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TMI Blog1952 (5) TMI 23X X X X Extracts X X X X X X X X Extracts X X X X ..... rial Bank of India, claiming dues of over ₹ 1,50,000/- for which a suit was pending in the Court of the Subordinate Judge, Alipore, appeared and denied certain allegations made against them by the applicant but did neither support nor oppose the application for winding up. 2. At the hearing of the application, nobody appeared to oppose the same. The learned Judge held that this was an application on behalf of the share-holders to wind up a company and was supported by several creditors, that the company had practically done nothing during the last 4 or 5 years, that the company was insolvent and that it was just and equitable to make the winding up order. 3. The main point urged on behalf of the appellant is that as the application is by a fully paid up share-holder, he is bound to allege and prove, in the first place, that on the winding up there will be such a surplus available for distribution to the fully paid up share-holders and that the applicant has a tangible interest in the matter. 4. Before I consider this contention which is the appellant's main line of attack against the order made, it is necessary to consider some of the points that were urged. The first ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce sheet of the company for 1947 showed a loss of ₹ 21,705/- and showed that it had spent more than ₹ 2,00,000/- for plant and machinery in the said factory, about ₹ 85,000/-on development expenses, about ₹ 61,000/- for furniture and fittings, about ₹ 33,000/- for machine tools, ₹ 21,00/- for Motor Cars and lorries and Rs: 77,000/- on stores and spare parts. It appears to be the Company's own case that more than 3 lacs were spent on the erection of the factory itself. A good part of the 12 1/2 lacs that had been received appears to have been thus spent in fixed capital. 8. For carrying on its business the Company had to take advances from the Imperial Bank of India. At the end of February 1950 the Company was indebted to the extent of about 3 lacs of Rupees; and for the recovery of this debt the Imperial Bank filed a suit in the Original Side of this Court on the 8th of March 1950. On the 28th of March 1950 an order was made by this Court by which the Official Receiver was appointed Receiver of the assets, stock-in-trade, good debts, plants and machinery of the Company. In April 1950, the Official Receiver took possession of all the goods, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ains for consideration Mr. Chowdhuri's main contention that the application of a fully paid up share-holder must be rejected unless he alleges and proves that there are assets of the Company of such an amount that in the event of a winding up he would have a tangible share of surplus to receive. For this contention Mr. Chowdhury relied on the statement of the law on the subject by Jessel M. R. -- 'In re: Rica Gold Washing Co.' (1879) 11 Ch D 36 (A). In that case there was a petition by the holder of seventy five fully paid up shares. It was dismissed by Hall V. c. on the ground that it was not a bona fide petition. The appeal was dismissed by a Bench consisting of Jessel, M. R., Bramwell L. J. and Brett L. J. In dismissing the appeal the learned Master of the Rolls made the following observations which appear at p. 42 of the report: "Now I will say a word or two on the law as regards the position of a petitioner holding fully paid up shares. He is not liable to contribute anything towards the assets of the Company, and if he has any interest at all, it must be that after full payment of all the debts and liabilities of the Company there will remain a surplus div ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny was gone. Reliance was placed on behalf of the Company and a large body of share-holders on the rule laid down in -- 'Rica Gold Washing Co., In re (A)' and other cases. For the petitioner it was pointed out that all the cases were decisions before the Act of 1908 and it was submitted that under the new section 141 which contained the provision mentioned above, the absence of assets was not a sufficient objection to an order. The judgment of Neville J. was in these words: "I think that the petition ought to be dismissed. It is a petition by a fully paid up shareholder and he alleged that the Company has no assets and is insolvent. Under these circumstances the petition must be dismissed with costs. 15. While it would seem that the objection of a large body of share-holders to an order being made up weighed with the learned Judge, it is clear that in the opinion of the Judge, the rule that the application of a fully paid up shareholder should be rejected if it be shown that he has no tangible interest in the order asked for was good law. 16. The Rule as laid down in -- 'Rica Gold Washing Co., In re (A)', was followed by East Punjab High Court in -- 'Bha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Creditors however came and supported it and a winding up order was made. I think that the petition ought to have been amended by joining a creditor as a co-petitioner before an order was made upon it; but we are not now concerned with the validity of that order, which is not under appeal and I am of opinion that in substance it was right." 