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TMI Blog1988 (4) TMI 327X X X X Extracts X X X X X X X X Extracts X X X X ..... ta Routray, 5.Gadadhar Dixit, 6.Bishnumohan Routray, 7.Nirmal Chandra Routray. The partnership was carrying on its business in the name and style "M/s. Utkal Flour Mills" having its office and place of business at Bhadrak. (b)The partnership was dissolved on August 23, 1975, for the purpose of conversion and incorporation as a company under the name and style M/s. Utkal Flour Mills (P.) Ltd. and the value of the net assets at the time of dissolution was Rs. 1,00,000 only. The nominal share capital of the said company is Rs. 15 lakhs divided into 1,500 equity shares of Rs. 1,000 each. (c)That the partners of the aforesaid dissolved partnership firm, on becoming shareholders of the newly formed company, continued to hold and retain their respective shares in the said company as they had in the dissolved partnership. The net asset of Rs. 1,00,000 of the dissolved partnership firm got transferred to the newly formed company and the same was treated as share capital and their respective interests in the company stood as follows : 1. Ramkrishna Sharma 5% 2. Smt. Durgadevi Sharma 3% 3. Srikrishna Sharma 30% 4. Sachikanta Routray 11% 5. Gadadhar Dixit 31% 6. Bishnumo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted profits of substantial amount earned by the company, the debts were not repaid, but the funds of the company were diverted in a clandestine manner for the personal benefit of the present set of directors. The debts not having been cleared up, Smt. Phula Devi Dixit, wife of the petitioner, a creditor of the company has filed Company Act Case No. 11 of 1982 praying for winding up of the company, Smt. Dixit had advanced a loan of Rs. 80,000 to the company, but she has not been paid any interest nor even a part of the principal as yet. (v)That fake loans have been shown in the names of different persons related to the managing director, and they are being paid interest regularly, as shown in the accounts. (vi)The accounts of the company are being manipulated and substantial amount has been diverted towards the share money of the present managing director in a firm named and styled as "Kalinga Chemicals" situated at Jagatpur. The managing director of the company now owns substantial shares in Lingaraj Flour Mills Pvt. Ltd., Berhampur and is one of its directors. He has also purchased land in the town of Bhadrak paying huge consideration. The aforesaid investment by the managing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the company. (h)The present directors of the company have been deliberately misusing their powers for oblique and extraneous purposes and their dealing and conduct in respect of the funds, assets and equipment of the company are neither fair nor above board. On the aforesaid allegations, it was prayed that it would be just and equitable to wind up the company and appoint an administrator to take charge of the assets and the books of accounts of the company during the pendency of litigation. On being noticed, the opposite party-company entered appearance in this case and filed its counter-affidavit denying all the allegations in the application for winding up of the company. It has been stated that it is wholly misconceived to suggest that the company was originally a partnership firm as alleged. It has been pleaded that the company is a legal entity, completely separate and distinct from a partnership concern and came into existence from the date of its incorporation. The partnership firm having been dissolved, there can be no link between the two. It has further been stated that the shareholding of the individual in a company is strictly on the basis of shares allotted in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unts of the company as well as in the income-tax returns of the persons who had advanced the same. As regards the initiation of the Company Act Case No. 11 of 1982, it has been stated that payment of interest was never stipulated and the wife of the petitioner was offered a cheque for Rs. 80,000 which learned counsel appearing for her refused to accept. All other allegations of fraud, mismanagement, manipulation, etc., have been categorically denied and it has been asserted that the company is being run and managed as efficiently and fairly as it is reasonably possible in the circumstances. The allegation that no meeting of the directors of the company is being convened has been refuted in the counter-affidavit. It has been stated that the Companies Act provides for calling upon the managing director to convene a meeting at the instance of a shareholder or a group or class of shareholders and in default thereof, appropriate proceedings can be initiated with the Registrar of Companies. That having not been done, the allegations in that behalf are unfounded, mischievous and wild. Regarding the allegation that the managing director of the company is purchasing shares in any other comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led to invoke the jarisdiction for winding up under the just and equitable clause having regard to the provisions of section 443(2) of the Companies Act? 6.Has the board of directors, representing the majority of shareholders, acted fraudulently in managing the affairs of the company in a manner destroying the probity and mutual trust and confidence of the shareholders? 7.Whether the extraordinary general meeting dated February 2, 1982 was legally convened and whether the resolutions adopted therein are valid and binding in law? 8.Is the company liable to be wound up? 9.To what reliefs? Issue No. 2 : Out of the aforesaid issues, learned counsel for the petitioner has submitted regarding issue No. 2 that the company in question is in substance a partnership concern and, therefore, the principles applicable to dissolution of a partnership as provided under section 44(5) of the Indian Partnership Act are applicable for winding up of the company. Admittedly, though there was previously partnership firm, the same was dissolved and a company came into existence. But the mere fact that a pre-existing partnership firm has been converted into a private limited company does not by itsel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pate in the profits of the company in which he holds the share if and when the company declares, subject to the articles of association, that the profits or any portion thereof should be distributed by way of dividends among the shareholders. He has undoubtedly a further right to participate in the assets of the company which would be left over after winding up, but not in the assets as a whole. Their Lordships in Hind Overseas Private Ltd. v. Ragunath Prasad Jhunjhunwalla [1976] 46 Comp Cas 91 (SC) dealt with the scope of section 433(f) of the Companies Act which 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. Their Lordships further analysed the scope of the words "just and equitable" and observed that the same is not to be read as being ejusdem generis with the preceding five clauses. From the facts and circumstances of the case, I do not find any justification for holding that the company in question, in substance, is a partnership firm as contended by learned counsel for the petitioner. Issue No. 2 is accordingly answered against the petitioner. Issues Nos. 3 to 7.