2015 (11) TMI 132 - HC - Companies Law

Winding up of the respondent company seeked - Whether in the given facts and circumstances the respondent-Company is required to be wound up having failed and ignored to make payments of the outstanding amount being unable to pay its debts? - Held that - In the matter of Vijay Industries Vs. NATL Technologies Limited 2008 (12) TMI 404 - SUPREME COURT OF INDIA reiterated the prerequisites for winding up on the ground of inability to pay debt by holding that for invoking Sec.433(e) what is necessary that despite service of notice by the creditor, the company which is indebted in a sum exceeding one lakh rupees then due, failed or neglected to pay the same within three weeks thereafter or to secure or compound for it to the reasonable satisfaction of the creditor. It has further been held that Section 433(e) does not state that the debt must be precisely a definite sum and it is not a requirement of law that the entire debt must be definite and certain. No doubt, numbers of e-mails and other correspondences have been exchanged between the parties, which would indicate that the petitioner had indeed raised a dispute with the respondent, but then the question arises as to whether the defense raised by the respondent is a bonafide one or not. After all, to raise a presumption of a company s inability to pay its debts it is not enough merely to show that the company had omitted to pay the debt despite service of statutory notice, it must be further shown that the company had omitted or neglected to pay without reasonable excuse and conditions of insolvency in the commercial sense exist. 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 respondent-Company has clearly set out in their reply the reasons why the amount as claimed by the petitioner has not been paid to them and the contents thereof have already been reproduced (infra). The debt, therefore, is disputed and it cannot also be said that the respondent-Company has no genuine or substantial ground for refusal to pay or is unable to pay the same. The Company refusal to pay debt is as a result of bonafide dispute. The dispute is substantial and genuine and cannot be termed to be spurious, speculative, illusory or misconceived. In view of the preceding analysis, it is evident that the amount due in the instant case has not crystallized 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 respondent is insolvent in the commercial sense. It is well settled that proceeding for winding up, is not a proceeding for the recovery of outstanding dues. Nor for that matter, can the remedy of a petition for winding up be utilized to pressure a company which is commercially solvent to pay a debt which is bonafide disputed. For the reasons aforesaid, no case for winding up of the respondent is made out. In the result, the company petition fails and is hereby dismissed, so also the pending application(s) if any.

Summary

Issues Involved:
1. Petition for winding up under Section 433(e) of the Companies Act, 1956.
2. Alleged debt owed by the respondent company to the petitioner.
3. Respondent's defense and claim of bona fide dispute.
4. Commercial solvency of the respondent company.
5. Legal principles governing winding up petitions based on disputed debts.

Detailed Analysis:

1. Petition for Winding Up under Section 433(e) of the Companies Act, 1956:
The petitioner sought the winding up of the respondent company under Section 433(e) of the Companies Act, 1956, alleging that the respondent company was unable to pay its debts. The petitioner, a firm of Chartered Accountants, claimed that the respondent, a Public Limited Company, owed them Rs. 12,06,580/- for services rendered, along with additional amounts for service tax, penalties, and interest.

2. Alleged Debt Owed by the Respondent Company to the Petitioner:
The petitioner claimed that the respondent company had availed their professional services for various tasks, including preparation of project reports, conducting audits, and liaising with banks for term loans and working capital. The petitioner alleged that despite completing the work and obtaining final sanction for a loan from Punjab National Bank on 23rd September 2006, the respondent failed to pay the outstanding amount. The petitioner issued a legal notice on 9th January 2007, demanding payment within 30 days, failing which a winding up petition would be filed.

3. Respondent's Defense and Claim of Bona Fide Dispute:
The respondent opposed the petition, raising several preliminary objections, including suppression of material facts, malafide intentions, disputed question of facts, and non-compliance with Section 434(1)(a) of the Companies Act, 1956. The respondent contended that all fees and expenses had been paid to the petitioner, as acknowledged by the petitioner in a document dated 11th February 2006. The respondent further argued that the petitioner failed to obtain the promised financial facility within the agreed timeline, causing the respondent company to suffer losses. The respondent also alleged that the petitioner extracted money under false pretenses and failed to perform their contractual obligations.

4. Commercial Solvency of the Respondent Company:
The respondent provided balance sheets as of 31st March 2006, indicating that the company was financially sound and solvent. The court noted that the petitioner did not provide any evidence to demonstrate the respondent's commercial insolvency. The court emphasized that the petition for winding up should not be used as a means to enforce payment of a bona fide disputed debt.

5. Legal Principles Governing Winding Up Petitions Based on Disputed Debts:
The court referred to several Supreme Court judgments to outline the principles governing winding up petitions based on disputed debts. Key principles include:
- If the debt is bona fide disputed and the defense is substantial, the court will not wind up the company.
- A petition presented to exert pressure to pay a bona fide disputed debt is liable to be dismissed.
- Solvency is relevant to test whether the denial of debt is bona fide.
- Where the debt is undisputed and the company does not choose to pay, the court will not accept the defense that the company has the ability to pay.
- An order to wind up a company is discretionary and not automatic, even if the company's liability to pay the debt is proved.

Conclusion:
The court concluded that the debt claimed by the petitioner was bona fide disputed and the respondent's defense was substantial and genuine. The petitioner failed to prove that the respondent was commercially insolvent. The court emphasized that winding up proceedings are not a means for recovering outstanding dues or pressuring a solvent company to pay a disputed debt. Consequently, the petition for winding up was dismissed, along with any pending applications.