2007 (5) TMI 333 - HC - Companies Law

Court dismisses winding-up petition due to bona fide dispute on debt.

The court dismissed the petition for winding up the respondent company under section 433(e) of the Companies Act, 1956. The court found that there was a ... Winding up - Circumstances in which a company may be wound up Issues Involved:1. Petition for winding up of the respondent company under section 433(e) of the Companies Act, 1956.2. Appointment of Official Liquidator as the provisional liquidator.3. Alleged debt owed by the respondent company to the petitioner.4. Dispute over the agreed commission rate and interest.5. Bona fide dispute regarding the debt.6. Financial solvency of the respondent company.7. Legal principles governing winding-up petitions based on disputed claims.Issue-wise Detailed Analysis:1. Petition for Winding Up of the Respondent Company:The petitioner sought the winding up of the respondent company under section 433(e), read with sections 434 and 439 of the Companies Act, 1956, alleging the respondent's inability to pay a debt of Rs. 3,66,416 with interest. The petitioner argued that the respondent company was commercially insolvent and unable to pay its debts, thus justifying the winding-up petition.2. Appointment of Official Liquidator:The petitioner also requested the appointment of an Official Liquidator as the provisional liquidator to manage the respondent company's affairs and assets, and to prevent the respondent from disposing of its assets.3. Alleged Debt Owed by the Respondent Company:The petitioner claimed that the respondent owed Rs. 3,66,416 plus interest for recruitment services provided. Invoices were sent to the respondent, who allegedly did not dispute them, implying acceptance. However, the respondent refuted this, stating there was no agreement on the commission rate or interest.4. Dispute Over Agreed Commission Rate and Interest:The petitioner claimed a commission rate of 12.5% on annual gross, which the respondent argued was arbitrary and higher than rates paid to other service providers. The respondent contended that an oral agreement for an 8.33% commission existed and that the invoices were sent at a higher rate without agreement. The respondent also disputed the claim for interest, stating no agreement on the rate existed.5. Bona Fide Dispute Regarding the Debt:The court examined whether the dispute over the debt was bona fide. The respondent provided evidence of a genuine dispute over the commission rate and the quality of services provided. The court noted that a winding-up petition is not a legitimate means to enforce payment of a disputed debt. The petitioner's shifting stance-from deemed acceptance of invoices to an oral agreement-further complicated the matter.6. Financial Solvency of the Respondent Company:The respondent provided its audited balance sheet for 2005-06, which did not indicate insolvency. The court found no evidence from the petitioner to suggest the respondent was financially incapable of paying its debts.7. Legal Principles Governing Winding-Up Petitions Based on Disputed Claims:The court reiterated that for a winding-up petition to succeed, the debt must be clear, definite, and undisputed. The court emphasized that a bona fide dispute over the debt precludes the use of winding-up proceedings as a debt recovery mechanism. The court referred to several precedents, including 'Madhusudan Gordhandas & Co. v. Madhu Woollen Industries (P.) Ltd.' and 'Pradeshiya Industrial & Investment Corpn. of U.P. v. North India Petrochemicals Ltd.,' which establish that winding-up petitions should not be used to resolve disputed debts.Conclusion:The court concluded that the disputes raised by the respondent were bona fide and substantial, indicating no consensus ad idem on the commission rate or interest. The respondent's financial statements did not support claims of insolvency. Consequently, the petition for winding up the respondent company was dismissed, with both parties bearing their own costs.