Rajasthan High Court - Jaipur
Takshila Hospital Ltd. And Kishan Singh ... vs Dr. Jagmohan Mathur on 14 December, 2001
Equivalent citations: [2003]115COMPCAS343(RAJ), 2002(4)WLC609, 2003(2)WLN250
JUDGMENT Rajesh Balia, J.
1. Dr. Jag Mohan Mathur and others had filed a petition for winding up Takshila Hospital Ltd. on the ground that it is just and equitable as envisaged under Section 433(f) of the Companies Act, 1956, to wind up the company because of various alleged malpractices and misdeeds attributed to the management of the company. The petitioners are shareholders and contributories of the company.
2. By the order under appeals, the learned company judge opining that a case for winding up of the company is made out by the petitioners who are contributory shareholders as stated in Section 433(f) of the Companies Act, 1956 (for short the "Act") but he has thought it fit that it is more appropriate that instead of ordering winding up, alternative remedy under Section 397 of the Act be invoked. He therefore did not admit the petition, and for this purpose an option was given to the petitioners to move an application under Section 397 of the Act within six weeks before the Company Law Board, which has jurisdiction under Section 397 to consider such applications in the first instance. Appeal against such order as may be passed lies to this court. With this order, the company petition for winding up of the company was kept pending without admitting. In this event the company petition was to be proceeded with further, in case the petitioners were not to make an application before the Company Law Board under Section 397.
3. Aggrieved by the order of the learned company judge, recording finding against the company in definite terms without even admitting the petition and inviting objections and before hearing the objections if any, that may be raised after the same is admitted, these appeals could be made, if after admitting the petition the notice of petition were to be published. The findings on the merits were also challenged.
4. The petitioners had exercised such option by making an application under Section 397 before the Company Law Board which is pending consideration.
5. At the outset, it was contended by the petitioners that under the very scheme of the Companies Act, the two proceedings at the instance of the same petitioners one under Section 397 and the other under Section 433 cannot continue since the petitioner has in fact moved an application under Section 397 of the Act by exercising the option given by the court.
6. These appeals have been filed by the appellants, inter alia, on the ground that once the application under Section 397 of the Act is directed to be moved and in fact it has been moved, this winding up petition cannot be proceeded with further and the winding up petition ought to have been dismissed. That the findings recorded by the learned company judge results in pre-decision by the appellate forum and denude it of authority to come to its own finding as it is bound under Section 397 before making any order. Such finding even if expressed can have no binding force on the Company Law Board, for the purpose of entertaining and deciding the application of the petitioner under Section 397 of the Act. In this connection, attention has been invited to Section 443(2) read with Section 433(f) and 397 of the Act.
7. We are of the opinion that the basic principle ingrained in Sections 443(2) and 397 is the same, viz., to stave off the winding up of a company as far as possible which is to be resorted to only as a last course. All efforts are to be made for saving the company from being wound up. If the shareholders approach the Company Law Board then the Company Law Board has to form its own opinion that a case is made out for which the company could be wound up on the just and equitable ground but it is not desirable to wind up the company. So also, where the company judge in the winding up petition comes to the conclusion that he is satisfied that for the petitioner alternative remedy is available and the petitioner is not acting in reasonable manner, winding up petitions should be dismissed.
8. If seen in that light, it is apparent that the direction given by the learned company judge inheres that while giving option to the petitioner and not admitting the winding up petition notwithstanding his prima facie conclusion it was desirable to see that if the petitioners choose to go before the Company Law Board under Section 397 of the Act, the matter must be examined there in the first instance and thereafter parties may have resort to their remedies against that order. The right of the respective parties to challenge the order of the learned company judge by way of appeal or otherwise is permitted by law. In case the prima facie conclusions reached by the learned company judge remain in operation and the matter remains pending, such right of appeal is likely to affect such remedies.
