Case Note & Summary
The petitioner, M/s. Rasiklal Ratilal and M/s. Rasiklal Ratilal Trading P. Ltd., filed two company petitions under Sections 433(e) and 434 of the Companies Act, 1956 seeking winding up of the respondent company, M/s. Fancy Corporation Ltd., on the ground of inability to pay its debts. The petitioner had supplied synthetic cotton yarn/fabric to the respondent and issued invoices and bills of exchange payable to Janakalyan Sahakari Bank Ltd., which were accepted by the respondent. In part discharge of the liability, the respondent issued 13 cheques drawn on Union Bank of India for a total sum of Rs.1,85,43,233/-, which were dishonoured upon presentation. The petitioner filed complaints under Section 138 of the Negotiable Instruments Act, 1881 against the directors of the respondent company. Despite a statutory notice dated 21.5.2004 demanding payment of Rs.2,38,36,327/- with interest at 18% p.a., the respondent failed to pay. The court considered whether the respondent was unable to pay its debts and whether the existence of a bona fide dispute or pending criminal proceedings barred the winding up petition. The court held that the debt was due and payable, there was no bona fide dispute, and the pendency of criminal proceedings did not prevent the winding up. The court allowed the petitions and ordered winding up of the respondent company.
Headnote
A) Company Law - Winding Up - Inability to Pay Debts - Sections 433(e) and 434 of the Companies Act, 1956 - The petitioner supplied goods and received cheques which were dishonoured; statutory notice was issued but payment not made - Court held that the company is deemed unable to pay its debts under Section 434(1)(a) and ordered winding up - Held that the debt is due and payable and there is no bona fide dispute (Paras 1-5). B) Negotiable Instruments Act - Dishonour of Cheques - Effect on Winding Up - Section 138 of the Negotiable Instruments Act, 1881 - The petitioner filed criminal complaints for dishonour of cheques - Court held that pendency of criminal proceedings does not bar a winding up petition if the debt is otherwise due and the company is unable to pay (Paras 3-5).
Issue of Consideration
Whether the respondent company is liable to be wound up under Section 433(e) of the Companies Act, 1956 for inability to pay its debts, and whether the existence of a bona fide dispute or pending criminal proceedings under Section 138 of the Negotiable Instruments Act, 1881 bars the winding up petition.
Final Decision
The court allowed the petitions and ordered winding up of the respondent company, M/s. Fancy Corporation Ltd., under the Companies Act, 1956.
Law Points
- Winding up under Companies Act
- 1956
- Sections 433(e) and 434
- Debt due and payable
- Dishonour of cheques
- Bona fide dispute
- Pendency of criminal proceedings under Negotiable Instruments Act
- 1881
