JUDGMENT
Ravi R. Tripathi, J.
1. The petitioner-appellant herein aggrieved by the judgement and order dated 11th October 2007 rendered by the learned Company Judge in Company Petition No. 188 of 2007 is before this Court. The learned Company Judge was pleased to dismiss the petition.
2. The case of the petitioner-appellant herein is that Section 433 of the Companies Act, 1956, (hereinafter referred to as “the Act”) provides for winding up of a company by a Tribunal. Clause (c) of Section 433 of the Act, which reads as under:
433. A company may be wound up by the Tribunal,-
(a) xxx
(b) xxx
(c) if the company does not commence its business within a year from its incorporation, or suspends its business for a whole year;
whereas Clause (f) of Section 433 of the Act reads as under:
(f) if the Tribunal is of the opinion that it is just and equitable that the company should be wound up;
According to petitioner-appellant herein both these requirements are fulfilled and hence an order of winding up ought to have been passed.
3. The learned Company Judge has observed in para 3 as under:
Upon hearing the learned Counsel for the petitioner, it appears that two grounds are mainly sought to be canvassed; one is that the company has not commenced the business and the second is that it is just and equitable to wind up the company.
The learned Company judge has discussed the facts of the case and various contentions raised by the learned advocate for petitioner-appellant herein and concluded in para 12 as under:
In my view the statutory ground of non-commencement of the business is sought to be canvassed in the petition and the same is considered accordingly as observed earlier. Further, the substratum can be said as lost only if the Court is of the opinion that there are no chances whatsoever with the company to achieve its object. At this stage when the company is making attempt to come out from the financial difficulties and also making sincere attempts to pay all the dues of the creditors, it would be premature to conclude that the substratum of the company is lost.
4. Learned advocate Mr. Vakil for the petitioner-appellant herein vehemently submitted that the learned Company Judge has erred in not appreciating the true scope of Clauses (c) and (f) of Section 433 of the Act. He submitted that there are reports of the Directors, more than one in number, for various periods, such as, for the period 2002-03 at page 125; for the period 2003-04 at page 137; for the period 2004-05 at page 147; and for the period 2006-07 at page 156, which clearly go to show that the company did not commence either the business or the manufacturing activity.
The learned advocate for the petitioner-appellant herein submitted that in view of this fact which is borne out from the record the learned Company Judge ought to have come to the conclusion that it is ‘just and equitable’ to wind up the company.
5. The learned advocate for the petitioner-appellant herein submitted that though as set out in Ground (J) as many as eight decisions were cited on the points other than the point of maintainability and as many as six decisions were cited on the point of maintainability, but the same are not dealt with by the learned Company Judge.
In the course of the argument the learned advocate for the petitioner-appellant herein submitted that the affairs of the company are not managed properly and therefore, taking those details into consideration the learned Company Judge ought to have held that it is ‘just and equitable’ to order winding up of the company. He submitted that so far as non commencement of the manufacturing/business activity is concerned the same is borne out from the record of the case and therefore, passing the order of winding up was warranted in the facts of the case.
6. The learned advocate for the petitioner-appellant herein relied upon the following decisions:
i. Rupa Bharati Ltd. v. Registrar of Companies reported in (1969) U Co. Law Journal 296;
ii. Kerala State Industrial Development Corporation Ltd. v. Poonmudi tea Pack Ltd. reported in 1988 Company Cases (Vol.63) 575;
iii. S. Sundaresan v. Plast-o-Fibre Industries Pvt. Ltd. reported in 1993 Company Cases (Vol.76) 38; Mrs. Meera Alva v. Combined Power and energy Systems Pvt. Ltd. reported in 1998 Company Cases (Vol. 94) 784;
iv. Registrar of Co. Bihar v. Shreepalpur Cold Storage Private Ltd. reported in 1974 Company Cases (Vol. 44) 479;
v. State v. Mayurbhanj Spinning and Weaving Mills Opposite Party ;
vi. Lawang Tahang v. Goenka Commercial Bank Ltd. ;
vii. Upendra Nath Naskar and Ors. v. Satya Charan Gangopadhya and Ors. ;
viii. Rajahmundry Electric Supply Corporation Ltd. v. A. Nageswara Rao and Ors. ;
ix. Shakuntala Rajpal and Ors. v. Mckenzie Philip (India) P. Ltd. And Ors. reported in 1988 Company Cases (Vol. 64) 585; and
x. Surendra Kumar Pareek v. Shree Guru Nanak Oils Pvt. Ltd. reported in 1995 Company Cases (Vol. 82) 642;
7. The learned advocate for the petitioner-appellant herein emphatically submitted that even at the hands of a shareholder the Court can exercise the jurisdiction vested in it and pass an order of winding up.
