2003 (11) TMI 341 - HC - Companies Law

Summary

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

Analysis:
The petitioner filed a company petition under section 433(e) of the Companies Act seeking winding up of the respondent-company due to the respondent's failure to pay a sum of Rs. 4,39,466.00, claiming inability to pay the debt. The petitioner alleged that despite purchasing goods from the respondent and receiving credit notes worth Rs. 4,39,085, the respondent did not repay the money or provide credit for the same. After serving a legal notice under section 434 of the Companies Act, the petitioner resorted to the winding-up petition due to non-payment of the debt by the respondent.

In response, the respondent denied the petitioner's claim, stating that they had business dealings with the petitioner and one of its sister concerns, and had to recover a significant outstanding amount from the sister concern. The respondent argued that they adjusted the credit notes against the dues of the sister concern at the request of the petitioner. The respondent contended that the debt was disputed due to a bona fide defense, and that the company was profitable, distributed dividends, and had no grounds for winding up.

After hearing both parties, the court found no merit in the petition and dismissed it. The court emphasized that the dispute between the parties required civil adjudication to determine their rights and obligations under the alleged agreement. It stated that the matter should be decided in a civil court to ascertain the terms of any agreement, adjustments made, and the entitlement of the petitioner to recover the claimed amount. The court highlighted that the purpose of the petition was to recover money rather than seek the winding up of the company, especially considering the company's financial stability and profitability.

The court highlighted that the remedy of winding up a company is discretionary and should only be pursued when no other reasonable remedy is available. It noted that winding up is a drastic measure that signifies the end of a company's existence. The court stressed the importance of strong prima facie evidence before admitting a winding-up petition and cautioned against using winding up as a tool for debt recovery without substantial grounds. Ultimately, the court dismissed the petition, emphasizing that the petitioner failed to establish a strong case for winding up the respondent-company.