Khanwilkar A.M., J.@mdashBy this petition it is prayed that the respondent company be ordered to be wound up under the direction and supervision of this Court under the provisions of Companies Act, 1956 and to appoint Official Liquidator to take charge of all the assets and affairs of the company and to conduct its affairs in due course of winding up and distribute its assets in accordance with law. The title of the petition indicates that the above said relief is claimed in terms of Sections 433(b), 433(f) and 433(g) of the Companies Act, 1956 (hereinafter referred to as "the Said Act" for the sake of brevity").
2. Having perused the pleadings and documents on record and considering the rival submissions, I shall straight way proceed to deal with the preliminary objection raised on behalf of the respondent company.
3. According to the respondent company, the present petition is filed with mala fide intention or motive. To make good its contention, the respondent is relying on certain circumstances spelt out in paragraph 4.1 of the reply Affidavit. In paragraph 4.1 (i) of the reply Affidavit it is stated that the petitioners have ostensibly filed the said winding-up company petition with a mala fide intention and with an oblique motive so as to achieve the collateral purpose of procuring maximum returns on shares held by the petitioners and their family members in the respondent company. It is stated that the petitioners are part of Arora Family whose shareholding in the respondent company is indicated in paragraph 4. l(ii) of the reply Affidavit. It appears that the petitioner No. 1 holds 600 shares (0.034%), petitioner No. 2 (mother of petitioner No. 1) holds 600 shares (0.034%), Rikhiram Arora (deceased father of the petitioner No. 1) held 50 shares (0.003%), R.T. Arora (HUF-of which petitioner No. 1 is the Karta) holds 50 shares (0.003%) and Amrish Arora (brother of the petitioner No. 1) holds 61,150 shares (3.470%). Here, it is relevant to note that the authorised share capital of the respondent company is Rs. 1.50 crores divided into 12.50 lakh equity shares of Rs. 10/- each. The remaining shares to the extent of 94% are held by two groups namely B.N. Khanna Group and M.P. Khanna Group. According to the respondent, pursuant to the delisting of the respondent company from the Bombay Stock Exchange in July 2004, barring petitioner No. 1 in his personal capacity, the Arora family comprising of the petitioner No. 1 in his capacity as Karta of the R.T. Arora (HUF), the petitioner No. 2 herein, Mr. Amrish Arora (the brother of the petitioner No. 1) and Mr. Rikhiram Arora (the deceased father of petitioner No. 1) have instituted arbitration proceedings against the respondent company and one of the promoter groups, namely, B.N. Khanna Group of the respondent company, requiring them to purchase the Arora family shareholding excluding 600 shares of the petitioner No. 1 at a fair market value to be determined by the arbitral Tribunal. In the said proceedings the Arora family has contended that the most appropriate method for valuation of the Arora family minority shareholding in the respondent company would be the "Net Asset Value method".
4. It is then contended by the respondent that the Net Asset Value method is primarily applicable only where a company is on the anvil of winding-up and not where a company is solvent and a going concern as is the case with the respondent company. It is asserted by the respondent that in order to facilitate and enable the Arora family to obtain higher valuation based on Net Asset Value method, the Arora family, primarily Mr. Amrish Arora - the brother of the petitioner No. 1 and holder of 98% of the Arora family shareholding, has put up the petitioners to file the present winding-up petition so as to justify valuation of the shares based on the Net Asset Value method which can be primarily applied only where a company is on the anvil of being wound-up. In substance, it is the case of the respondent that present petition is engineered by said Amrish Arora whose holding is to the extent of 98% of the Arora family shareholding of the respondent company and is one of the claimants before the Arbitral Tribunal.
