{"id":36781,"date":"1975-10-10T00:00:00","date_gmt":"1975-10-09T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/hind-overseas-private-limited-vs-raghunath-prasad-jhunjhunwalla-on-10-october-1975"},"modified":"2018-02-18T03:30:37","modified_gmt":"2018-02-17T22:00:37","slug":"hind-overseas-private-limited-vs-raghunath-prasad-jhunjhunwalla-on-10-october-1975","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/hind-overseas-private-limited-vs-raghunath-prasad-jhunjhunwalla-on-10-october-1975","title":{"rendered":"Hind Overseas Private Limited vs Raghunath Prasad Jhunjhunwalla … on 10 October, 1975"},"content":{"rendered":"
Supreme Court of India<\/div>\n
Hind Overseas Private Limited vs Raghunath Prasad Jhunjhunwalla … on 10 October, 1975<\/div>\n
Equivalent citations: 1976 AIR 565, \t\t 1976 SCR (2) 226<\/div>\n
Author: P Goswami<\/div>\n
Bench: Goswami, P.K.<\/div>\n
           PETITIONER:\nHIND OVERSEAS PRIVATE LIMITED\n\n\tVs.\n\nRESPONDENT:\nRAGHUNATH PRASAD JHUNJHUNWALLA AND ANR.\n\nDATE OF JUDGMENT10\/10\/1975\n\nBENCH:\nGOSWAMI, P.K.\nBENCH:\nGOSWAMI, P.K.\nALAGIRISWAMI, A.\nUNTWALIA, N.L.\n\nCITATION:\n 1976 AIR  565\t\t  1976 SCR  (2) 226\n 1976 SCC  (3) 259\n CITATOR INFO :\n MV\t    1983 SC  75\t (82)\n\n\nACT:\n     Practice-Company cases-Winding up petitions-Duty of the\ncompany Court.\n     English decisions-Usefulness  of-Applicability to cases\nunder the Companies Act.\n     Winding up\t of companies-The  Companies  Act  (Act\t I),\n1956-Sec.433(f)-Scope  of   vis-a-vis  s.   44(g)   of\t the\npartnership Act.\n     \"Just and\tequitable clause\"-  Applicability in case of\npartnership firms in the guise of a private company.\n\n\n\nHEADNOTE:\n     Under s.  433(f) of  the Companies Act, 1956, a company\nmay be\twound up  by the  Court, if  the Court is of opinion\nthat it\t is just  and equitable\t that the  company should be\nwound up.  Section 44(g)  of the Partnership Act also speaks\nof the \"just and equitable clause\".\n     One RPJ agreed with VDJ and MPJ who are carrying on the\nbusiness under\tthe name and style of \"Chimanram Motilal\" to\nstart a new business of iron and steel in co-partnership and\nfor that  purpose, an  account was  opened in  the  name  of\n\"Raghunath Prasad  Jhunjhunwalla Ka  Sir Khata\" in the books\nof \"Chimanram  Motilal\". It  was agreed that RPJ should have\n3\/8th share  and VDJ with MPJ should have 5\/8th share of the\nproposed business.  Before the\tsaid proposed business could\nbe started,  at the  suggestion of  VDJ, actually  a limited\ncompany was  formed in August,. 1956 under the Companies Act\nwith the  understanding that (i) VDJ with MPJ should finance\nthe entire business. (ii) the share in the company should be\nheld by RPJ, VDJ and MPJ and the members of their respective\nfamilies in  the proportion  of 3\/8th and 5\/8th as agreed to\nbefore and (iii) that RPJ and his group would generally look\nafter the  day-to-day business\tof  the\t company  under\t the\ngeneral control\t and supervision of VDJ. The nominal capital\nof the\tcompany was  Rs. 5  lacs divided  into\t2500  equity\nshares of  Rs. 100\/-  each. RPJ and another ACD, an employee\nand nominee of VDJ, became the subscribers to the Memorandum\nof Association\tof the\tcompany and  also became  its  first\ndirectors. On  23-8-1956, VDJ  and  MPJ\t were  appointed  as\ndirectors of  the company.  On 23-11-1957,  ACD resigned and\nPCJ (son of RPJ) was opted in his place. RPJ was appointed a\ndirector-in-charge of  the company and both RPJ and PCJ were\npaid monthly  remunerations. Following\ta  family  partition\nbetween VDJ and MPJ in the year 1958, the shares of MPJ were\ntransferred in\tthe name of the wife of VDJ and MPJ resigned\nfrom the  Board of  Directors on  21-1-1959. Since that date\ntill October,  1965 the Board of Directors were RPJ. PCJ and\nVDJ, when  VDJ\tgot  his  son  VKJ  appointed  as  Technical\nDirector of  the company. Though the business of the company\nwas managed  by\t RPJ  and  PCJ,\t the  business\tpolicy,\t the\nappointment of staff, general supervision of the work of the\nbusiness etc.,\twere in\t the hands of VDJ. From 1959 onwards\nthe factory commenced its regular production and substantial\nprofits were  made between  1960 and 1965 except in the year\n1961 when there was some loss. Finding that there has been a\nmismanagement of affairs of RPJ and PCJ to the tune of Rs. 8\nlacs the  VDJ  group  who  were\t holding  the  major  shares\nnumbering, 3125,  in order  to safeguard  their interest and\nthe business,  called the  Board's meeting  on 27-5-1966 and\nthe Board  countermanded all  the previous  resolutions\t and\nthus took  away all  the powers\t of RPJ.  The  extraordinary\ngeneral meeting\t called on  28-5-1966 resolved to remove RPJ\nand PCJ\t as directors  of the company and to appoint persons\nbelonging to  VDJ's group  as directors.  This\tled  to\t the\nfiling of  an application  for winding up under s. 433(f) of\nthe Companies  Act by  RPJ before  the company\tJudge of the\nCalcutta High  Court contending\t that the company was in the\nnature of a\n227\npartnership and is liable to be wound up in view of the loss\nof confidence  between the  two groups\/members\tand  on\t the\nalleged ouster of RPJ group. The Petition for winding up was\ndismissed  by\tthe  company   Judge  inasmuch\tas  (i)\t the\nsubstratum of  the company  was not  gone; (ii) the deadlock\ncould  be   resolved  by  the  articles;  (iii)\t there\twere\nalternative remedies  open: and (iv) lack of probity did not\nresult in  prejudice to\t the  company's\t business  affecting\npetitioner's rights  as share-holder,  but only affected his\nright as director. The appellate Bench, however, allowed the\nappeal of  the respondent  RPJ and ordered the winding up of\nthe company  in the  facts and\tcircumstances of  the  case,\nviz., impossibility  of carrying  on business  by RPJ  as  a\npartner, the  exclusion of  RPJ from the partnership concern\nand loss of mutual confidence between RPJ and VDJ group.\n     Dismissing the appeal by certificate, the Court,\n^\n     HELD: (1)\tIn an  application under s. 433, the company\nCourt will  have to keep in mind the position of the company\nas a  whole and\t the interests\tof the\tshareholders and see\nthat they  do not  suffer in  a fight  for power that ensues\nbetween the  two groups.  The court  should see that a prima\nfacie case  has been  made out\tbefore it is admitted on the\nallegations in\tthe petition.  Even admission  of a petition\nwhich  will   lead  to\t advertisement\tof  the\t winding  up\nproceedings us likely to cause immense injury to the company\nif ultimately  the application\thas  to\t be  dismissed.\t The\ninterest of  the  applicant  alone  is\tnot  of\t predominant\nconsideration. It  is not   proper  principle  to  encourage\nhasty petitions\t under s.  433 without\tfirst attempting  to\nsort out  the dispute and controversy between the members in\nthe domestic  forum  in\t conformity  with  the\tarticles  of\nassociation. There  must be materials to show when \"just and\nequitable clause\" is involved, that it is just and equitable\nnot only  to the persons applying for winding up but also to\nthe company and to all its shareholders.\n\t\t\t\t     [243 C-D, 240 H, 241 A]\n     (2) Section 433 of the Companies Act is modelled on the\nEnglish Companies  Act. The  Indian law is developing on its\nown lines  and making progress of its own circle. The courts\nwill have to adjust and adapt limit or extend the principles\nderived from English decisions entitled as they are to great\nrespect, suiting  the conditions  of  our  society  and\t the\ncountry\t in  general,  always,\thowever,  with\tone  primary\nconsideration in  view that  the general  interests  of\t the\nshareholders may  not be  readily sacrificed at the altar of\nsquabbles of  directors of  powerful groups  for powerful to\nmanage the company. [240A, C-D]\n     Ramanandi Kuer v. Kalawati Kuer, (1928) PC 2, applied.\n     (3) Section  433 of  the Companies\t Act, 1956, provides\nsix recipes  so that  the company  may be  wound up  by\t the\ncourt. Under  s. 433(f)\t which is identical in terms with s.