Company liability for winding up denied where promissory note lacks entry in company records and is bona fide disputed.

Whether a promissory note can ground a winding-up petition was examined: the court found the note did not establish company liability because the sum was not entered in company books, not brought into company assets nor shown as used for company benefit, and formal corporate authorisation (board resolution and common seal) was not demonstrated; ex-directors had given an indemnity denying liabilities and the company genuinely disputed the debt on legal advice. Applying the principle that winding-up is improper where a debt is bona fide and substantially disputed, the petition was dismissed.

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Issues: Whether the petition to wind up Nellai Metal Rolling Mills P. Ltd. under Section 433(3) of the Companies Act, 1956, based on a promissory note (exh. P-1) should be allowed.

Analysis: The Court examined whether the promissory note relied upon by the petitioner established a company liability such that winding up is justified. The note identified its makers as partners and recited that the amount was taken "for running our above business", but there was no evidence that the sum of Rs. 50,000 was entered in the company's regular books, brought into the company's assets, or used for the benefit of the company. The trial balance produced before the sale of the company did not record the liability, and the ex-directors executed an indemnity bond denying other liabilities. The articles required board authority and affixation of the common seal in the presence of at least two directors to bind the company, and no such board resolution or compliance was shown. The company and its present directors disputed the debt on bona fide grounds and acted on legal advice. The Court applied the established principle that a winding-up petition is not a legitimate means to enforce a debt that is bona fide disputed by the company and that such petitions will be dismissed where the dispute is substantial.

Conclusion: The petition to wind up the company is dismissed; the decision is in favour of the respondent-company.

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