1. Sulekha Works Ltd. (hereinafter referred to as the (Company) is a public Company which was incorporated in 1946. The objects of the Company inter alia are the manufacture of ink and allied products. The Company was promoted by the members of a family (hereinafter referred to as the Maitras) and four outsiders. A Private Company, viz., Maitra Brothers and Co. Ltd. was and still is the Managing Agent of the Company. Sankaracharyya Maitra was the Managing Director of the Managing Agency Company and as such he was and is ex officio Director of the Company. He became the ex Offiico Director in 1946 and is still such a Director of the Company.
2. The Company was started with a paid up capital of Rs. 12,000/- only. With this small capital the Company carried on business in a small way until 1951, from which year the volume of its business showed a phenomenal rise. The balance sheets from 1951 to 1961 disclose remarkable progress in the prosperity of the Company. The gross sales of the Company from year to year, set out below will give a true picture of the Company's progress:
Year Gross Sale. 1950 Rs. 1,16,818/- 1951 Rs. 3,06,708/- 1952 Rs. 4,80,968/- 1953 Rs. 7,75,095/- 1954 Rs. 10,37,457/- 1955 Rs. 15,35,533/-
1956 Rs. 19,80,637/- 1957 Rs. 22,59,822/- 1958 Rs. 27,18,412/- 1959 Rs. 33,98,512/- 1960 Rs. 37,41,909/- 1961 Rs. 42,00,000/-
The above figures are a clear indication of the progressive rise in the Company's prosperity. The balance sheets show that in 1952 the paid up capital of the Company was Rs. 1,09,370/- and in 1960 it was Rs. 3,23,000/-.
3. The present application arises out of a winding up petition presented on July 25, 1962 by one Amar Nath Sarma who is a contributory and a Director of the Company. The petition was admitted on the same day by S.P Mitra, J. and various interim orders were made, to which I will refer later on. On March 5, 1963, an order was made directing inter alia usual advertisements in the Calcutta Gazette and two newspapers, but such advertisements were not to be issued till March 11, 1963. On the next day this application was moved on behalf of the Company for an order for dismissal of the winding up petition, an order recalling or setting aside the orders for advertisements made on March 5, 1963, stay of all further proceedings including publication of advertisement of the winding up petition and for other orders.
4. In order to understand the rival contentions of the parties in the winding up petition and in the present application, it is necessary to go into the activities of the parties during a few previous years. The Maitras promoted a Private Company under the name of Bengal Sales Agency Private Ltd. (hereinafter referred to as the Agency Company), which became the Selling Agent of the Company's products. One Sachindra Narayan Guha, a Director of the Company, became a Director of the Agency Company and was looking after its affairs. Disputes arose among the Directors of the Agency Company and on or about June 7, 1961 the Agency Company filed a suit against Guha. This suit caused a chain reaction and sparked off serious disputes among the Directors of the Company, some of whom were also Directors in the Agency Company.
5. The immediate result of the suit filed against Guha was that on June 20, 1961 Guha presented a petition for winding up the Company. This petition was admitted and various ad interim orders were made by S.P Mitra, J. on the winding up petition. In this petition numerous charges were made against the Directors of the Company, among whom Sarma is one. Various charges were also made against the Managing Agent.
6. The dispute with Guha was settled; the substance of the settlement was an exchange of shares between Gula and the Maitras. This exchange of shares was effected with a view to give Guha sole control over the 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.
7. It was contended by Mr. Gouri Mitter, learned Counsel for the Company, that the immediate cause for Sarma's presenting the winding up-petition was some dispute with the Company regarding publicity business of the Company which, was previously done exclusively by the Hindusthan Publicity Society, of which Sarma is the proprietor. It is alleged that the entire publicity business of the Company used to be done by Sarma the volume of business having been reduced though not entirely stopped Sarma presented the winding up petition with a view to put pressure on the Company to realise the ulterior object of compelling the Company to entrust a larger share of its publicity business to Sarma. I must at once point out that there is no evidence as to the volume of publicity business done by Sarma previously and also of the measure of reduction in such business. But at the same time, I should point out, that there may be some substance in this allegation as it is difficult to find an explanation for Sarma's presenting the winding up petition in the circumstances hereinafter stated.
8. Before going any further I should note that the steady increase in the volume of the Company's business and its prosperity was unmistakably reflected in the dividend declared by the Company. In 1951 the Company paid a dividend of 5 per cent on ordinary shares, in 1952 the dividend was 6 per cent in 1953 and 1954 it was 7 per cent, in 1955 it was 8 per cent, in 1956, 1957 and 1958 it was 10 per cent up to this year the dividend was paid free of income tax. In 1959 and 1960 it was 12½ per cent but subject to tax. The shareholders of the Company, therefore, participated in and fully enjoying and were enjoying the benefits of the Company's prosperity until the winding up petition was presented by Sarma.
9. For the purpose of further expansion and development of the Company's activities, an agreement was entered into between the Company and the West Bengal Financial Corporation, under which the latter agreed to advance a loan of Rs. 4,00,000/- to the company. The said Corporation has already advanced to the Company a sum of Rs. 2,00,000/- and was ready and willing to advance the balance of Rs. 2,00,000/-. But the advance was withheld owing to the pendency of the winding up petition against the company. It is alleged by the Company that the object of Sarma was to prevent this further sum of Rs. 2,00,000/- from coining into the hands of the company for expansion and development work.
10. Under the terms of the loan agreement with the West Bengal Financial Corporation, it has the right to nominate a Director 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 maimer or method of the Company's business administration or to the manner and method in which books are maintained.
11. The Managing Agency agreement commenced from 1946. Before the termination of the agreement the Board of Directors, at its meeting on January 6, 1960, which was attended by Sarma, recorded an appreciation of the meritorious service of the Managing Agents and recommended that the approval of the Central Government, and the shareholders be sought for re-appointment of the Managing Agent, as such re-appointment would be beneficial to the Company. By reason of the operation of Section 339 of the Companies Act, 1956 the Managing Agency agreement was due to come to an end on August 16, 1960. At a meeting of the Board held on February 18, 1960 which also was attended by Sarma, a resolution was passed unanimously for re-appointment of the Managing Agent on the existing remuneration. The Board recommended re-appointment for a term of ten years but the Central Government sanctioned the re-appointment for five years only. This matter is of importance, because the charges in the winding tip petition are mostly against the Managing Agent the nature of the charges being mismanagement, misappropriation, irregularities in management of the Company's affairs and violation of provisions of law. It was emphasised by learned counsel for the Company that far from condemning the Managing Agent, or censuring it for its alleged misdeeds Sarma was a party to the resolution which recorded appreciation by the Board, of the meritorious service rendered by the Managing Agent; Sarma was also a party to the resolution by which the Managing Agent was re-appointed for a further term of ten years on nearly the same terms and conditions regarding remuneration.
12. There is one other matter to which reference should be made at this stage. After the settlement of the dispute between the Company and Guha, the latter did not proceed with his winding up petition but one Nritya Gopal Saha, another contributory was substituted in the place of Guha in the winding up petition. The substituted petitioner introduced certain new charges in his winding up petition. Saha died on September 6, 1961 and thereafter one Paresh Chandra Ray applied for being substituted in the place of Saha. But this application was not proceeded with.
13. It is in the background of the events mentioned above that Sarma presented the winding up petition out of which this application arises. As this application is for dismissal of the winding up petition and for stay of all further proceedings, it is necessary to indicate the nature of the charges made in the petition. The principal charges in the winding up petition are set out below:—
1. The Directors of the Company are under complete control of the Managing Agent and have no voice in the management of the Company's affairs.
2. The Maitras hold the majority of the shares of the Agency Company which was promoted to draw the margin of profits on sales of the Company's products. — There are manipulation of accounts which will be revealed if the ledgers of the company and the Agency company are compared with the bills drawn by 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 Rs. 500/- per month to the members of the Managing Agency Company.
9. In 1959 Company maintained a cash balance between Rs. 10,000/- and Rs. 45,000/- while series of cheques issued by the Company to meet trade liabilities were dishonoured.
10. In spite of heavy cash balance Company failed to pay income tax dues and paid penalty of Rs. 500/- in 1959.
11. The Company borrowed Rs. 10,000/- from a party — the money so borrowed was misappropriated by the Managing Agent — Debit and credit entries regarding the loan were made, on 31-12-59 but interest on the loan amounting to Rs. 700/- was paid by the Company.
12. Company borrowed Rs. 5,000/- from another party — Amount paid back to the party on 14-11-60 — Interest paid by Company and false journal entries made — The party's loan account was debited with Rs. 4,000/- and the same amount was credited to calls in arrear account of the auditor.
13. Managing Agent withheld payment of bonus declared to workers — One month's bonus for 1955 paid in 1960 after a threat of strike.
14. False liabilities of the Company created? by the Managing Agent.
15. Default in holding Annual General Meeting and filing of Balance Sheets.
16. Proceedings taken against Directors by the Registrar for default in filing accounts — Directors convicted and fined Rs. 50/-
17. Managing Agent obtained loan on two hundis of Rs. 5000/- each — The money borrowed was used by the Managing Agent for its own purposes but the loans were entered into the books of the Company.
18. Default in holding Annual General Meeting for passing accounts for 1959 — Directors were suspicious and A.G Banerjee was appointed to scrutinise accounts.
19. A.G Banerjee made a report which showed an alarming state of affairs.
20. Managing Agent kept large sums of compony in its hands although the Company maintained several bank accounts.
21. Cash in hand checked on 10-3-61 by the petitioner and P.K Majumdar and found to be short according to entries in the cash book by Rs. 18,000/- — I.O.U slips produced to make cash in hand agree with entries in the cash book — Shortage of cash reported to Registrar Joint Stock Companies and Deputy Commissioner of Police. Enforcement Branch.
22. Directors signed false balance sheet for 1959 — Auditors certified the same subject to remarks which have not been explained by Managin Agent.
23. From the balance sheet for 1959 it appears that the Company did not make over provident fund moneys to the Trustees within time.
24. N.G Maitra received advances from the Company in contravention of Sections 295 and 369 of the Act.
25. Vouchers for disbursement of Rs. 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 Rs. 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 Rs. 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 as disputed, the matter was referred to arbitration and this gives rise to suspicion that the debt due from the Agency Company has not been correctly shown.
31. The Board of Trustees of the Provident Fund did not hold meetings — At a Board meeting held in 1961 R.P Lahiri was replaced by P.N Nandi though Lahiri ceased to be a Director is long ago as 1956.
32. For the year ending 31-12-55 Company paid Rs. 87,000/- as income tax but in balance sheet provision made for only Rs. 51,546-10 annas — Petitioner not told how the additional sum of Rs. 35,000/- was paid by the Company — Heavy liabilities for income tax and sales tax but no provision made for the same.
33. Balance sheets for 1958, 1959 and 1960 do not represent the correct picture — Sale proceeds not credited — Provident fund not paid to trustees.
34. Managing Agent and its associates fraudulently misappropriating funds and making unlawful gains.
35. Expenditure incurred by Managing Agent and Directors is exorbitant and irregular — They failed to exercise control over such expenditure — Finances of Company misappropriated — Company reduced to insolvency.
36. Company received Rs. 2,00,000/- as a loan from Financial Corporation — Managing A gen in contravention of the agreement utilised the money in payment of existing liabilities instead of utilising the same for expansion and development.
37. Managing Agent and Directors borrowed larger sums of money since 1956 which together with money already borrowed by the Company exceeded aggregate of paid up capital.
38. Since 1961 sales not credited in books of account but confidentially maintained by Managing Agent — Large sums misappropriated by Managing Agent.
39. The Company in breach of agreement with the Agency Company sold goods through Chinsurah Supply Agency — Petitioner made enquiries by letter but no reply sent to him.
40. No audit note regarding closing voucher file — Managing Agents and Directors misappropriated Rs. 68,000/- — False balance sheet produced showing balance at Rs. 45,000/-.
41. Workers of the Company are dissatisfied for mismanagement.
42. Proper contract register as required in law is not maintained — Particulars of contracts not entered in the register.
43. Petitioner came to learn that Guha entered into fresh agreement for selling agency of Company's products at an increased commission of 12½%.
44. Policy of Managing Agents and Directors is fraudulent — Directors fraudulently making personal gains and gains for concerns in which they are interested — Remuneration, allowance and commission paid to Managing Agent in violation of the Act.
45. To make illegal gains the Directors have appointed Demco as Selling Agent in U.P at heavy commission of 12½%.
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 affairs carried on in fraud for benefit of Managing Agent and Directors — Copies of two letters dated 16-5-60 and 8-8-60 from H.D Mukherjee are annexed.
14. It is to be noted that the charges mentioned above are directed against the Managing Agent and the Board of Directors of the Company. It is also to be noted that except for a few charges of fraud, all the other charges relate to acts of mismanagement or wrongful misappropriation of the Company's funds. I shall discuss' the nature character and effect of the charges made. In the circumstances and in the events that have happened. But I should mention at this stage, that except for a few fresh charges made in the winding up petition, all the other charges had been made in the winding up petition made by Guha and the petition made by Nritya Gopal Saha. What is still more significant is that in some cases the charges in this winding up petition have been copied verbatim from the petitions of either Guha or Nritya Gopal Saha.
15. The charges which are fresh in this winding up petition and which were not made in the petition of Guha or Saha are as follows:—
1. General allegations of fraud, misappropriation and Mismanagement.
2. Dispute with Agency Company regarding moneys due from it to the Company — Arbitrators appointed for adjudication of dispute.
3. Guha filed petition before Sub-divisional Officer. Alipore, in 1961 charging Managing Agents and Directors with breach of trust and falsification of accounts — Magistrate directed O.C, Tolly-gunge Police Station to take cognizance but no enquiry made.
4. Loans taken on behalf of the Company exceeded paid up capital.
5. The Agency Company has entered into a new agreement.
6. Fraudulent and oppressive policy of Managing Agent and Directors.
7. Remuneration paid to Managing Agent in excess of what can be paid under the terms of the Act.
16. The fresh charges which have been made in the winding up petition and which were not made by either Guha or Saha in their petitions are of a minor character. All the major and important charges in this winding up petition had already been made by either Guha or Saha in their petitions.
17. The charges are directed against the Managing Agents and the Board of Directors. A very curious feature of the charges against the Directors is that the charges have been made against the Board of Directors 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 a 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 part in shaping the Company's business policy and in management of the affairs of the Company. Except for a single dissent on his part in refusing to sign the balance sheet for 1960, all the other Board resolutions were passed unanimously and there is not one single occasion when he raised his voice of protest in the deliberations of the Board. Indeed it must be said that credit in no small measure is due to him for the prosperity of the Company's business.
18. Before proceeding any further I should deal with one matter, which has considerable bearing on this application. I have already noted that the major charges in the winding up petition, have been taken from the petition of Guha or Saha and in some cases the charges made in the present petition for winding tip, are verbatim copies of the charges in Guha's petition. It is true that some fresh charges have been added by Sarma in his petition. But these fresh additions are made for the purpose of distinguishing this petition from the two previous petitions than for the purpose of obtaining a winding up order on them.
19. Shortly after the winding up petition was presented by Guha the Board held a meeting on July 24, 1961. Sarma was the Chairman of this meeting. The resolutions passed at the meeting are of importance for more than one reason. In the first place this meeting considered the winding up petition presented by Guha and passed a resolution relating to that matter. In the second place, this meeting also dealt with the letter of resignation from the Managing Agent and also passed a resolution in that matter. Regarding Guha's petition of winding up the material portion of the resolution is as follows:
“Although the Board denies the allegations made in the aforesaid petition and is inclined to put a stop to such things by fighting the issue in the Court, still from the business point of view, it is desirable to reconcile the dispute, if it is possible to arrive at in an honourable way, so as to avoid unnecessary expenses and harassment, which are standing in the way of smooth functioning of the business and production.”
20. The above resolution was passed unanimously. No doubt Sarma as Chairman of the Board meeting took a leading part in the deliberations. The Board as a whole denied the charges made by Guha and wanted to put a stop to such winding up petitions' by fighting the 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.
21. The other matter dealt with at the Board meeting was the letter of resignation from the Managing Agent. The Managing Agent is the main target of attack in the winding up petition. It has been submitted on behalf of the Company that the Maitras wanted to resign from the Managing Agency of the company, owing to the charges made against the Managing Agent by Guha in his winding up petition. No doubt that must have been the reason for the proposed resignation by the Managing Agent by its letter of July 24, 1961. It is in this background that the Board at the same meeting passed a resolution the material portion of which is as follows:
“The Board appreciates the efficient conducting of the business of the Managing Agents which has brought the Company to the foremost manufacturers of ink in India out of practically nothingness, and regrets to learn that Messrs Maitra Brothers and Co. (P.) Ltd. is now prepared to resign from the Managing Agency. The Board decides to defer consideration of the matter until its next meeting.”
22. That is what Sarma thought of the manner in which the Managing Agent performed its duty. Sarma did not stint words in congratulating the Managing Agent for its meritorious service to the Company. Yet he now wants this Court to believe and act upon his allegations that the same Managing Agent is guilty of fraud, misappropriation and misapplication of the Company's funds. I shall refer to this matter later on in this judgment.
23. This application being for stay of further proceedings or dismissal of the winding up petition in exercise of the Court's inherent powers, on the ground that the application is an abuse of process of Court, it is necessary for me to go into the merits of the charges, for the purpose of determining if the petition based on those charges is an abuse of the process of Court.
24. One of the charges in the petition is in regard to the balance sheets for the years 1958, 1959 and 1960. The allegtaion is that these balance sheets do not represent the correct picture. The ground for the allegation is that the sale proceeds' of the Company's products were not fully credited in the accounts, the provident fund moneys have not been paid to the trustees, large sums of moneys were diverted or dissipated from the Company's funds to the detriment of the Company's interest. It is to be noted that the charges are singularly devoid of any particulars. No particulars have been furnished of the amounts which have not been credited in the accounts, or of the sales in respect of which the charges are made, or the dates when the sales are alleged to have taken place. The same applies to non-payment of the provident fund moneys to the trustees and also diversion and dissipation of the Company's funds.
25. Sarma was a Director from 1956 and he never 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 approve 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.
26. The balance sheet for the year 1958 was placed at a Board meeting held on January 6, 1960. Sarma attended this meeting and he and Guha wanted some time to examine the accounts. They were supplied with copies of accounts for the purpose. At two other Board meetings held on January 8, 1960 and January 12, 1960 the discussions regarding the balance sheet for 1958 were continued. At the Board meeting held on February 18, 1960 which was again attended by Sarma, the balance sheet and profit and loss account for the year 1958 were approved unanimously and it was resolved that the accounts be placed at the 13th Annual General Meeting of the share-holders far their approval and adoption. Not only that Sarma also signed the Directors' report, the balance sheet and profit and loss account. The Annual General Meeting of the share-holders was held on March 30, 1960 and the balance sheet and the profit and loss account were unanimously adopted by the share-holders.
