Winding-up petition requires an undisputed debt; bona fide dispute and substantial defence defeat insolvency-style relief.
A winding-up petition based on unpaid salary failed where the alleged debt was bona fide disputed and the company raised a substantial defence. The Delhi HC reiterated that winding-up jurisdiction under the Companies Act, 1956 is not available unless the debt is undisputed and the statutory conditions are satisfied. It also confirmed that such proceedings cannot be used as a substitute for ordinary debt recovery when the defence cannot be rejected at the threshold as lacking good faith or substance. The petitioner was therefore left to pursue other remedies in law.
Issues: Whether the petitioner made out a prima facie case for winding up of the company on the ground of inability to pay debts.
Analysis: The petition was founded on a claim for unpaid salary and invoked the winding-up jurisdiction under the Companies Act, 1956. The Court applied the settled principle that a winding-up order will not be made where the debt is bona fide disputed and the defence is substantial. It further noted that the debt could not be treated as undisputed at the threshold and that the company's defence could not be rejected as lacking good faith or substance without further examination. The Court also reiterated that winding-up proceedings cannot be converted into a mere proceeding for recovery of money unless the statutory conditions are satisfied.
Conclusion: The petitioner failed to establish a prima facie case for winding up, and the petition was not maintainable on the material then before the Court.
Final Conclusion: The winding-up request was refused, leaving the petitioner to pursue other remedies available in law.
Ratio Decidendi: A company cannot be wound up on a debt claim where the debt is bona fide disputed and the defence is substantial; winding-up jurisdiction is not to be used as a substitute for ordinary debt recovery.
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AI Drafter ✕
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