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Bhalchandra Dharmajee Makaji and ors. Vs. Alcock, Ashdown and Co. Ltd. and ors. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtMumbai High Court
Decided On
Case NumberCompany Petition Nos. 86 and 114 of 1971 with Company Application Nos. 68 of 1971 and 58 of 1972
Judge
Reported in[1972]42CompCas190(Bom)
ActsCompanies Act, 1956 - Sections 397, 398 and 402; Companies (Amendment) Act, 1963 - Sections 10 and 11
AppellantBhalchandra Dharmajee Makaji and ors.
RespondentAlcock, Ashdown and Co. Ltd. and ors.
Appellant AdvocateP.P. Khambata, Adv.
Respondent AdvocateV.J. Taraporewala, Adv.
Excerpt:
.....other appropriate order for ending of oppression or mismanagement - directions for appointment of special officer for investigation into affairs of company given. - - 14,686.63. the company has failed to pay the said amount even after the statutory notice and the petitioners contend that the company is unable to pay its debts. 6. after the amendment of sections 397 and 398 of the companies act by sections 10 and 11 of the companies (amendment) act (liii of 1963), it would appear that the affairs of the company have to be conducted not only in the best interest of its members for their profit but also in a manner which is not prejudicial to public interest. in view of this position, i think the best order to make is to appoint a special officer to collect, realise, preserve and..........the other is taken out in company petition no. 114 of 1971 for appointment of an administrator or special officer with all powers of the board of directors of the company pending the hearing and final disposal of the main petition, which is for reliefs under sections 397 and 398 of the companies act, 1956. 2. a few facts about the company may be mentioned. these facts are not in dispute. the company was incorporated in india in 1884 and has its registered office in bombay. it has workshops at bombay and bhavnagar. the company carries on business of manufacture and supply of heavy and light structurals, transmission line towers, railways points and crossings, grey-iron castings, marine diesel engines and the business of ship-repairs and boat building, etc. it has a paid up share capital.....
Judgment:

Nain, J.

1. These are two judges' summonses, one taken out in Company Petition No. 86 of 1971 for appointment of official liquidator as provisional liquidator of Alcock Ashdown & Co. Ltd. (hereinafter referred to as 'the company') pending the hearing and final disposal of the main petition which is a petition for winding up the company. The other is taken out in Company Petition No. 114 of 1971 for appointment of an administrator or special officer with all powers of the board of directors of the company pending the hearing and final disposal of the main petition, which is for reliefs under sections 397 and 398 of the Companies Act, 1956.

2. A few facts about the company may be mentioned. These facts are not in dispute. The company was incorporated in India in 1884 and has its registered office in Bombay. It has workshops at Bombay and Bhavnagar. The company carries on business of manufacture and supply of heavy and light structurals, transmission line towers, railways points and crossings, grey-iron castings, marine diesel engines and the business of ship-repairs and boat building, etc. It has a paid up share capital of Rs. 83,49,000. Both at Bombay and Bhavnagar it has an aggregate of about 1,200 employees. Prior to 31st December, 1964, the company was managed by Turner Morrison & Co. Ltd. as its managing agents. One Haridas Mundhra held majority of shares in Turner Morrison & Co. Ltd., who, in turn, held 35% of the issued share capital of the company. From about February, 1971, the activities of the company have come to a standstill for paucity of working capital. The workers employed by the company are experienced and skilled workers in ship building and ship repair. The Government of India have issued an order under section 15 of the Industries (Development and Regulation) Act, 1951, appointing a committee for the purpose of making a full and complete investigation into the substantial fall in the volume of production in respect of articles manufactured by the company Company Petition Nos. 86 of 1971 has been filed by Gleitlager (India) Pvt. Ltd. who allege to be the creditors of the company in the sum of Rs. 14,686.63. The company has failed to pay the said amount even after the statutory notice and the petitioners contend that the company is unable to pay its debts. The petitioners have, therefore, asked that the company be wound up. This petition has been admitted and has also been advertised and is fixed for hearing on 9th August, 1971. In the judge's summons the petitioners ask for appointment of a provisional liquidator.

