TMI Blog2004 (9) TMI 388X X X X Extracts X X X X X X X X Extracts X X X X ..... t-company is in insolvent circumstances and cannot pay it debts as and when they become due and payable. The respondent-company does not have any free assets worth the name which can be disposed off for the purpose of carrying on its business. 3. Mr. Ashwin L. Shah, learned advocate appearing for the petitioners has submitted that the respondent-company was originally before the B.I.F.R. and the scheme was framed and as per the said Scheme, the respondent- company was permitted to sell some of its fixed assets to enable it to generate revenue so that it was able to start its business of textile processing. A part of the sale proceeds was required to be deposited by the Company with the State Bank of India in respect of the guarantee given by the Company to the said Bank for the advances made by it to Shree Bansidhar Spg. and Weaving Mills Private Limited, a sister concern of the Company. However, the company has committed default in complying with the order of B.I.F.R. by not depositing Rs. 53.52 Lakhs being the required amount with the said Bank. The Company had given the said guarantee to the said Bank in the year 1982 for the sum of Rs. 4 Crores and the said sister-concern h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rporation to start the said process. Mr. Shah has further submitted that because of the excise problem and prevailing competition in the market, the processing business of the company was not viable and has stated that the company has started simply the business of warehousing on trial basis. The company has only one property being the land and the factory building and the machinery thereon at Dariapur, Ahmedabad. The said property was also mortgaged with State Bank of India against the guarantee given by the company. Except this, there is no other property of the company. Thus, the company has no property worth the name and it cannot raise any finance on the basis of such property. The respondent-company is being totally mismanaged under the management of the Ramanlal Group. The company is not only mismanaged by the said group but the said group has also mis- appropriated large amounts from the company thus bringing the company to the present insolvent condition. The company has reached a point of no return and such a company should not be allowed to continue to exist and it is just and equitable and in the interest of all concerned that it is wound up under the provisions of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usted from the management of the company by the Ramanlal Group. The conduct of the present management of the company was lacking in probity. The petitioners have lost trust and confidence in the present management of the company by the Ramanlal Group which has already proved to be highly detrimental to the interest of the company and its Creditors, Bankers and Financial Institutions in general and the petitioners in specific. Mr. Shah has, therefore, submitted that when the partners in a partnership loose confidence and there is lack of probity, the partnership should be ordered to be dissolved. This principle should be applied to the company in the present circumstances and the company should be closed down by winding it up on the ground that it is just and equitable to do so. 7. Mr. Shah, in support of his submissions, has relied on the decision of the Karnataka High Court in the case of N. Sundaraswamy v. Bangalore Turf Club Ltd. [2001] 103 Comp. Cas. 73 1 which arose in the context of Court s jurisdiction to entertain the petition filed under section 433( f ) of the Companies Act, 1956. The Court observed that all institutions, irrespective of the character, are requir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny was liable to be wound up. 9. Mr. Shah, while meeting with the possible argument canvassed on behalf of the respondent-company to the effect that the petitioners have got an alternative remedy and hence, the present petition is not maintainable, has relied on the decision of the Bombay High Court in the case of Jivabhai Marghabhai Patel v. Extrusion Processes P. Ltd. 1966 (II) CLJ 74 wherein it is held that it may be taken as settled that clause ( f ) of section 433 is not construed ejusdem generis with the other clauses ( a ) to ( e ). There must be a justifiable lack of confidence in the conduct and management of the company s affairs; such lack of confidence, if rested on a lack of probity on the part of the directors in the conduct of the company s affairs it would be just and equitable to order the winding up; there need be no deadlock. The Court has further observed that it is true that the Court hearing the application under clause ( f ) of section 433 may under section 443(2) refuse to make the order for winding up if it is of opinion that an alternative remedy is available. It is then for the Court to consider whether such remedy would be effective and not mer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olicy of the company. On the other hand, wherever the lack of confidence is rested on a lack of probity in the conduct of the company s affairs, then the former is justified by the latter, and under the statute it would be just and equitable that the company be wound up. The Court has further observed that in an application of this type, allegations in the petition are of primary importance. 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 dismissed. The interest of the applicant alone is not of predominant consideration. The interests of the shareholders of the company as a whole apart from those of other interests have to be kept in mind at the time of consideration as to whether the application should be admitted on the allegations mentioned in the petition. The Court has also considered that it could not be argued for the company that it was not necessary to advertise the petition for winding up as the alternative reliefs claimed in the petition could be gra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... han at a loss. The existing and possible liquid assets of the company were insufficient to meet even the current and immediate liabilities which must be met in the ordinary course of its business. Even the liability for the salary of its employees could hardly be met in the months of March and April, 1977, and capital assets and goods had to be sold for meeting the liabilities on the salaries account alone. The Managing Director resigned in February, 1977, and the two other directors resigned in April, 1977. No appointments have been made in their place and the company has been left rudderless. On these facts, the Court has taken the view that both the interests of the shareholders as well as its creditors would be better served by winding up the company, and its assets, if prudently realised, might be able to meet its liabilities. 