ORDER
Krishna Saran Shrivastav, J.
1. This is an application for winding up of the respondent company under Section 433(f) read with Section 439(1)(c) and (4)(b) of the Companies Act, 1956.
2. It is not disputed before me that the respondent company was incorporated as a private limited company on 13.4.1983. The nominal capital of the respondent company is Rs. 30,00,000 divided into 3,000 equity shares of Rs. 1,000 each as on 31.3.1994. The issued, subscribed and paid up capital of the respondent company as on 31.3.1994 was Rs. 12,25,000 divided into 1,225 equity shares of Rs. 1,000 each. Kodali Shiv Kumar, the deceased petitioner No. 1 had 126 equity shares in the respondent company and was a director till his death. The petitioners 2 to 8 are also shareholders holding 418 equity shares in the total equity share capital of Rs. 12,25,000 divided into 1,225 equity shares of Rs. 1,000 each. The first petitioner has expired during the pendency of these proceedings.
3. The main object of the respondent company was to acquire, promote, establish or take on lease rice mills to convert paddy into raw rice and boiled rice and to sell the rice bran and husk so obtained in the market and also to acquire, takeover, promote, establish and carry on the business of manufacture of oils from cottonseed, groundnut, castor, etc. In the year 1985, the object clause in the memorandum and articles of association was amended by inserting Sub-clause 5(b) which provided that the respondent company to purchase and acquire, maintain, apply and let on hire lorries and other transport vehicles and to carry on the business of transport contractors, etc. The deceased, namely, Kodali Shiv Kumar, was the first promoter and permanent director, while Gaddipati Sambasiva Rao has been the managing director of the respondent company since its incorporation. The rice mill could not be constructed in Tenali. The pillars that had been raised had fallen down in the cyclone in the year 1990. One Navodaya Rice Mill had been taken on lease for a period of three years/but the respondent company suffered loss and the lease was terminated by mutual consent after first year only. The respondent company had purchased a lorry. Tata Benj bearing No. ADF 9342, but it was disposed of in the year 1986 to one A. Shyam Prasad. It is alleged in the petition that the respondent company though incorporated in the year 1983 could not construct the rice mill till today. The respondent company could not start the business of converting paddy into raw rice, etc., as it could not construct the rice mill. The small construction done had fallen to the ground in 1990. It could not run the rice mill, namely, Navodaya Rice Mill as it suffered loss. For transporting business, the lorry that had been purchased had also to be sold out. It is further alleged that the respondent company had huge unused stock of bricks, steel, sand, cement, granite chips and Cuddapah slabs worth Rs. 3,00,000 and this material could not be utilised in the construction of rice mill. The managing director of the respondent company, namely, Gaddipati Sambasiva Rao, misappropriated the said materials by utilising the same in the Ashram and the Navodaya Rice Mill which had been taken on lease. It is also alleged that the lorry had been sold for a sum of Rs. 1,42,500 ; but the said managing director had credited only an amount of Rs. 90,000.00. It is also alleged that the managing director did not convene the Board meeting during the month of July, 1988. He also did not call any annual general meeting to discuss affairs of the company three years preceding the date of presentation of the petition. The business activity of the respondent company has been closed and no business had been done for the last eight years.
4. It is also alleged that the managing director of the respondent company had leased the agricultural land belonging to the respondent company to his son in the year 1994-95 for a lease money of Rs. 21,000 only without calling Board meeting and obtaining even the consent of the shareholders, but has wrongly recorded the resolution passed in the meeting allegedly called on 24.12.1994. The managing director had called an extraordinary general meeting on 27.2.1996 with a view to induct his brother, son, brother-in-law as members of the Board of directors and also co-opted one of his business partners, P. Sambasiva Rao, and Basivi Reddy as directors of the company with a view to eliminate the then first petitioner, but he was restrained to do so as the petitioners had filed a civil suit in O.S. 11 of 1996 in the Court of Principal Subordinate Judge, Tenali, and had obtained a temporary injunction and the suit is pending. The purpose for which the respondent company was incorporated could not be achieved and the substratum of the respondent company has gone. Therefore, it is just and equitable to wind up the respondent company.
5. Through the counter, the managing director of the respondent company has denied the allegations made in the petition for winding up of the respondent company.
