1970 (6) TMI 41 - HC - Companies Law

Summary

Issues Involved:
1. Petitioner's removal as a director of the company.
2. Sale of carpets to the company by Nazar at arbitrary prices yielding substantial profits for him and little or none for the company.
3. Improper subsidization of Nazar's antique business by the company.
4. Refusal to concur in the sale of the company's lease of the premises at 209 Kensington Church Street after the company resolved to sell it.

Issue-wise Detailed Analysis:

1. Petitioner's Removal as a Director of the Company:
The petitioner argued that his removal from the board and exclusion from the management of the company's affairs entitled him to a winding up order on the just and equitable ground, citing cases like *In re Yenidje Tobacco Co. Ltd.* and *In re Davis & Collett Ltd.*. The court acknowledged that while the removal of a director under section 184 of the Companies Act, 1948, is lawful, it can still be an abuse of power if it breaches the good faith owed between quasi-partners. The court concluded that the petitioner's removal was indeed an abuse of power, as it excluded him from participating in the business, which he had a right to expect as a quasi-partner. Thus, the petitioner made out a case for a winding up order on this ground.

2. Sale of Carpets at Arbitrary Prices:
The petitioner alleged that Nazar sold carpets to the company at arbitrary prices, yielding substantial profits for himself and little or no profit for the company. However, the court found that the petitioner failed to prove these allegations. The change in invoicing practice was actually brought about at the petitioner's own request to avoid the company becoming heavily indebted to Nazar. The court noted that apart from the petitioner's constant protests, there was no substantial evidence to support the claims in paragraph 8 of the petition.

3. Improper Subsidization of Nazar's Antique Business:
The petitioner claimed that the company was improperly subsidizing Nazar's antique business at 209 Kensington Church Street, resulting in a loss of about lb1,500 a year. The court found that while the company did pay the expenses of the premises, which amounted to about lb3,000 a year, there was a legitimate business argument that the antiques displayed there attracted customers and encouraged carpet sales. The court concluded that the petitioner failed to prove that the use of the premises for the antique business was causing a substantial loss to the company, as the sales figures were difficult to attribute to one shop rather than the other.

4. Refusal to Concur in the Sale of the Company's Lease:
The petitioner alleged that despite a resolution to sell the lease of the Kensington Church Street property, Nazar and George changed their minds, contrary to the company's interests. The court acknowledged that a resolution was indeed passed, and a potential buyer was found, but the respondents later changed their minds. However, the court found that this isolated incident did not constitute a sufficient ground for an order under section 210, which requires a course of oppressive conduct continued up to the date of the petition.

Conclusion:
The court concluded that the petitioner failed to establish a case for an order under section 210 of the Companies Act, 1948, due to insufficient evidence of a course of oppressive conduct. However, the petitioner did make out a case for a winding up order on the just and equitable ground due to the wrongful exclusion from the company's management. Thus, the court made the usual winding up order.