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TMI Blog1949 (12) TMI 25X X X X Extracts X X X X X X X X Extracts X X X X ..... pany it borrowed Rs. 3,50,000 from the Bharat Bank Ltd. on the security of the plant, machinery and buildings but not the stock-in-trade, and on 22nd May, 1945, a further charge was created and a sum of Rs. 3,00,000 was borrowed on the original security with accretions and additions which had been made to the plant and to the buildings. On 2nd July, 1946, a further sum of Rs. 1,00,000 was borrowed against the security of raw materials, finished goods and all moveable assets of the company. Thus the total indebtedness to the Bharat Bank was about to Rs. 8,00,000 in August, 1948. In about the end of that month the bank made a demand for payment of the amount due to it. In reply to this demand, on 24th September, 1948, the company wrote a letter in which they said that they were financially at the end of their resources as they had several times before written to the bank and it would not be possible for them to continue working the factory any longer unless financial assistance was available and they offered in the mutual interests of the bank and themselves an arrangement which the bank had agreed to which inter alia contained the following provisions: (1) the company to hand over ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be continued, the bank had the power to either give on lease or sell the factories on such terms as it thought proper, but before doing so the bank had to give notice of 30 days as was provided for in the letter of 24th September, 1948. On 10th November, 1948, a special resolution was passed approving of this arrangement. I find from a copy of the proceedings placed on the record marked as annexure 'D' to the affidavit of Mr. J.D. Goel dated 7th July, 1949, that 9 shareholders were present in person and there were proxies of 16 others. On 2nd December, 1948, the bank started running the factory and within the next two months it invested another Rs. 3,00,000 but found the working to be impossible and wholly unprofitable and on 22nd December, 1948, therefore, the bank intimated to the company that it had received an offer of Rs. 7,50,000, for sale of the property of the company from two gentlemen, Mr. Jallan and Mr. Jagmohan Lal Thirty days' notice was given to the company which would expire on 2ist January, 1949, but at the request of the company time was extended to 31st January, 1949, to enable them to get a better offer if they could. On 12th January, 1949, one Dr. J.H. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was resolved that it was not in the interests of the shareholders to wind up the company at that stage. A sub-committee consisting of three persons was constituted to consider any offer that may be made with regard to, the company's property. This it was stated was done because the learned District Judge wanted to know the views of the shareholders with regard to the sale and it was not always easy to call an extraordinary meeting at a short notice. On 24th February, 1949, the company filed its reply in opposition to the application of Dr. Leighton for winding up. It was stated therein that the petition of Dr. Leighton was mala fide, that the extraordinary meeting of the shareholders was against winding up and that arrangements were being made with the Industrial Finance Corporation of India Limited for raising a loan and arranging for finances and that the winding up of the company at that stage would result in sale of the factories of the company at a very "nominal price". On 25th February, 1949, the bank made an application that it may be allowed to proceed with the sale as it wanted to realise its security and on the same day the learned District Judge issued a direction t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vertisement had been issued, ( b ) the management had appointed a sub-committee for the purpose of sale and had not taken into consideration the wishes of the shareholders although the Court had expressly ordered this to be done, and ( c ) the assets of the company were being sold to one of the constituents of the Bharat Bank and for that purpose information was not being supplied to other intending purchasers. At the same time he also alleged that the bank had advertised sale of the assets of the company and the sale was taking place in the interests of the bank itself neglecting the interests of the other creditors and shareholders and that the "management" had misappropriated huge sums of money and were continuing doing the same. He made several other allegations. On 13th May, 1949, the learned District Judge passed an order withdrawing his previous order of 25th February, 1949, but he order, ed the appointment of a provisional liquidator and appointed Mr. Amrit Lal Patni, Advocate. On 1st June, 1949, Raizada Jagmohan Lal and Mr. R.K. Jallen, the persons mentioned above, purchased the property for Rs. 10,00,000, the order prohibiting alienation of the factory having been vacat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9. On the same date, i.e., 19th August, 1949, the learned Judge passed an order for winding up and appointed Mr. Amrit Lal Patney who was working as a provisional liquidator to be the official liquidator of the company. Against this order another appeal has been filed in this Court, being F.A.O. No. 64 of 1949. This was filed on 5th September, 1949. I shall first deal with the appeal relating to the objection in regard to locus standi of Lajpat Rai Sawhney to apply for winding up. The learned Judge has held that "contributory" includes a member whose shares are fully paid up and he has relied on Sabapathi Press Co. Ltd. v. Sabapathi Rao 1 and on Narayandas Girdhardas v. P. O. Banking Corporation, Ltd. 2 I shall discuss these cases a little later. Under section 166 of the Companies Act, an application for winding up can be presented by a contributory and section 156 of the Act gives the liability as a contributory of present and past members and in sub-clause ( iv ) of section 156 (1) it is said: "In the case of a company limited by shares, no contribution shall be required from any member exceeding the amount if any unpaid on the shares in respect to which