Skip to content


Jose J. Kadavil and K.T. Mathew Vs. Malabar Industrial Co. Ltd. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtKerala High Court
Decided On
Case NumberC.P. Nos. 38 of 1982 and 2 of 1983
Judge
Reported in[1986]59CompCas969(Ker)
ActsCompanies Act, 1956 - Sections 397, 398, 433, 443, 443(1) and 443(2)
AppellantJose J. Kadavil and K.T. Mathew
RespondentMalabar Industrial Co. Ltd.
Appellant Advocate M. Ramanatha Pillai, Adv. in C.P. No. 38 of 1982 and; M.V. Joseph, Adv. in C.P. No. 2 of 1983
Respondent Advocate Mani J. Meenattoor, Adv.
DispositionPetition dismissed
Cases ReferredMalabar Industrial Co. Ltd. v. John Anthrapper
Excerpt:
.....by decisions of the supreme court and this court that a court can refuse to make an order of winding up a company on an application filed under just and equitable clause, if it is of opinion that some other remedy is available to the petitioners and that they are acting unreasonably in seeking to have the company wound up instead of pursuing that other remedy; (as he then was) held (headnote): it is the duty of the court before admitting a winding-up petition, especially one brought by a contributory, to satisfy itself that there areprima facie grounds and it is well settled that, even after the court has admitted a petition, it can, on being moved for the purpose by the company or some other interested person, stay proceedings and revoke the admission. the observations of the..........to determine whether there shall be a voluntary liquidation or whether the court shall be asked to make a compulsory order...'8. even where the sole undertaking of the company has been sold, it cannot be said that its substratum has disappeared so long as there are some other businesses which it can carry on coming within the objects stated in its memorandum.9. i shall now consider the contentions of the petitioners that section 443(2) cannot have any application to this case at this stage and their petitions cannot be dismissed on the ground that they have got alternative remedies under sections 397 and 398 of the act. section 443 deals with powers of court on hearing a petition. under sub-section (1), on hearing a winding-up petition, the court may-(a) dismiss it, with or without costs.....
Judgment:

S.K. Kader, J.

1. These two petitions are filed respectively by Jose J. Kadavil and K.T. Mathew, who are contributories under the just and equitable clauseof the Companies Act, 1956, hereinafter called ' the Act, ' for winding up the Malabar Industrial Co. Ltd., for short' the company, ' the respondent herein. My learned brother, before whom these petitions came, admitted the same and ordered notice to the company. On receipt of the notice, the company entered appearance and filed counter-affidavit in both these petitions. As the points arising for determination in both these petitions are the same, these petitions are being disposed of by a common judgment. The grounds raised for winding up the company before this court are the following:

(1) Articles of association of the company were amended in order to oppress minority shareholders.

(2) The affairs of the company are being grossly mismanaged. The company is being managed as if it was a family concern of the board of directors.

(3) Substratum of the company would disappear as a result of the decision taken to sell the Skinnapuram estate, the only estate owned by the company.

2. This company was incorporated in the year 1918 under the Travancore Companies Regulation (1 of 1092 M.E.) as a public company limited by shares. The paid up capital of the company is Rs. 4,50,000 divided into 45,000 shares of Rs. 10 each. Some of the objects for which the company has been established have been extracted in paragraph 5 of these petitions as Clauses (a) to (c). This company owns a rubber estate known as Skinnapuram estate having an extent of 698.92 acres in Enathi Mangalam village, Kunnathur Taluk. Of the abovesaid extent, 377.51 acres are said to be having mature rubber trees and 311.58 acres having immature rubber trees and the remaining 9.83 acres having other plantations.

3. In the counter-affidavit, the company has denied the material allegations and averments made against the company and has mainly contended that the decision taken on 4th May, 1982, and on 15th June, 1982, to sell the estate was in the best interest of the company, that after due advertisement in the newspapers for the sale of the estate inviting offers, the highest price offered was by M/s. Supriya Enterprises, Kanjirappally, that accordingly the company entered into an agreement with M/s. Supriya Enterprises to sell the estate for a consideration of Rs. 2,10,00,000, that the substratum of the company does not disappear by the agreement for sale or even by sale of the company's Skinnapuram Estate, that the articles or the memorandum of association of the company duly empowered it to carry on plantation and other business and also agricultural and industrial operations and that the company is negotiating with prospective sellers for the purchase of tea, cardamom, coffee and other estates by way of investment of the sale proceeds of Skinnapuram Estate either wholly or partially. The allegations of gross mismanagement in the affairs of the company and that it was being run as a family concern and that the minority shareholders are oppressed are all denied as incorrect. As regards the alleged mismanagement and oppression of minority, the petitioners have effective alternative remedies and, therefore, on these grounds these petitions are not maintainable and liable to be dismissed under Sub-section (2) of Section 443 of the Companies Act, 1956.

