TMI Blog1982 (3) TMI 202X X X X Extracts X X X X X X X X Extracts X X X X ..... to the petition, and on the ground that the company was being mismanaged. They prayed that this court might regulate the conduct of the company's affairs by reconstituting the board of directors and providing safeguards for the future, and for other reliefs, or in the alternative to direct a payment of Rs. 610 per share to the dissenting shareholders including the petitioners with interest in accordance with section 6 of the Central Ordinance No. 3 of 1980. The Andhra Bank Ltd., the respondent in these appeals, is a premier banking concern in the State of Andhra Pradesh. It was incorporated in November, 1923, under the Indian Companies Act, 1913, as a public limited company. Its registered office is at Hyderabad. The nominal capital of the company is Rs. 2,00,00,000 divided into two lakhs shares of Rs. 100 each. The company was formed with the object of carrying on the business of banking and to transact all matters and things incidental thereto. Though the memorandum of association also contains several objects unconnected with the banking business, the company has been carrying on the business of banking only. After the coming into force of the Banking Regulation Act, 1949, und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nge the name of the company to "Lakshmi Finance Industrial Corporation Ltd". Special resolution No. 7 was to amend clause I of the memorandum of association, by substituting the said name for the existing name of the company; and resolution No. 8 was to amend clause Ill of the memorandum of association, by adding the further objects mentioned therein as sub-clauses 19( a ) to 19( m ) after clause 19. Special resolution No. 9 was for amending the articles of association in several respects as mentioned in the said resolution. After receiving these notices, 106 shareholders of the bank gave a notice that they intended to move a special resolution at the meeting on August 18, 1980, to the effect that the Andhra Bank Ltd. may be wound up as the main objects for which it had been formed, had been vitiated or changed as per the restrictions imposed by the Reserve Bank by not allowing it to do any banking business, and that the shareholders may be paid in cash or in securities from the compensation received by it from the Government. Thereupon the board of directors issued a circular dated August 14, 1980, stating that though they were of the view that the requisition signed by the 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hare certificates in the new company, whose monetary value was very little, and Sri K. L. N. Prasad was intending to do something similar with this bank also. The petitioners also filed Company Application No. 53/1980 praying for the postponement of the consideration of the special resolutions passed in the meeting held on August 28, 1980. The learned single judge granted interim stay as prayed for. On appeal, a Division Bench of this court by an order dated August 27, 1980, suspended the operation of the said order but directed that resolution No. 6, if passed, would not be acted upon until further orders of the court. In view of this order, the meeting was held as scheduled on August 28, 1980. The special resolutions referred to in the notice issued by the board of directors were passed by a large majority where the resolution for winding-up moved by some of the shareholders was defeated by a large majority. The meeting was attended by 159 shareholders (130 in person and 29 by proxy). On a show of hands, it was found that a large majority of shareholders were against the special resolutions proposed by the board of directors but on a poll being demanded and conducted, the res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capacity and that he was anxious to have ultimately the real control of the bank. It was submitted that the various irregularities and illegalities would show that the affairs of the company were conducted in a manner oppressive to some of the members including the petitioners and other members listed in the Schedule, and it would further show that the company was being mismanaged. It was, therefore, prayed that the High Court be pleased to regulate the conduct of the company by reconstituting the board of directors and providing safeguards for the future; or in the alternative to pay Rs. 613 per share to the dissenting shareholders. This petition was also opposed and it was contended that there was no oppression or mismanagement. An additional counter-affidavit was filed in which it was stated that the letters of consent said to have been obtained from the other shareholders, did not disclose that the members concerned had applied their minds before subscribing their signatures and that what was given was a blank paper sent for filing a petition on their behalf under sections 397 and 398 of the Act. As the letters of consent did not disclose that the members concerned had knowle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not maintainable as there was no proper consent under section 399(3) of the Act. He, however, held that the petitioners had not made out oppression or mismanagement so as to justify the applicability of section 397 or 398 of the Act. In the result, he dismissed C.P. No. 12/1980 also. The petitioners have preferred these two appeals against the common judgment in the two petitions. Dealing with Company Petition No. 10/1980 in the first instance, the sole question for consideration is whether the petitioners have made out a case for a winding-up of the company. Section 433 of the Companies Act sets out the circumstances in which the company may be wound up by a court. After setting out some of the circumstances in clauses ( a ) to ( e ), it is provided in clause ( f ) that the company may be wound up by the court if the