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<h1>Company ordered to pay Rs. 90 lacs+ interest to petitioner in winding-up case. Compliance crucial.</h1> <h3>Shivalik Rasayan Ltd. /Gharda Versus Pesto Chem India Ltd.</h3> The court found the respondent company indebted to the petitioner, M/s. Gharda Chemicals, for over Rs. 90 lacs, including interest. The winding-up ... - ISSUES PRESENTED AND CONSIDERED 1. Whether the respondent company is unable to pay its debts such that a winding up petition should be admitted. 2. Whether bona fide disputes as to liability exist that would bar winding up proceedings. 3. Whether correspondence and acknowledgments from the respondent constitute sufficient admission of debt for winding up. 4. Whether interest at the contractual rate (24% p.a.) or at least a reasonable rate is payable on overdue invoices for the purpose of assessing the prima facie debt. 5. Whether provisional relief (appointment of provisional liquidator and publication of citations) should be granted and on what conditions (conditional period to make a deposit to avoid immediate operation). ISSUE-WISE DETAILED ANALYSIS Issue 1 - Whether the respondent is unable to pay its debts such that winding up should be admitted Legal framework: A company is liable to be wound up if it is unable to pay its debts; admission of a winding up petition depends on prima facie satisfaction that a debt is due and unpaid and that the company, after service of statutory demand or notice, fails to pay. Precedent Treatment: No prior judicial authorities were relied upon or distinguished in the Judgment; determination made on facts and established principles of insolvency/winding up. Interpretation and reasoning: The Court examined the invoices, payment history, and repeated correspondence in which the respondent acknowledged outstanding amounts and gave schedules/commitments to pay. The respondent's own pleaded figures (total purchases and payments) implied a substantial unpaid principal even if some quality complaints were accepted. The Court computed that, on respondent's own showing, approximately Rs. 53.60 lakhs principal remained due (without interest) and that, applying a reasonable interest rate (even if reduced from contractual 24% to 12%), the sum due would exceed Rs. 90 lakhs. The respondent failed to discharge outstanding sums after statutory notice. Ratio vs. Obiter: Ratio - A prima facie indebtedness sufficient to found a finding of inability to pay was established where (i) invoices and payment records show a substantial unpaid balance; (ii) correspondence contains acknowledgments and promises to pay; and (iii) payment was not made despite statutory notice. Obiter - Numerical illustration of interest calculations (12% over six years) used to demonstrate the magnitude of debt. Conclusions: The Court was prima facie satisfied that the respondent was indebted and, having failed to pay after notice, was unable to pay its debts; therefore the petition was admitted. Issue 2 - Whether bona fide disputes as to liability bar winding up Legal framework: Winding up is generally inappropriate where a bona fide, substantial dispute on the merits exists between the parties such that the debt is genuinely contested and requires trial; however, where the dispute is sham/afterthought or documents show admission, winding up may proceed. Precedent Treatment: No specific authorities cited; the Court applied the established test of genuineness of dispute based on documentary record and correspondence. Interpretation and reasoning: The respondent asserted defective/sub-standard supplies as the basis for non-payment and also relied on pending civil suits. The Court noted absence of contemporaneous correspondence raising complaints of defects and absence of any clear denial in the exchange of letters that the amounts (as quantified by petitioner) were due. On the contrary, the respondent repeatedly gave schedules and undertook payments. The Court treated the defect plea as unsubstantiated on the record before it and thus not a bona fide dispute sufficient to bar winding up. Ratio vs. Obiter: Ratio - A dispute is not bona fide for the purpose of resisting winding up where documentary correspondence shows admissions, repeated promises to pay and no contemporaneous assertion of defect; such after-the-event contentions do not prevent admission of winding up petition. Obiter - The pendency of a separate recovery suit does not necessarily preclude winding up if the statutory test is otherwise met. Conclusions: The respondent's plea of bona fide dispute was rejected prima facie; the dispute was held to be insufficient to bar winding up admission. Issue 3 - Whether correspondence/acknowledgments constitute sufficient admission