9. From a long chain of judicial pronouncements, it is fairly well settled that a company which is sought to be wound up on the just and equitable ground under Section 433(1) of the Act ought not to be so wound up unless resort to such an extreme step to bring an end to existence of company is necessity and causes cannot be dealt with through any alternative mechanism.
10. It was so held almost a century ago in Professionals Edu. Building Society [1891] 6 Ch. 856 that under the just and equitable clause, the court will not make an order for winding up, if the petitioner has another remedy to have the matter complained of by him rectified as for instance an application in the case of mismanagement and oppression.
11. The Supreme Court in Rajahmundry Electric Supply Corporation Ltd. v. A. Nageshwara Rao [1956] 26 Comp Cas 91 (SC); AIR 1956 SC 213 while considering the provisions of Section 153C and Section 162 of the Companies Act, 1913 (corresponding provisions in Companies Act, 1956, are Sections 397, 198 and 433 respectively), the court said (page 95 of Comp Cas) :
"The true scope of Section 153C is that whereas prior to its enactment, the court had no option but to pass an order for winding up when the conditions mentioned in Section 162 were satisfied, it could now in exercise of the powers conferred by that section make an order for its management by the court with a view to its being ultimately salvaged."
12. The court further said (page 97) :
"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."
13. In Hind Overseas P. Ltd, v. R. P. Jhunjhunwalla [1976] 46 Comp Cas 91 (SC), the court said (headnote) :
"Relief under Section 433(f) of the Companies Act, 1956, based on the just and equitable clause, is in the nature of a last resort, when other remedies are not efficacious enough to protect the general interests of the company."
14. In Lokenath Gupta v. Credits Private Ltd. [1968] 38 Comp Cas 599, the learned company judge of the Calcutta High Court opined that mere mismanagement or misappropriation or misconduct on the part of the directors or the managing director, by itself is no ground for winding up. General allegations of oppression of minority shareholders also is not a ground. It was held that the petitioner has alternative remedies for the redress of his grievances under Sections 163, 167, 210 and 220 of the Companies Act is also a ground for rejecting a petition for winding up.
15. The Gujarat High Court in Atul Drug House Ltd.'s, In re [1971] 41 Comp Cas 352 also opined that at the time of admission of a petition for winding up under Section 433(f), the petitioner must convince the court not only of a "just and equitable ground" for so doing but also that here is no alternative remedy open to the petitioner. This is because if such a petition is admitted and there is a public advertisement, it would cause irreparable harm to a solvent company even if the company succeeds ultimately.
16. A Division Bench of the Kerala High Court in Malabar Industrial Company Ltd. v. A. John Anthrapper [1985] 57 Comp Cas 717 held that it was necessary for a contributory seeking the discretionary powers of the court under Section 433(f) not only to establish that the circumstances obtaining in the company are such that a winding up of the company is the only alternative but also to show that he has no other remedies available. It further held that it is necessary to bear in mind that the relief under Section 433(f) is in the nature of a last resort, thus obliging the court to give relief to the party when moved under the section only under compelling circumstances.
17. In George v. Athimattam Rubber Company [1965] 35 Comp Cas 17 (Ker) ; AIR 1964 Ker 212, Raman Nair J. (as he then was) opined that "even if the allegations made by the petitioner would justify a winding up order under the just and equitable clause, I think that, on the allegations made, the petitioners proper remedy would be an application under Section 398 of the Companies Act and that he is acting unreasonably in seeking to have the company wound up instead of pursuing that remedy. To say that that remedy is not available to the petitioner, since he cannot muster the support required by Section 399 of the Companies Act, seems to me no answer and only serves to show that other members are not prepared to subscribe to the allegations made by the petitioner".
18. The Kerala High Court in the case of Jose J. Kadavil v. Malabar Industrial Co. ltd, [1986] 59 Comp Cas 969, opined that relief under Section 433(f) based on the just and equitable clause is in the nature of a last resort when other remedies are not efficacious enough to protect the general interest of the company.
