JUDGMENT
Vikramajit Sen, J.
1. Brown Forman Mauritius Limited (hereinafter referred to as `the Petitioner`) has invoked Section 433(f) of the Companies Act (hereinafter referred to as `the Act’) which enunciates that a company may be wound up by the Court if it is of the opinion that it is just and equitable for such action to be taken. This section must be applied conjointly with Section 443(2) of the Act which enables the Court to refuse to order winding up if it appears to it that some other remedy is available to the Petitioner which is unreasonably not being pursued. The prayer in this Petition is to order the winding up of Jagatjit Brown-Forman India Ltd. (hereinafter referred to as the `Company`) in which the Petitioner and Jagatjit Industries Ltd. (hereinafter referred to as `the Respondent`) are equal shareholders, each entity holding fifty per cent of the Company’s equity.
2. The Petitioner has submitted that in actuality the Company was a 50-50 quasi partnership between the Petitioner and the Respondent, both of whom had equal representation on the Company’s Board. In order to ensure equal status and power to the Petitioner as well as the Respondent, the Chairman was not vested with a casting vote and Board Meetings could be convened only with the consent of one Director of each of the parties. The other salient feature of this quasi partnership is that in the event far deadlock, as defined in Article 7.2(b) of the Joint Venture Agreement (JVA), the arrangement would become terminable under Article 6.1(e) of the JVA. Article 7.2 of the JVA reads thus:-
”7.2 Deadlocks; Options upon Deadlock; Arbitration:
(a) Cooperation: The parties will act (and will cause directors designated by them to act) reasonably and in good faith to avoid deadlocks at either the Board of Directors or shareholder level. The parties agree to act in a manner consistent with the V’s Memorandum of Association and Articles of Association.
(b) Deadlock Events: The parties deem the following issues important enough that failure to agree on any one of them at either the Board of Directors or shareholder level for at least 60 days shall constitute a ”deadlock”:
(1) choice of a Chairman of the Board of Directors;
(2) setting of depletion goals;
(3) deciding on a marketing plan and the level of expenditures;
(4) pricing of the BFBW Products to customers of the JV;
(5) assignment or delegation of the JV’s duties to an appropriate assignee or delegate;
(6) whether Jagatjit can distribute products that compete with BFBW Products;
(7) the composition of the JV’s brand portfolio;
(8) alternate sources of production (other than Jagatjit); or
(9) whether a party has experienced a Change in Control.
(c) Arbitration: Any controversy or claim arising out of or relating to this Agreement, or the breach thereof [unless subject to Section 7.2(b)], which cannot be settled by friendly negotiation and agreement between the parties, shall be finally settle by arbitration conducted in accordance with the procedural Rules of Conciliation and Arbitration of The International Chamber of Commerce. The arbitration proceedings shall be held in London, England”.
3. The Petitioner has submitted that the approval of the Foreign Investment Promotion Board (hereinafter referred to as `FIPB’) for setting up the Company was given on 12.2.1996, inter alia, on the following conditions:
4. Foreign Equity Participation: 50.00% (Fifty percent) amounting to US$2.00 million in the paid up capital of US$4.00 million of the joint venture undertaking. The Equity would be stepped up to US$7.00 million over a period of 5 years. Foreign equity would be limited to 50% in the revised paid up capital. …..
5. The approval is subject to the following conditions:
(a) The joint venture company would utilise 500 KL out of the 19500 KL licensed capacity of M/s. Jagatjit Industries Ltd.
(b) No fresh capacity for manufacture of potable liquor shall be allowed. The licensed capacity of the joint venture company will be limited to the licensed capacity of the Indian partner. Since the proposed joint venture shall use existing licensed capacity of the Indian partners(s) for the manufacture of the proposed products, the project shall be located in the existing location of the Indian joint venture partner. You are requested to submit the particulars of the Industrial license holder and he industrial license with full particulars so that the joint venture can be provided the licensed capacity.
(c) The proposal envisages import of vatted malt spirit for the bottling of the local scotch and for blending with local whisky. For this purpose, the company would have to obtain an import license as per the prescribed policy and procedure under the E IM policy. The duties will be payable at the applicable rate. The approval is subject to the condition that value of imports shall be offset by committed exports of the products of the joint venture company.
(d) Liquor would be produced from non-molasses based alcohol only.
(e) You shall export sufficient quantities of products to maintain foreign exchange neutrality over a period of 5 years”.
6. The Petitioner’s contention is that from the very beginning the Company was plagued with financial stringencies. This issue was repeatedly raised in the Board Meetings but the Respondent failed to invest its total share of funds in consonance with it is commitment. Reminders and requests made to the Respondent in this regard are available in terms of the letters dated 18.3.1997 and 4.4.1997 and the draft Minutes of the Board Meeting held on 23.12.1998. Since the Petitioner has emphasised and laid great store on a portion of these Minutes, they are reproduced for facility of reference:
” Capital Contribution : Clearly the JV is under capitalised. Suppliers are not being paid in a timely manner, and the JV is constantly scrambling for funds. As a result, the JV is developing poor relationships with suppliers. Neither of us has yet invested $2 million in initial capital as required by the FIPB approval. At this time the situation needs to be corrected and we need to provide the additional capital necessary to reach the $2 million level. Distribution and Administrative Services Agreement : Both of us originally intended that the JV would be staffed with only six people. These people were a National Controller of Marketing and Sales, a Financial Controller and Company Secretary, and four Sales and Promotions Managers. The JV sales and marketing people were to oversee the activities of JIL’s sales force. The JV will be more profitable for both parties if JV sales orders and promotions are handled by JIL’s sales force (as it was originally intended). The JV cannot bear the financial burden of a sales force of 35 people in addition to paying JIL a fee for distribution and administrative services. It was also intended that the JV would be staffed with only one financial person (as mentioned above). To do this, the intent was to re y on JIL accountants to prepare all financial reports. However, the reports have not been prepared necessitating the hiring of three additional accountants for the JV. Again this is a costly proposition for both parties. Brown-Forman’s Internal Au it people were quite impressed with the financial controls and systems at JIL. We therefore see no reason why JIL’s accountants cannot prepare the reports as we intended”.
