9911796707
TMI Blog1963 (9) TMI 69X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Agency Company and terminate his interest in the Company, Guha transferred his holding of shares in the Company to the Maitras and their nominees, who on their turn transferred their holding of shares in the Agency Company to Guha. The result of the mutual exchange of shares was that Guha ceased to have anything further to do with the Company and the Maitras ceased to have anything further: to do with the Agency Company. The transfer of shares by the 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 exclusive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or on the Board on the Company and also the right to inspect the company's books. The Corporation has nominated a Director who has been attending all the meetings of the Board of Directors of the Company. It is urged on behalf of the company that this nominee Director of the Corporation, who has been regularly attending the Board meetings of the company has raised no objection to the manner or method of the Company's business administration or to the manner 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 r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Agency company. 3. The Managing Agent and the Directors belonging to its group are guilty of wrongful, fraudulent and illegal acts --They are grossly mismanaging the affairs of the Company. 4. The Managing Agent is taking away huge sums of money from the Company's funds in violation of law and by improper, fraudulent means. 5. If affairs of the company were properly and honestly managed, larger profits would have been made. 6. Company had large possibilities--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/-, whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 24. N. G. Maitra received advances from the Company in contravention of Sections 295 and 369 of the Act. 25. Vouchers for disbursement of ₹ 77,559/- not made available to Auditors. 26. The Managing Agent/Board of Directors made false statements by saying that provident fund money had been made over to Trustees. 27. Petitioner refused to sign balance sheet of the year ending 31-12-60 as there are false figures--Value of finished, goods shown at ₹ 3,25,692.08 nP. but in fact there were no stock of 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. 45. To make illegal gains the Directors have appointed Demco as Selling Agent in U. P. at heavy commission of 121/2%. 46. Although sales increased considerably ratio of profits decreased in 1959--Accounts of the Agency Company not properly maintained. 47. Dufter Shilpa Protisthan Private Ltd., a Company under the same management was converted into a subsidiary concern by purchase of the majority of the shares--The Maitras who held the majority shares converted, their insolvent Company into a solvent one by selling their 50% shares to the Company 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 aff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tors as a whole, which included the petitioner himself, and not against individual Directors. As an active member of the Board, who never failed to attend any meeting of the Board, excepting once, the petitioner was not only closely associated with the Board, in its management of the affairs of the Company, but took leading part in the deliberations at Board meetings. He dominated the Board meetings and because of his influence he was appointed member of several sub-committees that the Board appointed from time to time, in taking policy decisions in important matters. He led the other 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he matter out in Court. Yet it is the same Sarma who now wants to wind up the Company on amongst others, the same charges which were made by Guha and which he so categorically and unequivocally denied, Furthermore, Sarma was so sure about the falsity and frivolousness of the charges made in Guha's petition that he subscribed to the resolution for fighting the matter in Court. The charges in Guha's petition were denied by Sarma, and such denial could only be on the ground that the charges were not maintainable either because they were false or frivolous. Yet the same charges are 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 resigna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raised the questions either at the Board meetings or at the General meetings of the Company, that the balance sheets are being improperly prepared and do not represent the correct picture of the Company's affairs. If the grievance was at all genuine and if there was any substance in the allegation, one would expect that Sarma would have raised this question at the meeting of the Board of Directors. As a member of the Board it was open to him and in fact it was his duty, to point out the irregularities of which he now complains. One would again expect him to raise this question 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting held on April 6, 1961 a resolution was unanimously passed to the effect that the report from A. G. Banerjee is not necessary any longer and he was to be informed accordingly. 29. The proceedings of the several Board meetings which discussed the balance sheet for the year 1959, the appointment of an external auditor to examine the accounts and the subsequent resolution dispensing with the report from the external auditor, make it quite plain that Sarma, among other Directors, went into the accounts for the year 1959 very deeply and it was after nine meetings of the Board, that the 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 r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shed goods has been mentioned in the balance that there was no such stock. The Company maintains a stock register and if there was any substance in Sarma's allegations, he would have referred to the stock register from which it would be easy to ascertain if there was no stock of finished goods. But he has not relied on or referred to the Company's stock register. Then again he would certainly have raised this question at the Board meetings if there was any truth in his allegation or he would have written to the Managing Agent pointing out that the statement in the balance sheet does 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents deliberately made. He has procured the aid of the machinery provided by law and the jurisdiction vested in this Court in a diabolical scheme to bring the company to its knees by obtaining orders from this Court with the sole object of ruining the credit and business of the Company. 