Case: Lanyard Foods Limited Vs. China Shipping Development Company Limited &amp; Another

additional ground available to the creditor who has obtained a decree against the company. Clause(b) of section 434(1) does not prevent the decree holder creditor to resort to a deeming provision of clause (a) thereof. In support of his submissions, learned counsel for the respondent referred to and relied upon the decisions of Single Judges of the Calcutta High Court in Re Unique Cardboard Box Mfg. Co. P. Ltd, reported in 1974, Vol.48 Co. Cases, 599 Delhi High Court in Madhuban Pvt. Ltd. Vs. Narain Dass Gokal Chand reported in 1971 (Vol.41) Co. Cases 685, Calcutta High Court in All India General Transport Corp. Ltd. Vs. Raj Kumar Mittal reported in 1978 (Vol.48) Co. Cases 604, Madras High Court in Seethai Mills Ltd. Vs. N. Perumalsamy & Anr. reported in 1980 (Vol.50) Co. Cases 422 and Guwahati High Court in Investment of India Ltd. Vs. Everest Cycles Ltd. reported in 1984 (Vol.56) Co. Cases 165. He also submitted that this Court has also consistently taken the same view and referred to its decisions in Dhootpapeshwar Sales Pvt. Ltd. reported in 1972 (Vol.42) Co. Cases 139 and unreported decision in the case of Sugam Construction Pvt. Ltd. (Company Petition no.650 of 2004) decided on 29th April 2005 (Coram S.U. Kamdar, J).8. In our view, in the facts and circumstances of the case in hand, it is not necessary to consider whether a creditor whose claim has culminated into a decree and who has become a decree holder is entitled to file a petition for winding up under clause (a) of sub-section (1) of section 434 on failure of the company to pay the decretal amount within the statutory period on service of a demand notice or is required to resort to and file the petition only under clause (b) of sub-section (1) of section 434 of the Act on execution or any process issued on a decree being returned unsatisfied. In paragraph no.21 and 22 of the Company Petition, the respondent has averred the facts which disclose that the appellant company is clearly commercially insolvent and is unable to pay its debts. Contents of paragraph nos.21 and 22 of the petition has been extracted in detail in paragraph no.10 of the impugned judgment. The learned Judge has also noted that in its affidavit in reply, the appellant has not denied the averments made in paragraph nos.21 and 22 of the Company Petition and therefore they are deemed to be admitted. In paragraph no.22 of the Company Petition, the respondent has clearly averred the following: -(a) The appellant company has accumulated losses aggregated to Rs.225.94 crores.(b) Sales income of the appellant has come down drastically to Rs.11.83 crores from 123.78 crores in the previous year.(c) No provision is made by the appellant for interest liability on loans and dues of foreign creditors due to which loss for the year is understated in the profit and loss account.(d) Losses have resulted in the net worth of the appellant being completely eroded. A reference was filed by the appellant to the BIFR under the provisions of Sick Industrial Companies Act, 1985 2985.(g) Appellants cash flow was negligible and effectively negative. (h) Appellants current assets were negative at Rs.153.76 crores.(i) Appellants foreign creditor, Shweta International Pvt.Ltd. had filed a suit against the appellant for recovery of Rs.140 crores.(j) The liability of appellant to the creditors/customers alone (excluding bankers and others) was Rs.166 crores.(k) Appellants liabilities to its bankers and other creditors was Rs.49.07 crores.(l) Appellants bankers viz. State Bank of Saurashtra and Punjab National Bank had recalled the loan facilities and had filed proceedings before Debt Recovery Tribunal, Mumbai.9. None of the allegations made above were denied by the appellant in the affidavit in reply and must therefore be deemed to have been admitted. They disclose that the company has negative the net worth, the cash flow is negligible and effectively negative. Its business has practically come to a stand still. They also disclose that the creditors are to the extent of several hundreds of crores of rupees and that the substratum of the company has disappeared. Nothing was brought on record to show that the financial difficulties were only temporary and given some time. The appellant had the means of repaying the debts. No scheme for rehabilitation was sanctioned by the BIFR under the Sick Industrial Companies Act. In the circumstances, even without even resorting to the deeming provision about the inability of a company to pay its debts made under section 434 of the Companies Act, it must be held that the respondent had established that appellant is unable to pay its debts. Clause (e) of section 433 of the Act provides that the company may be wound up if it is unable to pay its debts. Section 434 of the Act only provides a few circumstances under which a presumption is drawn about the inability of a company to pay its debts. If the circumstances enumerated in section 434 of the Act exist it would be deemed that the company is unable to pay its debts. In our opinion, it is open for the creditor to prove without resorting to the fiction under section 434 of the Act that a company is unable to pay its debts. Of course in the absence of presumption under section 434 of the Act the burden of proving that the company is unable to pay its debts would be heavy when the company contests the claim of the creditor that the company is unable to pay its debts. The court would be slow to infer and hold that the company is unable to pay its debt and would ask for a strict proof. However in the present case, in the light of the averments made in paragraph no.21 and 22 of the petition which have not been denied by the appellant company, we are satisfied that the respondent has discharged the burden and proved appellant company is commercially insolvent and is unable to pay its debts.