\n222(f) of the English Act of 1948, a company may be wound up\nby the\tcourt if the court is of opinion that it is just and\nequitable that\tthe company  should be\twound up.  It is now\nwell established  that the  sixth clause,  viz.,  \"just\t and\nequitable\" is not to be read as being \"ejusdem generis\" with\nthe preceding  five clauses.  The just\tand equitable clause\nleaves the  entire matter  to the  wide\t and  wise  judicial\ndiscretion of  the court. The only limitations are force and\nthe content  of the  words themselves  \"just and equitable\".\nSection 44(g)  of the  Indian Partnership  Act also contains\nthe words \"just and equitable\". [241-B-E]\n     Section 433(f) is to be read with s. 443(2) of the Act,\nwhich provides\tthat where  the petition is presented on the\nground that it is just and equitable that the company should\nbe wound  up, the  court may  refuse to\t make  an  order  of\nwinding up  if it  is of  opinion that\tsome other remedy is\navailable to  the  petitioners\tand  that  they\t are  acting\nunreasonably in seeking to have the company wound up instead\nof pursuing that other remedy. Again under s. 307 and 398 of\nthe Act\t there are  preventive provisions  in the  Act as  a\nsafeguard against oppression in management. These provisions\nalso indicate that relief under s. 433(f) based on the \"just\nand equitable\" clause is in the nature of a last resort when\nother remedies\tare not\t efficacious enough  to protect\t the\ngeneral interests of the company. [241 E-G]\n228\n     Madan Lal\tand another v. Groin Chambers Ltd., Muzaffar\nNagar and  others, [1968]  2 S.C.R.  252 and  S. P.  Jain v.\nKalinga Tubes Ltd.<\/a> [1965] 2 S.C.R. 720, followed.\n     (4)  In  applying\tthe  principles\t of  dissolution  of\npartnership to\tcompanies, the\tfollowing  factors  must  be\npresent:\n     Equal   shareholding;    complete\t deadlock   in\t the\nadministration\tof   the  company;   lack  of\tprobity\t and\nmismanagement in  the conduct  of affairs of the company [In\nre Yenidje  Tobacco Co.\t Ltd. 1961  2 Ch. 426]. The just and\nequitable clause  cannot be  invoked if\t a deadlock  can  be\nresolved  by   the  articles  and  if  there  are  alternate\nremedies. (In  re Cuthbert  Cooper and\tSons Ltd.,  1937 Ch.\n392). If there is no justifiable lack of confidence grounded\non the conduct of the directors in the conduct of management\nof  the\t  companies  affairs  (Rajahmundry  Electric  Supply\nCorporation  (1955)   2\t S.C.R.\t  1068).  These\t  are  sound\nprinciples  depending\tupon  the  nature,  composition\t and\ncharacter of  the company.  The principles  are good as they\nare their  application in  a given  case or  in\t all  cases,\ngenerally creates problems and difficulties.\n\t\t\t\t\t     [233D-E; 236-D]\n     (5)  The  principle  of  \"just  and  equitable\"  clause\nbaffles a precise definition. It must rest with the judicial\ndiscretion  of\tthe  court  depending  upon  the  facts\t and\ncircumstances of  each case.  When more\t than one  family or\nseveral friends\t and relations\ttogether form  a company and\nthere  is   no\tright\tas  such   agreed  upon\t for  active\nparticipation of  members who are sought to be excluded from\nmanagement the\tprinciples  of\tdissolution  of\t partnership\ncannot be  liberally  invoked.\tBesides,  it  is  only\twhen\nshareholding is\t more or  less equal  and there is a case of\ncomplete deadlock  in the  company on  account\tof  lack  of\nprobity in  the management  of the  company and\t there is no\nhope or\t possibility of\t smooth and efficient continuance of\nthe company  as a commercial concern, there may arise a case\nfor winding  up on  the \"just  and equitable\"  ground. In  a\ngiven case  the principles of dissolution of partnership may\napply squarely\tif the\tapparent structure of the company is\nnot the\t real structure and on piercing the veil it is found\nthat in\t reality it  is a partnership. These are necessarily\nequitable  considerations   and\t may  in  a  given  case  be\nsuperimposed on\t law. Whether  it would\t be  so\t done  in  a\nparticular case\t cannot be  put in  the strict\tjacket of an\ninflexible formula. [247G, D-F]\n     In re  Cathbert Cooper  & Sons Limited, [1937] Ch. 392;\nand In re Yenidje Tobacco Company Limited, [1916] 2 Ch. 426,\ndiscussed.\n     In re Ebrahimi and Westbourane Galleries Ltd. [1973] AC\n360, discussed and considered.\n     Lackh and\tanother v.  John Blackwood Limited [1924] AC\n783, quoted with approval.\n     Baird v.  Lees. [1924] AC 83 and D. Davis & Co. Ltd. v.\nBrunswick (Australia)  Ltd. and\t others A.I.R.\t1938 PC 114,\nreferred to.\n     Rajahmundry Electric  Supply  Corporation\tLtd.  v.  A.\nNageswara Rao  and others<\/a>[1955]\t 2 SCR\t[1066], Mohan  Lal &\nAnr. v. Grain Chamber Ltd., Muzaffarnagar and others<\/a>. [1968]\n2 S.C.R.  252 and  S.P. Jain v. Kalinga Tubes Ltd.,<\/a> [1965] 2\nS.C.R. 820, followed.\n     (6) In  the present case, assuming partnership had been\ncontemplated  the   idea  was  deliberately  abandoned;\t the\ncompany was  started with  one ACD  who had no relation with\nMCJ group  or the  VDJ group  but an  employee of VDJ, which\nwould negative\tthe idea of partnership which connotes equal\nstatus among  the partners; While it is true that a director\nmay work  in the company on remuneration. RPJ however served\nlike an employee on monthly salary not on his own initiative\nenjoying  an   equal  partner's\t freedom  and  prestige\t but\ndirectly  under\t  the  supervision   and  control   of\t VDJ\nacknowledging  a   status  definitely\tof   a\t subordinate\ncharacter; The\tvoluntary financial  involvement of  a large\nstake by  VDJ carefully\t thought  to  be  protected  against\nerosion of his interests by constant vigil on the day-to-day\nworking does not fit in with the\n229\nconcept of  a partnership; Even the account was being opened\nfor the\t purpose of  the formation  of the  company and\t the\naccount was  closed on\tsuch formation.\t The shareholding is\nbetween the  two family\t groups, it  cannot be said that the\ncompany thereby takes the image of partnership. On the other\nhand,  the   fact  that\t  after\t discussion,   the   parties\ndeliberately abandoned\tthe idea  of farming  a\t partnership\nwould go  to show  that there  was no  intention to carry on\nbusiness as partners. [242E-H]\n     There   are    no\t special    features   which   would\nunquestionably lead to the conclusion that the company is in\nsubstance a  partnership and  the  principle  of  \"just\t and\nequitable clause\"  cannot be  therefore,  extended.  [242-H,\n245A]\n\n\n\nJUDGMENT:\n<\/pre>\n
     CIVIL APPELLATE  JURISDICTION: Civil Appeal No. 1785 of
\n1970.\n<\/p>\n
     From the  Judgment\t and  Order  dated  25-9-69  of\t the
\nCalcutta High Court in Appeal No.146 of 1967.\n<\/p>\n
     S. V.  Gupte, S.  B. Mukherjee,  P. C.  Bhartari, J. B.
\nDadachanji and Dilip Sinha for the Appellant.\n<\/p>\n
     A. K.  Sen, R. C. Nag, O. P. Khaitan, B. P. Maheshwari,
\nSuresh Sethi and R. S. Agarwal for Respondents.\n<\/p>\n
     The Judgment of the Court was delivered by
\n     GOSWAMI, J.  This appeal  by certificate is against the
\ncommon judgment\t of the\t Calcutta High\tCourt in  respect of
\nrespondents’ application for winding up and appellant’s stay
\napplication relating to the Hind Overseas Private Limited, a
\nprivate limited company (briefly the company).\n<\/p>\n
     The question  that is  raised in this appeal relates to
\nthe scope  of section  433(f) of  the  Companies  Act,\t1956
\n(briefly the  Act) and\tin particular whether the principles
\napplicable in  the case\t of dissolution of partnership could
\nbe involved in the case of the company.\n<\/p>\n
     The allegations  in the  winding up petition before the
\nHigh Court are as follows:\n<\/p>\n
     The company  was incorporated  under the  Act in August
\n1956. The  nominal capital  of the company is Rs. 5,00,000\/-
\ndivided into 2,500 Equity shares of Rs. 100\/- each and 2,500
\nunclassified shares  of Rs.  100\/- each,  the entire nominal
\ncapital has been issued and fully paid up.\n<\/p>\n
     The petitioners  (respondents herein), Raghunath Prasad
\nJhunjhunwalla  and   his   son,\t  Phoolchand   Jhunjhunwalla
\n(hereinafter  to   be  described   as  R.P.J.\tand   P.C.J.
