2001 (10) TMI 1051 - HC - Companies Law

Summary

Issues:
1. Dismissal of company petition by the learned Company Judge.
2. Applicability of arbitration clause in the lease agreement.
3. Legitimacy of debt dispute by the company.
4. Entitlement to winding-up order based on undisputed debt.

Dismissal of Company Petition:
The appellants challenged the order of the Company Judge dismissing their petition, claiming a due amount from the respondent-company. The Judge held that the appellants should have resorted to arbitration as per the agreement, citing the Hind Overseas (P.) Ltd. case. However, the High Court disagreed, stating that the Judge misapplied the law and that the appellants were entitled to pursue the winding-up petition.

Applicability of Arbitration Clause:
The Judge's reliance on Hind Overseas (P.) Ltd. for arbitration was deemed incorrect by the High Court. The Court clarified that the principles in Hind Overseas were not applicable to the present case, as the dispute was based on the company's inability to pay its debt. The High Court emphasized that a winding-up petition should not be used as a means to recover debt unless the debt is undisputed.

Legitimacy of Debt Dispute:
The company contended that the debt was disputed due to issues with the lease agreement terms and the disallowed depreciation claim. However, the High Court found that the outstanding lease rentals were clear and undisputed, amounting to nearly Rupees Thirty Lakhs. The Court highlighted that a genuine dispute must be substantial and likely to succeed in law to prevent a winding-up order.

Entitlement to Winding-Up Order:
The High Court analyzed previous cases to determine the legitimacy of the company's defense against the debt. It was established that when a debt is undisputed and the defense is not bona fide, creditors are entitled to a winding-up order. In this case, the Court found that the company's defense was not legitimate, leading to the direction for the respondent to pay the outstanding amount within three months.

In conclusion, the appeal was disposed of, with the High Court setting aside the Company Judge's order and directing the respondent to pay the due amount. The Court left all contentions regarding service charges and enhanced lease rentals open for further consideration, with an interim order granted for six weeks.