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TMI Blog2002 (10) TMI 685X X X X Extracts X X X X X X X X Extracts X X X X ..... non-cumulative preference shares of Rs. 100 each redeemable at 14 per cent. The issued capital of the company is Rs. 69,00,000 consisting of 3,000 cumulative preference shares of Rs. 100 each; 10,000 equity shares of Rs. 100 each and 4,20,000 equity shares of Rs. 100 each. Subscribed, called and paid up capital is Rs. 62,71,700 consisting of 65 cumulative preference shares of Rs. 100 each, 14,000 redeemable non-cumulative preference shares of Rs. 100 each, 8,646 equity shares of Rs. 100 each, 14,00,000 equity shares of Rs. 10 each. The object and nature of business are fully set out in the memorandum of association of the company. At the time of incorporation, the company had an authorised capital of Rs. 25,00,000 divided into 23,000 equity shares of Rs. 100 each; and 20,000 shares of Rs. 10, each. The original promoters of the company were seven in number and they held 431 shares. The first directors of the company were O.K. Muthusamy Mudaliar, O.K. Palaniappa Mudaliar, K.S. Murugappan and A. Mariappa Mudaliar. The company was carrying on business and has put up a unit of spinning and weaving of cotton at Tirupur. In or about 1968 the petitioners along with their father and grand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bstratum of the company has gone. In the circumstances, the company has become liable to be wound up on the ground that it is just and equitable. 3. The managing director and director of respondent-company have filed separate but identical counter statements. For convenience I shall refer to the counter statement of the managing director of the respondent-company. The respondent-company is a profit-making concern and has no intention of closing down its business and there is no loss of substratum of the respondent-company. The respondent is an old well-established company. The respondent was incorporated in 1954 and has been in existence for nearly 50 years. The petitioners and other family members were in management and control of the respondent-company for nearly 20 years from 1968 to 1989. During this period the petitioner extensively mismanaged the respondent-company. Criminal prosecutions were launched against the petitioners and their families by the provident fund authorities. The company incurred huge losses and borrowed large sums of money. Due to this extensive mismanagement, the respondent-company became a sick industrial Company and a reference was made to the BIFR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... than 80 per cent of the share capital of the respondent-company while the petitioners hold only about 5 per cent. The petitioners who were responsible for the sickness never evinced any interest in the revival of the respondent-company. The resolutions have not been proposed with any fraudulent intent or with a view to make secret profits. The resolutions were carried with the requisite majority. The allotment of shares of Rs. 20,00,000 was made with the knowledge of and in pursuance of the orders of the BIFR. The Companies Act itself empowers the board to appoint additional directors and the managing director. The petitioners have alternate remedies in the Companies Act and under general law to ventilate their grievances. They have however failed to do so but are seeking the extreme step of winding up of the company. 4. In the light of the above pleadings, I have heard Mr. H. Karthik Seshadri, learned Counsel for the petitioners and Mr. V. Ramakrishnan, learned Counsel for the respondent-company. 5. The points for consideration are : (1) Whether the petitioners have alternative remedies and, if so, is the company petition maintainable? and (2) Whether the petitioners have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Companies Act, for the petitioners to avail of the remedy of the Company Law Board, they will have to hold more than 10 per cent. Further, it is contended that inasmuch as the petitioners have committed the alleged act of fraud and the same is opposed to various classes of shareholders, the relief of winding up would be just and equitable remedy. 10. Before considering the above question, it is relevant to refer to section 443(2) of the Act : "443(2) 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 are acting unreasonably in seeking to have the company wound up instead of pursuing that other remedy." 11. It is clear from the above provision that winding up is sought for in respect of a company on the ground that it is just and equitable, if the Court is of opinion that some other remedy is available to the petitioners and that they are acting unreasonably in seeking to have the company wound up instead of pursuing that other remedy, the Company Court may refuse to make ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, under sections 397 and 398 of the Act there are preventive provisions in the Act as a safeguard against oppression in management. These provisions also indicate that 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. ****** 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 to show when just and equitable clause is invoked, that it is just and equitable not only to the persons applying for winding up but also to the company and to all its shareholders. The Company Court will have to keep in mind the position of the company as a whole and the interests of the shareholders and see that they do not suffer in a fight for power that ensues between two groups." (p. 106) 14. In Daulat Makanmal Luthria v. Solitaire Hotels (P.) Ltd. [1993] 76 Comp. Cas. 215, the Bombay High Court (Panaji Bench, Goa) has held that : "The scheme of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nch of this Court in Bhaskar Stoneware Pipes (P.) Ltd. v. Rajinder Nath Bhaskar [1988] 63 Comp. Cas. 184 . On the ground of reduction of the share capital, mismanagement and oppression, the petitioners can invoke the jurisdiction of the Company Law Board under section 397 and can file civil suit for seeking relief. To my mind, the remedy of winding up is not the answer, and, therefore, the petition as such is not maintainable under section 433( f ) of the Act." (p. 225) 16. In the winding up petition, the petitioners have mainly pleaded three grounds for winding up the respondent-company, namely, loss of substratum, fraud by sale of assets, fraud of issuing further shares to Shanmugam Chettiar and his group. In such circumstance, as rightly observed in the above decisions, I am of the firm view that the petitioners can very well invoke the jurisdiction of the Company Law Board under section 397 of the Act or can file civil suit for seeking relief. In the light of the scheme of the Companies Act, particularly after its amendment, I am of the view that a winding up has to be resorted to only when other means of healing an ailing company are of absolutely no avail. Considering ..... X X X X Extracts X X X X X X X X Extracts X X X X
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