9911796707
TMI Blog1971 (4) TMI 68X X X X Extracts X X X X X X X X Extracts X X X X ..... rned brother, J, B. Mehta J., he accepted the same and directed notice to be issued to the company and other respondents who are the managing director and directors of the company and three creditors of the company. On the service of the notice bulky affidavits in reply, in rejoinder and sur-rejoinder, have been filed. The petition was then set down for considering whether it should be admitted or not. On a demur filed, Mr. S.J. Sorabji, learned advocate, appeared for respondent No. 1-company and raised three objections against admitting the petition. They were vigorously canvassed and, therefore, even though I am inclined to dismiss it in part and admit it in part, I have considered it proper to dictate a short order. The contentions raised by Mr. Sorabji are as under : (1)The present petition as filed being a composite petition both for an order for winding up the company and for reliefs under sections 397 and 398 is not maintainable. (2)Assuming all the averments and allegations in the petition to be true, the petition does not disclose a cause of action for relief under section 397. (3)Order for winding up of the company is not available to the petitioners on two ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay its debts. Mr. Ramakant P. Bhatt, learned advocate who appeared for the petitioners, specifically stated that the ground for winding up the company under section 433( e ) is not pressed and is specifically given up. Therefore. the only ground on which now the petitioners seek an order for winding up the company is the one covered by section 433( f ), namely, that it is just and equitable that the company should be wound up and the allegation in support of this ground is that the company is a glorified partnership and it has come to an irresolute impasse and the conduct of the majority shareholders disclosed lack of probity and, therefore, the ground which was in terms agitated before Mehta J. and which was negatived is now sought to be re-agitated in this petition and until that judgment stands, it is not open to the petitioners to re-agitate this ground. The question is not finally decided between the parties and, as the appeal is pending, it would not be proper to reject the petition on the ground that it is barred by principles analogous to general principles of res judicata ; but it should be rejected on the ground that the judgment of Mehta J. still stands and it would not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... As stated earlier, the petition is supported by the requisite number of members as required by section 398. First contention is that the composite petition praying for an order for winding up and in the alternative for reliefs under sections 397 and 398 is inconceivable and would not be maintainable. In fact this contention would lose all its significance because the petition for an order for winding up is being rejected. However, in fact considerable arguments were advanced on this aspect of the matter and it was stated that the matter has never been approached from this angle heretobefore mentioned and, therefore, this aspect may better be examined. I would, therefore, briefly examine this contention. It was strenuously urged that Chapter VI in which sections 397 and 398 are incorporated provide for a procedure and reliefs set out therein is a complete code by itself and the provisions for winding up are set out in Chapter VII of the Act and it is wholly inconceivable that a composite petition in which primarily an order for winding up is sought and in the alternative a relief under sections 397 and 398 is sought can ever be maintainable. It was urged that the requirements o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovision which came for the first time in the Indian Companies Act, 1913, as section 153C. That section was based on section 210 of the English Companies Act, 1948, which was introduced therein for the first time. The purpose of introducing section 210 in the English Companies Act was to give an alternative remedy to winding up in case of mismanagement or oppression. The law always provided for winding up, in case it was just and equitable to wind up a company. However, it was being felt for some time that though it might be just and equitable in view of the manner in which the affairs of a company were conducted to wind it up, it was not fair that the company should always be wound up for that reason, particularly when it was otherwise solvent. That is why section 210 was introduced in the English Act to provide an alternative remedy where it was felt that, though case had been made out on the ground of just and equitable clause to wind up a company, it was not in the interest of the shareholders that the company should be wound up and that it would be better if the company was allowed to continue under such directions as the court may consider proper to give. That is the genesi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayer for cancellation of a partnership agreement and in the alternative dissolution of partnership and accounts combined in the same suit. Similarly, prayer for a declaration of title and in the alternative a declaration of the right of easement can be combined together. Such instances can be multiplied by referring to a large number of cases in which courts have dealt with such alternative reliefs inconsistent with each other. Therefore, in a prayer for winding up which, if granted, brings about civil death of the company and in the alternative a prayer for relief under section 397, which postulates continued existence of the company, is sought, there would be no impediment in law in combining these prayers in one composite petition. It was, however, very strenuously urged that the procedure prescribed for presentation and hearing of a Winding up petition and procedure prescribed for presentation and hearing of a petition for reliefs under sections 397 and 398 are so materially different that the court would not be able to simultaneously proceed with the same in one petition. It was urged that while a petition under section 397 contemplates a case of individual grievance, oppres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st