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S.V. Angidi Chettiar Vs. Nataraja Textiles Ltd. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtChennai High Court
Decided On
Case NumberO.P. No. 409 of 1949
Judge
Reported inAIR1952Mad557
ActsCompanies Act, 1913 - Sections 166 and 170
AppellantS.V. Angidi Chettiar
RespondentNataraja Textiles Ltd.
Appellant AdvocateK. Veerasami and ;G. Ramanujam, Advs.
Respondent AdvocateV. Thyagarajan and ;S. Kothandarama Nayanar, Advs.
Cases ReferredBharat Bank v. Lajpat Rai
Excerpt:
.....sections 166 and 170 of companies act, 1913 - petition for winding up of company - petitioner was fully paid up share holder - creditor or contributory can present petition for winding up - court being ultimate authority for ordering winding up considered general interests of share holders before making decision - fully paid up share holder is contributory and entitled to present winding up petition - court issued direction for winding up of company and appoint official receiver. - - other cases show that the insolvency of the company does not debar a share-holder from obtaining an order where there is a case for investigation, or other good reason for a winding-up order. 6. there are other cases in which it could be shown that a fully paid up share-holder is interested in the..........share-holder. it was however observed in that decision that the petitioners, who are fully paid up shareholders, have a tangible interest in the surplus assets. 'parshottam das v. official liquidators gorakhpur electric supply co. ltd. : air1938all613 is another case on the point.2. the point for determination, however, is whether a petitioner, who is a fully paid up share-holder, can ask for a winding up and maintain a petition, if he is unable to plead and show 'prima facie' that there will be a tangible surplus, which, will be available to him towards payment of his share capital that seems to be the view taken by the english courts in the decisions which have been referred to at length in 'bharat bank v. lajpat rai', air 1950 e p 328. the question is whether the statement of the law.....
Judgment:
ORDER

Krishnaswami Nayudu, J.

1. This matter has now been fully argued by counsel. It is established beyond any controversy that though the definition of 'contributory' would raise a doubt as to whether a fully paid up share-holder would come within the term, he is a 'contributory' and can, under Section 166 of the Indian Companies Act, file a petition for winding up as any other contributory. Apart from the English decisions, Indian Courts have placed this beyond any dispute. In 'Sabapathi Press Co. Ltd. v. Sabapathi Rao', 53 Mad 38, with reference to a similar argument raised on the definition of 'contributory' in Section 158 of the Indian Companies Act, a Bench of this Court held that a petition for winding up is maintainable by a fully paid up share-holder. It was however observed in that decision that the petitioners, who are fully paid up shareholders, have a tangible interest in the surplus assets. 'Parshottam Das v. Official Liquidators Gorakhpur Electric Supply Co. Ltd. : AIR1938All613 is another case on the point.

2. The point for determination, however, is whether a petitioner, who is a fully paid up share-holder, can ask for a winding up and maintain a petition, if he is unable to plead and show 'prima facie' that there will be a tangible surplus, which, will be available to him towards payment of his share capital That seems to be the view taken by the English Courts in the decisions which have been referred to at length in 'Bharat Bank v. Lajpat Rai', AIR 1950 E P 328. The question is whether the statement of the law as expounded in the said decisions and, in particular the observations of Jessel M.R. in 'IN RE VRON COLLIERY CO.', (1881) 20 Ch. D 442 could still be said to be the correct position under the provisions of the English Companies Act of 1948 whatever may be the case prior to the enactment of Section 225 of the English Companies Act of 1948 and the corresponding provision in the earlier Companies Act. Section 225 was introduced for the first time in the Companies Consolidation Act of 1908 (VIII Edward VII p. 69) as Section 141. Under the Indian Act, this provision is incorporated and that section corresponds to Section 170 of the Indian Companies Act. Under this Section, on hearing the petition for winding up, the Court 'shall not refuse to make a winding up order on the ground only that the assets of the company have been mortgaged to an amount equal to or in excess of those assets, or that the company has no assets.' If the interest of a fully paid up share-holder to maintain a petition could only be his certain chance of getting paid from the surplus assets of the company, he must show that he has got not merely a nominal but a tangible interest in the surplus. It would amount to saying that a fully paid up share-holder cannot maintain a petition for winding up at all. But this conclusion would be against the recognition of a fully paid up share-holder as a contributory under Section 166 and yet he would not be able to maintain a petition. At the same, such a petition cannot be dismissed simply on the ground that the company has no assets; in short, on the ground that there will be no surplus. If a petition for winding up could not be dismissed on the ground of want of assets and a winding up order could be passed in spite of non-existence of assets, or where the assets would not be sufficient even to pay off any secured claim, there is no special reason to allow such a petition, if filed only by a creditor or a partly paid up share-holder, and not by a fully paid up share-holder. Whatever may be the position of a fully paid up shareholder even in English Law prior to the enactment of Section 141 of the English Companies Consolidation Act of 1908, after such enactment, it could not be said that such a restriction should be placed on a fully paid up shareholder in maintaining a petition, so as to make him allege and prove that he has a tangible interest in the surplus assets.

