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1976 (4) TMI 164

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..... voking the order of admission and dismissing the petition for winding up. This order shall govern the disposal of this application and decide the question regarding advertisement of the petition. The company "M/s. Nandlal Bhandari and Sons (Private) Ltd." (hereinafter referred to as "the company"), has three directors, namely, Suganmal Nandlal Bhandari, Bhanwarsingh Motilal Bhandari and Virendrasingh Motilal Bhandari (Petitioner No. 1). These directors are closely related, Virendrasingh and Bhanwarsingh, brothers, and Suganmal being their uncle. Initially they constituted a joint Hindu family trading under the name and style "M/s. Nandlal Bhandari and Sons" and held 5,836 shares and one scrip of "M/s. Nandlal Bhandari Mills Ltd." a public limited company incorporated on March 1, 1922 (hereinafter referred to as "the Mills Ltd."). In 1949 there was a partition in the joint Hindu family and the separated members formed "M/s. Nandlal Bhandari and Sons Ltd." which was incorporated as a company limited by shares, and ultimately converted into a private limited company styled as "M/s. Nandlal Bhandari and Sons (Pvt.) Ltd." (hereinafter referred to as "the company") and incorporated as .....

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..... tting of the sole selling agency which is evident from the fact that on transfer of the shares by the company the sole selling agency of the Mills held by the company was not renewed in its favour after transfer of these shares when the agency terminated on December 31, 1975. (5)Two ginning factories, one at Hatod near Indore and the other in Indore. There is some dispute whether these factories at all worked but there is no dispute that they were closed long before this petition was filed. (6)Rental income from buildings owned by the company. Particulars of this income have been given earlier. It may, however, be mentioned that the rental income also decreased on account of the two buildings in Indore known as "Rampurawala building" and "Nandanwan" ceasing to be the company's properties as a result of transfers made in August, 1971. The particulars relating to these transactions are referred later. The above facts, which are not in controversy indicate that the aforesaid business were the only business carried on by the company and they too have come to an end now. Petitioner No. 2 is the wife and petitioners Nos. 3 and 4 are sons of petitioner No. 1. The petition for wind .....

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..... fiable lack of confidence in them which rests in lack of probity and mismanagement in the conduct of the affairs of the company. It is alleged that the substratum of the company has gone, so that it would be just and equitable to wind it up. It is further alleged that the company is in substance merely a partnership on account of which the principles applicable to the dissolution of a partnership should be applied. At this stage, I do not consider it necessary to rely on the allegations relating to inability of the company to pay its debts (the ground under clause ( e )) and its real character which is alleged to be that of the partnership. I shall, therefore, confine myself in this order only to the remaining allegations in order to examine whether a prima facie case for winding up under the "just and equitable" clause is made out. Before adverting to the relevant facts in this connection, it would be appropriate to mention the principles which govern the enquiry at this stage in order to decide whether the petition should be advertised in order to hold a full investigation or it should be dismissed at this stage itself without any further enquiry. In my opinion, if the petiti .....

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..... ny's business and reputation...... The restraint of a petition may also gravely affect the would-be petitioner, and not only him, but also others, whether creditors or contributories. If the presentation of the petition is prevented the commencement of the winding-up will be postponed until such time as a petition is presented or a winding-up resolution is passed. This is capable of far-reaching effects." (Emphasis supplied) No doubt these observations were made in an action brought to obtain an injunction restraining the presenting of a winding-up petition but the principles applicable when the winding-up petition has been filed, as in the present case, are undoubtedly the same as expressly stated in the above quoted extract itself. It is, therefore, to this extent that the petitioners have to discharge their burden at this stage in order to justify advertisement of the petition. I shall now refer to the authorities dealing with the meaning of the expression "just and equitable" used in clause ( f ) of section 433 of the Act in the light of which it has to be seen whether the petitioners have brought their case within the ambit of this expression. These authorities are relie .....

