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Kilpest Private Ltd. Vs. Shekhar Mehra - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtMadhya Pradesh High Court
Decided On
Case NumberCompany Appeal Nos. 1 and 2 of 1984
Judge
Reported in[1987]62CompCas717(MP); 1985MPLJ160
ActsCompanies Act, 1956 - Sections 397, 398, 399(3) and 433; Limitation Act, 1963 - Schedule - Article 137
AppellantKilpest Private Ltd.
RespondentShekhar Mehra
Appellant AdvocateS.B. Mukherjee, ;P.S. Khirwadkar and ;Abhay Sapre, Advs.
Respondent AdvocateA.N. Parekh, ;K.S. Idnani and ;Deepak Verma, Advs.
DispositionAppeal allowed
Cases ReferredEastern Linkers v. Dinanath Sodhi
Excerpt:
- - , and, therefore, he failed to take up the matter with the said authorities and showed his complete disinterestedness and has utterly neglected to attend to the affairs of the company. the financial crisis had arisen due to the vagaries of the monsoon and consequent failure of crops. the appellants have also denied the other allegations made in the petition relating to the meetings of the board of directors having been held without notice to the respondent during the years 1981, 1982 and 1983. however, it is submitted that the respondent had been attending board meetings till september 1, 1981. the notices of subsequent board meetings were also duly sent to the respondent in accordance with the provisions of the articles of association and the companies act, 1956. but despite the.....b.m. lal, j. 1. the decision in this company appeal shall also dispose of company appeal no. 2 of 1984 (kilpest private ltd, v. shekhar mehra). 2. this is an appeal preferred under section 483 of the companies act, 1956, by the company, the managing director and the director of the company against an order dated august 6, 1984, passed by the learned company judge whereby the learned company judge by his order dated august 6, 1984, passed the order for converting the original petition made under sections 397, 398, 402, 403 and 450 of the companies act/1956, into one under section 433(f) read with rules 6 and 9 of the companies (court) rules, 1959, holding that the petition shall now be tried as a petition for winding up of the company under the 'just and equitable' clause contained in.....
Judgment:

B.M. Lal, J.

1. The decision in this company appeal shall also dispose of Company Appeal No. 2 of 1984 (Kilpest Private Ltd, v. Shekhar Mehra).

2. This is an appeal preferred under Section 483 of the Companies Act, 1956, by the company, the managing director and the director of the company against an order dated August 6, 1984, passed by the learned company judge whereby the learned company judge by his order dated August 6, 1984, passed the order for converting the original petition made under Sections 397, 398, 402, 403 and 450 of the Companies Act/1956, into one under Section 433(f) read with rules 6 and 9 of the Companies (Court) Rules, 1959, holding that the petition shall now be tried as a petition for winding up of the company under the 'just and equitable' clause contained in Section 433(f) of the Companies Act, 1956.

3. The short facts leading to this appeal are as under :

The respondent, Shri Shekhar Mehra, initially filed a petition under Sections 397, 398, 402, 403 and 450 of the Companies Act before the company judge on October 1, 1983, praying for starting investigation into the affairs of the company (appellant No. 1) for removing the present board of directors and for quashing the resolution of the board of directors of the company purported to have been passed in the extraordinary general meeting held on January 15, 1983, and relating to alterations in the articles of association Nos. 84, 85, 86, 91 and 93 of the company and for the grant of any other relief or reliefs which the company court may deem fit and proper in the circumstances of the case.

4. The first appellant, M/s. Kilpest Private Ltd. (in brief, the company), was promoted by appellant No. 2, Shri R.K. Dubey, and the respondent, Shri Shekhar Mehra. These two promoters were the only shareholders in the company, each holding 50 shares. On May 27, 1972, appellant No. 1, M/s. Kilpest Private Ltd., Bhopal, was incorporated under the Companies Act, 1956. Appellant No. 2 and the respondent, Shri Shekhar Mehra, and the two signatories to the memorandum and articles of association were the first directors of the company. The company's initial authorisedcapital was Rs. 2,00,000 divided into 2,000 equity shares of Rs. 100 each. ' But in the same year, the capital was raised to Rs. 5,00,000.

5. The company has multifarious objects, such as :

(a) To manufacture, import, export, buy, sell or otherwise deal in pesticides, insecticides, medicinal and toilet goods, etc. ;

(b) To carry on all or any of the business of manufacturers, importers, exporters, stockists, distributors, wholesale and retail dealers and suppliers of commodities, manufactured goods, stores, materials, provision and produce ;

(c) To take over or acquire by way of purchase, lease, etc., land rights including all mines, beds, veins and seams, for purposes of digging, quarrying and allied operations, etc.

6. The registered office of the company is situated at 7-C, Industrial Area, Govindpura, Bhopal. As stated above, the authorised capital of the company was Rs. 2,00,000 divided into 2,000 equity shares of Rs. 100 each. The company increased its share capital from Rs. 2,00,000 to Rs. 3,25,000 and later on to Rs. 5,00,000 and then to Rs. 10,00,000.

