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TMI Blog1985 (1) TMI 261X X X X Extracts X X X X X X X X Extracts X X X X ..... der the "just and equitable" clause contained in section 433(f) of the Companies Act, 1956. The short facts leading to this appeal are as under : The respondent, Shri Shekhar Mehra, initially filed a petition under sections 397, 398, 402, 403 and 450 of the Companies Act before the company judge on October 1, 1983, praying for starting investigation into the affairs of the company (appellant No. 1) for removing the present board of directors and for quashing the resolution of the board of directors of the company purported to have been passed in the extraordinary general meeting held on January 15, 1983, and relating to alterations in the articles of association Nos. 84, 85, 86, 91 and 93 of the company and for the grant of any other relief or reliefs which the company court may deem fit and proper in the circumstances of the case. The first appellant, M/s. Kilpest Private Ltd. (in brief, the company), was promoted by appellant No. 2, Shri R. K. Dubey, and the respondent, Shri Shekhar Mehra. These two promoters were the only shareholders in the company, each holding 50 shares. On May 27, 1972, appellant No. 1, M/s. Kilpest Private Ltd., Bhopal, was incorporated under the Compani ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e one hand and the respondent and his family members and associates on the other. Therefore, the principles of partnership are applicable to the company, appellant No. 1. He also alleged that since 1981, the two groups have been pulling in different directions. The respondent was compelled to refuse to sign the balance-sheet for the years ending December, 1981, December, 1982, and onwards. It is further alleged by the respondent that the affairs of the company have been, for a number of years, conducted in a manner that there is an utter lack of confidence between the directors. Such lack of confidence has been caused by lack of probity in the conduct of the affairs of the company by the two groups, namely, Mehra group and Dubey group. As per the allegations, Dubey group has been acting to benefit themselves personally and were not concerned with the welfare of the company. It is further alleged that the respondent would not get any relief by calling a general meeting of the company as he has been reduced to a minority by and through illegal means adopted by the Dubey group. It is further alleged that appellant No. 2 and the respondent have agreed that both of them will participat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... through bank draft from the said buyers in the year 1978. The company was given an order by the Director-General of Supplies and Disposals in New Delhi, vide order dated June 1, 1978, for supply of 525 metric tons of BHC 6.5 per cent. Gamma Isomer WDP (Pesticides). But it is alleged that the required quantity of BHC (Technical) was not at all purchased by appellant No. 2 and, as such, this was a fictitious transaction. Similar types of allegations are also made relating to the transaction wherein it is alleged that the company got an order from the Director-General of Supplies and Disposals, New Delhi, for the supply of 112.8 metric tons of DDT 50 per cent. WDP. For manufacturing DDT 50% WDP, it was essential for the company to purchase approximately 55 to 60 metric tons of DDT (Technical). The respondent alleged that the above required quantity of DDT was never purchased by the company but the :fictitious bills of DDT (Technical) have been utilised by appellant No. 2 to show that DDT (Technical) was purchased by the company but was not supplied to the Government of India according to the specification. On the other hand, replying to the allegations of the respondent as made by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t failure of crops. The pesticides industries were facing a recession since 1978 and this has affected the financial position of the company. It is averred that articles 85 and 86 have been duly altered by a special resolution in the extraordinary general meeting of the members of the company held on January 15, 1983. The intimation of this amendment was duly given to the Registrar of Companies as required by the provisions of the Companies Act and the same have been duly incorporated by the Registrar. The charge of partnership amongst the appellants and alleged members of their family is also denied on the ground that the same was or is not in the nature of a partnership. The appellants have also denied the other allegations made in the petition relating to the meetings of the board of directors having been held without notice to the respondent during the years 1981, 1982 and 1983. However, it is submitted that the respondent had been attending board meetings till September 1, 1981. The notices of subsequent board meetings were also duly sent to the respondent in accordance with the provisions of the articles of association and the Companies Act, 1956. But despite the notices an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Judge, Class II, Bhopal. Therefore, the appellants submitted that the alleged facts of oppression are not at all relevant for the purposes of the petition and they are beyond the scope of the provisions of sections 397 and 398 of the Companies Act, 1956. The appellants, therefore, prayed for the disposal of the petition on the ground, inter