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TMI Blog1983 (8) TMI 226X X X X Extracts X X X X X X X X Extracts X X X X ..... fe as petitioners Nos. 1 and 2 and petitioners Nos. 3 and 4 as another set of husband and wife. It is claimed that the company was floated to give equal preference to the three groups as all three of them were good friends. Respondent No. 3 was said to be conversant with business and that is why it was decided to entrust the work of the incorporation to him. Respondent No. 4 is said to have started drawing a salary of Rs. 1,500 per month. Respondents Nos. 2, 3 and 4 are directors of the company. Allegations are made that respondent No. 2, Ramesh Kumar Bhandari, allotted 670 shares to his own family rather than amongst the three groups. One of the persons to whom 310 shares are said to have been allotted is his own wife, respondent No. 4. It is further alleged that respondent No. 2 is trying to sell to respondent No. 5, his mother, a flat which was said to have been acquired at Bombay by the society for a sum of Rs. 1,55,000 whereas the appellant (petitioners) are even willing to make an offer of Rs. 3 lakhs for the same. On this as well as other various allegations, the petition was filed seeking the winding up of the company on just and equitable ground and also on account of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f ) provides that a company may be wound up by the court if the court is of the opinion that it is just and equitable that the company should be wound up. Section 433 lays dowp that on hearing a winding-up petition of the company, the court may amongst others, ( a ) dismiss it with or without costs, ( b ) adjourn the hearing conditionally or unconditionally, ( c ) make an interim order that it thinks fit, ( d ) make an order for the winding up of the company with or without costs or any other order that it thinks fit. Rule 6 of the Companies (Court) Rules, 1959, framed by the Supreme Court provides that save as provided by the Act or the Rules, the practice and procedure of the court and the provisions of the Code so far as applicable shall apply to all proceedings under the Act and these Rules. The Code is defined to mean the CPC. Rule 45 ,provides for a petition for winding up of a company being in Forms 45,46 and 47, as the case may be. A reference to the forms does not show that only the company is to be the respondent. Of course, nor does it indicate as to who else can be the respondent as indeed the form is not expected to do so. The form also does not show, as has been st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of winding up of a company. He, however, says that the order deleting the name of the parties is neither a decree nor is it an order appealable under Order 43, rule 1, CPC, nor is it a judgment within the meaning of Letters Patent and, therefore, no appeal would lie against the impugned order which is only of procedural nature. It cannot be disputed that the impugned order is not a decree, nor is it appealable under Order 43, rule 1, CPC. Mr. Khanna says that it is not even a judgment within the meaning to be given under the Letters Patent as settled in Shah Babulal Khimji v. Jayaben D. Kania, AIR 1981 SC 1786, and he referred us to para 120 where some illustrations of interlocutory orders which may be treated as judgments within the meaning of Letters Patent are mentioned. Mr. Khanna says that an order deleting the names of the parties is not covered. Mr. Mehra, the learned counsel for the appellant, however, referred to this very para. (Illustration 7) which accepts that an order refusing to add necessary parties in a suit under section 92 of the CPC is a judgment and thus appealable. If that be so, Mr. Mehra contends that in the matter of winding up where the directors have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itioners were not entitled to the relief of winding up, he should pass proper order and not merely adjourn the matter and the petitioners were, therefore, deprived of a substantive right which they sought. Such an order was, therefore, held to be appealable. Even under the Code, the position is not simple. It is true that a mere order striking off a party under Order 1, rule 10(2), CPC, is not appealable (see Allahabad Bank v. Raja Ram, AIR 1937 Lah. 67). But even there is a difference made by the courts between these cases where an order of deletion of a party is made on the ground that there is no cause of action against the added party. Thus, it has been held that where the name of the defendant is struck out under Order 1, rule 10(2), on the ground that the plaint does not disclose any cause of action against him, the order is appealable as such ( Lalsa Motisa Shop v. Bhagwant Ramji, AIR 1941 Nag. 166). An appeal has been held to lie if an order was passed under Order 1, rule 10, which in fact amounted to an order on merits (see Shair Ali v .Jagmohan Ram, AIR 1931 All 333. Whether an order striking down the name of a party would confer a right of appeal or not, one ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mber of creditors or a contributory could successfully plead not only to be heard but also to be impleaded to the petition for winding up so that he could put forth his point of view at the proper time in a proper manner. Even the position of contributory has been expanded to include a fully paid up shareholder who has been held to have a right to appear and to be heard upon the application to wind up the company ". In the development of corporate ethics, we have reached a stage where the question of social responsibility of business to the community can no longer be scoffed at or taken lightly the companies can no longer be accepted as a private domain, the working of which would be of no concern to the society. On the contrary, the very impact of the corporate sector in terms of finance and employment shows that the well-being of the corporate sector is of considerable significance to the society. This is because the well-being of corporate sector has vital effect on the employment, and economy of the community and health of the society. In the environment of modern economic development, corporate sector no longer functions in isolation". (Chapter 12 of Report of the High Power ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have committed breach of agreement and are acting in such a manner as to take away the rights of the petitioners to function in the company. History of the proceedings of the petition also shows that the present attempt to have respondents Nos. 2 to 5 deleted from the array of the respondents is not bona fide and is meant either to delay the proceedings or to start a new round of litigation even if the findings are given against respondents Nos. 2 to 5 which would in these proceedings be of no value at all if they are not parties to the petition. It will be seen that notice to show cause