33. It is necessary to refer to the balance sheet for 1959 once again. Sarma in any event cannot complain that he blindly accepted the accounts prepared by the Managing Agent or the employees of the company and also the draft balance sheet and profit and loss accounts. As many as nine Board meetings were held, 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 ident ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 38. It is contended on behalf of the company that the charge relating to non-payment of Income Tax is entirely false. It is argued for the year 1955 nothing is due from the company on account of Income Tax and the entire demand has been paid. For the accounting year 1959 not amount demanded after adjustment of payment under Section 18(a) of the Income Tax Act, was ₹ 65, 310.25 np. On appeal to the Appellate Assistant Commissioner this amount was reduced to ₹ 16,360.29nP. and it was fully paid by the company. For the accounting year 1957 the Company paid advance tax of ₹ 19,392.62 nP. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Company paid West Bengal Sales Tax of ₹ 26,698.96 nP. and Central Sales Tax of ₹ 32,148.62 nP. For the year 1960 the company paid West Bengal Sales Tax of ₹ 25,554.93 nP. and Central Sales Tax of ₹ 28,753.09 nP. It was contended that the company has made and satisfied the whole of its sales tax liabilities. For the years 1958 and 1959, ex parte assessments were made by the commercial Tax Officer for sales tax, as the company failed to produce before the; authorities books of account which were in the custody of the Official Receiver, who was appointed in Guha's petition for winding up. 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hole of India, and in some cases there have been delay in realising cheques sent from outstations. In the affidavit-in-reply filed by Sarma, in the winding up petition he sets out for the first time in Annexure B to the affidavit a list of the cheques which according to him were dishonoured. It is strange that particulars of this nature should be furnished for the first time in the affidavit-in-reply knowing fully well that the company cannot, deal with the allegations. In my view, in a winding up petition grounds and particulars which are relied upon by the petitioner must be set out. In the petition itself and not in 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the Board of Directors for this purpose. The proposal was made by S. N. Guha and seconded by R. P. Lahiri. 48. The Board meeting held on October 16, 1955 recorded by a resolution the repayment in full of the advance made by the company to the Managing Agent and also resolved to pay the increased rent of ₹ 250/- per month from July 1955. Sarma's charge is that this loan to the Managing Agent was not shown in the balance sheet of 1954. But the loan was repaid in full within December 12, 1954 and therefore assuming that the loan ought to have been shown in the balance sheet, there was nothing that could be shown 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 cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... what exactly and actually had happened. The shareholders unanimously adopted and ratified the transaction. Having done all that, Sarma now complains about the matter which took plate as early as 1959 and wants the matter to be relied upon on grounds for winding up the Company. He had approved of the transaction, he had recommended to the shareholders that the Directors' explanation should be accepted by them, as a member of the Board he made no protest whatsoever. It should be noted that the Company suffered no loss at an. For this minor act of irregularity Sarma wants the Company to be wound up, after having fully condoned 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' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the Board. He had eulogized and commended the services of the Managing Agent in no uncertain terms. Yet because he thought that there was a shortage in the cash in hand, he promptly complains in writing to the Registrar and the Enforcement Branch to seek re- dress, instead of doing what a man should have done, if his intentions were at all bona fide, viz., to take the matter up with the Managing Agent and his fellow Directors. The explanation of his conduct is quite plain and that is that he was inspired by the sinister motive of making out a case that the Managing Agent and the other Directors were misappropriating the company'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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rders were made. The petitioner had pressed for an interim order restraining the holding of the Annual General Meeting on July 27, 1962. But S. P. Mitra J. had declined to make this order and had made an order that no effect should be given to any resolution that would be passed at the Annual General Meeting. The frustrated in his object, Sarma sought redress of his imaginary grievance relating to the accounts and shortage of cash, in the Police Court at Alipore on November 3, 1962. No words are strong enough to censure his conduct in taking recourse to e criminal law at a time when the identical allegations, on which he moved the Police Court 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 allegat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Protisthan Private Ltd. should be examined and the Board appointed a Sub-Committee for the purpose of such examination. Sarma was a member of this Sub-Committee. This sub-committee submitted a report, recommending the acquisition of the shares by the company in Duftar Shilpa Protisthan Private Ltd. Sarma was not only a member of the Sub-Committee which