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]8. In our view, in the facts and circumstances of the case in hand, it is not necessary to consider whether a creditor whose claim has culminated into a decree and who has become a decree holder is entitled to file a petition for winding up under clause (a) of(1) of section 434 on failure of the company to pay the decretal amount within the statutory period on service of a demand notice or is required to resort to and file the petition only under clause (b) of(1) of section 434 of the Act on execution or any process issued on a decree being returned unsatisfied. In paragraph no.21 and 22 of the Company Petition, the respondent has averred the facts which disclose that the appellant company is clearly commercially insolvent and is unable to pay its debts. Contents of paragraph nos.21 and 22 of the petition has been extracted in detail in paragraph no.10 of the impugned judgment. The learned Judge has also noted that in its affidavit in reply, the appellant has not denied the averments made in paragraph nos.21 and 22 of the Company Petition and therefore they are deemed to be admitted. In paragraph no.22 of the Company Petition, the respondent has clearly averred theThe appellant company has accumulated losses aggregated to Rs.225.94 crores.(b) Sales income of the appellant has come down drastically to Rs.11.83 crores from 123.78 crores in the previous year.(c) No provision is made by the appellant for interest liability on loans and dues of foreign creditors due to which loss for the year is understated in the profit and loss account.(d) Losses have resulted in the net worth of the appellant being completely eroded. A reference was filed by the appellant to the BIFR under the provisions of Sick Industrial Companies Act, 1985 2985.(g) Appellants cash flow was negligible and effectivelyAppellants current assets were negative at Rs.153.76 crores.(i) Appellants foreign creditor, Shweta International Pvt.Ltd. had filed a suit against the appellant for recovery of Rs.140 crores.(j) The liability of appellant to the creditors/customers alone (excluding bankers and others) was Rs.166 crores.(k) Appellants liabilities to its bankers and other creditors was Rs.49.07 crores.(l) Appellants bankers viz. State Bank of Saurashtra and Punjab National Bank had recalled the loan facilities and had filed proceedings before Debt Recovery Tribunal, Mumbai.9. None of the allegations made above were denied by the appellant in the affidavit in reply and must therefore be deemed to have been admitted. They disclose that the company has negative the net worth, the cash flow is negligible and effectively negative. Its business has practically come to a stand still. They also disclose that the creditors are to the extent of several hundreds of crores of rupees and that the substratum of the company has disappeared. Nothing was brought on record to show that the financial difficulties were only temporary and given some time. The appellant had the means of repaying the debts. No scheme for rehabilitation was sanctioned by the BIFR under the Sick Industrial Companies Act. In the circumstances, even without even resorting to the deeming provision about the inability of a company to pay its debts made under section 434 of the Companies Act, it must be held that the respondent had established that appellant is unable to pay its debts. Clause (e) of section 433 of the Act provides that the company may be wound up if it is unable to pay its debts. Section 434 of the Act only provides a few circumstances under which a presumption is drawn about the inability of a company to pay its debts. If the circumstances enumerated in section 434 of the Act exist it would be deemed that the company is unable to pay its debts. In our opinion, it is open for the creditor to prove without resorting to the fiction under section 434 of the Act that a company is unable to pay its debts. Of course in the absence of presumption under section 434 of the Act the burden of proving that the company is unable to pay its debts would be heavy when the company contests the claim of the creditor that the company is unable to pay its debts. The court would be slow to infer and hold that the company is unable to pay its debt and would ask for a strict proof. However in the present case, in the light of the averments made in paragraph no.21 and 22 of the petition which have not been denied by the appellant company, we are satisfied that the respondent has discharged the burden and proved appellant company is commercially insolvent and is unable to pay its debts.