7. Reliance has also been placed on the Minutes of the Board Meeting held on 29.3.1999 in which it has been stated by the Director appointed by the Respondent that ”the capital contribution shall be need based”, which position is contrary to the Joint Vent re Agreement. 5.Apart from the failure of the Respondent to infuse funds promised and covenanted in the Joint Venture Agreement, it is also the Petitioner’s case that another reason for the Company being stillborn was the Respondent’s failure to transfer the licensed capacity to the Company. It is contended that requests and reminders were made, inter alia, by letters dated 1.12.1997, 11.12.1997 and 27.1.1998, but all of them failed to elicit the required response. It has next been contended that it was the Respondent’s responsibility for distribution of the products of the Company, but despite the appropriation of compensation for such services this duty was not diligently discharged by the Respondent. Furthermore, although original advertisement and promotional costs were to be shared equally between the Petitioner and the Respondent, the latter insisted on the JVA being amended in August, 1997 with the objective of shifting these burdens and outflows whollonto the Petitioner. It is alleged that the Petitioner had already invested over US$ 3 million to promote the JV brands. The Petitioner has also complained that the marketing plan and depletion of goals were rejected by the Respondent without the letter forwarding any alternative depletion proposal. It is explained that it was in these circumstances that the Petitioner was constrained to issue the Deadlock Notice of 60 days. This Notice is dated 10.8.1999, which was also endorsed by the holding Company of the Petitioner by its letter of even date. The Deadlock Notice which is of pivotal importance reads thus:
”Gentlemen: As you know, the Joint Venture’s shareholders and Board of Directors have been trying for over seven months to resolve a number of important issues concerning the Joint Venture’s continued operation, as contemplated by the Joint Venture Agreement dated April 24, 1995, as amended by Amendment Number 1, dated August 7, 1997 (collectively, the ”JVA”). In this regard, specific reference is made to Mr. Anil Girotra’s letter to Mr. Amrit Singh, dated May 17, 1999 (in response to the Joint Venture’s proposed marketing plan), and Mr. Singh’s letter to Mr. L.P. Jaiswal, dated May 29, 1999 (in response to Mr. Girotra’s letter), which reflect the parties’ respective positions on these issues. These issues were not resolved at the Joint Venture’s Board meeting o June 29, 1999. Unfortunately, the Joint Venture parties have not been successful in resolving this impasse and remain in disagreement on a number of critical issues affecting the Joint Venture. Accordingly, under section 7.2(a) of the JVA, Brown-Forman Mauritius Limi ed provides notice of the following issues which, if not resolved within 60 days, shall constitute deadlock events creating a right of termination of the JVA by either party under section 6.1(e) thereof. The issues in question are the parties’ failure o reach agreement on (a) the Joint Venture’s depletion goals: and (b) the Joint Venture’s marketing plan, including the level of A and P expenditures and the responsibility for funding of its sales force. We appreciate your urgent attention to this matter and look forward to receiving your response at your earliest convenience. To this end, please advise immediately whether you want to attempt to resolve the issues as provided above, and if so, your proposal for doing so. Sincerely, Brown-Forman Mauritius Limited”
8. The Respondent has denied that any deadlock had been encountered or reached as is evident from a reading of its letter dated 14.9.1999 and 20.9.1999. At the subsequent Board Meeting held on . 24.9.1999 these very questions appear to have been discussed in some detail as is manifest from the following Minutes of that Meeting:
”3. Operations of the company Mr. A.K. Singh expressed his concern over Mr. Girotra not coming back on depletion goals for the financial year 1999-00. He referred to the discussions held in the previous meeting in which it was decided that Mr. Girotra will come back within 3 weeks with what should be, the depletion goals of the Company as JIL did not agree on the depletion gaols as included in the business plan provided by Brown Forman in the month of May 99. Mr. Singh stated that inspite of the fact that the JV had no approved budgets and 3 months of the year had already gone by, no counter proposals were received from Mr. Girotra by 20th July. Mr. Anil Girotra informed that after due discussions he had with Mr. M.N. Tripathi, Sr. General Manager, Sales of JIL, he wanted certain information, before JIL takes the responsibility of sale of JV brands. He further informed that a letter dated 22nd July 99 initiated by Mr. M.N. Tripathi was forwarded to him for collection of data from sales force. Further, he himself also wrote a separate letter on 28th July 99 to all the branch heads of the Company but till date nothing is provided to him. Mr. Singh pointed that the JV is as much JIL’s as it is Brown Forman’s and in order to provide counter proposals, they should have obtained whatever information they required. Mr. A.K. Singh informed that most of the staff has already left the Company and that even there is no National Controller Sales since January’ 99 to look after the sales department. He further informed that JIL did not agree on any of the two candidate short listed by him for the position. He also informed that Mr. Anil Girotra while not accepting any of the two candidates he had promised to come back with the proposal of other candidates, however nothing has so far happened. This delay was having deverse impact on the functioning of the JV, as he had stated earlier. Mr. Vijay Kapoor inquired from Mr. Anil Girotra as to who were the candidates and who could be better out of the both. Mr. Girotra informed that Mr. Neeraj Kanwar was better one. Mr. Singh informed that Mr. Kanwar has been taken by Brown Forman and is no longer available. Mr. Singh replied that he himself had worked with the JV team (in the absence of the National Controller) to come up with the Marketing plan submitted to JIL on 29th April. This was found unacceptable to JIL. How was Neeraj Kanwar’s (another Brown Forman employee) effort going to be acceptable now. It would lead to further wastage of time”.
9. The Petitioner thereafter addressed another letter dated 11.10.1999 to the Respondent drawing attention to the Deadlock Notice issued in terms of Article 7.2 (b) (2) and (3) of the JVA and reiterated that the deadlock had continued unresolved for more than sixty days. 7.It has further been contended on behalf of the Petitioner that the Deadlock issue was not an arbitrable dispute as specifically envisaged in Article 7.2(c) of the JVA. The Petitioner has strenuously relied on the averments contained in the Suit file d by the Respondent in the Court of the Civil Judge, Senior Division, Kapurthala, in which it has been disclosed that the losses of the Company were to the tune of Rs. 78 lakhs for the year 1996-97, Rs.104 lakhs for 1997-98 and Rs.250 lakhs for 1998-99. It is the Petitioner’s assertion that the Company has not transacted any business since 1999 and that this fact stands admitted by the Respondent inasmuch as no sales figures beyond this period have been stated even by Respondent. It is contended hat in these circumstances the Petitioner had no alternative but to . issue the Termination Notice dated 13.12.1999, which reads as follows:
”Re: Deadlock under the Joint Venture Agreement dated April 24, 1995, as amended (”Agreement”) in relation to Jagatjit Brown-Forman (India) Private Ltd. (”Joint Venture”), and termination notice under sections 6.1(e) and 7.2(b) of the Agreement. Dear Sir: For nearly a year the Joint Venture shareholders and Board of Directors have been trying unsuccessfully to resolve a number of important issues concerning the Joint Venture’s continued operation. In this time we have been unable to agree on the Joint Venture’s depletion goals and marketing plan (including the level of advertising and promotional spend, and the transition of the sales force to Jagatjit Industries Ltd. (”JIL”)). As you know, the parties identified these issues as critical to the Joint Venture’s function, and provided in the Agreement that failure to agree on these issues would constitute a deadlock. As a result of the continuing disagreement on these issues, Brown-Forman Mauritius Limited (”BFML”) issued a notice of deadlock to JIL on August 10, 1999 pursuant to section 7.2(a) of the Agreement. Under section 6.1(e) of the Agreement, failure to resolve the issues in 60 days constitutes a deadlock event giving either party a right to terminate the Agreement. We are well past the 60 day resolution period and still without agreement. Further, the Joint Venture’s financial condition has continued to deteriorate past a critical point despite BFML’s requests to JIL to jointly assist in correcting these problems . Accordingly, it is now in the best interest of the Joint Venture and its shareholders to terminate the Agreement along with the ancillary agreements and arrangements. To this end, and pursuant to section 6.1(e) of the Agreement, BFML hereby serves JIL notice of termination in 90 days, at which time, the Agreement shall be terminated and the parties will thereafter be subject to their respective post-termination obligations. This termination notice is without prejudice to any other right or remedy than BFML may have against JIL in terms of the Agreement or any other related agreement or generally under the process of law. As the Production Services Agreement between JIL and the Joint Venture, the Supply and License Agreement between Brown-Forman Worldwide L.L.C. and the Joint Venture, and the Distribution and Administrative Services Agreement between JIL and the Joint Venture, all dated April 24, 1995, are co-terminus with the Agreement, these (and all amendments thereto) shall also be terminated upon the termination of the Agreement.”