h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that in that case the application was opposed by a very large number of shareholders and in the case now before me the application was so opposed although later on the shareholders made a somersault. On the case going up to the Court of Appeal it was observed by Jessel, at M.R., at page 42: "Now I will say a word or two on the law as regards the position of a petitioner holding fully paid-up shares. He is not liable to contribute anything towards the assets of the company, and if he has any interest at all, it must be that after full payment of all the debts and liabilities of the company there will remain a surplus divisible among the shareholders of sufficient value to authorise him to present a petition. That being his position, and the rule being that the petitioner must succeed upon allegations which are proved, of course the petitioner must show the Court by sufficient allegation that he has a sufficient interest to entitle him to ask for the winding up of the company. I say 'a sufficient interest' for the mere allegation of a surplus or of a probable surplus will not be sufficient. He must show what I may call a tangible interest. I am not going to lay down any rule as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d up and he could not be called upon to contribute anything more. The Master of the Rolls said: "If the assets are more than sufficient to pay the debts, he might, by possibility, get some return of the money he has paid, but this is a very remote contingency, and it is not, in my opinion, a sufficient interest, in the absence of other circumstances, to support such a petition." In In re Anglesea Colliery Co. [1866] 1 Ch. A. 555 a holder of fully paid-up shares in a limited liability company was held to be a contributory within the meaning of the Companies Act. There the company had gone into voluntary liquidation, all debts had been provided for and a call had been made by two of the liquidators upon the partly paid-up share-holders for the purpose of adjusting the rights between them and the fully paid-up shareholders. The third liquidator objected to these proceedings and several of the partly paid-up shareholders presented a petition to the Court praying for a declaration that the liquidators had no authority to make a call for the purpose of dividing the proceeds, or any part thereof, among the owners of paid-up shares; and that the resolution was ultra vires and void. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the hearing of the case was adjourned and at the next hearing, i.e., on 9th December, 1949, he sent a telegram saying that he was unable to be present in Court and asked for an adjournment which I refused because there was no adequate reason or any kind of reason for which this part-heard case could be put off. As a matter of fact, this date was fixed at the request of Mr. Chatar Behari Lal and he did not avail of the concession that was shown to him. But at the first hearing the learned Advocate had nothing more to say on the question of locus standi except the few cases that have been referred to by the learned District Judge. The other learned Advocates who were appearing for the other parties made their submissions and reliance was placed on In re National Savings Bank Association Ltd. [1866] 1 Ch. A. 547 There Sir G.J. Turner, L. J., referred to his judgment in In re Anglesea Colliery Co.'s case [1866] 1 Ch. A. 555, a case that I have already referred to, and he agreed with his observations that he had made in that case. So, in my opinion, this case does not help the respondents. Mr. Inder Dev Dua then relied in In re Cine Industries and Recording Co. Ltd [1942] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e within the definition of the word "contributory". I may add here that In re Anglesea Colliery [1866] 1 Ch. A. 555 was a case of a winding up by a contributory but was decided on a petition by the shareholders who objected to a call being made for the purpose of adjustment of rights of fully paid-up shareholders and partly paid-up shareholders. The learned District Judge, as I have said before, has relied on two Madras cases, the first one being Sabaputhi Press Co. Ltd. v. R. Sabapathi Rao [1930] ILR 53 Mad. 38 . There a petition had been filed for winding-up by shareholders who had fully paid-up shares. The petition was in that case supported by no less than 84 shareholders and there was an allegation that, in the event of winding-up, the petitioners (fully paid-up shareholders) would have a tangible interest in the surplus assets. That is the distinguishing feature of that case and therefore, in my opinion, the decision of that case is not available to the petitioner Lajpat Rai Sawhney and in my judgment the learned Judge has not, if I may say so with respect, correctly read the rule laid down in that case. The next case relied upon by the learned Judge was Naray ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in England that a fully paid-up shareholder is a contributory, and may present a petition for winding up, vide, inter alia. In re National Savings Bank Association [1866] 1 Ch. A. 547. But his right to make the application is subject to certain conditions. A holder of fully paid shares, says Buckley in his book on the Law of Companies, 9th Edition, at p. 321 "is a contributory within the meaning of section 124 of this section, (namely section 137) and can present a petition for winding up even if there is already a voluntary winding up. But he must show sufficient grounds; he cannot be called upon to contribute; his interest is only that if there be surplus, he is entitled to repayment. If he be sole petitioner, and the creditors do not press and the company has not had a fair trial, the order will be reduced. If the company's assets are insufficient for repayment of its debts, a paid-up shareholder has no interest. If he presents a petition, he must allege and prove, at least to the extent of a prima facie case, that there are assets of such amount as that in the winding up he will have a tangible interest." After a careful consideration of these authorities I am of the op ..... X X X X Extracts X X X X X X X X Extracts X X X X
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