Bona Fide Dispute Over Liability Bars Winding Up Proceedings: Madhya Pradesh High Court

The Madhya Pradesh High Court at Gwalior on 22 June held that a bona fide dispute over the rate of goods supplied to a company bars initiation of winding-up proceedings under Sections 433(e), 434(1)(a) and 439(1)(d) of the Companies Act, 1956.

Justice Ashish Shroti dismissed a company petition filed by Mahavir Enterprises against Gwalior Sugar Company Ltd., finding that the claim involved disputed questions of fact regarding the applicable rates and outstanding liability. He observed:

“The winding up of the company under Sections 433(e), 434(1)(a), and 439(1)(d) of the Companies Act is permissible when the amount claimed is found to be due to the respondent. However, if there is a bona fide dispute with regard to the liability of the respondent to pay the amount and adjudication of the claim involves disputed questions of fact, the petition for winding up under the aforementioned provisions is not maintainable.

…Keeping in view the aforesaid legal position, if the facts of the present case are seen, then it is gathered that there is serious dispute regarding the rate of goods supplied by the firm to the Company”

Mahavir Enterprises, a proprietorship firm based in Mumbai engaged in supply of steel and alloy products, moved the company petition seeking winding up of Gwalior Sugar Company Ltd. It stated that the company placed orders in August 2006 for steam pipes, MS pipes and SS tubes, which it supplied through invoices raised between September and November 2006.

The firm stated that the company acknowledged receipt of goods and initially assured payment, but made only partial payments, leaving an outstanding amount of Rs 9,10,360.64. It further stated that despite repeated reminders and a demand notice issued in July 2008, the company failed to clear the balance dues.

Gwalior Sugar Company Ltd. disputed the claim and stated that it did not accept the rates charged by the firm. It asserted that it made payments only after correcting the bills and further claimed that it had already made an excess payment of Rs 1,76,129 to Mahavir Enterprises.

It also stated that the firm accepted the payments without objection. It further stated that it had requested Mahavir Enterprises to send a representative for reconciliation of accounts, but the firm did not respond.

Justice Shroti examined whether the debt claimed by Mahavir Enterprises remained undisputed and enforceable in winding-up jurisdiction. Relying on the Supreme Court's decision in IBA Health (India) Pvt. Ltd. v. Info-Drive Systems SDN. BHD., he reiterated that winding-up proceedings cannot be used to recover debts that are bona fide disputed.

Applying this principle, the Bench held that the record showed a serious and genuine dispute regarding the applicable rates of goods supplied, supported by account statements and reconciliation correspondence. It noted that Mahavir Enterprises did not file any rejoinder to rebut the company's assertions. Finally, it concluded that the dispute involved triable issues of fact and could not be adjudicated in winding-up jurisdiction.

Accordingly, the High Court dismissed the petition and granted liberty to both parties to pursue appropriate remedies before the competent forum.