Skip to content


C.P. Gnanasambandam Vs. Tamilnad Transports (Coimbatore) Private Ltd. and ors. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtChennai High Court
Decided On
Case NumberC.P. Nos. 57 and 58 of 1969
Judge
Reported in[1971]41CompCas26(Mad)
ActsCompanies Act, 1956 - Sections 397, 398, 399, 433 and 439
AppellantC.P. Gnanasambandam
RespondentTamilnad Transports (Coimbatore) Private Ltd. and ors.
DispositionPetition dismissed
Cases Referred(vide Seth Mohan Lal v. Grain Chambers Ltd.
Excerpt:
company - winding up - sections 397, 398, 399, 433 and 439 of companies act, 1956 - petition under sections 397 and 398 - facts of case revealed that relationship between petitioner and other members of family strained - materials on record do not justify inference in favour of petitioner - correspondence revealed that petitioner was consistently evading request of respondent for convening meeting - petitioner failed to face board to answer several charges in capacity of managing director - any action taken by directors in interest of company cannot be characterised as oppressive conduct - no circumstances to hold that affairs of company being conducted in manner oppressive to petitioner - company in sound financial position - fact that petitioner had no faith in respondents not.....palaniswamy, j.1. in the year 1960, p.k. palaniappa gounder, the second respondent in both these petitions, promoted two private companies going by the name of sambandam engineering works private ltd. and tamil nad transports (coimbatore) private ltd., which may, for the sake of convenience, be hereinafter referred to as the ' engineering company ' and' transport company ', respectively. the petitioner in both these petitions is the son of the second respondent by his first wife. the third respondent in both these petitions is one kathiresan, son-in-law of the second respondent. in the engineering company, out of the 84 shares, the petitioner owns 21 shares. in the transport company the petitioner owns 40 out of 1,660 shares. the other shares in the two companies are held by respondents.....
Judgment:

Palaniswamy, J.

1. In the year 1960, P.K. Palaniappa Gounder, the second respondent in both these petitions, promoted two private companies going by the name of Sambandam Engineering Works Private Ltd. and Tamil Nad Transports (Coimbatore) Private Ltd., which may, for the sake of convenience, be hereinafter referred to as the ' engineering company ' and' transport company ', respectively. The petitioner in both these petitions is the son of the second respondent by his first wife. The third respondent in both these petitions is one Kathiresan, son-in-law of the second respondent. In the engineering company, out of the 84 shares, the petitioner owns 21 shares. In the transport company the petitioner owns 40 out of 1,660 shares. The other shares in the two companies are held by respondents Nos. 2 and 3, the second wife of the second respondent and her children and some other close relations. The petitioner has taken out Company Petition No. 57 of 1969 under Sections 433(b) and 439(c) of the Companies Act for winding up the transport company on the grounds, (1) that the petitioner being a minority shareholder, the other shareholders have joined together and are continuously mismanaging the affairs of the company resulting in loss; (2) that there is a complete deadlock in the management, and the petitioner is not allowed to enter into the place of business; (3) that the company has committed default in its statutory obligations; and (4) that the substratum of the company has gone by reason of the reduction in routes and dwindling in business and it is impossible to carry on the business except at a loss. The petitioner has taken out Company Petition No. 58 of 1969 in respect of the engineering company under Sections 397 and 398 of the Companies Act alleging, inter alia, that respondents Nos. 2 and 3 are virtually in charge of the affairs of the company, that the affairs of the company are being conducted in a manner oppressive to him, that though he is the managing director of the company, he is not able to function as such on account of such oppressive conduct, that the circumstances are such that it is just and equitable to wind up the company and that as the company is not owing any debts, the petitioner is anxious that the company should not be wound up. The petitioner, therefore, prays for appointment of an administrator to take charge of the affairs of the company and to direct the second respondent and his group to purchase the petitioner's-shares on such value as may be determined by the court.

