Case List: Commercial Insolvency

In order to decide whether a winding up petition should be allowed on the grounds of Section 433(e), what is ascertained by the Court is NOT whether the assets of the company if converted into cash would be sufficient to meet its liabilities, but whether the company is insolvent in a commercial sense, i.e., a perusal of the balance sheet of the company must show that its assets are not sufficient to meet its current liabilities. The debt under Section 433 of the Companies Act, 1956 must be a determined or a definite sum of money payable immediately or at a future date. A determination of examination of the company’s insolvency may be a useful aid in deciding whether the refusal to pay is a result of the bona fide dispute as to the liability or whether it reflects an inability to pay. If there is no dispute as to the company’s liability, the solvency of the company might not constitute a standalone ground for setting aside a notice under Section 434(1)(a), meaning thereby, if a debt is undisputedly owing, then it has to be paid.12 If demand is not met and an application for liquidation is filed under Section 439 in reliance of the presumption under Section 434(1)(a) that the company is unable to pay its debts, the law should take its own course and the company of course will have an opportunity on the liquidation application to rebut that presumption. Solvency of a company cannot stand in the way of a winding-up petition if the company does indeed owe an unpaid debt to the creditor.

CASE LIST

  • Dolphin International Ltd. vs. Gavs Laboratories (P) Ltd., (1999) 1 CALLT 49 (SC)
  • Mediquip Systems (P) Ltd. v. Proxima Medical System GMBH, AIR 2005 SC 4175 (para 18 & 21)
  • IBA Health v. Info-Drive Systems, (2010) 10 SCC 553 (para 21 & 22)

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