Inability to Pay Assessed Tax supports winding-up despite pending appeals; stay requires adequate security by company.

A company's proven inability to pay assessed tax liabilities, demonstrated by unpaid sale proceeds, inadequate realizable assets and non-payment despite demands, justifies compulsory winding-up. Pending appeals or references against income-tax assessments do not prevent coercive recovery and do not render a winding-up petition an abuse where insolvency is established beyond mere non compliance with a statutory demand. A stay of the winding-up may be granted only upon adequate security for the tax liabilities; absent satisfactory security, the winding-up order may be upheld as an effective recovery mechanism.

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Issues: (i) Whether the company was unable to pay its debts and thus liable to compulsory winding up under Section 162, clause (v), of the Indian Companies Act; (ii) Whether disputes or appeals against income-tax assessments prevent recovery of the assessed tax by coercive process or render a winding-up petition an abuse of process; (iii) Whether the winding-up order should be stayed pending final determination of the tax assessments.

Issue (i): Whether the company was unable to pay its debts and liable to compulsory winding up under Section 162, clause (v), of the Indian Companies Act.

Analysis: The petition alleged sale proceeds not applied to tax arrears, inadequate realizable assets, unsatisfactory financial position, and non-payment despite demands; the learned Judge found these facts proved and concluded inability to pay. The allegations were supported by particulars in the petition distinguishing the case from authorities where inability was alleged only by non-compliance with a statutory demand or by vague affidavit.

Conclusion: In favour of Revenue.

Issue (ii): Whether disputes or appeals against income-tax assessments bar recovery by coercive process or render the winding-up petition an abuse of process.

Analysis: The Court examined authorities relied upon for the proposition that bona fide disputes can render a winding-up petition an abuse. It held those authorities distinguishable because, in the present case, the tax authorities are entitled to recover assessed taxes notwithstanding pending appeals or references and the petitioner demonstrated insolvency beyond mere non-compliance with a statutory notice.

Conclusion: In favour of Revenue.

Issue (iii): Whether the winding-up order should be stayed pending final determination of the tax assessments.

Analysis: The Court considered prior decisions where stay or security was ordered in special circumstances but found no comparable basis here; the Court indicated willingness to stay if adequate security were furnished, but the company could not provide security to the Court's satisfaction.

Conclusion: In favour of Revenue.

Final Conclusion: The Court upheld the winding-up order based on established inability to pay the assessed taxes, refused to treat the petition as an abuse of process, and declined to postpone the winding-up in the absence of satisfactory security for the tax liabilities.

Ratio Decidendi: Where a company is proven unable to pay assessed tax liabilities and the tax authority is entitled to coercive recovery notwithstanding appeals, a winding-up petition founded on such unpaid tax debts is maintainable and need not be stayed unless adequate security is furnished.

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