R.S. Pathak, C.J.

1. This is a petition under Section 433(e) of the Companies Act, 1956, by the Registrar of Companies for the winding-up of the New Valley View Transport Company Private Ltd.

2. New Valley View Transport Company Private Ltd. (hereinafter referred to as ' the respondent-company ') is a private compyny limited by shares. It was incorporated on December 12, 1948, uader the Indian Companies Act, 1913. Originally the registered office of the company was situated at Pathankot in Punjab, but with effect from October 29, 1966, it has been moved to Dharamsala, Himachal Pradesh. The nominal capital of the respondent-company is Rs. 2,00,000, and the amount of capital paid-up or credited as paid-up is Rs. 85,500. According to the memorandum of association of the respondent-company one of the main objects of the company is to act as carriers of passengers and goods. The original board of directors of the company included Sbri V. P. Narula and Shri Harnam Singh, and after their resignation from the board on January 20, 1967, the present board consists of Shri Rattan Singh Bedi, Shri Punjab Singh, Shri Nasib Singh and Shri Gulzar Singh. The balance-sheet and the profit and loss account of the company as on September 30, 1965, discloses that the total realisable assets were Rs. 3,48,262 while the liabilities amounted to Rs. 5,23,494 and there was an accumulated loss of Rs. 2,55,791. The petitioner, being of the opinion that the company was unable to pay its debts, applied to the Central Government for sanction under Section 439(5) of the Act to enable him to present a petition in court for the winding-up of the company under Section 433(e) of the Act. Pursuant to Section 439(6) of the Act, the Regional Director, Company Law Board, Kanpur, issued notice to the respondent-company to make its representation against the grant of sanction. The administrative officer of the company represented that the company was not insolvent and no proceeding for winding it up was called for. It appears that the representation was not considered sufficient, and on May 27, 1967, the Central Government accorded sanction to the petitioner under Section 439(5) of the Act for presenting a petition on the ground mentioned in Section 433(e) of the Act. Accordingly, on July 31, 1967, the present petition was filed for winding up of the respondent-company.

3. In its written statement opposing the petition the respondent-company has asserted that the petition is not maintainable because the mere circumstance that the assets of a company are less than its liabilities is no ground for winding it up, that a company is deemed unable to pay its debts within the meaning of Section 433(e) of the Act only if, as required by Section 434 of the Act, a demand has been made by a creditor for payment of his debt and the company has not made payment within three weeks thereafter of the sum due, that no such demand and omission to pay has been asserted in the present petition, and that although the sanction of the Central Government for presenting the petition was accorded on May 27, 1967, it ignored the balance-sheet of the company for the period ending September 30, 1966. It is alleged that with the reconstitution of the board in July, 1965, the financial position of the company has considerably improved. Three buses and one jeep were added in 1965 at a cost of Rs. 1,41,000, one bus was added in 1966 at a cost of Rs, 52,000 and one bus was added in the year 1967 at a cost of Rs. 59,000 and a New Tata Mercedes Vehicle was purchased in 1968 for Rs. 60,000 ; thus six new vehicles and one jeep were added at an investment of Rs. 3.12 lakhs. It is pointed out that the booking of traffic has shown a steady increase from Rs. 6,12,000 during the year ending September 30, 1965, Rs. 6,59,000 during the year ending September 30, 1966, and Rs. 6,65,000 during the year ending September 30, 1967. It is also alleged that the management has taken steps to reduce the overall liability of the company in consequence of which liabilities totalling Rs. 3.80 lakhs as on September 30, 1965, were reduced to Rs. 2.89 lakhs as on September 30, 1967, and this was further reduced to Rs. 2.63 lakhs as on June 30, 1968. Then it is said that out of the existing liabilities of the company Rs. 2.24 lakhs is due to the managing director, Rattan Singh Bedi, and his associates who have invested their money in the interest of the development of the company, and with regard to the balance of Rs. 39,000 due in respect of outside liabilities the payment has been guaranteed by the managing director. It is pointed out that the liability of Rs. 1,09,000 shown in the balance-sheet for the year ending September 30, 1965, represents a sum due to the Valley View Transport Private Ltd., the parent of the respondent-company. In respect of that liability, it is alleged, an agreement has been entered into that the parent-company would not recover the sum due to it until the respondent-company was in a position to pay off its other liabilities. It is also urged that by reason of the improved financial position of the company the interest payable on the loans raised for the business of the company has been reduced from Rs. 59,000 due on September 30, 1965, to Rs. 40,000 as on September 30, 1967. The establishment expenses of the company have also been reduced from Rs. 1,05,000 as on September 30, 1965, to Rs. 90,000 as on September 30, 1967. The company earned profits totalling Rs. 13,527 during the years 1966 and 1967. It is not denied that the company was running in loss during the previous seven years but, it is asserted, that with the change in the constitution of the board in the year 1965, the position has altered for the better. Reference has also been made to the possession by the company of 26 route permits granted by the transport department which, according to the company, represent ah asset of Rs. 2,50,000. In regard to the issued and paid-up capital of Rs. 85,000, it is asserted that an amount of Rs. 60,000 represents the capital held by the directors and their associates and, therefore, it is urged, they have major stake in the company. In order to reduce the expenses of the company, the chairman of the company, who is looking after its affairs, is not charging any salary. Upon the aforesaid facts, it is contended that there is no justification for the petition. It is urged that the company is solvent, that the improvement effected in its management and the operation of its business do not warrant its being wound up, and that as a concern engaged in the business of transporting passengers and goods in the backward and hilly areas of Kangra District its activities are charged with public interest, which would be adversely affected if the petition was granted. The company asserts that it is in a position to pay the debts of any creditor on demand.