- All the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 443(2) of the Act. It is fairly established in law that the relief under section 433(f) based on the just and equitable clause is in the nature of a last resort when other remedies are not efficacious enough to protect the general interests of the company. Whereas the petitioner has strenuously argued that various grounds exist in favour of winding up of the company on the ground that it is just and equitable, learned counsel appearing for the company has submitted that no prima facie case has been made out in the application far less any evidence to satisfy the distinct requirements of law. The first ground urged by the petitioner in this connection is the formation of Utkal Roller Flour Mills in 1979 and the same was not made known to the petitioner amounting to deliberate concealment of fact. It has been alleged that the board of directors, being motivated by personal animosity towards the petitioner or to make wrongful gain to themselves at the cost of the company, acted in bad faith by making clandestine deals in forming the Utkal Roller Flour Mills and carrying on business in the name of the said partnership firm. The said allegations have been denied by the company. On a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... areholders acted fraudulently in managing the affairs of the company in a manner destroying the probity and mutual trust and confidence of the shareholders which, according to the petitioner, is a just and equitable cause for winding up the company, I have already indicated that the prayer for winding up a company under section 433(f) must be judged from the facts of each case. The allegations in this case are general mismanagement and oppression of minority shareholders. It is often said that the words "just and equitable" are a recognition of the fact that a limited company is more than a mere judicial entity with a personality in law of its own. The company law recognises the fact that individual shareholders do possess the rights, expectations and obligations inter se which are hot necessarily submerged in the company structure. The "just and equitable" provision embodied in the company law enables the court to subject the exercise of legal rights to equitable consideration. It is also well-established in law that in making an order for winding up on the ground that it is just and equitable, the court will consider the interests of the shareholders as a whole and not that of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficient cause for winding up the company. It has been further alleged that the petitioner was ousted from the management of the company and thus there has been lack of confidence in the conduct and management of the company's affairs. This, according to learned counsel for the petitioner, is a sufficient cause for ordering the winding up of the company. Mr. Mukherjee, learned counsel appearing for the company has argued that at no point of time the petitioner was ousted from the management of the affairs of the company, but his was a case of resignation. Ouster evidently signifies forcible or wrongful dispossession or exclusion from the enjoyment whereas resignation implies a voluntary act relinquishing an office or the like. It has been alleged in the application that regular meetings of the company were not held and the company failed to comply with the statutory provisions inspite of repeated requests made by the petitioner. Being apprehensive of further penal consequences on account of gross irregularity or illegality committed by the directors Sharma and Routray, and having been threatened with physical assault, the petitioner was compelled to resign on September 22, 1981. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, 1981, was a voluntary act on the part of the petitioner. The petitioner has next alleged that he has never been served with any notice of meetings of the board of directors or the shareholders either as a director or as a shareholder after the year 1979. He further complains that the affairs of the company were concealed from the petitioner and the said action, in the facts and circumstances of the case, must be termed as "mala fide" justifying a winding up, though the petitioner alleges that he had not received any notice for the annual general body meeting during the year 1979-80 and 1981. There is no evidence whatsoever that he had raised any objection at any point of time till he tendered his resignation in September, 1981. As already stated, the petitioner has submitted that he had been participating in the day-to-day management of the company as a manager, and therefore, it is hard to believe that he was not aware of the annual general body meeting held during those years. Section 166 of the Companies Act requires that every company must hold in each year, in addition to several meetings, a general meeting as its annual general body meeting and the gap between two such me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d February 13, 1984, passed in this case in which the company had undertaken to keep the documents ready for production at the time of hearing, if necessary. He submits that no attempt whatsoever has been made by the petitioner to utilise the said documents in his favour which would rather go to show that the documents would prove the contrary. In the circumstances, the decision in Gopal Krishnji Ketkar v. Mohamed Haji Latif, AIR 1968 SC 1413 relied on by the petitioner has no application and no adverse inference can be drawn for non-production of the documents in possession of the company. Mr. Mukherjee, appearing for the company, next argued that assuming that there are some lapses, winding up of the company is not to be allowed if an alternative remedy is available to the petitioner. Reliance has been placed on section 443(2) of the Act which says that where the petition for winding up is presented on the ground that it is just and equitable that the company should be wound up, the court has a discretion to ask the petitioner to pursue the alternative remedy available to him. I have already indicated that the grounds on the basis of which winding up has been prayed for are them ..... X X X X Extracts X X X X X X X X Extracts X X X X
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