1991 (9) TMI 276 - HC - Companies Law

Summary

Issues Involved:
1. Winding Up of Company: Petition for winding up Solitaire Hotels Pvt. Ltd. u/s 433 and 434 of the Companies Act, 1956.
2. Appointment of Liquidator: Request for appointment of the official liquidator.
3. Interim Reliefs: Restraining directors from acting, alienating assets, and holding an extraordinary general meeting.
4. Mismanagement and Fraud: Allegations of financial mismanagement and fraudulent activities by the directors.
5. Induction of New Shareholders: Dispute over the induction of new shareholders (Rao group) without the petitioner's consent.
6. Increase in Share Capital: Alleged unauthorized increase in the company's share capital.
7. Alternative Remedies: Availability of alternative remedies under sections 397 and 398 of the Companies Act.
8. Removal of Petitioner as Director: Attempt to remove the petitioner from directorship.

Summary:

1. Winding Up of Company:
The petitioner sought an order for winding up Solitaire Hotels Pvt. Ltd. u/s 433 and 434 of the Companies Act, 1956, alleging that the company was being mismanaged and that it was just and equitable to wind it up.

2. Appointment of Liquidator:
The petitioner also requested the appointment of the official liquidator of the High Court as the liquidator of the company's assets.

3. Interim Reliefs:
Interim reliefs were sought to appoint a provisional liquidator and to restrain the directors from acting, disposing of assets, and holding an extraordinary general meeting to consider the removal of the petitioner from directorship.

4. Mismanagement and Fraud:
The petitioner alleged that he was lured into investing Rs. 8,00,000 based on misrepresentations and that respondents Nos. 2 to 5 mismanaged the company, leading to delays and cost escalations. He claimed that the directors acted in their own interest, causing financial harm to the company.

5. Induction of New Shareholders:
The petitioner contended that the induction of the Rao group as shareholders was done without his consent and in violation of the memorandum of understanding. He alleged that the records were fabricated to show his consent.

6. Increase in Share Capital:
The petitioner argued that the increase in the company's share capital was unauthorized and irregular. However, the court found that the increase was discussed and resolved in board meetings and was duly reported to the Registrar of Companies.

7. Alternative Remedies:
The respondents argued that the petitioner had alternative remedies under sections 397 and 398 of the Companies Act for addressing grievances related to mismanagement. The court agreed, stating that winding up should be a last resort.

8. Removal of Petitioner as Director:
The petitioner claimed that his proposed removal as a director was in contravention of the memorandum of understanding. The court noted that the petitioner's actions, such as refusing to sign necessary documents for financial institutions, created a deadlock and justified his removal.

Conclusion:
The court rejected the petition for winding up, emphasizing that the company was on the verge of commercial operation and that the petitioner had alternative remedies available. The court also extended the interim order restraining the removal of the petitioner as director for 15 days.

Division Bench Judgment:
The Division Bench dismissed the appeal, affirming the single judge's decision but vacated the factual findings to allow the petitioner to seek remedies from other authorities without prejudice. The court highlighted the importance of other statutory remedies and the need to avoid winding up except in compelling circumstances.