9911796707
TMI Blog1963 (9) TMI 69X X X X Extracts X X X X X X X X Extracts X X X X ..... 1, from which year the volume of its business showed a phenomenal rise. The balance sheets from 1951 to 1961 disclose remarkable progress in the prosperity of the Company, The, gross sales of the Company from year to year, set out below will give a true picture of the Company's progress: Year Gross Sale. 1950 ₹ 1,16,818/- 1951 ₹ 3,06,708/- 1952 ₹ 4,80,968/- 1953 ₹ 7,75,095/- 1954 ₹ 10,37,457/- 1955 ₹ 15,35,533/- 1956 ₹ 19,80,637/- 1957 ₹ 22,59,822/- 1958 ₹ 27,18,412/- 1959 ₹ 33,98,512/- 1960 ₹ 37,41,909/- 1961 ₹ 42,00,000/- The above figures are a clear indication of the progressive rise in the Company's prosperity. The balance sheets show that in 1952 the paid up capital of the Company was ₹ 1,09,370/- and in 1960 it was ₹ 3,23,000/-. 3. The present application arises out of a winding up petition presented on July 25, 1962 by one Amar Nath Sarma who is a contributory and a Director of the Company. The petition was admitted on the same day by S. P. Mitra, J. and various interim orders were made, to which I will refer later on. On March 5, 1963, an order was made d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parties was approved at a Board meeting of the Company held on October 3, 1961. Sarma was the Chairman of this meeting. This meeting, besides approving other transfers, approved the transfer of one hundred shares from one Nawkari Chatterjee to Sarma. The importance of this transfer is that, it has been urged on behalf of the Company, that Sarma was-acquiring further shares in the Company having full knowledge of the serious charges made by Guha in his winding up petition. 8. It was contended by Mr. Gouri Mitter, learned Counsel for the Company, that the immediate cause for Sarma's presenting the winding up petition was some dispute with the Company regarding publicity business of the Company which was previously done exclusively by the Hindusthan Publicity Society, of which Sarma is the proprietor. It is alleged that the entire publicity business of the Company used to be done by Sarma; the volume of business having been reduced though not entirely stopped, Sarma presented the winding; up petition with a view to put pressure on the Company to realise the ulterior object of compelling the Company to entrust a larger share of its publicity business to Sarma. I must at once poin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anner and method in which books are maintained. 12. The Managing Agency agreement commenced from 1946. Before the termination of the agreement the Board of Directors, at its meeting on January 6, 1960, which was attended by Sarma, recorded an appreciation of the meritorious service of the Managing Agents and recommended that the approval of the Central Government, and the shareholders be sought for re-appointment of the Managing Agent, as such re-appointment would be beneficial to the Company. By reason of the operation of Section 339 of the Companies Act, 1956 the Managing Agency agreement was due to come to an end on August 16, 1960. At a meeting of the Board held on February 18, 1960 which also was attended by Sarma, a resolution was passed unanimously for re-appointment of the Managing Agent on the existing remuneration. The Board recommended re-appointment for a term of ten years but the Central Government sanctioned the re-appointment for five years only. This matter is of importance, because the charges in the winding up petition are mostly against the Managing Agent; the nature of the charges being mismanagement, misappropriation, irregularities in management of the Compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... --Business of the Company was developing from year to year--The Managing Agent and Directors have retarded the Company's progress by acts of mismanagement. 7. Managing Agent and its group have acquired large number of shares by adjustment, against commission on fictitious sale of shares. 8. Members of the Managing Agency Company own land adjoining the company's factory--A building has been erected on the land out of company's funds in 1954 and 1955--Relevant cash books and vouchers have been secreted--Company paying rent, of ₹ 500/- per month to the members of the Managing Agency Company. 9. In 1959 Company maintained a cash balance between ₹ 10,000/- and ₹ 45,000/-, while series of cheques issued by the Company to meet trade liabilities were dishonoured. 10. In spite of heavy cash balance, Company failed to pay income tax dues and paid penalty of ₹ 500/- in 1959. 11. The Company borrowed ₹ 10,000/- from a party--the money so borrowed was misappropriated by the Managing Agent--Debit and credit entries regarding the loan were made on 31-12-59 but interest on the loan amounting to ₹ 700/- was paid by the Company. 12. Company borro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... finished goods on 31-12-60. 28. Reports of internal auditors or managing agents not annexed to the balance sheet in which a number of items required further explanation which was not given. 29. A sum of ₹ 2,98,911.77 nP. shown as loan to Agency Company, but this was not supported by any documents to prove acceptance of the figure by the Agency Company. 30. As amount due from the Agency Company is disputed, the matter was referred to arbitration and this gives rise to suspicion that the debt due from the Agency Company has not been correctly shown. 31. The Board of Trustees of the Provident Fund did not hold meetings--At a Board meeting held in 1961 R. P. Lahiri was replaced by P. N. Nandi though Lahiri ceased to be a Director as long ago as 1956. 32. For the year ending 31-12-55 Company paid ₹ 87,000/- as income tax but in balance sheet provision made for only ₹ 51,546-10 annas--Petitioner not told how the additional sum of ₹ 35,000/- was paid by the Company--Heavy liabilities for income tax and sales tax but no provision made for the same. 33. Balance sheets for 1958, 1959 and 1960 do not represent the correct picture--Sale proceeds not credited--Prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y and thereby increased the liabilities of the Company, 48. By letter dated 11-8-61 Managing Agent intimated its decision to resign--The Board considered the letter at a meeting on 11-8-61 and decided to place the matter before the general meeting in 1962 but the matter was not placed before the general meeting. 49. Managing Agent is still continuing to act as Managing Agent. . The notice calling the 15th Annual General Meeting to be held on 27-7-62 did not contain any agenda regarding resignation of Managing Agents. 50. Material information suppressed from shareholders by Managing Agent and Directors--Company's affairs carried on in fraud for benefit of Managing Agent and Directors--Copies of two letters dated 16-5-60 and 8-8-60 from H. D. Mukherjee are annexed. 15. It is to be noted that the charges mentioned above are directed against the Managing Agent and the Board of Directors of the Company. It is also to be noted that except for a few charges of fraud, all the other charges relate to acts of mismanagement or wrongful misappropriation of the Company's funds. I shall discuss the nature, character and effect of the charges made in the circumstances and in the event ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Directors in the matter of the dispute with Guha and also in the matter of settlement of the disputes with him. He led them again in the matter of acquiring shares of Duftar Sipla Protisthan Private Ltd. He was again the leader of the Directors who decided upon a surprise spot checking of the cash balance in the Company's till and lodged complaints with the Registrar of Joint Stock Companies and the Deputy Commissioner of Police, Enforcement, for alleged shortage and misappropriation of the Company's funds. Such activities on the part of Sarma, if anything prove that he played a very important part in shaping the Company's business policy and in management of the affairs of the Company. Except for a single dissent on his part in refusing to sign the balance sheet for 1960, all the other Board resolutions were passed unanimously and there is not one single occasion when he raised his voice of protest in the deliberations of the Board. Indeed it must be said that credit in no small measure is due to him for the prosperity of the Company's business. 19. Before proceeding any further I should deal with one matter, which has considerable bearing on this application. I h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re now sought to be relied upon in all solemnity and this Court is called upon to make an order for winding up of the Company on identical charges. 22. The other matter dealt with at the Board meeting was the letter of resignation from the Managing Agent. The Managing Agent is the main target of attack in the winding up petition. It has been submitted on behalf of the Company that the Maitras wanted to resign from the Managing Agency of the company, owing to the charges made against the Managing Agent by Guha in his winding up petition. No doubt that must have been the reason for the proposed resignation by the Managing Agent by its letter of July 24, 1961. It is in this background that the Board at the same meeting passed a resolution the material portion of which is as follows: "The Board appreciates the efficient conducting of the business of the Managing Agents which has brought the Company to the foremost manufacturers of ink in India out of practically nothingness, and regrets to learn that Messrs. Maitra Brothers and Co. (P) Ltd. is now prepared to resign from the Managing Agency. The Board decides to defer consideration of the matter until its next meeting." 23 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t; at the Annual General Meetings of the Company or at least to write to the Managing Agent in the matter. But nothing was done. The Balance Sheets of which he now complains were approved by him excepting the one of 1960, at the Board meetings. The General Meetings at which the accounts were passed, were called under the direction of the Board, of which he was a member, the Directors' report to the share-holders were again approved by him and the Directors' answers to the Auditors' comments were also approved, by him at Board meetings. 27. The balance sheet for the year 1958 was placed at a Board meeting held on January 6, 1960. Sarma attended this meeting and he and Guha wanted some time to examine the accounts. They were supplied with copies of accounts for the purpose. At two other Board meetings held on January 8, 1960 and January 12, 1960 the discussions regarding the balance sheet for 1958 were continued. At the Board meeting held on February 18, 1960 which was again attended by Sarma, the balance sheet and profit and loss account for the year 1958 were approved unanimously and it was resolved that the accounts be placed at the 13th Annual General Meeting of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e balance sheet and profit and loss accounts for the year 1959 were approved by the Board. Having had all these opportunities to scrutinise the accounts and discuss the same, Sarma has now made a charge in the winding up petition that the accounts for the year 1959 are false. These accounts were passed unanimously at the Annual General Meeting of the Company held on November 8, 1961 and Sarma himself was the Chairman of this meeting. He did not raise a single question at this meeting, about the correctness of the Balance Sheet. Having done all this he now wants the Court to wind up the Company on a reckless charge that the accounts for the year 1959 are false and this Court is now invited to act upon this allegation. 