2002 (10) TMI 685 - HC - Companies Law

Summary

Issues Involved:
1. Whether the petitioners have alternative remedies and, if so, is the company petition maintainable?
2. Whether the petitioners have made out a case for winding up of the respondent-company?

Detailed Analysis:

1. Alternative Remedies and Maintainability of the Petition:

The petitioners filed the petition under sections 433(c) and (f) of the Companies Act, 1956. Section 433(c) allows for winding up if the company does not commence its business within a year from incorporation or suspends its business for a whole year. The court noted that the respondent-company was incorporated in 1954 and has been operational since then. The petitioners did not plead that the company suspended its business for a whole year, making the petition under section 433(c) not maintainable.

Section 433(f) allows winding up if it is "just and equitable." However, under section 443(2), the court may refuse to make an order for winding up if alternative remedies are available and the petitioners are acting unreasonably by not pursuing them. The court highlighted that the petitioners have alternative remedies under sections 397, 398, and 408 of the Companies Act, which deal with oppression and mismanagement. The petitioners admitted to holding approximately 25% shares in the company, which would allow them to approach the Company Law Board (CLB) under section 399. Even if they held less than 10%, they could seek permission from the Central Government or obtain consent from other members.

The court cited several judgments, including *Hind Overseas (P.) Ltd. v. Raghunath Prasad Jhunjhunwalla* and *Suresh Kumar Bansal v. U.P. Mineral Products Ltd.*, which emphasized that winding up is a remedy of last resort and should be pursued only when other remedies are not efficacious. The court concluded that the petitioners have effective alternative remedies and thus, the petition for winding up is not maintainable.

2. Case for Winding Up:

The petitioners alleged loss of substratum, fraud by sale of assets, and fraudulent issuance of shares as grounds for winding up. The respondent-company countered that it is a profit-making concern and has successfully undergone a revival scheme sanctioned by the Board for Industrial and Financial Reconstruction (BIFR). The company had cleared its accumulated losses and achieved a positive net worth, leading BIFR to close the case.

The court noted that the petitioners were in management from 1968 to 1989 and were responsible for the company's sickness. The resolutions for sale of assets and issuance of shares were carried with the requisite majority and were not proposed with fraudulent intent. The court observed that the petitioners could approach the CLB under section 397 for relief against oppression and mismanagement, or file a civil suit.

The court reiterated the principle that winding up should be a last resort and that the petitioners should first attempt to resolve disputes through the domestic forum provided by the Companies Act. The court dismissed the petition for winding up, granting liberty to the petitioners to avail of the alternative remedies provided under the Companies Act.

Conclusion:

The court dismissed the company petition for winding up, emphasizing the availability of alternative remedies under sections 397 and 398 of the Companies Act. The petitioners were advised to pursue these remedies to address their grievances. The court held that the petitioners acted unreasonably in seeking winding up without first attempting to resolve the issues through the available legal mechanisms.