2010 (1) TMI 568 - HC - Companies Law

Court dismisses winding-up petition due to lack of proof of debt and respondent's financial stability.

The court dismissed the winding-up petition filed by the appellant-Company against the respondent-Company. The court found that the appellant failed to ... Winding up seeked - Held that:- Not only that the appellant-Company has miserably failed to prove the definite, quantified debt and ascertainable amount but also did not substantiate the fact that the respondent-company is unable to pay the disputed amount. On the other hand, it stands established on record that the claim of the appellant-company is based on speculative consideration and the respondent-Company (M/s. S.A.B. Industries), is running/going and profit earning company having assets in 100 crores. Hence, the contrary arguments of learned counsel for the appellant-company ‘stricto sensu’ deserve to be and are hereby repelled in this context. In this view of the matter, it is held that no case for invoking the discretionary winding up provision against the respondent-company is made out under the present set of circumstances, particularly, when the appellant-company has effective alternative remedies to settle their dispute by way of arbitration or through the civil court. Issues Involved:1. Maintainability of the winding-up petition.2. Existence and quantifiability of the debt.3. Respondent's financial capability to pay the debt.4. Applicability of the arbitration clause.Issue-wise Detailed Analysis:1. Maintainability of the Winding-Up PetitionThe appellant-Company filed a petition for winding up the respondent-Company under sections 433 and 434, read with section 439 of the Companies Act, 1956. The appellant claimed that the respondent failed to buy back shares and pay an aggregate sum of Rs. 1,68,52,000, thereby justifying the winding-up petition. However, the respondent contested the petition, arguing non-maintainability and non-joinder of necessary parties, and denied any debt liability. The learned Company Judge refused to entertain the petition, relegating the parties to the remedy of a civil suit, as the appellant continued to hold the shares in question.2. Existence and Quantifiability of the DebtThe appellant-Company alleged that the respondent failed to purchase shares and pay the amount as per the agreement. However, the respondent contended that there was no express undertaking to buy back the shares and that the appellant did not offer the shares within the stipulated period. The appellant's claim was based on a speculative amount rather than a definite and quantified debt. The court emphasized that for a winding-up petition to be legitimate, there must be an ascertainable and definite amount of debt, and the respondent must be proven unable to pay it. The appellant failed to prove a specific amount of debt, thus weakening their case for winding up.3. Respondent's Financial Capability to Pay the DebtThe respondent-Company argued that it was not commercially insolvent and had sufficient financial capacity. The court noted that the respondent was a profit-making and dividend-paying concern with significant assets and ongoing projects. The appellant's claim that the respondent was unable to pay the debt was not substantiated. The court highlighted that winding up is a discretionary remedy and should only be granted if the company is genuinely unable to pay its debts, which was not proven in this case.4. Applicability of the Arbitration ClauseThe agreement between the parties contained an arbitration clause for resolving disputes. The respondent argued that the appellant should have invoked the arbitration clause instead of filing a winding-up petition. The court agreed, noting that the appellant had alternative remedies available, including arbitration or a civil suit, to settle the dispute. The appellant's failure to pursue these remedies further weakened their case for winding up.ConclusionThe court concluded that the appellant-Company failed to prove a definite and quantified debt and did not substantiate the respondent-Company's inability to pay. The respondent-Company was found to be a going concern with adequate financial capacity. Additionally, the appellant had alternative remedies available through arbitration or a civil suit. Therefore, the court dismissed the winding-up petition and upheld the decision of the learned Company Judge, leaving the parties to bear their own costs.