1985 (7) TMI 309 - HC - Companies Law

Articles of association Company when deemed unable to pay its debts Winding up - Appointment and powers of provisional liquidator Powers of tribunal on hearing petition

Issues Involved:
1. Maintainability of the application for injunction.
2. Jurisdiction of the court to make interim orders.
3. Equal participation in the management of the company.
4. Validity of Article 38 of the Articles of Association.
5. Grounds for appointment of a provisional liquidator.
6. Consideration of subsequent events in the application for a provisional liquidator.
7. Alternative remedies under sections 397 and 398 of the Companies Act.

Issue-wise Detailed Analysis:

1. Maintainability of the Application for Injunction:
The appellants questioned the maintainability of the application for injunction on the ground that the main winding-up petition was not set for hearing on the date of the application. The court held that the hearing of the winding-up petition starts from the date of its admission and the issuing of notice, thus covering the entire period until an actual order of winding-up is made or the petition is dismissed. The court referenced Hind Overseas (P) Ltd. v. Raghunath Prasad Jhunjhunwalla, where it was held that the court gets jurisdiction to make interim orders from the date of presentation of the winding-up petition.

2. Jurisdiction of the Court to Make Interim Orders:
The court confirmed that it has jurisdiction to make interim orders from the date of presentation of the winding-up petition. This is supported by sections 441(2) and 450 of the Companies Act, which state that the winding-up of a company by the court shall be deemed to commence at the time of the presentation of the petition for winding-up. The court also referenced a Bench decision in Ramakrishna Industries P. Ltd. v. P.R. Ramakrishnan, which concluded that the court's jurisdiction to make interim orders is not postponed until the date set for hearing of the company petition.

3. Equal Participation in the Management of the Company:
The court found that the shareholding by the two branches of the founder's sons was almost equal and that the right of equal participation in the management was guaranteed under the constitution of the company. The court rejected the contention that the amendments to Articles 30 and 31 destroyed the equality in participation. The court confirmed that the management of the company vested in the life directors and continued to vest in their successors in interest and nominees.

4. Validity of Article 38 of the Articles of Association:
The appellants contended that Article 38 was void under section 9 of the Companies Act as it was opposed to the provisions of section 433(f) and public policy. The court held that Article 38 does not add any new ground for winding up other than those specified in section 433 and that it is valid and binding on the company and its members. The court also held that the two limbs of Article 38 provide for two different methods of settling the deadlock and that it is open to the aggrieved party to choose either method.

5. Grounds for Appointment of a Provisional Liquidator:
The court found that the appellants were guilty of mismanagement of the affairs of the company, diversion of the funds of the company to their personal use, and manipulation of the books of account. The court held that the balance of convenience was in favor of granting an injunction and appointing a provisional liquidator to prevent fraudulent preferences and malpractices.

6. Consideration of Subsequent Events in the Application for a Provisional Liquidator:
The court held that subsequent events can be taken into consideration as evidence to sustain the grounds already alleged in the petition. The court referenced Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd., where the Supreme Court took into account facts that came into existence after the company petition was filed. The court found that the respondents had established the diversion of funds of the company by the appellants and that the learned judge had relied on both the charges in the main petition and subsequent events as evidence.

7. Alternative Remedies under Sections 397 and 398 of the Companies Act:
The court rejected the contention that the respondents had an alternative remedy under sections 397 and 398 of the Companies Act. The court held that the relief sought in the winding-up petition could not have been obtained in the suits instituted by the respondents and that no question of election could arise.

Conclusion:
Both appeals were dismissed with costs, confirming the decisions of the learned judge regarding the maintainability of the application for injunction, the jurisdiction of the court to make interim orders, the equal participation in the management of the company, the validity of Article 38, the grounds for appointment of a provisional liquidator, the consideration of subsequent events, and the rejection of alternative remedies under sections 397 and 398 of the Companies Act.

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