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TMI Blog2007 (12) TMI 288X X X X Extracts X X X X X X X X Extracts X X X X ..... d up capital is Rs. 1 lakh divided into 10,000 equity shares of Rs. 10 each. The objects for which the petitioner-company was incorporated is to carry on the business of builders and contractors and to purchase, acquire, take on lease land, buildings and structures for its development and also to build, take on lease, purchase or acquire houses and flats, to let or dispose of the same in instalment, hire purchase or by outright sale and to set up orchards, gardens, farms, agricultural houses, etc. In the petition filed before this court, it is stated that prior to its incorporation, the promoters of the petitioner were carrying on business in the name of four different partnership firms, viz., M/s. Asra Housing, M/s. Asra Sheep Farm and Plantations, M/s. Asra Hospitals and M/s. Asra Textiles, that all the four firms had common partners and were being operated from the same premises. It is stated that, in the course of its business, the partnership firm invited deposits from the public, that several people deposited their money with the firms, that Reserve Bank of India came up with certain guidelines with the avowed object of safeguarding the interest of deposit holders of non-ban ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the orders of the Company Law Board, the petitioner had paid about Rs. 30 lakhs to various depositors and had issued several advertisements calling upon the deposit holders to submit applications for repayment of the deposits. According to the petitioner it has assets worth more than Rs. 5.20 crores, in the form of immovable property situated in and around Hyderabad and agricultural lands in Karimnagar and Prakasam districts, as against its total liabilities of Rs. 3.73 crores payable to deposit holders out of which the company has already repaid Rs. 30 lakhs. It is stated that the company thought it fit to settle all the dues of depositors by way of an one-time-settlement in terms of a scheme of arrangement, that the board of directors of the petitioner-company had considered and approved the scheme of arrangement and that C.A. No. 225 of 2003 was filed to convene a meeting of the deposit holders for the purpose of considering and, if thought fit, to approve the proposed scheme of arrangement with or without modification, that by order of this court dated March 7, 2003, Sri P.V. Markandeyulu, advocate, was appointed as the chairman for the meeting, that a meeting of the deposit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claims of depositors and disburse the same to the deposit holders. This court, by order dated March 29, 2007, noted that, in view of the criminal complaints made by the depositors, the Central Crime Station, Hyderabad had seized the entire records of the company on February 28, 1999, under a seizure panchnama, that the managing director and other directors of the company were not in a position to carry on business, that the company owned large number of assets, some of which were under agreements of sale where-under substantial amounts were paid to the vendors, that it was necessary to negotiate with the vendors and it was essential that the properties be disposed of expeditiously so as to settle the claims of the depositors after adjudication. This court further noted that the official liquidator was already overburdened with the work of a number of companies which were under winding up, that if this matter was also to be dealt with by the official liquidator it would take a long time which would cause hardship to the depositors as well as to the ex-directors of the company. This court took note of the report of the official liquidator that they had taken symbolic possession of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s court from time to time. Sri L. Venkateswara Rao, advocate, was called upon to assist the advocate-commissioner in discharging his duties. Both counsel were held entitled for remuneration from out of the sale proceeds. The official liquidator was directed to hand over the properties of the company under provisional liquidation to the advocate-commissioner. In his report dated August 7, 2007, the advocate-commissioner informed that he had deputed two officials from the office of the official liquidator on April 11, 2007, along with the ex-managing director, to take possession of the landed property of the company under provisional liquidation and that they had reported that almost all the landed properties of the company were under litigation. The advocate-commissioner stated that he had taken symbolic possession of the landed property of an extent of acres 0-24 guntas in Sy. No. 64 of Anmagal, Hayatnagar village on April 11, 2007, and that there were no boundaries for identification of the exact extent of land of the company, that C. A. No. 741 of 2007 had been filed for survey of the land which was still pending, that both the ex-managing director and the official liquidator ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2002 253/2005 2. VIII Metropolitan Magistrate, Visakhapatnam (Gajuwaka P.S.) 72/2002 140/2003 3. VII Metropolitan Magistrate, Visakhapatnam (Gajuwaka P.S.) 192/2002 421/2003 4. 4th Court, Additional Judicial First class Magistrate, (Kakinada III Town P.S.) 35/2006 5. 