2013 (4) TMI 1005 - HC - Companies Law

Petition for Winding Up Company Dismissed Due to Lack of Evidence in Bona Fide Debt Dispute Under Companies Act.

PG Textiles Versus KK Interlinings Mfg Co Pvt Ltd

The HC dismissed the petition for winding up the respondent company under Sections 433 and 434 of the Companies Act, 1956, due to the petitioner's failure ... - Issues Involved:1. Claim of unpaid dues by the petitioner.2. Defense of the respondent-company regarding the non-existence of the claimed debt.3. Applicability of winding up under Sections 433 and 434 of the Companies Act, 1956.4. Allegations of personal motives behind the petition.5. Evaluation of evidence and documentation provided by the petitioner.6. Legal principles governing the winding-up process.Issue-wise Detailed Analysis:1. Claim of Unpaid Dues by the Petitioner:The petitioner filed a petition under Sections 433 and 434 of the Companies Act, 1956, seeking the winding up of the respondent company due to an alleged unpaid amount of Rs. 17,89,189/- along with interest. The petitioner contended that the respondent company had purchased goods on credit with a promise to pay before the due date, failing which interest would be applicable. Despite repeated demands, the petitioner claimed that the respondent company failed to settle the dues related to 17 bills.2. Defense of the Respondent-Company Regarding the Non-Existence of the Claimed Debt:The respondent company denied the existence of any debt, asserting that no goods were supplied by the petitioner, and the bills raised were frivolous. The respondent argued that the transactions were not business-related but were financing transactions in the form of bill purchasing. The company also contended that it was a going concern and there was no ground for winding up under the cited sections of the Companies Act.3. Applicability of Winding Up Under Sections 433 and 434 of the Companies Act, 1956:The court examined the applicability of Sections 433 and 434, noting that the remedy is discretionary and not a matter of right. The court emphasized that mere inability to pay debts does not automatically warrant winding up, especially if the debt is disputed. The principles laid down in previous judgments, such as the Tata Iron & Steel Co. Ltd. case, were considered, highlighting that winding up is not a legitimate means for enforcing disputed debts.4. Allegations of Personal Motives Behind the Petition:The respondent company alleged that the petition was filed due to personal grievances, as the petitioner was related to the Managing Director of the respondent company. The court noted these allegations but focused on the legal merits of the case rather than personal motivations.5. Evaluation of Evidence and Documentation Provided by the Petitioner:The petitioner failed to provide convincing evidence of the alleged transactions. The court noted that the petitioner relied heavily on ledger accounts rather than authenticated evidence of business transactions. The documents submitted, such as lorry receipts and bills, did not establish a prima facie case of the claimed debt. The court found that the petitioner could not substantiate the delivery of goods to the respondent company.6. Legal Principles Governing the Winding-Up Process:The court reiterated the principles that guide the discretion of the company court in winding-up petitions, emphasizing that such petitions should not be used to pressurize companies into paying disputed debts. The court referred to the judgment in the Pradeshiya Industrial & Investment Corporation of U.P. case, which held that winding up is inappropriate where there is a bona fide dispute over the debt.Conclusion:The court concluded that the petitioner's claim was disputed and unsubstantiated by evidence. Given the lack of documentation proving the delivery of goods and the existence of a bona fide dispute, the petition did not merit consideration. Consequently, the petition was dismissed, with each party bearing its own costs.