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1999 DIGILAW 526 (KAR)

K. N. ESWARA RAO v. K. H. SHAMA RAO AND SONS, BANGALORE

1999-10-01

N.S.VEERABHADRAIAH, V.BHASKARA RAO

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N. S. VEERABHADRAIAH, J, J. ( 1 ) THIS appeal is directed against the order in Co. P. No. 44 of 1995, dated 17-4-1995 passed by the learned Single Judge dismissing the company petition. ( 2 ) THE brief facts of the case are as follows: the appellant presented the company petition before the learned Single judge for winding up of the first respondent-partnership firm M/s. K. H. Shama Rao and Sons which is an unregistered Company, for award of cost and for such other reliefs on the allegations that a partnership firm was constituted in the name and style of K. H. Shama Rao and Sons (respondent 1) under the deed dated 1-1-1977 among himself, his brothers, respondents 5, 9, 12 and 16 including the petitioner-appellant representing their family branches. In the meanwhile, a dispute arose between the appellant on the one hand and the respondents on the other hand. Accordingly, respondents 2 to 7 reconstituted the partnership firm by a deed dated 2-4-1992. As per the said deed, the share of the appellant was 3% in the profit and loss of the firm to the extent of 40%. In fact, the deed dated 2-4-1992 is an unilateral one at the instance of respondents 2 to 7 wherein the appellant actually is entitled for 5% which was reduced to 3% under the said deed. After the partition deed dated 2-4-1992, the respondents resisted to pay his share. The appellant had to receive Rs. 3,000/- p. m. and no payments have been made. In fact, the premises in question has been leased in favour of respondent 18 on a monthly rent of Rs. 60,000/ -. Actually, the appellant is entitled for an amount of Rs. 12,500/- inclusive of a sum of Rs. 4,500/- due and also entitled for a sum of Rs. 750/- p. m. from the month of October 1991 and march 1992 with an interest of 18% p. a. The appellant has also filed o. S. No. 3671 of 1988 in the Court of the City Civil Judge, Bangalore for a decree for partition of the suit schedule properties in which he is entitled for 1/20th share. In the said suit, the respondents have filed the written statement contending that the petitioner's right in the partnership asset is only 3%. In the said suit, the respondents have filed the written statement contending that the petitioner's right in the partnership asset is only 3%. The appellant has also filed O. S. No. 1932 of 1988 against the respondents for mandatory injunction to render accounts. In the said suit, the respondents have the written statement and admitted that the appellant is a partner. In view of the fact that the respondents have not made any payment towards the share of the appellant, he is entitled to exercise his right as a partner and also in the capacity as a creditor for seeking winding up of the respondent 1-firm. The learned single Judge dismissed the petition on the ground that it contravenes the provisions of Section 11 of the Companies Act and further observed that there are no materials to warrant to exercise powers under clauses (a), (b) and (c) of sub-section (4) of Section 583 of the Companies Act. Being aggrieved of the dismissal of the company petition, the appellant has come up with this appeal. ( 3 ) LEARNED Counsel for the appellant contended that there is no bar to maintain a petition under Section 583 (4) (a), (b) and (c) of the Companies act to seek winding up of the partnership concern and in fact there is no contravention of Section 11 of the Act. The finding of the learned single Judge holding that it is in contravention of Section 11 of the companies Act is erroneous. He further contended that in the case on hand, Section 11 of the Companies Act is not at all applicable as the partners of the firm are less than twenty. In that view of the matter, the findings of the learned Single Judge is not based on merits. Therefore, prayed to allow the appeal and to remand the matter to the learned single Judge to proceed with the matter for winding up of the firm. ( 4 ) ON the other hand, the learned Counsel for the respondents submitted that the partnership firm is registered under the Partnership act. The learned Single Judge has clearly held that the winding up petition is in contravention of Section 11 of the Companies Act. He nextly contended that the appellant has filed a suit for rendering of the accounts and also a suit for partition. Virtually, the relief prayed is for dissolution of the partnership firm. The learned Single Judge has clearly held that the winding up petition is in contravention of Section 11 of the Companies Act. He nextly contended that the appellant has filed