5. The respondent has also asserted that it is Amrish Arora who has been actively in-charge of the present petition, as he was found present in the office of the Solicitors of the respondent company though he had no concern with the present company petition, even for the purpose of taking inspection of the documents to be relied upon by the respondent company in the reply Affidavit to be filed before this Court. It is the case of the respondent that the present winding-up petition is used as a means to pressurize the promoter groups of the company by said Amrish Arora ostensibly in the name of petitioners as a guise to extract information and documents from the respondent company and its promoters so as to misuse the same before the arbitral tribunal. The respondent has also asserted that the intent of the petitioners and the Arora family is to exit the respondent company at the highest possible valuation for the Arora family shareholding at the behest of said Amrish Arora who was seen present in Court instructing the Advocate for the petitioners even at the hearing of this petition, though he had no concern with the present petition. Whereas, the petitioners were not in the forefront but are being used as shield by said Amrish Arora with ulterior design. Moreover, it is common ground that Arora Family holds only minority stake of 3.543% shareholding in the respondent company for which reason it will be inappropriate to entertain the winding-up action at their instance which will result in causing prejudice to the other stake holders in the respondent company, especially when the respondent company is a profit making and an on-going concern.
6. The respondent has also asserted that petitioner No. 1 has resorted to two parallel proceedings against the respondent company and the promoters of the respondent company, in order to coerce and pressurize the promoters of the respondent company to purchase the Arora family shareholding at a valuation much higher than the fair market value, that could be procured by a minority shareholder of a going concern. The respondent also asserts that as the petitioners have alternate remedy to pursue their grievances, the question of considering their request of winding-up of the respondent company does not arise. The Counsel for the respondent more or less reiterated this stand taken in the reply Affidavit and in addition relied on the exposition of the Apex Court in case of
7. Indeed, the petitioners have contested the above contention of the respondent and would submit that the fact that the arbitral proceedings filed for and on behalf of Arora family before the arbitral Tribunal cannot preclude the petitioners from pursuing present remedy. However, on considering the totality of the situation, I am inclined to take a view that there is force in the stand taken on behalf of the respondent company that the Court should be slow in entertaining this petition muchless admitting the same in the fact situation of the present case. The stand taken by the respondent company that the present petition has been engineered by Amrish Arora who holds about 98% of the shareholding of Arora family in respondent company seems to be probable. The purpose for filing such petition is obviously to facilitate and enable the Arora family to obtain a higher valuation based on "Net Asset Value method" which mechanism could be adopted only in respect of a company which is on the anvil of winding-up and not where the company is solvent and on-going company such as the present respondent. In this view of the matter, no further enquiry would be necessary.
8. At any rate, as the petitioner No. 2 is party to the arbitral proceedings pending against B.N. Khanna Group requiring the said B.N. Khanna group to purchase the Arora family shareholding excluding 600 shares of petitioner No. 1 at the higher market value, presupposes that the petitioner No. 2 has elected to exit from the respondent company. Even the petitioner No. 1 has elected to exit from the respondent company by pressing such relief in his capacity as Karta of the R.T. Arora (HUF). Having elected to pursue such remedy, the petitioners cannot be heard to pursue remedy of winding-up against the respondent company at the same time. Accepting the plea of the petitioners would be permitting the petitioners to approbate and reprobate which cannot be countenanced.
9. Nevertheless, I shall proceed to consider the grounds for winding-up pressed into service on behalf of the petitioners on its own merits. The first ground is with reference to provisions of Section 433(b) of the Act which stipulates that a company may be wound up by Tribunal if default is made in delivering the statutory report to the Registrar or in holding the statutory meeting. Insofar as this ground is concerned, I find substance in the stand taken on behalf of the respondent that the said provision has no application to the case on hand. This is so because the respondent company has been incorporated as a Private Company, whereas the requirement of delivering the statutory report to the Registrar or in holding the statutory meeting is to be observed by the companies other than private company in view of the express provision in Section 165 of the Act. The requirement of statutory meeting and statutory report of company is necessary only in respect of companies covered by provisions of Section 165 of the Act. Section 165(10) of the Act makes it amply clear that the said requirement would not apply to a private company. Thus understood, the ground pressed into service u/s 433(b) of the Act is unavailable to the fact situation of the present case. Accordingly, I have no hesitation in taking view that the petitioners have not made out a case for winding-up of company u/s 433(b).
