2013 (11) TMI 1348 - HC - Companies Law

Stay application - Winding up of a company - Inability to pay debts - Held that - winding up proceeding is not a recovery proceeding for enforcing the recovery of the debt. It is not a tool to realise the debts due from the company, nor could be taken out to exert the pressure on the company to pay the dues. The debt must be of an ascertained and/or definite sum. If there is some bona fide disputes so raised, the proper course which the Company Court should adopt is to relegate the parties to a regular civil proceeding. Furthermore, the financial solvency of the company should also be taken in mind in discharging the admitted liability and raising a bona fide disputes. company has paid off the entire principal amount, may be after the winding up petition is advertised. All the creditors who appeared at the post advertisement stage including the present creditors have been paid in entirety. It is only the dispute relating to the payment of interest which is left to be considered in the winding up proceeding. From the admitted fact that the company have paid the entire principal amount, it is demonstrated that the company is otherwise financially solvent and that its continuance in operation would not effect the public at large. Except from a stray statement that the company has pleaded the waiver of the interest, there is no contemporaneous document forthcoming before the Court which would lead to an inevitable conclusion that the company has agreed to pay the interest as claimed by those secured creditors - The application under Section 466 of the Companies Act is allowed, meaning thereby that the winding up petition shall remain permanently stayed - Stay granted.

Summary

Issues:
1. Application under Section 466 of the Companies Act for stay of winding up proceeding.
2. Dispute regarding payment of interest to creditors.
3. Company's financial solvency and agreement to pay interest.

Analysis:
1. The judgment pertains to an application under Section 466 of the Companies Act filed by the company seeking a stay of the winding up proceeding. The company acknowledged its liability towards certain creditors and made partial payments towards the outstanding amounts. The court recorded these payments and directed the company to pay the remaining principal amount due to one of the creditors within a specified period. The court also kept the issue of interest payment open for future consideration.

2. The dispute arose when the company handed over the remaining principal amount to the creditor and asserted that the creditors were not entitled to claim any interest on the said amount. The creditors contended that the money was unreasonably withheld by the company, justifying their claim for interest. However, there was a disagreement regarding the entitlement to interest, particularly in the case of one creditor related to the supply of goods without a specific agreement for interest payment.

3. The court examined the arguments presented by both parties regarding the payment of interest. The company claimed that there was no express agreement to pay interest, and affidavits seeking waiver of interest were submitted in good faith to demonstrate willingness to pay the principal amount. The court considered the financial solvency of the company, noting that all principal amounts had been paid post the winding up petition advertisement, indicating the company's ability to meet its obligations. It emphasized that the winding up proceeding is not a tool for debt recovery and that genuine disputes should be addressed through regular civil proceedings. As the company raised a triable issue regarding interest payment, the court directed the matter to be resolved in a civil suit, ultimately allowing the application under Section 466 of the Companies Act for a permanent stay of the winding up petition.

Additionally, the official liquidator highlighted incurring expenses due to the advertised winding up petition and requested reimbursement from the company. The court directed the company to pay the stated expenditure within a week, with the consequence of automatic recall of the stay order in case of default.