3. Reference is, however, made in so far as the English law is concerned to 'Re KASLO SLOGAN MINING AND FINANCIAL CORPORATION LIMITED', 1910 W N 13, which is a case of a petition by the holder of 5000 fully paid-up shares in the company asking for a compulsory winding-up order, on the ground that the company had not assets and was insolvent, and that the whole substratum of the company was gone. With reference to the objection by the company that the petition was demurrable and that it was settled that a fully paid-up share-holder was not entitled to an order, where there were no assets unless he could show some tangible interest, learned counsel for the petitioner submitted that the cases which laid down that proposition are decisions before the Act of 1908 and that Section 141 applies to every winding-up petition and that want of assets is not now a sufficient objection to an order. Neville, J. in a short judgment of four lines dismissed the petition, it is obvious that the point was not considered! by the learned Judge and this is pointed out in Palmer's Company Precedents, 15th Edition page 56:

'A fully paid-up share-holder is a contributory and as such entitled to present a winding-up petition. It was held in several cases before 1907 that being under no further liability, he must satisfy the Court that there will be a substantial surplus of either actual or probable assets divisible among the shareholders.........but Section 29 of the Act of 1907 (replaced by Section 171 of 1929), provided that the Court shall not refuse to make a winding up order on the ground that the company has no assets. This section appears to apply to a contributory's petition. 'IN RE KASLO-SLOCAN MINING CO.', (1910) WN 13 it was held that a share-holder who merely proved insolvency was not entitled to an order; but this case is very shortly reported, and it should be noted that the petition was opposed by a large body of share-holders. Other cases show that the insolvency of the company does not debar a share-holder from obtaining an order where there is a case for investigation, or other good reason for a winding-up order.'

4. 'IN RE CINE INDUSTRIES & RECORDING CO.', A.I.R. 1942 Bom 231, Chagla J. in his judgment recognises the change and states what the law stands today at p. 238 in the following observations;

'There is another important fact to he borne in mind. This is a share-holder's petition. It is true that as the law stands today, he is under no disability as compared with a contributory nor is he under any obligation, as he at one time was, to satisfy the Court that on a winding up there would be surplus assets.'

A fully paid up share-holder's interest in the company cannot be said to be non-existent simply for the reason that he cannot show that there will be a surplus in which he will be entitled to be paid out. As pointed out by Turner L.J. 'IN RE ANGLESEA COLLIERY CO.', (1866) 1 Ch 555:

'The purpose of the Act is, 'inter alia' to adjust the rights of all the members of companies which should be wound up under it. Indeed, I do not see how the rights of those members who have not paid up in full could be adjusted without the rights of those members who have paid up in full being taken into account. Throughout the Act we find members and contributories used interchangeably.'

The presence of a fully paid share-holder contributory would be necessary for the adjustment of the share money among themselves as between a partly paid up share-holder and a fully paid up share-holder. Section 187 of the Indian Companies Act deals with the power of the Court to made calls from all or any of the contributories in the list of contributories to the extent of their liability in order to enable the payment of any money which the Court considers necessary to satisfy the debts and liabilities of the company and the costs, charges and expenses of winding up, and for the adjustment of the rights of the contributories among themselves. In such adjustment the rights of a fully paid up share-holder contributory should also be considered and adjusted and to that extent, at any rate, irrespective of their being any surplus assets, a fully paid up share-holder contributory is interested in the winding up.

5. Even apart from this, there is no compelling ground to depart from the terms of Section 166 of the Indian Companies Act to impose limitations on the right of a fully paid up shareholder to maintain a petition for winding up. The only limitations are those which are provided in Section 166 and the present objection does not come under the proviso to Section 166. There is no reason why an. additional restriction or limitation should be placed on his right to present a petition for winding up. To place such a restriction would result in placing a share-holder, who has paid the full amount of his share, in a disadvantageous position when compared to that of a partly paid up share-holder, disentitling a person who has got a greater stake 'n the company from having a voice in seeing to the winding up of the company and scrutinising its affairs.

6. There are other cases in which it could be shown that a fully paid up share-holder is interested in the winding up, as where there is a fraud of the directors in the management of the company, which requires to be gone into, in which case, the proper course would be to have the winding up of any company and an enquiry into the conduct of the directors, when the interests of the share-holders and the creditors can best be promoted and secured.

7. In the circumstances I consider that no additional limitations than those prescribed in the statute, that is Section 166, need be imposed on a fully paid up share-holder to maintain a petition. Whatever may be the right of a creditor or contributory to present a petition for winding up, the ultimate authority for ordering a winding up is the Court, and in cases where it is reasonably shown that the circumstances do not require a winding up, the Court will certainly refuse to pass such an order. Apart from the interest of the petitioner, the general interest of the shareholders will also be considered, and if the-majority of the share-holders 'bona fide' are of the opinion that winding up should not be made, Courts will be reluctant to interfere with the management of the company by ordering a winding up. I am, therefore, of opinion that a fully paid up share-holder can maintain a petition and it is not necessary for him to allege and prove and show a 'prima facie' case that there are assets of the company of such amount that will be available in the winding up, and in which he will have a tangible interest. A petition by a fully paid up share-holder contributory must be treated as any other petition for winding up by any creditor or other contributory and each case must be disposed of on its merits. I have already held that in this case a winding up order should be made.

8. Therefore, I direct the winding up of the company and appoint the Official Receiver, Ramnad as Official Liquidator. Advertisement in one issue of the 'Tamil Nadu' Madura. Costs of both parties out of the assets. Advocate fee fixed at Rs. 250/- each.


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