27. Turning now to the balance sheet for the year 1959, this balance sheet was placed for approval at a Board meeting on February 24, 1961. Sarma attended this meeting. The Board appointed A.G Banerjee to examine the accounts of the Company and advise the Board on the balance sheet and profit and loss account. The discussion by the Board on the accounts continued for sometime. As many as nine Board Meetings were held to discuss the account for 1959. At the Board meeting held on March 15, 1961 the accounts for the year 1959 were unanimously approved and so also were the replies of the Directors to the Auditors' comments on the accounts. Curiously enough, although this Board meeting was requisitioned by three Directors, one of whom was Sarma, he did not attend the Board meeting. But at the Board meeting held on April 6, 1961, which was attended by Sarma, the draft report from the Auditors on the accounts for the year 1959 which were approved at the previous Board meeting on March 15, 1961, was read and a resolution was passed unanimously approving the Directors' replies to the Auditors' remarks on the accounts for the year 1959. This meeting is important for another reason. A.G Banerjee was appointed to examine the accounts and advise the Board on the balance sheet for the year 1959. The appointment of A.G Banerjee was proposed by P.K Majumdar and was seconded by Sarma at the Board meeting held on February 24, 1961. But at the Board meeting 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.
28. 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 reckless charge that the accounts for the year 1959 are false and this Court is now invited to act upon this allegation.
29. The draft balance sheet and profit and Joss account for the year 1960 were discussed at a Board meeting held on June 5, 1962. The Board by a majority approved the draft balance sheet and the profit and loss account, but Sauna dissented. At the next meeting of the Board held on June 16, 1962, which was attended by Sarma, the report from the Auditors on the accounts for the year 1960 was read and a resolution was passed unanimously that the replies of the Directors to the Auditors' comments on the accounts be approved. The draft Directors' report for the year 1960 was also unanimously approved. The accounts for the year 1960 were placed at the Annual General meeting held on July 27, 1962. The accounts were passed at the general meeting by a majority of 56 to 6. Sarma and his group, having six votes, voted against the resolution adopting the accounts. It is curious that Sarma who was a party to the Board resolution passed on June 16, 1962, approving the replies of the Directors to the Auditors' comments opposed the passing of the accounts at the Annual General Meeting. But the reason for the opposition is not far to seek. By the time the Annual General Meeting was held on July 27, 1962 Sarma had already come out in the open, and had presented the petition for winding up on July 25, 1962, and after presenting the petition he asked for an injunction restraining the holding of the Annual General Meeting on July 27, 1962. The meeting, however, was not restrained and therefore, he did what he could, namely, oppose the accounts.
30. The charge that the 1960 balance sheet is false is based on the allegation that the value of finished goods has been shown in the balance sheet to be Rs. 3,25,692.08 nP. But according to Sarma, there were no stock of finished goods on December 31, 1960. It is to be noted that no particulars have been given as to how Sarma came to know that on December 31, 1960 the stock of finished goods was nil. The Auditors of the Company who certified the balance sheet, have checked the stock register, and it is after such checking that the value of finished goods have been mentioned in the balance sheet. Sarma wants the Court to reject the Auditors' certificate regarding the value of the stock of finished 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.
31. There is another matter to which reference should be made in this connection. The Board meeting held on June 16, 1962 passed a resolution authorising the Managing Agent to issue notices for the 15th Annual General Meeting; the draft of the notice was placed before the Board and was approved. Sarma, who attended the Board meeting was fully aware that the Annual General Meeting was going to be held on July 27, 1962. Yet he waited for presenting his winding up petition and praying for an injunction to restrain the holding of the Annual General Meeting, until only two days before the meeting was due to be held, i.e, July 25, 1962, when he presented the winding up petition. The matter does not end here. In paragraph 51 of his petition an attempt has been made by him to mislead the Court into believing that he came to know of the Annual General Meeting proposed to be held on July 27, 1962 only on July 4, 1962 when he received the notice of the meeting. He also alleges that a printed report and the accounts were received by him, only on July 4, 1962. Quite plainly this is an attempt to induce the Court to believe that he was kept in the dark about the accounts and the Directors' report and about the Annual General Meeting and he came to know about them for the first time on July 4, 1962. It is quite clear that he knew about the Annual General Meeting to be held on July 27, 1962 as early as June 16, 1962, when he, as a member of the Board, authorised the Managing Agent to call the General meeting. Again he as a member of the Board, at the Board meeting held on June 16, 1962 approved of the replies of the Directors to the Auditors' comment on the accounts. He has chosen to mislead the Court by making false statements and thereby inducing the Court to make interim orders on his winding up petition. No doubt he failed in his main object of stopping the Annual General Meeting but the Court was induced to make an order on deliberate suppression of his knowledge about the date of the general meeting and also about the report. The interim order passed by the Court was that no effect was to be given to the resolutions passed at the Annual General Meeting on July 27, 1962 till disposal of the winding up petition. In my view Sarma's conduct in deliberately making false representations in the petition solely with the object of inducing the Court to make interim orders in his winding up petition, is a very serious matter. He chooses to wait from the 16th of June 1962 when he came to know about the date of the Annual General Meeting, until the 25th July 1962, for the purpose of launching his onslaught on the Company and succeeded in inducing this Court to lend its aid in his mischievous object, on false statements 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.
32. 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 ??? 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 identical with the charge which was made by S.N Guha in his petition for winding up. Sarma along with other Directors denied this charge and all the other charges made by Guha, at the Board meeting held on July 24, 1961.
33. In a petition for winding up, the Court should not reopen the balance sheet on the bare allegation that it is false. The balance sheets had been passed at the Annual General meetings of the company and it is not for the Court in a winding up petition to make an order for the winding up of the Company on a charge that the balance sheet does not represent a true picture. More particularly in the facts of this case, no reliance should be placed on the allegations of the petitioner, who was emphatic in his denial of similar charges made by Mr. Guha in his winding up petition.
34. The next important charge is that the Company is commercially insolvent. The grounds for this charge are firstly that the company has heavy income-tax and sales tax liabilities and no provision has been made for the same. Secondly it is alleged that cheques issued by the Company have been dishonoured by non-payment and there fore, it is alleged that the Company is insolvent.
35. It is not necessary for me to repeat here what I have said earlier, regarding the prosperity of the Company. The sales have gone on increasing from year to year and the net profit has also correspondingly risen. The share-holders have been getting dividend of 12½% until the presentations of this winding up petition and the interim order restraining the Company from giving effect to the J resolution passed at the Annual General meeting held on July 27, 1962. Nevertheless the charge of insolvency having been made, it is necessary to see if there is any substance in the charges.
36. But before going into individual charged of insolvency, it is necessary to point out that in course of the several years, during which the Company has been carrying on business, no creditor has filed a suit against the company and no decree has been passed against the company for non-payment of money due from the company. No statutory notice for non-payment of a debt has been-served by any creditor for winding up the company. Indeed for a manufacturing concern like the present company, it is no small credit to say the no creditor has taken recourse to legal proceedings for recovery of a debt due to him.
37. It is contended on behalf of the company that the charge relating to non-payment of income-tax is entirely false.
38. 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 1956 net amount demanded after adjustment of payment under Section 18(a) of the income-tax Act, was Rs. 65,310.25 nP. On appeal to the Appellate Assistant Commissioner this amount was reduced to Rs. 16,360.29 nP. and it was fully paid by the company. For the accounting year 1957 the Company paid advance tax of Rs. 19,392.62 nP. and the, company paid on various dates Rs. 46,148.09 nP. The balance due upon assessment was found to be Rs. 653.29 nP. and this amount also has been paid by the Company. For the accounting year 1958 the Company paid advance tax of Rs. 28,936/-; the final installment of Rs. 5,771/- has also been duly paid. For the accounting year 1959, the Company had paid advance tax of Rs. 36,532.00. The net amount demanded after adjustment of the advance was Rs. 19,983.00 and this amount has also been duly paid. For the accounting years 1960 and 1961 the company has paid in full the demand under Section 18(a) of the income-tax Act and paid in each of the two years Rs. 63,175.00. The assessments for the years 1960 and 1961 have not been completed and therefore, the Company has not been able to pay its dues for these years yet.
39. The Company's case regarding payment of income-tax has not been seriously controverted by Sarma. It will be seen from the figures mentioned above that the Company has been quite regular in payment of its income-tax liabilities and there can be no question of drawing an inference of insolvency on the ground that the company has not paid or has not made provision for payment of its income-tax liabilities.
40. Another charge relating to income-tax is that for the year 1955 the Company paid income-tax of Rs. 87,000/- but in the balance sheet Rs. 51546/- only was set apart for income-tax. The complaint is that the petitioner was not told from where the additional sum of Rs. 35,000/- was paid. On behalf of the company it is denied that assessment was for Rs. 87,000/- and therefore, there is no question of payment of an additional sum of Rs. 35,000/-. According to Mr. Mitter, the original assessment was Rs. 61,108.34 nP. Out of this the Company paid Rs. 47,715/- and disputed liability for the balance of Rs. 13,393.34 nP. The Company preferred an appeal and this appeal was allowed in full so that its liability for the balance of Rs. 13,393.34 nP. was wiped out. It is thus clear that the allegation regarding income-tax liability for Rs. 87,000/- is entirely false and there was no basis for the same. As regards the other charge, namely that he was not told how the additional sum of Rs. 35,000/- was paid, it is to be noted that this sum was not paid at all but assuming it was paid, as a Director he was entitled to look into the company's Books and find out for himself the source of this sum. The other Directors are under no liability in law to furnish such information to him.
41. Regarding sales tax the position is the same. There is a vague charge that provision has not been made for payment of sales tax. The chalans relating to payment of sales tax were produced in Court and it was shown that for the year 1958 the Company paid West Bengal Sales Tax of Rs. 20,505.55 nP. and Central Sales Tax of Rs. 38,642.79 nP. For the year 1959 the Company paid West Bengal Sales Tax of Rs. 26,698.96 nP. and Central Sales Tax of Rs. 32,148.62 nP. For the year 1960 the company paid West Bengal Sales Tax of Rs. 25,554.93 nP. and Central Sales Tax of Rs. 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 easel 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. I have no hesitation in accepting the company's contention that it had fully discharged its liabilities for income-tax and sales tax.
42. But assuming that the company did not pay its income-tax or sales tax liabilities would that be a ground for winding up a company on a charge of insolvency? The Income Tax Act and Salas Tax Act provided a machinery for realisation of taxes and if the Company made defaults certificate proceedings would have been commenced for non payment of taxes. There is no allegation that any such proceedings have been taken against the company. Nor is there any evidence that the company is unable to pay its taxation liabilities.
43. There is another matter to which reference should be made regarding the allegations relating to the tax liabilities. Sarma is making allegations regarding matters which happened in 1955, 1957, 1958 and 1959. The petition was presented by him in 1962. From the year 1956 he has been, a Director of the company. He naiver raised the question of income-tax or sales-tax liabilities of the company either at any of the Board meetings or Annual General meetings. Be sides he has came to Court in 1962 for winding up the company relating to matters that happened in 1955, 1958 and 1957, 1958 and 1959. Even if his charge was true and even if such a charge could be held to be a ground for winding up, the company, the delay in making this application and the laches in his conduct would have been fatal to an applications' for winding up on these grounds.
44. The next charge relating to insolvency is that several cheques issued by the company were dishonoured and therefore, it was contended that the company is insolvent and should be wound up. The allegation relating to dishonour of cheques is denied by the company. It is contended by learned counsel for the company that not a single cheque remains unpaid. Sarma in his petition has furnished no particulars of the cheques, which according to him have been dishonoured. It has been stated in the affidavit in opposition on behalf of the company that on a few occasions cheques have been drawn by the company, through inadvertence, before the company's account was credited by realisation of cheques drawn in favour of the Company. But in these few cases the amount due to the parties whose cheques were dishonoured have been fully paid by the Company and there is not one single instance where the amount remains unpaid. It is contended by learned counsel for the company that the Company's business extends over the whole 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-ln-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 non-payment of debt. No creditor has filed a suit against the company for realisation of its dues and no decree has been passed against the company. In my view, the allegation relating to dishonour of cheques is absolutely frivolous and without any substance whatsoever.
45. There is another matter relating to the charge of dishonour of cheques. It appears from Annexure B to the affidavit-in-reply of Sarma that all the cheques excepting one were drawn by the company in the year 1959. At this time Sarma was one of the most active Directors on the Board. If the dishonour of ceques is a matter on which his feelings are so strong, why did he not raise this question at the Board meetings which he unfailingly attended? Dishonour of cheques, assuming it is true, is eminently a matter to be raised and discussed by the Board or a matter which one would expect to be raised at the Annual General Meeting of the Company. But Sarma did nothing. He never asked for any explanation from the Managing Agent in the matter. Nor did ??? agitate the question at Board meetings or General meeting of the company. After all these years, he now wants the court to act on particulars of dishonour of cheques, set out for the first time in his affidavit-in-reply and make an order for winding up of the company. This indeed is strange conduct on the part of a contributory who was a Director and as such actively associated with the management of the Company's affairs throughout the material time.
46. The next charge to be dealt with is the charge that the company paid for building of structures on land belonging to the Managing Agents. The charge is that the Sand adjacent to the company's factory is owned by the Managing Agent, the structure was raised on the land and the cost of construction was paid out of the company's funds. The company is occupying the premises and is paying rent at Rs. 500/- per month.
47. It appears that the company desired that additions and alterations should be made to the premises which stood on the land belonging to the Managing Agent. And for this purpose a loan was granted by the Company to the Managing. Agent which was repaid long ago. The construction of the structures was done by the company's engineers according to its directions. At a meeting of the Board held on March 1954 the company requested the Managing Agent to construct structures on the land for its occupation. The Board, passed a resolution for a loan of Rs. 12,000/- and also agreed to pay rent of Rs. 75/- per month for each floor making a total of Rs. 150/- per month for the entire premises. A resolution was passed that an agreement be entered into between the Managing Agent 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 re-solved to pay the Increased rent of Rs. 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 Rs. 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 the charge in the petition. He was himself the Chairman of the meeting of the Board which passed the resolution recording that both the land and the buildings belong to the Managing Agent and he now wants the Court to rely upon his allegation that the land was purchased out of company's, funds and the structures also were constructed out of the funds of the Company. It is clear that the charges relating to the construction of structures out of the company's funds have teen recklessly made, without any regard for truth. Besides it is to be noted that the matters now complained of took place as early as 1955. And in November 1959 he was a party to the resolution which recorded that the Managing Agent was the owner of the land and the buildings. After all these years he wants the Court to make an order for winding up on reckless and frivolous charges relating to the ownership of the land and the buildings.
49. The next matter in the petition is a loan of Rs. 10,000/- from Madhuri Chatterjee it appears that in June 1959 the Company borrowed Rs. 10,000/- front Madhuri Chatterjee on a hundi. It is alleged that this sum was misappropriated by the Managing Agent and the entries in the books were made on December 31, 1959 and the interest for the loan, amounting Rs. 700/-, was paid by the company.
50. It appears that this money was kept in the company's safe and was not utilised by the company. Those in charge of making the entries in the company's books had not made the necessary entries. This omission was detected in December 1959 and the entries were made on December 31, 1959. The money was paid back to Madhuri Chatterjee and the Managing Agent was compelled to pay the interest due on the loan as the company did not utilise the money. This matter was commented upon by the Auditors in their comments in the balance sheet for 1959. The Directors in their reply to the Auditor's comment had explained the matter. The Directors' report was approved by Sarma and he signed the report. The Directors' replies to the Auditor's comments were discussed at a Board meeting held on April 6, 1961. Sarma attended the meeting and approved of the draft replies. The accounts were passed at the Annual General Meeting of the Company held on November 8, 1961. Sarma was the Chairman of this meeting, ant as Chairman he gave the explanation as to what exactly actually had happened. The shareholders unanimously adopted and ratified the transaction. Having done all that, Sarma now complains about the matter which took place as early as 1959 and wants the matter to be relied upon or grounds for winding up the Company. He had approved ??? the transaction, he had recommended to the shareholder 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 all. 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 nature is the charge relating to too loans of Rs. 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 open by the Auditors and these comments were published along with the balance sheet for 1960. The Directors' replies to the Auditors' comments are also published along with the said balance sheet.
52. It appears from the Directors' replies that the Managing Agent was made to pay the interest for the period that the money was not utilised by the company. This reply of the Directors was approved unanimously at the Board meeting held on June 16, 1962, which was attended by Sarma. He had accepted and approved of the explanation offered and was quite satisfied with it. It is evident that the company had suffered no loss and the delay in entering the loan in the books of the company, is in any event, a minor irregularity. The accounts for the year 1960 were passed at the Annual General Meeting held on July 27, 1962. Sarma and five of his supporters opposed the passing of the accounts. But this opposition was not for any purpose other than that he had already moved the petition for winding up the company. And obviously he desired to utilise his opposition to the accounts, in order to lend some colour of bona fides to the charges made by him. I have no Hesitation in holding that this charge is by no means a charge on which any company can be wound up on the ground that it is just and equitable to wind up the company. The matter is simply one of internal management. The share-holders approved and ratified what was done in spite of the comments if the Auditors. There was no attempt by the Directors to suppress the matters from the shareholders. The Auditors' comments were placed before the shareholders who had passed the accounts and there is an end of it.
53. The nest matter to be dealt with is the surprise checking of the cash by Sarma and another Director, P.K Majumdar on March 15, 1961. It is not clear as to for what purpose this surprise cash checking was done by Sarma. But it is evident that he was taking a very deep interest in the affairs of the Company's day-to-day administration. It is alleged in the petition that according to the cash book a balance of Rs. 18,000/- should have been in the till of the company. They checked up the cash in hand and found that there was a shortage. Promptly they wrote to the Registrar of Joint Stock Companies and forwarded a copy thereof to the Deputy Commissioner of Police, Enforcement Branch, his indeed is a very strange conduct on the part of a Director who had been closely associated with the Managing Agent and his fellow Directors 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 ??? to the Registrar and the Enforcement Branch to seek redress. 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 Registry.
54. The company has offered its explanation and that is, that moneys are paid out to the company's servants for the purpose of the company's business. Suspense slips are maintained serially in a register called the Cash Suspense Register. The company's employees after spending such moneys as they required for the company's business, rendered accounts and the suspense slips and the register are thereupon squared up. The suspense slips therefore, represent the cash money lying in the hands, of the company's servants who go out in the market for the company's business. The matter was discussed at a Board meeting held on March 6, 1961 which was attended by Sarma. It was recorded that physical verification of the cash in hand was not possible on that day because the cashier was not present. For that reason, the iron safe and the cash box were sealed and a resolution was passed directing the cashier to open the iron safe in the presence of any two of the Directors for verification of cash in hand with the cash book. The charge appears to be more against the cashier than against anybody else.
55. On March 15, 1961 the physical checking of the cash in the company's till took place in the presence of three Directors, one of them being Sarma himself. The seals were broken in the presence of the Directors and were found to be intact. Upon production of the suspense slips it was found that the cash in hand taken together with the suspense slips, agreed exactly with the cash balance in hand at the close of business on February 23, 1961. The Directors and others who were present at the time of checking the cash on March 15, 1961 recorded their findings in a memorandum in writing which is dated March 15, 1961 and is Annexure E to the affidavit of Sankaracharyya Maitra affirmed on August 30, 1962. Sarma and the others present signed this memorandum. Whatever may have been the motive of Sarma he certainly was frustrated in making a surprise check of the cash in hand. He recorded his findings in writing,.hat there was no shortage of cash in hand, and the cash in hand agreed exactly with the entries in the books. But having signed the Memorandum he has made the identical charge in the petition and wants this Court to believe that the company's funds are being misappropriated by the Managing Agent in collusion with the staff of the company.
56. This matter was discussed at a Board meeting held on April 6, 1961 which was attended by Sarma and a resolution was passed recording that the cash in hand was found to agree exactly with the entries in the cash book. In my opinion there is no substance in this charge.
57. But this matter did not end here. The winding up petition was presented on July 25, 1962 when it was admitted by S.P Mitra J. and various interim orders 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. This 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 the 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 allegations which formed the subject-matter of a pending application in this Court for winding up the company.
