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Veeramachineni Seethiah Vs. Bode Venkatasubbiah and ors. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtChennai
Decided On
Reported in(1949)1MLJ269
AppellantVeeramachineni Seethiah
RespondentBode Venkatasubbiah and ors.
Cases ReferredHasan Khaleeli v. Varadarajulu Naidu
Excerpt:
- - the gravamen of the charge is mainly against the first respondent as as well as the second respondent. in answer to the application, the respondents filed separate affidavits denying the charges levelled against them and further stated that the company is carrying on business properly and that substantial profits have been earned in addition to acquiring valuable good-will. we have therefore to consider in some detail the provisions of the companies act and the rules as well as other statutes like the code of civil procedure, to find out what should be the procedure to be adopted. both the rules made under the companies act as well as the original side rules are silent with respect to the question whether oral evidence can be let in to substantiate an application for winding up......govinda menon, j.1. this is an appeal against the judgment of clark, j., dismissing an application by three share-holders of a private limited company known by the name of sri gopalakrishna motor transport co., ltd., for the winding up of that company. the appellant was the first petitioner on the original side and he claimed to be the managing director of the motor transport company from 1st july, 1946. the other two petitioners, who are respectively respondents 12 and 13 in this appeal, were a shareholder and a director of the same company. this joint stock company carried on business as a bus operator in and around bezwada. the application before the learned judge was under clause (vi) of section 162 of the indian companies act on the ground that it is just and equitable that the.....
Judgment:

Govinda Menon, J.

1. This is an appeal against the judgment of Clark, J., dismissing an application by three share-holders of a private limited company known by the name of Sri Gopalakrishna Motor Transport Co., Ltd., for the winding up of that Company. The appellant was the first petitioner on the original side and he claimed to be the managing director of the motor transport company from 1st July, 1946. The other two petitioners, who are respectively respondents 12 and 13 in this appeal, were a shareholder and a director of the same company. This joint stock company carried on business as a bus operator in and around Bezwada. The application before the learned Judge was under Clause (vi) of Section 162 of the Indian Companies Act on the ground that it is just and equitable that the company should be wound up by Court. Various reasons are alleged in the statutory affidavit filed in support of the application, which in essence, come to this, that the directors, far from working in harmonious co-operation, are at loggerheads with the result that the business is at a standstill on account of the deadlock. The gravamen of the charge is mainly against the first respondent as as well as the second respondent. In answer to the application, the respondents filed separate affidavits denying the charges levelled against them and further stated that the company is carrying on business properly and that substantial profits have been earned in addition to acquiring valuable good-will. It is further alleged that the appellant, during the time he was managing director, had misappropriated large sums of money belonging to the company and committed acts of misfeasance as a result of which the shareholders had to convene a special meeting wherein the second respondent was elected as the managing director. The affidavits on either side disclose charges and countercharges and it is incumbent therefore on the Court to find out how far there is justification for any of them.

2. Before we concern ourselves with the merits of the application on which the learned trial Judge has bestowed considerable attention, it is necessary to advert to a matter of procedure in which, according to the learned Counsel for the appellant, the trial Judge has erred and therefore the learned Counsel urges, if we take a view different from that of the trial Court on that matter of procedure, it would be necessary to remand the application for further hearing and disposal afresh.