The proposition of law that Court can exercise the jurisdiction vested in it at the instance of a shareholder cannot be disputed. It is well settled that the Court can consider the prayer of passing of an order of winding up even at the hands of a shareholder, but the question is whether in the given facts and circumstances of the case such an order is warranted or not.
None of the decisions cited by the learned advocate for the petitioner-appellant referred to hereinabove are in similar facts and therefore, they have no application to the facts of the present case. So far as the question of passing the order of winding up is concerned the Court can always pass an order of winding up if the Court is of the opinion that such an order is required to be passed in the interest of all. But when the Court is not convinced it can well refuse to pass such order.
In the present case, the learned Company Judge has clearly set out in paras 5 and 6 that this is not a case wherein an order of winding up is required to be passed. Paras 5 and 6 are reproduced hereunder for ready perusal.
5. It appears that from the record produced by the petitioner that in the Director’s Report dated 29.2.2004, copy whereof is on page 125 that as per the said report there are possibilities to start plant operations when the Directors bring Rs. 30 lac as unsecured loans and to start commercial production after Directors raise unsecured loans of Rs. 180 lac. However, in the said report, it is also stated that IDBI Officials, after visit, have communicated that there shall be further disbursement of Rs. 30 lac only when the company creates security on the immovable property in favour of the IDBI and the Directors bring unsecured loans of Rs. 115 lac. Further, in the director’s report dated 1.9.2007, copy whereof is produced on page 137, it has been, inter alia, stated that the company has received fax letter from IDBI stating that “complete the project immediately and the assets may be put to use to generate revenue without any further delay”. The notice issued by the Company dated 29.8.2005 shows the proposed resolution for issuance of Rs. 15 lac equity shares at Rs. 10/- each at par for cash to Shri Nilesh Gupta and issuance of Rs. 10 lac equity shares to M/s. Septu (I) Pvt. Ltd. against the loan facility given to the company. It is also mentioned in the said notice of proposed resolution for allotment of shares to IDBI at par against the convertible debenture of the company held by them. On page 149 in the director’s report, there is a reference to repayment schedule in respect to the term loans of Rs. 400 lac and further it is also mentioned that the company may arrange to execute an agreement for issuance of the equity shares of Rs. 118 lac to IDBI in demat form within a period of 60 days from the letter. The aforesaid is the part of director’s report dated 29.8.2005. In the next director’s report dated 4.12.2006, copy whereof is produced on page 156, shows for allotment of the shares of Rs. 118 lac to IDBI and the shares of Rs. 100 lac at the face value to M/s. Septu (I) Pvt. Ltd. The copy of the letter dated 14.3.2007 is produced on page 160 by the petitioner, addressed to IDBI shows that the company is negotiating with the IDBI for permitting disposal of the property to a party at Italy so as to create fund of about Rs. 695 lac, out of which, the payment is to be made to IDBI of Rs. 450 lac and the balance is to be utilized amongst the shareholders and for paying the market liabilities.
6. The aforesaid shows that the company is making sincere efforts to materialize the transaction for disposal of the property and to pay up the outstanding dues to IDBI and market current liabilities and thereafter to the shareholders. If such an approach is undertaken by the company and at that stage, if the proceedings of winding up of the company are initiated and the order is passed of winding up of the company, it would go against the interest of all creditors of the company and also consequently the shareholders.