7. Appellant No, 2, Shri R.K. Dubey, holds equity shares of the value of Rs. 1,37,000 ; members of his family and associates own equity shares of the value of Rs. 3,13,000 whereas the respondent has 600 shares of the value of :Rs. 100 each and members of his family own 900 shares.

8. The shareholdings of two groups, i.e., appellant No. 2's group are Rs-. 5,50,000 whereas that of the respondent's group are of the value of Rs. 1,50,000.

9. In the year 1982, appellant No. 2 issued equity shares of the value of Rs. 1,75,000 to himself, his wife, relatives and associates.

10. The respondent alleged that appellant No. 2 again issued equity shares of Rs. 1,00,000 to himself, his wife, relatives and associates from January, 1983, till June 24, 1983, by issuing further equity shares. Appellant No. 2 has thus created an artificial majority for his group and has reduced the respondent and his group into a minority.

11. It is also alleged in the petition by the respondent that the company, though registered as private limited, was in fact, in the nature of a partnership between appellant No. 2 and members of his family on the one hand and the respondent and his family members and associates on the other. Therefore, the principles of partnership are applicable to the company, appellant No. 1. He also alleged that since 1981, the two groups have been pulling in different directions. The respondent was compelled to refuse to sign the balance-sheet for the years ending December, 1981, December, 1982, and onwards.

12. It is further alleged by the respondent that the affairs of the company have been, for a number of years, conducted in a manner that there is an utter lack of confidence between the directors. Such lack of confidence has been caused by lack of probity in the conduct of the affairs of the company by the two groups, namely, Mehra group and Dubey group. As per the allegations, Dubey group has been acting to benefit themselves personally and were not concerned with the welfare of the company. It is further alleged that the respondent would not get any relief by calling a general meeting of the company as he has been reduced to a minority by and through illegal means adopted by the Dubey group. It is further alleged that appellant No. 2 and the respondent have agreed that both of them will participate in the business affairs of the company. Both are paid equal remuneration from the very inception of the company since 1972 to 1980. Both were allowed free use of the motorcars and other things supplied by the company, the expenses of which were borne by the company ; besides, rent-free furnished accommodation at the expense of the company were provided to appellant No. 2 and the respondent. It is further alleged that appellant No. 2 and the respondent had been managing the company together with equal shareholding, remuneration arid perquisites till the respondent was illegally ousted by appellant No. 2 from the management.

13. A charge of mismanagement was also levelled against the appellants. The respondent alleged that appellant No. 2 deliberately acted arbitrarily by taking over the full management of the company to the exclusion of the respondent in quite a high-handed manner inasmuch as appellant No. 2 did not send notices for the meeting of the company to the respondent during the periods 1981, 1982 and 1983 including the members of his group for the annual general meetings held in these years. The meetings of the board of directors were held without notice to the respondent during these years. Therefore, it is alleged by the respondent in the petition that all actions taken by appellant No. 2 through the meetings of the company were illegal and, therefore, are not binding on the respondent and the shareholders of his group. He further alleged that appointment of appellant No. 3, a close relation of appellant No. 2, as director, is illegal and liable to be set aside. It is further alleged that appellant No. 2 illegally, mala fide and also in contravention of articles 83 to 86 of the articles of association of the company, has debarred the respondent from operating the bank accounts of the company with effect from October 15, 1982. This was done by appellant No. 2 with a view to grab absolute power and control over the company by ousting the respondent from the management of the company.

14. It is also alleged that in the year 1975, the company imported Endorian (Technical) which appellant No. 2 sold to parties in Bombay and Pune as Endorian solution below the market price. Appellant No. 2 also adopted the device of saving payment of discount/commission to a party at a fictitious rate and put the company to a loss by taking that part of the alleged commission through bank draft from the said buyers in the year 1978. The company was given an order by the Director-General of Supplies and Disposals in New Delhi, vide order dated June 1, 1978, for supply of 525 metric tons of BHC 6'5 per cent. Gamma Isomer WDP (Pesticides). But it is alleged that the required quantity of BHC (Technical) was not at all purchased by appellant No. 2 and, as such, this was a fictitious transaction.

15. Similar types of allegations are also made relating to the transaction wherein it is alleged that the company got an order from the Director-General of Supplies and Disposals, New Delhi, for the supply of 112'8 metric tons of DDT 50 per cent. WDP. For manufacturing DDT 50% WDP, it was essential for the company to purchase approximately. 55 to 60 metric tons of DDT (Technical). The respondent alleged that the above required quantity of DDT was never purchased by the company but the fictitious bills of DDT (Technical) have been utilised by appellant No. 2 to show that DDT (Technical) was purchased by the company but was not supplied to the Government of India according to the specification.

