Companies Act, 1956 – Sections 433, 434 and 439 – “neglect to pay” – debt is not an admitted debt and bonafide disputes are raised by the Company – it cannot be said that non­payment of bonafide disputed debt would amount to “neglect to pay” so as to make liable under sections 433 and 434(1)(a) of the Act and thus, the present case would not fall under sections 433 and 434 of the Act – the respondent Company is a going concern and it cannot be said that the respondent Company has lost its financial substratum.



Date : 07/06/2016





Appearance: MR SA DESAI, ADVOCATE for the Petitioner(s) No. 1 MR HARSHIT S TOLIA, ADVOCATE for the Respondent(s) No. 1 MR PARTH S TOLIA, ADVOCATE for the Respondent(s) No. 1


1. Heard Mr. S.A. Desai, learned counsel for the petitioner and Mr. Harshit Tolia, learned counsel for the respondent.

2. By this petition under

# Sections 433, 434 and 439 of the Companies Act, 1956

(hereinafter referred to as “the Act”), the petitioner has prayed for winding up of the respondent Company, viz., Shaligram Laminates Pvt. Ltd. and for other consequential prayers.

3. It is the case of the petitioner that the respondent Company placed orders for kraft paper with the petitioner Company in the month of March 2008 and on the basis of such order, the petitioner Company had supplied 23 tons (approx.) of paper through different challans and invoices at different rates aggregating to Rs.13,40,890/­. It is specifically the case of the petitioner Company that the respondent Company paid an amount of Rs.12,55,534/­, however did not pay the remaining amount of Rs.85,356/­. It is further the case of the petitioner Company that again the respondent Company placed a further order of 100 tons of kraft paper by mail dated 11.06.2008 for which a bill of Rs.26 lakhs plus sales tax as applicable ex Kolkata was raised by the petitioner Company. It is further the case of the petitioner Company that the respondent Company issued two post dated cheques being cheque no.050185 and cheque no.050186 for an amount of Rs.13,39,000/­ each. It is further the case of the petitioner Company that on the due date of the deposit of the first cheque of Rs.13.39 lakhs, the respondent Company requested the petitioner not to deposit the cheque due to paucity of funds and as a prudent businessman, the petitioner agreed to such a request. It is further contended by the petitioner Company that even though repeated requests were made, the respondent Company did not respond to the same and therefore, the petitioner Company deposited cheque no.050185, which came to be dishonoured. It is contended that after continuous follow­up, the respondent Company made payment of Rs.7 lacs on 10.12.2008. However, the balance amount of Rs.10,09,403/­ remained unpaid in spite of repeated requests. The record also indicates that the petitioner Company has also resorted to the proceedings under section 138 of the Negotiable Instruments Act, which are pending before the competent Court. The record indicates that thereafter, the petitioner issued a statutory notice through its advocate to the respondent Company dated 30.04.2011 and a further notice dated 25.08.2011, which has been received by the respondent Company. Thereafter, the petitioner Company preferred company petition being Company Petition No.15/12, which came to be withdrawn with a liberty to file a fresh proceeding for the same claim as the said petition was not supported by affidavit as per Rule 21 read with Form 3 of the Company Court Rules and the said petition came to be disposed of vide order dated 23.07.2013 passed by this Court (Coram : K.M.Thaker,J.). After that the present petition is filed wherein notice came to be issued.

