1994 (2) TMI 267 - SC - Companies Law

Winding up petition - whether the case of the persons opposing the winding up is reasonable? Whether there are matters which should be inquired into and investigated if a winding-up order is made? Held that - Winding up petition dismissed. The financial position of the appellant is sound. It is the largest financial corporation of the State of Uttar Pradesh. It has rendered financial assistance of ₹ 1024.83 crores till March 1992 to more than 100 industrial units and has also promoted joint sector projects. It is profit-making financial corporation and is paying dividend as seen from the balance sheet for the year 1991-92, (filed along with special leave petition). The assets of the appellant-corporation are ₹ 5,26,35,36,568. The reserves are ₹ 17,60,15,222. The profits earned by the appellant before payment of tax is ₹ 7.40 crores and after meeting its financial liabilities, ₹ 2.78 crores.

Issues Involved:
1. Maintainability of the winding-up petition.
2. Compliance with Company Rules and Sections 433, 434, and 439 of the Companies Act, 1956.
3. Existence and nature of the debt claimed by the respondent.
4. Bona fide dispute over the debt.
5. Financial status and capability of the appellant to pay the debt.

Detailed Analysis:

1. Maintainability of the Winding-Up Petition:
The appellant contested the maintainability of the winding-up petition, arguing that the claim itself was doubtful and required adjudication. The court noted that the winding-up petition was based on a disputed debt, which was already under arbitration. The learned Single Judge and the Division Bench had initially overruled the preliminary objections and admitted the petition, but the Supreme Court found that the admission of the winding-up petition was inappropriate given the pending arbitration and the substantial nature of the dispute.

2. Compliance with Company Rules and Sections 433, 434, and 439 of the Companies Act, 1956:
The appellant raised several preliminary objections regarding non-compliance with Company Rules, particularly Rules 21, 95, and 97, and Sections 433, 434, and 439 of the Act. These included issues such as the petition not being accompanied by the necessary application under Section 439(8) and improper presentation of the petition. The Supreme Court found that these objections were initially overruled without proper consideration of their implications on the maintainability of the petition.

3. Existence and Nature of the Debt Claimed by the Respondent:
The core issue was whether the appellant owed a debt of Rs 72.50 lakhs to the respondent under the promoters' agreement. The agreement, which had been canceled by the appellant, required contributions towards the share capital and exploratory expenses. The court highlighted that the cancellation of the agreement and the ongoing arbitration raised substantial questions about the existence and enforceability of the claimed debt. The Supreme Court concluded that the debt was not a determined or definite sum of money payable immediately or at a future date, as required under Section 433 of the Act.

4. Bona Fide Dispute Over the Debt:
The appellant argued that the debt was bona fide disputed, and the defense was substantial. The Supreme Court agreed, referencing the principles established in Madhusudan Gordhandas v. Madhu Woollen Industries Pvt. Ltd., which state that if a debt is bona fide disputed and the defense is substantial, a winding-up petition should not be admitted. The court found that the appellant's defense was in good faith, substantial, and likely to succeed in law, thus rendering the winding-up petition inappropriate.

5. Financial Status and Capability of the Appellant to Pay the Debt:
The appellant, a financial corporation owned by the State of Uttar Pradesh, was financially sound, profit-making, and capable of paying its debts. The court noted the appellant's substantial assets, reserves, and profits, which indicated that it was not commercially insolvent. The Supreme Court emphasized that the machinery for winding-up should not be used merely as a means to enforce payment of a disputed debt.

Conclusion:
The Supreme Court set aside the judgments of the lower courts, finding no justification for admitting the winding-up petition. The court held that the claim was subject to arbitration, the debt was bona fide disputed, and the appellant's financial position was sound. Thus, the civil appeal was allowed, and the winding-up petition was dismissed with costs to be borne equally by the respondents.

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