JUDGMENT
Naik, J.
1. This petition for winding-up of a company called the Akola Electric Supply Company (Private) Ltd., (hereinafter referred to as the company) under section 439 of the Companies Act of 1956. When this petition came up before S .M. Shah J. for admission, the learned judge did not accept the petition and rejected the same in limine. An appeal was preferred to the Division Bench of this court (Appeal No. 1 of 1960). In appeal, the Division Bench set aside the order of dismissal, admitted the petition and sent it down for final hereing. The order that was passed by the Division was on the basis of certain consent terms arrived at between the parties under which the respondent company gave an undertaking that the amount of compensation that may be received by the company from the Bombay State Electricity Board would be deposited with the company solicitors, M/s Kanga & Co., pending the hearing and final disposal of the petition on metiers in the trial court. The usual formalities such as advertisement and notices having been served, and the necessary preliminaties having been completed, the matter has now come up before me for final hearing. Before adverting to the affidavits that were tendered before me at the stage of the final hearing and the reasons, which inducted the petitioners to do so, it is necessary to set ;out the facts in so far as they are necessary for determining the matter of controversy between the parties. I will begin with the facts which are either admitted or over which there is not much dispute.
2. The aforesaid company was incorporated in the year 1930 under the Indian Companies Act, 1913. it appears that the share of the company were purchased by the purchased by the present shareholders in about the year 1937. The authorized capital of the company is rupees four lakhs divided into eight thousand shares of Rs. 50 each. The subscribed and paid-up capital of the company is rupees three lakhs divided into six thousand fully paid -up shares of Rs. 50 each. The said six thousand shares in the share capital of the company are held as under :
1. Bilasrai Juharmal (1st petitioner) 1,500 shares. 2. Jugmohanlal Rungta (2nd petitioner) 1,000 ,, 3. Brijlal Ramjidas and the 1st petitioner 1,000 ,, 4. Mahavirprasad Badridas 1,000 ,, 5. Narandas Ramijdas 900 ,, 6. Radhakrishna Brijlal 500 ,, 7. Brijlal Ramjidas 100 ,, —————- Total 6,000 —————–
3. The managing agents of the company were M/s. Brijlal Bilasrai & Co. for over twenty years. ;The ostensible partners of the said managing agents firm were petitioner No. 1 and said Brijlal Ramjidas and the said managing agent firm was merely the nominee or benamidar of M/s. Sarupchand Prithiraj, a partnership firm consisting of nine partners including the members of the company referred to above. The managing agents were carrying on the management of the company till 1957. Since then the management of the company is being carried on by three directors viz., Mahavirprasad Badridas, Narandas Ramjidas and Radhakrishna Brijlal. The members of the company are divided into two groups. One group comprises the two petitioners who are father and son respectively and the other group comprises the two petitioners who are father and son respectively and the other group consists of Brijlal Ramjidas, Mahavirprasad Badridas. Narandas Ramjidas an Radhakrishna Brijlal. The group of the petitioners may, for the sake of convenience,. be called as Bilasrai group and the group of the remaining four members of the company headed by Brijlal Ramjidas may be called as Brijlal group. The members of Brijlal group are closely relate to one another. Disputes have cropped up between the two rival groups, at any rate, since 1956 and one of the reasons for these disputes appears to be that the dividends are not being distributed to the members of Bilasrai group. The petitioners filed an application (I.C. No. 75 of 1956) for winding up the company mainly on the ground that the members of brijlal group were conducting themselves in a manner oppressive to the petitioners and prejudicial to the interests of the company. The case of non-distribution of dividends was cited as an instance in point. No order were passed on this application, because the company deposit in court the amount of the claim made by the petitioners in respect of the dividends due to them. Thereafter on March 29, 1957, the petitioners filed another application (I. C. No. 81 of 1957) under sections 397, 398, 402 and 439 of the Indian Companies Act, of 1956. The prayer, however, for winding up the company was abandoned at a later stage. The said petition came up for hearing before Coyajee J. and learned judge declined to accept the same. The petitioners went in appeal. In the meantime, the petitioners had filed suits in the City Civil Court for the recovery of the amount of dividends due to them. In the course of appeal before the high Court, an undertaking was given by the members of Brijlal group to the effect that the dividends would not be distributed till the disposal of the suit pending before the City Civil court. The appeal, therefore, was not pursued and the matter was dropped. On December 6, 1959 the license granted to the company by the Government under the provisions of the Indian Electricity Act, expired. It may be mentioned at this stage that since its incorporation the only business that he company was carrying on was to run the undertaking of supplying electric energy to the citizens of Akola. On the termination of license, the Bombay State Electricity Board has taken over the work of distributing the electric energy to the citizens of Akola and the immovable properties of the company also were taken charge of by the said board. The company, though their directors, have laid their claim for compensation by reason of the company having been taken over by the Government. They have also contended that some of the immovable properties belonging to the company have been wrongly taken possession of by the Government. The company therefor, has asked for the return of the properties belonging to the company have been wrongly taken over by the Government. This claim is also disputed by the board. Within a few days from the expiry of the period of the license, that is, on December 18,1959, the petitioners have lodged this petition for winding up the company.
4. I will now advert to the main allegations on which the prayer for wining up is sought to be based. There allegations can be divided into two categories. First, the company is, more or less, a glorified partnership; that irreconcilable disputes have arisen between the members of the two groups; that the management of the affairs of the company ny brijlal group is oppressive and prejudicial to the interests of the company; that although ostensibly there are six partners in reality, there are only two partners, Bilasrai representing the first group and Brijlal representing the second group; that the interests of Bilasrai group are being ignored and that Bilasrai group has been driven to file suits against the company and Brijlal group n the City Civil Court and, therefore, a situation analogous to the situation of deadlock has arisen in the management of the affairs of the Company. The second category of allegations is that the main object of the company, for which it was established, was to run the undertaking of supplying electric energy at Akola and other places with the previous consent of the Government. That object has failed by reason of the fact that the periods of there license granted by the Government under the Electricity Act to run the company at Akola has expired and further there is no likelihood of any other license being granted to the company ;because of the policy, which the Government is pursuing, viz., that electric undertakings should be taken over the Government. The petitioners have also asserted that the only work that remains to be done is the distribution of the compensation money and they have expressed apprehensions that he compensation money would be frittered away be the directors of the company. The substratum of the company,l therefore ,has gone.
5. It is not necessary to set out the defense taken on behalf of the company in detail and it is sufficient to state that they have denied both sets of allegations made by the petitioners. They contend that there are several objects for which the company was founded; that all these objects are independent and that it is incorrect to say that the substratum of the company has gone or has been destroyed merely because the present undertaking was taken over by the Government. They have also denied the allegations relating to oppression and flouting of the interests of the petitioner and contended that the management of the company is being run smoothly and on economic lines, and there is no question of a deadlock. They point out that there are no allegations either of misconduct or misapplication of funds or mismanagement. They, therefore, deny that there is any case for winding up of the company.
