@JUDGMENTTAG-ORDER
N.V. Balasubramanian, J.@mdashThe first respondent is a company incorporated on 8-8-1958 as a private limited company, limited by shares. The authorised capital of the first respondent company is Rs. 20,000, divided into 2,000 shares of Rs. 10 each and its paid up capital is Rs. 3,335, divided into 667 shares of Rs. 10 each, out of which only Rs. 5 has so far been called for. The main objects of the company which are set out in the petition are as under:--
(a) to declare, create, or establish, to manage or supervise to endow property upon, in trust, or institutions having charitable objects; and
(b) to act as Trustees, Managers, Secretaries, Treasurers of any Trust or Institutions having Charitable objects.
The first respondent company has other objects also. The petitioner referred to certain salient features of the memorandum and articles of association of the first respondent company and from that it is clear that no remuneration is payable to any Director from out of the funds received from any other trust, if such payment is prohibited by the terms of the trust deeds. It is not necessary to refer to other objects. It is stated that the petitioner and the second respondent are the sons of one S.P. Adityan, known as Si. Pa. Aditanar who was a Barrister-at-Law, practising at Singapore. It is stated that Si. Pa. Aditanar returned to India in the year 1942 and started a Tamil daily called, "Daily Thanthi" in the year 1943. It is stated that the said daily was run as a proprietary concern and later it was converted into a trust called, "Thanthi Trust". It is stated that Si. Pa. Aditanar''s brother S.T. Adityan, the petitioner and the founder were appointed as first trustees of the said Thanthi Trust. It is not necessary to refer to the supplemental deeds of the trust. It is stated that the main object of the Trust is education, it is stated that one of the trustees of the Trust shall be the Director of the publication, Daily Thanthi and the petitioner was the Director of Daily Thanthi for few years. It is stated that on or about 8-8-1958 the first respondent company was incorporated. The petitioner has given the details of the signatories to the Memorandum of Association of the company. It is stated that the petitioner resigned from the post of Director of the company on 19-5-1959 and he became the Director of Daily Thanthi. It is also stated that the by deed of trust executed on 22-5-1959, Si. Pa. Aditanar, S.T. Adityan and P. Ramarathinam, the second respondent herein and the company were appointed as trustees to the Thanthi Trust. The petitioner has stated that certain additional shares were issued in favour of certain persons and on 19-10-1961, Si. Pa. Aditanar and his wife Govindammal resigned as Directors of the company. It is stated that on 27-8-1962 the second respondent was appointed as a Director of the company and three shares belonging to S.T. Adityan were transferred in his favour and therefore the holding of S.T. Adityan was reduced to 30 shares. It is further stated that on 6-12-1963 the second respondent was appointed as a Managing Director of the company for a period of ten years and on the same date, 101 shares belonging to P. Ramarathinam were transferred in favour of the wife of the second respondent. It is further stated that on 2-1-1964, S.T. Adityan resigned from the post of Director of the company, It is stated that in or about 1967, eleven shares belonging to P.R. Adityan were transferred in favour of the second respondent and his holding became 14 shares. It is stated that Si.Pa. Aditanar and his wife Govindammal transferred their 101 shares each to the second respondent and thus, the holding of the second respondent in the company became 216 shares. The petitioner also referred to certain changes in the shareholding and directorship of the company. It is stated that in 1978 there was some litigation on the file of this Court when the second respondent wanted to prevent additional trustees coming into the Trust. It is stated that the petitioner sought the removal of the second respondent from the Trust and ultimately, the litigation was withdrawn. It is stated that in or about that time, the second respondent issued additional shares to his subordinates and associates in order to safeguard his position in future. The petitioner has set out the shareholding position. It is stated that there are only 12 shareholders. It is stated that Amudha Adityan who is the wife of the second respondent S. Parvathinathan, T. Balasubramanian, R, Narayanan, T.R. Bheemsingh and R. Thananjayan are all employees in the Thanthi Trust and they are directly under the control of the second respondent and they act in accordance with the directions and instructions of the second respondent. The petitioner has also set out the composition of the Board of Directors of the company.
2. The main case of the petitioner is that the first respondent company is liable to be wound up as the company has not carried on any business activity and the first respondent company is in existence only to enable the second respondent to have an absolute control in the Thanthi Trust. It is the case of the petitioner that the corporate character of the company is retained not with any genuine object of carrying on any commercial activity or any other activity, but as an instrument to facilitate the second respondent to have control over the Thanthi Trust and to advance his personal enrichment. It is stated that the company is made to function in order to defraud the public and also to make the provisions of the Trust Deed governing the trust meaningless and to convert the same as the personal property of the second respondent. It is the case of the petitioner that the company has not carried on any trading activity ever since its incorporation. It is stated that the trust is to be managed by a body of trustees, but this provision is being defeated by the second respondent by making use of the company to have his position permanently on the Trust as a sole trustee by having his associates and persons accustomed to him Lo act in accordance with his directions as members of the company. The petitioner has also produced certified copies of balance sheets and stated that the first respondent company has not carried on any activity and the position has been the same ever since the date of its incorporation. It is the case of the petitioner that the second respondent is keeping the company as his personal property. It is stated that the company is an insolvent, liable to be wound up. It is stated that expect the petitioner and S.T. Adityan, all others in the company are under the control of the second respondent and the sole voice of the second respondent alone prevails in the company. It is also stated that the first respondent company is a chronic defaulter in complying with the mandatory requirements of the provisions of the Companies Act. The case of the petitioner is that the company should be wound up and it is just and equitable to do so. Hence, the petition has been filed for a direction to wind up the first respondent company.
