M. Madhavan Nair, J.
1. This petition is for compulsory winding up of the Saw Mills and Industries, Ltd, Kokkalai, Trichur. The petition was originally filed by Shri Mannathazhath Raman Menon, a shareholder. The company was then being managed by the Udaya Agencies (Private) Ltd, Trichur. as its Managing Agents. Finding that the bankers suspended operation of their accounts with the company because of the presentation of this winding up petition, the Director-in-charge of the Managing Agents moved this Court for appointment of a Receiver for carrying on the business of the company, which had large commitments then requiring immediate execution. That petition was allowed on 20-5-1960 and an Advocate Receiver was put in charge of the affairs of the company pending disposal of this petition. The Receiver assumed charge on 1-6-1960 and is carrying on business to the satisfaction of all concerned. The company is seen to make appreciable profits under his management. Encouraged apparently by the signs of prosperity to the company, the petitioner submitted before this Court on 12-12-1960 that he was not pressing this motion for a winding up.
Thereupon, Shri Pullat Sankaranarayana Menon, apparently supported by 37 other shareholders intervened to prosecute the petition for winding up. He was substituted in the place of the original petitioner and was allowed to amend the petition under Rule 102 of the Companies (Court) Rules, 1959. It is the petition as amended by him that now comes up for disposal before me in this proceeding.
2. The company has a nominal share capital of Rs. 10 lakhs divided into 6000 cumulative preference shares of Rs. 50/- each and 70000 ordinary shares of Rs, 10/- each, of which 3200 preference shares and 34000 ordinary shares have been subscribed making up a paid-up capital of Rs. 5 lakhs for the company. Admittedly, for the last 10 years the company has not been declaring any dividend or ordinary shares and for 7 years no dividend was paid on the preference shares also. On 19-12-1959 the Board of Directors issued a notice for an extraordinary General Body Meeting of the shareholders to consider the feasibility of effecting 'a sale of the entire mills and all its belongings by inviting tenders therefor'. The reason for this move was stated in an explanatory note appended to the notice as the absence of prospects of clearing off the arrears of dividends on the preference shares and of declaring dividends on ordinary shares anywhere in the near future.
At the extraordinary meeting held on 19-1-1960 in pursuance of this notice the share-holders resolved to effect a sale of the company with all its belongings, except stock-in-trade and raw materials, by inviting tenders for their purchase, subject to an upset price of Rs. 3,50,000 and adjourned the meeting to 19-2-1960 to consider the tenders received. On 19-2-1960 it was found that the highest tender did not even come upto the upset price but rose only up to Rs. 3,16,000/. The share-holders in meeting then resolved to call fresh tenders without fixing any upset price and adjourned the meeting to 18-3-1960 for consideration of the fresh tenders that may be received.
It was however seen that in the advertised notice the Board of Directors have added a clause to the effect that, if the renders received till 18-3-1960 were not found acceptable, the mills would be sold in auction that day in the presence of the share-holders to the highest bidder at the spot. This naturally aroused apprehension in some shareholders that an under-plot' is hatching up in these proceedings initiated and brought forth by the Board of Directors; they suspected that someone in the Board is trying to knock off the mills for a song to the detriment of the generality of the ordinary share-holders; and that appears to me to be the background of this motion for a compulsory winding up of the company.
3. Before the much suspected meeting of 18-3-1960 came, Shri Mannathazalh Raman Menon, the original petitioner in this case, instituted an Original Suit (O. S. No. 204 of 1960) in the Munsiff's Court of Trichur, and secured an interim injunction prohibiting the meeting of share-holders to be held on 18-3-1960, averting thereby all possibilities of an auction that day as advertised by the Board of Directors. Having thus gained a breathing-space, he instituted this petition for compulsory winding up of the company on 25-3-1960. It was soon followed by another similar petition which was registered as C. P. No. 16/1960, by Shri K. I. Kunjunni, another share-holder of the company.
When these two petitions came up for final hearing on 12-12-1960 the petitioners in both the petitions submitted in court that they were not pressing the motion for a compulsory winding up. As there was nobody to intervene in C. P. 16/1960 to prosecute the same further, that petition was dismissed on 12-12-1960; and Shri Pullat Sankara-narayana Menon having intervened in C. P. 7/1960, as already mentioned above, this petition remains to be disposed of now.
