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1981 (4) TMI 215

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..... petitioner's application for the appointment of a provisional liquidator was dismissed by this court (Sen J.) by order dated May 3, 1974 ([1979] 49 Comp. Cas. 532). The respondent-company's application for revoking the order of admission and dismissing the petition was also rejected by this court (J. section Verma J.) on April 23, 1976 ([1980] 50 Comp. Cas. 54 ). In both the above orders, the court has, in some detail, narrated the facts leading to the disputes between the parties. A few material facts may be reproduced now. A joint Hindu family under the name and style of "M/s. Nandlal Bhandari and Sons" held 5,836 shares and one scrip of "M/s. Nandlal Bhandari Mills Ltd." (Mills Ltd.), a private limited company incorporated on March 1, 1922. On March 29, 1949, there was a partition in the joint Hindu family and the separated members formed "M/s. Nandlal Bhandari and Sons Ltd." and incorporated it as such under the Companies Act, 1956. Thereafter, this company was converted into a private limited company styled as "M/s. Nandlal Bhandari and Sons Pvt. Ltd. "(hereinafter referred to as "the company"). By a division of the capital account which included its shares, the 5,836 share .....

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..... ity. The balance-sheet for the year ending December 31, 1972, shows that the total liabilities of the company were to the tune of Rs. 1,36,84,585. The biggest creditor of the company is the State Bank of Indore and the statement filed by the bank shows that a sum of Rs. 75,85,638.13 was due out of which about Rs. 50 lakhs were secured on equitable second mortgage of lands, buildings, plants and machinery at Dewas. The company is also indebted to the M.P. Financial Corporation and, as already observed, the Corporation has obtained a decree against it which has been executed and the sale proceeds of the properties at Dewas are kept in deposit for disposal in accordance with the order of the court. The State Bank of Indore and the M.P. Financial Corporation are interveners before this court. It was also admitted that the State of Rajasthan has raised a sales tax liability on the company and the amount claimed is about Rs. 24 lakhs. The State of Rajasthan has also intervened in this petition and has supported the petition for winding up the company. Besides, the income-tax dues for the assessment year 1970-71 and subsequent years are also outstanding against the company.- As indi .....

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..... eliance for this was placed on In re Othery Construction Ltd. [1966] 1 WLR 69 [reported also in [1966] 36 Comp. Cas. 350 (Ch D)]. The matter has further been discussed with advertence to Indian law in V.V. Krishna Iyer Sons v. New Era Manufacturing Co. Ltd. [1965] 35 Comp. Cas. 410 (Ker.). It is clear from both the decisions that there is no legal bar for a contributory to bring a petition for winding up, but it is open to the court not to act on an application of a contributory when it finds that the petitioner has no interest left in the company due to its commercial insolvency. A petition by a contributory in such circumstances may be dismissed not because he was not competent to file it, but because it is not a bona fide application and amounts to an abuse of the process of the court. It may be noted that the objection about the competence of the petitioners to file this petition was decided by this court, vide its order dated April 23, 1976, while disposing of the company's interlocutory application opposing the advertisement of the petition and seeking revocation of the order of admission. I, therefore, hold that in view of the law on the subject as also in view of th .....

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..... ndari, and when these facts were brought to the notice of the other directors through the Bank of Indore and action was taken to take over the management from the hands of Virendra Singh Bhandari, a spate of suits was unleashed by Virendra Singh Bhandari, his wife and children. Petitioners Nos. 2, 3 and 4 even made separate applications for winding up before this court, but the petition filed by petitioner No. 2 was dismissed while the one filed by Nos. 3 and 4 was withdrawn. It was pleaded that petitioner No. 1 was himself the cause of these difficulties and could not be allowed in equity to take advantage of his own misdeeds and seek winding up of the company to the detriment of the majority shareholders. In this line of argument, a plea of res judicata was also taken in respect of petitioners Nos. 2 to 4. As regards disappearance of the substratum of the company, it was pleaded that the company was incorporated to do diverse businesses and even if some of them were closed, the object of the company had not failed and the company had the necessary capacity for its revival on the date of the petition. It was also contended that merely because liabilities exceeded the assets, a .....

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..... and which had obtained a decree against the company in execution of which the Dewas units were sold by auction, expressed that it was interested only in recovering the debts out of the sale proceeds and not in the winding-up. Under section 433, the power of the court to wind up a company is discretionary and there is authority for the proposition that normally courts should be slow in directing the winding up of a company unless it becomes inevitable. Keeping this general principle in view, I will now proceed to examine the ground under section 433( e ) of the Companies Act which refers to the company's inability to pay its debts. In this connection, a few facts may be recalled briefly. The company had taken enormous loans for its various businesses. This is a normal commercial activity and every entrepreneur has to depend upon loans for his business. In the instant case, it was clear that the debts which the company had taken from the banks and the financial corporation were not repaid, though demands were made for the same. So much so that, acting under section 31 of the State Financial Corporations Act, the financial corporation had filed a suit for the recovery of the loan a .....

