2015 (12) TMI 1721 - HC - Companies Law

Winding up petition - petitioner have a claim of Euro 447,798.50/- against the respondent which was payable under a letter of guarantee issued by the respondent and the respondent has failed and neglected to make the payment - whether the respondent has a bonafide defense? - Held that - Exchange of correspondence, copies whereby filed alongwith various affidavits that the dispute raised by the respondent was substantial and genuine and not spurious, speculative or misconceived. The company court cannot hold a full trial of the matter. The company court has to only see whether the ground appeared to be substantial. In my view, the ground of dispute raised is rather substantial.

Summary

Issues:
- Claim of debt payable under a letter of guarantee
- Dispute over non-payment and defense raised by the respondent
- Validity of statutory notice delivery and bonafide defense
- Examination of company's solvency and dispute as to liability

Analysis:

1. Claim of debt payable under a letter of guarantee:
The petitioner filed a company petition claiming a debt of Euro 447,798.50 against the respondent, which was payable under a letter of guarantee issued by the respondent. The petitioner argued that as the respondent failed to make the payment, it indicated an inability to pay its debts, justifying winding up the respondent company.

2. Dispute over non-payment and defense raised by the respondent:
The respondent, being the parent company of another entity, SK Agrotech, raised a defense stating that the machinery supplied by the Austrian exporter did not function satisfactorily, leading to project failure and significant losses. The respondent contended that they are not liable to pay due to the non-performance of the machinery, highlighting the essential role of the equipment in the project's initiation.

3. Validity of statutory notice delivery and bonafide defense:
Although the respondent did not reply to the statutory notice, they claimed that the notice was not delivered to them. The petitioner argued that all other correspondence was received at the same address, raising doubts about the non-delivery of the statutory notice. The court examined whether the respondent had a bonafide defense, emphasizing that a company should not be wound up if a substantial dispute is raised.

4. Examination of company's solvency and dispute as to liability:
The court referred to legal precedents to determine the importance of a bona fide dispute in the context of winding up a company. It highlighted that if a debt is genuinely disputed, it does not constitute neglect to pay debts under the Companies Act. The judgment emphasized the significance of examining a company's solvency to differentiate between a genuine dispute over liability and an actual inability to pay, underscoring that commercial solvency alone should not be a ground to reject a winding-up petition if substantial grounds for rejection are not established.

In conclusion, the court dismissed the company petition, considering the substantial and genuine dispute raised by the respondent as a bonafide defense, which prevented the winding up of the respondent company based on the debt claim under the letter of guarantee.