1990 (10) TMI 285 - HC - Companies Law

Appellate Court Remands Case Due to Lack of Genuine Dispute

MV Paulose Versus City Hospital (P.) Ltd.

MV Paulose Versus City Hospital (P.) Ltd. - [1992] 73 COMP. CAS. 362 (KER.) Issues Involved:1. Whether the respondent-company owed the appellant a sum of Rs. 1,74,709.12.2. Whether the company was commercially insolvent and unable to pay its debts.3. Whether the petition for winding up the company was maintainable.4. Whether the dispute raised by the company regarding the debt was bona fide.5. Whether the payment of Rs. 80,000 by Dr. T. H. Paul was on behalf of the company or his personal liability.6. Whether the order of the learned single judge conditionally dismissing the petition was justified.Detailed Analysis:1. Whether the respondent-company owed the appellant a sum of Rs. 1,74,709.12:The appellant submitted that the respondent-company owed him Rs. 1,74,709.12, and the company had passed resolutions agreeing to pay this amount in monthly installments. However, the company defaulted on these payments. The company admitted in its counter-affidavit that it owed Rs. 1,26,500 as principal and Rs. 47,767.25 as interest, totaling Rs. 1,74,267.25 as of March 31, 1989. This admission establishes the company's liability to the appellant.2. Whether the company was commercially insolvent and unable to pay its debts:The appellant argued that the company's debts exceeded its paid-up capital and it was unable to pay salaries or meet current demands, indicating commercial insolvency. The company owed significant amounts to various creditors, including the Kerala State Electricity Board, Provident Fund Commissioner, debenture loan holders, and banks. The learned single judge observed that the company did not dispute the debt until the petition was filed and had requested time to make payments, indicating financial difficulties.3. Whether the petition for winding up the company was maintainable:The appellant invoked the jurisdiction of the court under section 439(1)(b) of the Companies Act, praying for the company to be wound up under section 433(e) due to its inability to pay debts. The company contended that the petition was an attempt to realize the alleged debt by threatening winding-up proceedings. The court noted that a winding-up petition is a legitimate remedy for enforcing payment of a just debt and is a form of equitable execution.4. Whether the dispute raised by the company regarding the debt was bona fide:The company disputed the debt, claiming to have paid Rs. 85,000 and that Rs. 80,000 paid by Dr. T. H. Paul was on behalf of the company. The learned single judge found that the dispute was not bona fide, as the company did not mention the Rs. 80,000 payment in its reply to the statutory notice and failed to produce receipts or accounts. The court emphasized that a bona fide dispute must be raised in good faith and substantiated with evidence.5. Whether the payment of Rs. 80,000 by Dr. T. H. Paul was on behalf of the company or his personal liability:The appellant claimed that Rs. 80,000 was paid by Dr. T. H. Paul in his personal capacity, not on behalf of the company. The company did not mention this payment in its reply to the statutory notice. The court found that the omission to dispute the debt in the reply and the lack of evidence supporting the company's claim indicated that the payment was not on behalf of the company.6. Whether the order of the learned single judge conditionally dismissing the petition was justified:The learned single judge conditionally dismissed the petition, considering the potential difficulties to the general public if the company was wound up. The appellate court disagreed, stating that commercial insolvency of a company affects creditors, shareholders, and the general public, and the reason given by the learned single judge was not sufficient to dismiss the petition. The appellate court set aside the conditional order and remitted the matter for fresh consideration, directing the respondent-company to furnish security for Rs. 50,000 within a month. If the security is not furnished, proceedings for winding up shall be taken by the company court.Conclusion:The appellate court found that the dispute raised by the company was not bona fide and that the learned single judge's conditional dismissal of the petition was not justified. The matter was remitted for fresh consideration with directions for the respondent-company to furnish security.