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Eastern Linkers Pvt. Ltd. Vs. Dina Nath Sodhi - Court Judgment

LegalCrystal Citation
Subject Company
CourtDelhi High Court
Decided On
Case NumberCompany Appeals Nos. 9, 11 and 30 of 1980
Judge
Reported in[1984]55CompCas462(Delhi); 1982(3)DRJ239
ActsCompanies Act, 1956 - Sections 171, 172, 173(2), 180, 210, 290, 397, 398, 403, 433, 443(2) and 557
AppellantEastern Linkers Pvt. Ltd.
RespondentDina Nath Sodhi
Cases ReferredOfficial Liquidator v. N. Chandranarayanan). It
Excerpt:
companies act, 1956 - sections 171, 172 and 286 ; if the time of holding the meeting and other essential particulars required by the section 172 are not specified in the notice, the meeting will be invalid and all resolutions passed threat will be of no effect.; a meeting of the directors is not duly convened unless due notice has been given all directors and the business put through at a meeting not duly convened is invalid and any business or resolution passed at such meeting would itself be invalid.;companies act, 1956 - section 290 ; a transaction which is illegal cannot be upheld unless the party seeking the assistance of the court acts bonafide. acting bonafide is essential to uphold the transaction under section 290 of the act.; companies act, 1956 - section 433(b); where a company.....sachar, j. 1. this is an appeal by the company against the order of the learned single judge holding that it was just and equitable to wind up the company and so ordering accordingly. similar appeals have also been filed by bail (being company appeal no. 30/1980), who was one of the directors of the company; another appeal (being company appeal no. 9/1980) has also been filed on behalf of the directors. as most of the points are common, this judgment will also dispose of those appeals excepting where separate order is given with reference to the points arising in those appeals. 2. it may be mentioned that broadly the shareholders are divided into two groups known as bali group (appellant) and sodhi group (respondent) who had moved the application for winding up the company. 3. the company.....
Judgment:

Sachar, J.

1. This is an appeal by the company against the order of the learned single judge holding that it was just and equitable to wind up the company and so ordering accordingly. Similar appeals have also been filed by Bail (being Company Appeal No. 30/1980), who was one of the directors of the company; another appeal (being Company Appeal No. 9/1980) has also been filed on behalf of the directors. As most of the points are common, this judgment will also dispose of those appeals excepting where separate order is given with reference to the points arising in those appeals.

2. It may be mentioned that broadly the shareholders are divided into two groups known as Bali group (appellant) and Sodhi group (respondent) who had moved the application for winding up the company.

3. The company was incorporated on May 14, 1949, with an authorised capital of Rs. 5 lakhs divided into one thousand ordinary shares of Rs. 100 and 200 cumulative preference shares of Rs. 2,000 each. The memorandum of association was signed by the appellant, Bali, and the respondent Sodhi, who had initially each one cumulative preference share. Shortly, thereafter, further preference shares were issued making a total of 50. It is also a common case that eight preference shares are held by Sinha and Kapur, who are not apparently taking sides either with Sodhi or Bali.

4. The broad fact that Bali group holds 21 preference shares is also not disputed. That Sodhi holds four shares in his own name and one is held by his wife is also not disputed. There is also no dispute that four shares were held by R. C. Sodhi, the brother of the respondent Sodhi. There the agreement ends. According to Bali other 12 shares were owned by and were entered in the register of members in the name of Des Raj (4), Mulakh Raj (4) and Chandok (4). Sodhi, however, claimed when the moved an application - C.P. No. 32/1971 - that these 12 shares of Des Raj (4), Mulakh Raj (4), Chandok (4) had been transferred in the name of his two sons, Ramesh and Suresh, and his daughter, Savita Sodhi, respectively. Now, why C.P. No. 32/1971, under ss. 397, 398 and 403 of the Companies Act, 1956, was moved as mentioned in the said petition was that apart from listing many other acts of oppression against the Sodhi group, specific grievance was made that an annual general meeting was said to have been held in December, 1969, which was invalid as no notice had been sent to the Sodhi group. It was alleged that at that meeting though Sodhi and Bali were said to have been re-elected as directors it was purported to have been resolved that an extraordinary meeting be held in April, 1970, when new elections for directors will take place. Another meeting was also said to have been held in April, 1970, which was also invalid where a resolution was purported to have been passed pointing out the non-co-operative attitude of Sodhi and also the poor financial condition of the company and appointing only Bali as one of the directors. According to Sodhi, he received intimation of these proceedings in October, 1970, when he was informed by the company that he was no longer a director. That is why he moved C.P. No. 32/1971. He had as is usual along with the petition moved for appointment of an administrator. The parties, however, soon thereafter, entered into a compromise before Rangarajan J. on November 8, 1971. The compromise was made on the statements made Sodhi and Bali followed by the order passed by the learned judge. The same are reproduced as follows :

Sodhi stated as under :

'I and members of my family own 21 cumulative preference shares in the company. If we are paid at the rate of Rs. 7,500 per cumulative preference share, we are willing to transfer those shares to Bali within a fortnight of the decision of the court as to whether the shares owned by us are 21 as we contend or only 5 as Shri Bali contends'. Bali made the following statement :

'I am willing to pay at the rate of Rs. 7,500 per each cumulative preference share held by the petitioner & members of his family subject to this court deciding the number of shares so held by Shri Dina Nath Sodhi and the members of his family. According to me, Sri Dina Nath Sodhi and the members of his family own 5 shares and not 21 as contended by him. This question alone may be decided in this and the concerned applications by this court. Till this question is decided, I undertake not to alienate or in any manner subject the company to any commitment or liability except for ordinary day-to-day transactions without taking the express orders of the court'. On the same date the learned judge passed the following order :

'The statements of Shri Dina Nath Sodhi and Shri S. L. Bali are recorded. Shri Bali will file a detailed affidavit concerning the returns stated to have been filed before the Registrar for the years ending 1966, 1967 and 1968, mentioning the details of the shares held by the petitioner and the members of his family. He will also cover the points mentioned in the Government's report which has been filed today by Shri Rishikesh for Shri Davinder K. Kapur. The petitioner will also file a detailed affidavit of shares of himself and the members of his family and how and when they were acquired.' The matter was then heard and disposed of by P. N. Khanna J., by his order of May 23, 1972, as follows : 'In the result, I find that Shri Bali is not the owner of the 8 shares which previously stood in the names of Des Raj and Mulakh Raj and that the petitioner and the members of his family, i.e., his wife, his deceased brother, his two sons, Ramesh Sodhi and Suresh Sodhi, and his daughter, Savita Sodhi, are the owner of 21 shares as claimed by the petitioner. The petitioner, respondent No. 1 and respondent No. 2 shall now take steps forthwith to have the said 21 cumulative preference shares transferred to respondent No. 1 at the agreed price of Rs. 7,500 for each such share. The petition shall stand disposed of accordingly.'

5. It will be noticed that in the order of P. N. Khanna J. the direction was given to have the shares transferred to respondent No. 1. The reference to respondent No. 1 was an inadvertent mistake because obviously the dispute was whether shares should be transferred to Bali, who was respondent No. 2 and that is why this mistake was corrected by Rangarajan on October 3, 1972. This amendment made on October 3, 1972, however, was set aside in appeal and the matter was directed to be heard by the learned single judge again, who, however, again allowed the same amendment in the order of May 23, 1972, of P. N. Khanna J. The company preferred Appeal No. 4/1973 against this order which was dismissed by the Division Bench by the order of March 18, 1977, along with Company Appeals Nos. 10,11 & 13/1972 and Company Appeal No. 8/1975. Company Appeal No. 10/1972 was preferred by Bali against the order of May 23, 1972, by P. N. Khanna J. Company Appeal No. 11/1972 was preferred by Shakuntala Bali against the same order and Company Appeal No. 13/1972 was preferred by the company also against the same order. During the pendency of C.P. No. 32/1971, C.P. No. 39/1973 being an application under s. 433 of the Act was moved by Sodhi in which, apart from reiterating the allegations made in C.P. No. 32/1971, grievance was made that Bali had created deliberate difficulties in the payment of Rs. 1,57,500 by raising frivolous objections to the ownership rights of these 21 cumulative preference shares held by Sodhi and his family; there was also the grievance that Sodhi had been ousted from the management of the company and that, thereforee, it was just and equitable that the company should be wound up. This C.P. No. 39/1973 was admitted by Rangarajan J. on April 30, 1975. Against this, Company Appeal No. 8/1975 was filed. All these appeals, namely, Company Appeals Nos. 10,11,13 of 1972, Company Appeal No. 4/1973 and Company Appeal No. 8/1975, were heard and disposed of together by a Division Bench on March 18, 1977, dismissing all the appeals.