a suit for rendering of the accounts and also a suit for partition. Virtually, the relief prayed is for dissolution of the partnership firm. There are no merits in the appeal and the learned Single Judge has taken into consideration all the material facts. Accordingly, prayed to dismiss the appeal. ( 5 ) IN the light of the submissions, the points for consideration that arise are: 1. Whether the winding up petition filed is in contravention of section 11 of the Companies Act? 2. If so, the order of the learned Single Judge is liable to be interfered with? ( 6 ) IT is admitted fact that the firm in question is registered under the provisions of the Partnership Act. As per the description of the respondents in the cause title, 17 persons have been shown as the partners. In the pleadings also, it is stated that the partnership firm was reconstituted by a deed dated 2-4-1992 whereas it is the case of the appellant that actually he is entitled for 5% profit whereas the profit of the appellant has been fixed at 3%. It is further seen from the pleadings itself that the firm is due to him an amount to an extent of Rs. 12,500/- and that he had also filed O. S. No. 3671 of 1988 in the Court of the City Civil judge, Bangalore claiming a decree for partition of his l/20th share in the schedule properties and he had also filed another suit O. S. No. 1932 of 1988 for rendering of accounts with effect from 3-1-1966. These facts clearly evidence that the firm consists of more than 7 persons and thereby, comes within the meaning of unregistered companies as defined under Section 583 (4) of the Companies Act. These facts clearly evidence that the firm consists of more than 7 persons and thereby, comes within the meaning of unregistered companies as defined under Section 583 (4) of the Companies Act. Sub-sections (2) and (3) of section 11 of the Companies Act reads thus:"11 (2) No company, association, or partnership consisting of more than twenty persons shall be formed for the purpose of carrying on any other business that has for its object the acquisition of gain by the company, association or partnership, or by the individual members thereof, unless it is registered as a company under this act, or is formed in pursuance of some other Indian Law. (3) This section shall not apply to a joint family as such carrying on a business; and where a business is carried on by two or more joint families, in computing the number of persons for the purposes of sub-sections (1) and (2), minor members of such families shall be excluded". Sub-section (2) makes clear that no partnership shall be formed consisting more than 20 persons for carrying on any other business etc. , subsection (3) makes clear that in case of joint families, while computing the number of persons, the minor members have to be excluded. It is an admitted fact that the partnership came to be reconstituted by a partnership deed dated 2-4-1992 in which the share of the appellant was 3% of the profit whereas his claim is for 5%. The number of persons in the said deed is more than 7 and less than 17. Therefore, we find that there is no contravention of Section 11 of the Companies Act. In that view of the matter, insofar as the finding of the learned Single Judge holding that the company petition is barred under Section 11 of the Companies act is not sustainable and the same is hereby set aside. ( 7 ) THE company petition came to be filed under the provisions of section 583 (4) (a), (b) and (c) of the Companies Act, 1956. Section 583 of the Act deals with winding up of unregistered companies. It is open for the partners or any one of the creditors to maintain a petition under the provisions of Section 583 (4) of the Companies Act. Section 583 of the Act deals with winding up of unregistered companies. It is open for the partners or any one of the creditors to maintain a petition under the provisions of Section 583 (4) of the Companies Act. The learned Counsel for the appellant relied on the decisions reported in (1) G. P. Ganapaiah Maiya and Others v M/s. M. T. R. Associates and Others; (2) M/s. World Wide Agencies Private Limited and Another v mrs. Margarat T. Desor and Others; (3) Vasantrao and Another v Shyamrao and Others ; and (4) M/s. Bangalore Timber Industries and Others v Madras sapper Ex-Servicemen's Rehabilitation Association and Another. ( 8 ) IN the decision in M/s. World Wide Agencies Private Limited's case, supra, the matter which came up for consideration was regarding the locus standi of the legal representatives of the deceased shareholders, members and the maintainability of the petition under Sections 397 and 398 of the Companies Act. It is in that context held that the petition for winding up is maintainable in the alternative under