(1) This is a petition for winding up of a Company called the Akola Electric Supply Company (Private) Limited (hereinafter referred to as the Company) under Section 439 of the Indian Companies Act of 1956. When this petition came up before S. M. Shah, J for admission, the learned Judge did not accept the petition and rejected the same in limine. An appeal was preferred to the Division Bench of this Court (Appeal No. 1 of 1960). In appeal, the Division Bench set aside the order of dismissal, admitted the petition and sent it down for final hearing. The order that was passed by the Division Bench was on the basis of certain consent terms arrived at between the parties under which the respondent-Company gave an undertaking that the amount of compensation that may be received by the Company from the Bombay State Electricity Board would be deposited with the Company's Solicitors, M/s. Kanga and Co., pending the hearing and final disposal of the petition on merits in the trial Court. The usual formalities such as advertisement and notices being served, and the necessary preliminaries having been completed, the matter has now come up before me for final hearing. Before adverting to the affidavits that were tendered before me at the stage of the final hearing and the reasons, which induced the petitioners to do so, it is necessary to set out the facts in so far as they are necessary for determining the matters of controversy between the parties. I will begin with the facts which are either admitted or over which there is not much dispute.
(2) The aforesaid Company was incorporated in the year 1930 under the Indian Companies Act. 1913. It appears that the shares of the Company were purchased by the present share-holders in about the year 1937. The authorised capital of the Company is rupees four lakhs divided into eight thousand shares of Rs. 50/- each. The subscribed and paid-up capital of the company is rupees three lakhs divided into six thousand fully paid-up shares of Rs. 50/- each. The said six thousand shares in the share capital of the Company are held as under:
1. Bilasrai Juharmal (1st petitioner) . . . 1500 Shares2. Jugmohanlal Rungta (2nd petitioner) . . . 1000 '3. Brijlal Ramjidas and the (1st petitioner) . . . 1000 '4. Mahavirprasad Badridas . . . 1000 ' 5. Narandas Ramjidas . . . 900 '6. Radhakrishna Brijlal . . . 500 ' 7. Brijlal Ramjidas . . . 100 '________________Total 6000 Shares.
(3) The Managing Agents of the Company were M/s. Brijlal Bilasrai and Co. For over twenty years. The ostensible partners of the said Managing Agents firm were the first petitioner and the said Brijlal Ramjidas and the said Managing Agents firm was merely the nominee or benamidar of M/s. Sarupchand Prithiraj, a partnership firm consisting of nine partners including the members of the company referred to above. The Managing Agents were carrying on the management of the Company till 1957. Since then the management of the company is being carried on by three Directors viz., Mahavirprasad Badridas, Narandas Ranjidas and Radhakrishna Brijlal. The members of the Company are divided into two groups. One group comprises the two petitioners who are father and son respectively and the other group consists of Brijlal Ramjidas, Mahavirprasad Badridas, Narandas Ramjidas and Radhakrishna Brijlal. The group of the petitioners may, for the sake of convenience, be called as Bilasrai group and the other group of the remaining four members of the Company headed by Brijlal Ramjidas may be called as Brijlal group. The members of Brijlal group are closely related to one another. Disputes have cropped up between the two rival groups, at any rate, since 1956 and one of the reasons for these disputes appears to be that the dividends are not being distributed to the members of Bilasrai group. The petitioners filed an application (I. C. No. 75 of 1956) for winding up the Company mainly on the ground that the members of Brijlal group were conducting themselves in a manner oppressive to the petitioners and prejudicial to the interests of the Company. The case of non-distribution of dividends was cited as an instance in point. No orders were passed on this applications, because the Company deposited in Court the amount of the claim made by the petitioners in respect of the dividends due to them. Thereafter on 29-3-1957 the petitioners filed another application (I. C. No. 81 of 1957) under Secs. 397, 398 , 402 and 439 of the Indian Companies Act of 1956. The prayer, however, for winding-up the Company was abandoned at a later stage. The said petition came up for hearing before Coyajee, J. And the learned Judge declined to accept the same. The petitioners went in appeal. In the meantime, the petitioners had filed suits in the City Civil Court for the recovery of the amount of dividends due to them. In the course of appeal before the High Court, an undertaking was given by the members of Brijlal group to the effect that the dividends would not be distributed till the disposal of the suit pending before the City Civil Court. The appeal, therefore, was not pursued and the matter was dropped. On 6-12-1959 the licence granted to the Company by the Government under the provisions of the Indian Electricity Act expired. It may be mentioned at this stage that since its incorporation the only business that the Company was carrying on was to run the undertaking of supply of electricity energy to the citizens of Akola. On the termination of the licence, the Bombay State Electricity Board has taken over the work of distributing the electric energy to the citizens of Akola and the immovable properties of the Company also were taken charge of by the said Board. The Company. Through their Directors, have laid their claim for compensation by reason of the Company having been taken over by the Government. They have also contended that some of the immoveable properties belonging to the Company have been wrongly taken possession of by the Government. The Company, therefore, has asked for the return of the properties wrongly taken over by the Government. This claim is also disputed by the Board. Within a few days from the expiry of the period of the licence, that is on the 18th December 1959, the petitioners have lodged this petition for winding up the Company.
(4) I will now advert to the main allegations on which the prayer for winding up is sought to be based. These allegations can be divided into two categories. First, the Company is, more or less, a glorified partnership; that irreconcilable disputes have arisen between the members of the two groups; that the management of the affairs of the Company by Brijlal group is oppressive and prejudicial to the interests of the Company; that although ostensibly there are six partners, in reality, there are only two partners, Bilasrai representing the first group and Brijlal representing the second group; that the interests of Bilasrai group are being ignored and that Bilasrai group has been driven to file suits against the Company and Brijlal group in the City Civil court and, therefore, a situation analogous to the situation of deadlock has arisen into the management of the affairs of the Company. The second category of allegations is that the main object of the Company, for which it was established, was to run the undertaking of supplying electric energy at Akola and other places with the previous consent of the Government. That object has failed by reason of the fact that the period of the licence granted by the Government under the Electricity Act to run the Company at Akola has expired and further there is no likelihood of any other licence being granted to the Company because of the policy, which the Government in pursuing viz., that electric undertaking should be taken over by the Government. The petitioners have also asserted that the only work that remains to be done is the distribution of the compensation money and they have expressed apprehensions that the compensation money would be frittered away by the Directors of the Company. The substratum of the Company, therefore, has gone.
(5) It is not necessary to set out the defence taken on behalf of the Company in detail and it is sufficient to state that they have denied both sets of allegations made by the Petitioners. They contended that there are several objects for which the Company was founded; that all these objects are independent and that it is incorrect to say that the substratum of the Company has gone or has been destroyed merely because the present undertaking was taken over the by Government. They have also denied the allegations relating to oppression and flouting of the interests of the petitioners and contended that the management of the Company is being run smoothly and on economic lines. There is no question of a deadlock. They point out that there are no allegations either of misconduct or misapplication of funds or mismanagement. They, therefore, deny that there is any case for winding up of the Company.
