N.K. Jain, C.J.
1. The appellant-respondent has filed this appeal against the order of the learned Company Judge passed in Co.P. 17/1998, admitting the petition on 2.2.99.
2. The brief relevant facts as stated by the learned Counsel for the appellant are that the appellant is a company limited by guarantee incorporated under the provisions of the Companies Act, 1956 (for short the Act'); it is carrying on its business as a licensee under the Karnataka Race Licensing Act. Articles of Association has been framed as per Section 29 of the Act; Article 3(a) of the Articles of Association defines a Club Member as a Member of the Company for the purposes of the Companies Act and Stand Members are not members of the Appellant for the purposes of the Companies Act. Shri Naganand, for M/s. Sundaraswamy Ramdas & Anand, learned Counsel appearing for the appellant-company submits that a company petition can be filed only by a contributory or a member of a company, and the respondents being stand members and not the members of the appellant-Company under Article (3a), have no locus standi to file the petition. He submits that the learned Company Judge has erred in invoking the 'just and equitable' clause, and therefore the impugned order is liable to be set aside. He also submits that Section 433(f) of the Act for winding up of a company can be invoked on 'just and equitable' grounds, but the same is not attracted in the facts of the given case and present set of circumstances, merely on the ground that stand members are deprived of voting rights as per the Articles of Association, which is illegal. Learned Counsel relying upon the decision in HIND OVERSEAS PVT.LTD. v. JHUNJHUNWALA, : [1976]2SCR226 argued that the 'just and equitable' Clause can be invoked as a last resort. He submits that the respondents have not exhausted the alternative remedy under Sections 397 & 398 of the Act. He submits that the learned Company Judge, merely on basis of the averments, erred in observing that the contentions required a detailed consideration and adjudication and deciding whether the petition was maintainable before ordering it to be admitted. He also submits that the Articles of Association is a contract between the company and its members inter se; the members are bound by the provisions of the Articles of Association, and therefore, the respondents have no right to question the legality of the provisions of the Articles of Association. The petition invoking Section 433(f) of the Act, cannot be entertained and the order of the learned Company Judge is liable to be set aside.
3. On the other hand, Shri P.M. Vasudev, learned Counsel for the respondents submits that the learned Company Judge by a detailed order has come to the conclusion and invoking the power under Section 433(f) of the Act has admitted the case, and therefore, on mere admitting the case in the absence of issuance of advertisement, the appeal is not maintainable. Learned Counsel does not dispute the legal position that Clause 'just and equitable' has to be invoked in exceptional cases applying the judicious mind but submits that the cases relied on by the learned Counsel for the appellant are not helpful in the facts of the present case. He also submits that when the stand members and the club members are inducted by elections and every member shall have one vote, the question of approaching the Company Law Board did not arise and more so, Sections 397 & 398 can be invoked when there is a mismanagement of company affairs. So also, there is no question of approaching the Civil Court when there is a violation of provisions of the Articles of Association and the jurisdiction of this Court has not been taken away as there is no hard and fast rule for invoking Section 433(f) of the Act, and therefore, the learned Company Judge can consider all the issues while finally determining whether the advertisement is necessary for winding up or not, and in view of this, the order of the learned Company Judge needs no interference. He relied on the decisions in MILAND EXPORTS PRIVATE LIMITED v. A.V. VENKATANARAYANA AND Ors., (1995) 83 Company Cases 85 and in ANISHA K. SHAH v. FOSTENEX(P) LTD. AND Ors., (1995) 82 Company Cases 514
4. In rejoinder, Sri Naganand, learned Counsel for the appellant, on the maintainability of the appeal, submits that the appeal is maintainable and relied on the decision in PRADESHIYA INDUSTRIAL AND INVESTMENT CORPORATION OF U.P. v. NORTH INDIA PHARMACEUTICALS LTD., : [1994]1SCR815 . He submits that the decision in Miland Exports Private Limited (Supra)was rendered on 27.11.1992 and later on the Apex Court had an occasion to consider the issue in PRADESHIYA INDUSTRIAL AND INVESTMENT CORPORATION OF U.P' (supra) wherein it was held that an order of admission has serious civil consequences and has to be followed by an advertisement and therefore an appeal under Section 483 of the Act would lie, and ultimately, the Apex Court entertained the appeal and set aside the High Court order by which the petition was admitted. He submits that the decision in PRADESHIYA INDUSTRIAL AND INVESTMENT CORPORATION OF U.P. (supra) was rendered on 9.2.1994 and being a later decision is applicable to the facts of the present case and impliedly over-rules the earlier decisions, and therefore this appeal is maintainable. He also submits that the respondents made an application to become stand members and were admitted as such and now they cannot make a grievance that they should be regarded as Club Members, and not being the members for the purposes of the Act cannot seek winding up contending that the contents of the Articles of Association are contrary to the provisions of the Act. He submits that the decision in company cases relied upon by the learned Counsel for the respondent are not applicable to the facts of present case.
