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Pampana Suryanarayana and ors. Vs. the Joyoti Pictures Ltd. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtOrissa High Court
Decided On
Case NumberCompany Act Case No. 2 of 1954
Judge
Reported inAIR1955Ori84
ActsCompanies Act, 1913 - Sections 156, 158, 162, 165 and 166
AppellantPampana Suryanarayana and ors.
RespondentThe Joyoti Pictures Ltd.
Appellant AdvocateH.G. Panda, Adv.
Respondent AdvocateH. Mohapatra, ;R.N. Mishra, ;B. Misra and ;Srinibas Misra, Advs.
DispositionApplication dismissed
Cases ReferredOriental Navigation Co. Ltd. v. Bhanaram Agarwalla
Excerpt:
- motor vehicles act, 1988 [c.a. no. 59/1988]section 173(1) proviso; [d. biswas, amitava roy & i.a.ansari, jj] appeal without statutory deposit but within limitation/or extended period of limitation maintainability - held, if the provision of a statute speaks of entertainment of appeal, it denotes that the appeal cannot be admitted to consideration unless other requirements are complied with. the provision of sub-section (1) of section 173 permits filing of an appeal against an award within 90 days with a rider in the first proviso that such appeal filed cannot be entertained unless the statutory deposit is made. the period of limitation is applicable only to the filing of the appeal and not to the deposit to be made. it, therefore, appears that an appeal filed under section 173 cannot.....orderp.v.b. rao, j. 1. this is an application by 14 petitioners under sections 162 and 166, companies act, for compulsory winding up of the joyoti pictures ltd., with its head office at berhampur. 2. it is alleged in the petition that petitioners 1 to 14 are contributories, & petitioner 6 and some others are creditors of the joyoti pictures ltd., that the company is a private limited company registered under the indian companies act, 1918 in 1942; that the company has a board of 3 directors; that the registered office of the company is at berhampur in ganjam district; that the authorised capital of the company originally stood at rs. 20,000/- but later on increased to rs. 50,000/-divided into 250 shares of rs. 200/- each; that the entire share capital is fully paid up and the petitioners.....
Judgment:
ORDER

P.V.B. Rao, J.

1. This is an application by 14 petitioners under Sections 162 and 166, Companies Act, for compulsory winding up of the Joyoti Pictures Ltd., with its Head Office at Berhampur.

2. It is alleged in the petition that petitioners 1 to 14 are contributories, & petitioner 6 and some others are creditors of the Joyoti Pictures Ltd., that the Company is a private Limited Company registered under the Indian Companies Act, 1918 in 1942; that the Company has a Board of 3 Directors; that the registered office of the Company is at Berhampur in Ganjam District; that the authorised capital of the Company originally stood at Rs. 20,000/- but later on increased to Rs. 50,000/-divided into 250 shares of Rs. 200/- each; that the entire share capital is fully paid up and the petitioners 1 to 14 are consequently fully paid-up share-holders; that the objects of the Company are to exhibit cinema shows, carry on business in all kinds of language cinema films etc., that the number of share-holders is 27 including the petitioners; that when the Company was originally started in 1942 by one K. Tarini Rao and two of his nominees, M. Arjunam and V. Ganapati, who subscribed to the memorandum with two shares each, K. Tarini Rao was hopelessly in debt to the extent of about Rs. 8,000/-; that he had mortgaged his only residential house; that his shares which were first only 2, have now increased to 55; that he has managed to acquire by questionable means 82 shares in the name of his son K. Narayan Rao, 30 shares in the name of his wife Ammani and 5 shares in the name of his brother Narasimha Rao, that, in all, the family of K. Tarani Rao owns 172 shares; that as the Company flourished Tarini Rao who was practically the Manager, had fraudulently appropriated the Company's gate collections and other sources of income to himself and shown in the Company's accounts fictitious deposits by persons no other than his wife, son, himself and his wife's sister to the tune of Rs. 25,871/-; that this sum including share capital of the shares standing in the names of the members of the family amounting to Rs. 34,400/- makes up a total of Rs. 60,271/- that Clause (3) of the Articles of Association lays down that the Company shall be managed by Messrs K. Tarini Rao and son; that in the draft agreement between the Company and the Managing Agents, terms were inserted with the approval of his nominees -- the two other promoters, which imposed a condition that even in the event of winding up or transfer of the Company's business the same Managing Agents shall continue as such; that these terms are not only unreasonable and excessively onerous but also ultra vires and hence not binding on the Company as the said agreement was never formally approved by resolution after incorporation of the Company; that the Company has thus become a partnership consisting of Tarini Rao's family members and relatives who, own 70 per cent of the Company's shares and, have a preponderating and dominating voice in the Company's affairs; that the Managing Agency has been formally converted into a partnership by a deed which was registered on 16-2-1949; that under Article 4 of the Articles of Association there are to be 5 Directors including 2 Directors ex-officio nominated by the Managing Agents who are not due to retire by rotation; that consequently when matters relating to the conduct of the Managing Agency in any meeting are on the agenda, division is demanded by poll and the managing agents are able to flout the wishes of the members and to over-rule them; that on 25-12-48 a resolution was passed to the effect that the managing agents' monthly allowance shall be Rs. 300/- per month from 1-4-48 and 20 per cent of the net profits shall be paid from 1948-49 or 61/4 per cent of the revenue whichever was higher; that the managing agency on the strength of this resolution are appropriating 61/4 per cent of the total receipts from the sale of tickets construing the term 'revenue' as gross receipts though it was given to understand that 61/4 per cent of the revenue would be calculated on the net profits; that on 29-7-51 an extraordinary general meeting was called by the share-holders when they wanted to put interpolations relating to the misconduct of the managing agency; that the meeting was held on 11-9-51 and it ended in a fiasco; that though the members opposing the managing agents were in a majority, a poll was demanded and the resolutions vvate lost by huge majority; that the income of the cinema business was during this period at its peak but the figures as shown in the accounts are suspiciously low; that they sent a petition to the Registrar of the Joint Stock Companies at Sambalpur; that a notice dated 1-12-53 was given to M. Appalla Narasimham, petitioner No. 14 that in accordance with the resolution of the Board of Directors he was expelled from the Company as he carried on competitive business either directlyor indirectly, enclosing a cheque to the credit of the transferee representing his shate capital; that this action was taken by virtue of a resolution passed at a meeting held on 29-11-53; that the accounts of the Company are not properly and correctly maintained; that the machinery of the Company of about Rs. 15,000/- was sold away without the approval of the share-holders and when the share-holders questioned the same they could not succeed as it was carried by a majority poll; that K. Tarini Rao is getting a building constructed at a cost of Rs. 20,000/- benami in the name of his brother; that the depositors Paidamma and Narasarama gave notices of demand dated 24-10-53 for payment of their deposits of Rs. 2000/- and Rs. 1000/- respectively made on 21-8-47 and 19-1-47 to the managing agents; and that the managing agents promised to pay their moneys by the end of January 1954 pleading, their inability to pay on such short notices.

