TMI Blog1985 (7) TMI 309X X X X Extracts X X X X X X X X Extracts X X X X ..... 39, rule 1, Civil Procedure Code, for an order of injunction restraining the appellants herein from borrowing any moneys from banks, financial institutions or others without the prior permission of the court and from alienating and/or creating any charge or encumbrance over any of the assets of the company in its various enterprises, pending disposal of the winding-up petition. On July 13, 1981, the company petition and also the two C.A. Nos. 843 and 844 of 1981 were posted before the court. The learned judge ordered notice to the company petition for the hearing on August 11, 1981. He also ordered notice to the appellants herein in the application for the appointment of a provisional liquidator and in C.A. No. 844 of 1981 granted an interim injunction and posted the application for further hearing on September 27, 1981. By an order dated August 19, 1981, the learned judge granted the injunction, the operative portion of which is as follows: "In the result, there will be an injunction restraining respondents Nos. 1 to 6 from borrowing any moneys from banks, financial institutions or others and from alienating and/or creating any charge or encumbrances over any of the assets of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany petition was admitted and notice of hearing was ordered. We are of the view that the hearing of the winding-up petition starts even on. the day when the winding-up petition is admitted and entertained and the order of notice for the hearing to the respondents after deciding to entertain would amount to a hearing of the winding-up petition itself. The words "on hearing a winding-up petition" would cover the entire period from the date of entertainment and issuing of notice till an actual order of winding-up is made or the winding-up petition is dismissed. "Hearing" does not mean hearing the respondent to the company petition. Hearing of the petitioner for the purpose of admitting the petition and issuing notice is also part of the hearing of the winding-up petition. In fact, the Supreme Court in Hind Overseas ( P ) Ltd. v. Raghunath Prasad Jhunjhunwalla [1976] 46 Comp Cas 91 held (at page 105): "A prima facie case has to be made out before the court can take any action in the matter. Even admission of a petition which will lead to advertisement of the winding-up proceedings is likely to cause immense injury to the company if ultimately the application has to be dismiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It would be a mistake to interpret the statute as stripping the court of all its powers first, and then conferring on it only such powers as are permitted, say by section 443(1) and other related provisions. We are satisfied that having regard to the scheme of the Companies Act, we cannot read any provision in the statute which relates to jurisdiction of courts, as being in derogation of the full plenitude of the court's powers under the common law, unless we can find in it a clearly expressed, or equally clearly implicit, bar of restriction of the court's jurisdiction. We think it necessary for courts to construe statutes, such as the Companies Act, according to the wisdom of Parliament and not according to the folly of the draftsman. Section 443(1) is a case in point. The section sets about enumerating the different ways in which the court can tackle a winding-up petition when it comes before it for hearing. The section, in this context, enumerates the court's powers. But there are certain things which go without saying or ought to. Adjournment, for instance, is one of them; you cannot regard it as a remarkable aspect of judicial power. And yet, clause ( b ) of section 443(1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8): "A petition for winding-up cannot be placed for hearing before the court, unless the petition is advertised; that is clear from the terms of rule 24(2). But that is not to say that as soon as the petition is admitted, it must be advertised. In answer to a notice to show cause why a petition for winding-up be not admitted, the company may show cause and contend that the filing of the petition amounts to an abuse of the process of the court. If the petition is admitted, it is still open to the company to move the court that in the interest of justice or to prevent abuse of the process of the court, the petition be not advertised. Such an application may be made where the court has issued notice under the last clause of rule 96, and even when there is unconditional admission of the petition for winding-up. The power to entertain such an application of the company is inherent in the court, and rule 9 of the Companies (Court) Rules, 1959, which reads: Nothing in these rules shall be deemed to limit or otherwise affect the inherent powers of the court to give such directions or pass such orders as may be necessary for the ends of justice or to prevent abuse of the process of the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore, in any case the hearing of the winding-up petition shall be deemed to have commenced. We are, therefore, unable to accept the contention of learned counsel for the appellants that the applications were not maintainable under section 443 of the Companies Act. The learned judge gave a finding that the company is out and out a domestic one, that the shareholding