6. Thereafter, the matter was tried by the company judge on merits who framed the following issues :

(1) Whether the issue of 1,000 equity shares of Rs. 100 each by Sri Bali to himself, his wife, daughters and minor children, Sood and Mehta Kartar Singh, was at the back and without the knowledge and concurrence of the petitioner and amounted to an act of oppression

(2) Whether the annual general meetings held in December, 1969, and April, 1970, were invalid as they had been held without notice to the petitioner and the members of his family

(3) Whether the respondents ousted the petitioner from the board of directors of the company and brought about a material change in its management and control

(4) Whether the company in the present case was really in the nature of a partnership between two groups, one of the petitioner and the other of Bali

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

(6) Are the majority of the shareholders opposed to the winding up, and if so, what is its effect

7. The learned single judge, as already mentioned, has by his order of December 19, 1979, come to the conclusion that it was just and equitable to wind up the company and has order accordingly. Against this order, Bali and the company have filed the appeals which are being disposed of by this common order.

8. Issue No. 2 :

This issue relates to the validity of the meetings held in December, 1969, and April, 1970, and the issues Nos. 1 & 3 really flow from the findings to be given on this issue. That is why this issue is being discussed first. The allegation is that the company is said to have held its annual general meetings in December, 1969, and again in April, 1970, but without having sent the notice of the meetings to Sodhi or his wife or his sons and daughters who are claimed to be the holders of 21 shares; hence the meeting held was an invalid one. The stand of the company and Bali was that notice through post had sent to Sodhi and his wife who alone were admitted to be owners of 4 shares and one in their names, respectively. Sodhi had denied the receipt of any such notices. It will be noticed that no notice alleged to have been issued in connection with the meeting of December, 1969, is on record. At this alleged meeting though Sodhi and Bali were said to have been re-elected directors, yet it was only till April 29, 1970, when an extraordinary general meeting was directed to be called. The December, 1969, meeting is also said to have approved of a resolution to be moved at the next meeting cutting off the remuneration of one of the directors. At the meeting of April 29, 1970, there was a serious possibility of the remuneration of Sodhi being stopped, which could not be taken lightly by Sodhi. Considering this circumstance, it is unbelievable that had Sodhi received the notice of April 29, 1970, he would not have attended the meeting and would have allowed Bali's group to pass any sort of resolution in the meeting of April 29, 1970. The only suggestion of Mr. Talwar was that Sodhi did not attend because he was afraid of being outvoted and that absence was a safer alternative. The argument is unacceptable because the 12 shares which belonged to Des Raj, Mulakh Raj and Chandok would be more available to Sodhi because Des Raj and Mulakh Raj (who are brothers) were his relations (their sister being married to Sodhi's brother). Thus, we agree with the finding of the learned single judge that no notices were sent by the company to Sodhi and his wife who were admittedly members for the meetings held in December, 1969, and April, 1970. Now, ss. 171 and 172 provide for the calling of a general meeting only after giving notice for the requisite period and contains the contents and manner of service. It is not suggested that these requirements do not apply to the company. In the present case, our finding is that no notices of the meeting were sent to Sodhi and his wife. There is no excuse of accidental omission. The stand taken was that notices were sent, which we have disbelieved. Thus, deliberately and designedly Sodhi and his wife were not given notice for the holding of the meeting allegedly held in December, 1969, and April 29, 1970. In such circumstances it is the law that if the time of holding the meeting and other essential particulars required by the section are not specified in the notice, the meeting will be invalid, and all resolutions passed thereat will be of no effect. (See Prachi Insurance Co. Ltd. v. Chaudhury Madhusudandas [1964] 2 CLJ 157. Now, December, 1969, meeting purported to elect directors which called April 29, 1970, meeting. The latter meeting is said to have not elected Sodhi and instead elected Mrs. Bali in addition to Bali as directors. But all these proceedings suffer from the infirmity of the December, 1969, meeting being invalid and cannot confer any legitimacy on the proceedings held at the alleged meeting of April, 1970. Any proceedings at 29th April, 1970, would be obviously unauthorised and illegal. Though we are quite clear that not sending the notices of the meeting to Sodhi and his wife by itself is sufficient to invalidate the meetings, we, however, feel that we should also examine the question of notices not having been sent to Sodhi's sons and daughter. Admittedly, even according to the appellant, no notices for the meeting were sent to Sodhi's sons and daughter. The reason given by Mr. Talwar that as they were not borne on the register of members no notice was to be sent to them, carries no conviction, because as held in Company Appeal No. 10/1972, the shares of Des Raj, Mulakh Raj and Chandok had been transferred in the name of Sodhi's sons and daughter since 1961, and they should have been given notice of the meetings of December, 1969, and April, 1970. Mr. Talwar, however, made an effort to reopen the findings, namely, that these shares which originally belonged to Des Raj, Mulakh Raj and Chandok had been transferred in the name of the sons and daughter of Sodhi. But we are of the view that he cannot be permitted to reopen this issue which stands concluded by previous decisions between the parties. Mr. Talwar, however, had sought to urge that no such finding had been given in the previous litigation. We cannot agree. A reference to the statement of the parties before Rangarajan J. in C.P. No. 32/1971, on November 8, 1971, will show that while Sodhi had stated that he and his family members own 21 cumulative preference shares of the company, Bali had taken the stand that Sodhi and members of his family only hold 5 shares and not 21. Both the parties wanted this question to be decided by the court, and subject to this decision the parties had agreed that if Bali pays at the rate of Rs. 7,500 per cumulative preference share Sodhi and his family members were willing to transfer these shares to Bali within a fortnight of the passing of the order. Rangarajan J. had thereupon passed an order directing the parties to file there statements to show when the shares were transferred and how and when they were acquired. A reference to the order of P. N. Khanna J. dated May 23, 1972, in C.P. No. 32/1971 will show that the question posed before him squarely was - whether Sodhi and the members of his family owned 5 shares as said by Bali or 21 shares as claimed by Sodhi Des Raj and Mulakh Raj are brothers and their sister is married to Sodhi's brother. Des Raj, Mulakh Raj and Chandok were originally allotted 4 preference shares each in 1951, which Sodhi claimed were his nominees. He also claimed that the price of these shares had been paid by him. Four shares were allotted in 1953 to Sodhi's brother. There was no dispute so far as the 4 shares which stood in the name of Sodhi, and 4 shares which stood in the name of his deceased brother R. C. Sodhi, and one share in the name of Sodhi's wife. The dispute only was with regard to the 12 shares (four each in the name of Des Raj, Mulakh Raj and Chandok). Sodhi's case was that the shares of Des Raj were transferred in 1961 to his son, Ramesh Sodhi; shares of Mulakh Raj were transferred to his second son, Suresh Sodhi, and the shares of Chandok were transferred in the same year to his daughter, Savita Sodhi. Bali, however, claimed that the shares in the name of Chandok had been transferred to him though registration still stood in the name of Chandok. The shares standing in the name of Des Raj and Mulakh Raj, according to Bali, were said to have been transferred to his wife, Shakuntala Bali, on March 25, 1965. Bali purported to produce the original share scrips (to prove) alleged endorsement of transfer but it was in his own handwriting in favor of Shakuntala Bali. Khanna J. by his order of May 23, 1972, held that no minute book of the directors' meeting had been produced nor any resolution book to show that the directors ever considered that transfer of shares standing in the name of Des Raj and Mulakh Raj in favor of Shakuntala Bali. He also found that right from 1961 to 1967, the annual returns sent to the Registrar of Companies and produced from his office showed that Ramesh Sodhi, Suresh Sodhi and Savita Sodhi (sons and daughter of Sodhi) were being shown as holding four preference shares each which originally stood in the name of Des Raj, Mulakh Raj and Chandok. These last three persons, Des Raj, Mulakh Raj and Chandok, were not shown as members of the company. These annual returns were signed by both Sodhi and Bali regularly filed with the Registrar. Bali had purported to rely on a register of members showing that Ramesh Sodhi, Suresh Sodhi and Savita Sodhi were not entered in the register of members and the shares still stood in the name of Des Raj, Mulakh Raj and Chandok. Khanna J. commented that this register remained in the possession of Bali and that it could not be given more credence that the annual returns, which had been submitted for such a number of years from 1961 to 1967 regularly and had been signed by Bali himself also. Argument raised before Khanna J. that the court could not go into the ownership of the said shares was negatived by him with the observation that the parties themselves have made a prayer in the court that the ownership of the said shares be determined. Khanna J. recorded a specific finding that Shakuntala Bali was not the owner of these eight shares, which previously stood in the names of Des Raj, Mulakh Raj and that Sodhi and the members of his family, i.e., his wife, his two sons and daughter, are the owners of 21 shares as claimed by Sodhi. A direction was given that the company will take steps to have the said twenty-one cumulative preference shares transferred to Bali at the agreed price of Rs. 7,500 for each such share. Against this order of Khanna J. of May 23, 1972, three appeals, namely - Company Appeal No. 10/1972 by Bali, Company Appeal No. 11/1972 by Shakuntala Bali and Company Appeal No. 13/1972 by the company - were filed. The Division Bench also posed the question : Whether D. N. Sodhi and the members of his family held 21 shares as alleged by him or whether they held 5 shares, as alleged by Bali It may be mentioned that Chandok is said to be the son of a friend of D. N. Sodhi. The Division Bench, after going through the whole matter, also came to the conclusion that the entries relied upon in the register of members by Bali could not prevail over the entries in the annual returns which showed the sons and daughter of D. N. Sodhi as the holders of these 12 shares. The Division Bench also agreed with the finding of Khanna J. that the claim of Bali that 8 shares held by Des Raj and Mulakh Raj were transferred to Bali's wife and that the 4 shares held by Chandok were transferred to him was unacceptable. They have recorded a finding that right from December 30, 1961, to December 29, 1967, in every annual return the two sons and daughter of D. N. Sodhi were being shown as holding 4 preference shares each and that Des Raj, Mulakh Raj and Chandok were not shown as members of the company holding shares. The Bench has given a specific finding that 'it is thus clear from them that Shri Bali and Shri Sodhi, who were the only directors in 1960 and 1961, accepted and approved the transfers and reported the same to the Registrar of Companies in the aforesaid annual returns. This gives rise to a strong presumption of fact that the transfer were duly effected by the execution of transfer deeds and the same was accepted by the board of directors by passing a resolution in that behalf. There is nothing on record which rebuts the said presumption'. An argument was also raised before the Division Bench that Smt. Shakuntala Bali was not bound by the decision of P. N. Khanna J. This was negatived and it was held that Shakuntala Bali was represented in Company Petition No. 32/1971, before Khanna J. wherein it was agreed by the parties that the decision be given with regard to these 21 shares and, thereforee, Shakuntala Bali was bound by the decision given by Khanna J. In this view of the matter it is futile for Mr. Talwar to seek to reopen the findings with regard to 21 shares being held by Sodhi and the members of his family. We may note that the learned single judge in appeal has again gone into the matter and came to an identical conclusion (though we feel that it was not necessary to do so in view of the finding given by Khanna J. and upheld by an earlier Division Bench in Company Appeal No. 10/1972). We, thereforee, do not consider it necessary to go into this aspect as this matter is concluded on the principle of rest judicata and cannot be reopened in these proceedings between the parties and must remain immune from attack here. It has, thereforee, to be held that Sodhi and his family members were the owners of 21 shares of the company. Admittedly, no notice was sent to the sons and daughters of Sodhi and the claim of Bali that notices were sent to Sodhi and his wife has to be disbelieved by us. The result is that the alleged meetings said to have been held on April 29, 1970, as well as the earlier meeting of December, 1969, were not validly called and held. At the meeting of April 29, 1970, Sodhi, who was purported to have been elected as director in December, 1969, meeting, was not elected and in his place Mrs. Shakuntala Bali was instead elected. On issue No. 2, thereforee, it has to be held that the meetings held in December, 1969, and April, 1970, were invalid, as they were held without notice to D. N. Sodhi and members of his family. Thus, it comes to this that Sodhi and his family who were entitled to attend the meetings, being members were never given notice of the meetings. These meetings were, thereforee, held invalidly.