The petitioners lastly alleged that the balance sheet for the year ending with 31-3-1952 shows that the capital liability of the Company is about Rs. 1,40,807-0-3 as against the total value of the assets which according to prevailing prices amounts to Rs. 84,900/-. Consequently the petitioners pray that under Clauses (5) and (6) of Section 162, Companies Act, the Company is unable to pay the debts and that it is also just and proper that the Company should be wound up.

3. The Company appeared through its managing agents and refuted all the allegations made by the petitioners. The opposite party contended that the allegations made against the Company are false; that the relationship of the opposite party with the Company is governed by the terms of specific agreement entered into between the two and all the actions done or taken by the opposite party are always made known to the Board of Directors, that the management of the Company is done according to the Articles of the Association and to rules and practice, that the transfer of shares has always been allowed by the Board of Directors and entries in respect of the same had been made in accordance with their decision, that it is false to say that by any questionable means the managing agents got the shares transferred in their names or in the names of their relations; that they were all approved by the Board of Directors ' in accordance with the rules; that it is false to say that the loans of the Company are fictitious; that the loans shown are included in the balance sheets which are placed and accepted at the annual general meeting of the share-holders every year; that K. Tarini Rao or his son never appropriated any gate collections; that the subsequent alterations in the agreement made between the Company and the managing agents are according to the terms of the Articles of Association and were approved in the general meeting of the shareholders; that the meetings of the Company are always held at its registered office; that the books and documents of the Company are always available for inspection during the office hours at the registered office; that the managing agents are entitled in law to attend the meetings of the share-holders in their capacity as share-holders and to demand a poll; that all the decisions of the Board of Directors and the general meeting were in accordance with the majority vote; that it is false to say that the Company can no longer be run to the advantage of the share-holders; that the loan that had been procured from Mrs. J. A. Armstead in 1946 has not been discharged although interest of this loan has been regularly paid; that the transfer of shares belonging to Appalla Narasimham was in pursuance of the decision of the Board of Directors after the Articles of Association were altered by the general meeting; that the accounts are maintained as accurately as possible and are properly audited every year by Chartered Auditors who are approved by the general meeting; that the sale of old and unserviceable machineries was effected in the interest of the Company and with the approval of the Board of Directors; that the moneys due to Paidamma and Narasamma have been duly paid; and that the present application has been engineered by a proprietor of a rival cinema house of the locality that is, petitioner No. 14 with a view to closing down the business to the benefit of his own concern.

4. To an application filed by the petitioners under Section 175(2), Companies Act, for the appointment of a provisional liquidator, the managing agents filed one counter affidavit, the share-holders filed another and the creditors also filed a counter . affidavit. The creditors who filed the counter affidavit are about 7 in number to whom Rs. 48,861-5-0 are due out of the total debts of Rs.50,561-5-0. In all these three counter affidavits the appointment of a provisional liquidator is opposed and it is stated that the affairs of the Company arc being managed well and that no provisional liquidator should be appointed and the Company should not be wound up.

5. The petitioners examined 7 witnesses in support of their contention that the Company should be wound up. Petitioner No. 6, V. Narayanamurty Raju gave evidence regarding the allegations in the petition and also to the effect that he was a creditor. He stated that he advanced some amount about 10 years back and that he advanced a further sum of Rs. 1000/-. The second loan, he admitted, was discharged. With regard to the first amount advanced, he admitted that he has no document to evidence that loan and that there is nothing with him on the strength of which he can legally enforce that loan. The managing agents have denied the first loan. This witness belongs to a family of money-lenders and it is quite improbable that he could have advanced the money without having a voucher with him or without entering it In his account books. I cannot accept his evidence that he is a creditor to the Company.

Petitioner No. 1 Pampana Suryanarayana also gave evidence with regard to the allegations in the petition. He stated that his relations Narasamma and Paidamma advanced some loans to the Company; that notices were issued on their behalf and the Company replied that the notices were not legal notices; and that the amount due would be paid by the end of January 1954. Narasamma and Paidamma are shown in the application for winding up, as petitioners Nos. 15 and 16, but before actual filing of the petition their names were struckout. The Company paid the amounts due to them before the actual filing of the winding up application into Court. Thus petitioner No. 6 Narasamma and Paidamma are eliminated as creditors. The application is deemed to be solely filed by paid-up share-holders, as none of the other petitioners is a creditor of the Company at the time the winding up application is filed. Petitioner No. 11 also gave evidence that he advanced some money to the Company and he admitted that his moneys' were long ago repaid. I had to deal with this matter inasmuch as the petitioners' learned counsel advanced arguments for winding up which would pertinently apply if the petition was filed by a creditor, but in this application as I have already found, none of the petitioners is a creditor, and all of them are admittedly paid-up share-holders.

