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Davco Products Ltd. Versus Rameswarlal Sadhani and Ors.

1952 (5) TMI 23 - CALCUTTA HIGH COURT

A.F.O.O. No. 43 of 1952 - Dated:- 9-5-1952 - K.C. Das Gupta and P.N. Mookerjee, JJ. For Appellant/Petitioner/Plaintiff: S. Chaudhury, Sankar Banerjee and P. Mondal, Advs. For Respondents/Defendant: Anil Mitra and A.K. Sen, Advs. JUDGMENT K.C. Das Gupta, J. 1. This appeal is against the order made by Banerjee J, on the application of a paid up shareholder of the Davco Products Ltd. to wind up the Company. The grounds on which the order was asked for were that the Company had suspended business fo .....

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itors, the Imperial Bank of India, claiming dues of over ₹ 1,50,000/- for which a suit was pending in the Court of the Subordinate Judge, Alipore, appeared and denied certain allegations made against them by the applicant but did neither support nor oppose the application for winding up. 2. At the hearing of the application, nobody appeared to oppose the same. The learned Judge held that this was an application on behalf of the share-holders to wind up a company and was supported by severa .....

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ble interest in the matter. 4. Before I consider this contention which is the appellant's main line of attack against the order made, it is necessary to consider some of the points that were urged. The first of them was that the application was not in proper form not being a verified application supported by a separate affidavit. The defect alleged is however one that the Court can excuse and we cannot interfere with the order that was made on this ground. 5. Next it was urged that the verif .....

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the statements have been ascertained from searches, and, so it is impossible to know which statements are affirmed by the deponent to be "true to his knowledge". Solemn affirmations of the nature are worse than useless. They are really attempts to mislead the Court that certain facts are being affirmed to be true to the deponent's knowledge while really no facts are being so affirmed. The deponent is in the happy position that he cannot be touched in criminal proceedings for having .....

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hat has been made on this ground. 6. The admitted facts may be briefly summarised thus: 'The Davco Products was incorporated in July 1946 under the provisions of the Indian Companies Act as a public Limited Company. The present authorised capital is ₹ 25,00,000/-, the issued and paid up capital is ₹ 12,50,000/-. Soon after its incorporation the Company obtained a lease of about 40 bighas of land at Panihati for a period of 75 years and erected thereupon a factory. There is a cond .....

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ts. It appears to be the Company's own case that more than 3 lacs were spent on the erection of the factory itself. A good part of the 12 1/2 lacs that had been received appears to have been thus spent in fixed capital. 8. For carrying on its business the Company had to take advances from the Imperial Bank of India. At the end of February 1950 the Company was indebted to the extent of about 3 lacs of Rupees; and for the recovery of this debt the Imperial Bank filed a suit in the Original Sid .....

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he 5th of May 1950 a decree was made in the suit in favour of the Imperial Bank of India without contest by the Company of the amount claimed in the suit declaring a charge over the goods, stock-in-trade, plant and machinery of the Company and its factory and show room and for sale thereof. Pursuant to the decree, the Official Receiver has sold all the goods, stock-in-trade, plant and machinery of the Company in June 1951. The position is that since possession was taken by the Official Receiver .....

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been the factory building and the leasehold interest in the land on part of which the factory stands. 10. In paragraph 8 of the affidavit which Nar-singdas Bagree, a Director of the Company has sworn, on behalf of the Company it is stated that after the Imperial Bank had instituted its suit in the Alipore Court for the realisation of ₹ 1,50,000/- "the Company through its director Narsingdas Bagree tried to procure funds for paying off the debts of the Imperial Bank and to run the fact .....

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mpany starting business again. There is a long line of cases in which the Courts have held that in such circumstances, it is just and convenient that the Company should be wound up. 12. There remains for consideration Mr. Chowdhuri's main contention that the application of a fully paid up share-holder must be rejected unless he alleges and proves that there are assets of the Company of such an amount that in the event of a winding up he would have a tangible share of surplus to receive. For .....

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observations which appear at p. 42 of the report: "Now I will say a word or two on the law as regards the position of a petitioner holding fully paid up shares. He is not liable to contribute anything towards the assets of the Company, and if he has any interest at all, it must be that after full payment of all the debts and liabilities of the Company there will remain a surplus divisible among the share-holders of sufficient value to authorise him to present a petition. That being his pos .....

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e showed only that there was a surplus as, on being fairly divided, irrespective of the costs of the winding-up, would give him L. 5/- I should say that would not be sufficient to induce the court to interfere in his behalf." Bramwell L. J. concurred with the opinion expressed by the learned Master of the Bolls; Brett L. J. observed: "With regard to what the Master of the Rolls has said as to whether the Court would order a winding-up on the application of a fully paid up share-holder .....