\nrespectively), and  the members\t of their  family hold\t1875
\nshares in the company and the remaining 3125 shares are held
\nby one V. D. Jhunjhunwalla and the members of his family.\n<\/p>\n
     In or  about the  month May,  1956, R.P.J.\t and  V.  D.
\nJhunjhunwalla (briefly\tV.D.J.) who  was  then\tcarrying  on
\nbusiness under\tthe name  and style  of ‘Chimanram  Motilal’
\nwith his  cousin,  one\tMahabir\t Prasad\t Jhunjhunwalla\t(for
\nbrevity M.P.J.)\t agreed to  start a new business of iron and
\nsteel in co-partnership and for that purpose an account was
\n230<\/span>
\nopened in the name of ‘Raghunath Prasad Jhunjhunwalla Ke Sir
\nKhata’ in  the books  of ‘Chimanram Motilal’. It was further
\nagreed between\tthe parties that R.P.J. would have six annas
\nshare and  V.D.J. along\t with M.P.J.  ten annas share in the
\nsaid proposed partnership business.\n<\/p>\n
     Before the\t said proposed\tbusiness could\tbe  started,
\nV.D.J., however, changed his mind and some time in the month
\nof June\t 1956, he suggested to R.P.J. that a limited company
\nbe formed,  inter alia, to carry on the business in iron and
\nsteel and the shares in the company would be held by R.P.J.,
\nV.D.J. and  M.P.J.  and\t the  members  of  their  respective
\nfamilies in  the same  proportion as mentioned above. V.D.J.
\nfurther agreed\tto provide for and arrange along with M.P.J.
\nthe entire  finance that may be necessary for the purpose of
\nthe business  of the  company and R.P.J. and his group would
\ngenerally look\tafter the day-to-day business of the company
\nunder the  general control  and supervision  of V.D.J. It is
\nstated\tin   the  petition   that  R.P.J.  in  view  of\t the
\nrelationship  between  the  parties  and  having  trust\t and
\nconfidence in  V.D.J. agreed  to the  said  suggestions\t and
\naccordingly the\t company was  formed on\t or about  August 9,
\n1956, under  the provisions  of the  Act. One  Anil  Chandra
\nDutta, an  employee and\t nominee of V.D.J. along with R.P.J.
\nbecame the  subscribers to  the Memorandum of Association of
\nthe company  and also  became its first directors. After its
\nincorporation, the  company carried  on for  some  time\t the
\nbusiness of controlled stockists of iron and steel and since
\nthe end o  the year 1958 the company carried on the business
\nof  the\t manufacture  and  supply  of  railway\tsleepers  in
\nexecution of Government contracts.\n<\/p>\n
     On or about August 23, 1956, V.D.J. and M.P.J. were co-
\nopted as  directors of the company. On or about November 23,
\n1957,  Anil   Chandra  Dutta  resigned\tfrom  the  Board  of
\nDirectors and  P.C.J. was  co-opted as\ta Director  in\tthis
\nplace. R.P.J.  was appointed  as Director  in-charge of\t the
\ncompany on  November 23,  1957 at  a monthly remuneration of
\nRs. 1000\/-.  This remuneration was subsequently increased to
\nRs. 1250\/- per month with effect from October 1, 1961 and he
\nwas also  granted further  allowance of Rs. 250.00 per month
\non account  of\tmaintenance  of\t guest\thouse.\tHis  monthly
\nremuneration was  again increased to Rs. 2000.00 with effect
\nfrom September, 1964. The monthly remuneration of P.C.J. was
\ninitially fixed\t at Rs.\t 750.00 per  month with\t effect from
\nOctober 1,  1961  and  was  subsequently  increased  to\t Rs.
\n1500.00 from September 1, 1964.\n<\/p>\n
     Following a  family partition between V.D.J. and M.P.J.
\nabout  the   year  1958,  the  shares  of  the\tlatter\twere
\ntransferred in\tthe name  of the  wife of V.D.J. M.P.J. also
\nresigned from the Board of Directors on or about January 31,
\n1959. Since  that date\tand until October 1965, the Board of
\nDirectors of  the company  consisted of\t R.P.J., P.C.J.\t and
\nV.D.J. In  or about  the month\tof October, 1965, V.D.J. got
\nhis  son,  Vinode  Kumar  Jhunjhunwalla,  appointed  as\t the
\nTechnical Director of the company.\n<\/p>\n
     Since the\tyear 1958  and until  February 26, 1965, the
\nentire business\t of the company has been the manufacture and
\nsupply of
\n231<\/span>
\nrailway sleepers  in execution\tof Government contracts. The
\nbusiness of  the company  during this period had been always
\nmanaged by  R.P.J., P.C.J. under the general supervision and
\nguidance of  V.D.J.  and  the  business\t policy\t was  always
\ndictated by V.D.J. The Cashier, Manager-cum-Engineer, Munim,
\nand Cash  Peon and  other important  Officers and  employees
\nwere always appointed by V.D.J. of his own choice and on his
\nterms. R.P.J.  has been\t acting as  the\t Director-in  charge
\nthroughout since  his appointment at a Board meeting held on
\nNovember 23,  1957. V.D.J.  asked  for\tand  received  daily
\nreports of the working of the factory and of the business of
\nthe company  from R.P.J. and gave detailed instructions even
\nrelating to  the daily administration. From 1959 onwards the
\nfactory commenced its regular production of railway sleepers
\nand made substantial profits between 1960 and 1965 except in
\nthe year 1961 when there was some loss.\n<\/p>\n
     It is  alleged that after trying to take wrongfully and
\nillegally full\tcontrol and management of the affairs of the
\ncompany in  order to  oust R.P.J.  group, V.D.J.  ultimately
\nsucceeded in getting hold of Directors’ Minute Books and the
\nMinute Books  of the General Meetings of the company. V.D.J.
\nwith the  help of  the members\tof his group, wrongfully and
\nillegally took\taway the  keys and the other statutory books
\nand documents  of the company from the registered office and
\nrefused R.P.J.\tgroup any  access to  them, R.P.J.  was also
\nassaulted by  an employee  of the company at the instance of
\nV.D.J. and  there were\tsome  criminal\tproceedings  against
\nR.P.J. and  P.C.J. V.D.J.  as a Director called a meeting of
\nthe Board  on May  27, 1966,  by Notice\t dated May 24, 1966.
\nR.P.J.’s solicitors  on May  27, 1966,\tsent a notice to the
\ncompany and  V.D.J. calling upon them to desist from holding
\nthe meeting  which was called with a view to oust the R.P.J.
\ngroup completely  from the  control and\t management  of\t the
\naffairs of the company. V.D.J. group did not pay any heed to
\nthe Solicitors’ letter and passed various resolutions in the
\nBoard’s meeting\t held on  May 27, 1966, whereby the previous
\nresolutions of\tthe Board  were countermanded  and cancelled
\nand R.P.J.  was deprived  of his  all lawful  authority\t and
\npowers as  a Director  including the  right to\toperate\t the
\nbanking account\t of the\t company. R.P.J. was purported to be
\nremoved from  the office  of the  Director-in-charge of\t the
\ncompany.  V.D.J.   group  caused   an  advertisement  to  be
\npublished in  the Vishwamitra  on or  about  May  20,  1966,
\nintimating the\tcancellation of\t powers in  favour of R.P.J.
\nV.D.J. taking advantage of the majority holding of shares by
\nhimself and  the members  of  group,  caused  to  be  issued
\nthrough certain\t shareholders  belonging,  to  his  group  a
\nrequisition  dated  May\t 28,  1966,  for  calling  an  Extra
\nordinary general  meeting with\ta view\tto remove R.P.J. and
\nP.C.J. as  directors of\t the company  and to  appoint  other
\npersons belonging  to their  group in  their places instead.
\nThe explanatory\t statement to that Notice alleged that there
\nwas a loss of about Rs. 8 lakhs in the year 1965.\n<\/p>\n
     It is  further alleged  that V.D.J.  with the  help  of
\ngoondas and  armed guard  took possession  of the  company’s
\nfactory and  ousted R.P.J.  and P.C.J. therefrom. It is also
\nalleged that the liabilities of the company would exceed its
\nassets and the same was not commercially
\n232<\/span>
\nsolvent. That  serious disputes\t and differences  had arisen
\namong the  shareholders of  the\t company  and  there  was  a
\ncomplete deadlock  in the  management of  its affairs. There
\nwas also  complete loss\t of confidence\tof one\tgroup in the
\nother.\tLastly\tit  is\taverred\t that  the  company  was  in
\nsubstance a  partnership and  it  could\t not  carry  on\t its
\nbusiness any  more and\tthe circumstances  would justify the
\ndissolution of the company had it been a partnership.\n<\/p>\n
     The  above\t are  the  allegations\tin  the\t winding  up
\npetition which\tcame up\t for admission\tbefore\tthe  learned
\nCompany Judge. There was a counter-affidavit filed by V.D.J.
