TMI Blog2012 (12) TMI 351X X X X Extracts X X X X X X X X Extracts X X X X ..... able; one group in fact wants to out-buy the other. Both of them want to steer the wheel of the company. The parties have also not explored the alternative remedy either under the domestic forum or under Sections 397 & 398 of the Act. As decided by Supreme Court in Hind Overseas (P). Ltd. Versus Raghunath Prasad Jhunjhunwalla [1975 (10) TMI 71 - SUPREME COURT OF INDIA] is that the company should not be wound up merely because of disputes which have arisen between the two groups of shareholders; if the same can be resolved by alternate modes and these alternate modes must be exhausted in the first instance; the winding up of a company is the extreme and last remedy and should be resorted to only as a final resort; this principle is fully applicable in the instant case. It is the interest of the company which is to be watched first; the personal prejudices and personal vendetta of one group qua the other cannot become the basis of a winding petition; pressure tactics cannot be applied - On all counts petition has no merit and is accordingly dismissed with costs of Rs. 25,000/- . - CO. PET. NO. 62 OF 2008, CO. APPL. NOS. 263-264, 405, 455, 662, 1176 & 1274 OF 2008, 968, 1089 - 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hotel property. It was agreed and understood between the petitioner no.2 and respondent no.3 that share of the Edenpark Hotels Pvt. Ltd. was to be transferred entirely to the respondent company. On 19.03.2002, parties entered into a shareholder agreement (SHA) pursuant to which the Articles of Association of the company (AOA) were amended on 20.03.2002. Preliminary Submission 3. At the outset before proceeding with the arguments a proposal for a settlement was mooted between the parties. On 02.5.2012, both the parties had agreed to make efforts to explore the possibility that if the plot owned by the company could be divided into two lots for use and occupation of the respective parties on fair and equitable terms. The parties had agreed to examine if the FSI/FAR could be equitably divided between the two groups; SKG group has submitted that the offer would be acceptable to it only if he gets the lot with the existing hotel. However, on the next date, a case of non-settlement was reported. The parties appear to be at a deadlock over this proposal. Learned counsel for the respondent insists that FSI/FAR is still available and the construction of another hotel is possible but th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oup and SKG Group. Reliance has been placed upon a judgment of Apex Court New Horizons Ltd. v. Union of India [1998] 15 SCL 148 as also a subsequent judgment Faqir Chand Gulati v. Uppal Agencies (P.) Ltd. [2008] 10 SCC 345 to support an argument that joint ventures are in general governed by the rules of partnership; the relationship of the parties to a joint venture and the nature of their association are so similar and closely akin to a partnership that their rights, duties and liabilities are generally tested by rules which are closely analogous to and substantially the same; if not exactly the same as those which govern partnerships. Attention has been drawn to the definition of a "joint venture" as defined in Corpus Juris Secundum as also the definition as contained in Black-s Law Dictionary (7th edition, P.843). Submission being that on all counts the parties are to be governed by the principles of a partnership. Learned senior counsel for the petitioner fairly points out that although Article 14.1 in the SHA (dated 19.3.2001) does state that this agreement would not be deemed to constitute a partnership yet the terms contained therein clearly evidence it to be in the nature ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espondent to the petitioner; argument for the dismissal of the company petition had been rejected; Court had noted in this judgment that irrespective of the powers available under Sections 397 and 398 of the Companies Act where a winding up petition has been filed, the Company Court has ample powers to examine whether winding up is the proper relief which can be given; the Court can also consider the question whether some relief short of winding up can meet the situation; powers of the Court in this regard are plenary and are expressed in wide terms in Section 443(1)(d); the relief has to be moulded as per the circumstances of each case. Reliance has been placed upon Hind Overseas (P.) Ltd. v. Raghunath Prasad Jhunjhunwallla [1976] 46 Comp. Cas. 91 (SC) to support a submission that when there is a complete dead lock in the administration of the company and there is a state of animosity which precludes all reasonable hope of reconciliation and friendly co-operation it is just and equitable that the company should be wound up. To support the same submission reliance has also been placed upon Shrimati Abnash Kaur v. Lord Krishna Sugar Mills Ltd. [1974] 44 Comp. Cas. 390 (Delhi); submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the SKG Group to the petitioner (DKG Group) wherein the SKG Group (respondent) had themselves suggested that dividing of the company and its properties is a better alternate as the functioning of the company is not working out. Attention has also been drawn to the correspondences dated 13.12.2005, 20.01.2006, addressed by the DKG Group to Sushil Gupta where again it has been reiterated that the offer made by Sushil Gupta