3. Notice of admission was ordered and both the respondents have filed detailed counter statements. As far as the counter statement of the first respondent is concerned, it is stated that that the first respondent is to function as a trust without any break as one of the trustees is administering the Trust. It is stated that the petitioner is aware of the composition of Board of Directors as well as the shareholding pattern. It is stated that the petition has been filed as if the petitioner came to know about the shareholding pattern only at or about the time when the petition was filed which is denied by the first respondent as incorrect. It is further stated that the changes in shareholding and in the composition of Board of Directors are matters of record and reflected in the statutory returns filed by the company. It is stated that the second respondent was duly appointed as Managing Director of the company on or from 6-12-1983 and he was functioning as such till 4-8-1990 and thereafter the company is managed by the Board of Directors of the company. The first respondent denies averments referred to in the petition regarding the change in the shareholding. The first respondent has stated that the appointment and functioning of the trustees are regulated by the terms of the Trust Deed and the first respondent was appointed as one of the trustees as early as in 1959. It is stated that the second respondent was also appointed as a trustee under a supplementary deed dated 22-5-1959. It is stated that the proceedings initiated by the petitioner and others for the removal of the second respondent from the trust were unilaterally withdrawn by them after the first respondent as well as the second respondent filed counter statement. It is stated that in the said proceedings the petitioner has repeated some of the allegations made in the present proceedings that the first respondent is an insolvent and ought not to function as a trustee of the Trust. It is stated that the petitioner has withdrawn the proceedings without any leave of the Court. The first respondent also denied the changes in the shareholding referred to in the petitioner as incorrect. The first respondent also denied the allegation that the directors of the first respondent are persons who are accustomed to act in accordance with the instructions of the second respondent and according to the first respondent, this inference is unwarranted and mischievous. It is stated that the first respondent is acting as a trustee of the Trust and its duty is to ensure that the trust property, viz., the business is managed so that it would yield best return which has to be applied for the charitable purpose, viz., education. It is stated that the persons who are involved in the business are associated with the company as Directors so as to ensure that the business is managed to the best advantage of the trust. It is stated that the assets of the trust have been augmented and the trust which was started with an asset base of about Rs. 5 lakhs at the time of appointment of the second respondent, today admittedly runs to several crores. It is stated that the assumption that the company has not carried on any activity bringing benefit to it and hence, the company should be wound up is untenable. It is stated that there is no allegation that the first respondent does not discharge its functions as a trustee. It is further denied that the first respondent is only an instrument to facilitate the second respondent to control Thanthi Trust as incorrect. It is stated that the administration and control of Thanthi Trust are regulated by the terms of the Trust deed. The averment that there was personal enrichment on the part of the second respondent is denied. The averment that the first respondent exists for some collateral purpose is denied as without any basis. The first respondent has denied other averments made by the petitioner on the ground that they are vague and it is not necessary to burden the judgment with the details stated in the counter statement, but it must be stated that the first respondent has denied all the averments made against the first respondent and also against the second respondent. It is stated that the company has been complying with the statutory obligations. It is stated that the petitioner has not made out any case to wind up the company on just and equitable grounds as no case has been made out. It is stated that the present attempt is a part of the attempts on the part of the petitioner to interfere in the trust for which he has already proposed a suit by filing a petition u/s 92 of the Code of Civil Procedure. It is stated that the petition was not filed with bona fide motive, but with the ulterior object to interfere with the administration of the trust. It is stated that the petitioner has not made out any ground for winding up of the first respondent company.
4. The second respondent has also filed a separate counter statement wherein he has denied various allegations made against him by the petitioner.
5. Mr. C. Harikrishnan, learned senior counsel appearing for the petitioner submitted that the first respondent company is liable to be wound up as the first respondent company has not carried on any activity except functioning as trustee for no remuneration and the only activity of the first respondent company throughout from the date of incorporation is that it has been acting as trustee. Learned senior counsel submitted that the scheme of the Companies Act also warrants that it must carry on some commercial activity with profit motive in mind, though it may not result in any profit actually, but however, the motive to earn profit by undertaking commercial activity is the pre-requisite for the existence of the company under the Companies Act. He submitted that the first respondent has not carried on any activity for profit. Learned senior counsel submitted that the first respondent has not only carried on any commercial activity during the years prior to the filing of the company petition, but its paid up capital has also been eroded, and the result is that the company is mainly acting as trustee and actually it is a service organisation. He also referred to Section 25 of the Companies Act and submitted that Section 25 deals with charitable companies and licence from the Central Government is necessary so that company can be formed for promoting commerce, art, science, religion, charity or any other useful objects with no profit motive in mind. He also referred to Section 11 of the Companies Act and submitted that in all cases, the company must carry on some trading or commercial activity and the object of the company must be to earn income. He also submitted that in the case of a company which is formed to act as trustee, such company must also carry on the activity for profit and unless there is an activity for profit, it would be of no benefit either to the company or to the shareholders who have invested money to the company. He submitted that the first respondent company has been acting only as trustee and though the first respondent has several objects, it has not carried on any other activity other than acting as a trustee and there is no gain for the members. His submission was that the very existence of the first respondent is not sufficient and if it is allowed to continue like this with no profit, no loss, no reserve, no expenditure, or no income either to the company or to the shareholders, the purpose of incorporation of the company would be defeated and the existence of such company would be against the provisions of the Companies Act itself. In this context, he referred to Section 433 of the Companies Act and submitted that the emphasis under the Companies Act is that the company must commence business activity, but the first respondent has not carried any business activity within the period of one year from the date of its incorporation and therefore, it is liable to be wound up. He also submitted that the company has no reserve and the company has no liability and the company merely exists in paper. He submitted that the company exists only to nominate the second respondent as trustee in the Thanthi Trust and the second respondent has packed his own men and women in the Board and is controlling the affairs of the Thanthi Trust and by that, he is getting personal advantage and therefore the existence of the company is not in the public interest and hence, the company is liable to be wound up. He therefore submitted that the company cannot act for gratis when it functions as trustee and the first respondent company should receive adequate remuneration for acting as trustee and the absence of any return and the presence of the second respondent as a trustee in the Trust clearly show that the corporate character of the first respondent company has been utilised by the second respondent to meet his own ends and since the second respondent is using the corporate character of the first respondent for his personal advantage, the first respondent company is liable to be wound up. He further submitted that the first respondent company exists only for the benefit of the second respondent and not for any other purpose. He submitted that the first respondent has not done any activity except to act as a trustee for several years and it cannot continue for ever he also submitted that the fact that the petitioner has approached the civil court with the proposed suit by invoking the provisions of Section 92 C.P.C. does not debar the petitioner from filing the petition under the Companies Act to wind up the first respondent company as the first respondent company does not carry on any business and it exists only for the benefit of the second respondent. He therefore submitted that there are two remedies open to the petitioner and the remedy sought for by the petitioner in the civil court u/s 92 C.P.C. is for the removal of the second respondent as a trustee from the Thanthi Trust and it has nothing to do with the petition for winding up of the first respondent company and both the remedies are separate and independent and the grant of remedy in one proceeding does not depend upon the grant of remedy in the other proceeding. He also submitted that the second respondent has fairly admitted that the Board of Directors of the first respondent has been packed with the employees and his own men and hence, the continued existence of the first respondent would only enable the second respondent to commit acts of fraud not only against the trust, but also against the provisions of the Companies Act. Learned senior counsel submitted that the mere delay in approaching the court is not a relevant factor and what has to be seen is whether the ingredients for winding up of the company are satisfied and the petitioner has established that all the ingredients for winding up of the company are satisfied and hence, the mere delay in approaching the court is not relevant and fatal. He submitted that the balance sheets of the company prior to 1994 clearly show that the first respondent company has become commercially insolvent as its paid up capital has been seriously eroded and the later balance sheets after the filing of the petition are all made up balance sheets and no reliance can be placed on the balance sheets subsequent to the filing of the company petition. His main submission is that the first respondent company exists only to act as a service organisation for the benefit of the second respondent and it is not a company and since the first respondent company has not carried on any other activity and there is in-fight between the petitioner and the second respondent and hence, the first respondent company is liable to be wound ap on just and equitable ground. He therefore submitted that the first respondent is liable to be wound up on the ground that it has not carried on any business activity. He has also submitted that the first respondent is liable to be wound up on just and equitable ground. He submitted that the first respondent is also liable to be wound up as it exists only for the personal interest of the second respondent by nominating him continuously as representative to act as trustee in the Trust. He submitted that the first respondent company has become commercially insolvent and for several reasons mentioned in the petition as well as in the arguments advanced by him, the company is liable to be wound up.