9. Issue No. 1 :

The allotment of these 1,000 equity shares was purported to have been made in a meeting of the board of directors held on November 12, 1970. Prior to that date the issued capital of the company was Rs. 1 lakh consisting of 50 preference shares of Rs. 2,000 each and on the findings given earlier 21 shares of Rs. 2,000 each were held by Sodhi group; 21 shares of Rs. 2,000 each were held by Bali group and 8 shares were held by Mehta and Kapoor. On November 12, 1970, the board of directors decided to allot one thousand equity shares of Rs. 100 each to about 10 persons, which, apart from allotment of 20 shares each to one P. L. Sood and K. S. Mehta, the rest were given to Bali and his family being his wife and daughters and sons. Case of the respondent is that these shares were invalidly allotted because there was no properly constituted board of directors. The further claim was that in fact no money was received on allotment and the said allotment was merely a sham one. Bali, however, claimed that about 60% of the face value of the shares had been received and out of the said amount over Rs. 55,000 had been paid in terms of a compromise decree against, claims against the company. Now, it is clear that the allotment of November 12, 1970, was made by the board of directors consisting of Bali and his wife. The validity of the said act will depend upon if Mrs. Bali had been elected validly as a director of the board. As mentioned before she was elected as a director at a meeting which was said to have been called and held on April 29, 1970. As however, held under issue No. 2 that the meeting of April 29, 1970, was called without notice to Sodhi and his group and, thereforee, any proceedings held therein and in pursuance of the said meeting can have no validity. Thus, the election of Mrs. Bali as a director is invalid because she was elected at a meeting of the general body called in April, 1970, which itself was invalidly called. The allotment of these 1,000 shares was made by a board of directors consisting of Mrs. Bali, who, as mentioned above, was invalidly elected. Now, the allotment of shares in a joint stock company made by an irregularly constituted board of directors is prima facie invalid. Vide Changa Mal v. Provincial Bank Ltd., [1914] 36 All 412. It is beyond dispute that a director invalidly appointed cannot, in the absence of a provision in the articles of association, bind the shareholders unless the defect is unknown at the time. Vide Sardul Singh v. King Emperor, AIR 1927 Lah 797.

10. A meeting of directors is not duly convened unless due notice has been given to all directors and the business put through at a meeting not duly convened is invalid and any business or resolution passed at such an invalid meeting would itself be invalid. Vide Halsbury's Laws of England, vol. 9 p. 46, and approved by the Supreme Court in Parmeshwari Prasad Gupta v. Union of India [1974] 44 Comp Cas 1. Reference in this connection may also be made to the observations made in Needle Industries (India) Ltd., v. Needle Industries Newey (India) Holding Ltd. [1981] 51 Comp Cas 743, which is as follows :

'The meeting of 2nd May, 1977, was unquestionably illegal for reasons already stated. It must follow that the decision taken by the board of directors in that meeting could not, in the normal circumstances, create mutual rights and obligations between the parties.'

