TMI Blog1995 (3) TMI 421X X X X Extracts X X X X X X X X Extracts X X X X ..... . and Mrs. Senthil Kumar have filed Company Petition No. 50 of 1994 on 19-3-1994, under section 433( f ) of the Act seeking winding up of the company on just us and equitable grounds should continue parallel or one or the other proceedings deferred and if so, which one of the two proceedings is to be deferred. 2. These questions have arisen for consideration on account of the dichotomy in jurisdiction created by the Companies (Amendment) Act, 1988, regarding the reliefs that can be granted, even when the basic jurisdictional facts to be established are the same. The existence of a fact situation warranting the winding up of the company on the ground that it would be just and equitable to do so, is a pre-condition for invoking the jurisdiction of the CLB under section 397 as also for invoking the jurisdiction of this court under section 433( f ). 3. While the reliefs that may be granted in a petition under section 397 as set out illustratively in section 402 of the Act are wide ranging and are aimed at ensuring the continued corporate existence of the juristic entity, this court in a petition under section 433( f ), unless the petition is dismissed can by way of final order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etitioners thereafter filed a suit in the sub-court at Tirupur for a declaration that respondent Nos. 2 and 3 have ceased to be directors of the company. It is the case of the second and third respondents that all these actions are illegal and invalid as they were not given notice of the meetings and the meetings were also held at short intervals only with the object of creating a ground on which the respondent No. 2 could be removed from his position as managing director and the respondent No. 3 could be removed from her position as director. 8. While it is alleged by the second respondent that the first petitioner had misused the funds of the company by not repaying to the bank about one crore rupees borrowed by the company from the bankers, it is the case of the first petitioner that the respondent who resides at and functions from Bombay has retained several lakhs of rupees of the company s funds which he has failed to return and account for, and was more anxious to retain his possession of the flat purchased by the company at Bombay, which flat he is alleged to have had repaired and furnished at the company s cost. 9. Respondent Nos. 2 and 3 moved the CLB in May, 1993, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ings pending against the company in any other court, at any time after the presentation of a winding up petition and before a winding up order is made. Court referred to in this section, considering the context, has necessarily to be construed as any adjudicating authority which is required to act judicially and is empowered to pass orders binding on the company. Section 10E which provides for the constitution of a CLB Administration, by sub-section (4C) has conferred on every Bench of that Board, the powers vested in a court under the Code of Civil Procedure while trying a suit in respect of, inter alia, discovery and inspection of documents or other material subjects producible as evidence, enforcing attendance of witnesses, compelling production of documents, examination of witnesses on oath, granting adjournments and reception of evidence on oath. Every Bench of the CLB Administration is deemed to be a civil court for purpose of section 195 and Chapter XXVI of the Code of Criminal Procedure, 1973, and every proceeding before the Bench is deemed to be a judicial proceeding within the meaning of sections 193 and 228 of the Indian Penal Code, 1860, and for the purpose of secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s or by the company, altering the articles of association, and relief in respect of any other matter for which the CLB considers just and equitable, to provide. Under section 443(2) the court may decline to wind up the company on just equitable grounds if the court is of the opinion that some other remedy is available to the petitioners and that they are acting unreasonably in seeking to have the company wound up instead of pursuing that other remedy. 19. The policy of the State is thus to require the parties, unless there are exceptional circumstances, to pursue other remedies that may be available for the redressal of their grievances, before resorting to a petition for winding up on the ground that it is just and equitable to do so. 20. In this context it is useful to set out the observations of the Supreme Court in the case of Hind Overseas P. Ltd. v. Raghunath Prasad Jhunjhunwala [1976] 46 Comp. Cas. 91 : "Relief under section 433( f ) of the Companies Act, 1956, based on just and equitable clause is in the nature of a last resort when other remedies are not efficacious enough to protect the general interests of the company. It is not a proper principle to encourag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counsel for the petitioner relied on the decision of this Court in the case of Ramakrishna Industries (P.) Ltd. v. P.R. Ramakrishnan [1988] 64 Comp. Cas. 425 in support of his submission that this Court has ample powers to make an ex parte order of injunction or stay, even at the admission stage of the winding up petition. Learned counsel relied on the following observation in the judgment (head note): The words on hearing a winding up petition occurring in section 443(1) of the Companies Act, 1956, cover the entire period from the date of entertainment of the petition and issuing of notice till an actual order of winding up is made or the winding up petition is dismissed. "Hearing" does not mean hearing the respondent to the petition. Hearing the petitioner for the purpose of admitting the petition and issuing notice is also part of the hearing of the winding up petition. The court s jurisdiction to make interim orders is not postponed till the date set for hearing of the company petition after notice to the respondents". (p. 425) 25. The learned counsel for the petitioner referred to the decision of the Calcutta High Court in the case of Mohta Bros. (P.) Ltd. v. Ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... intaining a petition under sections 397 and 398 of the Companies Act, 1956, ( a ) it must be established that the oppression complained of affected a person in his capacity or character as a member of the company, as harsh and unfair treatment in any other capacity such as a director or a creditor is outside the purview of the section ; ( b ) there must be continuous acts constituting oppression up to the date of the petition; ( c ) the events have to be considered not in isolation but as part of a continuous story; ( d ) it must be shown as a preliminary to the application of section 397 that there are just and equitable grounds for winding up the company; ( e ) the conduct complained of can be said to be oppression only if it can be said that it is burdensome, harsh and wrongful and the oppression involves at least an element of lack of probity and fair dealing to a member in matters of proprietary right as a shareholder". (p. 20) 29. The learned counsel for the petitioner contended that the acts of oppression alleged against the respondents in the petition before the Company Law Board, being acts which affect their character as directors, was not maintainable and no relief c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there is no alternative remedy open to the petitioner. This is because if such a petition is admitted and there is a public advertisement, it would cause irreparable harm to a solvent company even if the company succeeds ultimately". The court observed that ". . . a situation of irresolvable complete deadlock would arise by reason of the very constitution itself in case of equally divided holdings of partners in quasi-partnership when by reason of only acting as per the constitution a deadlock would be created without any oppression or mismanagement, which could be remedied under sections 397 and 398 of the Act". (p. 367) 33. In the case of Gadadhar Dixit v. Utkal Flour Mills P. Ltd. [1989] 66 Comp. Cas. 188 a learned single judge of the Orissa High Court held that a company being an independent and legal personality, distinct from the individuals who are its members, the mere fact that a pre-existing partnership firm has been converted into a private limited company does not by itself mean that the company retains the characteristics of a partnership. The court therein also emphasised the fact that relief under section 433( f ) is discretionary and the court may refuse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ience in relation to the problems in the working of the companies the Company Law Board. It now adjudicates many such disputes which come before it as provided under the law. The Registrar of Companies has got an overseeing authority in relation to enumerated matters. These safeguards are visualised for the protection of the individual shareholder, who in the scheme of things may not be in a position to have a close view of the working of the company and many of its deals. The important right of the majority of the shareholders to replace a group mismanaging its affairs or lacking in probity is always there. Experience has, however, shown that the majority could be manipulated by those with ideas in mind and money to back. Sections 397 and 398 confer valuable rights even on the minority to seek the aid of a vigilant court in redressing their grievances. If pursued properly and effectively, many of the misdeeds of an erring or dishonest management could be checkmated and/or remedied by resort to such proceedings. This scheme of the Companies Act lies at the bottom of evaluation of the principles which insist on keeping at bay a winding up process, except in very compelling circumsta ..... X X X X Extracts X X X X X X X X Extracts X X X X
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