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

LegalCrystal Citation
SubjectCompany
CourtAndhra Pradesh High Court
Decided On
Case NumberCompany Petition No. 10 of 1968
Judge
Reported in[1972]42CompCas182(AP)
ActsCompanies Act, 1956 - Sections 433; Indian Companies Act, 1913
AppellantA. Ramachandran and anr.
RespondentNarasaraopet Electric Corporation Ltd. and anr.
Appellant AdvocateS. Dasaratharama Reddy, Adv.
Respondent AdvocateN. Rajeswara Rao and ;K.B.K.R. Krishnamoorthy, Advs.
Excerpt:
.....it is unable to carry on business except at a loss - company finds impossible to carry out main object of company for which it was formed - existing assets inadequate to meet existing debts - held, under such circumstances as enumerated in section 433 it is just and equitable that company should be wound up. - - courts have invariably held consistently that where the substratum of the company had failed and it was impossible to carry out the main object of the company for which it was formed, it was just and equitable that the company should be wound up (vide cotman v. ). where it was held that the substratum of the company had failed and it was impossible to carry out the objects for which it was formed; , [1968]2scr252 where the following occurs at page 557 :in making an order..........shareholder to carry out the so-called other business objects of the company, even though the company ceased doing business on and from february 26, 1951, when the acquisition was made by the government.8. the points which arise for consideration on the averments in the petition are:'(1) whether the company has ceased doing business after february 26, 1951, when the undertaking was taken over by the government ?(2) whether it is just and equitable that the company should be wound up '9. the averments in the petition that the entire undertaking of the company was acquired on february 26, 1951, by the government of madras, that the company was awarded compensation of rs. 1,06,977 which was deposited in the bank and that, as a consequence of the acquisition, the company ceased to do.....
Judgment:
ORDER

Narasimham, J.

1. This is a petition under Section 433 of the Companies Act, 1956 (Act 1 of 1956), for the winding up of the Narasaraopet Electric Corporation Ltd.

2. The two petitioners are the preference shareholders each of them holding 100 preference shares, each of Rs. 50 fully paid up. The 1st respondent to this petition is the Narasaraopet Electric Corporation Ltd., represented by its managing director, Sri G.V. Subbarao, and the 2nd respondent is G.V. Subbarao.

3. The material averments in the petition are these :--The Narasaraopet Electric Corporation Ltd., hereinafter to be referred to as the company, was registered under the Indian Companies Act, 1913, in 1935 as a public company limited by shares. The registered office of the company was at Guntur in Andhra Pradesh. 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 fully paid up. The object of the company was to supply electrical energy in and around Narasaraopet.

4. The entire undertaking of the company was acquired on February 26, 1951, by the then Government of Madras under the provisions of the Madras Act XLII of 1949 which was later replaced by the Andhra Act XV of 1954. The company was awarded compensation of Rs. 1,06,977 for the acquisition and the company has ceased to do any business for it has no business objects.

5. The 2nd respondent is the managing director of the company on a remuneration of Rs. 250 per month from 1962 and his main duty was to take up proceedings to wind up the company. The company has no other assets apart from the compensation amount which was deposited in the bank except items of furniture. As he has been engaging himself in fruitless litigation in courts in Guntur and wasting the funds of the company which has ceased to do business, the 1st petitioner compelled the managing director to call for a meeting for the voluntary winding-up of the company and the meeting for that purpose was held on August 18, 1968. But that meeting could not be held for want of quorum. The last balance-sheet issued by the company for the year 1967 is not sound. The petitioners have, therefore, sought the winding-up of the company on grounds that the company had ceased to do any business since 1951, when the entire undertaking was taken over and that there is no possibility of the company doing any kind of business in the foreseeable future and that it is just and equitable that the company is wound up.

6. The respondents filed a counter, opposing the application, but admitting that the meeting of the general body of shareholders of the company was called for considering the question of liquidating the company. He denied that he was appointed as managing director only for the purpose of winding-up the company and said that he could exercise all powers under the memorandum and articles of association of the company. He denied that the object for which the company was inaugurated was only to supply electrical energy in and around Narasaraopet town and alleged that there were several other objects besides the supply of energy as referred to in the memorandum and articles of association. The litigation referred to was not fruitless. The 1st petitioner had differences with him and the present petition is not bona fide and is not in the interests of the company and its shareholders. It is not true that there were no balance-sheets after 1967. The last balance-sheet of the company was published for the year ending March 31, 1968, duly audited.

7. A reply has been filed reiterating that the 2nd respondent was appointed as managing director only for the purpose of speedily winding up the company, as the only business of the company, viz., electricity distribution, was acquired by the Government in 1951. The company did the only business of distribution of electricity in and around Narasaraopet from 1935 and the other objects mentioned in the memorandum are merely inserted therein ex abundanti cautela. No attempt has been made up to date either by the 2nd respondent or by any other shareholder to carry out the so-called other business objects of the company, even though the company ceased doing business on and from February 26, 1951, when the acquisition was made by the Government.

8. The points which arise for consideration on the averments in the petition are:

'(1) Whether the company has ceased doing business after February 26, 1951, when the undertaking was taken over by the Government ?