of debt Legal framework: Admissions or acknowledgments in correspondence can operate as evidence of indebtedness and are relevant in determining inability to pay; promises/schedules to pay, repeated assurances and acceptance of part payments are indicia of acknowledgment. Precedent Treatment: No authorities cited; Court applied standard evidentiary and insolvency principles. Interpretation and reasoning: The Court analysed multiple letters and faxes wherein the respondent repeatedly proposed payment schedules (e.g., Rs. 15 lacs per month; disposal of assets to realise funds; commitment to pay Rs. 2.2 crores by a specified date) and acknowledged clear recoveries from customers as sources for payment. The respondent did not contemporaneously raise defects as a defence in that correspondence. The Court treated these communications as admissions/acknowledgments, demonstrating that the debt was recognized by the respondent and that partial payments were treated as payments on account. Ratio vs. Obiter: Ratio - Formal correspondence promising payment and acknowledging outstanding dues can constitute sufficient admission to support a prima facie finding of indebtedness for winding up purposes. Obiter - The specific phrasing of payment proposals and the distinction between promises and final admissions were noted but not elaborated into a separate rule. Conclusions: The correspondence constituted adequate acknowledgment of debt to support admission of the petition. Issue 4 - Whether contractual interest at 24% p.a. or a reasonable interest should be applied for assessing prima facie debt Legal framework: Courts may have regard to contractual terms for interest; for prima facie assessment in winding up, the focus is on existence and quantum of debt, including interest if enforceable; where contractual rates are contentious, a reasonable rate can be adopted for provisional assessment. Precedent Treatment: No authorities cited; the Court applied pragmatic assessment principles. Interpretation and reasoning: The invoices contained a clause for 24% p.a. interest on delayed payments. The Court observed that while the petitioner claimed substantial amounts attributable to contractual interest, it was unnecessary at the admission stage to adjudicate all interest-related controversies. Even if the contractual rate were not fully accepted, adoption of a lower reasonable rate (exampled at 12% p.a.) over the period in question produced a payable sum exceeding the threshold for admission. The respondent had not disputed the existence of the clause in correspondence. Ratio vs. Obiter: Ratio - For prima facie determination of indebtedness in a winding up petition, courts may apply a reasonable (possibly conservative) interest computation where contractual interest is contested, provided a significant unpaid sum remains even under conservative assumptions. Obiter - Numerical illustration of 12% over six years used to show sufficiency of the claim. Conclusions: Even under a conservative interest assumption, the respondent's indebtedness was sufficient to admit the petition; the contractual 24% rate need not be finally determined at this stage. Issue 5 - Whether provisional relief should be granted and appropriate conditional terms Legal framework: Upon admission, the Court may order publication of citations and appoint a provisional liquidator; equitable discretion allows the Court to stay immediate operation of such orders on conditions (e.g., deposit of funds) to protect interests and permit settlement opportunities. Precedent Treatment: No authorities cited; Court exercised equitable discretion on facts. Interpretation and reasoning: Having admitted the petition, the Court appointed a provisional liquidator and directed citation publication. Recognising the respondent's opportunity to avoid immediate consequences and to preserve assets, the Court stayed operation of the order for eight weeks conditional upon deposit of Rs. 90 lakhs with the Court Registrar. Failure to deposit would permit the petitioner to proceed with citations and the provisional liquidator to take charge. Ratio vs. Obiter: Ratio - Upon admission of a winding up petition, the Court may grant provisional relief (appointment of provisional liquidator and citation publication) while staying operation for a limited period on condition that the respondent makes a substantial interim deposit to demonstrate good faith and to preserve creditors' interests. Obiter - The specific quantum and duration are fact-specific and discretionary. Conclusions: The Court ordered provisional liquidation steps but suspended their operation for eight weeks to enable the respondent to deposit Rs. 90 lakhs; non-deposit would enable full operation of the provisional measures.