1989 (9) TMI 344 - HC - Companies Law

Winding up Circumstances in which a company may be would up Company when deemed unable to pay its debts

Summary

Issues Involved:
1. Maintainability of the petition.
2. Existence and confirmation of debt.
3. Bona fide dispute of debt.
4. Insolvency of the company.
5. Alleged improper motive of the petitioner.

Detailed Analysis:

1. Maintainability of the Petition:
The company contended that the petition was misconceived and not maintainable as it was filed on April 28, 1989, before the statutory notice was served on the company at its registered office. The company argued that this constituted a gross abuse of the process of the court, suggesting that the petitioners' real intention was to coerce the company into paying a non-existent or bona fide disputed debt. The court noted that the petitioners filed the petition even before the statutory notice under section 434 of the Companies Act was served on the company, which indicated an improper motive to pressurize the company.

2. Existence and Confirmation of Debt:
The petitioners claimed that the company confirmed a liability of Rs. 20,20,882.80 as on December 31, 1986, which was later reduced to Rs. 15,82,659.74 after an audit. The company disputed this liability, stating that the amount was part of a running account that continued beyond the said date. The court observed that the confirmation of the debt was not final and that the amount was reduced after auditing. Moreover, the accounts between the parties were not closed, indicating that the debt had not crystallized.

3. Bona Fide Dispute of Debt:
The company raised several grounds to dispute the debt, including the existence of other accounts and claims against the petitioners. The court held that the defence raised by the company was genuine and bona fide, noting that the discussions for reconciliation of accounts continued up to November 1988, and disputes were raised much before the statutory notice was served. The court emphasized that winding-up petitions should not be used as a means to recover disputed debts and should not be exploited to pressurize companies.

4. Insolvency of the Company:
The petitioners alleged that the company was a sick unit and commercially insolvent. However, the company presented evidence of its financial health, including profits made after the agreement with the petitioners ended, payments to financial institutions, and credit in the market. The court found no material to hold the company as commercially insolvent, noting that the allegations of insolvency were not substantiated.

5. Alleged Improper Motive of the Petitioner:
The court found that the conduct of the petitioners supported the company's contention that the petition was filed with the improper motive to coerce the company into making the payment. The court noted that the petitioners held discussions for settlement even after the alleged confirmation of debt, issued the statutory notice more than two months after the company raised disputes, and filed the petition before serving the statutory notice. The court concluded that the petitioners' actions indicated an intention to pressurize the company without addressing its objections.

Conclusion:
The court rejected the petition with costs, finding that the defence raised by the company was genuine and bona fide, the debt was not crystallized, and the petitioners acted with an improper motive to coerce the company.