to divide the properties and the business of the company has been accepted by the DKG Group. Attention has been drawn to the further correspondences exchanged between the parties i.e. letters dated 08.5.2006, 05.6.2006 and 09.6.2006 written by Sushil Gupta to D.K. Jain; submission being that all along efforts were being made between the parties to separate the properties and business of the company at it was no longer possible for the parties to run this joint venture. Attention has been drawn to the terms of the settlement drafted by the two mediators Mr. Jagdish Khanna and Mr. Ashok Kumar Mehra on 13.10.2007 wherein a first option had been given to the respondent to purchase the shares of the petitioner at Rs.190 crores for which advance payment of Rs.30 crores ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 28.8.2006 Mr. D.K. Jain has specifically stated that no business plan for the year 2006-07 has been received and as such no comments can be made. All these documents clearly show that there has been a falsification of the minutes of the Annual General Meeting (AGM) as also of the Board meetings; there has been a total non-compliance of the provisions of Section 224 of the Companies Act. The AGM scheduled for 29.11.2003, 30.9.2004, 29.9.2005, 29.9.2006 and 28.7.2007 were all adjourned; in terms of Article 31 of the AOA of the Company the Chairman alone had no authority to adjourn the meetings except with the consent of the members and no such consent was ever taken; meetings have been concluded without transacting any business. This amply evidences that the record of the company has been falsified by the SKG group to obtain an unfair and unlawful advantage and a gain for themselves. There has been no progress in the company. The joint venture initially established by the two groups of 65 rooms and 32 apartments has not been expanded as Board meetings have not taken place; this is primarily for the reason that the respondent has not allowed the petitioner to participate; all Bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the company and in such a case before the petition is admitted, the parties must be allowed to address arguments at the admission stage itself as valuable rights of the parties are involved. 7. In Hind Overseas (P.) Ltd.'s case (supra) this Court had approved this argument as propounded by the respondent. This was a petition under Section 433 (f) of the Companies Act. The Supreme Court had inter-alia noted as under:- "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". 8. A Bench of this Court in Naresh Kumar Aggarwal v. Davender Kumar Mittal [2001] 33 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 : 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. That structure is defined by the Companies Act, 1948, and by the articles of association by which shareholders agree to be bound. In most companies and in most contexts, this definition is sufficient and exhaustive, equally so whether the company is large or small. The 'just and equitable' provision does not, as the respondents suggest, entitle one party to disregard the obligation he assumes by entering a company, nor the court to dispense him from it. It does, as equity always does, enable the court to subject the exercise of legal rights to equitable considerations; considerations, that is, of a personal character arising between one individual and another, which may make it unjust, or inequitable, to insist on legal rights, or to exercise them in a particular way". Section 443 (2) of the Companies Act 13. Section 433 (f) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te that 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." 18. The word 'may' appearing in Section 443 (2) has been construed by the Gujarat High Court in Kapil N. Mehta v. Shree Laxmi Motors Ltd. [2001] 103 Comp. Cas. 498 to read as 'shall' making it mandatory for the Court not to pass an order for winding up if there is an alternate remedy available to the petitioner. Where the two conditions i.e. (i) there is an alternate remedy available to the petitioner and (ii) the petitioner is acting unreasonably are satisfied the Court shall not make an order of winding up on the ground that it is 'just and equitable'. The Apex Court in Hind Overseas (P.) Ltd. (supra) had further gone to note that if the parties could resolve their dispute within the domestic forum in terms of an alternate remedy which is available to them, a winding up petition should not be encouraged. The conscience of the Court must be shocked to such an extent that it draws a conclusion that there is no other remedy available to the petitioner except to ask for the win ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exercise his voting rights to remove any impasse arising under this agreement (SHA). In fact this clause specifically states that the voting right qua these trustee shares would be exercised by the trustee in his personal capacity to remove any impasse which has arisen under the SHA. The impasse contemplated by the company was with regard to Article 43-A of the SHA. In all other matters, the casting vote was with the Chairman i.e. with the Sushil Gupta. 23. The judgment of the English Court reported in Barron v. Potter [1914] Chancery Division 1 Cha. 895 which is good law till date reportedly states that if there is a deadlock at the Board level, the powers of the Board become exercisable by the members of the company at its general meeting. These impasses could thus be resolved even in the shareholder meetings. 