J.B. Mehta, J.
1. The two petitioners-contributories, one of whom is the managing director of the company, have filed this petition for winding up this admittedly solvent, sound, flourishing concern on the ground that it is just and equitable to do so under section 433(f) of the Companies Act, 1956, hereinafter referred to as 'the act'. As the admission of this petition and the consequent public advertisement would result in irreparable and irrversible damage to such a solvent concern, the company I pursuance to the notice by this court has appeared and vehemently objected to this petition being admitted.
The shorts facts which have given rise to this petition are a under :
The concerned company, Atul Drug House Ltd., originally started as a small family concern of the petitioners' minority group or the Shah group as it was registered on June 30, 1956, as a private limited company with its registered office at Kindle with the initial authorized capital of Rs. 5,00,000. The issued capital of 500 shares of Rs. 50,000 was subscribed by this minority group or the Shah group. The licence was obtained by the company to establish a plant for chemicals on March 15, 1960. On August 17, 1965, what is hereinafter referred to as 'the basic agreement' was reached between the Shah group and the East African Match company Ltd., hereinafter referred to as 'the East African Company', for capital participation. The capital of the company was increased to Rs. 10,00,000 and further capital was issued allotting 4,000 shares of Rs. 100 each to the East African Co., while another 1,500 shares were issued to the shah group. Thus the initial capital when this financial arrangement was made was shared between the East African Co., and the Shah group in the proportion of 66 2/3% and 33 1/3%. The basic agreement also provided for the constitution of the board of directors with two permanent directors from the respective parties or their nominees and for the provision of finance to be made by the East African Company. Clause (9) also provided that in order to carry out the basic agreement effectively all necessary changes would made in the articles of association of the company. Pursuant to that, the articles of association were amended on November 10, 1960, and again on June 26, 1965. Article 6(a) provided for the distribution of the entitle share capital of Rs. 6,00,000 in the aforesaid pupation between these parties. Article 141 provided that until otherwise determined by the company in a general meeting by a special resolution, the number of directors shall not be less than three nor more than six exclusive of a debenture director appointed under article 146. Four of such directors were always directors to be elected by the company according to the principle of proportionate representation in the manner laid down in article 164 and the remaining two directors were always to be directors appointed by the four elected directors as provided in article 163. Under article 191(a), the petitioner No. 1, Navnitlal M. shah of the shah group, and Shri Maganlal P. Chanderia of the other group, were to be the first managing directors. Sub-clause (c) provided that subject to the provisions of the act and these articles, the board of directors shall always appoint two managing Directors for the purpose of the management of the business of the company, one of who shall be a representative of the East African Company and the other shall be a representative of Navnitlal M. Shah and/or Shri Gunvantlal M. Shah and the members of their representative families It should also be noted that article 4 provided for the limitation of number of members so as not to exceed fifty and the right of transfer to share was restricted as well as the invitation to subscribe for the share or debenture or debenture-stock was prohibited so as to keep this company as a private limited company. Article 67 provided for the right of pre-emption on transfer of the shares as laid down and in the subsequent article. Articles 74(a) provided that in the even of Messrs. Bhagawanji and Co. Ltd. and/or Messrs. Premchand Brothers Ltd. ceasing to hold controlling interest in the East African company, the shares in this company held by the East African company shall be transferred in the first instance to Messrs. Bhagawanji and Co. and Messrs. Premchand Brother Ltd. in equal proportion and if the board of directors of Messrs. Bhagawanji and Co. and/or Messrs. Premchand Brothers Ltd. so require, the shares may be transferred to the members of the said Messrs. Bhagawanji and Co. Ltd. and Messrs. Premchand Brother Ltd. in equal proportion. The proviso provided that if Messrs. Bhagawanji and Co. Ltd. and/or Messrs. Premchand brothers Ltd. fail to get the shares transferred either to themselves or their members within a period of two months from the day on which they ceased to hold controlling interest in the Set African company and after due notice was given to them by the company in this regard the shah group would have the option to be exercised at any time of purchasing at a fair value to be determined in the manner laid down in article 68 the whole of the outstanding shares in the company's capital not held by persons exercising such option. There is no dispute that in the East African Company more than 90% holding of the shares is of these two families of the majority group, viz., Chanderias and Khimsias, respectively.
2. On the insertion of section 43A by the Amending Act 65 of 1960 this private company was deemed to be a public limited company as the East African company was the shareholder as aforesaid. Therefore, article 3 was again amended on June 26, 1965. In December, 1966, the company issued 24,000 equity shares by way of bonus shares by capitalizing the amount to Rs. 24,00,000 from the general revenues of which 16,000 shares were issued to the East African Company, while 8,000 shares were allotted to the Shah group. Thereafter, on or about February, 1968, the company issued some more equity shares of which 1,000 shares were allotted in the name of two Jersey companies which were private limited companies with shares held exclusively by these two families respectively while the remaining 1,000 shares were allotted to the shah Group.
3. The concern worked as a sound concern all those years is as is borne out from the unchallenged statements which have been annexed to the affidavit of Mr. K. M. Chanderia at exhibits 25 and 26. The company's fixed assets have been increased from Rs. 44 lakhs in 1964 to Rs. 1,20,000 in 1968 without deducting depreciation. The net block has increased from Rs. 24 lakhs in 1964 to Rs. 66 lakhs in 1968. These assets do not take into account the Vapi project and the Trombay projects where the investment is shown to be in 1968 to the tune of 48.88 lakhs and 13.88 lakhs, respectively. In fact, thereafter, it appears about Rs. 70 lakhs have been put in Vapi project which is admitted even by the petitioners to be of national importance. The profits of the company have been increased from Rs. 11 lakhs in 1964 to about Rs. 17 lakhs even after providing for taxation provision. The sales of the company have gone up from about Rs. 1 Crore 5 lakhs Rs. 1 crore 71 lakhs. In 1967 even the revenue have increased from Rs. 24 lakhs to about Rs. 70 lakhs.
4. The secured loans in 1968 are to the tune of Rs. 79 lakhs and the unsecured loans are about Rs. 22 lakhs. Thus, this is a very sound flourishing concern and there is no allegation whatsoever that there is any situation of a deadlock or that the concern is unable to work successfully and with affiance. The bonus and dividends were also declared in the past and the concern is on the way to prosperity.