6. One of the most important grounds taken by the petitioners for winding up of the Company is that K. Narayan Rao, the son of K. Tarini Rao who always attends and manages the performance of the Cinema, clandestinely collects moneys from intending cinema-goers and allows them into the show without issuing tickets. By this process, much amount which would have found its way into the income of the Company is misappropriated by Narayan Rao who is practically in management of the show on account of the illness of his father Tarini Rao. The petitioners contend that these moneys are afterwards invested by the members of the family of Tarini Rao as deposits. The opposite party examined two witnesses, K. Narayan Rao and D.W. 2 who was an agent of the distributors of the film known as Shri Jagannath. D.W. 2 deposed that he was present when Shri Jagannath was exhibited in the Joyoti Pictures, and that he was superintending the show, and that never was any person allowed into the show without issue of ticket but taking money from him. He also deposed that tickets were regularly issued to all the persons attending the cinema and tie moneys regularly accounted for. He is a person who is there on behalf of the distributors and is interested in seeing that all the moneys realised are shown as gross receipts as the distributors are entitled to the major portion of the gate collections. In view of this evidence, I am inclined to believe that no clandestine gate collections were made.

Most of the witnesses for the petitioners only say that the persons posted at the gates were collecting moneys in this surreptitious way, but they do not connect the person collecting the money with K. Narayan Rao or anyone of the management. It may be that one or two persons might be allowed by the gate-keepers pocketing the value of the tickets, but this cannot be taken as proving that the members connected with the management are actually engaged in this nefarious game. D.W. 1 also stated in evidence that his father Tarini Rao was for a long time an insurance agent of the Andhra Insurance Company and was getting income in the shape of commission. The investments made by the members of Tarini Rao's family are not lump sum investments, but investments made from time to time. Of course, the managing agents did not give specific evidence as to wherefrom the wife of Tarini Rao or the son of Tarini Rao obtained the amounts which they gave as deposits to the Company, but it is evident that the specific case set up by the petitioners that these investments represent clandestine gate collections cannot be accepted, as those collections, even if made, cannot amount to more than Rs. 10/- or Rs. 15/- a day. Further it must be taken into account that these accounts were regularly audited by Chartered Accountants and they never raised any such suspicion.

7. The learned counsel for the petitioners next contends that about Rs. 80,000/- were spent for the construction of the picture house and that much money might have been misappropriated by Tarini Rao during the course of that construction. No taintless evidence is forthcoming on the petitioners' side with regard to this charge. The building account was scrutinised by the auditors and in the audit report for the year 1949-50 (Ext. 15-c) it is stated that the building account was scrutinised and the amount spent for the building represents the present market value of the building. It is admitted by the petitioners that they were in the know of the fact that the entire work of construction of the building was in the sole management of Tarini Rao, but never before the actual commencement of this dispute was any such charge made against Tarini Rao. Further so long ago as on 26-11-48 (Ext. D-2) the Board of Directors passed a resolution that for the services rendered by K. Tarini Rao in constructing the picture house for the Company, he should be paid a reward of Rs. 5000/- and this amount was actually paid and these things were approved by the general body. Such being the state of affairs before the actual commencement of the present dispute, it cannot be now accepted that Tarini Rao would have misappropriated moneys intended for the expenses of the picture house. Moreover, it is to be taken into consideration that he could get the necessary moneys for the construction of the picture house by borrowing the sum and brought into existence the picture house which is earning income for the Company regularly.

8. It may also be noticed further that the Company is paying regularly dividends to the share holders in some years at the rate of 9 per cent and in some years at the rate of 6 per cent or 5 per cent and admittedly the managing agents are getting the accounts audited regularly. The management of the Company is quite in accordance with the rules and provisions of the Indian Companies Act, and no statutory breach is alleged against the Company.

9. The next contention of Mr. Panda is that the Company is unable to pay its debts. For this contention he relies upon the delay in payment of the debts due to Paidamma and Narasamma as also the existence of the debt of about Rs. 17,000/- on a mortgage in favour of Mrs. J. Armstead. As I have already observed, the debts of Paidamma and Narasamma are paid before the petition is actually filed into Court and the delay in paying those debts therefore cannot be relied upon as a ground to show that the Company is unable to pay its debts. To get the case under that clause of Section 162, the petitioners must prove that there are existing debts which the Company is unable to pay. With regard to the debt of Mrs. J. Armstead, the picture house is mortgaged to her. The amount was borrowed for the construction of the picture house. Interest is being paid regularly every year and she has filed an affidavit into tin's Court that her debt would be discharged if the managing agents are allowed to continue the management and the Company is not liquidated and if a provisional liquidator is not appointed.

There is in evidence a combined attempt by some of these petitioners headed by M. Appalla Narasiraham to induce Mrs. Armstead to join them in filing the application, but she refused to join and on the other hand filed an affidavit into Court that the management of the Company was all right and that it would not be wound up. In the face of this evidence, I do not accept the contention that the Company is unable to pay its debts and I am, therefore, of opinion that the petition cannot succeed under Section 162, Clause (5), Companies Act.

10. The application filed by the petitioners being, for the reasons stated above, an application by fully paid-up share-holders only, the learned counsel for the opposite party Mr. H. Mohapatra raised an interesting question of law to the effect that such an application by fully paid-up share-holders for winding up of the Company is not maintainable in law. He contends that notwithstanding the fact that there are some decisions of the Madras Lahore, Bombay and Allahabad High Courts to the contrary position, yet on a correct construction of the relevant sections of the Indian Companies Act, the position with regard to this question in the Indian Law is quite different from that under the English Acts. He relies for this contention on Sections 158, 156 and 166 of the Indian Companies Act.

11. Section 166 is a mandatory section and it says

'An application to the Court for the winding up of a Company shall be by petition presented, subject to the provisions of this section, either by the Company, or by any creditor or creditors (including any contingent or prospective creditor or creditors), contributory or contributories, or by all or any of those parties, together or separately, or by the Registrar.'

This application being by fully paid-up shareholders it has next to be seen if a fully paid-up share-holder is a contributory.

