2001 (8) TMI 1304 - HC - Companies Law

Summary

Issues Involved:
1. Petition for winding up under sections 433 and 434 of the Companies Act, 1956.
2. Alleged failure of the respondent company to pay its debt.
3. Disputes regarding the quality of goods supplied and other claims.
4. Financial status and solvency of the respondent company.
5. Bona fide disputes and the legitimacy of using winding up petitions to enforce payment.

Detailed Analysis:

1. Petition for Winding Up under Sections 433 and 434 of the Companies Act, 1956:
The petitioner-company sought an order to wind up the respondent company alleging failure to pay a debt amounting to Rs. 1,12,15,038, inclusive of interest. The debt arose from transactions involving goods sold and delivered by the petitioner to the respondent.

2. Alleged Failure of the Respondent Company to Pay its Debt:
The petitioner claimed that the respondent failed to pay the principal amount of Rs. 92,18,693, adding interest at 20% p.a. and other charges, totaling Rs. 1,20,75,041. The petitioner issued a statutory notice under sections 433 and 434 demanding payment.

3. Disputes Regarding the Quality of Goods Supplied and Other Claims:
The respondent-company, in its reply, raised several disputes, including the inferior quality of materials supplied, erroneous billing, and non-issuance of 'C' Forms under the Central Sales Tax Act. The respondent admitted a debt of Rs. 66,30,494 and proposed to pay it in monthly installments of Rs. 10 lakhs, which the petitioner initially accepted but later rejected, insisting on the full amount.

4. Financial Status and Solvency of the Respondent Company:
The respondent argued that it was financially solvent, with increasing turnover and ongoing financial reconstruction supported by financial institutions. The company employed about 1050 workers and had a substantial installed capacity and sales figures, indicating its commercial viability.

5. Bona Fide Disputes and the Legitimacy of Using Winding Up Petitions to Enforce Payment:
The court noted that the respondent had raised substantial disputes regarding the debt, including issues of defective material and incorrect billing. The respondent showed bona fides by proposing a payment plan and making partial payments. The court emphasized that a winding up petition is not a legitimate means to enforce payment of a bona fide disputed debt and should not be used to coerce the respondent.

Conclusion:
The court found that the respondent-company had raised genuine and substantial disputes regarding the debt and had shown willingness to reconcile and pay the admitted amount. The court held that the petitioner had abused the process by filing the winding up petition to pressurize the respondent. Consequently, the petition was dismissed, and the petitioner was ordered to pay costs of Rs. 10,000 to the respondent. The court reiterated that winding up petitions should not be used as a means to enforce disputed debts and emphasized the importance of commercial solvency and the respondent's efforts to meet its financial obligations.