58. He induced the learned Magistrate to issue search warrants and an order for judicial enquiry. The company thereupon moved this Court in its Criminal Revisional Jurisdiction and the order of the Magistrate was quashed on November 11, 1962. I should set out below the observations of Sen, J. made in the order quashing the Magistrate's orders:
“In the view I have taken as discussed above I think the opposite party should not be allowed an indulgence of moving the machinery of the criminal Law to satisfy his personal vendetta. I consider that in the facts of the present case the proceeding before the Criminal Court was really an abuse of the process of the court”
I respectfully agree with the observations of Sen, J. regarding the conduct of Sarma.
59. In spite of all that happened in the matter of cash checking, Sarma still wants this Court to rely upon the charge for the purpose of obtaining a winding up order. The charge itself is false. The conduct of Sarma is entirely malicious. But even if true such a charge could never be the ground for winding up a company. It is a charge against the cashier and at its highest, against to Managing Agent and this Court in any event would not take any notice of such a charge in a winding up petition as a substantial ground for making an order to wind up a company on the just and equitable ground.
60. The next matter to be dealt with is the acquisition by the company of the shares of a company known as Duftar Shilpa Protisthan Private Ltd. The charge is that the company purchased 350 shares out of a total of 651 shares' in Duftar Shilpa Protisthan Private Ltd. It is alleged that the Maitra group was the major share holder of Duftar Shilpa Protisthan (P.) Ltd. which was an insolvent company and they converted their insolvent company into a solvent one, by selling 50 per cent of their shares to this company, thereby increasing the liability of this company.
61. This matter was considered by the Board at a meeting on November 18, 1959 at which Sarma was the Chairman. The matter was fully discussed and the Board thought that it could make huge profit by investing the Company's funds in the shares of Duftar Shilpa Protisthan Private Ltd. It was decided that the assets and liabilities of Duftas Shilpa 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 Stulpa 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 ??? shares be approved by the shareholders. The accounts were unanimously passed by the shareholders and the Directors' report was also accepted by them.
62. As I have pointed out earlier in this judgment, Sarma exercised considerable influence in the Board and took a leading part in all major policy decisions. Indeed in this instance it was he who had induced the Company by his recommendations as a member of the Sub-Committee to acquire the shares of Duftar Shilpa Protisthan Private Ltd. Yet he now wants this Court to believe that it was ??? bad investment and was done to serve the interest of the Maitras. Not a word of protest had been raised by him at any time either in the Sub-Committee meeting or in the Board meeting or at the Annual General Meeting of the Company. Besides, this is a matter which took place nearly two years before he presented his winding up petition. In these circumstances Sarma cannot be heard to complain about this matter.
63. There is one other matter to which reference should be made and that is the charge of violation of law. Learned counsel for the company contended that the only bar is Section 297 of the Companies Act 1956. It was also contended that the interest of the Maitras in Duftar Shilpa Protisthan Private Limited was fully disclosed as required by S. 299.
64. But, besides the two sections mentioned, above, reference should be made to S. 372, to which however reference was not made by learned counsel of either of the parties. It seems to me that the investment made by the company in the shares oil Duftar Shilpa Protisthan Private Ltd. is in violation of S. 372(2). It seems to me also, that there has been non-compliance with S. 372(4). But S. 374 specifies the penalty for violation of S. 372. In my opinion since the statute itself provides for penalty for violation of the provisions of the statute, recourse cannot be had to winding up proceedings for the same violation. That is now well settled. Besides an order for winding up is a discretionary order, the conditions under which such discretion is to be exercised, when a petition is presented for winding up a company on the just and equitable ground, has been laid down in S. 443(2). If S. 374 did not specify the penalty for violation of S. 372 different considerations would have applied. It would have been for this Court then to consider, if the violation of statutory provisions, 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 Rs. 3,00,000/- was due from the Agency Company. The Company's complaint was that Guha, who had realised the money from the Company's customers, had not made over the same to the Company, and was yet taking finished goods on credit. This the Company was not prepared to allow. The result was that the Managing Agent stopped supply of goods to the Agency Company. Before the supply was stopped, however, several cheques issued by the Agency Company in favour of the Company were dishonoured by non-payment this happened in 1959. Immediately after supply of finished goods was stopped to the Agency Company it was Sarma, who along with the other Director, P.K Majumdar, wrote to the Managing Agent a letter dated January 13, 1961, which is included in Annexure B to the affidavit of Sankaracharyya Maitra affirmed on August 30, 1962. By this letter Sarma and Majumdar requested the Managing Agent to supply goods to the Agency Company against cash, the Company had rightly refused to supply further goods to the Agency Company until the Company's dues were paid up. But Sarma came forward as the champion and protector of the Agency Company and it was he who insisted that the company should continue to supply goods to the Agency Company so that the latter's business may not be ruined. The winding up petition presented by Guha on June 26, 1961, was the result of this dispute with the company. Guha was not content only with presenting a petition for winding up, but he also filed a suit in the City Civil Court, Calcutta for an injunction restraining the holding of the Annual General Meeting for the year ending December 31, 1959.
67. The dispute with Guha was settled. But before this settlement was arrived at, a meeting of the Board held on July 24, 1961 considered the matter. This meeting was attended by Sarma as usual and the Directors passed a resolution ??? the charges made by Guha in his winding up petition. I have already noted the substance of the settlement between Guha and the company in the earlier part of this judgment. The principal teats was an exchange of shares of the company and, the Agency Company between Guha on the one ??? and the Maitras and their nominees on the ???. The second material term was that there should be an arbitration regarding the Company's ??? against the Agency Company and the third ??? term was that there should be a fresh, agreement ??? writing between the Company and the Agency Company for sale of the Company's products throughout the Agency Company.
68. Sarma as a member of the ??? leading part in settlement of the disputes with ???. The draft of the new Agency agreement with ??? was settled by Sarma and he initialled each ??? of the draft agreement at a Board meeting held ??? August 11, 1961. The draft agreement as ??? by Sarma, was placed before the Board and was ??? proved. Sarma as usual attended this meeting also. Pursuant to this approval by the ??? Agency agreement with the Agency Company, ??? in control of Guha, was executed on. August ??? 1961. At a Board meeting held on August ??? 1961 of which Sarma was the Chairman, the agreement with the Agency Company was ratified lb will thus be seen that at the time when the ??? agreement was entered into, the Maitras had, ??? further interest in the Agency Company, Sanaa had settled the draft of the agreement approved in at the Board meeting, authorised the Managing Agent to execute the agreement and thereafter ??? the agreement at the Board meeting.
69. It is in the background of happened with regard to the settlement of the dispute with Guha that Sarma's charge that the Maitras are ??? appropriating the profits of the company through the Agency company is to be examined. It is ??? that the Maitras do not hold a single ??? it, the Agency Company. Sarma himself acted as ??? champion of the Agency Company when, the dispute started and he was eager to see that the Agency Company was not starved by stoppage of supply off the company's products. The draft of the ??? agreement was settled by him and was ??? a Board meeting of which he was the Chairman.
70. There is one other matter. ??? the present winding up petition, that this Court should compare the books of the Company and ??? the Agency Company in order to find out ??? of accounts. It must at once be posted out that no particulars of the alleged manipulations have been furnished and this. Court in any even in ??? sidering a winding up petition, will not ??? the books of the two Companies in order to fend out and collect materials which would aid and ??? port Sarma in his winding up petition. It is no part of the duty of this Court to collect materials for a petitioner in a winding up petition on vague and uncertain charges made in the petition, so that the petitioner may be able to get an order for winding up.
71. Then again it should be noted that the dispute between the company and the Agency Company started as early as 1959 and it was finally ??? in 1961. Several Board meetings have been held during this period and each one of these meetings were ??? by Sarma. He never raised question of manipulation of accounts at any Board meeting. Far from raising the question of manipulation of accounts, it was he who settled the terms of the new agreement. Why did he induce the Company to enter into the new agreement with the Agency Company if there was any substance in his allegation about manipulation of accounts? He should have put forward the strongest opposition to entering into any Lash agreement with the Agency Company. He did not do it. On the contrary, he was very eager that the Selling Agency should go to the Agency Company.
72. There is another aspect of this question. Even assuming that the allegations of the petitioner that the Agency Company is guilty of misappropriation or non-payment of the Company's dues, is that the ground for winding up the Company? It is open to the Company to proceed against the Agency Company for its alleged misdeeds. It is again open to the shareholders of the Company to consider the matter and 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, 1950, was filed on July 25, 1960, that default was made in ??? 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 the charges in the petition is that it appears from the balance sheet of the Agency Company that a sum of near about Rs. 1,00,000/- arising from the sale proceeds of the Company's products was retained by the Agency Company. This it is alleged, was within the knowledge of the Managing Agent and some of the Directors. In order fully to understand the nature and effect of this charge against the Agency Company I set out below one of the charges as laid in the petition:
“46(p). Knowing fully well, the unsound financial position of Bengal Sales Agency (P.) Ltd. the Company further allowed a huge credit to them and if the said Bengal Sales Agency (P.) Ltd. goes to liquidation and/or suspends payments the shareholders of Sulekha Works Ltd. will have to suffer huge loss. All those wrongful acts ever done wilfully by and/or to the knowledge of the Managing Agent and the Directors. No proper security exists for the huge credits.”
75. The allegation made in the petition set out above conveys to this Court that Sarma was completely unawar of the matters that had taken place in connection with the settlement of the dispute. At the time when the fresh agreement was arrived at there was already outstanding from the Agency Company a sum of nearly Rs. 3,00,000/-. Sarma was fully aware of this indebtedness of the Agency Company and yet he took the lead in the matter of entering into a new agreement.
76. The dispute relating to non-payment the Company's dues was to be referred to arbitration. At the Board meeting held on July 24, 1961, it was Sarma who proposed the name of one of the Arbitrators namely, B. Bose. He was fully aware of the nature and extent of the claim of the Company against the Agency Company. But he has solemnly filed this petition for winding up the company completely suppressing from this Court that he was fully aware of the dues of this Company from the Agency Company, that the dispute relating to nonpayment was referred to arbitration, that he was a party to the resolution by which the Arbitrators were appointed, that he himself nominated one of the Arbitrators.
77. After all this, he wants this Court to act on his allegation set out above, that the Company's assets are in jeopardy, because of the non-payment of the dues by the Agency Company. He now wants this Court to believe that the financial position of the Agency Company is very unsound and credit should not have been given to it. Sarma has not only suppressed from this Court the fact that he was 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 12½ per cent; under the second agreement entered into in 1958 the commission was again fixed at 12½ per cent. Under the third agreement entered into on August 24, 1961, which was ratified by Sarma himself, the commission remained the same, viz., 12½ 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 Com-party and the company has been concluded. An award has been made in favour of the company for Rs. 2,50,000/- and the Agency Company is paying the money under the award. It has been alleged that because the award was for a smaller amount than what was claimed by the Company, the books of the Company have not been properly maintained. This contention is only to be stated to be rejected. The company had lodged its claim before the Arbitrators for the full amount of Rs. 3,07.000/- but the award in favour of the company was made for only Rs. 2,40,000/-. It is because of this reduction, it is urged that books of the Company are not properly kept, because if they were properly kept the claim would not have been reduced. This indeed is a strange argument. If the Arbitrators have reduced the claim to Rs. 2,40,000/- such reduction is by no means proof of the fact that the company's books are not properly maintained. If it was alleged that the Company had not lodged its full claim before the Arbitrators, viz., Rs. 3,07,000/- but had preferred a claim for a smaller sum, it might have been contended that he full claim of the Company was not lodged because such a claim could not be sustained on the basis of the entries in the books.
80. The next charge to be dealt with is the charge relating to the Provident Fund of the Company's employees. The allegation in the petition is that the Board of Trustees of the Provident Fund, was constituted by the Company in or about 1954. Two of the Directors, viz., R.P Lahiri and N. Maitra were amongst others, members of the Board of Trustees. It is alleged that the said Board of Trustees never held a meeting and that, at a meeting of the Board of Directors of the Company held towards the end of 1961 or beginning of 1962, R.P Lahiri was replaced by P.N Nandi, although R.P Lahiri had ceased to be a Director of the Company as long ago as 1956.
81. I cannot but observe that Sarma appears to be under the impression that any and every commend made by him regarding anyone connected with the Company for acts of default or negligence is enough to obtain an order for winding up. Assuming that the Trustees never met, what has the Company got to do with such act of omission on the part of the Trustees of the provident fund? Besides what was Sarma doing as a member of the Board of Directors for the purpose of rectifying the wrong complained of now? Why did he not raise this question at the Board meetings which 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 lachcs 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 wilding 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 Rs. 8764.15 nP. and the other cheque is dated 25-11-60 for Rs. 3574.59 nP. These two cheques although issued in 1960 were not encashed until May, 1962. The Company's explanation is that the cheques were duly issued and the Company had taken it for granted that they were encashed. The cheques, however, were presented to the bank but were returned for some defect in the constitution of the Board of Trustees, Thereafter these two cheques were revalidated in May, 1962 and were duly encashed and the proceeds were credited to the Provident Fund account.
83. Referring to this matter Mr. Sen very strenuously contended that the whole story of the Company was entirely false. His argument was that the cheques were not issued in 1960 at all, but were in fact issued in 1962 and the Company had deliberately altered the dates to 24-11-60 and 25-11-60 with a view to make it appear, that the payments were made by the Company in due time. It was further contended by Mr. Sen that all this was done in 1962 as the Company had no credit balance in the bank in 1960. The charge is of a very serious nature. The Company is charged with deliberately creating false evidence regarding payment of provident fund dues. Learned counsel for the Company produced counterfoil of the cheque book from which these two particular cheques were used. The counterfoil book was tendered. It appears from the ???, that the contention of Mr. Sen is entirely incorrect and his suggestion is not at all tenable. The counterfoil book show; that all the previous and subsequent cheques were drawn in 1960 and there is not one single cheque which was drawn in 1962. In my view, charges of such a serious nature should never have been made and there was no justification for making a charge which appears to be entirely reckless. I should also note that this particular charge of deliberately antedating cheques drawn in 1962 to a date in 1960 has not been laid in the petition for winding up.
84. It appears from the counterfoils that the serial No of the cheque for Rs. 8764.15 nP. drawn on 24-11-60 is BA/4 836830. The serial No of the immediately preceding cheque drawn on 8-11-60 is BA/4 836829 and the serial No of the next cheque drawn on 24-11-60 is BA/4 836831. The serial No of the other cheque complained of, being cheque for Rs. 3574.59 nP. dated 25-11-60 is BA/4 836837. The serial No of the immediately preceding cheque drawn on 26-11-60 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 Banerjee, 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, 1961 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 ??? was passed to the effect that A.G ??? services were no longer required as the Bord had approved the accounts. It will thus be ??? that A.G Banerjee did not make any ??? as the accounts at least till April 4, 1961 when the ??? approved the accounts. But it was ??? on behalf of Sarma that A.G Banerjee had ??? reports on March 6, 1961 and March 14, ??? and according to Sarma, these reports showed on issuing state of affairs. Copies of the two ??? reports have been annexed to the petition. ??? of the letter of March 6, 1961 it ??? that all that Banerjee said in this letter was ??? on a preliminary examination of the books he ??? of Opinion that detailed examination of the sales, ??? loans, advances and other matters was necessary. There is nothing alarming in this letter ??? has been given the dignified epithet of a ??? In the alleged report dated March 14, 1961 ??? Stated that he asked for reports of the ??? Auditors and he complained that in spite of the promise to produce these reports, they were ???. He then added that in the absence of these ??? it was not possible to finalise his ??? It is again evident that there is nothing at all ??? in this letter which has been similarly ??? as a report. Further it is clear that no ??? was at all made on the accounts for want ??? documents required by him. But it is on the ??? of these two letters that it has been strenuously ??? by learned counsel for Sarma that an ??? state of ??? was found in the ??? books by the Auditor appointed by Sarma.
86. It is to be noted that both the alleged ??? of March 6, 1981 and March 14, 1961 were ??? the Directors of the company at the ??? at 300 Bowbazar Street. It does ??? from the two letters that they were ??? to all the Directors individually or that ??? of the two letters were sent to the company's ??? if the two letters were sent by Banerjee to ??? company's. Office, as they should have been, ??? for a moment that the letters were at all ??? by Banerjee, the question is how did Sarma ??? two letters, to make use of copies of the cases in this winding up petition? If these reports ??? in fact sent to the company's office, it is ??? that they we ??? not discussed at any of ??? Board meetings that were held between ??? April 6, 1961.
87. A letter dated March ???, 1961 from Sarma, ??? Mejumdar and S.N Guha addressed to the ??? Agent was produced at the hearing. By ??? he Directors asked the Managing Agent ??? a Board meeting, to be held on March ??? The Directors also fixed the Agenda for ??? which was set out at the bottom of ??? and time (b) in the Agenda was ??? of the report of A.G Banerjee, F.C.A ??? be seen that on the day this letter was ??? viz. March 9, 1961, only the letter ??? March 6, 1961 from Banerjee could ??? received by the Directors. The ??? date March 14, 1961 could ??? have been with the Directors on the ??? they wrote the letter dated March 9, 1961 to ??? Agent. Pursuant to the letter from ??? the Managing Agent called a Board ??? by a dated March 14, 1961. This notice also was produced at the hearing. Item No. 2 of the Agenda set out at the bottom of the notice is as follows:
“The following Agenda requested by Directors Sarbesree P.K Majumdar, A.N Sarma and S.N Guha”. And thereafter the identical matter as mentioned in the letter of March 9, 1961 from the Directors, was set out.
88. It was argued on behalf of the company that the Managing Agent had nothing whatsoever to do with fixing of the Agenda and therefore, the mention of the report of A.G Banerjee in the Agenda set out in the notice dated March 14, 1961, does not by any means show that Banerjee's alleged report was sent to the Managing Agent or the Directors. It is quite plain that the Managing Agent took no responsibility for fixing the Agenda of the Board meeting called by the notice dated March 14, 1961. It was strenuously argued on behalf of Sarma that the report must have been with the Managing Agent and also with the Directors and this report was suppressed.
89. As I have pointed out earlier the two letters dated March 6, 1961 and March 14, 1961 from Banerjee cannot be regarded as a report on an investigation into the accounts. Secondly, the minutes of the Board meetings held between March 6, 1961 and April 6, 1961 bear no reference at all to either of the two alleged letters from Banerjee.
90. Sarma's contention that the reports disclosed an alarming state of affairs is entirely frivolous; this contention is also inconsistent with his conduct in approving the draft report from the Auditors and also the replies of the Directors to the Auditors' comments on the accounts for the year 1959 at the Board meeting held on April 6, 1961. If he attached any importance to what was stated by Banerjee in the two letters, and if he understood them to have disclosed an alarming state of affairs, he at least could have declined to approve the accounts and would have demanded further investigation and enquiry into the accounts. But instead of doing that, he not only approved the accounts but dispensed with the services of Banerjee, as no report from him was needed, the Board having been already satisfied with the accounts as prepared by the company's auditors. In these circumstances, I cannot but hold that the two letters from A.G Banerjee dated March 6, 1961 and March 14, 1961 were procured be Sarma to serve his own ends and no reliance can be placed on the allegation made by Sarma in his winding up petition regarding or relating to the same. Nor should any reliance be placed on the two letters from A.G Banerjee dated March 6, 1961 and March 14, 1961.