6. When the case reached the sage of hearing, the petitioners put in an affidavit along with a copy of the letter (exhibit A). In this affidavit they tried to introduce new matter pointing out that fresh development have taken place since the date of filing of the petition and that these events go to the root of the matter and will conclusively establish that not only the substratum of the company has gone but that it is not possible for the company to start any fresh adventure. In this connection, they point out that the six ;members of the company are all partners of the firm known as Sarupchand Prithiraj; that for the income tax dues of this firm, the shares of all the six members of the company were attached; that the Collector had fixed the date of sale of these November 25,1960, and that with a vies to avoid the sale of these shares, an understanding was arrived between the members of the company, the terms of which are embodied in the letter at exhibit A. There letter at exhibit A is addressed by the members of Brijlal group to the Additional Collector of Bombay. After referring to an earlier letter written by M/s. Brijlal Ramjidas and Mahavirprasad Badridas on November 23, 1960 to the Additional Collector, the letter proceeds to state:
“We are now instructed (by the four members of Brijlal group )to write to you subject to Bilasrai group. viz., Bilasrai Juharmal and Jagmohan Bilasrai, who are the remaining shareholders, giving their consent and the court releasing out clients from the understanding given to the court in Bombay high Court, Suit,No. 120 of 1957, and also releasing our clients from the undertaken given by them in the winding up proceedings, out clients are agreeable to payment of the entire amount which will be distributable amongst the shareholders out of the compensation moneys received from the Government as a result of the undertaking having been taken over by the Government, to you towards the discharge of the income-tax liabilities of the partners of the firm of Messrs. Sarupchand prithiraj.”
7. It may be mentioned that Suit No. 120 of 1957, which is pending in the High Court, is a suit for dissolution of the firm, Sarupchand Prithiraj. It appears that in the suit some undertaking has been given by Brijlal group. I have already mentioned that the members of Brijlal group have also given an ;undertaking in I.C. No.l 81 of 1957 to the effect that the dividends would not be distributable until the final disposal of the suit s pending in the City Civil Court. Now, the members of Brijlal group have given an assurance to the Additional Collector subject, of course, to their being released from the two undertakings referred to above, that out of ;the amount, which could fall to their share in the compensation moneys, they ;are agreeable to the payment of that money towards the discharge of income-tax liabilities of the partners of the firm. Mr. Bhatt, learned counsel on behalf of the petitioners, contended that this event has taken place recently ;and long after the filing of the petition and, therefore, it was impossible for them to make mention of the event in the petition. According to him the circumstance, which supervened between the filing of the petition and the date of hearing, will have to be taken into account for the purpose of determining the question, whether any nucleus has been left over to the company for starting any fresh undertaking in fulfillment of the various object s mentioned in the objects clause of the memorandum of association. Mr. Banaji, learned counsel who appears on behalf of the company, and Mr. Dalal, who appears on behalf of the members of Brijlal group, have vehemently opposed the introduction of new matter and new set of allegations in this petition. Mr. Banaji contended that the petitioners must confine themselves to the four corners of the allegations made by the,m in the petition and it is not open to them to introduce new set of allegations, which will charge the completion of the petition. He further suggested that it was quite open to the petitioners to lodge a fresh petition for winding ;up of the company on the basis of the discovery of new matter. In this connection, he pointed out that notices have been given ;to the shareholder and general public will only look up to the allegations contained in the original petition for ascertaining what case they are required to meet. He, therefore, argued that it would not be property allow the petitioner to put in fresh affidavit be which entirely new matter has been sought to be introduced.
8. I have given my anxious consideration to these objections and I have come to the con conclusion that it is necessary, in the interests of justice to grant permission to the petitioners to put in the affidavit along with the letter at exhibit A. It is not the petitioners’ fault that they have not made allegation, which are contained in the affidavit put in by them . They could not do so, for the simple reason that the events have occurred after the instructions of the petition. Furthermore, it is clear to me that no new ground is being set up in ;the affidavit. One of the grounds on which the petition is based in that ;the substratum of the company has gone because the principal or primary object has failed. Now , the reply to the objection was of two-found character. Firstly, there was more than one object ad there had been no failure of the substratum, because a number of items forming part of the principal object and the other independent objects also survived, and secondly , it was possible for the company to utilize the compensation amount for starting a fresh venture within the four orders of the objects of the company. it is ;contended on behalf of the petitioner that the fresh material sought to be introduced by them is intended to meet the second part of the case on behalf of the company. They point out that the contention, viz., that it was possible for the company to start a fresh undertaking on the basis of the nucleus that would be available to the, out of the compensation money, does not survive in vies of the undertaking given by all the partners. It is true that in the ordinary circumstances the petitioners must be kept confined within the bounds of the allegations made by them in the petition. Here, however,an extraordinary situation has arisen and when it is possible for the court to consider the new material in the present petition itself, is would not be proper to drive the petitioners to file a fresh petition merely on the technical ground that the amendment would introduce new matter. I do not think that either the company or the shareholder will be taken by surprise, if the affidavit is allowed to be introduced at this stage, as all the shareholder were party to the undertaken. It is true that the company is not a party to the undertaking and at a later stage of this discussion, I will consider the effect of the company not being a party to the said undertaking. But when all the shareholders including the directors of the company are parties to the undertaken it will be too much to say that the company will be taken by surprise,if this new matter is allowed to be introduced. It is mainly on these considerations that I have allowed the petitioners to put in the affidavit, except of course paragraphs 5 and 6 therein. having allowed the petitioners to put in their affidavit of Narandas Ramjidas, one of the directors ofthe company.
9. I will now proceed to discuss the main points that were canvassed before me. Mr. Bhatt contended that the main object of the company was to carry on the business of supplying electric energy, and in particulars, the work of Akola electric license. He pointed out that it is impossible for the company to carry on the business of supplying electric energy in view of the fact that that work cannot be carried on without securing a license from the Government under the provisions of the Indian Electricity Act. He referred to the averment s contained ;in the affidavit put in on behalf of the petitioners to the effect that it is the settled policy of the Government not to grant fresh license to private individuals or companies and that all electric supply undertakings will be taken over by the Government. According to him, therefore, the main or the paramount object of the company has failed and the substratum has been destroyed. Before proceeding to discuss this argument in all its various aspects, it would be necessary ;to refer to the objects clause of the memorandum of association of the company;y, which runs thus:
“The objects for which the company is established are to carry on the business and undertaking of an electric energy supply company in all its branches and department s including all industries primary or subsidiary to the said business and to work with the previous consent of the Government of the Central Provinces the Akola Electric License no. nil dated nil granted by the Government of the Central Provinces to K.B. Pirojshah Rustamji Vakharia, Bamanshaw jamasji jambusarvalla & others and any other like electric license which the company may be entitled to work hereafter and to carry on any other business (whether manufacturing or otherwise ) which may seem to the company capable of being conveniently carried on in connection with the aforesaid business or calculated directly or indirectly to enhance the value of or render profitable any of the company’s property or right s and generally to do all such other things as are incidental or conducive to the attainment of the aforesaid objects in any part ;of ;the world, either as principals agents, contractors, trustees or otherwise, either alone or in conjunction and partnership with others.”
10. Pausing here, for a moment, it will at one be noticed that the working of the false is very wide land embraces a variety of topics or objects which appear to be more or less independent of each other. I will discuss this question in greater length at later stage after referring to the relevant authorities on this point. Before doing so, I may refer to the other clause which are mentioned with the preamble “without prejudice to the generality of the preceding objects, the company’s objects will include the following” and as many as twelve objects have been include in this category.
