2004 (7) TMI 352 - HC - Companies Law

Petition Dismissed for Lack of Debt Proof & Commercial Insolvency Allegations

Madison Communications (P.) Ltd. Versus Som Distilleries & Breweries Ltd.

Madison Communications (P.) Ltd. Versus Som Distilleries & Breweries Ltd. - [2004] 56 SCL 443 (DELHI) Issues Involved:1. Whether the petitioner has established a 'debt' payable by the respondent under Section 433(e) of the Companies Act, 1956.2. Whether the respondent is 'unable to pay its debt' as required under Section 433(e) of the Act.3. Whether the defence raised by the respondent is bona fide or a sham.4. Whether the petition is maintainable in the absence of allegations regarding the non-viability or loss of substratum of the respondent company.Issue-Wise Detailed Analysis:1. Establishment of Debt:The petitioner claimed that the respondent owed Rs. 1,23,04,312.50, including interest, for advertising services rendered. The petitioner's claim was based on various communications and part payments made by the respondent. However, the court found inconsistencies in the amounts claimed by the petitioner in different communications, indicating a lack of clarity on the exact amount due. For instance, the petitioner demanded Rs. 96.24 lakhs in one letter and Rs. 1.03 crores in another. Additionally, the court noted that the petitioner included amounts due from the respondent's sister company without specifying the exact amount due from the respondent alone. Consequently, the court concluded that the petitioner failed to establish a 'debt' as a pre-determined or definite sum of money payable by the respondent.2. Inability to Pay Debt:Section 433(e) of the Companies Act requires the petitioner to prove that the respondent is unable to pay its debt. The court emphasized that this inability should be taken in a commercial sense, meaning the company is unable to meet current demands. However, the court found no evidence or allegations in the petition suggesting that the respondent was commercially insolvent or that its business was not running profitably. The absence of such averments led the court to conclude that the petitioner failed to satisfy the requirement of the respondent's inability to pay the debt.3. Bona Fide Defence:The respondent disputed the amount claimed by the petitioner and provided its own statement of account. The court noted that it is not its function to minutely examine the accounts and determine the exact amount payable. The court also highlighted that winding-up petitions should not be used as a shortcut method to recover disputed debts. Given the discrepancies in the petitioner's claims and the respondent's counter-claims, the court found that the respondent's defence was bona fide and substantial. Consequently, the court held that the defence raised by the respondent could not be dismissed as a sham.4. Maintainability of Petition:The court observed that the petition lacked allegations regarding the non-viability or loss of substratum of the respondent company. The court cited previous judgments emphasizing that winding-up petitions should not be used merely as a means to enforce payment of a disputed debt. The absence of allegations about the respondent's commercial insolvency or loss of substratum led the court to question the maintainability of the petition. The court concluded that the petition was not maintainable as it failed to meet the requirements under Sections 433(e) and 434 of the Companies Act.Conclusion:The court dismissed the petition on the grounds that the petitioner failed to establish a definite debt payable by the respondent, did not prove the respondent's inability to pay the debt, and the respondent's defence was bona fide. Additionally, the petition was not maintainable due to the absence of allegations regarding the respondent's commercial insolvency or loss of substratum. The court emphasized that winding-up petitions should not be used as a means to enforce disputed debts and should be based on sound judicial principles.