Andhra HC (Pre-Telangana)
K. Mohan Babu vs Heritage Foods India Ltd., Hyd. And ... on 24 August, 2001
Equivalent citations: 2001(5)ALD800
Author: B. Subhashan Reddy
Bench: B. Subhashan Reddy
JUDGMENT B. Subhashan Reddy, J.
1. The important question for consideration in the instant case is as to how to weigh the words 'just and equitable' employed in clause (f) of Section 433 of the Companies Act, 1956 while considering the plea for winding-up of the company.
2. M/s. Heritage Foods (India) Limited (hereinafter referred to as 'the company'), has been registered company under the Companies Act, 1956 (hereinafter referred to as 'the Act') with a view to do business in liquid milk and milk products. The appellant and respondents 2 to 6 are the shareholders of the company. The appellant was one of the Directors of the company. Respondent No.2 was the Managing Director, but resigned on 12-12-1994. Respondent No.3, the wife of the 2nd respondent, was appointed as Executive Director and the 5th respondent as the whole-time Director. Respondent No.4 is the son of respondents 2 and 3 and respondents 3 to 5 are the partners of the firm - 6th respondent herein. The company was going from strength to strength and made good strides and was financially sound and continues to be so. But, there were strained relations between the appellant and the 2nd respondent, which led to exchange of some notices and ultimately culminating in Company Petition No.96 of 1999 invoking Section 433(f) of the Act seeking winding up of the company on the grounds stated therein.
3. Notice before admission was issued by the learned company Judge and in response thereto counter-affidavits have been filed by the respondents. By consent of the parties, documents were marked as Exs.A1 to A27 on appellant's side and Exs.B1 to B25 on respondents' side. On perusing the pleadings and the said documents as also hearing either side, the learned company Judge has dismissed the company petition at the admission stage holding that there are no grounds made out for invoking Section 433(f) of the Act for winding-up of the 1st respondent-company, that there is no case made out for invocation of the said provision and that in any event, it was not a case for entertaining the winding-up petition directly by the High Court without it being subjected to effective alternative remedy, be it under Sections 397 and 398 of the Act or other provisions contained in the Act. Assailing the said order, this appeal has been filed.
4. The company was registered on 5-6-1992 with Head Office at Hyderabad. The authorised capital of the company at the time of incorporation was Rs.1.00 crore divided into 10 lakh equity shares. The amount of paid-up capital was Rs.80,57,000/- as on 31-8-1992. By the said time, the investment of the appellant was Rs.23,70,000/-.
5. The petition for winding-up was filed by the appellant on the following grounds:
(a) that though he was the major shareholder with investment of Rs.23,70,000/- as against which, respondents 2 to 4 have invested only Rs.2,01,500/-, 1,55,000/- and 1,95,000/- respectively, the shares of respondents 2 to 4 have risen to astronomical figures of Rs.76,15,000/-, 1,12,31,000/- and 3,15,000/- respectively and that the said rise in the share value of respondents 2 to 4 is the result of shady deals and that the same was kept as secret;
(b) that though he paid his money of Rs.23,70,000/- by 31-8-1992, the share certificates were allotted to him only on 16-11-1994 and that he was not made to known how his investment of Rs.23,70,000/- was dealt with;
(c) that the 2nd respondent though resigned, is at the helm of affairs of the company indirectly, that the appointment of 3rd respondent as Executive Director is not provided by the internal rules of the company and that the appointment of 5th respondent as whole-time Director of the Company is illegal as he was working as Registrar of Andhra Pradesh Open University and holding dual posts of Registrar of University as also whole-time Director of the Company is impermissible;
(d) that a conspiracy was hatched by the 2nd respondent to ease him out of the Directorship and that in pursuance of the same, the letter of resignation was fabricated;
(e) that he was unduly kept out of the management and that vital information and the documents relating thereto have been suppressed from him; and
(f) that proper accounts were not maintained, that an amount of Rs.2.00 crores was shown as unsecured loan and as the company was doing very well, there was no reason to raise that loan, that the source of the said amount is not known, and that the said loan was obtained only to convert black money into white money and is a shady deal.
