2000 (10) TMI 923 - HC - Companies Law

Court Denies Winding-Up Petition: Genuine Dispute on Debt

The court rejected the petition to wind up the respondent-company as it found that the company had raised a bona fide dispute regarding the petitioner's ... Winding up - Circumstances in which a company may be wound up Issues Involved:1. Whether the respondent-company admitted liability for the debt claimed by the petitioner.2. Whether the respondent-company is unable to pay its debts and should be wound up under section 433(e) of the Companies Act, 1956.3. Whether the petitioner's claim involves a bona fide dispute that requires determination by a civil court.Issue-wise Detailed Analysis:1. Whether the respondent-company admitted liability for the debt claimed by the petitioner:The petitioner, A.D.S. Builders Guild, claimed that during a meeting on December 10, 1998, the chairman-cum-managing director of the respondent-company admitted an outstanding amount of Rs. 1,48,00,000, which was later corrected to Rs. 1,53,00,000 due to a double deduction of mobilisation advance. The petitioner also claimed a lump sum interest of Rs. 20,00,000 on this amount. The respondent-company, however, contested this claim, arguing that no liability was admitted either on December 10, 1998, or at any other time. The respondent-company further contended that Shri Rakesh Kant Syal, who signed the minutes on behalf of the respondent-company, was neither the chairman-cum-managing director nor authorised to accept liability on behalf of the company. The court noted that the heading of the minutes read 'Final figures presented and discussed on December 10, 1998, with C.M.D.,' indicating that the minutes recorded discussions rather than an admission of liability.2. Whether the respondent-company is unable to pay its debts and should be wound up under section 433(e) of the Companies Act, 1956:The petitioner argued that the respondent-company was unable to pay the admitted debt of Rs. 153.00 lakhs and the lump sum interest of Rs. 20.00 lakhs, justifying winding up under section 433(e) of the Companies Act, 1956. The respondent-company countered this by stating that it was in a sound financial position, earning profits, paying dividends, and capable of meeting its financial obligations. The court emphasized that a winding-up petition is not a legitimate means to enforce payment of a debt that is bona fide disputed by the company. The court cited several precedents, including Harinagar Sugar Mills Co. Ltd. v. M.W. Pradhan and Madhusudan Gordhandas & Co. v. Madhu Woollen Industries (P.) Ltd., to highlight that a winding-up order is not a normal alternative to the ordinary procedure for debt realization and should only be used when the company is unable to pay its debts.3. Whether the petitioner's claim involves a bona fide dispute that requires determination by a civil court:The court found that the respondent-company raised a bona fide dispute regarding the petitioner's claim. The court noted that the matter of whether the minutes dated December 10, 1998, constituted an admission of liability and whether Shri Rakesh Kant Syal was the chairman-cum-managing director at the relevant time required evidence and could not be resolved in a summary procedure. The court referred to the High Court of Karnataka's decision in T. Srinivasa v. Flemming (India) Apotheke (P.) Ltd., which held that if the court is satisfied that the defence raised is bona fide and likely to succeed in a civil court, the winding-up petition should be rejected. The court also noted that even if some amount was payable, the exact liability was still to be determined, and thus, it would not be justified to issue a winding-up order.Conclusion:The court concluded that the respondent-company had raised a bona fide dispute that required determination by a civil court. Consequently, the petition for winding up the respondent-company was rejected, with liberty reserved for the petitioner to approach the civil court for relief regarding the disputed debt.