16. On the other hand, replying to the allegations of the respondent as made by him in his petition, the appellants submitted that the respondent was mainly interested in drawing salary and as many perquisites as possible without in any way rendering corresponding services and benefits to the company and without discharging the duties and responsibilities assigned to him. It is further averred that the respondent got another company floated, namely, M/s. Mayur Printing Ink Private Limited, on April 7, 1979, in which his wife, Smt. Geetali Mehra, has a major shareholding. His nephew was another director and the third director, Abdul Wahid, who was steno and personal assistant of appellant No. 2 and was in the employment of appellant No. 1, was allured by the respondent to leave the service of appellant No. 1 and join M/s. Mayur Printing Ink P. Ltd. as director.

17. It is further submitted that the respondent exploited the goodwill of appellant No. 1 and obtained credit facilities for business for M/s, Mayur Printing Ink P. Ltd. This has resulted in the loss of reputation of appellant No. 1. The respondent has also defaulted in payment to several parties including Punjab National Bank with the result that Punjab National Bank had to file two civil suits for the recovery of Rs. 8,49,810.92 in the Court of the District Judge, Bhopal, vide Civil Suit No. 88A of 1983 and another civil suit for the recovery of Rs. 1,52,220 in the Court of the District Judge, Bhopal, vide Civil Suit No. 14B of 1983 against the respondent.

18. It is further submitted that due to financial crisis, appellant No. 2 several times requested the respondent to supply funds as initially assured and agreed upon but the respondent always avoided to do so on one pretext or the other for the reason that he had no funds and was unable to provide any further amounts. All the same, the respondent was also requested to contact M. P. Financial Corporation and the bankers for explaining the financial position of the company and to secure further lenient modes of payment. But the respondent was obviously not interested in the affairs of the company as he was only interested in his concern, i.e., M/s. Mayur Printing Ink P. Ltd., and, therefore, he failed to take up the matter with the said authorities and showed his complete disinterestedness and has utterly neglected to attend to the affairs of the company. The financial crisis had arisen due to the vagaries of the monsoon and consequent failure of crops. The pesticides industries were facing a recession since 1978 and this has affected the financial position of the company.

19. It is averred that articles 85 and 86 have been duly altered by a special resolution in the extraordinary general meeting of the members of the company held on January 15, 1983. The intimation of this amendment was duly given to the Registrar of Companies as required by the provisions of the Companies Act and the same have been duly incorporated by the Registrar.

20. The charge of partnership amongst the appellants and alleged members of their family is also denied on the ground that the same was or is not in the nature of a partnership. The appellants have also denied the other allegations made in the petition relating to the meetings of the board of directors having been held without notice to the respondent during the years 1981, 1982 and 1983. However, it is submitted that the respondent had been attending board meetings till September 1, 1981. The notices of subsequent board meetings were also duly sent to the respondent in accordance with the provisions of the articles of association and the Companies Act, 1956. But despite the notices and personal requests made to the respondent, he failed to attend the board meetings. It is submitted that the respondent was fully aware of all the provisions, as he was a signatory to the memorandum and articles of association and, therefore, he should have attended the meetings.

21. The appellants have also denied the charge relating to the sub-standard manufacturing or fictitious supply of the company's pesticides, etc. Allother allegations have also been denied in toto giving reasonable explanation to the effect that the entire supply of DDT, etc., was strictly made in accordance with ICI specification and after three test checks, it was accepted by the Director-General of Supplies and Disposals. Therefore, the question of committing any fraud on the part of the appellants did not arise at all.

22. It is also submitted that the respondent ceased to be the joint managing director as per the special resolution dated January 15, 1983, and also ceased to be the director of the company as per resolution dated April 9, 1983, for the reason that the respondent did not take any part in the affairs of the company since September, 1981, and was also not attending any of the board meetings. He also continuously defaulted to attend the board meetings after September 2, 1981. This was deliberately done by him for the reason that he had floated another company. There were only 15 meetings of the board of directors in between September 2, 1981, and April 9, 1983, but the respondent failed to attend thegeneral meetings and extraordinary general meetings and, therefore, by operation of law, the respondent ceased to be a director in view of the provision of Section 283(1)(g) of the Companies Act and article 81(f) of the articles of association of the company. It is, therefore, stated that the respondent's ouster from the company was not motivated by any intention but the respondent himself incurred the disqualification as a result of which he ceased to be a director.

23. The respondent, however, in June, 1983, filed a civil suit for declaration and permanent injunction relating to his ouster from directorship. The trial court granted the injunction relating to his ouster as director from the company but the same was vacated by the appellate court against which order a revision is pending before this court. The said civil suit (No. 93-A of 1983) is still pending before the IV Civil Judge, Class II, Bhopal. Therefore, the appellants submitted that the alleged facts of oppression are not at all relevant for the purposes of the petition and they are beyond the scope of the provisions of Sections 397 and 398 of the Companies Act, 1956. The appellants, therefore, prayed for the disposal of the petition on the ground, inter alia, that the petition as framed and filed under Sections 397, 398, 402, 403 and 450 of the Companies Act is not maintainable. It is further submitted that on June 27, 1983, the respondent again filed another suit challenging the validity of the extraordinary general meeting scheduled to be held on June 28, 1983, and prayed for temporary injunction but the same was rejected by the trial court on June 27, 1983, and on June 28, 1983, appellant No. 3 was re-elected as director. In this meeting, the entire group of the respondent remained absent despite notice.

