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TMI Blog2008 (2) TMI 612X X X X Extracts X X X X X X X X Extracts X X X X ..... Trent being Creditor and in spite of dues being admitted by the Company, there was non-payment on the part of the Company had been mentioned in the petition. - CIVIL APPEAL NOS. 1351 AND 1353 OF 2008 - - - Dated:- 18-2-2008 - C.K. THAKKER AND TARUN CHATTERJEE, JJ. Harish Salve, Dhruv Mehta, Harshvardhan Jha, Yashraj Singh Deora, Ms. Kamini Ahuja, Kamaldeep Dayal, Gayatri Goswami, Abhinav Sanghi, Ms. Chetna Rai and Ajit Anekar for the Appellant. F.S. Nariman, Jay Munim, Naval, Ms. Ruby Singh Ahuja, Manu Aggarwal, Jai Singh Barar and Mrs. Manik Karanjawala for the Respondent. JUDGMENT C.K. Thakker, J. - Leave Granted. 2. Both these appeals have been instituted against common judgment and order passed by the Division Bench of the High Court of Judicature at Bombay (Original Side) dated 20/21-2-2006 in Appeal Nos. 449-450 of 2005 in Company Petition No. 857 of 2004. First appeal has been filed by Severn Trent Water Purification, Inc. while the second appeal is filed by Chloro Controls (India) Pvt. Ltd. 3. The facts giving rise to the present appeals, in brief as noted by the Division Bench of the High Court are as follows. 4. Severn Trent Water ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a single product line of brine electro chlorination system from component parts supplied by Severn Trent. For the said purpose, a Joint Venture Agreement was executed by the parties on 16-11-1995. ( vii )Authorised capital of the company is Rs. 75,00,000 (Rupees seventy five lakhs) divided into 7,50,000 equity shares of Rs. 10 each. Severn Trent holds 3,75,000 equity shares being 50 per cent of the equity share capital of the company. The other 50 per cent of the shareholding of the company is held by Chloro Controls (India) Private Limited. ( viii )Chloro Controls (India) Private Limited filed Suit No. 233 of 2004 against Severn Trent with the sole object of circumventing the dispute resolution provisions in the Joint Venture Agreement entered into between the parties. ( ix )Due to wrongful stand and intransigence of Chloro Controls (India) Private Limited, there was total deadlock on joint venture and management. Despite several meetings between the parties and exchange of ideas aimed at resolving differences, relations between the parties became more and more strain. ( x )Severn Trent, therefore, terminated the Joint Venture Agreement vide its letter dated 21-7-2004 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents, etc. installed; 4.entering into fresh contracts in the name of the Company and for as representatives of the Company; 5.making any further purchases and payments without the consent of Severn Trent or without approval of the Board of Directors; 6.borrowing monies or drawing on existing credit facilities; 7.paying Chloro Controls directors or their family members monies allegedly owed by the Company; 8.running the website of the Company. ( e )Till the time of appointment of the Provisional Liquidator, Mr. Kocha may be removed from the post of Managing Director and committees appointed by the Board may manage the affairs of the Company; ( f )For ad interim reliefs in terms of prayer ( c ), ( d ) and ( e ) above; ( h )For such further and other reliefs as the nature and circumstances of the case may require; ( i )For the costs of the petition and the order to be made thereon. 7. The Company as well as Chloro Controls (India) Private Limited opposed the admission of the Company Petition. The Company objected to the maintainability of the petition for winding up on several grounds. It was, inter alia, contended that ( i ) Severn Trent was not a sharehold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... panies; 3.The provisions of section 439(4)( b ) of the Companies Act pertaining to devolution through death of a former holder were applicable in the present case, and 4.There was complete deadlock in the functioning of the business of the company because there were only two shareholders and both the shareholders were holding 50 per cent equity capital. Unless both the shareholders concur in conducting the business of the company the business could not be proceeded with and/or carried on and the company could not be allowed to function and run in that way. 11. The learned Company Judge in the light of the above findings admitted the Company Petition on 21-4-2005 and issued the following directions : ( i )Petition to be admitted and returnable on 19-8-2005. Respondent waives service. ( ii )Petition to be advertised in Free Press Journal, Janmabhoomi and Maharashtra Government Gazette. The petitioner to deposit a sum of Rs. 2,000 in the office of the Prothonotary and Senior Master, High Court, Bombay for utilization thereof to issue the advertisement if the petitioner fails to issue the advertisement. 12. Aggrieved by the decision of the learned Company Judge, Chloro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Court as required by law? Whether a winding up petition filed by Severn Trent is maintainable in the capacity as a contributory? 