Bona fide dispute prevents winding up; petition dismissed where debt liability is genuinely contested and alternate remedies exist.

A winding-up petition based on inability to pay is inappropriate where the debt is bona fide disputed; the legal test requires assessing the existence or liability of the debt, the parties' conduct, the character of the pleas and surrounding circumstances to determine whether the dispute is genuine. Where the respondent denied liability and alleged defective goods soon after statutory notice and the petitioner had alternate remedies to pursue recovery in an appropriate forum, the petition is not maintainable and is dismissed.

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Issues: Whether a company petition for winding up on the ground of inability to pay a debt is maintainable where the alleged debt is disputed bona fide by the respondent.

Analysis: The Court examined the factual record including delivery and billing, the respondent's communications denying liability and alleging defective goods, the statutory notice served under Section 434 of the Companies Act, 1956, and evidence of the respondent's financial capacity. The Court applied the established test that a winding up petition is not the appropriate forum where the existence or liability of the debt is genuinely disputed; conduct of the parties, character of the pleas and the surrounding circumstances are relevant to determine whether a dispute is bona fide. The respondent had denied liability prior to or soon after the statutory notice and asserted that the goods were defective, and the petitioner had alternative remedies to recover the claim in an appropriate forum.

Conclusion: The debt is disputed bona fide and the winding up petition is not maintainable; the company petition is dismissed in favour of the respondent.

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