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..... value. I would now quote some other passage from the decision in Loch's case wherein the doctrines were laid down by their Lordship, which were then applied to the facts of that case in reaching the conclusion that a winding-up order was proper. The relevant extract is as follows (p. 788): "It is undoubtedly true that at the foundation of applications for winding up, on the ' just and equitable' rule, there must lie a justifiable lack of confidence in the conduct and management of the company's affairs. Hut this lack of confidence must be grounded on conduct of the directors, not in regard to their private life or affairs, but in regard to the company's business. Furthermore the lack of confidence must spring not from dissatisfaction at being outvoted on the business affairs or on what is called the domestic policy of the company. On the other hand, wherever, the lack of confidence is rested on a lack of probity in the conduct of the company's affairs, then the former is justified by the latter, and it is under the statute just and equitable that the company be wound up." (Emphasis. supplied). The question in Loch's case [1924] AC 783 (PC) really was whether the just an .....

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..... n addition to such misconduct, circumstances exist which render it desirable in the interests of the shareholders that the company should be wound up, there is nothing in section 162( vi ) which bars the jurisdiction of the court to make such an order. Loch v. John Blackwood Ltd. [1924] AC 783, 790 (PC) was itself a case in which the order for winding up was asked for on the ground of mismanagement by the directors,............. Now, the facts as found by the courts below are that the vice-chairman grossly mismanaged the affairs of the company, and had drawn considerable amounts for his personal purposes, that arrears due to the Government for supply of electric energy as on 25th June, 1955, was Rs. 3,10,175-3-6, that large collections had to be made, that the machinery was in a state of disrepair, that by reason of death and other causes the directorate had become greatly attenuated and ' a powerful local junta was ruling the roost', and that the shareholders outside the group of the chairman were apathetic and powerless to set matters right. On these findings, the courts below had the power to direct the winding up of the company under section 162( vi ), and no grounds have .....

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..... the Indian counterpart, section 433( f ). It is now well established that the sixth clause, namely, 'just and equitable', is not to be read as being ejusdem generis with the preceding five clauses. While the five earlier clauses prescribe definite conditions to be fulfilled for the one or the other to be attracted in a given case, the just and equitable clause leaves the entire matter to the wide and wise judicial discretion of the court. The only limitations are the force and content of the words themselves, 'just and equitable'. Since, however, the matter cannot be left so uncertain and indefinite, the courts in England for long have developed a rule derived from the history and extent of the equity jurisdiction itself and also born out of recognition of equitable considerations generally . This is particularly so as section 35(6) of the English Partnership Act, 1890, also contains, inter alia , an analogous provision for the dissolution of partnership by the court. Section 44( g ) of the Indian Partnership Act also contains the words 'just and equitable'. Section 433( f ) under which this application has been made has to be read with section 443(2) of the Act. Under the la .....

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..... Mr. Mehta has to be similarly read, since both these cases are relied on by Mr. Mehta in support of his argument and in placing reliance on some subsequent events to contend that the grounds in the petition have, to a certain extent, melted away by those subsequent events. Another case relied on by Mr. Mehta in Charles Forte Investments Ltd. v. Amanda [1964] Ch 240; 34 Comp. Cas. 233 (CA). In that case the only grievance of the petitioner was that the directors' refusal to register transfer of shares was unjustified. The question was whether on this ground alone an order for winding up the company should be made. It was held that the alternative and more suitable remedy by an action for rectification of the register being available to the petitioner, a winding-up petition on this ground alone did not lie, more so, when the article under which the directors had acted gave them an absolute and uncontrolled discretion in the matter unless their act of refusal was shown to be not bona fide . This decision is clearly inapplicable to the present case. There can be no doubt that an alternative relief in respect of all the grievance of the petitioners is not available in the present c .....

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..... books show that these transfers were effected merely by making entries in the books showing adjustment of the price without any cash being given to the company. The deposits in the company of these transferees belonging to the. family of the majority directors were merely adjusted against the cash price and in this manner these depositors belonging to the majority group were also permitted to withdraw their deposits with the company, while obtaining the properties at a low price. It is alleged that the company was facing financial stringency at that time, which is the common case, and this transaction further increased the financial burden on the company. On the deposits which were so permitted to be withdrawn, the company was required to pay interest at a much lower rate than that at which the company was paying interest to the bank on loans taken by the company. If cash was obtained as the price of these buildings and it was utilised for reducing the company's liability against the loans, the burden on the company on account of interest alone would have been reduced by a few lakhs of rupees every year. This result ensues even if the fact of the buildings being sold away to close .....