11. Mr. Bhatt referred me to a passage appearing under the caption “main object” rule in Palmer’s Company precedents, 17th edition, 1956 (Part I), at page 276. It would be worthwhile to cite the passage in entirety:
“According to these authorities, where the objects of the company are expressed in series paragraphs the true rule of construction is to seek for the paragraphs (commonly the first ) which appear to embody the main or dominant object of the company, and to treat all the other paragraphs, however generally expressed, as merely ancillary to this main object, and as limited and controlled thereby.
12. Assuming that the is any such rule of construction, it is, of course, to be borne in mind that like every other rule of construction if may be excluded or modified by the contents of the documents to be construed, for every rule of construction contains by implication the saving clause ‘unless a contrary intention appear by the document.’ Sometimes the memorandum declares the intention to be that the objects specified in each paragraph of the clause, or in each of three or four specified paragraphs, shall except where otherwise expressed in such paragraphs ,be in no wise limited or restricted by reference to or inference from the terms of any other paragraph or the name of the company. These words are obviously intended to exclude or modify the rule. and the court is bount to give effect to the intention thus indicated. In Stephens v. Mysore Reefs (Kangundy) Mining Company Limited. the learned judge disregarded the presence of such words on the ground that inasmuch ass when applied to one particular paragraph they would be nonsense, they could not be held to apply to the other twenty-three paragraphs. This case was, however, practically overruled in Cotman v. Brougham (Anglo- Cuban Oil, Bitumen and Asphalt Company Limited, In re), which appears to decide that where such words are included although the restrictive rule may be adopted for the purpose of determining whether the main object or substratum has ceased to exist, with a view to considering whether it is just and equitable that the company should be wound up, it should not be applied to the question whether any particular transaction is ultra vires. see the criticism of Lord Wrenbury in that case in the House of Lords and of Vaisey J. E.K. Cole Limited.
13. There are other modes occasionally adopted of excluding the artificial rule in question. For example, several of the leading object tare sometimes made to commence each with the words ‘as an independent object.’ In order cases the first few paragraphs are expressed in very wide general terms, and any special object is made subordinate thereto, and is sometimes expressed to be ‘without prejudice to the generality of the preceding object.’
14. It will thus be seen that the rule of construction set out in the above passe applies to a case where it is possible to discover the main or the dominant objects and it is also possible to treat the other paragraphs or other objects as merely ancillary to the main object, Further, it is clear that th is rule of construction will be excluded by the language adopted in the memorandum and the learned author has referred to the various devices that are adopted for getting rid of the in convent rule of construction. This can take place when several objects are expressly stated to be independent objects. It may also take p-lace when some of the objects are set out after the preamble ‘without prejudice to the generality of the preceding objects. The learned author has also referred to the decision in Cotman v. Brougham and the distinction that was made in that case by Lord Parker between a case where the question was whether the main object or substratum had ceased to exist and a case where the court is considering as to whether a particular transaction is ultra vires the company. The
15. (1) (1902) 1 Ch. 745. (2) (1917) 1 Ch. 477 (C.A.). (3) (1945) 1 All E.R. 521. (4) (1918) A.C. 514.
16. learned author has suggested that the ratio of the case in Cotman v. Brougham is that the well known rule of construction may be adopted for the purpose of determining whether the main object or substratum has ceased to exist with a view to considering whether the company should be wound up.
17. It is in this background that we have to turn to the decision in Cotman v. Brougham. Considerable stress was laid by the learned counsel for the petitioners on the observation contained in the judgment of Lord Parker in that case to which I will presently refer. It is, however, necessary to remember that the question that was considered by the House of Lord in the above case was as to whether certain transaction were ultra vires and it was in that context that the observation made by Lord Parker will have to be read and understood. At page 520 Lord Parker says:
“My Lords, Mr. Whinney in his able arguments suggested that, in considering whether a particular transaction the company could have been wound up on the ground that is substratum had failed. Upon consideration I cannot accept this suggestion. The question whether or not a company can be wound up for failure of substratum is a question of quite between a company and its shareholders. The question whether or not a translation is ultra vires is a question whether or not a company can be wound up for failure of substratum is a question of equity between a company and its shareholders. The question whether or not a transaction is ultra vires is a question of law between the company and a third party. The truth is that the statement of a company objects in its memorandum, is intended to serve a double purpose. In the fires place it gives protection to subscribers , who learned from it the purposes to which their money can be applied. In the second place it gives protection to persons who deal with the company, and who can infer from it the extent of the company powers. The narrows the objects expressed in the memorandum, the less is the subscribers risk, but the wider such objects the greater is the security of those who transaction business with the company. Moreover, experienced soon showed that persons who transact business with companies do not like having to depend on inference when the validity of a proposed transaction is in question. Even a power to borrow money could not always be safely inferred, much less such a power as that of underwriting shares in another company. Thus arose the practice of specifying power as objects, a practice rendered possible by the fact that there is no statutory limit on the number of objects which may be specified. But even thus, a person proposing to deal with a company could not be absolutely safe, for powers specified as objects might be reads as ancillary to and exercisable only for the purpose of
(1) (1918) A.C. 514.
attaining what might be held to be the company’s main 0or paramount object, ad on this construction no one could be quite certain whether the court would not hold any proposed transaction to be ultra vires. At any rate, all the surrounding circumstances would require investigation. Fresh clauses were framed to meet this difficulty, and the result is the modern memorandum of association with its multifarious list of object and parted specified as objects and its clauses designed to prevent any specified object being read as ancillary to some other object, For the purpose of determining whether a company’s substratum be gone, it may be necessary to distinguish between powers an object and to determining what is the mine what is the main or paramount object of the company, but I do not think this is necessary where a transaction is impeached as ultra vires. A person who deal with a company is entitled to assume that a company can do everything which it is expressly authorized to do by its memorandum of association, and need to investigate the equities between the company and its shareholders.”
18. It is at once clear that Lord Parker was dealing with the arguments that was advanced before him to the effect that the same principle should be applied to a case where the transaction of the company is being impeached on the ground of ultra vires as is generally applied when considering the question as to whether the substratum of the company has failed and the learned judge rejected that arguments. While rejecting the arguments Lord Parker pointed out the genesis of modern ways in which the memoranda are drafted with their formidable lists of objects and powers, which are specified as objects , the whole object being to prevent any specific object being read as ancillary to some other object, Lord Parker at a later stage observed:
“On the other hand, the name many be very material if it be necessary to consider what is the company’s ,main or paramount object in order to see whether its a substratum is gone:
Reliance was placed on this passage also by Mr. Bhatt. It would be sufficient to point out by way of reply what has been stated in the 12th clause of objects which is followed by what may be called”without prejudice preamble” in the memorandum of association, which is to the following effect:
“The object set forth in each of the several paragraphs of this clause…shall be in no wide limited or restricted by reference or inference fro,m the terms of any other paragraphs or the name of the company.”
19. The observation of Lord Wrenbury in the said Cotman’s case at page 523 are also relied upon. they are:
(1) (1918) A.C. 514, 521. (2) (1918) A.C. 514.