(2) Whether it is just and equitable that the company should be wound up '

9. The averments in the petition that the entire undertaking of the company was acquired on February 26, 1951, by the Government of Madras, that the company was awarded compensation of Rs. 1,06,977 which was deposited in the bank and that, as a consequence of the acquisition, the company ceased to do any business are not contradicted in the counter. But it is alleged in the counter that there are several other objects of the company occurring in the memorandum. (A copy of the memorandum and articles of association of the Narasaraopet Electric Corporation Ltd., is placed before me). But, the said averment is met in the reply that they were all inserted as in the case of every other company, that the only business which the company did from 1934 was to distribute the electricity in and around Narasaraopet, and, further, that no attempt has been made up-to-date either by the 2nd respondent or by any other shareholder to carry out the other objects of the company even though the company ceased to do business on and after February 26, 1951, when the acquisition was made by the Government. This would make it clear 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 have no real significance, in the context of the business to be carried on or intended by the company. It is, therefore, clear that after the undertaking was taken over by the Government in about 1951, the business of the company in relation to the main object of the company ceased and all these years no other business was intended or commenced as an ancillary business of the company.

10. I have, therefore, no reason to doubt the fact that the main object of the company was to supply electrical energy in and around Narasaraopet and when the undertaking was taken over by the Government in 1951 the business of the company ceased.

11. Point No. 2 : In view of my finding on point No. 1, I would have no hesitation in saying that the substratum of the company has disappeared, when the main object of the company was to supply electrical energy in and around Narasaraopet and when the undertaking was taken over by the Government in 1951 and, consequently, the business of the company ceased from then. Courts have invariably held consistently that where the substratum of the company had failed and it was impossible to carry out the main object of the company for which it was formed, it was just and equitable that the company should be wound up (vide Cotman v. Brougham, [1918] A.C. 514, 522 (H.L.):): where it was held that the substratum of the company is gone when the main purpose has become impossible (vide also In re German Date Coffee Company, [1882] 20 Ch. D. 169 (C.A.). where it was held that the substratum of the company had failed and it was impossible to carry out the objects for which it was formed; and, therefore, that it was just and equitable that the company should be wound up (vide also In re Baku Consolidated Oilfields Ltd., [1944] 1 All E.R. 24 (Ch. D.): where it was held that when the whole substratum of the company had gone, compulsory order ought to be made. All these cases elucidate the principle enunciated in Halsbury's Laws of England, second edition, volume V, at paragraph 885 that it may be just and equitable to wind up a company where its substratum is gone. A number of decisions of Indian courts have ordered winding up on the finding that the substratum is gone (vide Davco Products Ltd. v. Rameswarlal, : AIR1954Cal195 . Lawang Tshang v. Goenka Commercial Bank, : AIR1961Cal144 . O.P. Basra v. Kaithal Cotton and General Mills Co. Ltd., . and Nageswararao v. R.E.S.C. Ltd., Rajahmundry, [1957] A.L.T. 728). The learned counsel for the respondent has cited Seth Mohanlal v. Grain Chambers Ltd., : [1968]2SCR252 where the following occurs at page 557 :

'In making an order for winding up on the ground that it is just and equitable that a company should be wound up, the court will consider the interests of the shareholders as well as of the creditors. Substratum of the company is said to have disappeared when the object for which it was incorporated has substantially failed, or when it is impossible to carry on the business of the company except at a loss, or the existing and possible assets are insufficient to meet the existing liabilities......... Primarily the circumstances existing as at the date of the petition must be taken into consideration for determining whether a case is made out for holding that it is just and equitable that the company should be wound up......'

12. There are also observations specifically to this effect in Davis & Co. v. Brunswick (Australia) Ltd., [1936] 6 Comp. Cas. 227, A.I.R. 1936 P.C. 114 that the position of the court in determining whether it is just and equitable to wind up the company requires a fair consideration of all the circumstances connected with the formation and the carrying on of the company, etc. But it was also observed at page 121, column 1 of the reported decision, that a general rule could not be laid down as to the nature of the circumstances which have to be borne in mind in considering whether the case comes within the phrase and that the decisive question must be the question whether at the date of the presentation of the winding-up petition there was any reasonable hope that the object of trading at a profit, with a view to which the company was formed, could be attained.

13. From a conspectus of the decisions, it would emerge that each case has to be decided on its own facts. The learned counsel has urged that the shareholders' views may be ascertained, although it would appear that from 1951 the business has ceased. He would say that a preference shareholder would stand to gain by the liquidation and the ordinary shareholders would be at a disadvantage. The distribution of assets is a matter provided for under the Act and it would not be correct to suggest that by working the provisions of the Act in a liquidation ordered under the Act on grounds contemplated by the Act, inequity would result. I can say from the circumstances of this case that the substratum of the company has gone, the undertaking has been taken over by the Government and the main object of the company no longer could be carried on after 1951 and what the shareholders are entitled to now is the compensation amount paid by the Government. It is inconceivable what reasonable alternative suggestions the shareholders could make in these circumstances. The fact that there were other objects listed out in the memorandum of association makes no difference in the circumstances because it is not pretended that there was any attempt to carry out any other object after 1951 for these last 19 years. I would, therefore, consider that it is just and equitable that, in the circumstances of the case, the company should be wound up. I may add that in almost similar circumstances, a judge of this court ordered winding up of the Rajahmundry Electric Supply Corporation Ltd., the order being reported in Nageswararao v. Rajahmundry Electric Supply Corporation Ltd., Rajahmundry, [1957] A.L.T. 728. For the said reasons, the petition for winding up of the Narasaraopet Electric Corporation Ltd. is ordered. Intimation of this will be sent to the official liquidator and the Registrar of Companies. An advertisement of this order shall be made under Rule 113 in the Indian Express and the Andhra Prabha within 14 days of this order. The official liquidator will take charge of the assets, books and other papers of the company forthwith under Rule 114. The petitioners will, under Section 445, file with the Registrar certified copy of this order within 30 days from the date of this order. The petitioners to deposit advertisement charges within seven days. The official liquidator will take directions of this court for any legal assistance necessary. The costs of this petition will come from the estate. Advocate's fee Rs. 500.


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