91. If 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 ground's were to 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 ter 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 poised out earlier that most of the charge are directed against the Managing Agent and it was contended that the Board of Directors of the Company are under the control of the Managing Agent, suggestion obviously being, that the misdeeds of the Managing Agent have been condoned by the Board and no action was taken against the Managing Agent for that reason. It should be remembered that Sarma is a Director of the Company since 1956 At a Board meeting held on January 6, 1960, which was attended by Sarma, a resolution was passed recording appreciation of the services of the Managing Agent and also recommending its re-appointment. At another Board meeting held on January 18, 1960 Sarma himself approved the terms and conditions of reappointment of the Managing Agent and the terms of re-appointment were finally approved at another Board meeting held on February 18, 1960 which also was attended by Sarma. The Board authorised the Managing Agent to issue notices in newspapers under Section 412(2) of the Companies Act and to make the application for sanction of the Central Government for the re-appointment. The Annual General Meeting held or March 30, 1960 re-appointed the ‘Managing Agent unanimously.
93. After the settlement of the disputes with Guha the Managing Agent wrote to the Company expressing its decision to resign. Mr. Mitter contended that this was done owing to the charges made against it by Guha in his winding up petition. The letter of resignation was placed at the Board meeting held on August 11, 1961 and the Board passed a resolution that the resignation letter be placed before the General meeting of the company in 1962. At another Board meeting held on October 3, 1961 which was attended by Sarma, the draft of the supplement to the Directors' report dated April 8, 1961, informing the share-holders that the Managing Agent had offered to resign, was approved and it was resolved that the matter would he placed for consideration in a subsequent meeting. Strangely enough although Sarma was the Chairman of the Board meeting held on October 3, 1961, he has denied in his affidavit-in-reply that he approved the supplementary Directors' report at the meeting. The minutes of the Board meeting held on October 3, 1961 have been signed by Sarma as Chairman. It will thus be clear that his denial regarding approval of the supplementary Directors' report is totally false. The Board meeting held on June 16, 1962, which was attended by Sarma, decided to call the 15th Annual Genera meeting on July 27, 1962 and the Managing Agent was authorised to issue notice for the meeting. The Board also passed another resolution for alteration of sub-clause (27) of clause 32 of the Article of Association of the company, providing 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 ??? this Court on Sarma's application. Quite rightly the company wanted to make some alternative arrangement for carrying on the business in the absence of the Managing Agent. It is Sarma who has prevented the resignation of the Managing Agent from becoming effective. His charge that information relating to the resignation of the Managing Agent was withheld ??? the share-holders, is entirely false. In the supplementary Notice dated October 3, 1961 issued to share-holders for the fourteenth Annual General Meeting of the Company, it was clearly stated that the Managing Agent had tendered its resignation voluntarily. It is clear that false statements have been deliberately made by Sarma to mislead this Court Yet he prays for the exercise of a discretionary power in his favour, by accepting statements made by him which, on the face of them are false.
95. In this connection I should note another argument advanced on Sarma's behalf, namely that he is an oppressed minority. The question is when did he become a minority? The Board resolutions excepting one, were passed unanimously. He attended every Board Meeting excepting one. He was always in the dominating majority group in the Board. The single instance of his dissent at Board meetings was at the meeting held on June 5, 1962 when he declined to authenticate the Balance Sheet of 1960 for submission to Auditors for their report. He was always in the majority group and acted and voted with the majority. As a member of this majority he framed, formulated and controlled the policy and affairs of the company. There is therefore no substance in his complaint that he is an oppressed minority.
96. The next matter to be dealt with is the loan advanced by the West Bengal Financial Cor-portion. The charge is that the West Bengal Financial Corporation (hereinafter called the Corporation) advanced Rs. 2,00,000/- to the Company. But this amount was not kept in a separate account and was spent, not for the purpose of meeting development expenses and expansion of the company, but was spent in meeting existing liabilities. The Corporation had agreed in 1960 to advance to the company a sum of Rs. 4,00,000/-. The agreement is contained in a registered document dated June 29, 1960. Under the terms of this agreement, a sum of Rs. 2,00,000/- was advanced by the Corporation to the Company in 1961. One of the terms of the agreement was that the Corporation should be entitled to nominate one of the Directors on the Board of the company. Accordingly, the Corporation nominated M.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 Rs. 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 Rs. 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 ready to advance the balance amount of loan of Rs. 2,00,000/-. But by reason of Sarma's conduct in presenting the winding up petition, the balance of the loan has been withheld by the Corporation. The Corporation is justified in withholding the balance, as the company is under a threat of liquidation. It will thus be seen that Sarma amongst other things, has certainly stood in the way of the company's development and expansion.
99. Assuming, however, that the charges made by Sarma regarding the loan, are true and the company has misapplied the loan, would that be a ground for winding up the company? Is that not a matter which Sarma should have raised at the Annual General Meeting of the company, assuming he was overruled at the Board meetings? Should he not have tried to bring to book the erring Directors who are responsible for misapplication of the loan? It is quite obvious that this charge is by no means; a charge on which any order, much less an order for winding up the company, can be made by this Court on just and equitable grounds.
100. The next matter to be referred to is the charge that the Managing Agent and the Directors are suppressing and withholding from the shareholders material information about the affairs of the company. The further charge is that the company's affairs are being carried on in fraud of the share-holders and for the benefit of the Managing Agent and Directors. It is to be noted that no particulars whatsoever have been furnished of the allegations of fraud and suppression of information. Want of particulars in charges of fraud would be sufficient for this Court to reject the charge without anything more. But it must be pointed out regarding the charge of suppression of information, that Sarma himself was a Director since 1956 and I have already noted how closely he was associated with the formulation and execution of the business and trading policy of the company and with the management of the ??? of the company. He, in any event, cannot complain that material information has been withheld from him. Sub-section (4) of Section 209 of the Companies Act entities a Director to inspection of any books of account of the company. Sarma had the right to inspect the books of the company and he made full use of such rights. But assuming he has not inspected the books of account, he certainly cannot charge his fellow 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.
102. In course of the hearing of this application I had pointed out to learned counsel for Sarma that if Sarma wanted to rely upon the allegations in the two letters, he should at least have obtained affidavits from Haridas Mukherjee in support of the-charges made in the said two letters. After the matter was heard for several days learned counsel for Sarma at the hearing on August 8, 1863 wanted leave to file an affidavit from Haridas Mukherjee in support of the charges in his letter. The leave-was not granted and learned counsel for Sarma submitted that the matter may be considered later on I cannot allow the affidavit from Haridas Mukherjee to be filed at this stage.
103. This matter as been pending for more than a year, affidavits of all the parties have been completed long ago, arguments on behalf of the Company's counsel had been concluded and it is only then that a vital defect in the petition is sought to be rectified by an affidavit. To allow the affidavit to be filed at this stage would be to re-open the whole matter from the very beginning, because leave has, to be given to the company to meet the charges contained in this affidavit and in the two letters from Haridas Mukherjee. This cannot in any event be allowed at this stage. In a winding up petition, the grounds on which the winding up order is sought must be stated in the petition itself. The company must know what are the charges of fraud and mismanagement brought against it by the petitioner. The affidavit of Haridas Mukherjee is therefore, rejected and as it was tendered in Court, it direct that it should be taken off the records.
104. I have dealt in some detail with the major charges made by Sarma in his winding up petition. There are certain other charges in the petition which in my view, are so immaterial that it is not necessary for me to deal with them in considering the question of stay or dismissal of the winding up petition. I may mention, however, some of such charges which I think it unnecessary to be dealt with separately, in this judgment. They are:
(a) Ratio of profit has not increased with the increase in sales.
(b) Payment of remuneration to N. Maitra, a Director who was paid a salary of Rs. 1250/- per month. This charge was made for the first time in the affidavit-in-reply.
(c) S.N Guha was removed from the Board as he did not support the Maitras.
(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.
105. 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 mentioned above are entirely frivolous, and even if true, they are not charges on which this Court will make an order for winding up of the company on just and equitable ground.
106. Before leaving this subject, there is one other matter to which I should refer. Several of the charges are based on the Auditors' comments on the accounts as published along with the balance sheets. It has already been noted by me that the Directors' replies to the Auditors' comments have been, from year to year, approved by Sarma as a member of the Board. Not only that, he recommended to the share-holders the acceptance of the Directors' answers as a sufficient explanation of the Auditors' comments. But it appears that having nothing better to charge the company with, Sarma has picked up those very comments of the Auditors and used them as grounds in the winding up petition.
107. Mr. Mitter has strenuously argued that the winding up petition of Sarma is a mala fide and malicious application and has been inspired not by the bona fide object of winding up the company but to put pressure upon the Board to settle his private disputes with the company on his own terms. He contended further that the allegations in the petition are false and frivolous and that Sarma was a party to all that the Board had done and which now form the subject-matter of the winding up petition. I do not accept Mr. Mitter's submission that all the charges are false. But those of the charges that are true are far from sufficient for a winding up order on just and equitable ground.
108. As for the charges against the Board, they are not at all maintainable and in a by event Sarma cannot be allowed to urge them because he was and still is a member of the Board and excepting for one single instance, he has never dissented from any Board resolution. The charges against the Managing Agent cannot also be maintained because amongst other reasons discussed by me earlier, Sarma himself was responsible for its re-appointment. He recommended to the share-holders the re-appointment of the Managing Agent and it was on his recommendation that the Managing Agent was re-appointed. Furthermore, the Managing Agent under the Act, discharges its duties under the control and supervision of the Board of Directors, which in this case was exercised in no small measure.
109. Mr. Mitter has strenuously 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 ??? 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 the party himself he cannot be allowed to take advantage or make use of those very acts as grounds for winding up the company. It was next contended that the grounds relied on in this petition were the same as the grounds in the petition made by Guha and in some cases such grounds are verbatim copies of those grounds. The charges in Guha's petition were denied by Sarma as a member of the Board and that being so, Sarma should not be allowed to urge the same grounds which according to him, are not tenable. It is on these grounds that it is contended that the petition is demurrable and should be dismissed.
110. In order to determine a question of demurrer the Court should look at the petition, only and at nothing else. To sustain a point of demurrer, it has to be seen if the charges as made, are by themselves enough to sustain an application for winding up. The allegations made in file affidavit-in-opposition cannot be taken into consideration by the Court in determining the question of demurrer. If it is found, however, that the charges as laid in the petition are such that in the facts of a particular case, they might justify a winding up order, the petition cannot be dismissed on the ground that it is demurrable.
111. In this case, however, charges of mismanagement, misapplication, misappropriation, violation of the provisions of law, oppression of minority, irregularities in the maintenance of the books and non-compliance with statutory provisions have been made. These charges may be false or frivolous but such a conclusion can be arrived at only by taking into consideration the facts stated in the affidavit-in-opposition and by a reference to the minute books of the Board of Directors, the Directors' Reports, Directors' Answers to Auditors' comments and the Balance sheets of the company. It is only upon a consideration of these materials, that the conclusion can be arrived at that the charges made in the winding up petition are frivolous, false, misleading and perverse. But such a conclusion cannot, in my view be arrived at, upon a consideration of the winding up petition only.
112. One important matter to be considered by this Court is the conduct of Sarma himself and all that he had been doing since 1956. But the evidence of the activities of Sarma is to be gathered from the affidavit-in-opposition, the minute books of the Board of Directors, the balance sheets, the Directors' report and the Directors' answers to the Auditors' comments. Without taking into consideration 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.
113. 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.
114. The next question is whether the Court in exercise of its inherent powers would make an order for stay of all further proceedings including publication of advertisement of the winding up petition, on the ground that the winding up petition is an abuse of the process of Court.
115. Mr. Sen urged that this Court has no jurisdiction to make an order for stay of all further proceedings, because the petition has been admitted, directions for advertisement have been given by the Court after the company filed its affidavit and after hearing the parties. According to Mr. Sen, the proper course for the company was to prefer an appeal against the orders admitting the petition and for advertisements not having done that the order directing advertisements had become final and therefore, this Court has no jurisdiction to entertain an application for stay of further proceedings.
116. In order to understand the effect of the orders made by S.P Mitra, J., it would be necessary to refer to the several orders that have been made in this matter. The winding up petition was admitted on July 25, 1962 and various interim orders were made on the date. On March 5, 1963 several further interim orders were made on the winding up petition. Usual advertisements were directed to be published but no advertisements were to be published till March 11, 1963 Mr. Sen contends that because order for advertisements was made after hearing the parties this order has become final and therefore, an application for stay is not maintainable. On the next day viz., March 6, 1963 this application was moved by the company for dismissal of the winding up petition or for stay of all further proceedings. This application was made returnable on March 11, 1963 and a further order was made that no advertisements were to be published till March 16, 1963. On March 11, 1963 a further order was made on this application whereby advertisements of the winding up petition were stayed until disposal of this application. Mr. Sen pointed out that this application for stay of the winding up petition was made till March 6, 1963 although the petition was admitted on July 25, 1962. Mr. Sen urged that the proper remedy for the company would be to prefer an appeal against the order admitting the petition and directing advertisements.
117. It is to be noted that S. if Mitra, J. had admitted this petition for stay of winding up proceeding and had in fact made an order for stay of advertisements until this, application was finally disposed of. Whatever orders therefore, 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.
118. 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 be overlooked. S.P Mitra, J. had granted a stay of his own order for advertisement until disposal of this application and therefore, there seems to be a little force in this contention of Mr. Sen.
119. The circumstances in which the winding up petition has been moved by Sarma have been fully dealt with by me earlier in this judgment. The question is whether in the facts which have already been discussed by me, this application is an abuse of the process of Court. It has already been noted that Sarma himself was a party to all that the Board had done which forms the subject-matter of the charges now made in the winding up petition. He himself denied the charges made by Guha in his winding up petition. Sarma was an assenting party to each resolution, which was passed by the Board, excepting one. Should he be allowed to urge those very charges which he denied, and complain about acts which he himself approved? Should he be allowed to complain about the Managing Agent whom he congratulated more than once for its meritorious service? Should he be allowed to complain about settlement of the dispute with Guha and about the new Selling Agency agreement with the Agency Company which he himself approved and recommended to the share-holders of the company? Should this Court make an order for winding up of the company accepting statements made by Sharma, some of which are on the face of them false? These are pertinent questions and on the answer to these questions and several others would depend the determination of the question whether this application is an abuse of the process of the Court.
120. In presenting the winding up petition Sharma appears to have followed a course set by Guha. Guha had some disputes with the Company and to settle such disputes he took recourse not only to winding up proceeding but he also filed a suit in the City Civil Court. He succeeded in settling his disputes on terms suitable to him. It seems that the result of Guha's proceedings provided a tempting example to Sharma. Whatever may be the motive in his conduct in moving the winding up petition, he no doubt thought that he could settle matters to his advantage by moving the petition for winding up. Most of the major charges in his petition have been copied from the petition of Guha. He no doubt also thought, that since those charges induced the company to settle matters with Guha, similar charges if made by him 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.
121. 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 shareholder, a statement relating to the dispute between the parties in both the winding up application and this application for stay of the winding up proceedings. The substance of the allegations of the parties was submitted to the Chairman by both parties. The Chairman thereupon settled an Explanatory Statement in which he incorporated the substance of the charges made by the parties in both the applications. In the notice of the meeting which was sent by the Chairman, the draft of a resolution to be considered at the meeting was set out and is as follows:
“Resolved that the members of Sulekha Works Ltd. intend that the Company should continue to exist as a going concern and that in the view of the members of the Company the petition presented by Shri Amar Nath Sharma to the Hon'ble High Court at Calcutta for winding up of the Company should not be proceeded with.”
122. The meeting was duly held and the Chairman has submitted his report along with the minutes of the meeting held on August 31, 1963.
123. It appears from the report of the Chairman that the Company had allotted 25, 276 ordinary shares of the face value of Rs. 25/- per share to 490 share-holders. The face value of these shares is Rs. 6,31,900/-. The amount called up in respect of the said ordinary shares is Rs. 4,66,764.50 nP. and the amount actually paid up on the said shares is Rs. 4,08,855.00 nP. Of this amount Rs. 55,950.50 nP. was paid up by the share-holders in August 1963. It also appears that on August 24, 1963 there was a transfer of 1738 shares from one holder to another.
124. The resolution mentioned above was passed by an overwhelming majority, representing a little over 90.2 per cent of the paid up value of the shares, and was opposed by a very small minority of 9.8% of the paid up value of the shares. 290 share-holders present either in person or by proxy voted for the resolution. They represented 17,488 shares, the value of which is Rs. 3,19,322.50 nP. 15 share-holders present either in person or by proxy voted against the resolution. They represented 2062 shares the value of which is Rs. 35,260.00 nP. The Chairman has separately recorded the votes of the preference share-holders. 8 preference share-holders were present in person holding 2832 shares of the value of Re. 1/- share each. All of them voted in favour of the resolution. None of the preference share-holders voted against the resolution.
125. 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.
126. 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 of the company. Share-holders, therefore, had the fullest opportunity of considering the matter and they have expressed their views in supporting the resolution by an overwhelming majority, in no uncertain terms. I see no reason why this Court should ignore and overlook the verdict of the shareholders in the matter.
127. I shall now deal with the arguments on law in so far as reference is made to the various text books. Mr. Mitter first of all referred to Buckley's Company Law 13th Edn at page 471:
“An order will not be made if a sufficient case is not stated on the petition, even if such a case is proved in evidence. The order must be made secundum allegata et probata.
128. If a sufficient case is not alleged the petition may be called demurrable and the respondents may object to the evidence being read at all until the demurrer has been decided.”
129. This passage was relied upon by Mr. Mitter in support of his arguments that the petitioner must make out grounds for winding up in the petition itself; and he should not be allowed to ask for a roving inspection of the Company's books and rely upon particulars obtained by such inspection. Nor should he be allowed to rely upon the letters written fey H.D Mukherjee the copies of which are annexed to the petition. In this connection Mr. Mitter also relied upon the judgment of Chagla, J. reported in In re, Cine Industries and Recording Co. Ltd., AIR 1942 Bom 231 to which I shall refer later on. Reference was also made in this connection to Haalsbury, 3rd Ed., Vol. VI., Article 1046, page 543, where it is stated that the grounds must be made in the petition itself. In my view the submissions made on behalf of the company in this matter are right. The winding up petition must contain all the grounds on which an order is sought. The grounds on which the winding up is sought must be set out in the petition itself and the petitioner cannot claim to collect materials upon inspection of the company's documents to supplement the grounds which he has urged in the petition.
130. Mr. Mitter next referred to Buckley on Company Law 13th Ed page 457.
“The mere fact of there having been fraud in the promotion or fraudulent misrepresentation in the prospectus is not of itself ordinarily sufficient to found a winding up order, for the majority of the share-holders may waive the fraud. And a fortiori fraud not connected with the formation or promotion, but against third parties in carrying on the business, does not ordinarily form a ground for a compulsory order by reason of the fact that investigation under such an order would be desirable.
131. 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) of the English Act Buckley commented at page 476:
“Formerly the Court was reluctant to make a winding up order on the ground that it was just and equitable if an alternative remedy was available. Now, however, when shareholders' petition to wind up a Company on the ground that it is just and equitable to do so, the Court notwithstanding the existence of an alternative remedy, is to wind the company up if the conditions of this sub-section are satisfied. But this does not render a contributory petitioner entitled to an order as of right, and the Court must still have regard to the wishes of the contributories as a class (S. 346). The existence of an alternative remedy, however, is not to be a bar to winding up, if in the absince of that remedy it would be just and equitable to wind up the Company, unless the petitioners are acting unreasonably in seeking a winding up instead of pursuing the alternative remedy.”