3. The point arises this way. The application for winding up was filed on 29th August, 1947, and the hearing date was fixed as the 27th October, 1947. It was taken up the next day, i.e., 28th October, 1947, and on that date respondents 1 to 9 in the appeal appeared by counsel and requested that time may be granted to them for filing counter-affidavits. This request was acceded to and the learned Judge directed that counter-affidavits should be filed within ten days and thereafter the petition should be posted for hearing on 10th November, 1947. The intention of the learned Judge, was, as is clear from his judgment, that if the applicants wanted to file any reply affidavit they could do so before 10th November, 1947. There is no complaint that the appellant and the other two petitioners on the orignal side did not have sufficient time to prepare or file their reply affidavit. In 'fact the reply affidavit was actually filed by the appellant on the 10th November, itself. The respondents filed their counter-affidavits earlier than the time allowed, viz., on 5th November, 1947 and the case came into the daily cause list on Monday the 10th November, 1947. On account of other work, it was not reached that day and as the next day (Tuesday, nth November) was a holiday, the case was taken up for hearing, and that too just before the Court rose for the day, on Wednesday, the 12th November. At that time the applicants' counsel asked for an adjournment on the ground that the documents on which he relied to prove the case had not been typed. The respondents opposed the application for adjournment, whereupon the learned Judge ruled that the hearing should proceed but that the difficulty, if any, to be experienced on account of the absence of typed copies of the documents would be alleviated by probably looking into the manuscripts themselves. The hearing was resumed on Thursday, the 13th November, with the petitioners' counsel reading the petition, the affidavit, the counter-affidavits, and the reply affidavit. In this Court, the respondents' counsel stated that on 13th November, 1947, the applicants' counsel requested the Court for a further adjournment for the reason that the documents were not only not typed but that most of them had not even been translated into English. This was a reason quite different from what was given the previous day in support of the application for adjournment. Since the learned Judge does not make any mention about this request, we do not intend to rely upon this circumstance at all. As is seen from the judgment of the learned Judge, after having read the petition, the affidavit, the counter-affidavits and the reply affidavit, the applicants' counsel proceeded to make his submissions on the facts set forth in those pleadings and also argued questions of law. Thereafter, towards the close of the working day on 13th November, 1947, the applicants' counsel proceeded to call oral evidence in support of the application by putting the appellant into the box to give oral evidence. Thereupon the learned Counsel for the respondents objected to the procedure mainly on the ground that at that stage no oral evidence should be allowed to be let in-Then ensued arguments regarding the legal position as to what the practice is, or should be, about adducing oral evidence in winding up proceedings, on which the learned Judge was of opinion that it was contrary to the settled practice of the Court, in disposing of applications for compulsory winding up, to allow oral evidence to be let in. He also held that in the circumstances of the case, it was improper to exercise it at that late stage. On this ruling by the learned Judge, the applicants' counsel prayed that he might be allowed to cross-examine the respondents on the averments contained in their counter-affidavits but this application had to be refused because no notice of it had been given to the respondents' counsel in order to enable him to see that his clients were present in Court for the purpose of being cross-examined. It was also represented to this Court that the respondents were not present in Court. The learned Judge refused this request also, because it was made at a belated stage and not even before the proceedings commenced earlier. He was of opinion that if the request had been made on the day when the case first came into the cause list, i.e., on 10th November, 1947, the requested adjournment would have been granted. The applicants' counsel had perforce to proceed with the materials contained in the affidavit, the counter-affidavits and the reply affidavit and supplement the facts therein by arguing legal questions.

4. The question therefore arises as to whether the procedure adopted by the learned Judge in holding that it was against the settled practice of the Court to allow oral evidence to be let in, in winding up applications is right; and secondly, even if such a practice was not commonly or universally accepted, whether in the circumstances of the case, the application for adjournment ought to have been allowed or not. The learned Judge states that he refused the adjournment application for cross-examining the respondents because they were not present in Court but were in Bezwada and other places and since no earlier intimation of the applicants' determination to cross-examine the respondents had been given it was not desirable or proper to adjourn the case at all. After a consideration of the various provisions of the rules made under the Indian Companies Act, Clark, J., decided that there was no provision in the Indian Companies Act or the rules made thereunder, for the taking of oral evidence in winding up applications. He therefore sought guidance from the procedure followed in the High Court of Justice in England and referred to Palmer's Company Precedents from which it was seen that in England oral testimony is permitted in support of a petition only by permitting the cross-examination of deponents where there is a conflict of evidence or when the evidence of some persons who decline to make an affidavit is required. As already stated, the application for cross-examination was not made at the earliest opportunity and so the learned Judge was not inclined to exercise his discretion in favour of the applicants.

