Winding up for inability to pay debts upheld where no bona fide dispute existed and liability remained admitted.

A winding up petition may proceed where the company admits liability but fails to show a bona fide, substantial dispute supported by prima facie material; an alternative civil remedy does not bar relief in those circumstances. The Court found that the respondent company had not raised any real dispute as to the debt or amount claimed, had not paid the admitted dues after notice, and its annual reports indicated commercial inability to meet liabilities. On that basis, the statutory ground of inability to pay debts was established, and winding up proceedings were directed to continue with appointment of the Official Liquidator.

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Issues: (i) Whether the respondent company could resist a winding up petition on the ground of a bona fide dispute, availability of an alternative civil remedy, and the discretionary nature of winding up under the Companies Act, 1956. (ii) Whether the respondent company was unable to pay its debts so as to warrant an order of winding up.

Issue (i): Whether the respondent company could resist a winding up petition on the ground of a bona fide dispute, availability of an alternative civil remedy, and the discretionary nature of winding up under the Companies Act, 1956.

Analysis: A winding up petition cannot be used merely as a means to exert pressure for payment where the debt is bona fide disputed. The Court applied the settled principle that if the company shows a defence in good faith, supported by substance and prima facie material, the petition may be declined. However, the respondent did not establish any real dispute as to the liability or the amount claimed, and the plea of an alternative civil remedy was not sufficient to defeat the petition when the debt remained unpaid and no substantial defence was shown.

Conclusion: The respondent company failed to make out a bona fide dispute or a sufficient ground to refuse winding up on the basis of alternative remedy, and the objection was rejected.

Issue (ii): Whether the respondent company was unable to pay its debts so as to warrant an order of winding up.

Analysis: The Court found that the respondent company did not dispute its liability and had not paid the admitted dues even after notice and lapse of time. The materials on record, including the financial position reflected in the annual reports, showed commercial inability to meet liabilities. In the absence of any substantial defence, the Court held that the statutory ground of inability to pay debts stood established.

Conclusion: The respondent company was held to be unable to pay its debts, and winding up was ordered.

Final Conclusion: The petition succeeded on the statutory ground of inability to pay debts, and the Court directed winding up proceedings to continue with appointment of the Official Liquidator for further steps under the Companies Act, 1956 and the Companies (Court) Rules, 1959.

Ratio Decidendi: Where a company admits liability but fails to show a bona fide and substantial dispute, the existence of an alternative civil remedy does not bar winding up if the company is commercially unable to pay its debts.

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