6. The allegations made above by the appellant, have been countered by the respondents as mentioned infra.
That the 2nd respondent invested Rs.2,10,500/- as on 31-8-1992, that the amount so invested by the 2nd respondent towards his share application had risen to Rs.2,12,500/- as on 31-3-1993, as on 31-3-1994 it was Rs.25,09,000/- and as on 16-11-1994 it was Rs.65,20,000/-, and that it is incorrect to state that the share amount of the 2nd respondent rose suddenly within an year. It is explained that subsequent to the allotment of shares to the 2nd respondent on 16-11-1994, he had purchased shares in open market and that as on the date of filing of company petition, the 2nd respondent held 7,61,800 shares worth Rs.76.18 lakhs. It is also disputed that the shares of respondents 3 and 4 have escalated geometrically. It is explained that the 3rd respondent held shares worth Rs.8.26 lakhs upto 16-11-1994 and subsequent thereto, she had purchased shares in the open market and that she holds shares worth Rs.1,12,31,000/-. Insofar as the 4th respondent is concerned, he holds shares worth Rs.3,15,000/-. It is also explained that the share application money of the appellant invested upto 31-8-1992 has been utilised for the business of the company and that the appellant had been allotted shares for Rs.23,70,000/- along with respondents 2 to 4 and others on 16-11-1994 and the said allotment of shares has not been unduly delayed and that the time factor as prescribed by SEBI guidelines was scrupulously followed and according to the said guidelines, the certificates of shares should be issued to the allottee immediately after allotment, but not later than two months from the date of closure of the subscription list and since the date of public issue was 17-11-1994 and the closure of subscription list was 28-11-1994, the two months period expired on 28-2-1995 and thus the issuance of share certificates as on 16-11-1994 is perfectly within time and guidelines prescribed by SEBI. It is questioned that when allotment of shares was not made on time and that SEBI rules were violated, there was no reason for the appellant to keep quiet for 5 long years. It is stated that the 3rd respondent was appointed as Executive Director in accordance with Articles 96 and 140(a) of the Articles of Association of the company and so also the 5th respondent as the whole-time Director and that such appointment conforms to Section 269(1) of the Act. It is also explained that the 3rd respondent though designated as Executive Director, she is the whole-time Director and that the Articles of Association provide for that and so also the provisions of the Act. The said Article 140(a) also enables the Board of Directors to appoint one or more Directors as the whole-time Directors of the company and as such, the appointment of both respondents 3 and 5 is in accordance with the Act and Articles of Association of the Company. It is also denied that respondents 3 and 5 are dummy and benami and that the 2nd respondent is managing the affairs of the company. It is also stated that the appointment of the Directors has been approved by the shareholders the company in the Annual General Meeting and the same is in consonance with Sections 269, 309 and 314 read with Schedule XIII of the Act. It is further explained that the 5th respondent, though was the Registrar of A.P. Open University, he had taken prior permission and consent of the University and has not been claiming any salary from the University. It is stated that no conspiracy was hatched by the 2nd respondent to ease the appellant out of the Directorship of the company and the appellant on his own volition due to his pre-occupation in film field and being unable to attend any meeting or to the business of the company, has voluntarily retired by tendering his resignation on 30-4-1994 and the same was accepted and was intimated to the Registrar of Companies, that his name as Director was not reflected in the next annual accounts, that in fact he had never attended the Board meetings, that the dividend was being paid to him regularly without any default, that there was no fraud played on him or forgery committed and as he was ceased to be the Director, the question of preventing him from managing the affairs of the company did not arise, that he has been furnished all such information which he was entitled as a shareholder and that documents in the capacity of Director could not be sought for by him as he was no more the Director with effect from 30-4-1994. Insofar as the amount of Rs.2.00 crores is concerned, it is explained that the said amount was borrowed from M/s. Oil Country Tubular Limited on 1-2-1996 as there was paucity of funds for commissioning Gokul Plant at Kasipentla, Tirupati in two phases and the loan from Bank of Baroda could not meet the full demand for investment, that after the said amount was borrowed and after business picked-up, the same was repaid in two instalments in October, 1997 and March, 1998 with interest at 17.5% per annum and that as the entire loan amount was repaid before 31-3-1998, the same was not reflected in the balance sheet as on 31-3-1998.
7. On analysis of both facts and law situation, the learned company Judge held that there was no case made out for admission of company petition in view of the availability of the effective alternative remedy and that there are no grounds made out to entertain the petition under Section 433(f) of the Act. Hence, this appeal.
8. Mr. B. Tarakam, the learned senior Counsel for the appellant, strenuously contended that there is a prima facie case for admission of the company petition for winding-up, but the same was not properly considered by the learned company Judge and that proper opportunity was also not afforded to canvass the points. He submitted that the appellant is the promoter of the company with 40% shareholding and inspite of payment of heavy amount of Rs.23,70,000/- as early as in the year 1992, the shares were not allotted and the share certificates had not been issued, that four signed blank papers were obtained by the 2nd respondent and the none of them was used for creating resignation letter purporting to have been given by the appellant, that even the signature on the letter of resignation was forged, that the appellant was not given opportunity to highlight the same and that the company was involving in fraudulent acts and that no proper accounts were maintained and no statutory meetings were held. There was no necessity to obtain a loan of Rs.2.00 crores, that in fact, the name and particulars of the person, who is said to have given the loan of Rs.2.00 crores are not known, that the above facts are manifest from the documentary evidence in Exs.A1 to A27, that a prima facie case of want of confidence and lack of probity is made out and that winding-up petition ought to be admitted. In support of his arguments, the learned senior Counsel for the appellant has relied upon the decision In re Yenidje Tobacco Co., Ltd., 1916 (2) Chancery Division 426, Loch v. John Blackwood Ltd., 1924 AC 783, Rajahmundry Electric Supply Corporation Ltd. v. A. Nageswara Rao, , Shanti Prasad Jain v. Kalinga Tubes Ltd., (1965) 34 CC 351, Ebrahimi v. Westbourne Galleries Ltd, 1973 AC 360, Needle Industries (India) Ltd and others v. Needles Industries Newey (India) Holding Ltd, (1981) 51 CC 743 and Ramakrishna Industries (P) Ltd. v. Ramakrishnan, (1988) 64 CC 425.