11. As the said allotment was made by a director who was purported to have been elected at an invalid meeting, the said action lacked in validity. Mr. Talwar, however, sought to invoke s. 290 of the Companies Act to say that any act done by or purported to be done by a director is valid notwithstanding that it may afterwards be discovered that his appointment was invalid by any reason of defect or disqualification. The argument is that it is only subsequently during the present proceedings that it has been found that the meeting of April, 1970, which elected Mrs. Bali as director was invalid, and, thereforee, the act of Mrs. Bali as a director allotting these shares must be held to be valid in terms of this section. We cannot agree. Now, s. 290 is based on the rule culled out from Turquand's case [1856] 25 LJ QB 317; which, as reproduced in Morris v. Kanssen [1946] 16 Comp Cas 186; [1946] 1 All ER Rep. 586; [1946] AC 459, is to the effect that 'persons contracting with a company and dealing in good faith may assume that acts done within its constitution and powers have been properly and duly performed, and are not bound to inquire whether acts of internal management have been regular.' But this rule is not applicable to the present case. The reason is that this section which is equivalent to s. 143 of the English Companies Act, 1929, and s. 180 of the Companies Act, 1948, cannot apply to a transaction where a director or a de facto director invokes the rule so as to validate a transaction which was in fact irregular and unauthorised. The justification for this rule is that normally the wheels of business will not go smoothly unless it may be assumed that all is in order which appears to be in order. But the maxim has its proper limits as explained in Morris' case [1946] 16 Com Cas 186; [1946] 1 All ER 586, that it is a rule designed for the protection of those who are entitled to assume, just because they cannot know that the person with whom they deal has the authority which he claims. This is clearly shown by the fact that the rule cannot be invoked if the condition is no longer satisfied, i.e., if he who would invoke it is put upon his inquiry. He cannot presume in his own favor that things are rightly done if inquiry that he ought to make might tell him that they were wrongly done.' What Mr. Talwar seems to urge is that even though Mrs. Bali was elected at a meeting which was invalid yet her acts should be held to be valid because it could not be assumed that Bali or Mrs. Bali knew about the infirmity in the election of Mrs. Bali as a director. A similar plea was raised in Morris' case [1946] 16 Com Cas 186; [1946] AC 459; [1946] 1 All ER Rep. 586, wherein it was said in dealing with the invalidation attaching to the election of Morris as follows (at pp. 196, 197 of 16 Comp Case and at p. 593 of [1946] 1 All ER :

'For here Morris was himself proportion to act on behalf of the company in a transaction in which he had no authority. Can he then say that he was entitled to assume that all was in order My Lords, the old question comes into my mind : Quis custodiet apses custodies It is the duty of directors and equally of those who purport to act as directors, to look after the affairs of the company, to see that it acts within its powers and that its transactions are regular and orderly. To admit in their favor a presumption that that is rightly done which they have themselves wrongly done is to encourage ignorance and condone dereliction from duty. It may be that in some cases, it may be that in this very case, a director is not blameworthy in his unauthorised act. It may be that in such a case some other remedy is open to him, either against the company or against those by whose fraud he was led into this situation, but I cannot admit that there is open to him the remedy of invoking this rule and giving validity to an otherwise invalid transaction. His duty as a director is to know; his interest, when he invokes the rule, is to disclaim knowledge. Such a conflict can be resolved in only one way.'

12. As explained in Morris' case [1946] 16 Com Cas 186; [1946] 1 All ER Rep. 586 this section clearly indicates that 'this deals with slips of irregularities in appointment, not with a total absence of appointment, and still less with a fraudulent usurpation of authority.' 'It has been held that, notwithstanding the provisions of s. 180 if the directors are not properly appointed, according to the articles of association, or if they continue to act without re-election they cannot allot shares, make valid calls, forfeit shares or appoint directors'. See George Browne on Companies, 42nd edition, page 720. The sale by a director with defective appointment cannot be upheld unless the purchaser was held to have acted bona fide and the court cannot come to the assistance of a purchaser who purchases a share without good faith. Now, in the present case, on the findings it has been found that the April 29, 1970, meeting at which Bali and Mrs. Bali were elected directors was invalid not having been called properly. Later on, this board of directors allotted the shares in November, 1970. The details of the allotment of 1,000 shares made to various parties in pursuance of the decision taken by the Board on November 12, 1970, shows that 340 shares each were allotted to Mr. Bali and Mrs. Shakuntala Bali. The other allottees are the sons and daughters of Mr. & Mrs. Bali. Mr. Bali and Mrs. Bali, thereforee, being the major beneficiary of the action of the board of directors in allotting these 1,000 shares, cannot invoke the rule that even if the meeting which elected the directors was invalid, the purported action of allotting the shares could be and should be upheld on the ground that the invalidity of the election of director was discovered afterwards and was not known earlier. On the finding already given that notice of the meeting of April, 1970, was deliberately not given to Sodhi's group, the inference is irresistible that there was no good faith or question of want of understanding so far as the invalidity of the meeting of April, 1970, was concerned. Bali had himself called the meeting and if he did not, as we have found, give notice of the same to Sodhi group he cannot plead good faith. This is again seeking to invoke the rule in Turquand's case [1856] 25 LJ QB 317, but it is well settled that a party who seeks to uphold a transaction which is illegal like in the present case where the allotment of shares is by a board of directors invalidly elected, the same cannot be upheld unless the party seeking the assistance of the courts acts bona fide. An innocent purchaser will be protected but the court will never come to the assistance of a purchaser who purchases the shares without good faith. Acting bona fide is considered to be essential to uphold the transaction in all cases in which the principle of s. 290 of the Companies Act can be invoked. See observations in Albert Judah Judah v. Ramapada Gupta, : AIR1959Cal715 . In the present case, as the overwhelming majority of these one thousand shares were allotted to Bali, Mrs. Bali and their children, the question of even suggesting of their having acted bona fide does not arise. Mr. Talwar again repeated the apparently innocuous suggestion that the company was even willing to allot the same number of shares to the Sodhi group and this would show the bona fide of Bali group that they did not want to exclude Sodhi. But this suggestion cannot conceal the real motive behind the allotments made on November 12, 1970, in such a clandestine manner by having a meeting held without giving a notice to Sodhi. Mr. Talwar also sought to urge that the company required funds and it was for this reason that this allotment of 1,000 shares was made. The suggestion was that it was in pursuance of a genuine need that these additional shares were allotted and not because of any mala fide motive. An innocent and apparently genuine posture was adopted by suggesting that the company was willing to give equal number of shares to Sodhi if he was so interested. But, by adopting such a seemingly harmless posture at this stage, the initial infirmity in the validity of having deliberately called a meeting in April, 1970, without giving notice to Sodhi cannot be wiped out. If, as is now suggested by Mr. Talwar, the purpose was to raise additional funds it is not understood why Sodhi and his group were not called at that meeting. Had notice been issued to them and they had not attended or if they had attended but opposed the allotment of shares and the company was in a position to show that it required funds for its expansion, the allotment might have been held to be valid notwithstanding the opposition of Sodhi and his group because in that case the court would examine the main motive behind the allotments and if it came to the conclusion that the main motive was to raise additional funds for the benefit of the company, the allotment would be valid notwithstanding that an incidental purpose may have been to increase the strength of Bali group. And thus because Sodhi and his group would also have been offered similar amount of shares the charge of lack of bona fide may not have been able to stick against Bali. As stated in Nanalal Zaver v. Bombay Life Assurance Co. Ltd. [1950] 20 Comp Case 179, by Das J. (P. 203); 'It is well established that directors of a company are in a fiduciary position vis-a-vis the company and must exercise their power for the benefit of the company. If the power to issue further shares is exercised by the directors not for the benefit of the company simply and solely for their personal aggrandisement and to the detriment of the company, the court will interfere and prevent the directors from doing so. The very basis of the court's interference in such a case is the existence of the relationship of a trustee and of cestui que trust as between the directors and the company'.

13. In the present case, the motive was clearly to deprive Sodhi and his group of parity with Bali and to openly facilitate the overwhelming control of Bali against the existing position which had been continuing for decades. The benefit of s. 290 is thus not available to Bali in the circumstances of this case and we, thereforee, uphold the finding of the learned single judge on this issue.

