Bona fide debt dispute in winding-up proceedings can block admission unless the defence lacks substance and credibility.

In winding-up proceedings, a statutory notice default does not by itself justify admission of the petition; the court must still examine whether the respondent has raised a bona fide dispute of substance. A credible and substantial defence will prevent winding-up from being used as a debt-recovery device, especially where surrounding correspondence, alleged over-billing, and related civil proceedings support the dispute. On the stated facts, the defence was treated as belated and inconsistent, while the debt claim was accepted on a preponderance of probability, leading to admission of the petition and a deposit direction to protect the disputed claim.

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Issues: Whether the winding-up petition based on the alleged unpaid bills disclosed a bona fide and substantial defence so as to justify admission of the petition and the direction to deposit the disputed amount.

Analysis: In winding-up jurisdiction, a mere statutory notice default does not automatically compel admission or winding-up; the Court must still assess whether the respondent has raised a bona fide dispute of substance. Where the debt is genuinely disputed and the defence appears credible, winding-up cannot be used as a substitute for a regular civil remedy or as a device for debt recovery. The Court also treated the respondent's failure to reply to the notice as relevant but not ative, and considered the surrounding correspondence, the alleged over-billing defence, and the pending civil suit. On the facts, the defence was found to be belated, inconsistent, and lacking in bona fides, while the petitioner's claim was treated as established on a preponderance of probability.

Conclusion: The winding-up petition was admitted and the respondent-company was directed to deposit Rs. 30,00,000 with the Registrar General within thirty days, failing which citation was to be published and further steps considered.

Final Conclusion: The Court found the debt dispute insufficient to defeat the petition at the threshold and permitted the winding-up proceedings to continue, while protecting the disputed claim by ordering a deposit.

Ratio Decidendi: In winding-up proceedings, if the respondent does not raise a bona fide defence of substance, the Court may admit the petition and may also direct deposit of the disputed amount; the process is not to be used merely as an alternative mode of debt recovery, but a credible and substantial dispute will prevent winding-up.

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