6. Mr. Vedantham Srinivasan, learned counsel for the respondents submitted that the first respondent company while carrying on its objects, need not carry on any business. He also submitted that charitable companies are not intended for any commercial activity and it is not necessary that there must be a commercial activity for profit. He submitted that Section 11(2) of the Companies Act is an enabling provision and it does not mean that the company registered under Sections 12 and 13 of the Companies Act should pursue always some commercial activity and a company''s object need not be for any profit and the company can be a trustee. He referred to the provisions of Section 32 of the Trust Act which prohibits the receipt of any personal benefit to the trustees from the trust. He also submitted that the word, ''business'' does not mean any commercial activity. He submitted that ''carrying on the trust'' is also the business of the company. He submitted that there is no question of commercial insolvency, as the first respondent has not borrowed money and the first respondent is not indebted and there are no creditors and therefore the provisions of Section 433 of the Companies Act do not apply. He submitted that are seven trustees in the trust and the allegation that there is a fraud on the public is made without any basis. He submitted that it is not open to the petitioner to settle the score with his brother, second respondent in the company petition filed for a collateral purpose. He also referred to the series of litigation from the year 1958 and submitted that the litigation shows that the present petition has been filed for ulterior motive. He also submitted that when the petitioner has already approached this Court with a proposed suit seeking leave of this Court u/s 92 C.P.C. raising same allegations in the plaint, it is not open to the petitioner to pursue the matter under the Companies Act. He submitted that there is no supporting affidavit from any other shareholder and when there are no other particulars in support of the allegations made in the company petition, and the company petition is liable to be dismissed.
7. I have carefully considered the submissions of the learned senior counsel for the petitioner and the learned counsel for the respondents. Learned senior counsel for the petitioner, in his fairness, has not disputed that the company can be a trustee. It is well settled that the company can be a trustee. The following observation made in Halsbury''s Law of England, Volume VI, paragraph-20 clearly shows that the company can be a trustee.
8. In Halsbury''s Laws of England (III Edn. Volume-4), the learned author, at page 394, observed as under:--
"As charitable corporations exist solely for the accomplishment of charitable purposes, they are necessarily trustees of their corporate properly, whether the beneficiaries are members of the corporation, as in the case of hospitals and colleges, or not. Accordingly, like other trustees, charitable or otherwise, they are subject to the jurisdiction of the Court. Though called directors and empowered to make and amend bye-laws for the corporation, apart from any provision in the constitution of the corporation, they have no right to remuneration and cannot amend the byelaws to permit remuneration to be paid to themselves."
9. In the book, The Modern Law of Trusts by David B. Parker, the learned author has observed that a corporation can be a trustee. In Palmer''s Company Precedents, while dealing with the topic, ''Trust Company'', learned author has observed that a company can be a trustee in the following words :
"To undertake the office of and act as trustee, executor, administrator, manager, agent or attorney of or for any person or persons, company, corporation, government, state, colony, province, dominion sovereign, or authority, supreme, municipal, local or otherwise, and generally to undertake, perform and discharge any trusts, or trust agency business, and any office of confidence."
In Section 6 of the Banking Regulation Act, 1949, a banking company can be a trustee and it can act for the administration of estates as an executor, trustee or otherwise and Section 6 provides that the banking company can act as a trustee in several manners as indicated in Section 6(1)(j).
10. In the Indian Trusts Act by N. Suryanarayana Iyer, learned author has observed as under:--
"Formerly the notion was that the relationship of a trustee being one of confidence involving a personal element, a corporation could not be a trustee as there could not be a question of confidence being reposed in a corporation and therefore that it could not be a trustee. This notion, however, has long ago been given up. Corporate bodies have been held to be amenable to the jurisdiction in Chancery and compellablc to carry out the intentions of the settlor of property which has been vested in them.... Under the Indian law also a corporation, whether aggregate or sole, can be a trustee and there is ample jurisdiction in the court to enforce the performance of its duty by such trustee."
11. In Tannan''s Banking Law and Practice in India, learned author has observed as under ;--
"When the National and State Banks in the United States Saw Trust Companies competing with them in their banking business, they also decided to offer to their customers the facilities provided by the trust companies. The same necessity has forced itself on banks in other countries, and today, they readily undertake the duties of trustees, executors, and administrators of estates. Of late, some Indian joint-stock banks have also assumed these functions either by opening separate trust or administration departments or by starting subsidiary companies wholly owned and managed by them. The Central executor and Trustee Company Ltd., was started by the Central Bank of India Ltd., and is doing good business."