\nin opposing  the prayers.  We may  only note paragraph 14 of
\nhis counter-affidavit
\n\t  “The respondent,  Raghunath  Prasad  Jhunjhunwalla
\n     was an employee of the firm of Messrs Kamlapati Motilal
\n     of Kanpur\tof which  I am\tthe Managing Partner. Having
\n     gained confidence\tas such\t employee the said Raghunath
\n     Prasad Jhunjhunwalla  was taken in as a Director of the
\n     Company and  entrusted with the powers of management of
\n     the Company.  The respondents had no money to subscribe
\n     for the  shares of the Company and moneys were procured
\n     by me  to enable them to subscribe for the share of the
\n     Company. The  applicants on their own admission were in
\n     charge of the management of the affairs of the Company.
\n     While in  such  management\t they  have  mismanaged\t the
\n     affairs of\t the Company  and misappropriated  the funds
\n     and assets\t of the\t company as  would appear  from\t the
\n     statements made  in my  affidavit affirmed\t on June 16,
\n     1966.. ”\n<\/p>\n
     The only  point which  appears to\thave been  canvassed
\nbefore the  learned  Company  Judge  and  later\t before\t the
\nappellate court\t was that the company was formed as a result
\nof mutual  trust and  confidence  and  the  company  was  in
\nsubstance a  partnership and,  therefore, the  principles of
\npartnership would  be  attracted.  The\tsame  arguments\t are
\npressed into  service by  the respondents  before us.  If it
\nwere  a\t  partnership,\tsays   Mr.  Sen\t on  behalf  of\t the
\nrespondents, on the facts and circumstances disclosed in the
\npetition dissolution  would have  been ordered\tby the court
\nunder section  44(g) of\t the Partnership  Act.\tA  case\t for
\nwinding up has been, therefore, prima facie, made out by the
\nrespondents on\tthese allegations.  It is submitted that the
\nlearned\t Company   Judge  committed   an  error\t of  law  in
\ndismissing the\twinding up petition without admitting it and
\nin allowing  the stay  petition of  the\t company  (appellant
\nherein) and  that the  Division Bench  in the Letters Patent
\nAppeal was  right in  setting aside the order of the Company
\nJudge.\n<\/p>\n
     According to the learned Company Judge the principle of
\ndissolution of\tpartnership applies  to companies  either on
\nthe ground of complete deadlock or on the ground of domestic
\nor family  companies. A\t complete deadlock, according to the
\nlearned Judge,\tis where  the Board  has two real members or
\nthe ratio  of shareholding  is equal.  In  the\tdomestic  or
\nfamily companies, says the learned Judge, courts have
\n233<\/span>
\napplied\t the  dissolution  of  partnership  principle  where
\nshareholdings are  more or  less equal\tand there is ousting
\nnot only  from management but from benefits as shareholders.
\nLack of\t probity has  to result\t in prejudice  to  company’s
\nbusiness,  affecting   rights  of   complaining\t parties  as
\nshareholders and  not as directors. The learned Judge relied
\non an English case [In re Cuthbert Cooper & Sons Limited(1)]
\nwhich illustrates  that if a deadlock can be resolved by the
\narticles there\tis no deadlock to bring in winding-up and if
\nthere are  alternative remedies\t the company  should not  be
\nwound up. The learned Judge was also unable to hold that the
\nsubstratum of  the  company  was  gone.\t The  learned  Judge
\nconcluded as follows:-\n<\/p>\n
\t  “As I\t have indicated\t these charges\tand counter-
\n     charges raise  disputed questions\tof fact\t between two
\n     contesting parties\t for power.  The petitioners  desire
\n     that they\tshould be in power and the respondents would
\n     go on  financing. This  was said to be the heart of the
\n     matter by\tcounsel for the respondents. This comment is
\n     not without  foundation. I am unable to hold that there
\n     is\t any   mismanagement  or  misapplication  either  as
\n     regards   shareholders   or   as\tregards\t  directors.
\n     Directors’ disputes  are not  grounds for winding up on
\n     the facts and circumstances of the present case”.\n<\/p><\/blockquote>\n
According to  the learned  Judge the  case of  In re Yenidje
\nTobacco Company\t Limited (2) and the cases following it have
\nestablished that  in applying  the principles of dissolution
\nof partnership\tto  companies  the  following  factors\twere
\nimportant:\n<\/p>\n
\t  (1)  Equal share-holding.\n<\/p><\/blockquote>\n
\t  (2)  Complete deadlock  in the  administration  of
\n\t       the company.\n<\/p><\/blockquote>\n
\t  (3)  Lack of\tprobity\t and  mismanagement  in\t the
\n\t       conduct of affairs of the company.\n<\/p><\/blockquote>\n
The  learned  Company  Judge  held  that  the  principle  in
\nYenidje’s case (supra) was not attracted in this case.\n<\/p>\n
     On the other hand, according to the appellate court the
\nprinciples in Yenidje’s case were to the effect that-\n<\/p>\n
\t  “if a\t private company  could be  fairly called  a
\n     partnership in  the guise of a private company then the
\n     things which   might  be a\t ground for dissolution of a
\n     partnership will  apply also  in the  case of a private
\n     company” and  that “in  this connection deadlock is not
\n     material”.\n<\/p><\/blockquote>\n
The appellate  court then  described the circumstances which
\naccording  to\tLindley\t justify   the\tdissolution  of\t the
\npartnership:\n<\/p>\n
\t  (1)  if the  partnership agreement  is wilfully or
\n\t       persistently violated;\n<\/p><\/blockquote>\n
234<\/span><\/p>\n
\t  (2)  if one partner so behaves in matters relating
\n\t       to the  partnership business  that the  other
\n\t       partners\t find  it  impossible  to  carry  on
\n\t       business in partnership with him;\n<\/p><\/blockquote>\n
\t  (3)  if some\tpartners are in effect excluded from
\n\t       the concern;\n<\/p><\/blockquote>\n
\t  (4)  if the  misconduct of one or more partners is
\n\t       such that  the mutual  confidence which\tmust
\n\t       subsist in a partnership is destroyed;<\/p><\/blockquote>\n
\t  (5)  if  there  is  a\t state\tof  animosity  which
\n\t       precludes    all\t    reasonable\t  hope\t  of
\n\t       reconciliation and friendly cooperation;<\/p><\/blockquote>\n
\t  (6)  if it is impossible for the partners to place
\n\t       that confidence\tin each other which each has
\n\t       a  right\t  to  expect,\tprovided  that\t the
\n\t       impossibility has  not  been  caused  by\t the
\n\t       persons seeking to take advantage of if
\nHaving noted  the  above,  the\tappellate  court  held\tthat
\nconditions (2), (3) and (4) were unquestionably fulfilled in
\nthis  case  and,  therefore,  allowed  the  application\t and
\nrejected the stay application.\n<\/p>\n
     Before we\tproceed further\t we may\t refer to  a  recent
\ndecision of  the House\tof Lords  in Ebrahimi and Westbourne
\nGalleries Ltd.\tand Others  (1)\t (briefly  Ebrahimi’s  case)
\nwherein after reviewing all the earlier cases it was held as
\nfollows:-\n<\/p>\n
\t  “The foundation  of it all lies in the words ‘just
\n     and equitable’  and, if  there is\tany respect in which
\n     some of  the cases may be open to criticism, it is that
\n     the Courts\t may sometimes\thave been  too\ttimorous  in
\n     giving them  full force. The words are a recognition of
\n     the fact  that a  limited company\tis more\t than a mere
\n     legal entity,  with a  personality in  law of  its own;
\n     that there\t is room  in company  law for recognition of
\n     the fact  that behind  it, or  amongst  it,  there\t are
\n     individuals, with\trights, expectations  and obligation
\n     inter se  which are  not necessarily  submerged in\t the
\n     company structure.\t That structure\t is defined  by\t the
\n     Companies Act  and by  the articles  of association  by
\n     which shareholders agree to be bound. In most companies
\n     and in most contexts, this definition is sufficient and
\n     exhaustive, equally  so whether the company is large or
\n     small. The\t ‘just and  equitable provision does not, as
\n     the respondents suggest, entitle one party to disregard
\n     the obligation  he assumes\t by entering  a company, nor
\n     the court\tto dispense  him from it. It does, as equity
\n     always does,  enable the  court to subject the exercise
\n     of\t  legal\t   rights   to\t equitable   considerations:
\n     considerations,  that   is,  of  a\t personal  character
\n     arising between  one individual  and another, which may
\n     make it unjust, or inequitable,
\n235<\/span>
\n     to insist\ton legal  rights, or  to exercise  them in a
