Court upholds winding-up petition against company, dismisses appeal citing lack of bona fides.

The appeal was dismissed by the court, upholding the Company Judge's decision to admit the winding-up petition against the company. The court found that the company's defense lacked bona fides and substance, emphasizing that if a debt is undisputed, the court will not consider a defense based on the company's choice not to pay. The court also ruled that the petitioning creditor was not legally obligated to sell the pledged shares promptly and that their actions in response to the EOW's directive were reasonable. The application for a stay on the petition's advertisement was denied.

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Issues Involved:
1. Admittance of the winding-up petition.
2. Bona fide and substantial defense by the company.
3. Legal obligation of the petitioning creditor regarding the sale of pledged shares.
4. Equitable set-off claim by the company.
5. Reasonableness of the petitioning creditor's actions in response to EOW's letter.

Issue-wise Detailed Analysis:

1. Admittance of the Winding-Up Petition:
The appellant company appealed against the order dated 28 June 2016 made by the Company Judge, which admitted the petition for winding up of the company and ordered the advertisement thereof. The company admitted its indebtedness to the respondent (petitioning creditor) to the extent of Rs. 90.90 crores but contended that it had a claim against the petitioning creditor for Rs. 152.57 crores by way of damages. The court emphasized that if the debt is bona fide disputed and the defense is substantial, the court will not wind up the company. However, if the debt is undisputed, the court will not act upon a defense that the company has the ability to pay but chooses not to.

2. Bona Fide and Substantial Defense by the Company:
The company argued that it had instituted Suit (L) No. 939 of 2013 claiming damages of Rs. 152.57 crores against the petitioning creditor for acts of omission and commission. The company claimed this constituted a bona fide and substantial defense. The court, however, found that the defense raised by the company did not directly concern its liability to pay the admitted amount of Rs. 90.90 crores. The court held that the company failed to establish that its defense was bona fide, substantial, likely to succeed in law, and backed by prima facie proof.

3. Legal Obligation of the Petitioning Creditor Regarding the Sale of Pledged Shares:
The company contended that the petitioning creditor was legally obliged to sell the pledged Gitanjali shares expeditiously. The court referred to section 176 of the Contract Act and several decisions, including S. L. Ramaswamy Chetty and State Bank of India vs. Neela Ashok Naik, which held that the pledgor cannot compel the pledgee to sell the pledged goods to discharge any debt. The court found no legal obligation on the petitioning creditor to sell the pledged shares to maintain margins and deemed the petitioning creditor's actions reasonable.

4. Equitable Set-Off Claim by the Company:
The company claimed that its suit for damages should be regarded as an "equitable set-off" against its liability. The court referred to the decision in Portman Provincial Cinemas Ltd., which held that a cross claim must be substantial and genuine to constitute a valid defense. The court found no substance in the company's claim and held that the defense raised was neither bona fide nor substantial.

5. Reasonableness of the Petitioning Creditor's Actions in Response to EOW's Letter:
The company argued that the petitioning creditor should have disregarded the EOW's letter dated 23 March 2013 and proceeded with the sale of Gitanjali shares. The court found that the petitioning creditor acted reasonably by suspending sales upon receiving the EOW's letter, which directed them to refrain from dealing with the shares due to an ongoing investigation. The court noted that the petitioning creditor's actions were reasonable and lacked malafides, especially since the petitioning creditor challenged the EOW's freeze order while the company did not.

Conclusion:
The court dismissed the appeal, endorsing the reasoning of the Company Judge that the defense raised by the company lacked bona fides and substance. The court emphasized that the petitioning creditor's actions were reasonable and in compliance with legal obligations. The application for a stay on the advertisement of the petition was also rejected.

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