2. Respondents Nos. 2 and 3 have filed separate counter-statements opposing both the petitions. So far as C. P. No. 57 of 1969 relating to the transport company is concerned, the defence is that it is neither just nor equitable to wind up the company. These respondents contend that the petitioner, besides being a director was also works manager on salary, that it was due entirely to his mismanagement that labour problems arose resulting in labour disputes, that the petitioner, with a view to enrich himself, committed several acts of mismanagement at the expense of the company, that the petitioner was solely responsible for the stoppage of some of the route buses, that some routes had to be given up because they were unremunerative and that this petition is an abuse of the process of the court. As regards C. P. No. 58 of 1969 relating to the engineering company, it iscontended by respondents Nos. 2 and 3 that the petition is not maintainable under Section 399(1)(e) of the Companies Act, as the petitioner had not paid the value of the shares held by him. They deny the allegations of oppression and deadlock and contend that the petitioner, as the managing director of this company, was found guilty of several serious acts of omission and commission in regard to the management of the company, that at a meeting held on July 9, 1969, the petitioner was removed from his position as managing director for good and justifiable grounds and that there is no ground to appoint either an administrator or to give any direction to purchase the petitioner's shares.

3. First, we may take up C. P. No. 58 of 1969 relating to the engineering company. As already noticed, in this company the petitioner owns 21 out of 84 shares. The objection taken by respondents Nos. 2 and 3 to the maintainability of this petition is that the petitioner has not paid the value of his shares. This objection is based upon Section 399(1)(a) of the Companies Act, which reads thus :

' 399. (1) The following members of a company shall have the right to apply under Section 397 or 398 :--

(a) in the case of a company having a share capital, not less than one hundred members of the company or not less than one-tenth of the total number of its members, whichever is less, or any member or members holding not less than one-tenth of the issued share capital of the company, provided that the applicant or applicants have paid all calls and other sums due on their shares. '

4. The case of the petitioner, as put forward in paragraph 8 of his petition, is that he has paid all calls made on him and other sums due on his shares. The contention of respondents Nos. 2 and 3 is that the petitioner has not paid all calls and other sums due on his shares. In his reply to this allegation, the petitioner has filed an affidavit denying that any other call was made on him and that any amount is due from him. Initially, the burden lies upon the petitioner to prove that he has paid all calls made on him and other sums due on his shares. He has made out that case in his petition so far as calls made on him are concerned. But the contention of the respondents is that all the calls have not been paid and that some balance is due. To support this allegation, they have not let in any evidence. A call becomes due when a notice is issued making a call. The word ' call' necessarily implies a calling which ordinarily means a calling for the amount due on the share. The respondents have not substantiated their allegation that any call was made on the petitioner and that that call remained unanswered. Therefore, it is not possible to uphold the objections of the respondents that the petition is not maintainable under Section 399(1)(a).

5. Before adverting to the contentions of the parties, it is necessary to set out the relevant provisions of the Act relating to this matter. Section 397 reads thus:

'397. (1) Any members of a company, who complain that the affairs of the company are being conducted..... in a manner oppressive to anymember or members (including any one or more of themselves) may apply to the court for an order under this section, provided such members have a right so to apply in virtue of Section 399.

(2) If, on any application under Sub-section (1), the court is of opinion--

(a) that the company's affairs are being conducted.....in a manneroppressive to any member or members ; and

(b) that to wind up the company would unfairly prejudice such member or members, but that otherwise the facts would justify the making of a winding-up order on the ground that it was just and equitable that the company should be wound up;

The court may, with a view to bringing to an end the matters complained of, make such order as it thinks fit. '

6. Omitting the portions which are not relevant, Section 398 reads thus :

' 398. (1) Any members of a company who complain--

(a) that the affairs of the company are being conducted...in a manner prejudicial to the interests of the company ; ... may apply to the court for an order under this section, provided such members have a right so to apply in virtue of Section 399.

(2) if, on any application under Sub-section (1), the court is of opinion that the affairs of the company are being conducted as aforesaid or that by reason of any material change as aforesaid in the management or control of the company, it is likely that the affairs of the company will be conducted as aforesaid, the court may, with a view to bringing to an end or preventing the matters complained of or apprehended, make, such order as it thinks fit.'