20. “There has grown up a pernicious practice of registering memoranda of association which, under the clause relating to objects, contain paragraphs after paragraphs not specifying or delimiting the proposed trade or purpose, but confusing power with purpose and indicating every class of act which the corporation is to have power to do. The practice is not one of recent growth. It was in active operation when I was a junior at the Bar. After a vain struggle;e I had to yield to it, contrary to my own convocations. It has arrive now at a point at which the fact is that the function of the memorandum is taken to be, not to specify, not to disclose, but to bury beneath a mass of words real object or objects of the company with the intent that every conceivable form of activity shall be found included somewhere within its terms.
21. This passage was cited by Chagla C.J. in a decision in Jayantilal v. Tata Iron and Steel Co. Ltd. In my opinion, this passage does not assist Mr. Bhatt in the argument which he is advancing. It is true that while Lord Wrenbury has deplored or we can even say deprecated the practice which has recently grown up of including multifarious objects as independent objects or as objects put down after ” without prejudice” preamble, Lord Wrenbury stated that he had to reconcile himself with this practice much against his conviction and with considerable reluctance. Now, it is one thing to deplore a practice prevailing in the matter of drafting the memorandum of association and quite another to say that although the memorandum specifically says that certain objects are independent of each other or followed by “Without prejudice” preamble, still an investigation should be made with a view to find out as to which is the principal or paramount object and which are the ancillary objects of the company. I find from susquence rulings cited before me that this decision has never been interpreted to lay down any rule of construction of the objects clause of the memorandum and, as pointed out above, even Palmer has used very cautious language and said ” the case in Cotman v. Brougham” appears to decide.
22. In this connection , I may refer to the decisions on which reliance was placed by Mr. Banaji which would put the position on this point beyond any pale of doubt. In re Eastern Telegraphs Co. Ltd., certain principles have been laid down as to how a memorandum of association should be interpreted. The principles has been expressed in the following terms:
“…..where the memorandum of association of a company provides that the company has a specified main object followed by general words, the general words should not be constructed as enabling the company to
(1) (1957) 27 Comp. Cas. 604 (Bom.). (2) (1918) A.C. 514. (3) (1948) 18 Comp. Cas. 46.
throw its main object over altogether and embark on some new venture.”
23. With reference to the memorandum in that case, Jenkins J. observed:
“…..on the true construction of the memorandum, the transaction carried out in 1929 by which Imperial and International Communication Ltd. acquired the ordinary share capital of the company was an amalgamation into which the company had power to enter, and consequently, the company had since contained to carry on one of the main forms of business authorized by the memorandum, because, although not operation a telegraphs or cable business itself, it had participated, through the medium of its shareholding , in the proceeds of operation of the business carried on by Cable and Wireless Ltd. The reference in the memorandum to amalgamation did not constitute general words ancillary to the company’s main object, but comprised a specific object ranking on a par with all preceding objects.”
24. This case was cited by Mr. Banaji for the purpose of pointing out that in the memorandum in the present case also there is a clause (4), which refers to entering into partnership or into any arrangement for sharing profits, amalgamation. union of interest, co-operation, joint venture, etc. He contended that, on the basis of the ratio of the above case, the amalgamation clause does not amount to an ancillary object, but it is one of the principal objects or, at any rate, on a part with the principle object. I will have no hesitation in acceding to this arguments. For the present, I am referring to this case with a view to point out the the principle of construction which governs the case where the memorandum of association first provides for specific object and then general words are used in which various objects have been mention ed. The learned judge held that in such a case the objects have been mentioned. The learned judge held that in such a case the objects specified in general words may be treat as ancillary objects. In the case of the memorandum of the company in the present case, the process is reverse,. This is not a case of specific object followed by general words. On the other hand , this is case of general words followed by a specific objects and also other objects. The general object is stated to be as follows:
“The objects for which the company is established are to carry on the business and undertaking of an electric energy supply company in all its branches and departments including all industries primary or subsidiary to the said business……”
25. Then there is a reference to specified objects , one of which is, “to work out the Akola electric license granted by the Government of Central Provinces to Vakharia and others.” Again general words have been used, viz., and any other like electric license which the company may be entitled to work hereafter…” It is, therefore , impossible to conclude that the working of akola electric license was the main or the principle object of the company. One of the main or principal objects was to carry on the business and undertaking of an electric energy supply an this object includes starting of industries primary or subsidiary to the said business. The starting of primary or subsidiary industries would, in itself , be an independent object, For instance, the company may start an industry to make cables, electric bulbs, electric meters, electric switches, etc. Such an undertaking would be covered by the expression “all industries primary or subsidiary to be said business.” In In re Kitson and Co. Ltd. the objects of the company were stated in wide terms in the memorandum of association as follows:
“(1) To acquire and take over as a going concern a business, carried on elsewhere, under the styled of K and Co.;
(2) to carry on the business of general engineering.”
26. On July 10, 1945, the appellant company agreed to sell the business of K and co. its goodwill and all its assets. The company had, at the same time, a subsidiary, B and co., carrying on a similar type of business, but the premises were under requisition to the Admiralty. BY reason of the sale of K and Co. certain shareholder presented a petition, alleging that the substratum of the appellant company had failed and that it was just and equitable top wind it up. At the time of the sale of K and Co., the then directors of the appellant company to purchase shares in a group of companies more or less insolvent. In proceedings against the appellant company and its then directors, an affidavit to this effect was filed, as a result of which the resolution was withdrawn. At the time of the hearing of the petition those directors, with one exception , were replaced and an affidavit was filed by on \e of the present directors of the appellant company stating that it was the intention of the company to continue with the engineering business and to acquire the assets and undertaking of B. and Co. for the appellant company.
27. The affidavit which formed part of previous proceedings was introduced in support of the petition for the purpose of showing that the appellant company had no intention of carrying on the business of engineering, and on those facts an order to wind up the appellant company was made. From that orders the appellant company appealed. It was held:
(1) (1946) 1 All E.R. 435.
“(1) since the main and paramount object of the appellant company was to carry on an engineering business of a general nature the disposal of the business of K and Co. which had been acquired about 46 years did not amount to a destruction of the substratum of the appellant company.
(2) the intention of the board of directors,at a given moment to discontinue the business of engineering had no effect on the determination of the question of the whether the substratum had gone.”