by each of the two branches of the founder's sons, namely, one belonging to appellants Nos. 2 to 5 and respondent No. 6 and the other represented by respondents Nos. 1 to 5, was almost equal, that the two brothers, namely, the third appellant and the first respondent, have the right of equal participation in the management and in the affairs of the company and that the right of equal participation by the two branches represented by the third appellant on the one hand and the first respondent on the other is guaranteed under the constitution of the company. The learned judge was also of the view that the substratum of the company is based on the cordiality and mutual trust and confidence expected of both the brothers and when such cordiality and co-ordination anxiously intended to be preserved by the constitution of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ugh there is no dispute that their father is the founder of the company. The nominal capital of the company is Rs. 20,00,000 divided into 2,000 equity shares of Rs. 1,000 each. The issued, subscribed and paid-up capital is Rs. 15,95,000 divided into 1,595 equity shares of Rs. 1,000 each. The family of the first respondent is holding 608 equity shares of the face value of Rs. 1,000 each. The family of the third appellant is holding 642 shares of Rs. 1,000 each. A trust by name V. Rangasvvami Naidu Educational Trust was holding 300 shares of Rs. 1,000 each. The trust was founded by the father of the third appellant and the first respondent. The third appellant, the first respondent and their father, V. Rangaswami Naidu, were the founder-trustees for life. The father is now dead and the third appellant and the first respondent are now the family trustees for life. It was contended on behalf of the appellants that the third respondent got transferred to himself as management trustee the 300 shares held by the trust by virtue of a resolution passed through circulation to the members of the company. The allegation of transfer was disputed by the respondents herein. The learned judge af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and continued to vest even after them in their successors in interest and nominees, that the right of equal participation by the two branches each represented by the first respondent on the one hand and the third appellant on the other was guaranteed under the constitution of the company and that the shareholding by each was almost equal. Learned counsel for the appellants contended that article 30 of the articles of association which was heavily relied on by the learned judge in support of his finding that a prima facie case has been made out for winding up the company under section 433( f ), is void under section 9 of the Companies Act on the ground that it is opposed to the provisions of section 433( f ) and also on the ground that it is opposed to public policy. The learned judge has overruled this objection holding that article 38 does not run counter to section 9 of the Act or the provisions of section 433( f ). Article 38 of the articles of association reads as follows: "In the event of disagreement between the directors at any time prejudicially affecting the emoluments or the interests of any member of the board, then the aggrieved party may either sell his shares to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in considering whether to pass an order of winding up or not in exercise of its power under section 433( f ). Necessarily, the court may while considering the question whether it is just and equitable that the company should be wound up ( sic ) . But it cannot be contended that it is in any way derogatory to the powers of the court under section 433( f ) We are, therefore, of the view that article 38 is valid and binding on the company and its members. It was then contended by learned counsel for the appellants that till the provision in the first limb of article 38 is complied with, the second limb will not come into operation, that the conditions specified in the first limb of article 38 have not been complied with by the respondents and that since it is the respondents who complained that the appellants have acted detrimentally to their interests they should have offered to sell the shares to the appellants, that the appellants have a right to purchase the shares at a fair price to be fixed in conformity with the articles and, that it is only when the appellants fail to agree to purchase the shares at a fair value to be fixed that the contingency, namely, that the company s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nclude any member who may or may not be an aggrieved party. The aggrieved party may refuse to sell or purchase or it may be the other party who refuses to purchase or sell at a fair price. The only condition is that he should be a person who is not willing to follow the procedure prescribed in the first limb. In this case, the respondents have stated that they are not willing to adopt the method provided for in the first limb. They are entitled to state that they are not willing to agree to the methods provided therein to end the deadlock. In fact, the learned judge has referred to the wide and open differences between the respondents' group and the appellants' group and has also catalogued the complaints of the respondents against the appellants. In the light of those circumstances there can be