JUDGMENT
P.C. Jain, J.
1. In this petition, under Section 439(5) read with Section 433(c) and (f) of the Companies Act, 1956, the Registrar of Companies as a petitioner has prayed that the respondent, M/s. Jaipur Stock Exchange Ltd., Jaipur, a company incorporated under the Companies Act, 1956, be ordered to be wound up by this court.
2. The facts of the case lie in a narrow compass and may be stated thus : The respondent company was incorporated on December 28, 1983, as a company limited by guarantee having no share capital. It is alleged that since the date of incorporation, the respondent company had not commenced its main business of stock exchange within a year from the date of its incorporation for which the company was formed. It is also alleged that the company has failed to obtain permission from the Stock Exchange Division, Department of Economic Affairs, Ministry of Finance, as required by the provisions of the Securities Contracts (Regulation) Act. The petitioner alleged that he had received complaints from the Federation of Employees of Delhi, Gujarat, Haryana and Rajasthan against the affairs
of the company, wherein allegations were made that some of the promoters of the company were carrying on the activities with ulterior motive and requested cancellation of their registration. In view of the allegations made in the petition, the petitioner contended that it is clearly established that the respondent company has not commenced its business within a year from the date of its incorporation and it is a fit case that the company may be wound up under the provisions of Clause (c) of Section 433 of the Companies Act, 1956 (hereinafter referred to as “the Act”). It is also alleged that it is just and equitable that the company should be wound up under the provisions of Clause (f) of Section 433 of the Act. The petitioner, Registrar of Companies, is required to obtain the previous sanction of the Central Government under Section 439(5) of the Act. It is, therefore, stated that the Regional Director has accorded sanction for moving the winding-up petition before this court.
3. The petition has been contested by the respondent company. It is contended by the respondent company that as per the objects contained in the memorandum and articles of association of the company, it is clear that the company was incorporated within the meaning of Sections 12 and 25 of the Act for promoting commerce and other useful objects and it intends to apply the income, if any, in promoting its objects and to prohibit the payment of any dividend to its members as required under Section 25 of the Act. It is also contended that the petitioner has failed to make a distinction between an ordinary company formed solely or mainly for the purpose of business and to share profits amongst its members by payment of dividends, etc. The respondent company has been formed mainly for the purpose of promoting commerce and other useful objects and does not intend to apply its profits, if any, or other income for any purpose except for promoting its objects. It specifically prohibits payment of any dividends to its members. The object of the company is to control, support and protect the brokers, dealers and jobbers in stocks. The respondent company further contends that for achieving the objects of the company, it is required to comply with the provisions of the Securities Contracts (Regulation) Act, 1956 (hereinafter referred to as “the Regulation Act”). In Section 4 of the Regulation Act it is provided that all the activities for attaining the main objects of the exchange can be started only after the grant of recognition to stock exchange by the Central Government and the competent authorities. It is also pleaded that before such a recognition can be granted by the Central Government, numerous requirements of the Act have to be complied with, for which all necessary steps have been taken by the respondent company from time to time. The respondent company emphatically denied that it has failed to obtain the requisite permission from the Central Government under the provisions of the Regulation Act. In fact, the case of the respondent company is that it has taken all steps within its power to secure and expedite incorporation and, thereafter, its recognition. The respondent also pointed out that it was only at the request of the promotors that the Secretary, Industries Dept., Government of Rajasthan, wrote a letter on June 18, 1983, to the Controller of Capital Issues to approve the draft memorandum and articles of association of the stock exchange and it was thereafter that the memorandum and articles of association of the Jaipur Stock Exchange were approved by the Ministry of Finance and it was directed to take necessary steps for incorporation of the stock exchange under Section 12/25 of the Act. Immediately, after the incorporation of the company, the respondent addressed a letter to the Jaipur Development Authority for allotment of a suitable land to enable the stock exchange to erect its own office. The respondent company further stated that regular meetings of the board of directors were convened and held wherein several decisions were taken to expedite the process of recognition. The respondent company also made it clear that it was on account of certain circumstances beyond its control that the completion of certain formalities and submission of application form for recognition took some time as some civil suits were filed by certain interested parties and an interim order was obtained. The suit was filed on May 2, 1984, and an injunction order was obtained on May 3, 1984. One more suit was filed on or about May 31, 1984, by one Sunderdas for declaration and injunction against the respondent in the Court of Munsiff (West), Jaipur City, Jaipur. Thus, these civil litigations created a great hindrance in the way of taking further steps by the respondent company to obtain recognition from the Government. The nominee of the Industries Department of the Government of Rajasthan, nominated by the Central Government for resolving all such problems and disputes was also changed from time to time. The difficulties could not, therefore, be resolved at an early date. The respondent company also took some time to prepare bye-laws to regulate the exchange activities. Bye-laws were finalised on October 31, 1985, which run into 190 pages. The case of the respondent company is that it is at the behest of certain interested persons, including Mewar Stock Exchange Ltd. and Pink City Stock Exchange Ltd. that the Registrar of Companies has filed this winding-up petition and the Regional Director, Kanpur, has granted the sanction in hot haste. Lastly, it is the case of the respondent company that the provisions of Section 433 of the Act are attracted only when it is proved beyond doubt that the company has no intention to commence its business and no activities have been initiated by the company in this regard, or that the company has become commercially insolvent.