3rd Court, Additional Judicial First Class Magistrate, Kakinada (Samalkota P.S.) 52/2006 6. Judicial First Class Magistrate, Tuni, (Tuni P.S.) 66/2006 350/2006 7. Addl. Judicial First Class Magistrate, Ramachandrapuram (Ramachandrapuram P. S.) 47/2006 8. Junior Civil Judge cum First Class Magistrate, Alamuru (Mandapeta P.S.) 52/2006 9. Special Judge for Economic Offences, City Criminal Courts, Nampally, Hyderabad C C. No. 530/2002 10. Metropolitan Sessions Judge, Nampally, Hyderabad (Central Crime Station, Hyderabad) 540/2001 11. Metropolitan Sessions Judge, Nampally, Hyderabad (Central Crime Station, Hyderabad) 356/1999 12. Metropolitan Sessions Judge, Nampally, Hyderabad (Central Crime Station, Hyderabad) 64/2003 winding up : A remedy of the last resort : Part VII of the Companies Act relates to winding up and secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... embers are not less than three times the number of the votes cast against the resolution. It is only by a special resolution of three-fourth in value of the shareholders, attending the meeting and voting in favour, would the requirement of clause (a) of section 433 be satisfied. When the Companies Act itself prescribes a special resolution to be passed, and not merely an ordinary resolution, can it be said that failure on the part of the board of directors, even to place it before the general body of the shareholders of the company for its decision, would enable the High Court to wind up such a company? While the board of directors are in overall charge of the management of the company, its ownership rests with the shareholders. The distinction between the management of the company and its ownership has to be borne in mind. A company functions under its "basic constitution'' consisting of the Companies Act and the memorandum of association. The members in a general meeting and the directorate are the two primary organs of a company. The directors are answerable to the shareholders in a general meeting. The modem practice is to confer on the directors the right to exercise all the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o in their individual capacity and not in the name of the company. The present petition was, as stated above, submitted in the name of the company and was subscribed for it by the managing director. The managing director or the board of directors through whom S. Sewa Singh Gill claims to have derived his authority to present the petition for winding up do not form the company, as the company has other members also nor had they any power under the law or the articles of association to present the petition in the name of the company without the authority of the resolution passed at a general meeting. The company means the company as composed of all its members and for a matter as grave as compulsory winding up, their views must be consulted and expressed by a resolution adopted at a general meeting. It is true that the managing director does under the articles of association possess the power to institute or defend suits or other litigation on behalf of the company. But that power, in my opinion, does not include the power to make an application for winding up in the name of the company ; as it is the company itself which will decide whether to apply for compulsory winding up or not. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsent of a general meeting for the presentation of a winding up petition and that the directors had the power to do what the company could have done, namely, to present the petition, observed (pages 383 to 385): "The next contention was that even assuming that a foreign company as an unregistered company can file a petition for winding it up, it can do so only when the company at a meeting of its shareholders has resolved to file such a petition. In the present case there has been no such decision or resolution. Though the directors may have large powers in the conduct of the affairs of the company, they cannot themselves decide to put an end to the corporate existence of the company. He sought support for this contention in the provisions of section 162 of the Indian Companies Act as interpreted by him. That section runs as follows : '162. A company may be wound up by the court- (i) if the company has by special resolution resolved that the company be wound up by the court; (ii) if default is made in filing the statutory report or in holding the statutory meeting; (iii) if the company does not commence its business within a year from its incorporation, or suspends its busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adjourned to enable the directors to summon a meeting of the shareholders and obtain their authority. I am not sure if this is what the learned Advocate General wants, because it is obvious that the shareholders are not against this petition, as by this time they should have been aware of the proceeding and no one has come up to protest against the action of the directors. The shareholders must in the circumstances be deemed to have impliedly ratified the action of the directors. Our attention was also drawn to the decision of a single learned judge of the Pepsu High Court in-Patiala Banaspati and Allied Products Co. Ltd., In re, AIR 1953 Pepsu 195, which certainly supports his contention but with respect I am not inclined to follow it. The argument of the learned Advocate General that the directors only cannot put an end to the company's existence by filing a winding up petition does not appeal to me because the court is not bound to direct a winding up merely because the directors have presented a petition. The court will make a winding up order only if it is satisfied that the requirements of the law are satisfied and the facts justify the course. Moreover, it will be open t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r by himself or on being authorised to do so by the board of directors. A resolution of the board of directors cannot be a substitute for the special resolution of the shareholders of the company. Any such interpretation would render the very prescription of clause (a) in section 433 and the words ''by special resolution resolved" used therein redundant and inapposite surplussage. As noted above, since winding up is a remedy of the last