7. In order to entitle the petitioner to succeed in his petition under Sections 397 and 398, if he has right to apply by virtue of Section 399, he should satisfy, (1) that the affairs of the company are being conducted in a manner oppressive to any member or members; and (2) that to wind up the company would unfairly prejudice such member or members, but that otherwise the facts would justify the making of a winding-up order on the ground that it is just and equitable that the company should be wound up. The question whether the affairs of the company are being conducted in a manner oppressive to any member or members is a question of fact depending upon the facts of each case. ' Oppression ' means burdensome, harsh and wrongful. A conduct to be oppressive should indicate lack of probity and fair dealing towards one or more members of the company.Oppression may take various forms. But an isolated act of oppression will not normally be sufficient to justify the relief under this section. The words used are ' the affairs of the company are being conducted in a manner oppressive to any member or members ' and they suggest that the oppressive conduct must be a continuing process. In a recent case of Shanti Prasad fain v. Kalinga Tubes Ltd., : [1965]2SCR720 .the Supreme Court, after reviewing the leading authorities, has expressed the position thus:

' ...it is not enough to show that there is just and equitable cause for winding up the company, though that must be shown as preliminary to the application of Section 397. It must further be shown that the conduct of the majority shareholders was oppressive to the minority as members and this requires that events have to be considered not in isolation but as a part of a consecutive story. There must be continuous acts on the part of the majority shareholders, continuing up to the date of petition, showing that the affairs of the company were being conducted in a manner oppressive to some part of the members. The conduct must be burdensome, harsh and wrongful and mere lack of confidence between the majority shareholders and the minority shareholders would not be enough unless the lack of confidence springs from oppression of a minority by a majority in the management of the company's affairs, and such oppression must involve at least an element of lack of probity or fair dealing to a member in the matter of his proprietary rights as a shareholder. '

8. Section 397 of the Indian Companies Act corresponds to Section 210 of the English Companies Act, 1948. In In re Five Minute Car Wash Service Ltd. , [1966] 1 All E.R. 242 ; [1966] 1 W.L.R. 745; 36 Comp. Cas. 566 : arising under Section 210 of the English Companies Act, Buckley J., delivering the judgment, laid down the following principles in a case in which relief under Section 210 of the English Companies Act was sought on the ground of oppression. The relevant passage occurs at pages 246 and 247:

' To succeed in obtaining relief under Section 210 of the Companies Act, 1948, a member of a company must have established that at the time when his petition was presented, the affairs of the company were being conducted in a manner oppressive of himself, or of a part of the members including himself, and unless a petitioner in his petition alleges facts capable of establishing that the company's affairs are being conducted in such a manner, the petition will disclose no ground for granting any relief and will be dismissed in limine as being demurrable.

First, the matters complained of must affect the person or persons alleged to have been oppressed in his or their character as a member or members of the company. Harsh or unfair treatment of the petitioner insome other capacity, as, for instance, a director or a creditor of the company, or as a person doing business or having dealings with the company, or in relation to his personal affairs apart from the company, cannot entitle him to any relief under Section 210.

Secondly, the matters complained of must relate to the conduct of the affairs of the company.

Thirdly, they must be such as not only to make the winding up of the company just and equitable, but also to lead to. the conclusion that the affairs of the company are being conducted in a manner which can properly be described as ' oppressive' of the petitioner, and, it may be, other members. The mere fact that a member of a company has lost confidence in the manner in which the company's affairs are conducted does not lead to the conclusion that he is oppressed ; nor can resentment at being out-voted ; nor mere dissatisfaction with or disapproval of the conduct of the company's affairs, whether on grounds relating to policy or to efficiency, however well founded. Those who are alleged to have acted oppressively must be shown to have acted at least unfairly towards those who claim to have been oppressed.'

9. Section 210 of the English Companies Act was liberally construed by the Court of Appeal in In re H.R. Harmer Ltd., [1959] 1 W.L R. 62 ; [1958] 3 All E.R. 689 ; [1959] 29 Comp. Cas. 305 where a petition for relief was presented by the two sons of the founder of the business who himself controlled the company. The father and the two sons were life directors, the father was the chairman and the governing director, although this gave him no special powers under the Articles of association. The father had continued to regard the business of the company as his own and had constantly ignored the wishes of his co-directors and the resolutions of the board. Affirming the order of Roxburgh J., the Court of Appeal held that the company should contract for the services of the father as consultant at a stated salary, that he should not interfere in the affairs of the company otherwise than in accordance with the valid decisions of the board of directors and that he should be appointed President of the company for life, but that this should not impose any duties or confer any rights or powers. In In re Bellador Silk Ltd., [1965] 1 All E.R. 667 it was alleged, inter alia, that the petitioner had been wrongfully excluded from all discussion of the company's affairs. Plowman J. held that this allegation was not true, but observed that even if it were true, it would be a complaint of oppression as a director and not as a member and that, therefore, the case was outside the purview of Section 210. The learned judge also held that the petition failed because of the petitioner's own admission that it was not designed primarily to obtain relief under the section but for the collateral purpose ofputting pressure on the company to repay a loan due to another company in which he had a major share. The same learned judge in In re Lundie Brothers Ltd., [1965] 1 W.L.R. 1051 ; 35 Comp. Cas. 827 affirmed the same view and rejected a petition for relief under Section 210 in which it was alleged that the petitioner had been removed from his position as working director and excluded from taking any part in the business of the company, although it was held that the facts justified the making of a winding-up order on the just and equitable ground. Commenting upon these two decisions it is observed in Palmer's Company Law, 21st edition, at page 514, that in the light of the dicta in the earlier cases any such doubt should be resolved in favour of the petitioner and that these two decisions of Plowman J. should not be regarded as laying down any general principles.