12. In Equity and the Law of Trusts by Philip H. Pettit the observation of the learned author is relevant for the purpose of this case which reads as under:--
"The most familiar trust corporations are large banks and insurance companies having trustee departments, often separately incorporated, which offer their services as professional trustees. Clearly they will not be prepared to act unless they are remunerated, but they have no greater right to remuneration than any other trustee, though there are special provisions where they are appointed by the Court.
Technically, ''trust corporation'', for the purposes of the relevant 1925 Property Acts is defined therein as meaning the Public Trustee or a corporation either appointed by the court in any particular case to be a trustee or entitled by rules made under the Public Trustee Act 1906, Section 4(3), to act as Custodian trustee; it also, as a result of the Law of Property (Amendment) Act 1926, Section 3, includes the Treasury Solicitor, the Official Solicitor, and other officials prescribed by the Lord Chancellor, a trustee in bankruptcy and a trustee under a deed of arrangement, and in relation to charitable, ecclesiastical and public trusts, local or public authorities and other corporations prescribed by the Lord Chancellor."
13. In Gotnathinayagam Filial v. Mantharamurthi High School 76 L.W. 229, a Division Bench of this Court, presided over by learned Chief Justice Ramachandra Iyer, held that a company can be a trustee and laid down the law as under:--
"The rule referred to in S tewart''s Kyd''s ''Law of Corporations'' to which we have made reference earlier, proceeds upon the principle that where there is a charter with proper powers, there is no ground to come to the Court to establish the charity as it must be left to be regulated in the manner in which the charter has directed..... For the application of that section it makes no difference whether the trustee is an individual or a company, nor is there any distinction between a company in whom the office of trustee vests and one which is specially formed for the purpose of executing the trust."
14. There can be no dispute at all that the company can act as a trustee. In fact, learned senior counsel for the petitioner has not fairly disputed the position that the company can be a trustee. But, the point that is raised by the learned senior counsel is that the first respondent company, for this purpose, has not carried on any business activity for several years from its inception to earn income. I am unable to accept the submission. Section 12 of the Companies Act deals with the mode of formation of incorporated companies and u/s 12, any seven or more persons or where the company to be formed will be a private company, any two or more persons, associated for any lawful purpose, by subscribing their names to a memorandum, may form an incorporated company with or without limited liability. The company so formed may be limited by shares or limited by guarantee. Section 13 deals with the requirements with respect to memorandum and the company has to set out its main objects to be pursued by the company on its incorporation and the objects incidental or ancillary to the attainment of the main objects. Section 11(2) of the Companies Act provides that no company or association or partnership consisting of more than twenty persons shall be formed for the purpose of carrying on any business that has for its object the acquisition of gain by the company, etc. unless it is registered as a company under the Companies Act or is formed in pursuance of some other Indian Law. Section 11(1) deals with the case of a banking company, while Section 11(2) deals with cases other than banking companies. From these two provisions, it cannot be said that a company must always be formed to carry on a business venture with a view to make profit. If such an interpretation is given, then the trustee companies will have no place of existence at all in the Companies Act.
15. As far as Section 25 of the Companies Act is concerned, it deals with the companies formed for promoting certain charitable objects, like, promotion of commerce, art, science, religion, charity or any other useful object and intends to apply its profits or other income in promoting its objects and to prohibit the payment of any dividend to its members. But the trust companies do come within the purview of Section 25 of the Companies Act, as Section 25 deals with the companies formed to promote charity and the provision has no application to the case of trust-company which is to act as a trustee. Therefore Section 25 has no application in the case of trust-company.
16. In my view, Section 11 of the Companies Act should only be regarded as an enabling provision and it is not exhaustive covering all cases of companies that may be formed under the Companies Act. What is required for the formation and incorporation of a company is that the company must be formed with certain objects which are lawful. Section 33 deals with the registration of memorandum and articles of association. In my view, so long as a company pursues its main objects for which it was incorporated, it cannot be stated that it is not carrying on its objects and the trust-companies are sui generis in nature.
17. As far as the provisions of Section 433(c) of the Companies Act is concerned, it deals with the case where the company docs not commence its business within a year from its incorporation or suspends its business for a whole year. Section 433(c) would cover a situation where a company is formed with the object of carrying on business, but fails to commence the business within one year from the date of incorporation or suspends the business for a period of one year, then, it is liable to be wound up. Section 433(c) does not cover cases where the company pursues its objects for which it was formed. The decisions relied upon by the learned senior counsel for the petitioner are all cases where the company was formed for certain business objects and where the company has not commenced its business and in those cases, it was held that the company was liable to be wound up. As remarked by Lord Sterndale in C.I.R. v. Korean Syndicate Ltd. 12 T.C. 181, an individual comes into existence for many purposes or perhaps sometimes for none, whereas a limited company comes into existence for a particular purpose. The purposes for which the company comes into existence should be seen from the objects of the company which are set out in the memorandum of association and it is not necessary that the objects should always be commercial objects. What is relevant is that a company was incorporated with the objects that are lawful and the company was formed to attain the objects mentioned in the memorandum of association.
18. As far as the decision of the Privy Council in Goswami Shri Girdhariji v. Shri Govardhanlalji ILR 18 Bom. 294 is concerned, the case is not of much help to the petitioner in construing the term, ''business'' as the Privy Council was considering the express, ''carry on business'' in Clasue 12 of the Letters Patent, 1865. Therefore the decision of the Privy Council is not of much help to the petitioner.
