Kerala High Court
New Kerala Chits And Trades (P.) Ltd. vs Official Liquidator on 19 December, 1979
JUDGMENT Janaki Amma, J.
1. The appellant is the New Kerala Chits and Trades (P.) Ltd., Press Club Building, Quilon, represented by its managing director. The above-said company was incorporated under the Companies Act, 1956, as a private company limited by shares on 30th August, 1971, the registered office of the company being situated at Andamukkom, Kerala State. The objects of the company were to carry on business of chit funds by enrolling members from the public. The company was incorporated with three shareholders. Subsequently, 7 other shareholders were admitted. The company was carrying on chit fund business through its branches at various places in the States of Kerala, Tamil Nadu, Karnataka and Orissa. The business of the company did not show any progress. The subscribers to the chit funds started interfering with the day-today management and began to press for the amounts they had subscribed. Suits were also filed against the company and, in a few cases, attachment, before judgment, of the properties was also ordered. Attempts were being made by certain subscribers to forcibly take away the properties of the company. Criminal proceedings had also been instituted against one of the directors. Since May, 1978, the directors of the company found it difficult to carry on the business of the company effectively. The shareholders of the company, therefore, decided to wind up the business of the company. On July 13, 1978, a unanimous resolution was passed at an extraordinary general meeting of the company that the High Court should be approached for the winding up of the company. The managing director and two other directors were authorised to present a petition before this court. Accordingly, Company Petition No. 14 of 1978 was filed. The first petitioner therein was the New Kerala Chits and Trades (P.) Ltd. The second petitioner was the managing director. Petitioners Nos. 3 and 4 were the directors of the company. After the defects in the petition were cured, the petition was admitted on August 22, 1978. Since another petition, O.P. No. 12 of 1978, had already been filed by a creditor for the winding up of the same company, the two petitions were directed to be posted together. On a separate application filed by the petitioners, Company Application No. 431 of 1978, the court appointed the official liquidator as provisional liquidator. The provisional liquidator was directed to take steps under Section 456(1A) of the Companies Act to inform the concerned Executive District Magistrates to keep watch of the premises of the branches of the company situated in the different States and to take charge of the assets forthwith. The petitions for winding up stood posted to October 23, 1978. On October 23, 1978, the petitioners were directed to file a statement of all the movable and immovable properties of the company wherever situated and also to deliver all the books and papers up-to-date and also to file an affidavit. A statement of the affairs of the company as on date was also directed to be filed. Three weeks' time was granted for the above purpose. The petition was adjourned from time to time and on December 21, 1978, since no statements or documents were filed, the court posted the case for disposal to January 10, 1979. Thereafter, it was adjourned to February 22, 1979. On that day, the learned single judge passed the following order :
" The directions of this court are not complied with in spite of sufficient time being given. There is not even an excuse for this attitude. The company petition is therefore dismissed. Costs will await report of the provisional liquidator."
2. The appeal is filed against this order.
3. The reports filed by the provisional liquidator would go to show that the articles available in some of the branches have been taken delivery of by the official liquidator. Directions were being issued from time to time on reports of the official liquidator regarding what he should do with the movables. It was while the matter stood like this that the court dismissed the petition. It is noted that C.P. No. 12/78, which was pending at the time when the dismissal of the above petition was posted for disposal to March 5, t979, being not pressed, it was dismissed on that day.
4. The contention raised on behalf of the appellant is that the order of dismissal is not sustainable in law. The argument is that once the company by its resolution decides to wind up and files a petition for that purpose, it is incumbent that the court should proceed with the winding up and it is not proper to dismiss the petition for the default of its directors. The further case put forward is that the ground on which dismissal is ordered is not one contemplated in law. It is pointed out that the Companies Act itself provides the penalty for disobedience of orders of court in relation to filing of statements by the directors and the court should have followed the said provisions instead of dismissing the petition itself.
5. Part VII of the Companies Act deals with winding up of companies. Section 425 mentions the modes of winding up and one of the modes mentioned therein is by order of court. Under Section 433, the company may be wound up by court, among others, if the company has, by special resolution, resolved that the company be wound up the court, or if the company is unable to pay its debts or if the court is of opinion that it is just and equitable that the company is wound up. The word " may " in the section denotes that the court is vested with the discretion in taking up a decision. The discretion, no doubt, is to be exercised in a judicial manner. The section, as such, does not make any distinction between Section 433(a) dealing with dissolution based on special resolution by a company and cases falling under the remaining clauses of the same section.