10. That takes me to the next ground pressed into service on behalf of the petitioners in terms of Section 433(f) of the Act, which provides that the company may be wound up by the Tribunal, if the Tribunal is of the opinion that it is just and equitable that the company should be wound up. Even on fair reading of the averments in the company petition as a whole, 1 am of the view that the petitioners have not made out ground to pass an order of winding-up against the respondent company on this count. Reverting to the averments in the company petition, the petitioners at the outset have disclosed the authorised share capital of the respondent company and have stated that the petitioners hold 650 shares out of 12.50 lakh equity shares of Rs. 10/- each. The petitioners have then stated the main objects of the company as per its Memorandum and Articles of Association. The petitioners have then given background of the dispute between the two groups namely B.N. Khanna family and M.P. Khanna family, which necessitated a reference to be made to Sole Arbitrator as per agreement dated 14th November, 1994 and the fact that a decree was subsequently passed in terms of the said Award by the Delhi High Court on 13th November, 1995 in Suit No. 1843 of 1995.
11. In paragraph 5 of the petition reference is made to the arrangement under the said award arrived at between the families of four brothers namely B.N. Khanna, M.P. Khanna, T.N. Khanna and S.K. Khanna. Emphasis has been placed on the arrangement provided in the said award that the principles of quasi partnership between B.N. Khanna Family group and M.P. Khanna Family group shall be followed in the management of the said company irrespective of whether the said B.N. Khanna Family group is able to acquire the shareholding of R.T. Arora group or other shareholders falling outside the two family groups and irrespective of the fact that by any means at any time any group acquires or holds more shares than the other group, the equality of the two groups in the management shall be maintained at all times.
12. In paragraph 6 of the petition the petitioners have asserted that no Annual General Body Meeting or annual report for the year 2000-2001 onwards has been received by the petitioners. It is also noted that the deceased father of the first petitioner had made representation to the Registrar of Companies for that reason. It is then stated in paragraphs 7 to 10 about the petitioner''s father making representation to the Stock Exchange, Mumbai, Registrar of Companies, Regional Director-Company Affairs about the default committed by the company and to take appropriate action. In paragraphs 11 and 12 of the petition it is asserted that the first petitioner''s father took up the matter with the Bombay Stock Exchange to ascertain the background in which de-listing of the respondent company was done; in response to which he was informed by the Bombay Stock Exchange that the company has been de-listed due to non compliance of various provisions of the Listing Agreement and Public Notice has been issued in that regard on 2nd July, 2004 in Indian Express.
13. In paragraph 13 of the petition it is stated that the petitioners as well as other family members eventually filed Writ Petition before this Court being Writ Petition No. 2415 of 2005 for directing the Stock Exchange, Bombay and Securities and Exchange Board of India (SEB1) to have the fair value of the shares of the shareholder company determined and for other reliefs. The said writ petition came to be disposed off on the basis of Minutes of Order dated 23rd February, 2006. The petitioners have then stated that the petitioners took inspection of the records of the company with the Registrar of Companies, Mumbai and found that the annual returns of the respondent company has not been filed from 30th November, 2001.
14. In paragraph 14 a reference is made to the initiation of proceedings before the Arbitral Tribunal in terms of order of the Bombay High Court dated 23rd February, 2006. In that, the petitioners and their family members filed claim before the Arbitral Tribunal to determine fair value of a share of the said Company, which proceedings were still pending. From the above, it is noticed that up to paragraph No. 14 there is no indication as to how and why an action of winding-up against the respondent company can be justified u/s 433(f) of the Act. Some indication is found from averments in paragraph 15 onwards.
15. In paragraph 15, it is stated that even though the company was a listed public limited company and its equity shares were traded at the Stock Exchange, Mumbai, the persons in-charge, control and management of the respondent company were and are running and managing the said company as their personal business and properties and siphoning off the profits and assets of the said company for their personal gains. This assertion is too general and vague. No specific details or material facts are spelt out to substantiate this plea.
