Bona fide disputed tax debt cannot support winding-up where true liability and insolvency remain unresolved.

A winding-up petition should not be used to enforce a tax claim that is bona fide and substantially disputed, particularly where the real liability remains unresolved in pending appeals and the court cannot ascertain the debt said to establish insolvency. The jurisdictional objection based on Section 226 of the Govt. of India Act was rejected, as winding-up jurisdiction under the Companies Act remained competent even where revenue claims were involved and could participate in liquidation. However, on the facts, the tax demand had been reduced and further appeals were pending, so the winding-up order ought not to have been made while the liability was still genuinely contested.

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Issues: (i) Whether the High Court could entertain and act upon a winding-up petition founded on disputed income-tax and excess profits tax demands in view of the bar under Section 226 of the Govt. of India Act; (ii) whether a winding-up order should be made where the alleged tax debt was bona fide disputed and its quantum was still under active challenge in pending appeals.

Issue (i): Whether the High Court could entertain and act upon a winding-up petition founded on disputed income-tax and excess profits tax demands in view of the bar under Section 226 of the Govt. of India Act.

Analysis: The jurisdictional objection was rejected. The winding-up jurisdiction under the Companies Act was treated as competent even when the petition was based on revenue claims, because the Companies Act contemplated priority and participation of revenue claims in liquidation and the Crown could invoke the winding-up machinery. The bar in Section 226 of the Govt. of India Act was not accepted as excluding such jurisdiction in a winding-up matter.

Conclusion: The objection based on Section 226 of the Govt. of India Act failed.

Issue (ii): Whether a winding-up order should be made where the alleged tax debt was bona fide disputed and its quantum was still under active challenge in pending appeals.

Analysis: The tax demand relied on had been substantially reduced in appeal, several other appeals had been remanded, and the ultimate liability remained uncertain. A winding-up petition is not a proper instrument for enforcing a debt that is bona fide disputed on substantial grounds, and a court should not make a winding-up order where it cannot determine the real debt said to make the company insolvent. On the facts, the dispute was genuine and the amount finally payable was still unresolved.

Conclusion: The winding-up order ought not to have been made while the tax liability remained genuinely and substantially disputed.

Final Conclusion: The appellate court set aside the winding-up order and remitted the matter for reconsideration after the pending tax proceedings were finally determined, leaving the winding-up application on the file in the meantime.

Ratio Decidendi: A winding-up order should not be made on the basis of a debt that is bona fide and substantially disputed, especially where the court cannot ascertain the true liability and insolvency depends on that unresolved liability.

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