resort strict compliance, of the statutory conditions prescribed in this regard, is essential. Does the High Court have the inherent power to suo motu order winding up of a company? The question which, however, remains to be examined is whether the power to wind up a company, without a petition being presented by the categories specified in clauses (a) to (f) of section 439(1), inheres in the High Court, more particularly under section 433(f), when the court is of the opinion that it is just and equitable that the company be wound up? Section 443 relates to the power of the court on hearing of a winding up petition and, under sub-section (2) thereof, it is in the discretion of the court to refuse an order of winding up, on a petition presented on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Companies Act, has to act in accordance with the provisions of the Act and the rules made thereunder. Since exercise of discretion to wind up a company is circumscribed and limited to the circumstances mentioned under section 433, that too on a petition presented to it by one or the other categories of persons mentioned in section 439(1), it is difficult to read an inherent power of the High Court to suo motu wind up a company. The extent and limits of the inherent powers under section 151 C.P.C. apply equally to rule 9 of the Companies (Court) Rules, 1959 : Rule 9 of the Companies (Court) Rules, 1959, relates to the inherent power of the court and provides that nothing in the rules shall be deemed to limit or otherwise affect the inherent powers of the court to give such directions or pass such orders as may be necessary to meet the ends of justice or to prevent abuse of the process of the court. Rule 9 of the Companies (Court) Rules, 1959, is a replica of section 151 of the Civil Procedure Code excepting that for the word "rules" the word "Code" has to be substituted. The extent and limit of the inherent powers under section 151, C.P.C. will apply mutatis mutandis to rule 9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de: The inherent power which a court has under rule 9 is notwithstanding anything contained in any other rule. The inherent powers conferred by way of rules, made in exercise of the powers conferred by section 643 of the Companies Act, cannot so read as to confer an inherent power on the court to act contrary to the provisions of the Companies Act under which these rules were made, for it is well-settled that the conferment of rule making power by an Act does not enable the rule making authority to make a rule which travels beyond the scope of the enabling Act or which is inconsistent therewith or repugnant thereto (State of Karnataka v. H. Ganesh Kamath [1983] 2 SCC 402). Rules can neither be framed as not to carry out the purposes of the Act nor can it be in conflict therewith (Laghu Udyog Bharati v. Union of India [1999] 6 SCC 418). Subordinate legislation cannot violate plenary legislation (Kerala Samsthana Chethu Thozhilali Union v. State of Karnataka [2006] 4 SCC 327). A protection given by the statute cannot be nullified by rules and regulations authorised by the statute itself (Management of D.T.U. v. B.B.L Hajelay [1972] 2 SCC 744). As the Companies Act does not confer po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he board of directors, let alone a special resolution of the shareholders, that the company be wound up. There is no justification, therefore, in entertaining such a petition for winding up of the company on the premise that this court has the inherent power to, suo motu, order winding up of the company. High Court can, under section 237(a )(ii) of the Act read with rule 9 of the Companies (Court) Rules, 1959, direct the Central Government to investigate into the affairs of the company : Since, however, this court has already appointed a provisional liquidator with a view to protect and safeguard the interests of the depositors, the consequence of rejecting the petition for winding up should not result in their being left to the mercy of unscrupulous persons incharge of the management of the applicant-company. It is evident that the petition presented by the managing director, for winding up of the company, is just a ruse to avoid repayment of the deposits taken from several thousand depositors and to evade criminal liability. The advocate-commissioner, in his report dated August 7, 2007, has informed that, even from the counterfoils of the available F.D. receipts of the petitio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e with him to the official liquidator after preparing a list of such documents. The official liquidator shall take over custody of these records and retain it till it is otherwise required either by the inspector to be appointed by the Central Government or by any of the criminal courts wherein cases are pending against the managing director and other directors of the petitioner-company. The Central Government shall within one month from the date of receipt of a copy of this order, appoint an inspector to investigate the affairs of the petitioner-company and direct him to submit his report within a specified period. A copy of this order be furnished to the official liquidator attached to the High Court of A.P. who, in turn, shall forward a copy thereof to the Ministry of Company Affairs, Government of India, for necessary action. Since the depositors have already initiated action against the former directors of the petitioner-company and matters are pending in several criminal courts, it is made clear that the criminal proceedings shall go on and be completed at the earliest. The official liquidator shall inform the presiding officers of the concerned criminal courts, as referred ..... X X X X Extracts X X X X X X X X Extracts X X X X
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