24. The. appellants have raised a legal plea that the respondent alone had no right to move an application under Sections 397 and 398 of the Companies Act as it has not complied with the imperative requirements of rule 88 of the Companies (Court) Rules, 1959, and the mandatory Form No. 43. The respondent has also not produced any letter of consent given by other shareholders authorising the respondent to file the petition under Sections 397 and 398 whereas the rule and the form imperatively require a written consent of the shareholders with specific allegations which should have been annexed with the petition.

25. Notwithstanding the appellants' raising the legal grounds that the petition as framed and filed by the respondent suffers from the mandatory requirements which entail dismissal of the petition in limine, the learned company judge admitted the petition on October 13, 1983, holding that there is a prima facie case for trial.

26. The respondent on January 13, 1984, moved an amendment application for winding up of the company under Section 433(f) of the Companies Act, read with rules 6 and 9 of the Companies (Court) Rules. The learned company judge passed the order dated January 13, 1984, allowing the application subject to objections that may be raised by the appellants at the time of final hearing. On May 2, 1984, by an interim order passed by the learned company judge, the board of directors of the company was reconstituted and, accordingly, Hon'ble Justice K.L. Pandey, retired judge of this High Court, was appointed as chairman with a right to vote. Appellant No. 2, Shri R.K. Dubey, was appointed as managing director and appellant No. 3, Shri K.P. Mishra, as director and the respondent, Shri Shekhar Mehra, as director without right of vote.

27. On May 21, 1984, the first meeting of the reconstituted board of directors was held in which the managing director, Shri R.K. Dubey, was authorised with funds for clearance of raw material. The company was also authorised to raise authorised capital to satisfy the bankers. On June 15, 1984, Shri Shekhar Mehra, respondent, in the capacity of director, wrote a letter to the company's bankers stating that the company is going to be wound up in the year 1984 itself. Therefore, they should be cautious about the dealings with the company. On August 6, 1984, the learned company judge passed an order that he would try the petition as a petition for winding up, under Section 433(f) of the Companies Act and on the same day, another order was passed for publication of the petition for winding up the company in the Gazette, against which the present two appeals under Section 483 of the Companies Act, 1956, have been filed on the grounds, inter alia :

(a) The petition as framed and filed under Sections 397, 398, 402, 403 and 450 of the Companies Act is prima facie not maintainable for thereason that the respondent while submitting the petition has not complied with the mandatory requirement of rule 88 of the Companies (Court) Rules and Form No. 43 appended thereto.

(b) The respondent neither filed the petition on behalf of the majority members nor was any letter of consent given by them authorising the respondent to file the petition appended whereas the mandatory form requires that the written consent with specific allegations should be annexed with the petition.

(c) The workers of the company have also locus standi to appear and to be heard whereas no notices were issued to them. In this way, against the principles or natural justice, the petition was admitted for hearing by the company judge on October 13, 1983, and further order was passed on August 6, 1984, for winding up.

(d) The petition originally as framed and filed under Sections 397,398, etc., of the Companies Act is not liable to be converted into one for winding up under Section 433 (f) of the Companies Act.

(e) The petition under Section 433(f) of the Companies Act cannot be admitted so far as the learned company judge has not reached the conclusion that there is a prima facie case for winding up.

(f) The direction issued for advertisement of the petition in the Gazette will cause immense injury to the company.

(g) Treating the original petition as a petition under Section 433(f) of the Companies Act would mean that two petitions, one under Sections 397,398, etc., and the other for winding up, are pending. This may lead to confusion.

(h) No other shareholders except Shri Shekhar Mehra desire winding up of the company ; and

(i) The petition initially has been made under Sections 397, 398, etc., of the Companies Act by the respondent in his capacity as a shareholder and, therefore, it is not that every shareholder should get a right under Section 433 to apply for winding up unless he claims to be a contributory and satisfies the requirements of Sub-sections (3) and (4) of Section 439 for which there are no averments in the original petition.

28. On the other hand, learned counsel appearing for the respondent, supported the order of the learned company judge dated August 6, 1984, on the ground, inter alia, that there appears just and equitable ground for winding up and, therefore, the learned company judge was right in converting the original petition made under Sections 397 , 398, etc., into one under Section 433(f) of the Companies Act. While making this submission, he mainly relied upon the decision in Eastern Linkers P. Ltd. v.Dinanath Sodhi [1984] 55 Comp Cas 462 (Delhi) in which the decision of the House of Lords in Ebrahimi v. Westbourne Galleries Ltd. [1972] 2 All ER 492 (in short hereinafter referred to Ebrahimi's case) was relied upon.

29. After having heard learned counsel for both the sides at length for days together and considering the authorities cited by them for and against, we have reached the conclusion that these appeals must be allowed.

30. Before dealing with the grounds as have been raised by learned counsel appearing for the appellants, we would first like to give a bird's eye-view of the relevant provisions of the Companies Act for the decision of these two appeals.