(6) When the case reached the stage of hearing, the petitioners put in an affidavit along with a copy of the letter (Ex. A). In this affidavit they tried to introduce new matter pointing out that fresh developments have taken place since the date of filing of the petition and that these events go to the root of the matter and will conclusively establish that not only the substratum of the Company has gone but that it is not possible for the Company to start any fresh adventure. In this connection, they point out that the six members of the Company are all partners of the firm known as Sarupchand Prithiraj; that for the income-tax dues of this firm, the shares of all the six members of the Company were attached; that the Collectors had fixed the date of sale as 25th November 1960, and that with a view to avoid the sale of these shares, an understanding was arrived at between the members of the Company, the terms of which are embodied in the letter at Ex. A. The letter at Ex. A. Is addressed by the members of Brijlal group to the Additional Collector of Bombay. After referring to an earlier letter written by M/s. Brijlal Ramjidas and Mahavirprasad Badridas on 23rd November 1960, to the Additional Collector, the letter proceeds to state:
'We are now instructed (by the four members of the Brijlal group) to write to you subject to Bilasrai group viz., Bilasrai Juharmal and Jagmohan Bilasrai, who are the remaining share-holders, giving their consent and the Court releasing our clients from the undertaking given to the Court in Bombay High Court Suit No. 120 of 1957 and also releasing our clients from the undertaking given by them in the winding up proceedings, our clients are agreeable to payment of the entire amount which will be distributable amongst the share-holders out of the compensation moneys received from the Government as a result of the undertaking having been taken over by the Government, to you towards the discharge of the income-tax liabilities of the partners of the firm of Messrs. Sarupchand Prithiraj.'
It may be mentioned that Suit No. 120 of 1957, which is pending in the High Court, is a suit for dissolution of the firm Sarupchand Prithiraj. It appears that in that suit some undertaking has been given by Brijlal group. I have already mentioned that the members of Brijlal group have also given an undertaking of I. C. No. 81 of 1957 to the effect that the dividends would not be distributable until the final disposal of the suits pending in the City Civil Court. Now, members of Brijlal group have given an assurance to the Additional Collector subject, of course, of their being released from the two undertakings referred to above, that out of the amount, which would fall to their share in the compensation moneys, they are agreeable to the payment of that money towards the discharge of income-tax liabilities of the partners of the firm. Mr. Bhatt, learned counsel on behalf of the petitioners, contended that this event has taken place recently and long after the filing of the petition and therefore, it was impossible for them to make mention of that event in the petition. According to him, the circumstances, which supervened between the filing of the petition and the date of hearing, will have to be taken into account for the purpose of determining the question, whether any nucleus has been left over to the Company for starting any fresh undertaking in fulfillment of the various objects mentioned in the objects clause of the memorandum of association. Mr. Banaji, learned counsel, who appears on behalf of the Company, and Mr. Dalal, who appears on behalf of the members of Brijlal group, have vehemently opposed the introduction of new matter and new set of allegations in this petition. Mr. Banaji contended that the petitioners must confine themselves to the four corners of the allegations made by them in the petition and it is not open to them to introduce new set of allegations, which will change the complexion of the petition. He further suggested that it was quite open to the petitioners to lodge a fresh petition for winding up of the company on the basis of the discovery of new matter. In this connection, he pointed out that notices have been given to the share-holders and advertisements have been published in the newspapers and the share-holders and general public will only look up to the allegations contained in the original petition for ascertaining what case they are required to meet. He, therefore argued that it would not be proper to allow the petitioners to put in fresh affidavit by which entirely new matter has been sought to be introduced.
(7) I have given my anxious consideration to these objects and I have come to the conclusion that it is necessary, in the interests of justice, to grant permission to the petitioners to put in the affidavit along with the letter at Ex. A. It is not the petitioners' fault that they have not made allegations, which are contained in the affidavit put in by them. They could not do so, for the simple reason that the events have occurred after the institution of the petition. Furthermore, it is clear to me that no new ground is being set up in the affidavit. One of the grounds on which the petition is based is that the substratum of the Company has gone because the principal or primary object has failed. Now, the reply to that objection was of two-fold character. Firstly, there was more than one object and there had been no failure of the substratum, because a number of items forming part of the principal object and the other independent objects also survived, and secondly, it was possible for the Company to utilise the compensation amount for starting a fresh venture within the four corners of the objects of the Company. It is contended on behalf of the petitioners that the fresh material sought to be introduced by them is intended to meet the second part of the case on behalf of the Company. They point out that the contention viz., that it was possible for the Company to start a fresh undertaking on the basis of the nucleus that would be available to them out of the compensation money, does not survive in view of the undertaking given by all the partner. It is true that in the ordinary circumstances the petitioners must be kept confined within the bounds of the allegations made by them in the petition. Here, however, an extraordinary situation has arisen and when it is possible for the Court to consider the new material in the present petition itself, it would not be proper to drive the petitioners to file a fresh petition merely on the technical ground that the amendment would introduce new matter. I do not think that either the Company or the share-holders will be taken by surprice, if the affidavit is allowed to be introduced at this stage as all the share-holders were parties to the undertaking. It is true that the Company is not a party to the undertaking and at a later stage of this discussion, I will consider the effect of the Company not being a party to the said undertaking. But, when all the share-holders including the Directors of the Company are parties to the undertaking, it will be too much to say that the Company will be taken by surprice, if this new matters is allowed to be introduced. It is mainly on these considerations that I have allowed the petitioners to put in the affidavit except of course paragraphs 5 and 6 therein. Having allowed the petitioners to put in their affidavit, I am in duty bound also to allow the Company to put in its counter affidavit and accordingly, the Company has put in a counter affidavit of Narandas Ramjidas, one of the Directors of the Company.
(8) I will now proceed to discuss the main points that were canvassed before me. Mr. Bhatt contended that the main object of the Company was to carry on the business of supplying electric energy and in particular the work of Akola electric licence. He pointed out that it is impossible for the Company to carry on the business of supplying electric energy in view of the fact that that work cannot be carried on without securing a licence from the Government under the provisions of the Indian Electricity Act. He referred to the averments contained in the affidavit put in on behalf of the petitioners to the effect that it is the settled policy of the Government not to grant fresh licences to private individuals or companies and that all electric supply undertakings will be taken over by the Government. According to him, therefore, the main or the paramount object of the Company has failed and the substratum has been destroyed. Before proceeding to discuss this argument in all its various aspects, it would be necessary to refer to the objects clause of the memorandum of Association of the Company, which runs thus:
'The objects for which the Company is established are to carry on the business and undertaking of an Electric Energy Supply Company in all its branches and departments including all industries primary or subsidiary to the said business and to work with the previous consent of the Government of the Central Provinces the Akola Electric Licence No. Nil dated nil granted by the Government of the Central Provinces to K. B. Pirokshah Rustamji Vakharia Bamanshaw Jamasji Jambusarvalla and others and any other like electric license which the Company may be entitled to work hereafter and to carryon any other business ( where her manufacturing or otherwise) which may seem to the Company capable of being conveniently carried on in connection with the aforesaid business or calculated directly or indirectly to enhance the value of or render profitable any of the Company's property or rights and generally to do all such other things as are incidental or conductive to the attainment of the aforesaid objects in any part of the world, either as principals, agents, contractors, trustees or otherwise, either alone or in conjunction and partnership with others.'