9. Mr. Ramesh Ranganathan, the learned Additional Advocate-General, appearing for the respondents, counters the above arguments to the effect that though the appellant had been associated with the company since its inception, he is not holding 43% share capital, but only holds 2.19% and the money of the appellant has not been misutilised and there was no cheating of appellant and the appellant's money was utilised for business of the company, that the appellant is a cine-actor busy with film production and acting and as such, could not caler time to participate in the affairs of the company and as such, voluntarily resigned, that the letter of resignation from the Directorship is not forged, that the company is being run on sound lines by preparing and submitting proper accounts regularly, that the amount of Rs.2.00 crores was obtained from M/s. Oil Country Tubular Limited for the commissioning of Gokul Plant at Kasipentla in two phases, as there was shortfall in the amount and the above loan was repaid with interest and it is not a shady deal, that the company has been running on sound lines and has been earning increasing profits every year and the same is manifest from the accounts submitted, that the winding-up of the company is not in the interests of the company and the shareholders and the complaint of the petitioner-appellant in all counts, does not make out a case for winding-up, that the appellant was rightly non-suited from the company petition on the ground of existence of alternative remedy, that there is no infirmity, legal or otherwise, in the order passed by the learned company Judge and that the appeal is fit to be dismissed. He has relied upon the judgments in Hind Overseas Pvt. Ltd. v. R.P. Jhunjhunwalla, , In re Atul Drug House Ltd, (1971) 41 CC 352, Marti v. Kowtha Business Syndicate Pvt. Ltd., (1989) 65 CC 305 and V.V. Projects and Investments (P) Ltd, v. 21st Century Constructions P. Ltd., (1997) 90 CC 346.
10. Section 433 of the Act deals with the winding-up and it reads:
"433. A company may be wound up by the Court:--
(a) if the company has, by special resolution, resolved that the company be wound up by the Court;
(b) if default is made in delivering the statutory report to the Registrar or in holding the statutory meeting;
(c) if the company does not commence its business within a year from its incorporation, or suspends its business for a whole year;
(d) if the number of members is reduced, in the case of a public company, below seven, and in the case of a private company, below two;
(e) if the company is unable to pay its debts;
(f) if the Court is of opinion that it is just and equitable that the company should be wound up".
It is clear from the above statutory provision that while in clauses (a) to (e) the grounds are enumerated by the statute itself, in clause (f), it is left for the Court's decision on 'just and equitable' grounds. Construing the above provisions, it was held by the Supreme Court in Rajahimmdry Electric Supply Corporation's case (supra) that the words 'just and equitable' in clause (f) of Section 433 of the Act are not to be read as being 'ejusdem generis' with the words employed in clauses (a) to (e) thereof. The said view was followed by the later Supreme Court judgment in Hind Overseas Pvt., Ltd case (supra), in which it was held:
"the sixth clause of Section 433, namely, 'just and equitable' is not to be read as being ejusdem generis with the preceding five clauses. While the five earlier clauses prescribe definite conditions to be fulfilled for the one or the other to be attracted in a given case, the just and equitable clause leaves the entire matter to the wide and wise judicial discretion of the Court. The only limitations are the force and content of the words themselves, 'just and equitable"'.
Then, each case has to be decided on its own facts.
11. In Yenidje Tobacco Co.'s case (supra) two parties - R&W, who traded separately as tobacconists and cigarette manufacturers, agreed to amalgamate their businesses, and enabling them to do so formed a private limited company in which they were only shareholders and Directors. The constitution of the company was such that under the articles of association the two had equal voting powers, one Director was to form a quorum, and if any dispute or difference should arise consequent whereon inability to pass a Directors' resolution should result, the matter in dispute should be referred to arbitration, the award should be entered in the minutes book as a resolution duly passed by the Board. The company's business was successfully carried on until June, 1915, when differences arose between the parties. One of such differences was referred to arbitration, which, after a protracted hearing involving costs exceeding 1000 pounds resulted in an award to which R declined to give effect. He brought an action for fraudulent misrepresentation against W, and the parties became so hostile that neither of them would speak to the other, communications having to be conveyed between them through the Secretary of the company. In view of the said dead-lock and holding that the said tobacco company was a partnership in the form or guise of a private company, it was held that the circumstances justified the winding-up of the said concern.