5. It appears that disputes started between these two contending groups as the majority group proposed a third managing director from the group who was to be given large salary, free residential flat and other amenities. There were rival contentions - as the plea of the majority group was that at the initial stage petitioner No. 1 had agreed and he was thereafter backing out while this contention was seriously disputed by petitioner No. 1. It was further the plea of the majority group that the shah group had agreed that the two jersey companies would step into all the rights of the East African Company and so a loan had been advanced by the two Jersey companies re-payable over a period of 10 years to the tune of Rs. 21 lakhs. This contention was vehemently denied by the Shah group. As the majority group sought to transfer this holding to these two Jersey companies, a contention was raised by the shah group that the vacancy had arisen so far as the managing director was concerned from the other group. There were also contentions that the concerned directors had not disclosed the interest as required under section 299 and, therefor, also vacancy had arisen. As regards the other director of the majority group there were also similar allegations in respect of the atlas Apartment which were said to have been furnished at a huge cost and which also for the similar reason was said to result in a vacancy under the Act and the articles. The majority group, therefore, at the earlier stage, when the shah group was managing director and his brother delivered four letters on June 4, 1968, contending that the four directors of the majority group had ceased to hold office, approached this court in company Petition No. 19 of 1968 for various reliefs under sections 397 and 398 of the Act. It was contended by the majority group that the minority group was not abiding by the basic agreement of August 16, 1960, for capital collaboration and had turned down the request teachings the articles of association as per annexure 'C' to that petition to for carrying out the terms of the that agreement, and that they were not approving the transfer of the shares to the Jersey companies. It was further alleged that a deadlock had been created by the minority group and the majority group was, therefore, oppressed and proper reliefs were claimed under these two actions. This petition was dismissed by me by the order, dated September 13/16, 1968. A certificate for leave to appeal the Supreme Court was refused. At that time I had held that the minority round was raising only legal contentions as they were duty bound in their capacity as trustees to the body of shareholders bad they had done nothing which could be treated as oppressive on their part so as to justify any such petition under section 397 or section 398 of the Act.
6. During the pendency of that petition on august 26, 1968, the Civil Suit No. 552 of 1968 was filed in the Maharashtra High Court by the company and one person of the shah group against Mr. K. M. Chanderia on the ground that he had ceased to be the director and managing director by reason of article 163 and section 299 in connection with misuse of the moneys, and the motion was disposed of on April 21, 1969, directing Mr. Chanderia not to draw remuneration. Another suit No. 629 of 1968 was filed on September 23, 1968, before the Maharashtra High court on the ground that even the other director had ceased to be the director for non-disclosure of interest regarding Sudhakar flat on to ground that this was the company's flat and for possession of that flat, wherein the allege fabrication of the minutes of February 27, 1968, had been referred to. The interim injunction in the suit was issued against that director against which an appeal had been filed. On behalf of the majority group it is contended that the flat was selected as petitioner No. 1 had consented and as he backed out as per their statement at the board meeting, they had put back the amount of Rs. 2,52,000 in respect of this flat in the company on September 12, 1968. The shah group thereafter find a criminal complaint in the Presidency Magistrate court at Bombay on September 30, 1968, on a charge of criminal misappropriation under section 406, Indian Penal code, for Rs. 2,52,000 regarding this Sudhakar flat on the ground that these moneys of the company had been utilised by the majority group director secure the flat for his personnel purpose. A charge was framed in this compliant on July 16, 1969, but the trial of that compliant had been stayed on he application of the Shah group itself on August 25, 1969, on the ground that the civil suit was pending in that connection. Even in the City Civil Court Bombay, a suit had been filed by the minority group on October 15, 1968, for a declaration that Mr. K. M. Chanderia also was not entitled to call a board meeting and for internee relief. In the proceedings, ultimately, a solution had been offered by Patel J. in the appeal against the interim order by directing that either of the managing director could call the Board meeting after giving three days' time to the other. It appears from the undisputed facts that on December 9, 1969, the minority group even made an application under section 408 for appointment of two directors by the Government. This application had been reject day the company Law Board on October 6, 1969, after giving full hearing to the parties and after giving them opportunities a to ill their written statement in connection with that inquiry. Another criminal complaint before the Presidency Magistrate Court on February 17, 1968, on a charge of criminal misappropriation in respect of the amount of Rs. 1,650 regarding the leave and licence agreement by the minority group against Shri K. M. Chanderia has been dismissed for default on July 17, 1969. One more suit which is filed in the Bombay City Civil court is of November 6, 1969, on the allegations that all the directors of the majority group had ceased for non-disclosure of their interest and in connection with the appointment of a special director, where an interim injunction was issued on November 6, 1969, restraining the payment of interim dividend and payment to charity of a lakh of rupees. There was also one complaint by the minority group before the C.B.I. on August 1, 1969, against Mr. K. M. Chanderia regarding the sale of a car within a period of two years. The minority group has also taken certain proceeding. A suit has been filed in the Maharashtra High Court on September 9, 1969, being suit No. 865 of 1969, contending that the petitioner No. 1, the managing director of the minority groups, had also ceased for contravention of section 299 and they obtained an undertaking from him in that suit not to withdraw the salary. There were two complaints filed on September 9, 1969, alleging misappropriation of the company's funds. Thus, a considerable litigation has been going on between the two groups.
7. The two contributories who are petitioners in this petition have filed the present winding-up petition on November 24, 1969, under section 433(f) only on the ground that it is just and equitable to do so. One of the petitioners is Mr. N. M. Shah, the managing director of Shah group, while the other is a contributory of the same group. The other members of that group are supporting the petition. Similarly, the other members of the majority group are supporting the company in opposing this petition.
The petitioners have relied on the following sub-heads fir bringing their case under this ground of just and equitable clause :
(1) that as the basic agreement constituted a joint venture between these two family groups on the analogy of partnership principles, the petitioners were entitled to have winding-up in similar circumstances in which such partnership would be dissolved especially when there was a substantial ouster of the minority group and the joint management was denied to them, both as per the basic agreement and the relevant article of the company.