5. Mr. K. Krishnaswami Ayyangar, learned Counsel for the appellant, strenuously urges that the procedure adopted by the learned Judge is wrong and unsupported by the precedents in this Court. It is contended that an application for winding up is commenced by an original petition and that the procedure to be adopted in such matters is that laid down under the Code of Civil Procedure under which statute oral evidence is admissible in original petitions. We have therefore to consider in some detail the provisions of the Companies Act and the rules as well as other statutes like the Code of Civil Procedure, to find out what should be the procedure to be adopted. It is only in cases where proper guidance cannot be obtained from these authorities that recourse should be had to the procedure in the High Court of Justice in England. The rules under the Companies Act in vogue in our Court are framed under Section 246 of the Act which lays down that the High Court may, from time to time, make rules consistent with the Act and with the Code of Civil Procedure concerning the mode of proceedings to be had for winding up of a company in such Court, etc. What is laid down in this section is that the rules framed by this Court should not be inconsistent with the provisions of the Code of Civil Procedure. Rule 6 of the rules under the Companies Act provides that in cases not provided for by these rules or by the rules of procedure laid down in the Companies Act or in the Code of Civil Procedure, the practice and procedure of the High Court of Justice in England in matters relating to companies shall be followed so far as they are applicable and not inconsistent with these Rules or the Act. Rule 8, Sub-rule (viii) provides that an application under Section 166 of the Companies Act (Section 162 of the present Act) for winding up of the Company shall be made by an original petition and Rule 9 provides that all applications other than those mentioned in the different Sub-rules to Rule 8 arising under the Companies Act or under the companies Rules shall be made by a Judge's summons. It is provided in Rule 11 that the petition for winding up of a company shall be verified by an affidavit referring thereto and made by the petitioner or one of the petitioners where there are more than one etc. Such affidavit shall be filed along with the petition and shall be sufficient prima facie evidence of the statements in the petition and shall be in form No. 1. There is a proviso to this rule which it is unnecessary to refer to. It is unnecessary to discuss the meaning of the words ' original petition ' because it is the subject matter of a definition in Order 1, Rule 4(9) of the Original Side Rules. Both the rules made under the Companies Act as well as the Original Side Rules are silent with respect to the question whether oral evidence can be let in to substantiate an application for winding up. It is undisputed that in the case of an original petition filed in a mofussil Court under many other statutes, for example, the Indian Succession Act, the Guardian and Wards Act or the Lunacy Act, the party is entitled to let in evidence both oral and documentary to prove his case. Section 141 of the Code of Civil Procedure lays down that the procedure provided in the 'Code in regard to suits shall be followed as far as it can be made applicable, in all proceedings in any Court of Civil Jurisdiction. This is sufficient authority for the practice obtaining in the mofussil Courts that in original petitions evidence, oral and documentary can be adduced.

6. Does the same practice appear to have been followed on the original side of this Court, or is it different from what is obtaining in the mofussil Courts, in trying an issue raised by an original petition The learned Counsel for the appellant invited our attention to the observations contained in Sabapathy Rao v. Sabapathy Press Co., Ltd. (1924) 48 M.LJ. 118 : I.L.R. 48 Mad. 448 where Spencer, O.C.J., in allowing an appeal against an order from the Original Side refusing to wind up a company has expressed the view that in that case certain objections required further investigation and that neither of the two persons against whose conduct criticisms have been levelled has 'as yet gone into the witness box and attempted to explain the ugly facts appearing against them.' There is a further observation also that the applicants there have proved sufficient facts to call upon the respondents to enter on their defence if the conduct of the affairs of the company is capable of an honest explanation. From these observations Mr. Kxishnaswami Iyengar is able to show that in such matters on the Original Side oral evidence is not only permitted but becomes an obligatory necessity in cases where sufficient facts have been shown by the applicants. In Palmer's Company Precedents, fifteenth edition Part II at page 160 occurs the following passage:

In winding up proceedings, occasion sometimes arises for obtaining the oral evidence of witnesses. Thus, if there is a conflict of evidence on the affidavits, orders may be made for cross-examination, further, upon a winding up petition the petitioner or respondents may require the evidence of some person who declines to make an affidavit; and, in proceedings after the winding up order, a creditor whose claim is disputed, or an alleged contributory, may desire to obtain such evidence. In such cases, the Court will give liberty to examine the witness before the Court itself or before the registrar or before an examiner of the Court or special examiner ...An order giving liberty to petitioner to examine witnesses who had refused to make an affidavit, and directing them to attend in Court, for examination, was made....