10. On behalf of the Respondent it has been averred that the FIPB approval contemplated the investment of US$ 2 million in the first year which was to be increased up to US$ 7 million in five years, predicated on the projection of the sale of 5,00,000 cases in one year. However, this projection was not even proposed by the Petitioner in any of the marketing plans for any year. It is further contended that in the FIPB approval no time limit was prescribed for the investment of said US$ 2 million and that at no stage had FIPB expressed any comments in this regard. Attention is drawn to Article 43 of the JVA to buttress this contention. Reliance is also placed on Article 26 (a) (4) of the Articles of Association of the Company to underscore that unanimous consent of the nominee Directors of the Petitioner as also the Respondent present at any Board Meeting was essentially for the issuance of any further shares or debentures. Article 26 reads as follows:
”26. Proceedings at Meetings (a) Questions arising at meetings shall be decided by a majority of votes, provided however that no resolution will be passed in respect of the following matters, unless passed with the unanimous consent of the nominee Directors of BFM and JIL present at such meeting.
(1) Alternation in the Memorandum and Articles of Association of the Company.
(2) Increase in the existing liabilities of the Company except in the normal course of business.
(3) Mortgage, charge, encumbrance or creating a lien on or selling or agreeing to sell or otherwise dealing with any of the fixed and current assets of the Company.
(4) Issue of any further shares or debentures.
(5) Entering into any financial commitments including borrowings, repayments of which exceeds three years (long term).
(6) Embarking on any new project or incurring of any capital expenditure, other than as per the budgets presented by JIL to the Company under the operating agreement.
(7) Investment in any other company or concern.
(8) Promotion of any new company or concern.
(9) Merger or amalgamation of any other company with the Company.
(10) Winding up/liquidation of the Company.
(11) Payment of remuneration to any Director of the Company.
(12) Any long term agreements/contracts for periods exceeding three years.
(b) If any of the aforesaid matters has to be considered at a General Meeting of the Company, then the decision thereon shall be arrived at with the unanimous consent of JIL and BFM.
(c) JIL and BFM shall discuss and arrive at a consensus on any of the above matters which comes up for decision before the Board/General Meeting. If , for any reason, JIL and BFM hereto fail to arrive at a consensus, they shall try to resolve the differences amicably through the intervention of a person of mutual confidence, the intention being that till such time the differences are sorted out, the operations of the Company should not be adversely affected”.
11. So far as the Petitioner’s submission on the non transfer of 500 KL of licensed capacity is concerned the Respondent contends that it is without any basis and is contrary to facts which are within the specific knowledge of the Petitioner. The Respondent has a pre-existing licensed capacity to manufacture 19,500 KL of alcoholic beverages per annum and the Joint Venture did not envisage the setting up of any manufacturing facility by the Company. For this reason no capital investment in the plant, machinery, factory etc. was either envisaged or contemplated; all that was envisaged was that the Company would utilise the designated part of the existing licensed capacity of the Respondent. The Respondent was to blend, manufacture and bottle the alcoholic beverages for the Company and there was accordingly no occasion for the Respondent to transfer any of its licensed capacity. It is explained that the FIPB approval only requires utilisation of 500 KL out of the existing licensed capacity. Nevertheless, by its letter dated 7.8.1997 the Respondent had made the following request to the Ministry of Industries – that ”as per Clause 6 of the above approval, out of the total licensed capacity of 19,500 KL, 500 KL is to be utilised for the Joint Venture project. Accordingly, we enclose herewith our Industrial license No. CIL:79(92), dated 28th August, 1992 with a request to make necessary endorsements for providing licensed capacity to M/s. Jagatjit Brown-Forman India(P) Ltd”. The Respondent followed this up with a letter dated 3.1.1998 to the Commissioner, Excise and Taxation, Punjab informing him of requiring the earmarked 500 KL distillation capacity for manufacturing various products of the Company and also assuring him that this utilisation will not affect the Respondent’s supply to Punjab licensees. It was, therefore, requested that a No Objection Certificate be issued, which was so done by the Commissioner’s letter dated 13.2.1998. In paragraph 16 of its Reply the Respondent has, inter alia, blamed the Petitioner for not establishing a reliable and strong network in India capable of sourcing consumer durables for its retail operations in the United States of America. It has been averred that the production of alcoholic beverages at the peak of the second year of its operations never exceeded 19,000 cases which is less than 4 per cent of the sales for which FIPB permission had been obtained. The Respondent invested a total sum of Rs.1.52 crores on 31.3.1997 towards capital contribution; and in addition indirectly invested Rs.1.90 crores over a period of time towards bottling and distribution charges of the Company which has till date not been repaid to the Respondent. Furthermore, it is alleged that a sum of Rs. 1.40 crores has been paid by the Respondent to the Hongkong and Shanghai Banking Corporation Ltd. towards repayment of the loan payable by the Company. It is averred that it will be evident that the Respondent has contributed in excess of its proportionate requirement. Whereas the Company was expected to produce 5,00,000 cases of alcoholic beverages in the three years of its operation, it succeeded in producing only 45,000 cases in all up to August, 1999. It is further pleaded that due to ineffective marketing by the Petitioner the Company’s products did not find favor with the consumers. The inexperience of the Petitioner and ignorance of the ground realities of the Indian market compelled the Respondent to advise against investment of further monies. The Respondent has assailed the Petitioner’s insistence on the infusion of more funds with the hope of reviving the financial fortunes of the Company. It has also been pleaded that penal tariffs and duties amounting to almost Rs. 96,45,000 have been borne by the respondent.
12. Reliance is placed on Article 6.3 of the JVA which defines Post- Termination Obligations and reads as follows:
”6.3 Post-termination Obligations:
If this Agreement is terminated for any reason:
(a) Return of Inventory and Raw Materials: BFML may require JV and Jagatjit to transfer all inventory of the BFBW Products, and all raw materials (other than neutral spirits) necessary to manufacture BFBW Products, title to which JV may have acquired before or after the date of termination, to BFML or such third party as BFML may designate in the Territory. The price of the BFBW Products and raw materials to be transferred shall include only the laid-in costs which JV has actually incurred.
(b) No Excess Compensation: JV and Jagatjit will waive any compensation or damages permitted under the laws of the Territory or of any other jurisdiction, whether based on ”good will”, ”lost profit”, ”value of franchise,” or any other legal or equitable theory of recovery, and JV acknowledges that any profits it derives from sales under this Agreement are adequate compensation for itself or any agents for the sale of the BFBW Products under this Agreement.
(c) Intellectual Property: All intellectual property interests in the BFBW Products, including ”Brown-Forman,”, know-how, copyrights, or patented (or patentable) processes shall remain the exclusive property of NBFC or its subsidiary.
(d) Book Value Determination: After all inventory and raw materials have been returned as described in Section 6.4(a), and after all tax and other assessment issues related to the winding up of JV have been resolved, JV’s then current Net Book Value shall be determined as set out in Schedule 6.5(d).
(e) Options on Termination: Upon termination :
(1) the parties may agree jointly to dissolve the JV and split its remaining assets so that the Net Book Value of such assets matches equitably the parties’ then current equity interests in the JV; or
(2) if the parties cannot agree on a division of assets, then any party may make an offer to buy out the other party’s entire equity interest for a certain price — but the offering party must be willing to sell its own equity interests at the same price (proportionate to its equity interest, with no extra value being ascribed to a majority interest). The parties receiving an offer to sell their equity interest to the other party will have 20 business days (after receipt of government approval, if necessary) in which to decide whether to sell their interests to the offering party or buy the offering party’s interest at the same (proportional) price.
(f) Duty to Continue Business: Until all of the above post-termination steps are completed (or for 180 days, if shorter), all parties agree that they will continue doing business with each other and give their best efforts to promote and sell the BFBW Pr ducts)”.