(2) that the minutes of February 27, 1968, were fabricated which showed a lack of probity.
(3) That the funds of the company were utilised for providing personal benefit by the other group as per the following particulars :
(a) the entire were made in their favour so that benefit of devaluation difference would be obtained by them;
(b) the Fiat car was used and at a subsequent date plea was taken of a loan by the company which even when sought to be re-paid had been done without any interest;
(c) the entire were made in contravention of foreign exchange regulations in various members' accounts;
(d) for Sudhakar flat, moneys of the company were utilised to the tune of Rs. 1,50,000 from November, 1967, and the readiness and willingness to reimburse the amount was shown only when it was seriously objected to by the minority group;
(e) that the accounts were not properly kept by and that the amount of Rs. 1,650 for leave and licence agreement was not entered in books;
(f) that the vouchers appeared to have interpolated which bore one mark 'A';
(g) one Ambassador car which was used by Chanderias only was sought to be transferred to a forged transfer by petitioner No. 1.
(4) There were a series of illegal and ultra vices acts which affected the rights of the minority group, especially as the minority group sought to pack the board of directors by making illegal appointments by seeking to exercise the right to appoint as special director by the financiers, viz., Jersey companies any by appointing the solicitor as an expert director. It was further alleged that the auditors, M/s. A. B. Mody and Co. who were working from the very beginning, were sought to be removed in the proposed annual meeting. In fact, after the financiers joined, the auditors changed every six months, viz., M/s. A. B. Mody and Co. and C. C. Chokshi and Co. The allegation was that the staff and persons were specially appointed by the majority group to serve heir purpose. In these circumstances, the allegation was made of lack of probity resulting in justifiable lack of confidence as the entire basis of the joint ventures had been knocked out and the winding-up petition has been presented under section 433(f) on these grounds, It should be noted at this stage that there is no averments whatever in the petition as regards the minority group having availed of the remedy under section 408.
The company had denied these allegations and has opposed the admission.
Three main grounds have been raised for opposing this petition at the admission stage as under :
(1) that on such doubtful assertions of 'just and equitable ground' the petitioners should not be permitted to present winding-up petition in a manner productive of such irreparable damage to this sound, solvent and flourishing concern.
(2) That the petitioners have ample alternative remedies available to them and they should not be permitted to avail of this approve remedy causing irreparable damage to the concern.
(3) That the petitioners having suppressed material facts and having not availed of the alternative remedy under section 408 of the Act, this petition must not be entertained.
8. As regards the last ground, it should be kept in mind that when a winding-up petition is made under section 433(f) on the cause of just and equitable ground, the petition to exercise such jurisdiction must be filed with absolute candour. Section 443(2) in terms enacts that where the petition is presented on the ground that it is just and equitable that the company should be wound up, the court may refuse to make an order of winding-up if it is of opinion that some other remedy is available to the petitioners and that they are acting unreasonably in seeking to have the company wound up instead of pressuring the other remedy. In he context of section 443(2) which is applicable when the ground for winding-up is under section 433(f) that it is just and equitable to do so, it would be the bounded duty of the petitioners to disclose the material facts as to the alternative remedies which they have availed of or which are available to them. It is only this disclosure which would enable the court to exercise its desertion under section 443(2) and when such a petition is presented on this ground under section 433(f), to make up its mind as to whether the other remedy is valuable to the petitioner and they are acting unreasonably in seeking to have the company wound up instead of pressuring the other remedy. The material distinction between the bankruptcy proceedings and winding-up proceedings should always be kept in mind, for the winding-up proceedings cannot be heard and decided without issuing a public advertisement under the rules. Such a public advertisement would have very serious repercussion especially when the concern is a solvent, flourishing, running concern and the harm which would be done to such a concern by issuing the public advertisement would be almost irreparable and irreversible. That is why the petitioner, who seek to get the winding-up petition admitted full well knowing that in such solvent concern the advertisement would have such effect or irreparable damage, must exercise scrupulous care and caution to come with absolute altogether candour by disclosing to the court why they are pursuing the alternative remedies they have or which they may have availed of before filling such a petition. In Jaggannath Gupta bad Co. v. Mulchand Gupta, Ray J. (as he then was) in terms held that suppression by the petitioners in such a winding-up petitioner under section 433(f) on just and equitable grounds that the petitioners had asked any investigation of the affairs of the company by the Company Law Board would be one of the reasons not to permit this alternative remedy. The importance of such an allegation is that if investigation of the affairs of the company was spending it might be that the court would not admit the petition for winding-up. In such an investigation before the company Law Board rival contentions would be gone into and, therefore, if that remedy had been chosen, it would not be just and proper to allow the winding-up petition to be persuade by the same litigant. It should be kept in mind that section 408 amperes the Central Government it appoint not more than two directors notwithstanding anything contended in the Act it if it is satisfied after such inquiry as it deems fit to make that it is necessary to make the appointment in order to prevent the affairs of the company being conducted either in a manner which is oppressive to any members of the company or in a manner when is per judicial to the interest of the company or to public interest. When the state of fairs of the company were required to be investigated by the state of affairs of the company were required to be investigated by the minority group by applying under section 408, this material fact ought to have been disclosed in the petition. The petitioners have never cared to disclose the fact in the petition. Mr. Divan vehemently argued that there was no deliberate suppression and this might have been overlooked and, or such an inadvertent omission, the extreme penalty of rejecting the petition should not be imposed on petitioners. Mr. Divan in his contention pointed out that some reference to this application under section 408 is made by the petitioners by relying upon the admissions which have been made by the majority group in that application. Such a causal reference would hardly meet with the relevant requirement that there should be the averments that the petitioners had preferred a complaint before the Company Law Board and had availed of the alternative remedy in that connection for remedying the state of affairs by appointment of two additional Government directors. To what extent this averments would have weighed with the court at the time of admission is wholly immaterial. In fact, the interim orders were sought at the stage of presentation of this petition when the notice was issued to the company. The petitioners were, therefore, under a duty to disclose these material facts. When the petitioners sought interim orders without disclosing these material facts and got a day from this court on material suppression of such facts, the general rule that those who get a day in this manner should not be heard, should have been allowed, especially in a matter of this type where the consequences of a petition being inadvertently admitted, and the advertisement being issued would be so ruinous on a solvent company. Therefore, this last ground would have itself disentitles the petitioners from claiming any relief on just and equitable grounds. As, however, I have heard the petitioners on the other two points, I am not resorting to that extreme step in this case of rejecting this petition on only the short ground.