\n     particular way….\n<\/p><\/blockquote>\n
\t  “The superimposition\tof equitable  considerations
\n     requires something\t more, which  typically may  include
\n     one, or probably more, of the following elements:\n<\/p><\/blockquote>\n
\t  (i)  an association  formed or  continued  on\t the
\n\t       basis of\t a personal  relationship, involving
\n\t       mutual confidence-this  element will often be
\n\t       found where  a pre-existing  partnership\t has
\n\t       been converted into a limited company;\n<\/p><\/blockquote>\n
\t  (ii) an agreement,  or understanding, that all, or
\n\t       some (for  there may  be ‘sleeping’ members),
\n\t       of the  shareholders shall participate in the
\n\t       conduct of the business;\n<\/p><\/blockquote>\n
\t  (iii)restriction upon the transfer of the members’
\n\t       interest in the company-so that if confidence
\n\t       is  lost,  or  one  member  is  removed\tfrom
\n\t       management, he  cannot take out his stake and
\n\t       go elsewhere.”<\/p><\/blockquote>\n
     The respondents  have laid\t great emphasis on the ratio
\nof the above decision. It is true that section 222(f) of the
\nEnglish Companies  Act, 1948  which the\t House of  Lords was
\nconsidering corresponds to section 433(f) of the Act. In the
\nabove decision the House of Lords had to deal with a private
\nlimited company\t consisting of three members, the petitioner
\ntherein, being one of the three. Lord Wilberforce delivering
\nhis reasoned speech has himself noted that-\n<\/p>\n
\t  “It is  a fact  of cardinal  importance that since
\n     about 1945\t the business  had been\t carried on  by\t the
\n     appellant and  Mr. Nazar  as partners,  equally sharing
\n     the management and the profits”.\n<\/p><\/blockquote>\n
It was also noticed that-\n<\/p>\n
\t  “the company\tmade good profits, all of which were
\n     distributed as  directors’ remuneration.  No  dividends
\n     have ever\tbeen paid,  before or after the petition was
\n     presented.”<\/p><\/blockquote>\n
     In Ebrahimi’s  case (supra) the company which was first
\nformed by  the two  erstwhile partners,\t Ebrahimi and Nazar,
\nwas joined  by Nazar’s\tson,  George  Nazar,  as  the  third
\ndirector  and\teach  of   the\ttwo   original\tshareholders
\ntransferred to\thim 100 shares so that at all material times
\nEbrahimi held  400 shares, Nazar 400 shares and George Nazar
\n200 shares.  The Nazars, father and son, thus had a majority
\nof the\tvotes in  general meeting. Until the dispute all the
\nthree remained\tdirectors. Later  on an\t ordinary resolution
\nwas passed by the company in general meeting by the votes of
\nNazar and  George Nazar removing Ebrahimi from the office of
\ndirector. That led to the petition for winding up before the
\ncourt.\n<\/p>\n
     The following features are found in Ebrahimi’s case:-
\n\t  (1)  There was  a prior  partnership\tbetween\t the
\n\t       only two\t members who  later  on\t formed\t the
\n\t       company.\n<\/p>\n
236<\/span><\/p>\n
\t  (2)  Both the\t shareholders were directors sharing
\n\t       the profits  equally as\tremuneration and  no
\n\t       dividends were declared.\n<\/p>\n
\t  (3)  One of  the shareholders’ son acquired shares
\n\t       from  his   father  and\t from\tthe   second
\n\t       shareholder, Ebrahimi, and joined the company
\n\t       as the  third shareholder-director  with\t two
\n\t       hundred shares (one hundred from each).\n<\/p>\n
\t  (4)  After that,  there was  a complete  ouster of
\n\t       Ebrahimi from  the management by the votes of
\n\t       the other two directors, father and son.\n<\/p>\n
\t  (5)  Although Ebrahimi  was a\t partner, Nazar\t had
\n\t       made it\tperfectly  clear  that\the  did\t not
\n\t       regard Ebrahimi as a partner but regarded him
\n\t       as an  employee in  repudiation of Ebrahimi’s
\n\t       status as well as of the relationship.\n<\/p>\n
\t  (6)  Ebrahimi through\t ceasing to  be\t a  director
\n\t       lost  his  right\t to  share  in\tthe  profits
\n\t       through\tdirectors’   remuneration  retaining
\n\t       only the\t chance of  receiving dividends as a
\n\t       minority shareholder.\n<\/p>\n
Bearing in mind the above features in the case, the House of
\nLords allowed  the petition  for winding up by reversing the
\njudgment of  the court\tof appeal and restoring the order of
\nPlowman, J.\n<\/p>\n
     None of  the parties  questions the  principles as such
\nadumbrated by  the House of Lords in Ebrahimi’s case (supra)
\nor even\t those in  the earlier\tYenidje’s case\t(supra)\t and
\nindeed these are sound principles depending upon the nature,
\ncomposition and\t character of  the company,  The principles,
\ngood as\t they are,  their application  in a given case or in
\nall cases, generally, creates problems and difficulties. The
\nrespondents’ counsel  is well  cognizant of  this  difficult
\naspect and,  therefore, rests  his argument  on the  footing
\nthat  the   company  is\t  in  substance\t a  partnership\t and
\nnecessarily, therefore,\t according to him, the principles of
\npartnership should be attracted.\n<\/p>\n
     Before we\tcome to\t the facts  of the  present case, we
\nhave to\t deal with  the principles  of\tthe  Yenidje’s\tcase
\n(supra) which  were the\t cornerstone  of  the  arguments  on
\nbehalf of  both the parties before the Company Judge as well
\nas the\tappellate court.  Ebrahimi’s case  (supra)  was\t not
\navailable to the parties at that stage.\n<\/p>\n
     Yenidje’s case  (supra) has  acquired celebrity  and in
\napplication of\tthe   ratio of\tthat case varying shades and
\ncolour have  been sought  to be\t given from  time to time in
\nEngland and  appropriate  to  occasions\t and  to  facts\t and
\ncircumstances of cases coming before the courts.\n<\/p>\n
     It is  not necessary for us to go over the labyrinth of
\ncases wherein  the Yenidje’s  principle was  applied and  it
\nwill be\t sufficient to\tgather the  ratio from\tthe words of
\nLord Cozens-Hardy M.R. expressed in the decision itself. The
\nlearned Master\tof Rolls  posed the  question thus  in\tthat
\ncase:\n<\/p>\n
\t  “I think  it right to consider what is the precise
\n     position of  a private company such as this and in what
\n     respects it  can be  fairly called a partnership in the
\n     guise of a private company.”<\/p><\/blockquote>\n
237<\/span><\/p>\n
     This was  a company  of the  two shareholders  and\t two
\ndirectors who  had earlier traded separately but amalgamated
\ntheir businesses  and formed  a private limited company. The
\nconstitution of the company was such that under its articles
\nof association for any case of difference or dispute between
\nthe directors there was a provision for arbitration. In fact
\nin one\tof such disputes a reference was made to arbitration
\nwhich  resulted\t in  an\t award\tto  which  one\tof  the\t two
\nshareholders declined  to give effect. It was proved in that
\ncase that the two directors were not on speaking terms, that
\nthe so-called  meetings of  the board  of directors had been
\nalmost a  farce or  comedy, the directors would not speak to
\neach other on the board, and some third person had to convey
\ncommunications between\tthem which ought to go directly from
\none to\tthe other. Under the above situation it was observed
\nby the learned Master of Rolls as follows:\n<\/p>\n
\t  “Is it  possible to  say that\t it is\tnot just and
\n     equitable that  that state\t of  things  should  not  be
\n     allowed to\t continue, and\tthat the  Court\t should\t not
\n     intervene\tand   say  this\t is  not  what\tthe  parties
\n     contemplated by the arrangement into which they entered
\n     ?”\n<\/p><\/blockquote>\n
\t   *\t    *\t      *\t\t*\t  *
\n\t  “Certainly, having  regard to\t the fact  that\t the
\n     only two directors will not speak to each other, and no
\n     business which  deserves the  name of  business in\t the
\n     affairs of\t the company  can be carried on, I think the
\n     company should  not be  allowed  to  continue.  I\thave
\n     treated it\t as a partnership, and under the Partnership
\n     Act of  course the\t application for a dissolution would
\n     take  the\tform  of  an  action;  but  this  is  not  a
\n     partnership strictly,  it is not a case in which it can
\n     be dissolved  by action.  But ought  not precisely\t the
\n     same principles  to apply\tto a case like this where in
\n     substance it  is a partnership in the form or the guise
\n     of a  private company  ? It  is a\tprivate company, and
\n     there is  no way  to put  an end to the state of things
\n     which now exists except by means of a compulsory order.