13. It is the Respondent’s contention that the Petitioner did not bother to fulfilll its Post-termination Obligations, and did not put in its best efforts to continue business and sell the Company’s products until all Post-termination steps stood completed. It is further submitted that the Petitioner dishonestly created the illusion of a deadlock and that the termination of the JVA was illegal. It is further strenuously argued that although by the Termination Notice dated 13.12.1999 a ninety day Notice of Intent had been given by the Petitioner it rushed to this Court the very next day; therefore, the winding up petition is ex facie without any cause of action. The Respondents are left holding large quantities of finished goods, raw materials, packaging material etc. which were to be purchased by the Company and the Respondent, accordingly, has to effect substantial recoveries from the Company. Added to this is the threat of distributors holding unsold stock that adjustments would be carried out against the amounts payable by them to the Respondent. It is also strenuously contended that the Interim Orders that were prayed for were dishonest in nature inasmuch as they were levelled in respect of assets pertaining exclusively to the Respondent. The intention of the Petitioner was to create the illusion of deadlock, follow it up with the termination of the JVA and thereafter sell its products directly in India due to the liberalisation of Government Policy.
14. It has been argued by Mr. Sundaram, learned counsel for the Respondent that equity can be sought only where the seeker has conducted itself in an equitable, unblemished and fair manner; hence Section 433(f) of the Act which bestows equity jurisdiction on the Company Court, has no role to play in the factual matrix of this case. It is contended that the just and equitable ground of winding up under Section 433(f) of the Act should not be interpreted ejusdem generis Section 433(a) to (e) of the said Act. Section 433(f) is not based on statutory yardsticks but on the equitable discretion of the Court. In exercise of such equitable discretion, the Court is guided by the same principles as in discharge of its equity jurisdiction. One of the principles of equity that apply is the conduct of the Petitioner prior to filing of the petition. Secondly, the overall effect of such an order on the company, its shareholders, workers, creditors, and not just the Petitioner. Thirdly, the Court’s jurisdiction would not be used to achieve a purpose that the Petitioner cannot otherwise achieve owing to his contractual or other obligations. The Petitioner cannot through his own conduct create a situation and thereafter plead such a situation as a ground for the Court to exercise its equity jurisdiction. No petition for winding up on the ground of deadlock can be entertained where the deadlock is caused by the conduct of the Petitioner, who uses the effect of his conduct as ground for winding up. Fourthy, even if the grounds are made out under Section 433(a) to (f) of the Act, still it would remain a discretionary relief. Such discretion would be sparingly used in exercise of jurisdiction under section 433(f) of the Act. It is further argued on behalf of Respondent No. 2 that in the facts of this case disappearance of substratum has not actually arisen. If business is not being carried on it is on account of Petitioner’s conduct in, inter-alia:
i) creating a deadlock situation and issuing an entirely unlawful termination notice dated 13-12-1999;
ii) despite clauses 6.1 to 6.3(f) of JVA providing for 90 days termination and continuation of business for 180 days, approaching this Court the very next day and obtaining order of injunction whose direct effect was to disable company from functioning; and
iii) The company itself was not possessed of any assets and thus there was no substratum to disappear. The asset of the company was the running business and so the claim of disappearance of substratum in effect is nothing but a statement that business of the company has stopped. The only reason for such stoppage is the order of injunction pending this petition obtained by the Petitioner, which plea itself was against the terms of the agreement. The Petition aims at setting up another venture in contravention of Press Note No.18 dated 14-12-1998 and Section 433(f) of the Act will not be permitted to be used for this purpose to enable a party to achieve indirectly what it cannot achieve directly. Voluntary winding up required under clause 6.3(e) (1) of JVA, which provides certain safeguards, was not even attempted or endeavored to be achieved by the Petitioner. If the Petitioner had so attempted, it would have had to discharge its lawful obligations and liabilities towards the Respondent No.2. It was to circumvent this that the entire winding up petition was filed. The Petitioner has consistently attempted to mislead the Respondent No.2 by discussing the restructuring of the equity participation and in the meanwhile creating circumstances to create a deadlock, as is evident from letters dated 29-05-99, 7-10-99 and 11-10-99 in particular. The Petitioner is guilty of concealment, withholding of relevant and material facts and mis-representation to this Hon’ble Court in seeking restraint order and appointment of a provisional liquidator as regards the properties of Respondent No.2 without disclosing that they were not the properties of the company;
and the willful suppression of the act that in terms of the JVA termination had not taken effect;
but instead pleading in its application and affidavit as though the agreement had come to an end when the Petitioner approached this Hon’ble Court. Mr. Sundaram has further contended that none of the alleged subsequent events are relevant or can be taken into account to condone the conduct of the Petitioner. There are no pleadings or evidence in support of the alleged subsequent events apart from the oral submissions of the Petitioner in the Rejoinder arguments which in any event are wholly irrelevant;
and that the circumstances prevailing prior to and at the time of the filing of the petition should only be considered.
15. The Petitioner’s application for FIPB approval contemplates investment up to US $ 2 million in the first year to be stepped up to US $ 7 million in five years based on projection of 5 lacs cases in one year. This projection of 5 lacs cases was never proposed by the Petitioner in any of the marketing plans for any year FIPB approval dated 12-02-1996 does not prescribe any time limit for the investment of US $ 2 million. No letter from FIPB was ever issued complaining that the condition of investment of US $ 2 million had not been complied with. No attempt to resolve differences was undertaken by the Petitioner on any grievance regarding infusion of funds and even otherwise arbitration was the proper remedy. When considering winding up on just and equitable grounds the absence of attempts at reconciling differences through consensus would be a vital and relevant factor. The Petitioner’s submission on non-transfer of 500 KL of licensed capacity is without any basis and is contrary to facts within the specific knowledge of the Petitioner. Manufacture f alcoholic beverages at the material time was governed by the provisions of Industries (Development and Regulation) Act as it is a controlled industry. Government grants licenses to set up manufacturing facility for production of alcoholic beverages. Jagatjit has a pre-existing licensed capacity to manufacture 19500 KL of alcoholic beverages per annum. The proposal of joint venture between Brown Forman and Jagatjit did not envisage setting up of a manufacturing facility by the joint venture company and as such no capital investment in the plant, machinery, factory was either envisaged or contemplated or put up by Brown Forman in its application before FIPB. What was contemplated was that the joint venture company would utilise a part of the existing licensed capacity of Jagatjit. The FIPB approval only requires utilisation of 500 KL out of existing licensed capacity. The Respondent applied to the Excise and Taxation Commission, Punjab for giving its no objection.
16. The decision of the Division Bench of this Court in Shrimati Abnash Kaur v. Lord Krishna Sugar Mills Ltd. and Others, (Delhi), [Vol. 44 1974] Company Cases 390 contains a conspectus of English Company Law on the conundrum that has been raised in this case. It would be presumptuous of me to paraphrase the detailed judgment and I can do no better than reproduce the perspicuous precis of the law as has been condensed in the following paragraphs of that Judgment:-
” … Starting from Yenidjer’s case, we thus find that although the learned Master of the Rolls was not prepared to limit the just and equitable clause as one of the grounds for winding up a company to complete deadlock cases, yet the case before his Lordship was of a company consisting of only two members who were the directors. The animosity between them had reached the state of a complete deadlock. Apart from them, there was no general body of shareholders to whom an appeal could be made. The partnership principles were applied under thee circumstances to the said case and the company was wound up. These principles in main have continued to hold the field throughout. It is, therefore, safe to conclude that the powers of the court under the just and equitable clause are not limited; and the court will be guided by the rules of equity and will do what justice demands, keeping in view the facts and circumstances of each case. All the same, the principles on which a partnership is dissolved may be applied to the case of a company, which consists of two members only or where the shareholding is equal or where it is a family or domestic company with the shareholding equally divided between two rival groups, which has resulted in a deadlock. Extending this doctrine a little, the Articles of Association of the company assume great importance; and if the Articles can help to resolve the deadlock the winding up has to be r led out. The Articles have to be taken as the terms of the contract between the members, showing their intention as to how they greed to transact the business of the company; and which must, therefore, govern the relationship amongst them inter se. A other important principle that has emerged from the aforesaid decisions is that winding up of a domestic or family company on just and equitable rule is permissible if there is a justifiable lack of confidence in the conduct and management of the company s affairs, grounded on the conduct of directors in regard to the company’s business. This lack of confidence must not arise from mere dissatisfaction at being outvoted on the business affairs or the domestic policy of the company. It must rest, on the other hand, on a lack of probity in the conduct of the company’s affairs; and provided that an appeal to the domestic forum is not possible; and further that the lack of probity results in injury to the petitioner in his character as member.”