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there is a surplus, and gives some evidence in support of the allegation, for otherwise he has no interest in the winding up." 14. In 1908 the English Companies Act was amended to introduce the provision which we now find in section 225 of the English Companies Act and Section 170 of the Indian Companies Act that the Court shall not refuse to make an order for winding up merely on the ground that there are no assets. Two years after that in the year 1910, the Court had to consider - 'I .....

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hat all the cases were decisions before the Act of 1908 and it was submitted that under the new section 141 which contained the provision mentioned above, the absence of assets was not a sufficient objection to an order. The judgment of Neville J. was in these words: "I think that the petition ought to be dismissed. It is a petition by a fully paid up shareholder and he alleged that the Company has no assets and is insolvent. Under these circumstances the petition must be dismissed with cos .....

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Rai Sawhney' AIR 1950 P&h 328 (D), but - 'In re: Cine Industries and Recording Co., Ltd.' AIR 1942 Bom 231 (E), where chagla J. dismissed the petition of a fully paid up shareholder for winding up on the merits, there is an observation that as the law stands to-day the shareholder is under no obligation to satisfy the .Court that on a winding up there would be surplus assets. 17. It was urged on behalf of the respondent that in view of the provisions of law mentioned above that a .....

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ere are no assets. It is a sound rule that the Court should not in any matter make an order on the application of a person who has no interest therein, for, when a person asks for an order without any tangible interest in the result there is ordinarily good ground for thinking that the application is for ulterior purpose and not a bona fide application. 19. The provision in law that a petition shall not be refused merely on the ground that there are no assets does not make it any the less necess .....

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ere would be surplus assets and that he has a tangible interest will not operate where the creditors have come and supported the application. At p. 447 of the report appear these observations of the learned Master of the Rolls: "There is no allegation in the petition that there will be a surplus, and the petitioner is not a creditor, so the petition was demurrable. Creditors however came and supported it and a winding up order was made. I think that the petition ought to have been amended b .....

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d the application, the application is in substance a creditor's application. Treating the application thus, the Court has to apply the rule laid down in -'In re, Crigglestone Coal Co. Ltd.' 1906-2 Ch D 327 (F). 22. In that case the Court had to consider a creditor's petition for a winding up which was opposed by the debenture-holders, and by the Company on the ground that there were no assets available for the unsecured creditors. It was held that the onus was on the respondent t .....

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It occurs to me that the onus is clearly on the debenture holders to negative that possibility ....." Cozens-Hardy L. J. observed: "I think that the costs ought not to be astute in endeavouring to support the contention that there is no possibility of any surplus being got for the unsecured creditors." 23. Applying this Rule to the facts of the present case, I am of opinion that it is not at all clear that there would be no such surplus. Admittedly there is a condition in the lea .....

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a price only slightly less than the figure at which it has been valued by Messrs. Ballardie Thompson & Mathews. Whether this valuation be ₹ 10,28,000/- as stated by the Company, or ₹ 7,95,068/- as shown in the Balance Sheet, it is not unreasonable to think that a cancellation of the lease, the Liquidator may be able to obtain first a sum well above ₹ 5,00,000/-. 24. According to the Company there is no big creditor apart from the Imperial Bank. The dues to the Imperial Ban .....

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ce of its opposition to the winding up order. 26. I have, therefore, come to the conclusion that the order for winding up was rightly made and that the appeal should be dismissed. P.N. Mookerjee, J. 27. I agree that this appeal should fail. As, however, some of the points, involved in this case, are of considerable importance I propose to deliver a separate judgment. 28. The broad question that arises in this appeal is whether the "winding-up order", made by Banerjee J., against the Ap .....

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ised capital of the Company was raised from Rupees Five lacs to Rupees Twenty five lacs by creating one lac new ordinary shares of ₹ 10/- (Rupees Ten) each and 10,000 (Ten thousand) 5 per cent, tax-free Redeemable Preference shares of ₹ 100/- (Rupees one hundred) each, redeemable by 31st July 1950. The whole of the authorised capital was, however, not subscribed and the total subscribed capital of the Company at the relevant date, namely, the date, of the application, on which Banerj .....

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Association, and it had its registered office at P31 Mission Row Extension, Calcutta. 31. In March 1947, the Company took lease of the property, known as "Tagore Terrace", - about 40 bighas of land and a bungalow, standing thereon, - at Sodepur, 24 Parganas, for a term of 75 years which included a fairly long optional period and on the said land it built a factory and therein-installed certain machineries and plants - all in the course of the said year 1947. The balance sheet of the Co .....