and equitable, the petitioner must allege and the court must be satisfied that it is just and equitable to wind up the company. Similarly, if relief is sought under section 397, the court must first be satisfied that it would have been just and equitable to wind up the company. That conclusion will have to be reached by the court on proof adduced by the petitioner. Only after that conclusion is reached, the court can proceed to decide whether to wind up the company, or if the court is satisfied that winding up would unfairly prejudice the member or members, the court, instead of winding up the company, may give relief under section 397. Therefore, when a petition for winding up is filed under section 433( f ) and, in the alternative, relief under section 397 is sought, the petition must proceed up to a certain stage which is common to both. It is at this stage that a motion is addressed to the discretion of the court whether to wind up the company, or to grant relief under section 397. For reaching that stage, there might be some difference in the procedure to be adopted by the court. But that procedure is not such which cannot be simultaneously gone through. At any rate, when a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have the petition advertised as required under the High Court Rules. If, on the other hand, he thinks that there is no case for winding up, he may dispose of that part of the petition, and with regard to sections 397 and 398 he would give such directions as the Companies Act provides, as we have just pointed out, after hearing both the company and the Central Government". Therefore, even after keeping in view the procedure prescribed for these two types of petitions under section 433 and under sections 397 and 398 a composite petition is conceivable and by reconciling the procedure, the court can properly proceed in respect of both of them though that difficulty is not going to arise in this case because of the order proposed to be passed by me. In Mohanlal Dhanjibhai Mehta v. Chunilal B. Mehta [1962] 32 Comp. Cas. 970 (Guj.), the court had before it a composite petition in which prayer was for a direction under section 153C of the Indian Companies Act, 1913, and in the alternative for an order for winding up the company. Again, it must be stated that the petitioner did not press the relief under section 153C but confined his argument to the alternative relief for winding up. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d be unfairly prejudiced by a winding up, the court may impose a solution on the disputants. Relying on these observations it was also contended that not only there must be an averment that the petitioners would be unfairly prejudiced if a winding up order is made but in the same breath they will have to state that it is just and equitable to wind up the company and such a composite petition would not lie. I would presently point out while considering the next submission as to what averments can properly be made in a composite petition which I hold to be maintainable. The decision, however, cannot be taken to be an authority for the proposition that a composite petition would not lie. In this connection, it was also urged that, in order to maintain a composite petition, such contradictory or antagonistic or mutually destructive averments will have to be made that it is impossible to conceive of such a petition. As an alternative, it was urged that in a petition for relief under sections 397 and 398 the petitioner must specifically make four independent averments, namely, that the affairs of the company are being conducted in a manner, ( i ) prejudicial to the public interest, ( i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y would be unfairly prejudiced if the winding-up order is made, yet they have averred exactly to the contrary by stating that such winding up would not unfairly prejudice the petitioners and minority shareholders and this provides a clue which shows that a prayer for a winding-up order and for relief under section 397 cannot be combined in one petition. The recitals in para. 88 cannot be read torn out of their context. If the petitioners pray primarily for a relief of winding up under the "just and equitable" clause, they must aver that on the grounds and facts alleged in the petition, it is just and equitable that the company should be wound up as winding up would not unfairly prejudice them. Having said that, it would be open to the petitioners to state that in the event the court comes to the conclusion that an order for winding up would unfairly prejudice the petitioners, the alternative relief by way of directions under section 397 should be granted. Such an averment is in fact made and, in my opinion, that would be the only proper way of drawing up a petition of this nature. Where inconsistent reliefs are sought, such a situation is bound to arise. It would be fallacious from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n under section 397 can be granted or not. If this is the correct approach to the problem, in my opinion, averments have properly been made so as to invoke court's jurisdiction under section 397. It does not appear that the averments which the petitioners would have to make would be such that they would be mutually destructive. The thing which is stated in the alternative may appear to be contradictory but one does not destroy the other. This approach would also dispose of the contention raised by Mr. Shah that a petition under section 398 cannot be combined with a petition for a winding-up order. Therefore, the submission that composite petition for an order for winding up the company and in the alternative for a relief under sections 397 and 398 cannot be maintained, must be negatived. It was next contended that assuming all the averments and allegations in the petition to be correct, the petition does not disclose a cause of action both under section 397 and section 398. The submission is made on the specific allegation that for obtaining relief under section 397 the petitioners must allege that winding up the company would unfairly prejudice the petitioners, and that not ..... X X X X Extracts X X X X X X X X Extracts X X X X
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