A company's defence to a winding up petition will not be considered bona fide if the company fails to provide any evidence to support its claims and if the company's financial statements show that it is insolvent.

JUDGMENT :

M.S. Shah, J.

In this petition under sections 433 and 434 of the Companies Act, 1956 (hereinafter 'the Act'), petitioner-Ficom Organics Ltd. (hereinafter 'the petitioner') has prayed that the respondent-company-Laffans Petrochemicals Ltd. ('the respondent/the respondent-company') be wound up on the ground that the respondent has not paid the petitioner a sum of Rs. 16,27,433.15. Together with further interest thereon at 24 per cent per annum despite statutory notice dated 14th February, 1997 served on the respondent.

2. The learned counsel for the parties have addressed the court at length on questions of fact as well as questions of law. Ordinarily, even pure questions of law are required to be decided in the fact situation of a particular case and, therefore, the court would have proceeded to narrate the facts of the case and the contentions of the rival parties both on questions of fact and questions of law and the court would have thereafter proceeded to deal with the same. However, Mr. A S Vakil for the respondent-company has raised an important question of law which arises in a number of company petitions and, therefore, the court has thought it fit to set out the legal perspective with which the court proposes to examine the questions of fact arising in the present case.

Statutory provisions

3. For winding up petitions on the ground that the company has not paid its debt to the petitioner-creditor, the following statutory provisions are relevant :

"433. Circumstances in which company may be wound up by court.

(e) if the company is unable to pay its debts

'434. Company when deemed unable to pay its debts. - (1) A company shall be deemed to be unable to pay its debts -

(a) if a creditor, by assignment or otherwise, to whom the company is indebted in a sum exceeding five hundred rupees then due, has served on the company, by causing it to be delivered at its registered office, by registered post or otherwise, a demand under his hand requiring the company to pay the sum so due and the company has for three weeks thereafter neglected to pay the sum, or to secure or compound for it to the reasonable satisfaction of the creditor;

(b) if execution or other process issued on a decree or order of any court in favour of a creditor of the company is returned unsatisfied in whole or in part; or

(c) if it is proved to the satisfaction of the court that the company is unable to pay its debts, and, in determining whether a company is unable to pay its debts, the court shall take into account the contingent and prospective liabilities of the company."

"Rule 96. (Companies (Court) Rules, 1959) Admission of petition and directions as to advertisement. - Upon the filing of the petition, it shall be posted before the Judge in Chambers for admission of the petition and fixing a date for the hearing thereof and for directions as to the advertisements to be published and the persons, if any, upon whom copies of the petition are to be served. The judge may, if he thinks fit, direct notice to be given to the company before giving directions as to the advertisement of the petition."

Classification of winding up petitions under section 433(e)

4. Depending on the defence pleaded, winding up petitions filed by the creditors under section 433(e) can be divided into following categories :

(1) Where the debt is admitted, but the company pleads temporary inability to pay.

(2) Where the company asserts ability to pay its debts (commercial solvency) but disputes the particular debt of the petitioning creditor.

(3) Where the company disputes the debt and in the alternative may also plead that the inability to pay is only temporary.

In the facts of the present case, we are concerned with the second category and the discussion is accordingly confined to the said category.

Settled legal principles

5. It is well-settled that in a winding up petition filed on the gr