28. It is significant to note that first object in the memorandum in that case was a specific business, i.e. to acquire and take over the business carried on under the style of K and Co., The specific object was followed by the general object ” to carry in the business of general engineering” and yet was held by Lord Greene M.R. that the main paramount object was to carry on the business of general engineering. I will refer it the second proposition set out above presently and in another context. Before doing so, I may set out a few observations made by Lord Greene M.R. at page 438. They are as follows:
“…..but the question we have to decide is whether , that business having been acquire 46 years ago, the disposal of it last years to a destruction of the substratum. In my opinion, the main and paramount object of this company was to carry on an engineering business of a general kind….It must be remembered in these substratum cases that there is every difference between a company which on the true construction of its memorandum is formed for the paramount purpose of dealing with some specific subject matter and a company which is formed with wire ad more comprehensive objects. I will explain what I mean. With regard to a company which is formed to acquire and exploit a mine. when you come construe its memorandum of association you must construed the languages used in reference to the subject-matter, namely, amine and accordingly, if the mine cannot be acquired or if the mine turns out to be no mine at all, the object of the company is frustrated, because the subject matter which the company was formed t 0exploit has ceased to exist. It is exactly the same way with a patent, as,. in the well known German Date Coffee case. A patent is a defined subject matter, and if the main object of a company is t acquire and work a patent and it files to acquire that patent, to compel the shareholders to remain bound together in order to work some other patent or make some unpatented article is to force them into a different adventure to that which they contracted to engage in together; but, when you come to subject-matter of a totally different
(1) (1946) 1 All E.R. 435. (2) (1882) 20 Ch. D. 169 (C.A.).
kind like the carrying on of a type of business, then ass long as the company can carry on that type of business, it seems to me that prima facie at any rate it is impossible to say that its substratum has gone. So far as this stage of the argument is concerned, it is to my mind quite impossible upon the true construction of this memorandum of association to limits the paramount object of this company to the specific business of Kitson and Co., so as to lead to the result that as soon as Kitson and Co., business was sold the substratum of the company had gone.”
29. In my opinion, the objects numerous and wider in their scope than the objects is general in its scope and amplitude. Although it is followed by a specific object, several other general objects again have been mentioned, all in one clause, and all of them appears to be independent of each other. Therefore, each of them will have to be treated as principal and independent object. I may incidentally point out that reference was made to Cotman’s case, in the judgment of Morton L.J. in In re Kitson and Co., case and to the observation of Lord Parker. It is significant t note that these observation were not treated as enunciating a rule of construction of the memorandum of association for the purpose of determining the question as t whether the substratum had failed. Reference to certain passages were made only with a view to point out the double purpose for which the objects are set out in the memorandum. In In re Taldua Rubber Co. Ltd. the memorandum was in the following terms: “…..the object of T. Rubber Co. Ltd. were stated in the widest terms and included power ‘to enter into and carry into effect the agreement, draft of which is referred to in article 3 of the articles of association. this agreement (which was entered into on March 30, 1917, the same day as the company was incorporated) was for the purchase by the company of the T. rubber estate. By the last paragraph of clause 3 of the memorandum of association it was provided that the various objects of the company were to be regarded as independent objects and that the name of the company was not to be taken as operating to restrict the various powers set out in the clause. For 29 years the company carried on the business of a rubber estate on the T. estate, and during that period it varied on no other business except that it purchased rubber form other estates and processed it on its own estate. Pursuant to a resolution passed unanimously on March7, 19465, the
30. (1) (1946) 1 All E.R. 435. (2) (1918) A.C. 514. (3) (1946) 2 All E.R. 763.
31. company sold the T. estate and its business thereon. The circular convening the meeting of March 7, intimated that, if the business were sold, the liquidation of the company would be recommended, but on July 17, 1946, a resolution for the voluntary liquidation of the company was defeated by a small majority. In August, 1946, a petition for compulsory was defeated by a small majority. In August, 1946, a petition for compulsory winding up was presented by one of the constributories not he ground that the substratum of the company had gone, since the company had been formed solely to work the T. rubber estate. It was also contended by the petitioner that the absence before the court of any concrete scheme by those who were against liquidation for dealing with the proceeds of the sale was a further ground for making a winding up order.”
32. It was held:
“(1) on the true construction of the memorandum of association , it was impossible to conclude that the company had been formed solely to work T. rubber estate. It had been formed partly to carry on the business mentioned in the agreement of March 30, 1917, but with the widest powers to carry on a variety of other activities. Therefore, the sale f the T. estate did not result in a destruction of the substratum because the paramount object of the company was to carry on the business of conducting rubber estates, and was not limited to the business of carrying on the particular estate.”
(2) the fact that there was no concrete scheme before the court for dealing with the proceeds of the sale was no ground for making a winding up order.”
33. on a proper construction of the memorandum of the company in question, it is impossible to conclude that the company has been formed solely for the working of the Akola electric license.
34. Mr. Bhatt contended that if the main object of the company was to carry on the business and undertaking of an electric energy supply company, even that object had failed and was incapable of achievement because of the changes in the Government policy. the statement that the Government policy has changed had not been specifically traversed in the affidavit put in on behalf of the company although it is challenged that everyone knew that the Government policy had changed. Any reference to the policy of the Government is bound to be of an indeterminate character, because the policy is never static and is always liable to charge and fluctuate. Although, for the time being, it may be the policy of the Government not to renew the licenses of private companies, there is no guarantee that this policy will not change in future. But, apart from this, as stated above there are several other objects which are independent of one another and it is impossible to say that the company cannot carry on the other objects, which have been state in extenso in the memorandum.
35. I will now turn to another question which is of an incidental character, on which some stress was laid in the course of the arguments by Mr. Bhatt. He pointed out that the company in its affidavit at the end of paragraphs (3) states:
“As matters now are at present after the receipt of compensation moneys after discharging the liabilities of the company, the surplus assets would be divided between the shareholders which are expected would be recovered in the meanwhile. I submits that the present petition is misconceived and cannot lie.”
36. Mr. Bhatt contended that it is clear from the above statement that the company is not thinking of starting of any new undertaking and actually there is no concrete proposal before it. At paragraph (8) of the same affidavit, it is stated:
“…..that the contentions of the petitioners have no substance left in them, in view of the fact that at present the business which was carried on by the company has come to a standstill and the only thing which has to be done is to receive the compensation moneys and if the company does not start any new business to /distribute the same amongst the shareholder of the company.”
37. Mr. Bhatt contended that this averment is somewhat inconsistent with the averment in paragraphs (3) of the affidavit. He also pointed out that even here the company does not say that they have any concrete proposal before them for starting any undertaking and the question as to whether the company may start a new venture or may amalgamate itself with another concern is of speculative and academic character. I am unable to accept this line of reasoning. We are not concerned to find out the intention of the company, as it is at the present moment. This intention may change and when a favorable opportunities presents itself, the company may launch upon a new project. The observation of Lord Greene M.R. in In re Kitson and Co.,m Ltd. case are opposite on this point . They are:
38. The intention of the board of directors , at a given moment to discontinue the /business of engineering had no effect on the determination of the question whether the substratum of the company had gone.”
39. At a later stage, Lord Greene M.R. observed(Page 439)
40. Let it be supposed that at the timer of the sale of the Kitson business, so far as the board was concerned they thought that there was no chance and that it was not desirable for the company ever to start again into engineering. It certainly is not proved nor was it proved that the shareholders had any such intention; but assume that it was. A little time afterwards something might happen to make them change their minds. They might see a profitable opportunity of using the company’s money again in the engineering business. What has intention to do with it? We are dealing with the question of substratum, and to say that the substratum can exist at moment and cases to exist a moment later, or vice versa simply though a change of intention of the board or of the shareholders (I know not which ) seems to me to lead into a morass.” The observations in In re Taldua Rubber Co. Ltd. are still moire clear. Wynn-parry J. observed (page 767):
“There then remains the question whether the absence before the court to-day any concrete scheme for dealing with the proceeds of the sale is a reason for making a winding-up order. It has been observed by counsel for the petitioner that there is no reported case to be found where a petition has been rejected where those who oppose the making of he winding-up order did not bring before the court some concrete scheme, and he urged on me that, on the true vies of the judgment of Lord Greene M.R. in Re Kitson & Co. Ltd. that proposition court be extracted. I do not not share that view.”
