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TMI Blog1974 (4) TMI 58X X X X Extracts X X X X X X X X Extracts X X X X ..... al is, however, Rs. 1,94,500 being the value of 1,945 equity shares of Rs. 100 each. There are only six shareholders of the company holding the aforesaid 1,945 equity shares. There are four directors, three of them owning 620 equity shares. It is further said that the reserve and surplus of the company is nil The company has not been doing any business and had suspended business for more than a year. On that account it has been suffering losses year after year. As per balance-sheet ending on the 30th September 1967 the losses were Rs. 28,260. During 1967-68 alone it was Rs. 7,902 and odd It is further said that the directors' report for the years in question clearly admit that the business of the company had been suspended and it had ceased to function. In this view of the matter, on the basis of the balance-sheet as on the 30th September, 1968, a notice was issued to the company asking it to show cause why the company should not be wound up. This notice was refused. The Registrar then asked the Regional Director to sanction the filing of an application on the facts aforesaid. The Regional Director issued a notice to the company to show cause. A reply was given which was, however, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wound up. The questions which thus arise are': (1) whether the company has suspended its business ; and (2) whether an order for winding up the company should be passed. On the first point the facts are not much in dispute. It is not disputed that the company had suffered the losses mentioned above during the several years. The application was based on the balance-sheet as at the 30th September, 1969. There can be little doubt that the business of the company had ceased for more than a year as understood by the directors themselves. They had not done the work of manufacturing wire products or any other work within its objects during the period beginning with October, 1967, and ending with September, 1971. It will be relevant to mention that the report of the directors for the year 1966-67 said "prospect of the business does not seem bright and apart from selling out the finished goods of last year and together with negligible production of the current year by working the raw materials in hand, the company's production has almost stopped". For the period 1967-68, the report states "unlike previous years the business of the company has practically ceased to function". For the year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e question is whether the business alleged comes within the objects of the company. It is said in the petition filed by the company showing cause that "it is investing and dealing with the monies of the company not immediately required" (vide paragraph 11). It appears further from its own statements that the money which was not required for use, the business of the company having come almost to a standstill, was advanced to no other persons than the directors themselves. It is also significant that the company constitutes of only six members of the family and four of them are the directors. It is obvious thus that it is not the business of money-lending which the company has started. In fact it is not a business at all. It amounts merely to an arrangement that the directors keep the money with them and give the company certain amount of interest on the money lying with them. The petitioner has alleged that they have thus diverted the business of the company to money-lending. It may, however, be mentioned that in none of the reports of the directors it has been stated that the company had decided to divert its business from manufacturing wire products to money-lending. In fact there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n "suspends its business" means has been discussed in In re Tomlin Patent Horse Shoe Co. [1886] 55 LT 314 Chitty J. said : "Although there may be a suspension of the business of a company for the space of one year, the court will not make an order, under sub-section (2) of section 79 of the Companies Act, 1862, to wind up the company unless it is satisfied that there has been an intention on the part of the company to abandon its business or inability to carry it on". The learned judge said that the phrase "suspended its business" did not mean the same thing as that "business has been suspended". He further said that "upon the question of intention the court will have regard to the opinion of the majority of the shareholders". Reliance was placed on the decision in the case of Middlesborough Assembly Rooms Company [1880] 14 Ch D 104 (CA). In that case the company had been incorporated in the year 1874 for the purpose of purchasing a Quakers Meeting House, converting it into assembly rooms and using and letting the rooms for any legal purposes productive of profit. The meeting house and some lands had been purchased plans for building obtained, a contract for excavating the ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a company which has not commenced its business within a year, but I apprehend that that is so if it thinks that the fact of its not having commenced business within a year is, in the circumstances of the case, a fair indication that the company has no intention of carrying on business, and is not likely so to do" In the case of D. Davis & Co. Ltd. v. Brunswick ( Australia) Ltd. [1936] 6 Comp Cas 227, 239, 240, 241 (PC) their Lordships of the Judicial Committee were considering the question as to whether it was just and equitable to wind up a company and observed : "……….the decisive question must be the question whether at the date of the presentation of the winding-up petition there was any reasonable hope that the object of trading at a profit, with a view to which the company was formed, could be attained……….If there was at the relevant time a reasonable hope of tiding over the period of deep depression and of emerging into a region in which the company might reasonably expect to carry on at a profit, there would seem to be no sufficient reason why the court, regard being had to the essential character of the bargain made between the pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h means that there is no reasonable hope that the object of trading at a profit can be attained or the existing and probable assets are insufficient to meet the existing liabilities. In another case, Murlidhar Roy v. Bengal Steamship Co. Ltd. [1920] ILR 47 Cal 654, the company had suspended its business for some time and the question was whether it could be wound up on that ground. It was held that if the suspension of the business was satisfactorily accounted for, it did not prove that the objects of the company could not be fulfilled. A long line of decisions on the paint thus establish, among