1980 (5) TMI 116 - HC - Indian Laws

Summary

Issues Involved:

1. Application under Section 466 of the Companies Act, 1956.
2. Financial difficulties and winding-up petitions.
3. Lease agreement and breaches.
4. Conduct and motives of the petitioners.
5. Public interest and commercial morality.
6. Compliance with statutory duties.
7. Feasibility of company revival.
8. Investigation into company affairs.

Issue-wise Detailed Analysis:

1. Application under Section 466 of the Companies Act, 1956:
The application was made by four contributories alleging they held 121,920 shares in Sonajuli Tea and Industries Ltd. (now in liquidation) and represented over 80% of the total shareholding. The application was supported by other contributories holding the remaining 20%.

2. Financial Difficulties and Winding-Up Petitions:
The company was in financial difficulties, with winding-up petitions filed starting in 1976. Prem Chand Jute Mills Ltd., the lessor, filed a petition for arrears of rent under a lease agreement. The company was directed to furnish security, and a suit was filed by Prem Chand Jute Mills Ltd. for arrears of rent amounting to Rs. 6,62,720/-.

3. Lease Agreement and Breaches:
The lease agreement dated 14th July 1971, between Prem Chand Jute Mills Ltd. and Sonajuli Tea and Industries Ltd., was for 30 years with an option to renew for 20 years. The company failed to pay rent since 1975, leading to arrears of approximately Rs. 18,00,000/-. The company also declared a lock-out in April 1977, and the mill remained closed since then.

4. Conduct and Motives of the Petitioners:
The petitioners, who were also guarantors of loans granted by Punjab National Bank Ltd., were alleged to have ulterior motives. The court noted their conduct and intentions were not bona fide, aiming to obstruct the winding-up process and avoid investigation into the company's affairs.

5. Public Interest and Commercial Morality:
The court emphasized the need to consider commercial morality and public interest. It was noted that the petitioners lacked commercial morality, honesty, and probity. The court found it against public interest to stay the winding-up proceedings, as the petitioners' intentions were to deprive creditors of their legitimate dues.

6. Compliance with Statutory Duties:
The ex-directors and officers of the company failed to file the required statement of affairs under Section 454 of the Companies Act, 1956. The company had not filed its balance sheets and annual returns since 1975, indicating non-compliance with statutory duties.

7. Feasibility of Company Revival:
The court found no material evidence to support the feasibility of reviving the company. The petitioners' financial solvency and resources were not demonstrated, and the mill had been closed since 1977. The court concluded that the proposal to revive the company was unrealistic and improbable.

8. Investigation into Company Affairs:
The court stressed the importance of investigating the company's affairs, given the allegations of misconduct and violations of the Companies Act. The winding-up proceedings were seen as necessary to uncover any potential misfeasance or irregularities.

Conclusion:
The court dismissed the application under Section 466, citing lack of bona fides, non-compliance with statutory duties, and the need to uphold commercial morality and public interest. The petitioners were found unfit to manage the company's affairs, and the winding-up proceedings were deemed necessary to protect creditors and ensure proper investigation into the company's conduct. The application was dismissed with costs.