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Registrar of Companies Vs. Jai Agro Industries Ltd. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtRajasthan High Court
Decided On
Case NumberS.B. Company Petition No. 3 of 1983
Judge
Reported in[1987]62CompCas358(Raj)
ActsCompanies Act, 1956 - Sections 167, 433 and 439(5)
AppellantRegistrar of Companies
RespondentJai Agro Industries Ltd.
Appellant Advocate T.B. Mathur, Adv.
Respondent Advocate U.N. Bhandari, Adv.
DispositionPetition dismissed
Cases ReferredIn Seth Mohanlal v. Grain Chambers Ltd.
Excerpt:
.....1980, and june 30, 1981, had been filed by the company on january 18, 1983, and the return for the year ending june 30, 1982, had been filed on january 17 1983 (sic). in these circumstances, it cannot be said that the company has suspended its business for a whole year on account of its failure to file the returns in the office of the petitioner. [1968] 38 comp cas 543 (sc), the supreme court have observed (at page 557) :substratum of the company is said to have disappeared when the object for which it was incorporated has substantially failed, or when it is impossible to carry on the business of the company except at a loss, or the existing and possible assets are insufficient to meet the existing liabilities. ' 9. if the aforesaid tests are applied to the facts of the present case, it..........expenses. shri mathur has also pointed out that the losses of the company have been mounting from year to year and has submitted that taking into consideration the aforesaid facts and circumstances as disclosed in the balance-sheets and in the profit and loss accounts, it can be said that the substratum of the company has gone and further that the company has not been doing any business for the past many years and, therefore, it is a fit case in which the company should be wound up both on the ground that it has suspended its business for more than one year and also on the ground that it is just and equitable that the company should be wound up.6. shri bhandari, learned counsel for the company, on the other hand, has submitted that mere failure on the part of the company to file its.....
Judgment:

S.C. Agrawal, J.

1. This petition has been filed by the Registrar of Companies' (hereinafter referred to as 'the petitioner') under Section 439(5) read with Clauses (c) and (f) of Section 433 of the Companies Act, 1956 (hereinafter referred to as 'the Act'), for the winding up of M/s. Jai Agro Industries Ltd., respondent herein (hereinafter referred to as 'the company'), on the ground that the company has not been carrying on business for more than a whole year and has lost its substratum.

2. The company was incorporated in the Union Territory of Delhi on July 21, 1969, and, subsequently, it changed its registered office from the Union Territory of Delhi to the State of Rajasthan. The main object with which the company was incorporated was to acquire and take over the existing agricultural and horticultural activities carried on by the Jaipur Udyog Ltd. and to carry on business of farming, horticulture, floriculture, sericulture, etc. The company is a wholly owned subsidiary of M/s. Jaipur Udyog Limited. It has three agricultural farms at Delhi, Sawai Madhopur and Jodhpur. In the petition it has been stated that the last balance-sheet and profit and loss account that was filed in the office of the petitioner was for the period ending on June 30, 1979, and, thereafter, the company has not filed any return in the office of the petitioner inspite of default notices being issued under registered A.D. cover and that from the balance-sheet of the company as on September 30, 1979, it appears that the company is not carrying on business for more than a whole year and has lost its substratum. The petitioner moved the Regional Director (Northern Region), Company Law Board, Kanpur, under Sub-section (5) of Section 439 of the Act for according sanction for presentation of the petition for winding up of the company under Clauses (c) and (f) of Section 433 of the Act and on receipt of the said application, the Regional Director gave a show-cause notice under Section 439(6) of the Act to the company and its directors and in response to the said noticean explanation was furnished by Shri Sikhari Lal Bagla, one of the directors of the company, and the said explanation was found to be unsatisfactory by the Regional Director and he accorded necessary sanction and thereupon the petitioner has filed this petition for winding up.