12. In Loch's case (supra) the Privy Council dealt with a matter in which, public company was formed to carry on the testator's business and to divide the profits of it between members of his family entitled under his will to share them. The Managing Director had a preponderating voting power. The Directors had omitted to hold general meetings, or to submit accounts, or to recommend a dividend, and that they had laid themselves open to the suspicion that their object in so omitting was to kept the petitioners in ignorance of the company's position and affairs and to require the petitioners to sell their shares at an undervalue. In those circumstances, regard being had to the domestic character of the company, the petitioners were held to be entitled to a winding-up order. The Privy Council held:
"looking to the character and history of the company together with the fact that because of this peculiar situation where there was a preponderating voting power, the calling of a meeting of the shareholders would admittedly lead to failure, it would be unavailable as a remedy and that fact could not be excluded from the point of view of the Court in a consideration of justice and equity of pronouncing an order for winding-up".
In the above case, two independent principles have been invoked for winding-up on 'just and equitable' rule viz., (1) Analogy of partnership principle to dissolve a small, domestic, quasi-partnership concern and (2) When there is justifiable lack of confidence on the ground of lack of probity. But, it is pertinent to mention that at that time, there was no alternative remedy and only alternative remedy was an appeal to the domestic forum, which, on account of the peculiar constitution, could not provide for any effective remedy in such a case. The first principle of dissolution on partnership lines was thus held to be applicable in LOCH's case because it was a case of irreconcilable dead-lock by reason of the very constitution of that concern and when there was no other alternative statutory remedy. The whole emphasis of the Privy Council in the above case is on the fact that the appeal to the domestic forum was useless and that there was no alternative remedy at all.
13. The alternative remedy provision has been incorporated by Section 210 in the English Companies Act, 1948, which is in pari materia with Section 397 of the Indian Companies Act, 1956. The case in Ebrahimi (supra) is one arising after the said incorporation of alternative remedy provision in Section 210 of the English Companies Act. In Ebrahimi's case (supra) the appellant sought for an order that Nazar and George Nazar should purchase his shares in the company, alternatively sell their shares in the company to him, on such terms as the Court should think fit, alternatively that the company be wound up. The said plea of purchase of shares was not accepted, but an order of winding-up was passed. But the Court of Appeal allowed the appeal and set aside the said order and against the same, the above appeal has been filed before the House of Lords. The winding-up order passed by the company Court was restored by the House of Lords holding:
"all that happened was that without one being more to blame than the other the two could be no longer work together in harmony. "Had no company been formed Mr. Ebrahimi could have had the partnership wound up and though Mr. Nazar and his son were entitled in law to oust him from his directorship and deprive him of his income they could only do so subject to Mr. Ebrahimi's right to obtain equitable relief in the form of a winding-up order under Section 222(f)".
14. Rajahmundry Electrie Supply Corporation case (supra) arose under the Companies Act of 1913 and the corresponding provision to Section 433(f) of the Companies Act, 1956 was Section 162(vi) and the words employed are in pari materia. Dealing with the direct invocation of winding-up provision on the just and equitable theory, it was held by the Supreme Court:
"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. But, if in addition to such misconduct, circumstances exist which render it desirable in the interests of the shareholders that the company should be wound up, there is nothing in Section 162(vi) which bars the jurisdiction of the Court to make such an order".
In the said case, the Chairman did not function at all and in fact, abrogated his functions to the Vice-Chairman and the Vice-Chairman of the company grossly mismanaged the affairs of the company and had drawn considerable amounts for his personal purposes and there were substantial arrears due to Government for supply of electric energy and large collections had to be made, that the machinery was in a state of disrepair, that by reason of death and other causes the directorate had become greatly attenuated and a 'powerful local junta was ruling the roost' and that the shareholders outside the group of the Chairman were apathetic and powerless to set matters right and in those circumstances, the company Court had ordered winding-up of the company and the same was justified by the Supreme Court. But, it is to be noted that the said winding-up by direct invocation of Section 162(vi) without exhausting alternative remedy was because of those peculiar circumstances of the case, which were too serious where the company was in shambles and was in a state of disrepair.
