QSS INVESTORS (P.) LTD. Vs. ALLIED FIBRES LTD.

JUDGEMENT

(1.) The petitioners have prayed for an order of winding up of the respondent-company under sections 433, 434 and 439 of the Companies Act, 1956 ('the Act'), alleging failure on the part of the company to repay its debt to the tune of Rs. 6,06,24,539.15. It is the case of the petitioners that it had invested the aforesaid amount in the respondent-company by way of share application money. In a nutshell, the loan advanced by the petitioners to the respondent-company was treated as share application money in the books of account till a proper and legal share subscription agreement was entered into for allotment of shares by the company to the petitioners. Till such time, the said money remained as an advance with the company. It is alleged by the petitioners that in spite of repeated requests the company failed and neglected to enter into a share subscription agreement for allotment of shares to the petitioners. It called upon the respondent-company to return the said amount with interest at the rate of 24 per cent per annum from the date of receipt of the said amount by notice dated 14-8-2000. By its reply dated 31-8-2000, the respondents contended that the petitioners were co-promoters of the company and that they had brought in the said amount as goodwill. The petitioners have denied the said contentions of the respondent-company and have demanded the aforesaid amount to be refunded which was given by the petitioners to the respondents as application money. According to the petitioners, the respondents had never issued any shares nor was any agreement entered into. According to the petitioners the project has failed and that no business activities had ever started. According to the petitioners, the company is heavily indebted to the petitioners as well as other creditors and that their liabilities are far in excess of its assets as reflected in the balance-sheet of the company which is making continuous losses and that it is not in a position to repay its liabilities in the ordinary course of business. It is further alleged that the company is commercially insolvent. In the aforesaid circumstances, the petitioners have prayed for a winding up order of the respondent-company.

(2.) On receipt of notice, the respondent-company has appeared and filed its affidavit in reply denying the various allegations and contentions of the petitioners. It is pointed out that Shri G. M. Singh who is the managing director of the petitioners was included as a co-promoter in the respondent-company and that he had voluntarily agreed to bring in separately a sum of Rs. 2 crores in one lumpsum as goodwill. According to the respondents, it was a gentelemen's understanding that no formal agreement would be required and hence no agreement was drawn upon. It is further mentioned in the affidavit that at the request of Shri Singh, the petitioners were also included as promoters of the respondent-company. Shri Singh, was inducted as a director of the respondent-company with effect from 1-4-1994. According to the respondents, Shri Singh was not initially designated as managing director but he carried out all the work as a managing director with effect from 1-4-1994. He was, however, officially appointed as managing director with effect from 1-12-1994, and continued as such till 15-6-1996. According to the respondents the said Shri Singh was in control of the respondent-company during the crucial stage of the implementation of the project. He himself was operating the bank accounts of the respondent-company and he was in complete control of the affairs of the company. The respondents have denied that any amount is payable to the petitioners. It has further stated that in fact it is entitled to recover money from the petitioners and Mr. Singh and that criminal complaints were also filed against Shri Singh by the respondent-company. According to the respondents all amounts brought into the respondent-company by the petitioners were as and by way of promoters' contribution and not as any loan. The respondents have further denied the allegations that there was any agreement between them for entering into a subscription agreement as the aforesaid amount was brought by the petitioners as promoter's contribution. It is denied that any amount is due and payable to the petitioners. Shri Singh has filed his rejoinder on behalf of the petitioners.

(3.) Shri Kadam, the learned counsel for the petitioners has submitted that the petitioners had applied for shares but no shares were issued to them and, therefore, the petitioners have become entitled to get back their money which is shown as share application money in the balance-sheets of the respondent-company. Since the offer was withdrawn by notice sent by the petitioners under Sec. 6(2) of the Indian Contract Act, the contract stood revoked and the offer which was withdrawn by his clients cannot now be revived and, therefore, the petitioners are entitled to get their share application money invested by them with the respondent-company back with interest at the rate of 24 per cent per annum. Shri Kadam has pointed out that in the account books and the balance-sheets, the liabilities of the said debt is admitted. In the balance-sheets the said amount is reflected as share application money.