1967 (11) TMI 55 - HC - Companies Law

Winding up - Company when deemed unable to pay its debts, Cost and expenses payable out of assets in a winding-up by Court

Issues Involved:
1. Bona fide dispute regarding the liability of the respondent-company.
2. Nature of the debt (whether it was a deposit or a loan).
3. Applicability of section 433(e) read with section 434(1)(a) of the Companies Act, 1956.
4. Judicial discretion in winding-up petitions.

Issue-wise Detailed Analysis:

1. Bona fide Dispute Regarding the Liability of the Respondent-Company:

The primary issue in this case was whether there was a bona fide dispute regarding the respondent-company's liability to pay the debt claimed by the appellant-company. The appellant sought the winding-up of the respondent-company under section 433(e) read with section 434(1)(a) of the Companies Act, 1956, on the grounds of the company's inability to pay its debts. The learned single judge dismissed the petition, stating that there was a bona fide dispute about the liability of the respondent-company to pay the debt on the date of the insolvency notice. The appellant-company argued that the debt was acknowledged in the balance-sheet of the respondent-company, but the court held that the acknowledgment did not amount to an admission that the debt was due on the date of the insolvency notice. The court concluded that the dispute regarding the debt was bona fide and could not be resolved through winding-up proceedings.

2. Nature of the Debt (Deposit or Loan):

The court examined whether the debt owed by the respondent-company to the managing agent company was a "deposit" within the meaning of clause 22 of the agreement between the respondent-company and the Uttar Pradesh Financial Corporation. The court noted that "liability" is a broad term that includes both loans and deposits. The court found that the amount in question was not a loan, as it was not lent by the managing agent company to the respondent-company. Instead, the court considered the possibility that the amount was a deposit, as it was left with the respondent-company to earn interest. The court emphasized that the nature of the liability depends on the facts and circumstances of each case and that a deposit does not necessarily involve the creation of a trust.

3. Applicability of Section 433(e) Read with Section 434(1)(a) of the Companies Act, 1956:

The court analyzed the applicability of section 433(e) read with section 434(1)(a) of the Companies Act, 1956. It held that a company could be wound up under section 433(e) if the creditor could prove that the company neglected to pay a debt exceeding Rs. 500 that was due at the time of the service of the insolvency notice. The court noted that if there is a bona fide dispute about the liability to pay the debt, the company cannot be held to have neglected to pay the debt within the meaning of section 434(1)(a). The court found that the dispute about the debt in this case was bona fide and that the debt was not "due" on the date of the insolvency notice.

4. Judicial Discretion in Winding-Up Petitions:

The court emphasized that the remedy of winding up is an equitable one and that the passing of a winding-up order under section 433 of the Act is within the sound judicial discretion of the court. The court noted that an order under section 433 cannot be claimed as a matter of right. The court also highlighted that in a statutory appeal against a discretionary order, interference is not justified unless it is shown that the discretion was not exercised according to sound judicial principles. The court found that the learned single judge had exercised discretion properly in dismissing the winding-up petition.

Conclusion:

The court dismissed the appeal, holding that the respondent-company's liability to pay the debt was bona fide disputed and that the winding-up petition could not be used to resolve such disputes. The court affirmed that the remedy of winding up is discretionary and should be exercised in accordance with judicial principles. The appeal was dismissed without any order as to costs.

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