12. Section 158 defines the term 'contributory'. It says-

'The term 'contributory' means every person liable to contribute to the assets of a Company in the event of its being wound up, and, in all proceedings for determining and in all proceedings prior to the final determination of the persons who are to be deemed contributories, includes any person alleged to be a contributory.'

Contributory, being a person liable to contribute to the assets of a Company in the event of its being wound up it has next to be seen if a fully paid-up shareholder is liable to contribute to the assets of a Company.

13. Section 156 deals with liability as contributories of present and past members. It says,

'In the event of a Company being wound upevery present or past member shall, 'subject tothe provisions of this section', be Liable to contribute to the assets of the Company to anamount sufficient for payment of its debts andLiabilities, and the costs, charges and expenses ofthe winding up, and for the adjustment of therights of the contributories among themselves,with the qualifications following (that is to say):

* * * * * (iv) In the case of a Company limited by shares, no contribution shall be required from any member exceeding the amount (if any) unpaid on the shares in respect to which he is liable as a present or past member.'

14. Mr. Mohapatra contends that a petition for winding up filed in this case by fully paid-up share-holders cannot in law be regarded as a petition by a contributory and if it does not amount to a petition by a contributory or contributories, the provisions of Section 166 of the Indian Companies Act are not complied with. He contends that fully paid-up share-holders are not contributories by reason of the definition of the term in Section 158 as they are not persons liable to contribute to the assets of a Company in the event of its being wound up, inasmuch as Clause (iv) of Section 156 definitely says that in the case of a Company limited by shares no contribution shall be required from any member exceeding the amount (if any) unpaid on the shares in respect to which he is liable as a present or past member.

15. This contention of Mr. Mohapatra is contrary to the decisions of the Madras High Court reported in the case of -- 'Sabapathi Press & Co. Ltd. v. R. Sabapathi Rao', AIR 1930 Mad 240 (A) and in the case of -- 'Narayandas Giridharidas v. P. & O. Banking Corporation Ltd., Madras', AIR 1934 Mad 476 (B).

16. In AIR 1930 Mad 240 (A), a Division Bench of the Madras High Court, following the decisions of the English Courts -- 'In re National Savings Bank Association Ltd.', (1866) 14 WR 1005 (C) and -- 'In re Anglesea Colliery Co.', (1866) 14 WR 1004 (D) held that the qualification in Clause (4) of Section 156, that a member shall not be liable to pay more than the unpaid amount of his share does not make him the less a contributory in the particular case where the capital is fully paid up and a petition for winding up by members who have paid up their share capital fully is maintainable under Section 166.

17. In AIR 1934 Mad 476 (B), a Division Bench of the same High Court held ,that fully paid-up share-holders are contributories without any qualification, relying on the case of 'In re Anglesea Colliery Co. (D)' and a statement of Ruckley on the Companies Act, 10th Edition at p. 401.

18. There is also a decision of the Bombay High Court -- 'In re Cine Industries and Recording Co. Ltd.', AIR 1942 Bom 231 (E) which is a case of an application by a fully paid-up shareholder for winding up, in which it was held that a share-holder petitioning for the winding up of the Company is under no disability as compared with a contributory nor is he under any obligation to satisfy, the Court that on a winding up there would be surplus assets.

19. In the case of -- 'Babu Parshottam Das v. Official Liquidator, Gorakhpur Electric Supply Co. Ltd.', AIR 1938 All 613 (F), it was held -

'The term 'contributory' as used in Section 186(2) includes a fully paid-up share-holder and accordingly where a limited Company goes into Liquidation and a winding up order is passed by the Court, such a share-holder cannot claim a set off in respect of sums due to the Company from him against any sums that may be due from the Company to such share-holder.'

20. The Lahore High Court also, in the case of -- 'Imperial Oil Soap and General Mills Co. Ltd. v. Ram Chand', AIR 1916 Lah 78 (2) (G) held that

'a fully paid-up share-holder of a Company is a contributory within the meaning of Section 158 of the Companies Act and may, subject to certain conditions, present a petition for winding up of the Company.'

In this case, Shadi Lal J. (as he then was) relied upon the case of (1866) 14 WR 1005 (C).

21. There is also a decision of the Calcutta High. Court in the case of -- 'Davco Products Ltd. v. Rameswar Lal', AIR 1954 Cal 195 (H) which goes to show that a petition for the winding up by a fully paid-up share-holder is maintainable.

22. Mr. Mohapatra contends that the decisions of the Madras High Court reported in AIR 1930 Mad 240 (A) and AIR 1934 Mad 476 (B) and that of the Lahore High Court reported in AIR 1916 Lah 78 (2) (G) which are the three direct cases on the point and which follow the two English cases cannot the applied to the facts of this ease inasmuch as the relevant sections under the Indian Companies Act are different from those under the English Act of 1862 which was the basis of those two decisions.

23. Section 74, English Act (an Act for the Incoporation, Regulation and Winding up of Trading Companies and other Associations) of 1862 which corresponds to Section 158, Indian Act is in these terms,--

'The term 'contributory' shall mean every person Liable to contribute to the assets of a Company 'under this Act' in the event of the same being wound up. It shall also, in all proceedings for determining the persons who are to be deemed as contributories, and in all proceedings prior to the final determination of such persons, include any person alleged to be a contributory.'

It may be noted that in Section 158, Indian Companies. Act, the words 'under this Act' are absent.

24. Section 38, English Act which correspondto Section 156, Indian Act is in these terms,

'In the event of a Company formed under thisAct being wound up, every present and pastmember of such Company shall be liable to contribute to the assets of the Company to anamount sufficient for payment of the debts andliabilities of the Company, and the costs, charges,,and expenses of the winding up, and for thepayment of such sums as may be required forthe adjustment of the rights of the contributories amongst themselves with the qualificationsfollowing (that is to say):

XXX (4) In the case of a Company limited by shares, no contribution shall be required from any member exceeding the amount, if any, unpaid on the shares in respect of which he is liable as a present or past member.'

