Kerala High Court
The Malabar Iron And Steel Works Ltd. vs The Registrar Of Companies, Kerala And ... on 2 April, 1963
Equivalent citations: AIR1965KER35, [1963]33COMPCAS813(KER), AIR 1965 KERALA 35, (1963) 33 COM CAS 886, 1963 (2) COM LJ 58, 1963 KER LT 528, 1963 KER LJ 665, ILR (1963) 2 KER 676
JUDGMENT M.S. Menon, C.J.
1. This is an appeal by the Malabar Iron and Steel Works Limited against the order in Company Petition No. 8 of 1962 allowing that petition and directing the winding up of the company. That petition was filed by the 1st respondent before us, the Registrar of Companies, Kerala Ernakulam.
2. Section 433 of the Companies Act, 1956, deals with the circumstances in which a company may be wound up by court. Circumstance (c) in that section is:
"If the company does not commence its business within a year from its incorporation, or suspends its business for a whole year."
The circumstance invoked by the Registrar in this case is the fact that the company has not commenced its business within a year from its incorporation on the 28th November 1960.
3. To present a petition on the ground above-mentioned the Registrar should obtain the previous sanction of the Central Government. This is provided by the second proviso to Sub-section (5) of Section 439 of the Act.
4. The order granting the sanction formed an annexure to the petition. That order, issued by the Regional Director and dated the 31st March 1962, read as follows: --
"Whereas the Registrar of Companies, Kerala Ernakulam has reported that the company Malabar Iron and Steel Works Limited has not commenced business within one year of its Incorporation and is not in a position to commence business validly;
And whereas the Registrar of Companies, Kerala had in pursuance of the second proviso to Sub-section (5) of Section 439 of the Companies Act 1956 (1 of 1956), read with the Government of India, Ministry of Commerce and Industry Department of Company Law Administration, Notification No. G. S. R. 556, dated the 25th June 1958, requested me to accord sanction to the presentation by him of a petition to the High Court at Kerala for the winding up of the company on the grounds mentioned in Clause (c) of Section 433 of the said Act:
And whereas an opportunity was given to the said Malabar Iron and Steel Works Limited, by me to make representations against the aforesaid prayer of the Registrar of Companies, Kerala;
And whereas after considering the representations made by the said Malabar Iron and Steel Works Limited I am of the opinion that the company did not commence business within one year of its Incorporation and is not also in a position to commence business validly;
Now, therefore, in pursuance of the provisions of the second proviso to Sub-section (5) of Section 439 of the Companies Act, 1956 (I of 1956) read with the Government of India, Ministry of Commerce and Industry, Department of Company Law Administration, Notification No. G. S. R. 556, dated the 25th June 1958, I hereby accord sanction to the presentation by the Registrar of Companies, Kerala, of a petition to the High Court at Kerala, for the winding up of the Malabar Iron and Steel Works Limited, on the grounds mentioned in Clause (c) of Section 433 of the said Act."
5. It is not contended that the Regional Director was not competent to grant the sanction. The only contention on this aspect of the case is that the ground for winding up stated in the petition is not the same as the ground specified in the order granting the sanction. Counsel for the appellant drew our attention to the opening paragraph of the order:
"Whereas the Registrar of Companies, Kerala Ernakulam has reported that the Company Malabar Iron and Steel Works Limited has not commenced business within one year of its incorporation and is not in a position to commence business validly"
and to paragraph II of the affidavit of the Registrar in support of his petition which says:
"Though the Company was incorporated in 29th November 1960 it has not commenced business so far. The Company is also not entitled to commence business."
According to him the ground mentioned in the first extract is not the same as the one mentioned in the second extract.
6. We are unable to agree. The ground which formed the foundation of the sanction as well as the ground which formed the foundation of the petition are both the same:- the fact that the company, incorporated on the 28th November 1960, has not commenced its business within a year from that date.
7. Section 433 of the Companies Act only says that a company may be wound up by the court Under the circumstances detailed in Clauses (a) to (f) of that section. Section 222 of the English Companies Act, 1948, also provides that a company may be wound up by the Court if the company does not commence its business within a year from its incorporation or suspends its business for a whole year. In dealing with that provisions Buckley says:
"The jurisdiction to wind up a company when it does not commence its business within a year from its incorporation or suspends its business for a year is discretionary, and is to be exercised only where this is a fair indication that there is no intention of carrying on the business, if the delay or suspension is satisfactorily accounted for, an order may be refused." (13th Edition, page 452).
8. In re Metropolitan Rly, Warehousing Co. Ltd, (1867) 36 L. J. Ch. 827 is a direct authority for the proposition that the provision does not make the fact that a company has not commenced its business within a year from its incorporation anything in the nature of evidence of an act which gives a vested right to say that the company shall be wound up; and that the court will not exercise the discretionary power conferred on it to wind up a company which has not commenced its business within a year from its incorporation, where the past delay has been sufficiently accounted for, and there is no evidence of any improbability of its commencing its business within a reasonable tune. Lord Justice Cairns said:
"Now, the scheme of the Act is, as has often been observed before this, viz., to assign under heads certain acts or certain sets of circumstances which are to be taken as a test, or as the evidence of the corporation being in a state in which the winding-up order ought to be made. These sets of circumstances are not laid down as absolutely leading to the winding up of the company, but they are given as matters of evidence, upon which the court, if it thinks the evidence is sufficient, and is not in any way negatived, may act. Therefore the court has perfect power to wind up a company which has not commenced its business within a year; but I apprehend that that is so, if it thinks the fact that it has not commenced business within a year is, in the circumstances of the case, a fair indication that the company has no intention of carrying on business and is not likely so to do."
9. The order under appeal says:
"As I said at the beginning, the question is whether the case falls within Sub-section (i) or within Sub-section (2) of Section 149 of the Act. If it falls within Sub-section (i) then, Clauses (a) and (d) of that Sub-section being admittedly unsatisfied, the company is prohibited from commencing business and cannot be heard to say, as it has attempted to do, that it has in fact commenced business. Such commencement, in the face of the express prohibition in Section 149, cannot be recognised, and its only result, if indeed there has been a commencement, would be that every person responsible for such commencement would be liable to punishment under Sub-section (6) of the section. If then the company has not commenced business up to now, and, in view of the fact that there is little prospect of its being able to secure the minimum subscription in the foreseeable future -- it is not even said that it can -- It will not be in a position to lawfully commence business in the future there would obviously be an unanswerable case for ordering the winding up of the company on the ground specified in Clause (c) of Section 433 of the Act."
10. Counsel for the appellant submitted --apparently on the instructions of his client who was present in court--that the company has already secured the minimum subscription that it is in a position to comply with the provisions of Section 149 (i) and commence its business, and prayed for an opportunity for his client to file an affidavit stating these facts as well as the particular reasons for not commencing business within a year of incorporation. We feel that this prayer should be granted.
11. The appellant will file the affidavit on or before the 25th May 1963. If the affidavit ia filed within that time, this appeal will be posted for further hearing on the 27th May 1963. If no affidavit is filed within the time specified, this appeal will stand dismissed; but without any order as to costs as we have already awarded costs in our judgment--copy attached--in writ Appeal No. 44 of 1963 which was heard along with this appeal.
ORDER (12-6-1963)
12. In view of the affidavit filed by the appellant on the 21st May 1963 in pursuance of the permission granted by paragraph 10 of our judgment in A. S. No. 684 of 1962 dated the 2nd April 1963 we feel that the best course will be to reverse the decision and remand the case for fresh disposal.
13. We decide accordingly. No costs.