings against the director of the respondent company did not bar the winding up petition.
Fact of the Case:
The petitioner, Banaras Beads Ltd. , filed a petition for winding up Shrishti Carriers Private limited having its registered office at 24/56 Birhana Road, Kanpur (hereinafter referred to as "the company" ). The petitioner entered into an agreement on May 17, 1995, with the respondent-company whereby it agreed to make available the required funds to the company for subscription to the rights issue of 12 per cent. fully convertible debentures of Shrishti Videocorp ltd. and the company had agreed to repay the petitioners the fund so arranged by it within 180 days. The company at the time of execution of the agreement had handed over to the petitioner a post-dated cheque No. 460731 dated November 18, 1995 for Rs. 1 crore drawn on the State Bank of India, Bhikaji Cama Place Branch, New Delhi, towards repayment of the amount which the petitioner was required to arrange under the aforesaid agreement. The petitioner arranged the sum of Rs. 1,00,02,000 (one crore two lakhs) for the company to enable it to subscribe to 166700 fully convertible debentures of Shrishti Videocorp Ltd. The petitioner presented the cheque to the bank for encashment on November 21, 1995, but the same was returned unpaid by the bank with the remark "effects not yet cleared. Please present again". The cheque was again presented to the bank on November 24, 1995, for encashment. This time it was again dishonoured by the state Bank of India with the remark "insufficiency of funds". The petitioner received sums of Rs. 20 lakhs, vide bankers cheque No. 841454 dated december 7, 1995, and Rs. 5 lakhs, vide bankers cheque No. 841504 dated January 9, 1996, both drawn on the State Bank of India, New Delhi. The petitioner again requested for further payment. The company assured that it will make the payments but it failed to do so. The petitioner sent a notice dated March 26, 1996, to the company but the amount was not paid. It filed a criminal complaint under Section 138 of the Negotiable Instruments Act, 1881, and section 420 of the Indian Penal Code before the Chief Judicial Magistrate, Varanasi, on April 22, 1996, against one of the directors/signatories of the cheques in question. The Chief Judicial magistrate, Varanasi has taken cognisance of the complaint and the criminal proceeding is alleged to be pending. The petitioner further sent statutory notice dated September 19, 1996, under Section 434 of the Companies Act, 1956, to the respondent-company at the registered office but even after the service of notice the company neither responded nor made the payment towards the dues of the petitioner. The petitioner filed this company petition on December 3, 1996, and on this petition the notice was issued to the company.
Finding of the Court:
The court found that the respondent company was unable to pay its debt and was liable to be wound up. The court also held that the security provided by the respondent company was inadequate and that the criminal proceedings against the director of the respondent company did not bar the winding up petition.
Issues: Whether the respondent company was unable to pay its debt and was liable to be wound up.
Ratio Decidendi: The court held that the nature of the transaction was in the shape of a loan. The petitioner had purchased the shares as an agent for the respondent company and the respondent company was to purchase it within 180 days and far that a post-dated cheque was given which was to be presented on the due date. The respondent company had failed to pay the amount and it shall be taken as debt. The court also held that the security provided by the respondent company was inadequate and that the criminal proceedings against the director of the respondent company did not bar the winding up petition.
Final Decision: The court admitted the petition and ordered that it be advertised in accordance with the Companies (Court) Rules, 1959.
( 1 ) THE petitioner, Banaras Beads Ltd. , filed this petition for winding up Shrishti Carriers Private limited having its registered office at 24/56 Birhana Road, Kanpur (hereinafter referred to as "the company" ).
( 2 ) THE version of the petitioner is that it entered into an agreement on May 17, 1995, with the respondent-company whereby it agreed to make available the required funds to the company for subscription to the rights issue of 12 per cent. fully convertible debentures of Shrishti Videocorp ltd. and the company had agreed to repay the petitioners the fund so arranged by it within 180 days. As the nature of the agreement is relevant it is quoted below :
"this agreement made this the seventeenth day of May in the year one thousand nine hundred ninety-five between Shrishti Carriers Pvt. Ltd. , having its corporate office at 502, Som Datt chambers 1, 5, Bhikaji Cama Place, New Delhi 110 066, party of the first part hereinafter referred to as the principal (which expression shall unless excluded by and/or repugnant to the subject and/or context shall include its directors, agents, employees, nominees and/or assigns)and Banaras Beads Ltd. , of A/1, Industrial Area, Varanasi 221 106, party of the second part hereinafter referred to as the agent (which expression shall unless excluded by and/or repugnant to the subject and/or context shall include its successors, agents, nominees and/or assigns ). Whereas the principal approached the agent for financial arrangements against share applications for subscription to rights issue in the primary market of Shrishti Videocorp Limited and whereas the agent agreed to make financial arrangements in account of the principal on the terms and conditions and against charges to be paid by the principal unto the agent as enumerated hereunder.
Now, this agreement witnesseth and it is hereby agreed by and between the parties hereto as follows :(1) The agent shall inform the principal of the amount that the agent would like to invest in the account of the principal for subscription to the rights issue of 12 per cent. unsecured fully convertible debentures (FCDs) of Shrishti Videocorp Limited. (2) The principal, thereafter, shall furnish the agent with the particulars of rights issue due to open from April 18, 1995, to May 20, 1995, wherefore the principal would like the agent to subscribe in its account. (3) The agent, subject to his willingness and agreeing to invest in the rights issue specified by the principal in terms of Clause (2) above, shall arrange to apply for the number of debentures specified by the principal provided however that the amount of applications shall not exceed the amount available for investment and indicated by their agent in terms of Clause (1) above. (4) The agent shall forward the xerox copies of the applications and acknowledgment receipts and upon intimation such applications shall be deemed to have been made in account of the principal. (5) However, the interest that may accrue to the agent on the deposits that he might make with bankers for issue of the Stock Invest Certificates shall be to the account and for the benefit of the agent exclusively and the principal shall have no claim and/or charge of any nature whatsoever thereon. (6) The principal shall within 180 days get transferred all the FCDs acquired by the agent on behalf of the principal and with a view to secure the undertaking, the principal has delivered to the agent a post-dated cheque No. 640731 dated November 18, 1995, for Rs, 1 crore drawn on the State Bank of India, Bhikaji Cama Place, Ring Road, New Delhi, which the agent shall be entitled to encash on the due date. The principal hereby assures that the cheque shall be duly encashed on presentation on the due date. (7) That for the finances provided by the agent to the principal, the principal has agreed to pay commitment charges of Rs. 15 lakhs in advance. (8) That with a view to further secure the agent, the principal has
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