TMI Blog1970 (3) TMI 90X X X X Extracts X X X X X X X X Extracts X X X X ..... es. The other shares in the two companies are held by respondents Nos. 2 and 3, the second wife of the second respondent and her children and some other close relations. The petitioner has taken out Company Petition No. 57 of 1969 under sections 433( b ) and 439( c ) of the Companies Act for winding up the transport company on the grounds, (1) that the petitioner being a minority shareholder, the other shareholders have joined together and are continuously mismanaging the affairs of the company resulting in loss ; (2) that there is a complete deadlock in the management, and the petitioner is not allowed to enter into the place of business; (3) that the company has committed default in its statutory obligations; and (4) that the substratum of the company has gone by reason of the reduction in routes and dwindling in business and it is impossible to carry on the business except at a loss. The petitioner has taken out Company Petition No. 58 of 1969 in respect of the engineering company under sections 397 and 398 of the Companies Act alleging, inter alia , that respondents Nos. 2 and 3 are virtually in charge of the affairs of the company, that the affairs of the company are being co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the maintainability of this petition is that the petitioner has not paid the value of his shares. This objection is based upon section 399(1)( a ) of the Companies Act, which reads thus : "399. (1) The following members of a company shall have the right to apply under section 397 or 398 : ( a ) in the case of a company having a share capital, not less than one hundred members of the company or not less than one-tenth of the total number of its members, whichever is less, or any member or members holding not less than one-tenth of the issued share capital of the company, provided that the applicant or applicants have paid all calls and other sums due on their shares". The case of the petitioner, as put forward in paragraph 8 of his petition, is that he has paid all calls made on him and other sums due on his shares. The contention of respondents Nos. 2 and 3 is that the petitioner has not paid all calls and other sums due on his shares. In his reply to this allegation, the petitioner has filed an affidavit denying that any other call was made on him and that any amount is due from him. Initially, the burden lies upon the petitioner to prove that he has paid all calls made on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, it is likely that the affairs of the company will be conducted as aforesaid, the court may, with a view to bringing to an end or preventing the matters complained of or apprehended, make such order as it thinks fit". In order to entitle the petitioner to succeed in his petition under sections 397 and 398, if he has right to apply by virtue of section 399, he should satisfy, (1) that the affairs of the company are being conducted in a manner oppressive to any member or members; and (2) that to wind up the company would unfairly prejudice such member or members, but that otherwise the facts would justify the making of a winding-up order on the ground that it is just and equitable that the company should be wound up. The question whether the affairs of the company are being conducted in a manner oppressive to any member or members is a question of fact depending upon the facts of each case: "Oppression" means burdensome, harsh and wrongful. A conduct to be oppressive should indicate lack of probity and fair dealing towards one or more members of the company. Oppression may take various forms. But an isolated act of oppression will not normally be sufficient to justify the relie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the company's affairs are being conducted in such a manner, the petition will disclose no ground for granting any relief and will be dismissed in limine as being demurrable. First, the matters complained of must affect the person or persons alleged to have been oppressed in his or their character as a member or members of the company. Harsh or unfair treatment of the petitioner in some other capacity, as, for instance, a director or a creditor of the company, or as a person doing business or having dealings with the company, or in relation to his personal affairs apart from the company, cannot entitle him to any relief under section 210. Secondly, the matters complained of must relate to the conduct of the affairs of the company. Thirdly, they must be such as not only to make the winding up of the company just and equitable, but also to lead to the conclusion that the affairs of the company are being conducted in a manner which can properly be described as 'oppressive' of the petitioner, and, it may be, other members. The mere fact that a member of a company has lost confidence in the manner in which the company's affairs are conducted does not lead to the conclusion that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oner had been removed from his position as working director and excluded from taking any part in the business of the company, although it was held that the facts justified the making of a winding-up order on the just and equitable ground. Commenting upon these two decisions it is observed in Palmer's Company Law, 21st edition, at page 514, that in the light of the dicta in the earlier cases any such doubt should be resolved in favour of the petitioner and that these two decisions of Plowman J. should not be regarded as laying down any general principles. As against the foregoing decisions, Mr. Raghavachari, appearing for the petitioner, cited the decision in Scottish Co-operative Wholesale Society Ltd. v. Meyer [1959] AC 324; [1958] 3 WLR 404; [1958] 3 All ER 56 ; [1959] 29 Comp. Cas. 1 (HL) . In that case the company was a subsidiary company. The controlling powers vested in the majority shareholders and they were found to have been exercised for the purpose of destroying the company's business. The facts established that the majority shareholders acted in such a way as to cause oppression on the minority shareholders. In view of these facts, it was held that relief under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ber 4, 1967, by the second respondent in his capacity as chairman of the board of directors. It is stated in that report that the engineering company had incurred a net loss of Rs. 4,927.14 and that this was because the rent payable by the transport company had been reduced in that year. Exhibit P-26 is the balance-sheet for the year ending with March 31, 1968. There, we find a sum of Rs. 13,925.70 as being the debt payable by the transport company to the engineering company. But it is, however, the common case of both the parties that the engineering company is financially sound. Differences appear to have arisen between the petitioner on the one hand and his father, the second respondent, on the other, in about May, 1969, and, as a result of that misunderstanding, one was attempting to find fault with the other. Complaining that the petitioner, as the managing director of the engineering company, had defaulted in convening the meetings of the board, the second respondent wrote on May 27, 1969, exhibit R-1, calling upon the petitioner to convene a meeting as early as possible. The petitioner appears to have declined to acknowledge receipt of the notice and therefore the second r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made