Pausing here, for a moment, it will at once be noticed that the wording of the clause is very wide and embraces a variety of topics or subjects which appear to be more or less independent of each other. I will discuss this question in greater length at a later stage after referring to the relevant authorities on this point. Before doing so, I may refer to the other clauses which are mentioned with the preamble 'Without prejudice to the generality of the preceding objects, the Company's objects will include the following' and as many as twelve objects have been included in this category.
(9) Mr. Bhatt referred me to a passage appearing under the caption 'Main object' rule in Palmer's Company Precedents, 17th Edition, 1956 (Part 1) at p. 276. It would be worthwhile to cite the passage in its entirety:
'According to these authorities, where the objects of a company are expressed in a series of paragraphs the true rule of construction is to seek for the paragraphs (commonly the first) which appear to embody the main or dominant object of the company, and to treat all the other paragraphs, however, generally expressed, as merely ancillary to this main object, and as limited and controlled thereby.
Assuming that there is any such rule of construction, it is, of course, to be borne in mind that like every other rule of construction it may be excluded or modified by the contents of the documents to be construed, for every rule of construction contains by implication the saving clause 'unless a contrary intention appear by the document'.
Sometimes the memorandum declares the intention to be that the objects specified in each paragraph of the clause, or in each of three or four specified paragraphs, shall, except where otherwise expressed in such paragraph, be in no wise limited or restricted by reference to or inference from the terms of any other paragraph or the name of the company. These words are obviously intended to exclude or modify the rule, and the Court is bound to give effect to the intention thus indicated. In Stephens v. Mysore Reefs (Kangundy) Mining Co. Ltd., 1902 1 Ch. 745, the learned Judge disregarded the presence of such words on the ground that inasmuch as when applied to one particular paragraph they would be nonsense, they could not be held to apply to the other twenty-three paragraphs. This case was, however practically overruled in In re Anglo Cuban oil, Bitumen and Aspalt Co. Ltd., 1917 1 Ch. 477 which appears to decide that where such words are included although the restrictive rule may be adopted for the purpose of determining whether the main object or substratum has ceased to exist with a view to considering whether it is just and equitable that the company should be wound up, it should not be applied to the question whether any particular transaction is ultra vires. See the criticism of Lord Wrenbury in that case in the House of Lords and of Vaisey J., in Re. E. K. Cole, 1945 1 AIR ER 521.
There are other modes occasionally adopted of excluding the artificial rule in question. For example, several of the leading objects are sometimes made to commence each with the words 'as an independent object'. In other cases the first few paragraphs fare expressed in very wide general terms and any special object is made subordinate thereto and is sometimes expressed to be 'without prejudice to the generality of the preceding objects'.'
It will thus be seen that the rule of construction set out in the above passage applies to a case where it is possible to discover the main or the the dominant object and it is also possible to treat the other paragraphs or other objects as merely ancillary to the main object. Further, it is clear that this rule of construction will be excluded by the language adopted in the memorandum and the learned author has referred to the various devices that are adopted for getting rid of the inconvenient rule of construction. This can take place when several objects are expressly stated to be independent objects. It may also take place when some of the objects are set out after the preamble 'without prejudice to the generality of the preceding object'. The learned author has also referred to the decision in Cotman v. Brougham, 1918 A. C. 514 and to the distinction that was made in that case by Lord Parker between a case where the question was whether the main object or substratum had ceased to exist and a case where the court is considering as to whether a particular transaction is ultra vires the Company. The learned author has suggested that the ratio of the case in 1918 AC 514 is that the well-known rule of construction may be adopted for the purpose of determining whether the main object or substratum has ceased to exist with a view to considering whether the company should be would up.
(10) It is in this background that we have to turn to the decision in 1918 A. C. 514. Considerable stress was laid by the learned counsel for the petitioners on the observations contained in the judgment of Lord Parker in that case to which I will presently refer. It is, however, necessary to remember that the question that was considered by the House of Lords in the above case was whether certain transactions were ultra vires and it was in that context that the observations made by Lord Parker will have to be read and understood. At p. 520 Lord Patker says:
'My Lords, Mr. Whinney in his able argument suggested that, in considering whether a particular transaction was or was not ultra vires is company, regard ought to be had to the question whether at the date of the transaction the company could have been wound up on the ground that its substratum had failed. Upon consideration I cannot accept this suggestion. The question whether or not a company can be wound up for failure of substratum is a question of equity between a company and its share-holders. The question whether or not a transaction is ultra vires is a question of law between the company and a third party. The truth is that the statement of a company's objects in its memorandum is intended to serve a double purpose. In the first place it gives protection to subscribers, who learn from it the purposes to which their money can be applied. In the second place it gives protection to persons who deal with the company, and who can infer from it the extent of the company's powers. The narrower the objects expressed in the memorandum the less is the subscribers' risk, but the wider such objects the greater is the security of those who transact business with the company. Moreover, experience soon showed that persons who transact business with companies do not like having to depend on inference when the validity of a proposed transaction is in question. Evan a power to borrow money could not always be safely inferred, much less such a power as that of underwriting shares in another company, Thus arose the practice of specifying powers as objects, a practice rendered possible by the fact that there is no statutory limit on the number of objects which may be specified. But even thus, a person proposing to deal with a company could not be absolutely safe for powers specified as objects might be read as ancillary to and exercisable only for the purpose of attaining what might be held to be the company's main or paramount object, and on this construction no one could be quite certain whether the Court would not hold any proposed transaction to be ultra vires. At any rate, all the surrounding circumstances would require investigation. Fresh clauses were framed to meet this difficulty, and the result is the modern memorandum of association with its multifarious list of objects and powers specified as objects and its clauses designed to prevent any specified object being read as ancillary to some other object. For the purpose of determining whether a company's substratum be gone, it may be necessary to distinguish between power and object and to determine what is the main or paramount object of the company, but I do not think this is necessary where a transaction is impeached as ultra vires. A person who deals with a company is entitled to assume that a company can do everything which it is expressly authorised to do by its memorandum of association and need not investigate the equities between the company and its shareholders.'
It is at once clear that Lord Parker was dealing with the argument that was advanced before him to the effect that same principle should be applied to a case where the transaction of the company is being impeached on the ground of ultra vires as is generally applied when considering the question as to whether the substratum of the company has failed and the learned Judge rejected that argument. While rejecting the argument Lord Parker pointed out the genesis of the modern ways in which the memoranda are drafted with their formidable lists of objects and powers which are specified as objects, the whole object being to prevent any specific object being read as ancillary to some other object. Lord Parker at a later stage observed:
'On the other hand, the name may be very material if it be necessary to consider what is the company's main or paramount object in order to see whether its substratum is gone.'
