9911796707
TMI Blog2007 (12) TMI 288X X X X Extracts X X X X X X X X Extracts X X X X ..... share capital is Rs. 5 lakhs divided into 50,000 equity shares of Rs. 10 each and its issued, subscribed and paid 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 Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated May 22,2000, had directed the petitioner to sell its assets and repay the deposits and that, in compliance with 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntment of a committee of advocate-commissioners to take over the assets of the company, dispose it off, adjudicate the 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssets, dispose of the same and to adjudicate the claims of the depositors subject to further orders and directions of this 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 be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Name of police station/court FIR No. Complaint No. 1. II Sessions Metropolitan Magistrate, Visakhapatnam (Visakhapatnam II Town P. S) 97/2002 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) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eholders of the company, by an ordinary majority, so permit. Under section 189(2), a resolution shall be a special resolution when ( a ) the intention to propose the resolution as a special resolution has been duly specified in the notice calling for the general meeting; ( b ) the notice required under the Act has been duly given of the general meeting; and ( c ) the votes cast in favour of the resolution by members 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the company for the purposes of making an application for winding up. It may be that the directors in case they find the company to be insolvent or unable to pay its debts, or in case there is any other urgent or important matter affecting the company which requires an investigation by the court, would be justified in applying to the court for compulsory winding up, but if they make such an application they would be doing so 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 re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d otherwise ceased to exist as a company under, or by virtue of, the laws under which it was incorporated. Under article 99, of the articles of association of the petitioner-company, the directors were empowered to exercise all such powers and do all such acts and things as could be exercised or done by the company. The Division Bench of the Madras High Court, after holding that there was no statutory provision expressly requiring the consent 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 sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fit to dismiss the petition on this ground. In his opinion the proper course to adopt was to adjourn the hearing so as to enable the directors duly to summon a meeting of the shareholders with the object of getting authority from them to proceed on the petition, because it was open to the company to ratify the unauthorised proceeding of the directors ... ...Even assuming that the Irish precedent should be followed by us, the petition cannot be dismissed, but it should be 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 respec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct to exercise its discretion to order winding up of the company. A conjoint reading of sections 439(1)( a ) and 433( a ) would require a petition for winding up, presented by the company itself, to be supported by a special resolution of the shareholders of the company resolving that the company be wound up by court. While a managing director may present a petition for winding up on behalf of the company, he cannot, on his own accord and without authorisation of the company by a special resolution, present the petition either 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... about by the process of winding up, it is only on a petition filed by persons specified in clauses ( a ) to ( f ) of section 439(1), and on the conditions of sub-sections (2) to (8) of section 439 and clauses ( a ) to ( f ) of section 433 being satisfied, would the court exercise its discretion to wind up the company. In the light of the express stipulation under section 439(1) it is only the persons specified therein and none other who can invoke the court's jurisdiction to order winding up of a company. The High Court, while exercising jurisdiction under the 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e section 439 of the Companies Act is an express provision as to who can present a petition for winding up of a company, it necessarily implies that no power should be exercised by the High Court, otherwise than in the manner prescribed by section 439, to entertain a petition for winding up of a company. The power under rule 9 of the Companies (Court) Rules, 1959 does not authorise the High Court to invest itself with jurisdiction to suo motu order winding up of a company, as such a power is not conferred upon it by the Companies Act. Rules cannot travel beyond the scope of the act under which it was made: 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 inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on some other relevant grounds, the court would be justified in appointing a provisional liquidator of the company immediately on presentation of the petition, as provided in section 450(1) of the Act ( Darshan Anilkumar Patel v. Gitaneel Hotels P. Ltd. [1994] 81 Comp. Cas.805 (Bom.)). The mere fact that a provisional liquidator has been appointed would not, by itself and without anything more, justify winding up of a company more particularly when none of the conditions prescribed under the Act, to enable the High Court to exercise its jurisdiction in this regard, are satisfied. In the case on hand there is not even a resolution of the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isdiction under section 237( a )( ii ) of the Companies Act and direct the Central Government, to carry out an investigation, to enquire into the mismanagement, misappropriation and other illegal acts indulged in by persons in management of the petitioner-company. After an investigation is conducted, and the report is submitted to the Central Government, the Central Government shall take appropriate action in accordance with law. ( Uunet India Ltd. v . I.C . Rao [1995] 1 ALT 452). Since the advocate-commissioner has expressed his inability to continue any further, he is permitted to hand over all the records, of the company in provisional liquidation, available 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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