9. As regards the first ground, the company urges its contention on well settled principles. In Charles Forte Investments Ltd. v. Amanda, the decision of the Court of Appeal, Willmer L.J. at pages 251-252, relied upon the often quoted passage of Mains V. C. laying down a rule of general application. Malins V. C. had in Cadiz Water Works Company v. Burnout issued an injunction restoring proceedings being taken to wind up the company on the round that the object of the court is 'to restrain the assertion of doubtful rights in a manner productive of irreparable damage'. The presentation of a winding-up petition with the consequent necessity for advertisement might cause irreparable damage and, therefore, this principle was treated as one of general application. This decision related to a suit for an injunction to restrain the defendant from presenting the petition for winding up on the ground that the refusal of the directors to register the transfer of shares constituted abuse of the directors' fiduciary powers justifying the defendant in presenting a winding-up petition on just and equitable grounds. Wilmaer L.J. said, at page 255, that even if the allegations contained in the petition can be substantiated having regard to the existence of an alternative remedy, the petition for winding-up should not be allowed. As regards the partnership principle, it was held not to be applicable in that case as there were a number of outside shareholders and the case was not one where no other shareholder were interested except the two persons and the company had been in fact a quasi-partnership. That is why Mr. Divan vehemently argued that the right of the petitioners in the present case should, however, be examined on the partnership principles as the present company was really a quasi-partnership and a small domestic family concern, not one of Shah family but of three families of Shah, Khimsias and Chanderias. Mr. Divan in this connection vehemently relied on the decision of the Privy council in Loch v. John Blackboard Blackwood Ltd. this was a public company forced to carry on the testator's business and to divide the profits of it between the members of his family entitled under his will to share them. The managing director had a prepondering voting power. The directors had omitted to hold general meetings, or to submit accounts, or recommend a dividend, and that they had laid themselves open to the suspicion that their object in so omitting was to kept the petitioners in ignorance of the company's position and affairs and to require the petitioners to sell their shares at an under-value. In these circumstances, regard being had to the domestic character of the company, the petitioners were held to be entitled under that provision to a winding-up order. At page 787, their Lordships considered that looking to the character and history of the company together with the fact that because of this peculiar situation where there was a prepondering voting power, the calling of a meeting of the shareholders would admittedly lead to failure, it would be unavailable as a remedy and the that fact could not be excluded from the point of view of the court in a consideration of justice and equity of pronouncing an order for winding-up. At page 790, their Lordships pointed out that in In re Yenidje Tobacco Co., in analogous circumstances, the partnership principles were applied to a case like this where in substance it was a partnership in the form or guise of a private company. This ratio was approved by their Lordships that the circumstances which would justify the winding-up of a partnership were circumstances which should induce the court in such small domestic and family concern to exercise its jurisdiction to wind up the company. Their Lordships also approved, at page 793, the observations in Symington v. Symington's Quarries, that this was not a company formed by appeal to the public but was a domestic company whose only real partners were the three brothers of the family, the other shareholders having a nominal interest. In such a case it was obvious that all the reasons that would apply to the dissolution of private companies on the ground of incompatibility between the views or methods of the partners, would be applicable in terms to the division amongst the shareholders of this company, and that it would be just and equitable that the company should be wound up and the partners allowed to take out their money and trade separately if they please. Following Lord Clyde's classic passage in Bared v. Less, their Lordships pointed out that a shareholder puts his money into a company on certain conditions. The first of them is that the business in which he invests shall be limited to certain definite objects. The second is that it shall be carried on by certain persons elected in a specified way. And the third is that the business shall be conducted in accordance with certain principles of commercial administration defined in the statute, which provide some guarantee of commercial probity and efficiency. If shareholders find that these conditions or some of them are deliberately and consistently voted and set aside by the action of a member and official of the company who wields on overwhelming voting power, and if the result of that is that for the extrication of their rights as shareholders they are deprived of the ordinary facilities, which compliance with the Companies Act would provide them with, then there does arise a situation in which it may be just and equitable for the court to wind up the company. In addition to the partnership principle, at page 788, their Lordships applied other rules which lay down that the foundation of the application of the winding-up, on the just and equitable rule, there must lie a justifiable lack of confidence in the conduct and management of the company's affairs, but this lack of confidence must be grounded in the conduct of the directors, not in regard to their private life or affairs, but in regard to the company's business. Furthermore, the lack of confidence must spring not from dissatisfaction at being out-voted on the business affairs or the domestic policy of the company, but the lack of confidence should rest on a lack of probity in the conduct of the company's affairs.
10. Mr. Divan vehemently relied upon this decision for pointing out that in the Loch's case two independent principles have been invoked for just and equitable rule for winding up :- (1) Analogy of partnership principle to dissolve a small, domestic, quasi-partnership concern, and (2) when there is justifiable lack of confidence on the ground of lack of probity. While interpreting the ratio of Loch's case, it should be kept in mind that at that time there was no corresponding section 210 in the English Act giving an alternative remedy. The only alternative remedy which was considered by the Privy council was an appeal to the domestic forum, which, on account of the peculiar constitution, could not provide for any effective remedy in such a case, It is true that the concern was a small, domestic and family concern and could be equated with a partnership. The first principle of dissolution on partnership lines was thus held to be applicable in Loch's case because it was a case of indissoluble deadlock by reason of the very constitution of that concern and when there was no other alternative statutory remedy. Therefore, after section 210 was enacted in the English Act, even Buckle (vide Buckle on the companies Acts, 1957 edition, at page 456) in terms mentions that in such a case the court might show no have resource to section 210 instead of winding up the company. Such a case of deadlock may arise where there are two real partners or where the partners have equal holdings, for there us something in the constitution itself in such cases which results in a deadlock. In such cases am appeal to the domestic four would be useless as the constitution itself leads to this result. In the case where the shareholding is equally divided even alternative remedy under section 210 might fail, because without any oppression at all, but by reason of mere operation of the statuary powers under the Act and the relevant articles, the situation of a complete deadlock might arise. It is only in such cases where there is a complete, indissoluble deadlock that these partnership principles can now apply to such a case where section 210 of the English Act or remedies under section 397 or 398 of our Act would not be applicable. Mr. Divan vehemently relied upon the decision in In re Lundie Brothers Ltd. where the learned judge had applied the partnership principle even after the enactment of section 210 in the English Act. At page 696, the observation in In re ~Yenidje Tobacco Co. Ltd.'s case by Lord cozens-Hardy M.R. were strongly relied upon. The passage of Lord Lindly in his book on partnership, 6th edition, page 657, was referred to :
'...... refusal to meet on matters of business, continued quarreling, and such a state of animosity as precludes all reasonable hope of reconciliation and friend co-operation, have been held sufficient to justify a dissolution. It is not necessary, in order to induce the court to interfere, to show personal readiness on the part of one partner to the other, or even any gross misconduct as a partner. All that is necessary is to satisfy the court that it is impossible for the partners to place that confidence in each other which each has a right to expect, and that such impossibility has not been caused by the person seeking to take advantage of it.'