15. In Shanti Prasad Jain's case (supra) the matter did not arise under Section 433 (f) of the Companies Act. In fact, on the allegations of oppression, a petition was filed invoking Sections 397 and 398 of the Companies Act and the company Judge held that there were grounds made out for taking action under Sections 397 and 398 and directions were issued. But, on appeal, the Division Bench had reversed the same and issued some directions and on further appeal to the Supreme Court, the order passed by the Division Bench was affirmed holding:
"the purpose of introducing Section 210 in the English Companies Act was to give an alternative remedy to winding-up in case of mismanagement or oppression. The law always provided for winding up, in case it was just and equitable to wind up a company. However, it was being felt for some time that though it might be just and equitable in view of the manner in which the affairs of a company were conducted to wind it up, it was not fair that the company should always be wound up for that reason, particularly when it was otherwise solvent. That is why, Section 210 was introduced in the English Act to provide an alternative remedy where it was felt that, though a case had been made out on the ground of just and equitable clause to wind up a company, it was not in the interest of the shareholders that the company should be wound up and that it would be better if the company was allowed to continue under such directions as the Court may consider proper to give".
16. Even the case in Needle Industries (India) Ltd. (supra), arose under Section 397 of Companies Act and not under Section 433(f). A company petition was filed in the Madras High Court invoking Sections 397 and 398 of the Act alleging oppression of some of the shareholders and the learned company Judge has allowed the said company petition and exercising his powers under Section 398 has issued some directions and me said order of the learned company Judge was upheld by the Division Bench. But, on further appeal to the Supreme Court it was held in the said case that there was no oppression on the part of the majority shareholders and that the provisions contained in Sections 397 and 398 of the Act were not attracted. The Supreme Court further held:
"on a true construction of Section 397, an unwise, inefficient or careless conduct of a Director in the performance of his duties cannot give rise to a claim for relief under that section. The person complaining of oppression must show that he has been constrained to submit to a conduct which lacks in probity, conduct which is unfair to him and which causes prejudice to him in the exercise of his legal and proprietary rights as a shareholder. It is not enough to show that there is just and equitable cause for winding-up the company, though that must be shown as preliminary to the application under Section 397. It must further be shown that the conduct of the majority shareholders was oppressive to the minority as members and this requires that events have to be considered not in isolation but as a part of a consecutive story. There must be continuous acts on the part of the majority shareholders, continuing upto the date of petition, showing that the affairs of the company were being conducted in a manner oppressive to some part of the members. The conduct must be burdensome, harsh and wrongful and mere lack of confidence between the majority shareholders and the minority shareholders would not be enough unless the lack of confidence springs from oppression of a minority in the management of the company's affairs, and such oppression must involve at least an element of lack of probity or fair dealing to a member in the matter of his proprietary rights as a shareholder". It is pertinent to mention that in the above two cases, petitions were filed under Sections 397 and 398 of the Act and the same were tried by the respective High Courts on original side as a company Court. But, in view of Companies (Amendment) Act, 1988, which came into force from 31-5-1991, the jurisdiction to try the matters under Sections 397 and 398 of the Act has been vested with the Company Law Board.
17. Coming to another case strongly relied upon by Mr. B. Tarakam, the learned senior Counsel appearing for the appellant, in Ramakrishna Industries (P) Ltd., case (supra), a Division Bench of Madras High Court held:
"the words 'on hearing a winding-up petition' occurring in Section 443(1) of the Companies Act, 1956 covers the entire period from the date of entertainment of the petition and issuing of notice till an actual order of winding-up is made or the winding up petition is dismissed and that 'hearing' does not mean hearing the respondent to the petition and that hearing the petitioner for the purpose of admitting the petition and issuing notice is also part of the hearing of the winding-up petition. It was also held that even at the stage of admitting the winding-up petition, or entertaining the winding-up petition, the Court has inherent powers to do that which is necessary to prevent the abuse of the process of the Court or to advance the cause of justice or make such orders as are necessary to meet the ends of justice and that this inherent power of the Court is not taken away or in any way restricted by Section 443(1) of the Companies Act". In the said case, the appeals were filed against the order of the learned single Judge (Company Court) granting injunction and also appointing an Official Liquidator as the provisional Liquidator pending winding-up petition. Both before the learned single Judge and the said Division Bench, the learned Counsel for the appellant questioned the maintainability of the application for injunction. This was on the ground that the main winding-up petition was not set for hearing and that, therefore, Section 443 of the Companies Act cannot be invoked by the applicants and that the applications cannot also be sustained either under Order 39, Rule 1 of CPC or under Rule 9 of the Companies (Court) Rules, 1959. It was found as a fact that there was manipulation of records, particularly the minutes books relating to the meeting of the Board of Directors, by making false entries in the Minutes Book relating to the meeting, taking advantage of the custody of the minutes books in their hands, collusive transfer of shares held by the company in Radhakrishna Mills Ltd. to Sri Kanchanlal Hiralal Nanvathi and another at the instance of Vysya Bank Ltd., making false entries in the general body minutes book, transferring 300 shares held by the trust in favour of the third appellant fraudulently and in illegal manner in order to gain superiority in the strength of the shareholding, making feverish attempts to dispose of some of the valuable assets of the company as could be seen from the resolution dated September, 25, 1979 and some other facts. In that context, it was held "on the above findings, there is no scope for the contention that the respondents have an alternative remedy of resorting to the provisions of Sections 397 and 398 of the Companies Act and the other argument that the applications for injunction and for the appointment of a provisional liquidator would amount to interfering in matters of internal administration of the company. There is also no substance in the contention of the appellants that by reason of the institution of certain suits in civil Courts, the respondents should be deemed to have availed of the alternative remedy in the form of suits and that consequently they cannot file the petition for winding up. As pointed out by the learned Judge, the relief sought for in this Court could not have been obtained in the suits instituted by the respondents and, therefore, no question of election could arise".
