TMI Blog1985 (12) TMI 343X X X X Extracts X X X X X X X X Extracts X X X X ..... Name No. of shares 1.Smt. Krishna 272 2.S.P. 167 3.Kapil Muni 166 4.Chander Muni 167 5.Shanti 127 6.Anand 100 1,000 S.P. was the chairman, Kapil Muni, the managing director, and the other three brothers, the directors of the company. The company's business was that of manufacture of radios, transistors and tape-recorders at its factory at Kishan Ganj, Delhi. S.P. died on March 16, 1968. After his death, between 1968 and 1973, there were some changes in the shareholdings and the directorship which are not, at present, relevant. It is sufficient to mention two facts. One is that the company acquired, for purposes of its factory, some time during the lifetime of S.P. a plot of land measuring 5,261 yards in Maya-puri Industrial Area for Rs. 1.98 lakhs, the market value of which has gone up tremendously in the past few years. The second is that a group of Agarwals (now respondents Nos. 3 to 5) acquired a good number of shares in the company. According to the petitioners, the entire shareholding of the Rajpals other than S.P. have been transferred to the Agarwals ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon'ble Court comes to the conclusion that any relief other than the winding up of the company, including any relief under section 397/398, be given to the petitioners, the petitioners may be granted the said relief instead of winding up. Without prejudice to the said submission, the petitioners reiterate that the facts and circumstances of the case only justify the winding up of the company which can provide adequate relief to the petitioners. The petitioners have no other alternative remedy/relief equally efficacious. The petitioners, therefore, pray as under: ( a )that the company, Mckenzie Philip (India) P. Ltd., C-97, Maya- puri, Phase IT, New Delhi, may be wound up under the provisions of the Companies Act, 1956; and/or ( b )such other order may be made in the premises as shall be just" . The petition was filed on May 6, 1981, and came for admission the next day, when notice was issued to the respondents to show cause why the petition should not be admitted. On July 15, 1981, the parties and their counsel appear to have agreed to a settlement by which the respondents should purchase the 167 shares of S. P. Rajpal at a price to be determined by a valuer appointed by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... again on January 27, 1982, there was a change in counsel for the respondents and what happened, as the learned judge recorded it, was this: "Mr. Mittal today is raising a contention to the effect that the petition is not maintainable because the petitioners are not registered shareholders. It obviously' means that he is going back on the commitment which had been made by his predecessor. Mrs. Kheterpal, in order to avoid any complication arising in future, wants time to move an appropriate application under section 155 of the Companies Act for rectification of the register of members. On her request adjourned to February 2, 1982". As mentioned above, the petitioners filed a petition under section 155 of the Act, viz , C. P. No. 25 of 1982, and the present petition was adjourned to await the outcome of that petition. Khanna J. disposed of the said petition on March 22, 1984, holding ( a ) that the 167 shares of S. P. should be transmitted to petitioners Nos. 2 to 6 here (who were also petitioners Nos. 2 to 6 in C. P. No. 25 of 1982, i.e. , the children of S. P., petitioner No. 1, the widow, having died on February 8 1982; and ( b ) that the said petitioners be allotted further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ow comes up for arguments. At this stage, Sri S. P. Mittal, counsel for the respondents, raises two contentions which are in the nature of preliminary objections and which, if accepted, would result in the dismissal of the C. P. in limine without the merits being gone into. The first contention raised by Sri Mittal is an elaboration of the point raised by him earlier on January 27, 1982, and is based on the language of section 439(4) of the Act. This section, in so far as it is relevant, reads: "439(4). A contributory shall not be entitled to present a petition for winding up a company unless ( b ) the shares in respect of which he is a contributory, or some of them, either were originally allotted to him or have been held by him, and registered in his name, for at least six months during the eighteen months immediately before the commencement of the winding up, or have devolved on him through the death of a former holder" There can be no doubt (though counsel for the company seemed to dispute it) that petitioners Nos. 2 to 6 are contributories even though the shares on the basis of which the petition has been filed are fully paid-up shares and even though they stand in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hs during the 18 months immediately before the commencement of the winding up can file a petition; such a prescription as to time limit does not seem to apply in case the petitioner is a legal representative on whom shares have devolved through the death of a former holder. In my view, I do not think that such an invidious distinction was ever contemplated by the Legislature. There is no such intendment or reason for such intendment. Excepting for the arrangement of the text of the sub-section which lends prima facie support to such a conclusion, such an obvious discriminatory treatment as between a member and a legal representative of the member cannot be easily countenanced. There should be a great and compelling reason to encourage such a marked distinction resulting in discrimination. To accept the text as it is would mean that what a member on the register cannot do, can be done by the legal representative of a former member. The language used in section 439(4) is plain; but while working out the mandates prescribed therein, certain unreasonableness sets in when we are posed with the difference in the privileges granted to the two classes of persons envisaged under the secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . To start with, it may be pointed out that section 439(4) is not a new provision. It repeats, in identical terms, the language of section 166 of the Indian Companies Act, 1913. Section 224 of the English Act of 1948 is also in the same terms. As I see it, there is no ambiguity or difficulty in construing the section, but, as some confusion seems to have been created by the manner in which the categories of cases covered by the sub-section have been lumped together in one uninterrupted clause, it may be useful to extract the way in which Palmer reads the section, ( Palmer, 22nd edition, volume I, section 81-16):" No contributory of a company is capable of presenting