30. The draft balance sheet and profit and loss account for the year 1960 were discussed at a Board meeting held on June 5, 1962. The Board by a majority approved the draft balance sheet and the profit and loss account, but Sarma dissented. At the next meeting of the Board held on June 16, 1962, which was attended by Sarma, the report from the Auditors on the accounts for the year 1960 was read and a resolution was passed unanimously that the replies of the Directors ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not agree with the stock register of the company. But he did nothing of the kind. On the other hand, at the Board meeting on June 16, 1962 he was party to a resolution which approved the replies of the Directors to the Auditors' comments. 32. There is another matter to which reference should be made in this connection. The Board meeting held on June 16, 1962 passed a resolution authorising the Managing Agent to issue notices for the 15th Annual General Meeting; the draft of the notice was placed before the Board and was approved. Sarma who attended the Board meeting was fully aware that the Annual General Meeting was going to be held on July 27, 1962. Yet he waited for presenting his winding up petition and praying for an injunction to restrain the holding of the Annual General Meeting, until only two days before the meeting was due to be held, i.e., July 25, 1962, when he presented the winding up petition. The matter does not end here. In paragraph 51 of his petition an attempt has been made by him to mislead the Court into believing that he came to know of the Annual General Meeting proposed to be held on July 27, 1962 only on July 4, 1962 when he received the notice of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , eight of which he attended, for the purpose of scrutinising the balance sheet of 1959. The Directors including Sarma, went very deeply into it and it was only then that the Board passed the draft balance sheet and profit and loss account. It is quite clear that because Sarma with the other Directors was satisfied that there was nothing wrong with the accounts, that they passed a resolution dispensing with the report of the external Auditor who was appointed to scrutinise the accounts. It will not be out of place here to mention that the charge relating to the balance sheet for 1959 is identical with the charge which was made by S. N. Guha hi his petition for winding up. Sarma along with other Directors denied this charge and all the other charges made by Guha, at the Board meeting held on July 24, 1961. 34. In a petition for winding up, the Court should not reopen the balance sheet on the bare allegation that it js false. The balance sheets had been passed at the Annual General meetings of the company and it is not for the Court in a winding up petition to make an order for the winding up of the Company on a charge that the balance sheet does not represent a true picture. More p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the) company paid on various dates ₹ 46,148.09 nP. The balance due upon assessment was found to be ₹ 653.29 nP. and this amount also has been paid by the Company. For the accounting year 1958 the Company paid advance tax of ₹ 28,936/-; the final instalment of ₹ 5,771/- has also been duly paid. For the accounting year 1959, the Company had paid advance tax of ₹ 36,532.00. The net amount demanded alter adjustment of the advance was ₹ 19, 983.00 and this amount has also been duly paid. For the accounting years 1960 and 1961 the company has paid in full the demand under Section 18(a) of the Income Tax Act and paid in each of the two years ₹ 63,175.00. The assessments for the years 1960 and 1961 have not been completed and therefore, the Company has not been able to pay its dues for these years yet. 39. The Company's case regarding payment of income- tax has not been seriously controverted by Sarma. It will be seen, from the figures mentioned above that the Company has been quite regular in payment of its Income Tax liabilities and there can. be no question of drawing an inference of insolvency on the ground that the company has not pai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p. For these two years appeals are pending. It is not a case of the company's inability to pay, but the company is bona fide aggrieved by the assessments, which were made ex parte by the taxing authorities. It was, therefore, contended that the charge relating to non-payment, of Income Tax and sales tax or for not making provision for the same is absolutely frivolous as the company has fully discharged its tax liabilities. 1 have no hesitation in accepting the company's contention that it had fully discharged its liabilities for income'-tax and sales tax. 42. But assuming that the company did not pay its Income Tax or sales tax liabilities would that be a ground for winding up a company on a charge of insolvency ? The Income Tax Act and Sales Tax Act provided a machinery for realisation of taxes and if the Company made defaults certificate proceedings would have been commenced for non payment of taxes. There is no allegation that any such proceedings have been taken against the company. Nor is there any evidence that the company is unable to pay its taxation liabilities. 43. There is another matter to which reference should be made regarding the allegations relating t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the affidavit-in-reply. In any event the company has denied that any amount due on any cheque issued by the company remains unpaid. Furthermore not a single creditor has served notice on the company under Section 434, of the Companies Act, 1956 for nonpayment of debt. No creditor has filed a suit against the company for realisation of its dues and no decree has been passed against the company. In my view, the allegation relating to dishonour of cheques is absolutely frivolous and without any substance whatsoever. 45. There is another matter relating to the charge of dishonour of cheques. It appears from Annexure B to the affidavit-in-reply of Sarma that all the cheques excepting one were drawn by the company in the year 1959. At this time Sarma was one of the most active Directors on the Board. If the dishonour of ceques is a matter on which his feelings are so strong, why did he not raise this question at the Board meetings which he unfailingly attended ? Dishonour or cheques, assuming it is true, is eminently a matter to be raised and discussed by the Board or a matter which one would expect to be raised at the Annual General Meeting of the Company. But Sarma did nothing. He n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n as such loan. Then again at a Board meeting held on November 18, 1959, of which Sarma himself was the Chairman, a resolution was passed to the effect that company should pay a rent of ₹ 500/- per month for occupation of the premises by the company, it was recorded in the resolution, that the land and the buildings belong to the Managing Agent. Curiously enough in the affidavit-in-reply to the winding up petition filed by Sarma a strange case has been made that the land also was purchased out of the Company's funds. There is no suggestion of this charge) in the petition. He was himself the Chairman of the meeting of the Board which passed the resolution recording that both the land and the buildings belong to the Managing Agent and he now wants the Court to rely upon his allegation that the land was purchased out of company's, funds and the structures also were constructed out of the funds of the Company. It is clear that the charges relating to the construction of structures out of the company's funds have been recklessly made, without any regard for truth. Besides it is to be noted that the matters now complained of took place as early as 1955. And in November ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same and recommended to the shareholders that there was nothing wrong in the transaction at all. 51. Of a similar natural is the charge relating to two loans of ₹ 5000/- each obtained on behalf of the Company by the Managing Agent on January 9, 1960. The entries relating to these loans were not made at the time when the loans were taken but were made later, on February 22, 1960. This matter was commented upon by the Auditors and these comments were published along with the balance sheet for 1960. The Directors' replies to the Auditors' comments are also published along with the said balance sheet. 52. It appears from the Directors' replies that the Managing Agent was made to pay the interest for the period that the money was not utilised by the company. This reply of the Directors was approved unanimously at the Board meeting held on June 16, 1962, which was attended by Sarma He had accepted and approved of the explanation offered and was quite satisfied with it. It is evident that the company had suffered no loss and the delay in entering the loan in the books of the company, is in any event, a minor irregularity. The accounts for the year 1960 were passed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s funds and thought that the matter was serious enough to attract the notice of the Enforcement Branch and the Register. 54. The company has offered its explanation and that is, that moneys are paid out to the company's servants for the purpose of the company's business. Suspense slips are maintained serially in a register called the Cash Suspense Register. The company's employees after spending such moneys as they required for the company's business, rendered accounts and the suspense slips and the register are thereupon squared up. The suspense slips therefore, represent the cash money lying in the hands of the company's servants who go out in the market for the company's business. The matter was discussed at a Board meeting held on March 6, 1961 which was attended by Sarma. It was recorded that physical verification of the cash in hand was not possible on that day because the cashier was not present. For that reason, the iron sale, and the cash box were sealed and a resolution was passed directing the, cashier to open the iron safe in the presence of any two of the Directors for verification of cash in hand with the cash book The charge appears to be mor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were the subject-matter of a pending application in this Court. One of his charges in the winding up petition is manipulation and falsification of accounts and a specific charge was that the cash in hand was found to be short upon a surprise checking done by him. Apart from the total falsity of the charge, and apart altogether from the fact, that he recorded in writing that the cash in hand agreed with the entries in the books, this Court must take a serious view of his conduct in going to the Police Court to seek redress on identical allegations which formed the subject-matter of a pending application in this Court for winding up the company. 