1960 (5) TMI 18 - HC - Companies Law

Summary

Issues Involved:
1. Substratum of the company gone.
2. Just and equitable grounds for winding up.
3. Suspension of business.
4. Alleged misconduct by directors.
5. Availability of other remedies.

Detailed Analysis:

1. Substratum of the Company Gone:
The primary issue is whether the substratum of the company, Goenka Commercial Bank Ltd., has disappeared. The company was originally established to carry on banking business, as evidenced by sub-clauses (1), (2), and (3) of clause 3 of its memorandum of association. Although the company had the power to engage in other activities, the court found that the primary object was banking. The company ceased banking operations in 1952 after the Central Government prohibited it from receiving fresh deposits. Despite attempts to alter the memorandum and change the company's name, the Central Government did not sanction the change. Consequently, the company could not carry on its primary business, leading to the conclusion that its substratum was gone.

2. Just and Equitable Grounds for Winding Up:
The court also considered whether it was just and equitable to wind up the company. Factors such as the majority of shares being held by the Goenka family and their nominees, the company's funds being invested in concerns with significant Goenka interests, and negligible repayments from debtor companies were crucial. The court noted that the minority shareholders, including the petitioner, were not receiving any returns on their investments and were unlikely to do so unless the Goenka group acted favorably towards them. This situation justified winding up the company on just and equitable grounds.

3. Suspension of Business:
The petitioner argued that the company had suspended its business for more than a year before the presentation of the petition. However, the court did not find sufficient grounds to conclude that there had been a suspension of business under section 433(c) of the Indian Companies Act. The focus remained on the disappearance of the company's primary object and the just and equitable grounds for winding up.

4. Alleged Misconduct by Directors:
The petitioner alleged various acts of misconduct by the directors, including advancing loans to themselves or to companies managed by them. While the court acknowledged these allegations, it did not consider them sufficient grounds for winding up. The primary focus remained on the disappearance of the substratum and the just and equitable grounds.

5. Availability of Other Remedies:
The court considered whether other remedies, such as an application under section 398 of the Indian Companies Act, were available to the petitioner. Section 443(2) allows the court to refuse a winding-up order if another remedy is available and the petitioner is acting unreasonably in seeking a winding-up order instead. However, the court concluded that an application under section 398 would not be effective in this case. The continued existence of the company with its current board of directors would only benefit the Goenka group of shareholders, and shareholders qua shareholders would derive no benefit. Thus, it was just and equitable to wind up the company.

Conclusion:
The court issued a winding-up order for Goenka Commercial Bank Ltd. on the grounds that the substratum of the company was gone and it was just and equitable to wind up the company. The court found that the primary object of banking could no longer be pursued, and the company's continued existence would only benefit the majority shareholders, leaving the minority shareholders without any returns on their investments. The court did not find the suspension of business or alleged misconduct by directors sufficient grounds for winding up but emphasized the disappearance of the substratum and just and equitable grounds. Additionally, the court determined that other remedies were not viable, making winding up the appropriate course of action.