4. On notice being issued, the respondent Company has filed affidavit. It is contended that on receipt of the statutory notice, the respondent Company gave reply to the same by reply dated 05.05.2009, which is not placed on record. It is the case of the respondent Company that two consignments sent under bill no.21 dated 03.07.2008 amounting to Rs.3,99,789/­ and another consignment of goods worth Rs.4,08,143/­ under bill no.29 dated 11.08.2009 were found to be humid and clearly unusable and even though requests were made for replacing the same, till date, the same is not replaced and the same is lying in the godown of respondent Company. It is the case of the respondent Company that because of cordial relationship between the parties, intimation was given by way of telephonic talk and the respondent Company was repeatedly given assurance to replace the goods on the basis of long standing business relationship. It is contended that the amount claimed in this petition is a disputed amount and is not a legally enforceable debt and the very claim is subjudiced before the criminal court at Calcutta and therefore, the petition deserves to be dismissed. It is further reiterated in the reply that the damaged goods have not been replaced till date. It is also contended that the respondent company is a running concern with six employees and wagers are maintained by the respondent Company. The respondent Company has also denied the factum that the respondent Company has failed to make payment of Rs.10,09,403/­. It is contended by the respondent Company that in fact, two cheques were given earlier for Rs.13,39,000/­, which have been utilised by the petitioner Company inspite of making payment of Rs.7 lakhs, which was really due. The respondent Company has further contended that even the postal acknowledgment receipt does not contain the name or stamp of the respondent Company. The respondent Company has contended in its reply that no transaction at all has taken place between the parties after February, March 2009. The respondent Company has also denied the veracity of the account produced before this Court and has pointed out that the debts are not admitted debts. It is also contended that the respondent Company is a going concern and commercially solvent and hence, the petition deserves to be dismissed. Relying upon the judgment of this Court in the case of

# Tata Iron & Steel Company Ltd. vs. Micro Forge (India) Ltd. reported in 2000 (2) GLR 1594

and para 17 thereof, it is contended that the present petition by way of prayer for winding up of respondent Company is not an appropriate remedy. It is further contended that the amount which is claimed is not due as per the provisions of section 434(1)(a) of the Act and non­payment of such disputed bonafide debt cannot be termed as “neglect to pay”. It is also contended that is a settled legal position that Company Court is not competent court for deciding the disputed question of facts and such disputed question of facts can be resolved through trial which can be conducted by a competent civil court. On the aforesaid basis, the respondent Company has prayed that the petition is not maintainable and the same is without any merits and deserves to be dismissed.

5. The record indicates that the petitioner has also filed a rejoinder and has contended that the respondent Company has not raised any whisper and has not lodged any claim with regard to the quality of the goods with regard to the two bills and the same is raised for the first time. Over and above the same, the petitioner has denied the contention raised by the respondent Company in its affidavit and it is contended that the petition deserves to be allowed as prayed for.

6. The learned counsel appearing for the parties have relied upon the record of the petition and have reiterated the contentions raised. The learned counsel for the petitioner has reiterated the contentions raised in the petition and the affidavit­in­rejoinder and the learned counsel for the respondent Company has relied upon the reply as well as the documents.

7. No other or further submissions are made by the learned counsel appearing for the respective parties.

8. The aforesaid facts clearly establish that there was a business relationship between the petitioner Company and the respondent Company. The record of the petition indicates that different bills were raised by the petitioner Company for the goods supplied. The record clearly indicates that on receipt of the notice dated 16.04.2009, the respondent Company gave reply to the petitioner Company, which is not brought on record by the petitioner Company. The said reply dated 05.05.2009 has been received by the petitioner Company as per the Acknowledgment Due receipt, which is forming part of the record of this petition. It is appropriate to refer to the said notice, wherein in paras 4, 5 and 6, it is averred as under:

“4. That on the last occasion as per the order you have sent goods of Kraft Papers to my client vide Bill No.21 dated 3/7/2008 amounting of Rs.3,99,789/­ Bill No.29, dated 11/8/2009 amounting of Rs.4,08,143/­ respectively but upon delivery of said goods same found humid and substandard upon receiving the same my client has informed you for the same and demanded credit note with regard to the said goods. At that time you have accepted my client claim and assured that amount of said goods will be credited.

5. Kindly note that during the course of business tenure my client has made huge amount towards payment of juge amount towards different invoices which shows bonafied intention of my client. After unfortunate inccent of “humid Kraft Paper” my client has requested you to send credit note for the same but in vain. Till date you have not credit my clients A/c. which shows your oblige notice. 6. Kindly note that the cheque in question was given you towards the security purposes but you have use it/adjusted it my clients outstanding which is not fair on your part.”

9. The aforesaid fact which is not denied as such by the petitioner Company establishes the fact that from the beginning the dispute as regards the humid and substandard goods supplied vide Bill No.21 dated 3/7/2008 amounting of Rs.3,99,789/­ Bill No.29, dated 11/8/2009 amounting of Rs.4,08,143/­ was raised by the respondent Company. This Court is conscious of the fact that the proceedings under section 138 of the Negotiable Instruments Act are pending before the competent court. However, while examining this petition which is filed under sections 433, 434 and 439 of the Act, the aforesaid fact clearly demonstrates that the alleged debt as averred by the petitioner Company in this petition is a disputed debt. In addition to that, the respondent Company has also brought on record the fact that it is a going concerned with 6 employees and about 19 wagers. The aforesaid facts clearly therefore would lead to the conclusion that the amount claimed by the petitioner Company is disputed debt and the respondent Company is a commercially viable company.