41. After citing ap passage of Lord Greene M.R. the learned judge observed (page 768):
“Those observations are binding on me, and with respect, I agree with every word of the,. They seem to me to apply to this case with full force and effect. Apart from authority,it appears to me that the common sense of the matter demands that the existence or nonexistence of a concrete scheme at the time the petition comes before the court should be regarded as a wholly irrelevant matter, otherwise it would be impossible ;for the court to draw any safe line in thy particular case. Where is the court to draw the line? What period is to be allowed elapse? What is to be regarded as satisfactory evidence of the intention of the company to go forward into some new venture? The court clearly is not called on to adjudge the merits or demerits of any scheme, and this fact appears tome to make the consideration by the court of the existence or non-existence of a particular scheme all the less fruitful. If this point were well taken, it would follow that a shareholder who desired a company to be would up would be well advised, as soon as the resolution for the sale of the company’s business had been passed, immediately to put a petition on the file, and bring the petition on is circumstances in which he could accurately allege that there was no scheme before the court.”
42. (1) [1946] 2 All E.R. 763. (2) [1946] 1 All E.R. 435.
43. The last observations are exactly in point to the present case. As pointed out above, the present petition has been filed within twelve days, after the expiry of the periods of the license.
44. That takes me to the allegation that an important changes has taken place as a result of the undertaking given by the shareholders of the company, who also happen to ;be ;the partners of Sarupchand Prithiraj firm, to the Additional Collector, Bombay, in which they agreed to pay the compensation money to discharge the income-tax liabilities of the partners of the firm. In their affidavit at paragraph (4) the petitioners allege :
“From what is stated above,it is clear that there is no prospect of the company carrying on any other business; while denying that the company is entitled to carry on any other kind of business, I say that the substratum of the company has gone and that the company should be would up and the court liquidator be appointed official liquidator thereof.
In my opinion, the question as o whether the company is really in a position to start a new business is very relevant in considering the question as to whether the substratum has disappeared. This is clear from the observations contained in the cases on which reliance was placed by Mr. Banaji. In the editorial note in In re Kitson & Co. case it is stated:
“The material time for consideration is the date of the winding up petition, and if the company ;is then in a position to carry on a business within the principal object of its memorandum. it is quire irrelevant that the directors held a different intention at some earlier date.”
45. It is this consideration which induced me to admit the affidavit in this petition. In the counter-affidavit put in on behalf of the company, it is pointed out there are nine partners in the firm of Sarupchand Prithiraj; that the income-tax liabilities are not the liabilities of the firm as such but are the liabilities of some of the partners of the firm and that although six shareholders of the company are liable for income-tax dues, their liabilities are individual and in any case there are many other properties which are available to the Additional Collector from out of which the income-tax due could be recovered. The main point which was forcefully urged by Mr. Banaji in this connection was that the whole superstructure of the petitioners’ case i this respect in based on hypothetical and speculative consideration. He pointed out that the undertaking was given just with a views to avoid that sale of the shares of the shareholders. which we also admittedly attached by the Additional Collector, Bombay. He also pointed out that the company has nothing to do with the liabilities of the shareholder. Assuming, for a moment, the argument proceeded that the shares of the shareholder are sold in execution by the Additional Collector, that does not mean that any change has taken place in the structure of the company. Instend of the present shareholders, new shareholders would take their place and they would carry on the business of the company. It is contended that unless the petitioners establish that it is absolutely impossible that the compensation money will not come into the hands of the company, it is not possible to take the view that the company is not in a position to start a new undertaking or a new venture. In this connection, it is pointed out that the firm as other assets and reference was made to a land at Chamber. It is an admitted fact that the suit for dissolution of Sarupchand Prithiraj firm is pending in the High Court . It appears that the firm has large assets of its own and at the same time, as has been pointed out in the counter- affidavit, it is not possible to ascertain the definite share of each of the partners of the firm until a final decree has been passed in that behalf. Whatever that may be, there is no allegation made by the petitioners, to the effect that it is beyond the means of the partners of the firm, who are also the shareholders of the company, to satisfy their income-tax dues. In any case, if the undertaking is not fulfilled and becomes incapable of being fulfilled, all that the Additional Collector can do is to put the shares of the present shareholder to sale and, as pointed out above, that will not bring about any change in the structure of the company. It is quite possible that the Additional Collector may succeed in recovering the income-tax due from other properties of the firm or from separate properties of the partners. It is equally possible that the partners may pay off ;their share of the liabilities and in that way may free themselves from the undertaking at present given by the,. The question raised in the present affidavits is based on a number of hypothetical considerations and at this time, we cannot make any assertion to the effect that the compensation money will be wiped out in the process of satisfying the income-tax dues of the partners of the firm. In case such as eventuality materialized, it is quite open to the petitioners to make a fresh application for winding up of the company. After all, the lpassing of an order for winding up is a matter within the discretion of the court. The remedy of compulsory liquidation is obviously a drastic remedy and should be availed of only when a clear case has been made out justifying such ;an action. We cannot proceed to wind up the company on assumptions. If the company is would up today on the hypothetical consideration that the compensation money will not be available to the company for being utilised in starting a new venture and if tomorrow it turns out that the compensation moneys is actually available for being utilized by the company, then we will be landing ourselves in a preposterous and anomalous position. It would be impossible to undo what has been done. Before taking such an irrevocable step the court must be satisfied that the assets of the company would be completely freighted away because of the undertaking given by the shareholders of the company I must, there fore, hold that the petitioner have failed to prove either that the substratum of the company has gone because the undertaking in which the company was engaged for all these years has been taken over by the Government or that it is not possible for the company to start a fresh venture within the four corners of the objects adumbrated in the memorandum.
46. The next ground, on which reliance was placed, was that a situation has arisen, so far as the management of the affairs of the company s concerned, which is analogous to the situation of deadlock. This company being a small private company and considering of a small number of shareholders the principles relation to the dissolution of the partnership firm should be applied and when the court feels that it is not possible to put the affairs of the company in orders, it should have recourse to the winding up under its just and equitable jurisdiction. The general allegation regarding the apportion of the minority by the majority is of no avail in an action for winding up. That is a question relating to internal management of the company and it is a settled principle that it is the right of the majority to carry on the management of the company. There is also no allegation that the directors of the company are misbehaving themselves not is there any allegation that they are acting in a way which is prejudicial to the interests of the company. The mere fact that differences have arisen between one group and the other by itself is not sufficient to lead the court to the conclusion that a situation similar to that of deadlock has arisen in the affairs of the company. Reference was made to the fact that the directors have been withholding the amounts of dividends, which are legitimately due to the petitioners and the petitioners have been driven to file suits to recover the same. It is also pointed out that the City Civil Court has passed a decree in one of these suits. In my opinion these circumstance shave ;no bearing upon the question ;under out consideration. The decree passed by the City Civil Court is under appeal before the High Furthermore, we cannot embark upon the investigation in the present case as to whether there ;was justification for the directors in with holding the amount of dividend due to fication for the directors in withholding the amounts of dividend due to fication for the director in withholding the amount of dividend due to the petitioners . In any case, it is sufficient to point out that the petitioner have ample remedies and actually they are pausing these remedies in properly constituted suits. Another question that was raised in the same context was that in case the amount of compensation is available to ;the company and falls into the hands of the directors and the latter decided to start a new undertaking with the nucleus of those funds, then it was argued that the starting of that venture will not only be without the consent of the petitioners but will be very mush against their wishes. It is argued that it would be improper to subject the minority of the shareholders to the risk of a new undertaking to which they are not a party. In this connection reference ;was made to a passage at page 702 of Palmer’s Company Law, 12th edition, 1959, under the heading “Contributory’s petition,” which is as follows, :
“The substratum is held to be gone when the ;main object for which the company was formed has become impracticable.
