Winding up of a company is warranted where defenses against debt repayment lack merit and bonafide nature.

JUDGMENT :

M. S. Sonak, J.

1. Heard learned counsel for the parties.

2. This Appeal is directed against the Judgment and Order dated 17 June 2005, made by the learned Company Judge, A. M. Khanvilkar, J. (as His Lordship then was), disposing of the Company Petition No. 299 of 1994 and ordering the winding up of the Appellant-Company, under Section 433(e) of the Indian Companies Act, 1956 (“said Act”).

3. Mr Rao’s main contention was that the security deposit of Rs.50 lakhs accepted by the Appellant-Company from the Respondent [creditor] was refundable but subject to certain terms and conditions. He submitted that such terms and conditions were never fulfilled by the Respondent-Petitioner and therefore, there was no obligation to refund this amount. He submitted that the debt in this regard was never crystallized and based upon an uncrystallized debt, there was no liability to pay. Therefore, he submitted that this was not clearly a case of the Appellant-Company being unable to pay its debts. He submitted that, in any event, a bonafide dispute had been raised by the Appellant-Company and in such circumstances, the order of winding up warrants interference.

4. Mr Rao submitted that the learned Judge has misinterpreted the writings of dated 04 January 1992 and 03 May 1992. He submitted that none of these writings either unconditionally acknowledged the debt or made any unqualified promise for payment. He submitted that even these writings record mutual obligations to be complied by the parties. He submitted that the Respondent-Creditor had failed to comply with the obligations cast upon it and therefore, there was no liability to refund the security deposit or pay any amounts to the so-called Creditor. He submitted that this crucial aspect was not considered by the learned Company Judge and therefore, the impugned Judgment and Order warrants interference.

5. Finally, Mr Rao, referred to series of financial misfortunes faced by the Appellant-Company. At one stage, he even offered to pay the claimed amounts to the Creditor or rather, to the Creditor and S. Koder Ltd., (who is not a party to this proceedings). However, upon taking instructions from the Appellant’s representative present in the Court, Mr Rao stated that the Appellant-Company is presently not able to make any payments. Mr Rao, once again, highlighted the difficulties faced by the Appellant-Company on account of the winding up order and submitted that should this winding up order be set aside, the Appellant-Company, which was a flourishing company, has chances of revival.

6. For the above reasons, Mr Rao submitted that the impugned Judgment and Order winding up the Appellant-Company be set aside.

7. The Official Liquidator present in the Court, made no submissions on the merits of the matter. However, he pointed out that since there was no interim relief in this Appeal, Official Liquidator has already taken over the assets of Appellant-Company and the winding up process is going on.

8. We have heard Mr Rao on merits, perused the record and evaluated the impugned judgment and order. We now proceed to dispose of this Appeal against Judgment and Order dated 17 June 2005 allowing Company Petition No. 299 of 1994.

9. The Appellant-Company was incorporated in the business of manufacturing of electrical appliances, like domestic mixing machines, kitchen machines, washing machines etc. An agreement was arrived at between the Appellant-Company and Ms Varkey Overseas Trading Co. Pvt. Ltd. (Creditor) for clearing and forwarding the goods of the Appellant-Company. This agreement came into effect on deposit of Rs. 50 lakhs by the Creditor as an unsecured interest free deposit.

10. Record shows that there were d