10. As against the foregoing decisions, Mr. Raghavachari, appearing for the petitioner, cited the decision in Scottish Co-operative Wholesale Society Ltd. v. Meyer, [1959] A.C. 324 ; [1958] 3 W.L.R. 404 ; [1958] 3 All E.R. 56; [1959] 29 Comp. Cas. 1 . In that case the company was a subsidiary company. The controlling powers vested in the majority shareholders and they were found to have been exercised for the purpose of destroying the company's business. The facts established that the majority shareholders acted in such a way as to cause oppression on the minority shareholders. In view of these facts, it was held that relief under Section 210 was necessary. Mr. Raghavachari also referred to the decision in In re H.R. Harmer Ltd., [1959] 1 W.L.R. 62 ; [1958] 3 All E.R. 689 ; [1959] 29 Comp. Cas. 305 already referred to, as supporting the petitioner's case that the conduct of the second respondent, the father of the petitioner, is such as to cause oppression upon the petitioner. The facts in that case are not identical with the facts of the instant case. Reliance was next placed upon the decision of the Calcutta High Court in In re Hindustan Co-operative Insurance Society Ltd., : AIR1961Cal443 which is a case under Sections 397 and 398 of the Indian Companies Act. There, the facts established that the affairs of the company were conducted by the directors on the strength of majority backing in a manner prejudicial to the interest of the company. The compensation obtained as a result of the company having been taken over for nationalisation was not distributed. General meetings of the company were not called and accounts were not submitted. There was also an attempt to change the business of the company. In those circumstances, it was held that it was a fit case for invoking the powers under Sections 397 and 398.

11. Keeping the foregoing principles in view, the facts of this case may be examined. The petitioner was the managing director of the engineering company from the time of its inception. The object of the company is tocarry on the business in fixtures, mechanical engineering, manufacture of machineries and implements of all kinds, tool making, etc. The engineering section of this company was leased to the transport company for a period of five years on a rent of Rs. 500 from June, 1963. The rent was subsequently raised to Rs. 1,000 per month from April 1, 1964. In the year 1966, the rent was reduced to Rs. 300. The petitioner was a party to that resolution passed on September 4, 1968, reducing the rent from Rs. 1,000 to Rs. 300 per month. There is controversy as to whether any amount of arrears of rent is payable by the transport company to the engineering company. The case of the petitioner is that the arrears amount to Rs. 13,925.70. But the case of the respondents is that if proper accounts are taken, some amount may be found due from the engineering company to the transport company. Exhibit P-23 is the report made to the shareholders on September 4, 1967, by the second respondent in his capacity as chairman of the board of directors. It is stated in that report that the engineering company had incurred a net loss of Rs. 4,927.14 and that this was because the rent payable by the transport company had been reduced in that year. Exhibit P-26 is the balance-sheet for the year ending with March 31, 1968. There, we find a sum of Rs. 13,925.70 as being the debt payable by the transport company to the engineering company. But it is, however, the common case of both the parties that the engineering company is financially sound.

