2005 (4) TMI 315 - 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 under sections 433(e) and (f) read with section 434(1)(a) of the Companies Act, 1956.
2. Non-payment of debt by the respondent-company.
3. Disputes regarding the transfer of shares and performance of obligations under an arbitral award.
4. Allegations of the respondent's insolvency and inability to discharge debts.
5. Legal proceedings pending in other courts affecting the transfer of shares.

Issue-wise Detailed Analysis:

1. Petition for Winding Up:
The petitioner, a Canadian company, filed a petition under sections 433(e) and (f) read with section 434(1)(a) of the Companies Act, 1956, seeking an order of winding up against the respondent-company for its inability to clear amounts due to the petitioner and other creditors. The respondent-company was incorporated in 1981 with an authorized share capital of Rs. 20,00,00,000.

2. Non-payment of Debt:
The petitioner and the respondent had entered into various agreements, leading to disputes that were referred to an arbitral tribunal. The tribunal's award required the respondent to buy 1,13,48,200 shares of KEOPL from the petitioner and pay INR 113,482,000 by March 31, 2004. The respondent failed to make the payment, leading the petitioner to issue a legal notice on August 17, 2004, which went unheeded.

3. Disputes Regarding Transfer of Shares:
The respondent argued that the petitioner had not conclusively shown readiness to transfer the shares and that the shares were under threat of attachment by a Canadian court. The petitioner countered that it was always ready to transfer the shares, which were unencumbered and not subject to any legal proceedings. The petitioner had offered to lodge the shares with the transfer deeds upon payment.

4. Allegations of Respondent's Insolvency:
The petitioner claimed that the respondent was unable to pay its debts and had created various charges on its properties and assets. The respondent denied these allegations, presenting its balance sheet and profit and loss account to show its financial soundness. The court noted that failure to pay an undisputed debt as per section 434(1) of the Act deems the company insolvent.

5. Legal Proceedings in Other Courts:
The respondent highlighted ongoing legal proceedings in Canada and the Delhi High Court involving Oakwell Engineering Ltd., which sought to attach the shares held by the petitioner. The court found that these proceedings did not affect the petitioner's ability to transfer the shares, as no attachment had been made.

Judgment Summary:
The court examined the principles laid down in various precedents, emphasizing that a winding-up petition is not a legitimate means of enforcing payment of a disputed debt. The court found that the respondent's objections were not bona fide and were merely an excuse to avoid payment. The petitioner had demonstrated readiness to transfer the shares, and the respondent had admitted its liability by remitting interest as per the arbitral award.

The court admitted the company petition, granting the respondent five weeks to effect payment as per the award. If the respondent failed to pay within the stipulated time, the petitioner was allowed to publish the admission of the company petition in specified newspapers.

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