TMI Blog1988 (4) TMI 327X X X X Extracts X X X X X X X X Extracts X X X X ..... Durgadevi Sharma, 3.Srikrishna Sharma, 4.Sachikanta Routray, 5.Gadadhar Dixit, 6.Bishnumohan Routray, 7.Nirmal Chandra Routray. The partnership was carrying on its business in the name and style "M/s. Utkal Flour Mills" having its office and place of business at Bhadrak. ( b )The partnership was dissolved on August 23, 1975, for the purpose of conversion and incorporation as a company under the name and style M/s. Utkal Flour Mills (P.) Ltd. and the value of the net assets at the time of dissolution was Rs. 1,00,000 only. The nominal share capital of the said company is Rs. 15 lakhs divided into 1,500 equity shares of Rs. 1,000 each. ( c )That the partners of the aforesaid dissolved partnership firm, on becoming shareholders of the newly formed company, continued to hold and retain their respective shares in the said company as they had in the dissolved partnership. The net asset of Rs. 1,00,000 of the dissolved partnership firm got transferred to the newly formed company and the same was treated as share capital and their respective interests in the company stood as follows : 1. Ramkrishna Sharma 5% 2. Smt. Durgadevi Sharma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds such as repairs, travelling allowance of directors etc. which were never incurred and the accounts have been made up to suit the convenience of the managing director and his associates. ( iv )Despite good business and admitted profits of substantial amount earned by the company, the debts were not repaid, but the funds of the company were diverted in a clandestine manner for the personal benefit of the present set of directors. The debts not having been cleared up, Smt. Phula Devi Dixit, wife of the petitioner, a creditor of the company has filed Company Act Case No. 11 of 1982 praying for winding up of the company, Smt. Dixit had advanced a loan of Rs. 80,000 to the company, but she has not been paid any interest nor even a part of the principal as yet. ( v )That fake loans have been shown in the names of different persons related to the managing director, and they are being paid interest regularly, as shown in the accounts. ( vi )The accounts of the company are being manipulated and substantial amount has been diverted towards the share money of the present managing director in a firm named and styled as "Kalinga Chemicals" situated at Jagatpur. The managing director of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is no possibility of restoration of the same. In substance, the petitioner has been completely ousted from the management of the company during the last four years and the lack of probity has created a deadlock in the smooth functioning of the company. ( h )The present directors of the company have been deliberately misusing their powers for oblique and extraneous purposes and their dealing and conduct in respect of the funds, assets and equipment of the company are neither fair nor above board. On the aforesaid allegations, it was prayed that it would be just and equitable to wind up the company and appoint an administrator to take charge of the assets and the books of accounts of the company during the pendency of litigation. On being noticed, the opposite party-company entered appearance in this case and filed its counter-affidavit denying all the allegations in the application for winding up of the company. It has been stated that it is wholly misconceived to suggest that the company was originally a partnership firm as alleged. It has been pleaded that the company is a legal entity, completely separate and distinct from a partnership concern and came into existence fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the auditors of the company or on such terms and conditions as the court may direct. The loans said to have been incurred by the company are genuine and they were necessary for raising capital to carry on the business which, according to the opposite party, is a very normal phenomenon in running the company and therefore, cannot be taken exception to. The loans incurred by the company have been duly reflected in the books of accounts of the company as well as in the income-tax returns of the persons who had advanced the same. As regards the initiation of the Company Act Case No. 11 of 1982, it has been stated that payment of interest was never stipulated and the wife of the petitioner was offered a cheque for Rs. 80,000 which learned counsel appearing for her refused to accept. All other allegations of fraud, mismanagement, manipulation, etc., have been categorically denied and it has been asserted that the company is being run and managed as efficiently and fairly as it is reasonably possible in the circumstances. The allegation that no meeting of the directors of the company is being convened has been refuted in the counter-affidavit. It has been stated that the Companies Act pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p) acted fradulently and improperly in forming a partnership of Utkal Roller Flour Mills with the assets of the company as a device to drain out the funds of the company for their own benefit? 4.Is the formation of the partnership as aforesaid legal and justified and the transactions done in the name of the said partner ship valid in law and binding on the company? 5.Is the petition for winding up bona fide and is the petitioner entitled to invoke the jarisdiction for winding up under the just and equitable clause having regard to the provisions of section 443(2) of the Companies Act? 6.Has the board of directors, representing the majority of shareholders, acted fraudulently in managing the affairs of the company in a manner destroying the probity and mutual trust and confidence of the shareholders? 7.Whether the extraordinary general meeting dated February 2, 1982 was legally convened and whether the resolutions adopted therein are valid and binding in law? 8.Is the company liable to be wound up? 9.To what reliefs? Issue No. 2 : Out of the aforesaid issues, learned counsel for the petitioner has submitted regarding issue No. 2 that the company in question is in sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the partners, which is not so in the case of a company which stands as a separate juristic entity distinct from the shareholders. A further distinction has been pointed out by their Lordships in the said decision that in the case of a company, a shareholder acquires a right to participate in the profits of the company, but acquires no interest in the assets of the company. It has been laid down that on buying a share in a company, an investor becomes entitled to participate in the profits of the company in which he holds the share if and when the company declares, subject to the articles of association, that the profits or any portion thereof