31. The relevant provisions for these two cases are : Section 397 which contemplates the power of the court in relation to prevention of oppression and mismanagement; Section 398 speaks of application to court for relief in cases of mismanagement; Section 399 gives a right to the person concerned to apply under Sections 397 and 398. Section 400, which is a very important provision, speaks of issuing notice to the Central Government of applications under Sections 397 and 398. Section 401 speaks of the right of the Central Government to apply under Sections 397 and 398. Section 402 gives power to the court to consider the application under Section 397 or 398. Section 404 speaks of the effect of alteration of the memorandum or articles of company by order under Section 397 or 398. Section 433 speaks of circumstances in which a company may be wound up by court. Section 433(f) provides that if the court is of opinion that it is just and equitable, the company should be wound up. Section 434 speaks of the company when deemed unable to pay its debts. Section 443 gives powers to the court to hear the petition. Section 443(2) says that 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 are acting unreasonably in seeking to have the company wound up instead of pursuing that other remedy. Section 283 relates to vacation of office by directors. Section 285 speaks of meeting of board of directors. Section 289 speaks of passing of resolutions by circulation. Section 287 speaks of quorum for meetings and Articles 101 to 115 relate to notices.

32. Learned counsel, appearing for the appellants, submitted that the petition as filed is prima facie not maintainable for the reason that the provisions of Section 399 of the Companies Act have not been complied with inasmuch as one-tenth of the issued share capital shareholders of the company have not given their consent to file the present petition and theprovision occurring in Section 399(3) is a condition precedent to be fulfilled by a shareholder to file a petition under Section 397 or Section 398 of the Companies Act, 1956. Consent in writing contemplated by Section 399(3) is a consent to filing of the particular petition with a particular allegtion for a particular relief under Section 397 or Section 398. There cannot be a blanket consent like a certain member consenting to some other member filing a petition under Section 397 or Section 398.

33. In the instant case also, the petition filed by the petitioner-respond-ent has not fulfilled the legal requirements. Learned counsel, appearing for the respondent, submitted that the consent has been obtained while filing the petition but when we examine the said so-called consent, it does not fulfil the legal requirements of Section 399(3) of the Companies Act and, therefore, it is of no avail to the respondent. Further, the mandatory requirements of rule 88 of the Companies (Court) Rules have also not been complied with. Therefore, the petition prima facie appears to be not maintainable.

34. With the change in the new era and considering the socio-economic conditions the workers of the company have also locus standi and without hearing them, the company could not be wound up at the instance of one man or to his little majority by whose action the company may be ruined, upon which a number of employees depend and earn their livelihood. Now, under the changed concept of industrialisation, the company is a part of it and the workers of the company play a very important role in the progress of the company and, as a matter of fact, they are the real company runners. The shareholders only contribute the money part in making investments but the company's labourers are the real workers by whose manual labour, the shareholders amass good fortune. Therefore, the company is not the property of the shareholders alone. A company, according to the new socio-economic thinking is a social institution having duties and responsibilities towards the entire community in which it functions. The shareholders invest their money part only but the workers invest sweat and toil and, in fact, their life itself, and, therefore, the workers have a special place in the socialistic pattern of society.

35. Their Lordships of the Supreme Court in National Textile Workers' Union v. P.R. Ramakrishnan [1983] 53 Comp Cas 184, have held that in a winding-up petition under Section 433(f) of the Companies Act, the workers of the company have the same locus standi as that of shareholders and, therefore, they have an equal right to appear and oppose the winding up of the company, as the workers are not mere vendors of toil and they are not a marketable commodity to be purchased by the owners of capital. They are producers of wealth as much as capital.Applying this concept that the company is not the property only of the shareholders, the filing of a petition under Section 433(f) of the Companies Act for its winding up without the active representation of the workers of the company is not at all maintainable and no order for its winding up could be passed without the express consent of the workers of the company. In the instant case, before passing the order on August 6, 1984, the workers were not heard. Therefore, besides other grounds, the order dated August 6, 1984, is also against the principle of natural justice for having not given any opportunity to the workers of the company. Hence, the order dated August 6, 1984, is without jurisdiction.

36. The most important point that arises for decision in these appeals is whether a petition originally made under Sections 397 and 398 of the Companies Act, 1956, could be converted into one for winding up under Section 433(f) of the Companies Act. The learned counsel appearing for both sides have placed reliance upon the decision of their Lordships of the Supreme Court in Hind Overseas P. Ltd. v. Raghunath Prasad Jhunjhunwalla [1976] 46 Comp Cas 91 in which Ebrahimi's case [1972] 2 All ER 492 (HL) is referred to. From the very outset, we must say that the facts of the instant case are quite distinguishable from Hind Overseas P. Ltd.'s case [1976] 46 Comp Cas 91 (SC). In Hind Overseas P. Ltd.'s case, the initial petition was filed for winding up under Section 433(f) of the Companies Act and in that context, their Lordships have referred to the decision of the House of Lords in Ebrahimi's case [1972] 2 All ER 492 (HL). From a perusal of para 2 of Hind Overseas P. Ltd.'s case [1976] 46 Comp Cas 91, the position will become more clear (at page 93) :

' The question that is raised in this appeal relates to the scope of Section 433(f) of the Companies Act, 1956 (briefly 'the Act'), and in particular whether the principles applicable in the case of dissolution of partnership could be invoked in the case of the company.'