24. In Barron's case (supra), the Chancery Division of the English Court had in this context inter-alia noted as under:- "If directors having certain powers are unable or unwell to exercise them are in fact a non-existent body for the purse-there must be some power in the company to do itself that which under other circumstances would be otherwise done. The directors ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... king and that, of course, includes the power to appoint directors to the board of directors and such delegation will be binding upon it but if there is no legally constituted board which could function or if there is a board but that is unable or unwilling to act then the authority delegated to the board lapses and the members can exercise the right inherent in them of appointing directors." 29. Further submission of the respondent that the deliberate and intentional attempt of the DKG group to fasten a criminal liability on the SKG group (for non-compliance of Section 215) for no fault of theirs is also a submission which carries force. 30. The correspondences exchanged between the parties also show that all efforts made by the respondent to get these shares allotted in favour of Laxmi Kumaran have been scuttled by the petitioner. The letters dated 15.02.2005, 01.07.2005 and 30.08.2006 exchanged between the DKG group and SKG group reflect the reluctance bordering on an almost refusal on the part of the DKJ group in not agreeing to allot these trustee shares to Laxmi Kumaran. The minutes of the Board meetings held on 25.09.2003, 23.09.2004, 11.01.2005 and 15.02.2005 in fact all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the domestic forum available to the parties to resolve any impasse including the impasse contemplated under Article 43A of the AOA. This was the first alternate and efficacious remedy available to the petitioner. The bar of Section 443 (2) of the Companies Act comes into operation. If an alternate remedy is available to a party, it would bar the present petition. 34. In this context, the following observations of the Apex Court in Hind Overseas are also relevant:- "It is not a proper principle to encourage hasty petitions of this nature without first attempting to sort out the dispute and controversy between the members in the domestic forum in conformity with the articles of association. There must be materials to show when 'just and equitable' clause is invoked, that it is just and equitable not only to the persons applying for winding up but also to the company 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." 35. In Smt. Abnash Kaur v. Lord Krishan Sugar Mills [1974] 44 Comp Cas 390 (Delh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... othing contained in or relating to this agreement shall constitute or be deemed to constitute a partnership." 39. In Kilpest (P.) Ltd. v. Shekhar Mehra [1996] 10 SCL 233, the Supreme Court after examining the principles laid down in the case of Ebrahimi (Supra) had distinguished its own case for the following reasons:- "The promoters of a company, whether or not they were thitherto partners, elect to avail of the advantages of forming a limited company. They voluntarily and knowingly bind themselves by the provisions of the Companies Act. The submission that a limited company should be treated as a quasi-partnership should, therefore, not be easily accepted. Having regard to the wide powers under Section 402, very rarely would it be necessary to wind up any company in a petition filed under Sections 397 and 398." 40. The features noted by the House of Lords in Ebrahimi had been noted and would be relevant in the context of the present case as well. They read as under:- (1) There was a prior partnership between the only two members who later on formed the company. (2) Both the shareholders were directors sharing the profits equally as remuneration and no dividends were d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upra) the Supreme Court while rejecting the partnership analogy had given a wider and more liberal interpretation to the 'just and equitable' clause:- "When more than one family or several friends and relations together form a company and there is no right as such agreed upon for active participation of members who are sought to be excluded from management, the principles of dissolution of partnership cannot be liberally invoked. Besides, it is only when shareholding is more or less equal and there is a case of complete deadlock in the company on account of lack of probity in the management of the company and there is no hope or possibility of smooth and efficient continuance of the company as a commercial concern, there may arise a case for winding-up on the just and equitable ground. In a given case the principles of dissolution of partnership may apply squarely if the apparent structure of the company is not the real structure and on piercing the veil it is found that in reality it is a partnership. On the allegations and submissions in the present case, we are not prepared to extend these principles to the present company." 44. The Supreme Court in that judgment while disti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontained in Sections 397 398 of the said Act, the need to extend the principles relating to the dissolution of a partnership to private companies which have been deliberately incorporated as companies under the Companies Act and are legal entities are largely to be excluded. 