Debt admitted on unpaid credit facility defeats solvency defence in winding-up proceedings

An unpaid amount under a credit facility was treated as a debt for winding-up purposes because a present obligation to pay existed, the statutory demand was served, and the sum was neither paid, secured nor compounded within the prescribed period. The Court held that the transaction's label was irrelevant once liability was admitted. It further found no real and substantial bona fide dispute, as reliance on positive net worth and future receivables did not displace the statutory consequence of non-payment after demand. The winding-up petition was therefore admitted on the basis that the company was deemed unable to pay its debts.

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Issues: (i) Whether the amount due under the credit facility constituted a debt for the purpose of winding up proceedings and attracted the deeming fiction under section 434(1)(a) of the Companies Act, 1956. (ii) Whether the respondent-company had raised a bona fide dispute or any other valid defence to avoid admission of the winding up petition.

Issue (i): Whether the amount due under the credit facility constituted a debt for the purpose of winding up proceedings and attracted the deeming fiction under section 434(1)(a) of the Companies Act, 1956.

Analysis: The respondent did not dispute that a substantial sum was payable to the petitioner. The Court held that the nomenclature of the transaction was immaterial once a sum of money was owed by the company under a present obligation. A loan or facility, if admittedly payable, answers the description of a debt. The statutory notice demanding payment of a sum exceeding the threshold under section 434(1)(a) had been served, yet the amount was neither paid nor secured nor compounded within three weeks.

Conclusion: The amount due was a debt and the deeming fiction under section 434(1)(a) stood attracted.

Issue (ii): Whether the respondent-company had raised a bona fide dispute or any other valid defence to avoid admission of the winding up petition.

Analysis: The defence that the company had positive net worth and future receivables was held not to displace the statutory consequence once the debt remained unpaid after demand. The dispute was found not to be a real and substantial one. The Court reiterated that a creditor need not be driven to a separate suit where the debt is undisputed and that commercial solvency is not a standalone answer when liability is admitted and no bona fide dispute exists.

Conclusion: No bona fide dispute was established and the petition was liable to be admitted.

Final Conclusion: The winding up petition was admitted on the footing that the respondent-company was deemed unable to pay its debts, and directions were issued for advertisement and further proceedings.

Ratio Decidendi: Where a company admits liability for an unpaid sum and fails to satisfy a valid statutory demand, the debt is deemed due for winding up purposes and the company is treated as unable to pay its debts unless it shows a real and substantial bona fide dispute.

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