19. Learned senior counsel referred to the decision of Rangoon High Court in Tan Waing v. BO Hein AIR 1932 Ran 167 wherein the following observation of Sri George Jessel, M.R. in In re, Arthur Average Association for British, Foreign and Colonial Ships [1875] 10 Ch. 542 has been referred to :
"If you come to the meaning of the word ''gain'' it means acquisition. It has no other meaning that I am aware of. Gain is something obtained or acquired. It is not limited to pecuniary gain. We should have to add the word ''pecuniary'' so to limit it. And still less is it limited to commercial profits. The word used, it must be observed, is not ''gains'' but ''gain'' in the singular. Commercial profits, no doubt, are gain, but I cannot find anything limiting gain simply to a commercial profit. I take the words as referring to a company which is formed to acquire something or in which the individual members are to acquire something, as distinguished from a company formed for spending something, and in which the individual members are simply to give something away or to spend something, and not to gain anything." (p. 168)
After referring to the above observation of Sir George Jessel, M.R., the learned Judge in Tan Waing''s case (supra) has laid down the law as under:
"...Suppose the business of money lending was carried on by the society at a loss, what would be the result ? Clearly the members would lose the amount of their contributions. Suppose the business was carried on at a profit, what would be the result ? The members would receive back the contributions that they had made for three years. Unless the business was carried on at a profit the members would lose all the money that they had contributed for the purposes of the society. In these circumstances it appears to me that this association was formed, inter alia, for the purpose of carrying on a money lending business that had for its object the acquisition of gain by individual members of the society. If that be so, it follows that the society falls within Section 4, Companies Act, and as it is admitted that the number of its members is 124, and that it is not registered as provided by law, the suit must fail." (p. 168)
The above decision has no application at all as the Rangoon High Court was dealing with the case with reference to the provisions of the Act similar to Section 11 of the Companies Act and the question arose whether the company formed for the purpose of carrying on any other business other than the banking is a company or not.
20. Learned senior counsel also relied upon the decision of the Bombay High Court in
21. Section 11 of the Companies Act deals with commercial companies, the object of which is to make a gain in the business. But, the companies falling u/s 11 of the Act are not exhaustive and there may be some companies which are not commercial companies, but still they are companies for the purpose of the Companies Act. It is very well to remember that the objects of the company are different from the nature of activities to be carried on by the company. In my view, it is not necessary that the activity of the company should be always commercial in nature. No doubt, it is incongruous to say that a company exists to carry on one of its objects, viz., to act as a trustee, but really earns no income from the activity. In my view, the earning of profit is not a pre-requisite for a trustee company and if it is held that there must be an activity with a view to earn profit in the case of trust companies, then, most of the trust companies will fail. In my view, that is not the intent of the Legislature. A question may arise as to the position of a shareholder in such a trust company. One way of looking at the problem is that having known that it is a trust company and invested his money, the shareholder cannot complain that there is no return in the investment. Another way of looking at is that the shareholder will have all the rights as a shareholder except that he may not get the actual dividend, though his right to get the dividend is not lost. The rights of the shareholder under other provisions of the Companies Act are also kept in tact. The question raised by Mr. C. Harikrishnan, learned senior counsel is that how long the company can continue in such a manner without making any profit has to be considered with reference to the situation that prevailed on the date of filing the company petition. I am of the view that on the date of filing the company petition, the first respondent company has pursued its objects for which it was incorporated and the fact that the company has not earned profit till the date of filing the company petition is not relevant for winding up of the first respondent company.
22. Moreover, the word, ''business'' in Section 11(2) of the Companies Act should be construed in a wide manner also. In
23. Almost a similar view was expressed by the Punjab and Haryana High Court in
"Whenever the word ''business'' is defined in a particular statute, it is to be given the meaning ascribed to it in that definition. The question whether the word, ''business'' has been used in a narrower sense or in a larger sense arises in a case where no statutory definition of that expression has been given in the relevant piece of legislation. It is not a word of art and whether it is used in a narrower or wider sense depends on the context in which it occurs." (p. 76)
24. The decisions relied upon by the learned senior counsel for the petitioner are all cases where the company was formed for the purpose of making gain and the observations made in that context are not applicable to the case where the company was formed to act only as a trustee. I therefore hold that the activity of the company formed with the object of acting as a trustee can also be treated as business activity and the ''business'' does not necessary mean or limited only to commercial activity. So long as the company carries on legal and lawful objects, the company can be said to have been formed for lawful purposes, I have already held that the trust company need not always exist to make profit or to carry on commercial activity.
25. The Supreme Court in
26. If the submission of the learned senior counsel for the petitioner is accepted, the trust companies which are formed to act as a trustee will have no place of existence at all as there may not be any commercial or trading activity and the trust company may not be in a position to pursue its objects. The concept of trust is a peculiar concept. Therefore, the word, ''business'' found in Section 11(2) of the Companies Act is to be construed to mean any useful activity and it is not necessary to confine it to commercial activity for profit. The charitable companies are not formed or not intended for commercial activities. I accept the submission of the learned counsel for the respondents that the word, ''business'' found in Section 11(2) of the Companies Act is not confined only to commercial activity for profit in the case of trust companies.
27. Learned senior counsel for the petitioner also submitted that if the company pursues its objects, it must result in some gain or income. Learned senior counsel also referred to certain paragraphs which have been relied upon by the learned counsel for the respondent in The Law Quarterly Review. He referred to the provisions of Section 8 of the Executors'' Companies Act which was referred to in the article, Administration of Trusts by Joint Stock Companies. Section 8 of the said Act deals with the question of remuneration and provides that the company may charge their clients at any commission at the prescribed rates. It also provides that the rate of remuneration is subject to the revision of the court and liable to reduction in case of its being deemed excessive. But, a close reading of the article, viz., Administration of Trusts by Joint Stock Companies in The Law Quarterly Review shows that it is possible to have a trust company and unless it is made by lawful Act, it is not possible for the trustee to get remuneration for the services rendered. He also submitted that the company must indulge in some activity which must result in the benefit of the company and the object of the activity must be to earn income. He therefore submitted that the company must carry on some business activity. I am unable to accept the said submission as the Companies Act makes a distinction between the commercial companies and the companies which are to function as trustees and where there is a prohibition either under the Trusts law or under the deed of Trust to receive remuneration by trustees, the trust companies cannot be wound up only on the ground that it has failed to receive remuneration for acting as a trustee. The question whether the company fails to earn income would depend upon the nature of the company. Besides, the Court has to look into the provisions of the Trusts Act and the trust deed and where there is a prohibition against the receipt of any benefit by way of remuneration by the trustee, the company cannot be said to be not pursuing its objects for which the company has been formed. The company is merely an instrumentality and it acts only through individuals and no doubt it exists for the benefit of its members, and when the trustee company carries on its activity to achieve its objects for which it was formed, the company cannot be wound up, whether there is a profit or not. It would be a different matter if the company has not pursued any of its objects. On the other hand, where the company pursues its objects by carrying on its activities, the non-receipt of remuneration is not material and the company cannot be wound up.
