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TMI Blog2005 (4) TMI 301X X X X Extracts X X X X X X X X Extracts X X X X ..... the cost of this petition and of the order to be made thereon be provided for. 2. It is stated that the first respondent-company Kobashi Machine Tools Private Limited (for short "the company") was incorporated in the State of A.P. under the provisions of the Companies Act, 1956 (hereinafter referred to as "the Act") on April 29, 1986, as a private limited company limited by shares. The Registered Office of the first respondent-company is at Plot No. 61/C, Road No. 15, Phase-I, Industrial Development Area (IDA), Jeedi-metla, Hyderabad. The authorised capital of the first respondent-company is Rs. 1,00,00,000 (rupees one crore only) divided into 10,00,000 equity shares of Rs. 10 each. The issued, subscribed and paid-up capital of the company is Rs. 1,00,00,000. All the shares of the company are held equally by two family groups one represented by the first petitioner and the other represented by the second respondent. 3. The main objects of the company, as mentioned in the memorandum of association are (1) to manufacture and deal in all types of machine tools, testing equipment, measuring instruments, jigs, fixtures, components, accessories, sub-assemblies, etc., and othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rabad, Indian Air Force Station at Kanpur, Ordnance Factory at Bhanur, etc. Over the years, the company earned a name for itself and has been widely regarded as a leading manufacturer of high precision and critical components and sub-assemblies required for Defence, Aerospace and Aeronautical applications, and "Kobashi" became synonymous in its line of activity and has become popular. The company also received many awards, appreciations, and mementos from its customers. The turnover of the company in the year ended by March 31, 2001, was about Rs. 1,72,00,000 and for the year ending with March 31, 2002, was about Rs. 3,70,00,000. It is further stated that in 2001 M/s. Pratt and Whitney (a division of M/s. United Technologies Corporation), a major American Aero-engine company, showed interest to outsource components from the company and several representatives and technical teams of the American company came to the company and when an understanding was reached between the first respondent and the said M/s. Pratt and Whitney, a Standard Supplier Agreement was signed by the first petitioner on behalf of the company during November 2001. 4. While so, it is stated that the second re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt in conducting the board meeting for approving the annual accounts for the year ending with March 31, 2002, and also in carrying out other business of the board of directors, the affairs of the company had become stand-still, and there is a deadlock in running of the company leading to non-holding of the annual general meeting for the last two years, i.e., 2002 and 2003 and the board meetings since last week of September, 2002. All efforts of the petitioners for reconciliation between the parties have failed and there is no hope for continuing the business of the petitioners with the respondents. Therefore, the petitioners were constrained to approach this Court for an order of winding up of respondent No. 1-company on just and equitable grounds. 5. A counter is filed by respondent Nos. 2, 3 and 4 disputing and denying the allegations made by the petitioners in the company petition. According to the respondents, the petitioners illegally filed the present petition, even though no grounds do exist for an order of winding up on just and equitable grounds. The petitioners are trying to abuse the process of law and are intending to use the jurisdiction of this Court to have the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents, where the misconduct of the affairs by the petitioners were brought to light, and it was also made clear that the petitioners are in the custody of the records, minutes books, cheque books, common seal, etc. It is further stated that though a loan was granted in favour of Mr. E.S. Raghavan, in spite of repeated requests made by the respondents for recovery of the outstanding loan amount from the said Raghavan, the petitioners did not take any steps. Further, because of the attitude of the petitioners in non-conducting the meetings, the business of the company has come to a stand-still, in addition to resulting in non-payment of salaries to the employees and the workmen. It is also stated that the petitioners have not been attending to look after the business of the company. They used to attend only to show their presence and used to spend a while in the administrative block and that too for the purpose of making strategies to obstruct the company from running properly and to create hassles to the respondents who were deeply involved in procurement of orders and meeting the production deadlines and manufacturing commitments. It is stated that the first petitioner was assigned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding the wages and salaries payable to its employees and workmen, this Court proposed to the parties to give their offers for purchasing the unit, as this Court felt that the order of winding up would kill the unit having very much high value serving important units of the Government. Though the respondents have given their offer in a sealed cover, the petitioners have not come forward to make such an offer, and counsel appearing for the petitioners represented that the petitioners are unable to give their offer. Therefore, the matter was heard finally. 