58. He induced the learned Magistrate to issue search warrants and an order for judicial enquiry. The company thereupon moved this Court in its Criminal Revisional Jurisdiction and the order of the Magistrate was quashed on November 11, 1962. I should set out below the observations of Sen, J. made in the order quashing the Magistrate's orders: "In the view I have taken as discussed above I think the opposite party should not be allowed an indulgence of moving the machinery of the criminal Law to satisfy his personal vendetta. I co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed at the Annual General Meeting held on November 8, 1961 for passing the accounts for the year 1959, the attention of the shareholders was drawn to the acquisition by the company of the shares of Duftar Shilpa Protisthan. Private Ltd. It was stated in the report that the accounts of the concern were gone into and in the opinion of the Directors it was desirable to acquire, the shares. Sarma had signed the Directors' report and recommended to the shareholders that the acquisition of the shares be approved by the shareholders. The accounts were unanimously passed by- the shareholders and the Directors' report was also accepted by them. 62. As I have pointed out earlier in this judgment, Sarma exercised considerable influence in the Board and took a leading part in all major policy decisions. Indeed in this instance it was he who had induced the Company by his recommendations as a member of the Sub-Committee to acquire the shares of Duftar Shilpa Protisthan Private Ltd. Yet he now wants this Court to believe that it was a bad investment and was done to serve the interest of the Maitras. Not a word of protest had been raised by him at any time either in the Sub-Committee meet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... harge was made in Guha's petition and it has been copied from that petition. 66. As noticed earlier in this judgment, Guha was in charge of the affairs of the Agency Company. In fact he organised the Agency Company and was put in charge. Out of two hundred shares of the Agency Company the Maitras held 65 shares. It was the non-payment by the Agency Company of its dues to the Company, that started the trouble. A large sum amounting to nearly ₹ 3,00,000/- was due from the Agency Company. The Company's complaint was that Guha, who had realised the money from the Company's customers, had not made over the same to the Company, and was yet taking finished goods on credit. This the Company was not prepared to allow. The re(sic) it was that the Managing Agent stopped supply of goods to the Agency Company. Before the supply was stopped, however, several cheques issued by the Agency Company in favour of the Company were dishonoured by non-payment. This happened in 1959. Immediately, after supply of finished goods was stopped to the Agency Company it was Sarma, who along with the other Director, P. K. Majumdar, wrote to the Managing Agent a letter dated January 13, 1961, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the Chairman, the agreement with the Agency Company was ratified. It will thus be seen that at the time when the new agreement was entered into, the Maitras had no further interest in the Agency Company. Sarma had settled the draft of the agreement, approved it at the Board meeting, authorised the Managing Agent to execute the agreement and thereafter ratified the agreement at the Board meeting. 69. It is in the background of what happened with regard to the settlement of the dispute with Guha that Sarma's charge that the Maitras are mis-appropriating the profits of the company through the Agency company is to be examined. It is evident that the Maitras do not hold a single share in the Agency Company. Sarma himself acted as a champion of the Agency Company when the dispute started and he was eager to see that the Agency Company was not starved by stoppage of supply of the company's products. The draft of the new agreement was settled by him and was ratified at a Board meeting of which he was the Chairman. 70. They is one other matter, Sarma wants, in the present winding up petition, that this Court should compare the books of the Company and of the Agency Company in or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alise for what purpose these charges have been made. How is this Company responsible for the defaults, acts of omission, non-compliance with statutory requirements committed by the Agency Company? It is plain that the charges have been recklessly made in the hope that this Court would take notice of them and wind up this Company for defaults and laches of the Agency Company. 74. One of e charges in the petition is that it appears from the balance sheet of the Agency Company that a sum of near about ₹ 1,00,000/-arising from the sale proceeds of the Company's products was retained by the Agency Company. This it is alleged, was within the knowledge of the Managing Agent and some of the Directors. In order fully to understand the nature and effect of this charge against the Agency Company I set out below one of the charges as laid in the petition: "46(p). Knowing fully well, the unsound financial position of Bengal Sales Agency (P) Ltd. the Company further allowed a huge credit to them and if the said Bengal Sales Agency (P) Ltd. goes to liquidation and/or suspends payments the shareholders of Sulekha Works Ltd. will have to suffer a huge loss. All those wrongful acts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... again fixed at 121/2 per cent Under the third agreement entered into on August 24, 1961 which was ratified by Sarma himself, the commission remained the same, viz., 121/2 per cent But after three years it is to be reduced to 10 per cent The charge therefore, that the rate of commission has been increased is entirely false. 79. The arbitration that took place in the matter of the dispute between the Agency Company and the company has been concluded. An award has been made in favour of the company for ₹ 2,50,000/ and the Agency Company is paying the money under the award. It has been alleged that because the award was for a smaller amount than what was claimed by the Company, the books of the Company have not been properly maintained. This contention is only to be stated to be rejected. The company had lodged its claim before the Arbitrators for the full amount of ₹ 3,07,000/- but the award in favour of the company was made for only ₹ 2,40,000/-. It is because of this reduction, it is urged that books of the Company are not properly kept, because if they were properly kept, the claim would not have been reduced. This indeed is a strange argument. If the Arbitrator ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tinued to be a member of the Board of Trustees although he ceased to be a Director as long ago as 1956. But as a member of the Board of Directors he had taken no steps in the matter and he now wants this Court to make a winding up order on this charge. 82. There is another complaint regarding the Provident Fund, which I shall deal with now. Two cheques by which the Company's contribution towards the Provident Fund was made were produced under subpoena. One of these cheques is dated 24-11-60 for ₹ 8764.15 nP. and the other cheque is dated 25-11-60 for ₹ 3574.59 nP. These two cheques although issued in 1960 were not encashed until May, 1962. The Company's explanation is that the cheques were duly issued and the Company had taken it for granted that they were encashed. The cheques, however, were presented to the bank but were returned for some defect in the constitution of the Board of Trustees. Thereafter these two cheques were invalidated in May, 1962 and were duly encashed and the proceeds were credited to the Provident Fund account. 83. Referring to this matter Mr. Sen very strenuously contended that the whole story of the Company was entirely false. His argu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asked to make a report to the Board of Directors but the Board itself held nine meetings to consider the accounts for the year 1959. These meetings were held on the 3rd, 8th, 16th, 24th and 27th and 28th of February, 1961 and on 1st, 6th and 15th of March, 1961. At the meeting of the Board held on April 6, 1961 the balance sheet and profit and loss account for the year 1959 was approved and was signed by the Directors including Sarma himself. It was at this meeting that a resolution was passed to the effect that A.G. Banerjee's services were no longer required as the Board had approved the accounts. It will thus be seen that A. G. Banerjee did not make any report on the accounts at least till April 4, 1961 when the Board approved the accounts. But it was contended on behalf of Sarma that A. G. Banerjee had. made two reports on March 6, 1961 and March 14, 1961 and according to Sarma, these reports showed an (sic)arming state of affairs. Copies of the two alleged reports have been annexed to the petition. On a perusal of the letter of March 6, 1961 it appears that all that Banerjee said in this letter was that on a preliminary examination of the books he was of opinion that deta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etter dated March 14, 1961 could not have been with the Directors on the date they wrote the letter dated March 9, 1961 to the Managing Agent. Pursuant to the letter from the Directors the Managing Agent called a Board meeting by a notice dated March 14, 1961. This notice also was produced at the hearing. Item No. 2 of the Agenda set out at the bottom of the notice is as follows: "The following Agenda requested by Directors Sarbesree P. K. Majumdar, A. N. Sarma and S. N. Guha". And thereafter the identical matter as mentioned in the letter of March 9, 1961 from the Directors, was set out. 88. It was argued on behalf of the company that the Managing Agent had nothing whatsoever to do with fixing of the Agenda and therefore, the mention of the report of A. G. Banerjee in the Agenda set out in the notice dated March 14, 1961, does not by any means show that Banerjee's alleged report was sent to the Managing Agent or the Directors. It is quite plain that the Managing Agent took no responsibility for fixing the Agenda of the Board meeting called by the notice dated March 14, 1961. It was strenuously argued on behalf of Sarma that the report must have been with the Managin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e grounds. 92. The next question to be dealt with is the appointment, re-appointment and resignation of the Managing Agent. I have pointed out earlier that most of the charge, are directed against the Managing Agent and it was contended that the Board of Directors of the Company are under the control of the Managing Agent, suggestion obviously being, that the misdeeds of the Managing Agent have been condoned by the Board and no action was taken against the Managing Agent for that reason. It should be remembered that Sarma is a Director of the Company since 1956 At a Board meeting held on January 6, 1960, which was attended by Sarma, a resolution was passed recording appreciation of the services of the Managing Agent and also recommending its re-appointment. At another Board meeting held on January 18, 1960 Sarma himself approved the terms and conditions of re-appointment of the Managing Agent and the terms of re-appointment were finally approved at another Board meeting held on February 18, 1960 which also was attended by Sarma. The Board authorised the Managing Agent to issue notices in newspapers under Section 412 (2) of the Companies Act and to make the application for sanction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Governing Director or Manager. 94. Notice of a resolution of a special business was given for alteration of the Articles at the Annual General meeting held on July 27, 1962. An Explanatory Statement was also appended to the Notice. The resolution was passed but could not be given effect to because of the injunction issued (sic) this Court on Sarma's application. Quite rightly the company wanted to make some alternative arrangement for carrying on the business in the absence of the Managing Agent. It is Sarma who has prevented the resignation of the Managing Agent from becoming effective. His charge that information relating to the resignation of the Managing Agent was withheld from the share-holders, is entirely false. In the supplementary Notice dated October 3, 1961 issued to share-holders for the fourteenth Annual General Meeting of the Company, it was clearly stated that the Managing Agent had tendered its resignation voluntarily. It is clear that false statements have been deliberately made by Sarma to mislead this Court. Yet he prays for the exercise of a discretionary power in his favour, by accepting statements made by him which, on the face of them are false. 95. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loan was utilised. But what is still more important is that, the Corporation's nominee was there on the Board to See that the loan was utilised for the purpose for which it was taken. He has never dissented or objected to the manner in which the loan was utilised. No doubt the Corporation itself is kept informed in the matter. No protest has been made by the Corporation that the money was not properly utilised. 98. In this connection it is to be noted that the Corporation was ready to advance the balance amount of loan of ₹ 2,00,000/-. But by reason of Sarma's conduct in presenting the winding up petition, the balance of the loan has been withheld by the Corporation. The Corporation is justified in withholding the balance, as the company is under a threat of liquidation. It will thus be seen that Sarma amongst other things, has certainly stood in the way of the company's development and expansion. 99. Assuming, however, that the charges made by Sarma regarding the loan, are true and the company has misapplied the loan, would that be a ground for winding up the company? Is that not a matter which Sarma should have raised at the Annual General Meeting of the comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oint out that it is utterly strange that charges of fraud and mismanagement are sought to be supported by copies of letters written by an ex-employee of the company. The said ex-employee did not come forward to make an affidavit in support of the allegations in the petition or in his said letter. Sarma wants the Court to look for particulars of the charge of fraud and mismanagement in nothing better than the copies of two letters supposed to have been written by an ex-employee. 102. In course of the hearing of this application I had pointed out to learned counsel for Sarma that if Sarma wanted to rely upon the allegations in the two letters, he should at least have obtained affidavits from Haridas Mukherjee in support of the charges made in the said two, letters. After the matter was heard for several days learned counsel for Sarma at the hearing on August 8, 1963 wanted leave to file an affidavit from Haridas Mukherjee in support of the charges in his letter. The leave was not granted and learned counsel for Sarma submitted that the matter may be considered later' on. I cannot allow the affidavit from Haridas Mukherjee to be filed at this stage. This matter has been pending ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irely to the internal management and day-to-day administration of the company. I have already dealt with the manner in which Sarma was associated with the management and the eulogies he has showered on the Managing Agent for its meritorious service to the company. I have also commented on the fact that Sarma never raised any questions of mismanagement at the Board meetings or at the General Meetings of the company. It is, therefore, plain that the charges mentioned above are entirely frivolous, and even if true, they are not charges on which this Court will make an order for winding up of the company on just and equitable ground. 105. Before leaving this subject, there is one other matter to which I should refer. Several of the charges are based on the Auditors' comments on the accounts as published along with the balance sheets. It has already been noted by me that the Directors' replies to the Auditors' comments have been, from year to year, approved by Sarma as a member of the Board. Not only that, he recommended to the share-holders the acceptance of the Directors' answers as a sufficient explanation of the Auditors' comments. But it appears that having not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... part in the deliberations of the Board and was an assenting party to all the resolutions excepting one, that the Board had passed since 1956 when he became a Director. It was contended that the petitioner therefore, was himself a party to the alleged wrongful acts and misdeeds of the Directors, And being a party himself he cannot be allowed to take advantage or make use of those very acts as grounds for winding up the company. It was next contended that the grounds relied on in this petition were the same as the grounds in the petition made by Guha and in some cases such grounds are verbatim copies of those grounds. The charges in Guha's petition were denied by Sarma as a member of the Board and that being so, Sarma should not be allowed to urge the same grounds which according to him, are not tenable. It is on these grounds that it is contended that the petition is demurrable and should be dismissed. 109. In order to determine a question of demurrer the Court should look at the petition, only and at nothing else. To sustain a point of demurrer, it has to be seen if the charges as made are by themselves enough to sustain an application for winding up. The allegations made in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... affairs cannot constitute the subject-matter of an application for winding up a Company on the ground that it is just and equitable to make an order for winding up. In this view of the matter I hold that the winding up petition is not demurrable and it cannot be dismissed on that ground. 113. The next question is whether the Court in exercise of its inherent powers would make an order for stay of all further proceedings including publication of advertisement of the winding up petition, on the ground that the winding up petition is an abuse of the process of Court. 114. Mr. Sen urged that this Court has no jurisdiction to make an order for stay of all further proceedings, because the petition has been admitted, directions for advertisement have been given by the Court after the company filed its affidavit and after hearing the parties. According to Mr. Sen, the proper course for the company was to prefer an appeal against the orders admitting the petition and for advertisements; not having done that the order directing advertisements had become final and therefore, this Court has no jurisdiction to entertain an application for stay of further proceedings. 115. In order to underst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of the winding up proceedings. To hold that this Court has no jurisdiction to entertain this application because order for advertisements has been already made would be to deny the inherent power of this Court to stay winding up proceedings if such proceedings are an abuse of process of Court. Besides the order made on March 11, 1963 staying all advertisements until disposal of this application cannot he overlooked. S. P. Mitra, J, had granted a stay of his own order for advertisement until disposal of this application and therefore, there seems to be a little force in this contention of Mr. Sen. 118. The circumstances in which the winding up petition has been moved by Sarma have been fully dealt with by me earlier in this judgment The question is whether in the facts which have already been discussed by me, this application is an abuse of the process of Court. If has already been noted that Sarma himself was a party to all that the Board had done which forms the subject-matter of the charges now made in the winding up petition. He himself denied the charges made by Guha in his winding up petition. Sarma was an assenting party to each resolution, which was passed by the Board, e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heir views on the question whether an order for winding up should be made on the charges made in the winding up petition. I appointed Mr. K.C. Mukherjee, Barrister-at-Law, Chairman of the meeting and directed that notice should be given of the meeting to be held on August 31, 1963 to all the share-holders. By subsequent orders made on July 30, 1963 and August 5, 1963 I directed the Chairman to send along with the notices to each shareholder, a statement relating to the dispute between the parties in both the winding up application and this application for stay of the winding up proceedings. The substance of the allegations of the parties was submitted to the Chairman by both parties. The Chairman thereupon settled an Explanatory Statement in which he incorporated the substance of the charges made by the parties in both the applications. In the notice of the meeting which was sent by the Chairman, the draft of a resolution to be considered at the meeting was set out and is as follows: "Resolved that the members of Sulekha Works Ltd. intend that the Company should continue to exist as a going concern and that in the view of the members of the Company the petition presented by S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had the fullest opportunity of considering the matter, The Explanatory Statement sent by the Chairman to the share-holders had very clearly and concisely put the rival contentions of the parties before the share-holders or the company. Share-holders, therefore, had the fullest opportunity of considering the matter and they have expressed their views in supporting the resolution by an overwhelming majority, in no uncertain terms. I see no reason why this Court should ignore and overlook the verdict of the shareholders in the matter, 126. I shall now deal with the arguments on law in so far as reference is made to the various text books. Mr. Mitter first of all referred to Buckley's Company Law 13th Edn. at page 471: "An order will not be made if a sufficient case is not stated on the petition, even if such a case is proved in evidence. The order must be made secundum allegation et probata. If a sufficient case is not alleged the petition may be called demurrable and the respondents may object to the evidence being read at all until the demurrer has been decided." 127. This passage was relied upon by Mr. Mitter in support of his arguments that the petitioner must w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct of such majority, or is likely to facilitate the recovery of improper promotion profits, or is the only way of putting an end to a fraudulent concern." Relating to alternative remedy and Section 225(2) the English Act Buckley commented at page 476: "Formerly the Court was reluctant to make a winding up order on the ground that it was just and equitable if an alternative remedy was available. Now, however, when shareholders' petition to wind up a Company on the ground that it is just and equitable to do so, the Court notwithstanding the existence of an alternative remedy, is to wind the company up if the conditions of this sub-section are satisfied. But this does not render a contributory petitioner entitled to an order as of right, and the Court must still have regard to the wishes of the contributories as a class (Section 346). The existence of an alternative remedy, however, is not to be a bar to winding up, if in the absence of that remedy it would be just and equitable to wind up the Company, unless the petitioners are acting unreasonably in seeking a winding up instead of pursuing the alternative remedy." 129. The above passage was relied upon by Mr. M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 17th Ed. also at page 28. 