Reliance was placed on this passage also by Mr. Bhatt. It would be sufficient to point out by way of reply what has been stated in the 12th clause of objects, which is followed by what may be called 'without prejudice preamble', in the memorandum of association which is to the following effect:
'The object set forth in each of the several paragraphs of this clause . . . . . . . . . . . . . . shall be in no wise limited or restricted by reference or inference from the terms of any other paragraph or the name of the company.'
The observations of Lord Wrenbury in the said Cotman's case 1918 SC 514 are also relied upon. They are:
'There has grown up a pernicious practice of registering memoranda of association which under the clause relating to objects, contain paragraph after paragraph not specifying or delimiting the proposed trade or purpose, but confusing power with purpose and indicating every class of act which the corporation is to have power to do. The practice is not one of recent growth. It was in active operation when I was a junior at the Bar. After a vain struggle I had to yield to it contrary to my own convictions. It has arrived now at a point at which the fact is that the function of the memorandum is taken to be, not to specify, not to disclose, but to bury beneath a mass of words the real object or objects of the company with the intent that every conceivable form of activity shall be found included somewhere within its terms.'
This passage was cited by Chagla, C. J., in a decision in Jayantilal v. Tata Iron and Steel Co. Ltd. : AIR1958Bom155 . In my opinion, this passage does not assist Mr. Bhatt in the argument which h is advancing. It is true that while Lord Wrenbury has deplored, or we can even say deprcated, the practice which has recently grown up of including multifarious objects as independent objects or as objects put down after 'without prejudice' preamble, Lord Wrenbury stated that he had to reconcile himself with this practice much against his conviction and without considerable reluctance. Now, it is one thing to deplore a practice prevailing in the matter of drafting the memorandum of association and quite another to say that although the memorandum specifically says that certain objects are independent of each other or followed by 'without prejudice' preamble, still an investigation should be made with a view to find out as to which is the principal or paramount object and which are the ancillary objects of the Company. I find from subsequent rulings cited before me that this decision has never been interpreted to lay down any rule of construction of the objects clause of the memorandum and as pointed out above, even Palmer has used very cautions language and said 'The case in 1918 AC 514 appears to decide . . . . . . . '
(11) In this connection, I may refer to the decisions on which reliance was placed by Mr. Banaji which would put the position on this point beyond any pale of doubt. In Re Eastern Telegraph Co. Ltd., (1947) 2 All E. R. 104 certain principles have been laid down as to how a memorandum of association should be interpreted. The principle has been expressed in the following terms:
'Where the memorandum of the association of a company provides that the company has a specific main object followed by general words, the general words should not be construed as enabling the company to throw its main object over altogether and embark on some new venture.'
With reference to the memorandum in that case, Jenkins J., observed:
'On the true construction of the memorandum the transaction carried out in 1929 by which Imperial and International Communications Ltd., acquired the ordinary share capital of the company was an amalgamation into which the company had power to enter, and, consequently, the company had since continued to carry on one of the main forms of business authorised by the memorandum, because although not operating a telegraph or cable business itself, it had participated, through the medium of its shareholding, in the proceeds of operation of the business carried on by Cable and Wireless Ltd. The reference in the memorandum to amalgamation did not constitute general words ancillary to the company's main object, but comprised a specific object ranking on a par with all preceding objects.'
This case was cited by Mr. Banaji for the purpose of pointing out that in the memorandum is the present case also there is a clause (4) which refers to entering into partnership or into any arrangement for sharing profits, amalgamation union of interests, co-operation joint venture etc. He contended that on the basis of the ratio of the above case, the amalgamation clause does not amount to an ancillary object but it is one of the principal objects or at any rate, on a par with the principal object I will have no hesitation in acceding to this argument. For the present, I am referring to this case with a view to point out the principle of construction which governs the case where the memorandum of association first provides for specific object and then general words are used in which various objects have been mentioned. The learned Judge held that in such a case the objects specified in general words may be treated as ancillary objects. In the case of the memorandum of the Company in the present case the process is reverse. This is not a case of specific object followed by general words. On the other hand, this is a case of general words followed by a specific object and also other objects. The general object is stated to be as follows:
'The objects for which the Company is established are to carry on the business and undertaking of an Electric Energy Supply Company in all its branches and departments including all industries primary or subsidiary to the said business. . . . . . .'
Then there is reference to specific objects, one of which is 'to work out the Akola Electric License granted by the Government of Central Provinces to Vakharia and others'. Again general words have been used viz, 'and any other like electric license which the company may be entitled to work hereafter. . . . . . .'. It is, therefore, impossible to conclude that the working of the Akola Electric License was the main or the principal object of the Company. One of the main or principal objects was to carry on the business and undertaking of an Electric Energy Supply Company and this object includes starting of industries primary or subsidiary to the said business. The starting of primary or subsidiary industries would, in itself be an independent object. For instance, the company may start an industry to make cable, electric bulbs, electric meters electric switches etc. Such an undertaking would be covered by the expression 'all industries primary or subsidiary to the said business'. In Re Kitson and Co. Ltd., (1946) 1 All ER 435, the objects of the company were stated in wide terms in the memorandum of association as follows:
(I) To acquire and take over as a going concern a business carried on elsewhere under the style of K and Co.;
(ii) to carry on the business of general engineering.
On July 10, 1945, the appellant company agreed to sell the business of K and Co., its goodwill and all its assets. The company had at the ame time a subsidiary, B and Co., carrying on a similar type of business but the premises were under requisition to the Authority. By reason of the sale of K and Co., certain shareholders presented a petition alleging that the substratum of the appellant company had failed and that it was just and equitable to wind it up. At the time of the sale K and Co., the then directors of the appellant company passed a resolution in which it was contemplated to discontinue the engineering business and to use the money of the appellant company or purchase shares in a group of companies more or less insolvent. In proceedings against the appellant company and its then directors, an affidavit to this effect was filed, as a result of which the resolution was withdrawn. At the time of the hearing of the petition those directors with one exception, were replaced and an affidavit was filed by one of the present directors of the appellant company stating that it was the intention of the company to continue with the engineering business and to acquire the assets and undertaking of B and Co., for the appellant company. The affidavit which formed part of previous proceedings was introduced in support of the petition for the purpose of showing that the appellant company had no intention of carrying on the business of engineering and on those facts an order to wind up the appellant company was made. From that order the appellant company appealed.
It was held:
'(I) since the main and paramount object of the appellant company was to carry on an engineering business of a general nature the disposal of the business of K and Co., which had been acquired about 46 years before, did not amount to a destruction of the substratum of the appellant company ;
(ii) the intention of the board of directors, at a given moment, to discontinue the business of engineering had no effect on the determination of the question whether the substratum had gone.'