12. Differences appear to have arisen between the petitioner on the one hand and his father, the second respondent, on the other, in about May, 1969, and, as a result of that misunderstanding, one was attempting to find fault with the other. Complaining that the petitioner, as the managing director of the engineering company, had defaulted in convening the meetings of the board, the second respondent wrote on May 27, 1969, exhibit R-1, calling upon the petitioner to convene a meeting as early as possible. The petitioner appears to have declined to acknowledge receipt of the notice and therefore the second respondent was obliged to send the notice by certificate of posting. To the same effect, the third respondent also sent a notice to the petitioner under exhibit R-2 on May 27, 1969, On May 29, 1969, the second respondent informed the petitioner by his letter, exhibit R-3, in his capacity as the permanent chairman of the board of directors of the engineering company that he wanted to inspect the records and documents of the company. The petitioner was called upon to make it convenient to give necessary inspection. To that notice, the petitioner replied under exhibit R-4 stating that it was the second respondent who was in actual control and management of the company and its books. He also stated that the second respondent was at liberty to inspect the documents. In reply to exhibit R-1 the petitioner stated in his letter, exhibit R-5, on May 29, 1969, that at six meetings heldon the specified dates the third respondent, Kadiresan, did not take any part, that the stalemate was due to the irregularity practised by the second respondent in the matter of conducting meetings and that the second respondent was managing the affairs of the company in an autocratic manner. It was also stated that the petitioner was willing to convene a meeting if the second respondent expressed an inclination for the same and he called upon the second respondent to intimate to him the convenient date. The second respondent sent the communication, exhibit R-6, to the petitioner on June 4, 1969, complaining that in spite of his efforts to inspect the records he could not do so as the clerk in charge refused to produce them. The post script found in the letter says that the petitioner refused to receive the notice and that, therefore, the communication was sent under certificate of posting. The second respondent also informed the petitioner by his communication, exhibit R-7, dated June 5, 1969, that it was the petitioner who was in actual charge of the affairs of the company as the managing director and that it was false to say that the second respondent was in actual management. The second respondent also informed the petitioner that a time had come for the petitioner to account for all his acts. He followed up that communication by another communication on June 6, 1969, exhibit R-8, denying the allegation of the petitioner that the third respondent did not attend the meetings. He also made allegations against the petitioner in the matter of his management of the affairs of the company. The third respondent for his part, repudiated the allegations by his letter, exhibit R-9, on June 9, 1969, that he did not attend the meetings. He said that he did not receive any notice of any of the meetings referred to by the petitioner in his letter, exhibit R-5. Respondents Nos. 2 and 3 together wrote exhibit R-10, to the petitioner on June 11, 1969, stating that though they wanted inspection, the books were not made available. On June 11, 1969, the third respondent sent the registered communication, exhibit R-11, to the petitioner making serious allegations against him in regard to his management of the affairs of the company and calling upon the petitioner to furnish some details. On June 26, 1969, respondents Nos. 2 and 3 together sent the communication, exhibit R-I2, to the petitioner stating that in spite of their efforts the petitioner had not convened a meeting and that they gave him a last chance to convene a meeting of the board. They also informed him that if the petitioner failed to take necessary steps, they would be taking necessary action open to them for convening a meeting as expe-ditiously as possible.

13. On 1st July, 1969, the petitioner replied under exhibit R-13 to exhibit R-10 making counter-allegations to the effect that the minutes books were with the second respondent. He also called upon the second respondent to pay all arrears of rent payable by the transport company to the engineeringcompany. Finding that the petitioner was not in a mood to convene a meeting, respondents Nos. 2 and 3 issued the notice, exhibit R-14, on July 4, 1969, setting out the agenda for the meeting which was announced to be held on July 9, 1969, at 10 a.m. In the agenda, some items related to the conduct of the petitioner as the managing director and to his failure to convene a meeting and to some other matters. The petitioner was requested to be present at the meeting with all the books of the company. To that notice, the petitioner replied under exhibit R-15 on July 6, 1969, stating that it was highly inconvenient for him to attend the meeting on July 9, 1969, on account of his personal matters of a pressing nature. The result was that he did not attend the meeting. On receipt of that letter, the second respondent sent the letter, exhibit R-16, under certificate of posting on July 7, 1969, advising the petitioner to attend the meeting and to give his explanation in respect of certain matters. Still the petitioner did not attend the meeting. On July 9, 1969, the board of directors met and considered several matters and passed a resolution removing the petitioner from his post as managing director. Enclosing a copy of the minutes of the meeting, the second respondent wrote the letter, exhibit R-17, to the petitioner on July 12, 1969, calling upon him to hand over charge as managing director to the third respondent, who was appointed as the managing director. After receiving this notice, the petitioner filed the two company petitions under enquiry on July 16, 1969. On July 19, 1969, the petitioner wrote the letter, exhibit R-19, to respondents Nos. 2 and 3 denying that any meeting had been held and also stating that the alleged meeting, even if true, was void and illegal. After the resolution was passed on July 9, 1969, the petitioner was removed from managing directorship, but his continuance as a director of the company is noted in the register, exhibit R-20.