16. In paragraph 16 the petitioners have stated that even though no Annual General Board Meeting was held nor any annual reports, as required under the provisions of the Act, have been filed by the respondent company with the Registrar of Companies, Mumbai, the company has filed returns along with Balance Sheet and Profit & Loss Account with the Income Tax Department. It is then stated that in the written statement filed before the Arbitral Tribunal it is admitted that due to the dispute and differences between two promoter groups of the respondent company namely B.N. Khanna family group and M.P. Khanna family group, there is virtual deadlock in the management of the said company. That no board meetings or annual general body meetings or extraordinary annual general body meeting have been held by the said company for the past six years. That the company has failed to file annual reports, balance sheet and Profit & Loss Account for the last six years and the company has been de-listed from Bombay Stock Exchange since April, 2004. It is further stated that the B.N. Khanna family group and M.P. Khanna family group in collusion with each other are siphoning off the funds and assets of the said company. It is stated that the company is showing liability amounting to an extent of Rs. 5.00 crores. That B.N. Khanna family group and M.P. Khanna family group have also given themselves unsecured loans by way of ICD and/or to the companies controlled by them. Once again the assertion regarding siphoning of funds and assets of the respondent company is too vague and general. Even the assertion regarding B.N. Khanna family group and M.P. Khanna family group have given themselves unsecured loans by way of ICD or to the companies controlled by them, is too vague and general. No material facts to substantiate that assertion is spelt out in the petition.
17. In paragraph 17 of the petition it is asserted that the said B.N. Khanna family group and M.P. Khanna family group are also taking undue advantage from the respondent company by way of perks, salaries etc. The personal foreign tours as well as domestic tours of the said groups are borne by the said company. They have withdrawn foreign currency for personal trips in the name of company. That the company has purchased two new brand Mercedes Cars which are used by Rajesh Khanna and Dinesh Khanna, Directors of the respondent company, for their personal use. Once again, the averments in this paragraph are too vague and general.
18. In paragraph 18 the petitioners assert that the said Rajesh Khanna and Dinesh Khanna are running and managing competitive banquet hall ("The Club") managed by the company known as Khanna Hotels Pvt. Ltd. The said banquet hall (The Club) is located close by to the said Eastern International Hotel (Hotel Holiday Inn) of the said company. The said Rajesh Khanna and Dinesh Khanna are diverting the business of holding functions/parties at the banquet hall of said Hotel of the said company to their Banquet Hall. There is a huge demand for banquet in Five Star Hotel for holding parties/functions/conferences, which is a major source of business. The banquet hall of the respondent is purposely not repaired/ renovated and the banquet hall of Eastern International Hotel (Hotel Holiday Inn) and have been kept closed for making illegal gains. The petitioners have craved leave to refer to and rely upon the particulars displayed by the Club on their web-site in this behalf.
19. In paragraph 19 the petitioners assert that due to illegal diversion of profits among the said two groups dispute or differences have arisen between the said two groups. That circulars have been issued to all the guest staying at Hotel Holiday Inn, Mumbai by one group informing them that Dinesh Khanna is neither an Executive Director nor a Director of the said Hotel and is mis-representing himself as one.
20. In paragraph 20 it is asserted that the petitioners have learnt that funds of the respondent company are siphoned off by the said two groups into a separate company known as Eastern Hospitality SVS Pvt. Ltd.. That the said groups are inflating the purchase and sale proceeds are not deposited in the banks and all cash receipts are divided among themselves. In paragraph 21 it is asserted that two groups are falsely representing that the gross operating profit margin of the respondent company is 5% when over all operating profit margin of companies in similar business is about 45%. The employee costs of Hotel Holiday Inn is falsely represented as 31% and for Majorda Beach Resort, Goa at 23.55% against the average employee costs of about 10%.
21. In paragraph 22 it is asserted that although the Majorda Beach Resort has about 120 rooms along with all other facilities, has a meager profit of only Rs. 2.00 crores. Similarly, the said groups are falsely representing that the Hotel Holiday Inn at Mumbai having 200 rooms which is one of the well known Five Star Hotel in the city of Mumbai, has a meager profit of only Rs. 25.00 lakhs. According to the petitioners, even by conservative standards the profit of the said hotel should not be less than Rs. 80.00 crores.
22. As far as paragraph 23 of the petitioner is concerned, here I may hasten to find that the averments in the petition are not only vague and general but spell out only apprehension of the petitioners without any foundation being laid to substantiate the same. Be that as it may, in paragraph 23, it is stated that two groups are in control and management of the respondent company and are planning to hand over management of running the Eastern international Hotels (formerly known as "Hotel Holiday Inn") to Accor/Novotel Group of Hotels. It is stated that the petitioners are not aware of the exact arrangement and/or agreement arrived at by the respondent company with the said Accor/Novotel Group of Hotels. It is asserted that the said groups are going to siphon away huge amount belonging to the respondent company and the hotel at Juhu which is one of the major assets having huge income, which will be transferred and/or handed over to other party.
