Inability to pay admitted debt allows petition advertisement where the company's defence lacks prima facie bona fide substance.

Winding-up petitions based on inability to pay an admitted debt focus at the preliminary stage on whether the company's defence is bona fide and shows prima facie substance and legal merit; if not, the petition may be proceeded with for advertisement. Documentary admission of liability and outstanding balance supports the petitioner's case, while unsubstantiated delay or loss contentions that contradict earlier admissions lack prima facie force. Claims about other secured creditors or bank indebtedness are ordinarily matters for later stages and are not decisive at the advertisement threshold.

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Issues: Whether the petition under Sections 433, 434 and 439 of the Companies Act, 1956 for winding up the company should be permitted to proceed (advertised) on the ground that the company was unable to pay the admitted debt.

Analysis: The petition alleges that the respondent-company admitted and agreed to repay a debt of Rs. 14,48,740 by instalments and that, despite some payments, a balance remained due at the time of filing. The Court examined the agreement dated 24 March 1983 and subsequent correspondence confirming the respondent's admission of liability and partial payments, leaving a clear balance due. The respondent's contention that delay in installation caused losses was not supported by documentary evidence and was not raised in good faith; the respondent had earlier admitted liability and sought accommodation by proposing instalments. At the preliminary hearing stage the Court applied the established test that the company's defence must be bona fide and have prima facie substance and likelihood of success on legal points to refuse a winding up. The Court found the defence lacked prima facie substance and was being used to delay payment. The Court also noted that submissions about other secured creditors and the company's indebtedness to banks concerned considerations for later stages and are not ordinarily taken into account at the preliminary stage prior to advertisement.

Conclusion: The petition discloses a prima facie case in favour of the petitioner; the defence of the respondent is not prima facie bona fide or likely to succeed; the petition should be advertised to enable further proceedings.

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