4. It must be stated at the outset that this company is not the least insolvent. The petitioner himself stated in his affidavit filed in support of the petition that 'the fixed assets of the company exclusive of the investments and current assets shown separately in the Balance-Sheet' for 1958, were worth Rs. 4,67,061 odd. Shri A. C. Chacko, the main opponent in the case, has also stated in his counter affidavit that the assets of the company are worth above Rs. 5 lakhs. Neither the petitioner, nor the opponents, mentioned anything about the indebtedness of the company. The Receiver has filed a statement in these proceedings that on 31-5-1960 the total indebtedness of the company was to the tune of Rs. 27,094 odd and the learned Advocate for the Receiver stated that the above figure must have come down considerably by this time.
5. The ground on which the petitioner seeks a compulsory order from this court is that 'it is just and equitable that the company should be wound up', which is Section 433(f) of the Companies Act, 1956. That section reads:
'433. Circumstances in which company may be wound up by the Court.--A company may be wound up by the Court:--
(a) if the company has, by special resolution, resolved that the company be wound up by the Court;
(b) if default is made in delivering the statutory report to the Registrar or in holding the statutory meeting;
(c) if the company does not commence its business within a year from its incorporation, or suspends its business for a whole year;
(d) if the number of members is reduced, in case of a public company, below seven, and in case of a private company, below two;
(e) if the company is unable to pay its debts;
(f) if the Court is of opinion that it is just and equitable that the company should be wound up.'
6. At one time, it was thought that the grounds on which courts can act under the just and equitable clause should be of the same kind as those indicated in the preceding five clauses. It is now well settled that the clause stands by itself and the courts are free to decideon the facts and circumstances of each case whether it is just and equitable to order a compulsory winding up of the company concerned. See Rajah-mundry Electric Supply Corporation Ltd. v. A. Nageswara Rao, (S) AIR 1956 SC 213 and Halsbury's Laws of England, Third Edition Vol. VI, page 534, paragraph 1035. Nonetheless the petitioner has to satisfy the court that the circumstances of the company are such as to make it just and equitable for the court to order compulsory winding up of the company.
7. The reasons urged by the petitioner in order to make out a circumstance for a compulsory order for winding up are:
(1) That the company itself has resolved unanimously to terminate its existence; but the Board of Directors cannot be entrusted with any job of confidence so that the only way to carry out the resolve of the company is to have a winding up by court;
(2) The prospects of the company to earn profits sufficient to clear off the arrears of dividend On the cumulative preference shares and to declare a dividend on the ordinary shares are too far;
(3) A large majority of shares are held by one or two individuals so that the other share-holders cannot have any effective control of the affairs of the company; and
(4) The managing agents who held control of the company from 1946 to 1960 are guilty of many acts of malfeasance, misfeasance and non-feasance which can be exposed and remedied only in a proceeding in winding up by the Court.
8. With reference to the company's resolve to terminate itself and wind up its affairs, the petitioner urges that a special resolution, to that effect has been passed unanimously at the extrordinary general meeting of the share-holders held on 19-1-1960, & the same has been subsequently reiterated by the share-holders at the meeting of 19-2-1960. The proceedings of these meetings have not been so far impeached by any and therefore have to be carried out. By adding clauses in the notification for sale, whose effects may be far-reaching and detrimental to the share-holders, the Board of Directors have lost the confidence of the generality of share-holders and therefore the only way to carry out the company's resolve to put an end to its existence is a resort to a compulsory proceeding in court.
9. But the events in this court seem to show a very different attitude on the part of the shareholders indicating unmistakably that at least a large Section of them, do not desire a winding up by the court The petitioner who started the proceedings stated in court that he is not pressing the same and retired from the case. Several shareholders who, according to a statement filed by Shri T. S. Venkiteswarah Iyer, the learned counsel for some of the opponents in the case, owned shares to the value of Rs. 1,30,200 are actively opposing this petition in this court As against this, only a few share-holders, the total value of whose shares comes only to Rs. 22, 850/-, have come to support this motion in this court. These facts show that, whatever might have been the feeling of the share-holders in January-February, 1960,they have changed their mind and are now desirous to work up the company.