4. The petitioner has filed a replication to the written statement of the company. He maintains that the petition is competent on the basis of the figures disclosed in the balance-sheet as on September 30, 1965, and contends that it is open to the Registrar of Companies under Section 439(5) of the Act to apply for winding up on the basis of a balance-sheet disclosing that the company is unable to pay its debts. Section 434 of the Act, it is contended, does not apply to a petition filed by the Registrar of Companies under Section 439(5) of the Act. An attempt has also been made to explain the delay between the accord of sanction by the Central Government and the filing of the petition in court As regards the balance-sheet pertaining to the year ending September 30, 1966, it is said that the company must be considered unable to pay its debts on the basis of the financial position so disclosed. It is pointed out that the profits in the year ending September 30, 1966, amounted to Rs. 4,960 only and that the improvement alleged in the financial position of the company is insignificant. The validity of the agreement between the parent-company and the respondent-company is disputed and it is alleged that the agreement was not confirmed either by the board of directors or by the shareholders or by the creditors of the company.

5. On November 1, 1968, the following two issues were framed by the court :

' 1. Whether the petition for winding up of the respondent-company is not maintainable

2. Whether the company is liable to be wound up under Section 433(e) of the Companies Act, 1956, for the reason given in the petition '

6. The parties led oral evidence ; Shri V. S. Bhargava, Registrar of Companies, Shri Krishan Kumar, Senior Technical Assistant in the Registrar's office, and Shri V. S. Parmar, a director of the Valley View Transport Company Ltd., were examined for the petitioner and Shri Nasib Singh, a director of the Transport Finance Private Ltd., Jullundur, Shri Rattan Singh, a director of the respondent-company, Shri Joginder Singh, general manager of the respondent-company, and Shri Nuradh Chand, former chairman of the Valley View Transport Company Private Ltd., were examined for the respondent-company. Documentary evidence was also filed by the parties in support of their respective cases.

7. It may be mentioned at this stage that Shri Chuni Lal, representing the Valley View Transport Company Private Ltd , was permitted to intervene in this proceeding. He has filed affidavits and has also been heard through counsel.

8. In order to ascertain the present financial position of the respondent-company the parties were permitted to file affidavits in that regard. On March, 13, 1973, an affidavit of Shri Rattan Singh, chairman of the respondent-company, was filed setting out the latest position of the respondent-company. The position appears as follows :

(a) During the years 1965 to 1969 the following new vehicles were added :

Year

Number of vehicles

Cost Rs.

