1957 (2) TMI 36 - HC - Companies Law

Winding up Circumstances in which company may be wound up voluntarily and Power to order winding up subject to supervision

Issues Involved:
1. Validity of the special resolution for voluntary winding up.
2. Legality of the agreement dated 16th March, 1952.
3. Actions of the liquidator post-resignation.
4. Compliance with Sections 211 and 54A of the Companies Act.
5. Justification for a supervision order under Section 221 of the Companies Act.

Detailed Analysis:

1. Validity of the Special Resolution for Voluntary Winding Up:
The court confirmed that the special resolution for voluntary winding up passed on 6th December, 1952, was valid. Viswanatha Sastri J. noted that despite the Assistant Registrar of Joint Stock Companies initially treating the resolution as invalid due to a technicality in the notice, subsequent documents and minutes demonstrated that the resolution was effectively acted upon. The court found no infirmity or irregularity in the resolution, thereby establishing the legitimacy of the voluntary winding up.

2. Legality of the Agreement Dated 16th March, 1952:
The appellant contended that the agreement was illegal and not binding on him as he was not a signatory. However, the court observed that the scheme under the agreement aimed at the distribution of the company's assets and liabilities among shareholders. The agreement was acted upon by all shareholders, including the appellant, who benefited from it by plying the buses allotted to him. The court held that the appellant, having enjoyed the benefits for two years, could not now contest the agreement's validity. The court also found that the arrangement did not contravene the Companies Act as it was essentially a scheme for liquidation.

3. Actions of the Liquidator Post-Resignation:
The appellant argued that the liquidator, having resigned on 29th October, 1953, had no authority to sell the company's assets. The court found that although the liquidator had tendered his resignation, it was not accepted by the shareholders, and he continued to function as the liquidator. Evidence showed that the liquidator's actions, including the sale of buses, were consistent with his duties and were necessary to discharge the company's liabilities.

4. Compliance with Sections 211 and 54A of the Companies Act:
The appellant claimed that the agreement violated Section 211, which mandates the application of the company's property in satisfaction of its liabilities before distribution among members, and Section 54A, which prohibits a company from buying its own shares. The court found that the scheme's primary purpose was to discharge the company's debts, with the buses remaining company property until all liabilities were settled. The court concluded that the arrangement did not constitute an illegal purchase of the company's shares, as it was a method to liquidate the company's assets and liabilities.

5. Justification for a Supervision Order Under Section 221 of the Companies Act:
The court held that for a supervision order under Section 221, the appellant needed to demonstrate that the voluntary winding up was fraudulent, prejudicial to creditors, or required court intervention to protect shareholder interests. The court found no evidence of fraud or misconduct by the majority shareholders. The voluntary winding up was valid, and the liquidator's actions were in line with the shareholders' agreement. The court concluded that there were no sufficient grounds for a supervision order and upheld the voluntary liquidation.

Conclusion:
The appeal was dismissed, affirming the validity of the special resolution for voluntary winding up and the legality of the agreement dated 16th March, 1952. The court found that the liquidator acted within his authority and that the arrangement did not violate Sections 211 and 54A of the Companies Act. There were no grounds for a supervision order under Section 221, and the voluntary liquidation was allowed to continue.

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