It is pleaded that for the purpose of earning profits, rice mill has been taken on lease, but it suffered loss and, therefore, by mutual consent, the lease deed was terminated. It is alleged that incidentally, the said rice mill taken on lease belongs to the firm of which the managing director of the company was also a managing partner. Anticipating huge future loss, the lease deed was terminated in the first year. He denied that huge unused stocks of bricks, steel, sand, cement, granite chips and Cuddapah slabs worth Rs. 3,00,000.00 were kept in the premises of the respondent company or the managing director has misappropriated these material by converting the same for the construction of Ashram or Navodaya Rice Mill which had been taken on lease for running the business. It is alleged that the company had carried on construction work from 1983 to 1987, but due to cyclone in the year 1990, the construction was badly damaged. As per the audited balance sheet in the year ending 30.9.1985, the value of the material was shown to be Rs. 5,532.00 and as per the balance sheet for the period ending 31.11.1996, it was Rs. 14,022.00. This material was utilised in the construction of rice mill, but for want of funds, the construction could not be done. He has also denied that the lorry was sold for Rs. 1,42,500.00 and the managing director has credited only a sum of Rs. 90,000.00 or has misappropriated the amount of Rs. 52,500.00. It is also denied that the managing director had not called the Board meeting since July, 1988, or he had not called the annual general meeting since three years and had not discussed the affairs of the company. He also denied that the telephone expenses were debited to the account of the respondent company by the managing director. It is alleged that the deceased-respondent used to write the minutes of the proceedings as no company secretary had been appointed, and he has also alleged that the annual meeting was called on 31.3.1994 and on 26.12.1994 after due notice to all the shareholders. It is alleged that out of Ac. 6.23 cents, the cultivable land was only Ac. 3-5 acres. The amount of lease of Rs. 21,000 was reasonable. The land has been leased out to his son with the consent of the shareholders. The managing director has been taking reasonable steps for construction of the rice mill. The managing director was exploring various alternatives to carry on the business of the company. But due to lack of funds and non-cooperation of the deceased first petitioner, their scheme could not be materialised. He has also denied that with a view to induct his relations, the managing director convened a meeting which has been stayed under the orders of the court passed in O.S. No. 11 of 1996. Under these circumstances, it is alleged that the petition is devoid of merits and, therefore, it should be dismissed.
6. This is a matter of record that the petition was admitted for hearing on 16.7.1997. Initially, publication was deferred but advertisement was ordered to be published vide docket order, dated 27.8.1997. The proof of publication was filed on 29.9.1997. During the pendency of the petition, the first petitioner has expired and cause title was accordingly amended.
7. A.S.C. Bose, PW-1 was permitted to file his affidavit in lieu of evidence. He filed his affidavit and he was examined and cross-examined. The petitioners closed their case and the managing director of the respondent company also filed his affidavit in lieu of examination-in-chief and he was cross-examined and discharged. The respondent company also closed its case.
8. I have heard the arguments of the learned counsel of both the sides.
9. A.S.C. Bose, PW-1 has stated that he is holder of power of attorney on behalf of the remaining petitioners which is at Exh. P-1. He has filed number of balance sheets of the respondent company ending on 31.3.1990, 31.3.1991 and 31.3.1994 which are at Exhs. P-3 to P-5 and also the annual return of the respondent company and list of shareholders which is at Exh. P-6. He has stated in his affidavit that he did not receive any notice for Board meeting. In cross-examination, he has stated that the Board meeting was not conducted since 1988. He did not get any notice from the company. He denied that the annual general meeting was conducted for the last five years, but the fact remains that the respondent company has not filed copy of the notice alleged to have been served on the petitioners with acknowledgements intimating them that the meeting had been fixed on a particular day. Therefore, the only conclusion that can be drawn is that no Board meeting had been conducted since 1988.
10. PW-1, A.S.C. Bose, in his cross-examination, has stated that he had not filed any document to show that the value of unfinished goods and materials was worth Rs. 3,00,000. Therefore, it is difficult to accept his say that the value of the unfinished stocks was worth Rs. 3,00,000. He has stated in examination-in-chief that the material has been utilised in Navodaya Rice Mill. But there is no material on record to support his say. He has stated in the cross-examination that he has not mentioned in the affidavit regarding the value of the lorry sold by the managing director. G. Sambasiva Rao, RW-1, managing director of the respondent company, had denied in the counter that the lorry had been sold for Rs. 1,42,000 and odd. According to him it was sold for Rs. 90,000.00 and the same amount has been credited in the books of accounts of the respondent company. Under these circumstances, the statement of G. Sambasiva Rao, RW-1, is to be preferred to the statement of A.S.C. Bose, PW-1 that the lorry in question had been sold for only Rs. 90,000.00 and the amount has been credited in the books of accounts of the respondent company correctly.
11. In cross-examination, A.S.C. Bose and PW-1 has stated that he has not complained to the managing director that he can make a better offer for taking the lands belonging to the respondent company on lease, but he has also stated that he was not aware about the lease transaction. He has denied that out of Ac. 6-23 cents only 3 acres of land was fit for cultivation. He has stated that only 80 cents out of Ac. 6-23 cents of the land was not fit for cultivation. He has denied that the money of Rs. 21,000 per year is excessive. On the other hand, G. Sambasiva Rao, RW-1, has stated that only three acres out of Ac. 6.23 cents was fit for cultivation which was given to his son on yearly lease of Rs. 21,000. He has accepted in his cross-examination that he did not put any notice for leasing out the land. Though he has stated that he had tried to lease out the land, but he could not get any prospective lessee, but his evidence is not corroborated by independent evidence.