1965

3 buses and jeep

1,41,000

1966

1 bus

52,000

1967

1 bus

59,000

1968

1 Tata Mercedes Bus

60,000

1969

2 buses

1,22,600

4,34,600

The present fleet of the respondent-company consists of 17 vehicles which are in running condition and according to an assessment dated February 16, 1973, made by Shri Inder Pal Singh, a licenced insurance surveyor of Pathankot, the total value of the 17 vehicles is Rs. 4,20,300. The respondent-company alleges that the company also owns a workshop building, an office and garages at Pathankot, of which the present market value has been assessed at Rs. 52,000 by a property dealer, Shri Tilak Raj Chadda of Delhi. Other assets include a car, a motor cycle, tools, fixtures, recoverable debts and security deposits representing a total value of Rs. 45,000. On that basis the present assets of the respondent-company have been calculated at Rs. 5.17 lakhs.

(b) Of the total liabilities of the company, Rs. 30,000 are due to the directors, Rs. 18,500 have been guaranteed by the chairman and Rs. 1,11,500 are due to relatives and associates of the directors, making a total of Rs. 1,60,000. It is asserted that the directors and their associates have not claimed a refund of their deposits. Besides this, a liability of Rs. 68,000 is due by the respondent-company to two finance companies of which the chairman is Shri Rattan Singh and it is averred that these deposits have not been claimed either.

(c) The position in respect of the profits earned after the reconstitu-tion of the board in 1965 is disclosed as follows :

Year ending

Amount of profit Rs.

September 30, 1966

4,960

September 30, 1967

8,827

September 30, 1968

29,135

September 30, 1969

59,459

1,02,381

It has been alleged that the rate of profit would have been maintained in subsequent years but the company was unable to purchase new vehicles pursuant to an undertaking given in court that no old vehicles would be replaced or transferred until the decision of the case. The position in respect of booking of traffic shows a progressive increase from Rs. 6.12 lakhs in 1965 to Rs. 8.72 lakhs in 1969.

(d) The respondent-company held ten route permits granted by the transport authority of Himachal Pradesh, which, according to the respondent-company, represents an asset of Rs. 1,50,000.

(e) The position in respect of losses of the company shows that the losses have been reduced from Rs. 2,55,971 in the year 1965 to Rs. 1,84,017 as at present. On the basis of the balance-sheet for the year ending September 30, 1971, the following statement has been shown ;

Rs.

(i)

Total liabilities

5,17,088

Less capital paid-up

85,500

Balance

4,31,588

(ii)

Debts due to directors & their associates

1,60,000

(iii)

Debts due to finance companies

68,995

(Rounded

represented by the chairman

69,000)

(iv)

Total of (ii) and (iii) (not demanded)

3,29,000

(Round)

(v)

Assets at present estimated vehicles consisting of 17 buses, one car and

one motor cycle

4,35,000

Building

52,000

Other assets stated in para. (iv)

30,000

Total

5,17,000

Value of permits

1,50,000

Grand Total

6,67,000

It is contended that the respondent-company is commercially solvent and possesses a sound financial position.

The petitioner has filed an affidavit in reply. It is pointed out therein that the written down value of the fleet of vehicles has been shown at Rs. 2,39,877 in the schedule annexed to the balance-sheet as on September 30, 1971. On the basis of that balance-sheet the following statement has been set out representing the liabilities and assets as on September 30, 1971 :

Liabilities

Assets

Rs.

Rs.

Issued and subscribedcapital

85,500

Fixed assets

2,62,981

Investments

17,000

Reserves &surplus; :benevol-ent fund

417

Current assets

39,906

Loans &Advances;

13,184

Secured loans

18,380

Profit & Lossaccount (Net loss)

1,84,017

Unsecured loans

2,63,398

Current liabilities andprovisions

1,49,393

5,17,088

5,17,088

9. As regards profits, it is pointed out that the respondent-company earned a profit of Rs. 558 only during the year ending September 30, 1970, while during the year ending September 30, 1971, it suffered a loss of Rs. 28,849, the total accumulated loss being Rs. 1,84,017 now. The petitioner does not deny the increase in the volume of the traffic booked by the respondent-company. In conclusion, it is asserted that, having regard to the position as on September 30, 1971, when the respondent-company had an accumulated loss of Rs. 1,84,017 as against the paid-up capital of Rs. 85,500 and the net tangible assets of the respondent-company were Rs. 3,26,564 as against the total liabilities of Rs. 4,31,171, the company must be considered to be unable to pay its debts within the meaning of Section 433(e) of the Act.