It is significant to note that the first object in the memorandum in that case was a specific business, i.e., to acquire and take over the business carried on under the style of K and Co. The specific object was followed by the general object 'to carry on the business of general engineering' and yet it was held by Lord Greene, M. R. that the main and paramount object was to carry on the business of general engineering. I will refer to the second proposition set out above presently and in another context. Before doing so, I may set out a few observations made by Lord Greene M. R. At page 438. They are as follows:
' . . . . . .but the question we have to decide is whether, that business having been acquired 46 years ago, the disposal of it last year amounted to a destruction of the substratum. In my opinion, the main and paramount object of this company was to carry on an engineering business of a general kind . . . . . . It must be remembered in these substratum cases that there is every difference between a company which on the true construction of its memorandum is formed for the paramount purpose of dealing with some specific subject-matter and a company which is formed with wider and more comprehensive objects. I will explain what I mean. With regard to a company which is formed to acquire and exploit a mine, when you come to construe its memorandum of association you must construe the language used in reference to the subject-matter, namely, a mine and accordingly, if the mine cannot be acquired or if the mine turns out to be no mine at all, the object of the company is frustrated because the subject-matter which the company was formed to exploit has ceased to exist. It is exactly the same way with a patent, as, in the well known German Date Coffee case, (1882) 20 Ch. D. 169. A patent is a defined subject-matter and if the main object of a company is to acquire and work a patent and it fails to acquire that patent, to compel the shareholders to remain bound together in order to work some other patent or make some unattended article is to force them into a different adventure to that which they contracted to engage in together; but when you come to subject-matter of a totally different kind like the carrying on of a type of business, then so long as the company can carry on that type of business, it seems to me that prima facie at any rate it is impossible to say that its substratum has gone, So far as this stage of the argument is concerned, it is to my mind quite impossible upon the true construction of this memorandum of association to limit the paramount object of this company to the specific business of Kitson and Company., so as to lead to the result that as soon as Kitson and Co.'s business was sold the substratum of the company had gone.'
In my opinion, the objects mentioned in the memorandum of the present company are far more numberous and wider in their scope than the objects in Kitson and Co., case, (1946) 1 All ER 435. As pointed out above the very first object is general in its scope and amplitude. Although it is followed by a specific object, several other general objects again have been mentioned, all in one clause, and all of them appear to be independent of each other. Therefore each of them will have to be treated as principal and independent object. I may incidentally point out that reference was made to Cotman's case 1918 AC 514 in the judgment of Morton LJ in Re Kitson and Co. Case, (1946) 1 All ER 435 and to the observations made by Lord Parker. It is significant to note that these observations were not treated as enunciating a rule of construction to the memorandum of association for the purpose of determining the question as to whether the substratum has failed. Reference to certain passages were made only with a view to point out the double purpose for which the objects are set out in the memorandum.
(12) In Re Taldua Rubber Co. Ltd., (1946) 2 All ER 763, the memorandum was in the following terms:
The objects of T. Rubber Co., Ltd., were stated in the widest terms and included power 'to enter into and carry into effect the agreement draft of which is referred to in Art. 3 of the Articles of Association'. This agreement (which was entered into on March 30, 1917 the same day as the company was incorporated) was for the purchase by the company of the T. Rubber estate. By the last paragraph of clause 3 of the memorandum of association it was provided that the various objects of the company were to be regarded as independent objects and that the name of the company was not to be taken as operating to restrict the various powers set out in the clause. For 29 years the company carried on the business of a rubber estate on the T. Estate, and during that period it carried on no other business except that it purchased rubber from other estates and processed it on its own estate. Pursuant to a resolution passed unanimously on March 7, 1946 the company sold the T. estate and is business thereon. The circular convening the meeting of March 7 intimated that, if the business were sold, the liquidation of the company would be recommended, by on July 17, 1946, a resolution for the voluntary liquidation of the company was defeated by a small majority. In August 1946, a petition for compulsory winding-up was presented by one of the contributories on the ground that the substratum of the company had gone, since the company had been formed solely to work the T. Rubber estate. It was also contended by the petitioner that the absence before the court of any concrete scheme by those who were against liquidation for dealing with the proceeds of the sale was a further ground for making a winding up order.
It was held:
'(I) on the true construction of the memorandum of association it was impossible to conclude that the company had been formed solely to work the T. Rubber estate. It had been formed party to carry on the business mentioned in the agreement of March 30, 1917, but with the widest powers to carry on a variety of other activities. Therefore, the sale of the T. Estate did not result in a destruction of the substratum because the paramount object of the company was to carry on the business of conducting rubber estates, and was not limited to the business of carrying on the particular estate.
(Ii) the fact that there was no concrete scheme before the court for dealing with the preceeds of the sale was no ground for making a winding-up order.'
On a proper construction of the memorandum of the company in question, it is impossible to conclude that the Company has been formed solely for the working of the Akola Electric license.
(13) Mr. Bhatta contended that if the main object of the company was to carry on the business and undertaking of an Electric Energy Supply Company even that object had failed and was incapable of achievement because of the change in the Government policy. The statement that the Government policy has changed has not been specifically traversed in the affidavit put in on behalf of the company although it is challenged that everyone knew that the Government policy had changed. Any reference to the policy of the Government is bound to be of an indeterminate character, because the policy is never static and is always liable to change and fluctuate. Although for the time being it may be the policy of the Government not to renew the licences of private companies there is no guarantee that this policy will not change in future. But, apart from this, as stated above, there are several other objects which are independent of one another and it is impossible to say that the company cannot carry on the other objects, which have been stated in extenso in the memorandum.
(14) I will now turn to another question which is of an incidental character, on which some stress was laid in the course of the argument by Mr. Bhatt. He pointed out that the company in its affidavit at the end of paragraph (3) states
'As matters now are at present alter the receipt of compensation moneys after discharging the liabilities of the company the surplus assets would be divided between the shareholders which are expected would be recovered in the meanwhile. I submit that the present petition is misconceived and cannot lie.'
Mr. Bhatt contended that it is clear from the statement that the company is not thinking of starting of any new undertaking and actually there is no concrete proposal before it. At paragraph (8) of the same affidavit, it is stated:
' . . . . . . . that the contentions of the petitioners have no substance left in them in view of the fact that at present the business which was carried on by the company has come to a standstill and the only thing which has to be done is to receive the compensation moneys and if the company does not start any new business to distribute the same amongst the shareholders or the Company.'
Mr. Bhatt contended that this averment is some, what inconsistent with the averment in paragraph (3) of the affidavit. He also pointed out that even here the Company does not say that they have any concrete proposal before them for starting any undertaking, and the question as to whether the Company may start a new venture or may amalgamate itself with another concern is of speculative and academic character. I am unable to accept this line of reasoning. We are not concerned to find out the intention of the Company as it is at the present moment. This intention may change and when a favourable opportunity presents itself, the Company may launch upon a new project. The observations of Lord Greene M. R. In Re Kitson and Co., case, (1946) 1 All ER 435 are apposite on this point. They are:
'The intention of the board of directors at the given moment to discontinue the business of engineering had no effect on the determination of the question, whether the substratum of the company had gone.'
At a later stage, Lord Greene M. R. Observed:
'Let it be supposed that at the time of the sale of the Kitson business, so far as the board was concerned they though that there was no chance and that it was not desirable for the company ever to start again into engineering. It certainly is not proved nor was it proved that the shareholders had any such intention; but assume that it was. A little time afterwards something might happen to make them change their minds. They might see a profitable opportunity of using the Company's money again in the engineering business. What has intention to do with it? We are dealing with the question of substratum and to say that the substratum can exist at one moment and cease to exist a moment later, or vice versa simply through a change of intention of the board or of the shareholders (I know not which) seems to me to lead into a morass.'
