1955 (12) TMI 21 - SC - Companies Law

Oppression and mismanagement Right to apply under section 397 and 398 and Winding up - Company when deemed unable to pay its debts

Issues Involved:
1. Maintainability of the application under section 153C.
2. Sufficiency of allegations to support a winding-up order under section 162.
3. Justification for appointing administrators and interference with internal management.

Issue-wise Detailed Analysis:

1. Maintainability of the Application under Section 153C:
The appellant contended that the application under section 153C was not maintainable due to the lack of consent from the requisite number of shareholders as stipulated in section 153C, sub-clause (3)(a)(i). The first respondent claimed to have the consent of 80 shareholders, which was more than one-tenth of the total members. However, objections were raised that 13 of these were not shareholders, two had signed twice, and 13 had withdrawn their consent, reducing the number to 52, below the required threshold.

The Supreme Court found no substance in this contention, noting that the objection was not pressed during the trial and was raised only on appeal. Even assuming the allegations were true, the number of consenting members (65) still satisfied the statutory requirement. The Court emphasized that the validity of a petition must be judged based on the facts at the time of its presentation, and subsequent events (like withdrawal of consent) do not affect its maintainability.

2. Sufficiency of Allegations to Support a Winding-Up Order under Section 162:
The appellant argued that the allegations did not justify a winding-up order under section 162, and consequently, no action could be taken under section 153C. The Court agreed that action under section 153C requires satisfaction of conditions under section 162. The trial judge found no evidence of commercial insolvency to invoke section 162(v) but held that it was "just and equitable" to wind up the company under section 162(vi).

The appellant contended that misconduct by the vice-chairman alone was insufficient for winding up and that the words "just and equitable" should be construed ejusdem generis with the other clauses of section 162. The Court rejected this narrow interpretation, citing later decisions and the Judicial Committee's pronouncement in Loch v. John Blackwood Ltd., which clarified that "just and equitable" is not confined to matters analogous to the preceding clauses.

The Court concluded that the gross mismanagement, misappropriation of funds, and the state of confusion in the company's affairs justified a winding-up order under section 162(vi). The findings indicated that the vice-chairman mismanaged the company, significant arrears were due to the Government, and the directorate was ineffective, warranting judicial intervention.

3. Justification for Appointing Administrators and Interference with Internal Management:
The appellant argued that the removal of the vice-chairman and steps taken by the current management negated the need for action under section 153C. The Court found that the chairman either co-operated with or failed to control the vice-chairman's misconduct, and the company's affairs were in disarray, justifying the appointment of administrators.

The Court addressed the contention that appointing administrators interfered with internal management, stating that such a rule applies only to a running concern. In winding-up scenarios, terminating management under the articles of association and vesting it in the court is inherent. Thus, appointing administrators under section 153C, akin to appointing a liquidator under section 162, was appropriate and not an undue interference.

Conclusion:
The Supreme Court dismissed the appeal, affirming the lower courts' decisions. The application under section 153C was maintainable, the allegations justified a winding-up order under section 162(vi), and appointing administrators was necessary and lawful. The appeal was dismissed with costs awarded to the first respondent, and the administrator's costs were to come from the estate.

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