Bona fide defence to winding up defeats summary insolvency relief where cross-transactions and set-off require civil trial.

Winding up for inability to pay debts was treated as inappropriate where the debt was not shown to be truly indisputable and the company raised a bona fide defence. The Court noted that non-payment after statutory notice normally attracts the presumption under the Companies Act, 1956, but cross-transactions, common control of group companies, and possible adjustment or set-off raised a substantial triable issue. Whether the concerns operated as one commercial unit and whether the liabilities were legally or equitably adjusted required civil trial, not summary insolvency determination. The petition was refused admission and the creditor was left to pursue a civil remedy, with limitation excluded for the relevant period.

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Issues: (i) Whether the companies were liable to be wound up for inability to pay debts on the materials placed before the Court. (ii) Whether the defence based on cross-transactions, common control of the group companies, and adjustment/set-off disclosed a substantial triable issue warranting refusal of winding up.

Issue (i): Whether the companies were liable to be wound up for inability to pay debts on the materials placed before the Court.

Analysis: The petition was founded on sale transactions and statutory notice under Sections 433, 434 and 439 of the Companies Act, 1956. Although non-payment after statutory notice ordinarily attracts the presumption under Section 434(1)(a), the Court held that the test in a winding up proceeding is whether the debt is truly indisputable and the company is left without a real defence. The materials showed cross-transactions between the groups and raised a serious question whether the liability claimed in the petition was independently enforceable in winding up jurisdiction.

Conclusion: The companies were not held liable to be wound up on the admitted materials.

Issue (ii): Whether the defence based on cross-transactions, common control of the group companies, and adjustment/set-off disclosed a substantial triable issue warranting refusal of winding up.

Analysis: The Court accepted, at least prima facie, that the Concast concerns and the Ram Swarup concerns may have been operating as group entities under common control, so that the 2011 supplies could have been in adjustment of earlier 2009 dealings. It held that the question whether the companies were separate entities or one commercial unit, and whether the adjustment was legal or equitable set-off, required trial and could not be conclusively decided on affidavits alone. Applying the principles governing summary adjudication and triable issues, the Court found the defence substantial and not sham or illusory. The prayer for security was also declined.

Conclusion: The defence was held to disclose a substantial triable issue and was accepted as sufficient to defeat winding up.

Final Conclusion: The winding up petitions were refused admission and the petitioning creditor was relegated to a civil remedy, with the pendency period directed to be excluded for limitation purposes under Section 14 of the Limitation Act, 1963. All findings were stated to be prima facie.

Ratio Decidendi: A winding up petition will fail where the company raises a bona fide and substantial defence disclosing a triable issue, especially where interlinked group transactions and adjustment of mutual liabilities require determination in a civil trial rather than in summary insolvency jurisdiction.

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