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Section 433(e) of the Companies Act, 1956

A company may be wound up by the court-

e)             if the company is unable to pay its debts.

For the purpose of this section, a debt is a sum of money which is now payable or will be payable in future by reason of a present obligation debitum solvendum in futuro. The expression 'unable to pay its debts' should be taken in the commercial sense of being unable to meet current demands, though the company may have large assets. See, Tripura Administration vs. Tripura State Bank Ltd., (1960) 30 Com Cases 324 : AIR 1959 Tripura 41; Sundhiya Nath Bhaduri vs. Bihar National Insurance Co. Ltd (1942) 12 Com Case 66 : AIR 1941 Pat 603.


Section 434 of the Companies Act, 1956

(1)           A company shall be deemed to be unable to pay its debts-

   (a)         if a creditor, by assignment or otherwise, to whom the company is indebted in a sum exceeding five hundred rupees then due, has served on the company, by causing it to be delivered at its registered office, by registered post or otherwise, a demand under his hand requiring the company to pay the sum so due and the company has for three weeks thereafter neglected to pay the sum, or to secure or compound it to the reasonable satisfaction of the creditor;

   (b)         ...

   (c)         ...


(2)           The demand referred to in clause (a) of sub-section (1) shall be deemed to have been duly given under the hand of the creditor if it is signed by any agent or legal adviser duly authorised on his behalf, or in the case of a firm, if it is signed by any such agent or legal adviser or by any member of the firm.


It is no defence to say that its assets are highly valuable and will, if realised, far exceed its liabilities. Cf. In Re Dhootpapeswar Sales Corporation (P) Ltd., (1972) 42 Com Cases 139 (Bom.).


Further, several creditors can join hands in filing a winding up petition jointly. See, B.P. Gupta vs. Standard Enamel Works (P) Ltd., (1986) 3 Comp LJ 85 : (1987) Com Cases 36 (Del).



As you may kindly be aware that this Act is applicable to every factory and every other establishment in which twenty or more persons are employed on any day during an accounting year as per Section 1(2).


According to Section 8, every employee shall be entitled to be paid by his employer in an accounting year, bonus, in accordance with the provisions of this Act, provided he has worked in the establishment for not less than thirty working days in an accounting year.

Section 10 provides that the minimum bonus is 8.33 per cent of salary earned during the accounting year, whether or not the employer has any allocable surplus in the accounting year. This Section is not violative of Articles 19 and 301 of the Constitution. Even if employer suffers losses during the accounting year, he is bound to pay minimum bonus as prescribed by Section 10. See, State vs. Sardar Singh Majithia 1979 Lab. I.C. (913) (All).


As regards the amount of bonus, the Act has laid down a detailed procedure for calculating the amount of bonus payable to employees. First of all, Gross Profit is calculated as per First or Second schedule. To this figure, a sum equal to the difference between the direct tax calculated on gross profit for the previous year and direct tax calculated on gross profit arrived at after deducting the bonus paid or payable to the employees. The figure so arrived will be the ‘available surplus’. Of this surplus, 67% in case of company (other than a banking company) and 60% in other cases, shall be the ‘allocable surplus’ which is the amount available for payment of bonus to employees. The details of such calculations are given below:


i)              Computation of gross profit (Section 4)

                The Gross profit derived by an employer from an establishment in respect of an accounting year shall:

a)             in the case of banking company be calculated in the manner specified in the First Schedule;


ii)             Deductions from gross profit (Section 6)

a)             any amount by way of depreciation admissible in accordance with the provisions of  Section 32(1) of the Income Tax Act, or in accordance with the provisions of the Agricultural Income-Tax Law, as the case may be:

What is deductible u/s 6(a), “depreciation admissible in accordance with the provisions of Section 32(1) of the Income Tax Act, 1961 and not depreciation allowed by the Income Tax Officer in making assessment on the employer.

b)                 Any amount by way of development rebate, investment allowance, or development allowance which the employer is entitled to deduct from his income under the Income Tax Act, 1961.

c)                 subject to the provisions of Section 7 and direct tax which the employer is liable to pay for the accounting year in respect of his income, profits and gains during that year.

d)                 such further sums as are specified in respect of the employer in the Third Schedule.


Deductions specified in the Third Schedule

The following is the extract of Third Schedule specifying further deductions available under Section 6(d) of the Act from gross profits for arriving at available surplus:

If the employers is a company, further sums to be deducted are:

i)     Dividend payable on its preference share capital for the accounting year calculated at the actual rate at which such dividends are payable;

ii)   8.5% of its paid up equity share capital as the commencement of the accounting year;

iii)  6% of its reserves shown in its balance sheet at the commencement of the accounting year including any profits carried forward from the previous accounting year.

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