16. Before adverting to the above question, it is necessary to keep in mind the relevant provisions of the Act at the time company petition was presented. Part VII of the Act relates to Winding up proceedings . Whereas section 425 of the Act lays down Modes of winding up , section 433 enumerates Circumstances in which a Company may be wound up by Court . The said section reads thus : "433. Circumstances in which company may be wound up by Tribunal. A company may be wound up by the Tribunal, ( a )if the company has, by special resolution, resolved that the company be wound up by the Tribunal; ( b )if default is made in delivering the statutory report to the Registrar or in holding the statutory meeting; ( c )if the company does not commence its business within a year from its incorporation, or suspends its business for a whole year; ( d )if the number of members is reduced, in the case of a public company, below seven, and in the case of a private company, below two; ( e )if the company is unable to pay its debts; ( f ) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, in the case of a private company, below two; or ( b )the shares in respect of which he is a contributory, or some of them, either were originally allotted to him or have been held by him, and registered in his name, for at least six months during the eighteen months immediately before the commencement of the winding up, or have devolved on him through the death of a former holder. (5) Except in the case where he is authorised in pursuance of clause ( f ) of sub-section (1), the Registrar shall be entitled to present a petition for winding up a company only on the grounds specified in clauses ( b ), ( c ), ( d ), ( e ) and ( f ) of section 433 : Provided that the Registrar shall not present a petition on the ground specified in clause ( e ) aforesaid, unless it appears to him either from the financial condition of the company as disclosed in its balance sheet or from the report of a special auditor appointed under section 233A or an inspector appointed under section 235 or 237, that the company is unable to pay its debts : Provided further that the Registrar shall obtain the previous sanction of the Central Government to the presentation of the petition on any of the gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect of which he is a contributory have been; ( i ) originally allotted to him; or ( ii ) held by him and registered in his name for at least six months during the eighteen months immediately before the commencement of the winding up; or ( iii ) devolved on him through the death of the former holder. 21. Section 41 of the Act defines Member thus : " Definition of member . (1) The subscribers of the memorandum of a company shall be deemed to have agreed to become members of the company, and on its registration, shall be entered as members in its register of members. (2) Every other person who agrees in writing to become a member of a company and whose name is entered in its register of members, shall be a member of the company. (3) Every person holding equity share capital or company and whose name is entered as beneficial owner in the records of the depository shall be deemed to be a member of the concerned company." 22. Sub-section (2) of section 41 referred to above clarifies that a person who agrees in writing to become a Member of a Company and whose name is entered in its register of members, shall be a member of the company. 23. Section 108 provides t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ur attention to numerous foreign decisions. Probably, this is the first case before this Court of the type and, hence, there are no precedents covering the controversy raised before us. 27. Before more than a century, a question came up for consideration before an English Court of Chancery Division in A Company, In re [1894] 2 Ch. 394. In that case, a petition against the company was presented by X who was neither an original allottee of shares nor shares were registered in his name for a particular period required by law. He thus could not have presented the petition under section 40 of the Companies Act, 1867 (similar to section 439 of our Act). It was contended on behalf of X that the Company allotted shares to wrong persons who ought not to be allowed to avail themselves of section 40 of the Act. It was submitted that in equity what ought to have been done must be taken as having been done , and X should be treated as original allottee. 28. Negativing the contention and holding the petition not maintainable. Vaughan Williams, J. stated : " There is an express statutory provision as to the qualification of a contributory to present a winding up petition, and that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lighted the extent and applicability of section 224(1) of the Companies Act, 1948. It observed: " There seems to be no doubt that entry on the register is an essential qualification for a contributory who desires to present a petition, if he is not the original allottee and if the shares have not devolved on him through the death of a former holder ; for if neither condition is satisfied, section 224(1)( a )( ii ) requires that the shares must have been held by him and registered in his name for at least six months during the preceding 18 months. Plainly, if a transferee is not and never has been on the register, he cannot satisfy that condition. And it would not seem to be an answer that he ought to have been on the register, unless, perhaps, the company has been ordered to place him on the register and has disobeyed that order." [Emphasis supplied] 34. Reference was also made to leading commentaries by well-known authors on the subject. In Palmer s Company Law , (24th Edn., Vol. I, p. 1377), the learned Author stated : "No contributory of a company is capable of presenting a petition unless 1.either the number of members is reduced below two; or 2.the shares in res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, although not on the register of shareholders. 