47. The letters exchanged between the parties dated 27.07.2004 08.06.2007 also categorically state that the company is being run under the provisions of the Companies Act, 1956 and cannot be treated as a partnership. Article 14.1 of the SHA also specifically excludes the applicability of the partnership principles to the aforenoted company. In Faqir Chand Gulati's case (supra) (para 26) the Supreme Court had noted clause 24 of the agreement between the parties specifying that the said agreement shall not be deemed to constitute a partnership which was the key factor to hold that the venture between the parties was not a joint venture. 48. The Allahabad High Court in Kiran Sandhu v. Saraya Sugar Mills Ltd. [1998] 91 Comp. Cas. 146 while refusing to apply the principles of partnership to the incorporated company had relied upon the AOA of the company holding that these tenets were contrary to tenets of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le clause must come to the court with clean hands. He should not be responsible for breakdown of confidence between him and the other party. He should be able to satisfy the court that he has not misconducted himself. Misconduct of a petitioner that results in deadlock or breakdown cannot be a ground to wind up a company under the just and equitable clause. There should be lack of probity and confidence between the parties but the person approaching the court should not be responsible for the same. A party cannot take advantage of his own wrong, to ask for winding up under 433(f) of the Act. As the words 'just and equitable' themselves suggest the Court must be satisfied with the allegations of the petitioner that it is just and equitable to wind up a company" 52. Draegerwerk's case (supra) had also quoted with approval a passage from Pennington's Company Law (Fifth edition) to support the conclusion that it had drawn. It had noted as under:- "Nevertheless, the petitioner must show that there is no likelihood of the deadlock being resolved in fact, and for this purpose he should set out in his petition or in his supporting affidavit the relevant provisions of the company's arti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being followed even in those years. 56. The mere fact that the company is a small company or a private company is also not by itself sufficient to justify the superimposition of equitable considerations over the legal rights. Some such indications were noted in the Ebrahimi case:- "(i) an association formed or continued on the basis of a personal relationship, involving mutual confidence - this element will often be found where a pre-existing partnership has been converted into a limited company; (ii) an agreement, or understanding, that all, or some (for there may be 'sleeping' members), of the shareholders shall participate in the conduct of the business; (iii) restriction on the transfer of the members' interest in the company - so that if confidence is lost, or one member is removed from management, he cannot take out his stake and go elsewhere." 57. The Supreme Court as far back as in Rajahmundry Electric Supply Corpn. Ltd.'s case (supra), had cited with approval the passage from (1924) AC 783 (PC) Loach's case which reads as under: - "It is undoubtedly true that at the foundation of applications for winding up, on the "just and equitable" rule, there must lie a just ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these considerations which had weighed in the mind of the Legislature while incorporating Sections 397 398 into the Companies Act of 1956. The Committee in its recommendations had also noted that the discretion given to the Court under Section 210 of the English Companies Act, 1948 (Section 397 of the Companies Act, 1956) is very wide and far reaching; the Court may pass any order regulating the conduct of the company's affairs in the future and provide for the purchase of the share of any member by the another member of the company and also contrary to the existing rules of the Company Law. It had summed up by stating that the Court may impose upon the parties whatever settlement it considered as a fair and reasonable solution of the difficulty. the discretion being unfettered. 60. The Supreme Court in Rajamundry Electric Supply Corporation Ltd.'s case (supra), (a judgment delivered under the Companies Act, 1913) had an occasion to discuss the scope of Section 153-C (equivalent to Section 397 of the Companies Act, 1956); relevant extract of which reads as under:- "The true scope of section 153-C is that whereas prior to its enactment the court had no option but to pass an o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... where the petition had been presented on the ground of 'just and equitable', the Court will refuse to make an order of winding up if there is some other remedy available and the petitioner is acting unreasonably in pressing his demand for winding up instead of having such an alternate remedy. 64. Section 402 gives powers to the CLB to make any order that it thinks fit on a petition under Sections 397 398. These powers are enumerated under Sections 402 (a) to (g) and read as under 402. Powers of [Tribunal] on application under section section 397 or 398,.