Winding up Petition not a legitimate mean to seek payment of dues when there exist a bonafide dispute

The creditor in order to seek winding up of a company must prove that the debt is clear and unimpeachable in law and the debt must have crystallized and if the accounts are not settled, the debt cannot be said to have crystallized.

The Court in the present winding up petition held that relief of winding up cannot be granted in a case where the debt is a subject matter of bonafide dispute and there is a substantial defence. In the instant petition, the relief was sought on the ground that since the Company has not been able to clear its debt, it should be wound up. 

It was observed that if a debt is not paid on account of a bonafide dispute, the same cannot be treated as inability to pay the debt. The creditor in order to seek winding up of a company must prove that the debt is clear and unimpeachable in law and the debt must have crystallized and if the accounts are not settled, the debt cannot be said to have crystallized. To raise a presumption of a company’s inability to pay its debts it is not enough merely to show that the company has omitted to pay the debt despite service of statutory notice, it must be further shown that the company omitted to pay without reasonable excuse and conditions of insolvency in the commercial sense exist. 

In the present matter the claim made was contested and a dispute was raised with regard to authenticity of the entries and reconciliation of accounts was sought. Even the Petitioner in its application for taking additional documents on record stated that the accounts were yet to be reconciled and in the absence of reconciliation of the accounts, the liability in question, as held, could not be termed as debt.

[Alpha Packaging Ltd. vs. Som Distelleries Ltd.]
(MP HC, 12.11.2014)