1995 (11) TMI 372 - HC - Companies Law

Oppression and Mismanagement, Winding-up - Circumstances in which a company may be wound up

Summary

Issues:
1. Maintainability of petition under sections 397 and 398 of the Companies Act, 1961.
2. Jurisdiction of the Court to entertain the petition.
3. Compliance with section 399 as a condition precedent.
4. Amendment sought for the petition.
5. Dismissal of the petition under sections 397 and 398.
6. Appeal against the order of the Single Judge.
7. Relief sought under sections 397 and 398.
8. Alternative prayer for winding up of the company.
9. Just and equitable clause for winding up.
10. Availability of alternative remedies.
11. Dismissal of the petition for winding up.

Analysis:

The petitioners filed a petition under sections 397 and 398 of the Companies Act, 1961, seeking relief against oppression and prejudicial activities of the respondents, and alternatively, for winding up the respondent-company under sections 434 and 439 of the Act. The prayers included various orders to address the alleged oppressive and prejudicial activities of the respondent group, transfer of shares, removal of directors, and convening an extraordinary general meeting. The respondent challenged the maintainability of the petition based on the petitioners not fulfilling the qualification requirements under section 399, which was considered a jurisdictional issue by the Court.

The Single Judge, in a detailed order, found that the petitioners did not hold the required share capital, had not obtained written consent from other members, and had not complied with section 399. The Court emphasized that compliance with section 399 is a condition precedent for maintaining a petition under sections 397 and 398. The jurisdiction to entertain such petitions now vested with the Company Law Board (CLB) post an amendment in 1991. The Court held the petition under sections 397 and 398 as not maintainable but allowed the winding-up petition to continue.

An appeal against the Single Judge's order was dismissed by the Division Bench. The Court affirmed the decision that the petition under sections 397 and 398 was not maintainable. The petitioner's argument for winding up based on mismanagement was considered to fall within the ambit of sections 397 and 398. The Court rejected the contention that the company should be wound up due to falling production, especially when the company was financially sound and consistently providing bonuses to shareholders.

The Court highlighted the 'just and equitable' clause for winding up, emphasizing that it should be a last resort when other remedies are not efficacious. The petitioner was expected to disclose any alternative remedies pursued or available. The Court cited precedents where winding up was considered a last resort when other remedies existed. Ultimately, the Court concluded that the petitioner failed to establish grounds for winding up the company and dismissed the petition with no order as to costs.