131. Reference was also made to Palmer's Company Precedents, 16th Ed. Part II, page 52, where it is stated: "Proceedings on a petition presented by a contributory with an illegitimate object, e.g., to put pressure on the company--will be stayed as an abuse of process." The same passage also occurs in the 17th Ed. at page 45. Mr. Mitter also referred to Buckley, 13th Ed., Page 1023: "If a petition is not presented in good faith and for the legitimate purpose of obtaining a winding up order, the Court will restrain the advertisement of the petition and stay all further proceedings upon it. An application for this purpose can be made in the winding up proceedings; a separate action is not necessary." 132. In dealing with the question if the winding up petition is an abuse of the process of Court reference should First of all be made to Section 443(2) of the Companies Act, 1956 and to Rule 9 of the Companies (Court) Rules, 1959 Section 443(2) provides that where a petition is presented to wind up a Company, on the just and equitable ground, the Court may refuse to make an order for winding up, if it is of opinion, that some othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to make any charge that the company cannot carry on its business at a profit. No creditor has comb forward to complain about non-payment of debts. Not a single decree has been obtained against the company by any creditors and no suit has been filed by a creditor in all these years. To claim to have such a company wound up on frivolous and reckless charges by a man who was no less responsible than any other director, for the alleged acts of misfeasance, misappropriation and misapplication of funds and various other misdeeds is, without a doubt, an abuse of the process of Court. Sarma's conduct in presenting the winding up petition is anything but reasonable. This object is mala fide and the method pursued by him as malicious. The machinery provided by law and aid of this Court in setting the machinery of law in motion, cannot be allowed to be requisitioned by a petitioner whose conduct in presenting a winding up petition in these circumstances and on the grounds discussed earlier in the judgment, is anything but bona fide and reasonable, 135. Rule 9 of the Companies (Court) Rules deals with the inherent powers of Court and it provides that nothing in these rules shall be deemed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the passing of the resolution for voluntary winding up Baggalay, L. J at page 715 of the report observed that the petitioner may not have had the opportunity of seeing the earlier balance sheets of the company but he had the opportunity to see the balance sheet of 1876 and then at page 719 it was held: "As I have already mentioned, he had the fullest opportunity of knowing the whole of the circumstances of the company. He purchased one hundred shares in the Company; he did not think it necessary to look at the Articles of Association for the purpose of seeing what powers the Directors had and what they might have done under those powers, I do not think he has pledged his oath to the fact that he did not know of all these facts, but on the assumption that he was ignorant he was only ignorant, by reason of his own carelessness. Then is he the person to come here and complain of what has taken place? I cannot think he is. Assume that but for his own conduct there was the fullest power and jurisdiction to come here and to ask either for a compulsory order or for a supervision order, it seems to me that he is barred by his own laches and by his own conduct From coming forward to r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wn affidavit in support of the petition .............. It appears to me there is not a shadow of pretence for keeping this petition on the file, and that it ought to have been dismissed with costs and with not less emphasis than I am using now " Bowen, L. J. held at page 215 of the report: "I think that this petition is an abuse of the process of the Court and that it ought to be stayed or dismissed and the Court has power to do either with a petition of this kind". 141. This is a case where a petition was presented by a creditor who was a discharged servant. But Mr. Mitter contended that although in this case the petition was by a creditor yet the observations of Jessel, M.R. applied and Sarma's petition should be treated as a scandalous abuse of the process of the Court. Mr. Mitter contended that the facts in (1883) 23 Ch D 210 are different to this extent that the petition was by a person claiming to be a creditor. But there was no merit in the petition. And similarly there is no merit in Sarma's petition for winding up and therefore, it should be stayed. 142. The next case referred to is Cadiz Water-Works Co. v. Barnett, (1874) 19 Eq 182. In this case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave recourse to this vexatious mode of proceeding. I can entertain no doubt that the duty of the Court under those circumstances would be, not to suspend the petition, but absolutely to dismiss it with costs. And I beg to express my opinion that this court ought not, and I think will not at all events I will not until I am controlled by higher authority .... permit this winding-up process to be made a vehicle of oppression. What is Mr. Barnett's object? He must have some sinister object. The arguments surprise me that have been addressed to me. What is the result, suppose I allow him to go on to present a petition to wind up? How will it advance his case? When the petition comes on it would be dismissed. How should it be settled? Even if it is not dismissed with costs, as it would be, what would be done with the petition? ...... He thinks if he can make public, if he presents this petition, that it will be so injurious to the company that, rather than submit to it, they will settle with him. Cases have been cited to show that this Court will not interfere with serving a debtor's summons, and will not interfere with various other process; but a winding up is a totally diffe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... argued that in Cadiz Water Works Co.'s case, (1874) 19 Eq 182 the creditor was restrained before presenting his winding up petition and that showed to what extent the inherent powers of the Court extend in a case where the Court is satisfied that the object of the petitioner is mischievous an malicious and therefore the petition is an abuse of the process of court In my view Mr. Mitter is right in his submissions. 144. The next case referred to is In re. London and Paris Banking Corporation (1875) 19 Eq 444. In this case a creditor served a statutory notice on the Company for recovery of a debt which was bona fide disputed, there was no evidence of insolvency of the Company and insolvency was denied. It was held that the object of the petitioner was not to obtain a winding up order but to put pressure on the company. At page 448 of the report Jessel, M. R. held: "Obviously if it had any meaning at all, it was to put pressure upon the Company, perhaps by threat of the advertisements, or by some other means, to compel them to pay, in other words to extort from them a sum larger than they bona fide believed to be due from them, and a sum which they had been advised by two v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wed by the winding up petition presented by six petitioners. All the six petitioners between them held only thirty-two shares out of a total of two hundred. The Company in its opposition represented the views of a preponderant majority. It was solvent and creditors were in no way interested. The petition was an attack on Venkata Rao. The learned trial Judge dismissed the petition. There was in appeal against the order of dismissal. A Division Bench of the High Court set aside the der(sic) of dismissal and made an order for winding up Referring to the assertions of Venkata Rao that the winding up petition was the result of unexplained hostility of Subhapati Rao to him and the liquidation had been brought about by this hostility the Judicial Committee held at page 421 of the report (I. A.): (at page 4 of AIR). "Their Lordships are not prepared to treat these assertions lightly. They have never been contradicted by Subhapati Rao although he has given evidence on two occasions and has made many affidavits in the course of the liquidation. No petitioner, except himself, has even taken any part in the proceedings. The petition for the terms of which Subhapati Rao is clearly, primar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the effect of the order the Judicial Committee held at p. 430 of the report (Ind App): (at p. 12 of AIR): "What they find themselves faced with is a winding up order, made two years after its presentation upon a petition which ought never to have been presented, for, even if not merely vindictive and malicious, the petition was entirely without proved merits .......... Lastly, their Lordships find a liquidation in being which, if carried on as it has been begun, can, as they forecast it, end in nothing for the contributories but a call of all the unpaid capital to provide for payment of the costs and expenses. And for these disasters, one and all ........ with the exception only of the expense and trouble due to the recalcitrancy of Venkata Rao, the casts of which have already and rightly fallen upon him ...... the petitioners are mainly, if not entirely responsible. There is, therefore, so far, and even at this distance of time, everything to be say for the discharge of the winding up order appealed against." 149. But the Judicial Committee upheld the winding up order on the ground and having regard to the fact that the appeal was being disposed of in 1931 and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent, the winding up petition should be stopped, and advertisements ought not to be allowed to be published. 152. The next case referred to is 1924 AC 783. The Company was registered as a Public Company in order to carry on the business of a person and to divide the profits between members of his family entitled under his will to share them. The Managing Director had a preponderating voting power. The petition for winding up was presented by shareholders who were not Directors. The Directors had omitted to hold general meeting or to submit accounts or recommend dividends and there was suspicion that their object was to keep the petitioners in ignorance of the Company's position and affairs and to acquire the petitioners' share-at an undervalue, 153. The business, was established by Black-wood and by his will his estate was to be divided one-half to Mrs. Mclaren and one-quarter to his niece Mrs. Loch and one-quarter to his nephew Rodger, The trustees under the will were authorised to convert the business into a company with power to act as Directors. A company was incorporated with Mr. and Mrs. Mclaren and one Mr. Yarwood as Directors. Large profits were earned. Although in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat where, in form a company is a public Company, but in substance it is a Private Company, the circumstances which would justify the winding up order of the company, In this Lord Shaw followed the judgment of Cozens-Hardy, M. R. in In re, Yenidje Tobacco Co., Ltd (1916-2 Ch 426), At page 791 of the report Lord Shaw quoted with approval the- observations of Neville, J. in In re, Bleriot Manufacturing Aircraft Co., Ltd. (1916 -32 TLR 253 at p. 255) as follows: "But there is another ground. Here the Company has considerable capital, and it is alleged there is misconduct by the Directors, It is truly said by Mr. Russel that the mere fact of misconduct is no ground for winding up. The words 'just and equitable' are words of the widest significance and do not limit the jurisdiction of the Court to any case. It is a question of fact, and each case must depend on its own circumstances." 