2007 (9) TMI 407 - HC - Companies Law

Winding up Circumstances in which a company may be would up, Winding up - Company when deemed unable to pay its debts

Summary

Issues Involved:
1. Limitation period for winding up petitions.
2. Tests for admission and advertisement of a creditor's petition for winding up.
3. Justification for admission and advertisement of the company petition.

Analysis:

1. Limitation Period for Winding Up Petitions:
The court examined whether the relevant date for computing the period of limitation is the date of presentation of the petition or the date of hearing for its admission and advertisement. The court held that the relevant date is the date of presentation of the petition. It emphasized that a petition for winding up, filed within the prescribed period of limitation, remains valid even if the debt becomes time-barred by the date of hearing. The court cited various precedents, including *Modern Dekor Painting Contracts P. Ltd. v. Jenson and Nicholson (India) Ltd.*, to support this view. The court concluded that the petitioner's claim was within the prescribed period of limitation at the time of filing the petition.

2. Tests for Admission and Advertisement of a Creditor's Petition for Winding Up:
The court outlined several tests to determine whether a winding up petition should be admitted and advertised:
- Whether the petitioning creditor is owed an ascertained sum of money.
- Whether the debt is within limitation.
- Whether the company's defense is bona fide or a mere moonshine.
- Whether a presumption arises that the company is unable to pay its debts.
- Whether the company is commercially insolvent.
The court emphasized that a winding up petition is an extreme remedy and should be resorted to sparingly. It noted that the machinery for winding up should not be used merely as a means for realizing debts.

3. Justification for Admission and Advertisement of the Company Petition:
The court analyzed the facts of the case to determine whether the petition should be admitted and advertised. It noted that the petitioner claimed dues for 77 RIM handsets provided under the "Corporate Scheme," while the respondent claimed commission for 936 RIM handsets sold under the "Monsoon Hungama Scheme." The court found that the respondent's defense was bona fide and not a moonshine, as there was evidence of mutual obligations and disputes regarding the amounts due. The court also observed that the respondent's balance sheet indicated financial stability, with reserves exceeding Rs. 4.21 crores and net current assets exceeding Rs. 21 crores. The court concluded that the respondent was not commercially insolvent and could meet its debts as they accrued. Consequently, the court dismissed the petition, stating that the remedy for recovering the debt lies in a civil suit rather than in summary winding up proceedings.

Conclusion:
The court dismissed the winding up petition, emphasizing that the petitioner's claim was within the limitation period, but the respondent's defense was bona fide and substantial. The court found no evidence of the respondent's commercial insolvency and ruled that the appropriate remedy for the petitioner was to file a civil suit for debt recovery.