13. Mr. Shah has further relied on the decision of the Andhra Pradesh High Court in the case of A. Ramchandran v. Narasaraopet Electric Corpn. Ltd. 42 Comp. Cas. 182 wherein it is held that the main object of the company was to supply electrical energy in and around Narasaraopet and that the other objects were only theoretical and had no real sig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dy under the provisions contained in sections 397 and 398 of the Companies Act, 1956. The petitioners have raised the contention that there is mismanagement of the affairs of the company and hence, it is just and equitable ground to wind up the company. He has submitted that there is no mismanagement of the affairs of the company as alleged by the petitioner. This issue can be raised by filing the petition under sections 397 and 398 of the Companies Act, 1956. The Company Law Board has been given the jurisdiction and powers to make such orders as it thinks fit as and when an application is made before it under section 398 of the Act. The present petition was filed by the petitioners with mala fide intention even when the company is carrying on its activities and earning profits and is also commercially solvent. The attempt on part of the petitioners to get the company wound up is itself an indication that the petitioners have come with mala fide intention and not with clean hands. 17. Mr. Thakkar has further submitted that the petitioner No. 1 was Director of the respondent-company from 16-7-1975 to 24-1-1986. From 16-7-1977 to 1978, the petitioner No. 1 was the Chairman of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the petitioners against the respondent-company to the effect that the substratum of the respondent-company is totally lost or that its losses for outweigh its capital or that the respondent-company is not carrying on any business for which it was formed and registered and that no prospects of its carrying on any business in near future or distant future, are absolutely false and baseless. The warehousing business is a profitable business and the company plans to carry on the business of warehousing in the part of the premises even after starting the textile business. The respondent-company is in solvent circumstances and has been paying its debts as and when they become due and payable. Except the petitioners, none of the other creditors of the company have raised any demand or given any notice for repayment of its debts. The petition filed by the petitioners is, therefore, required to be rejected. 18. Mr. Thakkar has further submitted that before making allegations against the respondent-company, the petitioners should have looked at their own conduct. The petitioners have filed Company Petition Nos. 200 201 of 2001 before this Court under section 433( e ) of the Companie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Ltd. 1999 (2) CLJ 267 wherein it is held that section 443(2) of the Companies Act, 1956, mandates the Court that if there is other remedy available and if the petitioners are acting unreasonably in seeking to have a company wound up, instead of pursuing that other remedy, the Court may refuse to make that order. Here the word may will have to be read as shall . Thus, where these two conditions are satisfied, the Court is not expected to make an order of winding up on the ground that it is just and equitable. The so-called grievance of the petitioners is that they are removed from the management, but it is settled law that the general interests of the shareholders should not be readily sacrificed at the altar of squabbles of directors for power to manage the company. The powers under section 402 are wide enough and, on an appropriate application being made and a case being made out, powers under that section may be exercised. 21. Mr. Thakkar has relied on the decision of this Court in the case of Kiritbhai R. Patel v. Lavina Construction Finance Ltd. 40 (2) Comp. Cas. 1056 wherein it is held that in order to obtain an order for winding up of the Company, the contribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... up, the Court may refuse to make an order of winding up, if it is of the opinion that some other remedy is available to the petitioners and that they are acting unreasonably in seeking to have the company wound up instead of pursuing with other remedy. The petitioner has to satisfy the Court that it is just and equitable to wind up the Company and that there is no alternative remedy available to the petitioner. Looking to the grounds raised by the petitioner for winding up of the respondent-company, the first and foremost ground raised was that the affairs of the Company were mismanaged and the persons who are in charge of the affairs of the Company have misappropriated the funds of the Company. This grievance can be ventilated by the petitioner by filing petition under section 235 or 237 of the Act for investigation of the affairs of the Company. The petitioners can also approach to the Company Law Board under sections 397 and 398 of the Act on the ground that the affairs of the Company are being conducted in a manner prejudicial to the public interest or in a manner oppressive to any member or members or in a manner prejudicial to the interest of the Company. Instead of resortin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act. Moreover, the petitioners cannot invoke the jurisdiction of this Court by separately presenting the petition under section 433( f ) of the Act on the ground that it is just and equitable to wind up the Company especially when petitioners presented winding up petitions under section 433( e ) of the Act and were contended with the outcome thereof. On the contrary, it is not just and equitable on the part of the petitioners to bring such petitions before this Court and pressed it, once their dues having been satisfied by the respondent-company. 26 In view of the above two distinguishable features which are found by the Court in the present petition, the Court is not inclined to accept the submissions made by Mr. Shah on behalf of the petitioners that the substratum of the respondent-company is totally lost and that its losses far outweighed its capital or that the respondent-company is not carrying on any business for which it was formed and registered and that no prospects of its carrying on any business in near future or distant future are found. The authorities cited by Mr. Shah are also of not much assistance to the petitioners in view of the peculiar facts of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
