TMI Blog2009 (12) TMI 516X X X X Extracts X X X X X X X X Extracts X X X X ..... Maharashtra Times, besides the Maharashtra Government Gazette. The petitioner shall deposit ₹ 10,000 with the Prothonotary and Senior Master towards the publication charges, within a period of three weeks with intimation to the Company Registrar failing which the Petitions shall stand dismissed for non-prosecution. - CO. PETITION NOS. 723 AND 724 OF 2008 - - - Dated:- 17-12-2009 - DR. D.Y. CHANDRACHUD, J. Janak Dwarkadas, Sharan Jagtiani, Girish Dave and Ankit Rajput for the Petitioner. Snehal Shah and Ms. Divya Gurbuxani for the Respondent. JUDGMENT 1. The petitioner is a Company incorporated in the U.K. and is stated to be a group company of Dallah Albaraka Investment Company Limited (DAICO). The First Respondents ("POLARIS and FALCON") in both the Company Petitions are Joint Venture Companies. 2. Captain Mehernoosh Khajotia owned a Shipping Company by the name of Constellation Shipping (Bahamas) Ltd. Sometime prior to 2000, the Company was financed by DAICO for acquiring five marine shipping vessels. According to the petitioner, the loans of three vessels were repaid. The outstanding debt of Constellation was US $ 2.5 million. In 2000, M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ause 2 of the Addendum provided that parties were desirous of acquiring a further vessel to be included in the fleet of Falcon and that the Petitioner would provide a second tranche of US $ 1 million of equity to Falcon for the acquisition of the second vessel. Parties agreed in clause 4 of the Addendum that the 50 : 50 shareholding pattern would continue. On 18-10-2001, in pursuance of the Addendum, the Petitioner invested an amount of pound sterlings 691,563 equivalent to US $ 1 million. This amount was reflected in the accounts of Polaris. According to the Petitioner, as subsequently agreed, the second vessel was to be purchased by Polaris and the equity investment was to be treated as an equity investment in Polaris entitling the Petitioner to fifty per cent of the share capital of Polaris. 5. On 11-12-2003, a meeting took place of the Board of Directors of Polaris. The Minutes of the Meeting record the presence of Mehernoosh Khajotia and the Second Respondent. The Second Respondent, it may be noted, was also a Director of Polaris and was a member of Mehernoosh Khajotia s family. At the meeting of the Board of Directors, a draft of a proposed Joint Venture Agreement with th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent made by the Petitioner and of all sums owing to the Petitioner after the dues of the Banks were paid. Clause 11.6 provided that parties shall act in good faith. The JVA was executed by all members of the Khajotia Family. 7. On 28-8-2003, an e-mail was addressed by the Second Respondent to a representative of the Petitioner by which there was an admission of the equity investment made by the Petitioner in and the loan payable by Falcon. The e-mail discussed possible options for repayment of the loan and equity and recognized that one of the options for repayment would be voluntary winding up of the Company. The letter, inter alia, contained the following reference to the desire of the Petitioner to exit from the Company : "I am aware from our discussions that your priority is to (A) maximize value received by DAICO, and (B) close the operations here. I think we need to discuss the above options carefully. Bear in mind that once insurance amounts are received, I can register the companies to a P.O. box address, maintain the services of just a company auditor and one book keeper, and drive the expense to a nominal amount until liquidation. I will of course keep vigil on ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and registered in his name, for at least six months during the eighteen months immediately before the commencement of winding up; or ( iii ) have devolved on him through the death of a former holder. 10. Now in the present case, the petitioner is not registered as the owner of the shares of Polaris. The submission of the petitioner, however, is that a contributory need not be a person whose name is on the register of members in the first category defined by clause ( b ) of sub-section (4) of section 439. The petitioner made an offer to subscribe to 50 per cent of the share capital of Polaris. The Board by its resolution dated 11-12-2003 took the view that instead of issuing unallotted shares, the existing 50 per cent share capital held by the Third respondent should be allotted to the petitioner for consideration. The submission is that the petitioner has an undisputed entitlement to 50 per cent of the share capital of Polaris and consequently, must be regarded as a contributory for the purposes of clause ( b ) of sub-section (4) of section 439. 11. The first part of section 439(4)( b ) requires that the shares should have been "originally allotted" to the contributory who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res on the death of another. In several reported cases, an allottee of shares has been held liable to contribute to the assets of a company upon winding up though his name was absent from the register of shareholders. Consequently, where a person is an original allottee of shares from a company, he would be entitled to present a petition for winding up although his membership is not recorded in the register of members. Where a person is not the original allottee, entry on the register is a sine qua non. 13. In India, section 428 of the Companies Act, 1956, defines the term contributory to mean every person liable to contribute to the assets of a company in the event of its being wound up, and to include the holder of any shares which are fully paid-up. clause ( b ) of sub-section (4) of section 439, as noted earlier, contemplates three situations which would entitle a contributory to present a petition for winding up. Firstly, the shares must have been originally allotted to the person who is a contributory; or secondly, the shares must be held by him and registered in his name for at least six months during the eighteen months immediately before the commencement of winding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uing the provisions of section 439(4), cited the principle of law laid down in the judgment of Justice Brightmann in Florence Land Public Works Co., In re ( supra ) and held that the provisions of the Act must be complied with before presenting a winding up petition under section 439(4)( b ) of the Act. The Supreme Court held that Severn Trent could not be treated or regarded as a contributory since the provisions of section 439(4)( b ) were not complied with. The name of Severn Trent had not been registered in the register of the company and, hence, it could not present a petition for winding up in its capacity of a