At page 169 of the same book, the subject relating to cross-examination on affidavits is dealt with in the following terms:

By Order XXXVIII, Rule 28, either party may give notice to cross-examine a deponent who had made an affidavit, and, unless such deponent is produced for cross-examination, his affidavit cannot be used, unless the Court gives special leave.... A witness cannot be compelled to attend under this rule : but under Order XXXVIII, Rule 1, the Court or a Judge may, on the application of either party, order the attendance for cross-examination of the person making any such affidavit ...and under Order XXXVIII, Rule 20, any party or witness having made an affidavit, is bound on being served with a subpoena to attend before the examiner, or other officer of the Court, or a special examiner, for examination. A subpoena cannot issue under Rule 20 until an order has been obtained for the examination of the witness....

From these observations it is sufficiently clear that both in England and in this country there is no inflexible rule or practice prohibiting the adducing of oral evidence or the cross-examination of the deponents of affidavits in matters like the present. We cannot agree with the learned Judge that such evidence is confined only to the cross-examination of the deponents of affidavits. Even the very first sentence from Palmer's Company Precedents quoted above suggests that sometimes occasion arises for obtaining oral evidence of witnesses and instances of such occasions are given thereafter. The correctness of the decision of the Division Bench of this Court in Sabapathy Rao v. Sabapathy Press Co., Ltd. (1924) 48 M.LJ. 118 : I.L.R. 48 Mad. 448 was canvassed before their Lordships of the Judicial Committee in Ripon Press and. Sugar Mills Co. v. Gopal Chetti (1931) 61 M.L.J. 783 : L.R. 58 IndAp 416 : I.L.R. 55 Mad. 180. Their Lordships did not disapprove of the directions contained in the judgment of Specner, O.C.J., that the party should go into the witnexx box and explain the circumstances against him. If there had been a compelling rule in England that in winding up proceedings the only kind of oral evidence that could be permitted is the cross-examination of the deponents of the affidavits, we are of opinion that Lord Blanesburgh who delivered the judgment of their Lordships would certainly have mentioned that. Moreover, Order XIX, Rules 1 and 2 of the Code of Civil Procedure permitting evidence to be given by proof of affidavits also allows the attendance of the deponent for cross-examination. In addition, we have Rule 12 of Order XIV of the Original Side Rules, laying down that the Court may, at any time, direct that any person shall attend before the Court for cross-examination upon the affidavit. In these circumstances, we are clearly of opinion that where necessity suggests or expediency requires, it is open to the Judge trying winding up proceedings to allow oral evidence.

7. We have next to consider whether the learned Judge exercised his discretion properly in refusing to allow oral evidence. The learned Judge expressed the opinion in the following emphatic terms:

Further in my view, it would be most unsuitable to allow oral evidence beyond this in these cases. I am confident that to do so would only lead to a great waste of time. These were the grounds on which I refused to allow the petitioner to call oral evidence, and, as I have already observed, I should have refused it in any event as the application was so belated. The petitioner then asked that he might be allowed to cross-examine the respondents. Admittedly, he had given no notice to the respondents that he would require them to attend for cross-examination and I was informed by their counsel that none of them was present in Court; they are in Bezwada or other places. Accordingly, I refused the application to cross-examine the respondents, or, to grant any adjournment for that purpose.

We are in entire agreement with the learned Judge that the application was not only belated but was, in the circumstances, intended to retard and delay the progress of the application. The applicants had ample time to summon any witness whom they wanted to examine, or to take out subpoenas to the respondents for their attendance in Court for cross-examination. Though the application was filed on 28th August, 1947, the date fixed for hearing was the 27th October, 1947, nearly two months after the filing of the application. No steps were taken to summon any witness during this period of two months. There was some discussion at the Bar as to the stage at which such an application should be made and reference was made to Rule 23 of the Rules framed under the Companies Act. In the case in question, the first hearing must be deemed to be when the application came on initially on 28th October, 1947 and on that date at least when the learned Judge gave directions for the filing of counter-affidavits, the applicants, ought to have intimated the Court that oral evidence was necessary. Even if the applicants were unaware of the defence that was going to be raised by the respondents on 28th October, 1947, they were perfectly aware of the allegations contained in the counter-affidavits on 5th November, 1947. At least on that day notice should have been given to the respondents' counsel asking for the attendance of the deponents to the counter-affidavits in Court for cross-examination. Even this was not done and it was only at the fag-end of the proceedings, after the applicant's counsel had made his submissions both on facts and on law, that he desired the attendance of the respondents for being cross-examined. Mr. V.K.T. Chari, the learned Counsel for the company brought to the notice of the Court that the applicants had not taken the necessary steps, even for the translation of the documents as is. necessary under Order IX, Rules 2 and 4 of the Original Side Rules ; nor was there any mention of the documents intended to be filed in the statutory affidavit, to which the description of such documents was not appended as an annexure. In view of this dilatory, procedure adopted by the applicants, we are unable to hold that the learned Judge exercised his discretion in any manner other than in a perfectly justifiable and proper way.