\n     It has  been urged\t upon us that the just and equitable
\n     clause has… been held.. not to apply except where the
\n     substratum of  the company has gone or where there is a
\n     complete deadlock.\t Those are  the two  instances which
\n     are given,\t but I\tshould be  very sorry,\tso far as my
\n     individual opinion goes, to hold that they are strictly
\n     the limits\t of the ‘just and equitable’ clause as found
\n     in the Companies Act”.\n<\/p><\/blockquote>\n
\t   *\t    *\t      *\t\t*\t  *
\n\t  “If ever  there was  a case of deadlock I think it
\n     exists here; but, whether it exists or not, I think the
\n     circumstances are\tsuch that  we  ought  to  apply,  if
\n     necessary, the  analogy of\t the partnership  law and to
\n     say that this company is now in a state which could not
\n     have been\tcontemplated by the parties when the company
\n     formed and\t which ought  to be  terminated as  soon  as
\n     possible”.<\/p><\/blockquote>\n
238<\/span><\/p>\n
     It is  clear that although Yenidje’s case (supra) was a
\ncase of\t a complete  deadlock, that was not stated to be the
\nsole basis  for a  conclusion to  wind up  the company.\t The
\nHouse of  Lords\t in  Ebrahmi’s\tcase  (supra)  approved\t the
\ndecision in  Yenidje’s case  (supra). We  may also point out
\nthat the  House of  Lords  did\tnot  approve  of  the  undue
\nemphasis put  on the  contractual rights  arising  from\t the
\narticles  over\t the  equitable\t  principles,  derived\tfrom
\npartnership  law  in  re  Cuthbert  Cooper  &  Sons  Limited
\n(supra).\n<\/p>\n
     We may also refer to the Privy Council decision in Loch
\nand Another  and John  Blackwood Limited(1), wherein section
\n127 of\tthe Companies Act, 1910, of Barbados, identical with
\nsection 433(f)\tof the\tAct was\t considered.  Lord  Shaw  of
\nDunfermline quoted  in the  judgment a passage from the case
\nof Baird v. Lees(2), which is as follows :-\n<\/p>\n
\t  “I have no intention of attempting a definition of
\n     the  circumstances\t  which\t amount\t  to  a\t  `just\t and
\n     equitable’ cause.\tBut  I\tthink  I  may  say  this.  A
\n     shareholder puts  his money  into a  company on certain
\n     conditions. The  first of\tthem is that the business in
\n     which he  invests shall  be limited to certain definite
\n     objects. The  second is  that it shall be carried on by
\n     certain persons  elected in  a specified  way. And\t the
\n     third is  that  the  business  shall  be  conducted  in
\n     accordance\t with\tcertain\t principles   of  commercial
\n     administration defined  in the  statute, which  provide
\n     some guarantee of commercial probity and efficiency. If
\n     shareholders find that these conditions or some of them
\n     are deliberately  and  consistently  violated  and\t set
\n     aside by  the action  of a\t member and  official of the
\n     company who wields an overwhelming voting power, and if
\n     the result\t of that  is that,  for the  extrication  of
\n     their rights  as shareholders  they are deprived of the
\n     ordinary facilities which compliance with the Companies
\n     Acts would provide them with, then there does arise, in
\n     my opinion,  a situation  in which\t it may\t be just and
\n     equitable for the Court to wind up the company”.<\/p><\/blockquote>\n
     We may  also refer\t to another  decision of  the  Privy
\nCouncil in  D. Davis  & Co.  Ltd. v.  Brunswick (Australia),
\nLtd. and  others(3) which  was from the decision of the Full
\nCourt of the Supreme Court of New South Wales. Section 84(e)
\nof the\tNew South  Wales Companies  Act (1899) also provides
\nfor winding up, inter alia, on just and equitable ground. In
\ndealing with  that clause,  the Privy  Council\tobserved  as
\nfollows :-\n<\/p>\n
\t  “The position\t of the Court in determining whether
\n     it is  just  and  equitable  to  wind  up\tthe  company
\n     requires a\t fair consideration of all the circumstances
\n     connected with the formation and the carrying on of the
\n     Company during the short period which had elapsed since
\n     12th May, 1930; and the
\n239<\/span>
\ncommon misfortune which had befallen the two shareholders in
\nthe Company  does not,\tin their Lordships view, involve the
\nconsequence that  the ultimate\tdesires\t and  hopes  of\t the
\nordinary, shareholders\tshould be disregarded merely because
\nthere  is   a  strong  interest\t in  favour  of\t liquidation
\nnaturally felt by the holders of the preference shares”.\n<\/p><\/blockquote>\n
\t   *\t    *\t      *\t\t*\t  *
\n\t  “Nor on  the other  hand can\tany general  rule be
\n     laid down\tas to  the nature of the circumstances which
\n     have to  be borne\tin mind\t in considering\t whether the
\n     case comes within the phrase”.<\/p><\/blockquote>\n
     This Court\t had to\t deal with  the `just and equitable’
\nclause under  section 162(vi)  of the  Indian Companies Act,
\n1913, in  Rajahmundry Electric\tsupply Corporation Ltd. v. A
\nNageswara Rao  and  others(1)  and  the\t Court\tquoted\twith
\napproved the following passage in Loch’s case (supra) :\n<\/p>\n
\t  “It is  undoubtedly true that at the foundation of
\n     applications  for\t winding  up,\ton  the\t  `just\t and
\n     equitable’ rule,  there must  lie a justifiable lack of
\n     confidence\t in   the  conduct  and\t management  of\t the
\n     company’s affairs.\t But this lack of confidence must be
\n     grounded on  conduct of the directors, not in regard to
\n     their private  life or  affairs, but  in regard  to the
\n     company’s business.  Furthermore the lack of confidence
\n     must spring  not from dissatisfaction at being outvoted
\n     on the  business affairs  or  on  what  is\t called\t the
\n     domestic policy  of the  company. On  the\tother  hand,
\n     wherever the  lack of confidence is rested on a lack of
\n     probity in\t the conduct  of the company’s affairs, then
\n     the former\t is justified by the latter, and it is under
\n     the statute  just and  equitable that  the\t company  is
\n     wound up”.\n<\/p><\/blockquote>\n
     Again in  Mohan  Lal  &  Anr.  v.\tGrain  Chamber\tLtd.\n<\/p><\/blockquote>\n
Muzaffarnagar & Ors.,(2) this Court had held that-\n<\/p>\n
\t  “Primarily the  circumstances existing at the date
\n     of the  petition must  be taken  into consideration for
\n     determining whether a case is made out for holding that
\n     it is  just and  equitable that  the company  should be
\n     wound up”\n<\/p><\/blockquote>\n
(See also  Rajahmundry Electric\t Supply\t Corporation’s\tcase
\n(supra) and S. P. Jain v. Kalinga Tubes Ltd.<\/a>(3).\n<\/p>\n
     Keeping the  ratio of  Ebrahimi’s case in the forefront
\nof his\targument Mr.  Sen submits  that in  the present case
\nalso  there  was  a  definite  understanding  and  agreement
\nbetween the  two family\t groups for  equal status  and equal
\nparticipation in management and, therefore, exclusion of the
\nrespondents from  the directorship is burial of mutual trust
\nand denial  of that  relationship on which alone the company
\nwas formed  and hence  there  is  a  prima  facie  case\t for
\nadmitting the petition.\n<\/p>\n
240<\/span><\/p>\n
     Although the  Indian Companies  Act is  modelled on the
\nEnglish Companies  Act, the  Indian law is developing on its
\nown lines.  Our law  is also  making significant progress of
\nits own\t as and when necessary. Where the words used in both
\nthe Acts are identical, the English decisions may throw good
\nlight and  reasons may\tbe  persuasive.\t But  as  the  Privy
\nCouncil observed  long ago  in Ramanandi  Kuer\tv.  Kalawati
\nKuer(1)-\n<\/p>\n
\t  “It has  often been pointed out by this Board that
\n     where there  is a\tpositive  enactment  of\t the  Indian
\n     legislature,  the\tproper\tcourse\tis  to\texamine\t the
\n     language of  that statute\tand to\tascertain its proper
\n     meaning-uninfluenced by any considerations derived from
\n     the previous  state of  the law  or of  the English law
\n     upon which it may have been founded.”\n<\/p><\/blockquote>\n
If it  was true in the twenties it is more apposite now that
\nthe background,\t conditions and\t circumstances of the Indian
\nsociety, the  needs and requirements of our country call for
\na somewhat  different treatment.  We will have to adjust and
\nadapt, limit  or extend, the principles derived from English
\ndecisions, entitled  as they  are to  great respect, suiting
\nthe conditions\tof our\tsociety and  the country  in general
\nalways, however, with one primary consideration in view that
\nthe general interests of the shareholders may not be readily
\nsacrificed  at\tthe  altar  of\tsquabbles  of  directors  of
\npowerful groups for power to manage the company.\n<\/p>\n
     When more\tthan  one  family  or  several\tfriends\t and
\nrelations together  form a  company and there is no right as
\nsuch agreed upon for active participation of members who are
\nsought to  be excluded\tfrom management,  the principles  of
\ndissolution of\tpartnership  cannot  be\t liberally  invoked.