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..... d. The company's books show that the hotel business was carried on by the company till Sep. 20, 1971, on which date the hotel was closed, even after the building itself had been transferred during the previous month by the company. These facts are not in dispute. It is also not in dispute that no consideration whatsoever was paid by the transferees for this hotel business which undoubtedly had considerable value at least as price of the furniture and other articles needed for running that large hotel. It is significant that this benefit in its entirety also went to the majority group. Another transaction relates to the transfer of 8,299 shares of the Mills owned by the company. These shares were transferred to M/s. Gajendrasingh Randhirsingh Oil Mills Pvt. Ltd. at the rate of Rs. 250 per share when about 1 years earlier they were bought at the rate of Rs. 325 per share and then sold by M/s. Gajendrasingh Randhirsingh Oil Mills Pvt. Ltd. on October 12, 1973, again at Rs. 350 per share. The transfer of these shares to M/s. Gajendrasingh Randhirsingh Oil Mills Pvt. Ltd. in which also the majority group has a controlling interest, was again by mere transfer entries made in the com .....

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..... ficient to say that it is not possible to reject the petitioners' contention as unfounded. This is more so because in both these resolutions the decisions mentioned are entirely to the benefit of the majority group and it is unlikely that the petitioners Nos. 1 and 2, if present, would not even object to those decisions, when, it appears, trouble had already started between them and the majority group, by then. There is a controversy about the date of commencement of the dispute but it is not unlikely that the dispute had commenced some time prior to July 26, 1971. Thus, the company's reliance of the petitioner's participation at both these meetings and being a party to these resolutions is doubtful, and it cannot be said that the petitioners will be unable to prove their stand. In this connection, it would be useful to remember the petitioners' allegation that the resolution dated August 20, 1971, is a fabrication, on the basis that the valuer's report mentioned therein is of subsequent date. For this reason, at this stage, the petition cannot be thrown out by accepting that the petitioners Nos. 1 and 2 were a party to both these resolutions. It is also significant that the boar .....

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..... e material at present that the serious differences between the petitioners and the majority group and the actual dispute between them arose on or about July 23, 1971, when the last check was made by the bank and there was an attempt by the majority group to fasten the entire liability on the petitioner No. 1. It is quite reasonable to presume that the board's resolution dated July 26, 1971, itself, was, therefore passed subsequent to the dispute coming on the surface. The company's stand has been that the petitioner No. 1 alone was responsible for the misfortune leading to the closure of the Dewas units but there is material in the company's own documents to indicate that the majority directors were also in control of the working of the Dewas units and many large loans taken for them were actually by the majority directors themselves. Thus, this other main stand of the company does not prima facie appear to be acceptable at this stage. Apart from the loans of the two secured creditors State Bank of Indore and the Madhya Pradesh Financial Corporation amounting to about Rs. 68 lakhs, there is also a claim of the State of Rajasthan of about Rs. 24 lakhs as the sales tax dues against .....

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..... ny has gone. He also argues that the conduct of the petitioner No. 1 has been impeding the company so far. It is sufficient to say that at least from July 26, 1971, when the board's resolution was passed entirely to the benefit of the majority group, the acts of the petitioner No. 1 could not in any way effectively check the conduct of the affairs of the company in any manner that the majority group desired. All the same, there is nothing to show that there is either any desire of the majority group or any prospect of the company carrying on any business hereafter. The facts not in controversy do suggest that the majority group has been acting in a manner so as to derive the maximum benefit for itself and it is quite likely that their desire for continuance of the company is only to retain the complete control of the affairs in their own hands to suit their own purpose. The main argument of Mr. Mehta on behalf of the company is that it is not necessary to advertise the petition for winding up, since the alternative reliefs claimed in the petition can all be granted under sections 397 and 398 of the Companies Act. This argument is based on s. 443(2) of the Companies Act. His argum .....

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