made the recommendation , but he was also present at the Board meeting in which a resolution accepting the recommendation of the Sub-Committee relating to acquisition of the shares was passed. In the Directors' report which was published with the accounts for the year, 1959 and which was placed 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 account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions, is such as to justify an order for winding up of the company on just and equitable grounds. But the consequences of violation of the statutory provisions have been contemplated by the legislature and a remedy has been provided for the same. 65. The next charge relates to the Agency Company. It is alleged that the Managing Agent set up the Agency company as a selling organisation for distribution of the company's products. It is further alleged that the majority of shares in the Agency Company were held by the Managing Agent or family members of the Managing Agent Before proceeding to deal with this matter I should note that this identical charge 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 tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or sale of the Company's products through the Agency Company. 68. Sarma as a member of the Board took a leading part in settlement of the disputes with Guha. The draft of the new Agency agreement with Guha was settled by Sarma and he initialled each page of the draft agreement at a Board meeting held on August 11 1961. The draft agreement as initialled by Sarma, was placed before the Board and was approved. Sarma as usual attended this meeting also Pursuant to this approval by the Board, the new Agency agreement with the Agency Company, now in control of Guha, was executed on August 24, 1961. At a Board meeting held on August 25, 1961 of which Sarma was 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany for its alleged misdeeds. It is again open to the shareholders of the Company to consider the matter find take whatever steps they decide. But such alleged misdeeds of the Agency Company are by no means a ground for winding up the Company. 73. Certain frivolous charges relating to the Agency company have been made namely that the balance sheet of the Agency Company up to March 31, 1959, was filed on July 25, 1960, that default was made in h(sic)ing the Annual General Meeting of the Agency Company for the year ending March 31, 1960, that the Annual General Meeting for the year ending March 31, 1961 is to be held within September 30, 1961. It is difficult to realise 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... associated with the settlement of the dispute with Guha and was fully aware of the position regarding the dues of the Agency Company to the Company, but he has made mischievous and malicious allegations regarding mismanagement by the Directors, of whom he was one, and the Managing Agent, in giving credit to the Agency Company for the sums due. 78. There is another charge relating to the Agency Company, viz., that the commission was agreed to be given at 12 per cent The fact is that in the first agreement with the Agency Company which was entered into in 1954 the commission was fixed at 121/2 per cent; under the second agreement entered into in 1958 the commission was 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he invariably attended and call for an explanation from the Trustees who were either Directors or employees of the Company? If the Trustees are to be held guilty of acts of omission in not holding meetings of the Board of Trustees, Sarma as a member of the Board of Directors of the Company must be held to be still more guilty of laches and negligent in not discharging his duties as a member of the Board of Directors of the Company. In any event in this petition for winding up, he cannot be heard to make a complaint on that ground. Besides the charge itself is so frivolous that, in my opinion, it can never be the ground for winding up a Company. He alleges that R. P. Lahiri continued 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 ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the immediately preceding cheque drawn on 20-11-60 is BA/4 836836 and the serial No. of the immediately following cheque drawn on 28-11-60 is BA/4 836838. This evidence of the counterfoil of the cheque book leaves no room for doubt as to when the two cheques complained of were drawn. 85. The next after on which emphasis was laid in course of the argument is the appointment of A. G. Bancrjee, a Chartered Accountant, who was appointed to go through the accounts of the Company for the year 1959 and advise the Board in the matter. A. G. Banerjee was appointed at a Board meeting held on February 24, 196.1 by Sarma and his group in the Board, viz., P. K. Majumdar and S. N. Guha. He was 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he several Board meetings that were held between March 6, 1961 and April 6, 1961. 87. A letter dated March 9, 1961 from Sarma, P. K. Majumdar and S. N. Guha addressed to the Managing Agent was produced at the hearing. By this letter the Directors asked the Managing Agent to convene a Board meeting to be held on March 11, 1961. The Directors also fixed the Agenda for the meeting which was set out at the bottom of the letter and item (b) in the Agenda was consideration of the report of A. G. Banerjee, F.C.A. It will be seen that on the day this letter was written, viz., March 9, 1961, only the letter dated March 6, 1961 from Banerjee could have been received by the Directors. The other letter 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the alleged report of A. G. Banerjee was considered by Sarma to be of so great importance for the purpose of this application, one would expect him to obtain an affidavit from A. G. Banerjee and use the same in support of his petition. But far from any affidavit being obtained from A. G. Banerjee, the grounds mentioned in the said two letters have not even been incorporated in the petition for winding up. In my view, however, even if the grounds were so incorporated and even if A. G. Banerjee made affidavit affirming what