132. The above passage was relied upon by Mr. Mitter in answer to the charges of fraud made in the petition. Mr. Mitter contended that where a Company is sought to be wound up by a contributory on just and equitable grounds, if fraud is alleged, then such fraud should be a fraud committed at the initiation of the Company or fraud by the Company in carrying on its business. If have already held that the charges of fraud made in the petition being without any particulars whatsoever this Court cannot go into those charges. But even assuming that particulars of fraud of the nature complained of, were furnished, the law is, as Set out in Buckley namely fraud must be at the initiation and inception of the Company, that is to say, the promotion of the Company itself must bet with a fraudulent object and the business of the Company must be carried on fraudulently. Identical views have been expressed in Halsbury, 3rd Ed., Vol VI, page 534-535. I accept Mr. Mitter's contention with regard to the allegation of fraud made by Sharma in his winding up petition. The same view has been expressed in Palmer's Company Law, 20th Ed page 698, where in setting out the grounds for winding up on just and equitable grounds, it is stated that one of the grounds would be “that the Company was conceived and brought forth in fraud.” A similar view was also expressed in Gore-Browne on Handbook on Joini Stock Companies, 41st Ed., page 591-592:
“A Company may also under these words be wound up on the ground that the Company was in its inception fraudulent and hopelessly embarrassed by actions for rescission, and that a winding up order is the best means of recovering money from the 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.”,
133. 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.
134. Reference was also made to Palmer's Company Precedents, 16th Ed Part II, page 52, where it is stated:
“Proceedings on a petition presented by a contributory with an illegitimate object, e.g, to put pressure on the company — will be stayed as an abuse of process.”
The same passage also occurs in the 17th Ed at page 45. Mr. Mitter also referred to Buckley, 13th Ed., Page 1023:
“If a petition is not presented in good faith and for the legitimate purpose of obtaining a winding up order, the Court will restrain the advertisement of the petition and stay all further proceedings upon it. An application for this purpose can be made in the winding up proceedings; a separate action is not necessary.”
135. In dealing with the question if the winding up petition is an abuse of the process of Court reference should first of all be made to Section 443(2) of the Companies Act, 1956 and to Rule 9 of the Companies (Court) Rules, 1959. Section 443(2) provides that where a petition is presented to wind tip a Company, on the just and equitable ground the Court may refuse to make an order for winding up, if it is of opinion, that some other remedy is available to the petitioner and he is acting unreasonably in seeking to have the company wound up instead of pursuing that other remedy. The grievances of Sarma against the company are such that he could certainly obtain relief if he pursued other remedies available to him, so far as the charges relate to the irregularities in the administration of the Company are concerned. They are matters which he could raise at the Board meetings or at the General Meetings of the Company. It was up to him to demand that matters be set right by the Board, if his complaint is at all genuine. But he had raised not one single matter about which he now complains either in the Board meetings or in the general meetings of the Company.
136. There are other matters, namely, his charges of misappropriation and mis-application of the Company's funds, with regard to which he could have maintained an action against the Managing Agent for redress of his grievances. He could have moved to terminate the agreement of the Managing Agent. He has chosen neither to file a suit nor to take any other action against the Managing Agent for its alleged wrongful acts. As a Director of the Company, the books of account of the company were open to him for inspection. And he could have directed the Managing Agent to maintain the books properly, if according to him, the books were not kept properly. But he has done nothing in the matter. On the other hand he has come to Court in 1962 with a winding up petition complaining about matters which had taken place as early as 1956, 1957, 1958, 1959 and 1960. If wrongful acts have been committed by the Managing Agent or the staff of the 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.
137. 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 come forward to complain about non-payment of debts. Not a single decree has been obtained against the company by any creditors and no suit has been filed by a creditor in all these years. To claim to have such a company wound up on frivolous and reckless charges by a man who was no less responsible than any other director, for the alleged acts of misfeasance, misappropriation and misapplication of funds and various other misdeeds is, without a doubt, an abuse of the process of Court Sarma's conduct in presenting the winding up petition is anything but reasonable. His object is mala fide and the method pursued by him is malicious. The machinery provided by law and aid of this Court in setting the machinery of law in motion, cannot be allowed to be requisitioned by a petitioner whose conduct in presenting a winding up petition in these circumstances and on the grounds discussed earlier in the judgment, is anything but bona fide and reasonable.
138. Rule 9 of the Companies (Court) Rules deals with the inherent powers of Court and it provides that nothing in these rules shall be deemed to limit or affect the inherent powers of the Court to give necessary directions or orders for the ends of justice or to prevent abuse of the process of Court. The directions for advertisements were issued by this Court under these Rules. The order for advertisement cannot therefore, at all affect this Court's power to make an order for stay of further proceedings for the ends of justice or to prevent an abuse of the process of court. It should also be noted that the court's powers to make orders for the ends of justice and to prevent abuse of process of court have been expressly recognised by the Rules.
139. I shall now proceed to deal with the authorities that have been cited on behalf of the parties.
140. Mr. Mitter referred to In re, Gold Co., (1879) 11 Ch. D 701. This was a shareholder's petition for a compulsory winding up order after a resolution for voluntary winding up had been passed. James, L.J at page 710 of the report held:
“I cannot find anything in this case to satisfy the Court or to entitle the Court to say that it can deprive those share-holders, for they are persons interested, of the right of which belongs ordinarily and except under very exceptional circumstances to the share-holders of every Joint Stock Company or Corporation of this kind, of determining amongst themselves, for themselves, by a majority, according to their view of what is most for their interest, what ought to be done or ought not to be done, either in the disposal of the property of the Company or in making any claims against any supposed debtors to or persons liable to the Company.” Again at page 714:
“I say nothing about the 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.”
141. 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 not think it necessary to look at the Articles of Association for the purpose of seeing what powers the Directors had and what they might have done under those powers. I do not think he has pledged his oath to the fact that he did not know of all these facts, but on the assumption that he was ignorant he was only ignorant by reason of his own carelessness. Then is he the person to come here and complain of what has taken place? I cannot think he is. Assume that but for his own conduct there was the fullest power and jurisdiction to come here and to ask either for a compulsory order or for a supervision order, it seems to me that he is barred by his own laches and by is own conduct from coming forward to raise these questions, assuming the irregularities charged by him to have been substantiated.” Then again at p. 720:
“As far as regards the formation of this company and the conduct of the Directors with reference to it, I do not think it is material to the decision of this question whether those irregularities are established or not. For the reasons already assigned by the Lord Justice, and for those assigned by myself, I do not think that the present petitioner is the person to complain of them.”
142. Relying on this case Mr. Mitter argued that Sarma was more guilty of laches than the petitioner in (1879) 11 Ch D 701 and if nothing else, his own laches completely bar his remedy to wind up the Company. In my view this contention on behalf of the Company is fully justified.
143. The next case referred to is In re, Gold Hill Mines. (1883) 2 Ch D 210. In this case a dismissed servant of company claimed pound 15 for arrears of salary and pound 95 for damages for wrongful dismissal. The company disputed both claims and the dismissed servant filed a petition to wind up the Company alleging it to be insolvent. The company applied for stay of proceeding on the petition and in support filed an affidavit by its Secretary showing that the petitioner's claim was bona fide disputed and that the Company was solvent Jessel, M.R held at page 213 of the report:
“I am of the opinion that this petition can only be correctly described as a scandalous abuse of the process of the Court. The petitioner is a discharged servant of the company. He alleges that there is due to him a sum of pound 15 for arrears of wages, which is disputed on the part of the Company. 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…… the 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 pretenco 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”.
144. This is a case where a petition was presented by a creditor who was a discharged servant. But Mr. Mitter contended that although in this case the petition was by a creditor yet the observations of Jessel, M.R applied and Sarma's petition should be treated as a scandalous abuse of the process of the Court Mr. Mitter contended that the facts in (1883) 23 Ch D 210 are different to this extent that the petition was by a person claiming to be & creditor. But there was no merit in the petition. And similarly there is no merit in Sarma's petition for winding up and therefore, it should be stayed.
145. The next case referred to is Cadiz Waterworks Co. v. Barnett, (1874) 19 Eq 182. In this case a Contractor who claimed to be entitled to a large sum of money was paid a certain amount but he claimed a further sum of pound 30,000 and the company having disputed the claim, threatened to present a winding up petition and served a demand notice. The Company filed a suit to restrain the Contractor from presenting the winding up petition. It was argued that the Court had no jurisdiction to restrain the defendant-Contractor from taking proceedings to recover a debt by presenting winding up petition. It was further argued that the Court cannot prevent a creditor from presenting a petition to wind up. The creditor had a right to demand payment of the money and if payment was refused then he had a right to present a petition to wind up the company. If a petition is maliciously presented the company may have a claim for damages but it has no right to ask the Court, before the petition was presented, to hold that the defendant is not entitled to take those proceedings which the Legislature says he is entitled to take. It was held by Malins, V.C at page 194 of the report:
“Therefore there are at least three remedies open to him action at law, arbitration, or bill in equity, which the simple remedy for a debtor whose debt is disputed. It is said he has a fourth remedy, and that is the on with which he seems to be enamoured, namely, a petition to wind up the Company; and the only question I have to decide here is whether, under these circumstances, he ought to be permitted to present a petition to wind up the company which the three other remedies are ope., to him……Therefore, the company being solvent and there being a bona fide dispute as to the debt, what injury am I 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 us 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 ??? controlled by higher authority …… permit this winding-up process to be made a vehicle of oppression. What is Mr. Barnett's object?
146. He must have some sinister object. The arguments surprise me that have been addressed to me. What is the result, suppose I allow him to go on to present a petition to wind up? How will it advance his case? When the petition comes on it would be dismissed. How should it be settled? Even if it is not dismissed with costs, as it would be, what would be done with the petition?…… He thinks if he can make public, if he presents this petition, that it will be so injurious to the company that, rather than submit to it, they will settle with him. Cases have been cited to show that this Court will not interfere with serving a debtor's summers, and will not interfere with various other process; but a winding up is a totally different thing. How does it begin? Petition presented, then advertised in the London Gazette, from the London Gazette copied into a great number of newspapers which have a large circulation in England, and I suppose also in Spain. What is the result? Here is a Company perfectly solvent, which has a fair prospect, as far as I have heard, of being successful and you have it advertised in every paper in Englam’ that there is a petition presented to wind them up, a petition which it must be known perfectly well to the petitioner never can succeed. For what purpose is it presented? Why, simply because the petitioner thinks he will by such means obtain his demand……and, for all I can see, it may be a very unjust demand. I give no opinion, and I have none, whether he is right or they. I give them both credit for believing themselves right, but this is certainly not the proper mode of settling such a dispute; which never can be settled by means or a petition to wind up. Therefore, all the cases that have been cited…… the case of Pim v. Wilson, (1848) 2 Ph 653 for instance, which was merely a summons under the 1 and 2 Vict, c. 110, where there is no advertising, no personal injury done……have no application to this case which is one of winding up. The petition for winding up is not to be made the means of bringing, about the collateral purpose, and therefore, this Court has always acted on principle; if it sees a petition to wind up presented, not for a bona fide purpose of winding up the Company, but for some collateral and sinister object, on that ground is will be dismissed with costs…….. I am satisfied that in this case the presentation of a petition may be productive of irreparable damage to this company.”
Injunction was issued by the Court restraining presentation of a winding up petition.
147. In this case the petition again was presented by a person claiming to be a creditor and his claim was disputed. 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 judge ??? 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 L, satisfied that the object of the-petitioner is mischievous and malicious and therefore the petition is an abuse of the process of court. In my view Mr. Mitter is ??? in his submissions.
148. The next case referred to is In re, London and Paris Banking Corporation, (1875) 19 Eq 444. In this case a creditor served a statutory notice on the Company for recovery of a debt which was bona fide disputed, there was no evidence of insolvency of the Company and insolvency was denied. It was held that the object of the petitioner was not to obtain a winding up order but to put pressure on the company. At page’ 4481-of the report Jessel, M.R held:
“Obviously, if it had any meaning at all, it was to put pressure upon the Company, perhaps by threat of the advertisements, or by some other means, to compel them pay, in other words to extort from them a sum larger than they bona fide believed to be due from them, and a sum which they have been advised by two valuers was-excessive. I cannot encourage any such course of proceeding, and I therefore, dismiss the petition with costs”
149. Mr. Mitter contended that Sarma's petition has been moved solely for the purpose of putting pressure upon the Company by threats of advertisements and not for the purpose of getting to winding up order. The petition should therefore be stayed. I have no hesitation in saying that Sarma presented the petition to put pressure upon the company by threat of advertisements and not for the purpose of obtaining a winding up order.
150. The next case referred to is Ripon Press and Sugar Mill Co. Ltd. v. Gopal Chetti, 58 I.A 416 : (AIR 1932 PC 1). This was a case of an application by a contributory for winding up on just and equitable grounds. It was held that the fact that one shareholder had a preponderating voice in the company affairs by reason of owning a large number of shares, is of itself no reason for a winding up order. It was also held that where a solvent company is ordered to be wound up, so that the contributories only are interested in the result of, the liquidation, the Court, under S. 174 of the Act should have regard to their wishes ascertained by meetings under Section 183(2) of the Indian Companies Act 1913.
151. The company was incorporated for erecting a factory at Raichur in Hyderabad and also a sugar factory in Madras. It was not a Private Company but its share-holders were not numerous. One Venkata Rao was the dominating influence in the Board of the Company — “His influence, real, and, for anything that appears, thoroughly well deserved, was not, at all events, unwelcome. Everything points to the conclusion that the shareholders, for benefits resulting 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 extra-ordinary 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 ??? ding up petition presented by is petitioners. All the six petitioners between them held only thirty two shares out of a total of two hundre. 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 an appeal against the order of dismissal. A Division Bench of the High Court set aside the order of dismissal and made an order for winding up Referring to the assertions of Venkata Rao that the winding up petition was the result of unexplained hostility of Subhapati Rao to him and the liquidation had been brought about by this ??? Judicial Committee held at page 421 of the report (I.A): (al page 4 of AIR).
“Their Lordships are not prepared to treat these assertions lightly. They have never been contradicted by Subhapati Rao although he has given evidence on two occasions and has made many affidavits in the course of the liquidation. No petitioner, except himself, has even taken any part in the proceedings. The petition for the terms of which Subhapati Rao is clearly, primarily, and not improbably exclusively responsible, is inexcusable in the recklessness and misleading character of its, most serious allegations, and their Lordships have been compelled to note that throughout the recorded proceedings in the subsequent liquidation the activities of Subhapati Rao have been exclusive, constant, persistent and officious, not to be explained by planned ??? material interest in the liquidation or its result. It is necessary to approach the consideration of the case with these most disturbing facts in mind.”
Then at page 422 of the report (Ind App): (at p. 6 of AIR):
“The fact that Venkata Rao had a preponderating voice in the Company by reason of his owning or controlling a large number of shares was of itself no reason for winding up the company; the allegation that dividends had not been paid regularly was no ground for winding up, but the trouble had only arisen in transmission cases.”
152. Referring to the delay in making the order it was held at page 423 of the report (Ind V App): (at p. 7 of AIR) that the notice of appeal was dated 17-11-22 but the appeal was not disposed of till 13-11-24.
“But this delay ought to have weighed with the learned Judges in reaching a decision. The difficulties created by a winding up order in November, 1924, with effect from May 22, 1922 which so soon became manifes in the liquidation, might have given them pause. It does not appear that these difficulties were even present in their mind.”
It was thereafter held that the High Court in appeal was guided ??? case, (Loch v. John Blackwood, Ltd. 1924 AC 783) but it was held that case bears no resemblance either in principle or detail to the facts as proved. Relating to the allegations id the petition and the judgment of the Appellate Bench 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 ??? I treat allegations in the petition as true merely because they are placed there. They find ??? 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 faecd with is a winding up order, made two years after its presentation upon a petition which ought never to have been presented, for, even if not merely vindictive and malicious, the petition was entirely without proved merits………. Lastly, their Lordships find a liquidation in being which, if carried on as it has been begun, can, as they forecast it, end in nothing for the contributories but a call of all the unpaid capital to provide for payment of the costs and expenses. And for these disasters, one and all…….. with the exception only of the expense and trouble due to the recalcitrancy of Venkata Rao, the costs of which have already and rightly fallen upon him…… the petitioners are mainly, if not entirely responsible. There is, therefore, so far, and even at this distance of time, everything to be said for the discharge of the winding up order appealed against.”
153. But the Judicial Committee upheld the winding up order on the ground and having Regard to the fact that the appeal was being disposed of in 1931 and the company had already lost its business and its undertaking was broken up.
154. The Judicial Committee went into the question of the motive of a contributory petitioner in presenting a winding up petition. Mr. Mitter argued that Sarma's conduct was analogous to that of Subhapati Rao. I am inclined to agree with Mr. Mitter and describe the winding up petition in the words of the Judicial Committee as “inexcusable in the recklessness and misleading character of its most serious allegations.”
155. The next case referred to is In re, A. Company, (1894) 2 Ch. 349. In this case a petition was presented by a contributory who was not qualified as he was not the original allottee of the shares nor did the shares stand in his name for six months as required by the Companies Act, 1867. It was argued that the petition was demurrable. It was also urged that the petition was presented for blackmailing purposes. It was urged on behalf of the Company that the Court had an inherent jurisdiction to stay proceedings where they amount to an abuse of its process. It was held by Vaughan Williams, J. at page 351 of the report:
“In my judgment, if I am satisfied that a petition is not presented in good faith and for the legitimate purpose of obtaining a winding up order, but for other purposes, such as putting pressure on the Company, I ought to stop it if its continuance is likely to cause damage to the Company. I think those reasons applied in the present case, and that the injunction ought to be granted. I make the order asked for, restraining the advertisements of the petition, and staying all further proceedings upon it, and the petitioner must pay the ‘Company's costs.”
This case bears a very close resemblance to 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 Yield 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.
156. The next case referred to is 1924 AC 783. The Company was registered as a Public Company in order to carry on the business of a person and to divide the profits between members of his family entitled under his will to share them. The Managing Director had a preponderating voting power. The petition for winding up was presented by shareholders who were not Directors. The Directors had omitted to hold general meeting or to submit accounts or recommend dividends and there was suspicion that their object was to keep the petitioners in ignorance of the Company's position and affairs and to acquire the petitioners' share at an undervalue.
157. The business was established by Blackwood and by his will his estate was to be divided one half to Mrs. Mclaren and one-quarter to his neice Mrs. Loch and one-quarter to his nephew Rodger. He trustees under the will were authorised to convert the business into a company with power to act as Directors. A company was incorporated with Mr. and Mis. Mclaren and one Mr. Yarwood as Directors. Large profits were earned. Although in form it was a Public Company, it was in substance a domestic and family concern. The preponderance of voting power was in the hands of the Mclaran group.
158. The charges in the petition were that the general meetings were not held, balance sheets, profit and loss accounts and Directors' reports were not submitted. The accounts of the company were not audited. It was found as a fact that the allegations were true. The fifth charge was that it was impossible for the petitioners to obtain any relief by calling a general meeting. It was argued on behalf of the company that although General meetings were not held, auditors not appointed, balance sheets and profit and loss accounts and reports not submitted for two critical years 1919 and 1920 still these were no grounds for winding up.
