2002 (11) TMI 658 - HC - Companies Law

Illegal associations, Charitable companies, Winding up - Circumstances in which a company may be wound up

Issues Involved:
1. Whether the first respondent company is liable to be wound up on the grounds of not carrying on any business activity.
2. Whether the first respondent company is being used to facilitate personal enrichment and control over the Thanthi Trust by the second respondent.
3. Whether the first respondent company is commercially insolvent.
4. Whether it is just and equitable to wind up the first respondent company.

Issue-wise Detailed Analysis:

1. Whether the first respondent company is liable to be wound up on the grounds of not carrying on any business activity:
The petitioner argued that the first respondent company has not carried on any business activity since its incorporation and exists only to act as a trustee without remuneration. The petitioner contended that the company must carry on some commercial activity with a profit motive, as per the scheme of the Companies Act. However, the court held that a company can be a trustee and is not required to carry on commercial activities for profit. The court referenced several legal texts and precedents to establish that a company can exist solely to act as a trustee, and such activity can be considered a lawful purpose under the Companies Act. The court concluded that the first respondent company has been pursuing its objects as a trustee, and the absence of profit does not warrant winding up.

2. Whether the first respondent company is being used to facilitate personal enrichment and control over the Thanthi Trust by the second respondent:
The petitioner alleged that the second respondent uses the company to maintain control over the Thanthi Trust and for personal enrichment. The court noted that these allegations are part of a separate civil suit under section 92 of the Code of Civil Procedure, which is pending before the Supreme Court. The court refrained from making any findings on these allegations, emphasizing that they should be addressed in the civil suit. The court held that the existence of the company as a trustee does not constitute grounds for winding up based on alleged personal enrichment or control by the second respondent.

3. Whether the first respondent company is commercially insolvent:
The petitioner claimed that the company is commercially insolvent as its paid-up capital has been eroded. However, the court found that the balance sheets of the company showed that the expenses were reimbursed by the trusts it serves, and the company had current assets and cash-in-hand. The court held that the company is not indebted and there are no creditors, thus it cannot be considered commercially insolvent. The court referenced the Kerala High Court's decision in V.V. Krishna Iyer Sons v. New Era Mfg. Co. Ltd., which held that losses over a number of years do not justify winding up if the capital is not exhausted.

4. Whether it is just and equitable to wind up the first respondent company:
The petitioner argued that it is just and equitable to wind up the company due to internal disputes and lack of confidence in the second respondent. The court referred to the principles laid down in Halsbury's Laws of England and the Supreme Court's decision in Hind Overseas (P.) Ltd. v. Raghunath Prasad Jhunjhunwalla, which state that winding up on just and equitable grounds is a last resort. The court found no evidence of deadlock in the company's affairs or lack of probity by the directors. The court also noted that the petitioner had not been unjustly excluded from the management of the company. The court concluded that the petitioner's grievances are more appropriately addressed in the civil suit and that the company should not be wound up on just and equitable grounds.

Conclusion:
The court dismissed the petition to wind up the first respondent company, holding that the petitioner had not made out any case for winding up. The court emphasized that the company has been pursuing its lawful objects as a trustee, is not commercially insolvent, and there are no grounds to wind up the company on just and equitable grounds. The court also noted that the serious allegations against the second respondent should be addressed in the pending civil suit.

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