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e, passed therein in favour of the Imperial Bank of India, the goods, stock-in-trade, plants and machineries of the Company were all sold by the Official Receiver in or about June 1951. The sale proceeds were, however, insufficient to pay off the Bank's dues and, for about a lac and half that still remained outstanding, the Imperial Bank filed another suit against the Company at Alipore, claiming a charge on the Company's above leasehold land and the factory building etc., standing there .....

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2, allowed the said application holding 'inter alia'- (a) that "the Company has practically done nothing during the last 4/5 years"; (b) that "it is not carrying on any business"; (c) that "its indebtedness is daily swelling up"; (d) that "the Company is insolvent"; and (e) that "it is just and equitable to make the winding-up order." 33. The Company has now appealed and in the appeal it seeks reversal of the above "winding-up" .....

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th the relevant Rule 52 and Form No. 13 of Appendix 7 of the Original Side Rules of this Court which, according to Mr. Chowdhury, require an application and a separate supporting affidavit and not merely one single verified application as was filed in the present case, and he has asked us to throw out the application on this ground. By this argument, however, I am left wholly unimpressed. The defect, pointed out by Mr. Chowdhury, is, at the most, a formal and technical defect and no Appellate Co .....

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acter. This point of Mr. Chowdhury must, therefore, fail. 35. Mr. Chowdhury next contended that even the verification, appended to the respondent's application, was not a proper verification, acceptable in law, and he argued that Banerjee J. ought to have refused to entertain the application with such a defective verification. I would not say that there is no force in this contention and, perhaps, a proper affidavit ought to have been insisted upon before admitting the petition. When, howeve .....

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peal on the ground of defective verification of the "winding-up application". Accordingly, the second point of Mr. Chowdhury also cannot succeed. 36. The third point, urged by Mr. Chowdhury, raises an interesting question of law . Pounding himself on a dictum of Sir George Jessel, the celebrated Master of the Rolls, Mr. Chowdhury argued that the respondent's petition or "winding-up application" should be dismissed, as it was, admittedly, made by a fully paid-up share-hold .....

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hares. He is not liable to contribute anything towards the assets of the Company, and, if he has any interest at all, it must be that after full payment of all debts and liabilities of the Company there will remain a surplus divisible among the shareholders of sufficient value to authorise him to present a petition. That being his position, and the rule being that the petitioner must succeed upon allegations which are proved, of course the petitioner must shew the Court by sufficient allegation .....

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ot be sufficient to induce the Court to interfere in his behalf." Brett L. J. reserved his final opinion on this point: vide at p. 48 of the Report though he and Bramweli L. J. agreed with the Master of the Rolls in dismissing the appeal before them, that is, in dismissing the "winding-up petition" in that case. 37. 'Prima facie', the words, employed by Jessel M. R., support Mr. Chowdhury's contention but there are three major considerations against its acceptance whic .....

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bove dictum would not apply (Vide at p. 447 of the Report). The present case falls, in my opinion, within this exception as the respondent's application is supported by at least two creditors, Anil Kumar Ghosh and Lakshmi-narain Hazra, who were employees of the Company and to whom certain amounts are, on the materials before us, outstanding on account of unpaid salaries for a part of the year 1950. The fact that they have obtained decrees not against the Company but against some of its direc .....

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e said dictum, by 110 less a company Judge than Buckley J. and the Appeal Court also does not appear to have accepted there the said principle as an absolute bar of universal applicability to a fully paid-up shareholder's "winding-up application". In that case Buckley J. considered and explained the two other cases of - In re St. Thomas's Dock Co.' (1876) 2 Ch D 116 (H), and - 'In re Chapel House Colliery Co.' (1883) 24 Ch D 259 (I), which apparently proceeded on th .....

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ot also appear to have been expressly or specifically considered but, even then, it is quite plain that neither Buckley J. nor any of the learned Judges of the Court of Appeal in the - '(1906) 2 Ch D (P) case' above cited, was inclined to accept the principle, underlying the said dictum, as an absolute and universal rule of law. In such circumstances, I am not prepared to throw out the respondent's application on the authority of the above dictum, particularly when in this instant ca .....

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r the rejection of Mr. Chqwdhury's third contention, but in my view, there is a still stronger objection to this part of the appellant's case which I shall at once state and proceed to discuss below. 40. Section 170 (1) of the Indian Companies Act expressly provides that "the Court shall not refuse to make a winding-up order on the ground only that.....the company has no assets." This statutory provision which applies, in general, to all applications for the compulsory winding- .....

