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John Herbert and Co. Pvt. Ltd. Vs. Pranay Kumar Dutta - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtKolkata High Court
Decided On
Case NumberAppeal No. 171 of 1965
Judge
Reported in[1966]36CompCas485(Cal),70CWN516
ActsCompanies Act
AppellantJohn Herbert and Co. Pvt. Ltd.
RespondentPranay Kumar Dutta
Appellant AdvocateSambidananda Das, Adv.
Respondent AdvocateAjit Kumar Panja, Adv.
DispositionAppeal dismissed
Cases ReferredTuljaram Row v. Alagappa Chettiar
Excerpt:
- .....vote and the quorum at all meetings is two members present personally. under the articles profulla kumar dutta, the eldest of the three brothers, who are members of the company, was competent to sign in the name of the company, to receive moneys, cheques, etc., on behalf of the company and in short was to exercise all the financial powers of the company. he was also to act as chairman of the meetings. there can be little doubt that for some time past the brothers have not been pulling on well together. subol chandra dutta, one of the brothers, purported to transfer his shares to profulla kumar dutta. subol chandra dutta has, however, filed a suit challenging the validity of the transfer and the suit is still pending. the eldest brother, profulla kumar dutta, who became the holder of 60.....
Judgment:

Mitter, J.

1. This is an appeal from an order refusing to stay proceedings in a company petition No. 22 of 1965 for winding up of the appellant-company.

2. The facts are as follows: The company, the appellant before us, is a private limited company with a nominal capital of Rs. 1,00,000 divided into 100 shares of Rs. 1,000 each. The paid up capital of the company is Rs. 90,000. The main object of the company is to carry on work of mechanical and constructional railway and electric engineers. Under its articles of association the company is to have no directors and its business is to be conducted by the members who are to exercise all the powers and functions of the directors. There were originally three members each with 30 shares. Each member is to have one vote and the quorum at all meetings is two members present personally. Under the articles Profulla Kumar Dutta, the eldest of the three brothers, who are members of the company, was competent to sign in the name of the company, to receive moneys, cheques, etc., on behalf of the company and in short was to exercise all the financial powers of the company. He was also to act as chairman of the meetings. There can be little doubt that for some time past the brothers have not been pulling on well together. Subol Chandra Dutta, one of the brothers, purported to transfer his shares to Profulla Kumar Dutta. Subol Chandra Dutta has, however, filed a suit challenging the validity of the transfer and the suit is still pending. The eldest brother, Profulla Kumar Dutta, who became the holder of 60 shares on the strength of Subol's transfer, himself transferred five shares to his wife in or about June, 1964. Originally the registered office of the company was at No. 137, Canning Street, Calcutta. Profulla Chandra Dutta has purported to transfer the same to No. 7, Hingan Jamadar Lane which is also his residence and the place where the workshop of the company is situate. The respondent, Pranay Kumar Dutta, the second brother, presented a petition for winding up of the company alleging, inter alia :

(a) Profulla Kumar Dutta has made it impossible to carry on the business of the company with profit. He has started a firm of his own under the name and style of P.K. Dutta & Co. and selling the same at a considerable profit through his own firm with the result that the profits of the company are all being swallowed up by the firm of P.K. Dutta & Co.

(b) Profulla Kumar Dutta is not holding any proper meeting of the company and the youngest brother is not being given due intimation of the holding of a meeting.

(c) Pranay Kumar who was in the employ of the company and used to draw salary from it has not been paid his salary for a long time past with the object of squeezing him out of the company.

(d) Profulla Kumar Dutta purported to transfer the registered office of the company without the knowledge or consent of Pranay Kumar Dutta. Profulla has also managed to defraud the other brother, Subol, dishonestly of the shares held by him.

(e) The company being a family concern and the members thereof having lost confidence in each other it will be a just and proper case to wind it up.

3. The petition of Pranay was admitted by the learned company judge on February 17, 1965, and notice of presentation of the petition was directed to be published in newspapers and other usual directions given.

4. On March 15, 1965, the company took out a judge's summons supported by an affidavit of Profulla Kumar Dutta praying for stay of all proceedings in the winding up petition, stay of advertisement and other directions. In this the allegations made by Pranay had been sought to be contradicted and an attempt was made to establish that it was Pranay Kumar Dutta who was not co-operating with Profulla Kumar Dutta in the management of the affairs of the company.

(5) The learned judge who heard this stay application observed that it was difficult for him to ascertain the truth of the allegations and counter-allegations merely on the basis of affidavits. Nevertheless he examined the respective contentions of the parties and formed some tentative views. These may be summarised as follows :

' (1) The rift between Profulla and Pranay was so complete that there was no likelihood of their working together for the management of the company.