159. Lord Shaw at page 788 of the report held:
“It is undoubtedly true that at the foundation of application for winding up, ‘on the just and equitable rule’, there must lie a justifiable lack of confidence in the conduct and management of the company's affairs. But this lack of confidence must be grounded on conduct of the Directors, not in regard to their private life or affairs, but in regard to the company's business. Furthermore the lack of confidence must spring not from dissatisfaction at being outvoted on the business affairs or on what is called the domestic policy of the company. On the other hand, wherever the lack of confidence is rested on a lack of probity in the conduct of the company's affairs, then the former is justified by the latter, and it is under ‘the statute just and equitable that the company be wound up.”
At page 794 of the report Lord Shaw approved the opinion of Greaves, C.J that 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.”
160. Loch's case, 1924 AC 783 is an authority for two principles, viz., one’ that ‘just and equitable’ is not Ejusdem 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 Mack and G 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 there is misconduct by the Directors. It is truly said by Mr. Russel that the mere fact of misconduct is no ground for winding up. The words ‘just and equitable’ are words of the widest significance and do not limit the jurisdiction of the Court to any case. It is a question of fact, and each case must depend on its own circumstances.”
161. Loch's case, 1924 AC 783, has been relied upon by both Mr. Mitter and Mr. Sen. Mr. Sen contended that order for winding up was made on various grounds mentioned above. But it is to be noted that it was found as a fact in Loch's case, 1924 AC 783, that the accounts were not audited, that general meetings were not held, that balance sheets and profit and loss accounts and Directors' report were not submitted. It was on these grounds' and because it was impossible for the minority to get redress, that a winding up order was made. In the instant case on the other hand, substantial dividends have been regularly paid, balance sheets and profit and loss accounts have been prepared and duly passed, the Directors' report and their answers to the Auditors' comments have been duly approved by ‘the shareholders at the Annual General Meetings which have been duly held. On these facts therefore, the instant case is clearly distinguishable from Loch's case 1924 AC 783.
162. But Mr. Mitter relied upon Loch's case, 1924 AC 783 in support of his proposition that even assuming that the charges of misconduct made by Sarma against the Directors and the Managing Agent are true, such charges would not be ground for winding up the company. I accept Mr. Mftter's contention, that is so far as the charges in the petition relate to misconduct of the Directors and the Managing Agent, they cannot be grounds for winding up the company, apart altogether from the extraordinary feature of this case, namely that Sarma was closely associated with the management as an active and leading member of the Board of this company.
163. The next case referred to is AIR 1942 Bom 231. This was an application by a contributory to wind up a company on just and equitable grounds and also on the ground that the company is unable to pay its debts. Chagla, J. held at page 234 of the report:
“I agree that the mere fact that the petitioner only holds five shares should not by itself prevent the Court from making the order asked for. 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 cate-free 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 not 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.”
164. In this case it was also alleged that the-company was commercially insolvent and this-charge was rebutted by Chagla, J. by quoting a passage from the judgment of the Privy Council in Davis and Co. Ltd. v. Brunswick (Australia) Ltd. AIR 1936 PC 114:.
“The decisive question must be the question, whether at the date of the presentation of the-winding up petition there was any reasonable hope’ that the object of trading at a profit, with a view to which the Company was formed, could be attained.”
To support the contention that misconduct or mismanagement is no ground for winding up Chagla, J. relied on a passage from the judgment of Baggallay, L.J In re, Diamond Fuel Co., (1879) 13 Ch D 400 at p. 408:
“‘The mere fact that the Court is of opinion, that the business cannot be carried on or probably will not be carried on, in a successful manner is-not sufficient. So again mere misconduct or mismanagement on the part of the Directors, even, although it might be such as to justify a suit against them in respect of such misconduct or mismanagement, is not of itself sufficient to justify a winding up order.”
165. It was also held in this case following the dictum of Cairns, L.J that the Court would’ not give its decision as to the probable success or non-success of a company as a commercial speculation. Such decision should never be given.
166. Dealing with the question of winding upon the ground that substratum is gone it was held at page 236 that substratum is deemed to be gone when
(a) the subject-matter of the Company is gone,
(b) the object for which it was incorporated has substantially failed,
(c) it is impossible to carry on the business except at a loss,
(d) the existing and probable assets are insufficient to meet the existing liabilities. It was also held that the question of the Directors' exceeding the borrowing powers, conferred upon them by the Articles, is essentially a question of internal management.
The Court will not go into that question on a winding up petition specially when, since the filing of the petition the Company has by resolution ratified the borrowings.
167. As to the question whether the petitioner can be allowed to collect and utilise materials for winding up from other sources, it was held at page 237 that
“The petitioner has got to make out a case for winding up on the petition and he cannot be allow to fish out a case by cross-examination of these deponents”.
It was also held at page 238:
“The petitioner must succeed or fail on the petition as it stands today on the materials he has adduced before me.”
168. 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.”
169. Regarding Shareholders' confidence in the management it was held in this case that the shareholders at a meeting had unanimously passed a vote of confidence in the Board of Directors and in their management, and had expressed satisfaction with the progress of the company. The petitioner was therefore, asking the Court to override the considered opinion of the shareholders as regards future prospects of this company in favour of the petitioner who held only five shares.
170. As the charges in the petition were insufficient four different prayers were made to supplement the charges and these were (1) that the petitioner should be allowed to cross-examine the deponents (2) that he should be allowed to lead evidence of all defalcations and the value of assets (3) and that he must be given inspection of the accounts (4) that the petition be allowed to stand over till the investigation by the auditors. All these prayers were rejected. This case was relied upon by Mr. Mitter for the proposition that the petitioner must make out grounds for winding up, in the petition itself, and should not be allowed to obtain materials by cross-examination of the deponents. Mr. Mitter also relied on this case in support of his argument that where a petition is presented by a shareholder the court will not interfere in matters of internal management which should be left to the shareholders themselves, and if the majority of the shareholders show confidence in the management, the Court ought not to interfere.
171. The law as discussed by Chagla, J. is well settled and established. Mr. Sen strongly criticized the judgment of Chagla J. but the learned Judge did not lay down any new principles. He reaffirmed principles already well established and settled in Company Law. I respectfully agree with the views of Chagla, J.
172. The next case referred to by Mr. Mitter is In re, Melson (Alfred) and Co. Ltd. (1906) 1 Ch 841. In this case a creditor obtained a decree against the Company for goods sold. On proceeding to execute the decree he found that all the assets were charged by debenture in favour of debenture-holders who were carrying on the business in the company's name. The Judgment-creditor presented a petition for winding up. It was held that in these circumstances it was, just and equitable to wind up the company particularly as the Court was not satisfied that there would be nothing left for unsecured creditors.
173. In this case the order was made as the court had reason to suspect the conduct of the debenture-holders and an investigation was necessasy into their conduct.
174. The next case referred to by Mr. Mitter is In re, Krasnapolsky Restaurant and Winter Gardens Co., (1892) 3 Ch 174. The whole question in this case was whether anything would be gained for the unsecured creditors by obtaining 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 the 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.
175. 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 atrocities performed by the company's employees on the native labourers. The business of the company was collection of rubber from plantations and in this business the plantation labour was tortured and maltreated. Having regard to the interest which the Liquidator had in the affairs of the company it was held that the winding-up should not be left in his charge and having regard to the allegations made, the made investigation was necessary and such investigation could not be entrusted to a person who was directly interested in the affairs and on this ground a compulsory order was made. This case is an authority for the proposition that where an investigation into the affairs of a company is necessary, the winding-up should not be left in the hands of a private liquidator whose interest would conflict with that of the creditors.
176. The next case referred to by Mr. Mitter is In re, Clandown Colliery Co., (1915) 1 Ch 369. The company was hopelessly insolvent. The business was carried on in the company's name only for the benefit of the Chairman who held £10,000 debentures and was unsecured creditor for £10,000. Petitioners being unaware of the insolvency were induced to supply goods on credit. But when they proceeded to obtain decree, the Chairman appointed a receiver. The petitioner applied for winding up. The only ground of opposing the winding up was that better times may come in future. It was held that this state of, affairs was not just for innocent unsecured creditors and it was just and equitable ??? to wind up the company. This case also shows an attempt by secured creditors to defraud unsecured creditors and the order was made on that ground.
177. The next case referred to by Mr. Mitter is Cercle Restaurant Castiglioni Co. v. Lavery, (1881) 18 Ch D 555. In this case it was held by Jessel, M.R that the Court had jurisdiction to restrain by injunction a person claiming to be a creditor of a company, from presenting a petition to wind up the company where the debt is bona fide disputed and the company was solvent. An injunction also was issued before the presentation of the winding-up petition. The object of the company was to carry on a restaurant business and to take over a contract between the defendant-lessee and another defendant who was a trustee for the proposed company. The lessee was to be paid £2000 for furniture and effects on 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 fie 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 be paid for in cash. The lessee thereupon served the statutory notice for non-payment of £1000 to him and threatened to present a winding-up petition. The company thereupon filed a suit and applied for injunction to restrain the lessee from presenting the petition for winding up or from taking any steps for recovery of £1000 due to him. Jessel, M.R, held at page 558 of the report
“The conduct of the defendant Lavery was wholly unjustifiable, and that he had no right to present a winding-up petition. The company having called upon him to take up and pay for shares to the amount of £1000 under his agreement of the 16th February, 1881, by which he was clearly bound, he was not entitled, after refusing to do so, to say that the company ought to be wound up for non-payment of their instalment of £1000. He could not take advantage of his own wrong.”
An injunction was issued restraining the lessee from presenting the petition to wind up the company. Relying on this case Mr. Mitter contended that Sarma could not be allowed to take advantage of his own wrong. I accept Mr. Mitter's submission.
178. The next case referred to by Mr. Mitter is In re, Crigglestone Coal Co. Ltd., (1906) 2 Ch 327. In this case a creditor presented a petition for winding-up which was opposed by debenture-holders who had a floating charge on all the property of the company and had obtained the appointment of a Receiver in an action to enforce their security. The petition was also opposed by the company on the ground that there were, no assets available for unsecured creditors; the company was under the control of the debenture-holders. It was held by Buckley, J. that the unsecured creditors were entitled to an investigation into the circumstances in which the company inclined further liabilities between certain dates. The judgment of Buckley, J. was upheld by the Court of Appeal. The principle underlying the judgment, however, was that where the unsecured creditors were sought to be thwarted by debenture-holders on the ground, that nothing would be left to the former, if winding-up order was made, an investigation ought to be made in a winding-up.
179. The next case referred by Mr. Mittsr is In re, Thomas Edward Brinsmead and Sons, (1897) 1 Ch 45. In this case a part of the substratum of the company was gone but a valuable portion of the business was still left and the majority of the share-holders at a meeting had voted against winding up. Yet the Court held that it was just and equitable to wind up the company.
180. The petition for winding up was presented by a share-holder. The charge was that the substratum was gone and secondly that the company was formed with the fraudulent purpose of depriving the owners of an old established firm of its business. It was found as a fact that the company 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 Sans, 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 is plain, because the memorandum in so many words refers to the agreement under which the company purchased the good-will and the exclusive right to use this name of Thomas Edward Brinsmead and Sons. I think, therefore, that a part of the substratum is gone. I have already said that I do not think I ought to make an order because a part of the substratum of the business, as defined by the memorandum of association, has gone; but I am afraid that I am hound to come to the conclusion that it is a very material part. The price given (£76,650) can only be accounted for on the basis that the user of this name and the good-will attaching to this business were considered by the vendors and purchasers to be of great value. Under those circumstances I am perfectly clear that there is a state of things which would justify me in making a winding-up order if 1 thought it right in my discretion so to do — for I have a discretion. I have been through the facts at considerable length, because I think that in the exercise of my discretion I ought to be guided by those facts, and the balance, in my opinion, shows that I ought to make a winding-up order in this case therefore, I make it.”
The basis of this decision was that the company was conceived in fraud and the business was to the carried on fraudulently. The same case went up in appeal; the judgment of the Court of Appeal is reported at page 406 of the report (1897-1 Ch, In re, Thomas Edward Brinsmead and Sons). It was held at page 420:
“la our judgment it has been proved that this company — i.e Thomas Edward Brinsmead and Sons Ltd. — was initiated to carry out a fraud and that, until restrained by injunction, it continued therein; and that a strong prima facie case has been made out that the Consolidated Contract Corporation are at the present moment dishonestly keeping the share-holders money to which the share-holders and not they are entitled, and are resisting the petition to wind up in order to continue to do so…. The company is hopelessly embarrassed by the action already brought against it, and there will, no doubt, be many mote of the same sort if this petition is dismissed; and if it is not wound up the £35,000 obtained from it by its promoters will remain in their bands.”
181. The next case referred to by Mr. Mitter is In re, Bristol Joint Stock Bank, (1890) 44 Ch. D. 703. A Banking Company had a capital of £ 24,000 in twentyfour hundred shares of £10 each of which £5 was paid and the balance £5 was not to be called up except in the event of and for the purpose of the company being wound up. The company had never made any profit although it was 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.
182. The next case referred to by Mr. Mitter is (1916) 32 TLR 253. In this case a winding up order was made as the company had no reasonable possibility of executing a contact which it was formed to can out, the substratum was gone, part of the moneys of the company was misapplied and the company was so constituted that it was deprived of its usual remedies. Bleriot was the inventor of an aircraft of repute. He gave to Casson an option to purchase his English business. Casson was the Chairman of the Syndicate which entered into an agreement with the company to resell it to them at large profit. Neville, J. held that the main question was whether the substratum of the company was gone. The company had the option to acquire Bleriot's business, and if the company was honesty formed Bleriot would have completed the sale. But he soon found that the company was not in a position to carry out the contract that he had made with Casson as it had not the necessary working capital. It was found that the company had no funds and no reasonable possibility of carrying ‘out the Bleriot contract. It was held that the public subscription would have been much less if the public knew that the company had no right to carry on the Bleriot business. If the company tried to carry on business under the name of Bleriot, an injunction would be issued restraining it from using Bleriot's name. The company was formed to carry on the Bleriot contract and it was held that the substratum of the company was gone. It was also held that the misconduct of the Directors is no ground for winding up. The words ‘just and equitable’ are words of the widest significance and do not limit the jurisdiction of the Court to any case. It was further held that the moneys of the company were misapplied, and the company is so constituted that it is deprived of its usual remedies and that is sufficient ground for winding up. The basis of this judgment was that substratum of the company was gone.
183. The next case referred to by Mr. Mitter is In re, Planet Benefit Building and Investment Society, (1872) 14 Eq 441. In this case a petition was presented by a member of a Benefit Society who was entitied on retirement to be repaid that he had paid to the Society: It was found that the company was solvent. More than 3000 members of the Society with about £8,00,000 of capital opposed the petition and although the petition Jsras 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 ukerior purposes.
184. The next case referred to by Mr. Mitter is In, re, Newbridge Sanitary Steam Laundry Ltd., (1917) 1 Ir E 67. The Managing Director of the company entered into contracts in his own name for work to be done by the company. The profits amounted to £3268 of which the Managing Director accounted for only £1038. The capital of the company was £2,000 in £1 shares the majority of which was controlled by the Managing Director and a co-Director. A suit was filed by two shareholders against the company and the Managing Director, for accounts of the profits received by the Managing Director, who was directed to render accounts. No accounts were rendered nor payments made and the company took no steps to compel the Managing Director to render accounts. Subsequent to the suit a resolution of confidence was passed in the Managing Director by majority share-holders at a general meeting. The plaintiffs in the suit presented a winding-up petition on just and equitable grounds. The Court of appeal affirming the decision of the Master of the Rolls made a winding-up order. It was held that the position of this small concern was thus such that practically two families controlled the Company of whom one were in a minority and never could impose their wishes on the majority. That is a position against which there is no remedy so long as the company is managed on ordinary business lines, fairly and without impropriety. But the limit of propriety was crossed in this case as the action of the majority was intended solely to shield the Managing Director and to prevent any effective proceedings being taken against him to recover more than £2,000 belonging to the company. The Court found that the Managing Director had acted grossly dishonestly. In spite of this dishonest conduct the share-holders were determined to support him and to prevent his rendering accounts, and being made amenable to justice and that was a position which fully justified a winding-up order. It was held that a winding-up order affords the only means of enabling justice to be done to the petitioners. At page 92 of the report it was held:
“The evidence before us satisfies me that we are faced with a course of crime and fraud; we have a majority of the share-holders endorsing the action of those who were guilty of this crime and fraud and passing a resolution of confidence in Llewellyn.”
185. In this case the Court found as a fact that, the Managing Director was guilty of crime and 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 acoount 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.
186. 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 them-selves personally. If it had been simply denied by the company, and if the Directors had not personally appeared, I should have simply dismissed the petition as not having made out a case for the winding up of the company. For though the misconduct of Directors may be a reason why the share-holders should have relief against them, it is not a reason for winding up the company. But the Directors and certain share-holders have appeared personally, and the affidavit and the cross-examination have disclosed matters of considerable importance to the share-holders, which much concern the interest of this association, and which involve the question arising upon the Fifth Rule, which I have read.
187. It is the duty of all Directors to be not only ready at all times to explain everything to the shareholders, but to see that there is nothing that savours of underhand dealing between them…… Every share-holder is, in my opinion, bound to know the Articles of Association, and he cannot complain of anything disclosed by them, which if he does not know, he might know, and ought to know”. Again at page 10:
“I am of opinion that the misconduct of the Directors and Manager towards the share-holders may be the subject of a suit, but it is not a reason for winding up the Company, until that mismanagement has produced insolvency, which is very far from being the case now. There are no debts, except those which are inevitable. Assuming that a Bill would lie to correct the matters which I have mentioned, and assuming that the Directors would be compelled to restore the moneys they have received for the benefits of the company, and that the shares of the Railway Finance Company ought to be cancelled, or some alteration made in that respect, still I am of opinion that is matter for a suit, and not for a petition for winding up. I see much that may be proper to reform; but I see nothing which would render it, to use the words of the Act, ‘just and equitable’ in the present state of affairs, that this company should be wound up;…… the petition must, therefore, be dismissed as regards the company, and must be dismissed with costs.”
This case is a leading authority for the proposition that misconduct of Directors may provide the grounds for a suit but is not a ground for winding up unless such misconduct produces insolvency. In the instant case the company is not only solvent but is enjoying a large measure of prosperity. That is enough to stop the winding up proceedings.
188. The next case referred to by Mr. Mitter is Rajahmundry Electric Supply Corporation Ltd. v. A. Nageswara Rao, (1955) 2 SCR 1066 : ((S) AIR SC 213). 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 S. 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 S. 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 S. 153(c). Mere misconduct of Directors by misappropriating the funds of the company is not enough for winding up on just and equitable grounds. But in addition to such misconduct, if circumstances exist which make it desirable that the company should be wound up an order should be made accordingly.
189. The grounds for the petition were that there was mismanagement, that large amounts were due to the Government for electricity charges, that the Directors had misappropriated the funds of the company, the Directors had the majority in voting strength and were ignoring the rights of shareholders.
190. Following (1866) 2 Eq. 1 it was held at p. 1072 (of SCR): (at p. 216 of AIR) that misconduct of Directors was not a ground on which the Court could order winding up under just and equitable clause unless such misconduct has produced insolvency. It was also held at page 1073 (of SCR): (at p. 216 of AIR) that the words ‘just and equitable’ are not to be read as being ejusdem generis with the preceding words of the enactment.
“Where nothing more is established than that the Directors have misappropriated the funds of the company, an order for winding up would not be just or equitable, because if it is a sound concern, such an order must operate harshly on the rights of the share-holders. But if in addition to such misconduct, circumstances exist which render it desirable in the interest of the share-holders that the company should be wound up, there is nothing in S. 162(vi) which bars the jurisdiction of the Court to make such an order”.