he stated in his said two letters, the allegations would have been hardly sufficient for this Court to make an order for winding up of the Company on just and equitable 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for management of the company by a Managing Director or Managing Directors in the event of Managing Agent causing to act for any cause whatsoever. An explanatory statement for the special business was also settled at this meeting of the Board, in which it was stated that the Articles of the company did not confer authority on the Board to appoint Managing Director and therefore, it was necessary that the powers of the Managing Agent should vest in the Board of Directors and the Board should be empowered to carry on the business, until appointment of the new Managing Agent and it was also stated that the alterations were sought for, to enable the Directors to appoint a Managing Director or 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... K. Adhikari on the Board and since July 14, 1961, the nominee-Director had been attending the Board meetings and was looking after the interest of the Corporation. 97. The charge that the Corporation's loan had not been properly spent, by the company appears to be entirely frivolous. Sarma himself had been on the Board at all material times and had attended almost all the Board meetings since the sum of ₹ 2,00,000/- was advanced to the company. At not a single meeting did he raise his voice of protest against the manner in which the loan of ₹ 2,00,000/- was utilised by the company. He was fully aware of how the money was spent and he certainly approved of the manner in which the 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 read ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Directors or the Managing Agent of the company with suppression of material information regarding the affairs of the company. 101. Before leaving this topic I should note that in support of the charges made by Sarma he referred to two letters dated May 16, 1960 and August 8, 1960 written by one Haridas Mukherjee, ex-Accounts Clerk of the Company. He craved leave to refer to the said two letters in support of his charge of mismanagement and went further, and has stated in his petition that Haridas Mukherjee himself gave him copies of the letters signed by him and affirmed that the statements are true. According to Sarma, these letters disclosed serious mismanagement and fraudulent acts. I must at once point 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . (d) Acquisition of shares by the Managing Agent. (e) Exorbitant and irregular expenditure by Directors and the Managing Agent. (f) False liabilities created by Managing Agent. (g) Demco appointed as Selling Agents in U. P. by Directors to make illegal gains. (h) Contract Register not properly maintained by Managing Agent. (i) Managing Agent and Directors have borrowed money in excess of paid up capital and free reserves. (j) Directors are paying to the Managing Agent remuneration, allowance, commission, in excess of the permissible limit. (k) No audit note in respect of the closing voucher file No. 16 of 1960. 104. It would be seen from the nature of the above charges that they relate almost entirely 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 menti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... argued that the winding up petition is demurrable. The charges are either against the Directors or the Managing Agent. If the Managing Agent is guilty of wrongful acts, it is contended that, that is no ground for winding up though it may be a good ground for removal of the Managing Agent, It may also be a ground for an action for an order for injunction and damages against the Managing Agent. But wrongful and illegal acts of the Managing Agent is no ground for winding up the company on just and equitable ground. As for the charges against the Directors, it was contended that Sarma at all material times was a member of the Board and excepting for one meeting he attended all meetings of the Board up to June 16, 1962. He took a leading 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the materials in these documents this Court cannot hold, on the basis of the allegations in the petition alone, that the charges made therein are not sufficient for winding up the company. 112. In this view of the matter, I cannot accept Mr. Mitter's contention that the winding up petition is demurrable and for that reason it should be dismissed. I cannot hold that the charges made in the petition by themselves would not be sufficient, in an appropriate case to make an order for winding up. Nor can I hold that in an appropriate case, charges of misapplication of funds of the company, misappropriation, violation of statutory provisions, oppression of minority, gross irregularities in the day-to-day administration of the company's 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, were made on the winding up petition for advertisements have been stayed by this Court on this application There would have been some force in Mr. Sen's argument if the order, by which advertisements were stayed was not made on March 11, 1963 But S. P. Mitra, J. himself found that prima facie grounds had been made out for stay of advertisements of the winding up petition and therefore there should not be any advertisement until disposal of this application. 117. (sic) cannot accept Mr. Sen's contention that the only course open to the company was to prefer an appeal against the order made on July 25, 1962 and March 5, 1963 and not having preferred such an appeal, the company is precluded and debarred from making this application for stay 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, h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... im would produce a similar result. I have no doubt in my mind that this petition was moved by Sharma hoping that he also would be able to settle matters with the company to his advantage. It seems, however, that his calculations have miscarried. The company appears to have acted this time upon the resolution passed at the Board meeting of July 24, 1961, (which he attended), to resist a similar application for winding up. 120. There is another matter to which I should refer at this stage as it has considerable bearing on this application. During the hearing of the application I made an order on July 29, 1963 under Section 557 of the Companies Act, 1956, for the holding of an extraordinary general meeting of the share-holders of the Company, to ascertain their 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the preference share-holders voted against the resolution. 