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Vijayalakshmi Talkies (Private) Ltd., Masulipatnam and ors. Vs. A. Kotlingeswara Rao and ors. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtAndhra Pradesh High Court
Decided On
Case NumberO.S. Appeal No. 10 of 1963
Judge
Reported inAIR1966AP285; [1967]37CompCas605(AP)
ActsCompanies Act, 1956 - Sections 443 and 439; Companies (Court) Rules, 1959 - Rules 21 and 95
AppellantVijayalakshmi Talkies (Private) Ltd., Masulipatnam and ors.
RespondentA. Kotlingeswara Rao and ors.
Appellant AdvocateG. Ramanujulu Naidu, Adv.
Respondent AdvocateM. Kondala Rao and ;K. Ramachandra Rao, Advs.
DispositionAppeal dismissed
Excerpt:
.....is that for proceedings like these which need expeditious disposal affidavit evidence is more appropriate. it is thus clear that the affidavit evidence is not only permissible in matters like these, but also is the most desirable way to, effectuate the speedy disposal of matters justly and properly. at the same time there is also nothing in the act which would suggest that for the disposal of the peti-tion oral evidence is a sine qua non and that the court cannot act upon affidavits alone and dispose of the case if it is satisfied that the averments in the petition have been substan-tiated and there are justifying grounds for passing a winding up order. the petitioner may he cross-examined as well as the opposing deponents; to the like effect we find the passage in halsbury's laws..........the rules made thereunder supporting the contention that the order of the kind has to be made on oral evidence alone and not on the affidavits, statutory or otherwise. in fact, there is no express provision in the act or rules for calling the witnesses at all. the provisions speak of affidavits and counter-affidavits and hearing of the petition. a petition is heard of course on merits substantiated by evidence. but that evidence need not necessarily be oral. it can as well be furnished by affidavits. that is permissible in law. apart from the fact that the civil procedure code in section 30(c) and order 19 provides for proof of facts by affidavit, there are various other enactments, e.g., section 30 of the arbitration act, section 45 of the divorce act, etc., which permit proof by.....
Judgment:

1. This is an appeal against the order of winding up of Vijayalakshmi Talkies (Private) Ltd., (hereinafter called the Company) made in Company Petition No. 3 of 1963 by our learned brother, Satyanarayana Raju, J., as he then was. This Company was incorporated in May 1960 as a private Company limited by shares, its registered office being located at Masulipatnam. It started its business on August 1, 1962 with a nominal capital as Rs. 1,60,000 divided into 16 equity shares of Rs. 10,000 each. The total number of its shareholders did not exceed 11. The affairs of the Company did not run smoothly owing to group politics and sharp differences between the shareholders. The Company's liabilities as a result erelong rose by leaps and bounds. The petitioner, one of the shareholders owning one share of Rs. 10,000, in despair, made the application for winding up.

The grounds on which it is based as shown in the petition and vouched for in the affidavit are that the Company is heavily indebted and is unable to pay to the various creditors the debts due which are to the tune of Rs. 2,00,000 and that the interest on such borrowing itself comes to nearly Rs. 24,000 per year. Besides, there are sharp dissensions between the shareholders of the Company regarding the management of the business and the affairs of the Company. These disputes have assumed enormous dimensions. On account of the dominating influence of the Managing Director and the other shareholders belonging to this group, the business of the Company could not run smoothly and this has affected the efficient management of the business of the Company. The result is that the Company has no assets except the site, the theatre and cine equipment and if is unable to pay the debts.

The petition as filed was under Section 439 of the Companies Act read with Rules 95 and 21

(Part III) of the Companies (Court) Rules, 1959. It was advertised as per rules. All persons were put on notice thereby so that he who seeks to intervene by his own petition at the hearing may send notice of his intention in accordance with law. In response thereto none of the present Directors of the Company eo nomine made any application either supporting or opposing the petition. One creditor, however, Subbarao by name, sent a notice to the counsel for the petitioner that a debt is due to him and he supported the petition. Similarly one Canapathi Rao, creditor gave notice of his debt and entered appearance. Someswara Rao and Seshavataram are the other persons who followed suit and entered their appearance through their respective counsel supporting the petition for winding up. The Company and the Managing Director, who were the only party-respondents to the petition, were represented by a common counsel. Both filed counters on 5-4-1963 denying the allegations in the petition and filed affidavit in support thereof. After several adjournments the matter came on 9-8-1963 when one of the shareholders offered to pay a sum of Rs. 40,000 to the petitioner and his supporters, joint memo in relation to the same was filed by Mr. K. Ramachandra Rao, counsel for the petitioner and Mr. Ananta Babu, counsel for the respondent, which provided inter alia that if the amount of Rs. 40,000 with interest at 9 per cent together with a sum of Rs. 2,000 towards costs was paid before 15-9-1963 the petitioner would withdraw the petition. When the matter thereafter came up for hearing it was represented that the amount agreed upon was not paid. The joint memo consequently could not be ordered.