23. In paragraph 24 of the petition it is asserted that other share-holders of the company are kept in dark about the affairs of the company by the said groups. That the said groups are running the said hotel as personal business. That no Company Secretary has been appointed by the company. It is further stated that admittedly no board of Annual General Meeting has been held since last more than six years nor copies of Annual Returns filed with the Registrar of Companies, Mumbai. That the accounts of the company are forged and manipulated to suit convenience of the said groups. It is stated that the affairs of the company are handled in callous, irresponsible and vindictive manner. The averments to make out ground u/s 433(f), at best, can be found from the petition only up to paragraph 24 which is already adverted to in the earlier part of this order.
24. The respondent company has filed detailed reply Affidavit dealing with each of the allegations contained in the petition. The respondent has denied the allegations with reference to ground under consideration of mismanagement or otherwise of the affairs of the company. The respondent asserts that the company is a going concern and is conducting its business on profitable basis which position is reinforced from the books of accounts. In substance, the stand of the respondent is that the allegations contained in the petition are too vague and general and in any case cannot be the basis to order winding-up of the respondent company. The respondent has placed reliance on the decision of the Apex Court in the case of
25. Having regard to the materials on record and the rival submissions made across the bar, I shall first deal with the legal position as to in what situation the order of winding-up of a company on the ground of just and equitable within the meaning of Section 433(f) of the Act may be passed by the Company Court. It will be useful to straight way refer to the judgement of the Apex Court in the case of Hind Overseas Pvt. Ltd. (supra). The observations of the Apex Court in the said decision in particular in paragraph 32 would be apposite to the fact situation of the present case. The Apex Court has expounded that when more than one family or several friends and relations together form a company and there is no right as such agreed upon for active participation of members who are sought to be excluded from management, the principles of dissolution of partnership cannot be liberally invoked. Even in the present case, even if the case made out by the petitioners is taken as it is that the affairs of the company were managed between the Khanna groups on the understanding that it was a quasi-partnership firm, the fact remains that it is not the case of the petitioners that the petitioner No. 1''s father or any of the petitioners were allowed to actively participate along with the representative Directors of two groups of Khannas, who held substantial shares of the respondent company to the extent of 94%. In other words, the petitioners cannot be heard to complain that the father of petitioner No. 1 was kept away from the management so as to invoke the principles of dissolution of partnership firm.
26. In the said decision, in paragraph 32, the Apex Court has further expounded that it is only when shareholding is more or less equal and there is a case of complete deadlock in the company on account of lack of probity in the management of the company and there is no hope or possibility of smooth and efficient continuance of the company as a commercial concern, there may arise a case for winding-up on the just and equitable ground. Once again the case made out by the petitioners even if accepted as it is, does not justify the order of winding-up of the respondent company as the petitioners are holding minuscule shares and not more or less equal in number along with the group of Khannas who hold almost 94% of the shares of the respondent company. It is inconceivable as to how the petitioners who are holding minuscule shares, can be heard to complain that there is complete deadlock when the two groups of Khannas have no grievance in that regard with the manner in which the business activities of the respondent company are being conducted. Indeed, respondent company fairly accepts that no meeting either general body meeting or board meeting has been conducted on account of some difference of opinion between the two Khanna groups, but at the same time the respondent company has asserted on affidavit that both the Khanna Groups are interested in the future productivity and expansion of the business of the respondent company (see paragraph 46 of the reply affidavit). Moreover, there is nothing on record that either of the Khanna Groups has questioned the manner of conducting the business of respondent company. Suffice it to observe that it is not a case of complete deadlock in the company muchless deadlock on account of lack of probity between two groups of Khanna who are more or less holding equal shares in the respondent company. Similarly, there is nothing on record to indicate that there is no hope or possibility of smooth and efficient continuance of the respondent company as a commercial concern.
