TMI Blog2006 (2) TMI 294X X X X Extracts X X X X X X X X Extracts X X X X ..... order dispose of them. 2. The petitioner set up the case in the petition for winding up thus : ( i )The petitioner is a corporation organised and existing under the laws of the State of Pennsylvania, USA, having its office and place of business at 3,000 Advance Lane, Colmar, Pennsylvania 18915, USA. ( ii )The petitioner was formerly known as Capital Controls Company Inc. ( iii )In or about the year 1990, the petitioners group acquired Capital Controls Company Inc. and subsequently the name of Capital Controls Company Inc. was changed to Severn Trent Water Purification Inc. with effect from 1-4-2002. ( iv )On 31-3-2003, Capital Controls (Delaware) Company Inc. merged with and into the petitioner and pursuant to the merger Capital Controls (Delaware) Company Inc. went out of existence. ( v )That the reference to the petitioner includes reference to Capital Controls Company Inc. as well as Capital Controls (Delaware) Company Inc. and, therefore, the petitioner in its present name is entitled to the rights and benefits of Capital Controls (Delaware) Company Inc. and Capital Controls Company Inc. and to file and maintain the company petition. ( vi )Chloro Controls (Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the maintainability of the petition for winding up on the ground that the petitioner was not a shareholder on the company s register and, therefore, has no standing to maintain the petition for winding up. The company stated that Capital Control (Delaware) Corporation is the registered holder of 50 per cent of the equity share capital of the company. It is stated that the merger of Capital Controls (Delaware) Company Inc. into and with the petitioner was not intimated to the company prior to the filing of Arbitration Petition No. 121 of 2004 by the petitioner under section 9 of the Arbitration and Conciliation Act, 1996. That at no point of time until the date any application for mutation of share certificates and/or substitution of the name of the petitioner had been made. The objection was also set up that the assignment of shares by Capital Controls (Delaware) Company Inc. to the petitioner without the consent of Chloro Controls (India) Pvt. Ltd. or for that matter of M.B. Kocha was contrary to the shareholders agreement and could not be given effect to. 4. The petitioner filed its rejoinder on 4-12-2004, and explained its position regarding the merger. The petitioner a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er is not a registered shareholder of the company. ( b )The petition is an abuse of process as before the petition came to be admitted by the court, the petitioner issued a premature advertisement on 18-12-2004. ( c )In the light of the order passed by the learned single Judge on 23-12-2004, in the suit filed by the appellant and the order of the Appeal Bench on 15-2-2005, the issue of deadlock and the alleged breaches on the basis of which the company petition is filed being squarely an issue in the previously instituted suit by the appellant, the order of admission of the company petition ought not to have been passed. ( d )The appropriate remedy for the redressal of the grievance raised in the petition lies under sections 397 and 398 of the Companies Act and since the alternate remedy is available to the petitioner, the petition for winding up was liable to be dismissed. ( e )If at all there is any deadlock in the company, it is caused by the petitioner and the petitioner cannot be permitted to seek advantage of its own wrong. ( f )The power of attorney dated 15-3-2004 does not grant any specific power to institute a winding up petition and, therefore, the winding up p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e petitioner has stepped into the shoes of Capital Controls (Delaware) Inc. Learned senior counsel submit- ted that the petitioner is the holder of shares which are fully paid-up and as a holder of shares, even if the petitioner is not a member, it has locus standi to maintain the petition for winding up. Mr. Shyam Divan would submit that in order to be considered a contributory, it is not necessary that the petitioner s name should appear on the register of members of the company. He also contended that the petitioner s entitlement to shares does not arise from a transfer in terms of section 108 of the Companies Act, 1956. In contradistinction to a "transfer" in the present case, the situation is akin to the legal representative of the dead natural person being recognised by the company and since Capital Controls (Delaware) Inc. has ceased to exist as an entity and the petitioner is the successor entity, it is entitled to maintain the company petition for winding up. Mr. Divan submitted that the corporate veil can always be lifted by the court in appropriate situations and in this case it was clear that Capital Controls (Delaware) Company Inc. was exactly the same as the petitio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ide Agencies (P.) Ltd. v. Mrs. Margaret T. Desor [1990] 67 Comp. Cas. 607 (SC); ( iv ) Bayswater Trading Co. Ltd., In re [1970] 40 Comp. Cas. 1196 (Ch.D.); ( v ) Indian Chemical Products Ltd. v. State of Orissa [1966] 36 Comp. Cas. 592 (SC); ( vi ) Syndicate Bank v. Printersall (P.) Ltd. [1991] 71 Comp. Cas. 215 (Kar.); ( vii ) Rajdhani Grains Jaggery Exchange Ltd. v. Punjab Exchange Ltd. [1982] Comp. LJ 174 (Delhi); (viii) State of U.P. v. Renusagar Power Co. [1991] 70 Comp. Cas. 127 (SC); and ( ix )Patent Steam Engine Co., In re [1878] 8 Ch.D. 464. 