On the above grounds, the OSAs were dismissed. The facts of the above case make it clear that they have no bearing on the facts of the instant case.
18. As seen from the above, none of the cases relied upon by the learned senior Counsel appearing for the appellant supports his submission for the direct invocation of Section 433(f) of the Act without exhausting the alternative remedy provided in Sections 397 and 398 thereof and other reliefs providing short of winding-up to rectify irregularities, if any, in the functioning of the company.
19. Coming to the case law relied upon by the learned Counsel appearing for the respondents, In re Atul Drug House Ltd. (supra), it was held:
"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 there 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. It was also held that the petitioners therein had alternative remedies under Sections 397 and 398 and that they had availed of their remedy of investigation under Section 408 and failed to disclose this fact in their petition and that the petition for winding up could not, therefore, be admitted".
The above view was approved by the Supreme Court in case of Hind Overseas company Limited (supra), which is a company registered under the Companies Act and in which Section 433(f) of the Act was directly invoked without exhausting the alternative remedy provided under Sections 397 and 398 of the Act and dealing with the specific provision contained in Section 443(2) of the Act which ordains exhaustion of alternative remedy before initiating winding-up proceedings contained in Section 433(f) of the Act and reviewing the important judgments on the subject including that of Yenidje Tobacco Co., case (supra), LOCH's case (supra), Rajahmundry Electric Supply Corporation case (supra) and Ebrahimi's case (supra), it was held:
"when more than one family or several friends and relations together form a company and there is no right as such agreed upon for active participation of members who are sought to be excluded from management, the principles of dissolution of partnership cannot be liberally invoked. Besides, it is only when shareholding is more or less equal and there is a case of complete dead-lock in the company on account of lack of probity in the management of the company and there is no hope or possibility of smooth and efficient continuance of the company as a commercial concern.
there may arise a case for winding-up on the just and equitable ground". It was further held by the Supreme Court:"in a given case the principles of dissolution of partnership may apply squarely if the apparent structure of the company is not the real structure and on piercing the veil it is found that in reality it is a partnership. In a petition under Section 433(f) allegations therein are of primary importance. A prima facie case has to be made out before the Court can take any action in the matter. Even admission of a petition which will lead to advertisement of the winding-up proceedings is likely to cause immense injury to the company if ultimately the petition has to be dismissed. The interest of the petitioner alone is not of predominant consideration. The interests of the shareholders of the company as a whole apart from those of other interests have to be kept in mind at the time of consideration as to whether the petition should be admitted on the allegations mentioned in the petition. The sixth clause of Section 433, namely, 'just and equitable' is not to be read as being ejusdem generis with the preceding five clauses. While the five earlier clauses prescribe definite conditions to be fulfilled for the one or the other to be attracted in a given case, the just and equitable clause leaves the entire matter to the wide and wise judicial discretion of the Court. The only limitations are the force and content of the words themselves, 'just and equitable'. In view of Sections 397, 398 and 443(2), 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 interests of the company. There must be materials to show when 'just and equitable' clause is invoked, that it is just and equitable not only to the persons applying for winding-
up but also to the company and to all its shareholders. The company Court will have to keep in mind the position of the company as a whole and the interests of the shareholders and see that they do not suffer in a fight for power that ensues between two groups". It was further held in the said case that although the Indian Companies Act is modelled on the English Companies Act, the Indian law is developing on its own lines and the Courts will have to adjust and adapt, limit or extend, the principles derived from English decisions, entitled as they are to great respect, suiting the conditions of Indian Society and the country in general, always, however, with one primary consideration in view that the general interests of the shareholders may not be readily sacrificed at the altar of squabbles of Directors of powerful groups for power to manage the company".
