Bona fide disputed debt and possible revival defeat winding up where debt default and non-commencement of business are alleged.

Winding up for inability to pay debts was refused because the alleged liability was bona fide disputed, the admitted amount had already been deposited, and the wider claim for interest remained contested with counterclaims pending. The statutory presumption of inability to pay under Section 434(1)(a) did not arise on those facts. Winding up for non-commencement of business or loss of substratum was also declined because mere non-commencement is insufficient; the court must consider whether there is a good reason for delay and a reasonable prospect of revival. As revival could not be ruled out, the petition failed and the company was allowed to continue.

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Issues: (i) Whether the respondent company was liable to be wound up on the ground of inability to pay debts under Section 433(e) of the Companies Act, 1956. (ii) Whether the respondent company was liable to be wound up on the ground of non-commencement of business or loss of substratum under Sections 433(c) and 433(f) of the Companies Act, 1956.

Issue (i): Whether the respondent company was liable to be wound up on the ground of inability to pay debts under Section 433(e) of the Companies Act, 1956.

Analysis: The petition was confined to the admitted sum of Rs. 250 lakhs, which had already been deposited by the respondent. The dispute centred on interest and the petitioner's wider claim, but that claim was not admitted by the respondent and remained contested. The legal presumption under Section 434(1)(a) arises only where the debt is undisputed and the company neglects to pay. Where the liability itself is seriously disputed and counter claims are pending, omission to pay cannot by itself establish inability to pay debts.

Conclusion: The respondent company was not liable to be wound up on the ground of inability to pay debts.

Issue (ii): Whether the respondent company was liable to be wound up on the ground of non-commencement of business or loss of substratum under Sections 433(c) and 433(f) of the Companies Act, 1956.

Analysis: Mere non-commencement of business does not automatically justify winding up. The relevant inquiry is whether there is good reason for the non-commencement and whether there remains a reasonable prospect of revival. The respondent was pursuing claims arising out of the financing dispute and revival could not be ruled out before those disputes were concluded. Since winding up is a discretionary remedy and serious consequences follow, the Court declined to exercise that discretion in the circumstances of the case.

Conclusion: The respondent company was not liable to be wound up on the ground of non-commencement of business or loss of substratum.

Final Conclusion: The winding up petition failed on both the alleged debt default and the alleged inability to commence business, and the company was allowed to continue in existence.

Ratio Decidendi: A company cannot be wound up for inability to pay debts where the alleged liability is bona fide disputed, and non-commencement of business alone does not warrant winding up unless the court finds no reasonable prospect of revival and that discretion ought to be exercised in favour of winding up.

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