3. A notice was issued on the petition to the company and in response to the said notice a reply has been filed on behalf of the company. In the said reply, it has been stated that Jaipur Udyog Ltd. is holding more than 99% shares of the company and thus it is the holding company of the petitioner and M/s. Jaipur Udyog Ltd. nominates the directors of the company. Formerly, Shri A.P. Jain, Shri O.P. Kapoor and one Shri Rajeshwar Patel were the directors of the company. But since December 4, 1976, no meeting of the board of directors of the company was held because the then directors did not convene any meeting for preparing and laying the balance-sheet and profit and loss account. Subsequently, M/s. Jaipur Udyog Limited moved a petition under Section 186 of the Act before the Company Law Board on or about February 14, 1979, whereby it was prayed that an ordinary meeting of the company should be immediately convened for the purpose of electing new directors of the company and on the said application, the Company Law Board passed an order dated June 23, 1979, directing M/s. Jaipur Udyog Limited to take steps in accordance with Section 167 of the Act and, thereafter, the Regional Director of the Company Law Board by his order dated May 3, 1980, called an annual general meeting to be held on May 21, 1980, and in the meeting which was held on May 21, 1980, three persons were nominated as directors of the company out of whom two persons, namely, K.P. Saxena and Ms. Singatwadia, did not give their consent within the prescribed period and the third member, Shri S.S. Lohar, convened a meeting and appointed Shri M.S. Singatwadia as additional director until the next annual general meeting but before that on February 14, 1981, Shri S.S. Lohar and Shri K.P. Saxena resigned from the directorship of the company and the third additional director Shri M.S. Singatwadia convened a meeting of the board of directors on March 2, 1981, wherein Shri Kiran Chand Ghoshal, Shri Shikharilal Bagla and Shri N.S. Rajaram were co-opted as directors of the company. Shri Rajaram expired on January 24, 1982, and in his place Shri Loknath Bansal was co-opted as director. After the new management had taken over, they filed the balance-sheet and profit and loss account for the years ended June 30, 1980, and June 30, 1981, in the office of the petitioner on January 18, 1983. The balance-sheet and profit and loss account for the year ending June 30, 1982, were submitted in the office of the petitioner on January 17, 1983 (sic). In the said reply, it has also been stated that the balance-sheets and profit and loss accounts that had been filed by thecompany for the years ending June 30, 1980, and June 30, 1981, andJune 30, 1982, show that the company has been carrying on business regularly and that it is incorrect to state that the substratum is lost within the meaning of Section 433(c) and (f) of the Act.

4. A rejoinder to the aforesaid reply has been filed on behalf of the petitioner. In the said rejoinder, it has been asserted that the balance-sheets and profit and loss accounts that have been submitted by the company for the years 1976-77 to 1980-81 show that the company has not done any business worth the name and that the management was defunct during the period 1976-77 to 1980-81. Along with the said rejoinder, a copy of the resolution dated December 5, 1983, has been annexed as annexure 7 to the said rejoinder. By the said resolution it was resolved that consent is accorded to sell or otherwise dispose of the three farms of the company at the best market rates and the board of directors have been authorised to take necessary steps in that regard.

5. Shri Mathur, learned counsel for the petitioner, has submitted that from the balance-sheets and profit and loss accounts for the years ending June 30, 1980, June 30, 1981, and June 30, 1982, it is clearly established that the company has not been carrying on any business whatsoever. In this connection, Shri Mathur has invited my attention to the aforesaid balance-sheets and profit and loss accounts to show that for the year ending June 30, 1980, the company did not incur any expenditure towards manure and fertilizers, plants and seeds, and cultivation and plant projection expenses ; in the year ending June 30, 1981, the company incurred an expenditure of Rs. 1,582 only on manure and fertilizers and Rs. 199 on plants and seeds and did not incur any expenditure on cultivation and plant projection expenses ; and in the year ending June 30, 1980, the company incurred expenses to the extent of Rs. 5,326 only on manure and fertilizers, Rs. 53 on plant and seeds and did not incur any expenditure on cultivation and plant projection expenses. Shri Mathur has also pointed out that the losses of the company have been mounting from year to year and has submitted that taking into consideration the aforesaid facts and circumstances as disclosed in the balance-sheets and in the profit and loss accounts, it can be said that the substratum of the company has gone and further that the company has not been doing any business for the past many years and, therefore, it is a fit case in which the company should be wound up both on the ground that it has suspended its business for more than one year and also on the ground that it is just and equitable that the company should be wound up.

