9911796707
TMI Blog1968 (7) TMI 37X X X X Extracts X X X X X X X X Extracts X X X X ..... d on 13th November, 1967. Bidya Bhusan Gupta filed an affidavit in reply affirmed on 20th November, 1967. There are further affidavits of Mulchand Gupta affirmed on 27th March, 1968, and of Bidya Bhusan Gupta affirmed on 20th April, 1968. Bidya Bhusan Gupta stated in his affidavit in support of the summons that the company from its inception carried on business in manganese and ironore, and brokerage in jute, gunny and hessian, and that the company still continues to carry on the business. The further allegations in the said affidavit are that the total bank balance to the credit of the company's account as on 16th August, 1967, is about Rs. 1,30,000. The company has been suffering some loss in the business of manganese ore on account of restriction by the Government on the export of ore and general trade depression. The capital of the company has not been exhausted. The assets of the company and the investments are worth Rs. 8,76,432 and are shown separately in annexure "C" to the said affidavit. In the said affidavit the other allegations made by Bidya Bhusan Gupta are that the respondents, Mulchand Gupta, until 30th April, 1966, had been in the employment of the company as an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... satisfied that the winding up of the company will be injurious to the interest of the company. It is also alleged that the winding up of the company will gravely embarrass the directors in resisting proceedings before the Company Law Board and that charges before the Board are identical. Mulchand Gupta in his affidavit in opposition alleged that the company's immovable properties except premise No. 8, Murlidhar Sen Lane, Calcutta-7, had been sold and/or transferred. One of the major disputes centres on the allegation in the affidavit of Bidya Bhusan Gupta that Jagannath Gupta, who held 495 shares, bequeathed 125 shares to Padam Chand Gupta, 250 shares to Bidya Bhusan Gupta, 65 shares to Gopal Krishna Gupta and 55 shares to Debi Prosad Gupta. Mulchand Gupta in his affidavit alleged that, though the shares were alleged to have been transferred by Jagannath Gupta in 1949, the same was not recorded till 1952. Mulchand Gupta alleged that the proceedings were false and colourable transactions and intended to deprive Mulchand Gupta of his right, title and interest in the said shares. Mulchand Gupta in his affidavit alleged that the brokerage business was speculative and that the company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ta in the said affidavit affirmed on 27th March, 1968, alleged that item No. 16 in Schedule A, namely, the Ranchi property, was conveyed in the name of the wife of Bidya Bhushan Gupta and that item No. 17 in the said Schedule A being the Bhaironpur property had been appropriated to have been transferred to Mulchand Gupta's son, Gopal Krishna Gupta, although no such transfer had taken place and item No. 18, namely, Guraora property, had also been shown to have been transferred to Mulchand Gupta's son, Gopal Krishna Gupta, although no such transfer had taken place. In the affidavit in reply affirmed by Bidya Bhusan Gupta, affirmed on 25th November, 1967, on the judge's summons dated 4th September, 1967, Bidya Bhusan Gupta alleged that Bhaironpur and Guraora properties could not be delivered to the purchasers and the conveyances in respect thereof were treated as cancelled and further that Bhaironpur property was eventually acquired by the Government of Punjab. Mulchand Gupta in paragraph 7 of his affidavit affirmed on 27th March, 1968, said that he made enquiries during the pendency of the winding up petition and before the application for injunction was made and came to know that Bi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion on an appeal from an order refusing to stay proceedings on a Company Petition No. 22 of 1965. It was held that in rejecting such an application the court merely decided that there was a prima facie case for enquiry and it could not then and did not in fact adjudicate upon the rights of the parties and, therefore, it was not a judgment under clause 15 of the Letters Patent. Counsel for the appellant, on the other hand, contended, first, that the order was not in exercise of inherent power but that the order was made in the matter of winding up. Secondly, it was said that the order was a judgment within the meaning of the word in clause 15 of the Letters Patent. Thirdly, it was said that it was an order in the matter of winding up under section 483 of the Companies Act and, therefore, an appeal was competent. Counsel for the appellant relied on the decision of the Supreme Court in Shankarlal Agarwala v. Shankarlal Poddar [1965] 35 Comp. Cas. 1 ; [1964] 1 SCR 717 ; AIR 1965 SC 507. It must be stated at the outset that in the Bench decision in John Herbert & Company's case [1966] 36 Comp. Cas. 485 ; 70 C.W.N. 516 there is no reference to the decision of the Supreme