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Date of default would be considered for triggering limitation for filing winding up petition against co.: SC

September 28, 2019[2019] 109 taxmann.com 486 (SC)
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COMPANY LAW : Trigger point for purpose of limitation for filing of a winding up petition under section 433(e ) would be date of default in payment of debt in any of three situations mentioned in section 434

• The trigger for limitation is the inability of a company to pay its debts. Undoubtedly, this trigger occurs when a default takes place, after which the debt remains outstanding and is not paid. It is this date alone that is relevant for the purpose of triggering limitation for the filing of a winding up petition. Though it is clear that a winding up proceeding is a proceeding 'in rem' and not a recovery proceeding, the trigger of limitation, so far as the winding up petition is concerned, would be the date of default. Questions as to commercial solvency arise in cases covered by section 434(1) (c) of the Companies Act, 1956, where the debt has first to be proved, after which the Court will then look to the wishes of the other creditors and commercial solvency of the company as a whole. The stage at which the Court, therefore, examines whether the company is commercially insolvent is once it begins to hear the winding up petition for admission on merits. Limitation attaches insofar as petitions filed under section 433(e) are concerned at the stage that default occurs for, it is at this stage that the debt becomes payable.

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