14. It is also necessary to state that the petitioner has filed a suit O.S. No. 386 of 1969 on the file of the Subordinate Judge, Coimbatpre, for partition and other reliefs, of his family properties, impleading the second respondent and his sons by his second wife as defendants. After filing that suit, the petitioner took out Interlocutory Application No. 425 of 1969, on July 11, 1969, praying for the appointment of a receiver for the family properties. The subordinate judge passed an order on December 12, 1969, directing the second respondent herein to deposit into court a sum of Rs. 500 on or before 15th of every month commencing from January, 1970, and further holding that in case of default, a receiver would be appointed. Against that order, the second respondent has filed an appeal to this court and the order of the lower court has been stayed.

15. It would be seen from the foregoing facts that all is not well between the petitioner and the other members of his family. But the question is whether the petitioner has made out a case that the affairs of thecompany are being managed in a manner oppressive to him. The materials on record do not justify an inference in favour of the petitioner. The correspondence reveals that the petitioner was consistently evading the request of the second respondent for convening a meeting. He did not face the board of directors to answer the several charges made against him in his capacity as the managing director. It was open to the other directors to take such action as was open to them in law for the purpose of protecting the interest of the company. Any action taken by them in that behalf cannot be characterised as an oppressive conduct. What respondents Nos. 2 and 3 have done is neither harsh nor wrongful. The necessary inference that follow from the correspondence is that the petitioner was adopting obstructive tactics in regard to the affairs of the company in his capacity as the managing director. I, therefore, do not find any circumstance whatsoever to hold that the affairs of the company are being conducted in a manner oppressive to the petitioner.

16. The burden lies upon the petitioner to make out that it is just and equitable that the company should be wound up and that such an order of winding-up would unfairly prejudice him. Admittedly, the company is in sound financial position. The mere fact that the petitioner says that he has no confidence in respondents Nos. 2 and 3 by itself is not a sufficient ground to hold that it is just and equitable that the company should be wound up. Nothing is proved to justify the apprehension of the petitioner that respondents Nos. 2 and 3 are likely to do anything to the prejudice of the company or to its shareholders. In Rajahmundry Electric Supply Corporation v. Nageswara Rao, : [1955]2SCR1066 . the Supreme Court has stated:

'Where nothing more is established than that the directors have misappropriated the funds of the company, an order for winding up would not be just or equitable, because if it is a sound concern, such an order must operate harshly on the rights of the shareholders.'

17. In dealing with the question as to what the petitioner, seeking to wind up the company on the ground of just and equitable rule, should establish, the Judicial Committee in Loch v. John Blackwood, Ltd., [1924] A.C. 783, observed:

' It is undoubtedly true that at the foundation of applications for winding-up, on the ' just and equitable' rule, there must be 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 ofconfidence 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. '

18. Applying this test, I do not find any circumstance whatsoever to hold that it is just and equitable to wind up the company.

19. It is next contended on behalf of the petitioner that on account of thedifference of opinion between the petitioner and the other shareholders, acomplete deadlock has been created and that on account of such deadlock,it is just and equitable to wind up the company. It is true that if there iscomplete deadlock in the management of the company, it would be just andequitable to wind up the company, for, with such deadlock, the affairs ofthe company cannot be carried on to its advantage. The question in thiscase is whether there is such deadlock. In my view, there is not. Thepetitioner is only a minority shareholder. Even, according to him, all theother shareholders are all one side, of course as against him. In thosecircumstances, it can hardly be said that such a deadlock has come into existence as to make it impossible for the affairs of the company being carried onnormally. In In re Yenidje Tobacco Co. Ltd., 1916] 2 Ch. 426 it was observed by Warring-ton L. J. that inasmuch as there were only two persons interested andand as there were no shareholders other than those two and as there was nomeans of overruling by the action of a general body of shareholders, thetrouble which was occasioned by the quarrels of the two directors was suchthat a deadlock had come into existence and, in such circumstances, thecompany should be wound up. The same principle was applied in In reNewbridge Sanitary Steam Laundry, [1917] 1 I.R. 67,in which an order of compulsory winding up was made on the ground that in the situation which had arisen,such winding-up order afforded the only means of enabling justice to bedone to the petitioners. The principle upon which these decisions haveproceeded is this. If there is a private partnership between two peoplehaving equal shares and there being no other provision to terminate it,what would be the position if the two partners are opposed to each othermaking it impossible for the business of the partnership to go on? In sucha case the course open to the court, at the instance of one of the partners, isto direct the dissolution of the partnership. The same principle is applicable in the case of a company also. But if the difference of opinion betweenone set of shareholders and another set in the case of a company is suchthat it may be resolved by a determination of the view of the majority at aduly convened meeting, certainly it cannot be said that there is a deadlockin the management. At such a meeting, it would always be open to themajority to take a (decision and after the decision was implemented, therecan be no ground to hold that merely on account of the difference of opinionamong the shareholders there is deadlock. In the case before us, the majority do not want a winding up order and, therefore, the court has to be very careful in exercise of its discretion in considering the request of the petitioner for directing a winding up. Taking all the circumstances into consideration, I hold that though the petitioner does not see eye to eye with the other shareholders, there is no ground to direct a winding up, as I am of the view that there is no deadlock in the management of the company.

