MADHUSUDAN GORDHANDAS & CO. versus MADHU WOOLLEN INDUSTRIES PVT. LTD.

Citation: [1972] 2 S.C.R. 201 · Decided: 29-10-1971 · Supreme Court of India · Bench: A.N. RAY · Disposal: Dismissed

Cited by 3 judgment(s) · see the full citation network in Lexace

Judgment (excerpt)

A 
B 
c 
I) 
E 
F 
G 
201 
MADHUSUDAN GORDHANDAS & CO. 
v. 
MADHU WOOLLEN INDUSTRIES PVT. LTD. 
October 29, 1971 
[A. N. RAY AND D. G. PALEKAR, JJ.] 
Companies Act (1 of 1956), ss. 433(c) and 557-Principles for 
ordering winding up of company. 
The appellants filed a petition for winding up of the respondent com-
pany, on the grounds : (1) that the company was unable to pay the 
debts due to the appellants, (2) that the company showed their indebted-
ness in their books of account for a much smaller amount, ( 3) that the 
company was indebted to other creditors, ( 4) that the company we.• 
effecting an unauthorised sale of its machinery, and (5) that the company 
bad incurred losses and stopped functioning, and therefore the substra-
tum of the cl,\npany disappeared and there was no possibility of the com-
pany doing any business at profit. 
The High Court dismissed tho petition. 
Dismissing the appeal to this Court, 
HELD : •The rules for winding up on a creditor's petition arc if there 
is a hona fid•• dispute about a debt and the defence is a substantial one. 
the court would not order winding up. 
The defence of the company 
should be in good faith and one of substance. If the defence is likely to 
succeed on a point of law and the company adduced prin1a facie proof 
of the facts on which the defence depends. no order of winding up would 
be made by the Court. Further under s. 557 of the Companies Act, 1956, 
in all matters relating to winding up of a company the court may ascer-
tain the wishes of the creditors. 
If. for so1ne good reason the creditors 
object to a winding up order, the court, in its discretion, may refuse to 
pass such an order. 
Also, the winding up order will not be made on a 
creditor"s petition if it would not benefit the creditor or the company's 
creditors generally. 
[207 D, G-H: 208 C-D] 
(:) In the 
present 
cast:, 
the claims 
of the appellants were 
ilisputed both in fact and in law. 
The company had given prima facie 
evidence that the appellants were· not entitled to any claim. The company 
had also raised the defence of lack of privily and of limitation. 
[208 
D-F! 
(2) One. of the claims of the appellants was proved by the company 
to be unmentonous and 'false, and as regards the admitted debt the con1-
pany had stated that there was a settlement between the comp,l'ny and the 
appellants that the appellants would receive a lesser amount and that the 
company would pay it off out of th'c proceeds of sale of the company's 
properties. 
[208 F-G] 
( 3) The creditors of tile. company for the sum of Rs. 7,50,000 sup-
ported the company and reS1sted the appellants' application for windina 
up. 
[209 G] 
~ 
( 4) The cumulative evidence in support of the case of the company 
is that the appellants consented to any approved of the sale of the 
H 
,machi~er~. 
As shareholders, they had expressly wriuen that they had 
no ob1ection to the sale of the machrnery and the letter was issued in 
order t~ enable the company to hold an extraordinary general meeting 0 n 
the subject. 
The company passed a resolution authorising the sale. The 
L256 Sup.Cl/72 
202 
SUPREME COURT REPORTS 
_[1972J2 S.C.R. 
appellants themselves were parties to the proposed saie and wanted lo 
buy the machinery. 
Where the shareholders had approved of the sale it 
could not be said that the transaction was unauthorised or improvident. 
(209 A-Fl 
(5) In determining whether or not the substratum of the company 
had gone, the objects of the compony and the case of the company on 
that question would have to be looked into. 
In the present ciase, 
the 
company alleged that with the proceeds of sale the Company intend to 
enter into some other profitable business, such as export business which 
was within its objects. The mere fact that it had suffered trading losses 
will not destroy its substratum unless there is no reasonable prospect of 
it ever making a profit in the future. 
A court would not draw such an 
inference normally. 
One of its largest creditors, who opposed the wind-
ing up petition would help it in the export business. 
The company had 
not abandoned the objects of its business. 
Therdore. on the facts and 
circumstances of the present case it could not be held that the substratum 
of the company had gone. 
Nor could it be held that the .:i:ompany w.i.s 
unable to meet the outstandings of any of its admitted creditors. 
The 
company had deposited money in court as per the directions of the Court 
and had no

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