Nataraja Textile Mills Limited v. Angidi Chettiar — 1953 DIGILAW 360 (MAD)

Judgment :- VENKATARAMA AIYAR J. These appeals arise out of proceedings instituted for the winding up of a company called the Nataraja Textile Mills Ltd. The said company was incorporated under the provisions of the Indian Companies Act on August 28, 1946, its object being the establishment of a mill for spinning yarn, manufacturing gauze, lint, etc. It appears that the Government declined to grant the necessary permits for importing spindles with the result that there was no commencement of business as provided in Section 103 of the Act. No general meeting of the company was convened within the time specified in Section 76; nor was the balance sheet or profit and loss account placed before it as laid down in Section 131. On June 20, 1948, the Assistant Registrar of Joint Stock Companies, Ramanathapuram, issued a notice to the directors why proceedings should not be taken against them for default in compliance with the requirements of Sections 76 and 131 of the Act. To this there was a reply on July 6, 1948, by the respondent and by another director of the company that as no business had been done by the company it might be struck off the register under Section 247 of the Act. On January 4, 1949, a meeting of the general body of the company was held at which it was resolved without any opposition to wind up the company. The respondent thereafter presented a petition under Section 162 of the Act, O.P. No. 409 of 1949, for liquidation of the company on the ground that it was not possible to carry on business and that the general body had passed a resolution for winding up the concern. In the meantime acting on the memorandum of the directors dated July 6, 1948, the Registrar of Joint Stock Companies passed an order on July 19, 1949, striking off the company under Section 247 of the Act. The appellants thereafter filed a statement in O.P. No. 409 of 1949 that as the company had been struck off and was no longer in existence the application for winding up was not maintainable. They also contended that as the petitioner was a fully paid up shareholder he was not entitled to apply for winding up. The appellants thereafter filed a statement in O.P. No. 409 of 1949 that as the company had been struck off and was no longer in existence the application for winding up was not maintainable. They also contended that as the petitioner was a fully paid up shareholder he was not entitled to apply for winding up. The respondent, then filed O.P. No. 49 of 1951 under Section 247(6) of the Act for setting aside the order dated July 19, 1949, on the ground that when he applied to the Assistant Registrar on July 6, 1948, to strike off the company he acted in ignorance of the "intricate provisions of the company law", and that he filed O.P. No. 409 of 1949, "bona fide believing that there was no impediment in its way". It was accordingly prayed that the company might be restored to the register. This application was resisted on the ground that as the order dated July 19, 1949, was passed on the invitation of the petitioner he was not a person aggrieved by it and was, therefore, not competent to apply under Section 247(6). By his order dated August 13, 1951, KRISHNASWAMI NAYUDU J. directed that in the interests of justice the company should be restored to the register. O.S.A. No. 31 of 1952 has been preferred against this order O.P. No. 409 of 1949 for winding up the company then came up for hearing and holding that the respondent was entitled to maintain the application as a contributory, KRISHNASWAMI NAYUDU J. ordered that it was just and equitable that the company should be wound up. O.S.A. No. 31 of 1952 has been preferred against this order O.P. No. 409 of 1949 for winding up the company then came up for hearing and holding that the respondent was entitled to maintain the application as a contributory, KRISHNASWAMI NAYUDU J. ordered that it was just and equitable that the company should be wound up. O.S.A. No. 1 of 1952 has been presented against this orderThree contentions have been urged on behalf of the appellants (1) the respondent was not entitled to apply for winding up under Section 166 of the Act as he was a fully paid up shareholder; (2) The respondent was not entitled to apply for restoration of the company under Section 247(6) as he was not a person aggrieved; and (3) if the order of restoration made in O.P. No. 49 of 1951 was erroneous, then O.P. No. 409 of 1949 was liable to be dismissed on the ground that there was no company in existence which could be wound up under Section 162 The first question that arises for determination is whether a fully paid up shareholder is entitled to present a petition for liquidation of a company and if so, under what conditions. That a fully paid up shareholder is a contributory and is as such entitled to apply for winding up was settled early in In re National Savings Bank Association and In re Anglesea Colliery Company and these decisions were followed in this court in Sabapathi Press Co. Ltd. v. Sabapathi Rao. The further question for decision is, under what conditions he is entitled to present an application. Two of the earliest decisions on the subject are those of ROMILLY M.R. in In re Patent Artificial Stone Co. Ltd. and In re Lancashire Brick and Tile Co. Ltd. In the latter case the learned Master of the Rolls held that though a fully paid up shareholder was not disqualified from presenting a petition he must, to get an order, satisfy the court that there would be a surplus available for distribution among the shareholders. Ltd. and In re Lancashire Brick and Tile Co. Ltd. In the latter case the learned Master of the Rolls held that though a fully paid up shareholder was not disqualified from presenting a petition he must, to get an order, satisfy the court that there would be a surplus available for distribution among the shareholders. In In re Rica Gold Washing Co., it was held that "a fully paid up shareholder who presents a petition to wind up the company must both allege in his petition and show by evidence that there are assets of the company of such an amount that in the event of a winding up he would have a tangible share or surplus to receive." * In In re Diamond Fuel Co., the position was thus stated by THESIGER L.J. :- "I quite agree that when a fully paid up shareholder is seeking to wind up a company it is necessary for him to show that there is likely to be some tangible surplus in the event of the company being wound up and its asset collected." * In In re Vron Colliery Company, JESSEL M.R. observed "Then he says he is a shareholder, but he is a fully paid up shareholder, and has no locus standi to apply for a winding up order unless he alleges that there is a surplus and gives some evidence in support of the allegation, for otherwise he has no interest in winding up. There is no allegation in the petition that there will be a surplus, and the petitioner is not a creditor, so the petition was demurrable." * This was the state of the law, when, in 1907 7 Edw. VII, c. 50, Section 29 was enacted providing that a court could not refuse to make a winding up order on the ground that there were no assets. The result of this provision is that if a shareholder was competent as a contributory to present an application for winding up, that could not be dismissed on the ground that there would be no surplus assets. That, however, was not the view taken by NEVILLE J. in In re Kaslo-slocan Mining and Financial Corporation Ltd. wherein he observed in a short judgment : "It is a petition by a fully paid up shareholder and he alleged that the company has no assets and is insolvent. That, however, was not the view taken by NEVILLE J. in In re Kaslo-slocan Mining and Financial Corporation Ltd. wherein he observed in a short judgment : "It is a petition by a fully paid up shareholder and he alleged that the company has no assets and is insolvent. Under those circumstances the petition must be dismissed with costs." * It may be mentioned that Section 29 of the statute of 1907 was reenacted as Section 141(1) in the Act of 1908, as Section 171(1) in the Act of 1929 and as Section 225(1) in the Act of 1948. The corresponding section in the Indian statute is Section 170 and it enacts that "the court shall not refuse to make a winding up order on the ground only that the assets of the company have been mortgaged to an amount equal to or in excess of those assets, or that the company has no assets." * Now the contention of Mr. V. Thyagarajan, learned counsel for the appellants, is that the law as laid down in In re Kaslo-Slocan Mining and Financial Corporation Ltd. should be followed, as the relevant provisions are the same both under the English statute and in the Indian enactment. He also relied on the decision in Bharat Bank v. Lajpat Rai Sawhney, were KAPUR J. held, following the English authorities that "if a fully paid up shareholder presents a petition he must allege and prove, at least to the extent of a prima facie case that there are assets of such amount as that in the winding up he will have a tangible interest." * Now the principle on which the English authorities held that a fully paid up shareholder was not entitled to maintain a petition for winding up unless there were surplus assets available for distribution, was that otherwise he had no interest in the winding up of the concern. As observed by ROMILLY M.R. in In re Patent Artificial Stone Co., "the petitioner personally has not such an interest as would entitle him to make such an application". Vide also the observations of JESSEL M.R. in In re Vron Colliery Co., already quoted. There is nothing, however, in the statute imposing any such limitation on the right of a contributory to present a petition for winding up. It was one evolved by the courts in the exercise of their equitable jurisdiction. Vide also the observations of JESSEL M.R. in In re Vron Colliery Co., already quoted. There is nothing, however, in the statute imposing any such limitation on the right of a contributory to present a petition for winding up. It was one evolved by the courts in the exercise of their equitable jurisdiction. But then the Legislature intervened and enacted that a winding up order should not be refused on the ground of want of assets. The result was to abrogate what had been a rule of practice in the Courts of Chancery. No decision of the English court has been cited to us where the effect of the new provision has been considered. The decision in In re Kaslo-Slocan Mining and Financial Corporation Ltd., was no doubt subsequent to the enactment of the new section but there is no reference to it in the judgment and no discussion of its effect. In Palmer's Company Law (19th edition) after stating the law as laid down in In re Rica Gold Washing Co. the learned author observed : "In spite of Section 224 of the Act there is a serious risk that a petition by a fully paid up shareholder alleging that the company has no assets will be dismissed, " and this is with reference to the decision in In re Kaslo-Slocan Mining and Financial Corporation Ltd. But the same learned author in dealing with this question in his Company Precedents (16th edition) Part II, observes : "This section appears to apply to a contributory's petition. In In re Kaslo-Slocan Mining Co., it was held that a shareholder who merely proved insolvency was not entitled to an order; but this case is very shortly reported, and it should be noted that the petition was opposed by a large body of shareholders. Other cases show that the insolvency of the company does not debar a shareholder from obtaining an order where there is a case for investigation, or other good reason for a winding up order." * The law is thus stated in Halsbury's Laws of England (Vol. Other cases show that the insolvency of the company does not debar a shareholder from obtaining an order where there is a case for investigation, or other good reason for a winding up order." * The law is thus stated in Halsbury's Laws of England (Vol. 5 paragraph 891 at page 554) : "A fully paid up shareholder may, as a contributory, present a winding up petition and the court cannot refuse to make a winding up order on the ground only that the assets have been mortgaged to an amount equal to or in excess of those assets or that there are not assets." * In the foot-note it is observed that the decision in In re Rica Gold Washing Co., is modified by the new provision enacted in 1907 In Gore-Browne's Handbook on Joint Stock Companies (41st edition) the position is thus stated : "A contributory whose shares are fully paid up is entitled to petition. Before 1929 this was so only if there was a reasonable probability that there would be assets to divide among the contributories and if he himself alleged in the petition that there were no assets, his petition would have been dismissed with costs on the preliminary objection being taken. Having regard to Section 225 this is no longer the case." * Coming next to the Indian authorities, in In re Cine Industries and Recording Co. Ltd. CHAGLA J., as he then was, observed : "This is a shareholder's petition. It is true that as the law stands today he is under no disability as compared with a contributory, nor is he under any obligation, as he at one time was, to satisfy the court that on a winding up there would be surplus assets." * The question was considered quite recently by a Bench of the Calcutta High Court in Dayco Products Ltd. v. Kameswar Lal Sohani. In that case a petition for winding up by a fully paid up shareholder which was supported by creditors was treated virtually as a creditor's petition and ordered. In that case a petition for winding up by a fully paid up shareholder which was supported by creditors was treated virtually as a creditor's petition and ordered. On the question whether a petition was maintainable by a shareholder who does not allege and prove that there was surplus, DAS GUPTA J. observed that, "when a person asks for an order without any tangible interest in the result there is ordinarily good ground for thinking that the application is for ulterior purpose and not a bona fide application, " and that, "the provision in law that a petition shall not be refused merely on the ground that there are no assets does not make it any the less necessary for the court to be vigilant, that the court's process is not abused." * In other words want of assets would be an element in deciding whether the petition is bona fide P. N. MUKHERJEE J. was of the opinion that the rule laid down by JESSEL M.R. in In re Vron Colliery Co. should not be followed firstly because its correctness had been doubted by BUCKLEY J. in In re Grigglestone Coal Co. Ltd., and secondly because that would be inconsistent with Section 29 enacted in 7 Edw. VII, c. 50, and the corresponding provisions in the subsequent statutes. Referring to the decision in In re Kaslo-Slocan Mining and Financial Corporation Ltd., the learned Judge observed : "With all respect to the learned Judge (NEVILLE J.) who decided the said case, I am bound to say that his very short judgment of only three sentences gives no reason for the decision and even apart from all other matters it contains no indication that the effect of the statutory change, since the said dictum was pronounced in the year 1879, was considered in all its bearings. The learned Judge, also remarked that the decision in Bharat Bank v. Lajpat Rai Sawhney did not appear to have taken sufficient notice of the provisions of Section 170(1) of the Indian Companies ActConsidering the question purely on the language of the enactment, the right of a contributory to present a petition is declared in unqualified terms in Section 166. The learned Judge, also remarked that the decision in Bharat Bank v. Lajpat Rai Sawhney did not appear to have taken sufficient notice of the provisions of Section 170(1) of the Indian Companies ActConsidering the question purely on the language of the enactment, the right of a contributory to present a petition is declared in unqualified terms in Section 166. Now to annex a further condition to the exercise of that right that there should be an allegation and proof that there would be surplus assets available for distribution, would be to add to the section and not to interpret it. When the applicant for winding up is a shareholder and no rights of creditors are involved the court has always a discretion to decide whether it is in the best interests of all the persons concerned that the company should be wound up. Want of assets may be an element in determining whether the petition is bona fide or not but except to that extent it would not be a relevant consideration for deciding whether winding up should be order or not. Where a shareholder has made out a case for winding up a company, the petition is not liable to be thrown out merely on the ground that he has no established that there will be surplus assets available for distribution and that is precisely what Section 170 enacts. In this case the shareholders themselves passed a resolution for winding up the concern and there cannot, therefore, be any doubt that it is just and equitable that it should be wound up. That is the view taken by KRISHNASWAMI NAYUDU J. and we are in agreement with it The next contention urged on behalf of the appellant is that the respondent was not entitled to maintain O.P. No. 45 of 1951 under Section 247(6) of the Act. It will be remembered that it was on a memorandum dated July 6, 1948, sent by the respondent and another director that the Registrar passed the order striking off the company on July 19, 1949. The contention of the appellants is that having invited the Registrar to pass the order in question the respondent cannot be herded to complain about it and that he is not a person aggrieved within the meaning of Section 247(6). The decision in Harrup v. Bayley was relied on in support of this position. The contention of the appellants is that having invited the Registrar to pass the order in question the respondent cannot be herded to complain about it and that he is not a person aggrieved within the meaning of Section 247(6). The decision in Harrup v. Bayley was relied on in support of this position. There the facts were that a meeting was convened of the rate payers of a town for authorising certain expenses out of the town funds. On Harrup attended the meeting and took active part in the framing of the resolution which was ultimately passed. Section 181 of the Town Improvement Act gave a right of appeal to "any person or persons who may think himself, herself or themselves aggrieved" by any rate or order made under the Act. Under this provision Harrup filed an appeal against the resolution. An objection was taken that he was not a person aggrieved as he himself took part in the resolution and that the appeal was, therefore, incompetent. In upholding this objection LORD CAMPBELL C.J. observed :- "Giving it a reasonable construction, the enactment means to give an appeal to any one who has a legal ground for saying he is aggrieved. Now, how can such a provision apply to a person who wishes to complain of the act which he himself authorised, and expressly required to be done ? A meeting was called to consider whether these expenses should be paid out of the town funds. All who were present were told it could not legally be done against the consent of the ratepayers. The appellant then procured an alteration in the form of a resolution and himself expressly approved of the altered resolution, which empowered the Commissioners out of the town funds to prosecute the application to Parliament. The order complained of was made to carry out that resolution and pay the expenses incurred under it. How can the appellant say he is aggrieved by this order ? Volenti non fit injuria. According to every principle of justice he cannot complain of what was his own act." * The argument of Mr. V. Thyagarajan is that on the same principle the respondent must be held to be noted entitled to apply under Section 247(6) as a person aggrieved. Volenti non fit injuria. According to every principle of justice he cannot complain of what was his own act." * The argument of Mr. V. Thyagarajan is that on the same principle the respondent must be held to be noted entitled to apply under Section 247(6) as a person aggrieved. But then this objection is in the nature of a personal estoppel binding the respondent and does not preclude other persons interested in the matter from moving the court for relief under Section 247(6). On the merits nothing substantial has been urged against the order restoring the company to the register. The reason why the appellant objects to restoration under Section 247(6) is that if O.P. No. 49 of 1951 is to be dismissed as not maintainable that must, according to him, result in the dismissal of O.P. No. 409 of 1949 on the ground that there being no company in existence no order for winding it up could be made. It is represented to us by Mr. Veerasami, learned advocate for the respondent, that there are other shareholders who were supporting the respondent in the application for winding up the concern. If so, the matter could have been set right by impleading them as parties to O.P. No. 49 of 1951 and an order of restoration made at their instance. The objection that they are not to nominee parties to the petition is purely a formal and technical one and having regard to the substance of the matter we do not consider that this is a fit case for interference with what is eminently a just order made by the learned JudgeThe last contention of the appellants is that when once the company is struck of under Section 247(5) that cases to exist as a company thereafter and so there could in law be no petition to wind up what has no legal existence. The argument of the appellants on this question proceeded mainly on the difference in language between Section 353(5) of the English Act and Section 247(5) of the Indian Act. The argument of the appellants on this question proceeded mainly on the difference in language between Section 353(5) of the English Act and Section 247(5) of the Indian Act. Section 353(5) is as follows "At the expiration of the time mentioned in the notice the Registrar may, unless, cause to the contrary is previously shown by the company, strike its name off the register, and shall publish notice thereof in the Gazette, and on the publication in the Gazette of this notice the company shall be dissolved : Provided that - (a) the liability, if any, of every director, managing officer and member of the company shall continue and may be enforced as if the company had not been dissolved; and (b) nothing in this sub-section shall affect the power of the court to winding up a company the name of which has been struck off the register." * Section 247(5) of the Indian Companies Act is as follows "At the expiration of the time mentioned in the notice the Registrar may, unless cause to the contrary is previously shown by the company, strike its name off the register, and shall publish notice thereof in the Official Gazette, and, on the publication in the Official Gazette, of this notice, the company shall be dissolved; provided that the liability (if any) of every director and member of the company shall continue and may be enforced as if the company had not been dissolved." * The contention of Mr. V. Thyagarajan on behalf of the appellants is that in the absence, in Section 247, of a provision similar to Section 353(5) it must be held that there is no jurisdiction in the court to order winding up of a company which has been struck off. We do not agree that this is the conclusion to be drawn from the difference in language. Section 353(b) only makes explicit what is really implied in Section 353(5)(a). If the directors and members of the company continue to be liable as if the company had not been dissolved it must follow that the court must have jurisdiction to order winding up if that is necessary for enforcing those obligations. As argued by Mr. Veerasami the effect of a striking off of a company under Section 247 is not the same as dissolution thereof on the completion of the administration of the concern under Section 194. As argued by Mr. Veerasami the effect of a striking off of a company under Section 247 is not the same as dissolution thereof on the completion of the administration of the concern under Section 194. When a company is struck off under Section 247(5) there may be assets to be realised and debts to be discharged and for that purpose there might be need for administration and the effect of the provision in Section 247(5) that for certain purposes the company shall continue as if it had been dissolved is to invest the court with jurisdiction under SECTION 162 to order its winding up. The only decision which has been cited before us bearing on this question is Sheikh v. Berar Ginning Co. There it was held that a company could be wound up even after it had been struck off under Section 247(5). We are accordingly of opinion that even apart from an order restoring the company to the register under Section 247(6) the court has jurisdiction under Section 162 to order winding up of the concern. On the merits we do not see any sufficient ground to differ from the judgment of KRISHNASWAMI NAYUDU JThe arguments before us have proceeded on the assumption that the respondent was a fully paid up shareholder. It is now stated before us, that the appellants do not concede this, and that the question whether the respondent is a fully paid up shareholder might be left open for decision in the usual course. The respondent does not object to it In the result O.S.A. No. 1 of 1952 is dismissed with costs and O.S.A. No. 31 of 1952 without costs Appeals dismissed.