1995 (3) TMI 421 - HC - Companies Law

Winding up - Power of court to stay or restrain proceedings against company, Powers of court on hearing petition

Issues Involved:
1. Jurisdictional conflict between the Company Law Board (CLB) and the High Court.
2. Validity and maintainability of petitions under Sections 397 and 398 of the Companies Act, 1956.
3. Appropriateness of winding up the company under Section 433(f) of the Companies Act, 1956.
4. Allegations of oppression and mismanagement.
5. Determination of whether the proceedings before the CLB should be stayed or allowed to continue.

Detailed Analysis:

1. Jurisdictional Conflict Between CLB and High Court:
The primary issue is whether the proceedings before the CLB and the High Court should continue in parallel or if one should be deferred. The dichotomy in jurisdiction created by the Companies (Amendment) Act, 1988, allows both forums to grant relief based on the same jurisdictional facts. However, the reliefs under Section 397 are aimed at ensuring the continued existence of the company, whereas under Section 433(f), the High Court can only order the winding up of the company.

2. Validity and Maintainability of Petitions Under Sections 397 and 398:
The respondents filed a petition under Sections 397 and 398 alleging oppression and mismanagement. The petitioners contested the maintainability, arguing that the acts complained of were not qua members but as directors. The judgment emphasizes that the CLB is the appropriate forum to decide the maintainability of such petitions, not the High Court.

3. Appropriateness of Winding Up the Company Under Section 433(f):
The petitioners sought the winding up of the company on just and equitable grounds, citing a deadlock and deep distrust between the equal shareholders. The judgment underscores that winding up should be a remedy of last resort. The court should consider whether other remedies, such as those available under Sections 397 and 398, could address the grievances.

4. Allegations of Oppression and Mismanagement:
The respondents alleged that the petitioners acted illegally by co-opting new directors and excluding the respondents from the board without proper notice. The CLB issued interim orders restraining the petitioners from disposing of the company's properties and directed that voting rights for newly allotted shares be exercised only with CLB's approval. The judgment notes that these allegations and interim orders are part of the CLB proceedings, which should be allowed to conclude.

5. Determination of Whether Proceedings Before CLB Should Be Stayed:
The High Court has the power to stay proceedings before the CLB under Section 442. However, the judgment highlights that parallel adjudication should be avoided to conserve judicial time and prevent conflicting orders. The High Court decided to vacate the ex parte stay of the CLB proceedings, directing the CLB to complete its adjudication within twelve weeks. The winding-up petition in the High Court was adjourned to a later date, allowing the CLB to make a final order first.

Conclusion:
The High Court vacated the ex parte stay on the CLB proceedings and directed the CLB to conclude its adjudication within twelve weeks. The winding-up petition was adjourned to allow the High Court to consider the CLB's final order before making a decision. This approach ensures that all available remedies are exhausted before resorting to the drastic measure of winding up the company.

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