Inability to pay debts assessed including contingent and prospective liabilities, leading to admission of winding up petition.

Winding up admission was warranted because the company could not pay its debts and was commercially insolvent; the court applied the principle that contingent and prospective liabilities are relevant when assessing inability to pay under Section 434(1)(c), and accepted the petitioners' statutory demand. The audited balance sheet showed current liabilities and accumulated losses exceeding assets, inability to meet wages, cessation of operations, and incapacity to complete contracts without substantial fresh finance, while the defendant's counterclaim lacked substance and did not constitute a defence. Public interest and mala fides allegations were unsupported; petition admitted and further hearing fixed.

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Issues: Whether the winding up petition should be admitted on the ground that the company is unable to pay its debts and is commercially insolvent, having regard to contingent and prospective liabilities.

Analysis: The petitioners served a statutory notice and claim a loan which was due by the agreed date. The court may take into account contingent and prospective liabilities when determining inability to pay under Section 434(1)(c) of the Companies Act. The latest available audited balance-sheet shows current liabilities and carried forward losses far exceeding assets, inability to pay wages, cessation of functioning, and inability to complete contracts without substantial fresh finance. The asserted counterclaim against the petitioners lacks substance on its heads and does not furnish a defence to winding up. Allegations that the petition was mala fide or that the company should be kept afloat for public interest are not supported by the financial position and prospects of recovery.

Conclusion: The petition for winding up is admitted on the ground that the company is unable to pay its debts and is commercially insolvent; hearing fixed for further proceedings.

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