Bona fide refusal to pay: creates a real dispute of liability and defeats a winding-up application.

A debtor company's bona fide belief that it is legally justified in refusing payment on a demand instrument raises a real dispute as to liability rather than amounting to neglect to pay for the purposes of a winding-up petition. The court applied that principle where the respondent produced affidavits alleging fraud in procurement of the instrument and contested the petitioner's transferee status, finding substantive factual and legal issues. Because a genuine contested liability existed, the winding-up application could not be maintained and was rejected in favour of the respondent.

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Issues: Whether, for the purposes of a winding-up application under section 163(1) of the Indian Companies Act, a company's bona fide refusal to pay a demand draft (on grounds of alleged fraud) sustains a real dispute as to liability and therefore precludes treating the company as unable to pay its debts.

Analysis: The petitioner served a demand notice under section 163(1) after payment on a demand draft was refused by the respondent bank. The respondent's affidavit alleges the draft was obtained by fraud and that the petitioner was not a bona fide transferee, presenting facts and explanations showing a contested liability. Where a debtor company honestly (even if mistakenly) believes it is legally justified in refusing payment, that belief gives rise to a real dispute as to liability rather than constituting neglect to pay within the meaning of section 163(1). The affidavits in the record raise substantive factual and legal questions about the validity of the demand and the petitioner's status that are not merely a cloak for insolvency.

Conclusion: The application for a winding-up order under section 163(1) is not maintainable because a real dispute as to the respondent's liability exists; the application is therefore rejected in favour of the respondent.

Ratio Decidendi: A bona fide belief by a debtor company that it is justified in law to refuse payment creates a real dispute of liability and prevents treatment of the refusal as neglect to pay under section 163(1) of the Indian Companies Act.

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