Section 433 (f) of the act. In the above case that an application came to be filed under Sections 397, 398 as well as under Section 433 (f ). Earlier to the amendment, it was the Company Court which had the jurisdiction to consider the application filed under Sections 397 and 398 to exercise powers and to examine for prevention of oppression and mismanagement and so also for grant of relief in case of proof of mismanagement. Under the said circumstances, it is held even in the alternative, the petition for winding up is maintainable under Section 433 (f) of the Act. That after the amendment, the jurisdiction of the Company Court under Sections 397 and 398 was taken away and it is the Company Law Board which was empowered to deal with the matter. In the case on hand, the facts are entirely different. Therefore, the same ratio cannot be applied though it is held that the petition under Section 433 (f) is maintainable for winding up. In the case on hand, the facts are entirely different. Therefore, the same ratio cannot be applied though it is held that the petition under Section 433 (f) is maintainable for winding up. ( 9 ) THAT while considering the status of an unregistered company insofar as the dissolution of the partnership firm, this Court in the decision in G. P. Ganapaiah Maiya's case, supra, held if the ingredient of sub-section (4) of Section 583 of the Act are made out even in case of unregistered firm of partnership consisting of more than seven persons that a petition for winding up is maintainable. It is further observed that the proceeding under the Companies Act are summary in character whereas in case of suits filed for dissolution of partnership will be in the civil nature which consumes elaborate time for disposal of the matter. This is one of the reasons why it was held that the petition for dissolution is maintainable. ( 10 ) IN the decision in Vasantrao's case, supra, the Supreme Court has clearly held that an aggrieved party had an option to institute a suit for winding up of an unregistered company and further held that Part X of the Companies Act does not come in the way of the operation of Partnership act. This makes clear that the aggrieved party either has a recourse under the Companies Act or under the Partnership Act. ( 11 ) THIS Court in the decision in Bangalore Timber Industries case, supra, went a step ahead and held that there is no bar to maintain a petition under the Companies Act for winding up even though the partnership or association consists of more than 20 members. ( 12 ) NOW what we have to consider is, whether it is open for the appellant to maintain a petition under Section 583 (4) of the Companies act. Section 583 (4) of the Act reads thus:"583 (4): The circumstances in which an unregistered company may be wound up are as follows: (a) if the company is dissolved, or has ceased to carry on business, or is carrying on business only for the purpose of winding up its affairs; (b) if the company is unable to pay its debts; (c) if the Court is of opinion that it is just and equitable that the company should be wound up". It is manifest from the reading of the Section that if the firm ceases to carry on business, secondly unable to pay the debts and thirdly, if the court is of the opinion that such firm is liable to be wound up, it enables the aggrieved party to present an application for winding up of the firm. In the case on hand, the dispute is only between the partners regarding the profit in the share capital. According to the appellant, on his share that he is entitled for 5% profit whereas he was given only 3% and it is also the further case of the appellant that the remaining partners i. e. , the Managing Partner has not paid his share for the amount received in respect of the lease of the premises in favour of respondent 18. From the very reading of the petition, we need to observe that the ingredients of section 583 (4) of the Companies Act are not made out. In that view of the matter, though the law provides for dissolution of the unregistered company, as the appellant failed to make out the requisite ingredients for presenting the petition, we have to hold that the petition is not maintainable on the grounds pleaded. Secondly, it is not in dispute that the appellant has already instituted proceedings under the Partnership act for rendering of the accounts as well as for seeking partition of all the joint family properties. In that view of the matter, the proceedings being already pending even much earlier to the filing of this petition, we have to hold that this petition cannot be entertained. ( 13 ) FOR the reasons mentioned above, we do not find any merits in this appeal. Accordingly, the appeal fails and stands dismissed. --- *** --- .