Inability to pay debts and loss of substratum justified winding-up where the company became commercially defunct.

A company was found liable to be wound up where the petitioning creditor proved a debt above the statutory minimum and the company did not effectively dispute liability. The company's factory, premises and machinery had been taken over by the Karnataka State Financial Corporation, and its own case showed it had no practical means to carry on business. Existing recovery proceedings and the admitted financial position supported the finding that it had become commercially defunct and lost its substratum. The Court held that the validity of the Corporation's action under section 29 of the State Financial Corporations Act, 1951, did not need to be decided in these proceedings, and the winding-up petition was maintainable.

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Issues: Whether the respondent company was liable to be wound up on the ground of inability to pay its debts and loss of substratum.

Analysis: The petitioning creditor established a debt exceeding the statutory minimum, and the respondent company did not effectively dispute the liability. The company's own case showed that its factory, premises, and machinery had been taken over by the Karnataka State Financial Corporation, leaving it without the means to carry on business. The existence of other recovery suits and the admitted financial condition reinforced the conclusion that the company was commercially defunct. The Court also noted that the validity of the Financial Corporation's action under section 29 of the State Financial Corporations Act, 1951, need not be adjudicated in these proceedings, as the immediate question was the company's present inability to function and meet its obligations.

Conclusion: The respondent company was unable to pay its debts and had lost its substratum, so the winding-up petition was maintainable and the company was ordered to be wound up.

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