10. At this juncture, it would also be appropriate to refer the ratio laid down by the Division Bench of this Court, in the case of Tata Iron and Steel Co. (Supra), wherein this Court has observed as under:­

“Bonafide dispute over debt is a question depending upon the factual scenario of a given case. Where there is a bonafide dispute, the company cannot be said to have neglected to pay on a statutory demand. In Palmer’s Company Law, 24th Edition, at page 1366, it has been clearly observed that a petition for winding up with a view to enforcing payment of a disputed debt is an abuse of process of the Court and should be dismissed with costs. This principle is, succinctly, established in following English Cases.

# 1. Imperial Silver Quarries (1868) 14 W.R. 1220

# 2. Kings Cros Industrial Dwellings Co. (1870) L.R. 11 Eq. 149

# 3. London & Paris Banking Corp. (1875) L.R. 19 Eq. 44, 446

# 4. Cadiz Waterworks Co. v. Barnett, (1875) L.R. 19 Eq. 182

# 5. Cercle Restaurant Castiglione Co. v. Lavery (1881) 18 Ch. D. 555

# 6. Imperial Hydropathic Hotel Co. (1882) 49 L.T. 147

# 7. K.L. Tractors Ltd. In re (1954) V.L.R. 505

# 8. Bryanston Finance Ltd. v. De Vries (No.2) (1976) Ch. 63 (C.A.)

# 9. Re Claybridge Shipping Co. S.A. the Times, March 14, 1981 (C.A.); (1981) C.A.T.

To fall within the general principle, the controversy, really, must be bonafide in both, subjective and objective sense. This means that, it must be, honestly, believed to exist and must be based on substantial or reasonable grounds. ‘Substantial’ means having substance and not frivolous or vexatious and which the Court should ignore. There must be so much doubt and question about the liability to pay the debt that the Court sees that there is a question to be decided. It must also be remembered that the onus is on the company to bring forward a prima facie case, which satisfies the court that there is something which ought to be tried either before the Court, itself or in an action or by some other proceedings. There are various factors and facets, contours and chronicles emerging from the facts of the case requiring consideration before adjudicating upon the plea of winding up by the Court. When the petitioner is forcing payment of debt, which it knows to be in substantial dispute the evidence may support an action by the company against the petitioner for the tort of malicious prosecution. No monetary loss or special damage to the company need be proved for the presentation of the petition is, from its very nature, calculated to injure the credit of the company. It will be interesting to refer to a decision in

# A ­ Company (No.003729 of 1982), (1984) 1 W.L.R. 1090

that even in a case where the company in good faith and on substantial grounds disputed the debt and could not know the sum due but was willing to pay a lesser amount, its omission to pay either the statutory demand or the lesser amount did not constitute ‘neglect’ within the meaning of section 123(1)(1) of the Insolvency Act, 1986, which is applicable in case of an issue of winding up of a company in England and Wales. In a recent decision in

# Re­Bayoil SA Seawind Tankers Corp. v. Bayoil SA, reported in (1999) 1 All ER page 374,

the proposition of law is, again, very well expounded and propounded in case of compulsory winding up. It was decided on 31st July, 1998. It has been held in the said case that when a Company had a genuine and serious cross­claim which it had been unable to litigate, the Court should, in the absence of special circumstances, dismiss or stay the winding up petition in exercise of its discretion under section 125(1) of the Insolvency Act, 1986. In that case, the cross­ claim was genuine and serious, it was one which the company was unable to litigate and it exceeded the amount of the petitioner’s debt. The fact that no appeal lay in relation to the interim award that the company’s P & I club had granted security for the company’s claim and that there was no real evidence that the award could be paid did not amount to special circumstances which made it inappropriate for the petitioner to be dismissed or stayed. The appeal was, accordingly, allowed and winding­up order came to be discharged. Similarly, for dismissal of winding up petition where the company has a genuine defence or dispute or a cross­claim, it has been observed in Halsbury’s Laws (4th edn) (1996 reissue) para 2212.

