P. Sathasivam, J.@mdashThe petitioner has filed the above company petition u/s 433(f) read with Section 439 of the Indian Companies Act, 1956, to wind up the respondent-company, namely, Surana Textile Mills Pvt. Ltd., Coimbatore.
2. The case of the petitioner as set out in the company petition is briefly stated hereunder :
3. The petitioner was a director in the respondent-company from August 16, 1993. The respondent is a spinning mill. The petitioner holds 2,000 shares in the respondent-company. The respondent is a public limited company. Though she was a director of the respondent, they (respondent) were not sending her any information relating to the working of the company. She was not consulted, hence she sent a letter dated October 5, 2001, to the company for which the respondent sent a reply enclosing the annual report of the company for the year ending March 31, 2001. In the letter dated November 10, 2001, it is strangely stated that the respondent has chosen to retire the petitioner from the directorship of Surana Textile Mills Ltd. Form 32 was filed by the respondent in the year 1996 with the Registrar of Companies. However, the respondent has not informed the same to the petitioner. The respondent has furnished a false information to the Registrar of Companies and, therefore, it is liable for criminal offence u/s 177 of the Indian Penal Code, 1860. u/s 628 of the Companies Act, the respondent is liable to be convicted.
4. It is further stated that the balance-sheet of the respondent for the year 2000-2001 reflects that a sum of Rs. 16,00,484 has been invested as capital in a partnership firm and another sum of Rs. 28,50,000 has been invested in the Hindukush Processing Mills (P.) Ltd. Therefore, there has been serious diversion of nearly forty four lakhs of rupees to other business, when admittedly the business of the respondent itself is doing badly. Since such siphoning off of funds would eat into the very vitals of the respondent-company, the respondent is to be restrained by an order of injunction.
5. The company has failed to pay dividends. Though she has been a shareholder in the respondent-company for several years, she has not received dividend. The company is unable to constructively carry on its business. The annual report admits that there has been a large depreciation in the value. The gross profit of the respondent has come down from 90.50 per cent. to 42.58 per cent. The respondent is liable to be wound up u/s 433 of the Indian Companies Act as just and equitable grounds exist. Though she has filed separate proceedings to ventilate her grievances against the respondent, the present petition is filed as the petitioner has contended and substantiated the fact that there are just and equitable grounds for winding up the company.
6. The respondent filed a counter-statement wherein it is stated that the company is a well established flourishing profit-making company. Its accumulated profits up to March 31, 2001, were Rs. 294 lakhs. The petitioner is a house wife based in Mumbai. Her husband is carrying on business in Mumbai. Although the petitioner was a director of the respondent-company, she was not showing any interest in the affairs of the respondent-company. The petitioner did not even care to attend board meetings of the respondent-company and violated Section 283(1)(g) of the Companies Act. She also failed to attend three consecutive meetings of the board of directors held on November 8, 1995, March 1, 1996, and April 1, 1996, therefore, she is ceased to be a director of the respondent-company. The cessation of the petitioner as a director of the respondent-company was recorded in the minutes of the meeting held on May 31, 1996, and the relevant form No. 32 filed with the Registrar of Companies within the prescribed period. Due to clerical error, it is wrongly informed as "resigned from directorship" instead of "vacated office". There has been no siphoning off of funds or diversion of funds by the respondent-company. The respondent-company invested only Rs. 1,35,000 in the partnership firm during the year 1996-97. Over the course of years, due to the hard work and competence of the other partners, the capital invested by the respondent-company in the firm increased from Rs. 1,35,000 to Rs. 16,00,484. The share of profits from the partnership firm is being used by the respondent for its own operations. The investment of purchase of shares in Hindukush Processing Mills (P.) Ltd. was, therefore, legal and proper. The Companies Act does not make it mandatory for companies to declare dividend. There is thus discretion on the general meeting as well as on the board to recommend/ declare dividends. In the instant case, having regard to the need to conserve resources of the company in the earlier years and the present recessionary trends in the industry the board had decided not to recommend any dividend. None of the other shareholders of the company have expressed any reservations on the course of action. The respondent-company is a flourishing profit-making company. The respondent-company also has a large export turnover and has earned a coveted status as a Government recognised export house also. The respondent-company directly employs about 300 workmen and staff. The petitioner has not only effective alternative remedy available, the petitioner herself has admitted that she has filed separate proceedings to ventilate her grievance against the respondent, hence the present company petition is liable to be dismissed.
7. Heard, Mr. Sriram Panchu, learned senior counsel for the petitioner and Mr. V. Ramakrishnan, learned counsel for the respondent.
