1967 (8) TMI 74 - HC - Companies Law

Memorandum and articles of association Registration of, Company when deemed unable to pay its debts

Summary

Issues Involved:
1. Alleged exclusion from management.
2. Alleged breach of promise for joint management.
3. Financial and operational status of the company.
4. Applicability of the "just and equitable" rule for winding up.

Detailed Analysis:

1. Alleged Exclusion from Management:
The petitioner, a shareholder and former director, claimed he was excluded from the management of Perfect Castings Private Limited after March 31, 1965. He alleged that he and his brothers were not served notice for the annual general meeting on June 3, 1965, where they were not re-elected to the board. However, evidence showed that notices were served as usual, and the petitioner failed to attend the meeting without a satisfactory explanation. The court found no credible evidence of deliberate exclusion from management.

2. Alleged Breach of Promise for Joint Management:
The petitioner asserted that the managing director, Subbiah Asari, promised him and his brothers a role in joint management, akin to a partnership. Subbiah Asari denied this, stating that the petitioner voluntarily became a shareholder. The court noted that the Articles of Association vested management exclusively in the managing director, and any alleged promise of joint management would contradict these articles. The court found no substantial evidence supporting the petitioner's claim of a partnership-like arrangement.

3. Financial and Operational Status of the Company:
The petitioner alleged that the company was operating at a loss, the machinery was unserviceable, and the company was unable to pay its debts. Contrarily, evidence showed that the company had secured profits for the year 1965-66, reduced its mortgage debt significantly, and was making steady progress. The Registrar of Companies and the auditors provided unqualified reports on the company's working, affirming its sound financial and operational status. The court found no proof of misfeasance or malfeasance by the managing director.

4. Applicability of the "Just and Equitable" Rule for Winding Up:
The petitioner sought winding up under section 433(f) of the Companies Act, 1956, arguing that exclusion from management and breach of an alleged promise justified it. The court emphasized that the "just and equitable" clause should be invoked in compelling circumstances, such as proven malversation of funds, deliberate oppression of minority shareholders, or jeopardizing the company's substratum. Mere exclusion from management or internal disputes among shareholders did not suffice. The court cited precedents, including the Supreme Court's ruling in Rajahmundry Electric Supply Corporation Ltd. v. Nageswara Rao, to underscore that dissatisfaction from being outvoted or internal bickerings are insufficient grounds for winding up.

Conclusion:
The court concluded that the petitioner had not established any act of misfeasance or malfeasance by the managing director. The company was functioning normally, making profits, and reducing its debts. There was no credible evidence of an agreement for joint management or any compelling circumstances warranting winding up under the "just and equitable" rule. The petition was dismissed with costs, and the court emphasized that the petitioner had alternative legal remedies to address his grievances.

Judgment:
The company petition is dismissed with costs. Counsel's fee Rs. 250.