court was of opinion that it was just and equitable to do so. It is now well settled by a catena of decisions in India as well as in England that the words "just and equitable" are not to be read ejusdem generis with the preceding clauses. These words also occur in section 44( g )of the Indian Partnership Act, 1932, as a ground for the dissolution of a partnersh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the whole substratum of the partnership, the whole of the business which the company was incorporated to carry on, has become impossible, I apprehend that the court might, either under the Act of Parliament, or on general principles, order the company to be wound up". It is now well settled that under the just and equitable clause, the court will order a winding-up if the substratum of the company is gone. But if the court has not found it easy to decide in a given case where the substratum of the company has disappeared or not, it has been held that the substratum of the company must be deemed to be gone when the subject-matter of the company has disappeared or the object for which it was incorporated had substantially failed or it was found impossible to carry on the business of the company except at a loss. But the result of an examination of all the cases would appear to indicate that each case has to be decided on its own facts. However, it may be useful to refer to some of the leading cases which were cited at the bar on either side in order to appreciate the scope of the "just and equitable" clause and consider the decisions laid down in different cases to decide whethe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eople. General words construed literally may mean anything; but they must be taken in connection with what are shown by the context to be the dominant or main objects. It will not do under general words to turn a company for manufacturing one thing into a company for importing something else, however general the words are." He observed that the real object of the company was to manufacture a substitute for coffee in Germany under a patent, valid according to law. The words were general, but that was the thing for which the people subscribed their money. He, therefore, held that there was a case for winding-up, which had been made out. In In re Red Rock Gold-Mining Company Ltd. [1889] 61 LT 785, a company was formed with the object of purchasing and working a mine called Red Rock Mine. There were further objects mentioned in the memorandum, namely, to purchase and otherwise acquire mines and other properties in the colony of New South Wales and elsewhere, and generally to carry on the business of milling and mining in all its branches. It was found that the mine was a failure. The majority of the shareholders passed a resolution requesting the directors to use their best endea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eared and that alone would justify the winding up of the company under the just and equitable rule. Relying on these decisions it was contended on behalf of the petitioners that the main and paramount object of the company was to carry on the business of banking and in view of the Acquisition Act, it can no longer carry on that business. The substratum of the company had disappeared and, therefore, an order for winding-up should be made. On the other hand Sri Anil Diwan, learned advocate for the company, submitted that on a proper construction of the memorandum of association, it cannot be said that the main object of the company was to carry on banking business and it was entitled to carry on several other businesses. He drew our attention, in particular, to several clauses like (5), (7), (8), (11), (12), (15), (16), (17) and (18), etc ., and in particular to clause (19) of the memorandum of association which authorises the bank to acquire and hold or dispose of any interest in any railways, tramways, ships, canals, etc ., and in addition any carrying, transporting, trading, industrial, agricultural, financial or manufacturing works, concerns, or business of any description an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as. 215 (Bom.), it was stated that the objects for which the company was established were to carry on the business and undertaking of an electric energy supply company in all its branches and departments including all industries primary or subsidiary to the said business and to work with the previous consent of the Government of the Central Provinces, the Akola Electric Licence granted by the Government of the Central Provinces and any other like electric licence which the company might be entitled to work thereafter and to carry on any other business (whether manufacturing or otherwise) which might seem to the company capable of being conveniently carried on in connection with the aforesaid business. It was also stated that without prejudice to the generality of the preceding objects, the company's objects would include the following, and twelve objects were included in this category. Since its incorporation the company was carrying on only the business of supplying electricity to the residents of Akola. On the termination of this licence the State Electricity Board took up this work. It was held on the construction of the objects clause of the memorandum that the working of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on these decisions, it was contended that having regard to the independent objects clause in the memorandum of association, on a proper construction of the said memorandum, the company can carry on all the businesses mentioned in the various clauses and it cannot be said that the banking business alone was the main object of the company. It was, therefore, submitted that when the Acquisition Act was passed, it cannot be said that the substratum of the company had disappeared as it was open to the