SREE SHANMUGAR MILLS Vs. S K DHARMARAJA NADAR

JUDGEMENT

(1.) THIS appeal has been filed against the order dated 30-4-1959 of Ramachandra iyer, J. (as he then was), in O. P. No. 297 of 1957 on the file of mis 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 shard capital of rupees twenty-five lakhs of which rupees eight lakhs 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. 48,548. 98 as on 30-10-1957. He had supplied cotton to the company and had not been paid therefor. The petition for winding up was filed on 15-11-1957, 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, and in determining whether a 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 31-10-1957 the company was unable to pay its debts within the meaning of the above clause. On 31-10-1957 the total liabilities of the company amounted to Rs. 8,72,414. (Vide p, 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:--

(2.) THE learned Judge proceeded to point out that on 5-3-1959 the position was even worse.

(3.) WE are of the opinion that the learned Judge was right in taking into account the position as on 31-10-1957 and that the reasoning on which he ordered the winding up is correct. The essence of the reasoning is that the debts of the company could not be paid without selling its machinery and building and, if the machinery and the building were to be sold, the mills could not run and the company would necessarily have to be wound up. The correctness of this reasoning cannot be questioned and has not been questioned before us by Sri V. Balasubranianyam, the learned counsel for the appellant. But his attempt has been to make out before us that in view of the events which happened subsequent to 80-4-1959 and the circumstances as they stand today, the position is different, In order to appreciate is argument, it is necessary to state briefly what happened after the appeal was filed.