19. Like views have been expressed by the Orissa High Court in Gadadhar Dixit v. Utkal Flour Mills (Pvt.) Ltd, [1989] 66 Comp Cas 188, B. V. S. S. Marti v. Kowtha Business Syndicate Pvt. Ltd. [1989] 65 Comp Cas 305 (AP), Suresh Kumar Bansal v. U. P. Mineral Products Ltd. [1996] 87 Comp Cas 223 (Delhi), V. V. Projects and Investments P. Ltd. v. 21st Century Constructions P. Ltd. [1997] 90 Comp Cas 346 (AP), Kapil N. Mehta v. Shree Laxmi Motors Ltd. [2001] 103 Comp Cas 498 (Guj); [1999] 2 Comp LJ 267 and Kiritbhai R. Patel v. Lavina Construction and Finance Pvt. Ltd. [2000] 99 Comp Cas 75 (Guj); [1999] 3 Comp LJ 123.
20. In this connection, learned counsel for the petitioner invited our attention to two decisions in A. K. Puri v. Devidas Gopal Kishen Ltd., AIR 1995 J & K 24 and Ramakrishna Industries (P.) Ltd. v. P. R. Ramakrishnan [1988] 64 Comp Cas 425 to urge that the company court while hearing the winding up petition for admission has ample powers to pass interim orders and that merely because a petition under Section 397 is pending before the Company Law Board, the company court need not necessarily stay the winding up proceedings.
21. The Madras High Court in Ramakrishna Industries case [1988] 64 Comp Cas 425 was not considering the question of power or desirability of continuing with winding up proceedings and proceedings under Section 397 simultaneously. It was a case which concerned the stage when a winding up petition can be said to be a stage of hearing and stage at which the company court could pass interim orders. The factual matrix of the case was that Ramakrishna Industries P. Ltd. had filed a winding up petition No. 30 of 1981 under Section 433(e) and (f) and simultaneously moved two applications : one for appointment of a provisional liquidator and another under Rule 11 of the Companies (Court) Rules, 1962, read with Order 39, Rule 1 of the Civil Procedure Code, 1908, for restraining the company from borrowing any money from the financial institutions without prior permission of the court. The learned company judge after issuing notice to the company of the petition and the applications, has granted interim injunction as well as an order appointing provisional liquidator on two different dates after the company was served and put up its appearance and had sought time to file a reply to winding up petition. The orders passed on the interim applications were challenged, inter alia, on the ground that unless the petition is heard, no interim orders could have been granted. Since the petition was not admitted, it cannot be said that the petition was heard within the meaning of Section 443(1). The question of advisability of continuing both proceedings viz., winding up petition as well as the Section 397 petition at the instance of the same parties before two different forums was under consideration. For the purpose of the company court's jurisdiction to order appointment of a provisional liquidator, the court said by referring to Sections 441(2) and 450 of the Act that these provisions clearly establish that the court's jurisdiction is not postponed till the date set for hearing of the company petition after notice to the respondents.
22. The decision of the Jammu and Kashmir High Court in A.K. Puri v. Devidas Gopal Kishen Ltd., AIR 1995 J & K 24 also in our opinion does not deal with a case like the one in hand. It was a case in which the members of the company in question were divided in three groups. One group was headed by A. K. Puri, which wanted winding up of the company Devidass Gopal Kishan Ltd., whereas the other groups headed by K. K. Puri and Indu Puri were resisting winding up and were seeking ouster of the rival group. All the three groups came from one family but were pitted against each other in a tussle for supremacy. In these circumstances, Company Petition No. 1 of 1994 was filed by A. K. Puri and his group seeking winding up of the company under Section 433(f) of the Act. This petition was filed on March 28, 1994, and a show-cause notice was issued to the respondents on March 30, 1994. On the other hand, another group headed by Indu Puri approached the Company Law Board under Sections 397 and 398 of the Act for the removal of A. K. Puri group. In the aforesaid set of facts and circumstances, an application was moved on behalf of the respondents in the winding up petition by K. K. Puri and Indu Puri that the company court should stay the proceedings of the winding up petition in view of the pendency of the petition under Sections 397/398 of the Act before the Company Law Board. It is in the aforesaid scenario where the two rival groups of the company were there, and were prosecuting different remedies for their grievances and the other group was trying to thwart the remedy prosecuted by another group and, therefore, the court considered the question whether in these circumstances, the winding up petition ought to be stayed as a necessary concomitant and held that it cannot be read as a rule that the company court must pack up the moment a party approaches the Company Law Board under Section 397/398.