39. In our considered opinion, the ratio in Bayswater Trading Co. Ltd. s case ( supra ), does not help Severn Trent. It was a case of natural person who was a shareholder of the Company, whose name had been struck off which was sought to be restored. It was not a case of corporate entity or juristic personality . Obviously, therefore, in case of her death, personal representative could present a petition for winding up of the Company and such right available under sub-section (1) of section 224 could not be denied. 40. This is clear from the observations of Buckley, J., who after reproducing sub-section (1) of section 224, observed : "There is nothing there to indicate that a person on whom shares have devolved on the death of a former holder must have been registered as the holder of those shares before he is entitled to present a petition under section 224, and I think that those words in the proviso of the sub-section clearly indicate that a personal representative of a deceased shareholder is entitled to present a petition and that the word contributory in this sub-section must therefore be construed in a wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , certain preferential shares of the Company and to register them as shareholders and to issue certificates. The order was not complied with by the Company. When a winding up petition was presented by the petitioner, a preliminary objection was raised by the Company that since the petitioner could not be said to be shareholders as their names were not registered, they were not entitled to institute a petition. 45. The contention was negatived and petition was held maintainable by the Court. In a brief order, Bacon, V.C. said : " In my opinion the technical objection has no weight . The petitioner have been declared by the Court entitled to be shareholders, and the company have been ordered to allot them these shares, and to register them as shareholders in respect of them. These orders the company have failed to comply with, and it is only through their default that the petitioners names were not on the register upwards of six months ago." [Emphasis supplied] 46. In our opinion, the decision in Patent Steam Engine Co. s case ( supra ), will also not help Severn Trent herein. Firstly, the fact-situation in that case and in the case on hand is totally different. There, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of the Act and Severn Trent must be treated as contributory . It was also submitted that Severn Trent fulfils all the requirements of section 439(4)( b ) of the Act. On 31-3-2003, Delaware Corporation was merged into Severn Trent. Delaware Corporation was thus ceased to exist and the surviving Corporation, i.e., Severn Trent came to be substituted. All assets and liabilities of Delaware Corporation became the assets and liabilities of Severn Trent and Severn Trent became the contributory within the meaning of section 439(4)( b ) read with section 428 of the Act. Severn Trent, therefore, could present a winding up petition. According to the learned counsel, if strict and literal interpretation as advanced by the Company is accepted, a corporate entity or a juristic personality can never become a contributory and consequently a shareholder. It was submitted that there was total deadlock between the two groups. It had not been engineered by Severn Trent, but was the result of illegal acts and wrongful deeds of the Company and Kochas. It is, therefore, impossible that the Company would register the name of Severn Trent in the Register of Company and extend Severn Trent an oppor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Since there is death of former holder which expression would include dissolution/winding up of a corporate shareholder, the right to present a winding up petition must be conceded to Severn Trent, successor of former holder. It was submitted that it would be incorrect to urge that the use of expression he , his or him would apply only to natural persons and not to corporate personalities. If the said view is accepted, winding up petition can never be filed by a successor Company even if it holds shares earlier held by the former holder . 