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Indian Case Summary

The Aluminium Corporation Of … vs Lakshmi Ratan Cotton Mills Co. … on 28 July, 1969 – Case Summary

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In the case of The Aluminium Corporation of India Ltd. vs Lakshmi Ratan Cotton Mills Co. Ltd., decided on 28th July 1969 by the Allahabad High Court, the court was presented with a complex dispute involving two major industrial groups of Kanpur, the Guptas and the Singhanias. The case was presided over by Justice M.H. Beg.

Facts of the Case

The Aluminium Corporation of India Ltd. (hereinafter referred to as the Corporation), controlled by the Singhania group, filed a petition under Section 433 of the Indian Companies Act, 1956 for winding up the Lakshmi Ratan Cotton Mills Co., Ltd. (hereinafter referred to as the Company), controlled by the Gupta group. The Corporation and the Company, along with a firm known as Firm Behari Lal Ram Chand, were once jointly run by the two groups. However, due to differences, they decided to part ways, and their interests were separated under an award. The Corporation came under the exclusive control of the Singhanias, while the Company and the Firm fell under the control of the Guptas.

The Company and the Firm had certain claims against the Corporation, which led to the filing of two civil suits at Kanpur. The suit filed by the Company was decreed for a sum of Rs. 2,82,734/11/3 with proportionate costs and pendente lite interest at 3 per cent per annum. However, the Corporation appealed this decision, and the appeal was allowed by the Allahabad High Court, which held that the Secretary’s letter did not extend the period of limitation.

During the pendency of the appeal, the court had passed an order requiring the Corporation to deposit a sum of Rs. 1,00,000/- in the execution Court. The amount was withdrawn by the Company on furnishing security. However, when the Corporation’s appeal was allowed, it filed a restitution application which was allowed, and the Company was directed to pay a sum of Rs. 4,11,554/- to the Corporation by way of restitution.

Issues Raised

The Corporation, without taking any steps to enforce the order of restitution, served a notice on the Company to pay the sum of Rs. 4,11,554/- along with interest pendente lite at 6 per cent per annum within three weeks of the service of the notice. The Company disputed its liability to pay back and alleged that there was no question of its neglect or failure to pay. The Corporation then filed the winding up petition in the court on a number of grounds including the Company’s inability to pay its debts. The company denied its inability to pay its debts and made counter allegations. The following issues were framed:

  1. Whether the Company is liable to be wound up on the ground that it is commercially insolvent for the reasons mentioned in the petition as amended?
  2. Whether the Company has suspended its business for a whole year and is liable to be wound up for this reason?
  3. Whether it is otherwise just and equitable to wind up the Company?
  4. Whether the petition is mala fide and liable to be dismissed on that ground?

Court’s Observations

The court observed that the procedure on a winding up application is to decide such questions on winding up petitions generally by means of evidence submitted through affidavits. The court also noted that the petitioner’s evidence must be confined to the cases set up on which issues are framed. However, it cannot be said that the petitioner’s evidence must exhaust itself when the petition is filed.

The court also noted that the power to wind up is discretionary, but it has to be exercised judicially. This means that it is only where the balance of equities is shown by a petitioner

to tilt appreciably in favour of a winding up order that it will be made “ex debito justitiae.” It is issued as a matter of right when the proved contents of the right produce a compelling effect; it is not granted mechanically as a matter of course on proof of certain facts. In other words, equitable considerations have a decisive effect even when the power to wind up a company is invoked under a clause of Section 433 other than the general just and equitable Clause (f).

The court also observed that the presumption that a judgment and decree are correct remains until they are set aside. But, there is no further presumption that their validity or correctness cannot be questioned on substantial grounds. It is certainly not enough, for the purpose of proving such substantial grounds, to merely show that either an appeal has been filed or an allegation has been made that the decree is collusive or obtained by fraud. But, together with other facts, a bona fide dispute either about the validity or about the correctness of a decree may be established. The decision in each case must turn on its own facts.

The court also noted that the principle, that the existence of a bona fide dispute dispels the fiction or presumption contained in Section 434(1) of the Act, is applicable to a decretal debt as well. The only difference is that the decree against the alleged debtor raises a strong presumption, as held by S. K. Dutta, J., that a genuine debt exists. The presumption can, however, be repelled where there are substantial grounds for questioning the validity of the decree.

Conclusion

The case of The Aluminium Corporation of India Ltd. vs Lakshmi Ratan Cotton Mills Co. Ltd. is a complex case involving two major industrial groups, the Guptas and the Singhanias. The case highlights the importance of the court’s discretionary power in winding up a company and the role of equitable considerations in such decisions. The case also underscores the principle that the existence of a bona fide dispute dispels the fiction or presumption contained in Section 434(1) of the Act, even in the case of a decretal debt. The decision in each case must turn on its own facts, and the court must exercise its discretion judiciously, taking into account all the relevant facts and circumstances.