Bona fide dispute and equitable set-off in winding-up proceedings require substantial prima facie defence, not an unliquidated cross-claim.

A winding-up petition based on inability to pay debts will not be blocked by a defence unless the debt is bona fide disputed and the defence is substantial, supported by prima facie material. An admitted debt cannot be resisted by an unliquidated damages claim arising from the sale of pledged shares, especially where no agreement required the creditor to sell the shares in a particular manner or at all. The law of pledge does not impose a duty on the pledgee to exercise the power of sale merely at the pledgor's request. The asserted equitable set-off was therefore unavailable.

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Issues: Whether the admitted debt and the company's cross-claim for damages constituted a bona fide and substantial defence to the winding-up petition, and whether the alleged obligation to sell pledged shares created an equitable set-off sufficient to defeat admission of the petition.

Analysis: A petition for winding up on the ground of inability to pay debts will not be admitted where the debt is bona fide disputed and the defence is one of substance, likely to succeed in law and supported by prima facie proof. Here, the company did not dispute liability for the admitted debt and sought to resist winding up only by relying on an unascertained damages claim based on the manner in which pledged shares were sold. The materials did not show any agreement obliging the petitioning creditor to sell the pledged shares in a particular manner or at all, and the law governing pledges does not compel a pledgee to exercise the power of sale. The suspension of sales after receipt of the investigating agency's letter and the later freeze order was held to be reasonable, and the alleged cross-claim was found to lack bona fides and substance. The asserted equitable set-off was therefore not available to defeat the winding-up petition.

Conclusion: The defence was not bona fide or substantial, and the admission of the winding-up petition was justified.

Final Conclusion: The appeal failed because the company's admitted debt remained unpaid and its damages claim did not displace the statutory basis for winding up on inability to pay debts.

Ratio Decidendi: In proceedings for winding up on inability to pay debts, an admitted debt cannot be resisted by a mere unliquidated cross-claim or alleged equitable set-off unless the defence is bona fide, substantial and supported by prima facie material; a pledgee is not under a legal duty to sell pledged goods merely because the pledgor desires it.

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