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Narasaraopet Electric Corporation Ltd. and anr. Vs. A. Ramachandran and ors. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtAndhra Pradesh High Court
Decided On
Case NumberO.S. Appeal No. 7 of 1970
Judge
Reported in[1983]53CompCas100(AP)
ActsCompanies Act, 1956 - Sections 176, 176(1), 176(3) and 433
AppellantNarasaraopet Electric Corporation Ltd. and anr.
RespondentA. Ramachandran and ors.
DispositionAppeal allowed
Excerpt:
.....of the shareholders as to whether they would like to continue the company for achieving the other objects mentioned in the memorandum of association, or they would like to wind up the company. 14. the aforesaid meeting was, however, convened only to find out the views of the shareholders, and we are satisfied that the view expressed at the said meeting, indicated by a majority, is that the company should not be wound up, but should be allowed to continue for carrying on any items of the business as mentioned in the memorandum of association. 134) :where one of the objects of the company of supplying electricity at akola, which was the only business that the company was carrying on, had failed by reason of the fact that the period of licence to run the company granted by the government..........of the shareholders as to whether they would like to continue the company for achieving the other objects mentioned in the memorandum of association, or they would like to wind up the company.11. accordingly, a meeting was held on january 10, 1974. at the said meeting, five shareholders were present, whose names appear in the minutes book. seven shareholders were present by proxy. the total vote value of the shares held by those who were physically present, and those who were present by proxy, came to 184. all the shareholders voted for continuing the business of the company, whereas two of the shareholders who were present by proxy and whose votes, on the basis of the shares held by them, came to 65, voted that the company should be woundup.12. in the affidavit of sri k. lakshmikantha.....
Judgment:

Gopal Rao Ekbote C.J.

1. This is an appeal from the judgment of our learned brother, Narasimham J. (as he then was), given in Company Petition No. 10 of 1968, on 26th of August, 1970. It arises in the following circumstances :

2. The respondents herein, who were the petitioners, filed an application under Section 433(f) of the Companies Act, 1956 (hereinafter called 'the Act'), for the winding-up of the Narsaraopet Electric Corporation Ltd. The petitioners held preference shares, i. e., each of them held 100 preference shares, each share being of the value of Rs. 50, fully paid up.

3. The company was registered under the Companies Act as a public company limited by shares. The registered office of the company was at Guntur. The nominal capital of the company was Rs. 1,50,000 divided into equity shares and preference shares. 2,000 equity shares were fully paid up and 1,000 preference shares were also paid up. The object of the company was manifold and we will deal with the same at the appropriate place.

4. The company was supplying electrical energy in and around Narasaraopet. While the company was carrying on its business, the entire undertaking of the company was acquired on February 26, 1951, by the then Government of Madras. The company was awarded compensation of Rs. 1,06,977.

5. It was alleged in the company-petition that the company has no other assets apart from the compensation amount. The 2nd respondent to the petition (who is the managing director of the company on a remuneration of Rs. 250 per month from 1962), has been engaging himself in fruitless litigation. The 1st petitioner, therefore, compelled the managing director, respondent No. 2, to call for a meeting for the voluntary winding-up of the company. The meeting was, accordingly, called on August 18, 1968. There was, however, no quorum. Since the company has ceased to do any business since 1951 when the entire undertaking was taken over by the then Govt. of Madras, and since there was no possibility of the company doing any business in future, the petitioners contended that it was just and equitable that the company should be wound up.

6. The petition was resisted by the company.

7. The learned judge formulated two points for his consideration, viz., (i) whether the company has ceased doing business after February 26, 1951, when the undertaking was taken over by the Government ; and (ii) whether it is just and equitable that the company should be wound up.

8. The learned judge reached the conclusion that the, main object of the company was to supply electrical energy in and around Narasaraopet and that, the other objects were only theoretical and had no real significance in the context of the business to be carried on, or intended by the company. The main object of the company had, therefore, ceased. Since the main object of the company was to supply electrical energy in and around Narasaraopet, and the entire undertaking having been taken over by the Government in 1951, the business of the company also ceased.

9. In regard to the 2nd point formulated by him, the learned judge reached the conclusion that it was just and equitable that the company should be would up, inasmuch as the substratum of the company had disappeared when the main object, for which it was incorporated, failed. He ordered accordingly. It is this view of the learned judge that is now assailed in this appeal.

10. This appeal came up for hearing before us previously on December 5, 1973. After hearing the learned advocates for the parties for some time, we thought that it would be advisable to gather the opinion of the shareholders as to whether they would like to continue the company for achieving the other objects mentioned in the memorandum of association, or they would like to wind up the company.