should be distributed by way of dividends among the shareholders. He has undoubtedly a further right to participate in the assets of the company which would be left over after winding up, but not in the assets as a whole. Their Lordships in Hind Overseas Private Ltd. v. Ragunath Prasad Jhunjhunwalla [1976] 46 Comp Cas 91 (SC) dealt with the scope of section 433( f ) of the Companies Act which provides that a company may be wound up by the court if the court is of the opinion that it is just and equitable that the company should be wound up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in mind at the time of consideration as to whether the application should be admitted on the allegations mentioned in the petition. The relief under section 433( f ) of the Act is discretionary and the court may refuse to make an order for winding up if it is of the opinion that some other remedy is available to the petitioner and that he is acting unreasonably in seeking to have the company wound up instead of pursuing those other remedies. This is because of the provisions contained in section 443(2) of the Act. It is fairly established in law that the relief under section 433( f ) based on the just and equitable clause is in the nature of a last resort when other remedies are not efficacious enough to protect the general interests of the company. Whereas the petitioner has strenuously argued that various grounds exist in favour of winding up of the company on the ground that it is just and equitable, learned counsel appearing for the company has submitted that no prima facie case has been made out in the application far less any evidence to satisfy the distinct requirements of law. The first ground urged by the petitioner in this connection is the formation of Utkal Roller ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... legal, he was obliged under law to spell out the details of the fraud as well as the facts necessary to show that the constitution of the partnership and the transactions entered into by it were illegal or prejudicial to the interests of the company both in the writ petition and in the evidence. In the absence of pleading and proof, issues Nos. 3 and 4 are bound to be answered against the petitioner. The next grievance of the petitioner is that the board of directors representing the majority of the shareholders acted fraudulently in managing the affairs of the company in a manner destroying the probity and mutual trust and confidence of the shareholders which, according to the petitioner, is a just and equitable cause for winding up the company, I have already indicated that the prayer for winding up a company under section 433( f ) must be judged from the facts of each case. The allegations in this case are general mismanagement and oppression of minority shareholders. It is often said that the words "just and equitable" are a recognition of the fact that a limited company is more than a mere judicial entity with a personality in law of its own. The company law recognises the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o objection appears to have been raised by him regarding the alleged mismanagement of the affairs of the company till the year 1981 when the petitioner was still continuing as a director. The evidence adduced in this case is too meagre to come to a conclusion that the other directors of the company are guilty of misappropriation. The present application was presented by the petitioner two years after his resignation from the directorship. The aforesaid allegation cannot, therefore, constitute a just and sufficient cause for winding up the company. It has been further alleged that the petitioner was ousted from the management of the company and thus there has been lack of confidence in the conduct and management of the company's affairs. This, according to learned counsel for the petitioner, is a sufficient cause for ordering the winding up of the company. Mr. Mukherjee, learned counsel appearing for the company has argued that at no point of time the petitioner was ousted from the management of the affairs of the company, but his was a case of resignation. Ouster evidently signifies forcible or wrongful dispossession or exclusion from the enjoyment whereas resignation implies a v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the management affairs till June, 1981, during which period he was continuing as a director. He further admits that there is nothing in writing to establish that he was ousted from the company as a director. His further admission goes to the extent that he did not lodge any information either before the police nor made any protest in the company that he has been so threatened by other directors. In the aforesaid circumstances, the inference is irresistible that the resignation tendered by him in September, 1981, was a voluntary act on the part of the petitioner. The petitioner has next alleged that he has never been served with any notice of meetings of the board of directors or the shareholders either as a director or as a shareholder after the year 1979. He further complains that the affairs of the company were concealed from the petitioner and the said action, in the facts and circumstances of the case, must be termed as "mala fide" justifying a winding up, though the petitioner alleges that he had not received any notice for the annual general body meeting during the year 1979-80 and 1981. There is no evidence whatsoever that he had raised any objection at any point of tim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther alleges that in the circumstances, the burden of proof of due notice was on the company, which disputed the aforesaid allegation. It has been alleged that the company having failed to produce the documents to establish service of notice, adverse inference is liable to be drawn against the company and it should be inferred that the petitioner had no notice of any of the meetings. Mr. Mukherjee, learned counsel appearing for the company denies the aforesaid position by making a reference to the order dated February 13, 1984, passed in this case in which the company had undertaken to keep the documents ready for production at the time of hearing, if necessary. He submits that no attempt whatsoever has been made by the petitioner to utilise the said documents in his favour which would rather go to show that the documents would prove the contrary. In the circumstances, the decision in Gopal Krishnji Ketkar v. Mohamed Haji Latif, AIR 1968 SC 1413 relied on by the petitioner has no application and no adverse inference can be drawn for non-production of the documents in possession of the company. Mr. Mukherjee, appearing for the company, next argued that assuming that there are ..... X X X X Extracts X X X X X X X X Extracts X X X X
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