Shri T. S. Venkiteswara Iyer submitted that the resolution of 19-1-1960 was only the result of a despair that prevailed then among the shareholders on account of the long continued mismanagement of the affairs of the company by the Managing Agents for the last 13 years and more; but all that has been now shaken off by the signs of profit and prosperity brought to light under the management of the company by the Receiver. I appreciate this statement by the counsel, especially as it is apt to explain the enthusiasm shown lately in this Court by many of the share-holders to have the company sustained and continued. Even when I took up the petition for hearing, as early as on 22-8-1960, I was persuaded to pass the order:
'The counsel for the petitioners (C. P. Nos. 7 and 18/60) submit that in view of the progress and the profits shown during the short term that the receiver has been in management, consideration of the petition may be adjourned for two months to enable the petitioner to decide whether this petition is to be pressed or withdrawn. It is ordered accordingly.....'
It may be noted that at that time the company had been under the management of the Receiver only for a very short period, for less than three months. Subsequently the hearing of this petition came to be adjourned several times to enable a meeting of the Board of Directors to review the present position of the company; and finally when the petition was taken up for hearing on 12-12-1960 the Petitioner in C. P. No. 16/60 and the original petitioner in this petition candidly submitted that they did not desire to press the motion for a compulsory winding up, and many other shareholders appeared in court to oppose the petition.
10. The circumstimces disclosed in this case are on a par with those in Oriental Navigation Co., Ltd. v. Bhanaram Agarwalla, AIR 1922 Cal 365, where Sanderson, C. J. observed:
'The mere tact, that a majority of the share-holders, who voted at the meeting, were in favour of winding up the Company, either under supervision of the Court, or by the Court compulsorily, was not sufficient to justify the Court in making the compulsory winding up order under the circumstances of the case, one of which was that there was no valid resolution tor voluntary winding up.''
In Standard Aluminium and Brass Works Ltd. In re, AIR 1929 Bom 8 the company had lost Rs. 5 lakhs out of its total paid up capital of Rs. 7 lakhs, mainly due to the Previous mismanagement of the company's affairs; still, Kemp, J. held that as the company has, under a new management with the remaining capital, 'shown reasons to believe that it would shortly be in sounder position' it was not proper for the Court to interfere and wind up the company under the just and equitable clause. I am not, in the circumstances, convinced that it is just and equitable now to hold the company to its re-solve of 19-1-1960 and order its compulsory winding up on its basis.
11. The introduction of the suspicious clause in the advertisement for the sale of the company by the Board of Directors cannot advance the matter appreciably. It was certainly an unauthorised act on their part. The general meeting of the share-holders resolved only to invite tenders for the purchase of the Mills and to consider them at their adjourned meeting. The Board of Directors had therefore no business to notify that if the tenders were not acceptable, the Mills would be sold by auction in the Presence of the shareholders at the ensuing meeting. This was characterised by the petitioner as an attempt on the part of the Directors to over-reach the general body of the shareholders and to knock off the Mills and its belongings for a nominal price.
I am unable to appreciate how the Directors would be able to achieve that and sell the Mills to themselves behind the back of the share-holders. As it is it was only a suspicion or an apprehension in the shareholders, without any tangible basis therefor. No positive proof of any act on the part of the Board of Directors, apart from the insertion of the above-mentioned clause in the notice, has Been brought to my notice in this proceeding. The insertion of the offensive clause in the notice, in my view, does not necessarily lead to the inference assumed by the petitioner. If the Board indulged in an ultra vires introduction of the clause for sale by auction in the notification, the blame for that is certainly on them. But that clause only said that the Mills would be sold in auction in the presence of the shareholders at meeting convened. That cannot materially prejudice two shareholders. Even apart from that, it has been held by the Judicial Committee of the privy Council in Ripon Press and Sugar Mills Co. Ltd. Bellary v. V. Gopal Chetty, AIR 1932 PC 1
'It is well settled that an ultra vires transaction on the part of the Directors is of itself no ground for a winding up order'.
Considering the trivial nature of the ultra vires act alleged in this case, I hold that it cannot be made the basis for a motion for compulsory winding up of the company.