21. The present application of the fully paid up share-holder, was as has been stated above, supported by two persons, whose claim to be creditors of the Company, has not been controverted. I hold that these former employees are creditors of the company, and as they have supported the application, the application is in substance a creditor's application. Treating the application thus, the Court has to apply the rule laid down in --'In re, Crigglestone Coal Co. Ltd.' 1906-2 Ch D 327 (F). 22. In that case the Court had to consider a creditor's petition for a winding up which was opposed by the debenture-holders, and by the Company on the ground that there were no assets available for the unsecured creditors. It was held that the onus was on the respondent to prove that there was no reasonable possibility of any benefit accr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, not possible to take serious notice of its opposition to the winding up order. 26. I have, therefore, come to the conclusion that the order for winding up was rightly made and that the appeal should be dismissed. P.N. Mookerjee, J. 27. I agree that this appeal should fail. As, however, some of the points, involved in this case, are of considerable importance I propose to deliver a separate judgment. 28. The broad question that arises in this appeal is whether the "winding-up order", made by Banerjee J., against the Appellant Company, is Justified in law in the circumstances of the present case. 29. The undisputed facts leading to this appeal are as follows: 30. The Appellant Company (Davco Products Ltd.) was incorporated on 10th June 1948 as a Limited Liability Company with an authorised capital of Rupees Five lacs, divided into 50,000 (fifty thousand) shares of ₹ 10/- (Rupees Ten) each. The capital was fully subscribed and the 50,000 shares were duly and fully paid up. On 6th February 1947, the authorised capital of the Company was raised from Rupees Five lacs to Rupees Twenty five lacs by creating one lac new ordinary shares of ₹ 10/- (Rupees Ten) e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne of the shareholders applied to this Court for a "winding-up order" against the Company. That application, however, was eventually withdrawn but the situation did not improve; and, on 27th December 1951, the present application was filed by another shareholder under Section 162 of the Indian Companies Act, praying 'inter alia' that the Company be wound up by this Court. Banerjee J., by his order, dated 12th March 1952, allowed the said application holding 'inter alia'- (a) that "the Company has practically done nothing during the last 4/5 years"; (b) that "it is not carrying on any business"; (c) that "its indebtedness is daily swelling up"; (d) that "the Company is insolvent"; and (e) that "it is just and equitable to make the winding-up order." 33. The Company has now appealed and in the appeal it seeks reversal of the above "winding-up" order, made against it by Banerjee J. The propriety of that order has been vigorously challenged before us by the Appellant's, that is, the Company's learned Counsel, Mr. S. Chowdhury, and several points have been urged by him in support of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... succeed. 36. The third point, urged by Mr. Chowdhury, raises an interesting question of law . Pounding himself on a dictum of Sir George Jessel, the celebrated Master of the Rolls, Mr. Chowdhury argued that the respondent's petition or "winding-up application" should be dismissed, as it was, admittedly, made by a fully paid-up share-holder and there was no allegation in the said petition nor any proof that there would be any available surplus left for the benefit of the applicant in case a "winding-up order" was made. The dictum, relied on by Mr. Chowdhury, appears at pp, 42-43 of the report of the well-known case of -- '(1879) 11 Ch D 36 (A)', where the Master of the Rolls expressed himself as follows: "Now I will say a word or two on the law as regards the position of a petitioner holding fully paid-up shares. He is not liable to contribute anything towards the assets of the Company, and, if he has any interest at all, it must be that after full payment of all debts and liabilities of the Company there will remain a surplus divisible among the shareholders of sufficient value to authorise him to present a petition. That being his position, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... George Jessel does not, therefore, operate to the petitioner's (respondent's) prejudice. 