It was also represented by the learned counsel for the respondents (i.e.) the Company and the Managing Director, that the Company by its resolution had decided to withdraw the defence and consent to the appointment of the Liquidator and that the Company, therefore, would no longer contest the petition and withdraws its defence. Thus, the contesting respondents having thus withdrawn their defence our learned brother found no occasion to make further enquiry into the matter and accepting the averments in the affidavit of the petitioner which stood unrebutted, on account of withdrawal of defence and which were further supported by the affidavits of other persons who were made parties to the proceedings, passed the impugned winding up order. The order ran thus:--

'It is, therefore, ordered that the Company be wound up under the provisions of the Companies Act of 1956; that the Official Liquidator do, as Liquidator of the Company aforesaid, forthwith take charge of all the properly and effects of the said Company; that the Official Liquidator shall cause a sealed copy of this order to be served on the Company by prepaid registered post; that the petitioner do advertise within 14 days from this date a notice in the prescribed form of the making of this order in one issue of the 'Indian Express;' that the petitioner do serve a certified copy of this order on the Registrar of Companies not later than one month from this date. ....'

2. Aggrieved by this order, 7 persons including the Company and the Managing Director, the others being the wife of the Managing Director, his brother's son and three others, filed this appeal. It so transpired that the petitioner who had initiated the proceedings by filing the petition for winding up of the Company at the stage, of appeal decided to withdraw his petition and hence sought permission of the Court for withdrawal. As per the rules the Court directed that the withdrawal be advertised. On advertisement all those creditors and persons who supported the petition for winding up applied to be brought on record as co-respondents instead, in the appeal. C. M. P. Nos. 11817, 11818 of 1963 and C. M. P. No. 5900/64 are the said applications. Parties once again came to terms and a memo of compromise was filed. Time was allowed in vain to honour the terms of the said compromise. The position once again became the same as before. Mo amounts were deposited in terms of the compromise. Eventually the counsel for the appellants reported 'no instructions'. The appeal as a result was dismissed with costs, but on an application it was restored to its original number on 13-11-1964. The appeal this (sic) is before us for final disposal.

3. The main ground urged in this appeal is that as no witness was failed to speak to the averments in the petition, our learned brother was not justified on the basis of the affidavits alone to pass the winding up order. It is further urged that the mere absence of any opposition or contest to the petition did not absolve the petitioner from his statutory duly to lead evidence in support of the allegations contained in the petition. Lastly it is contended that the allegations in the petition did not furnish a justifiable ground for passing the winding up order.

4. All these objections in our judgment are untenable in law. One would search in vain for any provisions in the Act or the rules made thereunder supporting the contention that the order of the kind has to be made on oral evidence alone and not on the affidavits, statutory or otherwise. In fact, there is no express provision in the Act or rules for calling the witnesses at all. The provisions speak of affidavits and counter-affidavits and hearing of the petition. A petition is heard of course on merits substantiated by evidence. But that evidence need not necessarily be oral. It can as well be furnished by affidavits. That is permissible in law. Apart from the fact that the Civil Procedure Code in Section 30(c) and Order 19 provides for proof of facts by affidavit, there are various other enactments, e.g., Section 30 of the Arbitration Act, Section 45 of the Divorce Act, etc., which permit proof by affidavit. The Companies Act also speaks of affidavits and counter-affidavits. Of course that does not mean that oral evidence is barred. All that it contemplates is that for proceedings like these which need expeditious disposal affidavit evidence is more appropriate. No doubt even in case of affidavit evidence which must be based as a rule on personal knowledge of the depo-nent and not on his mere belief, it is open to the other party if he challenges the correctness of the statements made therein to request the Court to summon the deponent for cross-examination. It is thus clear that the affidavit evidence is not only permissible in matters like these, but also is the most desirable way to, effectuate the speedy disposal of matters justly and properly. It is open in such cases to the party to request the Court for calling the witness for cross-examination. The Court besides has always power to take oral evidence also in case the parties wish to lead the same. Indeed there is nothing in the Act which debars the party from adducing oral evidence. At the same time there is also nothing in the Act which would suggest that for the disposal of the peti-tion oral evidence is a sine qua non and that the Court cannot act upon affidavits alone and dispose of the case if it is satisfied that the averments in the petition have been substan-tiated and there are justifying grounds for passing a winding up order. On the other hand, the Act and rules refer only to affidavits which being statutory must have their due weight and significance.

That such is the position in law is clear from the English precedents. In Palmer's Company Law, Twentieth Edition, p. 705 under the head 'Evidence in support of petition' we find the following passages: --

'The Rules provide for the filing of an affidavit by the petitioner in general terms, stating, in effect, that the statements in the petition relating to his own acts and deeds are true and that he believes the other statements to be true. This is known as the statutory affidavit, and the Rules make this affidavit prima facie evidence of the statements in the petition. It must be sworn and filed within four days after the presentation of the petition.....