The observations in (1946) 2 All ER 763 are still more clear . Wyn-Parry, J., observed:
'There then remains the question whether the absence before the court today of any concrete scheme for dealing with the proceeds of the sale is a reason for making a winding-up order. It has been observed by counsel for the petitioner that there is no reported case to be found where a petition has been rejected where those who oppose the making of the winding-up order did not bring before the court some concrete scheme, and he urged on me that, on the true view of the judgment of Lord Greene, M. R. In 1946-1 All ER 435 that proposition could be extracted. I do no share that view'.
After citing a passage of Lord Greene M. R., the learned Judge observed (at page 768):
'Those observations are binding on me, and with respect I agree with every word of them. They seem to me to apply to this case with full force and effect. Apart from authority, it appears to me that the common sense of the matter demands that the existence or non-existence of a concrete scheme at the time the petition comes before the Court should be regarded as a wholly irrelevant matter, otherwise it would be impossible for the court to draw any safe line in any particular case. Where is the court to draw the line? What period is to be allowed to lapse? What is to be regarded as satisfactory evidence of the intention of the company to go forward into some new venture? The court clearly is not called on to adjudge the merits or demerits of any scheme, and this fact appears to me to make the consideration by the court of the existence or non-existence of a particular scheme all the less fruitful. If this point were well taken, it would follow that a shareholder who desired a company to be wound up would be well advised, as soon as the resolution for the sale of the company's business had been passed, immediately to put a petition on the file, and bring the petition on in circumstances in which he could accurately allege that there was no scheme before the Court'. The last observations are exactly in point to the present case. As pointed out above, the present petition has been filed within twelve days after the expiry of the period of the licence.
(15) That takes me to the allegation that an important change has taken place as result of the undertaking given by the share-holders of the company who also happen to be the partners of Sarupchand Prithiraj firm to the Additional Collector. Bombay in which they a greed to pay the compensation money to discharge the income-tax liability of the partners of the firm. In their affidavit at paragraph (4) the petitioners allege:
'From what is stated above, it is clear that there is no prospect of the Company carrying on any other business; while denying that the company is entitled to carry on any other kind of business I say that the substratum of the company has gone and that the Company should be wound up and the Court Liquidator be appointed Official Liquidator thereof.'
In my opinion, the question as to whether the Company is really in a position to start a new business is very relevant in considering the question as to whether the substratum has disappeared. This is clear from the observations contained in the cases in which reliance was placed by Mr. Banaji. In the Editorial Note in Re Kitson and Co., case 1946 1 All ER 435, it is stated:
'The material time for consideration is the date of the winding up petition, and if the company is them in a position to carry on a business within the principal object of its memorandum it is quite irrelevant that the directors held a different intention at some earlier date.'
It is this consideration which included me to admit the affidavit in this petition. In the counter affidavit put in on behalf of the Company, it is pointed out that there are nine partners in the firm of Sarupchand Prithiraj that the income-tax liabilities are not the liabilities of the firm as such but are the liabilities of some of the partners of the firm and that although six shareholders of the Company are liable for income-tax dues, their liabilities are individual and in any case there are many other properties which are available to the Additional Collector from out of which the income-tax dues could be recovered. The main point which was forcefully urged by Mr. Banaji in this connection was that the whole superstructure of the petitioners' case in this respect is based on hypothetical and speculative considerations. He pointed out that the undertaking was given just with a view to avoid the sale of the shares of the share-holders which were also admittedly attached by the Additional Collector, Bombay. He also pointed out that the Company has nothing to do with the liabilities of the share-holders. Assuming, for a moment the argument proceed that the shares of the shareholders are sold in execution by the Additional Collector, that does not mean that any change has taken place in the structure of the Company. Instead of the present shareholders, new shareholders would take their place and they would carry on the business of the Company. It is contended that unless the petitioners establish that it is absolutely impossible that the compensation money will not come into the hands of the Company, it is not possible to take the view that the Company is not in a position to start a new undertaking or a new venture. In this connection, it is pointed out that the firm has other assets and reference was made to a land at Chembur. It is an admitted fact that the suit for dissolution of Sarupchand Prithiraj firm is pending in the High Court. It appears that the firm has large assets of its own and at the same time, as has been pointed out in the counter affidavit, it is not possible to ascertain the definite share of each of the partners of the firm until a final decree has been passed in that behalf. Whatever that may be, there is no allegation made by the petitioners to the effect that it is beyond the means of the partners of the firm who are also the share-holders of the Company, to satisfy their income-tax dues. In any case, if the undertaking is not fulfilled and becomes incapable of being fulfilled, all that the Additional Collector can do is to put the shares of the present shareholders to sale and as pointed out above, that will not bring about any change of structure in the Company. It is quite possible that the Additional Collector may succeed in recovering the income-tax dues from other properties of the firm or from separate properties of the partners. It is equally possible that the partners may pay off their share of the liabilities and in that way may free themselves from the undertaking at present given by them. The question raised in the present affidavits is based on a number of hypothetical considerations and at this time, we cannot make any assertion to the effect that the compensation money will be wipped out in the process of satisfying the income-tax dues of the partners of the firm. In case, such an eventuality materialised, it is quite open to the petitioners to make a fresh application for winding up of the Company. After all, the passing of an order for winding up is a matter within the discretion of the Court. The remedy of compulsory liquidation is obviously a drastic remedy and should be availed of only when a clear case has been made out justifying such an action. We cannot proceed to wind up the Company on assumptions. If the Company is wound up today on the hypothetical consideration that the compensation money will not be available to the Company for being utilised in starting a new venture and if tomorrow it turns out that the compensation money is actually available for being utilised by the company, then we will be landing ourselves in a preposterous and anomalous position. It would be impossible to undo what has been done. Before taking such an irrevocable step, the Court must be satisfied that the assets of the Company would be completely frittered away because of the undertaking given by the share-holders of the Company. I must, therefore hold that the petitioners have failed to prove either that the substratum of the Company has gone because the undertakings in which the Company was engaged for all these years has been taken over by the Government or that it is not possible for the Company to start a fresh venture within the four corners of the objects adumbrated in the memorandum.
