JUDGMENT
J.B. Koshy, J.
1. Appellant in this case along with two other shareholders of S.T. Reddiar and Sons (Quilon) Pvt. Ltd. (hereinafter referred to as ‘the company’) filed Company Petition No. 24/2001 before the Company Court under sections 425 and 433 of the Companies Act, 1956 (for short ‘the Act’) for winding up of the company. Allegation was that Managing Director and Joint Managing Director are not interested in the progress of the company. Large amounts of debts due to secured creditors like Kerala Financial Corporation, SIDCO, UCO Bank are remaining unpaid. UCO Bank has filed a suit. When KFC and SIDCO initiated coercive action, the company approached the High Court for selling some of the landed property and four cents of land was sold to discharge part of the debt. The company is constructing a multi-storeyed building complex to generate funds by selling and leasing out shops. Vasthukala Constructions was entrusted with the task of constructing the building. Even though ground floor and first floor was completed, amounts due to them have not been paid. There are sales tax arrears also. The Company’s Board was reconstituted on 10-3-2000 and appellant (third petitioner before the Company Court) became the Director and Chairman of the Company. But, in view of the stay order by a civil court, he was not able to function. The assets of the company are inadequate to meet the liabilities and according to the appellant, the company was liable to be wound up on just and equitable grounds. The above company petition was heard along with C.P. No. 38/ 2001 filed by a creditor of the company, Vasthukala Constructions, for winding up of the company alleging that the company is unable to pay its debts. Both were represented by same counsel.
2. According to the company, petitioners became shareholders by fraudulent means. They collected huge money by agreeing to give shoprooms on sale in the building under construction and misappropriated the same; and the matter is pending for consideration of the Company Law Board. It was also contended that amounts due to the creditors are being paid and some of the amounts demanded by Vasthukala Constructions are not admitted and in dispute. None of the secured creditors has approached the Company Court for winding up. Entire amount due can be paid to the creditors after selling some of the shoprooms in the multi-storeyed building and major part of the amount due to KFC was already paid. All allegations were denied. With regard to the specific allegation it was contended by the company that the first and second petitioners negotiated with certain prospective purchasers of shoprooms in the newly constructed building and the 2nd petitioner as Chairman agreed to sell shoproom No. 8 to one A.L. Sreenivasan for a price of Rs. 10 lakhs and received an advance of Rs. 3 lakhs. Thereafter, a sale deed was executed by the 1st petitioner as Director of the company in favour of Shri A.L. Sreenivasan for a consideration of Rs. one lakh only and thereby misappropriated Rs. nine lakhs belonging to the company. Another agreement was executed for the sale of another shoproom with one Janardanan Achari for a price of Rs. 24,87,100 and an amount of Rs. 18 lakhs was collected as advance. The agreement was executed by the 1st petitioner styling himself as Director (Finance) and a document for sale was executed for an amount of Rs. two lakhs and an amount of Rs. 22,87,100 belonging to the company had been misappropriated. Another shoproom was agreed to be sold for Rs. 17.4 lakhs by the 1st petitioner and the above shoproom was sold for an amount of Rs. two lakhs and thereby misappropriated an amount of Rs. 15.40 lakhs. Shoproom No. A9 was agreed to be sold to one Abdul Salam for a price of Rs. eleven lakhs by the 2nd petitioner and a sale deed was executed for Rs. one lakh and thereby misappropriated Rs. ten lakhs belonging to the company. It was further contended that the work could not be proceeded because of the large scale misappropriation of the money of the company by the petitioners themselves. All these matters are now pending before the Company Law Board which is the competent authority to consider these matters and after misappropriating huge amounts of the company, the petitioners have approached this court for winding up of the company for escaping from the responsibilities and liabilities.
3. After considering the matter, the Company Court found that major part of the amount due to the KFC and other secured creditors were paid. With regard to Vasthukala Constructions, part amount was paid and part amount was in dispute. It was also stated that such disputes are disputes of civil nature. It was held by the Company Court as follows :
“10, In view of the very serious allegations made by the 1st respondent against the petitioners in C.P. No. 24/2001, I do not think that it would be proper to pass any order for winding up of the company at this stage when those matters are pending consideration before the Company Law Board. It was further pointed out that after the filing of C.P. No. 24/2001, the same counsel filed C.P. No. 38/2001 for an alleged creditor of the company. The petitioners in C.P. No. 24/2001, being shareholders of the company, were bound to protect the interests of the company and in fact they had joined with the petitioner in C.P. No. 38/2001 and filed a petition for winding up of the company. All the above circumstances would clearly indicate that the petitions for winding up of the company has been filed with ulterior motives and I do not think it proper to grant the relief of winding up of the company. On the other hand, the disputes are to be considered and decided by the Company Law Board as per the provisions under Chapter VI of the Companies Act. Hence I do not think it just or proper to pass an order of winding up of the company.”
4. Out of the three petitioners in C.P. No. 24/2001, 2nd petitioner alone filed this appeal. Appellant claims that he became a Director and Chairman of the board of directors with effect from 10-3-2000. He is not like an ordinary shareholder. There was also an allegation that petitioners in the company petition misappropriated large sum of money in executing sale deeds and agreements for sale of shoprooms and the matter was pending before the Company Law Board. The company is in a path of revival. Many of the debts were paid off. Multi-storeyed building (Shopping Complex) is under construction. They will get large amount of money after construction of the building by sale or lease of shoprooms. None of the secured creditors of the company approached the Court or supported the case of the appellant for winding up of the company. If he was a Director and Chairman of the company, it was for him to take steps to revive the company and in any way his approaching the Court for winding up of the company is not bona fide, that too, by joining with an unsecured creditor. It is true that Court has wide discretion in ordering winding up on just and equitable grounds. Interest of the company is of paramount importance. Interests of creditors, employees, shareholders etc. are to be considered. There must be strong grounds for liquidating a company as it is the last resort to be adopted. Mere allegation will not constitute just and equitable grounds for winding up. Availability of other remedies, pendency of case before the Company Law Board where petitioner’s alleged act of misappropriation of the issues, are all matters considered by the Company Court while dismissing the petition for winding up. In this connection, we refer to the judgment of Apex Court in Madhusudan Gordhandas & Co. v. Madhu Woollen Industries (P.) Ltd. [1972] 42 Comp. Cas. 125. Winding up can be resorted to as last resort. [See Lokenath Gupta v. Credits (P.) Ltd. [1968] 38 Comp. Cas. 599 (Cal.)]. The allegations pointed out by the appellant even if proved will not be sufficient for passing an order of winding up. A temporary difficulty which does not knock out the company’s bottom cannot be a ground for liquidating the company. By construction of multi-storeyed building etc. the company is on the path of revival. In Sheth Mohan Lal v. Grain Chambers Ltd., Shah, J. (later C.J.) of the Supreme Court observed :
“The substratum of a company can be said to have disappeared only 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 that case, owing to a long drawn out litigation the business of a company had come to a standstill and a part of its business was banned by legislation, Shah, J. (later C.J.) held that “we cannot on that ground direct that the company be wound up. The Company could always restart business with assets it possessed.”
5. In this case, Company Court after considering the materials produced by the petitioners held that petitioners were not able to prove that this is a fit case to order winding up of the company. It is a discretionary order and on the facts of this case discretion was used correctly. In any event, among the three petitioners who jointly filed a petition for winding up, only the appellant who claims to be the Director-cum-Chairman, whose alleged misappropriation etc. is subject-matter of a proceeding before the Company Law Board, preferred to file appeal. The company petition was rightly dismissed by the Company Court. There is no merit or bona fides in the appeal.