8. In view of the stand taken by the respondent in their counter-statement that alternative remedies are available to the petitioner and that she has also filed separate proceedings to ventilate her grievance against the respondent, the question to be decided is whether the present company petition is maintainable ? Depending on the answer to be arrived at on the above question, I shall consider the merits of the claim of both parties. The petitioner was an ex-director of the respondent-company. She filed the company petition for winding up of the respondent-company u/s 433(f) of the Companies Act (hereinafter referred to as "the Act"). In other words, the ground raised for winding up is "it is just and equitable that the company should be wound up". After meeting all the contentions, the respondent in their counter-statement, particularly in the penultimate paragraph it is specifically stated that "in the present case not only are alternate remedies available to the petitioner, the petitioner herself has admitted that she has filed separate proceedings to ventilate her grievance against the respondent." For this assertion the petitioner has not filed reply affidavit/statement disputing the same. On the other hand, the petitioner herself has admitted in para. 6 of the company petition that she had filed separate proceedings to ventilate her grievance against the respondent. By pointing out the above admitted factual position and drawing my attention to Sub-section (2) of Section 443 and 397(2)(b) as well as Section 402 of the Companies Act, Mr. V. Ramakrishnan, learned counsel for the respondent, would contend that the company petition is liable to be dismissed on the ground of availability of alternative remedies. I have already referred to the admitted factual position of the petitioner and filing of separate proceedings before the appropriate authority. Now, I shall consider the provisions referred to above.
"Section 443. (2) Where the petition is presented on the ground that it is just and equitable that the company should be wound up, the court may refuse to make an order of winding up, if it is of opinion that some other remedy is available to the petitioners and that they are acting unreasonably in seeking to have the company wound up instead of pursuing that other remedy.
Section 397. (1) Any members of a company who complain that the affairs of the company are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members (including any one or more of themselves) may apply to the Company Law Board for an order under this section, provided such members have a right so to apply in virtue of Section 399.
(2) If, on any application under Sub-section (1), the Company Law Board is of opinion--
(a) that the company''s affairs are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members ; and
(b) that to wind up the company would unfairly prejudice such member or members, but that otherwise the facts would justify the making for a winding up order on the ground that it was just and equitable that the company should be wound up ; the Company Law Board may, with a view to bringing to an end the matters complained of, make such order as it thinks fit."
9. The matters to be considered by the Company Law Board are provided u/s 402 of the Act. Section 443(2) makes it clear that if any company petition is presented for winding up for a company on the ground of just and equitable, if the court is satisfied that some other remedy is available to the petitioners and their action seems to be unreasonable to pursue the company petition for winding up, instead of other remedy, the court may refuse to make an order of winding up. In this regard, it is relevant to note that by virtue of the Companies (Amendment) Act, 1988, which came into effect from May 31, 1991, aggrieved persons have to approach the Company Law Board for relief in case of oppression, mismanagement, etc. I have already referred to the fact that the powers of the Company Law Board on application u/s 397 or 398 are provided u/s 402 and the matters to be considered. The statutory provisions referred to above make it clear that if the petition is presented based on just and equitable ground, it is but proper to direct the party/parties to avail of the statutory provisions, namely, Sections 397 and 398 of the Act and refused to consider the said grievance in the winding up petition. Though Mr. Sriram Panchu, learned senior counsel for the petitioner, by relying on a decision in
10. It is also relevant to note the decision of various High Courts and Supreme Court on this aspect. In Hind Overseas Pvt. Ltd. v. Raghunath Prasad Jhunjhunwalla [1976] 46 Comp Cas 91, the following conclusion of their Lordships is relevant (at page 105 and 106) :
"The question that is raised in this appeal is as to what is the scope of Section 433(f) of the Act. Section 433 provides for the circumstances in which a company may be wound up by the court. There are six recipes in this section and we are concerned with the sixth, namely, that a company may be wound up by the court if the court is of the opinion that it is just and equitable that the company should be wound up. Section 222(f) of the English Companies Act, 1948, is in terms identical with the Indian counterpart, Section 433(f). It is now well-established that the sixth clause, namely, ''just and equitable'', is not to be read as being ejusdem generis with the preceding five clauses. While the five earlier clauses prescribe definite conditions to be fulfilled for the one or the other to be attracted in a given case, the just and equitable clause leaves the entire matter to the wide and wise judicial discretion of the court. The only limitations are the force and content of the words themselves, ''just and equitable''. Since, however, the matter cannot be left so uncertain and indefinite, the courts in England for long have developed a rule derived from the history and extent of the equity jurisdiction itself and also born out of recognition of equitable considerations generally. This is particularly so as Section 35(6) of the English Partnership Act, 1890, also contains, inter alia, an analogous provision for the dissolution of partnership by the court. Section 44(g) of the Indian Partnership Act also contains the words ''just and equitable''.