(16) The next ground, on which reliance was placed, was that a situation has arisen so far as the management of the affairs of the Company is concerned, which is analogous to the situation of a dead-lock. This company being a small private company and consisting of a small number of share-holder, the principles relating to the dissolution of a partnership firm should be applied and when the court feels that it is not possible to put the affairs of the Company in order it should have recourse to the winding up under its just and equitable jurisdiction. The general allegation regarding the oppression of the minority by the majority is of no avail in an action for winding up. That is a question relating to internal management of the Company and it is a settled principle that it is the right of the majority to carry on the management of the Company. There is also no allegation that the directors of the company are misbehaving themselves nor is there any allegation that they are acting in a way which is prejudicial to the interests of the Company. The mere fact that differences have arisen between one group and the other by itself is not sufficient to lead the Court to the conclusion that a situation similar to that of deadlock has arisen in the affairs of the Company. Reference was made to the fact that the directors have been withholding the amounts of dividends, which are legitimately due to the petitioners and the petitioners have been driven to file suits to recover the same. It is also pointed out that the City Civil Court has passed a decree in one of these suits. In my opinion, these circumstances have no bearing upon the question under our consideration. The decree passed by the City Civil Court is under appeal before the High Court. Furthermore, we cannot embark upon the investigation in the present case as to whether there was justification for the directors in withholding the amounts of dividends due to the petitioners. In any case it is sufficient to point out that the petitioners have ample remedies in properly constituted suits. Another question that was raised in the same context was that in case the amount of compensation is available to the company and falls into the hands of the directors and the latter decide to start a new undertaking with the nucleus of those funds, then it was argued that the starting of that venture will not only be without the consent of the petitioners but will be very much against their wishes. It is argued that it would be improper to subject the minority of the shareholders to the risk of a new undertaking to which they are not a party. In this contention reference was made to a passage at p. 702 of Palmer's Company Law. 12thEdn., 1959 under the heading 'Contributory's Petition, which is as follows:
'The substratum is held to be gone when the main object for which the company was formed has become impracticable. In such a case shareholders may fairly claim that they ought no longer to be forced to risk their property in going on.'
I am unable to understand how this passage helps in the argument that has been advanced by Mr. Bhatt in this connection. The shareholders cannot be subjected to the risk of a new venture when the substratum has been destroyed or has become impracticable. It is only in that event that the learned author refers to the possibility of the interests of the share-holders being put in jeopardy by a new venture. When the substratum of the Company remains intact, it is the duty and privilege of the majority of the share-holders to embark upon a new venture and the only restriction will be that the venture falls within the four corners of the objects Claus. This argument also is, therefore void of substance.
(17) Mr. Bhatt then relied upon a passage, cited at page 2498 of the Civil Court ., 1957 And LT 728 to the following effect:
'Where the main object of the company was to generate and supply electrical energy, but the generation of electrical energy was undertaken by the Government and the company had only been distributing electrical energy purchased from the Government and although there were other objects stated in the Memorandum of Association there was no chance of carrying them out, the order to wind up the company was held just and equitable'.
As I have pointed out above, in the present case it is not established that there is no chance of carrying on the other objects mentioned in the memorandum of the Company. The observations cited above will, therefore, in no way help Mr. Bhatt in the argument that he is advancing before me.
(18) Mr. Bhatt then referred to a leading case in Re Yenidje Tobacco Co. Ltd., (1916) 2 Ch. 426 and in particular to certain observations made by Lord Cozens-Hardy M. R. The facts of that case were as follows:
In 1914 W and R., who traded separately as tobacconists and cigarette manufacturers, agreed to amalgamate their business, and in order to do so formed a private limited company in which they were the only share-holders and directors. The constitution of the company was such that under the articles of association W and R had equal voting powers one director was to form a quoram, and if any dispute or difference should arise consequent whereon inability to pass a directors' resolution should result the matter in dispute should be referred to arbitration, the award to be entered in the minute-book as a resolution duly passed by the board. The company's business was successfully carried on until June, 1915, when differences arose between the parties. One of such differences was referred to arbitration, which, after a protracted hearing involving costs exceeding 1000, resulted in an award to which R declined to give effect. He brought an action for fraudulent misrepresentation against W and the parties became so hostile that neither of them would speak to the other, communications having to be conveyed between them through the secretary of the company. In spite of this the company continued to transact business and large profits were made. Under these circumstances, W presented a petition alleging that a complete deadlock had arisen, that the substratum of the company was gone, and that it was 'just and equitable' within S. 129 of the Companies (consolidation) Act, 1908, that a winding up order should be made.'
It was held:
'Affirming the decision of Astbury J., that if this were a case of partnership there would clearly be grounds for a dissolution and that the same principle ought to be applied where there was in substance a partnership in the guise of a private company. The position amounted to a complete dead-lock, and it was 'just and equitable' that the company should be wound up.'
After pointing out that the 'just and equitable' clause is normally limited to two types of cases, one where the substratum of the company has gone, and second, where there is a complete deadlock in the management of the affairs of the company, Ltd Cozens-Hardy, M. R. Pointed out:
'Although those are the two instances which are given. I should be very sorry so far as my individual opinion goes, to hold that they are strictly the limits of the 'just and equitable' clause as found in the Companies Act. I think that in a case like this we are bound to say that circumstances which would justify the winding up of a partnership between these two by action are circumstances which should induce the Court to exercise its jurisdiction under the just and equitable clause and to wind up the company.'
It will thus be seen that the learned Judge extended the principle of just and equitable clause to the facts of that case, because the circumstances prevailing in that case were of an exceptional character. In each case, therefore, we have to consider whether a principle which is normally limited to the two categories of the cases viz., where the substratum of the company has gone or where there is a complete dead-lock in the management of the affairs of the company, should be extended to the facts or that case. At p. 430 the learned Judge cited a passage from Lord Lindley's book on Partnership which runs as follows:
'Refusal to meet on matters of business, continued quarreling, and such a state of animosity as precludes all reasonable hope of reconciliation and friendly cooperation have been held sufficient to justify a dissolution. It is not necessary, in order to induce the Court to interfere to show personal rudeness on the part of one partner to the other, or even any gross misconduct as a partner. All that is necessary is to satisfy the Court that it is impossible for the partners to place that confidence in each other which each has a right to except, and that such impossibility has not been caused by the person seeking to take advantage of it.'
Lord Cozens-Hardy, M. R. Then proceeded:
'Now here we have this fact, Mr. Rothman has commenced an action charging Mr. Weinberg with fraud in obtaining the agreement under which he, Rothman, sold his business to the company. I ask myself the question; When one of the two partners has commenced and has not discontinued an action charging his co-partner with fraud in the inception of the partnership, it is likely, is it reasonable, is it common sense to suppose those two partners can work together in the manner in which they ought to work in the conduct of the partnership business? Can they do so when things have reached such a pass, as they have here, that after an arbitration lasting eighteen days, an arbitration on the only point which was referred which terminated in favour of Mr. Weinberg, and to which Mr. Rothman declines to give effect in this sense, that although the award decided that Litiger had not been dismissed and ought to be continued as a servant of the firm until removed. Mr. Rothman will not allow him to come and do his business, so that he, Litiger, is in the happy position now of receiving his wages of 5 a week without being allowed to do any work for the company in respect of which he is a servant?'