The Supreme Court approved of Loch's case, 1924 AC 783 in so far as it was held in that case that the lack of confidence must spring not from dissatisfaction at being outvoted on the business affairs or on what is called the domestic policy of the company but lack of confidence must arise from a lack of probity in the conduct of the company's affairs. It was again held at page 1075 (of SCR): (at p. 127 of AIR):
“It is no doubt the law that Courts will not, in general, intervene at the instance of shareholders in matters of internal administration, and will not interfere with the management of a company by its Directors so long as they are acting within the power conferred on them under the Articles of Association. But this Rule can by its very nature apply only when the company is a running concern, and it is sought to interfere with its affairs as a running concern. But when an application is presented to wind up a company, its very object is to put an end to its existence, and for that purpose to terminate its management in 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 arise from a lack of probity in the conduct of the company's affairs.
191. The next case referred to by Mr. Mitter is In re, Wear Engine Works, (1875) 10 Ch A 188. In this case it was held that a winding up order would be refused if a sufficient case for winding up is not stated on the petition though such a case be proved in evidence. It was contended that the petition is demurrable. The petitioner does not state a debt of sufficient amount or that he made a demand or that the company is unable to pay its debts. A petition with these defects cannot be supported whatever be shown in evidence. It was argued on the other hand, that in a winding up petition the same degree of certainty is not required as in a pleading and that it is enough if evidence shows a case for winding up. It was held by James, L.J at page 191 of the report:
“This petition is a demurrable petition. We wish it to be understood that a winding-up petition must allege facts which justify a winding-up order. No doubt, if there is any slip in the statements the Court can allow an amendment, so that the real point may be tried; but, subject to this power of amendment, it is not enough for a sufficient case to be shown in evidence; a sufficient case must be stated on the petition, that the order may be secundum allegata et probata. Here the petitioner alleges only a debt of £25 and does not allege any demand; he, therefore, has no locus standi as a creditor. As regards his case as a shareholder, the policy of the Act is to let the shareholders manage their own affairs, and not to interfere except in the special cases mentioned in the Act, none of which are alleged here.”
This case is a leading authority for the proposition that the facts on which the winding up a company is sought, must be stated in the petition and if it was not so stated the petition would be demurrable. Mr. Mitter cited this case in support of his argument that the petition is demurrable. I have already held that the winding up petition is not demurrable. In this case only a debt was alleged but the petitioner did not state that any demand was made and therefore, it was held that the petitioner had no locus standi as a creditor. The instant case under my consideration, is not a case of a petition by a creditor. I have already held that the nature of the charges in the petition may in an appropriate case be sufficient 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.
192. The next case referred to by Mr. Mitter is Lawang Tshang… v. Goenka Commercial Bank Ltd.…., 64 Cal WN 828 : (AIR 1961 Cal 144). In this case a petition was presented under S. 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 S. 433(c) and other remedy is available under S. 398, the company should be wound up. The main ground in this case was that the substratum of the company was gone. There were several runs on the bank. The Central Government prohibited the company from receiving fresh deposits and since then the company ceased to carry on banking business. The company passed resolutions for altering its objects to make it a non-banking company and the resolutions were confirmed by this Court on January 17, 1957. The name of the company was also altered but the Central Government did not sanction the alteration. The company made bad investments and the repayments by tee debtors had been negligible. The majority shares were held by the Goenkas. The Directors were the nominees of the Goenkas and all the funds were invested in concerns in which the Goenka group had large interests. The company had done little or no business for same time and there was no possibility of fresh business unless the debtors repaid. No steps were taken against the debtors for recovery of amounts due from them.
193. It was found that there was no suspension of business under Section 433(c) of the Companies Act, 1956. G.K Mitter, J. referred to S. 443(2) which, is equivalent to Section 225(2) of the English Act. It was held that an application under Section 398 would not be of much use in the facts of the case and it was also held that the petitioner was not Acting unreasonably in faying to wind up the company, and that continued existence of the company with its present Board could only benefit the group of share-holders who were interested in the Goenka concerns. Share-holders would get no benefit from the company and therefore, it was held to be just and equitable to wind up the company. The basis for the winding-up order on just and equitable grounds was that the substratum of the company was gone, that no steps were taken to recover debts due to the company, that improvident loans were advanced and that all the funds of the company were invested in concerns in which one group of share-holders had large interests. Thus, it would be seen that the facts of the instant case are entirely different from the facts of this case.
194. The next case referred to is In re, Bharat Vegetable Products Ltd., 56 Cal WN 29. In this case it was held that there is nothing in the Act which deprives the Court of the discretion to refuse to admit a winding up 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.
195. In this case the debt being disputed Bachawat, J. held:
“I may either refuse to admit the petition or admit it and at the same time adjourn its hearing. I prefer to adopt that it should not be advertised. It is not seriously disputed that the inevitable result of the advertisement will be to damage the credit and reputation of the company which is actively carrying on business. I therefore, order that the petition be admitted and be kept on the file but the hearing of the petition is adjourned sine die.”
196. This judgment reaffirmed the well-established principle that the Court has undoubted power to stop a winding up proceeding if it is satisfied that the petition is an abuse of process of Court.
197. Mr. Mitter next referred to several cases in support of the proposition that where fraud is alleged, full particulars must be set out in the pleadings. General allegations of fraud and improper conduct in the pleadings are not enough to sustain such charges and the Court will not be justified in going into the question of fraud, undue influence or other improper conduct on vague and bare allegations. These principles are so well established that it is not necessary for me to deal with the cases. But as the cases have been cited in the arguments I will only refer to them: Ali Ahmed v. Sm. Shamsunnessa, AIR 1938 Cal 602 at p. 605; Bishundeo Narain v. Seogeni Rai, AIR SC 280.
198. The next point argued by Mr. Mitter was that in matters of internal management the Court will not interfere unless fraud and ultra vires acts are involved. It is for the majority of the shareholders in the company to determine at the general meeting how the business of the company should be carried on. It is for the company to determine whether it will make anything that is wrong to the company a subject-matter of litigation or whether it will take any steps to prevent the injury from being done to the company. The cases in which these principles have been discussed and decided are Cook v. Deeks, (1916) AC 554 : (AIR 1916 PC 161); Macdougal v. Gardiner, (1875) 1 Ch D 13; Burland v. Barle, (1902) AC 83; Dominion Cotton Mills Co. Ltd. v. Amyot, (1912) AC 546. There is only one passage in the judgment of Mellish, L.J (1875) 1 Ch D 13 which I should set out by way of illustration of the principle. This passage is at page 25 of the report:
“In my opinion, if the thing complained of is a thing which in substance the majority of the company are entitled to do, or if something has been done irregularly which the majority of the company are entitled to do regularly, or if something has been done irregularly which the majority of the company are entitled to do legally, there can be no use in having a litigation about it, the ultimate end of which is 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.”
199. Before passing on to the authorities cited by Mr. Sen I should deal with another matter which was argued by Mr. Mitter. Mr. Mitter strenuously argued that Sarma is estopped from denying the truth of the statements made in the balance sheet, in the Directors' report, in the minutes of the Board meetings and in the Directors' answers to the Auditors' comments. Farther he contended that Sarma is also estopped from challenging the truth of the statements in various documents which he signed, viz., the draft of the fresh agreement with the Agency Company and also the draft of the minutes of the Board meetings which he had signed. Mr. Mitter's argument was that Sarma was a party to the various proceedings and had put his signature to various documents and therefore he cannot be permitted to go back on the statements contained in those documents. The doctrine of estoppel applied and Sarma should not be allowed, at this stage, having taken full benefit of the Company's business, to turn round and challenge the documents and proceedings to which he was a party. Mr. Mitter referred to several authorities in support of this proposition.
200. In my view, however, the law of estoppel has no application to this case. The principle on which the law of estoppel is attracted, is that a person who by his declaration or act or omission caused another person to believe a thing to be true should not be allowed to deny the truth of that thing. This is a cardinal principle which attracts the law of estoppel in any case. But in this case Sarma is not denying the truth of the things that have happened. He is not denying that he was a member of the Board of Directors, he is not denying that he attended Beard meetings and acted as Chairman in many of them. He is not denying again that he signed Directors' reports, balance; sheets, Directors' answers to the Auditors' comments, the memorandum that was prepared after checking of cash, the draft of the new agreement with the Agency Company. All these things are not denied by him. His contention is that although he was party to all that has happened, those acts are wrongful acts, and the Managing Agent and the Maitras have been mismanaging the affairs of the Company, misappropriating the Company's assets and committing other wrongful acts in the administration. If he denied the truth of the proceedings to which he was a party, 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.
201. 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.
202. To turn now to the cases cited by Mr. Sen.
203. The first case cited by Mr. Sen is Mohammad Amin Bros. Ltd. v. Dominion of India, 54 Cal WN 514 : (AIR 1952 Cal 323). In this case it was held that it was the duty of the Court which has jurisdiction to wind up Companies to enquire whether the debt upon which the petition to wind up the Company is founded is really due and in doing so it can even go behind a judgment or decree in a proper case. If the Court is satisfied that the debt upon which the petition is founded is a disputed and doubtful debt, the Court should not make the winding up order. The right of a creditor to a winding up order is not his individual right but a representative right. This case was relied upon by Mr. Sen, for the proposition that a creditor's right to winding up is not an individual right but a representative right. But in instant case the petition is not by a creditor but by a contributory and the petition for winding up, is not for non-payment of a debt but on the ground that it is just and equitable to wind up the Company. This case, therefore, is of little assistance to Mr. Sen.
204. The next case referred to by Mr. Sen is In re, Brighton Club and Norfolk Hotel Co. Ltd. (1865) 55 ER 873. This was an application for an order for winding up for a debt which was bona fide disputed. It was held per Romilly, M.R that it was not sufficient for a Company to say that the debt was disputed. They must show some reasonable ground for doing so. In this case the? debt was bona fide disputed and therefore, the application was dismissed with costs. In this case also the petition was by a creditor for non-payment of a debt which was bona fide disputed. This case again is also of no assistance to Mr. Sen.
205. The next case referred to by Mr. Sen is Higgins v. Woodhal, (1890) 6 TLR 1 : In this appeal the question was whether the Court could stay an action. Lord Halsbury, L.C held that the Court had jurisdiction to interfere and stay. But it was held that “thy Court must not prevent a suitor from exercising his undoubted rights on any vague or indefinite principles.” It was held that on the facts of the case the Court ought not to stay the action. It is to be noted that the question involved in this case was the stay of an action and not the stay of a winding up proceeding and it was held that a suitor was not to be prevented from exercising his undoubted rights. But in the instant case the principle which has been invoked for stay of the winding up proceeding 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.
206. Mr. Sen next referred to (1916) 32 TLR 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 substratum of the Company is gone. For these reasons the Bleriot Aircraft Company's case, 1916-32 TLR 253 has no application to the instant case.
207. The next case cited by Mr. Sen is V. Seethiah v. B. Venkata Subbiah, AIR 1949 Mad 675 : In this case it was held that there is no inflexible rule or practice prohibiting the adducing of oral evidence or cross-examination in winding up applications. Where necessity suggests or experience requires it is open to the Judge to allow oral evidence. But where the application for calling oral evidence is not only belated but is intended to retard and delay the progress of the winding up application, the oral evidence should be refused as expedition in winding up is absolutely necessary. At page 679 of the report it was held:
“In these circumstances, we are clearly of the opinion that where necessity suggests or expediency requires it is open to the Judge trying winding up proceedings to allow oral evidence.”
In this case it will be seen that the sole question was whether oral evidence (sic) and therefore the questions discussed in this case are of no assistance to Mr. Sen.
208. Reference was also made to Palmer's Company Precedents, 15th Edn. Part II, page 160:
“In a winding up proceeding, occasion sometimes arises for obtaining the oral evidence of witnesses. Thus if there is a conflict of evidence on the affidavit orders may be made for cross-examination. Further upon a winding up petition the petitioners or respondents may require the evidence of some person who declines to make an affidavit; and, in proceedings after the winding up order, a creditor whose claim is disputed or an alleged contributory, may desire to obtain such evidence.”
But in this case some of the allegations though true are far from sufficient for a winding up order on just and equitable grounds, for the reasons already discussed by me Regarding some other allegations I have held that they are false and cannot be relied on. In my view therefore there was neither necessity nor scope for taking oral evidence, nor was any prayer made for same at the hearing.
209. The next case referred to by Mr. Sen is T.S Murugesam Pillai v. M.D Gnana Sam-baadha Pandara Sannadhi, AIR 1917 PC 6, at p. 8. This case was ciled by Mr. Sen in support of his argument that the Company should have disclosed documents in its possession. I do not see how 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 the 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 in their Lordships' opinion, an inversion of sound practice for those desiring to rely upon a certain state of facts to withhold from the Court the written evidence in their possession which would throw light upon the proposition.”
210. The next case referred to by Mr. Sen is (1924) AC 783. This case has already been dealt with by me earlier in the judgment. The passage in the judgment relied upon by Mr. Sen is at page 788 of the report which deals with the question of lack of confidence arising from lack of probity in the conduct of the company's affairs and it was held that such lack of confidence would provide a ground for winding up on the just and equitable ground. This principle in my view has no application in the instant case because far from there being any lack of confidence in the other directors, Sarma approved of every thing that was done at the Board meetings and took a leading part in its deliberations. The alleged lack of confidence now set up by him is only for the purpose of this application. There certainly was no lack of confidence on his part from 1956 upto 1962 and the charges on which he seeks to obtain an order for winding up are based on acts or omission during these years, and not on acts or omissions, which have taken place in 1962.
211. The next case referred to by Mr. Sen is (1955) 2 SCR 1066 : ((S) AIR 1956 SC 213). Reliance was placed by Mr. Sen on passage of the judgment at pages 1072 and 1073 of the report (SCR): (at p. 216 of AIR) in support of his arguments that although mere misconduct of directors in the shape of misappropriation of the Company's funds may not be a ground for winding the company, but if in addition to such misconduct, circumstances exist which render it desirable in the interest of the shareholders to wind up the company S. 162(vi) did not bar the jurisdiction of the Court to make such an order. But in the instant case excepting for charges of misconduct and misappropriation of the company's funds which cannot the sustained for the reasons hereinbefore mentioned by me, there is no other circumstance to justify an order for winding up on the just and equitable ground. I have dealt with the numerous charges made by Sarma at length and have analysed them. Those charges are in my view frivolous and untenable and have been made, not for the bona ffide object of obtaining a winding up order, but for ulterior purposes.
212. The next case referred to by Mr. Sen is Goodson v. Grierson, (1908) 1 KB 761. This was a suit by a book maker for a sum alleged to be due on an account stated, the defendant pleaded 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 O. 25 R. 4 of the Supreme Court Rules and partly on inherent jurisdiction. The Rule provides that the Court may order the pleading to be struck out as it discloses no cause of action. It was held that the Rule had nothing to do with the matter. Reliance is placed on the passage at page 764 of the report that the defendant had obtained important admissions from plaintiff in answer to interrogatories:
‘But it is a serious thing to dismiss an action before it has been tried and a clear case for doing so must be made out. It is admitted that the debts sued on were originally betting debts, and of course no action could be brought in respect of them. But the plaintiff says that there was a good consideration for the sums appearing in the account stated in that he plaintiff at the request of the defendant forbore to sue and gave the defendant time to pay. In order to support an application of this kind the defendant has to show that under no possibility could there be a good cause of action consistently with the pleadings and the facts in the case…….. All that I say is that seeing that this action has not reached the stage at which the Court can assume that it knows the whole of the facts, it is impossible to say that the plaintiff must necessarily fail to show that his forbearance would, under the decided cases constitute a good consideration to support the account stated. Having come to that conclusion, it is obvious that this action ought not to be stopped at this stage. It ought to go on until all the facts can be laid before the Court, and when the Court has cognisance of those facts it can then decide whether there is a proper cause of action.”
It is to be noted that this was an action at law and an attempt was made to have it dismissed as frivolous and vexatious. The principles which govern stay or dismissal of a suit on the ground that it is vexatious, are entirely different from the principles which govern the Court in dealing with an application for stay of a winding up petition on the ground that it is an abuse of the process of the Court. Then again it is to be noted that the winding up petition is vastly different from an action at law. The former is an attempt to put an end to the company's existence as such. Steps which the law requires to be taken before a winding up petition is brought to a hearing, necessarily involves very wide publicity. If the charges are false and frivolous such publicity by advertisements is bound to do enormous mischief and injury to the company. On the other hand, if the plaintiffs allegations in an action are false, the action is liable to be dismissed but no further injury is caused to the defendant in the action. This case, therefore, is of no assistance to Mr. Sen.
213. The next case referred to by Mr. Sen is in In re., Hancock, (1904) 1 KB 585. In this, case a creditor obtained a decree against a debtor whose only income was the salary payable weekly, and also commission on sales. As the debtor failed to pay the decretal amount the creditor obtained an order for payment of the debt by instalments. There 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 earnings. 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 an adjudication in bankruptcy against himself.”
This case again is of no assistance to Mr. Sen because it was an application for annulment of the bankruptcy proceedings. Bankruptcy proceedings however are entirely different from winding up proceedings inasmuch as the latter requires publication of the winding up petition by advertisement. There is no such procedure in Bankruptcy Law. It is because of this difference between winding up proceedings and bankruptcy proceedings that the English Courts have refused to stay a bankruptcy proceeding, as there was no possibility of mischief or injury to the debtor, if the allegations against him were false or frivolous. Besides it cannot be overlooked that the debtor himself presented the bankruptcy petition for his own protection.
214. The next case referred to by Mr. Sen is Electrical Development Co. Ontario v. Attorney General for Ontario, (1919) AC 687 : (AIR 1919 PC 158): In this case the appellant issued a writ against the Attorney General and a Commission constituted by the Ontario Legislature claiming a declaration that the latter had no right to do certain acts which the Legislature had empowered it to do. The Act provided that no action should be brought against the Commission without the Attorney General's consent, which was not obtained. The Appellate Division affirmed orders dismissing the writ summarily. It was contended before the Privy Council that the statute under which the Acts had been done and the provisions requiring the Attorney General's consent were both ultra vires. It was held that the action should be allowed to proceed. The question of maintainability was to be decided at the trial. The only ground on which the application was made for setting aside the writ was that the action had been brought without the Attorney General's consent and the only question was whether the provision relating to obtaining his consent was intra vires of the Ontario Legislature. It was contended that it would be for the trial Court to decide whether the provision relating to taking of consent was ultra vires of the Legislature. At page 694 of the report (App Cas): (at page 161 of AIR) it was held:
“Their Lordships think it undesirable to express any final opinion upon the construction of this section and its effect upon the present action until the precise nature of the claim of the plaintiff in the action has been formulated.”
It was further held that the points raised relating to taking of consent of the Attorney General before the suit being filed ought not to be dealt in the summary fashion and 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.