20. The two decisions relied on by the learned Counsel for the respondents in Mani's case (supra) and V.V. Projects and Investments case (supra), which have been decided following the ratio decidendi in Hind Overseas Ltd. case (supra) have also got bearing for decision in this case. In Mani's case (supra), a learned single Judge of this Court held that a Court will not order wind up of a private company under the provision of Section 433(f) merely because a shareholder or a group holding 1/3rd or even 40% shareholding, just chooses to ask for it and that the Court must see whether their request is genuine and whether it is just and equitable to the company and to all its shareholders to wind up. It was also held:
"there must be material to show that the petitioner, or petitioner's group, as the case may be, has been oppressed or has been unjustly excluded from the management and affairs of the company. The very fact that it is left to the discretion of the Court and that the Court has to be satisfied that it is just and equitable to wind up a company, means that the Court is entitled to see the conduct of both, or all the groups, and see whether the demand for winding up is justified or not. It is also to be seen whether the petitioner does not have other remedies open to him for redressing the oppression or unreasonable exclusion, if any, complained of by him, such as under the provisions of Sections 397 and 398 of the Companies Act".
Ebrahimi 's case (supra), Hind Overseas (P) Ltd. case (supra), and Yenidje Tobacco Ltd. case (supra) were referred to.
21. In V. V, Projects And Investments (P) Ltd. case (supra), a learned single Judge of this Court held that 'just and equitable' clause under Section 433(f) of the Companies Act will not attract, if any other remedy is available. Hind Overseas case (supra) and other cases were referred to.
22. As seen from the above, the Court's jurisdiction to wind-up on the 'just and equitable' ground is longstanding, dating back to the 19th century and that where a petition is successful, it follows that the Court orders rather drastic remedy of a winding-up. That is the reason as to why Sections 397 and 398 have been enacted in the Act analogous to Section 210 of the English Companies Act, 1948 providing a genuine and more attractive alternative to a winding-up petition and to set right the affairs of the company. The legal principles enunciated by the Supreme Court in Hind Overseas Limited case (supra) to the effect that company cannot be wound up merely because there are differences between the shareholders and particularly when the company is running on sound lines, that if any misunderstandings or problems arise between the shareholders, the same have to be sorted out by alternative methods, that winding-up petition cannot be entertained unless alternative remedies are exhausted and that winding-up of a company is a harshest remedy and should be entertained as a last resort, are fully applicable to the facts of this case. The effect of Section 443(2) of the Act has also been considered by the Supreme Court in the above case. A contrast between the provisions under clause (a) to (e) of Section 433 of the Act on one hand and clause (f) thereof on the other makes it abundantly clear that statute itself created a bar under Section 443(2) of the Act from entertaining a winding-up petition on 'just and equitable' grounds when alternative remedy is available. The appellant makes several allegations including that of forgery against the 2nd respondent and as stated by the learned single Judge, those are not the facts and circumstances, which can form basis for winding-up of the company on 'just and equitable' grounds. The learned single Judge has considered the matter in minute details and had applied the correct legal principles in refusing to admit the winding-up petition. The facts of the instant case show beyond doubt that even if there are squabbles between the appellant and the 2nd respondent, the same had no adverse affect on the functioning of the company and that the other Directors have been effectively discharging their functions by running the business on profitable lines and annual reports show beyond any shadow of doubt that the company is a solvent, flourishing and a running concern and that the company petition itself is not fit to be admitted as the very public advertisement of admitting of a company petition would be irreparable and irreversible. Further, there is no explanation forthcoming from the appellant as to why he did not or cannot pursue the alternative remedies and he did not make out a case of lack of probity. He did not make out any case of prejudice to company's business or affecting his rights as a shareholder. The interest of 15,144 shareholders is being safeguarded by the company very well and dividends are being paid regularly to all shareholders including the appellant.
23. In view of what is stated supra, there is no warrant to wind-up the company and to invoke Section 433(f) of the Act and we are in full agreement with the view taken by the learned company Judge that the winding-lip petition is not maintainable.
24. The appeal is thus dismissed. No costs.
P.S. Narayana, J.
25. I totally concur with the opinion expressed by my learned Brother in dismissing the appeal as devoid of merits. But, however, I intend to add a few words to the well-considered judgment of my learned Brother. The factual matrix and the other details narrated by my learned brother do not need any repetition. The allegations are of cheating, non-allotting of shares, obtaining certain blank papers, forging the letter of resignation, being involved in fraudulent acts and respondent No.5 not obtaining study leave etc.
26. Mr. Tarakam, the learned senior Counsel had made very serious attempt to make out a prima facie case in favour of the appellant. The learned Counsel had failed to substantiate those allegations.