11. Accordingly, a meeting was held on January 10, 1974. At the said meeting, five shareholders were present, whose names appear in the minutes book. Seven shareholders were present by proxy. The total vote value of the shares held by those who were physically present, and those who were present by proxy, came to 184. All the shareholders voted for continuing the business of the company, whereas two of the shareholders who were present by proxy and whose votes, on the basis of the shares held by them, came to 65, voted that the company should be woundup.

12. In the affidavit of Sri K. Lakshmikantha Rao, an advocate from Guntur, it is stated that he received the proxies on the morning of January 10, 1974. Those proxies were presented on January 10, 1974, itself at 4 p.m., but the managing director of the company, although (he) received the proxies, objected to their presentation. His complaint appears to be that he was not allowed to vote on behalf of the two respondents, on whose behalf he held the proxies.

13. Under the proviso to Sub-section (1) of Section 176 of the Companies Act, a proxy shall not be entitled to vote except on a poll. Sub-section (3) of that section also makes it clear that the proxies must be filed at least 48 hours before the meeting is held. The complaint of the said advocate that he was not allowed to vote has, therefore, no substance because he had not demanded any poll, nor was there any possibility of setting forth such a claim, because he was the only man differing with the views expressed by the 5 other shareholders who were present, apart from the proxies supporting the same view. Those proxies also were not received in time.

14. The aforesaid meeting was, however, convened only to find out the views of the shareholders, and we are satisfied that the view expressed at the said meeting, indicated by a majority, is that the company should not be wound up, but should be allowed to continue for carrying on any items of the business as mentioned in the memorandum of association.

15. Now reverting to the appeal, it is seen that the memorandum of association catalogues as many as 32 items of business. One of such items was to supply electrical energy. That item of business, i.e., supply of energy, to Narasaraopet, has been taken over by the Government. It was open-to the company to decide as to whether, out of the said 32 objects mentioned in the memorandum of association, the company desires to carry on business in order to achieve one or more of the other objects of the company. The law on this point is not at all in doubt. Under Section 433(f) of the Act, the court has power to order the winding-up of a company, if the court is of the opinion that it is just and equitable that the company should be so wound up. What then are the considerations for coming to the conclusion that it is just equitable that the company should be wound up ?

16. The learned judge seems to have depended more upon two considerations; firstly, that till 1951 the company except supplying electrical energy to Narasaraopet, did not undertake to do any other business as per the objects mentioned in the memorandum of association. We do not think that factor should weigh with the court much. Till 1951, the company, in any case, was carrying on one of its objects in supplying energy to Narasaraopet. When the company, with a capital of Rs. 1,50,000 was carrying on one business, it is not difficult to see why the company, apart from the business of supplying energy to Narasaraopet, did not undertake any other business in furtherance of its objects.

17. The second ground was that, after the company was taken over by the then Madras Govt., till the filing of the present petition, no attempt was made to start any new business. We do not, however, think that that can be a ground for coming to the conclusion that it is just and equitable that the company should be wound up. It is seen from the facts narrated above, that a meeting of the shareholders was called, but the quorum was not available. Before any further attempt could be made, the company seems to have got into some litigation.

18. Immediately after the above meeting, the petition to wind up the company was filed by the respondents on December 10, 1968. From 1968 onwards, therefore, no question of carrying on any other business could arise.

19. It, however, appears that on January 17, 1969, another meeting of the shareholders was held. The said meeting was informed that a petition to wind up the company had been filed. The meeting, therefore, had to be adjourned without transacting any business, in view of the petition for winding up, filed in this court.

20. It is also pertinent to note that, after the business of energy supply to Narasaraopet was taken over by the Government, the question of fixation of compensation and its payment took a considerable time. The compensation was received only in 1963. It is also relevant to note here that the respondent herein, who holds preference shares, was the director of the company till 1965. What attempts, as the director of the company, he made to commence any other business, is not clear. The only period which, therefore, remains to be considered is, from 1965 to 1968, when the present proceedings commenced.

21. There is no explanation on either side as to why the meeting could not be held No attempt seems to have been made to call the meeting. But, it is also clear that the managing director of the company did not draw his salary. Therefore, the company did not suffer any loss. We do not, therefore, consider, in these circumstances, that it would be just and equitable to direct the winding-up of the appellant-company.

22. In Orissa Trunks & Enamel Works Ltd., In re [1973] 43 Comp Cas 503 (Orissa), the business of the company had been suspended for more than six years before the application for winding up, under Section 439 of the Companies Act, 1956, was filed. But, there were no assets of the company ; adequate funds were not available to run the business. It is under those circumstances that the company court reached the conclusion that, apart from the fact that there was mismanagement of the affairs of the company, there was no possibility of remedying it. That is why, the court came to the conclusion that it was just and equitable that the company should be wound up. That case, therefore, can be distinguished on facts.