\nBesides, it is only when share-holding is more or less equal
\nand there  is a\t case of complete deadlock in the company on
\naccount of  lack of probity in the management of the company
\nand there  is no hope or possibility of smooth and efficient
\ncontinuance of\tthe company  as a  commercial concern, there
\nmay arise  a case  for winding\tup on the just and equitable
\nground. In  a given  case the  principles of  dissolution of
\npartnership may\t apply squarely if the apparent structure of
\nthe company  is not  the real  structure and on piercing the
\nveil it is found that in reality it is a partnership. On the
\nallegations and\t submissions in the present case, we are not
\nprepared to extend these principles to the present company.\n<\/p>\n
     The principle  of `just and equitable’ clause baffles a
\nprecise\t definition.   It  must\t  rest\twith   the  judicial
\ndiscretion  of\tthe  court  depending  upon  the  facts\t and
\ncircumstances of  each case. These are necessarily equitable
\nconsiderations and  may, in  a given case be superimposed on
\nlaw. Whether it would be so done in a particular case cannot
\nbe put in the strait-jacket of an inflexible formula.\n<\/p>\n
     In an  application of  this  type\tallegations  in\t the
\npetition are  of primary  importance. A prima facie case has
\nto be  made out\t before the court can take any action in the
\nmatter. Even  admission of  a petition\twhich will  lead  to
\nadvertisement of the winding up proceedings
\n241<\/span>
\nis  likely  to\tcause  immense\tinjury\tto  the\t company  if
\nultimately the application has to be dismissed. The interest
\nof the\tapplicant alone is not of predominant consideration.
\nThe interests  of the shareholders of the company as a whole
\napart from  those of other interests have to be kept in mind
\nat the\ttime of\t consideration as to whether the application
\nshould be  admitted on\tthe  allegations  mentioned  in\t the
\npetition.\n<\/p>\n
     The question  that is  raised in  this appeal  is as to
\nwhat is\t the scope of section 433(f) of the Act. Section 483
\nprovides for  the circumstances\t in which  a company  may be
\nwound up by the court. There are six recipes in this section
\nand we\tare concerned with the sixth, namely, that a company
\nmay be\twound up by the court if the court is of the opinion
\nthat it\t is just  and equitable\t that the  company should be
\nwound up.  Section 222(f) of the English Companies Act, 1948
\nis in  terms identical with the Indian counter-part, section
\n433 (f).  It is\t now well  established that the sixth clause
\nnamely, ‘just  and equitable’  is not  to be  read as  being
\nejusdem generis\t with the  preceding five clauses. While the
\nfive earlier  clauses prescribe\t definite conditions  to  be
\nfulfilled for  the one\tor the\tother to  be attracted\tin a
\ngiven case,  the just and equitable clause leaves the entire
\nmatter to  the wide  and wise  judicial\t discretion  of\t the
\ncourt. The only limitations are the force and content of the
\nwords themselves,  ‘just and equitable’. Since, however, the
\nmatter cannot  be left\tso  uncertain  and  indefinite,\t the
\ncourts in  England for\tlong have  developed a\trule derived
\nfrom the  history and  extent  of  the\tequity\tjurisdiction
\nitself\tand  also  born\t out  of  recognition  of  equitable
\nconsiderations generally. This is particularly so as section
\n35(6) of  the English  Partnership Act,\t 1890 also contains,
\ninter alia,  an analogous  provision for  the dissolution of
\npartnership by\tthe  court.  Section  44(g)  of\t the  Indian
\nPartnership  Act   also\t contains   the\t words\t ‘just\t and
\nequitable’.\n<\/p>\n
     Section 433(f)  under which  this application  has been
\nmade has  to be\t read with  section 443(2) of the Act. Under
\nthe latter  provision where the petition is presented on the
\nground that it is just and equitable that the company should
\nbe wound  up, the  court may  refuse to\t make  an  order  of
\nwinding up  if it  is of  opinion that\tsome other remedy is
\navailable to  the  petitioners\tand  that  they\t are  acting
\nunreasonably in seeking to have the company would up instead
\nof pursuing that other remedy.\n<\/p>\n
     Again under  sections 397\tand 398 of the Act there are
\npreventive provisions  in the  Act as  a  safeguard  against
\noppression in  management. These  provisions  also  indicate
\nthat relief  under section  433(f) based  on  the  just\t and
\nequitable clause  is in\t the nature  of a  last resort\twhen
\nother remedies\tare not\t efficacious enough  to protect\t the
\ngeneral interests of the company.\n<\/p>\n
     Coming to the present case we find that the company was
\nformed first  with  R.P.J.  and\t Anil  Chandra\tDutta.\tAnil
\nChandra Dutta was admittedly an employee of V.D.J. and it is
\nalso claimed  that even\t R.P.J. was an employee of a company
\nin which  V.D.J. was a managing partner. Although the entire
\nfinance was to be arranged by V.D.J., it appears the company
\nwas started by the above two persons
\n242<\/span>
\nwith V.D.J.  remaining in the background. Anil Chandra Dutta
\nsoon resigned  and other people came in and in 1965-66 there
\nwere 19\t shareholders, nine  headed by R.P.J. and ten headed
\nby V.D.J.,  clearly showing  two family\t groups-R.P.J. group
\nhad 1875  shares and  V.D.J. group  had 3125  shares. V.D.J.
\nstood guarantee\t for bank  overdraft to\t the tune  of Rs. 47
\nlakhs and  as the  learned Company Judge has noted the stake
\nof the\tappellant in  the company  was about Rs. 63 lakhs as
\nopposed to  the stake  of the  respondents amounting  to Rs.
\n1.87 lakhs.  It is,  therefore, clear  that  R.P.J.  group’s
\ninterest in  the company  was not  of the  same magnitude as
\nthat of\t the appellants.  The learned  Company Judge put the
\npicture as follows:-\n<\/p>\n
\t  “The\tentire\taffidavit  evidence  brings  in\t the
\n     forefront two  broad features.  First, that  there\t are
\n     disputes between  the petitioners\tand the\t respondents
\n     regarding appointment of Vinode Kumar Jhunjhunwalla and
\n     Hariram Modi.  It is  said on behalf of the petitioners
\n     that these\t appointments in  breach of  articles and in
\n     breach of\tthe provisions\tof  the\t Companies  Act\t are
\n     adequate grounds  for winding  up. It  is, on the other
\n     hand said\tby the\trespondents that  the allegations of
\n     breach of articles and provisions of the Act are denied
\n     and these\tare the subject-matter of remedy by suit and
\n     are not  the subject-matter  of winding  up. The  other
\n     feature is\t that the respondents charge the petitioners
\n     with misappropriation.  The petitioners also charge the
\n     respondents with  having  utilised\t the  funds  of\t the
\n     company.”<\/p><\/blockquote>\n
     Is this  company, in  substance a partnership or in the
\nimage of  a partnership\t as claimed  ? We may now address to
\nthis aspect  strenuously emphasised  by Mr.  Sen. It  as  in
\nEbrahimi’s  case   (supra)  there   had\t been\tan   earlier
\npartnership and the partners later on formed into a company,
\nthe matter  would have\tstood on a different footing. In the
\npresent case,  however, we  do not find any special features
\nwhich would  unquestionably lead  to the conclusion that the
\ncompany is in substance a partnership. On the other hand the
\nfollowing aspects are noteworthy:\n<\/p>\n
     Assuming partnership  had been  contemplated, the\tidea
\nwas deliberately abandoned. The company was started with one
\nAnil Chandra  Dutta who\t was no relation of the two families
\nbut was\t an employee  of V.D.J. This would negative the idea
\nof partnership\twhich  connotes\t equal\tstatus\tamongst\t the
\npartners. While\t it is\ttrue that a director may work in the
\ncompany on  remuneration, R.P.J.,  however, served  like  an
\nemployee  on  monthly  salary  not  on\this  own  initiative
\nenjoying  an   equal  partner’s\t freedom  and  prestige\t but
\ndirectly  under\t  the  supervision  and\t control  of  V.D.J.