10. The reply filed by Shri Chunni Lal does not materially add to the position adduced by the petitioner. It merely disputes the valuation set to the fleet of vehicles and the immovable property of the respondent-company and refers to the decrease in the income during the years 1971 and 1972 as well as the decrease in the number of route permits held by the respondent-company.

11. In its replication the respondent-company has explained that the loss of Rs. 29,349 suffered in the year 1971 by the respondent-company was primarily due to the fact that it has to meet the charges of toll tax imposed by the Himachal Pradesh Government to the extent of Rs. 31,325, but for which liability the respondent-company would have declared a profit.

12. The issues framed may now be considered.

13. Issue No. 1.--This issue relates to the maintainability of the petition. The first ground for urging that the petition is not maintainable is that the mere circumstance that the assets of a company are less than its liabilities is no ground for winding up. There is no doubt that merely because the liabilities of a company exceed its assets it cannot be presumed that the company is unable to pay its debts. It was pointed out by the Madras High Court in A. C. K. Krishnaswami v. Stressed Concrete Constructions P. Ltd. that :

' A company may have liabilities more than its assets; but still may have, in particular circumstances, the capacity to meet demands from its creditors.'

14. In S. Krishnamurthy, Registrar of Companies v. Rohtak Hissar Transport Co. Pvt. Ltd. the Punjab High Court observed :

' The second significant thing, which is clear from the record, is that the company is on its way to progress and is not only expected to make profits but has actually made profits during the last two years. It iswell-established that the mere fact that the company's assets are less than its liabilities, is, by itself, no ground for sending the company to winding up. The test laid down is that the company should be commercially solvent which means that the company should be in a position to meet its liabilities as and when they arise.'

15. To the same effect is the law laid down by that High Court in Registrar of Companies v. Suraj Bachat Yojna P. Ltd. The latest decision placed before me is Registrar of Companies v. Atlas Transport P. Ltd. which follows the cases cited above. This petition proceeds on the basis that having regard to the state of the realisable assets and of the liabilities and the circumstance that there was an accumulated loss of Rs. 2,55,791 the Registrar was of the opinion that the company was unable to pay its debts. The proviso to Section 439(5) of the Act envisages that the Registrar should be satisfied from the financial condition of the company as disclosed in its balance-sheet that the company is unable to pay its debts. In the present case it cannot be said that the Registrar was influenced by the mere fact that the assets of the company were less than its liabilities. The amount of the accumulated loss was also considered by the Registrar, and inferentially he had in mind the capacity of the company to wipe it off. That is apparent from the petition as well as the statement of the Registrar, Shri B. S. Bhargava, PW-1. So long as the material is relevant, its sufficiency as a basis for the Registrar's opinion that the company is unable to pay its debts cannot be enquired into by the court for the purpose of determining whether the opinion is sustainable in law and the petition is maintainable. Nor can the court hold that the opinion of the Registrar is invalid if the criteria applied by him are reasonable. The first ground is rejected.

16. The second ground for contending that the petition is not maintainable is that the company cannot be deemed unable to pay its debts inasmuch as the requirements of Section 434 of the Act are not satisfied. This is not a case, it is said, where a demand has been made by a creditor for payment of his debt and the respondent-company has omitted to pay it within the statutory period. As regards that, it seems to me that the circumstances set out in the proviso to Section 439(5) of the Act should be construed as an alternative to the requirements of Section 434. To maintain a winding-up petition on the ground that the company is unable to pay its debts it is sufficient if the Registrar satisfies himself from the financial condition of the company as disclosed in its balance-sheet that the company cannot pay off its debts. He must also obtain the sanction of the Central Government for presenting the petition. It is not necessary in addition that the Registrar should satisfy himself that the conditions enumerated in Section 434 are fulfilled. A company may be deemed unable to pay its debts either upon proof that the conditions of Section 434 are made out or, in the case of a petition by the Registrar, that the proviso to Section 439(5) is satisfied. Each set of conditions indicates separately when a company can be said to be unable to pay its debts, and the one is alternative to the other. The second ground must also be rejected.