4 Halsbury’s Statutes (4th edn) (1998 reprint) 821 succinctly propounds the winding up issue in similar cases when discretion is sought to be exercised under section 125 of the Insolvency Act, 1986. The pith and substance of the observations made in the Halsbury’s Laws, in this connection, could be highlighted in following terms: A petition founded on a debt which is disputed in good faith and on substantial grounds is demurrable for the reason that the petitioner is not a creditor of the company within the meaning of section 224(1) at all and the question whether he is or is not a creditor of the company is not appropriate for adjudication in winding up proceedings. In fact, in such a situation, the dismissal of the petition is not at any rate, initially, a matter of discretion of the court. It is founded on the petitioner’s inability to establish the locus standi to present a petition under what is now section 124(1) of the Insolvency Act, 1986. The case of an undisputed debt with a genuine and serious cross­claim is different, in that the dismissal or staying of the petition can only be a matter for the discretion of the court, albeit that its exercise may have been narrowed by authority. So, there may be two categories of cases, one disputed debt category and another cross­claim case category. In the present case, there is a bonafide dispute of debt and also substantial dispute of counter claim. The principles, which we have enunciated hereinabove, are extensively, explored in catena of judicial pronouncements. For short, we cannot resist the temptation of referring the following decided cases:

# (1) Madhusudan Gordhandas & Co. v. Madhu Woolen Industries Pvt. Ltd, (1972) 42 Company Cases, 125 (SC),

wherein, it is held that one act of dishonesty on the part of the petitioner is sufficient for rejection of petition.

# (2) Harinagar Sugar Mills v. Court Receiver, H.C.Bombay, AIR 1966 SC 1707

wherein it has been observed, relying on Palmer’s Company Precedents that a winding up order is not a normal alternative.

# (3) Pradeshiya Industrial & Investment Corporation v. North India Petrochemicals Ltd., (1994) 3 SCC 348

wherein it is held that mere inability to pay debt without any other evidence itself is not always sufficient to exercise discretion in favour of the petitioner.

# (4) American Express Bank Ltd. v. Core Health Care Ltd., (1999) 96 Company Cases, 841,

wherein, this Court (Coram: R.Balia, J.) has, lucidly, propounded the material principles and important parameters to be considered by the Court before adjudicating and exercising discretionary powers under section 433 of the Companies Act, 1956.

# (5) Ashok Fashions v. Magdoot Acid & Chemicals, (Guj) (1998) 91 Company Cases, 655.

Dealing with the procedural part, also, as required under the Company Court Rules, 1959, pertaining to winding up has laid down certain principles. What is the requirement for being stated in the petition under rule 95 in case of Creditors petition prescribed requirements under forms No.45, 46 and 47 are dealt with. It is held that if the petition does not disclose the financial status of the respondent Company, which is mandatory in case of a petition by the creditor, and therefore, petition came to be dismissed on that ground.”

11. Similarly, in the case of Vijayalakshmi Art Productions (supra), the Madras High Court has observed thus:­

“The right given to a creditor under section 433(e) of the Companies Act to seek winding up of the company is to enable such creditor to realise the amounts due to the creditor along with all other creditors of the company. Such action by a creditor is for the benefit of all the creditors. After the petitioner ceased to be a creditor by reason of the amount lawfully due to the petitioner having been paid, the petitioner has no further right in relation to the affairs of the company, and no enquiry need be made into the company’s finances or its conduct in other matters for the purpose of deciding as to whether the winding up order is warranted. A winding up order cannot be made at the instance of the person who himself is not a creditor at the time the winding up order is to be made, by reason of the acknowledged debt having been paid to such a creditor. The scheme of the Companies Act is to provide for continued operation of the company except in the circumstances indicated in the Act. The company is not to be wound up unless it is essential to do so.

Learned counsel for the petitioner then contended that as the petitioner has also invoked section 433(f) and having regard to the financial position of the company it is just and equitable to wind up the company.