4. Section 433 of the Act says that a company may be wound up by the court under the circumstances detailed in Clauses (a) to (f) of the said section, and provides that the company may be wound up by the court if the company does not commence its business within a year from its incorporation, or may be wound up if the court is of the opinion that it is just and equitable that the company should be wound up. Thus, the petitioner has taken two grounds for contending that the respondent company may be wound up by the court. These two grounds are as follows :
1. That the respondent company failed to commence its business within one year of its incorporation.
2. That it is just and equitable that the company may be wound up.
5. The Registrar of Companies before filing a petition for winding up approached the Regional Director for according sanction. The Registrar of Companies requested the Regional Director to accord sanction to the presentation by him of a petition to this court for winding up on the ground mentioned in Clause (c) of Section 433 of the Act. But, from the order of sanction, it appears that the Regional Director accorded sanction to presentation by the Registrar of Companies of a petition to this court for the winding up of the respondent company on the grounds mentioned in Clauses (c) and (f) of Section 433 of the Act. In such circumstances, Shri Bhandari, learned counsel for the respondent company, has raised a preliminary objection that the petition is not maintainable on the ground set forth under Clause (f) of Section 433 of the Act, as the sanction was desired by the Registrar of Companies, Jaipur, for the winding up of the company by invoking the provisions of Section 433(c) of the Act. Section 433 of the Act deals with the circumstances in which the company may be wound up by the court. The circumstance envisaged under Clause (c) of Section 433 is that, “if the company does not commence its business within a year from its incorporation, or suspends its business for a whole year”. The circumstance, in this respect invoked by the Registrar in the case, is the fact that the company has not commenced its business within a year from its incorporation. The company was incorporated on December 28, 1983. It is an admitted position that the company has not commenced its business within a year from its incorporation. But the question raised is, whether simply because the company has not commenced its business within a year of its incorporation, it is sufficient to pass an order for the winding up of the company.
6. Shri Gupta, learned counsel for the petitioner, submitted that since the fact of non-commencement of the business within one year of its incorporation has been established and even admitted by the respondent
company, as such, the petitioner is not required to prove any other thing for seeking an order of winding up of the company.
7. On the other hand, Shri Bhandari, learned counsel for the respondent company, submitted that simply because the business could not be commenced within one year of its incorporation, that alone cannot be a ground for passing an order of winding up of the company. It is true that an application may be made by the Registrar, but if the delay is sufficiently explained and it is shown that the company intended to carry on its business, an order of winding up should not be passed. Shri Bhandari places reliance on Malabar Iron and Steel Works Ltd. v. Registrar of Companies [1963] 33 Comp Cas 886, AIR 1965 Ker 35. In that case, it was observed that under Section 433 the court will not exercise the discretionary power conferred on it to wind up a company which has not commenced its business within a year of its incorporation, where the delay has been sufficiently accounted for, and there is no evidence of any improbability of its commencing its business within a reasonable time. Reliance has also been placed by learned counsel for the respondent on Paramjit Lal Badhwar v. Prem Spinning and Weaving Mills Co. Ltd. [1983] Tax LR 2506 ; [1986] 60 Comp Cas 420. In that case, the Allahabad High Court observed that the word “may” used in the opening part of the Section clearly indicates that even if the company is unable to pay its debts, it is a matter of discretion of the court whether, in the circumstances of the case, it would be in the interest of justice to wind up the company. The court also observed that the power to wind up a company should be exercised judiciously. In Aluminium Corporation of India Ltd. v. Lakshmi Ratan Cotton Mills Co. Ltd. [1970] 40 Comp Cas 259 ; AIR 1970 All 452, it has been observed that a winding-up order should not be made on the ground of closure of a cotton mill for over a year where there is sufficient explanation for the closure and a reasonable prospect of re-starting and earning profits. In State v. Mayurbhanj Spinning and Weaving Mills, AIR 1963 Orissa 1, the court considered as to ; under what circumstances, the company may be ordered to be wound up under Clause (f) of Section 433 of the Act and the court observed that the decisive question must be the question whether at the date of the presentation of the winding-up petition, there was any reasonable hope that the object of running the mills at a profit, with a view to which the company was formed, could be attained. It was also observed that even if the company has not carried on business for a year, the court will not wind up if there are reasonable prospects of its doing so, at no too remote a date and, there are good reasons for the delay. Thus, the law seems to be very clear that the jurisdiction to wind up a company when it does not commence its business within a year from its
incorporation, or suspends its business for a year, is discretionary and it has to be exercised only where there is a clear indication that there is no intention of carrying on the business and the delay or suspension is not satisfactorily accounted for. Looking to the facts and circumstances of the case, it is clear that the respondent company has taken steps for seeking recognition under the provisions of the Regulation Act. Under the Regulation Act, the company has prepared the bye-laws. The board of directors of the company is holding meetings regularly and taking decisions and efforts are being made to seek recognition. It is also true that the company was involved in litigation. It is also on record that right from the incorporation, the board of directors has taken appropriate steps for achieving the objects for which the company was incorporated. It is also true that it is not a profit-sharing company. A careful reading of the written statement, which is supported by an affidavit, and the documents on record would reveal that the delay has been reasonably explained and there are fair prospects that the company is likely to commence its business in future. The company has every intention to run its business. In such circumstances, I am of the opinion that there is no merit in this petition filed by the Registrar of Companies on both the grounds. It appears that the petition has been filed in hot haste and on frivolous complaints filed by some interested persons, which is evident from the fact itself that the names of the complainants have not been disclosed by the Registrar nor the complaints in original filed.
In the premises aforesaid, I am of the opinion that the discretionary power under Section 433 of the Act cannot be exercised for passing an order for winding up of the respondent company. Thus, there is no merit in the petition and the same is dismissed with no order as to costs.