2005 (1) TMI 408 - HC - Companies Law

Summary

Issues Involved:
1. Whether the respondent company is unable to pay its debts under sections 433(e) and 434(1)(a) of the Companies Act, 1956.
2. Whether the winding-up petition is maintainable despite the respondent's pending civil suit challenging the petitioner's right to seize assets.
3. Whether the respondent's defence against the winding-up petition is bona fide and substantial.

Issue-wise Detailed Analysis:

1. Inability to Pay Debts:
The petitioner, a hire purchase and lease financing business, entered into a hire purchase agreement with the respondent for eight laptops and one server, amounting to Rs. 15,60,426, repayable in 24 monthly instalments. The respondent defaulted on payments after March 2001, despite being granted a moratorium. The petitioner repeatedly requested payment and surrender of the assets, which the respondent partially complied with by surrendering some laptops and the server. The petitioner sold the recovered assets and credited the amount to the respondent's debt. Despite a statutory notice under section 434 of the Companies Act, the respondent neither paid the outstanding amount of Rs. 9,46,503 nor replied, indicating an inability to pay its debts.

2. Maintainability of Winding-up Petition:
The petitioner argued that the respondent's pending civil suit (O.S. No. 3006 of 2002) does not invalidate the winding-up proceedings. Citing precedents, the petitioner contended that winding-up proceedings can continue despite other recovery suits, as the reliefs sought are different. The court agreed, noting that the pending suit was not a bar to winding-up, especially since it appeared to be a tactic to delay or defeat the realization of dues.

3. Bona Fide Defence:
The court examined whether the respondent's defence was bona fide and substantial. The respondent claimed to have paid a significant portion of the instalments and challenged the petitioner's sale of assets at a low price. However, the court found that the respondent's defence lacked good faith and substance. The respondent's failure to pay the outstanding amount, despite admitting financial difficulties, and the absence of interim relief in the pending suit, led the court to conclude that the defence was not bona fide.

Conclusion:
The court concluded that the respondent was unable to pay its debts, the winding-up petition was maintainable, and the respondent's defence was not bona fide. The petition for winding up was ordered, and the Official Liquidator was directed to take charge of the respondent company's assets. The directors were instructed to file statements within three weeks.