In such a case shareholders may fairly claim that they ought longer to be forced to risk their properly in goings on.”
47. I am unable to understand how this passage helps in the argument that has been advanced by Mr.Bhatt in this connection. the share- holders cannot be subject to the risk of a new venture when the sub-stratum has been destroyed or has become impracticable. It is only in that event that the learned author refers to the possibility of the interests of the shareholders being put in jeopardy by new venture. When the substratum of the company remains intact, it is the duty and privilege of the majority of the shareholders to embark upon a new venture and the only restriction will be that the venture falls within the four corners of the objects clause. This argument also is, therefore, void of substance.
48. Mr. Bhatt then relied upon a passage, cited at page 2498 of the Civil Court Manual, Vol. III (1960), form the judgment in Rajahmundry Electric Supply Corporation Ltd. v. Nageswars Rao to the following effect :
“Where the main object of the company was to generate and supply electrical energy, but the generation of electrical energy was undertaken by the Government and the company had only been distributing electrical energy purchased form the Government and although there were other objects stated in the memorandum of association there was ;no chance of carrying them out, the order to wind up the company was held just and equitable.”
49. As I have pointed out above, i the present case it is not established that there is no chance of ;carrying on the other objects mentioned in the memorandum of the ;company. The observations cited above will, therefore, in no way help Mr. Bhatt in the argument that he is advancing before me..
50. Mr. Bhatt then referred to a leading case in Yenidje Tobacco Co. Ltd. In re, and in particular to certain observations made by Lord Cozens-hardy M.R. The facts of that case were as follows :
“In 1914 W. and R., who traded separately as tobacconist and cigarette manufactures agreed to amalgamate their business and in order to do so formed a private limited company in which they were the only shareholders and directors. The constitution of the company was such that under the articles of association W. and R. had equal voting powers, one director was to form a quorum, and if any dispute or difference should arise consequent whereon inability to pass a directors’ resolution should result, the matter in dispute should by refereed to arbitration, the award to be entered in the minute book as a resolution duly passed by the board. The company’s business was successfully carried on until June, 1915, when differences arose between the parties. One of such differences was referred to arbitration, which , after a protracted hearing involving costs exceeding 1,000, resulted in an award to which R. declined to give feeect. He brought an action for fraudulent misrepresentation against W., and the parties became hostile that neither of them should speak to the other, communications having to be conveyed between them through the secretary of the company. In spite of this the company continued to transact business and large profits were made. Under these circumstances W. presented a petition alleging that a complete deadlock had arisen that the substratum of the company was gone, and that it was “just and equitable” within section 129 of the Companies (Consolidation) ACt, 1908, that a winding up order should be made.”
51. It was held :
“Affirming the decision of Astbury J., that if this were a case of partnership there would clearly be grounds for a dissolution, and that the same principle ought to be applied where there was in substance a partnership in the guise of a private company. The position amounted to a complete deadlock, and it was ‘just and equitable’ that the company should be wound up.”
52. After pointing out that the “just and equitable” clause is normally limited to two types of cases, one where the substratum of the company has gone, and second ,where there is a complete deadlock in the management of the affairs of the company, Lord Cozens-Harady M.R. pointed out (page4323) :
“Those are the tow instances which are given, but I should be very sorry, so far as my individual opinion, goes, to hold that they are strictly the limits of the ‘just and equitable’ clause as found n the Companies Act. I think that in a case like this we are bound to say that circumstances which would justify the winding up of a partnership between these two by action are circumstances which should induce the court to exercise its jurisdiction under the just and equable clause and ;to wind up the company.”
53. It will thus be seen that the learned judge extended the principle of just and equitable clause to the facts of that case, because the circumstance prevailing in that case were of an exceptional character. In each case, therefore, we have to consider whether a principle which is normally limited to the two categories of the cases, viz., where the sub-stratum of the company has gone or where there is a complete deadlock in the management ;of the affairs of the company, should be extended to the facts of that case. At page 430 the learned judge cited a passage from Lord Lindley’s book on partnership which runs as follows :
“Refusal to meet on matters of business, continued quarreling, and such a state of animosity as precludes all ;reasonable hope of reconciliation and friendly co-operation have been held sufficient to justify a dissolution. It is not necessary, in order to induce the court to interfere, to show personal rudeness on the part of one partner to the other, or even any; gross misconduct as a partner. All that is necessary is to satisfy the court that it is impossible for the partners to place that confidence in each other which each has a right to expect, and that such impossibility has ;not been caused by the person seeking to take advantage of it.”
54. Lord Cozens-Hardy M.R. then proceeded (pages 430-31) :
“Now here we have this fact. Mr. Rothman has commenced an action charging Mr. Weinberg with fraud in obtaining the agreement under which he, Rothman, sold his business to the ;company. I ask myself the question : When one of the two partners has commenced, and has not discontinued, an action charging his co-partner with fraud in the inception of the partnership, is it likely, is it reasonable, is it common sense, to suppose those two partners can work together in the ;manner in which they ought to work in the conduct of the partnership business? Can they do so when things have reached such a pass, a they have here, that after an arbitration lasting eighteen days, an arbitration on the only point which was referred, which terminated in favour of Mr. Weinberg, and to which Mr. Rothman declines to give effect, in this sense, that although the award decided that Litiger had not been dismissed and ought to be continued as a servant of the firm until removed, Mr. Rothman will not allow him to come and do his business, so that he, litiger, is in the happy position now of receiving his wages of 5 a week without being allowed to do any work for the company in respect of which he is a servant?”