14. Mr. Pratik Sakseria, learned counsel for the company adopted the submissions of Mr. S. H. Doctor and Mr. D. D. Madon, learned senior counsel who argued for Chloro Controls (India) Pvt. Ltd. in Appeal No. 449 of 2005. 15. We reflected over the submissions of learned senior counsel and counsel appearing for the parties. 16. That the admission of petition for winding up the company has an immediate and potentially damaging effect needs no elaboration. Such order of admission is seriously prejudicial to the company affecting it to a great extent. In this view of the matter, the standin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2A, the Praecipe dated 5-3-2004, and the order dated 26-2-2004. 21. For the present we assume that Capital Controls (Delaware) Company Inc. has merged with Severn Trent Water Purification Inc. To answer the question whether the petitioner has the standing to maintain the petition for winding up order, we shall briefly survey the relevant statutory provisions of the Companies Act, 1956. 22. Section 439 provides for the qualification in respect of the person who can present the petition for winding up. It reads thus : "439. Provisions as to applications for winding up. (1) An application to the court for the winding up of a company shall be by petition presented, subject to the provisions of this section, ( a )by the company; or ( b )by any creditor or creditors, including any contingent or prospective creditor or creditors ; or ( c )by any contributory or contributories ; or ( d )by all or any of the parties specified in clauses ( a ), ( b ) and ( c ) whether together or separately; or ( e )by the Registrar ; or ( f )in a case falling under section 243, by any person authorised by the Central Government in that behalf; ****** (2) A secured creditor, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ( b )before the expiration of fourteen days after the last day on which the statutory meeting referred to in clause ( b ) aforesaid ought to have been held. (8) Before a petition for winding up a company presented by a contingent or prospective creditor is admitted, the leave of the Court shall be obtained for the admission of the petition and such leave shall not be granted ( a )unless, in the opinion of the court, there is a prima facie case for winding up the company; and ( b )until such security for costs has been given as the court thinks reasonable." 23. Unless the petitioner falls in any of the categories enumerated in clauses ( a ) to ( f ) of section 439(1), the petition for winding up shall not be maintainable. Before the learned company Judge in response to the objection raised by the present appellants that the petition for winding up was not maintainable, on behalf of the petitioner, it was argued that the petitioner is the contributory and/or shareholder of the company and covered under section 439(1)( c ) and therefore, the company petition is maintainable. Alternatively, it was argued that the original shareholder, viz., Capital Controls (Delaware) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... right to any shares in, or debentures of, the company has been transmitted by operation of law." 27. Section 109 deals with the transfer of shares by the legal representative of the deceased member of the company. Section 109A is in respect of the nomination of shares and section 109B provides for transmission of shares. 28. Section 110 provides for an application of registration for transfer of shares or other interest of a member in a company and that may be made either by the transferor or by the transferee. Section 110 reads thus : "110. Application for transfer. (1) An application for the registration of a transfer of the shares or other interest of a member in a company may be made either by the transferor or by the transferee. (2) Where the application is made by the transferor and relates to partly paid shares, the transfer shall not be registered, unless the company gives notice of the application to the transferee and the transferee makes no objection to the transfer within two weeks from the receipt of the notice. (3) For the purposes of sub-section (2), notice to the transferee shall be deemed to have been duly given if it is despatched by prepaid regist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etitioner admittedly is not the holder of shares having those shares registered in its name on the register of the company. 