3. Company Petition No. 114 of 1971 has been filed by three shareholders of the company in their own right and as person authorised to present the petition by more than 100 members of the company. They allege that Haridas Mundhra, the respondent No. 2, is a de facto director of the company within the meaning of section 303(1), Explanation 1, of the Companies Act. It is not in dispute that his son-in-law, K. Tapurish, was a de jure director up to 25th March, 1971. Respondents Nos. 4,5 and 6 have been purported to be appointed directors of the company in a meeting alleged to have been held at Calcutta on 18th March, 1971. It is alleged by the petitioners that all the shares in the respondent No. 7, Turner Morrison & Co. Ltd, who were the managing agents of the company, were held by Haridas Mundhra and his nominees. The petitioners allege that the board of directors as now constituted acts in accordance with the wishes, directions and instructions of Haridas Mundhra. It is alleged that Haridas Mundhra has appointed one K. C. Lakhotia in charge of overall supervision of the affairs of the company without remuneration and Mundhra has instructed the executives of the company to act on the oral instructions of the said Lakhotia in all matters pertaining to the company. The petitioners allege that after the assumption of the charge of the affairs of the company by Haridas Mundhra and the said K. C. Lakhotia, these two persons have mismanaged the affairs of the company for their own personal gain and misappropriated the funds of the company in various ways described in the petition. The petitioners contend that as the company employs experienced and skilled workmen in ship building and ship repairing industry, if the company is wound up its expertise will be lost and it would also throw these 1,200 experienced and skilled workmen out of employment. It is also alleged that the Government of India for ship repairs and fabrication of boats and therefore it will not be proper to wind up the company. The petitioners therefore seek a appropriate orders of this court under sections 397, 398 and 402 of the Companies Act, including appointment of an administrator or special officer to manage the affairs of the company, removal of the present directors, investigation into the affairs of the company and other reliefs. In the judge's summons the petitioners seek an interim order appointing an administrator or special officer.

4. It is not in dispute that from February, 1971, the activities of the company have come to a standstill for want of funds. It will therefore be appropriate if some interim order is made appointing either a provisional liquidator or an administrator or special officer. In the winding-up petition, the State of Gujarat appears claiming to be a creditor of the company in the sum of about Rs. 86 lakhs. The State of Maharashtra appears claiming to be a creditor in the sum of about Rs. 50 lakhs. The Bank of Maharashtra is a secured creditor. Engineering Mazdoor Sabha appears claiming to be a creditor in the sum of about Rs. 1 lakh. These parties oppose appointment of a provisional liquidator. They state that they have no objection to appointment of the administrator or special officer in Company Petition No. 86 of 1971. The State Bank of India appears claiming to be a creditor in the sum of Rs. 1 crore and 14 lakhs. It is a secured creditor. The State Bank of India and the Government of India oppose the appointment of a provisional liquidator but submit to the orders of the court if the court decides to appoint a special officer or administrator. As against this, Turner Morrison & Co. Ltd. appear claiming to be creditors in the sum of about Rs. 18 lakhs. They also state that they are guarantors in respect of the advance by the State Bank of India to the company. They are also shareholders of the company holding 35% of its shares. Messrs. Escorts Ltd. V. S. Dempo & Company, and Motor Industries Pvt. Ltd.some of the creditors of the company, aggregating to a sum of about Rs. 5 lakhs also appear. The summons for appointment of a provisional liquidator is supported by Turner Morrison & Co. Ltd., Escorts Ltd., V. S. Dempo & Co, Motor Industries Pvt. Ltd. and Gleitlager (India) Pvt. Ltd, the petitioners in the winding-up petition. Haridas Mundhra, respondent No. 2 in the Company Petition No. 114 of 1971, opposes the appointment of both of a provisional liquidator or of an administrator or special officer.

5. It is contended on behalf of those who support the appointment of a provisional liquidator that when a company is unable to pay its debts, the creditors are ex debito justitiae entitled to a winding-up order and the appointment of a liquidator. I am afraid this argument ignores the recent trends in social thinking, now embodied in sections 397 to 407 of the Companies Act pertaining to prevention of mismanagement. Section 397 and 398, as they stood in 1956, even prior to 1963, contemplated that the court may, instead of winding up a company, make other appropriate orders for ending oppression of minority or mismanagement.