7. At the time of hearing, learned counsel for the petitioners, while reiterating the contentions made in the company petition, sought for an order of winding up of the company. It is contended by learned counsel for the petitioners that there is lack of confidence between the parties, and as there are only two groups and because of lack of confidence and non- co-operation, the business of the company had come to stand-still. Therefore, according to learned counsel, it would not be possible to resolve the disputes, except by winding up of the company under liquidation on just and equitable grounds. Hence, learned counsel sought ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing its turnovers. It is specifically admitted by the petitioners that the turnover of respondent No. 1-company came to Rs. 1,72,00,000 by March 31, 2001, and Rs. 3,70,00,000 by March 31, 2002, which would have further gone up if it had been allowed to carry on its business normally, but unfortunately certain disputes arose. From the material it is also evident that the petitioners sought to induct one Mr. E.S. Raghavan, as one of the directors of the company, which was objected to by the second respondent. As is evident, the second respondent apprehended that the petitioners are trying to get the control over the respondent No.1-company by getting additional shares allotted by a resolution of the board. In fact, the second respondent has stated that he came to know of the induction of the said Raghavan as one of the directors only as per the records of the Registrar of Companies. The material on record also clearly shows that there was correspondence between the petitioners and the second respondent, and apart from all other disputes there were proposals offering either to sell or purchase the share of the other. But, because of the non-co-operation of the petitioners, such a set ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a partnership, and under the Partnership Act of course the application for a dissolution would take the form of an action; but this is not a partnership strictly, it is not a case in which it can be dissolved by action. But ought not precisely the same principles to apply to a case like this where in substance it is a partnership in the form or the guise of a private company ? It is a private company, and there is no way to put an end to the state of things which now exists except by means of a compulsory order. It has been urged upon us that, although it is admitted that the just and equitable clause is not to be limited to cases ejusdem generis , it has nevertheless been held, according to the authorities, not to apply except where the substratum of the company has gone or where there is a complete deadlock. Those are the two instances which are given, but I should be very sorry, so far as my individual opinion goes, to hold that they are strictly the limits of the just and equitable clause as found in the Companies Act. I think that in a case like this we are bound to say that circumstances which would justify the winding up of a partnership between these two by action ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e has been no satisfactory accounting with regard to the sum of Rs. 50,000 by respondent Nos. 3 and 4." (p. 27) 17. Further, after discussing the case law the learned judge recorded the conclusion in para 27 as under : "The above discussion of the law establishes that facts justifying an order for dissolution of a partnership would equally justify the making of a winding up order in the case of a small private company." (p. 28) 18. Accordingly, the petition was allowed, and winding up order was passed. 19. In Brown Forman Mauritius Ltd. v. Jagatjit Brown-Forman India Ltd. [2004] 1 Comp. LJ 368 (Delhi), a company petition was filed under section 433( f ) of the Act. In the respondent-company, the petitioner and the second respondent were having equal shares and having equal representation on the company s board. In order to ensure equal status and power to the petitioner as well as the respondent, the chairman was not vested with a casting vote and board meetings could be convened only with the consent of one director of each of the parties. A joint venture agreement was entered into between the two groups providing for the termination of the arrangement in the eve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as much as Rs. 250 lakhs in 1998-99. It can scarcely be disputed that the company s employees have left the company in droves, proverbially, much like rats fleeing a sinking ship. The sales of the company are commercially insignificant and cannot sustain it in the future, even if the most optimistic prognosis is adopted. Since the shareholding is equally distributed between the petitioner and the respondent and neither of them has shown any proclivity of selling or acquiring the holding of the other a deadlock in the management has manifested itself. This deadlock is also evident in that there is no consensus on the vital questions of injecting further funds into the company s coffers; on the sales or depletion goals which the company should achieve; and these warring parties are already embroiled in litigation. A mere overview of the disputes and rival contentions leaves one in no doubt that it is just and equitable to wind up the company. It is more than likely that the petitioner and the respondent may initiate further litigation including arbitration against each other