TMI Blog2001 (8) TMI 1291X X X X Extracts X X X X X X X X Extracts X X X X ..... ector and the fifth respondent as the whole-time director. Respondent No. 4 is the son of respondents Nos. 2 and 3 and respondents Nos. 3 to 5 are the partners of the firm sixth respondent herein. The company was going from strength to strength and made good strides and was financially sound and continues to be so. But, there were strained relations between the appellant and the second respondent, which led to exchange of some notices and ultimately culminating in Company Petition No. 96 of 1999 invoking section 433( f ) of the Act seeking winding up of the company on the grounds stated therein. Notice before admission was issued by the learned company judge and in response thereto counter-affidavits have been filed by the respondents. By consent of the parties, documents were marked as exhibits Nos. A-1 to A-27 on the appellant's side and exhibits Nos. B-1 to B-25 on the respondents' side. On perusing the pleadings and the said documents as also hearing either side, the learned company judge has dismissed the company petition at the admission stage holding that there are no grounds made out for invoking section 433( f ) of the Act for winding up of the first respondent-company, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... crores was shown as unsecured loan and as the company was doing very well, there was no reason to raise that loan, that the source of the said amount is not known, and that the said loan was obtained only to convert black money into white money and is a shady deal. The allegations made above by the appellant, have been countered by the respondents as mentioned infra. That the second respondent invested Rs. 2,10,500 as on August 31, 1992, that the amount so invested by the second respondent towards his share application had risen to Rs. 2,12,500 as on March 31, 1993, as on March 31, 1994, it was Rs. 25,09,000 and as on November 16, 1994, it was Rs. 65,20,000, and that it is incorrect to state that the share amount of the second respondent rose suddenly within a year. It is explained that subsequent to the allotment of shares to the second respondent on November 16, 1994, he had purchased shares in the open market and that as on the date of filing of the company petition, the second respondent held 7,61,800 shares worth Rs. 76.18 lakhs. It is also disputed that the shares of respondents Nos. 3 and 4 have escalated geometrically. It is explained that the third respondent held sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y in the annual general meeting and the same is in consonance with sections 269, 309 and 314 read with Schedule XIII to the Act. It is further explained that the fifth respondent, though was the Registrar of the Andhra Pradesh Open University, he had taken prior permission and consent of the University and has not been claiming any salary from the University. It is stated that no conspiracy was hatched by the second respondent to ease the appellant out of the directorship of the company and the appellant on his own volition due to his preoccupation in the film field and being unable to attend any meeting or to the business of the company, has voluntarily retired by tendering his resignation on April 30, 1994, and the same was accepted and was intimated to the Registrar of Companies, that his name as director was not reflected in the next annual accounts, that in fact he had never attended the board meetings, that the dividend was being paid to him regularly without any default, that there was no fraud played on him or forgery committed and as he ceased to be the director, the question of preventing him from managing the affairs of the company did not arise, that he has been furnish ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wn, that the above facts are manifest from the documentary evidence in exhibits Nos. A-1 to A-27, that a prima facie case of want of confidence and lack of probity is made out and that winding up petition ought to be admitted. In support of his arguments, learned senior counsel for the appellant has relied upon the decision in Yenidje Tobacco Company, Limited, In re [1916] 2 Ch. D 426 (CA), Loch v. John Blackwood, Limited [1924] AC 783 (PC), Rajahmundry Electric Supply Corporation Ltd. v. A. Nageswara Rao [1956] 26 Comp. Cas. 91; AIR 1956 SC 213, Shanti Prasad Jain v. Kalinga Tubes Ltd. [1965] 35 Comp. Cas. 351 (SC), Ebrahimi v. Westbourne Galleries Ltd. [1973] AC 360 (HL), Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holdings Ltd. [1981] 51 Comp. Cas. 743 (SC) and Ramakrishna Industries (P.) Ltd. v. P.R. Ramakrishnan [1988] 64 Comp. Cas. 425 (Mad). Mr. Ramesh Ranganathan, the learned Additional Advocate-General, appearing for the respondents, counters the above arguments to the effect that though the appellant had been associated with the company since its inception, he is not holding 43 per cent. share capital, but only holds 2.