contributory. The Court held that section 439(4) was a self-contained code as regards the presentation of a petition by a contributory and a person claiming to be a contributory and presenting a petition for winding up in that capacity, must fulfil the conditions laid down in the section. An omission, default or illegality on the part of the company in not registering the name of a contributory, would entitle a person aggrieved to avail of the remedy provided by the law, for effecting registration but, unless the name of a contributory is borne on the register, his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t a contributory of Polaris, who is entitled to present a petition for winding up since the requirement under section 439(4)( b ) has not been fulfilled. There is, however, no dispute about the position that insofar as the second Petition against Falcon is concerned, (Company Petition 724 of 2008), the petitioner is a contributory, who is entitled to maintain the petition for winding up. 19. Counsel appearing on behalf of the petitioner, however, submitted that in the Petition against Polaris as well, the winding up of the Company has been sought on the grounds set out in clauses ( c ), ( e ) and ( f ) of section 433. The submission is that the petitioner brought in money for investment in the vessels and the petitioner is entitled to return of the capital contribution from the Company. It is urged that there is an admission, on the part of the Company, of the liability to repay the debt and there is an admission of the liability to repay the loan to DAICO. Both the vessels came to be sold in both the Companies, which have not done business for a period of one year. This was, it was urged, a single venture and the purpose for which the Company, has been incorporated, has come ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly, towards the discharge of investment; thirdly, towards the discharge of all sums paid by the petitioner, which remained outstanding under the Shareholders Agreement; fourthly, towards the repayment of all sums due from Khajotia to the petitioner or to DAICO; and fifthly, the residue would be distributed equally. 22. The Shareholders Agreement in respect of Falcon between the petitioner and Polaris, which was entered into on 14-11-2000, provides that the initial venture of the Company shall be the purchase of a multi-purpose Indian Vessel. The petitioner was to contribute an equity of 30 per cent towards the purchase of the vessel and parties were to have a share in the profits proportionate to their shareholding. Upon the sale of the vessel, clause 8.1 stipulated that the amount realized would be disbursed firstly, in the payment of dues of the Banks/Financial Institutions; secondly, in the payment to the petitioner of an amount up to US $ 1 million; and thirdly, the residue would be divided between the parties proportionate to their shareholding. By an Addendum dated 6-8-2001, parties noted that they desired to acquire another vessel and that the petitioner would provide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be discussed. Once Insurance payment was received, the operation of the Company would be scaled down. The e-mail notes that there were "Zero income into the Company" and that the insurance matters would need to be resolved first. On 16-11-2006, the Second respondent offered to remit an amount of Rs. 2 crores by the end of the month and proposed to assign the insurance claim to the petitioner. All these assurances which were held out to the petitioner have been in vain. The admitted position is that the two vessels were sold. One of the vessels was sold on 20-6-2005 for an amount of US $ 4.7 million, while the second vessel was sold for an amount of US $ 5.01 million on 21-1-2006. No payment has been made to the petitioner. 25. The Joint Venture and Shareholders Agreements were a methodology adopted to bring about a desired result, namely, the repayment of the original debt and the investment made. The sum of US $ 1 million was to be treated as a debt and was to be repaid on the sale of the vessel. The Company was a party to the agreement and undertook to repay the amount on the sale of the vessel. The material on the record indicates, prima facie , that ( i ) The petitioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dgment of the House of Lords in Ebrahimi v. Westbourne Galleries Ltd. [1973] AC 360. The House of Lords held that the "words just and equitable constituted recognition of the fact that a Limited Company is more than a mere legal entity and that there is room in Company Law for recognition of the fact that behind it, or amongst it, there are individuals with rights, expectations and obligations inter se which are not necessarily submerged in the Company structure". The House of Lords noted that the just and equitable provision enables the Court to subject the exercise of legal rights to equitable considerations, considerations of a personal character arising between one individual and another. Such considerations may, inter alia, include a situation where an association is formed or continued on the basis of a personal relationship, involving mutual confidence, in Hind Overseas, the Supreme Court held that the principle underlying the just and equitable clause "baffles a precise definition" and must rest with the judicial discretion of the Court depending upon the facts and circumstances of each case. These are, noted the Supreme Court "necessarily equitable considerations ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tice was not effected at the Registered Office of the Company. The requirement of serving a statutory notice under section 434(1)( a ) arises when the deeming fiction that is created by the provision is sought to be pressed in aid. The deeming fiction under section 434(1)( a ) is, however, not exhaustive of the power of the Company Court if a Company is unable to pay its debts within the meaning of clause ( e ) of section 433. The effect of section 434(1)( a ) is to create a deeming fiction that the Company is unable to pay its debts if a creditor has served upon the Company by registered post or otherwise a demand under his hand requiring the Company to pay the sum due and the Company has neglected to pay the sum or to secure or to compound it for a period of three weeks. In Tailors Industrial Flooring Ltd. v. M H Plant Hire (Manchester) Ltd. 1990 BCLC 216, the Court of Appeal in the U.K. held : "There is no requirement that a creditor must serve a statutory demand. The practice for a long time has been that the vast majority of creditors who seek to petition for the winding up of companies do not serve statutory demands. The practical reason for that is that if a statutory ..... X X X X Extracts X X X X X X X X Extracts X X X X
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