alia, that the petition as framed and filed under sections 397, 398, 402, 403 and 450 of the Companies Act is not maintainable. It is further submitted that on June 27, 1983, the respondent again filed another suit challenging the validity of the extraordinary general meeting scheduled to be held on June 28, 1983, and prayed for temporary injunction but the same was rejected by the trial court on June 27, 1983, and on June 28, 1983, appellant No. 3 was re-elected as director. In this meeting, the entire group of the respondent remained absent despite notice. The appellants have raised a legal plea that the respondent alone had no right to move an application under sections 397 and 398 of the Companies Act as it has not complied with the imperative requirements of rule 88 of the Companies (Court) Rules, 1959, and the mandatory Form No. 43. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been filed on the grounds, inter alia : (a)The petition as framed and filed under sections 397, 398, 402, 403 and 450 of the Companies Act is prima facie not maintainable for the reason that the respondent while submitting the petition has not complied with the mandatory requirement of rule 88 of the Companies (Court) Rules and Form No. 43 appended thereto. (b)The respondent neither filed the petition on behalf of the majority members nor was any letter of consent given by them authorising the respondent to file the petition appended whereas the mandatory form requires that the written consent with specific allegations should be annex ed with the petition. (c)The workers of the company have also locus standi to appear and to be heard whereas no notices were issued to them. In this way, against the principles or natural justice, the petition was admitted for hearing by the company judge on October 13, 1983, and further order was passed on August 6, 1984, for winding up. (d)The petition originally as framed and filed under sections 397, 398, etc., of the Companies Act is not liable to be converted into one for winding up under section 433 (f) of the Companies Act. (e)The petitio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to court for relief in cases of mismanagement; section 399 gives a right to the person concerned to apply under sections 397 and 398. Section 400, which is a very important provision, speaks of issuing notice to the Central Government of applications under sections 397 and 398. Section 401 speaks of the right of the Central Government to apply under sections 397 and 398. Section 402 gives power to the court to consider the application under section 397 or 398. Section 404 speaks of the effect of alteration of the memorandum or articles of company by order under section 397 or 398. Section 433 speaks of circumstances in which a company may be wound up by court. Section 433(f) provides that if the court is of opinion that it is just and equitable, the company should be wound up. Section 434 speaks of the company when deemed unable to pay its debts. Section 443 gives powers to the court to hear the petition. Section 443(2) says that where the petition is presented on the ground that it is just and equitable that the company should be wound up, the court may refuse to make an order of winding up, if it is of opinion that some other remedy is available to the petitioners and that they ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he shareholders only contribute the money part in making investments but the company's labourers are the real workers by whose manual labour, the shareholders amass good fortune. Therefore, the company is not the property of the shareholders alone. A company, according to the new socio-economic thinking is a social institution having duties and responsibilities towards the entire community in which it functions. The shareholders invest their money part only but the workers invest sweat and toil and, in fact, their life itself, and, therefore, the workers have a special place in the socialistic pattern of society. Their Lordships of the Supreme Court in National Textile Workers' Union v. P. R. Ramakrishnan [1983] 53 Comp. Cas. 184, have held that in a winding-up petition under section 433(f) of the Companies Act, the workers of the company have the same locus standi as that of shareholders and, therefore, they have an equal right to appear and oppose the winding up of the company, as the workers are not mere vendors of toil and they are not a marketable commodity to be purchased by the owners of capital. They are producers of wealth as much as capital. Applying this concept that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 98, etc., there are distinguishable features and, therefore, the petition under sections 397 and 398 could not be converted into a winding-up petition under section 433(f) because : 1.(a) For a petition under sections 397 and 398, the relevant rules are rules 11(a) 12, 13, 24, 88, 90. 1 (a) For a petition under section 433, the relevant rules are rules 95 to 105. Relevant Forms are Forms 43 and 44. Relevant Forms are 45 to 49. (b) Case for winding up is essential under section 397 but not so under section 398 ( b) Analogy of the English Act is inappropriate, vide section 210(5). (c) No sections in the English Act are equivalent to sections 398 to 409 2. Notice to Central Government is necessary under section 400 2. No such notice is necessary. 