2012 (12) TMI 351 - HC - Companies Law

Winding up of Company - when alternate remedy is available - held that - The word may appearing in Sec 443 (2) has been construed to be read as shall making it mandatory for the Court not to pass an order for winding up if there is an alternate remedy available to the petitioner. further winding up of a domestic or family company on just and equitable rule is permissible if there is a justifiable lack of confidence in the conduct and management of the company s affairs, grounded on the conduct of directors in regard to company s business. Misconduct of a petitioner that results in deadlock or breakdown cannot be a ground to wind up a company under the just and equitable clause. A party cannot take advantage of his own wrong, to ask for winding up under 433(f) of the Act. As the words just and equitable themselves suggest the Court must be satisfied with the allegations of the petitioner that it is just and equitable to wind up a company . In the present case Business of the company is being run; it is profitable; one group in fact wants to out-buy the other. Both of them want to steer the wheel of the company. The parties have also not explored the alternative remedy either under the domestic forum or under Sections 397 & 398 of the Act. As decided by Supreme Court in Hind Overseas (P). Ltd. Versus Raghunath Prasad Jhunjhunwalla 1975 (10) TMI 71 - SUPREME COURT OF INDIA is that the company should not be wound up merely because of disputes which have arisen between the two groups of shareholders; if the same can be resolved by alternate modes and these alternate modes must be exhausted in the first instance; the winding up of a company is the extreme and last remedy and should be resorted to only as a final resort; this principle is fully applicable in the instant case. It is the interest of the company which is to be watched first; the personal prejudices and personal vendetta of one group qua the other cannot become the basis of a winding petition; pressure tactics cannot be applied - On all counts petition has no merit and is accordingly dismissed with costs of Rs. 25,000/- .

Issues Involved:
1. Winding up of the respondent company under Section 433(c) & (f) of the Companies Act.
2. Preliminary submission regarding settlement efforts.
3. Arguments of the petitioner.
4. Arguments of the respondent.
5. Maintainability of the petition.
6. Applicability of Section 433(f) of the Companies Act.
7. Applicability of Section 443(2) of the Companies Act.
8. Non-applicability of partnership principles.
9. Grievances of the petitioner.
10. Powers of the Court under Sections 397 & 398 vis-`a-vis Section 443(1) of the Companies Act.
11. Party cannot take advantage of his own wrong.

Issue-wise Detailed Analysis:

1. Winding up of the respondent company under Section 433(c) & (f) of the Companies Act:
The petitioners sought the winding up of the respondent company under Section 433(c) & (f) of the Companies Act due to a complete deadlock between the two groups (DKG Group and SKG Group). The petitioners argued that the company could not function efficiently due to the deadlock and that winding up was the only viable remedy.

2. Preliminary submission regarding settlement efforts:
Efforts for an amicable settlement were made, including proposals to divide the company's plot into two lots. However, these efforts failed due to disagreements on the terms, particularly regarding the existing hotel's lot. The court decided to proceed with the case on its merits as no settlement was reached.

3. Arguments of the petitioner:
The petitioner argued that Section 433 of the Companies Act provides broad powers to the Company Judge to wind up a company in cases of deadlock. They contended that the Articles of Association (AOA) and the Shareholder Agreement (SHA) were not adhered to, leading to a deadlock. They cited various judgments to support their claim that joint ventures are akin to partnerships and should be governed by similar principles. They also argued that the deadlock and exclusion from company management justified winding up on "just and equitable" grounds.

4. Arguments of the respondent:
The respondent countered that alternate remedies were available and that the petitioner was acting unreasonably by seeking winding up. They argued that the petitioner had not explored the domestic forum or the remedies under Sections 397 & 398 of the Companies Act. They also contended that the company was profitable and solvent, and winding up was not justified.

5. Maintainability of the petition:
The court emphasized that the admission of a winding-up petition itself could cause significant harm to the company's reputation. Therefore, it was essential to consider the arguments at the admission stage. The court rejected the petitioner's argument that the petition should be admitted first and then considered on its merits.

6. Applicability of Section 433(f) of the Companies Act:
Section 433(f) allows winding up if it is "just and equitable." The court referred to the House of Lords' observations in Ebrahimi v. Westbourne Galleries Ltd., emphasizing that the "just and equitable" clause enables the court to consider equitable considerations and personal relationships among shareholders.

7. Applicability of Section 443(2) of the Companies Act:
Section 443(2) stipulates that the court may refuse to make a winding-up order if an alternate remedy is available and the petitioner is acting unreasonably. The court noted that the petitioner had not explored the domestic forum or the remedies under Sections 397 & 398, making the winding-up petition premature.

8. Non-applicability of partnership principles:
The court highlighted that the parties had expressly agreed that the principles of partnership would not apply, as stated in Article 14.1 of the SHA. The court distinguished the present case from Ebrahimi, noting that the parties did not have a prior partnership and had agreed to form a company excluding partnership principles.

9. Grievances of the petitioner:
The petitioner's grievances included denial of access to accounts, non-conduct of internal audits, and falsification of company records. The court noted that these issues could be addressed through the domestic forum and the provisions of the SHA and AOA.

10. Powers of the Court under Sections 397 & 398 vis-`a-vis Section 443(1) of the Companies Act:
The court emphasized that the powers under Sections 397 & 398 provide an alternate and effective remedy for addressing grievances related to mismanagement and oppression. The court reiterated that winding up should be a last resort and that the CLB has the authority to address such issues.

11. Party cannot take advantage of his own wrong:
The court noted that the petitioner could not take advantage of his own wrong by preventing the implementation of Clause 6.2.1 of the SHA, which provided a mechanism to resolve deadlocks. The court emphasized that the petitioner had not allowed the domestic forum to be given a go-ahead.

Conclusion:
The court dismissed the winding-up petition, emphasizing that the petitioner had not explored alternate remedies and that the company was profitable and solvent. The court awarded costs of Rs. 25,000/- to the respondent.

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