14. Issue No. 3 :

This issue really stand concluded by our finding earlier that the meeting in December, 1969, and April, 1970, were invalid. That they were called without notice to Sodhi group and that 1,000 extra shares were issued without involving Sodhi in this decision making is also established. It is apparent that all this was done with the main, if not sole, purpose of excluding Sodhi from the control and management of the company. That Sodhi was undoubtedly associated right from the incorporation in 1949 to April, 1970, even on the showing of Bali group is without any challenge. This is in fact admitted by Bali in the purported notice allegedly issued for the meeting of April 29, 1970. In the explanatory statement it is clearly stated that Sodhi and Bali have been directors since 1953. Bali, by calling an invalid meeting and changing the control of the company, was doing so with the sole motive of excluding Sodhi from the management and the action was not a bona fide one. Now, it is well settled that 'directors are not entitled to use their powers of issuing shares merely for the purpose of maintaining their control or the control of themselves and their friends over the affairs of the company, or merely for the purpose of defeating the wishes of the existing majority of shareholders and that if the power to issue shares was exercised from an improper motive, the issue was liable to set aside and it was immaterial that the issue was made in a bona fide belief that it was in the interest of the Company'. The fact that by the issue of shares the directors succeed also or incidentally in maintaining their control over the company or in newly acquiring it, does not amount to an abuse of their fiduciary power. What is considered objectionable is the use of such powers merely for an extraneous purpose like maintenance or acquisition of control over the affairs of the company'. 'So far as authority goes, an issue of shares purely for the purpose of creating voting power has repeatedly been condemned'. See Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd. : [1981]3SCR698 .

15. Here the only motive was to exclude Sodhi from the management with which he was associated, right from the beginning. This was an oblique and extraneous purpose divorced from the considerations of the benefit of the company. The issue of these shares for the benefit of Bali and the ouster of Sodhi was an act of personal aggrandisement by Bali to completely control the company and thus bring about a material change in the management of the company. This issue is found against the appellant. We would affirm the finding on this issue.

16. Issues Nos. 4 & 5 :

Issues Nos. 4 and 5 should be dealt with together because Mr. Parekh's contention that it is just and equitable that the company should be wound up rests on the only ground that this company is really in the nature of a partnership and the principles which are applicable for dissolution of a partnership should also apply in the present case. The facts found show that the company was started in 1949 with an authorised capital of Rs. 5 lakhs divided into 100 ordinary shares of Rs. 100 each and 200 cumulative preference shares of Rs. 2,000 each. Originally both Bali and Sodhi held one cumulative preference share and were signatories to the memorandum of association of the company. Prior to December, 1969, there were 50 cumulative preference shareholders of Rs. 2,000 each. Out of these on the finding mentioned above 21 shares belonged to Sodhi group and 21 to Bali group. Both Sodhi and Bali have remained directors right up to April, 1970. Bali in his evidence given in C.P. No. 32/1971, on November 24, 1971, though he purported to claim that he was in-charge of the company in all respects and was looking after all details of the company had to admit that both he and Sodhi were getting Rs. 1,000 per month in addition to car allowance, though he mentioned that the remuneration to Sodhi was stopped in 1961-62. This statement was modified by him in his evidence on September 29, 1971, to say that no remuneration was credited to Sodhi's account after July 1, 1967. But then this stood contradicted by his further statement that the balance-sheet for the period ending June 30, 1970, showed that a sum of Rs. 2,10,575.64 was for remuneration not paid to Sodhi. He could not say as to how much was due to Sodhi and how much was due to him. Sodhi's case was that he had not been taking in cash the remuneration which was being credited to his accounts by the company. The books of the company which had all the time been with Bali support the stand of Sodhi that Rs. 1,000 as remuneration and car allowance was being credited to his account. The bad statement of Bali that no work was done by Sodhi after 1958, from which time, according to him, differences cropped up between the two is unbelievable. This is more so when the reference is made to RW1/25, a letter dated April 20, 1968, written by Bali to Sodhi requesting him to contact the senior counsel for a case and income-tax appeal which is fixed against them before the Income-tax Tribunal. He had also asked him to look after some proceedings in the High Court. This would show that though the relations may have deteriorated but the fact nevertheless remained that both of them, i.e., Sodhi and Bali, were carrying on the business of the company jointly. It is, thereforee, not correct for Bali to take the stand that Sodhi stood excluded from the business of the company since 1958. The fact that both Bali and Sodhi were in control of the company in an equal manner right from the beginning is supported by the record itself and the clear admission made by Bali himself. Apart from any other material reference may be made to the explanatory statement issued under s. 173(2) of the Companies Act when Bali is stated to have called a meeting on April 29, 1970. It is clearly mentioned therein that from the year 1953 the company had been providing for the remuneration of two directors at Rs. 1,000 per month. The company was also paying their house allowance, company's transport and amenities were also sanctioned. The statement further goes on to say that as the business of the company does not permit such a burden the same be reduced to one director to be entitled to these emoluments subject to profits in the working years. The statement specifically mentions that company had in the previous years since 1953 only two directors, namely, Bali and Sodhi, and had been providing remuneration to them. Thus, the association of Sodhi with the company right from 1953 up to 1970 is admitted by Bali himself. It is only at the said meeting of April 29, 1970, that Sodhi was dropped as a director and Mrs. Bali was instead said to have been elected as a director. We have already held that this election was invalid because it was called without issuing proper and legal notice. The argument based on Sodhi playing no part in the running of the company prior to the controversy erupting seriously in 1970 is clearly against the facts and admissions of Bali himself and cannot be accepted. That for the day to day functioning of the board of directors it necessitated the presence of Sodhi is also clear from the said explanatory statement because his non-attendance at the meetings is being made a grievance for the reason to have only one director in future. Whatever the merits of this allegation against Sodhi be, the facts at least stands established that it was clearly understood that the management of the company was to be run jointly by Sodhi and Bali and was in fact run for all these years on an equal participation of responsibility as well as the enjoyment of equal remuneration and other benefits. On the basis of these findings, Mr. Parekh's contention is that this is a case which falls within the ratio laid down in Ebrahimi v. Westbourne Galleries Ltd. [1972] 2 WLR 1289; [1973] AC 360, entitling the respondent to claim that it is just and equitable that this company should be wound up. Now, under s. 433(f), a company may be wound up by the court if the court is of the opinion that it is just and equitable that the company should be wound up. Lord Wilberforce in the said judgment at page 496 finally buried the controversy that the words 'just and equitable' were to be interpreted so as only to include matters ejusdem generis as the proceedings clauses of the section. 'The words 'just and equitable' are a recognition of the fact that a limited company is more than a mere judicial entity, with a personality in law of its own : that there is room in company law for recognition of the fact that behind it, or amongst it, there are individuals with rights, expectations and obligations inter se which are not necessarily submerged in the company structure'. (at p. 500 of [1972] 2 All ER 1297 of 1972 2 WLR. 'The 'just and equitable' provision does not, as the respondents suggest, entitle one party to disregard the obligation he assumes by entering a company, nor the court to dispense him from it .... But 'the just and equitable' provision nevertheless comes to his assistance if he can point to, and prove, some special underlying obligation of his fellow member(s) in good faith, or confidence, that so long as the business continues he shall be entitled to management participation, an obligation so basic that, if broken, the conclusion must be that the association must be dissolved', (at p. 501(b) of [1972] 2 All ER 98 of [1972] 2 WLR. No doubt the fact that a company is small or a private company is not enough but if on the superimposition of other considerations that the association was formed because of personal relationship involving mutual confidence and an agreement or understanding that all the shareholders will participate in the conduct of management and that if confidence is lost he cannot take his stake out and go elsewhere would be a proper case to invoke the just and equitable clause. In the present case, serious allegations of bad faith against Bali have not only been made but quite some have been proved in so far as they show the effort of Bali to exclude Sodhi from the management of the company, though it is now settled that : 'To confine the application of the just and equitable clause to proved cases of mala fides would be to negative the generality of the words'. (See Ebrahimi's [1972] 2 All ER 492; [1972] 2 WLR 1289.

