winding up petition against companies due to non payment of dues or debt.
A winding up petition is, therefore, not a legitimate means of seeking to enforce payment of the debt which is bona fide disputed by the company. The court is competent, in consideration of circumstances to refuse to pass an order of winding up even if the company is unable to pay its debts
Winding up is a process by which the affairs of the company come to an end. It has been described as “…a process whereby its life is ended and its property administered for the benefit of its creditors and members. An administrator, called liquidator, is appointed and he takes control of the company, collects its assets, pays its dues and finally distributes any surplus among the members in accordance with their rights”
The jurisdiction of the High Court under Section 433 is not that of a court which is essentially meant for settling money disputes between parties, but is to subserve the object of winding up of companies which have not paid their debts or which are unable to pay their debts3. Thus, the object of Section 433 is to provide a summary remedy and save the shareholders or creditors of a company, where a company is unable to meet its admitted liabilities.
Proceedings under Section 433 are not a substitute for a civil suit by a creditor against the company. The mere filing of a civil suit need not be an impediment to proceed with the company petition for winding up
Inability to Pay Debts by Companies.
Section 433(e) of the Companies Act, 1956 provides that in cases where the company is unable to pay its debts the court can order winding up. The expression ‘unable to pay its debts’ has to be taken in the commercial sense of being unable to meet current demands though the company may be otherwise solvent6. The fact that the liabilities exceed the assets does not necessarily mean that the company is unable to pay its debts. It may still be in a position to meet the demands of the creditor when made7. However, where the court is satisfied upon a general perusal of the balance sheet that the company cannot pay its debts i.e., its assets are not sufficient to satisfy its liabilities, the court may order the winding up of the company.
The inability to pay debts primarily arise under three circumstances,
- Where the company fails to clear the debt of the creditor (a sum exceeding five hundred rupees) within three weeks immediately preceding the date of demand for payment being made
- Where execution or other process issued on a decree or order of any court in favour of the company is returned unsatisfied in whole or part and
- Where it is proved to the satisfaction of the court that the company is unable to pay its debts.