It may be noted that in the corresponding Section 156 the words for the payment of such as may be required for the adjustment of the rights of the contributories are omitted.

25. In the case of (18G6) 14 WR 1004 (D) Turner L. J. held, relying on Sections 38 and 74, English Act, that a fully paid-up share-holder is a contributory. In coming to this conclusion, he observed,--

'The 74th Section, therefore, in no way defines the persons on whom the liability created by it is to attach, but it refers to a liability under the Act, and leaves it to be collected from other parts of the Act on whom the liability was intended to be fixed. Upon examining the other parts of the Act there is nothing which I can find which at all describes the persons who are to be liable except what is contained in Section 38, and it is, therefore, to the description contained in that section that the 74th section must, as I think, be taken to refer .... Reading this section apart from the qualifications, there can, as it seems to me, be no doubt upon whom the liability is fixed. It is clearly fixed upon the present and past members of the Company, and the present and past members must be contributories within the meaning of Section 74.

This part of the 38th section is in effect descriptive of the persons to whom the 74th section refers. The question then must be, what is the effect of the qualifications contained in Article 4 of Section 38, and in my opinion, it does not derogate from the previous description. On the contrary, it assumes the members to be liable, and merely provides in what cases and to what extent, the liability is to be enforced against them; I think, therefore, that notwithstanding this qualification, the members must be considered to be contributeries. Upon these sections, alone, therefore, I can hardly doubt that all members of a Company, and there can be no doubt that the holders of paid-up shares are members, ought to be held to fall within the description of contributories.'

and he also fortifies his conclusion with reference to the other provisions of the English Act. He also observed,--

'Now, it seems to me to be clear beyond all doubt that the purpose of this Act is (inter alia) to adjust the rights of all the members of Companies which should be wound up under it. Indeed, I do not see how the rights of those members who have not paid up in full could be adjusted without the rights of those members who have paid in full being taken into account. Throughout the Act we find 'members' and 'contributories' used interchangeably.'

The observations are a clear indication that Turner L.J. based his decision on the express words in Section 74 of the English Act the term contributory shall mean every person liable to contribute tothe assets of a Company 'under this Act' .........'which latter 3 words arc not to be found in Section 158 of the Indian Companies Act.

26. In the other case relied upon by the Madras High Court, namely, (1866) 14 WR 1005 (G) Turner L. J. came to the same conclusion as that in the previous case. In this case he observed,--

'Then comes the question whether a fully paid-up share-holder is a contributory within the meaning of the Act.'

and after reading Sections 1, 9, 10 and 133 of the English Act, he further observed,--

'Now, it would be a rather strong view of the Act to say that the word 'contributories' in that section, does not include persons who have paid up their shares in full, but only persons who have made partial payments. 'The Court might be driven to that construction, but it is necessary first to look at the other parts of the Act. Now, Section 74 contains a definition of the word. It is said that a person who has paid up his share in full is under no liability to contribute. In this argument, however, three words in section 74 have been left out of consideration -- the words, namely, 'under this Act.' We must look to the other parts of the Act to ascertain who are liable under it, to contribute and Section 38 contains a definition of the persons who are so liable. Upon this I cannot entertain a doubt that the persons meant by contributories were members and past members of the Company, and that Section 38 is that which is referred to by Section 74.

It is said that the introductory part of Section 38 is subject to some qualifications, and, among others, to that contained in part 4 of the section, and thereupon it is said that no contribution could be called for from the holder of fully paid-up shares. But this qualification does not seem to me to destroy the introductory part of Section 38, nor to prevent its being imported into Section 74. I think, therefore that upon the true construction of the Act, and of the particular clauses in question, there is enough in Section 38, taken in connection with Section 74, to make all present, and past members of the company contributories within the meaning of Section 74.'

27. Mr. Mohapatra contends that the two English decisions on which the Madras High Court and the Lahore High Court relied are based upon the particular wording of Sections 38 and 74 of that Act and inasmuch as the corresponding sections under the Indian Act are different, the said English decisions nor the Madras and Lahore decisions following those decisions can be regarded as authority contrary to the position which he contends for. In my opinion, there is much force in this contention. Section 156, Indian Companies; Act clearly says that every present and past members shall 'subject to the provisions of this section': be liable to contribute, and by virtue of Clause (iv) a fully paid-up share-holder is not liable to contribute. Consequently, reading Sections 158 and 156, it can be clearly seen that a fully paid-up shareholder is not a contributory. As already observed the two English decisions came to the conclusionthat a fully paid-up share-holder is a contributory inasmuch as Section 74, English Act definitely says that a contributory shall mean every person liable to contribute to the assets of a Company 'under that Act' which three 'words are absent in Section 158 and consequently, in my opinion they do not apply to cases under the Companies Act. Further, as can be seen from the two English cases, Turner L.J. bases his decision on Section 38 on the strength of the words in Section 74 'under this Act', whereas in Section 158 those three words are conspicuous by their absence. Further Section 156 which corresponds to Section 38 of the English Act specifically qualifies the liabilities as contributories of present and past members, and 'subject to the provisions of this' section which words are conspicuous by their absence in the corresponding $. 38 of the English Act. The decision in AIR 1930 Mad 240 (A), was based on the assumption that the two corresponding sections under the English act'and the Indian Act are the same. The learned Judges observed:

'Section 74, English Act, then under consideration is the same as Section 158. Section 38 corresponds to our Section 156.'