Court in Shan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the views of this court as also the views of the Bombay High Court on orders or decisions under section 202 of the 1913 Companies Act. Section 202 was in the same language as section 283 of the Companies Act, 1956. With regard to the meaning of the expression "order or decision" used in section 202 of the 1913 Companies Act, the Supreme Court accepted the Bombay view to be correct, namely, that an order or decision in the matter of winding up would not be merely procedural in character but that it would be an order or decision to affect the rights and liabilities of the parties. The Supreme Court further observed that the right of appeal was conferred by the first limb of section 202. The first limb of section 483 of the 1956 Companies Act is the same as the first limb of section 202 of the 1913 Companies Act. The first limb of the section states that appeals from order made or decision given in the matter of the winding up of a company by the court shall lie to the same court. Therefore, the Supreme Court decision is an authority for the proposition that any order made or decision given in the matter of winding up of a company is appealable. After the decision of the Supreme Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Gupta ... 125 shares (e) Mool Chand Gupta ... 125 shares (f) Bhim Sen Gupta ... 120 shares (g) Krishna Devi ... 5 shares The first directors of the company were Jagannath Gupta, Padam Chand Gupta, Bidya Bhushan Gupta. Jagannath Gupta while alive, at a meeting of the board of directors held on 6th September, 1949, passed a resolution whereby he nominated his successors to his 495 shares or bequeathed or transferred his 495 shares in the event of his death and 125 shares were given to Padam Chand Gupta, 250 shares to Bidya Bhusan Gupta, 65 to Gopal Krishna Gupta, son of Mulchand, and 55 shares to Debi Prasad Gupta, son of Bhim Sen Gupta. The third distinctive feature in the present case is that the company was formed with 19 properties specified in schedule A to the memorandum and articles of association. The learned judge referred to the three features in the present case and as to whether the company being a family concern the principle of dissolution of partnership should apply. Secondly, whether the allegations of sale of properties and allegations as to distribution of shares should find place in winding up. The learned judge was also pleased to obs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing up if the facts disclosed grounds for winding up. In the present case, one of the most important elements is that Mulchand Gupta was in the employment of the company up to the year 1966 and he did not take any step to object about these affairs as long as he was in employment. In the second place, the allegations are that most of the properties were sold between 1949 and 1960. When a petitioner waits for seven years to come to a court of law on a charge of winding up, the court will decide as to whether the petition is presented for legitimate grievances or is presented in aid of collateral reasons. In the present case, the facts leave no doubt whatsoever that the sale of properties for over two decades ended in the year 1960. When Mulchand Gupta was in the active knowledge of all affairs of the company and was himself a party to indemnify the company in respect of sale of Chittaranjan Avenue property at Calcutta, it cannot be denied that the allegations for winding up the company on the ground of sale of properties is not the real and legitimate ground for winding up. Winding up is a remedy which will be open to shareholders or other persons who find that the affairs of the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arly the distribution of the shares belonging to Jagannath Gupta or transfer of shares by Bhim Sen Gupta, are also invoked in aid of the application for winding up on the ground that the group of Bidya Bhushan Gupta is in majority with the aid of these shares. It cannot be disputed that the distribution of Jagannath Gupta's shares took place 15 years prior to the presentation of the winding up petition. It cannot also be disputed that Mulchand Gupta was aware of everything that happened in relation to the transfer of those shares. The letter dated 9th August, 1966, written by Mulchand to the Regional Director, Company Affairs, appearing at page 187 of the paper-book, indicates that Mulchand Gupta knew that transfers were not supported by properly executed transfer deeds and that no endorsement was made on the back of the share certificate. Yet, Mulchand Gupta never objected to the same or took any step to redress any of his grievances alleged now. Irrespective of delay, these facts indicate that Mulchand Gupta was himself not only in the knowledge of those things and affairs but he also acquiesced in the management and business of the company by the persons in charge during those y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hereby