Commercial insolvency test in winding up petitions requires proof beyond debt due or dishonoured cheques.

A winding up petition based on inability to pay debts requires proof of commercial insolvency, not merely evidence that a debt is due or that cheques were dishonoured. The petitioner must place material before the Court showing that the company's contingent and prospective liabilities, taken together with its existing position, prevent payment of its debts. Here, the pleadings denied insolvency and the petitioner failed to produce sufficient evidence of contingent and prospective liabilities; correspondence seeking balance sheets did not satisfy that burden. The petition was therefore not maintainable on the material presented and was dismissed.

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Issues: Whether the petitioner made out a case for winding up on the ground that the company was unable to pay its debts under Section 434(1)(c) of the Companies Act, 1956.

Analysis: The statutory test under Section 434(1)(c) required not merely proof that a debt was due or that cheques were dishonoured, but also material to show that the company was commercially insolvent after taking into account its contingent and prospective liabilities. The pleadings denied commercial insolvency, and the petitioner did not place sufficient material before the Court, such as facts bearing on the company's contingent and prospective liabilities, to discharge the burden of proof. Mere correspondence seeking balance sheets did not substitute for the necessary evidentiary foundation.

Conclusion: The petitioner failed to establish that the company was commercially insolvent or unable to pay its debts within the meaning of Section 434(1)(c) of the Companies Act, 1956.

Final Conclusion: The winding up petition was not maintainable on the material placed and was dismissed.

Ratio Decidendi: In a winding up petition based on inability to pay debts, the petitioner must prove commercial insolvency by placing material before the Court showing that the company's contingent and prospective liabilities prevent payment of its debts; proof of debt or dishonoured cheques alone is insufficient.

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