2024 (6) TMI 253 - HC - Companies Law

Provisional winding up of the Company u/s 450 of Companies Act, 1956 - Whether the present company petition needs to be admitted and steps be taken for liquidation of the company by appointing the Official Liquidator? - fraudulent activities carried on or not - HELD THAT - Appellant allege fraudulent activities in the respondent - Company, it is a matter of records to be verified. If a Company engaged in fraudulent activities, it may be wound up. Fraudulent activities can include misappropriation of funds, falsifying financial statements, and other illegal activities. Having regard to certain allegations made by the appellant, respondents have to clarify with material information. The same has not been examined by the learned Company Judge while deciding the Company Petition. The respondents have very vaguely defended while alleging that appellant who was Managing Director for the year 1980 to 1986, certain irregularities have been committed for which he was subjected to prosecution. However, what happened to such prosecution has not been apprised and what would be the result. This is just only to prejudice this Court, such statement has been made. At one stretch the respondents have submitted that appellant while leaving Biharsharif in the year 1986 have sold his three residential properties. How is it relevant for the present case is not forthcoming. The winding up order may also be made if it is approved that the affairs of the Company have been conducted in a manner unfairly and prejudicial to the interest of some shareholders of the Company or its shareholders generally. In considering the various factual aspects of the matter the Court still shall taken into account the circumstances of the Company including whether it is insolvent and whether there is any alternative solution to the dispute such as buying each of the shares of disgruntled and dissatisfied shareholders. These are all the material which was required to be taken note of by the learned Company Judge while deciding Company Petition No. 2 of 2013 with reference to the various contentions raised by the appellant/petitioner. Both appellant and respondents are hereby directed to furnish material information in support of their each of the contentions. The respondent - Company is also required to apprise the learned Company Judge what are the development in respect of company affairs after disposal of certain movable and immovable properties. Application disposed off.

Summary

Issues Involved:
1. Winding up of the Company u/s 433(c) and (f) read with 439(c) of the Companies Act, 1956.
2. Allegations of misappropriation and sale of assets without shareholder approval.
3. Compliance with statutory provisions (Sections 210, 215, 220 of the Companies Act, 1956).
4. Provisional winding up u/s 450 of the Companies Act, 1956 read with Rule 106 of the Companies (Court) Rules, 1959.
5. Validity of extraordinary general meetings and shareholder notifications.
6. Allegations of fraudulent activities and mismanagement.

Summary:

1. Winding up of the Company u/s 433(c) and (f) read with 439(c) of the Companies Act, 1956:
The appellant, a shareholder holding 600 equity shares, filed Company Petition No. 2 of 2013 for winding up the Company u/s 433(c) and (f) read with 439(c) of the Companies Act, 1956, alleging that the Company ceased its business activities and its assets were sold at undervalued prices. The learned Company Judge dismissed the petition, noting that the appellant failed to demonstrate the violation of Section 433(f).

2. Allegations of misappropriation and sale of assets without shareholder approval:
The appellant alleged that the respondents (Directors) sold the Company's land at a throwaway price without calling a shareholders' meeting, demolished the cinema hall, and misappropriated the sale proceeds. The respondents contended that the sales were necessary to meet liabilities and were conducted in compliance with statutory provisions, with shareholders being notified as required.

3. Compliance with statutory provisions (Sections 210, 215, 220 of the Companies Act, 1956):
The appellant claimed non-compliance with Sections 210, 215, and 220 of the Act, 1956, regarding the preparation, approval, and filing of the Balance Sheet and Annual Return. The respondents argued that all statutory provisions were followed, and the balance sheets were duly filed.

4. Provisional winding up u/s 450 of the Companies Act, 1956 read with Rule 106 of the Companies (Court) Rules, 1959:
The appellant filed I.A. No. 4614 of 2013 for provisional winding up u/s 450 of the Act, 1956 read with Rule 106 of the Rules, 1959. However, the fate of this application was not clear from the records.

5. Validity of extraordinary general meetings and shareholder notifications:
The appellant contended that no notice of extraordinary general meetings was sent to them, and the resolutions passed were not valid. The respondents maintained that the meetings were conducted as per the Byelaw and statutory requirements, with adequate notice to shareholders.

6. Allegations of fraudulent activities and mismanagement:
The appellant alleged fraudulent activities, including the misappropriation of funds and falsifying financial statements. The respondents denied these allegations, stating that the proceeds from asset sales were used to clear statutory dues and were properly accounted for in the financial statements.

Conclusion:
The Court concluded that the learned Company Judge erred in dismissing the Company Petition without thoroughly examining the material information and allegations of the appellant. The judgment dated 26.11.2015 was set aside, and Company Petition No. 2 of 2013 was restored for fresh consideration. The learned Company Judge was directed to decide the petition within six months, with both parties required to furnish material information in support of their contentions, particularly regarding the disposal of Company properties and compliance with statutory provisions.