17. The third ground is that when the Central Government accorded its sanction on May 27, 1967, to the Registrar for presenting the winding-up petition it did not consider the balance-sheet of the company for the period ending September 30, 1966, and, therefore, it is urged, the sanction must be considered invalid. It appears that when the Registrar applied to the Central Government for sanction, the material then available did not include the balance-sheet for the year ending September 30, 1966. It is not clear whether before the Central Government considered the grant of sanction its attention was drawn to that balance-sheet. The third ground has no force and is rejected.

18. I would, therefore, hold that the respondent-company has not succeeded in showing that the petition is not maintainable; accordingly. Issue No. 1 is answered against the respondent-company.

19. Issue No. 2.--This issue arises upon the controversy whether the respondent-company can be deemed to be unable to pay its debts within the meaning of Section 433(e) of the Act for the reasons set out in the petition. An attempt has been made by the petitioner to show that the financial position of the respondent-company is such that it is unable to pay its debts. The respondent-company, on the other hand, has endeavoured to prove that its financial position is solvent and having regard to the progress made by it ever since 1965, when the original board of directors was reconstituted, no case exists for a winding-up order. It is necessary, on a petition such as this, to consider the overall financial position of the company, the manner of its working during recent years and whether the potential for profit making is such that it cau pay up its debts as and when they accrue. The averments in the affidavits filed by the respondent company and the oral evidence adduced on its behalf contain sufficient data indicating that it has now embarked on a course of making profits and that it has generally earned profits during the years since 1963. In the year 1971, it would have declared a profit but for the toll tax liability imposed by the Himachal Pradesh Government. It is also clear that the volume of traffic carried by the vehicles of the respondent-company has been generally increasing. The quantum of liability has also decreased. The potential for earning profits has improved, and that is evident from the increase in the number of vehicles and other assets of the respondent-company. The losses accumulated in past years have shown an appreciative reduction.

20. There was considerable argument on the capacity of the respondent-company to pay up a debt of over rupees one lakh to the parent-company, the Valley View Transport Co. Private Ltd. For the respondent-company it is urged that an agreement was entered into in 1965 between the two companies postponing the discharge of that liability. The petitioner and Shri Chunni Lal contend that the agreement is void and has not been accepted by the board of directors of the creditor-company. Now, on the question whether the agreement is valid or not, the material on the record is insufficient for coming to any definite conclusion that Shri Nuradh Chand, who entered into the agreement on behalf of the creditor-company, was not duly authorised to do so, that the agreement was subject to ratification by the board and that it was void for uncertainty. It is always open to the creditor-company to establish in a civil court that the agreement is not binding on it and that it is entitled to recover immediately the amount due from the respondent-company. Besides, having regard to all the circumstances already detailed above indicating that the respondent-company cannot be said to be financially insolvent and that its immediate past record together with its potential for the future makes it clear that there is a distinct probability of the respondent-company improving its financial position, I am unable to hold that a case for winding-up has been made out. It was laid down by the Mysore High Court in Dundappa Shivalingappa Adi v. S. G. Molar Transport Company (P.) Ltd. that the court is not bound to order the winding-up of a company and that a discretion vests in it in the matter, and there is no absolute right in a petitioner to a winding-up order under Section 433 of the Act. There is the further consideration thut the interests of the general public should also be considered before a winding-up order is made. In the present case the respondent-company provides transport facilities in a backward and hitly area in Himachal Pradesh. When it is clearly established that the respondent-company is in a position to run its business profitably in the future, this aspect of the matter assumes some significance.

21. In rny opinion, it has not been proved that an order for winding-up of the compmy should, be made on the ground mentioned in Section 433(e) of the Companies Act, 1956.

22. The petition fails and is dismissed, but in the circumstances there is no order as to costs.