17. This judgment has been relied on by a Single Judge of this Court in Nestle S.A. And others v. I.D. Kansal and others, , for justifying the admission of a winding up petition. The Learned Single Judge had come to the conclusion that the agreement between the Petitioner and the Respondent was that they would hold equal shares of the company and that a public issue was not in contemplation. Since it had become palpably clear that ”serious differences had arisen between the parties with regard to the very basics as to how the management of the production in the factory of the company has to take place” the winding up of the company had become necessary.
18. In Prime Century City Development Pvt. Ltd. Versus M/s Lloyds Finance Ltd., 1 (2003) DLT 445, I had held as under:
”The Restatement of the law pertaining to the winding-up jurisdiction is contained in Padeshiya Industrial and Investment Corporation of Uttar Pradesh Vs. North India Petro-Chemical Ltd. and Another, (1994) 2 Comp LJ 50 (SC). A summary of the judgment yields the following propositions, as stated in NEPC India Ltd. Vs. Indian Airlines, :
4. In winding-up proceedings it is necessary to keep the following conditions in perspective-
(i) If there is a bona fide dispute and the defense is a substantial one, the Court will not wind-up the company.
(ii) Where the debt is undisputed the Court will not act upon a defense that the company has the ability to pay the debt but the company chooses not to pay it.
(iii) Where the defense of the company is in good faith and one of substance, and the defense is likely to succeed in point of law, and the company adduces prima facie proof of the facts on which the defense depends, the petition should be rejected.
(iv) The Court may consider the wishes of creditors so long as these appear to be justified.
(v) The machinery of winding-up should not be allowed to be utilised merely as a means of Realizing its debts. [For the above propositions see Pradeshiya Industrial and Investment Corporation of Uttar Pradesh vs. North India Petro- Chemical Ltd. and Another, (1994) 2 Comp LJ 50 (SC), in which the observation in Amalgamated Commercial Traders (P) Ltd. vs. Krishnaswami, [1965] 35 Comp. Case 456 (SC) and Madhusudan Gordhandas and Co. vs. Madhu Woollen Industries (P) Ltd., [1972] 42 Comp. Case. 125 (SC) have been paraphrased].
(vi) If the stance of the adversaries hangs in balance it is always open to the Company Court to order the Respondent Company to deposit the disputed amount. This amount may be retained by the Court and be held to the credit of the suit, if any is p ending, or likely to be filed in the immediate future. [see Civil Appeal No.720 of 1999 arising out of SLP (C) No. 14096 of 1998 – M/s. Nishal Enterprises vs. Apte Amalgamations Ltd., decided by the Hon’ble Supreme Court on February 5, 1999]. It appears to me that the following point may be added to the foregoing considerations.
(vii) Generally speaking, an admission of debt should be available and/or the defense that has been adopted should appear to the Court not to be dishonest and/or a moonshine, for proceedings to continue. If there is insufficient material in favor of the petitioners, such disputes can be properly adjudicated in a regular civil suit. It is extremely helpful to draw upon the analogy of a summary suit under Order xxxvII of the Code of Civil Procedure. If the Company Court reaches the conclusion that, had it been exercising ordinary original civil jurisdiction it would have granted unconditional leave to defend, it must dismiss the winding- up petition.”
19. Owing to the brevity of the judgment in the Haryana Telecom Ltd v. Sterlite Industries (India) Ltd., , an attempt may be made to waterdown and dilute its applicability by arguing that the arbitrator had been vested with the power to direct even the winding up of the company. In order to dispel doubts in mind I had called for the records and I find that this is not so. The Arbitration Clause in that case reads as follows:-
”14. Arbitration: Any dispute, questions of difference whatever shall arise between the suppliers and the purchaser in relation to or in connection with this order, the same shall be referred to arbitration within the meaning to Indian Arbitration Act of any Statutory Mediatorial Act.”
20. The Hon’ble Supreme Court was of the unequivocal view that the jurisdiction to order winding up, being strictly a statutory power, could not be exercised by an arbitrator whose source of power emanates from the contractual agreement of the parties concerned. It is trite to state that it is not legally permissible for parties to opt out of the operation of a statute. The existence of an arbitration clause therefore cannot oust the jurisdiction of the Company Court in exercising its discretionary powers under Sections 433 and 434 of the Companies Act. However, this does not lead to the only conclusion that in every case the Company Court must invariably exercise jurisdiction even though it would appear to it to be expedient and appropriate to refer the arties to arbitration. In my analysis of this nodus, there is hardly any scope for a clash to occur between the rights to seek arbitration and for the other party to enforce winding up. This is for the reason that if there is an admission of debt, or in a moonshine and mala fide defense to the petition has been presented, an Award would be a foregone conclusion and procrastinating and deferring the inevitable end to the dispute would be contrary to and in negation of the expectation of law. Where a bona fide defense to the winding up petition has been disclosed the petition ought to be dismissed in any case by the Company Court. It cannot enter upon disputed questions, which would either have to be adjudicated upon by means of an ordinary and regular civil suit, or by making a Reference where the parties have contracted with each other to resolve their differences through arbitration. Therefore, in actuality, the Company Judge will in no circumstances substitute himself for or assume the role of the arbitrator. The relevance of the observations pertaining to the Arbitration and Conciliation Act, 1996, to my mind, is that if the existence of an arbitration clause is neither a deterrent nor an obstacle for the passing of winding up orders, then the procedural and attending requirements of the termination clause in the agreements between the parties would also prevent the Company Judge from bringing about the end of the juristic life of a Company which is otherwise existing and breathing on artificial l legal support systems.
21. In Hind Overseas P. Ltd. v. Raghunath Prasad Jhunjhunwala, [1976] 46 Comp Case 91. 106 (SC), their Lordships have observed that –
”Section 433(f) under which this application has been made has to be read with Section 443(2) of the Act. Under the latte r provision, where the petition is presented on the ground that it is just and equitable that the company should be wound up, the court may refuse to make an order of winding up if it is of opinion that some other remedy is available to the petitioners and that they are acting unreasonably in seeking to have the company wound up instead of pursuing that other remedy”.