20. Mr. Raghavachari, appearing for the petitioner, lastly, contended that if I should hold that there is no ground to appoint an administrator as prayed for by the petitioner, necessary direction may be given to the second respondent to purchase the shares of the petitioner, as the petitioner does not want to continue to be a shareholder any longer. He submitted that a commissioner may be appointed for the purpose of valuing the shares of the petitioner. I do not think that the circumstances of the case call for such an action, though it is undoubtedly open to the court in suitable cases to pass such an order. The petitioner is solely responsible for the present state of affairs and he cannot take advantage of his own fault and get out by getting an order compelling the other shareholders to purchase his share.

21. We may next take up the case of the petitioner as regards the transport company. In this case, the petitioner has prayed for an order of winding up the company on the following grounds : (1) that the affairs of the company are continuously mismanaged by respondents Nos. 2 and 3 resulting in financial loss; (2) that there is complete deadlock in the management;(3) that the company has committed default in its statutory obligations; and(4) that the substratum of the company has gone on account of the reduction of the route buses and in the dwindling of the business. The contention of the petitioner is that the mismanagement has resulted in labour trouble on account of which labourers struck work resulting in loss to the company, that on account of inefficient transport service, several punishments have been meted out, that on account of inefficient and improper management, three out of ten routes, which were acquired, had been given up and that even these routes are not used properly. Respondents Nos. 2 and 3 deny these allegations. The evidence does not establish the contention of the petitioner. Admittedly, the petitioner was the works manager of the transport company at all relevant times. He was also a director. On October 16, 1968, he tendered his resignation of his post as director and sent the letter, exhibit P-7. But the resignation was not accepted. On May 28, 1969, he wrote to the second respondent under exhibit P-8 stating that he had already resigned from directorship and that he would not be responsible for any of the functions of the company as a director. In continuation of that letter he wrote exhibit P-9 on June 12, 1969, stating that he would be sending a detailed reply clarifying his stand and that in the meantime facilities shouldbe given to him to inspect the records. To that letter, a reply was sent under exhibit P-10 on behalf of the transport company stating that the second respondent was looking forward to a detailed clarification as promised by the petitioner. The petitioner was also informed that he had already inspected the accounts on two days when he took elaborate notes. The petitioner was further informed that at a meeting held on June 11, 1969, his resignation of his directorship was accepted and that, therefore, he was not entitled to inspect the books, as asked for by him. On June 18, 1969, the petitioner complained by telegram, exhibit P-11, that he had been refused access to have inspection. To that telegram he received a reply under exhibit P-12 drawing his attention to the letter, exhibit P-10.

22. Making reference to the telegram and the previous letter, the petitioner wrote exhibit P-13 on June 19, 1969, stating that suitable arrangements must be made to facilitate for his inspection of the accounts. He followed up the letter by the next letter, exhibit P-14, on July 5, 1969, stating that it was rather amusing that his resignation sent on October 16, 1968, was accepted only on June 11, 1969. He also stated that he was not responsible for any of the functions as a director after October 16, 1968. This is the state of relationship between the petitioner and the other directors as regards the affairs of the transport company.

