1979 (1) TMI 213 - HC - Companies Law

Summary

Issues Involved:
1. Contractual liability to pay compensation.
2. Bona fide dispute over debt.
3. Neglect to pay debt under Section 434(1)(a) of the Companies Act, 1956.
4. Allegations of insolvency and being a "bubble" company.

Issue-wise Detailed Analysis:

1. Contractual Liability to Pay Compensation:
The petitioners, tenants of certain premises, had a leave and licence agreement with the respondent-company, Yashodan Chit Fund Pvt. Ltd., to use and occupy the premises for a fixed period from 31st May 1972 to 30th May 1975, for a monthly compensation of Rs. 1,000 and Rs. 400 per month as commission for services. The respondent-company paid the compensation in advance for three years. However, from 1st June 1975, the respondent-company did not pay the compensation. The petitioners demanded arrears of Rs. 49,000 for the period from 1st June 1975 to 30th April 1978. The respondent-company denied liability, citing pending legal proceedings regarding the standard rent application.

2. Bona Fide Dispute Over Debt:
The court examined whether the dispute over the debt was genuine and bona fide. The respondent-company had filed a declaratory suit and a standard rent application, seeking to establish itself as a tenant and to fix the standard rent. The court noted that the Bombay Rents, Hotel and Lodging House Rates Control Act, 1947, as amended by Maharashtra Act, No. XVII of 1973, protected licensees against excessive charges and eviction. The respondent-company's application for standard rent was pending, and the court concluded that there was a bona fide dispute regarding the debt, which needed adjudication by a competent court.

3. Neglect to Pay Debt Under Section 434(1)(a) of the Companies Act, 1956:
The court considered whether the respondent-company's failure to pay the demanded sum constituted "neglect" under Section 434(1)(a). It referred to the legal interpretation of "neglect" as omitting to pay without reasonable excuse. Since the respondent-company had raised a bona fide dispute and applied for standard rent fixation, the court found that the respondent-company had not "neglected" to pay the debt. The statutory notice under Section 434(1)(a) did not automatically entitle the petitioners to a winding-up order due to the genuine dispute.

4. Allegations of Insolvency and Being a "Bubble" Company:
The petitioners alleged that the respondent-company was insolvent, describing it as a "bubble" company with a paid-up share capital of Rs. 200 and significant carried forward losses. The respondent-company countered that it had reduced its debt to sundry creditors and continued to carry on business effectively. The court found no material evidence to prove the respondent-company's insolvency or inability to meet its liabilities. The allegation of being a "bubble" company was deemed reckless and unfounded.

Conclusion:
The court concluded that the grounds for winding up under Section 433(e) read with Section 434(1)(a) and Section 433(f) were not well-founded. The petition for winding up was primarily to exert pressure on the respondent-company. The court dismissed the petition with costs, clarifying that the observations made were prima facie and would not affect the pending proceedings between the parties.