11. ~It is true that Plowman J. had applied partnership principles in this decision, as he had come to the conclusion that the petitioner was not entitled to succeed in the alternative claim under section 210, under which he had to establish that the affairs were conducted in a manner oppressive to him as member of the company and not in any other capacity. That was the distinction where dissolution was sought in a partnership case on just and equitable grounds, and when relief was claimed under section 210. Plowman J.'s decision does not lay down any different proposition because that case also was one of a complete, indissoluble deadlock in a small private company in which there were equal holding of two Lundie Brothers and two Palfreys. Therefore, both these cases of Loch and Co. as well as Lundie Brother's Ltd. are cases where there is indissoluble deadlock either because there are two real partners or where there is equally divided holding. The partnership principle is applied where deadlock is complete and irresoluble under the constitution, as, in such cases, where there is no oppression, even the alternative remedy under section 210 would be found to be inapplicable. These decisions cannot, therefor, be pressed into service by Mr. Divan in support of the broader proposition advanced by him that even where there is no such inherent deadlock by some special provision in the constitution itself and even where there is an alternative remedy available under section 210, the partnership principles would be available for invoking jurisdiction in winding-up under just and equitable clause. the whole emphasis of the Privy council in Loch's case is on the act that the appeal to the domestic forum was useless and that here was no alternative remedy at all. It should also be kept in mind that the partnership principle is held to be applicable in small domestic family concerns which can be treated as quasi-partnerships, and the second necessary ingredient for application of that partnership principle is that there must be a situation resulting in a complete, irresoluble deadlock, by reason of something in the constitution so that there would be no alternative remedy even under section 210 of the English Act or sections 397 and 398 of this Act by resort to which the partnership could continue as a joint venture as contemplated by persons who had entered into such a small quasi-partnership. Ray J. (as he then was) in In re Hind Overseas (Private) Ltd. rightly summarized the entire legal position in this connection as to the application of the partnership principle as under :
'The dissolution of partnership principle has been applied to companies either on the ground of complete deadlock or on the ground of domestic or family companies. The complete deadlock is where the board has 2 real members or the ratio of shareholding is equal. The Yenidje Tobacco company case and Loch v. John Blackwood illustrate these types. In the domestic or family companies courts have applied the dissolution of partnership principle where shareholding are more or less equal and there is ousting not only from management but from benefits as shareholders. Lack of probity has to result in prejudice to company's business, affecting the rights of complaining parties as shareholders and not as directors. The Cuthbert Cooper case, according to the learned judge, illustrates that i deadlock can be resolved by the articles, there was no deadlock to bring in winding-up, and if there are alternative remedies, the company should not be wound up.'
12. Plowman J. in ~In re Surrey Garden Village Trust considered that there were three well settle principles : (1) that Prima Facie it is for the society itself to decide within the ambit of its own rules whether it should be wound up, and very strong case must be made out before the court will bypass, the domestic forum and make a winding-up order on the 'just and equitable' ground. (2) That misconduct or mismanagement by the management committee, if misconduct or mismanagement there is, is not of itself a ground for making an order on the petition of member. (3) that where other remedies are available, such as calling a general meeting, arbitration under the rules, an action for a declaration or an injunction, or an application to rectify the register, a winding-up petition is misconceived. Thus, the question of alternative remedy must always assume importance. Finally, in In re Expanded Plugs Ltd., Plowman J. pointed out that the partnership analogy might be of assistance in certain circumstances in considering whether it was just and equitable to wind up a company. The analogy, however, must not be pressed too far and, in particular, it could not be invoked for the purpose of giving a locus stand to a petitioner who was denied one under the company law. Further proceeding, at page 886, the learned judge observed that once it was accepted that the constitution of the company was not one of which the petitioner was entitled to complain, then, in the absence of any proof of what Lord saw in the well-known case of Loch v. John Blackwood Ltd. referred to as 'a lack of probity in the conduct of the company's affairs', the petitioner must fail. Therefore, unless the constitution is such which results in a complete, irresoluble deadlock and where there is no adequate remedy, the partnership principle must be invoked; While, in other cases, the ground of lack of probity in the conduct of the company's affairs must be established. The question of alternative remedy even when the partnership principle is invoked must assume great importance when the winding-up is sought on the just and equitable grounds. In order to do justice to the petitioner, who is invoking jurisdiction of winding-up is sought on the just and equitable grounds. In order to do justice to the petition, who is invoking jurisdiction of winding-up under the just and equitable rule, the court could not do injustice to a solved company by a public advertisement which would necessarily result in irreparable and irreversible harm. This is most material distinction between bankrupt proceedings and winding-up proceedings. That is why the legislature has in terms enacted in section 443(2), when such jurisdiction of winding-up is invoked on just and equitable grounds, that the court may refuse to make up an order if it is of opinion that some remedy is available to the petitioner and that they are acting unreasonably in seeking to have the company wound up instead of pursuing such other remedy. The legislature has introduced sections 397 and 398 in the Act which gave ample powers to the court, by passing all the necessary orders under section 402, compelling even purchase of the shares or interest of any member of the company by other members or the termination of the agreement between the company on the one hand and the officer-bearers or other and for passing any just and equitable order, so the a solvent concern could continue working in cases where the affairs of the company are conducted in a manner prejudicial to the public interest or in an oppressive manner to the member concerned. The legislature must, therefore, be taken to had clearly intended that the winding-up jurisdiction even on partnership lines should be invoked at the instance of a contributory in such a solvent company only when there would be irresoluble deadlock, because of something in the constitution itself. Such a situation of irresoluble, complete deadlock would arise by reason of the very constitution itself in case of equally divided holdings of partners in a quasi-partnership, when by reason of only acting as per the constitution a deadlock would be created without any oppression or mismanagement, which would could be remedied under sections 397 and 398 of the Act. Therefore, Mr. Divan's contention cannot be accepted that Ray J. was wrong in interpreting the settled legal position by confining the partnership principles to such concerns where there was complete, irresoluble deadlock.