a petition unless 1either the number of members is reduced, in the case of a private company, below two, or in the case of any other company, below seven; or 2the shares in respect of which he is a contributory or some of them were ( a )originally allotted to him, or ( b )have been held by him and registered in his name for at least six months during the eighteen months before the commencement of the winding up, or ( c )have devolved upon him through the death of a former holder (section 224(1)( a ))". Thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e company right from the inception, he is not likely to seek the winding up of the company without good reason. A transferee of shares arrives on the scene by volition and cannot be made a contributory unless his name is registered as a member. In this type of case, a further restriction has been considered advisable in order to prevent abuse of process of court by busy-bodies obtaining shares on transfer for a short period only with a view to harass the company by filing a winding-up petition. But a transmission occurs on a fortuitous act over which no human being has any control and an abuse of a like nature is not possible. Moreover, as rightly pointed out by Sri Khanna, the legal representative of a deceased member is in a very peculiar position. He is no doubt entitled either to apply to become a member or transfer his share, subject to the right of the company to accept him or his transferee as a member in the light of its articles but until this happens and it may take quite some time due to no fault of his he can exercise none of his rights as a shareholder except to receive the dividends on the shares but is liable to be included in the list of contributories. This is clea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4) the interpretation that is contended for by the respondents. I, therefore, reject the contention of Sri Mittal that petitioners Nos. 2 to 6 (petitioner No. 1 having died) are not competent to file this petition. In the view I have taken, it is necessary to consider Sri Khanna's contention that, even if the respondents' interpretation of section 439 is taken to be correct, petitioners Nos. 2 to 6 can maintain the petition as they should be taken, by virtue of Khanna J.'s order in C.P. No. 25 of 1982, to have been placed on the company's register with retrospective effect as on the date of death of SP, viz ., March 16, 1968. I now turn to the second principal ground on which the respondent company seeks dismissal of the company petition. The point raised is very short. It is pointed out that the petition is for the winding up of the respondent company. Counsel for the petitioner, on August 19, 1981, specifically gave up his claim for the winding up of the company. Sri Mittal argues that, after this, there is nothing further left in the petition to argue. He says that there can be no question of the petition being admitted to the limited extent of determining the price at whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be resolved if the petitioners could sell their shares to the respondents for a price to be determined by a valuer and it was only because the court agreed to adjudicate upon this that he agreed not to press for the winding up. It was to this course that the respondents had also agreed. He vehemently argues that if the respondents were to be allowed to go back on this understanding, then, he should not also be held bound by his undertaking not to press for the company's winding up. That apart, he also contends that the winding up court has full jurisdiction under sections 443(1)( d ) and 443(2) to pass an order other than winding up that would effectively resolve the disputes between the parties. He points out that the contentions of the respondents, if accepted, would have the petitioners who have genuine grievances and also are seen, after Khanna J.'s order in CP No. 25 of 1982, to have been kept out of their just rights, totally remediless, a position which would be totally incompatible with the very wide and equitable jurisdiction conferred on the courts under the Companies Act. Sri Khanna referred, in this context, to the decisions in Lord Krishna Sugar Mills Ltd. v. Abnas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 962 Pat 72 [FB]. But I am unable to accept the contention of the respondents that the question of purchase of sale of shares between the two groups cannot at all be considered in a winding-up petition. The relief by way of winding up is to be granted only as an ultimate necessity where to wind up the company is in the best interests of all the creditors and contributories. Where there are no creditors on the scene and the fight is only between say, two groups of shareholders, the remedy of winding up is a very expensive and a prolonged process during which, through the medium of the official liquidator, the assets of the company are realised or otherwise distributed amongst the shareholders. One conceivable method of such distribution could be by giving all the assets of the company to one group of shareholders, the other being compensated in terms of money or to put it in another way, the purchase of one group's interest in the company by the other. In this view of the matter, a relief of the type sought for, short of actual winding up, is not, in principle, wholly outside the purview of the process of winding up. That apart, when a winding up petition is filed, the court is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll consider proposals for the revival or reconstruction of the company if they are practical and feasible. It will not be correct to say that only two types of orders can be passed on a winding up petition, viz ., ( i ) its dismissal, and ( ii ) an order for winding up. To say so ignores the specific language of section 443 and, in particular, sub-section (1)( d ) thereof. Sri Khanna has also pointed out as precedent a case in which a purchase of shares by one group on certain terms was ordered where a winding up petition was dismissed, though reference has been made therein to sections 397 and 398. On a consideration of various aspects and statutory provisions, I am unable to agree that this court erred or acted without jurisdiction in admitting the petition "only to the limited extent as to what is the price to be paid by the contesting respondents to the petitioners". I think I should also point out here that the respondents are also perhaps committing the error of thinking that the court has decided to direct the respondents to purchase the petitioners' shares at a value to be determined. I think this is not so. To me it appears that the question is at large. In further procee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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