2008 (7) TMI 564 - HC - Companies Law

Winding up Circumstances in which company may be wound up by Tribunal - Held that - In the instant case, that the balance-sheet as to the assets and liabilities, was placed before the court, at the time when the matter was taken up for enquiry, and the balance-sheet as on March 31, 1999, would show that the respondent had fixed the assets to the tune of ₹ 268.64 lakhs and also the current assets at ₹ 198.90, and the liabilities were shown as ₹ 220.60 lakhs. Further, it is true that the respondent-company, as per the balance-sheet, incurred certain loss ; but, the same did not mean that it was not able to discharge its liability to the appellant. It is well-settled proposition of law that the winding up petition at the instance of the creditor cannot be a device to pressurize the debtor to make the payment. In the instant case, it can be well stated that though it ostensibly looks like a winding up proceeding, it is nothing but a device invented by the appellant in order to pressurize the respondent to make the payment. Under the circumstances, the learned single judge was perfectly correct in rejecting the petition both factually and legally. Hence, this appeal stands dismissed

Summary

Issues:
Winding up of respondent-company under section 433(e) of the Companies Act, 1956 based on outstanding debt, disputed liability, service of notice, and financial crisis.

Analysis:
The appellant sought winding up of the respondent-company due to an outstanding amount of Rs. 10,24,252.80 for cotton supplied, along with alleged non-payment despite repeated demands and a returned statutory notice. The respondent disputed the allegations, claiming substandard quality of cotton, absence of demand, and financial stability. The single judge dismissed the petition, leading to the current appeal.

The appellant argued that the rejection was erroneous, citing evidence of demand letters and a letter admitting liability from the respondent's joint managing director. The appellant contended that the liability was clear, and the respondent failed to pay, justifying winding up. However, the court found multiple reasons to uphold the single judge's decision.

Firstly, the court highlighted the disputed liability regarding the quality of the supplied cotton, indicating a triable issue. Secondly, it noted the lack of proper evidence of the demand letter's service, casting doubt on the existence of a valid demand. Thirdly, the court addressed the alleged admission of liability in the letter dated December 3, 1997, emphasizing the need for proof through evidence.

Additionally, the court examined the respondent's financial position based on the balance sheet, showing significant assets and liabilities but not necessarily indicating an inability to pay the debt. The court emphasized that a winding-up petition should not be a coercive tactic, and in this case, it appeared to be a pressure tactic rather than a genuine need for winding up. Consequently, the court upheld the single judge's decision, dismissing the appeal and emphasizing that the petition seemed to be a device to pressure the respondent rather than a legitimate claim for winding up.