27. On the other hand, there is ample evidence on record to suggest that the respondent company is not only a going concern, but a profit making concern. The fact that it is a profit making concern is reinforced from the audited extract of books of accounts produced by the respondent along with reply Affidavit at Exhibits-F and G which goes to show that the respondent company is consistently making good business and also earning reasonable profit. The fact that there has been variation in the turn-over or the profit in the past, does not mean that there is no hope or possibility of smooth and efficient continuance of the respondent company as commercial concern. On this finding the question of accepting the ground u/s 433(f) so as to pass an order of winding-up against respondent company docs not arise at all. The respondent has rightly pressed into service the exposition of Apex Court in paragraph 33 of the Hind Overseas Pvt. Ltd. decision (supra) where the Apex Court has observed that the principle of just and equitable clause baffles a precise definition. It must rest with the judicial discretion of the Court depending upon the facts and circumstances of each case. These are necessarily equitable considerations and may, in given case, be superimposed on law.
28. In paragraph 34 of the same decision the Apex Court has opined that in an application of the present kind, the allegations in the petition are of primary importance. As aforesaid, having gone through the allegations in the petition, no case for passing an order u/s 433(f) of the Act against the respondent company has been made out. In any case, the allegations have been stoutly refuted by the respondents and the stand of the respondent is reinforced from the materials placed on record. The Apex Court in the same decision in paragraph 34 went on to further observe that the interest of the applicant alone is not predominant consideration. In the petition of the present nature, the interests of shareholders of the company "as a whole apart from those of other interests" have to be kept in mind at the time of consideration whether the application should be admitted on the allegations mentioned in the petition. In the present case, the respondent has stated on affidavit that the respondent company employs/uses the contract labour approximately 700 in number for the management of its Hotel. In other words, the respondent company provides employment to all these 700 employees and welfare for the families of such employees, but. also results in indirect employment of a large number of suppliers, contractors etc. connected with the running of the hotels, such as, day to day functioning of a hotel would require various goods and services, such as fresh vegetables, meats, fish, furniture, upholstery, repair work, civil works, electrical, carpentry, other supplies, transporters, private taxis, bus operators and such other goods and services. The respondent has rightly asserted that it will not be in the public interest to accede to the request of the petitioners to pass an order of winding-up against the respondent company on the basis of vague and general allegations in the petition, especially in the light of the fact that the respondent company is a going concern and interest of majority of the shareholders and other stakeholders would be prejudicially affected.
29. In paragraph 35 of the said decision the Apex Court has restated the legal position that the plea of just and equitable is not to be read as being ejusdem generis with the proceeding five clauses while dealing with the purport of Section 433(f) of the Act R/W Section 433(2) of the Act. In paragraph 36, the Apex Court went on to observe that the Court may refuse to make an order of winding-up if it is of the 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. This observation applies on all fours to the case on hand. The grievance regarding mismanagement and oppression can be legitimately considered in appropriate proceedings if the petitioners were to take recourse to the same. It is well established position that the order of winding-up be passed as a last resort. Besides, as observed in the earlier part of the order the petitioners having instituted present petition with mala fide intention and are unreasonably seeking to have the company wound-up to sub-serve their ulterior motives and of their family members, in particular Amrish Arora at whose instance the petition has been instituted, the question of ordering winding-up of the respondent company by invoking ground u/s 433(f) of the Act does not arise at all.
30. As observed in paragraph 37 of the same judgement of the Apex Court, it will have to be noted that there are preventive provisions in the Act, such as Sections 397 and 398 of the Act, as a safeguard against the oppression in management and the grievance of the petitioners in the present petition can be conveniently addressed by way of proceedings under Sections 397 and 393 of the Act. In the present case, it is not possible to take the view, as is the requirement of law stated in paragraph 37 of the said decision of the Apex Court, that the other remedies available to the petitioners are not efficacious enough to protect the general interests of the company. It will be also useful to advert to the exposition in paragraph 42 of the same judgement. The Apex Court has taken the view that there must be materials to show when ''just and equitable'' clause is invoked, that it is just and equitable not only to the persons applying for winding-up but also to the Company and to all its shareholders. The Company Court will have to keep in mind the position of law as a whole and the interests of shareholders and see that they do not suffer in a fight for power that ensues between two groups. Even these observations apply on all fours to the case on hand. In the present case, as is found earlier, the whole effort of the petitioners is to facilitate higher valuation of the shares held by them so that they can insist for valuation of their shares by applying principle of "Net Asset Value Method", which may be invoked only where a company is on the anvil of winding-up and not in respect of a solvent and a profit making and going concern, just as that of the respondent company.