13. When the partnership principle is not applicable and the matter has to be decided on the ground of lack of probity on the conduct of the company's affairs, which has resulted in the justifiable lack of confidence, the question of alternative remedy must obviously assume very great importance as such cases would clearly be covered by reason of the oppressive conduct or mismanagement under section 397 of section 398. In Rajakmundry Electric supply Corporation Ltd. v. Nageswara Rao, their Lordships settled the legal question that the words 'just and equitable' are not to be construed ejusdem generis with the matters mentioned in clauses (i) to (v) of section 166, corresponding to present clause (a) to (e) of section 433. Their Lordships also held, relying on certain English cases, that where nothing more was established than that the directors had misappropriated the funds of the company, the order of winding-up would not be just and equitable because it is if it is a sound concern, which such an order must operate harshly on the rights of the shareholders, but if in addition to such misconduct the circumstances exist which render it desirable in the interest of the shareholders that the company should be wind-up, there was nothing in section 166(vi) (corresponding to present section 433(f)) which bars the jurisdiction of the court to make such an order. Their Lordships, in terms, referred to Loch's case, which was held to be a case in which the order of winding-up was asked for on the ground of mismanagement by the directors, and the law stated at page 788 in Loch's case was, in terms, approved. That is why in that decision the alternative remedy under section 153(c), corresponding to section 397 of the Act, was held to have been rightly invoked even when by the appointment of an administration, complete interference with the internal affairs of the management of the company had been done. It was treated as a settled legal position by their Lordships that where nothing more is established than that the directors had misappropriated the funds, the order of wining-up would not be just or equitable in such a sound flourishing concern, as such order would operate harshly on the rights of the shareholders. The additional ground must be made out that there was justifiable lack of confidence on the ground of lack of probity and that their there is no alternative remedy under section 397 or section 398. Even Ray J. in the aforesaid decision in In re Hind Overseas Private Ltd., in terms, held that if there is equal shareholding and if there is complete deadlock and if there is lack of probity and if there is mismanagement of the company, the application of the just and equitable clause is of importance. The emphasis is one equal holdings which are not capable of solution, secondly, there must be exclusion from management, thirdly, there should be exclusion from any benefit as shareholder, Fourthly, there must be persistent, illegal and wrongful acts for long continuous period. In such a structure of domestic disharmony it is often said that no redress is possible except by destruction of the structure itself. That is why in the case of Loch v. John Blackwood oppression, breach of confidence, lack of probity, prejudice to the business of the company, and acts prejudicial to the rights of shareholders weighed with the court. On the other hand, mere outer from the board or curtailment of power as members of the board, in the words of Lord President Cooper in the case of Elder v. Elder and Waston, did not figure as a ground for winding up. That is why Ray J. held that winding up could not to be ordered on the ground of friction and disputes between the directors, as scramble for power was at the bottom of it all. In Rajkumar v. perfect Castings P. Ltd. Ramaprasad Rao J. also pointed out that the existence of factions amongst shareholders, bickerings as between one group and another group of members, vague allegations against the quality of management by the persons in charge of the company, and mere exclusion from management, as in that case, could not by themselves be a ground for winding up of a company. Proved malversation and conversation of funds, deliberate and wanton oppression by the management in power of the minority shareholders with a view to make personal illegal gains, including in subversive activities so as to jeopardise the substratum of the company, a justifiable lack of confidence in the conduct and management of the company's affairs due to lack of probity on the part of those in management, where there is open mismanagement and there is no panacea to remedy the evil, such are instances, though not exhaustive, when the courts exercise their jurisdiction under the 'just and equitable' rule to wind-up companies. Further proceeding, at page 47, the learned judge observed that jurisdiction under the just and equitable clauses should not be invoked in cases where the only difficulty is the difference of view between the majority directorate and those representing the minority, if the petitioners had alternative remedies available in law to redress such grievances which are not only adequate but efficacious. In the same volume, in Loknath Gupta v. Credits Private Ltd., Ghose J. of the Calcutta High Court took the same view that there mere mismanagement or misappropriation or misconduct on the part of the directors or managing director is no ground for winding up; so also, general allegations of oppression of minority shareholders is not a ground, especially as the petitioner has alternative remedies for redress of his grievances under the Act and under the various clauses of the articles of association. Even P. Raman Nair J. in George v. Athimattam Rubby Co, in terms held, at page 215, that :
'Even if the allegations made by the petitioner would justify the winding up order under the just and equitable clause ....... on the allegations made the petitioner's proper remedy would be an application under section 398 of the Companies Act and that he was acting unreasonably in seeking to have the company wound up instead of pursuing that remedy.'
At page 213, the learned judge pointed out that :
'The very institution of a winding-up petition against a company, more so its advertisement, adversely affects the reputation of the company, and if done without reasonable and probable cause, is a wrong which can be restrained by suit. It was also the duty of the court before admitting a winding-up petition. especially one brought by a contributory, to satisfy itself that there are prima 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.'
