CANARA BANK Vs. BRUNTON AND COMPANY ENGINEERS LTD.

JUDGEMENT

(1.) CANARA Bank, Mattancherry, Cochin -2, a creditor of M/s. Brunton and Company (Engineers) Ltd. has filed C.P. No. 11 of 1983 under Section 439 read with Section 433(e) and (f) of the Companies Act, 1956, praying for the winding up of the " company ". The statutory notice under Section 434 was served by registered post at the registered office of the company. Notice was ordered by this court on September 9, 1983, by special messenger. It was returned stating that the company is locked. On September 13, 1983, when the petition came up for hearing, Mr. K. A. Nayar of M/s. Menon and Pai took notice on behalf of the company and took time to file a counter. Thereafter, Mr. K. A. Nayar and others filed vakalath on behalf of the company. When the case came up forbearing on September 20, 1983, and at subsequent stages, it was represented by counsel that negotiations were going on to pay off the creditor bank. The bank has also filed Application No. 218 of 1983 under Section 450 of the Act read with Rule 106 of the Companies (Court) Rules, 1959, for appointing a provisional liquidator to take immediate possession and assume management of the company. Rule 106 of the Companies (Court) Rules, 1959, is as follows:

(2.) THE application is supported by an affidavit of the senior manager of the Mattancherry Branch of the bank dated August 29, 1983. M/s. Brunton and Company (Engineers) Ltd. was incorporated on December 2, 1936. It approached the bank for credit facilities in 1963. Various financial accommodations were granted by the bank from time to time. There was a deposit of title deeds relating to immovable property belonging to the company with the bank on June 15, 1977. Since July, 1982, the company is under lock -out. It will not reopen and start production. There is no responsible officer of the company at its office at Fort Cochin. The office always remains closed. In none of four business places - -Vypeen Yard, Palluruthy Yard, Brunton House Property Yard and Registered Office and Engineering Work Shop at Port Cochin -1, no responsible person of the company, except the watch and ward staff, is seen. The company should submit a monthly statement regarding open credit accommodation. After May 31, 1982, no such statement was filed. The amount due to the bank since July, 1982, when the activities of the company came to a standstill, exceeds Rs. 1 crore. The bank sent a statutory notice to the company for the payment of the debts due on July 14, 1983, to its registered office at Fort Cochin -1 by registered post acknowledgment due. This was returned unserved by the postal authorities stating that the company is on strike. The company is not functioning. One of the directors of the company merely sent a communication dated August 19, 1983, requesting for remission of interest. There is no response either from the company or from any one of its directors and not even a statement that the company is in a position to pay off its debts. Books of accounts of the company are not being maintained or audited. No balance -sheet has been prepared since 1981. As on July, 1982, the company had to pay arrears of salary to staff and wages to workers for 4 to 5 months. This forced a situation which resulted in a strike by the workers and the staff. The management did not turn up to open the office since July, 1982. The salary for the subsequent periods is also in arrears. There are huge statutory liabilities by way of arrears of provident fund, employees' State insurance, Income Tax, property tax, etc., besides the salary and wages aforesaid. The company has also failed to pay electricity charges, telephone charges and water charges due. So, these essential utilities were disconnected by the concerned authorities. Even the watch and ward staff of the company are unpaid. They could not discharge their duties effectively. This situation has led to loss of materials worth lakhs of rupees by way of theft, burglary, etc. Stores and spares have been stolen away and a few of such items recovered by the police are lying in Mattancherry Circle Police Station. The accumulated loss of the company up to the end of December, 1981, stands at Rs 63.27 lakhs. The loss is increasing ever since December 31, 1981, year after year. This was due to the utter indifferent attitude of the management. The company has entered, into certain contracts for some jobs. It has already spent a considerable amount. Out of the realisable sum of Rs. 57.55 lakhs, the amount already spent is Rs. 58.82 lakhs as on May 31, 1982. A further amount of Rs. 30 lakhs is necessary to complete it. The loss on this score is Rs. 31.27 lakhs. This is due to escalation in price. The commitment will outweigh the assets. This again shows the indifferent attitude of the management. The net worth of the company as on December 31, 1981, is negative at Rs. 51.43 lakhs. A boat belonging to the company - -MX. Rukmini - -costing Rs. 5 lakhs, lies at its mooring in the Vypeen Yard with the engine portion totally sunk in water. This is total negligence and mismanagement of the company. A few movable assets of the company, charged to the bank, were removed from the premises of the company and kept in the open yard of the Sub -Judge's Court, Mattancherry, as per order in E.P. No. 27 of 1982 in O.S. No. 82 of 1981, Sub Court, Ernakulam. On these and other grounds, it is urged that in spite of the service of statutory notice as on July 14, 1983, and even after lapse of considerable time thereafter, since the company has not paid anything towards the amounts due, it is evident that the company is commercially insolvent and is unable to pay its debts. The substratum of the company is completely destroyed and it is just and equitable to wind up the company. There is no possibility at all of the company recommencing its business or paying off its creditors. If the state of things stated above continued, the assets of the company will be totally destroyed and lost, movable assets of the company are in danger of being pilfered and removed, semi -finished and unfinished goods of the company are deteriorating day by day and all these will cause irreparable injury to the body of creditors. Therefore, the bank prays for the appointment of a provisional liquidator for taking immediate possession and assume the management of the company.

(3.) SINCE a large number of workers are involved, notice was given to the Advocate -General to ascertain the views of the State Government. In the meanwhile, M/s. Brunton and Company Engineers Ltd. Shipyard Workers' Union filed Company Application No. 2 of 1984to get themselves impleaded. The petition was allowed on January 3, 1984.