After the petitioner had ceased to be a creditor, the winding up petition at the instance of such person either on the ground of inability to pay its debts, or on the ground that it is just and equitable to wind up, will not lie. Moreover, a petition on just and equitable grounds will not be entertained when an adequate alternative remedy is available to the petitioner. If the petitioner has a legally enforceable claim against the respondent, it is open to the petitioner to resort to remedies in civil courts which he is entitled to do. The petitioner cannot, merely by asserting that it has a claim even though the claim is barred by limitation, further assert that it is just and equitable to wind up the company. A case for winding up on the grounds that it is just and equitable to do so has also not been made out in the petition. In any event, the petitioner cannot be heard at this stage to contend that the company should be wound up on that ground.

Learned counsel for the respondent submitted that the petitioner has failed to furnish any of its documents such as its accounts and ledger books, etc., even though the respondent had called upon the petitioner to do so. Such failure to produce its books considered along with the alleged accounting of the loans in benami and fictitious names, and the admitted inaction in enforcing its claim for any part of the alleged advances or interest thereon during the period of 9 years between 1985 and 1994, would indicate, as rightly contended by the respondent, that the claim now made for a sum of over Rs.2 crores is a speculative claim. The conduct of the respondent in failing to disclose the true extract of its income for purposes of taxation, though condemnable, does not create a right in the petitioner to claim that the amounts which had been shown by the respondent as loans received from fictitious persons, are amounts belonging to the petitioner and lent by it to the respondent. The petitioners have not made any such claim before the income­tax authorities. The alleged loans have been treated by the Income­tax Department as income of the petitioner and tax has been levied thereon. Having regard to the nature of the claim, and the objections thereto raised by the respondent and the conduct of the parties, the debt claimed, except to the extent admitted besides being barred by limitation must be held to be a bona fide disputed debt for which the company has a prima facie defence. The petitioner in the circumstances is only seeking to pressurise the company to pay a disputed debt. A winding up petition for such a purpose will not lie.”

12. In the case of Jay Bharat Credit Ltd. (supra), the Bombay High Court has observed thus:­

“21. The distinction between articles 36 and 37 of the Limitation Act has been well brought about by the Allahabad High Court in

# Arjun Sahai v. Pitamber Das AIR 1963 All 278

where it is specifically held that the mere fact that a bond contains a default clause of that nature would not necessarily make article 75 (old) applicable, and that article applied only to those cases where the provision relating to default clause laid down that on default being made in payment of one or more instalment, the whole amount has to fall due. It would not apply in cases where a default may exist in a different form, for example, where the right of brining the suit is confined to recovering the amount of each instalment in respect of which default may have been committed. It will be seen that in clause 3(b) of the agreement, all that is provided is that, on a default, the defaulting company would be liable to pay the interest @ 3% per month. There is no clause suggesting that whole of the amount would become due and recoverable on a single or more defaults. I respectfully agree with the law laid down in the above mentioned ruling.

22. The end result of all this discussion would be that a suit would clearly be barred by limitation on the date on which the petition under section 433 of the Companies Act was filed. In that view, the petition itself would be of no consequence and will be required to be dismissed as there is a valid and bona fide defence of limitation available to the respondent company.”

13. It would also be advantageous to refer to the judgment of the Apex Court in the case of

# Madhusudan Gordhandas and Co., Vs. Madhu Woollen Industries Pvt. Ltd., reported in (1972) 42 Company Cases 125 (S.C.),

wherein it has been observed as under:­

“Two rules are well settled. First, if the debt is bona fide disputed and the defence is a substantial one, the court will not wind up the company. The court has dismissed a petition for winding up where the creditor claimed a sum for goods sold to the company and the company contended that no price had been agreed upon and the sum demanded by the creditor was unreasonable. (See

# London and Paris Banking Corporation, In re [1875] LR 19 Eq.444)

Again, a petition for winding up by a creditor who claimed payment of an agreed sum for work done for the company when the company contended that the work had not been done properly was not allowed. (See

# Brighton Club and Norfolk Hotel Co.Ltd., In re [1865] 35 Beav. 204)

Where the debt is undisputed the court will not act upon a defence that the company has the ability to pay the debt but the company choses not to pay that particular debt. (See

# A Company, In re [1894] 94 SJ 369; [1894] 2 Ch 349 (Ch D))

Where, however, there is no doubt that the company owes the creditor a debt entitling him to a winding up order but the exact amount of the debt is disputed the court will make a winding up order without requiring the creditor to quantify the debt precisely. (See