17. Mr. Talwar had sought to urge that it was not shown successfully that the conduct of Bali had been so objectionable and so inequitable that the company should be wound up. This argument assumes that unless there was a serious of mala fide acts showing lack of probity, a company, even if it is in the image of partnership, should not be wound up. But this pleas was negatived in Ebrahimi's case where it was said by Lord Cross that : 'it is not a condition precedent to the making of an order under the sub-section that the conduct of those who oppose its making should have been 'unjust or inequitable' (at p. 503(g) of [1972] 2 All ER 1301 of [1972] 2 WLR. As a matter of fact Ebrahimi's case specifically approved Yenidje Tobacco Co. Ltd., In re [1916] 2 Ch 426, which was a case of two equal share directors, between whom a state of deadlock came into existence, but it was emphasised by Lord Cozens-Hardy M.R. that : 'whether there is deadlock or not .... 'the circumstances are such that we ought to apply, if necessary, the analogy of the partnership law and to say that this company is now in a state which could not have been contemplated by the parties when the company was formed ...'' [1972] 2 All ER 497 and [1972] 2 WLR 1295. The reason why an order was made was as explained by Lord Cross as, 'the reason why the petitioner succeeded was that the court thought it right to make the order which it would have made had Mr. Rothman and Mr. Weinberg been carrying on business under articles of partnership which contained no provision for dissolution at the instance of either of them. People do not become partners unless they have confidence in one another and it is of the essence of the relationship that mutual confidence is maintained. If neither has any longer confidence in the other so that they cannot work together in the way originally contemplated, then the relationship should be ended - unless, indeed, the party who wishes to end it has been solely responsible for the situation which has arisen' (p. [1972] 2 WLR 1302. 'They were equal shareholders in a limited company; but the court considered that it would be unduly fettered by matters of form if it did not deal with the situation as it would have dealt with it had the parties been partners in form as well as in substance' : vide Ebrahimi's case (p. [1972] 2 WLR 1302.

18. Mr. Talwar's argument that there were no outstanding liabilities against the company and that there were good prospects of the company carrying on profitably is equally of no avail because in a case like the present, where the company is in substance a partnership, it is accepted that : '... in a case like the present we are bound to say that circumstances which would justify the winding-up of a partnership ... by action are circumstances which should induce the court to exercise its jurisdiction under the 'just and equitable' clause and to wind up the company'. Vide Yenidje's case [1916] 2 Ch 426. Nor would the consideration of present profits, much less consideration of probable future profitability prevent the winding-up because again as said in Yenidje's case [1916] 2 Ch 432, 'whether there would be such profits made in circumstances like this or not, it does not seem to me to remove the difficulty which exists, which is contrary to the good faith and essence of this, that the parties formed the scheme of a company managed by these two directors which should be worked amicably, and it would not justify the continuance of the state of things which we find here.' Nor is it necessary for claiming relief under 'just and equitable' clause that the petitioner must prove oppression by majority, though in the present case there is ample evidence of the serious devices adopted by Bali to exclude Sodhi, because as Lord Cross said in Ebrahimi's case [1972] 2 All ER 492; [1972] 2 WLR 1289 : 'But the jurisdiction to wind up under section 222(f) continues to exist as an independent remedy and I have no doubt that the Court of Appeal was right in rejecting the submission of the respondents to the effect that a petitioner cannot obtain an order under that sub-section any more than under section 210 unless he can show that his position as a shareholder has been worsened by the action of which he complains.'

19. Of course, if the petitioner who relies on 'just and equitable' clause is the one responsible for the breakdown of confidence between him the other party, he cannot invoke this clause. Nothing has been shown in the present case that Sodhi had in any way acted as to justify the action of Bali to resort to the action of removing him. What makes the action of Bali indefensible is that the whole thing done in such a secret manner; further, Sodhi has been able to show that the nature of the company and the business and the understanding was that the company would be carried on in such a manner that both of them, i.e. Sodhi and Bali, would participate in the management in equal manner and that it was never contemplated that either of them would be excluded from participation thereof.

20. In this connection we may note that in Hind Overseas Pvt. Ltd. v. Raghunath Prasad Jhunjhunwalla [1976] 46 Com Cas 91, the principles applied in Ebrahimi's case [1972] 2 All ER 492; [1972] 2 WLR 1289; [1973] AC 360, had been approved. Though on merits it was found that it was not a case where winding-up could be ordered, the Supreme Court in p. 100 specifically stated that the principles laid down in Ebrahimi's case and Yenidje's case [1916] 2 Ch 426; [1916] All ER 1050, are sound principles depending upon the nature, composition and character of the company, though it cautioned that the principles, good as they are, their application in a given case or in all cases, generally, creates problems and difficulties. It recognised that, in a given case, 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 partnership and that 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. (See Hind Overseas case [1976] 46 Com Cas 91. The principle of law is, thereforee, not in doubt.

21. In the present case, the manner of functioning of Bali cannot be said to commend itself to a proper, just and straightforward dealing. There is first the unjustifiable denial of ownership of 21 shares of Sodhi group when C.P. No. 32/1971 was filed. Strenuous effort was made to deny the ownership of Sodhi group notwithstanding the statement in annual returns which were submitted under the signature of Bali showing the sons and daughters of Sodhi to be the holders of shares which originally belonged to Des Raj, Mulk Raj and Chandok. Even a purported register of members was produced by Bali which both Khanna J. and the appellate court found to be suspicious. The endorsement made on the shares belonging to Chandok in the handwriting of Bali were also commented adversely. Even after the agreement had been made before Rangarajan J. on January 8, 1971, and after the decision by Khanna J. and the appellate Bench (Co. Appeal No. (10/1973), execution of the transfer of the shares in the name of Sodhi's children was strongly resisted.

22. The conduct of Bali for quite some time had been to exclude Sodhi from any further participation in the management which found its climax when he called the meeting in December, 1969, and April, 1970, without issuing notice to Sodhi, his brother and to the other shareholders. In his evidence he purported to deny that any remuneration was credited to the account of Sodhi but had to admit that the books do show this fact. The company being such a small company, out of 50 preference shares, 42 are held by 2 groups of 21 each. Both Sodhi and Bali have been in the control of management till 1970 when Bali made an attempt to oust Sodhi from management. This action shows that Bali was destroying the basis which was the foundation of the company. It is not a case where in the normal case Sodhi is being outvoted. Relations between the two are at worst. There is no allegation which each is not willing to believe against the other. In that state of affairs the business of the company can hardly be attended to. On the basis of all the factors we can find no fitter case than the present one for winding up this company.

24. Now, why in the Supreme Court case, winding up was not ordered was because it was found as a fact that though the company was formed first with R.P.J. and A. C. Datta, yet the latter was an employee of V.D.J. The entire finance was arranged by V.D.J. A. C. Datta resigned soon thereafter and 19 shareholders came in (9 by R.P.J. and 10 by V.D.J.) but R.P.J's shares were 1,875 and V.D.J's were 3,125. V.D.J's guarantee to the bank for overdraft was over Rs. 40 lakhs and he had a stake of Rs. 53 lakhs as against the stake of Rs. 1.8 lakhs by R.P.J. It was also found that R.P.J. served like an employee on a monthly salary and had been working directly under the supervision and control of V.D.J. It was on this ground that the Supreme Court refused to hold that the company was in substance a partnership or in the image of a partnership. That case is obviously distinguishable.

25. In a case where there were only two shareholders each of whom was a director, one holding a single share and the other, the remainder of issued capital, i.e. 1,501 shares, and the latter having usurped the whole powers of the company, the former, though holding one share, successfully petitioned for a winding-up order. (See Gore-Browne on Companies, 42nd edition, page 908, footnote 87). Another ground on which an order under this paragraph may be made is when there is complete deadlock in the management of the company's affairs. The deadlock, must, however, be one not capable of resolution under the articles, e.g., by the company in general meeting. In certain circumstances, where a company is virtually a partnership and disputes occur between the members, which, if they were partners, would justify the dissolution of their partnership, the company may be wound up under this paragraph. Where, for example, a company was in substance a partnership, and one director had irregularly sought to acquire control and exclude the other director, a winding-up order was made. (See Gore-Browne page 907, footnote. 80-83). All the circumstances justifying the winding up of the present company, are present in this case and we hold accordingly.