As I have already observed, this statement does not, with all respect to the learned Judges, appear to be correct as the two corresponding sections are different from the sections of the English Act of 1862. I have already observed, this statement does not, with all respect to the learned Judges, appear to be correct as the two corresponding sections are different from the sections of the English Act of 1862. I have already quoted Sections 38 and 74, English Act of 1862 corresponding to Sections 156 and 158, Indian Companies Act and it is clear from the wording of the sections that there is a difference between sections in the English Act of 1862 and the corresponding sections of the Indian Companies Act. Sections 38 and 74, English Act of 1802 were altered by the Companies (Consolidation) Act of 1908. Section 38 of the Act of 1862 now corresponds to Section 123, Companies (Consolidation) Act of 1908 and Section 74 corresponds to Section 124 of the same Act. Sections 123 and 124, English Act of 1908 are the same as Sections 156 and 158, Indian Companies Act, and perhaps the English Act of 1908 was placed before the learned Judges of the Madras High Court.

28. In the decision reported in AIR 1934 Mad 476 (B), Beasley, Chief Justice, in his judgment, with which the other learned Judge agreed, relied upon a statement of the law in Buckley on the Companies Act, 10th Edn., p. 401 and on the case of In re Anglesea Colliery Co., (D)', Buckely stated: 'A holder of fully paid shares is a contributory within the meaning of the Act, when all debts have been paid, a call may be made upon the partly paid share-holders to adjust the rights between them and the fully paid share-holders.' In my view, this statement of the learned Author as also the statement in 'In re Anglesea Colliery Co., (D)', are based upon the definition of a 'contributory' as given in the English Act, specially with reference to the words 'subject to the provisions of the Act' which words are absent in the Indian Act.

29. The decision in AIR 1916 Lah 78 (2) (G), is also based upon the assumption that Section 158,Indian Act corresponds with Section 74, 'English Act. Shadi Lal J, (as he then was) observed 'Upon the first point it is sufficient to say that Section 158 is 'in tol idem veribs' with the corresponding section in the English Act, and that it has been repeatedly held in England that a fully paid-tip share-holder is a contributory and may present a petition for winding up. (Vide, inter alia, (1866) 1 Ch A 547 (C)).' With all respect, in my opinion, as already shown above, this assumption does not appear to be correct as there is a difference between Section 158, Indian Companies Act and Section 74, of -the corresponding English Act on which the English decisions were based.

30. The Bombay, Allahabad and Calcutta-decisions referred to above are not directly cases relating to interpretation of Sections 156, 158 and 166, Indian Companies Act and consequently they do not apply to the facts of the present case.

31. The decision of Kapur J. in the case of --'Bharat Bank Ltd. v. Lajpat Rai', AIR 1950 EP 328 (I), lends some support to the contention of Mr. Mohapatra. In this case after an elaborate discussion of the law, Justice Kapur seems to be of opinion that a fully paid-up share-holder is not entitled to bring under the law a winding up petition as he is not a contributory within the meaning of Section 156, though his actual decision in the case was-where a contributory files an application for winding up and does not allege that there is a surplus and does not give prima facie evidence of the likelihood of there being some tangible surplus, he is not entitled to bring, under the law, a winding up petition because he has no interest in winding up and is not a contributory within the meaning of Section 166, although for the purpose of adjustment he will come within the definition of the word 'contributory'.

32. I have tried to show that there is a difference between Sections 38 and 74, English Act of 1862 and Sections 156 and 158, Indian Companies Act & inasmuch as the two decisions of Lord Justice Turner reported in 'In re National Savings Bank Association Ltd. (C)' and 'In re Anglesea Colliery Co, Ltd., (D)', are based upon the particular wording of Sections 38 and 74, English Act may not apply to the law as stated in the Indian Companies Act. But corresponding sections in the English Act of 1908 are the same as Sections 156 and 158, Indian Companies Act. As far as I could see, the proposition that a fully paid-up share-holder is a contributory, is practically based upon the two cases reported in 'In re National Savings Bank Association Ltd., (C)', and 'In re Anglesea Colliery Co. Ltd., (D)'; and I could not get any subsequent decision after the alteration of the English law-by the Act of 1908. Even after the English Act of 1908 and that of 1948 in which Act the corresponding sections are Sections 212, 213, the leading Authors on the Companies Law are of the opinion that a fully paid-up shareholder is a contributory.

33. Stiebel in his Companies Law and Precedents, Vol. II, 2nd Edn., 1920 at p. 945 says :

'Under the old Act it was held that a contributory included a fully paid-up share-holder, because he was liable to contribute to the assets of the Company under Section 38 of the Act of 1862, although it was true that the later words of that section took away such liability. Some emphasis was laid in these decisions on the words 'under this Act' in Section 74 of the Act of 1862, but probably the absence of such words in the existing section does not make any difference,'

34. Buckely (Lord Wrenbury) in his Companies Acts 10th Edn., at p. 302, says :

'Contributory includes the holder of fully paid shares, for he is entitled to share in the adjustment of the rights of the contributories among themselves. He may also present a petition for winding up the Company,'

Consequently, in my opinion, the learned Author is of the view that the Act of 1908 did not in any way maintain a petition notwithstanding the amendments in the English Law by the Acts of 1908 and 1948.

35. In Palmer's Company Law, 19th Edn., 1950 at p. 382, the learned Author seems to be of the opinion that a fully paid-up share-holder may maintain a petition notwithstanding the amendments in the English Law by the Acts of 1908 and 1948;

36. In the latest edition of Halsbury's Laws of England, 3rd Edn., at pages 541-542 it is stated that 'a fully paid-up share-holder may, as a contributory, present a winding up petition.....'. Such being the present position of the law in England on which the Indian Companies Act is based and in view of the long series of decisions of the Indian High Courts referred to above, though I see much force in the contention of Mr. Mohapatra that a fully paid-up share-holder cannot maintain an application for winding up, I cannot accept the same on the principle of stare decisis.

37. Even if a fully paid-up share-holder has, under the law, locus standi to file an application for winding up, it is next to be seen whether he can maintain such an application without an allegation and proof of there remaining some assets after the winding-up in which he can claim some payment. In Palmer's Company Law at p. 382, jt is stated,

'Occasionally, a contributory petitions on the ground that the company is insolvent or unable to pay its debts; but in such case the petitioner, if fully paid, should, if possible, allege and prove that there will be a substantial surplus for the share-holders; otherwise he has no interest in the Company, and in spite of Section 224 of the Act there is a serious risk that a petition by a fully paid-up share-holder alleging that the Company has no assets will be dismissed.'