\nacknowledging  a   status  definitely\tof   a\t subordinate
\ncharacter. The\tvoluntary financial  involvement of  a large
\nstake by  V.D.J. carefully  sought to  be protected  against
\nerosion of his interests by constant vigil on the day-to-day
\nworking does not fit in with the concept of a partnership.\n<\/p>\n
     All the  above features  do not enable us to accept the
\nsubmission of  the respondents that the company in this case
\nis in substance a partnership.\n<\/p>\n
243<\/span><\/p>\n
     In the  present case  there is  yet  another  important
\nfeature against\t the respondents. Serious trouble apparently
\narose on  or about  May 23,  1966, when\t a Board meeting was
\nnotified.  Prior   to  that  even  though  something  might,
\nperhaps, be  brewing inside, but nothing came to the surface
\nalthough the  respondents alleged  that V.D.J’s\t son, Vinode
\nKumar  Jhunjhunwalla,\thad  been  sent\t to  the  States  at
\ncompany’s expense  and was  later on,  after  completion  of
\neducation, appointed  as Technical  Director  and  that\t all
\nthese were  illegal actions.  It is  significant that R.P.J.
\ngroup was present in the meeting when these resolutions were
\npassed and  they made  no grievance  at the  time about\t the
\nsame. The petition for winding up was filled on June 7, 1966
\nand the foundation for it was laid in the solicitors’ letter
\nto the\tappellants on  May 27,\t1966. That may be said to be
\nnucleus of the dispute so far as the records show.\n<\/p>\n
     It\t is  not  a  proper  principle\tto  encourage  hasty
\npetitions of  this nature  without first  attempting to sort
\nout the\t dispute and  controversy between the members in the
\ndomestic  forum\t  in  conformity   with\t the   articles\t  of
\nassociation. There  must be materials to show when ‘just and
\nequitable’ clause  is invoked, that it is just and equitable
\nnot only  to the persons applying for winding up but also to
\nthe company  and to  all its shareholders. The company court
\nwill have  to keep  in mind the position of the company as a
\nwhole and  the interests  of the  shareholders and  see that
\nthey do\t not suffer in a fight for power that ensues between
\ntwo groups.\n<\/p>\n
     The cases\tof small  companies  stand  on\ta  different
\nfooting from  a\t company  like\tthe  present  with  nineteen
\nshareholders, although\tapparently arrayed in two groups. It
\nis not, prima facie, established on the allegations that the
\ncompany cannot\trun smoothly  in the  best interest  of\t the
\ngeneral shareholders, including the R.P.J. group, after exit
\nof the quondam directors.\n<\/p>\n
     The conclusion  of the  Division Bench that the company
\nis in  substance a  partnership venture\t was  based  on\t the
\nfollowing principal reasons:-\n<\/p>\n
\t  (1)  The original  idea was to start a partnership
\n\t       venture and  that idea  was given  ultimately
\n\t       the shape of a private company
\n\t  (2)  The Sir Khata account shows that the starting
\n\t       on a partnership venture the parties set up a
\n\t       private company.\n<\/p><\/blockquote>\n
\t  (3)  The shareholding\t shows division\t amongst two
\n\t       family groups.\n<\/p><\/blockquote>\n
\t  (4)  There was  no denial  by the  appellants of a
\n\t       specific averment of the respondents that the
\n\t       company was in substance a partnership.
\n\t  (5)  The respondents were all along functioning as
\n\t       working partners\t and the  respondent, V.D.J.
\n\t       was the financial partner.\n<\/p><\/blockquote>\n
     We will examine each of these reasons.<\/p><\/blockquote>\n
244<\/span><\/p>\n
     With regard to the first reason, the solicitors’ letter
\nof May\t27, 1966,  which is  the nucleus  of the  subsequent
\nwinding up  petition filed in court is of great significance
\nand the\t improvement in\t the version  later in\tthe petition
\nwill lose  its importance.  It was stated in the solicitors’
\nletter that “some time in May 1956 it was agreed between our
\nclient Shri R. P. Jhunjhunwalla and Shri V. D. Jhunjhunwalla
\nand Shri  Mahabir Prasad  Jhunjhunwalla to  do some  type of
\nbusiness in  partnership, Shri V. D. Jhunjhunwalla suggested
\nthat a\tlimited company should be formed in which our client
\ncould hold  shares to  the extent of -\/6\/- annas and Shri V.
\nD. Jhunjhunwalla  and Shri  Mahabir Prasad  Jhunjhunwalla to
\nthe extent  of annas -\/10\/- and that our client would manage
\nthe business  of such  company as and when it was formed and
\nthat the  requisite finance  for the  working of the company
\nwould be  made by  Shri V. D. Jhunjhunwalla and Shri Mahabir
\nPrasad Jhunjhunwalla.”\n<\/p>\n
     There is  nothing in  the above  paragraph which is the
\ncorner-stone of\t the plea  of partnership  in substance that
\nthere was  any\tactive\tcontemplation  about  forming  of  a
\npartnership.  Reference\t  to  ‘some   type  of\tbusiness  of
\npartnership’ is\t very casual  in the  above extract.  On the
\nother hand,  it is more reasonable to conclude that although
\nthere might  have been\tdiscussion about  the advantages and
\ndisadvantages of  partnership vis-a-vis\t a  private  limited
\ncompany, no  time was lost in deciding to form a company. If
\nthis is\t the only  basis of agreement between the parties to
\nsustain the claim, we are unable to accept the same.\n<\/p>\n
     Regarding the  second reason,  the\t Sir  Khata  account
\nwhich has  been heavily relied upon to found an agreement or
\nunderstanding is wholly misconceived. It merely shows that a
\njoint account was, for the time being opened for the purpose
\nof the\tformation of  the company and the account was closed
\non such formation. It does not indicate any understanding as
\nto the\tright of  management of\t the company by any group of
\nshareholders. Thirdly,\tbecause the  shareholding is between
\ntwo family  groups, it\tcannot\tbe  said  that\tthe  company
\nthereby takes  the image  of partnership. On the other hand,
\nthe fact  that after  discussion, the  parties\tdeliberately
\nabandoned the idea of forming a partnership would go to show
\nthat  there  was  no  intention\t to  carry  on\tbusiness  as
\npartners. Fourthly,  after going  through the correspondence
\nit is  not possible  to say  that there was no denial of the
\naverment  by   the  respondents\t that  the  company  was  in
\nsubstance a  partnership. Apart\t from anything\telse  it  is
\nenough to  point out that in the letter of V.D.J. dated June
\n3, 1963,  the allegations  have been  clearly denied. It is,
\ntherefore, a  very weak reason to reckon. With regard to the
\nlast reason, it appears that the respondents themselves took
\nthe position  in their petition that R.P.J. was managing the
\naffairs of  the company\t under daily supervision and control
\nof  V.D.J.   Whether  this   position  is  accepted  by\t the
\nappellants or  not, their statement in that respect gives no
\nindication of  their right  to\tmanage\tthe  business  as  a
\nworking partner as claimed. Besides, working on remuneration
\nby a  director is  not an  unknown feature  even in  company
\nbusiness and we have already adverted to the status in
\n245<\/span>
\nwhich he  worked. Nothing, therefore, turns on this feature.
\nAll the\t above reasons,\t therefore, fail to convince us that
\nthe conclusion\tof the Division Bench that the company is in
\nsubstance a partnership, is correct.\n<\/p>\n
     We should\tobserve, that nothing observed by us in this
\nappeal may  be taken  as expression  of any  opinion on\t the
\nmerits of  the allegations  and counter-allegations  of\t the
\nparties.\n<\/p>\n
     In the  result the\t appeal is  allowed with  costs. The
\njudgment of  the Division Bench is set aside. The winding up
\npetition stands\t dismissed and\tthe  stay  petition  of\t the
\nappellant is allowed.\n<\/p>\n
S.R.\t\t\t\t\t     Appeal allowed.\n246<\/span>\n\n\n\n<\/pre>\n","protected":false},"excerpt":{"rendered":"
Supreme Court of India Hind Overseas Private Limited vs Raghunath Prasad Jhunjhunwalla … on 10 October, 1975 Equivalent citations: 1976 AIR 565, 1976 SCR (2) 226 Author: P Goswami Bench: Goswami, P.K. PETITIONER: HIND OVERSEAS PRIVATE LIMITED Vs. RESPONDENT: RAGHUNATH PRASAD JHUNJHUNWALLA AND ANR. DATE OF JUDGMENT10\/10\/1975 BENCH: GOSWAMI, P.K. BENCH: GOSWAMI, P.K. ALAGIRISWAMI, A. […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[30],"tags":[],"class_list":["post-36781","post","type-post","status-publish","format-standard","hentry","category-supreme-court-of-india"],"yoast_head":"\nHind Overseas Private Limited vs Raghunath Prasad Jhunjhunwalla ... on 10 October, 1975 - Free Judgements of Supreme Court & High Court | Legal India<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.legalindia.com\/judgments\/hind-overseas-private-limited-vs-raghunath-prasad-jhunjhunwalla-on-10-october-1975\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Hind Overseas Private Limited vs Raghunath Prasad Jhunjhunwalla ... on 10 October, 1975 - 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