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w two ; ( e )if the company is unable to pay its debts ; ( f )if the court is of opinion that it is just and equitable that the company should be wound up." It is clear from the above statutory provision that while in clauses ( a ) to ( e ) the grounds are enumerated by the statute itself, in clause ( f ), it is left for the court's decision on "just and equitable" grounds. Construing the above provisions, it was held by the Supreme Court in Rajahmundry Electric Supply Corporation Ltd.'s case [1956] 26 Comp. Cas. 91 ; AIR 1956 SC 213, that the words "just and equitable" in clause ( f ) of section 433 of the Act are not to be read as being "ejusdem generis" with the words employed in clauses ( a ) to ( e ) thereof. The said view was followed by the later Supreme Court judgment in Hind Overseas (P.) Ltd.'s case [1976] 46 Comp. Cas. 91; AIR 1976 SC 565, in which it was held (page 105) : "... the sixth clause of section 433, namely, 'just and equitable', is not to be read as being ejusdem generis with the preceding five clauses. While the five earlier clauses prescribe definite conditions to be fulfilled for the one or the other to be attracted in a given case, the just a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had to the domestic character of the company, the petitioners were held to be entitled to a winding up order. The Privy Council held (page 787) : "looking to the character and history of the company together with the fact that because of this peculiar situation where there was a preponderating voting power, the calling of a meeting of the shareholders would admittedly lead to failure, it would be unavailable as a remedy and that fact could not be excluded from the point of view of the court in a consideration of justice and equity of pronouncing an order for winding up." In the above case, two independent principles have been invoked for winding up on "just and equitable" rule viz. , (1) Analogy of partnership principle to dissolve a small, domestic, quasi-partnership concern and (2) when there is justifiable lack of confidence on the ground of lack of probity. But, it is pertinent to mention that at that time, there was no alternative remedy and only alternative remedy was an appeal to the domestic forum, which, on account of the peculiar constitution, could not provide for any effective remedy in such a case. The first principle of dissolution on partnership lines was thus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding up would not be just or equitable, because if it is a sound concern, such an order must operate harshly on the rights of the shareholders. But if, in addition to such misconduct, circumstances exist which render it desirable in the interests of the shareholders that the company should be wound up, there is nothing in section 162( vi ) which bars the jurisdiction of the court to make such an order." In the said case, the chairman did not function at all and in fact, abrogated his functions to the vice-chairman and the vice-chairman of the company grossly mismanaged the affairs of the company and had drawn considerable amounts for his personal purposes and there were substantial arrears due to Government for supply of electric energy and large collections had to be made, that the machinery was in a state of disrepair, that by reason of death and other causes the directorate had become greatly attenuated and a "powerful local junta was ruling the roost" and that the shareholders outside the group of the chairman were apathetic and powerless to set matters right and in those circumstances, the company court had ordered winding up of the company and the same was justified by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Division Bench. But, on further appeal to the Supreme Court it was held in the said case that there was no oppression on the part of the majority shareholders and that the provisions contained in sections 397 and 398 of the Act were not attracted. The Supreme Court further held (pages 782 and 781) : "... on a true construction of section 397, an unwise, inefficient or careless conduct of a director in the performance of his duties cannot give rise to a claim for relief under that section. The person complaining of oppression must show that he has been constrained to submit to a conduct which lacks in probity, conduct which is unfair to him and which causes prejudice to him in the exercise of his legal and proprietary rights as a shareholder ... It is not enough to show that there is just and equitable cause for winding up the company, though that must be shown as preliminary to the application under section 397. It must further 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 on the part of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n and also appointing an official liquidator as the provisional liquidator pending winding up petition. Both before the learned single judge and the said Division Bench, learned counsel for the appellant questioned the maintainability of the application for injunction. This was on the ground that the main winding up petition was not set for hearing and that, therefore, section 443 of the Companies Act cannot be invoked by the applicants and that the applications cannot also be sustained either under Order 39, rule 1 of the Civil Procedure Code or under rule 9 of the Companies (Court) Rules, 1959. It was found as a fact that "... there was manipulation of records, particularly the minutes books relating to the meeting of the board of directors, by making false entries in the minutes book relating to the meeting, taking advantage of the custody of the minutes books in their hands, collusive transfer of shares held by the company in Radhakrishna Mills Ltd. to Sri Kanchanlal Hiralal Nanvathi and another at the instance of Vysya Bank Ltd., making false entries in the general body minutes book, transferring 300 shares held by the trust in favour of the third appellant fraudulently and in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and 398 and that they had availed of their remedy of investigation under section 408 and failed to disclose this fact in their petition and that the petition for winding up could not, therefore, be admitted." The above view was approved by the Supreme Court in case of Hind Overseas (P.) Ltd.'s case [1976] 46 Comp. Cas. 91 ; AIR 1976 SC 565, which is a company registered under the Companies Act and in which section 433( f ) of the Act was directly invoked without exhausting