6. Shri Bhandari, learned counsel for the company, on the other hand, has submitted that mere failure on the part of the company to file its returns after June 30, 1979, could not be a ground for winding up of the company inasmuch as mere infraction of the provisions of the Act cannot afford a ground for winding up the company. Shri Bhandari has also submitted that if the balance-sheets and profit and loss accounts of the company for the years ending June 30, 1980, June 30, 1981, and June 30, 1982, are taken into consideration, it cannot be said that the company has not been carrying on any business whatsoever. In this connection, the submission of Shri Bhandari was that the company did earn income by sale of the produce from the farms in all these years and merely because the said income was less than the expenditure incurred by the company in those years, it does not mean that the company has not been carrying on any business. With regard to the loss of substratum, the submission of Shri Bhandari was that the share capital of the company is 25 lakhs against which the total amount of loss incurred by the company till June 30, 1982, was Rs. 8,02,564. In this connection, Shri Bhandari has also submitted that the assets of the company consist of immovable property and although, according to the balance-sheet, for the year ending June 30, 1982, the value of the said property is shown as Rs. 39,05,062 the market value of the said property is much more and, therefore, it cannot be said that the substratum of the company has been lost. Shri Bhandari has also submitted that out of 11 directors of M/s. Jaipur Udyog Ltd. (the holding company), 8 directors are the nominees of the State Government and Government financial institutions and that the chairman of the said company is the secretary to the Industries Department of the Government of Rajasthan and the managing director is also a senior I.A.S. officer and that they are in direct charge of the management of the affairs of the company through their nominee directors. Shri Bhandari has, therefore, submitted that this is not a fit case in which it can be said that it would be just and equitable that the company should be wound up.

7. As noticed earlier, this petition has been moved under Clauses (c) and (f) of Section 433 of the Act. Clause (c) of Section 433 of the Act provides for the winding up of a company if the company does not commence its business within a year from its incorporation, or suspends its business for a whole year. In the present case, the petitioner has come forward with the case that the company has suspended its business for a whole year and the main reason that has been given in the petition in support of this inference is that no returns had been filed in the office of the petitioner for the period subsequent to June 30, 1979. This statement in the petition is not strictly accurate because before the filing of the petition on January 21, 1983, returns for the years ending June 30, 1980, and June 30, 1981, had been filed by the company on January 18, 1983, and the return for the year ending June 30, 1982, had been filed on January 17 1983 (sic). In these circumstances, it cannot be said that the company has suspended its business for a whole year on account of its failure to file the returns in the office of the petitioner. The question which arises for consideration is whether on the basis of the returns as filed, it can be said that the company has suspended its business for more than one year. I have carefully perused the balance-sheets and profit and loss accounts for the years ending June 30, 1980, June 30, 1981, and June 30, 1982. I find that although the expenditure that was incurred by the company on manure and fertilizers and plants and seeds, is much less than necessary, still, certain expenditure was incurred and the company had earned income by sale of produce from those farms. In this context, one cannot lose sight of the fact that the previous management of the company was not taking any interest in the affairs of the company and the new management took charge of the company only in 1981. In the circumstances, it is not possible to hold that the company has suspended its business for a period exceeding one year and that the company should be wound up under Clause (c) of Section 433 of the Act.

8. The other ground on the basis of which the petitioner has sought the winding up of the company is under Clause (f) of Section 433 of the Act namely, that it is just and equitable that the company should be wound up and the reason why it is said so is that the substratum of the company has been lost. In Seth Mohanlal v. Grain Chambers Ltd. [1968] 38 Comp Cas 543 (SC), the Supreme Court have observed (at page 557) :

'Substratum of the company is said to have disappeared when the object for which it was incorporated has substantially failed, or when it is impossible to carry on the business of the company except at a loss, or the existing and possible assets are insufficient to meet the existing liabilities.'

9. If the aforesaid tests are applied to the facts of the present case, it cannot be said that the object for which the company was incorporated has substantially failed and it is still open to the company to achieve the said objects. Nor can it be said that the company would not be able to carry on its business except at a loss. It cannot also be said that the assets of the company are insufficient to meet its liabilities because, as pointed out earlier, the assets of the company consist of three farms and the present value of the fixed assets of the company is much more than their book value. Taking into consideration the facts and circumstances of the case, I am unable to hold that the substratum of the company has been lost and it would be just and equitable that the company should be wound up.

10. In the result, neither of the two grounds on the basis of which the petitioner has sought the winding up of the company is established. The petition, therefore, fails and is hereby dismissed, but, in the circumstances, without any order as to costs.


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