company to carry on the other businesses mentioned in the memorandum with the aid of the considerable amount of compensation received by the company. In answer to this, it was pointed out by the learned counsel for the petitioners that even assuming that under the memorandum of association, the company was entitled to carry on several businesses, it was precluded from doing so by section 6 of the Banking Regulation Act, Under section 6(1) of the Act, in addition to the business of banking, a banking company is permitted to engage in any one or more of the businesses referred to in clauses ( a ) to ( o ) of that sub-section. Section 6(2), however, prohibits the banking company from engagi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i.e. , for about 26 years after its incorporation it did not carry on any business other than banking. We have no doubt that the main object of the company was to carry on the business of banking. In this connection a clear distinction has to be borne in mind between cases where the question arises whether an act of the board of directors is ultra vires the memorandum of association and the cases where the question arises whether the company has to be wound up because the substratum has gone. In the first case, as long as the memorandum of objects permits a company to carry on the business, the act complained of would not be ultra vires if it comes within the meaning of any one of its objects and it is immaterial whether any particular object is the main object or not. On the other hand in considering the question whether the substratum of the company has disappeared and it is just and equitable to wind up the company, it is possible for the court to come to the conclusion that though the memorandum mentions several objects and the company is authorised to carry on several businesses, the main object is to carry on one or more businesses only. Cotman v. Brougham [1918] AC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the company. There is no proper discussion of the question as to whether the substratum of the company had disappeared as the main object could not be carried on in view of the acquisition of the undertaking by the Government. In Gore-Browne on Companies, 42nd Edn., at p. 49, it is stated as follows : "Moreover, a winding-up order may be made even though the new activity is technically within the scope of an express power. Even if the memorandum provides that each of the powers conferred by the objects clause shall be a main object, the court may still find that the company has abandoned the real purposes for which it was founded". In Gower's Principles of Modern Company Law, 4th Edn., at p. 663, it is stated as follows : "Where, for example, a company has sold its business or divested itself of its major assets, then even though the majority may wish to keep the company in existence and invest the proceeds under some valid power to do so, a dissenting shareholder may be entitled to say : 'put an end to it, pay me my money' ". In support of this, reference is made to Re Red Rock Gold Mining Co. Ltd. [1888] 61 LT 785 and In re Haven Gold Mining Co. [1881] 20 C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case comes within the phrase." In the recent decision of the House of Lords in Ebrahimi v. Westbourne Galleries Ltd. [1973] AC 360, Lord Wilberforce observed (p. 379) : "The foundation of it all lies in the words, 'just and equitable' and if there is any respect in which some of the cases may be open to criticism it is that the courts may sometimes have been too timorous in giving them full force. " In Gore-Browne on Companies, 42nd Edn., at p. 905, dealing with the just and equitable clause, it is stated as follows : "The power of the court to wind up a company whenever it considers that it is just and equitable to do so is a power not restricted to grounds of the same class as those specified in the preceding paragraphs of the section. In one case ( Re Yenidje Tobacco Co. [1916] 2 Ch 426 (CA)) Cozens-Hardy M.R., said : 'It has been urged upon us that although it is admitted that the "just and equitable" clause is not to be limited to cases ejusdem generis, it has nevertheless been held, according to the authorities, not to apply except where the substratum of the company has gone or where there is a complete deadlock. Those are two instances which are given, bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in a company dealing with banking business. Such safeguards will not be available with regard to any other form of business that the company intends to carry on with the compensation amount. The majority shareholders are at perfect liberty when the company is wound up to carry on such business as they like with the amount of compensation which falls to their share. But to us it appears wholly unfair to compel the minority shareholders also, who, as we said, are not an insignificant minority, to contribute their share of compensation in the starting of a new venture which is completely different from the business which the company has been carrying on all these years and for which there are no adequate safeguards as in the case of banking business. The petitioners have also sought to let in some evidence to show that this is an attempt by Sri K. L. N. Prasad, who, between himself and the members of his family, holds a large bulk of the shares to utilise the compensation in such manner as to benefit himself and his group to the detriment of the other shareholders by forming another company. Instances have been cited with reference to his conduct regarding the Hindustan Ideal Insur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the court may make such an order as it thinks fit, if it is of the opinion : ( a ) that the company's affairs are being conducted in a manner pre judicial to public interest or in a manner oppressive to