no doubt that it would be asking for the moon to expect the parties to agree to the method contemplated under the first limb of article 38. We also agree with the learned judge that it is unnecessary in order to claim the relief under the second limb of article 38 to go through the farce of offering to sell or purchase the shares and that it is the disagreement that mattered. We may also po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an embargo on selling the shares to an outsider under any circumstances. The amended provision only enables the selling of the shares to an outsider in certain circumstances. Learned counsel for the appellants then contended that no grounds have been made out in the common affidavit, filed in support of C. A. Nos. 843 and 844 of 1981 and also in the affidavit filed in support of the company petition itself for the appointment of a provisional liquidator, that the application for such appointment of a provisional liquidator should have been disposed of on the averments made in those affidavits only and the court should not have taken into consideration the subsequent events. The subsequent event, by itself, cannot be a ground for appointment of a provisional liquidator; and, in the instant case, the learned judge has not relied on any ground in the affidavit, but only on an alleged subsequent event of diversion of funds of the company for personal benefit. In support of this contention, learned counsel placed before us the following decisions: Rajahmundry Electric Supply Corporation Ltd. v. A.Nageswara Rao [1956] 26 Comp Cas 91 (SC), Vidhyasagar Cotton Mills Ltd. v. Nazmunn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant papers. The widow and her attorneys desired the shares to be transferred before January 25, 1961, by rectifying the share register so as to enable her to vote on February 9, though the board of directors called for a meeting on January 25, 1961, to consider her application for rectification of the share register. They did not rectify the register but adjourned the subject. The share register remained closed from January 26 to February 9, 1961. Thereupon the widow moved an application on January 30 to the court under section 155 of the Companies Act, 1956, praying for the rectification of the register. On February 8, the company court passed an order restraining the company and its directors from holding the annual general meeting on February 9, except for the purpose of adjourning the same and directed the company to hold a meeting of its board of directors on February 14, for the purpose of considering the application of the widow for rectification of the share register and taking a final decision thereon and giving liberty to file further affidavits. It appeared from the further affidavits filed that one Manzoor Ahmed had applied on February 14 for revocation of the grant of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the deceased ceasing to be a member. Learned counsel for the appellant contended that these subsequent events could not be taken notice of by the court, relying on the decision in Rajahmundry Electric Supply Corporation Ltd. v. A. Nageswara Rao [1956] 26 Comp Cas 91 (SC). The Division Bench of the Calcutta High Court held that the decision of the Supreme Court is in no way inconsistent with the principles enunciated in Raicharan Mondal v. Biswanath Mondal, AIR 1915 Cal 103; 20 Cal LJ 107 and that the court may take notice of events which have appeared since the making of the application and afford relief to the parties on the basis of these events where it is necessary to base the decision on the altered circumstances in order to do complete justice between the parties. It may be seen from the decision that on the date when the application was filed, there was no default or unnecessary delay in the rectification of the register within the meaning of section 155(1)( b ). However, the subsequent facts disclosed there was default or unnecessary delay which was relied on in support of the application for rectification of the order. In Mohia Bros. P. Ltd. v. Calcutta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e petition also as evidence thereof and, therefore, it is not contrary to law. The learned judge has, after setting out briefly the charges in the petition filed for winding up concentrated his attention on the charge of diversion of the funds of the company by appellants Nos. 2 and 3. After referring to the evidence available and the contention of the parties, the learned judge held that the respondents have established that large funds of Rs. 11,10,000 are diverted elsewhere by the appellants and not utilised for the benefit of the company. We may point out that except making the legal submission, learned counsel for the appellants did not canvass the finding of the learned judge on facts relating to this diversion, though learned counsel for the respondents referred to many documents supporting the finding of the learned judge. We do not think it necessary, in the circumstances, to again trace all the evidence available which shows the diversion of the funds of the company. We may also state that learned counsel for the appellants is not fully correct instating that the learned judge has relied only on this diversion of the company funds in support of the claim for appointment o ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
