1983 (3) TMI 231 - HC - Companies Law

Company when deemed unable to pay its debts, Winding up Company when deemed unable to pay its debts

Summary

Issues Involved:
1. Disappearance of the substratum of the company due to the sale of the Skinnerpuram estate.
2. Amendments to the articles of association and alleged oppression of minority shareholders.
3. Alleged mismanagement of the company by the majority shareholders.

Detailed Analysis:

Issue 1: Disappearance of the Substratum of the Company
The primary issue was whether the sale of the Skinnerpuram estate would lead to the disappearance of the substratum of the company, thus justifying its winding up. The learned judge initially found a prima facie case for winding up based on the argument that selling the only estate would result in a substantial failure of the company's objects. The main object of the company, as per its memorandum of association, was plantation business. The judge referred to the "main object rule" and cited Mohanlal Dhanjibhai Mehta v. Chunilal B. Mehta [1962] 32 Comp. Cas. 970 (Guj.); AIR 1962 Guj. 269 to support his observation that the petitioner had an arguable case regarding the disappearance of the substratum.

However, the appellate court disagreed, emphasizing that the company's objects were broader than just rubber plantation. The memorandum of association allowed for various activities, including agricultural, industrial, and commercial ventures. The court noted that the company could reinvest the sale proceeds in other profitable activities, thus maintaining its substratum. The court cited several precedents, including Hind Overseas P. Ltd. v. R. P. Jhunjhunwalla [1976] 46 Comp. Cas. 91 (SC); AIR 1976 SC 565 and Seth Mohan Lal v. Grain Chambers Ltd. [1968] 38 Comp. Cas. 543; AIR 1968 SC 772, to underline that the substratum of a company is considered to have disappeared only when it becomes impossible to carry out its business due to legal or physical impossibility.

Issue 2: Amendments to the Articles of Association and Alleged Oppression
The second issue involved the amendments to the articles of association, which the respondent claimed were calculated to oppress minority shareholders. The learned judge observed that a contributory had other remedies available, including filing a suit, and did not find sufficient grounds to consider this issue for winding up. The appellate court agreed, noting that the respondent had not demonstrated that the amendments were oppressive to the extent that they justified winding up the company.

Issue 3: Alleged Mismanagement by Majority Shareholders
The third issue was the alleged mismanagement of the company by the majority shareholders, particularly those related to the directors. The learned judge again noted that a contributory had other remedies available and did not find this ground sufficient to order winding up. The appellate court concurred, emphasizing that the respondent had not provided sufficient evidence to substantiate the claim of mismanagement to the extent that it warranted winding up.

Conclusion
The appellate court concluded that the sale of the Skinnerpuram estate did not lead to the disappearance of the company's substratum. The company's objects were broad enough to allow it to engage in other profitable activities with the sale proceeds. The court also found that the respondent had other remedies available for the issues of oppression and mismanagement and that these did not justify winding up the company. Consequently, the appeal was allowed, and the petition for winding up was dismissed. The court directed that the parties bear their own costs.