8. The learned Counsel for the company, in an interesting argument clearly brought out the distinction between the expedition required in winding up proceedings and the time usually allowed in other original petitions. Section 168. of the Indian Companies Act provides that in a case a company is wound up, the proceedings shall be deemed to have commenced at the time of the presentation of the petition for winding up, i.e., the whole matter relates to an antecedent date,. viz., the date when the application was filed. In view of the application of the result of winding up proceedings retrospectively, it is very essential that there-should be the least possible delay in the disposal of winding up proceedings because, during the pendency of winding up proceedings if the company were to transact any business or to enter into contracts, then, they will not be valid unless the Court, in later proceedings, sanctions such actions. That the date of the commencement of the winding up proceedings is an important factor is discernible from various provisions of the Act, viz., Sections 156, 157, 227, 230, 232, 233 and 234. Therefore it is, that both under the English Law and under the Indian Statute it is made obligatory that all the necessary matters to be placed before the Court for the purpose of getting a company wound up, should be stated succinctly and without elaboration in the statutory affidavit which is considered to be prima facie evidence enabling the Court to order the winding up of the company. If the contents of the statutory affidavit disclose a prima facie necessity for winding up, then only it becomes obligatory for the respondents to let in any evidence contra. In Chapal House Colliery Co. (1883) 24 Ch. D. 259 it is stated that the Court will not, as a rule, order a petition to stand over for a lengthened period as it would not be just to the company. Expedition is the very essence of winding up proceedings, and the interests not only of the company, but an element of public policy in regard to commercial morality also should be considered in the disposal of winding up petitions. It is in this background and with this object, that the statutory affidavit is made prima facie evidence of the contents of an application for winding up. In this connection it is not only pertinent but highly instructive to refer to a decision reported in In re The London Fish Market and National Fishing Company, Ltd 27 S.J. page 6oo.. In that case before Chitty, J., the petitioners asked the case to stand over in order to give them an opportunity for cross-examining the respondents' witnesses on their affidavits. The petitioners admitted that they had no direct evidence except the statutory affidavit (in the present case also there was no other evidence) and desired to cross-examine the opposite side as to the extent and nature of the business carried on by the company, as to its means of carrying on business, and as to its bona fide character ; and they claimed that under the Chancery Procedure Act, 1852, Section 40, ex debito justitie they were entitled to cross-examine. On this Chitty, J., held that it was the established practice that the Courts have a discretion in allowing cross-examination in a case of winding up proceedings. The result of acceding to an application to allow the case to stand over would be to keep the petition hanging over the head of the company ; and the learned Judge also made a distinction between that case and a case where an application was made for adjournment in the case of proceedings to strike a shareholder's name off the register in which the rule was otherwise, and said that in the latter case the Court would be very slow to refuse cross-examination, as there was no special urgency in such proceedings. But in the case of a winding up petition, the procedure was different as expedition was absolutely necessary and therefore leave to cross-examine was refused. We respectfully follow the observations of Chitty, J., and are of opinion that nothing can be said against the procedure adopted by Clark, J.