prevent a stay of the winding up. Counsel for the appellant relied on the statement of law in Buckley on the Companies Acts (12th edition) at page 473 that a winding-up order could be made only on secundum allegata et probata. In my opinion, the petition for winding up is to be confined to the grounds set out in the petition and the petitioner, except with the leave of the court, should not be allowed to travel outside the petition. In the present case the sale of Guraora property appears to be very much in dispute as to whether it is a complete sale or an inchoate sale. In winding up disputed questions of fact are taken into consideration to decide as to whether there should be a winding up or not. Similarly, in an application for stay of winding up the court will look into the affidavit evidence and when the court finds that there are disputes as to whether there have been sales of properties or not, the court will exercise jurisdiction in the light of facts and circumstances. In the present case, Mulchand Gupta alleged that there were sales in favour of his son but they were not effected. The sale of Guraora properties was alleged by Mulchand Gupta to have taken place rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and its directors were written to for explanation of illegal acts. There is no averment by the petitioner that the petitioner preferred complaint before the Company Board. Counsel on behalf of the respondent contended that annexures would eventually indicate that there was reference before the Company Board. The suppression in the present case is that the petitioner asked for investigation of affairs of the company by the Company Law Board. The importance of such an allegation is that if investigation of the affairs of the company is pending, it may be that the court will not admit the petition for winding up. It was said by the Supreme Court in Rajahmundry Electric Supply Corpn. case (supra ) that there must be a justifiable lack of confidence and business should not be conducted in such a manner as there will be a lack of probity. In such an investigation before the Company Law Board the rival contentions will be gone into and counsel for the appellant rightly contended that, if that remedy had been chosen, it would not be just and proper to allow the winding up petition to be pursued by the same litigant. That is one of the reasons which will weigh with the court in granting in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bution of properties. That is another reason why the winding up petition should not be allowed to be pursued. Counsel for the respondent contended that the appellant in the present case asked for injunction and removal of the petition from file and these prayers were not. proper It will appear that the reliefs asked for on the judge's summons are modelled on Palmer's Company Precedents, volume II, Forms No. 17 and 18, at page 46. The decision in In re Bharat Vegetable Products Ltd. [1952] 22 Comp. Cas. 62 ; 52 C.W.N. 29 also indicates that the reliefs asked for are in proper form. Counsel for the appellant relied on the decision of the Supreme Court in Seth Mohanlal v. Grain Chambers Ltd. [1968] 38 Comp. Cas. 543 (SC) in support of the proposition that the material as on the date of winding up should be taken into consideration and it was, therefore, contended that allegation of the sale of Guraora property should not be decisive of refusal of stay. In Mohanlal's case (supra) , the Supreme Court considered whether an order of winding up should be made on the just and equitable ground in the interest of shareholders ; in that case the company's business had come to a standstill be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be a stay. The consideration of the sale of Guraora property by the learned judge disentitled the appellant to a stay of winding up of the petition. In my opinion, the learned judge should not have placed reliance on the alleged sale of Guraora property in arriving at that conclusion. The facts in the present case indicate that the last transaction took place seven years before the presentation of the petition. Secondly, the petitioner was in the employment of the company and was a party to the sales and had knowledge of the sale. Thirdly, the impeachment of distribution of shares is made by Mulchand Gupta after fifteen years. He was fully aware of all that happened and he did not take any step. Fifthly, the petitioner, Mulchand Gupta, took steps before the Company Law Board and suppressed that fact in court. This suppression is certainly within the mischief of the decision of Nadar Press Ltd., In re : Amritharaj v. Ramiah Nadar [1963] 38 Comp. Cas. 337 and the observation appearing at page 341 of the report that, where remedy of investigation has been chosen, winding up should not be allowed to be pursued. The investigation of a company under the provisions in section 235 of the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Companies Act of 