any member or members; and ( b )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 was just and equitable that the company should be wound up. Thus, it is clear from section 397(2)( b ) that the court must, firstly, come to the conclusion that the facts would justify the making of a winding-up order under the just and equitable clause and, secondly, the court must also be of the opinion that to wind up the company would unfairly prejudice the applicant-member or members. In this case no doubt we have come to the conclusion that it is just and equitable to wind up the company but even according to the petitioners a winding-up of the company is in their interest. It is not their case that a winding-up would unfairly prejudice them. Their case is that it is much more advantageous to them to get the compensation amount for their shares. The second condition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not raised in the counter-affidavit filed in the first instance but was raised in an additional counter-affidavit. The shareholders who gave evidence were not cross-examined on this aspect. Even R.W. 1 did not depose that the consent was no consent under law. We, therefore, agree with our learned brother, Chennakesav Reddi J., that in the absence of any evidence, it cannot be said that the consent was a blanket consent and did not satisfy the requirements of section 399(3) and, therefore, the petition is not maintainable. We now proceed to deal with the merits of the application under section 397 of the Act. In order that the said provision is applicable, the court must be of the opinion that the company's affairs are' being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members. In Shanti Prasad Jain v. Kalinga Tubes Ltd. [1965] 35 Comp. Cas. 351, the Supreme Court observed that: "It must .be shown that the conduct of the majority shareholders was oppressive to the minority as members and this requires that events have to be considered not in isolation but as a part of a consecutive story. There must be continuous acts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stated that when Hindustan Ideal Insurance Company Ltd. was taken over under the General Insurance Business Nationalisation Act, he managed to get an authorisation from the shareholders to receive the compensation amount, and though he received it very early, it was only on the 21st May, 1980, that the shareholders were informed that M/s. Lakshmi Porcelain Ltd. was incorporated and the shareholders of the Hindustan Ideal Insurance Company Ltd. were allotted new shares in the new company. For nearly eight years, the shareholders did not know what happened to the compensation amount. In another company called the Andhra Printers Ltd. he and his associates are having control. For the past 20 years, no dividend was declared and the company is perpetually running at a loss. In regard to another company called, The Sahayak Finance and Investment Corporation Ltd., the shares of the face value of Rs. 10 are quoted at Rs. 2. It is, therefore, stated that it is apprehended that the ultimate transformation of the present company will closely resemble the other companies in which Shri K. L. N. Prasad and his group are having entire control. From the pleadings, it is clear that there is no al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith reference to the company with which we are concerned, viz ., the Andhra Bank. A mere apprehension that the minorities will be oppressed in the conduct of a company that is to be formed in future, cannot be a sufficient ground for invoking section 397 of the Companies Act. It was pointed out that Sri K.L.N. Prasad and his group began to acquire large number of shares in order to gain control and they increased their holdings suddenly from two lakhs of rupees to twelve lakhs of rupees. Even assuming that this is true, it has been repeatedly held that the mere fact that the minority shareholders are being outvoted or that there is an attempt to acquire control of the company's business by purchasing large blocks of shares, will not constitute acts of oppression, vide for example, Mohia Bros. (P.) Ltd. v. Calcutta Landing and Shipping Co. Ltd. [1970] 40 Comp. Cas. 119 (Cal.) and Babulal Choukhani v. Western India Theatres Ltd. [1958] 28 Comp. Cas. 565 ; AIR 1957 Cal. 709. It was also argued that there was a violation of section 173 of the Companies Act which required that in the case of a special resolution, there shall be annexed to the notice of meeting a statement s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company and acting to the detriment of the shareholders; It was sought to be elicited in his cross-examination that he had sites belonging to the company sold at a low value to his wife. Again it is said that in regard to Sahayak Finance and Investment Corporation, the company's shares of the value of Rs. 10 were selling at Rs. 2 in the open market. But our learned brother has held that there is no acceptable evidence to establish the involvement of Sri K. L. N. Prasad or any of his family members in the management of Sahayak Finance and Investment Corporation. Regarding his conduct with regard to Andhra Printers Ltd., and Lakshmi Porcelain Ltd., we do not think that they are of any relevance in considering whether there is oppression of the minority shareholders so far as the Andhra Bank is concerned. This court in this application, cannot be converted into a forum for enquiring into the affairs of other companies. Our learned brother has given elaborate reasons for coming to the conclusion that no case is made out for taking any action under section 397 of the Act and we agree with his reasons and conclusion. It is next argued that there has been mismanagement in the conduct of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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