1983 (6) TMI 160 - HC - Companies Law

Summary

Issues Involved:
1. Whether the respondent-company is unable to pay the debt.
2. Whether there is a bona fide dispute between the parties regarding the debt payable by the respondent-company to the petitioner.
3. Relief.

Issue-wise Detailed Analysis:

1. Whether the respondent-company is unable to pay the debt:
The financiers alleged that the company owed them Rs. 7,80,528.76 and served a notice demanding the amount. The company disputed the debt and denied liability. The financiers argued that the company was unable to pay its debt and should be wound up under sections 433, 434, and 439 of the Companies Act, 1956.

The court noted that if a debt is bona fide disputed, the proper remedy for the creditor is to establish the debt through a civil action rather than a winding-up petition. A winding-up order is based on the presumption of insolvency if the company fails to pay a debt after a statutory notice, but this presumption does not apply if the debt is disputed bona fide.

2. Whether there is a bona fide dispute between the parties regarding the debt payable by the respondent-company to the petitioner:
The company pleaded that there was a bona fide dispute regarding the debt. Harminder Singh Bala, who was the managing director of both the financiers and the company until April 11, 1980, allegedly created false liabilities against the company by manipulating entries in the company's books. The company argued that these entries were fictitious and did not reflect a genuine debt.

The court examined the circumstances, including the removal of Harminder Singh Bala and the subsequent investigation by a sub-committee, which found manipulated entries in the company's books. The financiers admitted that no cash payments were made, only liabilities were shifted. The court found that the company had raised a bona fide dispute regarding the debt, supported by substantial evidence and prima facie proof.

3. Relief:
The court concluded that the dispute raised by the company was bona fide and substantial. The entries in the account books, which were the basis of the financiers' claim, were made during the period when Harminder Singh Bala was managing director. The court noted that the company had offered to provide security to protect the financiers' interests, indicating that the defence was not a camouflage to cover insolvency.

The court held that winding up is not a device for claiming disputed debts. If the debts are bona fide disputed, they should be established in a civil court. The mere existence of entries in the account books and the balance-sheet was not sufficient to hold that the debt was not bona fide disputed.

Conclusion:
The court accepted the appeals, set aside the order of the learned single judge, and dismissed the petition for winding up filed by the financiers. No order as to costs was made.