1960 (12) TMI 51 - HC - Companies Law

Requirements with respect to memorandum, Winding up Company when deemed unable to pay its debts and Amendment to petition

Summary

Issues Involved:
1. Petition for winding-up of the company under Section 439 of the Companies Act, 1956.
2. Allegations of oppressive and prejudicial management.
3. Failure of the company's main object and substratum.
4. Introduction of new matters and fresh developments.
5. Just and equitable grounds for winding up.
6. Deadlock in the management of the company.
7. Distribution of compensation money and potential misuse.

Issue-Wise Detailed Analysis:

1. Petition for Winding-Up of the Company:
The petition was filed under Section 439 of the Companies Act, 1956, for winding-up of the Akola Electric Supply Company (Private) Ltd. Initially rejected in limine by a single judge, the appeal to the Division Bench resulted in the petition being admitted and sent for final hearing. The Division Bench's order was based on consent terms where the respondent company undertook to deposit compensation from the Bombay State Electricity Board with the company's solicitors pending the petition's final disposal.

2. Allegations of Oppressive and Prejudicial Management:
The petitioners alleged that the management by the Brijlal group was oppressive and prejudicial to the company's interests. They claimed that the interests of the Bilasrai group were being ignored, leading to a situation analogous to deadlock in the company's management. The petitioners had previously filed suits for non-distribution of dividends and other grievances.

3. Failure of the Company's Main Object and Substratum:
The petitioners argued that the company's main object, to supply electric energy, had failed with the expiration of the government license and the takeover by the Bombay State Electricity Board. They contended that the company's substratum was destroyed, leaving no prospect for new ventures due to the government's policy against granting new licenses to private companies.

4. Introduction of New Matters and Fresh Developments:
The petitioners introduced new matters through an affidavit, pointing to fresh developments like the attachment of shareholders' shares for income-tax dues and an understanding to use compensation money to discharge these liabilities. The court allowed the introduction of this affidavit, considering it necessary for justice, despite objections from the respondents.

5. Just and Equitable Grounds for Winding Up:
The court examined whether it was just and equitable to wind up the company. The petitioners' claims of the substratum being destroyed and the company's inability to start new ventures were scrutinized. The court referred to multiple authorities, emphasizing that the memorandum's objects were wide and independent, making it difficult to conclude that the company's main object had failed.

6. Deadlock in the Management of the Company:
The court found no evidence of a deadlock in the company's management. The disputes were between shareholder groups, not among directors. The directors were managing the company smoothly, and there were no allegations of misconduct or mismanagement. The court noted that mere disputes among shareholders did not justify winding up.

7. Distribution of Compensation Money and Potential Misuse:
The petitioners expressed concerns that the compensation money might be misused by the directors. However, the court held that the company's ability to start new ventures could not be dismissed based on hypothetical scenarios. The court emphasized that winding up was a drastic remedy and should be based on clear evidence, not assumptions.

Conclusion:
The court dismissed the petition for winding up, concluding that the petitioners failed to prove that the company's substratum had gone or that it was just and equitable to wind up the company. The court noted that the company had multiple independent objects and could potentially start new ventures. The petitioners were directed to bear the costs of the petition, including costs before Shah J., costs in appeal, and costs of the notice of motion. The undertaking given by the company in the appeal was discharged.