(2) Profulla Kumar Dutta seemed to have so arranged matters that he could conduct the business of the company without taking any notice of the wishes of the other two members. '

5. The learned judge finally observed: ' I have no doubt that this is a case where if it was a case between partners, I should be bound to come to the conclusion that there should be dissolution of the partnership. I cannot, therefore, avoid coming to the conclusion that a winding up order ought to be made in the circumstances of the case. . . . But the parties seem to be determined not to compose their differences. In such circumstances, I do not see how I can help making an order in the usual form for the winding up of the company. Consequently, the present stay petition must be dismissed with costs.'

6. Before allowing the learned counsel to go into the merits of the case at length, we indicated that we must be satisfied that the order was an appealable one and we asked the learned counsel for the respondent to argue the preliminary point first.

7. The Companies Act does not contain any provision for staying of all proceedings, when a petition for winding up is presented. The courts have inherent power to prevent the abuse of its process and if a court takes the view on a properly presented petition that the application for winding up is not bona fide, it can at the initial stage take steps to see that the petition is not advertised so that the company's goodwill may not be damaged and direct affidavits to be filed in order to satisfy itself that prima facie a case for winding up requires investigation. As far back as 1914 when a petition praying for the winding up of the Pioneer Bank Ltd. was presented to the Bombay High Court, Macleod J. adjourned it in order to enable the shareholders of the bank to meet and ascertain whether they should continue the business or pass a resolution for voluntary winding up. The shareholders decided to continue the business. In dismissing the application for winding up, the learned judge remarked ' there is no obligation whatever on the court to admit a petition merely because it is presented. In the first plade, it must allege facts which, if proved, would justify an order for winding up a company. .... but even if a petition does allege such facts, then the judge has a discretion, since the admission of the petition must inevitably damage the credit of the company concerned, to consider whether it really is a bona fide one. Otherwise, the door would be laid open to unlimited opportunities for blackmail, especially in times of financial panic, for a discontended shareholder might cause serious, if not irreparable, damage to a company by presenting a petition which would have to be advertised in the newspaper fourteen days before the hearing.'

8. The question was examined at greater length in the case of (1) The Company v. Rameswar Singh, (1919) 23 C.W.N. 844, where Sanderson C. J. took the view after considering certain English decisions that if the petition was not bona fide and there was an ulterior object behind its presentation, the court might restrain the petitioner from proceeding.

9. The position was again examined by Bachawat J. in (2) In re Bharat Vegetable Products Limited, [1952] 22 Comp. Cas. 62, where his Lordship, after referring to the judgment of Macleod J., said ' I have no doubt that the court has also the power instead of admitting the petition ex parte to direct service of notice on the company and to decide in the presence of both parties whether the petition should be admitted and, if so, on what terras and whether the court should stay the further hearing of the petition.'

10. In England it has been held in a number of cases that the court has jurisdiction even to restrain a person from presenting a winding up petition if it is not bona fide.

11. It is quite clear therefore that the court will entertain an application for stay of winding up at the initial stage only with a view to find out whether the petition for winding up amounts to an abuse of the process of the court and as such ought to be restrained. In rejecting such an application the court merely decides that there is a prima facie case for enquiry. It cannot then and does not in fact adjudicate upon the rights of the parties. Whether the company will be wound up or not can only be decided after the petition is advertised and persons who are against the winding up come forward and affirm affidavits in support of their contentions. The adjudication that the presentment of a petition for winding up is not an abuse of the process of the court and as such fit to be restrained by injunction or stay is not, in my view, a ' judgment ' within the meaning of the expression under clause 15 of the Letters Patent. In terms of the judgment of Couch C. J. in Justices of the Peace for Calcutta v. Oriental Gas Company, (1872) Bengal Law Reports 433, the adjudication does not affect the merits of the question between the parties by determining some right or liability. Refusal to stay does not fulfil the test laid down in Tuljaram Row v. Alagappa Chettiar, (1910) I.L.R. 35 Mad. 1, where it was said by White C. J. that if the effect of the order is to put an end to the suit or proceedings so far as the court before which it is pending is concerned or if its effect, if not complied with, is to put an end to the suit or proceeding, it is a judgment within the meaning of the clause. The learned Chief Justice also said that an adjudication on an application which is nothing more than a step towards obtaining a final adjudication in the suit is not a judgment within the meaning of the Letters Patent. In my view the order of refusal to stay is nothing more than a step towards obtaining a final adjudication in the winding up proceedings.

12. It was however argued by learned counsel for the appellant that the learned trial judge had practically come to a conclusion that the case called for winding up order and as such it should be treated as a judgment and his client should be allowed to urge his appeal to show that the conclusion of the learned judge was not correct. I do not think that this argument can be acceded to. In order to find out whether the application for winding up is an abuse of the process of the court or not, the learned trial judge had to examine the respective contentions of the parties and he also had to form tentative views about the same in the circumstances of the case. Any observation then made will not, however, bind the learned company judge ultimately hearing the application.

13. Our conclusion therefore is that the order is not appealable and as such the appeal should be dismissed with costs.

Masud, J.

14. I agree.


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