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shortly after - '1906-2 Ch D 327 (F)', - a similar provision was to be found duly incorporated (Vide Section 29 of the English Companies Act of 1907). That provision has ever since been continued in the English Statute as will appear from Section 141 (1) of the Act of 1908, Section 171 (1) of the Act of 1929 and Section 225 (1) of the present English Companies Act of 1948. It seems, therefore, that, neither in England nor in this country, the legislature has accepted the above dictum of .....

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rule of law of universal applicability even in the year 1910 notwithstanding the statutory provision, referred to above, namely, Section 141 (1) of the English Companies Act of 1908 but, with all respect to the learned Judge (Neville J.) who decided the said case, I am bound to say that his very short judgment of only three sentences gives no reasons for the decision and, even apart from all other matters, it contains no indication that the effect of the statutory change, since the said dictum w .....

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31 (E)' that "as the law stands today" he (the fully paid-up share-holder) is under no obligation, "as he at one time was, to satisfy the Court that on a winding-up there would be surplus assets". Clearly, therefore, the dictum, relied on by Mr. Chowdhury, cannot be accepted as an absolute rule of law of universal application. 41. The view, just above expressed, is also to be found in the Sixteenth Edition (1952) of Palmer's Company Precedents, Part II, at pp. 49, 50 .....

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tion". Thus construed, - and such construction is justified by the opening and the closing paragraphs of the judgment of the learned Master of the Rolls vide -'(1879) 11 Ch D 36 at pp. 42 and 46 (A)' - the dictum would still be valid and may be usefully employed in appropriate cases. In the case before us, however, it would be of no assistance to the appellant as J am not satisfied, in the circumstances disclosed in the affidavits, that the respondent's "winding-up applicat .....

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ge Jessel could not strictly be said to be an absolute rule of law yet it was a rule of law yet it was a rule of prudence which ought not to be departed from, save under exceptional circumstances. Granting that this position is correct, I am still inclined to think that, in the circumstances of this case, the rule of prudence, spoken of by Mr. Chowdhury, would not entail the dismissal of the respondent's application. The circumstances of the present case are of an exceptional nature and I do .....

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e Company had no surplus assets: Vide-'In re, Haycraft Gold Reduction Co.' 1900-2 Ch 230 (J) and - 'In re, Gutta Percha Corporation' 1900 2 Ch 665 (K). 45. For the reasons given above, the third point, urged by Mr. Chowdhury, cannot succeed and I reject the same. 46. I have already referred to the principal findings of the learned Judge (Banerjee J.) who made the "winding-up order", now under appeal. I shall presently consider the merits of these findings in the light o .....

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counsel. In my view, however, this criticism, though not without some force, must fail in the ultimate analysis. 47. On the materials placed before us the position appears to stand as follows: 1. It has become impracticable to pursue the main object of the Company, namely, manufacture of "perambulators, tabular furniture and toys, children's bicycles or tricycles and other novalties" and the carrying-on of the business of tool-making etc. The market is unfavourable, the machinerie .....

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It is, therefore, reasonably clear that the substratum of the Company is gone, that it is commercially insolvent and thus unable to pay its debts within the meaning of Section 162 of the Indian Companies Act and that its business is at a standstill and, for all practical purposes, it has ceased to work. In reaching the above conclusion I have not overlooked - but have fully considered - Mr. Chowdhury's submission that the Company has still considerable assets in the leasehold land and the f .....

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ing the Company's needs, and do not, therefore, affect the conclusion that the Company is 'commercially insolvent'. True, also, there are, besides what I have described above as the Company's main object, other objects, enumerated in the Company's Memorandum of Association, but, in my opinion, they are, in the proper context of things, really subsidiary objects, notwithstanding the concluding part of Clause III whereby it is declared that "the objects specified in each p .....

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or all practical purposes, it has ceased to work. This view is clearly supported by the two well-known cases of - 'In re, Haven Gold Mining Co.' (1882) 20 Ch D 151 (L) and - 'In re, German Date Coffee Co.' (1882) 20 Ch D 169 (M) and, in these circumstances, the findings of the learned trial Judge must be affirmed. 49. I shall take up now the more serious and difficult question, namely, whether it is just and equitable in this case to make a 'winding-up order' and whether .....

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ell and no such order should, accordingly, be made in the absence of compelling circumstances. The situation is, indeed, highly complex and almost desperate , and this aspect of the matter has caused me immense anxieties. Having, however, studied the situation from all possible points of view, I am inclined to hold that, in the facts of this case, the learned Judge was entirely right in making the "winding-up order". It seems to me that, in the circumstances of this Company, a "wi .....

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