12. Nor does the fact that any prospect of the company's declaring a dividend to its ordinary shareholders is not seen in the near future induce me to order this petition. When the petition is based upon the ground that it is just and equitable that the company should be wound up it is not sufficient to show that the company has not been earning a profit for a long time. See Re. Anglo Continental Produce Co. Ltd. 1939-1 All ER 99. The old Managing Agents, in whose long term of office the company was not recording any appreciable profit, have gone out of office. Under its management even by an Advocate-Receiver, who cannot be expected to exploit the full length of the company's capacities in the hands of commercial experts, it has been earning very good profits. During the first six months of management, i.e. from 1-6-1960 to 30-11-1960, the Receiver has reported to have recorded a profit of Rs. 30-760/-odd for the company. It cannot now be said that the prospects of the Company's earning profits sufficient to declare a dividend for its ordinaryshareholders appear too far. As a source of possible profits to the shareholders and as a source of sustenance for a good lot of labourers, the company does not deserve annihilation now, especially as is at the threshold of a new management
13. The complaint that a large majority of the shares are being held between one or two individuals also need not deter me long. Mere holding of a majority of shares by a member of the company has never been recognised as a ground for its compulsory winding up. No positive act on the part of any such individual to the prejudice of the other shareholders has been made out or even alleged in this case. In AIR 1932 PC 1 the Judicial Committee of the Privy Council observed :
'The fact that one of the shareholders has a preponderating voice in the company by reason of his owning or controlling a large number of shares is of itself no reason for winding up the company.'
14. Lastly, with respect to the allegation that the prior misdeeds of the then Managing Agents cannot be fully 'investigated, exposed and remedied except under a winding up by Court. I cannot accept this ground also. Sections 235 - 246 of the Companies Act provide ample means for investigation, exposition and remedying of all misdeeds, it any really existed, of prior management. The fact that persons moving for such an investigation have to satisfy the Government 'of good reasons for requiring such investigation'' cannot be said to be a real hurdle in the matter, meriting avoidance of the same and resorting to a compulsory winding up as a direct proceeding for that end.
15. As observed by Chagla, J. (as he then was) in In re, Cine Industries and Recording Co. Ltd. AIR 1942 Bom 231 :
'It is for the petitioner to prove that .....
(a) the subject matter of the company is gone, or
(b) the object for which it was incorporated has substantially failed, or (c) it is impossible to carry on the business of the company except at a loss which means that there is no reasonable hope that the object of trading at a profit can be attained, or (d) the existing and probable assets are insufficient to meet the existing liabilities. When none of the four tests can be applied to the facts of the particular case the company cannot be Wound up'.
In 1939-1 All ER 99 it is held: 'The court ought not to exercise its jurisdiction under the Companies Act, 1929, Section 186(6) (corresponding to our Section 433(f), unless some wrong has been done to the company and the company is deprived of its remedies in respect of it by the improper use of voting power of the shareholders, or that the substratum of the company has gone, or that it is impossible, owing to the way in which the voting power is held and to the feelings of the directors towards one another, for the business of the company to be carried on. The petitioner had failed to establish that any of these conditions existed, and the petition ought to be dismissed'. Again in D. Davis and Co. Ltd. v. Brunswick (Australia) Ltd., AIR 1936 PC 114 it is held:
'If there was at the relevant time a reasonable hope of tiding over the period of deep depression and of emerging into a region in which the com-pany might reasonably expect to carry on at a profit, there would seem to be no sufficient reason why the Court should wind up the company under the just and equitable clause'.
Following the dicta expressed in these rulings, I am tempted to observe as Richardson J. did in AIR 1922 Cal 365 :
'Given a reasonable amount of good will and common sense and if factious disputes are avoided. I cannot at present see why this Company should not make headway'.
16. I hold that the petitioner herein has not discharged the onus that is on him to make out that it is just and equitable that the company should be wound up by court, and I dismiss the petition with costs.
17. The Receiver win, however, continue for one month from this date. Unless otherwise ordered by the appellate court on being moved in the meanwhile, the Receiver will surrender the management of the company to the Board of Directors and hand back the books and assets be longing to the company within a week thereafter. The receiver is authorised to appropriate all his remuneration from the funds of the company in his hands and also to pay another sum of Rs. 150/- to his counsel in this Court.