31. To get over this position the Counsel for the petitioners vehemently argued that the respondent company was a public company for which reason it ought to have published the audited accounts and conducted annual general meeting and other meetings required as per the law from time to time. According to the petitioners, the reason for not doing so was obviously to keep the petitioners uninformed about the activities of the management of the respondent company and more so for siphoning of the profits and assets of the respondent company for the benefit of the majority shareholders (Khannas). Besides, the Counsel for the petitioners was at pains to argue that the fact that the petitioner No. 2 is a party to the arbitral tribunal proceedings, cannot be the basis to non-suit the petitioners. According to him, the arbitral proceedings between two Khanna Groups are still inconclusive though commenced in the year 1994. Besides, the arbitral proceedings initiated on the basis of Minutes of Order dated 23rd February, 2006 cannot deprive the petitioners to pursue their remedy by way of present petition.
32. In support of this submission he placed reliance on the extract in Ramaiya''s seventh edition at page 3689 in relation to oppression of minority. The learned Counsel also placed reliance on the decision of the Apex Court in the case of
...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.
33. The learned Counsel for the petitioners had then placed reliance on the decision of Madras High Court in case of (Veeramachineni Seethiah v. Bode Venkatasubbiah and Ors.) reported in A.I.R 1949 Mad 675. Emphasis was placed on exposition in paragraph 11 of the said decision. Indeed, reference is made to the dictum in earlier reported decisions. However, what is relevant to note is that even the Madras High Court went on to observe that there was wide divergence in the circumstances in the reported case and those in the case before it. In the reported case the two Directors would not even speak to each other and they constituted the entire Board of Directors. Even in the present case, there is nothing on record to suggest that the Directors were not willing to efficiently conduct the business of the respondent company. Whereas, from the materials placed before the Court it is obvious that the respondent company is a going concern and a profit making company. Although there is dispute between the two groups of majority shareholders (Khannas) (majority shareholders to the extent of 94%), they are working on some arrangement and those two groups (Khannas) have not come before this Court to support the case of the petitioners (who hold minuscule numbers of shares of the respondent-company). On the other hand, the respondent-company on Affidavit has asserted that the two groups have future productivity plans for the respondent company and desire to expand business of the respondent company. For that reason the respondent company is negotiating with third party which is a well-known hotel management service provider, to provide Hotel Management services.
34. What is relevant to notice is that in the same judgement, in paragraph 12, the Madras High Court proceeded to conclude that two things are clear, and they are that even during this period, despite the actions of a minority, the company has been earning profits and that it has accumulated something like a goodwill. Those observations apply with full force to the case on hand. Besides, I find substance in the stand taken on behalf of the respondent that the question of invoking remedy u/s 433(f) on the ground of just and equitable would have been relevant only if the petitioners were able to substantiate that the substratum of the respondent company had disappeared.
35. One of the contentions raised on behalf of the petitioners to invoke the ground u/s 433(f) is that the respondent company is in the process of transferring its business and assets. This allegation has been refuted by the respondent company. The respondent company has asserted that it is not a proposal of transfer of assets or business but it is to avail professional expertise in the Management of the Hotels from the internationally recognized brands so that the new identity is provided to the hotel business of the respondent company. The respondent has clearly stated on oath that there is no way of transfer of any assets or business to the third party but it is only availing of services for which the said party will be paid amount towards service charges. That does not result in loss of substratum of the respondent company in any manner. Significantly, the said Amrish Arora in the arbitral proceedings has asserted that the respondent company will make huge profit with the expert management of the well-known international brand whose services were to be availed by the respondent company for upgrading the hotel business. Besides, it will be useful to advert to the dictum of the Apex Court in the case of
36. One of the grievances made on behalf of the petitioners is that no Company Secretary has been employed by the respondent company. The respondent has countered even this submission on the argument that the respondent company has paid up share capital of Rs. 1.76 crores only, whereas, the statutory requirement of employing Company Secretary as provided by Section 389(A) of the Act applies to company having paid-up share capital in excess of Rs. 2.00 crores. In other words, there is no ground for mismanagement in respondent company on this account.