12. For the foregoing reasons, I prefer the statement of A.S.C. Bose, PW-1 to that of the RW-1, G. Sambasiva Rao, that out of Ac. 6-23 cents, only 80 cents of the agricultural land was not fit for cultivation. The managing director, i.e., G. Sambasiva Rao (RW-1) did not publish notice for leasing out the land belonging to the respondent company. He has not examined any broker to support his say that he could not find a better lessee than his son to lease out the agricultural land for Rs. 21,000. There is no acceptable evidence on record that consent of the other shareholders was obtained before leasing out the lands of the company. Therefore, it is reasonable to infer that the land leased out to the son of the managing director for Rs. 21,000 was without the consent of the shareholders and the lease amount appears to be on a lower side.
13. G. Sambasiva Rao has stated on oath that the telephone expenses have been shown correctly in the books of account. Only the rentals have been paid. Therefore, the allegation of the petitioner that personal calls were made and credited to the accounts of the respondent company remains unproved.
14. The managing director, G. Sambasiva Rao, has accepted in cross-examination that the purpose for which the company was floated could not be achieved till today i.e., till he was examined in the court on 22.6.1999. The company had been floated in, 1983. Thus, it is evident that the purpose for which the company was floated in the year 1983 could not be achieved till today. From the admission made in the counter filed by the respondent company, it is also established that the respondent company has no funds for the construction of the godown for storing of foodgrains and the rice mill could not be constructed for want of funds. On his own admission, it is established that from the year 1990, there was no activity of the respondent company. I have also found that the Board meeting could not be conducted since 1988.
15. In the case of Hind Overseas (P) Ltd. v. Raghunath Prasad Jhunjhunwalla , it is held that in a company petition under Section 433(f) of the Indian Companies Act, the petitioner must show that it is just and equitable to wind up the company. There must be material to show, when just and equitable clause is invoked, that it is just end equitable not only to the persons who applied 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 interests of the shareholders and to see that they do not suffer any fight for power that ensues between the two groups; The 6th clause of Section 433 of Companies Act, namely, just and equitable’ clause, is not to be read as being ejusdem generis with the preceding five clauses. The just and equitable clause leaves the entire matter to the wide and wise judicial discretion of the court.
16. The judgment rendered in the case of Hind Overseas (P) Ltd. v. Raghunath Prasad Jhunjhunwalla , supra, has been followed in the case of B.V.S.S. Mani v. Beehive Engineering and Allied Industries (P) Ltd. (1989) 65 Comp Cas 305 (AP), in the case of Gadadhar Dixit v. Utkal Flour Mills (P) Ltd. (1988) 2 Comp LJ 115 (Ori): (1989) 66 Comp Cas 188 (Ori), and in the case of Bombay Gas Company v. Hindustan Mercantile Bank Ltd. (1980) Comp Cas 202 (Cal). In all these cases, it is held that it must rest with the judicial discretion of the court depending upon the facts and circumstances of each case whether the company should be wound up on the principles of just and equitable grounds and while deciding so, the interest of the applicant alone is not of predominant consideration but interest of the shareholders of the company as a whole apart from other interests has to be kept in mind at the time of consideration as to whether the company should be wound up or not. The relief under Section 433(f) of the Companies Act is discretionary, and the court may refuse to make an order for winding up if it is of the opinion that some other remedies are available to the petitioner.
17. Testing the facts of the case on that touchstone, law laid down by the apex court and various High Courts and referred to above, I hold that substratum of the respondent company has gone for the reason, that it has got no funds for the construction of the rice mill or to do the business in rice as it failed to carry on the business in the rice mill which it had previously hired, that the transport business also failed, and the lorry purchased had to be sold out. The Board meeting as also the annual general body meeting could not be convened for the last so many years and that the managing director of the company though claimed to have made attempts yet could not accumulate funds in an attempt to proceed with the construction work of the rice mill or to do the business. He could only succeed in leasing out the land belonging to the respondent company to none else but to his son on a lease money of Rs. 21,000.00 only, which as noted above appears to be on the lower side. Right from the year 1983 till today, as the company could not do any substantial work, it has become defunct. Therefore, it appears to be just and reasonable and fair in the interest of all the shareholders including the managing director of the company in liquidation to wind up the respondent company.
18. In the result, the petition is allowed. The respondent company is ordered to be wound up under Clause 6[(f)] of Section 433 of the Indian Companies Act. The Official Liquidator shall forthwith take charge of all the property and effects of the company. The official liquidator shall cause a sealed copy of this judgment to be served on the companies by pre-paid registered post. The petitioners shall advertise the notice in ‘Deccan Chronicle’ and ‘Andhra Jyothi’ newspapers within fourteen days and shall also serve a certified copy of the order on the Registrar of Companies not later than one month from the date of receipt of a copy of this order, and the costs of the said petition be taxed and paid out of the assets of the company. The petitioners shall deposit Rs. 10,000 (rupees ten thousands only) with the official Liquidator to meet the initial expenditure. Costs as incurred.