MIS. IBA HEALTH (I) P. LTD v. M/S INFO-DRIVE SYSTEMS SON. BHD

The dispute arose between the parties regarding the payment of the commission charges which led the parties B entering into a deed of settlement dated 19.12.2003, ·pursuant to which the terms of the Cooperation Agreement were superseded by the deed of settlement and the appellant agreed to pay the commission charges due to the respondent in accordance with the terms and C conditions set out in the deed of settlement. The respondent filed a suit for restraining the acquisition of the appellant company alleging the breach of the terms of the settlement deed. The parties entered into a compromise on 18.3.2006, pursuant to which both the parties agreed to adhere to the terms and conditions of D the deed of settlement dated 19.12.2003. E After the compromise was filed, the respondent received an amount of RM1 ,069,583.29 on 20.3.2006 from the appellant. Alleging that, despite receiving periodical payments from Mis Solutions Protocol, the appellant company had failed to honour its commitments as per the deed of settlement and the compromise, the respondent issued an invoice to the appellant claiming an amount of US$ 1,065,714.00 allegedly due towards fees for the marketing services. A legal notice dated 16.8.2008 was served on the appellant under Section 434(1 )(a) of the Companies Act, 1956 to pay the amount within twenty one days from the date of the receipt of that notice, failing which the appropriate legal proceedings would be G initiated. The appellant replied that it had not violated any of the terms and conditions of the said deed of settlement or the compromise entered into by the parties and that whatever amount received by the appellant prior to.31.12.2006 from M/s Solutions Protocol was paid to the F H 140 SUPREME COURT REPORTS [2010) 12 S.C.R. A respondent. The appellant also denied the liability to pay the amount demanded. 8 The respondent filed a company petition praying for the winding up of the appellant company. The Company Judge held that the respondent company has established a prima facie case and ordered that the matter be re-listed for orders regarding advertisement to be published in the newspaper. The Company Judge also directed the parties to appear before thE' Mediation Centre at C Bangalore for amicably settling the dispute. The appellant filed appeal before the Division Bench of the High Court which was dismissed. The said order was challenged in the instant appeal. Allowing the appeal, the Court D HELD: 1. When a creditor prefers an application for winding up for discharge of liability and there is a sub tantial dispute as to such liability, the Company ourt, at that stage, is not expected to hold a full tria E of the matter. It must decide whether the grounds appear to 1e substantial. The grounds of dispute, of course, must no consist of some ingenious mask invented to deprive a 1::reditor of a just and honest entitlement and must not be a mere wrangle. It is settled law that if the creditor's debt is bona fide disputed on substantial grounds, the court F should dismiss the petition and leave the creditor first to •~stablish his claim in an action, lest there is danger of abuse of winding up procedure. A dispute as to liability would be substantial and genuine if it is bona fide and not spurious, speculative, illusory or misconceived. The G Company Court always retains the discretion, but a party to a dispute should not be allowed to use the threat of winding up petition as a means of forcing the company to pay a bona fide disputed debt. If the debt is bona fide disputed, there cannot be "neglect to pay" within the H meaning of Section 433(1)(a) of the Companies Act, 1956. IBA HEALTH (I) P: LTD. v. INFO-DRIVE SYSTEMS SON. BHD. 141 If there is no neglect, the deeming provision does not A come jnto play and the winding up on the ground that the company is unable to pay its debts is not substantiated and non-payment of the amount of such a bona fide disputed debt cannot be termed as "neglect to pay" so as to incur the liability under Section 433(e) read with B Section 434(1)(a) of the Companies Act, 1956. [Paras 17,· 20] [155-H; 156-A-D; 157-C-D]