1971 (4) TMI 68 - HC - Companies Law

Oppression and Mismanagement, Composite petition, Cost and expenses payable out of assets in a winding-up by Court

Issues Involved:
1. Maintainability of a composite petition for winding up and relief under sections 397 and 398 of the Companies Act.
2. Disclosure of a cause of action for relief under section 397.
3. Bar on the petition for winding up due to a previous order and principles analogous to res judicata.
4. Disclosure of a cause of action for relief under section 398.

Issue-wise Detailed Analysis:

1. Maintainability of Composite Petition:
The primary contention was whether a composite petition seeking both winding up of the company and relief under sections 397 and 398 is maintainable. The court noted that once the petition for winding up is rejected, the petition becomes a simple petition for relief under sections 397 and 398. It was argued that sections 397 and 398 provide an alternative remedy to winding up and are intended to address grievances of oppression and mismanagement without dissolving the company. The court referenced the Supreme Court's observation in Shanti Prasad Jain v. Kalinga Tubes Ltd., which stated that sections 397 and 398 were introduced to provide an alternative remedy to winding up when it is just and equitable to do so but winding up would unfairly prejudice the members. The court concluded that a composite petition is maintainable as it avoids multiplicity of proceedings and allows for alternative reliefs to be sought in the same proceeding.

2. Disclosure of Cause of Action for Relief Under Section 397:
The contention here was that the petition does not disclose a cause of action for relief under section 397. The court emphasized that for a petition under section 397, it must be alleged that the affairs of the company are being conducted in a manner oppressive to the members. The court must also be satisfied that it would be just and equitable to wind up the company but that winding up would unfairly prejudice the members. The court found that the petitioners had made the necessary allegations to invoke the court's jurisdiction under section 397, and the facts alleged must be sufficient to justify making a winding-up order on the ground that it is just and equitable.

3. Bar on Petition for Winding Up Due to Previous Order and Principles Analogous to Res Judicata:
The petitioners had previously filed a petition for winding up on similar grounds, which was dismissed by Mehta J. The court noted that the appeal against that order was still pending. The court held that it would not be proper to allow the petitioners to re-agitate the same grounds while the appeal is pending. The court emphasized that even though the principles of res judicata may not strictly apply, the petition should be rejected on the ground that the previous judgment still stands. The court concluded that the petition for winding up under section 433(f) should be rejected as it is barred by principles analogous to res judicata.

4. Disclosure of Cause of Action for Relief Under Section 398:
The respondents contended that the petition does not disclose a cause of action for relief under section 398. The court noted that section 398 allows for a petition when the affairs of the company are being conducted in a manner prejudicial to the public interest or oppressive to the members. The court found that the petitioners had made the necessary allegations to invoke the court's jurisdiction under section 398. The court concluded that the petition disclosed a cause of action for relief under section 398, and therefore, the petition for relief under sections 397 and 398 is admitted.

Conclusion:
The court dismissed the petition for winding up the company under section 433(f) on the ground that it is just and equitable to wind up the company. However, the court admitted the petition for relief under sections 397 and 398 of the Companies Act. The costs of the hearing were to abide by the final outcome of the petition.

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