22. Bearing in mind that the parties have an equal shareholding in the Company it has been submitted that the principles applicable to partnership should be applied in the present case. Reference has been made to the detailed judgment of the Division Bench of the Madhya Pradesh High Court in Kilpest Private Ltd. and others v. Shekhar Mehra, [Vol. 62 1987] Company Cases 717, which was subsequently affirmed by the Apex Court in Kilpest P. Ltd. and others v. Shekhar Mehra, [Vol.87 1996] Company Cases 6 5 inter alia with these observations:
”The promoters of a company, whether or not they were hitherto partners, elect to avail of the advantages of forming a limited company. They voluntarily and knowingly bind themselves by the provisions of the Companies Act. The submission that a limited company should be treated as a quasi-partnership should, therefore, not be easily accepted. Having regard to the wide powers under section 402, very rarely would it be necessary to wind up any company in a petition filed under sections 397 and 398. The present was a petition under sections 397 and 398. The Division Bench exercised the power under section 402 to appoint Mehra as a director to protect his interests and guard against mismanagement. It required Dubey to return to the company the um of Rs.52,875 which he had wrongly appropriated to himself. It directed the Registrar of Companies to enquire into other allegations of misconduct in which it found, prima facie, substance; and we may say immediately that we have perused the reportiled by the Registrar of Companies which shows that no substance was, ultimately, found therein. We agree with the Division Bench that this was no case for winding up the company and must dismiss the appeal filed by Mehra.”
23. The principal prong on which this Petition is pitched is simply that the substratum of the company has eroded and hence it should be wound up. Although in Seth Mohan Lal and Another v. Grain Chambers Ltd. and Ors., [Vol. 38 1968] Comp Case 543 (S.C.) their Lordships found that this state of affairs did not exist, the following discussion is instructive:-
” .. Substratum of the company is said to have disappeared when the object for which it was incorporated has substantially failed, or when it is impossible to carry on the business of the company except at a loss, or the existing and possible assets are insufficient to meet the existing liabilities. In the present case the object for which the company was incorporated has not substantially failed, and it cannot be said that the company could not carry on its business except at a loss, nor that its assess were insufficient to meet its liabilities.”
24. In O.P. Basra and others v. Kaithal Cotton and General Mills Co. Ltd., , four indices of the erosion of the substratum of a company were enumerated which are, firstly, that the subject matter has vanished; secondly that the object for its incorporation has substantially failed; thirdly, business cannot be continued without losses; and fourthly that the existing and probable assets are insufficient to meet existing liabilities. Similarly, in Re Brunton and Company Engineers Ltd.; Canara Bank v. Brunton and Company Engineers Ltd., [Vol. 63 1988] Comp Case 299 a Provisional Liquidator had been appointed even in the face of stiff opposition on the plea of a creditor financial institution that commercial insolvency, inability to pay debts, substratum of the company being completely destroyed and no possibility of recommencing business. In this decision as also that arrived in Ramakrishna Industries (P) Ltd. and Ors. v. P.R. Ramakrishnan and others, [Vol. 64 1988] Comp Case 427, events subsequent to the filing of the winding up petition were taken into consideration on the strength of the precedent set down in Needle Industries [1981] 51 Comp Case 743 (SC). Similar submissions found favor in S. Sundershan v. Plast-O-Fibre Industries Pvt. Ltd. [Vol. 76 1993] Comp Case 75. In Lawang Tshang v. Goenka Commercial Bank Limited, [ Vol. 31 1961] Comp. Cas. 45, the Company was wound up because of the disappearance of its substratum and also for the reason that the business for which it had been constituted had become impossible to carry on.
25. The manifestation of a deadlock in the management of a Company is also an irresistible reason for its winding up. A company can be perceived as deadlocked, as defined in Black’s Law Dictionary ”when a control structure permits one or more faction s of shareholders to block corporate action if they disagree with some aspect of corporate policy. A deadlock often arises with respect to the election of directors e.g. by equal division of shares between two factions”. The following passage from Pennington’s Company Law (Fifth Edition) is extremely elucidatory:
”Deadlock If it becomes impossible to manage a company’s affairs because the voting power at board and general meetings is divided between two dissenting groups, the court will resolve the deadlock by making a winding up order. The most obvious kind of deadlock is where the company has two directors who are its only shareholders and who hold an equal number of voting shares; if they disagree on major questions in respect of the management of the company, their disagreement cannot be resolved at a board meeting or by a general meting, and management decisions will cease to be made. In this situation the court will make a winding up order, even though there is a provision in the company’s articles that one director shall have a casting vote at board meetings, or that disputes shall be settled by arbitration. Nevertheless, the petitioner must show that there is no likelihood of the deadlock being resolved in fact, and for this purpose he should set out in his petition or in his supporting affidavit the relevant provisions of the company’s articles (if any) and details of the attempts he has made to resolve the deadlock. There may also be a deadlock even though the voting power is not equally divided between the dissenting groups. Thus, where there were three shareholders with equal shareholdings, and two of them were the company’s directors, one of the director-shareholders was held entitled to a winding up order when the other persistently refused to attend board meetings and make up a quorum to transact business; the reason for the other director’s absence was his fear that the petitioner would insist on a general meting being called at which, by the terms of the articles, the petitioner could require the other shareholders to purchase his shares, or if they were unwilling to purchase them, to join with the petitioner in passing a resolution to wind up the company voluntarily; the result of the other director’s absence from board meetings, however, was that the company’s business could no be carried on at all, and for this reason the court made a winding up order.” . (underlining added).
26. A deadlock was seen to exist in In Re Yenidjer Tobacco Company Limited case (supra) because neither party could outvote the other and the Directors were incommunicado; the Court considered it to be just and equitable to wind-up the Company. As in the case of In Re Modern Furnishers (Interior Designers) P. Ltd. and Ors., [Vol. 58 1985] Comp Case 858 Sections 397 and 398 of the Companies Act were not found relevant where a deadlock had occurred and it was observed that the only way out was that the Company should be wound up. The distinction between the two situations has been drawn by a Division Bench of this Court in Moti Films P. Ltd. v. Harish Bansal, [Vol. 54 1993] Comp Case 856 = 1982 Tax L.R. 2505 in these words:
”Alternatively, even if the partnership principle was not attracted, we would have to see whether proceedings under ss. 397 and 398 of the Act would be a proper proceeding in a case of this type. Admittedly, there are large differences between the parties and litigation is going on in relation to other outstanding disputes also in the civil courts, such as the dissolution of the partnership, M/s. Moti Plast Engineering Industry at the instance of Shri R.P. Bhandari. In such a case, it does not appear that the provisions of ss. 397 and 398 of the Act would really serve the purpose. It is well to keep the principles that apply to proceedings under ss. 397 and 398 of the Act in view alongside the principles which apply to winding up. These are two completely different alternatives which the court has. In the one case, the court endeavors to solve the problems of oppression, mismanagement and internal conflict in the management by conjuring up an order which not only resolves the past disputes but makes provision for the future. In such proceedings, the Court estimates that it s possible to run the company on certain principles. It may be that the court may even come to the conclusion that the one or the other party should buy the other out. In practice, the resolution of internal disputes under ss. 397 and 398 of the Act s based on hope. That hope must come from the possibility of co-operation between the parties. It is manifest that the disagreements relate not only to the company under consideration but to other firms also and there are other factors such as the running of a rival firm by Bansal and Goel which makes it difficult in the present case to hold that any order under ss.397 and 398 of the Act will enable the company to run, except on the total ouster of one or other party. What then is the relief that he petitioners can get in such a petition? There is a question of a flat in Bombay, which is on the point of being sold or transferred outright for Rs.1,55,000/- to the mother of R.P. Bhandari. If this transaction goes through, the question of the petitioners getting their due share will be lost and even if the court is able to cancel that transaction, what is to prevent the directors selling it again to somebody else? In short, it is difficult to find a proper solution under ss.397 and 398 of he Act. This is not a case where a patch-work arrangement can satisfactorily resolve a cleavage which to all intents and purposes is fundamental, absolute and complete. It, therefore, appears that the only possibility which may be left to the petitioners is a winding-up order, provided, of course, they are entitled to the same on any grounds made out by them, which would result in the liquidation of the assets of the company, and, therefore, also the flat in Bombay. This could result in the capital investments being realised and also capital accretions; the parties being then equally entitled to all the benefits or losses according to the shareholding in the company. Whether this is actually the correct order to pass will have to be determined at the final hearing of the petition. It cannot be said that the winding-up petition can be dismissed in liming, on the short ground that the management must not be allowed o reap the benefit of transactions impugned on account of lack of probity. Some very fundamental questions are involved in this case. It is good to pose and examine these. The Company court’s jurisdiction has been complicated by the introduction of ss.397 and 398 of the Act. Before these provisions appeared, a shareholder placed in the position of the petitioners in the winding-up petition under consideration, had only one remedy and no other; that remedy was to apply for the winding-up of a company on ”just and equitable” clauses. Now, there are two choices open:
The second choice being an application under ss. 397 or 398 for an appropriate order to bring to an mismanagement, oppression or other act relating to the company. The second choice was introduced with the purpose of enabling the court to interfere in the internal management of the company which it might not be able to do otherwise under the equitable rules relating to internal management. The new power has obviously to be used only when it is possible for the court to end internal disputes. When the court finds that it cannot pass any order suitable to the circumstances, or the case does not seem to be suitable for resorting to those provisions, then, it can be said that the choice before the petitioner is to move a winding-up petition and no other alternative relief is available. On an examination of the various aspects of this case, it appears that the partnership principle is attracted, and the relations between the parties are not confined only to being shareholders of the same company. They are also partners in other partnerships which are correlated to the company. This view is expressed on a prima facie basis, as far as it is necessary at the stage of considering the question whether the petition should be admitted. The abovementioned two judgments referred to by the learned counsel for the appellant, in the case of Atul Drug House Ltd., In re [1971] 41 Comp Case 352 (Guj), decided by the Gujarat High Court, and Hind Overseas Pvt. Ltd. v Raghunath Prasad Jhunjhunwalla [1976] 46 Comp Case 91 (SC), decided by the Supreme Court, are cases in which the court thought that an alternative remedy did exist. It was also found that the petitions were motivated by some other considerations. The court has power to stay a winding-up petition if it finds that resort to winding-up is for ulterior purposes. It is not necessary to go into the facts of the two cases which are far complex in the present case. We do not find any ulterior purpose in the present case. It is quite obvious that the parties are at logger-heads. So we agree with the learned single judge that this was a case in which the petition had to be admitted and citation issued. We would accordingly dismiss the appeal, leaving the parties to bear their own costs.” .
27. On the aspect concerning the disappearance of the substratum of the Company reliance has been placed by Mr. Sundaram on the decision of the Division Bench rendered in Malabar Industrial Co. Ltd. vs. A. John Anthrapper, [1985 ] 57 Comp. Cas. 717 where the case on this ground was found not to have been established even prima facie. The following passage is indeed instructive:
”From the above authorities, the heavy burden that law imposes on a contributory seeking relief under the just and equitable clause on the allegation that the substratum of the company has disappeared can be clearly understood. Even if the only asset of a company is to be sold, the court will be very slow in ordering a winding-up when the court finds either that the petitioner before it has other efficacious remedy or that the company is solvent enough to engage itself in other profitable activities wit the sale proceeds of the estate. In this case, the objects of the company are wide enough to permit the company to engage itself in various activities. We do not find sufficient averments in the petition in support of a prima facie case of winding-up. In the absence of any averment that it would be impossible for the company to carry on its activities or that the company has no assets to implement its objects, the bare allegation that the sale of the estate would render the company inoperative is not in law sufficient to sustain a claim under S. 433(f). The learned judge noting Mohanlal Dhanjibhai Mehta v. Chunilal B. Mehta , observed as follows :
” a shareholder is entitled to say that he has invested his money for a particular object and he is not interested in other speculations or ventures. The question in such case will be whether `the main objects rule’ applies to the facts of the case. T he shareholder will succeed in getting a winding-up order if that rule of construction is applicable, he may fail if the rule is inapplicable, or if the company satisfied the court that reinvestment would also be for the same object. On the facts of the present case, it is enough to notice that as per the `explanatory statement’ extracted earlier in paragraph (2), the company itself was of the view that it was incorporated in the year 1918 as a public limited company with the main object of carrying on plantation business.”
28. The learned judge noted the explanatory statement in support of his conclusion that a prima facie case was made out based on the main object theory. According to us, even the explanatory statement cannot be understood to mean that the main object o the company was to carry on plantation in rubber but was only to carry on plantation business. We will now consider the above decision to see whether the learned judge was justified in relying upon it to pass the order under appeal. In Mohanlal v. Chunilal , Bhagwati J., as he then was, considering the last ground that the substratum of the company has gone, noted the observation of Lord Cairns in In re Suburban Hotel Co. [1867] 2 C App 737, In re German Date Coffee Co. [1882] 20 Ch D 169, In re Eastern Telegraph Co. Ltd. [1947] 2 All ER 104 (Ch D), In re Red Rock Gold Mining Co. Ltd. [1889] 61 LT 785 and In re Kitson and Co. Ltd. [1946] 1 All ER 435, and observed thus (at page 980 of 2 Comp Cas):
”It is, therefore, clear that in order to bring the case within the principle underlying substratum cases, it is not enough to show that the main or dominant object for which the company is incorporated has been abandoned or that there is no intention on the part of the company to carry out such object but it must be proved that such object has become impossible of fulfilllment either by reason of the subject-matter of the company being gone or for any other reason. The requirement of the principle that the main or primary object of the company must have become impossible is emphasised in all the substratum cases and particular reference is to be found in In re Suburdan Hotel Co. [1867] 2 Ch App 737, where Lord Cairns confined the application of the principle to cases where `the whole of the business which the company was incorporated to carry on had become impossible’. Considerable emphasis was also laid on this requirement in Galbraith v. Merito Shipping Co. [1947] SC 446. In that case, the principal object of the company was ship-owning but the last of the company’s ships had been disposed of in 1919 and thereafter the company’s capital was invested in securities. The petitioner failed to aver in the petition that the resumption of ship-owning was impossible and on that ground the petition was dismissed.”
29. The following opinion expressed by Chief Justice Chagla in Bachharaj Factories Limited vs. Hirjee Mills Limited, , is topical and instructive:
”Now let us see how the shareholders and the creditors are arrayed on this question. The Mills are managed by managing agents belonging to the family of Bhadani. They are resisting the petition. Mr. K.K. Desai who appears for 16 shareholders also resists the petition. All these shareholders also belong to the family of Bhadani. Mr. Bhabha who appears for the depositors aggregating to Rs. 23,00,000 also opposes the petition. These depositors are also of the same clan, the Bhadani clan. He also appears for creditors to the value of Rs. 3,00,000 who are not connected with this family. As against this there is the imposing array of all the debenture holders of the value of Rs. 37,00,000 supporting the petitioners and asking the Court to pass a winding up order. The Bank of Baroda whose debts amount to Rs. 50,00,000 also supports the petitioners, and the particular class for whom we must have the greatest sympathy, the class of poor labourers whose debts amount to Rs. 36,00,000, strongly support the petitioners and want us to pass a winding up order. Mr. Nathwani appears for some creditors to the value of Rs. 12,000 and he says that these petty creditors actually have supplied goods to the Mills, bills have been submitted, registered notices have been sent, and they have not been paid. It is true an d this must be said in fairness to the learned Judge below–that most of the parties who are now appearing before us with special leave did not appear in the Court below and it may be that that was one of the factors that weighed with the learned Judge in declining to make an order of winding up. But as we read the judgment of the learned Judge, the main reason which has weighed with him is that the petitioners have not come to this Court with clean hands, and Mr. Mathalone wanted to satisfy us that the motive of the petitioners in closing down the Mills was selfish, that they were largely responsible for bringing about an impasse in the affairs of the Mills, and the Court will not make an order at the instance of a party which is guilty of mala fides. We have not permitted Mr. Mathalone to go into the merits of these allegations about the mala fides of the petitioners because in our opinion these allegations are entirely irrelevant. If the petitioners have made out a case for the winding up of the company, if they have placed materials before the Court which satisfy the Court that the company is insolvent, if they have placed materials before the Court which satisfy the Court that the substratum of the company is gone, it is difficult to understand hat the motive of the petitioners has got to do with the question whether an order of winding up should be made or not. If the petitioners were to stand to benefit by the order, undoubtedly the Court would say that a party cannot derive benefit by it own wrong. But when annoyer of winding up is made and the liquidator is appointed, the Court passes that order in the interest of the company, in the interest of the shareholders, and in the interest of the creditors, and except for the rather doubtful benefit that ordinarily the petitioners’ solicitors are in conduct of the proceedings no benefit whatever accrues to the petitioners. Therefore, in our opinion, what the learned Judge should have considered was whether on the materials placed before him by the petitioners–the materials in this case are overwhelming and they are indisputable–a case had been made out or not for the winding up of he company. The learned Judge should not have taken into consideration how wicked the petitioners were or how evil their actions had been”.