23. However, in the present case, as noticed by us above, the situation is entirely different. Firstly, the company judge himself was of the opinion that notwithstanding that a prima facie case for winding up of the company for just and equitable cause is made out, yet it is not a case in which the last recourse to winding up is resorted to and was further of the view that an alternative for sorting out the grievance and rectifying the complaints need to be proceeded with. Therefore, the company judge refrained from admitting the petition and left it to the petitioner's volition to make an application under Section 392 before the Company Law Board. Thereafter, the petitioners did file an application under Section 397 before the Company Law Board and the matter is now pending and proceeded with before it. For going before the Company Law Board, both parties have no objection. Whether in such circumstances, it is desirable to keep the petition for winding up pending at the instance of the same petitioners, until those proceedings are culminated, to be prosecuted only if proceedings under Section 397/398 of the Act does not yield a result favourable to him, was not the question to which the court was required to address itself.
24. Moreover, it is to be seen that the Jammu and Kashmir High Court has also expressed, as opined by us above, that two forums exercising independent and separate jurisdiction under the relevant provisions of the Act exist. The Jammu and Kashmir High Court has also not opined that in no case, two proceedings should be allowed to continue simultaneously by the same petitioner or in all circumstances, on the contrary, it only gives out that merely on the ground of pendency of an application under Sections 397/398 of the Act before the Company Law Board cannot be a good ground for staying the winding up petition by the company judge but it does give out that in the appropriate cases where the circumstances of the case so demand, the proceedings for winding up may be stalled, when an application under Section 397/398 of the Act is pending before the Company Law Board.
25. The present is not a case in which two rival groups have adopted different remedies and one is trying to thwart the other remedy, but of pursuing two remedies by the same petitioners before two different forums, separate remedies for rectifying their same grievance. In such event, the position should be viewed as if the petitioners having filed application under Sections 397/398 of the Act without waiting for its decision seek to file a petition for winding up to be pursued in future in case it suffers an adverse order under Section 397 of the Act. We are of the opinion that in such an event, ordinarily there will be no justification in filing the petition for winding up and if that be so, ordinarily in such an event, there shall be no justification for keeping the winding up petition pending until the proceedings under Section 397 of the Act are finally decided. In the present case, when the petitioner had adopted the two remedies in reverse order it will not make any difference.
26.We may also notice that a number of decisions have been cited by learned counsel for the appellant showing that in cases where the petition under Section 397 has been preferred thereafter, winding up petitions have not been continued. However, those cases also do not lay down the principle in strait-jacket that in all such cases, invariably, winding up petitions must be brought to a close.
27. Mr. M.S. Singhvi, learned counsel for the appellant in D. B. Civil Special Appeal No. 69 of 2001 has sought to challenge the findings recorded by the learned company judge for making the impugned order of keeping the winding up petition pending and giving option to the petitioners to move appropriate application under Section 397 of the Act before the Company Law Board on the merits.