9. Mr. Krishnaswami Ayyangar, by relying upon various rules, orders and provisions of the Original Side Rules showing that it was not necessary to annex the documents sought to be used at the hearing to the statutory affidavit, contended that it is not the law that documents should be filed along with the petition or the affidavit. The appendix or annexure to an affidavit mentioning documents can relate only to such documents as are referred to for the purpose of elucidating the affidavit. We are inclined to agree with him that whatever documents are intended to be used at the hearing of the application need not necessarily be set forth as an appendix to the petition ; but in the circumstances of the present case, it was necessary that the existence of such documents ought to have been brought to the notice of the Court and to the other side at least on the first hearing day, i.e., on 28th October, 1947. As we have already stated that expeditious disposal of winding up petition is a matter of prime importance, it is the duty of the parties to produce the necessary documentary evidence, at the first hearing. The passage cited by him from Halsbury's Laws of England, Hailsham Edition, Volume 5, page 563, paragraph 904, showing that adjournments in such matters are of frequent occurrence is of no help in the disposal of this petition. Our attention was invited to the decision of Leach, C.J. and Lakshmana Rao, J., in O.S.A. No. 67 of 1943 where the learned Judges set aside an order of Bell, J., sitting on the Original Side in an application to rectify the register of a certain company by deleting therefrom the names of four persons as shareholders. Bell, J., on the original side, refused leave to cross-examine the persons who had sworn affidavits in support of the respondents' case and also did not allow oral evidence to be adduced. The Court of appeal disagreed with him and directed oral and documentary evidence to be adduced as in an ordinary trial. We are unable to find any similarity between the circumstances mentioned in that judgment and those in the present case. As is seen from the observations of Chitty, J., in In re The London Fish Market and National Fishing Company, Ltd. 27 L.J. page 600 the entire basis of an application for rectification of the company's register is different from the winding up proceedings. There is no urgency in the matter of the removal of a shareholder or two from a company's register. The business of the company will not in any way be affected ordinarily by the retention or deletion of one or two shareholders and such a case cannot ordinarily be tried on affidavits. The proper course certainly would be to frame issues and try them. We have already held that in the case of winding up the business of the company will be affected retrospectively, and therefore, as far as possible, avoidable delays should never creep in during winding up proceedings at all. Moreover, the rectification of a register of a company is governed by Section 38 of the Indian Companies Act, where the proviso to Sub-clause (3) says that the Court may direct an issue to be tried in which any question of law may be raised, so that, in such matters, the procedure to be followed is more of that obtaining in a suit than in an application. Therefore we do not think that the unreported decision in O.S.A. No. 67 of 1943 is of any useful guidance for the disposal of the present case.

10. The appellant's learned Counsel was at great pains to show that Order 9, Rule 13, Civil Procedure Code, applies to proceedings under the Companies Act for which purpose he cited the ruling in Hindustan Bank v. Maharaj Din I.L.R. (1920) Lah. 187. We see no ground for thinking that an ex parte order cannot be set aside if proper reasons are given to the satisfaction of the Court. This case does not help us in any way in deciding the present question regarding the justification for not allowing the application to stand over.

11. We have next to turn to the merits of the application. In this connection the leading case in Yenidje Tobacco Company, Ltd., In re (1916) 2 Ch. D. 426, was relied upon, especially the observations at pages 430 and 431, for the purpose of showing that where there is an irreconcilable faction amongst the directors of a company it is always just and equitable that the company should be wound up. The Court of Appeal was dealing with a private limited company and Lord Cozens-Hardy, M.R., at page 430 observed as follows:

In these circumstances, supposing it had been a private partnership, an ordinary partnership between two people having equal shares, and there being no other provision to terminate it, what would have been the position? I think it is quite clear under the law of partnership, as has been asserted in this Court for many years and is now laid down by the Partnership Act, that that state of things might be a ground for dissolution of the partnership for the reasons which are stated by Lord Lindley in his book on Partnership at page 657 in the passage which I will read, and which, I think, is quite justified by the authorities to which he refers: ' Refusal to meet on matters of business, continued quarrelling, and such a state of animosity as precludes all reasonable hope of reconciliation and friendly 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 rudeness 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'.

Again at page 431, we have the following observations

The matter does not stop there. It is proved that these two directors are not on speaking terms, that the so-called meetings of the board of directors have been almost a false or comedy, the directors will not speak to each other on the board, and some third person has to convey communications between them which ought to go directly from one to the other.