26. Mr. Talwar had sought to urge that as the earlier petition under ss. 397 & 398 had been filed, i.e., C.P. No. 32/1971, but no relief for winding up had been claimed, the present application for winding up is barred on the principles of rest judicate or at least on the principles of O. 2, r. 2, CPC. The argument being that before an order can be passed under s. 397, the court has to come to a conclusion that the company's affairs are being conducted in a manner prejudicial to public interest and that to wind up the company would unfairly prejudice such members but otherwise the facts would justify the winding-up order on the ground that it was just and equitable that the company should be wound up. thereforee, so runs the argument, that when the earlier application - C.P. No. 32/1971 - was filed under ss. 397/398, grounds for asking for winding up under 'just and equitable' clause existed and since the winding up was not sought, the respondents cannot now ask for winding up. This argument obviously assumes as if reliefs under ss. 397 and 433 are the same and, thereforee, an application under s. 433 would be an abuse of the process of the court if winding-up was not sought in an earlier application under s. 397. The argument is misconceived. 'The relief that could be granted under s. 397 and that which could be granted under s. 433 are different. The proceedings are distinct and separate, and one does not depend upon the other even though the ground urged for winding up may be that it is just and equitable, which is no doubt a ground which should be established to sustain the petition under s. 397 also. The fact that such a ground is common is no bar for the prosecution of this petition under s. 397.' (See [1973] 43 Com Cas 244, Official Liquidator v. N. Chandranarayanan). It is not necessary that every time a petitioner moves an application under s. 397/398, he must also ask for the relief of winding up. It is possible and indeed in many cases it is not only desirable but is also not in the interest of the petitioner and other members that the relief of winding up may be asked because it may be out of proportion to the relief that may satisfy the petitioner and give him full justice. The confusion in Mr. Talwar's argument is that he makes the requirement of an existing situation enabling a winding up order to be passed being necessary condition when granting a relief under s. 397/398 as equivalent to the petitioner having deliberately abstained from asking for such a relief which was available. This is unacceptable because satisfy the condition required by s. 397 does not mean that if the relief of winding up was not sought earlier but the petitioner subsequently feels that the circumstances justify the winding up, he is debarred from asking for that relief. No principle or authority has been cited in support of this extreme contention urged by Mr. Talwar, which is repelled.

27. The next contention was that the learned judge should have decided the matter only on the allegations made in C.P. No. 39/1973 and it was not permissible to refer to the allegations made in the earlier application - C.P. No. 32/1971. Apparently the suggestion was that as in C.P. No. 39/1973, the grievance was made that Bali had created difficulties in the payment of Rs. 1,57,500 for the alleged purchase of shares from Sodhi in terms of order of P. N. Khanna J., this was the only ground available to Sodhi, and that any controversy about the 21 shares belonging to Sodhi could not be the subject-matter of decision in C.P. No. 39/1973 and could not be relied upon for the purpose of deciding whether to order winding up or not. The argument is misconceived. When the application is moved for winding up on the ground that it is just and equitable to do so especially for the reason that the company is in substance a partnership, it is inevitable that the other details as to how many shares belong to each party and what has been the history of the company must necessarily figure in any determination. thereforee, the fact whether Sodhi has been ousted or not would very much from a part of the necessary determination of C.P. No. 39/1973, even on the basis of allegations as it stood in this very application alone. But that apart, this pleas that the matters which were not mentioned in the Company Petition No. 39/1973, alone must be considered and the matters referred to in C.P. No. 32/1971, cannot be relied upon in C.P. No. 39/1973, has already been rejected in an earlier judgment in C.A. No. 8/1973, decided on March 8, 1977. In that case, the Bench, though it accepted that the petitioner in a winding up is confined to the complaint set forth in a petition and cannot be allowed to rely on allegations not made therein, nevertheless observed that the petitioner had expressly stated in paragraph 12 of C.P. No. 39/1973, that he craves a reference to the various applications made by the respondents and the applicant further craves a reference to rely upon the record of C.P. No. 32/1971, at the time of hearing of the application. The Bench interpreted this to mean that the petitioner instead of stating the various facts and allegations again in the present petition - C.P. No. 39/1973 - asked for permission to refer to all the facts and allegations which have already been set out in the earlier applications and petition and further that all the parties were parties in the earlier application and, thereforee, there cannot be said to be any element of surprise. It, thereforee, overruled the objection that Rangarajan J. was not justified in referring to the facts and circumstances mentioned in the earlier petition, C.P. No. 32/1971. We, thereforee, feel that this argument is foreclosed to Mr. Talwar by the decision in C.A. No. 8/1973, apart from the fact that as mentioned above we find no merit and substance in the same. The argument is, thereforee, rejected.

28. Mr. Talwar then made a reference to s. 557 of the Act which provides that in all matters relating to winding up of a company, the court may have regard to the wishes of the creditors and/or contributories of the company and when ascertaining the wishes of contributories, regard shall be had to the number of votes which may be cast by each contributory. This argument is apparently with reference to the application - C.A. No. 66/1979 - dated January 25, 1979, moved by one Narinder Bakshi during the pendency of C.P. No. 39/1973, before the single judge. In the application it was claimed that the applicant was a shareholder holding one cumulative preference share of Rs. 2,000. A list of 50 cumulative preference shareholders and 1,000 equity shareholders was attached along with the application. It was stated that the majority of the shareholders were opposed to the winding up and that the attitude of Sodhi in insisting upon winding up was unreasonable. The application also mentioned that one Jaidev Chandok who was said to be associated with the company in a joint venture in A-Block Development Scheme had invested good part of money and was also interested that the company should not be wound up, for otherwise, it may affect the venture in which he was 1/3rd partner. On this basis, a suggestion was given based on s. 443(2) of the Companies Act which provides that where a petition is presented on just and equitable grounds the court may refuse to make an order of winding up if it is of the opinion that some other remedy is available to the petitioner and that they are acting unreasonable in seeking to have the company wound up instead of pursuing the other remedies. The remedy which was put forth as an alternative remedy in para. 13 was to the effect that the applicant was prepared to purchase the shares of all the dissenting shareholders at a proper and reasonable price and that for this purpose a firm of chartered accountants of repute or a valuer may be appointed to work out the value of shares and after hearing the parties the value of the shares be approved. This suggestion was supported by one Mr. Dhera Singh, who elaborated it by his affidavit of March 5, 1979. Thus after the valuer had determined the value of shares, the court was also to determine the interest of Sodhi in the shares and payment for that to be made by the company. But Sodhi and his family members were only in the first instance to be allowed to withdraw the value of 9 shares by completing the formalities which were listed as delivering the share scrips of Sodhi or indemnification by Sodhi against the claim by Mehta, the legal heirs of Sodhi's deceased brother, who all should state that they have no objection to payment to Sodhi of the value of four shares. About eight shares presently standing in the name of Shakuntala Bali the court may adjust the proportionate value between the registered holders on the one hand and sons and daughter of Sodhi on the other and the proportion can be withdrawn by Sodhi on giving an undertaking from his sons, Des Raj and Mulak Raj, relinquishing these shares. In similar manner, the value of shares between Chandok and Sodhi's daughter was to be appointed. No wonder these proposals were rejected out of hand by Sodhi then; the time gap has not made them any the more attractive. The reason is obvious. This proposal places a cloud and a serious one on the finding which had already been obtained from P. N. Khanna J. (as upheld by a Division Bench) that Sodhi and his wife had 9 shares and that his two sons and daughter were the owners of 12 shares which at one time stood in the names of Des Raj, Mulak Raj and Chandok in the books. This proposal which again seeks to put a cloud on the title of the shares obviously could not have been made seriously and no reasonable person could expect Sodhi to fall for it and his counsel, Mr. Parekh, repeated the rejection, and we can hardly fault him for this attitude. It should also be seen that this application - C.A. No. 66/1979 - was moved by Narinder Bakshi, holder of one cumulative preference share. But he was allegedly allotted one preference share at a meeting of November 12, 1971, and is supported by one Dhera Singh, who also was allotted 50 shares after the same meeting. Now, these allotments were made in 1971, after Sodhi had been excluded illegally by an invalid meeting called in April, 1970. We have already held that the meeting which was called on April 29, 1970, was an invalid meeting; the allotment of 1,000 shares on November 12, 1971, by an illegal board could not confer any validity, and, thus, application by such shareholders can, thereforee, hardly be considered to be an application by the contributories because the very claim of being a shareholder is not only in doubt but has been held by us to be of no consequence. The emphasis by counsel, Mr. Talwar and Mr. Veda Vyasa, of the interest of one Jaidev in a joint ventures is hardly of any consequence because he cannot claim to control the rights of the respondents by the mere fact that he has a joint venture in the company. Whatever his rights are, will be taken note of and his rights protected under law even if the company is ordered to be wound up.

