2002 (10) TMI 681 - 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. Petition for winding up of the respondent-company under section 439 read with sections 433 and 434 of the Companies Act, 1956.
2. Alleged failure of the respondent-company to pay an alleged debt of Rs. 52,22,114.
3. Respondent-company's defense of no debt due and payable, and claim being time-barred.
4. Bona fide dispute over the alleged debt.
5. Petitioner's locus standi and the applicability of section 433(f) on "just and equitable" grounds.
6. Judicial discretion in winding up petitions and the potential impact on the company and its employees.

Detailed Analysis:

1. Petition for Winding Up:
The petitioner sought the winding up of the respondent-company under section 439 read with sections 433 and 434 of the Companies Act, 1956, and the appointment of an official liquidator. The petitioner alleged that the respondent-company failed to pay an alleged debt of Rs. 52,22,114. The petitioner had initially deposited Rs. 5 crores with the respondent-company under a portfolio management scheme, receiving partial refunds and payments over time, but claimed a balance amount remained unpaid.

2. Alleged Failure to Pay Debt:
The petitioner-company argued that despite repeated requests and statutory notices, the respondent-company failed to pay the remaining alleged debt. The petitioner detailed the transactions and partial payments made by the respondent-company, asserting that a sum of Rs. 50,22,114 was still due.

3. Respondent-Company's Defense:
The respondent-company opposed the petition, filing affidavits to assert that no debt was due and payable. It contended that the claim was time-barred and based on speculative returns from share market investments, which were not guaranteed or ascertained debts. The respondent-company argued that the entire principal amount and accrued returns had been paid, providing a schedule of payments.

4. Bona Fide Dispute:
The court noted that the respondent-company had bona fide and substantial disputes regarding the alleged debt. The court emphasized that the nature of share market investments meant returns were not fixed or guaranteed, and the petitioner failed to establish a definite amount of debt. The court found that the respondent-company had provided full accounts of payments made, reflecting a running account between the parties.

5. Petitioner's Locus Standi and Section 433(f):
The petitioner argued for winding up under section 433(e) and (f), claiming the company had lost its substratum and incurred significant losses. However, the court held that the petitioner must first establish the debt under section 433(e) before invoking section 433(f) on "just and equitable" grounds. The court found that the petitioner failed to establish the alleged debt and, therefore, lacked the locus standi to seek winding up on just and equitable grounds.

6. Judicial Discretion in Winding Up Petitions:
The court exercised judicial discretion, emphasizing the potential negative impact of winding up a running company employing over 300 employees. The court cited precedents highlighting the preference for reviving companies rather than winding them up, especially when there is a possibility of financial recovery. The court concluded that admitting the petition would harm the company and its stakeholders, and the petitioner should seek alternative remedies if necessary.

Conclusion:
The court dismissed the petition for winding up the respondent-company, finding no substance in the petitioner's claims. The court emphasized the bona fide dispute over the alleged debt, the speculative nature of the returns, and the need to avoid harming a running company with significant employment and business operations. The petition was dismissed with no order as to costs.

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