50. The above argument weighed with the learned Single Judge and he observed that though Severn Trent was not the person who was originally allotted shares nor its name was registered in the register of the Company but the expression or have devolved on him through the death of former holder would get attracted inasmuch as upon merger/amalgamation of Capital Controls (Delaware) Company, Inc. in Severn Trent, the former Company, i.e., former holder can be said to have been met with death and the shares held by the said Company could be said to have devolved on Severn Trent. If it is so, obviously, a petition filed by Severn Trent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he corporate entity was liable to be contempt jurisdiction of the Court does not appeal us. If we accept the reasoning of the learned Company Judge and the submission of the learned senior counsel for the petitioner, it would be tampering with the plain language used in the last category of clause ( b ) of sub-section (4) of section 439 which we cannot do." 55. In our opinion, the Division Bench of the High Court was right in holding that the phrase or have devolved on him through the death of former holder would apply to natural persons who are holding shares in their individual capacity and not to juristic entities. 56. The word death mentioned in a statute normally refers to the seizing of life of a natural person. In Stroud s Judicial Dictionary of Words and Phrases, (Vol. I, 6th Edn., p. 610), it is stated : "Where death is mentioned in a statute, the word generally refers to the ceasing to live of a natural person; it will require a strong context to make the word include the dissolution of an artificial entity, e.g., a partnership or a Company." 57. In Stewart v. Brown 35 SLR 828, the Court held that it was invited to interpret the words deceased ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bar Council of India [2003] 6 SCC 186 and Union of India v. Rajiv Kumar [2003] 6 SCC 516 lay down principles of interpretation of statutes. These principles are well-known and the learned counsel for the Company did not dispute them. They are, however, not applicable to the facts of the case. 63. For the aforesaid reasons, we answer question No. 1 in the negative and hold that a winding up petition filed by Severn Trent in the capacity as a contributory is not maintainable. 2. Whether a winding up petition filed by Severn Trent is maintainable in the capacity as a creditor? 64. So far as second question is concerned, reading of the order passed by the learned Company Judge makes it clear that no such argument was raised on behalf of Severn Trent presumably because there was no occasion for such argument inasmuch as according to the learned Company Judge, Severn Trent could be said to be a contributory within the meaning of section 439(4)( b ) of the Act and a petition presented by Severn Trent in that capacity was tenable. Since the order passed by the Company Judge was challenged by the Company before the Division Bench and the Division Bench upheld the objectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deration to the above submission. In our opinion, however, it cannot be said that the Division Bench was in error in passing the impugned order and remitting the matter to the learned Company Judge to consider the question as to maintainability of company petition filed by Severn Trent as a Creditor of the Company. In this connection, our attention has been invited by the learned counsel for Severn Trent to the company petition. In para 16 of the petition, it was stated by Severn Trent that it was also a Creditor of the Company and admitted sums owed by the Company to Severn Trent had not been paid. It was further stated that the Board of Directors of the Company and the Managing Director had acknowledged the Company s liability to Severn Trent in various communications and Board Meetings. It was further stated that in the circumstances, Severn Trent was constrained to issue legal notice on 4-8-2004 demanding payment of all outstanding dues. A copy of the demand notice was also annexed to the company petition. According to Severn Trent, total amount due and payable by the Company to Severn Trent as on 31-7-2004 came to US $ 575,113.29. In ground ( i ) also, it was the case of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ided it. Before the learned Company Judge, no such contention appears to have been advanced by the Company. Before the Division Bench, it was argued that since there was premature advertisement by the Severn Trent without any order from the Company Court, there was abuse of process of the Court by Severn Trent and the petition was liable to be dismissed only on that ground. Before us also, the above contention was reiterated by the learned counsel for the Company and in support thereof, case-law has been cited. The learned counsel for the Severn Trent, however, submitted that the advertisement was qualified, carefully worded and the facts stated therein were accurate. It was essentially a notice to creditors, contributories and other persons intimating about presenting of winding up petition and there was no mala fide intention or oblique motive in issuing the advertisement. We may only state that since the Division Bench of the High Court has remitted the matter to the learned Company Judge and granted liberty to the Company to oppose admission of the Company petition on all available grounds including the ground of premature advertisement , we need not express any opinion on ..... X X X X Extracts X X X X X X X X Extracts X X X X
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