The observations made by the learned Company Judge in para 4 are:
It is hardly required to be stated that winding up of any company is a last resort and such would be only if the Court comes to the inevitable conclusion that it is not possible for the company to continue its business or activity or that the functioning of the company would be against the interest of all concerned namely; shareholders, creditors and other persons directly or indirectly concerned with the functioning of the company.
These observations clearly reveal that the learned Company Judge did have the decisions cited by the learned advocate for the petitioner-appellant herein in mind.
8. The learned advocate for the petitioner-appellant herein next submitted that, ‘it is true that the petitioner-appellant herein himself was one of the promoters of the company in question and was also the Director of the Company since March 1999 till 8th June 2002, but then ‘non-commencement of business within one year or non carrying of business for the whole year’ within his tenure should not come in the way of the the petitioner-appellant herein in getting relief as prayed for in the Company Petition, viz. winding up of the company. He submitted that the petitioner-appellant herein is having right to approach the Court and once he approaches the Court he has right to get his case considered by the Court for grant of the relief and at that time the fact that during his tenure the company could not resume business/manufacturing activity should not be taken into consideration and the question of grant of relief as prayed for should be considered independent of that.
9. The learned senior advocate Mr. Joshi appearing with Mr. A.C. Gandhi for the petitioner-appellant herein submitted that this is a case wherein the petitioner is out with a ‘hidden motive’ to get an order of winding up. He submitted that it will not be inappropriate to use the phrase that the petitioner-appellant herein has undertaken an exercise of ‘arm-twisting’ for the reasons which cannot be termed ‘bona fide’.
The learned senior advocate also submitted that this is a case wherein the petitioner-appellant herein has not approached the Court disclosing the full details. In this regard the learned senior advocate referred to para 6.15 of the Company Petition. For ready perusal para 6.15 is reproduced hereunder:
6.15 A notice dated 17th March 2007 (copy at annexure 36 hereto) was issued convening extraordinary General Meeting of the members of the Company at its registered office on 22nd March 2007 to transact the various businesses mentioned therein. One of the businesses to be transacted was to accord permission to the Board of Directors of the Company for sale and/or transfer on such terms and conditions, in such form and manner, the whole or substantially the whole of the Company’s undertaking/business/fixed assets, whether movable and/or immovable at a value of not less than Rs. 5 crores, free from all encumbrances, etc. the explanatory statement forming annexure to the said notice dated 17.03.2007 stated that the Company had not started commercial production and had incurred losses. The IDBI by its letter dated 17.03.2007 (copy at Annexure ’37’ hereto), in response to Company’s letter dated 14.03.2007, accorded sanction “as a very special case” to the Company to sell the assets to Lamberti Spa and out of the sale proceeds, a sum of Rs. 475 lacs was to be paid to IDBI by June 30, 2007. Thus, the sale which was envisaged for a sum of Rs. 6.95 crores on 14.03.2007 to Lamberti Spa, was reduced to Rs. 5 crores in the notice dated 17.03.2007. Further the Company failed to comply with the requirements of Section 171 of the Companies Act read with Article 60(c) of the Articles of Association. The terms and conditions for accepting the OTS were separately annexed to the IDBI’s letter dated 17.03.2007. The same stipulated that in the event of delay in payment of the amount (i.e. Beyond 30.06.2007), the defaulted amount would carry interest from the date of default till clearance of the default. It also provided that if the default persisted for more than 30 days, IDBI shall have the right to reverse the waiver of dues and restore the original liability as per the terms of the loan agreement and adjust the payments already received. By letter dated 28.06.2007 (copy at Annexure ’38’ hereto), the Company informed IDBI that IDBI’s proposal dated 17.03.2007 was discussed with Lamberti Spa and that the said Lamberti Spa was in the process of incorporating a new company in India to take over the assets of the company. The letter dated 28.06.2007 stated that there was likely delay of 25 days and accordingly the time be extended upto 31.07.2007. The Auditors Report dated 16.07.2007 (copy at Annexure ’39’ hereto) for the period ended 31.03.2007 valued the fixed assets of the company at Rs. 11.41 crores. The Authorised Share Capital of the Company was stated to be 50,00,000 Equity Shares of Rs. 10 each. The issued and paid up capital was stated to be 33,55,000 Equity Shares of Rs. 10 each.