39. In the second place, it is to be observed that in -- '(1906) 2 Ch 327 (P)', doubts were cast on the universal applicability of the principle, underlying the said dictum, by 110 less a company Judge than Buckley J. and the Appeal Court also does not appear to have accepted there the said principle as an absolute bar of universal applicability to a fully paid-up shareholder's "winding-up application". In that case Buckley J. considered and explained the two other cases of -- In re St. Thomas's Dock Co.' (1876) 2 Ch D 116 (H), and -- 'In re Chapel House Colliery Co.' (1883) 24 Ch D 259 (I), which apparently proceeded on the principle, underlying the above dictum of Sir George Jessel, and contained some indications as if the said principle represented an absolute rule of law and was of universal application; and Buckley J.'s exposition of the law was substantially -- it not wholly -- accepted by the Court of Appeal. It is true that in -- '1906 2 Ch D 327 (P)', the case of -- '(1879) 11 Ch D 36 (A)' does not appear to have been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 29 and Section 225 (1) of the present English Companies Act of 1948. It seems, therefore, that, neither in England nor in this country, the legislature has accepted the above dictum of the Master of the Rolls --not, at any rate, in the absolute form in which Mr. Chowdhury wants us to apply it in the present case. It is necessary to mention here that our attention was drawn in this connection to the arguments and the decision in the English case in -- '(1910) WN 13 (C)', which was decided when the said Section 141 (1) of the English Companies Act of 1908 was in force. True, this latter case apparently followed Sir George Jessel's dictum, quoted above, as an absolute rule of law of universal applicability even in the year 1910 notwithstanding the statutory provision, referred to above, namely, Section 141 (1) of the English Companies Act of 1908 but, with all respect to the learned Judge (Neville J.) who decided the said case, I am bound to say that his very short judgment of only three sentences gives no reasons for the decision and, even apart from all other matters, it contains no indication that the effect of the statutory change, since the said dictum was pronounced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hury, refer to the position taken up by him in his reply that though the above dictum of Sir George Jessel could not strictly be said to be an absolute rule of law yet it was a rule of law yet it was a rule of prudence which ought not to be departed from, save under exceptional circumstances. Granting that this position is correct, I am still inclined to think that, in the circumstances of this case, the rule of prudence, spoken of by Mr. Chowdhury, would not entail the dismissal of the respondent's application. The circumstances of the present case are of an exceptional nature and I do not feel justified to throw out, as a matter of prudence, the respondent's "winding-up application" merely because there is no allegation in his said petition and -- as I shall assume for the present purpose no proof also -- that there will be in case of winding-up, any surplus assets, available for his, that is, the petitioner's, benefit. 44. I may also point out that, even before the Act of 1907, "winding-up orders" used to be made by the English Courts, even when the Company had no surplus assets: Vide--'In re, Haycraft Gold Reduction Co.' 1900-2 Ch 230 (J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... land and the factory and building, standing thereon, and that the so-called main object, sufficiently set out above, is only one of the several independent objects of the Company, as detailed in its Memorandum of Association, and it, namely, the Company, is still trying to work out some of its said other objects and carry on business on that basis. Granting that the Company has still considerable assets, as contended by Mr. Chowdhury, they are, at the best, looked-up assets, not immediately available for meeting the Company's needs, and do not, therefore, affect the conclusion that the Company is 'commercially insolvent'. True, also, there are, besides what I have described above as the Company's main object, other objects, enumerated in the Company's Memorandum of Association, but, in my opinion, they are, in the proper context of things, really subsidiary objects, notwithstanding the concluding part of Clause III whereby it is declared that "the objects specified in each paragraph of this clause, unless otherwise expressed in such paragraph, be regarded as independent objects and shall in no wise be limited or restricted by reference to or inference fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any's assets. It is also at least open to doubt whether the landlord would, in the present state of things, insist on the strict enforcement of the forfeiture clause. Such Insistence would hardly be of any material benefit to the landlord in the present market and it is not improbable that the landlord would prefer to continue the lease and would not insist on its forfeiture merely for the purpose of spitting or spoiling the Company. It seems to me further on the materials, placed before us, that the affairs of the appellant Company pre-eminently require a public investigation which can best be obtained by means of a compulsory winding-up and I am clearly of the opinion that, in the circumstances of this case, a "winding-up order" is eminently desirable or, to quote the words of Buckley J., at least justifiable "as the means of bringing to an end a vicious career". In the above view of the matter I would hold that it is just and equitable to make a "winding-up order" in the present case and, in allowing the petitioner's application, the learned trial Judge has exercised his statutory discretion in a proper and judicious manner. The conclusions ..... X X X X Extracts X X X X X X X X Extracts X X X X
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