157. Loch's case 1924 AC 783 has been relied upon by both Mr. Mitter and Mr. Sen. Mr. Sen contended that order for winding up was made on various grounds mentioned above. But it is to be noted that it was found as a fact in Loch's case, 1924 AC 783, that the accounts were not au ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions are made with a Complete absence of particulars ............It is a significant and important fact that not a single creditor is supporting the petition." Again at p. 235 of the report: "Whether Mr. Daphtary is right or whether Mr. Munsi is right, I am hot prepared to go behind the balance sheet duly audited by the auditors, more so when it was open to the petitioner to take necessary action in other proceedings if his contention was sound." 160. In this case it was also alleged that the company was commercially insolvent and this charge was rebutted by Chagla, J. by quoting a passage from the judgment of the Privy Council in Davis and Co. Ltd. v. Brunswick (Australia) Ltd. AIR 1936 PC 114: "The decisive question must be the question whether at the date of the presentation of the winding up petition there was any reasonable hope that the object of trading at a profit, with a view to which the Company was formed, could be attained." To support the contention that misconduct or mismanagement is no ground for winding up Chagla, J. relied on a passage from the judgment of Baggallay, L. J. In re, Diamond Fuel Co. (1879) 13 Ch D 400 at p. 408: "T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e-holders show confidence in the management of the company and have faith in its future prospects, the Court has rarely interfered." 165. Regarding shareholders' confidence in the management it was held in this case that the shareholders at a meeting had unanimously passed a vote of confidence in the Board of Directors and in their management, and had expressed satisfaction with the progress of the company. The petitioner was therefore, asking the Court to override the considered opinion of the shareholders as regards future prospects of this company in favour of the petitioner who held only five shares. 166. As the charges in the petition were insufficient four different prayers were made to supplement the charges and these were (1) that the petitioner should be allowed to cross-examine the deponents (2) that he should be allowed to lead evidence of all defalcations and the value of assets (3) and that he must be given inspection of the accounts (4) that the petition be allowed to stand over till the investigation by the auditors. All these prayers were rejected. This case was relied upon by Mr. Mitter for the proposition that the petitioner must make out grounds for wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to by Mr. Mitter is In re, Peruvian Amazon Co., Ltd. (1913) 29 TLR 384. In this case 551 share-holders presented a winding-up petition as it was held that the fullest investigation was necessary by a Liquidator other than the vendor. The Company was already put to voluntary liquidation and one of the Directors was a Liquidator. He had a claim of £55,000 against the company and by exercise of his power of attorney he executed a mortgage on the company's lands in favour of his wife for £60,000. Commissions were appointed by the Directors to enquire into the allegations of atrocities performed by the company's employees on the native labourers. The business of the company was collection of rubber from plantations and in this business the plantation labour was tortured and maltreated. Having regard to the interest which the Liquidator had in the affairs of the company it was held that the winding-up should not be left in his charge and having regard to the allegations made, the fullest investigation was necessary and such investigation could not be entrusted to a person who was directly interested in the affairs and on this ground a compulsory order was made. This ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recognise his liability to take shares. The Board thereupon passed a resolution requiring the lessee to take four hundred shares, two hundred in exchange for £1000 due to him and two hundred shares to he paid for in cash. The lessee thereupon served the statutory notice for non-payment of £1000 to him and threatened to present a winding-up petition. The company thereupon filed a suit and applied for injunction to restrain the lessee from presenting the petition for winding up or from taking any steps for recovery of £1000 due to him. Jessel, M. R. held at page 558 of the report: "The conduct of the defendant Lavery was wholly unjustifiable, and that he had no right to present a winding-up petition. The company having called upon him to take up and pay for shares to the amount of £1000 under his agreement of the 16th February, 1881, by which he was clearly bound, he was not entitled, after refusing to do so, to say that the company ought to be wound up for non-payment of their instalment of £1000. He could not take advantage of his own wrong." An injunction was issued restraining the lessee from presenting the petition to wind up the compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been through all the facts of the case, and the outcome is this--that I do think that a part of the substratum of the business which this company was incorporated to carry on has gone. I think that the company was manifestly incorporated to carry on a business which should have the advantage of the user of the trade name of Thomas Edward Brinsmead and Sons and the good-will attaching thereto. I think that that is plain, because the memorandum in so many words refers to the agreement under which the company purchased the good-will and the exclusive right to use this name of Thomas Edward Brinsmead and Sons. I think, therefore, that a part of the substratum is gone. I have already said that I do not think I ought to make an order because a part of the substratum of the business, as defined by the memorandum of association, has gone; but I am afraid that I am hound to come to the conclusion that it is a very material part. The price given (£ 76,650) can only be accounted for on the basis that the user of this name and the good-will attaching to this business were considered by the vendors and purchasers to be of great value. Under those circumstances I am perfectly clear that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o interfere, with share-holders in the management of their own affairs and this included the question whether, the business shall be continued or not. The other matter is that there is jurisdiction in an extreme case to wind up a company at the instance of a contributory even though he is not supported by the majority. It was held that in the facts of this case the substratum of the company was gone and that the subject-matter was also gone and it was impossible for the company to continue its business satisfactorily and therefore, order for winding up was made. In this case the order was made as the substratum of the company was gone and there was no chance of the business being carried on satisfactorily. 178. The next case referred to by Mr. Mitter is (1916) 32 TLR 253. In this case a winding up order was made as the company had no reasonable possibility of executing a contract which it was formed to carry out, the substratum was gone, part of the moneys of the company was misapplied and the company was so constituted that it was deprived of its usual remedies. Bleriot was the inventor of an aircraft of repute. He gave to Casson an option to purchase his English business. Casson ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... who were share-holders and had been receiving dividends and bonuses would not get a single-penny and would probably be paid, in instalment the value of the shares. It is the duty of the Court to see what is for the benefit of the large classes of persons in such cases. It was finally held that the petition was ill-advised and was presented for the purpose of obtaining an undue advantage and was dismissed with costs. The facts of this case bear some resemblance to the facts of the instant case. Sarma's petition is ill-advised and has been presented not for the bona fide object of obtaining a winding up order but for ulterior purposes. 180. The next case referred to by Mr. Mitter is In re, Newbridge Sanitary Steam Laundry Ltd. (1917) 1 Ir R 67. The Managing Director of the company entered into contracts in his own name for work to be done by the company. The profits amounted to £3268 of which the Managing Director accounted for only £1038. The capital of the company was £2,000 in £1 shares the majority of which was controlled by the Managing Director and a co-Director. A suit was filed by two shareholders against the company and the Managing Director, for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to by Mr. Mitter is In re, Anglo-Greek Steam Co. (1866) 2 Eq. 1. In this it was held that though the misconduct of Directors may be ground for a suit against them by the share-holders, it is not, a ground on which the Court will consider it just and equitable to wind up the company, where there is no evidence that mismanagement has produced insolvency or that the company is a mere bubble company and where there is reasonable prospect that business may be successfully carried on Romilly, M. R. held at page 6: "The petition goes on to attack several of the members of the concern, and the Directors themselves personally. If it had been simply denied by the company, and if the Directors had not personally appeared, I should have simply dismissed the petition as not having made out a case for the winding up of the company. For though the misconduct of Directors may be a reason why the share-holders should have relief against them, it is not a reason for winding up the company. But the Directors and certain share-holders have appeared personally, and the affidavit and the cross-examination have disclosed matters of considerable importance to the share-holders, which much concern th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rges were substantially proved and it was a fit case for winding up and therefore, action should be taken under Section 153(c) and accordingly two Administrators were appointed with all the powers of Directors to look after the affairs of the company. It was held that before taking action under Section 153(c) the Court must be satisfied that circumstances exist on which an order for winding up could be made under Section 162 and where the facts proved do not make out a case for winding up no order can be made under Section 153(c). Mere misconduct of Directors by misappropriating the funds of the company is not enough for winding up on just and equitable grounds. But in addition to such misconduct, if circumstances exist which make it desirable that the company should be wound up an order should be made accordingly. 184. The grounds for the petition were that there was mismanagement, that large amounts were due to the Government for electricity charges, that the Directors had misappropriated the funds of the company, the Directors had the majority in voting strength and were ignoring the rights of share-holders. 185. Following (1866) 2 Eq. 1 it was held at p. : (at 1072 (of SCR)p. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for winding up would not be just and equitable. The second principle approved by the Supreme Court is that the Courts will not intervene at the instance of share-holders in matters of internal management and will not interfere with the management of the company by its Directors so long as they are acting within the power conferred on them by the Articles of the company. The third principle approved by the Supreme Court was the doctrine initiated in Loch's case, 1924 AC 783 namely, that if in a Private Company or in a Public Company, which is in the nature of Private Company there is lack of confidence, that would be a ground for an order for winding up but that the lack of confidence must arise not because the aggrieved party is in a minority, but must arise from a lack of probity, in the conduct of the company's affairs. 186. The next case referred to by Mr. Mitter is In re, Wear Engine Works (1875) 10 Ch A 188. In this case it was held that a winding up order would be refused if a sufficient case for winding up is not stated on the petition though such a case be proved in evidence, It was contended that the petition is demurrable. The petitioner does not state a debt of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Court; but it cannot be said merely by looking at the petition alone that it is an abuse of the process of Court. This case, therefore, does not apply to the instant case. 187. The next case referred to by Mr. Mitter is Lawang Tahang v. Goenka Commercial Bank Ltd. 64 Cal WN 828: (AIR 1981 Cal 144). In this case a petition was presented under Section 443(2) by a member on the ground that it was just and equitable to wind up the company. It was held that, if the Court is of opinion, that the petitioner is entitled to relief by winding up and in the absence of some other relief, winding up should be the appropriate remedy, a winding up order should be made. It was also held that although there was no suspension of business under Section 433(c) and other remedy is available under Section 398, the company should be wound up. The main ground in this case was that the substratum of the company was gone. There were several runs on the bank. The Central Government prohibited the company from receiving fresh deposits and since then the company ceased to carry on banking business. The company passed resolutions, for altering its objects to make it a non-banking company and the resolutions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cess of Court and will not be allowed even in the case of an insolvent company for extorting a claim which is bona fide disputed. Where a petition is presented not in good faith and for legitimate purpose of obtaining a winding up order but for other purposes, such as putting pressure on the company, the Court should stop it, if its continuance is likely to cause damage to the company. 190. In this case the debt being disputed Bachawat, J. held: "I may either refuse to admit the petition or admit it and at the same time adjourn its hearing I prefer to adopt that it should not be advertised. It is not seriously disputed that the inevitable result of the advertisement will be to damage the credit and reputation of the company which is actively carrying on business. I therefore, order that the petition be admitted and be kept on the file but the hearing of the petition is adjourned sine die." 191. This judgment reaffirmed, the well-established, principle that the Court has undoubted power to stop a winding up proceeding if it is satisfied that the petition is an abuse of process of Court 192. Mr. Mitter next referred to several cases in support of the proposition that wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to do has been done irregularly; and that as I understand it, is what has been decided by the cases of Mozley v. Alston (1847-1 Ph 790) and Foss v. Harbottle, (1843-2 Hare 461). In my opinion, that is the Rule that is to be maintained. Of course if the majority are abusing their powers and are depriving the minority of their rights, that is an entirely different thing, and there the minority are entitled to come before this Court to maintain their rights; but if what is complained of is simply that something which the majority are entitled to do has been done or undone irregularly, then I think it is quite right that nobody should have a right to set that aside, or to institute a suit in Chancery about it, except the Company itself." 194. Before passing on to the authorities cited by Mr. Sen I should deal with another matter which was argued by Mr. Mitter. Mr. Mitter strenuously argued that Sarma is estopped from denying the truth of the statements made in the balance sheet, in the Directors' report, in the minutes of the Board meetings and in the Directors' answers to the Auditors' comments. Further he contended that Sarma is also estopped from challenging the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se. For that reason I do not, think it necessary to refer to the various cases cited by Mr. Mitter in support of his arguments on estoppel. 196. Mr. Sen contended firstly that estoppel has no application and, then he argued that the conditions of estoppel as laid in Section 115 of the Evidence Act have not been fulfilled. In support of this contention Mr. Sen also cited several authorities. But since I agree with his first submission namely that estoppel has no application, it is not necessary for me to deal with the other branches of his arguments based on Section 115 of the Evidence Act or to refer to the authorities which have been cited by him. 197. To turn now to the cases cited by Mr. Sen. 198. The first case cited by Mr. Sen is Moham-mad Amin Bros Ltd. v. Dominion of India, AIR1952Cal323 . In this case it was held that it was the duty of the Court which has jurisdiction to wind up Companies to enquire whether the debt upon which the petition to windup the Company is founded is really due and in doing so it can even go behind a judgment or decree in a proper case. If the Court is satisfied that the debt upon which the petition is founded is a disputed and doubtful debt, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with this case and it is only necessary for me to note that in that case it was found that the Company was not in a position to carry out the contract for which purpose it was incorporated. It was also found that the Company had no funds and there was no reasonable probability of carrying out the Bleriot contract. It was on those grounds that it was held that the substratum of the Company was gone and therefore a winding up order was made. It is to be noted however that the facts of the instant case are entirely different. In the instant case the Company is carrying on business on a large scale. It has not been proved that the Company has no funds to carry on its business nor that it is an insolvent Company. Nor can it be urged that in the instant case the substratum of the Company is gone. For these reasons the Bleriot Aircraft Company's case, 1916-32 TLR 253 has no application to the instant case. 202. The next case cited by Mr. Sen is V. Seethiah v. B. Venkata Subbiah AIR 1949 Mad 675; In this case it was held that there is no inflexible rule or practice prohibiting the adducing of oral evidence or cross-examination in winding up applications. Where necessity suggests or ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a case where documents have been withheld or suppressed. I will set out, however, the relevant portion of the judgment of the Judicial Committee which is as follows: "A practice has grown up in Indian procedure of those in possession of important documents or information lying by trusting to the abstract doctrine of the onus of proof, and failing accordingly to furnish to the Courts the best material for its decision. With regard to third parties, this may be right enough; they have no responsibility in the conduct of the suit; but with regard to the parties to the suit it is in their Lordships' opinion, an inversion of sound practice for those desiring to rely upon a certain state of facts to withhold from the Court the written evidence in their possession which would throw light upon the proposition." 205. The next case referred to by Mr. Sen is (1924) AC 783. This case has already been dealt with by me earlier in this judgment. The passage in the judgment relied upon by Mr. Sen is at page 788 of the report which deals with the question of lack of confidence arising from lack of probity in the conduct of the company's affairs and it was held that such lack of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e a valid consideration. The application was partly under Order 25 Rule 4 of the Supreme Court Rules and partly on inherent jurisdiction. The Rule provides that the Court may order the pleading to be struck out as it discloses no cause of action. It was held that the Rule had nothing to do with the matter. Reliance is placed on the passage at page 764 of the report that the defendant had obtained important admissions from plaintiff in answer to interrogatories: "But it is a serious thing to dismiss an action before it has been tried and a clear case for doing so must be made out. It is admitted that the debts sued on were originally betting debts, and of course no action could be brought in respect of them. But the plaintiff says that there was a good consideration for the sums appearing in the account stated in that the plaintiff at the request of the defendant forbore to sue and gave the defendant time to pay. In order to support an application of this kind the defendant has to show that under no possibility could there be a good cause of action consistently with the pleadings and the facts in the case........ All that I say is that seeing that this action has not reached t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed for annulment of bankruptcy proceedings on the ground that they were an abuse of process of Court. It was held that the proceedings were not an abuse of the process of the Court, At page 590 of the report it was held: "It is true that the result of the receiving order will be that this debtor will not be liable to pressure from time to time by obtaining a committal order against him; but I am not at all prepared to say that the Legislature did not intend that a debtor who had been subjected to such pressure should relieve himself from that pressure by obtaining as adjudication in bankruptcy against himself." This case again is of no assistance to Mr. Sen because it was an application for annulment of the bankruptcy proceedings. Bankruptcy proceedings however are entirely different from winding up proceedings inasmuch as the latter requires publication of the winding up petition by advertisement There is no such procedure in Bankruptcy Law. It is because of this difference between winding up proceedings and bankruptcy proceedings that the English Courts have refused to stay a bankruptcy proceeding, as there was no possibility of mischief or injury to the debtor, if th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecessary and that the plaintiffs' claim ought not to be disposed in a summary application such as the present one. On the facts of this case, it has no application to the question of stay of winding up proceedings on the ground that the petition is an abuse of process of court. The proposition which the Court should consider in an application for stay of a winding up petition on the ground that it is an abuse of process of court was neither considered nor involved in this case and therefore, the decision is of no assistance at all. 210. The next case referred to by Mr. Sen is King v. Henderson, (1898) AC 720. This was a suit for damages on the ground that a petition for