the alternative remedy provided under sections 397 and 398 of the Act and dealing with the specific provision contained in section 443(2) of the Act which ordains exhaustion of alternative remedy before initiating winding up proceedings contained in section 433( f ) of the Act and reviewing the important judgments on the subject including that of Yenidje Tobacco Company, Limited, In re [1916] 2 Ch. D 426 (CA), Loch's case [1924] AC 783 (PC), Rajahmundry Electric Supply Corporation Ltd.'s case [1956] 26 Comp. Cas. 91 ; AIR 1956 SC 213 and Ebrahimi's case [1973] AC 360 (HL), it was held (headnote of 46 Comp. Cas.) : "when more than one family or several friends and relations together form a company an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany and to all its shareholders. The company court will have to keep in mind the position of the company as a whole and the interests of the shareholders and see that they do not suffer in a fight for power that ensues between two groups. It was further held in the said case that although the Indian Companies Act is modelled on the English Companies Act, the Indian law is developing on its own lines and the courts will have to adjust and adapt, limit or extend, the principles derived from English decisions, entitled as they are to great respect, suiting the conditions of Indian society and the country in general, always, however, with one primary consideration in view that the general interests of the shareholders may not be readily sacrificed at the altar of squabbles of directors of powerful groups for power to manage the company." The two decisions relied on by learned counsel for the respondents in B.V.S.S. Mani's case [1989] 65 Comp. Cas. 305 (AP) and V.V. Projects and Investments P. Ltd.'s case [1997] 90 Comp. Cas. 346 (AP), which have been decided following the ratio decidendi in Hind Overseas (P.) Ltd.'s case [1976] 46 Comp. Cas. 91 ; AIR 1976 SC 565, have also g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enunciated by the Supreme Court in Hind Overseas (P.) Ltd.'s case [1976] 46 Comp. Cas. 91 ; AIR 1976 SC 565, to the effect that a company cannot be wound up merely because there are differences between the shareholders and particularly when the company is running on sound lines, that if any misunderstandings or problems arise between the shareholders, the same have to be sorted out by alternative methods, that winding up petition cannot be entertained unless alternative remedies are exhausted and that winding up of a company is a harshest remedy and should be entertained as a last resort, are fully applicable to the facts of this case. The effect of section 443(2) of the Act has also been considered by the Supreme Court in the above case. A contrast between the provisions under clauses ( a ) to ( e ) of section 433 of the Act on the one hand and clause ( f ) thereof on the other makes it abundantly clear that statute itself created a bar under section 443(2) of the Act from entertaining a winding up petition on "just and equitable" grounds when alternative remedy is available. The appellant makes several allegations including that of forgery against the second respondent and as s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions. Mr. Ramesh Ranganathan, learned counsel representing the first respondent pointed out the serious consequences that flow from the admission of the company petition of this nature seeking the relief of winding up on equitable grounds. Even if the allegations have some element of truth, still, a winding up petition is not a proper remedy and it is a misconceived remedy. Learned counsel further had rightly pointed out sections 397, 398, 233A to 234, 283, 284, 209A, 219, 233 and section 71 of the Indian Companies Act, 1956, and had explained several remedies available to the appellants. Sections 397 and 398 and also sections 233A to 234 of the Companies Act, 1956, provide certain remedies. It is needless to point out that the common law remedy by way of a suit always is available in a case of this nature. Further, a company registered under the Companies Act is a legal person separate and distinct from its individual members. An incorporated company has separate existence and law recognises it as a juristic person separate and distinct from its members. Salomon v. Salomon and Co. [1897] AC 22 and Heavy Engineering Mazdoor Union v. State of Bihar [1970] 1 SCJ 35. The co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the company. In N.M. Shah v. Atul Drug House [1970] 2 Comp LJ 274 , it was observed that it would be the bounden duty of the petitioner to disclose material facts as to the alternative remedies, which they have availed of or which are available to them. In Senthil Kumar v. Sudha Mills (India) P. Ltd. [2001] 103 Comp. Cas. 1029 (Mad), it was held that under section 443(2) of the Companies Act, the court shall decline to wind up the company on just and equitable grounds, if the court is of the opinion that some other remedy is available to the petitioner and they are acting unreasonably in seeking to have company wound up instead of pursuing other remedy. In this context, the decision in Raghunath Swarup Mathur v. Har Swarup Mathur [1970] 40 Comp. Cas. 282 (All) also laid down the same proposition. In Daulat Makanmal Luthria v. Solitaire Hotels (P.) Ltd. [1993] 76 Comp. Cas. 215 (Bom), it was held that the vague allegations of mismanagement were of no consequence and the winding up has to be resorted to only where other means had failed. In Prem Seth v. National Industrial Corporation Ltd. [2001] 103 Comp. Cas. 1011 (Delhi), it was held that even where the averm ..... X X X X Extracts X X X X X X X X Extracts X X X X
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