124. The proceedings of the meeting leave no room for doubt as to the views of the share-holders on the question whether the company should be wound up on the charges made by Sharma in his winding up petition. In my view most of the charges made by Sharma, relate to internal management of the company and, therefore, the opinion of the share-holders should be taken into account in determining the question whether the winding up proceedings initiated by Sharma should be allowed to be proceeded with or stayed by an order of this Court. 125. At the meeting the Chairman had allowed spokesman from both the groups to address the share-holders; and the minutes of the meeting make it clear that they 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 term ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch an order would be desirable. Where, however, a company was initiated to carry out a fraud, and was hopelessly embarrassed by actions brought by shareholders alleging fraudulent misrepresentation and there were strong suspicions that the promoters were organising resistance to the petition in order to enable themselves to retain money to which the shareholders were entitled, the Court held it to be just and equitable to make a winding up order. And the Court has shown an increasing tendency to wind up and get rid of Companies initiated or being carried on fraudulently, at all events where the majority of shareholders controlling the Company are implicated in the fraud and the winding up order is necessary for securing investigation into the conduct 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&# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he promoters or that the Company never had a real formation and was a mere bubble or is formed to carry on an illegal business, such as dealing in lottery bonds. 130. To repel the contention made on behalf of Sharma that the petition having been admitted and orders for advertisement having been made, a petition for stay of further proceedings is not maintainable, Mr. Mitter referred to Palmer's Company Precedents 16th Ed., part II, page 34: A winding up petition is not to be used as a machinery to try a common law action. Nor is it necessary to wait until the hearing, for a motion to stay all further proceedings on the petition and to restrain advertisements may at once be made. The same passage occurs in the 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 goo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Company he certainly has condoned them. If the Directors are guilty of misdeeds and misappropriation, he was one of them and this Court in any event should not allow him to turn round and complain about acts, of which he was one of the principal authors. 134. In my mind, I have no doubt, that he is acting most unreasonably in seeking to have the Company wound up. The Company as I have noted earlier, is a prosperous company. Its prosperity has gone on increasing from year to year. The shareholders of the company have been benefited by the business policy and trading profits of the company. Sarma himself has enjoyed the benefits of the expanding business and increasing profits of the company. He has not ventured 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e neglect, the length of time which elapsed before the petitioner presented his petition, though that would of itself have been a very important matter for consideration. I do not wish to weaken what I have said on the general principle by laying any stress upon the delay, but it would have been, I think, a very serious impediment in the way of his obtaining any relief on this petition that he allowed the voluntary winding up to go on for nearly a year with full notice of what had been done, and allowed it to be completed before he took the proceedings which he has done. 138. Referring to the charge of the petitioner about irregularities in the conduct of the business of the Directors and also in regard to 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . That is the only alleged debt. He also claims a sum for damages for wrongful dismissal which is not a debt, and in respect of which he cannot present a winding up petition. The damages for wrongful dismissal which he claims amount to pound 95. So that we have a petition presented by an alleged creditor for pound 15. He does not pretend that he has served the statutory notice. In fact, he could not serve it, for it is limited to creditors of pound 50 or upwards. He does not pretend that he does not know that both his debt and his claim for damages are disputed ...... He cannot allege a single circumstance to show insolvency, but he relies on the general allegations of insolvency contained in his own 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... doing Mr. Barnett by restraining him from presenting a petition to wind up. If he presented such a petition and it came before me it would be my duty to dismiss it with costs, because, although a petition may be presented when the creditor does not know that the debt will actually be disputed, if it turns out after the presentation of the petition that it is disputed, that is a ground for ordering the petition to stand over till the debt is proved. But if a man will be ; absurd as to present a petition to wind up when he has distinct notice that the debt is disputed, and the circumstances show that it is bona fide disputed, and also when he knows that the Company is solvent, if he will have 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roductive of irreparable damage to this company. Injunction was issued by the Court restraining presentation of a winding up petition. 