28. Further, Clasue 8 of the articles of association clearly provides that no remuneration shall be paid to any director from the funds of, or money received from any trust managed by the company if the constitution or rules of such trust prohibits payment of remuneration to such director. Learned senior counsel for the petitioner has not produced the deed of trust for the Thanthi Trust to show that the deed of trust permits the payment of remuneration and in the absence of such material, the first respondent company is not entitled to get remuneration for acting as u trustee.
29. In Bisgood v. Henderson''s Transvall Estates Ltd. [1908] 1 Ch. 743, Buckley LJ., for the Court of Appeal, has laid down the law as under:--
"Under the Companies Act, 1862, the incorporation of a company is effected by the registration of a memorandum of association which is to state the ''objects for which the proposed company is to be established''. To my mind that means the objects which the corporate in during its corporate life is to pursue, the purposes by whose fulfilment it is to seek to earn profit. The definition of the objects is the definition of what is generally called the undertaking of the company. The modern practice is to add, but I think erroneously, an enumeration of powers for carrying those objects into effect."
It is, no doubt, true that the learned Judge has held that the ''object'' means the object which the corporation during its corporate life is to pursue, and on fulfilment of its object, it must seek to earn profit. The law has been laid down with reference to a commercial corporation as the Court of Appeal was dealing with the company which was a commercial corporation. Therefore, it cannot be stated that the said observation would perforce apply to the case of a trust company. It is true that it will be open and permissible for a trustee company to pursue its objects of being a trustee by carrying on the activities on a commercial scale, depending upon the terms of the deed of trust or the orders of the Court, as the case may be, but the non-receipt of remuneration or its willingness to perform the functions as a trustee without remuneration would not detract from its essential quality of a corporation when it pursues its activities without the receipt of remuneration. In my view it would all depend upon the willingness of the corporation and the terms of the deed of trust or the orders of the Court, as the case may be. I therefore hold that a trust company is a legal entity under the company law so long as it pursues its object of acting as a trustee. The non-receipt of remuneration is not material, and on that account, a trust company cannot be wound up.
30. Further, the first respondent company has been formed with several objects and one of the objects is to act as a trustee and the company has been registered with the Registrar of Companies and the company has been pursuing its objects to act as a trustee from 1958 onwards. The first respondent has also produced the certificates by the Registrar of Compa-nies acknowledging the receipts of annual returns and the first respondent has also produced the annual returns up to the year 1998. The first respondent has produced evidence to show that it has been conducting annual general meetings and its accounts are audited by the Chartered Accountants and the respective balance sheets have been approved by the shareholders for various years prior to and subsequent to the year 1994. The first respondent has also produced the report of the Directors. It is also seen from the auditor''s reports that the company has been acting as a trustee not only for Thanthi Trust, but also for A.I.E.C. Scholorship Trust and the expenses regarding salary and other miscellaneous expenditure incurred are met by the respective trusts. Hence, there is no profit and loss account for the company and there is no excess income for the company. I hold that there can be no objection for the practice adopted by the first respondent company in getting reimbursement of expenses incurred from the trusts for whose benefit the services of the employees are utilised and there can be no objection either from the accountancy point of view or from the legal point of view in getting reimbursement of the expenses for the services rendered by the employees from the trust itself and in that process, the first respondent company is carrying on its object by acting as a trustee for the trust.
31. Further, Section 32 of the Indian Trusts Act, 1882 also provides that the trustee is entitled to get reimbursement out of the trust property all expenses properly incurred in relation to the execution of the trust property and for preservation of the trust property. Therefore it cannot be stated that the first respondent company is not pursuing its object viz., to act as a trustee. The evidence produced by the first respondent clearly show that it acts as a trustee. As far as the remuneration by the trustee is concerned, as already observed, unless it is provided in the trust deed, it is not open to the trustee to claim remuneration. Therefore the non-receipt of remuneration is not material. As far as the benefits to members are concerned, I find that except the petitioner, other shareholders of the company names of whom are given in the petition have not raised any objection that they have not received any benefit from the company. Since it is a company formed to act as a trustee, the non-receipt of remuneration is immaterial. Further, I have already observed that the first respondent company has other objects also and in future, it may expand its activity in carrying on other objects and in such situation, it will be possible for the members to obtain return on the investment. Further, the right of the shareholders in the shares is not confined only to the receipt of dividend, but it varies and the rights of shareholders are bundle of rights and so long as shareholders exercise their rights as shareholders in the company, it cannot be stated that the shareholders are not exercising their rights as shareholders in the company.
32. The submission of Mr. C. Harikrishnan, learned senior counsel that the capital of the company has got eroded is also not supported by material. He referred to the balance sheet of the company as on 31-3-1990 and submitted that the share capital is Rs. 3,335 and the profit and loss account shows that the capital has got eroded and therefore the company is liable to be wound up. But, the subsequent balance sheets from 31-3-1994 clearly show that the company has cash-in-hand and all the current liabilities, like auditor''s fees and salaries have been met from the trust and therefore the submission that the capital has got eroded is not acceptable. He also referred to the balance sheet as on 31-3-1994 and submitted that the liabilities were discharged after 1994 and the balance sheets were manipulated. He submitted that there was no income for the company and therefore, the entries showing that there was cash-in-hand and there was no liability for the company are all fake entries. However, the balance sheets produced by the first respondent show that the expenses regarding salary and miscellaneous expenditure were met by the respective trusts and therefore, the shareholders'' capital remains intact and there is nothing to show that the capital of the first respondent company was eroded by way of expenditure.
33. The main submission of Mr. C. Harikrishnan, learned senior counsel is that it is not a bona fide corporate body, but it is kept for some oblique purpose. He referred to the averments made in the petition and submitted that the first respondent has consistently nominated the second respondent to act as a trustee for the Thanthi Trust and the second respondent utilising his position as trustee of the Thanthi Trust, has diverted the money of the Thanthi Trust for his private purposes. I am unable to accept the submission of the learned senior counsel for more than one reason. The allegations regarding diversion of the trust funds by the second respondent are the subject matter of the suit for which the petitioner herein has filed a petition u/s 92 C.P.C. and a learned Single Judge of this Court dismissed the petition and against the order passed dismissing the petition for leave to institute a suit, an appeal has been preferred and a Division Bench of this Court inKannan Adityan v. Adityan [1996] 2 L.W. 364 has allowed the appeal and held that the plaint cannot be rejected. It is stated that as against the judgment rendered by the Division Bench of this Court in Kannan Adityan''s case, the Supreme Court has, granted special leave to appeal and the Supreme Court has also issued certain interim directions and one of the interim directions of the Supreme Court is that the trustees are to use the surplus income of the trust for the benefit of the trust and not for any other purpose, and the trust was also directed to render statement of account covering all 12 centres of publication of Daily Thanthi. Therefore, when the Supreme Court has granted special leave to appeal, and the matter is pending before the Supreme Court, I am unable to express any opinion on the said question, particularly when the Supreme Court has given a direction that the account of the trust should be audited and surplus money should be used for the benefit of the trust and not for any other purpose. Moreover, the allegations are subject matter of the proposed suit and I am of the view, this Court must refrain from making any observation on the allegations made in the company petition that the first respondent has been nominating the second respondent and the second respondent is in control of the trust and there has been diversion of trust funds by the second respondent. Hence, I am unable to entertain the submission of the learned senior counsel for the petitioner that the corporate body of the first respondent has been kept for the oblique purpose of the second respondent. Therefore, on the facts and circumstances of the case, I am not inclined to give any finding on the said question.
34. Learned senior counsel for the petitioner also submitted that there is an intense fight between the petitioner and the second respondent and therefore, it is not possible to continue the company. Learned senior counsel submitted that it is just and equitable that the company should be wound up.
35. In Halsbury''s Laws of England (III Edn., Volume 6), the learned author has considered the expression, ''just and equitable'' and stated some of the cases in which company can be wound up on the ''just and equitable ground''. The learned author, at pages 534 and 535, observed as under :
"It may be just and equitable to wind up a company where its substratum is gone, as when its main object is to acquire and work a mine, or patent, or concession which cannot be obtained, or the mine is worthless or the patent is invalid, or the concession has lapsed; or where the company is a bubble company; or where its only business is ultra vires the company; or where it is a bank, and its paid up capital is exhausted, and its uncalled capital can only be called up in a winding up; or where a loss has been made on the company''s principal adventure, such as providing seats for a procession which has taken place and the company is about to embark on further adventures which are ultra vires or are not the objects for which the company was formed; or where a company is fraudulent in its inception and carries on business at a loss, without capital of its own; or where it is carrying on business at a loss and its remaining assets are insufficient to pay its debts; or where it desires to go into liquidation with a view to a scheme which alone can save it from insolvency; or where the business of the company is being carried on in its name for the sole benefit of debenture holders who have taken possession; or where it is impossible to carry on the business of a company owing to internal disputes which have produced a state of deadlock; or where in the case of a private company one director treats the business of the company as his own and does not carry on the business as that of the company; or where the directors withhold information from shareholders in circumstances which give rise to suspicion that they are attempting to buy their shares at an undervalue; or where the misconduct of directors or promoters can only be successfully investigated in a winding up by the court.
Misconduct of directors or of liquidators, or the fact that its business has been carried on at a heavy loss (if the company is not insolvent), or the issue of shares at a discount, is not per se a ground for winding up; nor is the fact that the company has acted dishonestly to outsiders, or that a majority of shareholders insufficient to pass a special resolution wish it."
36. Learned senior counsel referred to the decision of the Supreme Court in
"The sixth clause of Section 433, 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''. In view of Sections 397, 398 and 443(2), 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." (p. 565)
37. In this connection, it is also relevant to notice the decision of the Delhi High Court in Smt. Abnash Kaur v. Lord Krishna Sugar Mills Ltd. [1974] 44 Comp. Cas. 390 wherein the Delhi High Court held that where the petitioner has failed to establish any deadlock in the affairs of the company and there is no evidence for the petitioner''s lack of confidence in the conduct and management of its affairs or any lack of probity on the part of its directors in regard to its affairs or towards the interest of the petitioner as a shareholder, the company petition cannot be ordered. Here also, the petitioner has failed to establish any deadlock in the affairs of the company and in the absence of any material to show that there is any deadlock in the affairs of the company, the company cannot be ordered to be wound up. As far as the lack of confidence of the petitioner on the second respondent is concerned, his grievance seems to be more against the diversion of funds of the trust and if there is any actual diversion, it is for the civil court to decide the question whether there was any breach of trust committed by the second respondent. Hence, on that account, the petition for winding up of the company is liable to be dismissed.
38. The decision of the Chancery Division In Re Surrey Garden Village Trust Ltd. [1965] 35 Comp. Cas. 864 has been relied upon by the learned counsel for the respondent to show that the winding up petition for the purpose extraneous to interests of members is not maintainable. I have already taken a view that it is not necessary to go into the allegations of the petitioner against the second respondent on the diversion of funds and hence, it is not necessary to consider the said question.
39. The decision of the Andhra Pradesh High Court in Mani v. Kowtha Business Syndicate (Pvt.) Ltd. 66 Comp. Cas. 305 is also relevant and the Court held that to invoke the just and equitable clause, there must be material that the petitioner was oppressed and unjustly excluded from the management of the company. The Court also held that the conduct of the parties should also be taken into consideration. The decision of the Andhra Pradesh High Court fully supports the case of the first respondent. The petitioner has not produced any material to show that he was oppressed or excluded from the management of the company unjustly. The company, on the other hand, was holding Annual General Meetings periodically and no complaint has been made by the petitioner at the time of Annual General Meetings.
40. I am of the view that there are no materials at all except allegations made by the petitioner that it is just and equitable to wind up the first respondent company. As observed by the Supreme Court, the company court will have to keep in mind the position of the company as a whole and also the interests of the shareholders and to see that they would not suffer in the fight of power that ensued between two groups. On the facts of the case, except the petitioner, no other shareholders has come forward in support of the petition filed by the petitioner. There are no supporting affidavits from other shareholders. Further, it is seen from the returns filed by the first respondent company that other shareholders have consented to the carrying on the activities of the company and to act as a trustee. As a matter of fact, the petitioner was a shareholder of the company from the date of its incorporation in 1958 and he resigned as Director on 19-5-1959 and the first respondent company has been acting as a trustee from 1958 till the date of filing of the petition and even thereafter. The facts prevalent in 1994 are not different from the facts that were prevalent prior to that date. In fact, after 1994, the balance sheets of the first respondent company show that the loss shown earlier has been wiped off and the cash balance has also been increased. Though the petitioner has raised several allegations against the second respondent, the allegations are against the performance and functioning of the second respondent as a trustee and not as a Managing Director or as a Director of the first respondent. Though there are several allegations raised by the petitioner against the second respondent and counter allegations have been made against the petitioner by the second respondent, that would not constitute a ground to hold that it is just and equitable to wind up the first respondent company. As far as the allegation that other members of the trust are only employees in the Daily Thanthi is concerned, the explanation of the first respondent that since the first respondent company has to act as a trustee, the persons conversant with the affairs of the newspaper should be in the Board is acceptable. Further, I have already observed that these allegations made by the petitioner against the second respondent and vice versa are all subject matter of the proposed suit for which leave has been sought for by the petitioner u/s 92 C.P.C. and it will not be proper to consider the allegations as well as the counter allegations and give a finding in the company petition. If the petitioner comes forward with the company petition after the suit is disposed of, that would be a different matter. I am of the view, so far as the serious allegations made by the petitioner against the second respondent are concerned, they would still remain as allegations and evidence is required to prove the allegations and the allegations have to be established in the Civil Court. Therefore, the mere fact that there is an infight between the petitioner and the second respondent is not a ground to hold that the first respondent company should be wound up on just and equitable ground.
41. I am unable to accept the submission of Mr. C. Harikrishnan, learned senior counsel for the petitioner that the company should be wound up on the ground of its inability to pay debts. It is no doubt true that Section 433 deals with a case of a company which does not commence its business within a year from its incorporation, Section 434(1)(c) deals with a case where the company is unable to pay its debts. In other words, the company has to be commercially insolvent to attract the provisions of Section 434(1)(c) of the Companies Act. Learned senior counsel for the petitioner referred to the averments made in the petition and submitted that the company has become commercially insolvent. He referred to the balance sheets of the company from the year 1986 onwards to show that the company has become insolvent. However, the balance sheets of the first respondent company clearly establish that the loss of the company has been wiped off and the company has current assets and cash-in-hand. It has been explained by the first respondent that the loss has been wiped out because the trust has been directed to meet the expenses, such as, salary to the employees and miscellaneous expenditure. Therefore, it cannot be stated that the company is indebted.
42. The Kerala High Court in V.V. Krishna Iyer Sons v. New Era Mfg. Co. Ltd. [1965] 35 Comp. Cas. 410 held that the fact that the company makes losses over a number of years and may do so in future does not justify a winding up order at least when the capital has not been exhausted. Applying the test, on the facts of the case, it is clear that the petitioner has not proved that the company had incurred losses, but, on the other hand, it is clear from the balance sheets that the capital of the company has not been exhausted. Further, the petitioner is not a creditor. When there are no debts, it cannot be stated that the company is commercially insolvent.
43. As a matter of fact, Section 434(1)(c) deals with a case where the company is unable to pay debts and the pre-condition for maintaining a petition u/s 434(1)(c) is the existence of debt. It is not the case of the petitioner that he is a creditor and it is also not proved that the first respondent is indebted and there was no notice issued by the creditor and the balance sheets of the first respondent clearly show that there is no creditor of the company. The decision of this Court in Neg Micon v. NEPC India Ltd. [2001] 34 SCL 210 supports the case of the respondents that the petitioner must produce documents to prove the debt. I therefore hold that Section 434(1)(c) is not applicable. As far as the operation of Section 433(1)(c) is concerned, I have already held that the company has been pursuing its objects from 1958.
44. I am of the view that the question of lack of bona fide and the option to elect one remedy, on the facts of the case, should be considered together. The suit has been filed raising several serious allegations against the second respondent herein, and though the prayer in the civil suit is for framing the scheme to administer the trust, the result of decreeing the suit, accepting the allegations against the second respondent may result in the removal of the second respondent from the post of trustee in the trust and the company petition has been ostensibly filed on just and equitable grounds, and the result of admitting and allowing the company petition would be the same, namely, the removal of the second respondent from the post of trustee. It is, no doubt, true that as contended by Mr. C. Harikrishnan, learned senior counsel for the petitioner, the scope of the civil suit is different as the proposed suit is one under the general law and the scope of the company petition is different. But, it will not be open to convert the proceeding in the company court which are of summary in nature and to use the finding arrived at in the summary proceeding, if it is favourable to the petitioner, in the civil proceeding. It is in the sense that the proceedings under the company law are abuse of the process of the court and it is well-settled that the proceedings herein cannot be used for some oblique or some extraneous purpose. The matter can be looked from another angle. Suppose, the proposed suit is decreed and the company petition is dismissed, the petitioner will not be prejudiced as the main relief sought for would be achieved in the civil suit. Equally, if the proposed suit is dismissed, the finding rendered by the civil court after a full fledged inquiry, will have a greater impact in the company petition, if it is pending. Therefore, I am of the view that it is impermissile for the petitioner to pursue two remedies at the same time, and further, the dismissal of the company petition will have no great impact on the proposed suit for which the leave has been granted by this Court. I am of the view that two remedies sought for by the petitioner to achieve the same object is not bona fide and the petition deserves to be dismissed on that ground also.
45. I am unable to accept the submission of Mr. Vedantham Srinivasan, learned counsel for the respondent that there is a unduly long delay in approaching this court by the petitioner as the question has to be seen whether the petitioner has made out a case for admission of the company petition on the date of filing the petition. The fact that the petitioner has not approached this Court earlier is not a relevant factor, if the petitioner establishes the grounds for winding up of the company.
46. With the result, I hold that the petitioner has not made out any case to wind up the first respondent company. Though the petitioner has referred to certain instances that there is no recognition of devolution of interests of one of the shareholders, that is not a ground to hold that the company has to be wound up as the first respondent company has explained reasons for the same. As a matter of fact, learned senior counsel has not seriously urged those points. I have considered the submissions of the learned senior counsel for the petitioner and the learned counsel for the respondents and I find that the petitioner has not made out any case to admit the petition to wind up the first respondent company. Accordingly, the petition fails and the same is dismissed. However, in the circumstances, there will be no order as to costs.
