Genuine dispute of debt and bona fide defense can prevent winding up of a company under S.433(e) of the Companies Act.

P.V. Narayanan Nambiar, J.

These are petitions filed under Ss.433,434 and 439 of the Companies Act, 1956 (hereinafter referred to as 'the act) by the creditors with a prayer to wind up M/s. Trend Designs Ltd. (hereinafter referred to as 'the Company'), a Company incorporated under the Act.

2. In C.P. No. 9 of 1996, it is alleged that the company is indebted to the petitioner for a sum of Rs. 2,68,466.70 in respect of invoices raised against them for executing computerized embroidery work. The petitioner in C.P. No. 10 of 1996 alleges that the company is indebted to them for a sum of Rs. 10,14,628.26 in respect of invoices raised against them for executing computerized embroidery work. It is further alleged in both the Company Petitions that as per the work order, the Company placed orders with the petitioners for executing the embroidery work as per the designs furnished by them for which bills have been raised after effecting delivery of the goods to them. 50% of the charges are paid at the time of placing orders and the balance 50% is paid on delivery of the goods after executing the work. As per the agreement between parties, cloth pieces on which embroidery work is to be done is delivered to the factory of the petitioners at Tirupur and taken delivery of from their factory at Tirupur. The goods will be either sent by professional couriers who are engaged for the purpose by the Company or through their own boys who come and collect the finished materials from the petitioners' factories. When the Company places an order with the petitioners, they send cut pieces on which embroidery work is to be carried out. The petitioners have been carrying out embroidery work for the company for a few years. After finishing the work, they had raised different bill s, but the amount covered by the bills has not been paid. It is further alleged in the petitions that the cheque issued by them was dishonoured and that the Company even failed to pay the charges of the professional couriers. The various correspondence between parties also did not yield any result. So, a lawyers' notice was issued, as provided under S.434(1) of the Act demanding payment of the amount covered by the bills, but the amount was still not paid. Hence, the petitioners are satisfied that the financial position of the Company is such that it is unable to pay its debts. So, the petitioners pray for winding up of the Company.

3. A common counter affidavit was filed by the company in C.P. No. 10 of 1996 in which the liability of the Company is disputed. It is stated therein that the Company is financially sound and it is in a position to meet its financial commitments, but the amount claimed by the petitioners is not payable. It is further alleged therein that the petitioners did not supply the materials in time as a consequence of which considerable loss was suffered by the Company. The embroidery work is to be sent by shipment to foreign buyers and as the petitioners did not execute their work as agreed upon, the articles had to be sent by AIR which resulted in incurring high expenditure. It is also stated in the counter affidavit that the company has suffered a loss of Rs. 35 lakhs due to the delayed execution of orders. In the additional counter affidavit filed by the Company, it has produced documents-to show that the Company is in sound financial position.

4. Before taking a decision on the disputed issue that the Company is unable to pay the debts as a consequence of which it is to be wound up, let me survey the provisions contained in the Act on the subject, S.433 deals with the grounds under which a company may be wound up by Court. The Section is extracted hereunder;

"Circumstances in which company may be wound up by Court.

A company may be wound up by the Court, -

(a) if the company has, by special resolution, resolved that the company may be wound-by by the Court;

(b) if default is made in delivering the statutory report to the Registrar or in holding the s