30. It appears to me to be extremely important to keep in perspective the reality that a company is an artificial and juristic entity, and that its liability is limited. It has its own legal persona but where justice so requires the veil by which its visage is rendered distinct from that of its management or shareholders, can be lifted. Compulsory winding up is a statutory relief primarily for these reasons, and not because a creditor demands it; on the contrary it should be in the public interest. Courts have often declined to pass winding up orders even though an undisputed and an immediately unplayable debt has been disclosed. Where the prayer for winding up is predicated on the just and equitable grounds, public interest in contradistinction to those of either the shareholders or the creditors comes to the forefront. The jural role transforms into that of a doctor performing euthanasia. Inter se claims and disputes between shareholders, or debts owing to the company’s creditors are not estinguished, but merely shifted to a different arena. It is on this understanding that the present case should be resolved, as has been done in the plethora of precedents presented before me by the learned counsel for the parties. Firstly, it must been whether the substratum, or the vital purpose for which the artificial entity was constituted, has been deracinated. In the present case the future of the Company is determined and regulated by the Joint Venture Agreement which has been terminated by the Petitioner. It has ceased to exist, but for it being sustained by statutory life lines. In this case the Board has stopped meeting; the capital required for its functioning is inadequate and the Respondent have declined to infuse and invest any more on the specious and evasive ground that it was ‘need based’. Even if the investment commitment was only need-based, the financial stringency faced by the Company is all too evident and has resulted in the closure of its operations. It is the Respondent’s case that the Company has been suffering losses year after year and as much as Rs. 250 lakhs in 1998-99. It can scarcely be disputed that the Company’s employees have left the Company in droves, proverbially much like rats fleeing a sinking ship The Sales of the Company are commercially insignificant and cannot sustain it in the future even if the most optimistic prognosis is adopted.
31. Since the shareholding is equally distributed between the Petitioner and the Respondent and neither of them have shown any proclivity of selling or acquiring the holding of the other a deadlock in the management has manifested itself. This deadlock is also evident in that there is no consensus on the vital questions of injecting further funds into the Company’s coffers; on the sales or depletion goals which the company should achieve; and these warring parties are already embroiled n litigation. I am deliberately steering clear of discussing issues in minute details since a mere overview of the disputes and rival contentions leaves me in no doubt that it is just and equitable to wind up the Company. It is more than likely hat the Petitioner and the Respondent may initiate further litigation including arbitration against each other and therefore it would be expedient for the Company Judge to abjure from expressing views on the respective claims. The focal concern must be the Company’s health alone.
32. What remains to be considered is whether any grounds exist for declining the relief prayed for in the petition. Firstly, so far as Section 443(2) of the Act and the aspect of an alternative relief is concerned, the opinion of the Division Bench of this Court in Moti Films (supra), albeit in the context of Sections 397 and 398 of the Companies Act, immediately comes to mind. Were it the case that the Company was transacting a profitable business despite the non-cooperation between its major shareholders the situation may be appreciably different and the Court would refrain from winding up the Company on the instance and insistence of one party. In the factual matrix obtaining before me, there appears to be no alternative but to end the existence of the Company, and thereby put to a halt any further financial liabilities as also the perfunctory need to comply with statutory obligations such as holding Annual General Meetings, filing Annual Returns etc. Secondly, if the party praying for the winding up of the Company is itself guilty of approaching the Court with unclean hands it indubitably would not be entitled to equitable relief. However, I cannot view any action of the Petitioner as symptomatic of unfair, inequitable or illegal conduct. The termination of the JVA, wrongly or otherwise, the non-fulfilment of post termination obligations are bilateral liabilities and are beyond the scope of this petition unless it is palpably and manifestly mala fide. This equally applies to the filing of petition within the ninety days period post termination of the JVA. Again I shall refrain from discussing this issue threadbare as it is bound to bear on the disputes between the Petitioner and the Respondent, with which I am not concerned in this petition. Thirdly, the contention that it would not be fair and proper to allow the petition till such time as the post termination obligations have been completed by the Petitioner or even to entertain it is these circumstances does not appear to me to be sustainable. These obligations arise from the contract between the parties the breach of which is not the subject matter of this winding up petition; the parties are equipped with legal rights and remedies in that regard. Fourthly, it is argued that this petition has been filed only because almost unbridled and untrammeled latitude has been granted to foreign investors and hence the Petitioner does not need to collaborate with the Respondent to transact business in India. Counsel for the Petitioner has answered that even in the new regime ‘No Objection’ from the Respondent would be required and that the Petitioner has no intention to market ‘Southern Comfort’ in India. What the Court must keep in perspective is the conduct of the Petitioner and the commercial viability of the Company; it is not a relevant feature that the Petitioner may incidentally find itself in an advantageous position after the winding up of the Company. Mr. Nayyar, learned Senior Counsel for the Petitioner, has categorically stated, with prejudice, that unless the Respondent issues a ‘No Objection’ the Petitioner would not commence business in India. It is my considered opinion that no action of the Petitioner, either of omission or commission, was calculated or intended to bring the Company to its knees.
33. In point of fact it was the Petitioner who had repeatedly requested the Respondent to invest further capital which was not agreed to. It also appears that the Petitioner’s proposal for the Respondent to decrease its shareholding did not find favor with the Respondent.
34. This petition was admitted on April 18, 2002 but publication of the citation as well as appointment of a provisional liquidator was not made on the joint submission of the parties advocates. So far as not advertising the factum of admission is concerned, the course was permissible as observed in The National Conduits (P) Ltd. v. S.S. Arora, . While such an order deferring or declining publication is possible at the admission stage of the winding up petition, it must be carried out when the Company is put into the process of its dissolution or winding up. A similar question arose before the Division Bench of this Court in Lt. Col. R.K. Saxena v. Imperial Forestry Corporation Ltd., 2001 VI AD (Delhi) 823, where the publication was held to be mandatory. Although the claimants in these proceedings are primarily the Petitioner and the Respondent it is quite possible that there are other persons who would be affected by the winding up. There is also now no reason for not appointing a Liquidator.
35. Accordingly, the Company is ordered to be wound up. I appoint the Liquidator attached to this Court as the Official Liquidator. Publication be carried out in the Official Gazette and in the Indian Express and Jansatta, in accordance with law.