allegations against the petitioner in the matter of his management of the affairs of the company. The third respondent, for his part, repudiated the allegations by his letter, exhibit R-9, on June 9, 1969, that he did not attend the meetings. He said that he did not receive any notice of any of the meetings referred to by the petitioner in his letter, exhibit R-5. Respondents Nos. 2 and 3 together wrote exhibit R-10, to the petitioner on June 11, 1969, stating that though they wanted inspection, the books were not made available. On June 11, 1969, the third respondent sent the registered communication, exhibit R-11, to the petitioner making serious allegations against him in regard to his management of the affairs of the company and calling upon the petitioner to furnish some details. On June 26, 1969, respondents Nos, 2 and 3 together sent the communication, exhibit R-12, to the petitioner stating that in spite of their efforts the petitioner had not convened a meeting and that they gave him a last chance to convene a meeting of the board. They also informed him that if the petitioner failed to take necessary steps, they would be taking necessary action open to them for conv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .S. No. 386 of 1969 on the file of the Subordinate Judge, Coimbatore, for partition and other reliefs, of his family properties, impleading the second respondent and his sons by his second wife as defendants. After filing that suit, the petitioner took out Interlocutory Application No. 425 of 1969, on July 11, 1969, praying for the appointment of a receiver for the family properties. The subordinate judge passed an order on December 12, 1969, directing the second respondent herein to deposit into court a sum of Rs. 500 on or before 15th of every month commencing from January, 1970, and further holding that in case of default, a receiver would be appointed. Against that order, the second respondent has filed an appeal to this court and the order of the lower court has been stayed. It would be seen from the foregoing facts that all is not well between the petitioner and the other members of his family. But the question is whether the petitioner has made out a case that the affairs of the company are being managed in a manner oppressive to him. The materials on record do not justify an inference in favour of the petitioner. The correspondence reveals that the petitioner was consiste ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conduct of the directors, not in regard to their private life or affairs, but in regard to the company's business. Furthermore, the lack of confidence must spring not from dissatisfaction at being outvoted on the business affairs or on what is called the domestic policy of the company. On the other hand, wherever the lack of confidence is rested on a lack of probity in the conduct of the company's affairs, then the former is justified by the latter, and it is under the statute just and equitable that the company be wound up". Applying this test, I do not find any circumstance whatsoever to hold that it is just and equitable to wind up the company. It is next contended on behalf of the petitioner that on account of the difference of opinion between the petitioner and the other shareholders, a complete deadlock has been created and that on account of such deadlock, it is just and equitable to wind up the company. It is true that if there is complete deadlock in the management of the company, it would be just and equitable to wind up the company, for, with such deadlock, the affairs of the company cannot be carried on to its advantage. The question in this case is whether there i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g a winding up. Taking all the circumstances into consideration, I hold that though the petitioner does not see eye to eye with the other shareholders, there is no ground to direct a winding up, as I am of the view that there is no deadlock in the management of the company. Mr. Raghavachari, appearing for the petitioner, lastly, contended that if I should hold that there is no ground to appoint an administrator as prayed for by the petitioner, necessary direction may be given to the second respondent to purchase the shares of the petitioner, as the petitioner does not want to continue to be a shareholder any longer. He submitted that a commissioner may be appointed for the purpose of valuing the shares of the petitioner. I do not think that the circumstances of the case call for such an action, though it is undoubtedly open to the court in suitable cases to pass such an order. The petitioner is solely responsible for the present state of affairs and he cannot take advantage of his own fault and get out by getting an order compelling the other shareholders to purchase his share. We may next take up the case of the petitioner as regards the transport company. In this case, the pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reply under exhibit P-12 drawing his attention to the letter, exhibit P-10. Making reference to the telegram and the previous letter, the petitioner wrote exhibit P-13 on June 19, 1969, stating that suitable arrangements must be made to facilitate for his inspection of the accounts. He followed up the letter by the next letter, exhibit P-14, on July 5, 1969, stating that it was rather amusing that his resignation sent on October 16, 1968, was accepted only on June 11, 1969. He also stated that he was not responsible for any of the functions as a director after October 16, 1968. This is the state of relationship between the petitioner and the other directors as regards the affairs of the transport company. In view of the foregoing situation, it is contended on behalf of the petitioner by Mr. Raghavachari that there is a complete deadlock in the management of the business and that, therefore, it is necessary to direct the winding up of the company. I have already dealt with the contention of the petitioner in regard to the management of the engineering company with regard to which also it was contended that there was similar deadlock. For the reasons, which need not be repeated h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding and over speed. But this can hardly be a ground to hold that there was such mismanagement as to call for interference by the court by an order for winding up. It was next contended on behalf of the petitioner that having regard to the liabilities of the company, it is not possible to expect profitable working so as to wipe off the liabilities and that if the company is not wound up, there is the likelihood of further loss which would have to be shared by the petitioner also. This argument assumes as if the company was started on a clean slate with regard to its financial position. It is admitted that the buses were acquired from another operator and that for such acquisition, loans had to be raised on security of property. It is not the case of the petitioner that the quantum of loan has since increased. It is not disputed that the loan originally borrowed has been reduced, though it is not completely' wiped out. Therefore, there is no substance in the argument that on account of the debts, the company should be wound up. To support the contention that creditors have taken action against the company for realising their dues, reliance is placed upon some notices issued by s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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