14. The learned judge referred to rule 96 of the Companies (Court) Rules, 1959, which deals with the admission of a winding-up petition and directions as to advertisement and which recognises this, for it says that the judge may, if the thinks fit, direct a notice to be given to a company before giving directions as to advertisements of the petition. The hearing to be given to the company is not for the purpose of deciding the manner of advertisement, but for deciding whether the advertisement should be made at all and the petition proceeded with. A discussion of these authorities completely settles the legal position that the partnership principle would be applicable in case of small, domestic family concerns which can be treated as quasi partnerships, where there is something in the constitution which results in a complete irresoluble deadlock and when there is no alternative remedy under the Act. In the other case when the partnership principle does not apply, mere misappropriation or a vague allegation of oppression by itself would not justify a winding-up order, especially where the alternative remedy under section 397 and 398 would be available, and it would be also necessary to show that there is justifiable lack of confidence on the ground of lack of probity in the conduct of the company's affairs. It is in the light of these settled legal principles that I must examine the first two contentions raised by Mr. Sorabji.
15. In the present case Mr. Divan vehemently argued that this was a small family concern of course of three families, Shahs Chanderias and Khimasias. The whole contention of Mr. Divan is misconceived as even the alleged basic agreement has been entered into not by Chnaderias or Khimasias but by the public limited company, i.e., East African Company, on August 17, 1960, for capital participation. It is true that, before that, when the concern was a private limited concern of the Shah family with a small subscribed capital of Rs. 50,000 it was of course a small, domestic family concern. When, however, this Shah family sought capital participation by the East African Company, a public limited company, by entering into basic agreement with that company, even though the controlling interest to the extent of 90% shares of that public limited company was of these two families, the concern completely ceased to be a small, domestic family concern. The very basis of capital participation was a turn this concern into a gigantic venture by the aid of the finances to be provided by the public limited company. Therefore, this is not a domestic concern formed on the usual partnership pattern. Its very constitution negatives this concept of a small family or domestic concern. In fact what attracted section 43(a) of the Amending Act, 65 of 1960, to this private limited company was the fact that the East African Company was a shareholder of 2/3rd of the shares in this complex. Even assuming that there is some force in the contention of Mr. Divan that this is a small, domestic, family concern which can be treated as a quasi-partnership, the partnership principle could never be invoked for dissolution because this is not a case where any irresoluble deadlock is suggested. Such a situation could not arise in this concern as there is no question of equally divided holdings where the constitution becomes responsible for the deadlock. Therefore, the petitioners would have ample remedies under section 397 and 398 on the very facts which are sought to be alleged in this petition to get adequate relief. In any event, the partnership principle could never make it just and equitable to wind up such a solvent concern when the petitioners do not choose to avail of the remedy under section 397 and 398 which would give them all the reliefs which they want under the alleged quasi-partnership. If they wanted the partnership to continue and if they wanted to exercise the rights which were available to the minority group under the basic agreement with the East African Company, all proper reliefs could be obtained under section 397 and 398. Therefore, when such alternative remedies are available, the petitioners could never be permitted to resort to the so-called partnership principle for invoking the jurisdiction under section 433(f) on just and equitable grounds, especially when while doing justice to the petitioners, there would be injustice done to the company by advertising the petition which would inflict such irreparable and irreversible harm.
16. In connection with the invocation of the partnership principle the ground which was alleged by Mr. Divan was one of a complete ouster, that is why the company in its affidavit pointed out various acts which were being done by the managing director of the minority group, petitioner No. 1 himself by taking part in putting orders, giving instructions as to the execution of the orders or the works and is issuing even cheques right from January, 1969, till September 25, 1969, to the tune of lakhs of rupees. The only reply of the petitioners in rejoinder is that these few instances would not show that the minority group is not excluded from management. The vague denial itself makes the entire case hollow. Huge correspondence which is produced in this connection, carried on admittedly by the petitioner No. 1 himself, including cases where even pay of the employee has been raised substantially to Rs. 1,475 as late as August 26, 1969, would show that the situation is not one of a complete irresoluble deadlock which would ever justify invoking of the partnership principle. Even apart from these, the alternative remedy under section 397 and 398 would completely solve all the grievances of the petitioners. Therefore, there is no substances in the first contention raised by Mr., Divan that there is any ground which would justify invoking the partnership principle for dissolution of the solvent concern even on the ground of alleged exclusion. Even as regards the other grounds which I have already mentioned, the misappropriation of the company's funds by the concerned directors for private benefit or the alleged fabrication of minutes are substantially covered in various litigation which one or the other petitioners have launched as would appear from the earlier statement of facts. The whole root of the trouble was the proposal to appoint a third managing director which ultimately led to all those legal contentions by the minority group that on or other directors or the managing director of the majority group had vacated their office. Such allegations are mere general grievances of oppression and, even if true, or are assumed to be true, could be remedied under sections 397 and 398. Almost all the allegations of illegal acts and the abuse of powers or there being no power to appoint additional directors or the change of the auditors are founded on an interpretation of the relevant articles of association or the statute. These are not the allegations which would be the requisite allegations of lack of probity on the part of those in management as a continuous course of conduct which results in such prejudice as makes the concern commercially insolvent or would take away the substratum of its business. In any event, even if these allegations are true, the petitioner would have ample remedies under section 397 and 398 of the Act, if they really want to safeguard their rights or to get the concern carried on a per the Act and the articles or in a way which was not oppressive to this minority group. Their desire is not to work the concern or the avail of their rights under the alleged quasi-partnership by working the concern as a joint venture, but they only want the entire solvent, profit-yielding, running structure to be destroyed which cannot be permitted in view of the settled legal principles. Therefore, Mr. Sorabji was right in pointing out that on these doubtful assertions the petitioners could not be permitted to invoke the jurisdiction of this nature under the just and equitable clause.
17. As regards the second contention, I have earlier stated that the petitioners have filed various litigation where most of their grievances would have been remedied. For the so-called oppression and deprivation of their minority right or mismanagement, if any, they have effective remedy under section 397 or section 398 which they have not invoked. They also availed of their remedy of the investigation under section 408 on the identical ground that the affairs of the company were conducted in a manner which was oppressive to the members of the company or in a manner which was prejudicial to the interests of the company or to public interest. They failed in getting any relief and even that fact was not pointed out in the petition.