Is it possible to say that it is not just and equitable that that state of things should not be allowed to continue, and that the Court should not intervene and say this is not what the parties contemplated by the arrangement into which they entered They assumed, and it is the foundation of the whole of the agreement that was made, that the two would act as reasonable men with reasonable courtesy and reasonable conduct in every way towards each other, and arbitration was only to be resorted to with regard to some particular dispute between the directors which could not be determined in any other way. Certainly, having regard to the fact that the only two directors will not speak to each other, and no business which deserves the name of business in the affairs of the company can be carried on, I think the company should not be allowed to continue. I have treated it as a partnership, and under the Partnership Act of course the application for a dissolution would take the form of an action ; but this is not a partnership strictly, it is not a case in which it can be dissolved by action. But ought not precisely the same principles to apply to a case like this where in substance it is a partnership in the form or the guise of a private company It is a private company, and there is no way to put an end to the state of things which now exists except by means of a compulsory order. It has been urged upon us that, although it is admitted that the just and equitable ' clause is not to be limited to cases ejusdem generis, it has nevertheless been held, according to the authorities, not to apply except where the substratum of the company has gone or where there is a complete deadlock. Those are the two instances which are given, but I should be very sorry, so far as my individual opinion goes, to hold that there are strictly the limits of the 'just and equitable' clause as found in the Companies Act. I think that in a case like this we are bound to say that circumstances which would justify the winding up of a partnership between these two by action are circumstances which should induce the Court to exercise its jurisdiction under the just and equitable clause and to wind up the company.

Warrington, L.J., also refers to similar circumstances and holds that where there are only two persons interested and there are no shareholders other than these two, and where there are no means of overruling by the action of a general meeting of shareholders the trouble which is occasioned by the quarrels of the two directors and shareholders, the company ought to be wound up, if there exists such a ground as would be sufficient for the dissolution of a private partnership at the suit of one of the partners against the other. We are of opinion that there is a wide divergence between the circumstances in that case with those in the present one. Where two directors would not even speak to each other and they constitute the entire Board of Directors, the company has necessarily to be wound up. Here, we have nine or ten directors solidly taking one view as against the minority of three holding other views. If there are no other grounds which necessitate the winding up other than irreconcilable differences of views between different groups in the directorate, one of whom is in a large majority, it stands to reason that the majority view should prevail ordinarily and therefore we do not think that the observations of Lord Cozens-Hardy, M.R. or Warrington L.J., can help us in deciding this case.

12. The other case on which the learned Counsel for the appellant placed reliance was in Loch v. John Blackwood, Ltd. (1924) A.C. 783. Lord Shaw of Dunfermline delivering the judgment of the Judicial Committee observed as follows at page 788:

It is undoubtedly true that at the foundation of applications for 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 on 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 outvoted on the business affairs or on what is called the domestic policy of the company. On the other hand, wherever the lack of confidence is rested on a lack of probity in the conduct of the company's affairs, then the former is justified by the latter, and it is under the statute just and equitable that the company be wound up.

Observations in Madan Gopal v. Peoples Bank of Northern India (1935) I.L.R. 16 Lah. 1029. were also relied upon in support of the appellant's argument. But we are unable to hold that these cases can be of any help in coming to a conclusion, on the allegations contained either in the affidavits or the counter-affidavits filed before the learned Judge. Lack of probity on the part of the first respondent as well as the other directors is claimed to be at the root of the whole trouble and when the management suffers, from the absence of such an elementary rule of good conduct, it is urged that the company ought not to be allowed to function. From the counter-affidavits we find that except respondents 1 and 2 the rest of the directors cannot be said to be in any way involved in the active management of the company. The counter-affidavit of the seventh respondent as well as the fifth respondent show that they put the blame as much on the appellant as on the first respondent himself. It is unnecessary for the disposal of this application to dilate upon the mode of management followed by the first respondent. But even if his management has been unsatisfactory, the second respondent has already been elected managing director. But this election is questioned on the ground that no meeting was actually held ; or if at all any such meeting was held, it was illegal and against the rules. The learned Judge has carefully considered the various allegations made by the applicants and has refused to exercise his discretion to wind up the company because, in his opinion, the allegations are not sufficient to justify the winding up. Two things are clear, and they are that even during this period, despite the actions of a minority, the company has been earning profits and that it has accumulated something like a good-will. Even so, the applicants contend that this in-compatibility of good relations between two rival factions in the directorate would necessitate the dissolution of the company so that the minority may get back the equivalent, of its share money.

