TMI Blog1997 (5) TMI 368X X X X Extracts X X X X X X X X Extracts X X X X ..... ecuting the embroidery work as per the designs furnished by them for which bills have been raised after effecting delivery of the goods to them. 50% of the charges are paid at the time of placing orders and the balance 50% is paid on delivery of the goods after executing the work. As per the agreement between the parties, cloth pieces on which embroidery work is to be done are delivered to the factory of the petitioners at Tirupur and taken delivery of from their factory at Tirupur. The goods will be either sent by professional couriers who are engaged for the purpose by the company or through their own boys who come and collect the finished materials from the petitioners' factories. When the company places an order with the petitioners, they send cut pieces on which embroidery work is to be carried out. The petitioners have been carrying out embroidery work for the company for a few years. After finishing the work, they had raised different bills, but the amount covered by the bills has not been paid. It is further alleged in the petitions that the cheque issued by them was dishonoured and that the company even failed to pay the charges of the professional couriers. The various co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equitable that the company should be wound up." From the averments in the company petitions, it is clear that the petitioners are relying on section 433( e ) of the Act which says that a company may be wound up by the court as it is unable to pay its debts. The circumstances under which it could be said that a company is unable to pay its debts are dealt with in section 434(1) which is quoted here-under: "Company when deemed unable to pay its debts. ‑(1) A company shall be deemed to be unable to pay its debts ( a )if a creditor, by assignment or otherwise, to whom the company is indebted in a sum exceeding five hundred rupees then due, has served on the company, by causing it to be delivered at its registered office, by registered post or otherwise, a demand under his hand requiring the company to pay the sum so due and the company has for three weeks thereafter neglected to pay the sum, or to secure or compound for it to the reasonable satisfaction of the creditor ; ( b )if execution or other process issued on a decree or order of any court in favour of a creditor of the company is returned unsatisfied in whole or in part, or ( c )if it is proved to the satisfac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aders ( P. ) Ltd. v. A.C.K. Krishnaswami [1965] 35 Comp Cas 456 (SC) ; Pradeshiya Industrial and Investment Corporation of Uttar Pradesh v. North India Petro Chemical Ltd. [1994] 79 Comp Cas 835 (SC) ; Pavan Om Parkash Kejriwal v. Partap Steel Rolling Mills ( 1935 ) Ltd. [1994] 81 Comp Cas 916 (P H) ; Rainbow Enterprises v. India Brewery and Distillery Ltd. [1995] 82 Comp Cas 74 (Kar) and Vinodray Amarchand Parekh v. Satish Solvent Extractions Ltd. [1995] 82 Comp Cas 362 (Bom). In the decision in Madhusudan Gordhandas and Co. v. Madhu Woollen Industries P. Ltd. [1972] 42 Comp Cas 125 (SC), it is held that where the petition for the winding up of a company is based on the ground of the inability of the company to pay its debts, it is well-settled that if the debt is bona fide disputed and the defence is a substantial one, the court will not order winding up. The principles on which the court acts are : ( i ) that the defence of the company is in good faith and one of substance ; ( ii ) that the defence is likely to succeed in point of law ; and ( iii ) that the company adduces prima facie proof of the facts on which the defence depends. It is furthe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany had taken delivery of the goods without objection regarding the quality of the goods supplied and without raising any objection notwithstanding the appellant's failure to conform to the time schedule. The counter claim was held to be vague, indefinite and made on a doubtful basis and the two letters on which the respondent-company placed reliance were held to be fabricated subsequently. Counsel also relied on the decision in Pradeshiya Industrial and Investment Corporation of Uttar Pradesh v. North India Petro Chemical Ltd. [1994] 79 Comp Cas 835 (SC) wherein the court observed that the principles on which the court acts are first that the defence of the company is in good faith and one of substance, secondly, the defence is likely to succeed in point of law and thirdly, the company adduces prima facie proof of the facts on which the defence depends. The main thrust of the argument of counsel for the respondent is that the company cannot be said to be in a financially unsound position and unable to pay the debts as its creditworthiness is very high. Reliance was placed by counsel on Annexures XVI and XVII. Going by Annexure XVI, which is the balance-sheet and profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s taken in the decision in Pavan Om Parkash Kejriwal v. Partap Steel Rolling Mills ( 1935 ) Ltd. [1994] 81 Comp Cas 916 (P H). To sum up, these are not cases where the company is unable to pay the debts as it is commercially insolvent. It is in a financially sound position to pay the amount claimed by the petitioners in the company petitions. It has not admitted its liability due to the petitioners. The liability is very much in dispute. The defence raised is a bona fide one and there is prima facie proof regarding the bona fide s and genuineness of the dispute. Under these circumstances, the company cannot be ordered to be wound up taking shelter under section 433( e ) of the Act. So, the prayer to that effect is rejected. But in view of the apprehension of the petitioners that the company is unable to meet its liabilities and in view of the stand taken by the company that it has got high liquidity, there will be a direction to the company to provide bank guarantee for a period of two years for the amount of Rs. 2,68,466.70 in C.P. No. 9 of 1996 and Rs. 10,14,628.20 in C.P. No. 10 of 1996 within a period of four weeks from today subject to further orders of this cou ..... 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