55. I do not think that it would follow from the passages set out above that Lord Cozens-Hardy intended to lay down as a proposition of law that in all cases of private companies, the principles relation to the dissolution of a partnership firm are necessarily applicable. The principals relating to the dissolution f partnership were held applicable because of the peculiar circumstance and the facts prevailing in that case. AS a matter of fact, the position of a partner of a firm stands entirely; on a different footing rom the position of shareholders qua share-holders of a company. The doctrine of agency prevails in the case of partnership and each partner represent the other partner and has a right to participate in the conduct of the affairs of the firm. That is not the case so far as the position of the shareholders of a company; ;are concerned. The management of the affairs of a company are vested in a small body of directors which can be called “directorate” for the sake of convenience. It is only; when a situation analogous to a deadlock has arisen amongst the directs in the see that the principles relation to the dissolution of a partnership can be extended to the winding up a company. In Yenidje Tobacco company’s case there were only tow shareholders both of whom were directors of the company. The dispute between them had reached a state, which has been graphically described by Lord Cozens-hardy in the passages cited above. Of course, it was not a situation of deadlock but it was a situation worse that that of a deadlock where one director was not only refusing to abide by the decision of the arbitrator but was also trying to procedure the other director for fraud and the servant of the company was going on merrily with a fat salary without being obliged to carry on any work on behalf of the company. In the present case, there is no conflict between the directors of the company inter se. The dispute in the present case is between one group of shareholder on one side and the other group of shareholders from amongst whom the directors have been chosen. This dispute has nothing to do with the management and does not reflect itself in the affairs of the management of the company. No shareholders has a right to participate in the governs of the affairs of the company and, as stated above, the nature of the dispute between the parties is such that it is quieted possible for the petitioners to have recourse to other remedies and they have actually; had recourse to them. The have filed suits in the City Civil Court for the recovery of the moneys due to them by way of dividends. They had also started an action under section 397,398 and 402 of the Companies Act, 1956, for directors to check what they called mismanagement or oppressive management of the company. Reference was also made to a case reported in J. A. R. Arya v. East Coast Transport & Shipping Co. (Private) Ltd. In that case one of the five shareholders of a small private company presented a petition for an order for winding up the company of the grounds that (I) there were serious misunderstandings among the shareholders of the company, (2) one of the shareholder was actively; engaged in promoting the interest of a firm which was conduction a similar rival business, and (3) two other shareholders, who owned, as did the company itself, half a share each in another company, drew a sum of Rs. 50,000 from this second company, which they did not return and this amounted to misappropriation of the fund of the company. It was held :
“…that as, on the facts the first two grounds were established, and there was no satisfactory accounting with regard to the sum of Rs. 50,000, it was just and equitable that the company be wound up.”
56. Satyanarayana Raju J. referring to the leading case in Yenidje Tobacco, Co. Ltd., In re stated that in the circumstances prevailing in the case the principle enunciated by Lord Cozens- Hardy should be applied and the company;y should be wound up. The facts in that case were peculiar, in that one of the shareholders was actively; engaged in promoting the interests of a firm which was conduction a rival business. Furthermore, two other shareholders had misappropriated a sum of Rs. 50,000. It was in these extraordinary circumstances that the intervention of the court was called for on the analogy of the dissoution of a partnership firm. As repeatedly pointed out, there is no suggestion, whatsoever, in the present case that the directors have misconducted themselves or have imsapplied the funds of the company; much less misappropriated them. Mr. banaji relied upon a passage of the privy Council in Loch v. John Blackwood Ltd., which is as follows (page 788) :
“It is undoubtedly true that at the foundation of applications for winding up, on the ‘just and equitable’ rule, there must lie a justifiable lack of confidence in the conduct and management of the company’s affairs. But this lack of confidence must be grounded on conduct of the directors, not in regard to this private life or affairs, but in regard to the company’s business. Furthermore the lack of confidence must spring not from dissatisfaction at being out voted on the business affairs or on what is called the domestic policy of the company. On the other hand, wherever the lack of confidence is rested on a lack of probity in
(1) [1958] 28 Comp. Cas. 20. (2) [1916] 2 Ch. D. 426. (3) [1924] A.C. 783.
the conduct of the company’s affairs, then the former is justified by the latter, and it is under the statue just and equitable that the company be wound up.”
57. Now, if we examine the allegations contained in the petition, all the they boil down to is the lack of confidence springs form the petitioners’ apprehensions at being out voted on the business affairs of the company. there is no suggestion, whatsoever that there is any lack of honesty or probity on the part of management. That being the case, mere trotting out of allegations, viz., that disputes have arisen and that the minority group has lost confidence in the majority group, will not be a sufficient ground for winding up the company. The above observations of the Privy Council have been cited with approval by the Supreme Court in R.E.S. Corporation Ltd. v. Nageswars Rao. it is not necessary to refer to the two other decisions relied on by Mr. Banaji, viz., Jambazar Manna Estate, Limited, In re and Seethiah v. Venkatasubbiah, because they reiterate the view laid down by the Privy Council in Loch’s case and state in general terms that the view, of the majority ofthe shareholders must prevail ad the mere fact that there is difference of views cannot be considered to be sufficient reason for winding up the company..
58. It only remains to deal with a small point that was made out by Mr. Bhatt based on certain observations in Baku Consolidated Oilfields In re.
59. In that case the company was formed ;to acquire the undertakings of four other companies carrying on an oil business in Russia. Before the undertaking could be acquired, they were confiscated and since 1920 the company had bee engaged in an endeavor to substantial a claim against the Government in Russia. It has to otherwise carried on any; business and had considerable assets.
60. It was held :
“…in the circumstances the ;whole ;substratum of the company had gone and a compulsory order ought to be made. Such claim as the company had against the authorities in Russia could be equally well enforced by a liquidator.”
61. In my judgment, this is not an authority for the proposition the in all cases the liquidator would be in a better position to lodge a claim for compensation for the acquisition of the uncertain. In Baku Oilfields, In re the Soviet Government had confiscated the undertakings. That was a case of expropriation. In the normal course there is no question of
62. (1) [1956] 26 Comp. Cas. 91 (S.C.) (3) [1949] 19 Comp. Cas.107. (2) [1931] 1 Comp. Cas. 243. (4) [1924] A.C. 783 (P.C.) (5) [1941 1 All E.R. 24.
63. demanding any compensation in respect of an order for confiscation and what the company could do was to try to prevail upon the Soviet Government o gives some compensation. There was no guarantee that the Soviet Government would give any compensation. The question, therefore, of putting forward all the material for the purpose of arriving at a correct figure of composition did not arise. The company had content itself with making a claim in the hop that something would eventually come out of it. It was rightly held that a liquidator would be as much competent as the directors of the company to make all possible endeavors to substantiate their claim. Mr. Banaji, on the other hand, has relied upon certain observations in Eastern Telegraph Co. Ltd. In re . They are (page III) :
“The compensation has to be assessed and received. The amount of composition is a matter of great importance, and it is obviously desirable in everybody’s interest–both in the interests of the preference stockholders and of the ordinary stockholders–that the company’s case as to the amount of compensation should be cogently; and effectively put in order that the compensation receive may be as large as possible. It seems to me that the proper people to look after that matter are the directors of the company, who are directors also of all the other companies in the group, and who are well acquainted with the undertaking of Cable and Wireless, Ltd.”
64. It is thus clear that even for the limited purpose of securing the maximum amount of compensation, it is desirable that the company should be dept on going, so that the directors would be in a position to extract the maximum advantage out of it..
65. After giving my anxious consideration to the pros and cons of the situation, I have come ;to the conclusion that no case has been made out by the petitioner which will justify an order for winding up the company.
66. The result is that the position fails and is dismissed with costs. These costs will include costs of the petition before Shah J. as also costs in appeal form that order. They will also include costs of the notice of motion taken out by the petitioner. Costs to be taxed. Counsel certify. The undertaking given by the company in the appeal it discharged.
67. Petition dismissed.