10. The learned senior advocate submitted that a meeting was convened on 22nd March 2007 in which the petitioner was present. The petitioner-appellant herein has chosen to keep quite and has not stated as to what transpired in that meeting held on 22nd March 2007. The learned senior advocate strenuously contended that thus there is suppression of material facts from the Court. The learned senior advocate submitted that the petitioner-appellant herein has obtained interim relief by suppressing the facts and therefore, not only the petition be dismissed but it should be dismissed with an exemplary cost.
11. Mr. Joshi, learned senior advocate also invited attention of the Court to the reply filed to a Civil Application wherein in para 3 it is stated as under:
3. The petition filed under Section 433(1)(c) and 1(f) namely on the grounds that the Company has not commenced its business within a year and that it is just and equitable to wind up the Company, is not maintainable at law and also facts and circumstances of the case. It is further submitted that the said contentions raised by the petitioner are not bona fide. The petitioner himself was one of the promoters of the company as well as Managing Director at the relevant time. The contentions raised by the petitioner are not only mala fide but are barred by delay, latches, acquiescence and estoppels….
12. The learned senior advocate also referred to the contents of para 4 of the reply wherein the facts which are having direct bearing on the merits of the case and on the aspect of exercise of discretion to pass winding up order are set out, which are as under:
It is further submitted that regarding the sale of the assets of the company, the company had approached IDBI by its letter dated 14.03.2007, the secured creditor having charge on the company’s assets and for its permission to sell the company’s assets so that out of the sale proceeds, liabilities of the said secured creditor could be paid and IDBI was pleased to grant its sanction by its letter dated 17.03.2007 to sell the assets of the company to one Italian company namely Lambarti Spa as a very special case. The company, therefore, had convened an Extraordinary General Meeting of the company by notice dated 17.03.2007 and the said meeting was held on 22.03.2007. It is pertinent to note that in the said meeting, the agenda was passed for necessary resolution under Section 293(1) of the Companies Act for the sale of the fixed assets of the company at a price not less than Rs. 5.00 crores. However, the petitioner has made mis-statement in this behalf in the petition so as to misguide the Hon’ble Court. The said meeting was attended by so many shareholders including the petitioner himself and the resolution for sale of the assets of the company was passed unanimously without any objection from any of the shareholders….
13. The learned senior advocate appearing for the respondent-company submitted that it is true that in the resolution it was stated that the assets of the company should not be sold for less than Rs. 5 crores. But later on the company has fetched Rs. 7,07,50,000/- and therefore, even by a remote suggestion it cannot be said that the Board of Directors were having any dealing which can be said to be under sleeves.
The learned senior advocate also submitted that the Director’s Reports which are referred to hereinabove at pages 125, 137, 147 and 156 reveal that the company had an intention to commence manufacturing/business activity. The same is reflected from the progress made in the matter of establishing the company, acquiring machinery and so on. It is true that for the reasons beyond the control, the company could not commence business activity which is clearly mentioned in the aforesaid reports, but then it is equally important to note that the company is able to discharge all its liabilities including that of IDBI and is having surplus balance with it. The company proposes to go before the shareholders in Annual General Meeting so as to put the said funds to use as per the decision of the Annual General Meeting.
14. The learned senior advocate Mr. Joshi in this regard invited attention of this Court to a decision of Kerala High Court in the matter of Cochin Malabar Estates and Industries Ltd. and Anr. v. P.V. Abdul Khader and Anr. reported in 2003 Company Cases (Vol. 114) 777. The learned senior advocate invited attention of the court to the following observations.
