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TMI Blog1976 (9) TMI 118X X X X Extracts X X X X X X X X Extracts X X X X ..... tter she gave a statutory notice as required under section 434 of the Companies Act, 1956. The said statutory notice was addressed to the private limited company. It appears that, after the said transaction, the private limited company was converted into a public limited company, and certificate of change dated 19th November, 1973, was duly obtained from the Registrar of Companies. After the said change was made, the public limited company invited subscription from the public and in this connection issued a prospectus whereby 3,00,000 equity shares of Rs. 10 each were offered to the public. The subscription was opened on 8th April, 1974, and was to close on 22nd April, 1974. A sum of Rs. 2.50 was required to be paid on application and a further sum of Rs. 2.50 on allotment. It appears that the shares were over-subscribed. The company, however, received Rs. 15 lakhs on the basis of the money paid on application and on allotment in respect of the said 3,00,000 equity shares. The company applied for permission to list the shares on the Bombay Stock Exchange before the expiry of 10 weeks from 22nd April, 1974, as required by section 73 of the Companies Act, 1956. However, the said perm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany and its directors either by themselves or through their employees, servants or agents from disposing of any property or assets of the company as well as from disbursing any amount on behalf of the company until further orders was passed. When the matter came up for hearing on 18th June, 1975, neither the company nor its directors nor the attorneys on record appeared and a winding-up order was passed which was, however, set aside on 3rd July, 1975. The company filed its affidavit dated 22nd July, 1975, opposing the winding-up petition. In para. 5 of the affidavit, the company admitted its liability to the petitioner and submitted that at present the company is having more than Rs. 7,00,000 liquid cash in the company's various bank accounts, and that due to disputes and differences between the two groups of directors, the management of the company is under a deadlock. It was also pointed out that a false complaint was lodged by some of the directors with the police authorities, as a result of which the amount lying in the banks has been frozen, and the company intended to file a writ petition challenging the validity of the police order freezing the bank accounts of the compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of the company is carrying on business of the said company in a fraudulent manner and/or in a manner detrimental to the interest of the company. (2) That the managing director does not command the confidence of the petitioner and the other directors named, Dr. R.R. Hattiangadi, Mr. V.J. Ghatge, Mr. P.R. Kibe and Mr. K.R. Moorthy, and that there is a complete lack of probity on the part of the said managing director. (3) That on account of failure to hold the annual general meeting, there is no properly constituted board of directors to control the management of the said company. (4) That the object for which the said company Was incorporated has substantially failed and it is impossible to carry on business in the said company in the near future, and there is no reasonable hope that the said company will carry on any' business in the near future. (5) That the auditor of the company has given a report which gives the assets and liabilities position of the company as at 31st March, 1973, and 30th September, 1973. Since then the company's books have been audited up to 30th April, 1974, and a balance-sheet has been prepared but with qualified remarks; a profit and loss account of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contentions before us. In the first place, he contended that the petition ought to have been adjourned, inasmuch as he had come on record on 24th November, 1975. His application for adjournment was not a frivolous application but a bona fide one. He submitted that the refusal to grant adjournment has caused miscarriage of justice to the company. We do not find merit in this contention. The petition was admitted on 5th February, 1975, without contest and thereafter advertised. The company had filed its affidavit-in-reply challenging the passing of the order for winding up. Several adjournments were obtained on behalf of the company, the last of which was on 12th November, 1975, on the ground that the client was sick and an adjournment for two weeks was sought. The mere fact that the company had chosen to change its attorneys on 24th November, 1975, when the matter was fixed for hearing on 26th November, 1975, could be no valid ground for adjournment and, in these circumstances, the learned company judge was justified in refusing to adjourn the matter. Mr. Poddar laid great stress on the fact that the company had no funds and by the judge's summons dated 29th August, 1975, it had as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m Halsbury's Laws of England, Vol. 7, 4th edn., page 615, para. 1030, and also a decision of the Chancery Division in In re St. Thomas' Dock Company [1876] 2 Ch D 116 (Ch D). In our opinion, neither the statement from Halsbury nor the authority cited has any relevance to the facts of the present case. The company had sufficient time to come out of its so-called deadlock. The petition was advertised in February, 1975, and the winding-up order was passed in November, 1975. The company had ample opportunity and time. There is no fixed rule of law or principle that the company is entitled to an adjournment for six months as sought to be urged on behalf of the company. The third contention was that the unpaid creditors' right to an order for winding up is not an absolute rule. If the court finds that the winding up is not in the interest of the general body of creditors, it should refuse to wind up the company. In support of this, Mr. Poddar referred to a decision in In re Greenwood & Co. [1900] 2 QB 306 (QB) and also a decision of the Supreme Court in Madhusudan Gordhandas & Co. v. Madhu Woollen Industries P. Ltd. [1972] 42 Comp. Cas. 125 and a decision of this court in Focus Advertis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the creditors of the company opposed the petition for winding up. On the other hand, at the time of the hearing of the petition for winding up, three creditors to the extent of Rs. 13,000 had supported the petition for winding up. There is nothing to show that any other creditor was present at the hearing to oppose the present petition for winding up. What was urged on behalf of the company by Mr. Poddar was that a scheme has been presented under section 391 of the Companies Act, and at the meeting called under the directions of the court under that section, 79 creditors had attended, out of whom 50 creditors to the extent of about Rs. 4,47,000 had voted for the scheme and 26 creditors of the value of about Rs. 88,000 in the aggregate had opposed the scheme. The provision for ascertaining the wishes of the creditors under section 557 is for a different situation than the one which is contemplated under section 391. In fact, under section 391, there is no question of ascertaining the wishes of the creditors by the court. It is a provision for scrutinising the scheme which may be put forth either by the company or by any of the class of creditors or members of the company. In the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nditions were not complied with, the permission was revoked. The conditional permission did not amount to grant of the application for permission to deal in shares on the Stock Exchange as contemplated under section 73(1). The permission intended under that sub-section is an unqualified and wholesome permission. Any qualified permission is as good as not granted and the application should be construed as not disposed of within the time prescribed by sub-section (1) of section 73. The amount received from the applicants is required to be kept in a separate account under sub-section (3) of section 73 until the permission is granted or the appeal preferred against the refusal to grant such permission is disposed of under section 22 of the Securities Contracts (Regulation) Act, 1956. The text of sub-section (3A) of section 73 reads: "(3A) Moneys standing to the credit of the separate bank account referred to in sub-section (3) shall not be utilised for any purpose other than the following purposes, namely :- (a)adjustment against allotment of shares, where the shares have been permitted to be dealt in on the stock exchange or each stock exchange specified in the prospectus ; or (b)r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to use unless the conditions contemplated under section 73 are faithfully complied with. It seems to us that, in using these moneys, the provisions of section 73 are breached. Such breach is made punishable apart from fixing joint and several liability on the directors. It may be made clear that we are not expressing any opinion on this aspect of the case as the point is not in issue before us. We find that there is no prospect of the company doing any business. There is a complete deadlock among the directors. These directors have filed a winding-up petition on the ground that it is just and equitable that the company be wound up. The majority of the directors do not have confidence and faith in the managing director, Shri A. B. Patil, and another director, Shri I. B. Patil. Large amounts have been paid by them to a concern in which both of them are interested. In these circumstances, it is in the interest of the petitioning creditor and other supporting creditors that the assets of the company should be protected. After all, the object of winding-up by the court is to facilitate the protection and realisation of the assets of a company with a view to ensure an equitable distribu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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