38. In Halsbury's Laws of England, 3rd Edn., at pages 541-542, it is stated,

'A contributory is not entitled to an order in such a case where there is no ground for a winding up order except insolvency, and the petition is opposed by other share-holders. In any case the Court has a discretion and may refuse to make an order on a contributory's petition where the Circumstances do not justify a winding up order. The court will more readily make the order if the contributory alleges and proves that there is a reasonable probability of a surplus being left for distribution amongst share-holders.'

This position of the law in England is on account of the amendment of the Companies Act by the Companies Acts of 1908 and 1948.

39. In the leading case on this aspect of the law, namely, -- 'In re Rica Gold Washing Co.', (1879) 11 Ch D 36 (J), Jessel M. R. laid down :

'Now I will say a word or two on the law as regards the position of a petitioner holding fully paid-up shares. He is not liable to contribute anything towards the assets of the Company, and if he has any interest at all, it must be that after full payment of all debts and liabilities of the Company there will remain a surplus divisible among the share-holders of sufficient value to authorise him to present a petition. That being his position, and the rule being that the petitioner must succeed upon allegations which are proved, of course the petitioner must show the Court by sufficient allegation that he has a sufficient interest to entitle him to ask for the winding up of the company, I say 'sufficient interest', for the mere allegation of a surplus or of a probable surplus will not be sufficient. He must show what I may call a tangible interest. I am not going to lay down any rule as to what that must be, but if he showed only that there was such a surplus as, on being fairly divided irrespective of the costs of the winding up would give him 5, I should say that would not be sufficient to include the Court to interfere in his behalf.'

This dictum of the learned Judge was followed in many English cases as aslo those of the Indian High Courts, But it was held that this dictum will not be applicable in an absolute form.

40. In a latter case in -- 'In re Vron Colliery Co.', (1882) 20 Ch D 442 (K), the learned Judge himself expressed the view that

'to a creditor's application for winding up.....the above dictum would not apply though such' an application included some fully paid-up shareholders.'

Even after the amendment of the English Act to1908 and 1948, the above dictum of Sir GeorgeJessel was applied.

41. In 1910 WN 13 (L), Jessel M. R.'s dictum as an absolute rule of law of universal applicability notwithstanding the statutory provision contained in Section 141, Clause (1), English Companies Act was followed.

42. In the case of AIR 1954 Cal 195 (H), it Was observed by P. N. Mookerji J. :

'The dictum of Jessel M. R. quoted above, may be construed as laying down a general test --not universal or conclusive for determining the question of bona fides or mala fide of the winding up application. Thus construed and such construction is justified by the opening and the closing paragraphs of the judgment of the learned Master of the Rolls the dictum would still be valid and may be usefully employed in appropriate cases.'

43. In the present- case before me there is not only no proof that there would be any surplus left, but on the other hand there is a clear admission in the petition itself that the Company is in a state of insolvency. In paragraph 29 of the petition, it is stated

'the balance-sheet for the year ending with 31-3-1952 shows that the capital liability of the Company is about Rs. 1,40,807/-/3 pies as against the total value of the assets, according to the prevailing price, is Rs. 84,900/-. It is clear from the above statement that the Company's liabilities have exceeded the assets. Hence the Company is not at all in a position to pay its debts.'

From this categorical assertion in the petition for winding up made by the petitioners I have no hesitation to come to the conclusion that under the law, as it stands at present, the application for winding up filed by fully paid-up share-holders on the allegations made cannot be and ought not to be accepted.

44. It is contended by the learned counsel for the petitioners that even according to the observations made by Jessel M.R. in the case of 'In re Rica Gold Washing Co. (J), he is entitled to ask for winding up of the Company. In that case the learned Judge observed :

'I think, the rule should be, as a general rule, first establish your fraud, and get the money, and then present your petition to divide it if that is the object of a winding up petition by a fully paid-up share-holder. There will be, no doubt, some exceptions. One which I think worth mentioning is where the majority of the share-holders side with the directors or other persons who have committed the fraud and so prevent the Company's bringing an action to make them liable. In that case I can well understand the Court saying that, as the minority of the share-holders who are entitled to complain of the fraud cannot themselves institute an action in the name of the Company, they may invoke the assistance of the Court to wind up the company so that by the means of the liquidation such an action may be brought or proceedings may be taken under the 165th clause of the Companies Act.'

On the strength of this passage, Mr. Panda contends that he has alleged fraud and therefore he is entitled to succeed. In my opinion, as I have already observed, I do not think that the petitioners succeeded in establishing any fraud. The audit reports and the proceedings of the meetings of Directors filed in this case clearly show that all the resolutions were passed as a matter of course according to the rules and bye-laws of the Company as also the Articles of Association. The acquisition of a number of shares by Tarini Rao and the members of his family is in accordance with the allotments made by the Board of Directors and the resolutions passed are all by a demand of the poll which is authorised under the rules and the law. I cannot accept the contention of Mr. Panda that passing of resolutions by demand of poll, the fact of Tarini Rao and his family acquiring a number of shares and the fact of the members of the family of Tarini Rao depositing certain moneys in the Company are by themselves acts of fraud. They are things which happen in the course of business and working of the Company and there is absolutely no proof that there is any fraud in these acts.

45. Mr. Panda next contends that his application comes under Clause (6) of Section 162. Clause (6) says that a Company may be wound up by the Court if the Court is of opinion that it is just and equitable that the Company should be wound up. The learned counsel for the petitioners cited before me various decisions reported in the cases of -- 'R. Sabapathy Rao v. Sabapathy Press Co. Ltd.', AIR 1925 Mad 489 (M); AIR 1930 Mad 240 (A); --'Madan Gopal v. Peoples Bank of Northern India Ltd.', AIR 1935 Lab 779 (N); --'In the matter of Punjab Flying Club Ltd.', AIR 1933 Lah 301 (O);-- 'M. E. Moola and Sons Ltd. v. Chartered Bank of India, Australia and China', AIR 1928 Rang 36 (P) and -- 'Loch v. John Blackwood Ltd.', 1924 . AC 783 (Q).