36. The learned company Judge applied the expression, "or have devolved on him through the death of former holder" on the analogy that upon merger/amalgamation, Capital Controls (Delaware) Company Inc. has met its death and the shares held by the said company are devolved on the petitioner by operation of law. 37. We are afraid, the analogy drawn by the learned company Judge is wholly fallacious. The category, "or have devolved on him through the death of former holder" is applicable only to personal representative of a person holding shares in the company in his individual capacity. The said expression applies to devolution of rights on the death of a natural person and has no application to a corporate entity or a juristic person. The submission of Mr. Shyam Divan that these words could also be applied to the company which has ceased to exist like the courts have held that the corporate entity was liable to the contempt jurisdiction of the court does not appeal us. If we accept the reasoning of the learned company Judge and the submission of learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hares had been held and registered in the company s name for at least six months during the eighteen months before the commencement of the winding up and since the shares held by the petitioner were not registered for the period required in law, the petitioner had no locus standi to present the petition. Russell, L. J. who delivered the judgment in Gattopardo Ltd., In re [1969] 2 All ER 344 held thus (page 346) : "In this case, however, whatever the true facts may be about the relationship between Mr. Avanzo and Mr. Fialko, the fact remains that the only order in existence relating to these shares or any of them was the consent order to which Mr. Avanzo alone was a party, and not the company and not even Mr. Fialko, and in those circumstances, even if I may assume that the decision of Sir James Bacon, V.C., Patent Steam Engine [1878] 8 Ch.D 464, was a correct decision and I reserve my own judgment on that point without intending to indicate either that it was correct or incorrect there seems to me to be a world of difference between that case and the present case in which it could not be said that the company was bound at any stage before 9-10-1968, let alone at a stage six ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld not set up that defence. I echo those words. I think that the judgment below was perfectly correct, and, as I say, I reserve for a further occasion consideration whether the exception in the Patent Steam Engine case [1878] 8 Ch. D. 464 is one which is to be supported." 41. Learned senior counsel for the petitioner, however, relied upon the judgment of Chancery Division in Patent Steam Engine Co., In re [1878] 8 Ch. D 464 in support of his contention that the petition for winding up may be presented by a person who is holder of shares in the company although his name is not on the register at the time of presentation of the petition. In that case by an order of the court, the company was ordered amongst other things to allot to the petitioners certain amount of preference shares in the company in certain specified proportions and to register them as holders of the said respective shares and to issue to them proper certificates for the same. The objection was raised that the court has no jurisdiction to make a winding up order on the petition of persons who are not in fact the registered shareholders though they may be entitled to become shareholders and to be register ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as to be mandatorily satisfied and, therefore, we find no justification to extend the view taken in Patent Steam Engine Co., In re [1878] 8 Ch. D 464. We agree with the view of Russel J., in Gattopardo Ltd., In re [1969] 2 All ER 344 to disagree with the view in Patent Steam Engine Co., In re [1878] 8 Ch. D 464. 43. Learned senior counsel for the petitioner would submit that in order to consider as a contributory, it is not necessary for the petitioner s name to appear on the register of members. He relied upon the judgment in the case of Shakuntala Rajpal v. Mckenzie Philip (India) (P.) Ltd. [1988] 64 Comp. Cas. 585 (Delhi) and the judgment of Chancery Division in Bayswater Trading Co. Ltd., In re [1970] 40 Comp. Cas. 1196 Ch.D. Both these cases upon which reliance is placed by learned senior counsel hold that personal representative of a shareholder is entitled to present a petition for winding up of the company although he is not on the register of shareholders and the word "contributory" must be construed accordingly. This argument would have merit if the petitioner was covered by the last category of clause ( b ) of sub-section (4) of section 439, i.e., "have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amalgamation. When two companies