others, the following propositions of law : (1)That the mere fact that business has not been commenced within a year or that business has been suspended for a whole year or more by itself is not a ground for a court to order winding up, although they give the jurisdiction to the court to do so. (2)That it has to be found out whether the non-commencement or suspension of business was for some good reason accounting for it. (3)That the fact of non-commencement or suspension of business is an evidence which indicates that the company has no intention of carrying on business or that it is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he occurrence of any of those tests which are mentioned in the Act, I apprehend that the contract means that the shareholders will supply the specified amount of capital for the purpose of carrying on the business as long as it can be carried on". A few cases which may be noticed, on the other hand, lay down that the court is not bound by the wishes of the majority of the shareholders and a winding up order may still be made if circumstances so compel. In In re Haven Gold Mining Company [1882] 20 Ch D 151 (CA) it was held that where the substratum of the company for which the company was formed has substantially ceased to exist, the court will make an order for winding-up the company although the large majority of the shareholders desire to continue to carry on the company. In this case the company was established to work a gold mine and it turned out that it had no title to the mine and no prospect of obtaining possession. It was held that it was impossible to carry on the business fur which the company was formed and the wish of the majority of the shireholders was, therefore, disregarded. In In re Tumacacori Mining Company [1874] LR 17 Eq 534 the majority of the shareholders op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted to appointment of an official liquidator. In this respect the wishes of the majority of the creditors were expressed. The learned company judge having considered the same did not accept it though it was pressed and reliance was placed on section 140 of the Indian Companies Act of 1882. He said that there is no bounden obligation on the court to accept the same. There was an appeal against the said order and the learned judges who heard the same said that section 140 of the Act did not impose the duty of complying with the wishes of the majority. They placed reliance on the decision in In re London Quays and Warehouses Company [1868] 4 Ch App 394, in which the appointment by the primary judge was upheld although opposed by the large majority of those interested. The cases cited above thus clearly establish the proposition that in the matter of winding up the wishes of the creditors and contributories have to be taken into consideration and they have to be given due regard. If there be no other compelling reason and the majority of the shareholders wish to continue the business of the company an order for its winding-up would not be made. It is, however, equally true that the wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [1875] 10 Ch App 618); this was omitted from section 288 of the Companies Act, 1929 (19 & 20 Geo. 5 c. 23) and from section 346 of the Companies Act, 1948 (11 & 12 Geo. 6 c. 38)….". Similar is the argument with respect to the Indian Act. It is said that the provisions of section 174 of the Act of 1913 have not been reproduced in the subsequent Act of 1956 and the decisions on this point are, therefore, of no avail. This contention is untenable. It appears that in the Act of 1882, there was a provision, viz., section 140, in respect of ascertaining the wishes of the creditors and contributories in matters of winding-up and having regard for them. This was on the pattern of section 149 of the English Act of 1862. Section 174 of the Indian Companies Act of 1913 provided in exactly similar language what was contained in section 145 of the English Act of 1908 and its corresponding provision in section 140 of the Indian Act of 1882. It will further appear that the provision of section 219 of the English Act relating to meetings of creditors and contributories was enacted in section 239 of the Indian Companies Act of 1913. Section 223 of the Indian Companies Act of 1913 provided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs. The explanation for this is that the Government did not allot them raw material and it was not profitable to carry on that business for some time. The directors have said that they are trying to obtain orders of Government for allotment of quota to the company. It appears next that they purchased raw materials from the open market in the absence of Government quota and restarted the business of manufacturing wire products in 1971-72. There is nothing to suggest that the company is insolvent or in debts. The losses have been there as stated earlier, but the shareholders of the company are willing to suffer those losses and hope to do business at a profit. There is nothing to suggest that it is not possible for the company at all or that there is no hope of the company doing business at a profit in the near future. It is also not clear from the mere suspension of business during the few years that the company had abandoned completely the idea of doing business. It seems that they were trying and waiting to get Government quota of raw materials which would have made the business profitable to them. It does not show that the company was not able to do business because of any other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... much different from the present one. In that case I had found that for more than ten years the company had not commenced its business. Secondly, the directors themselves had said in that case that they were not inclined to carry on any business. Thirdly, they were only hoping to start a new business but there was no data furnished or evidence produced to show that they would be able to undertake such a business. There was no satisfactory explanation for the non-commencing of the business for a long period of twelve years. It was further found that the company had the object of doing mining business but the colliery mines had been taken over by Government and the object of the company could not be promoted in that respect. These distinguishing features are very important and the facts of that case are not on ail fours with the present case and the decision given by me in that case is thus not of much avail in the present one. Learned counsel for the opposite party raised another point that in the present case, the petitioner could not ask for winding up under clause (f)-the just and equitable clause--of section 433 of the Act. His objection is that the sanction given by the Regiona ..... X X X X Extracts X X X X X X X X Extracts X X X X
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