46. In AIR 1925 Mad 489 (M), it was laid down that the expression 'just and equitable' in Clause (6) is not ejusdem generis with the other clauses and that exercise of dominant influence by the directors and the managing director out-voting the minority is enough ground for directing a winding up. This is a case of an application for winding up filed by share-holders who have not fully paid up the share capital.

47. In AIR 1930 Mad 240 (A), also the same principle was laid down.

48. In the case of -- 'Gopal Chetti v. The Ripon Press and Sugar Mill Co. Ltd., Bellary', AIR 1925 Mad 633 (R), it was laid down that lack of confidence on the part of the share-holders in the management and the fact that the shares accumulated in the hands of the directors may be a ground for winding up. It may be noted that in the case of -- 'Ripon Press and Sugar Mill Co. Ltd. v. V. Gopal Chetti', AIR 1932 PC 1 (S), a case which went up in appeal against the decision of the Madras High Court in AIR 1925 Mad 633 (R), the Judicial Committee held that the order of, the High Court directing a winding up was wrong.

49. In AIR 1933 Lah 301 (O), it was held that a winding up order is just and equitable if the Company is commercially insolvent and it cannot meet its current demands and there is no cash to hand.

50. In my opinion, these decisions do not in any way apply to the facts of the present case. According to the oral and documentary evidence adduced in this case, the Company, as I have already observed, is carrying on its business successfully, getting the accounts audited regularly and is also paying dividends to the share-holders, and is meeting its current demands.

51. In AIR 1942 Bom 231 (E), it was held that

'In a petition for the winding up of a Company the Court will not go behind the balance sheet of the Company duly audited by the auditors more so when it was open to the share-holder petitioner to challenge its correctness in other proceedings.

The other test is whether at the date of the presentation of the winding up petition there wasany reasonable hope that the object of tradingat a profit, with a view to which the Companywas formed, could be attained.'

There is evidence in this case that the Companyis successfully doing its business. It is also laiddown in that case that in order to succeed in awinding up application it should be proved thatthe substratum of the Company must be deemed to be gone so as to entitle that Court to pass a winding up order, when the subject matter of the Company is gone or the object for which it was incorporated has substantially failed, or it is impossible to carry on the business of the Company except at a loss which means that there is no reasonable hope that the object of trading at a profit can be attained, or the existing and probable assets are insufficient to meet the existing liabilities, and that when none of the four tests can be applied to the facts of the particular case the Company cannot be wound up.

It was also laid down that the question of directors exceeding the borrowing powers conferred upon them by the Articles of Association is essentially a question of internal management of the Company and that the Court will not go into that question on a winding up petition especially when since the filing of the petition the company has by resolution ratified the borrowings by the directors and has taken the view that the directors have acted in the best interests of the Company. It has also been held in this case that in the case of a petition for winding up a Company, the petitioner has got to make out a case for winding up on the petition. He cannot be allowed to fish out a case by cross-examination of deponents of the Company who have made affidavits or by inspection of the accounts of the company.

52. Applying these principles to the facts of the present case, I am of opinion that the petitioners failed to make out a case for winding up.

53. In the case of -- 'Oriental Navigation Co. Ltd. v. Bhanaram Agarwalla', AIR 1922 Cal 365 (T), it is laid down that winding up should not be lightly ordered.

54. In the case of AIR 1932 PC 1 (S), the Judicial Committee observed that pre-ponderance of shares in one person is no reason for winding up of a Company,

55. P. Suryanarayana petitioner No. 1 and M.Appalla Narasimham petitioner No. 14 were directors of the Company till 1950 and they never complained against the managing agents or about themanagement of the Company. Many of the resolutions regarding the management of the Companynow questioned were passed when they weredirectors. The evidence discloses that the petitioners began to evince dissatisfaction of the Company's management only after 1950 when petitioner No. 14 constructed another Cinema house.It is suggested by the opposite party that it waspetitioner No. 14 who was responsible to instigate,the others to file a winding up application andthere is evidence in this case that it was only petitioner No. 14 who took an active part in askingMr. K. Patnaik to issue a registered notice to theCompany. Mr. H. Mohapatra also suggested thateven the vakalat which is alleged to have beengiven to Mr. K. Patnaik purporting to have beensigned by about 20 share-holders is not proved tohave been actually signed by them. There is alsoevidence even on the admission of some of thewitnesses for the petitioners that M. Appalla Narasimham petitioner No. 14 along with others wentto Mrs. Armstead to induce her to join them in theapplication for winding up. , .

M. Appalla Narasimham after the erection of a rival cinema house by him also approached some cinema distributors and in approaching them made use of certain visiting cards in which he gave his name as proprietor of Vijoya Talkies and partner of the Jyoti pictures. D.W. 2 one of the agents of the distributors has stated in evidence that M Appalla Narasimham approached him asking for being given the picture Shri Jagannath in preference to the Jyoti Pictures and gaining access to the distributors on that ground was canvassing for the pictures to be given to his own Vijoya Talkies. From the evidence on record, I am of opinion that this application is due to the instigation of petitioner No. 14 and the Application is not a bona fide application and on the other hand is a mala fide one.

56. For the reasons stated above, I do not think that it is just and equitable to order a winding up. The Company is working properly, it brought into existence a picture house it is distributing dividends and none of the creditors in spite of the active canvassing by the petitioners has joined the application for winding up. On the other hand, they have filed affidavits into court saying that in the interest of the Company, no winding up order should be made.

57. For these reasons above stated, I see no merit in this application and dismiss the same with costs. Advocates' fees are fixed at Rs. 150/-.


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