143. In this case the petition again was presented by a person claiming to be a creditor and his claim was deputed. But Mr. Mitter contended that the principles of abuse of process of Court-have been laid down by Malins, V. C. and the same principles applied to this case. In particular the mischief arising from a winding up petition by a mala fide application has been clearly brought out in the (sic) of Vice-Chancellor Malins and therefore, on the same grounds Sarma should be prevented from proceeding further with his winding up petition. Mr. Mitter 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ulting to them therefrom, were well content to leave the management of the company's affairs in Venkata Rao's hands . He controlled a large number of shares through different members of his family. There was difference between him and his family members before the winding up petition was presented. The conflict arose when he tried to get an extraordinary resolution passed for transfer of registration of the company to Hyderabad. One Subhapati Rao holding one share, took the lead in opposing him and at the meeting, to pass the resolution for transfer of registration, moved an amendment for voluntary winding up and this amendment was passed by a bare majority This was followed 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 m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he facts as proved. Relating to the allegations in the petition and the judgment of the Appellate Beach of the High Court in accepting the allegations, as true it was held at p. 424 of the report (Ind App): (at p. 7 of AIR): They (sic) treat allegations in the petition as true merely because they are placed there. They find neither in his contradictions nor in his charges any room even for criticism ........ The learned Judges appear, without examination, to accept these charges as proved, while from their statement of the first of them, it is apparent that the nature of the charge made was quite misunderstood. Regarding the merits of the petition 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 contributorie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the instant case under my consideration, inasmuch as it was a petition by a contributory. I have already expressed the view that the petition has not been presented in good faith and for the legitimate purpose of obtaining a winding up order. I have also held that it has been presented, for other purposes, namely putting pressure upon the company. If this petition is allowed to be proceeded with by Sarma, it would cause enormous mischief and damage to the company. The grounds for winding up being what they are, as set out in the petition and the conduct of Sarma in presenting the petition being what I have discussed earlier in this judgment, 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 accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the Directors had laid themselves open to the suspicion that by not holding general meetings, submitting accounts and recommending dividend their object was to keep the petitioners in ignorance of the affairs and to acquire their shares at an undervalue. 156. Loch's case, 1924 AC 783 is an authority for two principles, viz., one that 'just and equitable' is not Ejusdern Generis with the other clauses for winding up in the statute, and thereby overrules the principle laid down by Cottenham, L. C. in In re, Agriculturist Cattle Insurance Co; Ex parte, Spackman, (1849-1 Maok and C 170); and the second principle is that 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or. But in coming to the conclusion whether I should wind up this Company or not, the main consideration I have got to keep before me is the interests of both the shareholders and the creditors, and the fact that the overwhelming majority of the shareholders are opposing the petition and a large number of the creditors are also doing the same and the rest are taking no part is a fact which must bear with me in coming to my decision. It was also held at the same page of the report; I might state at the very outset that one marked feature of this curious petition is the carefree manner in which the most serious allegations 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 rebutt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The petitioner must succeed or fail on the petition as it stands today on the materials he has adduced before me. 164. On the question of winding up on a share-holder's petition it was held at page 238: But there is a special rule that the Courts have laid down in exercising their discretion in winding up a company on the petition of a shareholder. The Court constantly bears in mind that the internal management of the company is its own concern, and it is a much better Judge of business prospect of a trading venture than the Court can ever hope to be. If, therefore, the majority of the share-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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng a winding up order. In re, Chapel House Colliery Co. (1883-24 Ch D 259) it was held that when those who oppose a winding-Up can show that no possible benefit can accrue to creditors from making the order, the order for winding up ought not to be made. It was held that there was no sufficient evidence that there were no assets and a winding-up order ought to be made if there is reasonable prospect of there being assets available to the unsecured creditors, An investigation was therefore, necessary to find out if there were assets and for this purpose a winding-up order was made. 171. The next case referred 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the premises by instalment of 1000 each and was also to grant a lease of the premises to the company. The lessee also agreed that if the company was short of capital he would pay to the company a sum not exceeding 2000 for shares of the same amount. The company paid to the lessee 1000 being the first instalment. When the second instalment became due to the lessee, the Board passed a resolution