- Without prejudice to the generality of the powers of the [Tribunal] under section 397 or 398, any order under either section may provide for (a) the regulation of the conduct of the company's affairs in future; (b) the purchase of the shares or interests of any members of the company by other members thereof or by the company; (c) in the case of a purchase of its shares by the company as aforesaid, the consequent reduction of its share capital; (d) the termination, setting aside or modification of any agreement, howsoever arrived at, between the company on the one hand; and any of the following persons, on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut costs; or (b) adjourn the hearing conditionally or unconditionally; or (c) make any interim order that it thinks fit; or (d) make an order for winding up the company with or without costs, or any other order that it thinks fit:" 68. Thus under Section 443 of the said Act the Court at the time of hearing of a winding up petition, may either dismiss it with or without costs or in the second alternate, it may adjourn the hearing conditionally or unconditionally. The third alternate gives powers to the Court to make any interim order as it thinks fit. Lastly it may make an order for winding up of the company or any other order as it thinks fit. The words 'any other order as it thinks fit' have necessarily to be read ejusdem generis and in the context of the words preceding in the sub-clause meaning thereby that in the fourth alternate, the Company Judge may either wind up the company or pass any other order in the course of its winding up or in its relation thereto. The ejusdem generis (or eiusdem generis, Latin for "of the same kind") rule applies to resolve a problem where one of the words is either ambiguous or inherently unclear. This rule postulates that where the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court on 20.01.2005); it was made clear that the orders which are required to be passed for grievances which can be addressed under Sections 397 398 of the Companies Act are in the exclusive domain of the CLB and the jurisdiction of the High Court is ousted in this regard. It had noted as under:- "After the amendment in the Companies Act, the Company Law Board alone had the jurisdiction to entertain an application under Sections 397 and 398 of the Companies Act, as the jurisdiction of the High Court was ousted thereby and, thus, the allegations made in the Company Petition filed by the Respondent No. 12 being company petition No. 7 of 1992 could not have been the subject matter of adjudication by the High Court. It is true that what cannot be done directly cannot be done indirectly." 72. Section 433 (f) has to be read harmoniously with Section 443 (2). Thus where a case under Section 433 (f) of the Companies Act is filed but the allegations are such for which an alternate remedy is available and which can be dealt with or comes within the encompass of Sections 397 398 of the Companies Act, it would not be competent for the High Court to assume jurisdiction of the CLB. After ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esent petition has been presented; he is seeking to buy out the shares of the respondent which is impermissible in the present petition as this present petition should be confined only to a winding up. On the other hand, the submission of the respondent is that he is ready to purchase the shares of the petitioner. Both the parties realize that the company is a steadily growing healthy concern which will reap greater profits in the future; one wants to out buy the other. 76. In 1983 (2) All ER 854 in re a company, Vinelott, J has held that where one party wanted to acquire shares of the other party which efforts and negotiations remained un-fruitful, the Court had noted that in these circumstances the insistence by the petitioner for a winding up order to be passed, was in effect asking the respondent to buy his shares at the price he chose to place upon them or face the disruption of a winding up order; in these circumstances, no relief was afforded to the petitioner. 77. These grievances of the petitioner as detailed and outlined above are all encompassed within the provisions of Section 397 398 of the Companies Act. This is the second alternate efficacious remedy available ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e was a complete deadlock in the company; all suggestions mooted by the Court were not acceptable; there was nothing in the Articles of the Company which could also lead to a resolution of their dispute. 80. The judgment of Ebrahimi (supra) also does not help the petitioner. Facts are distinct. In Ebrahimi (supra), a petition under Section 210 of the English Companies Act, 1948 (Section 397 of the Companies Act, 1956) along with Section 222 (f) seeking winding up of the company (Section 433 of the Companies Act) had been filed. The Single Judge had dismissed the petition under Section 210; an appeal had been filed only against the winding up order. The House of Lords in the judgment rendered by Lord Wilberforce had noted the extreme restriction that the petitioner could not exit and go elsewhere; he could not dispose of his interest in the company without the consent of the respondents; it was in these accentuating circumstances that the winding up of the company was ordered. 81. Facts of this case are distinct. The business of the company is being run; it is profitable; one group in fact wants to out-buy the other. Both of them want to steer the wheel of the company. This is a ..... 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