29. Section 557 of the Act is equivalent to s. 346 of the English Companies Act. The argument that if the majority of the creditors oppose the making of a winding-up order, that is an end of the matter was negatived and it was emphasised that though the court may and will have regard to the fact, it does not mean that the court has no function to perform. Vide Re Vuma Ltd. [1960] 1 WLR 1283; [1960] 3 All ER 629. Further, 'that even if the majority of the creditors opposed the winding up the circumstances existed to the contrary, the court has full discretion in the matter' was reiterated in Re P. & J. Macrae Ltd. [1961] 1 All ER 302; [1961] 31 Com Cas 424, where it was stated that if a majority of creditors have given reasons to oppose a petition for winding up, then prima facie they are entitled reasonably to expect that their wishes will prevail. However it was emphasised that 'But I am certainly not prepared to accept the view that the bare fact of the opposing creditors being in a majority is of itself sufficient, still less conclusive. So to hold would be to leave the court with virtually no judicial function to perform, and to take away from it the discretion which the words of the Act plainly confer'.

30. In the present case, the special circumstances against any such claim being considered on the basis of C.A. No. 66/1979 are overwhelming. We have already mentioned that this application is moved by persons who have become shareholders after 1971 on the basis of an illegal meeting and invalidly elected board of directors. Their claim, thereforee, to interfere in the working of the company cannot have weight. The averment of Jaidev Chandok having some interest by an alleged joint venture in the company can hardly give him any right to control the right of the applicant if law permits him to claim the winding up. The plea of Mr. Talwar to treat this as an alternative remedy in terms of s. 557 or s. 443(2) is, thereforee, no bar to the order of winding up being passed.

31. Another objection raised by Mr. Talwar was to the effect that C.A. No. 118/1973 was moved by Sodhi to execute the order of P. N. Khanna J. for payment of Rs. 1,57,500 and that was an alternative remedy available to Sodhi in terms of s. 443(2). Now, during the course of hearing before the single judge, C.A. No. 118/1973 was withdrawn. Mr. Parekh's contention being that as there is no such application on record, there is no question of any alternative remedy of execution of P. N. Khanna J.'s order standing in the way of the order of winding up being made. Mr. Talwar, however, countered by saying that as the remedy was sought but as Sodhi withdrew C.A. No. 118/1973 it means that the alternative remedy which was available was deliberately wasted by him and he cannot now ask for winding up and take advantage of his own fault. It is true that if we had come to the conclusion that seeking execution of P. N. Khanna J.'s order in the circumstances is a proper alternative remedy available to Sodhi which would have given him full justice, we might decline the none too pleasant relief of winding up. But the facts here do not support the claim of Mr. Talwar. In C.P. No. 32/1971, an order had been passed by P. N. Khanna J. on May 31, 1972, holding that Sodhi and his group had rights over 21 shares and directing Bali to pay Rs. 1,57,500 to Sodhi in terms thereof. If this order had been accepted by Bali by depositing Rs. 1,57,500 in lieu of the transfer of these shares and if in spite of this Sodhi had insisted upon an order of winding up, his action may have fallen within the ambit of s. 443(2) of the Act and Sodhi may not be able to establish his right to claim winding up of the company. Here, however, what happened was that Bali never accepted the order but went up in appeal, but without any success. After P. N. Khanna J. had decided the matter in favor of Sodhi, Shakuntala Bali filed a suit in this court being Suit No. 135/1973, claiming that she was not bound by the decision with regard to 8 shares to which she laid claim but which had been held in favor of Sodhi. Even after the Division Bench had decided (in C.A. No. 8/1975), by its order of March, 1977, Shakuntala Bali persisted in the suit and the same has been dismissed by Kapur J. on March 5, 1980, wherein he has held that Shakuntala Bali was bound by the earlier litigation which had rejected her claim that these 8 shares belonged to her. This would conclusively show the attitude of Bali and his group that they were not accepting that the shares which had been found by the Division Bench to belong to Sodhi and his group did in fact belong to them and that they were liable to pay Rs. 1,57,500. Even when C.A. No. 118/1973 was moved for execution, Bali and his group did not accept their liability but challenged the right of Sodhi to execute it. It is worthy of note that none excepting Bali claimed any interest in shares. Neither the legal representatives of Sodhi's brother, nor Des Raj, Mulk Raj or Chandok disputed that the shares which once stood in their names belonged now to Sodhi's family. In these circumstances, if Bali was genuine and the company was not colluding with him (and it is difficult to make any distinction between Bali and the company at that point of time when Sodhi had been excluded, the company was being controlled by Bali and his wife or his nominee directors), the easiest course for him was to deposit the amount of Rs. 1,57,000 in court and call upon Sodhi to either give him the shares on indemnification and letter of authority for those shares from the concerned persons. But he chose to avoid this course by all stratagems. This clearly establishes that there was no intention at all on the part of Bali to carry out his part of the bargain in terms of the direction of P. N. Khanna J. In that view, even if C.A. No. 118/1973 was to be pursued by Sodhi, it would have been a futile and time consuming process. This course could hardly be called another remedy. This is for the reason that alternative remedy must be one which should be able to give relief to the person seeking the winding up of the company. No doubt at one stage Sodhi had agreed to sell his shares in 1971 for Rs. 1,57,500. He may have thought that instead of entering into a long litigation he may as well sell his shares and get out of a situation which was daily becoming unbearable. If at that time Bali had reciprocated the gesture, then, it may have been an argument that other remedy was available to Sodhi. But once the battles had been joined, the whole picture underwent a change. In that view, it is now too late in the day for Mr. Talwar to suggest that instead of winding up the company, Sodhi should be relegated to the remedy for claiming that amount. Too much water has flown under the bridge. A period of a decade has passed. The parties have fought bitter litigation. We may, however, note that we did ask Mr. Parekh, the counsel for Sodhi, whether the earlier bargain with some modification could be carried out. But he expressed his inability by pointing out that, in the interval, the assets have mounted up and he is hopeful that in winding up proceedings, the applicant will get much more that he can by the transfer of share, apart from the uncertainty of valuation and a serious apprehension of further round of litigation. We may also note that Mr. Talwar had urged that originally Sodhi had stated that he was to get nothing out of the company and that is why he was claiming winding up, and that his present stand is contradictory. But this cannot be held against Sodhi because this was his understanding in 1971 when the agreement was arrived at, but, after a period of a decade, to foist on an unwilling party the old, and that too uncertain, bargain would be unjust. The conduct of Bali in not accepting it at that time and fighting it out to the end must cast serious doubt on this seeming approach of reasonableness now being shown by Bali. We cannot, in the circumstances, take any objection to the caution and reluctance of Sodhi to place any trust in Bali, considering all that has happened. It is true that no person can take advantage of his own wrong, but withdrawing C.A. No. 118/1973, in the circumstances, was possibly an act of prudence because pursuing it would have again involved Sodhi in multifarious litigation. He was, thereforee, well content in seeking, if he could, his remedy in winding up and hoping that he would be able to get sufficient part of the assets from the winding up court. We cannot find this conduct of Sodhi to be in any way unreasonable.

32. As a result of the above, we affirm the judgment of the learned single judge and dismiss the appeals with costs. One set of fee.


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