23. In view of the foregoing situation, it is contended on behalf of the petitioner by Mr. Raghavachari that there is a complete deadlock in the management of the business and that, therefore, it is necessary to direct the winding up of the company. I have already dealt with the contention of the petitioner in regard to the management of the engineering company with regard to which also it was contended that there was similar deadlock. For the reasons, which need not be repeated here, I am of the view that there is no deadlock as regards the management of the affairs of the transport company. In spite of the petitioner having a hostile attitude against the other shareholders, the affairs of the company can be carried on by the other shareholders who do not want the company to be wound up. Therefore, there is no deadlock, much less complete deadlock, as contended for on behalf of the petitioner.

24. The next contention urged on behalf of the petitioner is that on account of the mismanagement of the affairs of the company by the second respondent, as managing director, the company is running at a loss. To substantiate this contention, it is pointed out that, whereas at the time of the acquisition of the transport business there were ten route buses, there were only seven route buses at the time of the filing of the petition and that the stoppage of the three buses was due to mismanagement. I am not impressed with this argument. The respondents no doubt concede that out of ten route buses, only 7 were running. Their explanation is that one route bushad to be stopped as the plying was not remunerative. Their contention is that it was on account of the inefficient management of the petitioner himself as the works manager that all the routes could not be maintained. In the course of the argument it was contended by Mr. Raghavachari that at present no bus was plying. In reply to this, it was contended on behalf of the respondents that, on account of the attitude of the petitioner in launching the litigations, the running of the buses had to be temporarily stopped, that there was labour trouble on account of which there was damage and sabotage, and that after getting adequate safeguards against such acts of damage and sabotage, the buses are proposed to be re-started. To this effect, the second respondent has filed an affidavit dated March 5, 1970. This is an event that happened subsequent to the institution of the petition, and the petitioner is not entitled to take advantage of that circumstance in support of his prayer for winding up.

25. Reliance was next placed upon the fact that, in the course of the transport operations, the transport authorities had to take action for some offences resulting in imposition of fine and that it was due to inefficient management. The respondents no doubt admit that there were occasions of action for overloading and overspeed. But this can hardly be a ground to hold that there was such mismanagement as to call for interference by the court by an order for winding up.

26. It was next contended on behalf of the petitioner that having regard to the liabilities of the company, it is not possible to expect profitable working so as to wipe off the liabilities and that if the company is not wound up, there is the likelihood of further loss which would have to be shared by the petitioner also. This argument assumes as if the company was started on a clean slate with regard to its financial position. It is admitted that the buses were acquired from another operator and that for such acquisition, loans had to be raised on security of property. It is not the case of the petitioner that the quantum of loan has since increased. It is not disputed that the loan originally borrowed has been reduced, though it is not completely wiped out. Therefore, there is no substance in the argument that on account of the debts, the company should be wound up.

27. To support the contention that creditors have taken action against the company for realising their dues, reliance is placed upon some notices issued by some creditors and those notices are exhibits P-16 to P-21. All these notices were issued during the period from June to September, 1969, that is, after the petitioner and the father and other members of his family fell out. It is contended on behalf of the respondents that these notices were engineered by the petitioner so as to lend support to these petitions. The point to be noted in this connection is that none of these creditors has taken any action by way of suit to recover the dues.

28. It is also important to note in this connection that none of those creditors has come forward to support this petition for winding up. Therefore, the fact that some creditors have issued notices is not by itself sufficient to hold that the financial position of the company is such as to call for a compulsory winding-up.

29. Mr. Raghavachari finally contended that, inasmuch as the company has at present stopped running all its buses, it should be taken that the substratum of the company has disappeared and that such disappearance is a sufficient ground for an order to compulsorily wind-up the company. I have already pointed out that the petitioner is not entitled to take advantage of a circumstance that happened after the presentation of the petition in order to support his prayer for winding-up. But even if such an event were to be taken note of, I do not think that the argument that the substratum of the company has disappeared is well-founded. After all, what has happened is the stoppage of the buses temporarily. That can hardly be called a disappearance of the substratum of the company. The substratum of the company can be 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 or possible assets are insufficient to meet the existing liabilities (vide Seth Mohan Lal v. Grain Chambers Ltd., : [1968]2SCR252 . Therefore, there is no substance in the contention that the substratum of the company has disappeared.

30. On a consideration of all the circumstances of the case, I am of the view that the petitioner does not seem to have come forward with these petitions with a view to protect his interest in the two companies. His object seems to be to force the hands of the second respondent to come to terms with regard to their dispute for partition of the joint family properties. Both the petitions are dismissed with costs. Advocate's fee one set.


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