37. We have earlier said that the facts of Hind Overseas P. Ltd.'s case [1976] 46 Comp Cas 91 are quite distinguishable as in that case, originally a petition for winding up was filed whereas in the instant case, the petition under Sections 397, 398, etc., has been ordered to be converted into a winding up petition. Between a winding up petition and a petition under Sections 397, 398, etc., there are distinguishable features and, therefore, the petition under Sections 397 and 398 could not be converted into a winding-up petition under Section 433(f) because:

1.(a) For a petition under sections 397 and 398, the relevant rules are rules 11(a), 12, 13, 24, 88 to 90.

1. (a) For a petitionunder section 433, the relevant rules are rules 95 to 105.

Relevant Forms are Forms43 and 44.

Relevant Forms are 45to 49.

(b)Case for winding up isessential under section 397 but not sounder section 398.

(b) Analogy of the English Actis inappropriate, vide section 210(5).

(c)No sectionsin the English Actare equivalent to sections 398 to 409.

2. Notice toCentral Governmentis necessary under section 400.

2. No suchnotice is necessary.

3. Share qualification isrequired for an application under sections397 and 398, vide section 399.

3. Nominimum share qualificationis required.

4. Under section 401, theCentral Government may apply under section397 or 398.

4. The Central Government cannotapply but the Registrar of Companies can apply under section 439(5).

5. Nature of reliefs undersections 397, 398 is much wider, vide section402.

5. Nature of relief is narrower, vide section 443.

6. Remedy is of preventivenature and provides for continuity ofcompany.

6. Windingup results in civil deathof the company.

38. For these reasons, we hold that the petition, if initially made under Sections 397 and 398, cannot be converted into a winding-up petition under Section 433(f) of the Companies Act and because of the above distinguishable features, even no composite petition could be filed.

39. The finding arrived at by the learned company judge that Ebrahimi's case [1972] 2 All ER 492 of the House of Lords applies to the facts of the instant case and, therefore, the petition may be tried as a petition for winding up appears to be based on a misconception of facts. If we look to the provisions of the English company law, we see that there is no provision equivalent to the provisions of Section 398 and Section 409 of the Companies Act, 1956, However, the provisions of Section 222(f) of the English Companies Act, 1948, upon which Ebrahimi's case [1972] 2 All ER 492 (HL) is based, corresponds to the provision of Section 433(f) of the Companies Act, 1956. But we have said earlier that because of the material distinguishable features, the original petition made under Sections 397 and 398 cannot be converted into a petition for winding up under Section 433(f). In Ebrahimi's case [1972] 2 All ER 492 (HL), also originally a petition for winding up under Section 222(f) was filed and considering the just and equitable clause, their Lordships of the House of Lords under the facts and circumstances of the case held that winding up of the firm, M/s. Westbourne Galleries Ltd., which was mainly being managed by Mr. Nazar, was fully explored by the allegations of oppression and misconduct and hence there was no alternative but to pass the order for winding up. But, in the instant case, under the provisions of the Companies Act, 1956, originally the petition was made under Sections 397, 398, etc., and hence, as stated before, the said petition cannot be converted into a petition for winding up under Section 433(f).

40. Their Lordships of the Supreme Court in Hind Overseas P. Ltd. v. Raghunath Prasad Jhunjhunwalla [l976] 46 Comp Cas 91, 104 (SC) observed as under:

'Although the Indian Companies Act is modelled on the English Companies Act, the Indian law is developing on its own lines. Our law is also making significant progress of its own as and when necessary. Where the words used in both the Acts are identical, the English decisions may throw good light and reasons may be persuasive. But as the Privy Council observed long ago in Ramanandi Kuer v. Kalawati Kuer, AIR 1928 PC 2, it has often been pointed out by this board that where there is positive enactment of the Indian Legislature, the proper course is to examine the language of that statute and to ascertain its proper meaning, uninfluenced by any considerations derived from the previous state of the law--or of the English law upon which it may have been founded.

If it was true in the twenties, it is more apposite now that the background, conditions and circumstances of Indian society, the needs and requirements of our country call for a somewhat different treatment. We will have to adjust and adapt, limit or extend, the principles derived from English decisions, entitled as they are to great respect, suiting the conditions of our society and the country in general, always, however, with one primary consideration in view that the general interests of the shareholders may not be readily sacrificed at the altar of squabbles of directors of powerful groups for power to manage the company.'

41. Therefore, without comparing the relevant statutory provisions of the English law with the law of this country, we should not readily copy and accept what the House of Lords have said in their judgment notwithstanding the fact that most of the Indian laws are modelled on the basis of English law, and there are distinguishable features in the relevant provisions of both the laws which we have to consider while passing the order.