# Tweeds Garages Ltd., In re [1962] Ch 406; [1962] 32 Comp Case 795 (Ch D))

The principles on which the court acts are first that the defence of the company is in good faith and one of substance, secondly, the defence is likely to succeed in point of law, and, thirdly, the company adduces prima facie proof of the facts on which the defence depends. Another rule which the court follows is that if there is opposition to the making of the winding­up order by the creditors the court will consider their wishes and may decline to make the winding­up order. Under section 557 of the Companies Act, 1956, in all matters relating to the winding­up of the company the court may ascertain the wishes of the creditors. The wishes of the shareholders are also considered, though, perhaps, the court may attach greater weight to the views of the creditors. The law on this point is stated in Palmer’s Company Law, 21st edition, page 742, as follows :

This right to a winding­up order is, however, qualified by another rule, viz., that the court will regard the wishes of the majority in value of the creditors, and if, for some goods reason, they object to a winding­up order, the court in its discretion may refuse the order.’ The wishes of the creditors will, however, be tested by the court on the grounds as to whether the case of the persons opposing the winding­up is reasonable; secondly, whether there are matters which should be inquired into and investigated if a winding ­up order is made. It is also well­settled that a winding­up order will not be made on a creditor’s petition if it would not benefit him or the company’s creditors generally. The grounds furnished by the creditors opposing the winding up will have an important bearing on the reasonableness of the case. (See

# P & J. Macrae Ltd. In re [1961] 1 All ER 302; [1961] 31 Comp Case 424 (CA)

It is beyond dispute that the machinery for winding up will not be allowed to be utilized merely as a means for realising its debts due from a company. In

# Amalgamated Commercial Traders (P.) Ltd. vs. Krishnaswami (A.C.K.) [1965] 35 Comp Case 456, 463 (SC)

this court quoted with approval the following passage from Buckley on the Companies Acts, 13th edition, page 451:

It is well­ settled that a winding­up petition is not a legitimate means of seeking to enforce payment of the debt which is bona fide disputed by the company. A petition presented ostensibly for a winding­up order but really to exercise pressure will be dismissed, and under circumstances may be stigmated as a scandalous abuse of the process of the court.”

14. Similarly, a view has been expressed by the Apex Court in the case of

# Pradeshiya Industrial & Investment Corporation of U.P. Vs. North India Petrochemicals Ltd., reported in (1994) 3 SCC 348

wherein the Hon’ble Apex Court has held that where there exists bonafide dispute and the dues are not admitted, the winding up petition is required to be dismissed.

15. Similarly, the Apex Court in the case of

# IBA Healt (India) Pvt. Ltd vs. Info­Drive Systems SDN. BHD. Reported in (2010) 10 SCC 553

has observed thus ­

“22. The above mentioned decision was later followed by this Court in

# Madhusudan Gordhandas and Co. v. Madhu Woollen Industries Pvt. Ltd. (1971) 3 SCC 632

The principles laid down in the above mentioned judgment have again been reiterated by this Court in

# Mediquip Systems (P) Ltd. v.Proxima Medical Systems (GMBH) (2005) 7 SCC 42

wherein this Court held that the defence raised by the appellant­company was a substantial one and not mere moonshine and had to be finally adjudicated upon on the merits before the appropriate forum. The above mentioned judgments were later followed by this Court in

# Vijay Industries v. NATL Technologies Ltd.(2009) 3 SCC 527

23. The principles laid down in the above mentioned cases indicate that if the debt is bona fide disputed, there cannot be “neglect to pay” within the meaning of Section 433(1) (a) of the Companies Act, 1956. If there is no neglect, the deeming provision does not come into play and the winding up on the ground that the company is unable to pay its debts is not substantiated and non­payment of the amount of such a bona fide disputed debt cannot be termed as “neglect to pay” so as to incur the liability under Section 433(e) read with Section 434(1) (a) of the Companies Act, 1956.