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..... ith the management and had caused enormous damage to the company's business by his acts of malfeasance and misfeasance. The company was entitled to recover damages and, therefore, it was within its rights to refuse repayment of the deposit on demand by the petitioners. Clearly, the company had no claim on the basis of any contract. The company actually sought to raise a claim for unliquidated damages. It was held by the Madras High Court in Newfinds (India) v. Vorion Chemicals and Distilleries Ltd. [1976] 46 Comp. Cas. 87 thus (headnote): " 'Debt' as denned in section 434(1)( a ) of the Companies Act, 1956, means a definite sum and hence it cannot be contended that 'debt' also includes any unliquidated damages or a sum of money capable of being ascertained." The alleged acts of malfeasance and misfeasance of petitioner No. 1 which, according to the company, made him liable for damages, had yet to be established. Though it was alleged that such acts which made petitioner No. 1 liable for damages were committed before July, 1971, no action was ever taken before the filing of the petition or even till date to set up a claim for a specified amount as damages. Any such claim n .....

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..... tors ; and ( ii ) Failure of substratum. For proving their allegation about lack of probity, the petitioners referred to the various transfers of immovable properties and businesses of the company. Besides, it was also urged that the company was mainly a family business and, therefore, the principles governing an application for the dissolution of a partnership firm should be applied in the case of the company as well. The company owned Nandanwan and Rampurawala buildings which were transferred to the majority members. Besides the question of actual valuation, it appears that these buildings were allotted to the majority members and the consideration therefore was their deposits with the company. The result was that the company's fixed assets were liquidated without any benefit by sale of these properties to augment its resources. It appears that ostensibly the immovable assets were sold under various resolutions of the company to meet the financial stringency faced by it. In effect, however, no such benefit was acquired because the fixed assets were lost to the company and, in the process, the deposits of the majority members, which the company had with it, were also liquidate .....

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..... purawala buildings and I am clearly of the view that these transfers were not made in good faith and the company was a great loser as a result of these transfers. As regards the sale of shares of the Mills Ltd. to G.R. Mills Ltd., it was submitted on behalf of the company that the petitioners also had 15% interest therein and they also benefited by this transaction. This obviously is to oversimplify the nature of this peculiar transaction. The company sold its shares to G.R. Oil Mills and G.R. Mills wherein the majority members of the respondent-company were also in majority, sold the same shares at a higher rate to members of the majority group. Later, the majority group sold the shares to an outsider, M/s. Sabari Textiles (Pvt.) Ltd., a concern of the Poddars of Calcutta. Because of this transaction the majority members deprived the company of the sole selling agency of the Mills Ltd. This was indeed not a transaction which was in the interest of the company or of the minority members represented by the petitioners. In these circumstances, the petitioners had justifiable lack of confidence in the working of the majority members and they were entitled in the circumstances to claim .....

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..... rried on save at a loss. Clause ( g ) of section 44 is analogous to clause ( f ) of section 433 of the Companies Act and empowers the court to dissolve a firm if it is "just and equitable". The material brought before this court, a good deal of which is no more in dispute, clearly points to the fact that the business of the company cannot be carried on save at a loss and in view of the deadlock created by the hostility between the members it will be just and equitable to wind up the company. Lastly, the petitioners alleged that the substratum of the company had gone and, therefore, it was liable to be wound up on the "just and equitable "ground. The substratum of a company disappears when ( a )the subject-matter of the company is gone, or ( b )the object for which it was incorporated has substantially failed or ( c )it is impossible to carry on the business of the company except at a loss which means that there is no reasonable hope that the object of trading at a profit could be attained, or ( d )the existing and probable assets are insufficient to meet the exist ing liabilities. [In re Cine Industries and Recording Co. Ltd. [1942] 12 Comp. Cas. 215; AIR 1942 B .....

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..... its present business or venturing on new ones. It was not shown, even when counsel for the petitioners pointedly questioned during his arguments, as to from where the company 'could secure finances when its fixed assets had already been transferred and it had no liquid assets worth the name. Further, in spite of the clear allegations in the petition and later during arguments, learned counsel was unable to show any concrete scheme for resuscitating the company. Howsoever sanguine the company's majority members may be, the condition of the company is so anaemic that no reasonable person can expect its revival in the present circumstances. The allegation that the company has come to this state because of Virendra Singh's acts, does not help the company in proving that its substratum still exists. Firstly, the material on record does not show positively that Virendra Singh is the villain, responsible for the company's troubles. Had this been so, there would have been some action by the company to seek damages from Virendra Singh. Virendra Singh was in charge of the Dewas units up to July, 1971, and, thereafter, the management of these units had been taken over by Bhanwar Singh of t .....

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