Commercial insolvency in winding-up: admitted unpaid debt, not blocked assets or arbitration, drives the creditor's petition.

An admitted debt left unpaid after statutory notice may trigger the presumption of inability to pay debts in a creditor's winding-up context. The existence of arbitration proceedings, section 9 relief, or security furnished by guarantor-directors does not by itself negate commercial insolvency or bar the petition where the company has not paid, secured, or compounded the debt to the creditor's reasonable satisfaction. The relevant test is commercial insolvency under section 434, namely the company's capacity to meet current liabilities with liquid assets, not its overall balance-sheet position or blocked assets. Pending arbitration and third-party security are therefore of limited relevance to the company's own obligation to pay or secure the admitted debt.

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Issues: (i) Whether the company's failure to pay an admitted debt after receipt of statutory notice gave rise to the statutory presumption of inability to pay its debts. (ii) Whether the existence of arbitration proceedings, orders obtained under section 9 of the Arbitration and Conciliation Act, 1996, and security furnished by the company and guarantor-directors barred admission of the winding-up petition or negatived commercial insolvency. (iii) Whether the petitioning creditor could maintain the winding-up petition notwithstanding the company's plea that its assets and securities should be taken into account.

Issue (i): Whether the company's failure to pay an admitted debt after receipt of statutory notice gave rise to the statutory presumption of inability to pay its debts.

Analysis: The debt was admitted in substance, including the payments made by the creditor on the company's instructions and the dishonour of the cheques issued in repayment. The company did not reply to the statutory notice. On these facts, the statutory presumption under section 434(1)(a) arose. The court treated the claim as quantified and undisputed, and found no credible defence to displace the presumption.

Conclusion: The presumption of inability to pay debts arose in favour of the petitioner.

Issue (ii): Whether the existence of arbitration proceedings, orders obtained under section 9 of the Arbitration and Conciliation Act, 1996, and security furnished by the company and guarantor-directors barred admission of the winding-up petition or negatived commercial insolvency.

Analysis: The court held that arbitration proceedings do not bar a winding-up petition based on non-payment of an admitted debt. The reliefs in arbitration and winding up are distinct, and the mere initiation of arbitral proceedings does not answer the statutory question whether the company has neglected to pay, secure, or compound for the debt to the reasonable satisfaction of the creditor. Security furnished by guarantors or under injunction orders was held irrelevant to the company's own inability to pay, because the liability of the guarantor is coextensive but does not replace the debtor-company's obligation under section 128 of the Indian Contract Act, 1872.

Conclusion: Neither the arbitral proceedings nor the security arrangements defeated the winding-up petition.

Issue (iii): Whether the petitioning creditor could maintain the winding-up petition notwithstanding the company's plea that its assets and securities should be taken into account.

Analysis: The court held that the test under section 434(1)(c) is commercial insolvency, not balance-sheet solvency or net worth. The relevant enquiry is whether the company can meet its current liabilities with liquid assets. Blocked investments, immovable properties, and assets not immediately realisable were held to be of limited relevance. The company's contention that its assets and third-party security should be set off against the debt was rejected, as the petitioning creditor was entitled to pursue the company itself for failure to pay or secure the admitted debt.

Conclusion: The petition was maintainable and the company was held to be unable to pay its debts.

Final Conclusion: The winding-up petition was admitted on the basis of an admitted and unpaid debt, and the company was directed to pay the quantified amount within the stipulated time, failing which advertisement would follow.

Ratio Decidendi: In a creditor's winding-up petition, an admitted and unpaid debt supported by a statutory notice may establish commercial insolvency under section 434, and the company's inability is assessed by reference to its capacity to pay or secure the debt, not by the existence of blocked assets, third-party security, or pending arbitration.

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