1983 (7) TMI 277 - HC - Companies Law

Company when deemed unable to pay its debts Winding up Company when deemed unable to pay its debts Powers of tribunal on hearing petition

Summary

Issues Involved:
1. Amendment of Articles of Association to oppress minority shareholders.
2. Gross mismanagement of the company's affairs.
3. Disappearance of the company's substratum due to the decision to sell its only estate.

Detailed Analysis:

1. Amendment of Articles of Association to Oppress Minority Shareholders:
The petitioners alleged that the articles of association of the company were amended to oppress minority shareholders. The company, in its counter-affidavit, denied these allegations, asserting that the amendments were in the best interest of the company. The court, referencing the Supreme Court's decision in Hind Overseas Pvt. Ltd. v. R. P. Jhunjhunwalla, highlighted that sections 397 and 398 of the Companies Act provide safeguards against oppression and mismanagement. The court concluded that the petitioners have effective alternative remedies under these sections and are acting unreasonably in seeking to wind up the company instead of pursuing those remedies.

2. Gross Mismanagement of the Company's Affairs:
The petitioners claimed that the company's affairs were being grossly mismanaged and run as a family concern by the board of directors. The company refuted these claims, stating that the management decisions, including the sale of the estate, were made in the best interest of the company. The court referred to the case of George v. Athimattam Rubber Co. Ltd., which established that allegations of mismanagement and misconduct alone are insufficient for a winding-up order. The court reiterated that the petitioners have alternative remedies under sections 397 and 398 and can also file a suit against the company. Therefore, the court found that the petitioners are acting unreasonably in seeking a winding-up order.

3. Disappearance of the Company's Substratum Due to the Decision to Sell Its Only Estate:
The petitioners initially argued that the substratum of the company would disappear due to the decision to sell the Skinnapuram estate. However, this ground was not pressed during the hearing. The court noted that the Division Bench in MFA No. 443 of 1982 had already considered this issue and concluded that the sale of the estate would not cause the disappearance of the company's substratum. The court cited the Supreme Court's observation in Madhusudan Gordhandas and Co. v. Madhu Woollen Industries P. Ltd., stating that the substratum of a company is not destroyed merely by suffering trading losses unless there is no reasonable prospect of future profit. The court also referenced A. P. Pothen v. Hindustan Trading Corporation P. Ltd., emphasizing that even if the sole undertaking of the company is sold, the substratum does not disappear as long as there are other businesses within the company's objects.

Conclusion:
The court dismissed the petitions, stating that the petitioners failed to make out a prima facie case for winding up the company. The court emphasized that the petitioners have effective alternative remedies under sections 397 and 398 of the Companies Act and are acting unreasonably in seeking a winding-up order. The petitions were dismissed without costs.