Section 433(f) under which this application has been made has to be read with Section 443(2) of the Act. Under the latter provision where the petition is presented on the ground that it is just and equitable that the company should be wound up the court may refuse to make an order of winding up if it is of opinion that some other remedy is available to the petitioners and that they are acting unreasonably in seeking to have the company wound up instead of pursuing that other remedy.
Again, under Sections 397 and 398 of the Act there are preventive provisions in the Act as a safeguard against oppression in management. These provisions also indicate that relief u/s 433(f) based on the just and equitable clause is in the nature of a last resort when other remedies are not efficacious enough to protect the general interests of the company."
11. In Daulat Makanmal Luthria v. Solitaire Hotels Pvt. Ltd. [1993] 76 Comp Cas 215, a Division Bench of the Bombay High Court has held that (page 239) :
"The scheme of the Companies Act particularly after its amendment in 1956, would make one thing clear : A winding up has to be resorted to only when other means of healing an ailing company are of absolutely no avail. Remedies are provided by the statute, in very many matters concerning the management and running of a company. A special forum itself has been created, and with an expertise and daily experience in relation to the problems in the working of the companies--the Company Law Board. It now adjudicates many such disputes which come before it as provided under the law. The Registrar of Companies has got an overseeing authority in relation to enumerated matters. These safeguards are visualised for the protection of the individual shareholder, who in the scheme of things, may not be in a position to have a close view of the working of the company and many of its deals. The important right of the majority of the shareholders to replace a group mismanaging its affairs or lacking in probity is always there. Experience has, however, shown that the majority could be manipulated by those with ideas in mind and money to back. Sections 397 and 398 confer valuable rights even on the minority to seek the aid of a vigilant court in redressing their grievances. If pursued properly and effectively, many of the misdeeds of an erring or dishonest management could be checkmated and/ or remedied by resort to such proceedings. This scheme of the Companies Act lies at the bottom of evaluation of the principles which insist on keeping at bay a winding up process, except in very compelling circumstances. . . ."
12. In K. Mohan Babu v. Heritage Foods India ltd. (No. 2) [2002] 108 Comp Cas 793 (AP), it was concluded thus (page 808) :
"As seen from the above, the court''s jurisdiction to wind up on the ''just and equitable'' ground is long standing, dating back to the 19th century and that where a petition is successful, it follows that the court orders rather drastic remedy of a winding up. That is the reason as to why Sections 397 and 398 have been enacted in the Act analogous to Section 210 of the English Companies Act, 1948, providing a genuine and more attractive alternative to a winding up petition and to set right the affairs of the company . . ."
13. In Smt. K. Kempamma v. Peeceeyes Industries P. Ltd. [1983] 54 Comp Cas 368, the Karnataka High Court has held that where a director is expelled from the board on the sole ground that the director had absented himself/herself from three consecutive board meetings in spite of the provisions to the contrary contained in the articles of association and the company also appeared to have filed a return to the Registrar of Companies stating that she had ceased to be a director, the power exercised by the board is not on account of any abuse of the power, but by the operation of law as provided in the Companies Act, 1956, and though the company might have stopped its business and may not be in a sound financial position, the petitioner/exdirector as an ordinary shareholder not representing 10 per cent. of the total subscriber share capital, though a founder director, cannot seek a winding up order u/s 433(1)(j), as the alleged removal cannot be said to be a just and equitable ground to wind up the company.
14. In the light of Sections 443(2), 397, 398 and 402 of the Act and also in view of the judicial decisions, it is clear that when genuine and attractive alternative remedy is available, winding up petition based on just and equitable ground cannot be sustained by the company court. The scheme of the Companies Act, particularly after its amendment in 1956 and subsequent amendment in 1988 with effect from May 31, 1991, the proper remedy for the person like the petitioner would be to approach the Company Law Board by availing of Sections 397 and 398 of the Act which confers valuable rights on the parties in redressing their grievances. I am of the view that Sections 397 and 398 of the Act are preventive provisions in the Act as a safeguard against oppression and mismanagement and the relief based on just and equitable clause under Clause (f) of Section 433 is in the nature of last resort when other remedies are not efficacious effect to protect the general interest of the company. In the light of the above conclusion, though both the petitioner and the respondent placed several materials in support of their respective case, I am of the view that it is unnecessary to consider the same ; hence I refrain from dealing those contentions.
15. In the light of what is stated above, I am satisfied that the petitioner has effective alternative remedies available and of her own admission that she has filed a separate proceedings to ventilate her grievance against the respondent, the winding up petition is liable to be dismissed u/s 443(2) of the Act ; accordingly dismissed. No costs. Consequently, Company Application No. 392 of 2002 is also dismissed.