42. We should not forget that by the blessings of Bharat Mata, our mother land, ' Bharat ' has produced great lawyers and many eminent judges who could easily be compared with any of the judges of other countriesincluding the judges of the House of Lords of England. Our Supreme Court of India and High Courts are great courts and have earned a high place of honour in the legal world after independence. But, because of age-old slavery, a tendency has crept in our minds to look and embark upon the decisions of foreign courts particularly of the House of Lords. But, if we look to our ancient laws, vedas and shastras, etc., we find that whatever other countries have, had been borrowed from our ancient laws and culture but because of slavery, we were kept in such a condition and state of affairs that we have become crazy for the English decisions and without comparing the relevant statutory provisions of the English laws with our laws, we readily accept them which have persuasive value alone. Now, our laws are progressively developing on their own lines. Therefore, the time has come to give a go-by to the adoption practice of English pattern in our routine work except in exceptional cases where our decisions are silent in throwing light on the subject.

43. It is vehemently canvassed by the respondent that the principle of dissolution of partnership is applicable in winding up cases under Section 433(f) of the Companies Act, 1956. In our opinion, the contention as raised by the respondent rests on the hypothesis that this is a case of partnership carried on in the guise of a registered company under the Companies Act and, therefore, applying the principle of dissolution of partnership to a company, the order for winding up of the company may be passed. But, as held in numerous cases, a company is a partnership in disguise but that by itself is not sufficient to order for its winding up. But the respondent-petitioner in this case must show in relation to his position as shareholder prima facie establishing in the petition itself, some lack of probity on the part of other shareholders (appellants in this case) and a course of oppressive conduct continued up to the date of filing of the petition. Their Lordships of the Supreme Court in Hind Overseas P. Ltd.'s case [1976] 46 Comp Cas 91, 104 (SC), have held as under :

' When more than one family or several friends and relations together form a company and there is no right as such agreed upon for active participation of members who are sought to be excluded from management, the principles of dissolution of partnership cannot be liberally invoked. Besides, it is only when shareholding is more or less equal and there is a case of complete deadlock in the company on account of lack of probity in the management of the company and there is no hope or possibility of smooth and efficient continuance of the company as a commercial concern, there may arise a case for winding up on the just and equitable ground. In a given case, the principles of dissolution of partnership may apply squarely if the apparent structure of the company is not the real structure and on piercing the veil it is found that in reality it is a part-nership. On the allegations and submissions in the present case, we are not prepared to extend these principles to the present company.'

44. Section 44(c) of the Partnership Act postulates that a partner other than the partner suing is guilty of misconduct which is likely to affect prejudicially the carrying on of the business, regard being had to the nature of the business but if such a situation arises, whether a court in a suit filed by a partner in such circumstances can order for dissolution merely because the partnership is in a state of hostility rendering mutual confidence impossible. We see that in such circumstances, the court will not interfere in a suit filed by a partner who himself is guilty of misconduct. In the instant case, despite offering of shares, Shri Mehra, respondent, has not shown his interest in purchasing the shares, but on the other hand, said, 'I am not interested in purchasing the shares'. As such, to some extent, the respondent was guilty of misconduct in not purchasing the shares of the company. In this regard, their Lordships of the Supreme Court in Hind Overseas P. Ltd.'s case [1976] 46 Comp Cas 91, 107 have held as under:

' Is this company, in substance a partnership or in the image of a partnership as claimed We may now address to this aspect strenuously emphasised by Mr. Sen. If, as in Ebrahimi's case [1972] 2 All ER 492, there had been an earlier partnership and the partners later on formed themselves into a company, the matter would have stood on a different footing. In the present case, however, we do not find any special features which would unquestionably lead to the conclusion that the company is in substance a partnership. On the other hand, the following aspects are noteworthy :

Assuming partnership had been contemplated, the idea was deliberately abandoned. The company was started with one Anil Chandra Dutta who was no relation of the two families but was an employee of V.D.J. This would negative the idea of partnership which connotes equal status amongst the partners. While it is true that a director may work in the company on remuneration, R.P.J., however, served like an employee on monthly salary not on his own initiative enjoying an equal partner's freedom and prestige but directly under the supervision and control of V.D.J. acknowledging a status definitely of a subordinate character. The voluntary financial involvement of a large stake by V.D.J. carefully sought to be protected against erosion of his interest by constant vigil on the day-to-day working does not fit in with the concept of a partnership. All the above features do not enable us to accept the submission of the respondents that the company in this case is in substance a partnership.'

45. The term ' just and equitable ' has undergone a radical change in the socio-economic conditions in our country. The term ' just and equitable' has lost its technical meaning and has acquired a more meaningful and pragmatic one. Unless and until the court reaches the conclusion based on sound principles and considering all the circumstances and facts of each case, an order for winding up of the company should not be passed. Their Lordships of the Supreme Court in Hind Overseas P. Ltd.'s case [1976] 46 Comp Cas 91, 107 held as under :

' It is not a proper principle to encourage hasty petitions of this nature without first attempting to sort out the dispute and controversy between the members in the domestic forum in conformity with the articles of association. There must be materials to show when the ' just and equitable' clause is invoked, that it is just and equitable not only to the persons applying for winding up but also to the company and to all its shareholders. The company court will have to keep in mind the position of the company as a whole and the interests of the shareholders and see that they do not suffer in a fight for power that ensues between two groups'.