24. Appellant company raised a contention that it is commercially solvent and, in such a situation, the question may arise that the factum of commercial solvency, as such, would be sufficient to reject the petition for winding up, unless substantial grounds for its rejection are made out. A determination of examination of the company’s insolvency may be a useful aid in deciding whether the refusal to pay is a result of the bona fide dispute as to liability or whether it reflects an inability to pay, in such a situation, solvency is relevant not as a separate ground. If there is no dispute as to the company’s liability, the solvency of the company might not constitute a stand alone ground for setting aside a notice under Section 434 (1)(a), meaning thereby, if a debt is undisputedly owing, then it has to be paid. If the company refuses to pay on no genuine and substantial grounds, it should not be able to avoid the statutory demand. The law should be allowed to proceed and if demand is not met and an application for liquidation is filed under Section 439 in reliance of the presumption under Section 434 (1)(a) that the company is unable to pay it debts, the law should take its own course and the company of course will have an 5 opportunity on the liquidation application to rebut that presumption.

25. An examination of the company’s solvency may be a useful aid in determining whether the refusal to pay debt is a result of a bona fide dispute as to the liability or whether it reflects an inability to pay. Of course, if there is no dispute as to the company’s liability, it is difficult to hold that the company should be able to pay the debt merely by proving that it is able to pay the debts. If the debt is an undisputedly owing, then it should be paid. If the company refuses to pay, without good reason, it should not be able to avoid the statutory demand by proving, at the statutory demand stage, that it is solvent. In other words, commercial solvency can be seen as relevant as to whether there was a dispute as to the debt, not as a ground in itself, that means it cannot be characterized as a stand alone ground.”


33. We may notice, so far as this case is concerned, there has been an attempt by the respondent company to force the payment of a debt which the respondent company knows to be in substantial dispute. A party to the dispute should not be allowed to use the threat of winding up petition as a means of enforcing the company to pay a bona fide disputed debt. A Company Court cannot be reduced as a debt collecting agency or as a means of bringing improper pressure on the company to pay a bona fide disputed debt. Of late, we have seen several instances, where the jurisdiction of the Company Court is being abused by filing winding up petitions to pressurize the companies to pay the debts which are substantially disputed and the Courts are very casual in issuing notices and ordering publication in the newspapers which may attract adverse publicity. Remember, an action may lie in appropriate Court in respect of the injury to reputation caused by maliciously and unreasonably commencing liquidation proceedings against a company and later dismissed when a proper defence is made out on substantial grounds. A creditor’s winding up petition implies insolvency and is likely to damage the company’s creditworthiness or its financial standing with its creditors or customers and even among the public.


34. A creditor’s winding up petition, in certain situations, implies insolvency or financial position with other creditors, banking institutions, customers and so on. Publication in the Newspaper of the filing of winding up petition may damage the creditworthiness or financial standing of the company and which may also have other economic and social ramifications. Competitors will be all the more happy and the sale of its products may go down in the market and it may also trigger a series of cross­defaults, and may further push the company into a state of acute insolvency much more than what it was when the petition was filed. The Company Court, at times, has not only to look into the interest of the creditors, but also the interests of public at large.

35. We have referred to the above aspects at some length to impress upon the Company Courts to be more vigilant so that its medium would not be misused. A Company Court, therefore, should act with circumspection, care and caution and examine as to whether an attempt is made to pressurize the company to pay a debt which is substantially disputed. A Company Court, therefore, should be guarded from such vexatious abuse of the process and cannot function as a Debt Collecting Agency and should not permit a party to unreasonably set the law in motion, especially when the aggrieved party has a remedy elsewhere.”

16. Considering the aforesaid facts of the case on hand, the record of the petition, including the statutory notice and the reply given to the earlier notice by the respondent Company, affidavits, counter­affidavits as well as judgments referred to above, it appears that the debt is not an admitted debt and bonafide disputes are raised by the respondent Company and on the basis of the aforesaid, it cannot be said that non­payment of bonafide disputed debt would amount to “neglect to pay” so as to make liable under sections 433 and 434(1)(a) of the Act and thus, the present case would not fall under sections 433 and 434 of the Act. It further transpires from the record of the petition that the respondent Company is a going concern and it cannot be said that the respondent Company has lost its financial substratum.

17. For the foregoing reasons, the petition fails and is accordingly dismissed. Notice discharged. Parties to bear their own costs.

Company Law; Topicana Exports Vs. Shaligram Laminates [Gujarat High Court, 07-06-2016]


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