2011 (6) TMI 295 - HC - Companies Law

Company petition dismissed due to bona fide debt dispute; winding up not for disputed debts enforcement

The court dismissed the company petition at the admission stage, ruling in favor of the respondent. The court found the debt dispute to be bona fide and ... Petition filed u/s 433(e), 434(1)(a) & 439 of the Companies Act, 1956 for winding up of the respondent company - petition filed by creditor company- Held that:- For winding up , what is to be considered is not whether the company if it converted all its assets into cash would be able to discharge its debts but whether in a commercial sense the company is insolvent and whether it is unable to meet its current demands although the assets when released may exceed its liabilities. If the debt is bona fide disputed and the defence is a substantial one, the court will not wind up the company. Where the debt is undisputed, the court will not act upon a defence that the company has the ability to pay the debt but the company chooses not to pay that particular debt. It is beyond dispute that the machinery for winding up will not be allowed to be utilize merely as a means for realising its debts due from a company.In particular case, because of the serious dispute with regard to the rate, it cannot be said that the amount claimed by the petitioner in the statutory notice is undisputed amount or admitted amount. Therefore, the company petition does not warrant admission and accordingly, the same is hereby dismissed at the stage of admission. Issues Involved:1. Whether the respondent-company is liable to pay the debt claimed by the petitioner-company.2. Whether the dispute regarding the debt is bona fide and substantial.3. Whether the respondent-company is commercially insolvent and unable to pay its debts.Detailed Analysis:Issue 1: Liability to Pay the DebtThe petitioner, M/s. Venkateswara Flexo Pack P. Ltd., sought an order of winding up against the respondent, M/s. Sampre Nutritions Ltd., under sections 433(e), 434(1)(a), and 439 of the Companies Act, 1956. The petitioner claimed that the respondent was indebted to the tune of Rs. 2,08,31,551 for products supplied on credit. Despite repeated requests and a legal notice dated December 22, 2009, the respondent failed to clear the outstanding liability. The respondent admitted the transactions but disputed the amount claimed, citing issues with the quality and specifications of the supplied materials.Issue 2: Bona Fide and Substantial DisputeThe respondent argued that the petitioner supplied substandard materials, causing significant losses. They pointed out discrepancies such as different colors, smudges, and materials not matching the orders. The respondent also highlighted a memorandum of understanding (MoU) dated February 9, 2008, which was allegedly breached by the petitioner. The MoU stipulated that the accounts between the parties should be re-settled by adjusting over-billing against the outstanding amount. The respondent contended that the agreed rate was Rs. 175 per kg, whereas the petitioner billed at Rs. 205 per kg, resulting in a substantial dispute over the amount owed. The court noted that the dispute regarding the rate was bona fide and based on substantial grounds, thus not a mere wrangle.Issue 3: Commercial InsolvencyThe court examined whether the respondent was commercially insolvent under section 433(e) of the Companies Act, 1956. It was emphasized that the inability to pay debts must be in a commercial sense, meaning the company cannot meet current demands despite having assets. The petitioner failed to provide prima facie evidence that the respondent was commercially insolvent. The respondent's annual report for 2009-10 showed a net profit of Rs. 9.40 lakhs, indicating solvency. The court found no indication that the respondent was indebted to various other creditors or that its assets were insufficient to meet liabilities. Therefore, the court concluded that the petition did not warrant admission.Conclusion:The court dismissed the company petition at the stage of admission, finding that the dispute over the debt was bona fide and substantial, and that the respondent was not commercially insolvent. The petitioner's claim was not supported by sufficient evidence to prove the respondent's inability to pay its debts. The court emphasized that winding up proceedings should not be used merely as a means to enforce payment of disputed debts.