on this winding-up petition was issued on March 31, 1981. Though reply was filed in April, 1981, on behalf of company and Ramesh Bhandari, one of the directors, and though a preliminary objection was taken that respondents Nos. 2 to 5 were not necessary or proper parties to the winding-up petition, no effective steps were taken to have this point adjudicated. Ultimately, on July 20, 1981, the petition was admitted by the company judge for the reasons mentioned therein. Amongst the reasons mentioned was that there are several averments in the pleadings that the company is in the nature of partnersh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... directors. We do not think that these powers which necessarily vest in the official liquidator after the company is wound up are any answer to impleading respondents Nos. 2 to 5 (of course if any relief can be given to the appellants in these proceedings) because such a step will have the beneficial effect of avoiding a further round of ruinous litigation involving the company. We are not saying that it is open to the petitioner in a winding-up petition to implead all and sundry as respondents. It will depend on the facts of each case. But, in the present case, where respondents Nos. 2 to 5 are so closely related and, among others, alleged sale made by respondents No. 2 to 4 in favour of respondent No. 5 is challenged, it is not only permissible but properly expeditious that respondent No. 5 should be before the court before it reaches a conclusion whether the transaction was or was not an act of good management, and whether it is just and equitable to pass an order of winding up. It must be remembered that "the requirement of law is not to rush into liquidation of the companies. Efforts, no doubt based on sound data, must always be made to keep a company growing, because liquidat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shows that on the hearing a winding-up petition, the court may adjourn the hearing conditionally or unconditionally. It may also pass any other order that it thinks fit (clause ( d )). Not only that, sub-section (2) of section 443 puts it beyond the pale of controversy that orders other than mere grant or dismissal of the winding-up petition are not only permissible but are considered to be proper in case some other remedy is available to the petitioner. Section 443(2) clearly spells that out. This argument of Mr. Khanna suffers from the fallacy of assuming as if a winding-up petition is like an ordinary civil suit in which only some personal rights are to be adjudicated. This contention which severely seeks to limit the scope of proceedings in winding up is impermissible. One primary consideration which has always to be kept in view is that the "general interests of the shareholders may not be readily sacrificed at the alter of squabbles of directors of powerful group for power to manage the company". In a winding-up petition, "the interest of the applicant alone is not of predominant consideration. The interests of the shareholders of the company as a whole apart from those of o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not limited; and the court will be guided by the rules of equity and will do what justice demands, keeping in view the facts and circumstances of each case." The appeal court, however, differed with the finding of the learned single judge and held that the petitioner had failed to establish any deadlock or any justification for her lack of confidence in the conduct of management of the company's affairs, grounded on the conduct of the directors in regard to company's business and she has failed to prove lack of probity on the part of the directors. It concluded with a finding that her prayer for winding up the company is wholly unjustified and cannot be accepted. On that finding if Mr. Khanna is right, then the only order that could have been passed by the Division Bench would have been to dismiss the winding-up petition. But the court did not feel that its hands were so circumscribed. That is why the Bench, notwithstanding its finding against winding up the company, went on to observe as follows: "Having come to the above conclusion, the question arises, whether the petition should be dismissed or some other order should be passed. Section 443 of the Act deals with the powers of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nst the contention urged by him and had as a last desperate measure to fall back upon the contention that this case was wrongly decided. He, however, could not point out a single precedent which had laid down that the powers of the court when hearing a winding-up petition are so severely limited as to passing of only one of the two orders, either of granting or dismissing the winding-up petition. On our part, we find ourselves in respectful concurrence with the course adopted in Abnash Kaur's case [1974] 44 Comp. Cas. 390 (Delhi) and the law laid down by it. In England also the law regarding the power of the court in hearing a winding-up petition has never been accepted to be so severely curtailed as is urged by Mr. Khanna. In In re L.H.F. Wools Ltd. [1969] 3 All ER 882, the Court of Appeal came to the conclusion, in an application filed by the creditor bank, that it was entitled ex debito justitiae to a winding-up order. Nevertheless it was pleaded by the company that there was a claim in Belgium which if it was able to pursue would be more than enough to meet the amount of debt standing against it and, therefore, an order of winding up need not be passed. This plea was acce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... against them they would not like ex parte orders to be passed against them, it would be impossible to imagine that any court would refuse respondents Nos. 2 to 5 to join the proceedings because depriving them from joining the winding-up petition would prejudice their interests. No one can deny that respondent No. 5, in whose favour the alleged transfer has been made and which is challenged by the appellant, has a very serious and real stake in the proceedings. If she had applied and been refused to be impleaded as a party, she would undoubtedly have had a right to file an appeal because her interests were very vitally affected. Evidently, the reverse situation (as in the present case) must equally entitle the petitioner to file an appeal against the order of learned single judge deleting the parties as it affects the appellant in obtaining proper and full relief. The foundation of the learned single judge, therefore, that as only either of the two orders, namely, allowing or dismissing winding-up petition could be passed being misplaced in law, his consequential order of deleting the names of respondents Nos. 2 to 5 automatically falls and cannot be upheld. The position here i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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