1956. The court also expressly approved the decision of the Bombay High Court in Bachharaj Factories Ltd. v. Hirjee Mills Ltd. [1955] 25 Comp. Cas. 227 ; AIR 1955 Bom. 355, where it was held that an order adjourning the hearing of a petition for winding up in order to enable certain shareholders to file a suit for the purpose of a declaration that the debentures issued in favour of the petitioners were not valid in law, was an order from which an appeal lies under section 202 of the Act of 1913. The Supreme Court also approved the judgment of Chagla C.J. in Western India Theatres Ltd. v. Ishwarbhai Somabhai Patel, [1959] 29 Comp. Cas. 133 where the learned Chief Justice held that an order directing the winding up petition to be advertised is appealable under section 202 of the Act of 1913. In the case of Harinagar Sugar Mills Company Ltd. v. M. W. Pradhan [1966] 36 Comp. Cas. 426 (SC), the Supreme Court decided an appeal arising out of an order by which a learned judge admitted the winding up petition and directed advertisement to be published. The appeal could only have been decided on merits on the basis that the order was appealable under section 202 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that an order to be appealable under section 202 must attain the character of finality. That this was the principle which lies at the basis of the decision will appear from the following lines in the concluding portion of the judgment: "An order passed either rejecting the application of the liquidator finally or allowing it and directing the directors concerned to recoup the loss to the company would undoubtedly be a final order affecting the rights and liabilities of the parties and, as such, appealable. But, where, in the initial stage of a proceeding under section 235, the company judge merely says that, at that stage, there is no prima facie case against two of the directors and decides that the proceeding against them should be dropped and that the enquiry should be continued against some of the other directors, the order cannot be said to decide finally the rights and liabilities even in respect of those two directors". The Supreme Court in Shankarlal's case [1965] 35 Comp. Cas. 1 ; [1964] 1 SCR 717; AIR 1965 SC 507 not only did not express the view that an order or decision to be appealable under section 202 must affect the rights or liabilities of the parties finally bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t must be acknowledged that the validity of the classical view of "judgment", as expressed by Sir Richard Couch C.J. in the case of Justices of the Peace for Calcutta v. Oriental Gas Co. 8 Bang. LR 433, on which the judgment of G. K. Mitter J. is founded, has been widely and persistently questioned. Be that as it may, in so far as the case decides that an order refusing stay of winding up is not appealable because it does not satisfy the tests of a "judgment", the decision must be held to be contrary to the principles laid down in Shankarlal's case (supra) by the Supreme Court and cannot, therefore, be regarded as good law any longer. It was submitted that an order staying or refusing to stay winding up is not appealable under section 483 because such an order is not made under any of the provisions of the Companies Act or the Rules made thereunder but in the exercise of the court's inherent powers. The language of section 483 is clear. It does not say that an appeal will lie only from an order made in the matter of winding up under the Act. It says that an appeal lies from any order or decision made in the matter of winding up. It will, therefore, be unreasonable to import any re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r on his death. Not only he never raised any objection to the sale of the properties but he actively acquiesced in the sale of the Chittaranjan Avenue property by executing a letter of indemnity in support of the sale. He never questioned the propriety of any of the sales until his service was terminated. He never objected to the transfer of shares. He knew that he never executed any transfer deed and yet he accepted and acquiesced in the transfer of shares. Assuming that the properties were sold at a gross under-value to the prejudice of the company and that his father's shares were transferred and allotted wrongfully, illegally and to the detriment of some of the shareholders, it is not for the respondent to rely on those transactions for winding up of the company for the excellent reason that he has himself been openly or tacitly a party to the injustice and inequity of which he complains. I do not intend to say that the grounds complained of cannot be grounds for winding up, in any circumstances, or that they cannot be agitated as just and equitable grounds by an innocent party but, in the facts and circumstances of the present case, it will not be proper, in my opinion, to per ..... X X X X Extracts X X X X X X X X Extracts X X X X
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