37. The other plea taken in the petition is one of acquisition of cars and spending of substantial currency on foreign tours and other expenses unrelated to the cause of the respondent company by the present Directors of the respondent company. Even this allegation has been countered by the respondent on affidavit. In the first place, the allegation is too vague and general. In any case, having regard to the nature of business of respondent company, if decision is taken to acquire Mercedes Cars and if the Directors were provided with the said vehicles, that cannot be the basis to direct winding-up of the respondent company. The petitioners may be free to pursue such other remedy for such act of commission and omission of the Directors of the respondent company, but surely it is not a case for ordering winding-up of the respondent company on the ground provided u/s 433(f) of the Act. In my opinion, having regard to the allegations in the petition in particular from paragraphs 15 to 24 and the reply Affidavit, no ground has been made out by the petitioners for passing an order of winding-up against the respondent company u/s 433(f) of the Act.
38. That takes me to the last ground pressed into service in terms of Section 433(g) of the Act. in the petition it is very clearly asserted that the company has made default in filing with the Registrar its balance sheet and profit and loss account or annual returns for any five consecutive financial years. The respondent company has not been able to deny that factual position. Indeed, the respondent relies on the fact that even the petitioners admit that the respondent company is maintaining books of accounts and the accounts are yearly audited as well as the fact that the returns have been filed by the respondent company to the Income Tax Department from time to time and the assessment order has also been passed in respect of respondent company. That, however, does not absolve the respondent company from complying with the statutory requirement of filing with the Registrar its balance sheet and profit & loss account or annual return in every financial year. In my opinion, the explanation offered by the respondent for non compliance of that requirement is unacceptable. At the same time, it is not as if the respondent company cannot be offered an opportunity to comply with the statutory requirement. The petitioners, however, contend that as a criminal complaint has already been instituted by the Assistant Registrar against the Directors of respondent company, the question of now permitting the respondent to comply with the statutory requirement does not arise. It is not possible to countenance this submission. Inasmuch as, no provision of law is brought to my notice that once the default of that kind is committed, such default is incurable for all times to come. Indeed, whether the company can be excused on account of rectification and correction of the mistake is an issue which will have to be addressed in appropriate proceedings. Nevertheless, the respondent will have to be provided with one opportunity to rectify the defect relating to non filing of balance sheet and profit & loss account or annual return with the Registrar. It is not necessary to go into the details about the reason for the inability of the respondent company to comply with the said requirement which has been offered by respondent on affidavit. The fact remains that the respondent company has failed to comply with the requirement and that can be a ground for proceeding against the respondent company. However, as aforesaid, the respondent deserves to be provided with one opportunity instead of straight way admitting the company petition, which will have serious consequences not only on the respondent company but other stake holders.
39. The Counsel for the respondent, on instructions, stated that to rectify the defect, the respondent may in all require twelve weeks to follow the necessary procedure. In my opinion, therefore, the respondent can be given sufficient time to over come this default. It is only when the respondent would fail to rectify the default, will be the ground for passing an order of admitting the company petition.
40. Accordingly, I proceed to pass following order:
(a) The petition is entertained only at the instance of petitioner No. 1 in his personal capacity but limited to the ground u/s 433(g) of the Companies Act, 1956. The petition for relief of winding-up on the other two grounds under Sections 433(b) and 433(f) of the Companies Act, 1956 stand rejected;
(b) Insofar as ground u/s 433(g) of the Act is concerned, it is further ordered that the respondent company is granted fifteen weeks time to comply with all necessary formalities to remedy the default of non filing of balance sheets and profit & loss accounts and/or annual returns with the Registrar of Companies and report compliance thereof on Affidavit to be filed for that purpose within fifteen weeks from today, failing which the Company Registrar of this Court will proceed on the assumption that the present petition stands admitted against the respondent company in relation to ground u/s 433(g) of the Act without further reference to the Court;
(c) However, if proposed compliance Affidavit is filed within time, the matter be placed before the Court for passing further appropriate orders as may be required;
(d) Petition be placed under caption "directions" on 12th June, 2008.
