TMI Blog1983 (3) TMI 231X X X X Extracts X X X X X X X X Extracts X X X X ..... . The appellant company entered appearance and filed its counter-affidavit and moved Application No. 262 of 1982 for revoking admission and for dismissal of the petition in limine. This petition was rejected with the observation that the question of maintainability could be gone into before ordering advertisement. Thereafter, the preliminary question whether the averments in the petition disclosed a prima facie case for ordering winding up was heard and the order under appeal was passed. The company was incorporated in 1981. It has a paid up capital of Rs. 4.5 lakhs divided into 45,000 shares of Rs. 10 each. Ever since its incorporation, the company has engaged itself in plantation business only. The only estate owned by it is the Skinnerpuram rubber estate. It appears that three years before the filing of the petition, there was continuous labour unrest in the estate and that in 1981, the labour trouble assumed serious proportion on account of unreasonably high demands made by the workers for Onam advance. The company had to seek police protection and a lock-out had to be declared in the estate for more than six months. During the period of lock-out, the then general manager, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e regarding disappearance of substratum and that it was too early to hold that he was disentitled to a full trial. According to the learned judge, "the consequences of advertising the winding up petition cannot also be very serious in a case like this, where the company itself has already advertised for sale of whole, of its business assets. According to the learned judge, the company has no creditors who would press for payment on the mere publication of an advertisement and since the company has also no case that it was in the money market for raising further funds, advertising the winding up petition will not have any serious adverse consequences on the company. The learned counsel for the appellant strenuously contended that the approach of the learned judge was defective and that reliance on Mohanlal Dhanjibhai Mehta v. Chunilal B. Mehta [1962] 32 Comp. Cas. 970 (Guj.); AIR 1962 Guj. 269, to the exclusion of the law settled by the Supreme Court and by this court on the scope of the expression "just and equitable grounds" and the extent of disappearance of substratum theory was defective. According to him, even the Gujarat case on which the learned judge relied, does not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing an advertisement for sale of laud of a company with solid assets and without debts with a liquidation advertisement by the court. The liquidation advertisement had its deleterious effect on the company. The apprehension of the respondent that the sale proceeds would disappear is a mere apprehension voiced in support of the petition, for, the shareholders have very effective remedies both under the general law and under the provisions of the Companies Act to safeguard their interests after the sale proceeds come into the hands of the company. We will now proceed to consider the submissions made by the appellant's counsel with reference to the authorities cited before us. Before considering the question of law involved, it is necessary to bear in mind the admitted facts of the case. The respondent has no case that the only object of the company is to engage itself in rubber plantation. He has no case that the company has not been making profits. He does not plead that the company is in debts and is not solvent. The only apprehension that he disclosed in the petition is that by the sale of the only asset of the company, the substratum of the company would disappear. He admits th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... objects for which the company is established are : ( a )To purchase or otherwise acquire, to hold, improve and cultivate land on the west coast of India and elsewhere and to sell, lease, mortgage, or otherwise dispose of the whole or any part of it. ( b )To develop the resources of such lands by clearing, draining, farming, planting, building and otherwise improving, as may, from time to time, be considered advisable and to plant, grow and produce, rubber, tea, coffee, cocoa, cardamom, cinchona, pepper, cocoanuts, arecanut, oil palms, cashew, lime, orange, tapioca, potatoes, paddy, lemon, grass and other agricultural produce of the soil and to carry on the business of owners and planters and to buy and sell such produce, plantations and estates. ( c )To treat, cure, prepare, submit to any process of manufacture, manufacture and render marketable, whether on account of the company or others, tea, rubber, coffee, cocoa, cardamom, cocoanuts, arecanuts, cashew, pepper, lemon, grass and every other kind of vegetable, mineral or other produce of the soil and to buy, sell, dispose of and otherwise deal in the above articles either in their prepared, manufactured or raw state, and ei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roceeds profitable in other ventures, even though the sale is of the only estate of the company, it cannot be said that the substratum of the company had disappeared. In Seth Mohan Lal v. Grain Chambers Ltd. [1968] 38 Comp. Cas. 543 ; AIR 1968 SC 772, the Supreme Court was dealing with a company which carried on extensive business in "futures" in gur. The Central Government issued a notification which prohibited business in "futures" in gur. An application for winding up was filed on the averment that by reason of the notification, the substratum of the company was destroyed, that all the liquid assets of the company were disposed of and that there was no reasonable prospect for the company commencing or carrying on business thereafter. The Supreme Court found that the company was formed not with the object of carrying on business in "futures" in gur alone, but in several other commodities as well. The Supreme Court had not before it any evidence that the company was unable to pay its debts. The prayer for winding up was refused in the following terms (p. 557 of 38 Comp. Cas.): "In making an order for winding up on the ground that it is just and equitable that a company sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company has gone, the objects of the company and the case of the company on that question will have to be looked into. In the present case, the company alleged that with the proceeds of sale, the company intended to enter into some other profitable business. The mere fact that the company has suffered trading losses will not destroy its substratum unless there is no reasonable prospect of it ever making a profit in the future, and the court is reluctant to hold that it has no such prospect.... The company has not abandoned objects of business. There is no such allegation or proof. It cannot, in the facts and circumstances of the present case, be held that the substratum of the company is gone". This court had occasion to consider a plea similar to the one involved in this case in George v. Athimattam Rubber Company Ltd. [1965] 35 Comp. Cas. 17; AIR 1964 Ker 212. Raman Nair J., while considering the plea that the substratum of the company had disappeared, observed thus (p. 21 of 35 Comp. Cas.): "It is not suggested that the company is commercially insolvent, not even that it is not a sound concern. In this connection I might remark that it is not disputed that the company's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e petitioner and the other members who support him 'did not wish to risk any more of their property in the company' and that 'as a result of the discussion all the members came to a tentative proposal to voluntarily wind up the affairs of the company". As a step towards this, the company held an extraordinary general meeting on March 15, 1965, at which it was unanimously resolved that all of its assets should be sold. However, with a view to prevent the necessary resolutions being passed, the directors, who had apparently changed their mind about the winding-up, were proposing to issue fresh shares so as to secure a majority on their side. 1,800 shares have been issued since the presentation of this petition. But, as we have seen, even ignoring this issue, there is a majority opposed to the winding-up. Even on the basis of the shareholding as at the time of the general meeting of March 15, 1965, there would be a majority opposed to the winding-up so that it does not appear that there was at any time any chance of the special resolution necessary for either a voluntary or compulsory winding-up being passed. And, even if it be that the members had in mind a winding-up when they resol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ruction is applicable, he may fail if the rule is inapplicable, or if the company satisfied the court that reinvestment would also be for the same object. On the facts of the present case, it is enough to notice that as per the ' explanatory statement' extracted earlier in paragraph (2), the company itself was of the view that it was incorporated in the year 1918 as a public limited company with the main object of carrying on plantation business". The learned judge noted the explanatory statement in support of his conclusion that a prima facie case was made out based on the main object theory. According to us, even the explanatory statement cannot be understood to mean that the main object of the company was to carry on plantation in rubber but was only to carry on plantation business. We will now consider the above decision to see whether the learned judge was justified in relying upon it to pass the order under appeal. In Mohanlal v. Chunilal [1962] 32 Comp. Cas. 970 (Guj.); AIR 1962 Gujarat 269, Bhagwati J., as he then was, considering the last ground that the substratum of the company has gone, noted the observation of Lord Cairns in In re Suburban Hotel Co. [1867] 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts set out in the remaining paragraphs are ancillary to this main object and the premise in its turn depends on the application of the main objects rule of construction. In my opinion, however, the main objects rule of construction cannot apply in the present case". The learned judge did not content himself with the above observation but proceeded further assuming that he was wrong in not applying the main objects rule of construction, and treating the objects specified in the various paragraphs as independent objects, and still held that the contention that the substratum of the company was gone could not succeed. The learned judge repelled the contention of the Advocate-General that since the company has abandoned its main and primary object, the substratum of the company must be deemed to be gone and wound up the discussion in the following words (p. 984 of 32 Comp. Cas.): "As I have already pointed out above, in order to make out a case for winding up on the ground that the substratum of the company is gone, it is not enough for the petitioner to allege that the main or dominant object of the company has been abandoned but the petitioner must go further and show that the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e particular estate". The court then proceeded to examine whether the absence before the court of any concrete scheme for dealing with the proceeds of the sale is a reason for making a winding-up order. After referring to another passage in Kitson's case [1946] 1 All ER 435 (CA), the court observed as follows (p.768) : "Apart from authority, it appears to me that the common sense of the matter demands that the existence or non-existence of a concrete scheme at the time the petition comes before the court should be regarded as a wholly irrelevant matter, otherwise it would be impossible for the court to draw any safe line in any particular case. Where is the court to draw the line ? What period is to be allowed to elapse ? What is to be regarded as satisfactory evidence of the intention of the company to go forward into some new venture ? The court clearly is not called on to adjudge the merits or demerits of any scheme, and this fact appears to me to make the consideration by the court of the existence or non-existence of a particular scheme all the less fruitful. If this point were well taken, it would follow that a shareholder who desired a company to be wound up would be w ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