requiring the lessee to take two hundred shares of the value of 1000 in exchange for the balance instalment of 1000 payable to the lessee. The lessee refused to 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was started in fraud for the purpose of inducing the public to do business with the company under the impression that it was really the old established firm carried on under the name T. Brinsmead and Sons, Piano manufacturers. The public was induced to subscribe for the shares of the company because the name Brinsmead was used by the company and this name was associated with a reputed firm of Piano manufacturers. The object clearly was to deceive the public, Vaughan Williams, J. held at page 61 of the report: I have now 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 go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... carrying on business for six years and the business was carried on in a small premises by only one clerk. From the balance sheet it appeared that all the paid up capital except 337 had been exhausted. The petition was presented by a shareholder and was supported by a large number of share-holders but not the majority. It was held by Kekewych, J. that in all cases of contributory's petition the Court should keep two matters in view, viz., the unwillingness of the Court to 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. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on and although the petition was widely published no one had come forward to support the petition. Romilly, M. R. considered the question of buying up the petitioner at any cost but then it was held that it was not proper for the Court to be made the cat's paw. It was held that if a winding-up order was made property of the value of one million pounds would have to be realised. The liquidation costs would be enormous, and while the liquidation was going on, all persons 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fraud. Contracts were entered into by the Managing Director in his own name for work to be done by the company. It was found that the Managing Director misappropriated profits arising from such contracts. An order of Court to render account of the profits was completely nullified by reason of the Managing Director's control over the majority. It was in these circumstances that the winding up order was made. 182. The next case referred 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase referred to by Mr. Mitter is Rajahmundry Electric Supply Corporation Ltd. v. A. Nageswara Rao, [1955]2SCR1066 . In this case an application was filed under Section 162 of the Indian Companies Act 1913 for winding up on the ground that the affairs were being mismanaged and the Directors had misappropriated the Company's funds. In the alternative a prayer was made for action under Section 153(c). The High Court held that the charges 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accordance with the Articles of Association and to vest it in the Court. In that situation there is no scope for the Rule that the Court should not interfere in matters of internal management. In this case the Supreme Court accepted and approved of some of the well-recognised principles of Company Law, namely that where nothing more is established than that the Directors had misappropriated the Company's funds an order 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 ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icient for the purpose of winding up a company if the allegations are proved to be true, But in the instant case Sarma's conduct which is to be gathered from what has been stated in the affidavit-in-opposition and also from the, minutes of the Directors' meetings, the balance sheets, the Directors' reports and their answers to the Auditors' comments, shows that the petition is an abuse of the process 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 ava ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efuse to admit a winding tip petition or as an alternative give the company concerned notice that a petition has been presented, so that it may take proceedings for stay. The Court can instead of admitting the petition, direct service of notice on the company and decide in the presence of the company if the petition should be admitted. Presentation of a petition to wind up in the case of a disputed debt, is an abuse of process 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 busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only that a meeting has to be called, and then ultimately the majority gets its wishes, Is it not better that the Rule should be adhered to that if it is a thing which the majority are the masters of, the majority in substance shall be entitled to have their will followed? If it is a matter of that nature, it only comes to this, that the majority are the only persons who can complain that a thing which they are entitled 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty, and of the documents which he had signed, the doctrine of estoppel would have been attracted. But Sarma accepts all that has happened. He says, however, that those things are unlawful, wrongful and injurious to the interest of the Company and it is on that footing that he has raised the various contentions, in the winding up petition. In my view, therefore, the law relating to estoppel has no application in this case. 