13. With regard to the allegations that the first respondent during his management, omitted to have the accounts audited and obstructed the appellant in his efforts, to do so, and also that he withheld the company's accounts from his co-directors, and the shareholders, we are inclined to agree with the learned Judge in his view that these allegations have not been satisfactorily proved. As regards the holding of the meeting, the learned Judge was not quite definite that it even took place, but. he went on to say that if it took place, it was entirely invalid. It is unnecessary for us to give a definite finding on that aspect of the case. Having carefully perused the statutory affidavit and the counter-affidavit as well as the reply affidavit, we are not satisfied that a prima facie case has been made out for the winding up of the company. It is unnecessary to discuss in any detail the charges and the, counter-charges for the reasons that in any event since the company has been working and earning profits for more than a year after the filing of the winding up petition, it is certainly not just and equitable that the same should be wound up*. There is no proof that the circumstances in regard to the management of the company have deteriorated since the filing of the winding up application. That in a company one shareholder has a preponderating influence in its affairs by reason of owning or controlling a large number of shares is of itself no reason for its winding up, is to be found from the observations of the Judicial Committee in the appeal from the decision in Gopal Chetti v. Ripon Press & Sugar Mill Co., Ltd. (1924) 48 M.L.J. 232 reported in Ripon Press and Sugar Mill Co. v. Gopal Chetti . The just and equitable clause in Section 162 (vi) of the Indian Companies Act though not ejusdem generis with, the previous Sub-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. Not only the interests of the company, its directors and shareholders, but that of the general public, as in the present case where a motor transport company is sought to be wound up, should be considered before an order directing the winding up is made.

14. The learned Judge has found that the allegation regarding the misappropriation of a sum of Rs. 1,000 by the first respondent was wholly unfounded as it was not. even made in the petition and that such a charge was never made before. We. find it unnecessary, in the view we take, now that the first respondent is no longer the managing director, to give any definite finding on this charge. In regard to the charge that the first respondent was withholding accounts from his co-directors and shareholders the learned Judge has rejected the allegation made by the applicants and having carefully gone through his judgment we see no reason to differ from his conclusion. The learned Judge further found that the affairs of the company were not in a bad financial condition. We are satisfied that respondents 2 to 10 before us cannot be held guilty of any of the allegations of mismanagement or other improper acts made against the first respondent, especially since some of these respondents state that both the appellant and the first respondent are to be tarred with the same brush. In the counter-affidavit of the seventh respondent who is a well-educated Vysya gentleman having obtained a degree in the Andhra University, we find sufficient materials for coming to the conclusion that there is nothing wrong with the present management of the company except that the appellant and the two other coadjutors of his are holding views different from those held by the majority in relation to the details of management. The counter-affidavit filed on behalf of the fifth respondent is also instructive. In para. 8 the guardian of the fifth respondent states that her late husband who was one of the directors, was very much worried before his death over the conduct of the appellant in managing the company's business. She also gives other reasons why the company should be allowed to continue to do business. Among the majority of ten directors, we find that there are persons belonging to different religious persuasions as well as separate communities among the Hindus themselves. There are four Kammas, two Mussalmans, three Vysyas and one Goldsmith among the majority directors, whereas the applicants belong to the Kamma caste. When there is such unanimity among the majority belonging to different communities, that by itself is a reason, in the absence of any evidence of misappropriation or malversation of funds by the management to conclude that on account of difference of views alone the company should not be wound up. As we are in entire agreement with all the reasons given by the learned Judge, it is unnecessary to state our reasons for agreeing with him at great length. In these circumstances the order of the learned Judge cannot be justifiably taken objection to and we confirm his judgment.

15. The learned Judge has, in the exercise of his judicial discretion, directed that the contesting respondents before him should be given four sets of costs. On the authority of Hasan Khaleeli v. Varadarajulu Naidu : AIR1938Mad96 Mr. Krishnaswami Aiyangar wants us to hold that this order is incorrect. The learned Chief Justice in that case held that a creditor appearing in a winding up petition is not entitled to his costs as a matter of right, and that to entitle him to the costs he must show reasonable ground for appearing. He based his view on the observations contained in In re Hull and County Bank (1878) 10 Ch. D. 130. But there is an observation at page 291 that the question of costs must be decided in the light of the facts of the particular case. As a general rule, the successful party is entitled to his costs in his favour if the unsuccessful party is liable to have an order of costs against him. The principle on which the learned Judges of the Court of appeal in Hasan Khaleeli v. Varadarajulu Naidu : AIR1938Mad96 , disallowed costs was that the opposing respondents in that case were not the successful parties. We fail to see how this decision can be called in aid to set aside the discretionary order made by the learned Judge in this case.

16. The appeal is therefore dismissed with costs of respondents 1 to 11--one set.


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