23. In Registrar of Companies v. Chauhan Brothers Industries P. Ltd. [1973] 43 Comp Cas 525 (Pat), the main object of the company was to acquire and work mines. In that case, the company, which was incorporated in 1958, had not commenced its business till 1970-71. No explanation was offered about the delay. There was also no tangible material, on the basis of which it could be hoped that the company would be able to promote the objects mentioned in its memorandum of association. There were recurring losses in the few years. That decision also, therefore, has little relevance with the facts of the present case.

24. In Bilasrai Juharmal, In re (Akola Electric Supply Co. (P.) Ltd., In re), : AIR1962Bom133 , Naik J., referring to the multiple objects mentioned in the memorandum of association of the 'Akola Electric Licence', considered the question whether 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. The learned judge held that (p. 233 of 32 Comp Cas) :

'On a proper construction of the memorandum of the company in question, it was impossible to conclude that the company has been formed solely for the working of the Akola Electric Licence.'

25. He was of the opinion that the company may start an industry to make, cable, electric bulbs, electric metres, electric switches, etc., and that the several other general objects mentioned in the objects clause were independent of each other and, therefore, each of them had to be treated as principal and independent object. Repelling the contention of the petitioners in that case, the learned judge observed that (Headnote of AIR) :

'The existence or non-existence of a concrete scheme at the time the petition comes before the court, is wholly irrelevant.'

26. He further said (AIR Headnote at p. 134) :

'Where one of the objects of the company of supplying electricity at Akola, which was the only business that the company was carrying on, had failed by reason of the fact that the period of licence to run the company granted by the Government had expired and the undertaking was taken over by the Government, and there were other independent objects mentioned in the memorandum of the company, and it was not established that there was no chance of carrying on the objects, it cannot be held that the substratum of the company had disappeared.'

27. This case seems to us to be on all fours applicable to the facts of the present case.

28. In this case also, although the Narasaraopet electric supply business was taken over by the Government, the other objects mentioned in the objects clause of the memorandum of association, which were independent of each other, could be pursued by the company. The contention that, at the moment, there is no concrete scheme is, in our judgment, not relevant. The company has intact a sum of Rs. 1,50,000 and it could not be doubted that, with that amount, it can start and carry on one of the several objects mentioned in the memorandum of association. There is no material whatsoever to establish that there was no chance of carrying on all or any of those objects. Merely because the business of energy supply to Narasaropet has been taken over by the Government, we fail to see how it could be argued that the substratum of the company had disappeared, when there are more than one object which could be achieved by the company with the sum on hand.

29. In determining whether or not the substratum of a company has gone, it cannot be in doubt that the objects of the company and the intention of the company in regard to commencing other permissible business have to be looked into. Where the company alleges that with the funds on hand, it can enter into and carry on some other profitable object, the mere fact that it took some time for them to take a decision, in the circumstances mentioned above, cannot lead us to the conclusion that the substratum of the appellant-company had disappeared.

30. In Madhusudan Gordhandas and Co. v. Madhu Woollen Industries Pvt. Ltd. : [1972]2SCR201 , the Supreme Court held that (p. 132 of 42 Comp. Cas) :

'The wishes of the creditors will however be tested by the court on the grounds as to whether the case of the persons opposing the winding-up is reasonable ; secondly, whether there are matters which should be inquired into and investigated if a winding-up order is made. It is also well settled that a winding-up order will not be made on a creditor's petition if it would not benefit him or the company's creditors generally. The grounds furnished by the creditors opposing the winding-up will have an important bearing on the reasonableness of the case....'

31. Keeping in view these principles so laid down, and in view of the fact that the respondents herein, who are preference shareholders, would alone be benefitted if a winding-up of the company is ordered, the other shareholders not getting anything out of the amount on hand, and in view of the wishes of the shareholders expressed in the meeting held on January 10, 1974, and also in view of the fact that the substratum of the company still exists, we have no doubt whatsoever that it would not be just and equitable to direct the winding-up of the appellant-company. With due respect, therefore, to the learned judge, who took a different view, we are unable to share either the reasoning or the conclusion of the learned judge.

32. It was contended before us that if Clause (f) of Section 433 is not applicable, we should direct the winding-up of the company under Clause (c) of Section 433. That clause permits the court to direct the winding-up of a company, where the company has suspended its business for a whole year. We do not think that Clause (c) is applicable to the present case. The business which the appellant-company was carrying on, was taken over by the Government, and before it could start any other business, as mentioned in the objects clause of the memorandum of association, the company got into litigation and then, the winding-up proceedings. Since no new business, according to the objects of the company, was started, no question of its suspension for a whole year could arise. It may be that, although this objection had not been raised in the petition, in certain circumstances it can be permitted to be raised. In this case, although no extraordinary circumstance has been made out for granting such permission, still we are of the view that there is no force in this contention.

33. For the reasons stated above, we would allow the appeal and set aside the order of the learned judge. Company Petition No. 10/1968 is, accordingly, dismissed with costs.


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