2008 (7) TMI 577 - HC - Companies Law

Winding up - Circumstances in which a company may be wound up - Held that - There exists a bona fide dispute between the parties. The petitioner and his wife are the shareholders of the company. The petitioner was Director of company till 28-6-2007 and all the shareholders of the company belong to the family of the petitioner and his father. The respondent-company stated in the reply that the father and mother of the petitioner also provided funds, when the petitioner himself was Director of the company till 28-6-2007, how can he say that interest on principal amount in audited account has not been shown and interest was not paid to him after 31-3-2000. This averment of petitioner itself shows his mala fide and ulterior motive. It appears in the facts and circumstances of the case that the petitioner is also responsible for putting the company to suffer loss. Thus it cannot be held that the respondent-company neglected to pay alleged dues within the meaning of section 433(1)(a) of the Act. W.P. dismissed.

Summary

Issues:
- Winding up petition under Companies Act, 1956
- Dispute regarding outstanding dues between petitioner and respondent company
- Allegations of mismanagement and ulterior motives by respondent company

Analysis:

1. Winding up Petition: The petitioner filed a winding up petition against the respondent company under sections 433, 434, and 439 of the Companies Act, 1956, due to non-repayment of outstanding dues. The petitioner, an unsecured creditor, claimed that interest and principal amount totaling Rs. 87,08,978 were due from the respondent company. The respondent raised various contentions, including disputing the existence of debt and alleging mismanagement by the petitioner.

2. Dispute Over Dues: The respondent company contended that the petitioner, who was a director until 2007, and his family members were major shareholders and had provided funds to the company. The respondent argued that the petitioner's actions led to losses, and the winding up petition was filed with ulterior motives. The petitioner, however, maintained that the dues were admitted, determined, and not in dispute, emphasizing the negligent behavior of the respondent in repaying the debts.

3. Legal Interpretation: The court referred to precedents to determine the legitimacy of the winding up petition. It was established that if a debt is bona fide disputed, the court should not order winding up. The court also highlighted that the inability to pay debts should be taken in a commercial sense, and winding up should not be used merely to realize debts. In this case, the court found a bona fide dispute between the parties, considering the familial relationships between shareholders and directors, and dismissed the petition.

4. Conclusion: The court dismissed the winding up petition, citing the existence of a bona fide dispute over the outstanding dues. The court noted the involvement of the petitioner in the company's affairs and the familial connections within the company, leading to a lack of merit in the petition. The judgment emphasized the need for genuine disputes to warrant a winding up order, ensuring that the provisions of the Companies Act are not misused for coercive purposes.