27. Mr. Ramesh Ranganathan, the learned Counsel representing the 1st respondent pointed out the serious consequences that flow from the admission of the company petition of this nature seeking the relief of winding-up on equitable grounds. Even if the allegations have some element of truth, still, winding-up petition is not a proper remedy and it is a mis-conceived remedy. The learned Counsel further had rightly pointed out Sections 397, 398, 233-A to 234, 283, 284, 209-A, 219, 233 and Section 71 of the Indian Companies Act, 1956 and had explained several remedies available to the appellants. Sections 397 and 398 and also Sections 233-A to 234 of the Companies Act, 1956 provide certain remedies. It is needless to point out that the common law remedy by way of a suit always is available in a case of this nature. Further, a company registered under the Companies Act is a legal person separate and distinct from its individual members. An incorporated company has separate existence and law recognises it as a juristic person separate and distinct from its members. (Salomon v. Salomon and Co., 1897 AC 22, Heavy Engg, Mazdoor Union v. Stare of Bihar, 1970 (1) SCJ 35. The Courts are expected to look into the interests of the company first and it is always safe to promote the individual grievances of persons associated with the company as a legal personality to work out their remedies and to have redressal of their grievances as provided for under different provisions of the Act, the last resort being winding-up. Normally, this remedy should not be resorted to, unless the other equally efficacious remedies provided by the Act are exhausted. The very nature of allegations made against respondents 2 and 5 go to show that the company petition is not bona fide and one arising out of personal prejudice. Courts are concerned with the legal rights of the parties and the remedies relating thereto and not grievances arising out of prejudice for extraneous reasons, which can be inferred from the conduct of the party and the circumstances relating thereto.
28. Section 433 of the Act deals with several circumstances in which company may be wound up by the Court and the opening words of the provision "A company may be wound up by the Court" clearly go to show that the provision itself is discretionary, discretionary in the sense, judicious discretion only. Section 433(f) of the Act specifies "if the Court is of the opinion that it is just and equitable that the company should be wound up". What is the meaning of the words 'just and equitable'. In Davis Co. v. Brunswick (Australia) LD., AIR 1936 PC 114, their Lordships of the Privy Council observed that no general rule can be laid down as to the nature of the circumstances which have to be borne in mind in considering whether the case comes within the phrase 'just and equitable' for purposes of winding-up. In R.E.S. Co., Ltd v. Nageswara Rao, 1956 ALT 279, Their Lordships held that the words 'just and equitable' specified in Section 433 of the Act were not to be read as ejusdem generis with the preceding words of the enactment. (J.A. Raghurama v. East Coast T & S Co., AIR 1958 AP 259. In P.K. Shah v. Rinku Polychem Ltd., (2000) 100 CC 170, it was held that the company petition was filed as a pressure tactic. It is an abuse of process of the Court and widespread publication of the company petition of the acceptance or the admission would cause irreparable loss to the company. In N.M. Shah v. Atul Drug House, 1970 (2) Comp.LJ 274, it was observed that it would be the bounden duty of the petitioner to disclose material facts as to the alternative remedies, which they have availed of or which are available to them. In Senthil Kumar v. Sudha Mills (India) Pvt. Ltd. (Madras), (2001) 103 CC 1029, it was held that under Section 443(2) of the Companies Act, the Court shall decline the wind-up the company on just and equitable grounds, if the Court is of the opinion that some other remedy is available to the petitioner and they are acting unreasonably in seeking to have company wound up instead of pursuing other remedy. In this context, the decision in Raghunath Swamp Mathur v. Har Swarup Mathur, (1970) 40 CC 282, also laid down the same proposition. In Daulat Makanmal Luthria v. Solitaire Hotels, (1993) 76 CC 215, it was held that the vague allegations of mismanagement were of no consequence and the winding-up has to be resorted to only where other means had failed. In Prem Seth v. National Industrial Corpn. Ltd. (Delhi), (2001) 103 CC 1011, it was held that even where the averments constitute oppression and mis-management, a winding-up petition is not maintainable. In Smt. Abnash Kaur v. Lord Krishna Sugar Mills Ltd. (Delhi), (1974) 44 CC 390, it was observed as follows:
"The Law required the Court to form an opinion about the equitable nature of the case. Equity jurisdiction, thus, has been vested in the Court by the statute itself; and then it is not imperative on the Court to make a winding-up order even if the Court forms the opinion that it was just and equitable to do so. The use of the word "may" creates a further discretion in the Court to order or not to order a winding-up. The discretion cannot be exercised arbitrarily or according to one's own will or whim. It has to be regulated by law and the well-known rules of equity in order to assist the taw, allay its rigour, advance the remedy and to relieve against abuse".
29. In the light of the foregoing discussion and also in the light of the detailed judgment relating the other factual aspects by my learned Brother, I am in entire agreement with the reasons recorded by my learned Brother in this regard. Hence, I have no hesitation to hold that the appeal, is devoid of merits and is liable to be dismissed. But, however, in the facts and circumstances of the case, no order as to costs.