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is neither vague nor indefinite in any manner. The stay of the winding up proceedings is sought for on a well recognised and definite principle in Company Law, viz., an abuse of process of Court. This case, therefore, has no application to the instant case. 201. Mr. Sen next referred to (1916) 32 ILR 253 and contended that on the principle discussed in that case a winding up order should be made. I have already dealt 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 substratu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ow this case is relevant, inasmuch as an order was made by S.P. Mitra, J, giving leave to Sarma to inspect the Company's documents at the office of the Company's solicitor. Therefore it is not a case where documents have not been made available to the petitioner If he has not availed himself of the opportunity to inspect the documents of the company he cannot be heard to complain about fee matter. It is not 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aded that the debts were gambling debts and this was admitted by the plaintiff in his answers to interrogatories. But the plaintiff in his answer also pleaded forbearance to sue as a consideration and also giving time to the defendant. The defendant applied to have the action dismissed as frivolous and vexatious. It was held that the action ought not to be summarily dismissed as forbearance to sue might constitute 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was default in payment by instalments and the creditor obtained a committal order, under pressure of which the debtor paid the money. There was further default and a second committal order was obtained and the debtor presented a bankruptcy petition which was followed by a receiving order and adjudication. The decree holder was his only creditor and he had no assets beyond personal earning. The creditor applied 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 entire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should be dealt with in the ordinary course of law and the action was allowed to proceed without prejudice to the Commission's right to raise this point as a defence when the pleadings have disclosed the exact nature of the plaintiffs' case. It was also held that the question of maintainability ought not to be decided until pleadings have been delivered and evidence taken so far as may be necessary 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 ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h, a debtor is entitled as of right to an order of an adjudication upon his own petition. Misconduct on the part of the debtor is to be dealt with upon the debtor's application for his discharge, and is not a ground upon which an order can be refused. At page 14 of the report (Ind App): (at p. 65 of AIR) it was held: In clear and distinct terms, the Act entitles a debtor to an order of 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 ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iff to carry on the litigation in the second suit. On facts and in law this decision is of he Assistance to Mr. Sen's client. 214. The next case referred to by Mr. Sen is Mt. Sharbati Devi v. Kalipershad, AIR 1942 Lah. 119. In this case an order for costs was made. A portion of the costs was realised and only ₹ 44 was outstanding. For this balance, a property was sold for ₹ 2725; 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equitable to wind up the company required a fair consideration of all the circumstances connected with the formation and the carrying on of the company during the short period which had elapsed since May 12, 1930; and the common misfortune which had befallen the two shareholders in the company does not, in their Lordships' view, involve the consequence that the ultimate desires and hopes of the 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 quest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to deprive of all right whatever in this suit? The plaintiff's case is that he has sustained great loss by speculating in the shares of the company and that he afterwards purchased a small number of shares and then filed this bill to impeach certain transactions by the manager of the company. Now although I by no means approve of such conduct, yet I cannot venture to say that for this reason 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 en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ound of neglect of duty. Thereafter the Directors filed a suit against the, Company for recovery of ₹ 2,83,747 on account of deposits made by the Director, The company in its written statement admitted the deposit but denied interest. The company's suit came up for hearing first and was part-heard. Thereafter a winding up petition, was presented by the respondent 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 litigat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... At the hearings of the winding up petition it was found that the debt was due and the company could not pay and a winding up order was accordingly made. There was an appeal from the winding up order and it was argued that the fact that unconditional leave was given to the company to defend, showed that there was a bona fide dispute and therefore, winding up procedure 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 cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is to be noted, however, that this section was not mentioned in the Cause Title as set out in the affidavit of Sankaracharyya Maitra affirmed on March 5, 1963 in support of the summons. Mr. Mitter conceded that Section 442 of the Act has no application and relief cannot be granted to the company under that section, which deals with stay of suits and proceedings, other 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. Mit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions of the Companies Act, 1956 and the questions of law as discussed and laid down in the several authorities cited in course of arguments have also been dealt with by me. The conduct of Amarnath Sarma in presenting the winding up petition and the part he played in the management of the affairs of the company have received my careful consideration. The trading activities of 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that no creditor has come forward and complained that his debt remains unpaid. This Court again must take notice of the fact that the petitioner who wants the company to be wound up was himself responsible for all the alleged wrongful acts and misdeeds of which he now complains. This Court further cannot but hold that the petition for winding up presented on charges relating to 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 tha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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