46. Learned counsel for the respondent also submitted that because of a financial crisis in the company and looking to the balance-sheet, it should be just and equitable to pass an order for winding up. Nowadays, when the State Government and the Central Government have floated so many schemes to establish minor and major industries and have made proper arrangements to advance loans giving suitable directions to the nationalised banks then merely to look at the balance-sheet, or profit and loss is no ground to pass an order for winding up of the company. But the real test is to see that the company should be commercially sound having solvent credit in the mercantile world and should always be in a position to meet its liabilities as and when they arise. It is now known to all concerned that all the businesses, may be small, medium or big, are being run on borrowed capital through the various financial agencies under the schemes floated by the Government of India and State Governments. Therefore, money is no problem and on this count alone, no company could be directed to be wound up.

47. The next point urged related to the misconduct and mismanagement on the part of the appellants. The petition under Sections 397 and 398 was filed on October 1, 1983. To invoke the provisions of Sections 397 and 398 of the Companies Act, article 137 of the Limitation Act, 1963, applies. Events that happened prior to October 1, 1980, will be barred under iiiiicle 137 of the Limitation Act. But the respondent has pleaded incidents of so called misconduct prior to October 1, 1980, in which he himself was a party to that so called misconduct being himself a director. Therefore, besides the limitation point, the respondent cannot blow hot and cold in the same breath applying the principle of approbate and reprobate. Hence, the question of misconduct on the part of the appellants which is time-barred has no consequence more so when the' respondent himself was guilty of various misconducts of the events prior to 1980.

48. The other point urged was relating to notice, that no notice of meeting was served on the respondent and the adjourned meeting was also not convened in accordance with the provisions of Sections 288 and 289 of the Companies Act. If we look to the pages 80, 82, 85 and 86 of the paper book, volume VIII, articles of association 111 to 116, we see that there is no legal infirmity in conducting the meetings. Therefore, the appellants have not committed any breach of the statutory provisions relating to conducting of the meetings.

49. Learned counsel appearing for the respondent has taken us through the decision in Eastern Linkers v. Dinanath Sodhi [1984] 55 Comp Cas 462 (Delhi). But we have already expressed our views in the foregoing paragraphs that the petition under Sections 397, 398 of the Companies Act cannot be converted into a petition for winding up. Besides this, a prima facie case has to be made out before the court can take any action in the matter. Therefore, the case referred to by the respondent is quite distinguishable from the facts of the instant case. In Hind Overseas P. Ltd's case [1976] 46 Comp Cas 91, 105 (SC), it has been laid down as under :

' The principle of just and equitable clause baffles a precise definition. It must rest with the judicial discretion of the court depending upon the facts and circumstances of each case. These are necessarily equitable considerations and may, in a given case, be superimposed on law. Whether it would be so done in a particular case cannot be put in the strait-jacket of an inflexible formula.

In an application of this type, allegations in the petition are of primary importance. A prima facie case has to be made out before the court can take any action in the matter. Even admission of a petition which will lead to advertisement of the winding-up proceedings is likely to cause immense injury to the company if ultimately the application has to be dismissed. The interest of the applicant alone is not of predominant consideration. The interests of the shareholders of the company as a whole apart from those of other interests have to be kept in mind at the time of consideration as to whether the application should be admitted on the allegations mentioned in the petition. '

50. In the light of the above finding by the Supreme Court, we see that in the instant case no prima facie case is made out for winding up under Section 433(f) of the Companies Act, 1956.

51. Learned counsel appearing for the appellants have submitted that there is an alternative remedy available in view of the provisions of Section 443(2) of the Companies Act and, therefore, the respondent must be directed to resort to the alternative remedy available to him. He further argued that petition under Section 433(f) must be read with Section 443(2) of the Companies Act, 1956. In Hind Overseas P. Ltd.'s case [1976] 46 Comp Cas 91, 106 (SC), their Lordships have held, vide paragraph 36 as under :

' Section 433(f) under which this application has been made has to be read with Section 443(2) of the Act. Under the latter provision, 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 are acting unreasonably in seeking to have the company wound up instead of pursuing that other remedy.'

52. We are, therefore, of the opinion that the respondent must resort to the alternative remedy available to him under the statutory provisions of the Companies Act, 1956, i.e., under Sections 163, 167, 210 and 220 of the Companies Act.

53. No other grounds were pressed by the counsel appearing for the respective parties.

54. From the discussions aforesaid, we set aside the order dated August 6, 1984, holding that no prima facie case is made out for the trial under Section 433(f) of the Companies Act and no composite petition could be maintainable and tried. Consequently, both the appeals are allowed with costs. Counsel's fee Rs. 750 in each appeal, if certified.


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