215. The next case referred to by Mr. Sen is King v. Henderson, (1898) AC 720. This was a suit for damages on the ground that a petition for sequestration was presented falsely and maliciously and without reasonable cause. The allegation was that the appellant had committed acts of bankruptcy in not complying with the requirement of a bankruptcy notice. The appellant disputed the commission of the act complained of. The petition for sequestration was dismissed. Afterwards the bankruptcy notice was also set aside and it was declared that the act of bankruptcy was not committed. In these circumstances the appellant sued for damages. After evidence was taken the respondent moved for a non-suit which was allowed. This was followed by an application for new trial and a Rule nisi. This Rule at the hearing was discharged. It was held that the evidence showed that the presentation of the petition for a sequestration order was inspired not by an honest wish to secure payment of the debt but by other motives and this was an abuse of the process of the court and a fraud. At page 731 it was held:
“Their Lordships do not dispute the soundness of the proposition that a plaintiff or a petitioner who institutes and insists in a process before the bankruptcy or any other court, in circumstances which make it an abuse of the remedy sought or a fraud upon the Court, cannot be said to have acted in that proceeding either with reasonable or probable cause…….. In the opinion of their Lordships, mere motive, however reprehensible, will not be sufficient for that purpose; it must be shown that in the circumstances in which the interposition of the Court is sought, the remedy would be unsuitable, and would enable the person obtaining it fraudulently to defeat the rights of others, whether legal or equitable.”
This again was an action at law and the observations made in the judgment that motive may not be material) in an application for stay of a suit do not apply in an application for stay of winding up on the ground of the abuse of process of court. In an application for stay of winding up on the ground of abuse of process, the motive of a contributory who presents the petition is very material and it has been held to be so by English Courts in several cases. This case, therefore, is of no assistance to Mr. Sen's clients.
216. The next case referred to by Mr. Sen is Chhatrapat Singh Dugar v. Kharag Singh Lachmiram, 44 Ind App 11 : (AIR 1916 PC 64). This again was an application for an adjudication order under the Insolvency Act. It was held that when the condition laid down in the Insolvency Act are complied with, 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 as 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 case all that was prescribed by law was observed by the debtor. This again was a case of adjudication under the Insolvency Act and as I have mentioned above the principles in bankruptcy proceedings are widely different from those in winding up proceedings. This case again therefore, is of no assistance to Mr. Sen.
217. The next case referred to by Mr. Sen is Gangu Veera Brahman v. Gangu Jagannadhacharyulu, AIR 1935 Mad 589 (2) at pp. 590, 591. This also was a case under the Provincial Insolvency Act. It was held that where a creditor applied for adjudication of a debtor as insolvent, the court should have no concern with the petitioner's motives or whether the adjudication was likely to benefit him. If the petitioner, who applied for his own adjudication, satisfied the conditions under the Act, his petition should be allowed. In this carse the petitioner himself wanted to be declared an insolvent and was himself the applicant. The question of stay of the insolvency proceedings was not the matter before the court, and therefore, this question was not considered. Besides, an application by a person to be declared an insolvent under the Insolvency Act, is entirely different from a winding up petition by a contributory for a winding up order on just and equitable grounds.
218. The next case referred to by Mr. Sen is Venkateswara Iyer…Plaintiff v. Cherrseri Madathil Ravunni Nair…Defendant ., AIR 1915 Mad 461. In this case it was held that on the death of a minor plaintiff's next friend the suit does not abate and should not be dismissed. An order of dismissal is a nullity and can have no effect on the rights of the plaintiff. The duty of the court is either to appoint a new friend or to allow the suit to remain pending till the minor attains majority. It was held that the institution of a second suit against the same party for the same relief and on the same cause of action is not an abuse of the process of the Court within the meaning of Section 151 of the CPC. This case was concerned with abuse of process under Section 151 of the CPC. In this case a second suit was filed but it was held that the dismissal of the first suit on the ground of abatement was illegal. In these circumstances it was held that the second suit against the same party for the same relief and based on the same cause of action was permissible and it was not an abuse of the process of court to allow the plaintiff to carry on the litigation in the second suit. On facts and in law this decision is of no assistance to Mr. Sen's client.
219. 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 Rs. 44 was outstanding. For this balance, a property was sold for Rs. 2725; the judgment debtor Applied to have the sale set aside. There after 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 Rs. 257-8-0. It was held that the only section under which the damages could be awarded was Section 151 of the CPC 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 Rs. 44 due and the judgment-debtor could have paid this small amount. He knew that his valuable property was attached for only Rs. 44 and deliberately refused to pay this small sum to harass the decree-holder. In these facts it was held that no act or proceeding taken as of right and in due course of law is an abuse of process simply because such proceeding is likely to embarrass the other party. A person who brings himself within the terms of the statute is not to be deprived of any right conferred by that statute on so treacherous a ground of decision as an abuse of the process of court. It was also held that the court must find in each case what exactly the abuse is. The decree-holder had a statutory right to take out an execution in respect of the small amount of Rs. 44. In so doing there was no question of her trying to embarrass the judgment-debtor. Relying upon this case Mr. Sen contended that as Sarma had the right to make an application and this right was given to him by the statute, the application cannot be regarded as an abuse of process of court.
220. It is true that in an action at law and in any proceeding under such an action, namely execution, if a person has a right to make an application in law the application cannot be dismissed on the ground that it is an abuse of process of court. But this principle has no application to the case of a winding up petition by a contributory who may be fully qualified under the statute to make the application. To say that such an application cannot in any circumstances be an abuse of process of court, is to deny to the court, an undoubted right which this court has, to stop a mischievous and frivolous application for winding up. The inherent power of the court to stop a winding up petition or restrain further proceedings thereunder, are based on well recognized and well established principles. This Court certainly is not powerless to stop or stay a winding up proceeding which in its opinion, is inspired by spite and based on reckless and frivolous charges of mismanagement, misapplication of funds and irregularities in the Company's administration.
221. The next case referred to by Mr. Sen is Davis and Co. Ltd. v. Brunswick Ltd., (1936) 1 All ER 299. In this case also the Judicial Committee considered the question of winding up of a Company on just and equitable grounds. The relevant passage is at page 308 of the report:
“The position of the court in determining whether it is just and 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 interests 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 brassed the evidence on either side. It should be observed that in this case there is no question of a deadlock, nor is there any question of shareholders who have the voting power using that power for their own com-medical interests outside the company in disregard of the interests of a minority. Nor, again, is there any question involved of an improper management of the company by the Directors who are in control. The problems involved is of the nature of a business problem.”
It will be noticed that the Judicial Committee held that the decisive question must be the question whether at the date of the winding up petition there was any reasonable hope of the Company's trading at a profit, for which the Company was formed. In the instant case it has been seen already that the company is earning large profits and the prospect of future business is also fairly bright. For tins reason alone apart from the other considerations discussed by me earlier, the winding up petition should be stopped.
222. The next case referred to by Mr. Sen is (1843) 67 ER 189. This case is an authority on the question of the right of a share-holder to maintain an action in his own name, and laid down the principle that an individual corporator could maintain such an action and ask for protection of his rights to which he is entitled in his corporate character. This case in my view has no bearing on the issues involved in the instant case.
223. The next case referred to by Mr. Sen is Seaton v. Grant, (1867) 2 Ch A 459. In this case the plaintiff lost money by speculating in shares of a company and then purchased five shares to become a shareholder and then filed a bill for himself and other shareholders against the company impeaching certain transactions on the ground of fraud. The bill also impeached certain preliminary proceedings taken for winding up and reconstituting the company. After the bill was filed the company was wound up and reconstituted. Thereafter the defendants applied to take the bill off the file or to stay proceedings. It was held that as the defendants had not sufficiently denied the charges of fraud, the mala fides of the plaintiff in filing a bill was no ground for taking the bill off the file. Secondly the small interest of the plaintiff was no objection to the bill as it was filed on behalf of himself and other shareholders. At page 463 of the report it was held:
“Now I by no means approve of the plaintiff's conduct; but the question is whether his conduct has been such as 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 entirely different from the principles which are to be considered in an application for stay of a winding up proceeding by ??? contributory on the ground that the application is-an abuse of the process of court.
224. The next case referred to by Mr. Sen is. In re., City Equitable Fire Insurance Co. Ltd., (1925) 1 Ch 407. This case considered the question of misfeasance by Directors and their duties and obligations as a Director. It was held at page 427:
“In order, therefore, to ascertain the duties-that a person appointed to the Board of an established Company undertakes to perform, it is necessary to consider not only the nature of the company's business, but also the manner in which the work of the company is in fact distributed between the Directors and the other officials of the company, provided always that this distribution is a reasonable one in the circumstances, and is not inconsistent with any express provisions of the Articles of Association.”
Again at page 429:
“A Director is not bound to give continuous-attention to the affairs of his company. His duties are of an intermittent nature to be performed at periodical Board meetings and at meetings of any committee of the Board upon which he happens to be placed. He is not, however, bound to attend all such meetings, though he ought to attend whenever in the circumstances he is reasonably able to do so.”
Then again at page 430:
“I agree with what was said by Sir George Jessel in Hallmark's case (1878-9 Ch D 329) and by Chitty, J. in In re-Denham & Co., (1883-25 Ch B 752) the Directors are not bound to examine entries in the company's books. It was the duty of the General Manager and (possibly) of the Chairman to go carefully through the returns from the branches and to bring before the Board any matter requiring their consideration.”
To my mind this case has no application to the instant case. If the observations made in the judgment are to be taken as a defence to the conduct of Sarma, they apply equally as a defence to the conduct of the other Directors as well. In my view, therefore, this case has no application at all.
225. The next case referred to by Mr. Sen is a Judgment of this Court in the The Company… v. Sir Rameswar Singh…. 844 : (AIR 1920 Cal 1004): In this case the company filed a suit against its Ex-directors for recovery of Rs. 6,00,000 on the ground of neglect of duty. Thereafter the Directors filed a suit against the Company for recovery of Rs. 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 litigation was pending, this petition should have been presented at this late stage, but what I have got to see is whether or not the petitioning creditor is legally entitled to present his petition. I think I cannot infer from there facts that have been stated before me that it is not bona fide to the extent that I ought to stop it in limine, and I do not think that I ought to infer from the fact that it is brought after the suit by the company against the petitioner is already part heard and after he has previously instituted a suit to enforce his claims that the presentation of the petition is not necessarily bona fide.”
It was thereafter held that if a Director’ is attacked by the Company for misdeeds which he denies, he can defend himself by any means in his power one of which is the petition for winding up if he has good grounds for doing so. At page 857 of the report (Cal WN): (at p. 1009 of AIR) it was held:
“The application was to remove the petition from the file, to restrain the issue of advertisement and to stay all proceedings in respect of the petition, and in our judgment the proper order to be made under the circumstances of this case will be that the winding up proceedings be stayed until the determination of the two above mentioned suits.” The facts in this case were peculiar. The company filed a suit against the Ex-director for neglect of duty and thereafter the Directors filed a suit against the Company for recovery of deposits made. When the Company's suit came up for hearing a winding up petition was presented by the ex-Director. And the question that was considered by the Appeal Court was whether the petitioner was entitled to present the winding up petition as a creditor. And it was held that the filing of the suit by the ex-Director did not make the presentation of the winding up petition, something other than a bona fide application. It is also to be noted that the Appeal Court did make an order for stay of the winding up proceedings until determination of the suits.
226. The next case referred to by Mr. Sen is-Re., Welsh Brick Industries Ltd., (1946) 2 All ER 197. In this case the petitioner issued a Writ for recovery of moneys advanced by him to the Company and thereafter he presented a petition for winding up for non-payment of debt. On a summons for judgment, unconditional leave was given to the Company to defend the suit. At the hearing; 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. It was held by the Court of Appeal that in spite of the unconditional leave, it was competent for the winding up Court to go into the evidence which was before him to consider whether or not there was a bona fide dispute and the winding up Court was not precluded from finding as a fact that there was no bona fide dispute although unconditional leave was given and therefore, it was held that the Judge had the discretion to make the winding up order. The basis of the decision is that the mere fact that unconditional leave was granted is not sufficient to make a winding up petition, one based upon a disputed debt. The substance of the decision is that the winding up Court's jurisdiction is not taken away merely by the fact that unconditional leave had been granted to the company to contest the claim of a creditor in an action at law.
227. The next case referred to by Mr. Sen is Alluri Timmaraju v. Narasinha Raju, AIR 1928 Mad 522. In this case plaintiffs sued for possession. The trial Court dismissed the suit. But the Appellate Court decreed the suit. And thereafter an application was made under Order 20, Rule 12 for determination of mesne profits. As the applicant did not pay the full batta his application was dismissed. He made a second application more than three-years after the appellate decree and the question was whether he was not barred from having mesne profits ascertained. The question was whether the Court has the right to make the order of dismissal of the first application. Under S. 151 the Court has the right to dismiss if it finds that it is necessary to act for the ends of justice or to prevent abuse of its process. If the Court purports to prevent an abuse it must find what the abuse is. Mere failure to comply with Rule 24 of Civil Rules of Practice is hardly in every case an abuse of process. Section 151 is not a general clause validating every act of a Court which cannot otherwise be justified. It is a section allowing a Court to exercise its power in specified circumstances and it cannot exercise that power until those circumstances are established. In this case the Court was considering its right to dismiss an application under Section 151 of the CPC, if it thought fit to do so for the ends of justice or to prevent an abuse of process of Court and it was held that mere non-compliance with certain Rules of the Civil Rules and Practice is not an abuse of process. In my view this case has no application at all to the ??? case.
228. There remains only one other point urged by Mr. Sen to be considered and that is that the Cause Title of the petition shows that this is an application under Section 442 of the Companies Act. According to Mr. Sen, Sarma is before this Court only to answer a case under that section and it is therefore, not open to the company to ask the Court to make an order for stay in exercise of its inherent jurisdiction on the ground that the application is an abuse of the process of Court.
229. On behalf of the company Mr. Mitter contended that it was through mistake or oversight that Section 442 of the Companies Act, 1956 was mentioned in the Cause Title as set out in the summons. 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 Tide 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.
230. 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.
231. In support of his contentions Mr. Mitter first of all referred to the case of Ramesh Chandra Dutta v. Surya Properties Ltd., AIR 1957 Cal 198. In this case it was held that in a suit, a plaintiff is required under the provisions of the Code of Civil Procedure to plead the facts which would entitle him to get a decree and it is not necessary for him to recite the law.
232. The next case cited by Mr. Mitter is Harihar Kanta v. Rama Pandu, ILR 33 Bom 698. In this case the question was whether an application which had been made under a particular section was wrongly made, as the application could be maintained only under a different section. It was held that it may be that when the application was presented, it was presented as falling under one particular section. But the question was not what the applicant thought or what section he had mentioned in his application. The substance of the ground upon which he made the application must be looked into. If the allegations on the strength of which the sale was sought to be set aside, did not bring it within section 311, the mere mention of that section could not in law make it an application under it. So looked at the application did not fall within Section 311 but must be regarded as an application under Section 241. On the facts of that case, it was held that it was not an application under Section 311 though that section was mentioned but was an application to set aside a sale for fraud under section 244.
233. In my view so far as this branch of the argument is concerned the correct position has been set out in the two cases referred to above. I, therefore, hold that although Section 442 of the Companies Act, 1956 has been mentioned in the summons, the Company is not disentitled to an order for stay, as it has made out grounds in the petition for exercise of the inherent powers of this Court to stay the winding up proceedings on the ground that it is an abuse of the process of the Court.
234. I have discussed at some length the rival contentions of the parties as made out in the pleadings filed in this and in the winding up matter. I have also discussed the materials on which the parties relied, viz., the minute books of the Board of Directors, the balance sheets, and profit and loss accounts, the Directors' reports, the Auditors' comments on the balance sheets and the accounts and the Directors' replies thereto. The relevant provisions 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 Amamath 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.
235. Taking into consideration the events thai) have happened and the conduct and activities of the parties I can come to but one conclusion, namely that the petition for winding up was presented by Sarma not with the bona fide object of winding up the company. As a share-holder it is entirely against his interest to wind up the company. It appears from Annexure ‘K’ to the report of the Chairman appointed by me, of the extraordinary general meeting of the company held on August 31, 1963, that he holds eight hundred ordinary shares. The face value of these shares is Rs. 20,000/-. Of this, the amount called and paid up by him is Rs. 16,000/- leaving a balance of Rs. 4,000/- still uncalled. According to him the company is insolvent and if wound up, he will have to pay Rs. 4,000/- as his share of the Uncalled share capital. It is therefore, entirely contrary to his interest to wind up the company. Yet he wants the company to be wound up on charges which are without any substance; and which in any event are not such as would induce this Court to put an end to a prosperous company.
236. I have no doubt in my mind that the winding up petition was presented by Sarma neither for the benefit of the general body of the creditors nor for the benefit of the company as a whole. Sarma was inspired and spurred to action by reason of the settlement between the company and Guha. He derived no small benefit from the Company. Expectation of benefit in future is also bright. A return of 12½% in the shape of dividend, on the capital invested, is by any standard, a sufficient return. The company's business has prospered from year to year, the gross sales have steadily risen and so have the profits earned. There has been considerable expansion in the company's business and there certainly is scope for further expansion. Financial arrangements for loans for expansion have been made. The share holders of the company are fully satisfied with the manner in which the company's business is being carried on. They have expressed their confidence in the management at the extraordinary general meeting directed by this Court. Should this Court, in these circumstances, make an order for winding up of the company on the ground that it is just and equitable to do so on the charges made by Sarma? Should this Court shut its eyes to the conduct of Sarma in presenting the winding up petition after having been a party to all that the Board had done in regard to the company's management and of which he now complains? Should this Court again ignore the opinion of the overwhelming majority of the shareholders in matters of internal management of the company? In my opinion there can be but one answer to these questions. This Court cannot but take into consideration the present prosperous condition of the company and the prospect of further prosperity in future nor can it ignore the fact 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 on 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 matter. They raise the larger question, namely, has the winding up petition been presented bona fide? I think not. think also that if he had the honest motive to put an end to the irregularities of which he now complains, he would have led the Directors, as he had done in the past, to take suitable action in that direction.
237. It has been urged that as a contributory lie has a right to present the winding up petition aud because he has this statutory right, the petition cannot be stayed on the ground that it is an abuse of the process of the Court. No doubt as a contributory Sarma has the right to present the petition. But in the facts of this case should he be allowed to proceed with his winding up petition? In my opinion, he should be stopped from taking any further steps in his winding up petition having regard to the part he has played since 1956 up to the date of the presentation of the winding up petition. To hold that the Court has no power to stay a winding up petition of this description, merely because the contributory has the statutory aright to present the petition would be to deny to this Court the power and the jurisdiction to stop a winding up petition in exercise of the well established principle that the Court has the inherent power to stay and dismiss a winding up petition on the ground that it is an abuse of the process of the Court. If a contributory has the right to present a winding up petition, so has the Court the power to stay such a petition or dismiss it, if the petition appears to the Court to be an abuse of the process of the Court. In my view, this winding up petition is, to put it in the words of Mallins, V.C, a vehicle of oppression. The aid of this Court has been sought to terrorise the company and the other Directors through the medium of the winding up petition. In my opinion, this cannot be allowed. I, therefore, hold and I put it in the words of Sir George Jessel, M.R, that this petition for winding up of the company presented by Amar Nath Sarma is a scandalous abuse of the process of the Court.
238. The winding up petition was admitted by this Court and directions for advertisements were given but the publication of advertisements was stayed until final disposal of this application. In my view, the winding up petition cannot be dismissed having regard to the orders already made, on this application.
239. I, therefore, make an order for stay of all further proceedings on the winding up petition I presented by Amar Nath Sarma including the publication of advertisement.
240. All ad-interim orders made in the winding up petition and in the stay application are vacated. A prayer is made on behalf of Amar Nath Sarma that each party should be made to bear its own costs, an order for costs is made accordingly, viz., each party is to bear and pay its own costs of this application.
DH/D.H.Z
241. Order accordingly.
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