2014 (11) TMI 1184 - HC - Companies Law

Winding up petition - crystallization of amount due - proof of bonafide dues - Held that - In the instant case, the petitioner has neither made any averment nor has placed any document on record to demonstrate that the respondent is commercially insolvent. On the other hand, from the documents on record, it is evident that the respondent is a profit making solvent company and is in a position to meet its debt as and when it arises. The petitioner has failed to show that the respondent has omitted to pay the debt without reasonable excuse and conditions of insolvency in the commercial sense exist. The Company Court exercises in equitable jurisdiction. It is well settled in law that a winding up petition is not legitimate means of seeking to enforce for payment of dues which is bonafide disputed by the respondent. It is evident that the amount due in the instant case has not crystalized and there is a bonafide dispute with regard to liability of the respondent to pay the amount in question to the petitioner. The petitioner has also failed to prove that the condition of insolvency in the commercial sense in respect of respondent exists. For the reasons aforementioned, no case for winding up of the respondent is made out.

Summary

Issues:
Petition seeking winding up of respondent company under Section 439 read with Section 434 of the Companies Act, 1956.

Analysis:
1. Background and Transactions: The petitioner, a company dealing in the manufacture and sale of pet bottles, filed a petition seeking winding up of the respondent company, which deals in the business of manufacture and sale of liquor. The transactions between the parties started in 1996-97 with the respondent placing a purchase order with the petitioner for pet bottles, leading to a dispute over outstanding payments.

2. Petitioner's Claims: The petitioner alleged that the respondent admitted liability to pay a substantial amount, which remained unpaid despite repeated demands. The petitioner argued that the defense set up by the respondent was mala fide and aimed at delaying payment. Reference was made to a Supreme Court decision to support the claim.

3. Respondent's Defense: The respondent disputed the debt, claiming it was not crystallized and raised questions about the genuineness of entries in the books of accounts. It argued that there was no proof of commercial insolvency and highlighted a bona fide dispute regarding the liability to pay. Various legal cases were cited to support this defense.

4. Legal Principles: The judgment referred to well-settled legal principles regarding winding up of a company, emphasizing that a debt must be clear and unimpeachable for winding up proceedings to be justified. It highlighted the importance of a bonafide dispute and substantial defense in such cases.

5. Court's Analysis: The court examined the submissions from both parties and emphasized the need for a crystallized debt before considering winding up. It noted that the accounts between the parties remained unreconciled, indicating that the liability had not crystallized. The court also considered the respondent's claims of non-receipt of materials and unaccounted payments.

6. Commercial Solvency: The court found that the respondent was a profit-making solvent company capable of meeting its debts, and there was no evidence of commercial insolvency. It stressed that winding up is not a legitimate means to enforce payment of disputed dues.

7. Decision: Based on the analysis of the facts, legal principles, and the parties' submissions, the court concluded that the debt had not crystallized, and there was a bonafide dispute regarding the liability. As the petitioner failed to prove commercial insolvency of the respondent, the court dismissed the Company Petition seeking winding up of the respondent company.