4. The counsel appearing for the respondents further submitted that there are no bona fides in these petitions, that these petitions are filed at the instance of another contributory who approached this court in Company Petition No. 33 of 1982 and failed ; that the same grounds taken in C.P. No. 33 of 1982 are again put forward in these two petitions and in the light of the findings in C.P. No. 33/82 and the appeal filed against that order also, these petitions are liable to be dismissed.

5. At the time of hearing, it was submitted on behalf of the petitioners that in view of the fact that the Division Bench has already considered in MFA. No. 443 of 1982, Malabar Industrial Co. Ltd. v. John Anthrapper [1985] 57 Comp Cas 717 (Ker) and given a finding that the sale of the only plantation that the company owns, will not render the disappearance of the substratum of the company, to justify the making out of a prima facie case much less an order of winding-up, it was not proper and justifiable to press the third ground, namely, that the decision to sell the estate of the company would cause disappearance of the substratum. This ground was accordingly not pressed before this court. But pressing the other two grounds, the counsel raised a contention that Sub-section (2) of Section 443 can be invoked only at the conclusion of an enquiry and not at any time earlier. It was contended that the test to decide the maintainability of the petitions is whether the allegations made in the petitions, if proved, made out a prima facie case; and, therefore, without taking evidence, these petitions cannot be dismissed under Section 443(2) of the Act. Still another contention raised was that in order to dismiss a petition under Section 443(2), there must be a finding that the petitioners have some other remedy available and that they are acting unreasonably in seeking to have the company wound up instead of pursuing that other remedy and that such a finding can be given only after taking evidence. It was also argued by the counsel for the petitioners that for invoking Sections 397 and 398, conditions mentioned under Section 399 must be satisfied; that it is difficult for the petitioners to get the requisite number of contributories as enjoined under Section 399 and, therefore, it cannot be said that the petitioners have got effective alternative remedy. In view of the fact that the petitioners did not urge the ground based on disappearance of substratum of the company, I do not think it is necessary to go into the merits of this contention.

6. In Madhusudan Gordhandas and Co. v. Madhu Woollen Industries P. Ltd. [1972] 42 Comp Cas 125 (SC); AIR 1971 SC 2600, the Supreme Court observed that (p. 134 and 135 of 42 Comp Cas):

' In determining whether or not the substratum of the company has gone, the objects of the company and the case of the company on that question will have to be looked into...The mere fact that the company has suffered trading losses will not destroy its substratum unless there is no reasonable prospect of it ever making a profit in the future.'

7. In A.P. Pothen v. Hindustan Trading Corporation P. Ltd. [1967] 37 Comp Cas 266 (Ker); AIR 1968 Ker 149, Raman Nayar J., as he then was, held as follows (p. 267 of 37 Comp Cas):

' A contributory coming under the just and equitable clause has generally an uphill task, for the statute establishes a domestic tribunal as between the members and the company and thus enables the members themselves by passing the requisite resolutions to determine whether there shall be a voluntary liquidation or whether the court shall be asked to make a compulsory order...'

8. Even where the sole undertaking of the company has been sold, it cannot be said that its substratum has disappeared so long as there are some other businesses which it can carry on coming within the objects stated in its memorandum.

9. I shall now consider the contentions of the petitioners that Section 443(2) cannot have any application to this case at this stage and their petitions cannot be dismissed on the ground that they have got alternative remedies under Sections 397 and 398 of the Act. Section 443 deals with powers of court on hearing a petition. Under Sub-section (1), on hearing a winding-up petition, the court may-

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

(b) adjourn the hearing conditionally or unconditionally ; or

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

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

10. There is also a proviso to this sub-section which states :

' The court shall not refuse to make a winding-up order on the ground only that the assets of the company have been mortgaged to an amount equal to or in excess of those assets, or that the company has no assets.'