sequestration was presented falsely and maliciously and without reasonable cause. The allegation was that the appellant had committed acts of bankruptcy in not complying with the requirement of a bankruptcy notice. The appellant disputed the corn-mission of the act complained of. The petition for sequestration was dismissed. Afterwards the bankruptcy notice was also set aside and it was declared that the act of bankruptcy was, not committed. In these circumstances the appellant sued for damages. After evidence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adjudication when its conditions are satisfied. This does not depend on the court's discretion, but is a statutory right; and a debtor who brings himself properly within the terms of the Act is not to be deprived of that right on so treacherous a ground of decision as an 'abuse of the process of the court'. This case illustrates the peril of this doctrine in India for what has been treated by the courts below as such an abuse appears to their Lordships in no way to merit this censure." It is to be noted that the Judicial Committee was considering the provisions of the Provincial Insolvency Act which provided that if a debtor commits an act of insolvency, a petition may be presented by him. The presentation of the petition itself is an act of insolvency under the Act. In this case all that was prescribed by law was observed by the debtor. This again was a case of adjudication under the Insolvency Act and as I have mentioned above the principles in bankruptcy proceedings are widely different from those in winding up proceedings. This case again therefore, is of no assistance to Mr. Sen. 212. The next case referred to by Mr. Sen is Gangu Veera Brahman v. Gangu Jagan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; the judgment debtor applied to have the sale set aside. Thereafter the judgment debtor applied to recover damages as compensation for the expenses incurred by him on the allegation that the attachment and sale of a valuable property for a paltry sum due for costs was made to injure the judgment debtor. The trial court held that the action of the decree-holder was an abuse of the process of the court and assessed damages at ₹ 257-8-0. It was held that the only section under which the damages could be awarded was Section 151 of the Civil Procedure Code and only if there was an abuse of process and in this case there was no abuse of process; admittedly there was a sum of of ₹ 44 due and the judgment-debtor could have paid this small amount. He knew that his valuable property was attached for only ₹ 44 and deliberately refused to pay this small sum to harass the decree-holder. In these facts it was held that no act or proceeding taken as of right and in due course of law is an abuse of process simply because such proceeding is likely to embarrass the other party. A person who brings himself within the terms of the statute is not to be deprived of any right conferred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ordinary shareholders should be disregarded merely because there is a strong interest in favour of liquidation naturally felt by the holders of the preference shares ........Holding an even hand between the two conflicting intends in the present case, their Lordships are of opinion, that the decisive question must be the question whether, at the date of the presentation of the winding up petition there was any reasonable hope that the object of trading at a profit, with a view to which the company was formed, could be attained. In considering that question, the guarantee of the preference shares should be left out of sight, except in so far as it may have based the evidence on either side. It should be observed that in this case there is no question of a deadlock, nor is there any question of shareholders who have the voting power using that power for their own commercial interests outside the company in disregard of the, interests of a minority. Nor, again, is there any question involved of an improper management of the company by the Directors who are in control. The problems involved is of the nature of a business problem." It will be noticed that the Judicial Committee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the court ought to interfere upon motion to deprive a plaintiff of his rights, if upon the hearing he should appear to be entitled to anything." At page 464 of the report it was held: "This motion is one of a very novel, but of a very important character, because it asks the Court to shut the door in the case of the plaintiff not on the merits of the case, but on the ground that he has by his conduct disentitled himself to institute the suit. The theory of the law of this country is that every subject has right to bring, his complaint to a hearing if it be not capable of being stopped by a demurrer or a plea." This was again an action at law. I have already expressed my views about stay of actions at law in which the questions which the Court ought to take into consideration are entirely different from the principles which are to be considered in an application for stay of a winding up proceeding by a contributory on the ground that the application is an abuse of the process of court. 219. The next case referred to by Mr. Sen is In re., City Equitable Fire Insurance Co. Ltd. (1925) 1 Ch 407. This case considered the question of misfeasance by Directors and their ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... against the company and directions were given for advertisements. On the same day the company applied for stay of advertisements so that it might make an application for stay of all proceedings on the ground that the petition was an abuse of process. The trial court dismissed the application for stay of advertisement. The Appeal Court held that the proper order would be that the winding up proceedings be stayed until determination of the two suits. At page 849 of the report it was held: "From, the facts that have been stated before me I think that although the petitioning creditor may be desirous of obtaining his money, I cannot shut my eyes to the fact that the petition is probably presented for some ulterior purposes as well. I think certainly, if I may say so, it is a matter of regret that when this litigation was pending, this petition should have been presented at this late stage, but what I have got to see is whether or not the petitioning creditor is legally entitled to present his petition. I think I cannot infer from the facts that have been stated before me that it is not bona fide to the extent that I ought to stop it in limine, and I do not think that I ought to i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dure was not appropriate. If was held by the Court of Appeal that in spite of the unconditional leave, it was competent for the winding up Court to go into the evidence which was before him to consider whether or not there was a bona fide dispute and the winding up Court was not precluded from finding as a fact that there was no bona fide dispute although unconditional leave was given and therefore, it was held that the Judge had the discretion to make the winding up order. The basis of the decision is that the mere fact that unconditional leave was granted is not sufficient to make a winding up petition, one based upon a disputed debt. The substance of the decision is that the winding up Court's jurisdiction is not taken away merely by the fact that unconditional leave had been granted to the company to contest the claim of a creditor in an action at law. 222. The next case referred to by Mr. Sen is Alluri Timmaraju v. Narasinha Raju AIR 1928 Mad 522. In this case plaintiffs sued for possession. The trial Court dismissed the suit. But the Appellate Court decreed the suit. And thereafter an application was made linder Order 20, Rule 12 for determination of mesne profits. As th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er than the winding up petition, against the company. Mr. Mitter, contended that it was through mistake or inadvertence that Section 442 was mentioned in the Cause Title of, the summons. He further contended that the company should not be deprived of its remedies merely because the particular section has been mentioned, if grounds for relief have been set out in the company's petition for stay of winding up proceedings and if the Court has jurisdiction to entertain and made an order in that application. 225. In my view Mr. Mitter is right in his contentions and the company should not be denied relief if the grounds for such relief exist and have been set out in the petition and the Court is satisfied that sufficient grounds have been made out for an order for stay. 226. In support of his contentions Mr. Mitter first of all referred to the case of Ramesh Chandra Dutta v. Surya Properties Ltd., AIR1957Cal198 . In this case it was held that in a suit, a plaintiff is required under the provisions of the Civil Procedure Code to plead the facts which would entitle "him to get a decree and it is not necessary for him to recite the law. 227. The next case cited by Mr. Mitter is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the company and its future prospects have also been examined by me; and my views on the Company's trading prospects and the part played by the Managing Agent in the development and expansion of the Company's business have been set out in earlier portions of this judgment. 230. Taking into consideration the events that have happened and the conduct and activities of the parties I can come to but one conclusion, namely that the petition for winding up was presented by Sarma not with the bona fide object of winding up the company. As a share-holder it is entirely against his interest to wind up the company. It appears from Annexure 'K' to the report of the Chairman appointed by me, of the extraordinary general meeting of the company held on August 31, 1963, that he holds eight hundred ordinary shares. The face value of these shares is ₹ 20,000/-. Of this, the amount called and paid up by him is ₹ 16,000/- leaving a balance of ₹ 4,000/- still uncalled. According to him the company is insolvent and if wound up, he will have, to pay ₹ 4,000/- as his share of the uncalled share capital. It is therefore, entirely contrary to his interest to wind up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... matters, assuming everyone of the charges to be true, which took place as early as 1956, 1957, 1958, 1959 and 1960 cannot be entertained on the ground of laches and delay alone. The petitioner never raised his voice of protest, though he had all the opportunities to do so, against any of the alleged misdeeds. The petitioner never took a single move for rectifying the irregularities in the company's administration of which he now complains so strongly. These questions go to the root of the whole mutter. They raise the larger question, namely, has the winding up petition been presented bona fide? I think not. I think also that if he had the honest motive to put an end to the irregularities of which he now complains, he would have led the Directors, as he had done in the past, to take suitable action in that direction. 232. It has been urged that as a contributory he has a right to present the winding up petition and because he has this statutory right, the petition cannot be stayed on the ground that it is an abuse of the process of the Court. No doubt as a contributory Sarma has the right to present the petition. But in the facts of this case should he he allowed to proceed wit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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