6. After the amendment of sections 397 and 398 of the Companies Act by sections 10 and 11 of the Companies (Amendment) Act (LIII of 1963), it would appear that the affairs of the company have to be conducted not only in the best interest of its members for their profit but also in a manner which is not prejudicial to public interest. The element of public interest enters into the management of the companies after 1963. The modern corporation has become the accepted instrument of social policy, because it affects a large part of the economic life of the community. It has become an instrument for the improvement of the economic standards of the people and for economic growth of the nation. Society depends for some of its needs on corporate enterprise. It has therefore an interest in its stability and efficiency as an economic institution. The element of public interest also arises from the responsibility for ensuring a minimum wage to the numerous employees in the corporate sector. It is necessary to see that people who put their labour and lives into a concern get fair wages, continuity of employment and a recognition of their right to their jobs where they have trained themselves to highly skilled and specialised work. In deciding whether the court should wind up a company or change its management the court must take into consideration not only the interest of the shareholders and creditors but also public interest in the shape of the need of the community and the interest of the employees. This, in my opinion, is the requirement of section 397 and 398 of the Companies Act. This country has been spending vast sums of money in promoting new industries in public and private sectors in the interest of the economic progress of the country and improvement of living standards. In face of this, it would appear to be improper to destroy a company which has worked for nearly 87 years and has acquired experience and expertise in manufacture and supply of structurals and in boat building and ship repairing. At the same time the company cannot be kept alive so as to incur further liabilities and to diminish the dividend payable in case of winding up to the existing creditors or the shareholders. Their interests also have not to be sacrificed. It is therefore necessary that pending the hearing and final disposal of these petitions, an arrangement ought to be made for the collection, realisation, preservation and maintenance of those assets of the company which are in the possession of the company. It is also necessary that an investigation ought to be made into the affairs of the company to find out if it is possible to resuscitate the company. It is only after such investigation that one can come to a conclusion as to whether the company ought to be wound up or whether it ought to be kept alive. In view of this position, I think the best order to make is to appoint a special officer to collect, realise, preserve and maintain the assets of the company and also to make the necessary investigation referred to hereinabove.

7. I therefore appoint Mr. T. S. Kanan as special officer. He shall take possession of, recover and realise all the asses and properties of the company, which are now in the possession of the company or to the possession of which the company may be entitled as also of its books of accounts, vouchers and papers. The special officer shall observe and maintain the assets and properties and books, vouchers and papers of the company. He shall not carry on any business. He is authorised to borrow sums of money not exceeding in the aggregate Rs. 50,000 and to expend such amounts as may be necessary for the recovery, realisation, preservation and maintenance of the assets and property of the company and for purpose of the report hereinafter mentioned.

8. The special officer shall investigate into the affairs of the company and make a report to the court on ways and means of resuscitating the company and more particularly the following matters :

I. Cash flow statement for the next two years.

II. On the basis of orders on hand :

(a) production programme for the next two years.

(b) proforma profit and loss account for the next two years indicating explicitly economies in the revenue expenses.

III. (a) Present ratio of debt to equity,

(b) Current ratio of assets to liabilities,

(c) Liquidity ratio, and

(d) Projected sales.

9. The special officer will also submit to the court along with his report the balance-sheet and profit and loss account of the company for the past three years.

10. It will be necessary for the special officer to take assistance of a firm of chartered accountants for carrying out the aforesaid investigation. He shall engage the services of Messrs. K. S. Engineer & Co. as chartered accountants for the purpose.

11. This order will be temporary. The two judge's summonses will stand adjourned to 9th August, 1971, for final hearing. A final interim order on the summonses will be made after taking into consideration the aforesaid report of the special officer and its annexures.

12. This order shall be without prejudice to the rights of the Central Government to take over the management of the company under section 18A of the Industries (Development and Regulation) Act, 1951, or under any other law empowering the Central Government in that behalf.

13. Costs of this hearing reserved.


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