A winding up petition based on inability to pay debts may be dismissed if the company raises a bona fide and substantial defense, even if the debt is admitted, and if winding up would not benefit the petitioner or the company's creditors generally.

S.N.Jha, J.

1. This is a petition for winding up of Zinc Products and Company Pvt. Ltd. (hereinafter referred to as "the respondent company") under Secs. 433(e) and (f) read with Secs. 434 and 439 of the Companies Act, 1956 . The said company was incorporated with the object of carrying on the business of manufacture and trade of distilled zinc dust and other allied products of zinc metal. The petitioner, BOC India Limited (formerly known as IOL Ltd.) is also a company incorporated under the Companies Act having its factory premises at Asansol and Jamshedpur "where it carries on the business of manufacture and supply of various industrial and medical gases to its consumers. The petitioner-company supplied industrial gases to the respondent-company from its Asansol and Jamshedpur factories and provided certain other facilities incidental to the supply between 1988 and 1991. According to the petitioner, the respondent-company owes a sum of Rs. 5,48,978.16 to it on account of supply of gases. The respondent-company in fact issued five cheques, one on September 12, 1991 and four on March 30, 1992. for a total sum of Rs. 3,03,686.59. The cheques however, on presentation to the bank, were returned for insufficiency of funds. It is said that correspondence ensued between the parties and the respondent-company agreed to liquidate the dues by issuing fresh cheques but the same was never done. Despite several rounds of correspondence and personal approaches the amount remained outstanding. In the circumstances, a notice as required under Sec. 434(1)(a) of the Companies Act was sent on February 3, 1995, and finally on May 1, 1995, the present company petition was filed.

2. The respondent-company has filed a counter-affidavit in which it has denied the claim of the petitioner. According to it, the petitioner used to supply compressed nitrogen gas to it since its very inception from its Patna Depot. Keeping in view the off-take of the compressed nitrogen, the petitioner approached it with an offer to supply nitrogen gas in liquid form at a price of Rs. 690 per 100 cu.m. inclusive of excise duty but exclusive of sales tax, and delivery charge at the rate of Rs. 150 per 100 cu.m. It offered to make supply for a period of five years at the same price subject to escalation only on account of power tariff and wholesale price index. Other terms and conditions were as incorporated in the letter dated July 6, 1988. The respondent-company accepted the offer with some modification vide its letter dated October 29, 1988. As per its counter-offer, it agreed to buy liquid nitrogen gas at the rate of Rs. 690 per 100 cu.m. for a period of three years with an option of extension for a further period of two years. The petitioner agreed to the said terms and communicated its acceptance by letter dated January 5, 1989. These three letters dated July 6, 1988, October 29, 1988, and January 5, 1989, copies whereof have been marked annexures A, B and C to the counter-affidavit, admittedly formed the basis of the contract between the parties.

3. The petitioner-company installed and completed the pipeline work in the factory premises of the respondent-company and supplied the first load of the liquid nitrogen on April 28, 1989. According to the respondent-company, the supply of liquid nitrogen was erratic from the very beginning which resulted in business losses to the respondent. It is said that by letter dated June 1, 1990, the respondent-company informed the petitioner-company that during the previous one year, out of 36 loads of liquid nitrogen only 15 loads had been supplied. Disputes also arose between the parties on account of the fact that as against the agreed price of Rs. 690 per 100 cu.m, the petitioner, allegedly, unilaterally increased the price of liquid nitrogen to Rs. 1,500 per 100 cu.m. in August, 1990, which was again increased to Rs. 3,310 per 100 cu.m. in September, 1991. From the correspondence between the parties brought on record of