2009 (1) TMI 495 - HC - Companies Law

Appeal dismissed, emphasizing disputed debts should not lead to winding up.

Sampat Trading and Co. Versus Talayar Tea Co. Ltd.

Sampat Trading and Co. Versus Talayar Tea Co. Ltd. - [2010] 153 COMP. CAS. 64 (MAD.) Issues Involved:1. Existence of Debt2. Bona Fide Dispute3. Commercial Insolvency4. Collusion and Fabrication of Documents5. Legal and Procedural AspectsDetailed Analysis:1. Existence of Debt:The appellant claimed that the respondent owed a liquidated debt of Rs. 1,00,14,850, confirmed by the respondent's managing director on November 27, 1997. The respondent made a part payment of Rs. 60,00,000 but disputed the remaining balance. The appellant argued that the debt was acknowledged and confirmed through various documents, including a reconciliation statement and promissory notes. However, the respondent contended that the debt was fabricated and collusive, involving the previous management and certain partners of the appellant who were directors in the respondent-company.2. Bona Fide Dispute:The respondent disputed the debt, claiming that the appellant owed them Rs. 37,36,292.62 as per a revised statement of accounts. The respondent argued that the previous management's acknowledgment of the debt was collusive and fabricated. The court found that there was a bona fide dispute regarding the debt's existence, emphasizing that the dispute could not be resolved in summary proceedings and required a detailed examination of accounts and documents. The court cited several judgments to support the principle that winding up petitions should not be used to enforce disputed debts.3. Commercial Insolvency:The appellant argued that the respondent was commercially insolvent, citing the balance-sheet figures showing significant losses and liabilities. However, the respondent countered that it was financially sound, making profits in recent years, and had substantial assets and ongoing business operations employing 800 people. The court found that the respondent's financial condition did not warrant winding up, as it was not commercially insolvent.4. Collusion and Fabrication of Documents:The respondent claimed that the documents acknowledging the debt were fabricated in collusion with the previous management. The court noted that the documents, including the reconciliation statement and promissory notes, were signed by the previous managing director, who was part of the old management. The court found that these allegations of collusion and fabrication raised substantial disputes that required detailed adjudication in a civil court.5. Legal and Procedural Aspects:The appellant's suit for permanent injunction and mandatory injunction, filed in O.S. No. 15 of 2000, did not seek recovery of the alleged debt, which the court found significant. The court emphasized that winding up petitions should not be used as a means to pressurize companies to pay disputed debts. The court cited various judgments to support the principle that winding up is a measure of last resort and should be ordered only when there is clear evidence of commercial insolvency or undisputed debt.Conclusion:The court dismissed the appeal, upholding the lower court's decision to dismiss the winding up petition. The court found that there was a bona fide dispute regarding the debt, the respondent was not commercially insolvent, and the allegations of collusion and fabrication required detailed examination in a civil court. The court emphasized that winding up petitions should not be used to enforce disputed debts and should be reserved for cases of clear commercial insolvency. The findings were specific to the disposal of the appeal, allowing the appellant to pursue its claims in an appropriate forum.