11. Sub-section (2) of Section 443 reads :

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

12. There is nothing in Sub-section (2) of Section 443 to show or indicate that the court cannot make an order under Sub-section (2) of Section 443 at any stage before the conclusion of the enquiry of the wiriding-up petition or before taking evidence in the petition. Under Sub-section (1), as pointed out earlier, on hearing a winding-up petition, a court can dismiss it, with or without costs; and under Sub-section (2), the court can refuse to make an order of winding-up, if it is of opinion that some other remedy is available to the petitioners and that they are acting unreasonably in seeking to have the company wound up instead of pursuing that other remedy. I am unable to see any restriction or limitation on the above sub-section that an order under this sub-section can be made only after taking evidence at the time of enquiry or at the conclusion of the enquiry. On hearing the petition, if there are materials on record to show that an alternative remedy is available to the petitioners and that they are acting unreasonably, the court is empowered to refuse to make an order of winding-up. In this case, both the petitions under consideration have been admitted by this court and notice issued to the company obviously to enable the company an opportunity to contest the petitions before further steps are initiated against the company. There is nothing in J.M. Patel v. Extrusion Processes (P) Ltd. [1966] 2 Comp LJ 74 (Bom), in support of the contention of the petitioners that an order under Section 443(2) can be passed only after taking evidence or at the conclusion of the enquiry. This decision was then relied on by tbe counsel to support the contention that Sub-section (2) of Section 443 cannot be invoked in the absence of effective remedies. While considering the powers under Section 443(2), the following observations were made in that decision :

' It is true that the court hearing the application under Clause (f) of Section 433 may under Section 443(2) refuse to make the order for winding-up if it is of opinion (that) an alternative remedy is available. It is then for the court to consider whether such remedy would be effective and not merely a doubtful remedy and whether the petitioner is acting in an unreasonable manner in asking the company to be wound up.'

13. The petitioners' complaint in this respect is that they have no effective remedy available under Sections 397 and 398 of the Companies Act. In order to obtain an order for winding up the company, a contributory seeking the exercise of the discretionary powers of the court under Section 433(f) of the Act, has not only to establish that the circumstances obtaining in the company are such that the winding-up of the company is the only alternative remedy but also to show that he has no other remedies available. In the various grounds taken in the petitions, the petitioners have no case that they have no alternative effective remedy. In Hind Overseas Pvt. Ltd. v. R.P. Jhunjhunwalla [1976] 46 Comp Cas 91 (SC); AIR 1976 SC 565, it was observed by the Supreme Court that Section 433(f) has to be read with Section 443(2) of the Act and that (p. 106 of 46 Comp Cas):

'...... where the petition is presented on the ground that it is just andequitable that the company should be wound up, the court may refuse to make an order of winding-up, if it is of opinion that some other remedy is available to the petitioners and that they are acting unreasonably in seeking to have the company wound up instead of pursuing that other remedy.'

14. It is further observed in that case that there are preventive provisions in the Act under Sections 397 and 398 as a safeguard against oppression in management and that these provisions indicate that relief under Section 433(f) based on the just and equitable clause is in the nature of a last resort when other remedies are not efficacious enough to protect the general interest of the company. Therefore, the remedy to wind up the company is the last resort a contributory should resort to. In other words, the relief under Section 433(f) is to be granted only under compelling circumstances. In passing an order for winding-up under just and equitable clause, the court will have to consider the interests of the shareholders as well as of the creditors.

15. It is now well-established by decisions of the Supreme Court and this court that a court can refuse to make an order of winding up a company on an application filed under just and equitable clause, if it is of opinion that some other remedy is available to the petitioners and that they are acting unreasonably in seeking to have the company wound up instead of pursuing that other remedy; that safeguard against oppression in management has been provided under Sections 397 and 398 of the Act; that relief under Section 433(f) based on just and equitable clause is in the nature of a last resort when other remedies are not efficacious enough to protect the general interest of the company and that Sections 397 and 398 provided an effective remedy to a contributory who has filed an application under just and equitable clauses alleging oppression of minority, misconduct and mismanagement.

16. In George v. Athimattam Rubber Co, Ltd. [1965] 35 Comp Cas 17 (Ker); AIR 1964 Ker 212, Raman Nair J. (as he then was) held (headnote):

' It is the duty of the court before admitting a winding-up petition, especially one brought by a contributory, to satisfy itself that there areprima facie grounds and it is well settled that, even after the court has admitted a petition, it can, on being moved for the purpose by the company or some other interested person, stay proceedings and revoke the admission... Misconduct and mismanagement are not by themselves sufficient for a winding-up order...... that close relationship between the severaldirectors of a company is no ground for winding up a company although it is a factor to be considered in cases where that close relationship has fostered misconduct and mismanagement and has enabled the directors to dominate the other shareholders and monopolise the company for their own individual benefit.'