are merged and are so joined as to form a third company or one is absorbed into the other or blended with another, the amalgamating company loses its entity." (p. 282) 46. Then of the report, the Apex Court observed thus : ". . .This court, in appeal, held that under the order of amalgamation made on the basis of the High Court s order, the transferor-company ceased to be in existence in the eye of law and it effaced itself for all practical purposes. This decision lays down that after the amalgamation of the two companies the transferor-company ceased to have any identity and the amalgamated company acquired a new status and it was not possible to treat the two companies as partners or jointly liable in respect of their liabilities and assets. In the instant case the Tribunal rightly held that the appellant-company was a separate entity and a different assessee, and therefore, the allowance made to Indian Sugar Company which was a different assessee, could not be held to be the income of the amalgamated company for purposes of section 41(1) of the Act. The High Court was in error in holding that even after amalgamation of two companies, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er [1986] 60 Comp. Cas. 1013, the Apex Court has treated a merger as involving a transfer/assignment of assets. Even section 394 of the Companies Act that provides for facilitating the reconstruction and merger of companies uses the expressions, "transferor-company" and "transferee-company". Obviously, therefore, the Indian law contemplates a merger or amalgamation as a process of involving a transfer/assignment of assets and liabilities. The relevant American law is not pleaded. Insofar as the transmission of shares by operation of law is concerned, again the relevant American law has not been pleaded. In any case, insofar as the standing to file the petition for winding up order by a contributory is concerned, the petitioner has to meet the eligibility provided by section 439(4)( b ) which, in our opinion, the petitioner has miserably failed to meet. 50. Learned senior counsel for the petitioner also sought to contend that the Capital Controls (Delaware) Company Inc. is a 100 per cent subsidiary of the petitioner and the Capital Controls (Delaware) Company Inc. was exactly the same as the petitioner inasmuch as it was represented by the Severn Trent group and to that extent, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ster has the right to vote. It has also been held that ownership of a share denotes the relation between a person and any right that is vested in him. As held by the Supreme Court in the case of Narandas Karsondas v. S. A. Kamtam AIR 1977 SC 774 in India, there is no distinction between legal and equitable estates. The law of India knows nothing of that distinction between legal and equitable property in the sense in which it was understood when equity was administered by the Court of Chancery in England. Relying upon Chhatra Kumari Devi v. Mohan Bikram Shah AIR 1931 PC 196, it has been held that under the Indian Laws, there can be but one owner that is, legal owner. In Killick Nixon Ltd. v. Bank of India [1985] 57 Comp. Cas. 831, a Division Bench of this court has held that under section 41(2) of the said Act, a person whose name is entered in the register of members shall be a member of the company. The contentions of the plaintiffs that the court can take cognisance of a trust as per Dharwar Bank Ltd. v. Mahomed Hayat [1931] 1 Comp. Cas. 199 (Bom.); 33 Bom. LR 250, is contrary to section 153 of the said Act which has an overriding effect because of section 9 of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld by us, the petition for winding up order as a contributory under section 433( f ) read with section 439(4)( b ) of the Companies Act, 1956, is not maintainable. Until the petition is legally maintainable, the issue of deadlock in the company pales into insignificance. 55. We, accordingly, dispose of these appeals by the following order : ( i )The impugned order dated 21-4-2005, is set aside. ( ii )We hold that the petitioner does not have standing to maintain the petition for winding up order as a "contributory" unless it is registered on the register of the company of members. ( iii )That as to whether the petition for winding up the company on the just and equitable ground can be maintained by the petitioner as creditor shall be considered by the learned company Judge and to that extent the company petition is remitted back. This aspect shall be considered by the learned company Judge after hearing the parties before admitting the company petition. ( iv )It will be open to the appellants to oppose the admission of company petition on all available grounds including the ground of premature advertisement. 56. No costs. 57. Oral prayer for stay of this order i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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