1990 (3) TMI 281 - HC - Companies Law

Circumstances in which a company may be wound up, Winding up Company when deemed unable to pay its debts

Issues Involved:
1. Maintainability of the petition under section 433(e) of the Companies Act.
2. Relationship between the petitioner and the respondent (whether the respondent acted as an agent or broker).
3. Applicability of section 230 of the Indian Contract Act, 1872.
4. Bona fide dispute and substantial defence by the respondent.
5. Commercial solvency of the respondent.

Detailed Analysis:

1. Maintainability of the petition under section 433(e) of the Companies Act:
The primary question is whether the petition under section 433(e) of the Companies Act is maintainable. This depends on the nature of the petitioner's claim and the relationship between the parties. If the respondent genuinely disputes the validity of the petitioner's claim on substantial grounds, the court would not proceed further in exercising its discretionary jurisdiction under section 433 of the Act. The court emphasized that the discretion to wind up a company under section 433(e) is a judicial power that must be exercised appropriately. If the respondent company pleads a bona fide and substantial defence, the petition for winding up will be rejected. The court cited the decision in Hegde and Golay Ltd. v. State Bank of India, stating that a creditor has a prima facie right to a winding-up order subject to certain exceptions, such as a bona fide dispute of the debt by the company.

2. Relationship between the petitioner and the respondent (whether the respondent acted as an agent or broker):
The petitioner's claim is based on the assertion that the respondent acted as the agent of the London seller. However, the respondent denied this, stating it acted only as a broker. The court noted the absence of documentation proving the respondent's liability or its relationship as an agent of the London seller. The court highlighted that the petitioner dealt directly with the London seller, as evidenced by the correspondence between them. The court found that the petitioner's claim of the respondent being an agent was not free from doubt and raised substantial questions that need to be tried in a suit.

3. Applicability of section 230 of the Indian Contract Act, 1872:
The petitioner contended that under section 230 of the Indian Contract Act, the respondent, as an agent of a foreign principal, was liable for the petitioner's claim. The court acknowledged the legal proposition but emphasized that its applicability depends on proving the factual basis of the respondent being an agent. The court referred to various decisions cited by both parties, indicating that the issue of agency and the nature of the contract governing the transaction are matters for a court to decide in a suit.

4. Bona fide dispute and substantial defence by the respondent:
The court examined whether the respondent's defence against the petitioner's claim was bona fide and substantial. The court found that the respondent had set up a clear and clean triable issue, indicating that the alleged liability of the respondent was not free from doubt. The court emphasized that if the respondent company pleads a bona fide and substantial defence, the court's discretion will be to dismiss the petition. The court cited the principles stated in Madhusudan Gordhandas and Co. v. Madhu Woollen Industries Private Ltd., which require the defence to be in good faith, substantial, and likely to succeed in point of law.

5. Commercial solvency of the respondent:
The respondent produced its balance sheet, showing a profit and substantial assets, indicating its commercial solvency. The court considered this as one of the circumstances favoring the respondent while considering the objections against the petition. The court emphasized that the respondent's defence was not to cover up any insolvency but was a bona fide dispute.

Conclusion:
The court concluded that the petition could not be admitted and advertised, as the respondent had shown a bona fide and substantial defence against the petitioner's claim. The petition was rejected, but the court clarified that the petitioner retains the liberty to pursue other remedies, such as filing a suit, to substantiate and enforce its claim.

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