1978 (6) TMI 151 - HC - Companies Law

Summary

Issues Involved:
1. Whether the substratum of the company has gone.
2. Whether the company has ceased to carry on business for more than a year.
3. Whether it is just and equitable to wind up the company.
4. Whether the winding-up petition is an abuse of the process of the court.
5. Compliance with statutory requirements for proposed resolutions.

Detailed Analysis:

1. Substratum of the Company:
The petitioner argued that the substratum of the company had disappeared because it ceased to carry on its banking business after transferring its assets and liabilities to the United Bank of India on December 22, 1973. The petitioner contended that the company's main object, as per its memorandum, was to carry on banking business, and this was no longer possible. The company, however, argued that it was still carrying on business by investing the consideration money received from the transfer.

The court held that the company was a banking company governed by the Banking Regulation Act, 1949, and its main object was to carry on banking business. The other objects in the memorandum were merely incidental or ancillary to the banking business. Since the company had transferred its banking business and was only earning interest on the consideration money, it could not be said to be carrying on any business. Therefore, the substratum of the company was considered to be gone.

2. Cessation of Business:
The petitioner contended that the company had not carried on any business for more than a year, which was a ground for winding up under the Companies Act, 1956. The company argued that it was still carrying on business by investing the consideration money.

The court found that the company had not carried on any business since the transfer of its banking business in 1973. The balance sheets for the years ending December 31, 1974, 1975, and 1976 showed no investment business. The court concluded that the company had indeed ceased to carry on business for more than a year.

3. Just and Equitable Grounds:
The petitioner argued that it was just and equitable to wind up the company because it had ceased to carry on its main business and had made representations to voluntarily wind up and distribute the surplus assets among the shareholders. The company countered that it was attempting to change its name and object clauses to carry on other businesses.

The court held that it was just and equitable to wind up the company. The company had repeatedly represented that it would voluntarily wind up and distribute the surplus assets. The court found that allowing any other course would be unjust and inequitable after a lapse of about 4.5 years.

4. Abuse of Process:
The company argued that the winding-up petition was an abuse of the process of the court, intended to put pressure on the company to pay the petitioner for its shares. The petitioner maintained that a prima facie case for winding up had been made out.

The court concluded that the winding-up petition was not an abuse of the process of the court. Given the facts and circumstances, including the company's cessation of business and the disappearance of its substratum, the petition was considered legitimate.

5. Compliance with Statutory Requirements:
The petitioner challenged the legality of the proposed resolutions for changing the company's name and altering the object clauses, arguing that the notice was not in compliance with statutory requirements under the Companies Act, 1956.

The court found that the special notice for the proposed resolutions did not comply with the statutory requirements, particularly section 173(2) read with section 190 of the Companies Act. Any resolution passed pursuant to such an invalid notice would be considered illegal and void.

Conclusion:
The court admitted the winding-up petition, concluding that the substratum of the company had disappeared, the company had ceased to carry on business for more than a year, and it was just and equitable to wind up the company. The court also found that the winding-up petition was not an abuse of the process of the court and that the proposed resolutions were not in compliance with statutory requirements. The court ordered the advertisement of the winding-up petition and refused a stay.