3. Share qualification is required for an application under sections 397 and 398, vide section 399 3. No minimum share qualification is required 4. Under section 401, the Central Government may apply under section 397 or 398 4. The Central Government cannot apply but the Registrar of Companies can apply under section 439(5). 5. Nature of reliefs under sections 397, 398 is much wider, vide section 402 5. Nature of relief is narr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d when necessary. Where the words used in both the Acts are identical, the English decisions may throw good light and reasons may be persuasive. But as the Privy Council observed long ago in Ramanandi Kuer v. Kalawati Kuer, AIR 1928 PC 2, it has often been pointed out by this board that where there is positive enactment of the Indian Legislature, the proper course is to examine the language of that statute and to ascertain its proper meaning, uninfluenced by any considerations derived from the previous state of the law--or of the English law upon which it may have been founded. If it was true in the twenties, it is more apposite now that the background, conditions and circumstances of Indian society, the needs and requirements of our country call for a somewhat different treatment. We will have to adjust and adapt, limit or extend, the principles derived from English decisions, entitled as they are to great respect, suiting the conditions of our society and the country in general, always, however, with one primary consideration in view that the general interests of the shareholders may not be readily sacrificed at the altar of squabbles of directors of powerful groups for power to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase must show in relation to his position as shareholder prima facie establishing in the petition itself, some lack of probity on the part of other shareholders (appellants in this case) and a course of oppressive conduct continued up to the date of filing of the petition. Their Lordships of the Supreme Court in Hind Overseas P. Ltd.'s case [1976] 46 Comp. Cas. 91 , 104 (SC), have held as under : "When more than one family or several friends and relations together form a company and there is no right as such agreed upon for active participation of members who are sought to be excluded from management, the principles of dissolution of partnership cannot be liberally invoked. Besides, it is only when shareholding is more or less equal and there is a case of complete deadlock in the company on account of lack of probity in the management of the company and there is no hope or possibility of smooth and efficient continuance of the company as a commercial concern, there may arise a case for winding up on the just and equitable ground. In a given case, the principles of dissolution of partnership may apply squarely if the apparent structure of the company is not the real structure and o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... definitely of a subordinate character. The voluntary financial involvement of a large stake by V.D.J. carefully sought to be protected against erosion of his interest by constant vigil on the day-to-day working does not fit in with the concept of a partnership. All the above features do not enable us to accept the submission of the respondents that the company in this case is in substance a partnership". The term "just and equitable" has undergone a radical change in the socioeconomic conditions in our country. The term "just and equitable" has lost its technical meaning and has acquired a more meaningful and pragmatic one. Unless and until the court reaches the conclusion based on sound principles and considering all the circumstances and facts of each case, an order for winding up of the company should not be passed. Their Lordships of the Supreme Court in Hind Overseas P. Ltd's case [1976] 46 Comp. Cas. 91, 107 held as under : "It is not a proper principle to encourage hasty petitions of this nature without first attempting to sort out the dispute and controversy between the members in the domestic forum in conformity with the articles of association. There must be materials ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s prior to 1980. The other point urged was relating to notice, that no notice of meeting was served on the respondent and the adjourned meeting was also not convened in accordance with the provisions of sections 288 and 289 of the Companies Act. If we look to the pages 80, 82, 85 and 86 of the paper book, volume VIII, articles of association 111 to 116, we see that there is no legal infirmity in conducting the meetings. Therefore, the appellants have not committed any breach of the statutory provisions relating to conducting of the meetings. Learned counsel appearing for the respondent has taken us through the decision in Eastern Linkers v. Dinanath Sodhi [1984] 55 Comp. Cas. 462 (Delhi). But we have already expressed our views in the foregoing paragraphs that the petition under sections 397, 398 of the Companies Act cannot be converted into a petition for winding up. Besides this, a prima facie case has to be made out before the court can take any action in the - matter. Therefore, the case referred to by the respondent is quite distinguishable from the facts of the instant case. In Hind Overseas P Lid's case [1976] 46 Comp. Cas. 91 , 105 (SC), it has been laid down as under : ..... X X X X Extracts X X X X X X X X Extracts X X X X
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