6. Section 439 deals with an application for the winding up of the company. It may be presented either by the company or by any of the persons mentioned in that section. Section 443 of the Companies Act empowers the court to dismiss the petition with or without costs, to adjourn the hearing conditionally or unconditionally or to make such interim order as it thinks fit or to make an order for winding up of the company with or without costs or such other order as it deems fit. Section 443 does not specify to which all petitions it applies. Nor does it exclude petitions filed by the company, It follows that the court's discretion in the matter of winding up covers all kinds of petitions filed under Section 439. The discretion should, however, be exercised taking into account the nature of the application and the circumstances of each case. In a case where fraud or collusion is made out on the face of the petition it may be open to the court not to admit the petition or, having admitted it, to dismiss it as mentioned in Section 443. Therefore, the contention put forward by the appellant that the court has no power to dismiss the petition if the company itself comes forward with an application for winding up has no force. The nature and extent of the discretion would vary depending upon who files the petition, and the circumstances made out during the enquiry thereof. Ordinarily, when the company is itself the petitioner and it is made out that it is not in a position to continue its work due to rancour among the shareholders or otherwise or that it is running at a loss or is unable to pay its debts or that the business of the company has come to a deadlock due to other reasons, the court would not and should not deny relief. If the number of shareholders is small, the company can be dealt with on a par with a partnership concern and the company should be allowed to be wound up if there exists such a ground as would be sufficient for the dissolution of a private partnership. [See In re Yenidje Tobacco Company Ltd. [1916] 2 Ch 426 (CA)]. In cases where the shareholders decide to wind up the company on the ground that they are not in a position to proceed with the work, there is no meaning in the court insisting that the company should proceed with the work. It may be that in extreme cases where the court feels that the petition is without bona fides and that it is vitiated by fraud or collusion, it may refuse assistance in the matter of winding up and dismiss the petition.
7. In the instant case, the dismissal was on the ground that the petitioners defaulted to file the statements which they were directed to file. Whether the dismissal on the above ground is sustainable is the point to be considered. Section 454 mentions that where the court has made a winding-up order or appointed the official liquidator as provisional liquidator, a statement as to the affairs of the company in the prescribed form, verified by an affidavit and containing the particulars mentioned in the section is to be submitted to the official liquidator within 21 days from the relevant date or such extended time allowed by the court. Sub-section (5) mentions that if any person, without reasonable excuse, makes default in complying with any of the requirements of the section, he shall be punishable with imprisonment for a term which may extend to two years, or with fine which may extend to one hundred rupees for every day during which the default continues or with both. The contention put forward is that since Sub-section (5) provides for the consequences of the default in the filing of the statement, the course open to the court in the case of such default is to proceed under the above provision and prosecute those responsible for the default. According to the appellant-company, since it was the directors who were responsible for filing the statement, the court should have taken steps against them and the order dismissing the petition itself without following the procedure mentioned in Section 454(5) is not sustainable in law.
8. There is force in the contention put forward on behalf of the appellant-company. Section 454(1) provides for filing a statement as to the affairs of the company in the prescribed form, containing the particulars mentioned therein. Section 454(2) directs that the statement is to be filed by one or more of the persons specified therein. Such persons are the directors, the manager, tne secretary or other chief officer of the company and the persons mentioned in Clauses (a) to (d) of the sub-section. It is significant that the company as such is not included among the persons mentioned in Section 454(2). Being a provision entailing penal consequences, the section should not be applied to any one who is not expressly brought within its language. In the instant case, the application for winding-up was filed by the company, mentioned as the first petitioner and by the petitioners Nos. 2 to 4 who are respectively the managing director and the managers authorised by the special resolution to present the petition. Though the company is a petitioner, the obligation to file the statement is not cast on it but on the directors. Therefore, the company as such is not liable for the default, if any, on the part of the directors or other persons in filing the statements mentioned in Section 454. In other words, there is no constructive penal liability so far as the company is concerned for the default by its directors to do acts which they are themselves called upon to do. Viewed in the above perspective, the dismissal of the petition presented by the company for default of its directors to file the statements under Section 454 cannot be justified.
9. There is another reason also for holding that the dismissal of the petition for winding up for violation of Section 454(1) is not contemplated by the statute. Section 454, in so far as it makes the non-filing of the statement penal, creates a special offence. The section itself imposes the penalty for non-compliance of its provisions. When a statute of a special nature makes violation of its provision an offence and also provides the mode of penalty, a person guilty of violation is to be punished only in the mode provided in the statute and not in any other mode. If that be so, the directors of the company who defaulted in filing the statements which they were called upon to file were liable to be proceeded with as provided in Section 454(5) and the court should have taken appropriate action in that direction. The dismissal of the petition for default in filing the statements mentioned in Section 454(1) is not something contemplated by the statute. The order of dismissal is, therefore, liable to be set aside.
10. The facts and circumstances of the cases also do not justify the order of dismissal. The petition for winding up was filed following a special resolution as contemplated in Section 433(a). In the petition for winding up, it is mentioned that the company stopped its business in May, 1978, due to interference by the subscribers to the chits in the day-to-day management of the company, that there were attachments of the property owned by the company and that the liabilities of the company exceeded its assets. Though the petition was advertised, nobody turned up to oppose the petition. A provisional liquidator was appointed and he has taken charge of the assets of the company in the various branches. On the basis of the reports of the provisional liquidator, certain of the articles belonging to the company have been directed to be auctioned even prior to the order dismissing the petition. The dismissal of the petition in the circumstances mentioned above has the effect of creating a deadlock, which should be avoided if possible.
11. For the above-said reasons, we allow the appeal, set aside the order dismissing the petition for winding up and remit the petition to the company court for fresh disposal according to law. It is open to the company court to initiate appropriate proceedings against the directors or such other persons who omit to file statements on being called upon to do under Section 454(1) of the Companies Act. We make no order as to costs.