and, therefore, it would be expedient for the company judge to abjure from expressing views on the respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the winding up of the company. Learned senior counsel for the petitioner has categorically stated, with prejudice, that unless the respondent issues a no objection , the petitioner would not commence business in India. Thus, no action of the petitioner, either of omission or commission, can be said to be calculated or intended to bring the company to its knees. Accordingly, the company is ordered to be wound up." (p. 369) 20. Learned counsel also relied upon a decision of the Bombay High Court in Darshan Anilkumar Patel v. Gitaneel Hotels (P.) Ltd. [1994] 81 Comp. Cas. 805 and also a decision of the Karnataka High Court in Smt. Usha R. Shetty v. Radeesh Rubber (P.) Ltd. [1995] 84 Comp. Cas. 602 with reference to the powers of the Company Court for appointment of a provisional liquidator, pending the company petition even before admission. These two judgments are not relevant as the main company petition itself is taken up for hearing and was heard finally. 21. On the other hand, learned counsel for the respondents, in support of his contentions relied upon the following decisions : 22. In Hind Overseas (P.) Ltd. v. Raghunath Prasad Jhunjhunwala [1976] 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the company if ultimately the application has to be dismissed. 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 other interests have to be kept in mind at the time of consideration as to whether the application should be admitted on the allegations mentioned in the petition. The question that is raised in this appeal is as to what is the scope of section 433( f ) of the Act. Section 433 provides for the circumstances in which a company may be wound up by the Court. There are six recipes in this section and we are concerned with the sixth, namely, 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 222( f ) of the English Companies Act, 1948 is in terms identical with the Indian counterpart, section 433( f ). It is now well-established that, the sixth clause, namely, just and equitable is not to be read as being ejusdem generis with the preceding five clauses. While the five earlier clauses prescribe definite conditions to be fulfilled for the one or the other to be attracted i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion as not pressed, some other shareholders intervened to prosecute the petition. The facts as revealed show that a resolution was passed in the general body meeting for effecting sales of the assets of the company. Though the assets were notified there were no bidders for purchasing at the minimum up-set price. Thereafter, it was resolved to sell the company with all its belongings in the auction. At that stage one of the shareholders filed a civil suit. The Company Court while dealing with the petition filed under section 433( f ), found that the company is not an insolvent. The balance sheet for the relevant period shows that the company had assets worth Rs. 4,67,061, and in fact, the opposite party in the winding up petition stated that the assets of the company are worth above Rs. 5 lakhs, and the liabilities were only to a tune of Rs. 27,094. The Company Court relying upon the decision of the Bombay High Court in Standard Aluminium Brass Works Ltd., In re AIR 1929 Bom. 8 dismissed the petition. 24. In A.P. Pothen v. Hindustan Trading Corpn. (P.) Ltd. [1967] 37 Comp. Cas. 266 (Ker.); the contributors holding 1996 out of a total of 4,000 shares, filed a petition for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disputed and was the subject-matter of a civil suit. Therefore, the Division Bench confirmed the dismissal of the company petition, holding that there are no "just and equitable" grounds for an order of winding up in view of the pendency of the dispute before the civil court. 26. In Kilpest (P.) Ltd. v. Shekhar Mehra [1996] 87 Comp. Cas. 615 1 (SC), the company was promoted by its two first directors, having 1,500 shares and 1,625 shares. The two shareholders-directors fell out, as one of the directors was not attending the meetings of the company after September1, 1981. A third person was inducted on the board of directors and thereafter the articles of association of the company were altered abolishing the post of joint managing director, and a resolution was passed by which the non-attending director was ceased to be the director. Therefore, the said ousted director filed a petition under sections 397 and 398 of the Act. A Single Judge found it appropriate to try the petition as a winding up petition under section 433( f ) of the Act. A Division Bench, on appeal, set aside the order of the Single Judge. On further appeal, the Apex Court remanded the matter. The parties ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... K. Mohan Babu v. Heritage Foods India Ltd. (No. 2) [2002] 108 Comp. Cas. 793 1 . 