A shareholder could express his views in the general body meeting. The company is a legal entity and it can act only through its directors. A solitary shareholder of the company has approached the company court so as to wind up the company under Section 433(e) and (f) of the Companies Act stating that the company is unable to pay its debts and that it is just and equitable to wind up the company while the creditors are not interested in the winding up of the company. We fail to see how a fully paid up shareholder could seek winding up of the company when the creditors have approached Debt Recovery Tribunal for the recovery of their debts. Creditors of the company have not been parties to the winding up proceedings. The shareholder has no case that the company is commercially insolvent. Facts would reveal what the shareholder’s intention is only to see that the company’s assets be purchased by his associates one T.P. Abdulla and N.K. Mohammadali.
The learned advocate invited the attention of the Court to the following observations also:
Even in the case of a contributory in order to maintain a petition under Section 433 he should show special reasons. The question as to whether a fully paid up shareholder could move a winding up petition was also examined by this Court in V.V. Krishna Iyer Sons v. New Era Manufacturing Co. Ltd. [1965] 35 Comp Cas 410, 414. The Court held as follows:
That a fully paid up shareholder even of an insolvent company is entitled to bring an application for its winding up is quite clear, this being expressly provided by statute. But the fact remains that ordinarily he has nothing to lose by continuance of the company and nothing to gain by its winding up or to borrow the language of the English decisions, that he has no interest in a winding up…. The Court is not readily moved to exercise its discretion by a person who is not really aggrieved; nor is it readily persuaded by such a person that it is just and equitable that a company should be wound up. A man who has no apparent axe to grind usually has a hidden and dangerous axe to sharpen, and decisions have recognised, in the context of a winding up sought by a fully paid up shareholder of an insolvent company, that ‘when a person asks for an order without any tangible interest in the result there is ordinarily good ground for thinking that the application is for an ulterior purpose and not a bona fide application.
The learned advocate also invited attention of the Court to the following observations:
…A fully paid up shareholder of an insolvent company might not be exactly in the same position, for while a creditor has no interest in the company as such but only in his debt, a shareholder has an interest in the company notwithstanding its insolvency. Yet unless special reasons are shown, much the same question can be put to him, and if he has any genuine grievance to redress, I should think that, in the generality of cases, he would have some adequate remedy other than a winding up so that Sub-section (2) of Section 443 would come into play.
The learned advocate next invited the attention of the Court to the following observations:
…The company judge in the instant case has been passing various orders at the instance of a solitary shareholder effectively sitting in judgement over various business decisions taken by the board of directors. If the board of directors is mismanaging the affairs of the company or board of directors are conducting business prejudicial to the interest of the shareholders they could always move the Company Law Board after complying with the formalities laid down in the Companies Act. The Company court should show circumspection while dealing with an application filed by an ordinary shareholder. A shareholder could always ventilate his grievance before various forums. Details procedures have been laid down in Sections 379 to 409 of the Companies Act for relief against oppression of minority and mismanagement of the company affairs, enabling the shareholder to approach the Company Law Board. The Company Law Board could exercise its powers under Sections 388B and 388E. Further, Section 237 also empowers the Department of Company Affairs to effectively interfere even on a mere complaint by a shareholder if there is evidence to justify the interference in cases of fraud, mismanagement or serious irregularities in the affairs of a company are raised. The company petitioner has never chosen to file any application before the Company Law Board or before any forum alleging fraud or mismanagement, but approached this Court with a winding up petition. The attempt of the petitioner is mala fide and actuated by ulterior motive.
15. In the present case also during the course of the argument when inquired from the learned advocate for the petitioner-appellant as to what prejudice is caused to the petitioner-appellant, the learned advocate for the petitioner-appellant submitted that the petitioner-appellant will be deprived of his share in the surplus funds. In the considered opinion of this Court the said apprehension is not well placed. The managing of affairs of the company is a matter of record and the accounts and as a member of the company-shareholder, the petitioner-appellant is having and can have an access to the accounts of the company. Thus, the aforesaid apprehension is misplaced.
16. In the result we find that the order passed by the learned Company Judge does not require any interference at the hands of this Court. In the result this Appeal fails and is dismissed accordingly. Notice is discharged.
Civil Application No. 389 of 2007
17. In view of the order passed in the Appeal, no order is warranted in OJ Civil Application No. 389 of 2007. The same is disposed of accordingly. Notice is discharged. Interim relief is vacated.