28. However, we are of the opinion that on the merits, all these contentions need not be examined inasmuch as once the petitioners have invoked the jurisdiction of the Company Law Board by exercising their option, the matter must be first examined by the Company Law Board unmindful and uninfluenced by any observations made by the learned company judge which cannot but be taken at the stage at which the same has been expressed as merely prima facie opinion for the purpose of examining the admittance of the winding up petition but it cannot take the shape of a final opinion on any aspect of the matter because at that stage the company petition has not reached beyond the stage of preliminary consideration for admission and whatever consideration was to be made by the learned company judge was only with respect to whether to admit or not to admit. The company is liable to be wound up only after the petition is admitted and following it public notice of the same is published inviting objection to winding up as per the Companies (Court) Rules. Having decided not to admit and leaving the petitioner to opt to invoke jurisdiction of the Company Law Board, and the petitioners having exercised that option it does not appear to be just and proper to keep the winding up petition still pending.
29. It is also apparent that the learned company judge has not decided to direct the Company Law Board to frame a scheme for management nor has directed the petitioners to make an application to the Company Law Board. This clearly indicates, that the proceedings by the Company Law Board were not to be conducted by or under the supervision of the learned company judge, but left it at the volition of the petitioners to invoke the jurisdiction of the Company Law Board under Section 397 by making an appropriate application. Thus, on exercise of such option an independent proceeding came to be instituted which had to be proceeded with independently and uninfluenced by other proceedings which have not even crossed the preliminary stage of admission. In the very nature of the order passed by the learned company judge, the company petition cannot now be proceeded with until proceedings under Section 397 are finally culminated, which includes the exercise of rights of appeal by any party aggrieved with the order passed by the Company Law Board. Such appeal also lies to the High Court. In this connection, it may be noticed that prior to amendment in Section 397, the application under Section 397 too lay before the High Court and therefore both the proceedings, viz., under Section 433 as well as Section 397 could be proceeded with together or separately before the same forum. Now there is a vital change in that regard inasmuch as the jurisdiction to entertain and decide an application now vests with the Company Law Board, a Tribunal subordinate to High Court, and the High Court in such matter exercises appellate jurisdiction. In these circumstances, any opinion expressed by the appellate forum in advance is bound to affect and influence the original proceedings before the authority vested with jurisdiction to exercise original jurisdiction in the matter.
30. In these circumstances, we deem it just and proper to dispose of these appeals by holding that on making application under Section 397 of the Act by the same petitioner, the winding up petition filed by him, which has not even been admitted, ought not to be proceeded with further particularly when the learned company judge himself has opined that such remedy may be proceeded in the first instance which is likely to be fruitful and save the company from being wound up. It may be noticed in this connection that ordinarily the smooth running of business is likely to be jeopardised even if the petition for winding up is admitted and notices are published. This is also to be noticed that against the order passed by the Company Law Board, the aggrieved party has the right to appeal on any finding that may be recorded by the Board and order made by it. The Company Law Board before making any order under Section 397 has to form its own opinion, which must be uninfluenced by any other opinion expressed by anybody else on the necessary facts on which the exercise of jurisdiction by it depends. In these circumstances, it must be held that formation of its satisfaction cannot relate to satisfaction reached by someone else or to read the observation made by the learned company judge binding on him nor any of the parties can press in service finding recorded by the learned company judge as a matter of precedent. They otherwise remain to be a prima facie finding of the learned company judge for the purpose of examining the merits of the petition. Once the petitioners have availed of the alternative option those findings cannot be carried any further and no useful purpose would now be served to complicate the issue about the right of appeal that may be required to be invoked by any of the respective parties so that their right of a fair opportunity of being heard and convincing the Company Law Board on the merits of their respective cases independent to the previous proceedings remain unaffected.
31. As a result, these appeals are allowed. As the petitioner has in pursuance of the option given by the learned company judge preferred applications under Section 397 of the Act, as a remedy more appropriate to proceed with in the first instance, the winding up petition is dismissed subject to the observations made above. The Company Law Board shall decide the application filed before it uninfluenced by any finding recorded by the learned company judge. This order does not reflect on the merits of the controversy raised by the petitioners-respondents and will not impair their rights to recourse to winding up petition in future, if necessity so arises and advised.
32. There will be no order as to costs.