1978 (4) TMI 160 - HC - Companies Law

Circumstances in which a company may be wound up, Winding up - Company when deemed unable to pay its debts and Application for

Summary

Issues Involved:
1. Substratum of the company.
2. Suspension of business.
3. Ultra vires activities.
4. Shareholders' approval and interests.
5. Regional Director's sanction.
6. Legal and equitable grounds for winding up.

Detailed Analysis:

1. Substratum of the Company:
The primary issue was whether the substratum of the company had disappeared following the Government's acquisition of its railway business. The court held that the main object of the company, as per its memorandum of association, was to operate a railway between Burdwan and Cutwa. With the Government taking over this business on April 1, 1966, the court found that the company's primary purpose had substantially failed, rendering it just and equitable to wind up the company.

2. Suspension of Business:
The court examined whether the company had suspended its business for over a year. The company argued that it had resumed business as carriers of goods by boats and barges since April 1972. However, the court determined that such activities were ultra vires, as the memorandum did not authorize this type of business. The court concluded that the company had indeed suspended its authorized business for more than a year.

3. Ultra Vires Activities:
The company had engaged in money-lending activities, which were not authorized by its memorandum of association. The court noted that investments made by the company were ultra vires and could not be considered legal business activities. The company's attempt to alter its memorandum to include money-lending was not confirmed by the court, reinforcing that these activities were beyond its legal powers.

4. Shareholders' Approval and Interests:
The court acknowledged that the majority of shareholders had approved the continuation of business in other areas through special resolutions. However, it emphasized that shareholders' approval does not override the legal boundaries set by the company's memorandum of association. The court reiterated that the interests of shareholders must align with lawful business activities.

5. Regional Director's Sanction:
The Regional Director had granted sanction to the Registrar to present a winding-up petition. The company contended that it was not given a proper opportunity to make its representation. The court found that the company had been given adequate opportunity to respond, and the Regional Director had duly considered the company's representation before granting the sanction.

6. Legal and Equitable Grounds for Winding Up:
The court considered both legal and equitable grounds for winding up the company. It emphasized that the disappearance of the company's substratum and the suspension of its authorized business justified winding up. The court also highlighted that the company's engagement in ultra vires activities and the lack of current financial disclosures further supported this decision.

Conclusion:
The court allowed the appeal, setting aside the previous judgment and admitting the winding-up petition. The court directed advertisements for the winding-up petition and scheduled it for a returnable date before the company judge. There was no order for costs in the circumstances.