28. In Prashant Glass Works (P.) Ltd. v. Banaras Beads Ltd. [2002] 111 Comp. Cas. 71 2 (All.) a petition for winding up of the respondent-company was filed under the "just and equitable" clause under section 433( f ) of the Act, alleging that the respondent-company had not complied with the statutory requirements of the Act as the company did not submit the annual returns and failed to prepare and audit the accounts of the company. Therefore, the respondent-company was said to have acted in oppression to the minority shareholders interest in the company. However, it was noticed that there were disputes between the two groups holding major shares and the matter was referred to an arbitrator, who gave an award and in pursuance of the award an application was filed under section 391, read with section 394 of the Act, in which a scheme of arrangement was proposed in conformity with the award of the arbitrator. Therefore, it was held that the petitioner has an alternative and efficacious remedy, but without availing of the said remedy he had approached the Court for winding up. The said petiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... probity and good faith in the conduct of the affairs of the company by the directors, the Bombay High Court, while dismissing the petition, held : ". . . that the fact that relations between the petitioner and the directors had lost the basis of mutual trust and confidence which was the foundation of the business was evident because the parties had signed an agreement to part company with each other and that the petitioner s shares were to be purchased by the directors for Rs. 2.25 crores. Prior to the agreement there was nothing on record to substantiate any of the allegation made by the petitioner in the petition. There was no complaint or grievance made by him in respect of holding of meetings, the absence of minutes, siphoning off of funds by the directors and the allegations of monetary mismanagement. The petitioner was only a sleeping director, his status therefore, in reality appeared to be that of an investor of Rs. 3 crores in the venture of the company which was looked after by the other directors. There was not even a single concrete instance of oppression of the petitioner by the directors. Apart from making a bald allegation in the petition there was absolutely no m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that she had filed a separate proceedings to ventilate her grievances against the company. The company in its counter statement stated that the petitioner did not care to attend board meetings of the company and violated section 283(1)( g ) of the Companies Act, 1956, that she also failed to attend three consecutive meetings of the board of directors, and therefore, ceased to be a director of the company, that there had been no siphoning off of funds or diversion of funds by the company, and the Companies Act does not make it mandatory for companies to declare dividend, that the company was a flourishing profit-making company, had a large export turnover and had earned a coveted status as a Government recognized export house, that the company directly employed about 300 workmen and staff, that the petitioner had not only effective alternative remedy available, the petitioner herself had admitted that she had filed separate proceedings to ventilate her grievance against the company, and hence the petition was liable to be dismissed. The Company Court, while dismissing the petitioner observed that the aggrieved person has to approach the Company Law Board for relief in case of oppres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contention of the respondents that the first petitioner is responsible for non-convening and non-conducting of the meeting of the board of directors or the annual general meeting. Learned counsel also contended that as there is no mismanagement or oppression, the petitioners have no other efficacious alternative remedy, except to approach this Court in view of the deadlock existed in the management of the company. Hence, learned counsel sought for an order of winding up of respondent No. 1-company. 34. If the facts of the case are examined in the light of the decisions relied upon by both sides, though, according to the petitioners, a private limited company has to be considered on the principles of a partnership firm, as was considered in Yenidje Tobacco Co. Ltd. s case ( supra ) the said principle was not accepted by the Apex Court in Kilpest (P.) Ltd. s case ( supra ). Further, the claim of the petitioners is that the conduct of the respondents, especially the second respondent, resulted in the lack of probity in the conduct of the affairs of the company. Though the petitioners have referred to lack of probity in the conduct of the affairs of the company, but did not ela ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , if any, with the petitioners. In fact, the petitioners have stated in the affidavit that the second respondent has offered initially a sum of Rs. 1.5 crores to the share of the petitioners, which was later increased to Rs. 2.25 crores, but the petitioners did not even state whether they had any such intention to offer to the respondents and if any such offer has been made, what was the offer. Further, the conduct of the petitioners even before the Court, who have declined to come out with their offer, shows that the petitioners are interested only to close down the company by an order of winding up. Though learned counsel for the petitioners relied upon a decision of the Delhi High Court in Brown Forman Mauritius Ltd. s case ( supra ) that was a case where both the petitioner and the respondent had shown any intention of either purchasing or selling, and therefore, it was held that there is a deadlock in the affairs of the company, and therefore, ordered winding up. But here, that is not the situation. Here, only one party, i.e., the petitioners, who are neither willing to purchase the shares of the respondents nor willing to sell their shares to the other side. Further, the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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