1979 (8) TMI 150 - HC - Companies Law

Court dismisses winding-up petition, finding company's defense bona fide. Petitioners lack standing. Financial stability considered.

The court dismissed the petition with costs, ruling that the company's defense was bona fide and substantial. The court found the petitioners lacked ... Company when deemed unable to pay its debts Issues Involved:1. Creditor's claim and the company's alleged debt.2. Allegations of mala fide intent and manipulation by the Kapadia group.3. Bona fide defense raised by the company.4. Company's financial status and insolvency claims.5. Petitioner's locus standi to file for winding up.Issue-wise Detailed Analysis:1. Creditor's Claim and the Company's Alleged Debt:The petitioners, British Burmah Petroleum Co. Ltd., claimed to be creditors of Kohinoor Mills Co. Ltd. for Rs. 11,05,243.05, including interest. The debt originated from shares sold through M/s. Sumatilal Jamnalal, with Rs. 9,00,000 treated as an advance to the company. The company confirmed this arrangement through letters dated 14th June and 19th June 1976. The petitioners agreed not to press for repayment for one year, documented in a letter dated 22nd December 1976. The petitioners demanded repayment through letters and a statutory notice, which the company failed to comply with, leading to the claim of the company's inability to pay under section 434 of the Companies Act, 1956.2. Allegations of Mala Fide Intent and Manipulation by the Kapadia Group:The company contended that the petition was filed mala fide, in collusion with the Kapadia group, to enforce illegal demands. The Kapadia group allegedly manipulated various companies' accounts, including the petitioners and the company, for their benefit. The company alleged that the Kapadia group managed the company's affairs and manipulated its books, which included the petitioners' claim.3. Bona Fide Defense Raised by the Company:The company argued that the confirmation of the debt was fraudulent, as the petitioners could not identify who signed the confirmation. Discrepancies in the letters and entries in the company's books further supported the company's defense of manipulation and fabrication. The company emphasized that the defense was genuine and bona fide, requiring a regular suit for proper adjudication rather than a winding-up petition.4. Company's Financial Status and Insolvency Claims:The petitioners argued that the company was insolvent, with its capital and reserves wiped out by losses. However, the company countered that it had substantial assets, ongoing production, and support from financial institutions like the Central Bank of India, IDBI, IFCI, and ICICI. The company was undergoing a rehabilitation program and had significant sales and production, indicating that its substratum was intact.5. Petitioner's Locus Standi to File for Winding Up:The court held that since the petitioners' debt was disputed on substantial grounds, they were not creditors with the locus standi to file for winding up. This position was supported by precedents like Mann v. Goldstein and In re Lympne Investments Ltd., which established that a winding-up petition is not appropriate for enforcing disputed debts. Consequently, the petitioners lost their right to pursue the winding-up application.Conclusion:The court dismissed the petition with costs, concluding that the company's defense was bona fide and substantial, and the issues should be resolved in a regular suit. The company's financial status and rehabilitation efforts further negated the petitioners' claims of insolvency. The petitioners, having failed to establish their debt clearly, were not entitled to seek the company's winding up on any other grounds.