18. Mr. Divan, however, vehemently argued that the petitioners have a right to choose their remedy by invoking the principle of dominus litus. Mr. Divan ignores the fact that this is not a remedy of action available to any individual. This is a representative proceeding and the remedy under section 433(f) is available only on a just and equitable ground that is why section 443(2) has made it mandatory for the court to consider this question as to the existence of alternative remedy available to the petitioners. Mr. Divan also argued that the matter is at an admission stage and when an arguable case is disclosed, the petition must be admitted rather than stifled at the very threshold. Even in this contention Mr. Divan ignores the fact that public advertisement would be ruinous and, before I inflict such irreparable damage on the company, the petitioners must convince the court not only of the existence of a just and equitable ground but also that there is no alternative remedy open to the petitioners which they are unjustifiably refusing to pursue. Instead of helping the court in this process, the petitioners suppressed one material fact that they had availed of one vital remedy under section 408 and have failed there. In fact if such a petition is admitted, irreparable harm which would be done to the solvent company of this kind would be irreversible, even if ultimately the company succeeds.
19. That is why P. Raman Nair J. in George v. Athimattam Rubber Co. was right in holding that even if the petition was admitted, the admission could be revoked after hearing the company and that is the very purpose of the salutary rule 96 of the Companies (Court) Rules so that the company gets an opportunity to oppose the very admission. Mr. Divan suggested that the petition may be admitted and thereafter kept over by staying advertisement. It would be an exercise in futility to adopt any such course, especially as mere admission of such winding-up petition with the possibility of public advertisement being issued would itself he damaging to the concern. Therefore, as per the settled principle, such a question must be properly decided at the admission stage itself be damaging to the concern. Therefore, as per the settled principle, such a question must be properly decided at the admission stage itself of course, after issuing notice to the company and after giving an opportunity to both the sides to have their say in this connection.
20. Mr. Divan next argued that section 397 must be construed as giving additional remedy to person who were oppressed by reason of the conduct of the affairs of the company being carried on with complete lack of probity who had always the right to approach the court by invoking the winding-up jurisdiction under the just and equitable rule. That right would never have been intended to the whittled down by the legislature by enacting section 397. This contention of Mr. Divan also suffers from the same infirmity by treating the petitioners in the position of plaintiffs who would have the right to choose their remedies on the principle dominus litus. Even in Loch's each the Privy Council invoked the winding-up jurisdiction on just and equitable clause because there was no other remedy available to the petitioner. The existence of an alternative remedy itself makes it unjust and inequitable to invoke this extraordinary jurisdiction which in its very process spells such irreparable injure to a solvent company, because the winding-up petition could never be heard and decided, unless it is first advertised as rule 24 makes no exception in this connection. Mr. Divan further argued that, in any event, the petitioners could not be said to be acting unreasonably in seeking to pursue this remedy in preference to the other remedies under section 397 and 398 where they would have to discharge a higher burden by proving the oppression or mismanagement. Once the partnership principle is out of the question, the petitioners have to prove almost the same grounds even for succeeding in this petition and, therefore, section 397 and/or 398 must be treated as an effective alternative remedy. Mr. Divan in this connection also argued that section 397 would be applicable if the oppression of the minority group is in the capacity as shareholders and it would not protect their rights of management. By this petition the petitioners are nowhere seeking to protect their rights of management as their only motive is to destroy the structure and not to continue it. It their real motive was to safeguard their rights of management, the petitioners would have pursued the aforesaid other remedy under section 397 or section 398 on identical grounds for continuing the concern by intervention of the court by seeking suitable orders under section 402. Finally, Mr. Divan argued that it could never be said that the petitioners are acting unreasonably when they do not want to continue under such tension and with such cost of unnecessary litigation after what had transpired in the last two years. This would be no reason whatever if we keep in mind the fact that it is the choice of the petitioners that settles this question. The court would have to determine whether it is just and equitable to wind up as sound concern when the petitioners have an alternative remedy open to them and they do not choose to avail of the same. In fact in spite of questioning Mr. Divan a number of times, I could not appreciate what special advantage the petitioners would derive from this petition. Mr. Sorabji had made an open offer to the petitioners that if they wanted to sell away their holdings the majority group was prepared to buy the same at a value which would be fixed by arbitration or by agreement. Mr, Divan turned down any such offer on the ground that the majority group was trying to force the minority group to part with their holdings. This is not the proper way to look at the offer. It is only when the petitioners were not inclined to avail of the alternative remedy of continuing the concern by resorting to section 397 or section 398, where also the same offer they could have obtained, that Mr. Sorabji was driven to make this offer to show that the majority group had no intention to affect the value of the shares of the petitioners or the minority group at the present valuation. So, on the facts of the case, it must be held that not only the alternative remedies are open to the petitioners but also they have no sufficient case on the allegations which they have made and they are acting unreasonably in seeking to pursue this remedy by way of winding up petition without resorting to the alternative remedy at least under section 397 and 398. The remedy under section 408 they have availed of and they have failed. It is true that no reasons have been given in that it might be that that application under section 408 might have been rejected on the ground that other proceedings were pending without going into the merits. Mr. Divan cannot ignore the fact that the Company Law Board have gone into all the materials by making a requisite investigations after given an opportunity to the petitioners to convince them of the grievances made under section 408 and have thereafter refused the relief. The order does not show that the application was thrown off as incompetent or that it was not entertained because of the pending proceedings. If that was so, no such elaborate investigation could ever have been done. In any event, the petitioners not having availed of the remedies under section 397 and 398, there is no justification whatever for this petition at this stage. Therefore, on all these grounds this petition must fail and it cannot be admitted as no doubtful assertions the petitioners are presenting the petition in a manner productive of such irreparable damage to the solvent company without availing of the ample alternative remedies. Therefore, the company petition is dismissed at the admission stage and the notice is discharged, The petitioners shall pay the quantified costs to the company of Rs. 750. All interim applications are rejected and the interim orders on the various summonses are vacated, except that the dividends proposed to be declared shall not be paid and the conveyance in question for the Sudhakar flat shall not be executed and the donation of Rs. 1,00,000 in question shall not be made till January 12, 1970. No order as to costs in respect of the interim applications.
21. The Additional Registrar was appointed Commissioner and his remuneration is fixed at Rs. 300 for the work done by him and it shall be paid by the petitioners.