The object of the statutory affidavits is to prevent the abuse of putting upon the long affidavits in support of the petition which may turn out to be unnecessary; in certain circum-stances, however, which arc explained in In re S. A. Hawken, (1950) 2 All Ell 408 additional affidavits are appropriate..... Affidavits, if put in opposition to the petition, must be filed within seven days of the date of the filing of the statutory affidavit. The petitioner may he cross-examined as well as the opposing deponents; but the Court has a discretion as to allowing cross-examination in a winding up petition, and refuse, for example, to allow a petitioner to cross-examine the respondent company's witnesses where the petitioner had no direct evidence but the statutory affidavit, and wanted to cross-examine as to the Company's business, means and bona fides. If necessary, witnesses who decline to make affidavits can be called and examined at the instance of any party interested'.

That in short is the state of law as to the method of proof as commended or contemplated by the statute.

To the like effect we find the passage in Halsbury's Laws of England, Third Edition (Lord Simonds), Vol. VI, p. 547, Para. 1054, under the caption 'Affidavit verifying petition'. It reads thus:-

'Every petition must be verified by an affidavit referring thereto, which must be made by the petitioner, or by one of the petitioners, if more than one, or may in a proper case be made by his or their solicitor or agent when the fatter knows the facts. In case the petition is presented by a corporation the affidavit should be made by some director, secretary, or other principal officer thereof. The affidavit must be sworn after and filed within four days after the petition is presented. Such affidavit is sufficient prima facie evidence of the statements in the petition, unless fraud is charged in which case the facts alleged to constitute fraud must be set out in an affidavit.'

The judicial opinion in India is in line with the English practice. In Seethiah v. Venkata Subbaiah, 1949-1 Mad LJ 269: (AIR 1949 Mad 675) a Division Bench of the Madras High Court had to consider the question whether oral evidence under the Act was permissible in law or not. The learned Judges observed:--

There is no inflexible rule or practice prohibiting the adducing of oral evidence or the cross-examination of the deponents of affidavits in original petition before the High Court, such as for compulsory winding up of companies. Where necessity suggests or expediency requires, it is open to the Judge trying winding up proceedings to allow oral evidence.

But where the application for cross-examining the deponents of affidavit are made only at a later stage in the hearing and tend to retard and delay the progress of the application, the Court has the discertion to grant or not to grant an adjournment for getting the deponents of affidavits for cross-examination. As expedition is absolutely necessary in a winding up petition, the Court will be exercising a proper discretion in refusing an adjournment having a dilatory tendency'

These observations could only suggest that winding up proceedings should be expeditiously dealt with and the affidavits are the usual and appropriate evidence which may enable the Court to come to a definite conclusion. If they are challenged, it is permissible Section the parties to summon and cross-examine the deponents. If the witnesses are reluctant to file affidavits they can as well be called if the parties so choose. It is not, however, obligatory on the Court to take oral evidence. But if expediency requires and the justice of the case demands it may take such evidence also. In short proof of averments by affidavits is a normal rule and the reception of oral evidence is an exception and that must depend upon the needs and exigencies of the situation of the case.

In this state of law, the contention of the learned counsel that mere affidavits are not sufficient but there should have been oral evidence for proving the averments in the petition in order to justify an order of winding up cannot be tenable. The circumstances of this case besides are of special significance. Here the first and second respondents, the only contesting parties to the petition have eventually withdrawn their defence and consented to the winding up order being passed and liquidator being appointed. When the party had thus far from challenging the averments in support of the petition admitted the correctness of the averments in the petition by his conduct and consented to winding up order, there was no occasion for calling any other evidence. Our learned brother was right in acting upon the statutory affidavit filed by the petitioner which was in order and stood unrebutted and unchallenged.

It cannot be successfully argued either that she averments in the petition which disclosed total disability of the Company to pay off the creditors, the ever increasing burden or interest, and deteriorating state of management and control of the Company business owing to the sharp differences between the shareholders which are reflected in the resolutions passed could not be sufficient to warrant the winding up order. Section 443, which gives wide powers to the Court reads thus: --

'443. Powers of Court on hearing petitions:--

(1) On hearing a winding up petition, the Court may--

(a) dismiss it, with or without costs; or

(b) adjourn the hearing conditionally or unconditionally; or

(c) make any interim order that it thinks fit; or

(d) make an order for winding up the Company with or without costs, or any other order that it thinks fit;

Provided that the Court shall not refuse to make a winding up order on the ground only that the assets of the Company have been mortgaged to an amount equal to or in excess of those assets, or that the Company has no assets.

(2) Where the petition is presented on the ground that it is just and equitable that the Company should be wound up, the Court may refuse to make an order of winding up, if it is of opinion that some other remedy is available to the petitioners and that they were acting unreasonably in seeking to have the Company wound up instead of pursuing that other remedy.

(3) .....'

5. Having regard to these powers it cannot be held that there is any force in the contention or there are any merits in this appeal.The appeal is, therefore, dismissed with costsof respondents impleaded in C. M. P. Nos.11817, 11818/63 and 5900/64.


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