2002 (11) TMI 662 - HC - Companies Law

Summary

Issues:
Company petition seeking winding up under section 433(e) of the Companies Act based on non-payment of debt.

Detailed Analysis:

Issue 1: Allegation of Non-Payment of Debt
The petitioner filed a company petition seeking winding up of the respondent-company under section 433(e) of the Companies Act due to non-payment of a debt amounting to Rs. 6,11,715.65. The respondent denied the liability, claiming that the goods supplied were of inferior quality, causing losses to them. They argued that they had a bona fide dispute regarding the transaction and had made a part payment of Rs. 17 lakhs. The respondent contended that the petitioner should pursue a civil suit rather than seek winding up.

Issue 2: Discretionary Nature of Winding Up
The court emphasized that a petition for winding up is a discretionary remedy and not a right. It noted that winding up puts an end to a company's activities permanently, and thus, should not be invoked for one or two defaults. The court highlighted the legislative provision in section 443(2) empowering the court to refuse winding up if another remedy is available and the petitioner is acting unreasonably.

Issue 3: Judicial Caution in Winding Up Petitions
The court stressed that winding up petitions should not be entertained unless a strong prima facie case is established. It highlighted that winding up proceedings should not be used as a substitute for a civil suit to determine liability for a debt. The court underscored the need to consider various factors such as the nature of the claim, the company's financial position, viability, and commercial sustainability before ordering winding up.

Conclusion:
After considering the arguments and facts presented, the court found no merit in the petition for winding up. It concluded that the respondent had a plausible defense and a bona fide dispute regarding the debt. The court dismissed the petition, emphasizing that winding up should not be pursued when there are valid reasons for non-payment and when the debt is disputed.