I do not think that it would follow from the passages set out above that Lord Gozens-Hardy intended to law down as a proposition of law that in all cases of private companies the principles relating to the dissolution of a partnership firm are necessarily applicable. The principles relating to the dissolution of partnership were held applicable because of the peculiar circumstances and the facts prevailing in that case. As a matter of fact, the position of a partner of a firm stands entirely on a different footing from the position of share-holders qua shareholders of a company. The doctrine of agency prevails in the case of partnership and each partner represents the other partner and has a right to participate in the conduct of the affairs of the firm. That is not the case so far as the position of the shareholders of a company is concerned. The management of the affairs of a company is vested in a small body of directors which can be called 'directorate' for the sake of convenience. It is only when a situation analogous to deadlock has arisen amongst the directors inter se that the principles relating to the dissolution of a partnership can be extended to the winding up of a company. In Yenidje Tobacco Co., case 1916 2 Ch 426 there were only two shareholders both of whom were directors of the company. The disputes between them had reached a stage, which has been graphically described by Lord Cozens-Hardy in the passages cited above. Of course, it was not a situation of deadlock but it was a situation worse than that of a deadlock where one director was not only refusing to abide by the decision of the arbitrator but was also trying to prosecute the other director for fraud and the servant of the company was going on merrily with a fat salary without being obliged to carry on any work on behalf of the company. In the present case, there is no conflict between the directors of the company inter se. The dispute in the present case is between one group of share-holders on one side and the other group of shareholders from amongst whom the directors have been chosen. The dispute has nothing to do with the management and does not reflect itself in the affairs of the management of the company. No shareholder has a right to participate in the governance of the affairs of the Company and, as stated above, the nature of the dispute between the parties is such that it is quite possible for the petitioners to have recourse to other remedies and they have actually had recourse to them. They have filed suits in the City Civil Court for the recovery of the moneys due to them by way of dividends. They had also started an action under Sections 397 398 and 402 of the Indian Companies Act, 1956, for directions to check what they called mismanagement or oppressive management of the Company. Reference was also made to a case reported in Anantha Raghurama v. East Coast Transport and Shipping Co. (Private) Ltd., 28 Com Cas 20: AIR 1958 And Pra 259. This case is also reported in ILR (1957) And Pra 308. In that case one of the five share holders of a small private Company presented a petition for an order for winding up the company on the grounds that (1) there were serious misunderstandings among the shareholders of the company. (2) one of the shareholders was actively engaged in promoting the interests of a firm which was conducting a similar rival business, and (3) two other shareholders, who owned, as did the company itself, half a share each in another company, drew a sum of Rs. 50,000 from this second company, which they did not return and this amounted to misappropriation of the funds of the company. It was held:
'That as on the facts, the first two grounds were established, and there was no satisfactory accounting with regard to the sum of Rs. 50,000, it was just and equitable that the company be wound up.'
Satyanarayana Raju J., referring to the leading case in (1916) 2 Ch 426, stated that in the circumstances prevailing in the case the principle enunciated by Lord Cozens-Hardy should be applied and the company should be wound up. The facts in that case w ere peculiar in that one of the shareholders was actively engaged in promoting the interests of a firm which was conducting a rival business. Furthermore, two other shareholders had misappropriated a sum of Rs. 50,000/- It was in these extraordinary circumstances that the intervention of the Court was called for on the analogy of the dissolution of a partnership firm. As repeatedly pointed out there is no suggestion, whatsoever, in the present case that the directors have misconducted themselves or have misapplied the funds of the Company much less misappropriated them
(19) Mr. Banaji relied upon a passage of the Privy Council in Loch v. John Blackwood, Ltd, 1924 AC 783, which is as follows:
'It is undoubtedly true that at the foundation of applications for winding up on the 'just and equitable' rule there must lie a justifiable lack of confidence in the conduct and management of the company's affairs. But this lack of confidence must be grounded on conduct of the directors, not in regard to their private life or affairs, but in regard to the company's business. Furthermore the lack of confidence must spring not from dissatisfaction at being outvoted on the business affairs or on what is called the domestic policy of the company. On the other hand whatever the lack of confidence is rested on a lack of probity in the conduct of the company's affairs then the former is justified by the latter and it is under the statute just and equitable that the company be wound up.'
Now, if we examine the allegations contained in the petition, all that they boil down to is that lack of confidence springs from the petitioners' apprehensions at being outvoted on the business affairs of the Company. There is no suggestion, whatsoever, that there is any lack of honesty or probity on the part of management. That being the case, mere trotting out of allegations viz., that disputes have arisen and that the minority group has lost confidence in the majority group, will not be a sufficient group for winding up the Company. The above observations of the Privy Council have been cited with approval by the Supreme court in Rajamundry Electric Supply Corporation Ltd., v. Nageshwara Rao : 2SCR1066 . It is not necessary to refer to the two other decisions relied on by Mr. Banaji viz., IN re janbazar Manna Estate, Ltd. : AIR1931Cal692 and Seethiah v. Venkatasubiah AIR 1949 Mad 675 because they reiterate the view laid down by the Privy Council in Loch's case and state in general terms that the view of the majority of the shareholders must prevail and the mere fact that there is difference of views cannot be considered to be sufficient reason for winding up the Company.
(20) It only remains to deal with a small point that was made out by Mr. Bhatt based on certain observations in Re Baku Consolidated Oil fields Ltd., (1944) 1 All ER 24. In that case:
'The Company was formed to acquire the undertakings of four other companies carrying on an oil business in Russia. Before the undertakings could be acquired, they were confiscated and since 1920 the company had been engaged in an endeavour to substantiate a claim against the Government of Russia. It had not otherwise carried on any business and had considerable assets.'
It was held:
'In the circumstances, the whole substratum of the company had gone and a compulsory order ought to be made. Such claim as the company had against the authorities in Russia could be equally well enforced by a liquidator.'
In my judgment, this is not an authority for the proposition that in all cases the liquidator would be in a better position to lodge a claim for compensation for the acquisition of the undertakings. In Re Baku's case, (1944) 1 All ER 24 the Soviet Government had confiscated the undertakings. That was a case of expropriation. In the normal course there is no question of demanding any compensation in respect of an order for confiscation and what the company could do was to try to prevail upon the Soviet Government to give some compensation. There was no guarantee that the Soviet Government would give any compensation. The question, therefore, of putting forward all the material for the purpose of arriving at a correct figure of compensation did not arise. The company had to content itself with making a claim in the hope that something would eventually come out of it. It was rightly held that a liquidator would be as much competent as the directors of the company to make all possible endeavours to substantiate their claim. Mr. Banaji on the other hand has relied upon certain observations in (19147) 2 All ER 104. They are:
'The compensation has to be assessed and received. The amount of compensation is a matter of great importance, and it is obviously desirable in everybody's interests both in the interests of the preference stockholders and of the ordinary stockholders- that the company's case as to the amount of compensation should be cogently and effectively put in order that the compensation received may be as large as possible. It seems to me that the proper people to look after that matter are the directors of the company, who are directors also of all the other companies in the group, and who are well acquainted with the undertaking of Cable and Wireless Ltd.'
It is thus clear that even for the limited purpose of securing the maximum amount of compensation, it is desirable that the Company should be kept on going, so that the directors would be in a position to extract the maximum advantage out of it.
(21) After giving my anxious consideration to the pros and cons of the situation. I have come to the conclusion that no case has been made out by the petitioners which will justify an order for winding up the Company.
(22) The result is that the petition fails and is dismissed with cost. These costs will include costs of the petition before Shah J., as also costs in appeal from that order. They will also include costs of the notice of motion taken out by the petitioners. Costs to be taxed. Counsel certify. The undertaking given by the Company in the appeal is discharged.
(23) Petition dismissed.