17. Dealing with the allegations of mismanagement and misconduct, it was also observed in that case that (page 23 of 35 Comp Cas):

'Even if the allegations made by the petitioner would justify a winding-up order under the just and equitable clause, I think that, on the allegations made, the petitioner's proper remedy would be an application under Section 398 of the Companies Act and that he is acting unreasonably in seeking to have the company wound up instead of pursuing that remedy. To say that that remedy is not available to the petitioner, since he cannot muster the support required by Section 399 of the Companies Act, seems to me no answer and only serves to show that other members are not prepared to subscribe to the allegations made by the petitioner.'

18. I am in respectful agreement with the dictum laid down in A.P. Pothen's case [1967] 37 Comp Cas 266 ; AIR 1968 Ker 148 and George's case [1965] 35 Comp Cas 17 ; AIR 1964 Ker 212, referred to above. The observations of the learned judge in these cases is a complete answer to the contentions of the petitioners that they do not have any effective remedy under Sections 397 and 398 in view of the limitations placed under Section 399 of the Act and that this court having admitted these petitions, it is to be presumed that this court was satisfied that there was a prima facie case and, therefore, this court is bound to allow the petitioners to adduce evidence and that an order under Sections 443(2) can be passed only after taking evidence or at the conclusion of the enquiry. The petitioners have effective alternative remedy under Sections 397 and 398 and the materials on record clearly indicate that they are acting unreasonably in seeking to have the company wound up instead of pursuing that other remedy. The petitioners can also file a suit in this respect against the company. These petitions are, therefore, liable to be dismissed under Section 443(2) of the Companies Act.

19. One John Anthrapper, a contributory, filed C. P. No. 33 of 1982 before this court alleging the same grounds now put forward in the present petitions. This court admitted the petition and notice was ordered and the company entered appearance and filed a counter-affidavit. The preliminary question relating to the maintainability of the petition was gone into before ordering advertisement. The three main grounds urged before this court in that petition were the following:

(i) With the sale of the Skinnapuram Estate, the substratum of the company would disappear.

(ii) The amendments to the articles of association are calculated to oppress the minority shareholders; other oppressive measures are also being resorted to and the shareholders have lost confidence.

(iii) With the majority backing of the members of a family, the affairs of the company are being mismanaged.

20. My learned brother, M.P. Menon J., after hearing the elaborate arguments addressed on either side and duly considering these grounds, held that as regards 'the alleged acts of oppression and mismanagement, the petitioner can seek to remedy them in proceedings under Sections 397 and 398 and that he can easily resort to the remedy of a suit, single handed, even if no other member is prepared to support him. ' It was further observed as follows :

' Therefore, if grounds (ii) and (iii) alone were there, the question of throwing out the petition at this stage itself could have been considered.'

21. My learned brother found under ground (i) (this ground is based on the alleged disappearance of substratum) that it cannot be said that the petition disclosed no prima facie case at all. This order was challenged by the respondent-company in M.F.A. No. 443 of 1982--Malabar Industrial Co. Ltd. v. John Anthrapper [l985] 57 Comp Cas 717 (Ker). A Division Bench of this court allowed the appeal and set aside the order of a single judge and dismissed C. P. No. 33 of 1982. The Division Bench found that in the absence of any allegation either that the company is insolvent or that the company has debts or that the company is not run profitably, a mere sale of an estate will not by itself render its substratum to disappear; that the apprehension of the contributory that the sale proceeds would disappear is a mere apprehension voiced in support of the petition, for the shareholders have very effective remedies both under the general law and under the provisions of the Companies Act to safeguard their interest after the sale proceeds come into the hands of the company. It was also held that the court will be justified in concluding that the substratum of the company has disappeared and in finding justification for an order of winding-up, only when the activities of the company become impossible by the operation of law or by unforeseen circumstances. The Division Bench also observed as follows:

' All that the shareholder can establish by oral evidence may be to show either that the shares of the company are cornered by the relatives of the managing director, etc., or that the majority is oppressing the minority or that the sale proceeds would be frittered away. In the nature of the averments in this case, that will not take us anywhere. '

22. The petition in C. P. No. 33 of 1982 was made available for perusal. The allegations and averments in that petition and those in the instant petitions are almost identical. The above observation of the Division Bench is also an answer to the contentions of the petitioners that a proper order under Section 433(f) can be passed only after taking oral evidence on the points of issue.

23. It is clear from the above discussion and findings that the petitioners have failed to make out a prima facie case for ordering the winding-up of the company. These petitions, therefore, fail and are hereby dismissed, but in the circumstances without costs.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //