Judgment :- 1. The petitioner, a share-holder of the Cochin Refineries Ltd., Ambalamugal (which will hereinafter be referred to as the Company) prays for an order winding up the company under sub-sections (e) and (f) of S.433 of the Companies Act, 1956. The company was incorporated on September 6,1963 with a nominal capital of Rs. 15 crores divided into 15 lakhs shares of Rs. 100/- each. The issued, subscribed and paid up capital of the company is 7 crores of rupees made up of 7 lakhs equity shares of Rs. 100/- each. On April 27,1963 a formation agreement was entered into between the President of India (Government of India) of the first part and Phillips Petroleum Company of U. S. A. (Phillips) of the second Dart and Dunken Brothers and Company Ltd. (Dunkens) of the third part. Certain clauses of this agreement were modified on December 20,1968. 2. Though several allegations and averments are made in this petition, at the time of the hearing, the learned advocate appearing for the petitioner submitted that he is pressing the petition only under the just and equitable clause of S.433 on the following grounds: (i) As per the formation agreement referred to above, 2 directors were to be taken from the group of 'other share-holders' and till now this stipulation in the agreement has not been complied with and thereby the company has violated the terms of the agreement. (ii) The company has entered into sole selling agreement with Indian Oil Company since the beginning and the said agreement has not been renewed in accordance with the provisions in S.294 of the Companies Act, 1956. (iii) The petroleum products are sold by the company to the Indian Oil Company on credit basis. The company borrows capital on a very high interest and sell its products on credit to the Indian Oil Company on a lesser rate of interest thereby resulting in loss. (iv) The company is indebted to Phillips Petroleum Company to the tune of three crores of rupees and this debt has not been paid so far. 3. Urging these grounds, the counsel also raised a preliminary point and contended that in view of the fact that the petition has already been admitted and notice ordered to the Company, by virtue of R.96 of the Rules framed under the Companies Act, this Court before ordering advertisement cannot hear the petition on merits. 3. Urging these grounds, the counsel also raised a preliminary point and contended that in view of the fact that the petition has already been admitted and notice ordered to the Company, by virtue of R.96 of the Rules framed under the Companies Act, this Court before ordering advertisement cannot hear the petition on merits. 4. An affidavit in opposition has been filed by the company denying all the allegations and averments made against the company and contending that the petition is not maintainable, that the company has not violated any of the provisions of the Companies Act or any of the terms of conditions enumerated in the formation agreement, that the balance-sheet of the company will show that the company has been running on a profit, that the company has this year made a profit of more than 3 crores of rupees (on the date of the filing of the affidavit) and that the company expects to wipe off the loss incurred last year in no time. 5. Application No. 229 of 1975 was filed by the company stating that the advertisement of the petition will seriously prejudice the company and therefore the petitioner may be restrained from advertising the petition and proceeding further with the petition. 6. Before dealing with the grounds raised in support of the petition, T shall consider the preliminary point raised on behalf of the petitioner. There is nothing mandatory in R.96 of the Companies (Court) Rules that as soon as a petition for winding-up is received or admitted the Court is bound to order advertisement of the petition and proceed with the same. R.96 reads: "96. Admission of petition and directions as to advertisement. Upon the filing of the petition, it shall be posted before the judge in Chambers for admission of the petition and fixing a date for the hearing thereof and for directions as to the advertisements to be published and the persons, if any, upon whom copies of the petition are to be served. The Judge may, if he thinks fit, direct notice to be given to the company before giving directions as to the advertisement of the petition". It is clear from the latter part of the rule that it is within the discretion of the Court to order advertisement or not even after the admission of the petition. The Judge may, if he thinks fit, direct notice to be given to the company before giving directions as to the advertisement of the petition". It is clear from the latter part of the rule that it is within the discretion of the Court to order advertisement or not even after the admission of the petition. When a petition for winding-up is filed before the High Court, it has to be posted before the concerned judge for admission and the Court (i) may issue notice to the company to show cause why the petition should not be admitted; (ii) may admit the petition and fix a date for hearing; and may issue a notice to the company before giving directions about advertisement of the petition; or (iii) may admit the petition, fix the date of hearing of the petition, and order that the petition be advertised and direct that copies of the petition be served upon persons specified in the order. 7. It was argued on behalf of the petitioner that this petition has actually reached the third stage and therefore this Court is bound to order advertisement before hearing the petition on merits. I am unable to agree with the learned counsel in this regard. Though it can be argued that it does not appear to be quite clear from the order whether the petition has reached the first or second stage, there can be no doubt that it has not reached the third stage. The following is the order passed by the learned judge who issued notice: "Advocate Sri. K. A. Nair takes notice on behalf of the respondent. Post for objections, if any, and preliminary hearing after 3 weeks". This indicates that the petition has reached only the first stage and in any view it is clear that it has not reached the third stage. As already stated, there is nothing in R.96 which suggests that as soon as an application for winding up is taken on file by the judge, he is bound to order advertisement of the petition and proceed with the further hearing thereof. The contention of the petitioner in this respect is contrary to the plain terms of the rule. Otherwise, any person who is competent to file a petition for the purpose can abuse the process of the court by filing frivolous petitions making false allegations. The contention of the petitioner in this respect is contrary to the plain terms of the rule. Otherwise, any person who is competent to file a petition for the purpose can abuse the process of the court by filing frivolous petitions making false allegations. This rule is not intended to make the court an instrument of harassment and or a venue to blackmail a concern with good reputation. The court has a duty to satisfy before admitting the petition that there is a prima facie case to admit the petition and also similarly to satisfy that a prima facie case exists for ordering advertisement. It was held by this Court in George v. Athimattam Rubber Company Ltd. ( (1965) 35 Comp. Cas.17): "It is the duty of the court before admitting a winding-up petition, especially one brought by a contributory, to satisfy itself that there are prima facie grounds and it is well settled that, even after the court has admitted a petition, it can, on being moved for the purpose by the company or some other interested person, stay proceedings and revoke the admission". The latter part of R.96 says that the judge may, if he thinks fit, direct notice to be given to the company before giving directions as to the advertisement of the petition. The hearing to be given to the company contemplated under this rule is not for the purpose of deciding the manner of the advertisement but for deciding whether the advertisement should be made at all and the petition proceeded with. The Supreme Court in National Conduits (P) Ltd. v. S. S. Arora ( (1967) 37 Com. Cas. 786) while considering the question whether advertisement under R.96 is compulsory on admission and the powers of court in this respect has held that it is not correct to state that as soon as a petition for compulsory winding-up of a company is admitted, it must be advertised, that if the petition is admitted it is still open to the company to move the court that, in the interest of justice or to prevent abuse of the process of the court, the petition be not advertised and that such an application may be made where the court has issued notice under the last clause of R.96 of the Rules, and even when there is an unconditional admission of the petition for winding up. In an appropriate case, the court has the power to suspend advertisement of a petition for winding up, pending disposal of an application for revoking the order of admission of the petition. Under R.96, in answer to a notice to show cause why a petition for winding up be not admitted, the company may show cause and contend that the filing of the petition amounts to an abuse of the process of the court. The law on the point is therefore clear that even at this stage the company can appear and contend that there is no valid ground for proceeding with the petition and that the institution of the petition amounts to an abuse of the process of the court. 8. Now I shall consider the grounds referred to above one by one. Though the petitioner is placing reliance on the formation agreement, the Memorandum and Articles of Association of the Company and the 12th Annual Report of the Company, none of these has been produced. The counsel for the company submitted that he has all these documents with him and was fair enough to produce the same for perusal of the Court. The first ground taken is that the petitioner is a share-holder belonging to the category of 'other share-holders', and that, in spite of the stipulation in the Formation Agreement that two directors of the company are to be elected from the group of 'other share-holders', the company has failed to comply with this direction. There is no allegation in the petition that the candidate nominated or sponsored by the petitioner or by the group of other 'other share-holders' has been defeated at the election. It is not disputed that the directors are to be appointed by election and if that be so, if the petitioner or anyone from his group was not able to get elected that cannot be a ground for winding-up of the company. This apart, in the light of the averments on this aspect the affidavit in opposition, which have not been denied by the petitioner and the Formation Agreement and the Memorandum and Articles of Association of the Company produced before Court, there is no substance in the contentions raised by the petitioner on this point. This apart, in the light of the averments on this aspect the affidavit in opposition, which have not been denied by the petitioner and the Formation Agreement and the Memorandum and Articles of Association of the Company produced before Court, there is no substance in the contentions raised by the petitioner on this point. Under Clause.4.6 of the Formation Agreement, the participation in the equity capital of the New Company shall be as follows: The group of 'other share-holders' referred to by the petitioner comes under "the Indian Public and others as may be determined by the Government of India". As per the statement in Para.6 of the affidavit in opposition, the paid up capital structure of the company at present roughly is as follows: It can be seen from the above that the participation in the equity capital of the company of the group of the other share-holders is about 21 per cent. Under Clause.4.7 of the Formation Agreement, the Board of Directors will be composed of nine members of which the Government of India will nominate five Directors; Phillips two Directors and other share-holders two Directors. Under R.69 of the Memorandum and Articles of Association of the Company, all Directors shall retire at every annual general meeting. In Para.11 of the affidavit in opposition, the names of Directors who were elected at the last annual general meeting held on May, 30,1975 are given. Of these, 5 are nominees of the Government of India, 2 are representatives of Phillips Company and the remaining two are members elected from among the group of 'other share-holders'. These facts are not disputed. Therefore it can be seen that there has been no violation of any of the provisions of the Formation Agreement in the matter of election of the Directors. 9. Under S.294 (1) of the Act, no company shall, after the commencement of the Companies (Amendment) Act, 1960, appoint a sole selling agent for any area for a term exceeding five years at a time. The proviso to this section says that nothing in this sub-section shall be deemed to prohibit the re-appointment, or the extension of the term of office, of any sole selling agent by further periods not exceeding five years on each occasion. Appointment of a sole selling agent as such is not prohibited under this section. The proviso to this section says that nothing in this sub-section shall be deemed to prohibit the re-appointment, or the extension of the term of office, of any sole selling agent by further periods not exceeding five years on each occasion. Appointment of a sole selling agent as such is not prohibited under this section. Restriction in this respect is only regarding the term or period of appointment. In Para.6 of the petition, it is stated that the Company entered into sole selling agreement with Indian Oil Company since the beginning and that this agreement is in violation of the provisions in the Companies Act. In what manner, the provision has been violated is not stated in the petition. The affidavit in opposition filed by the company states that there are no selling agencies much less a sole selling agency as alleged. The sale of the products of the company is conducted in accordance with Clause.8 (1) of the Formation Agreement. As per this agreement, the marketing of the products of the company is to be done by the Government of India or its nominees. In Para.12 of the affidavit, it is stated that the Government of India by their letter dated 24 21966 nominated Indian Oil Corporation Limited for the lifting of the Refinery Product and the company was directed to make available to the Indian Oil Corporation Ltd. the entire products of the company, and that the company is conducting sales in accordance with this agreement. There is therefore no violation of S.294 of the Companies Act as alleged. 10. According to the counsel for the petitioner, the company has borrowed huge amounts on a very high rate of interest and is selling its products on credit to the Indian Oil Corporation on a very low rate of interest thereby incurring loss to the company. There is no averment in the petition regarding the difference in the rate of interest between the capital borrowed and the sales conducted on credit. What is alleged in the petition in this respect is that the Indian Oil Corporation utilises the company's funds. There is no averment in the petition regarding the difference in the rate of interest between the capital borrowed and the sales conducted on credit. What is alleged in the petition in this respect is that the Indian Oil Corporation utilises the company's funds. The company has denied these allegations in its affidavit and has stated that in accordance with the original understanding the Indian Oil Corporation uplifted the petroleum products of the company and for all such products uplifted, payment had to be made by Indian Oil Corporation within one month and that even this credit facility has now been withdrawn and now petroleum products are uplifted from the company's premises on payment of cash or interest calculated on deferred payment. 11. The fourth ground also is devoid of any merit. There is no specific allegation or averment in the petition that a sum of Rs. 3 crores is due from the company to Phillips Petroleum Company. There is a reference that a sum of three crores of rupees is payable by the company in Para.24 of the petition. It was argued on behalf of the petitioner that the company has acknowledged this debt of 3 crores of rupees to Phillips Petroleum Company in its 12th Report. But, on going through Para.24 of the petition it is seen that this ground was urged to show that the company was unable to pay the debt and therefore the company is liable to be wound up under S.433(e) of the Companies Act. The petitioner's counsel was not able to point out any statement in the 12th Report of the Company to the effect that a sum of three crores of rupees was due from the company to the Phillips Petroleum Company. What is stated in Para.24 of the petition is that the company has carried forward nearly three crores of rupees payable to the collaborators and all other share-holders, which the company hopes to pay them from the profits of the future year. The petitioner has no case that the creditor issued a notice to the company and even after that the company was not able to pay any amount. The mere fact that a company has made losses over an year or two and may do so in future does not justify a winding-up order. The petitioner has no case that the capital has been exhausted. 12. The mere fact that a company has made losses over an year or two and may do so in future does not justify a winding-up order. The petitioner has no case that the capital has been exhausted. 12. It is not disputed that the prices of the petroleum products are controlled by the Government of India. According to the company, when prices of crude oil went up, the Government of India did not allow a price increase in the petroleum products commensurate with the increase of price of crude oil and the loss during the year 1973 74 was mainly due to this factor. This year, as already stated earlier, the company is making a profit and in Para.6 of the affidavit in opposition it has been stated that the company has made a profit of more than Rs. 3 crores this year and it is expected that the company will soon wipe off the earlier loss in the previous year. 13. From the foregoing, it is clear that the petitioner has failed to make out any proper, adequate or reasonable ground for admitting this petition and in any view, I am satisfied that there is no case made out for ordering advertisement of this petition. It goes without saying that the very institution of the petition for winding up and its advertisement against the company will certainly adversely affect its reputation. The petitioner is a contributory and there are other remedies open to him under S.397 and 398 of the Companies Act for redressing his grievances regarding mismanagement and suppression. This petition is therefore dismissed. In the circumstances the consideration of the application by the company does not arise and that is also dismissed.