5. We have heard the learned Counsel for the parties, and perused the materials on record, the case law and the relevant statutory provisions.
6. It is not necessary to go into the details of the facts as they are also not disputed.
The question that is involved in this appeal though short has far reaching consequences, and it is whether, on the basis of the allegation that Articles of Association is illegal, can an order, for winding up of a company by invoking Section 433(f) of the Act, be passed or not.
7. So far as the legal position is concerned, it is well settled and it is not necessary to go into the facts of each case relied upon by the learned Counsel. Both the parties have not disputed the legal position.
8. Before going into the merits of the case, we shall consider the argument of the learned Counsel for the respondents that this appeal is not maintainable as the impugned order only admits the company petition and there is no issuance of any advertisement, and the decision relied upon in MILAND EXPORTS PRIVATE LIMITED (supra), based on the decision in National Conduits (P) Ltd v. S. Arora [(1967) 37 Comp. Cases 786] , holding that the appeal under Section 483 would not be maintainable against an order merely admitting a winding up petition. On the other hand, learned Counsel for the appellant-Company relied upon the decision in PRADESHIYA INDUSTRIAL AND INVESTMENT CORPORATION OF UP (supra). It is well settled that if there are divergent views, the later decision has to be followed, and even if the earlier decision has not been taken into consideration, it cannot be said to be bad. In PRADESHIYA INDUSTRIAL AND INVESTMENT CORPORATION OF U. P. (supra), the Supreme Court, while considering the question whether an appeal would lie against an order of admission, observed that an order of admission has serious civil consequences and would have to be followed by an advertisement and therefore an appeal under Section 483 of the Companies Act would lie, and ultimately allowed the appeal and set aside High Court's order admitting the petition and dismissed the company petition. The decision in PRADESHIYA INDUSTRIAL AND INVESTMENT CORPORATION OF U.P.(supra) was rendered on 9.2.1994. Under the circumstances, the argument of the learned Counsel for the respondents is not acceptable, and it cannot be said that the appeal is not maintainable.
9. Now, we shall proceed to consider the case on merits. There is a provision in the Act for winding up of the company and Section 433 deals with it. As per Clause (a) to (e) of Section 433 of the Act any of the conditions prescribed has to be satisfied and fulfilled for winding up of the Company, but at the same time this Court is not bound to make an order for winding up even though the condition required for filing an application for winding up of a company may exist. This Court can also recall the order of admission of a company petition if an application is moved by the interested party and the same depends on the facts of a given case. So far as Clause (f) of Section 433 of the Act, i.e., the Clause 'just and equitable' is concerned, no definite condition is prescribed and it leaves the entire matter to the wide and wise judicial discretion of the Court and there is no straight-jacket formula, but each case depends on the facts and circumstances of its own. We have to consider the case in the light of the above settled legal position.
10. It is necessary to refer to the following relevant provisions of the Articles of Association of the appellant-Company.
Article 2.e): Member' shall mean Club Member as well as Stand Member according to the context.
Article 3.a): 'There shall be only three classes of Members viz., Club Members, Stand Members and Honorary Members, of whom only the Club Members shall be deemed to be Members within the meaning of the Act .........'
Article 8. Subject to the provisions of Article 7, Club Members shall have the right to propose candidates for admission as Club or Stand Members, to propose resolution and to vote at all general meeting of the Club. Stand Members shall have no right to participate or vote at Club Meetings.
A bare reading of the above provisions makes it clear that, though as per Article 2, 'Member' shall mean Club Member as well as Stand Member according to the context, Article 3a) specifically states that only Club Members are deemed to be the Members of the Company for the purposes of the Act. It will be relevant to refer to Section 41 of the Act, which deals with the membership of a company and as per the Section the subscribers of the memorandum of a company are deemed to have agreed to become the members and on its registration, shall be entered as members in its register of members. Further Article 8 of the Articles of Association, makes it clear that Stand Members shall have no right to participate or vote at Club Meetings.
11. It will also be relevant to refer to Section 29 of the Act.
'29. Form of Articles in the case of other companies:
The Articles of association of any company, not being a company limited by shares, shall be in such one of the Form in Tables C, D and E in Schedule I as may be applicable, or in a Form as near thereto as circumstances admit:
Provided that nothing in this section shall be deemed to prevent a company from including any additional matters in its articles in so far as they are not inconsistent with the provisions contained in the Form in any of the Tables C, D and E adopted by the company.
The proviso makes it clear that the Company can include any additional matter in its articles. Article 1 at Annexure-A page 29 provides that the articles contained in Table-C shall apply subject to modifications herein contained. The proviso to Section 29 also empowers a company to include any additional matters in the articles. The additional matter in the articles relates to stand members who are not members of the company at all. Therefore, the contention of the respondents is wholly unsustainable.
12. It is not disputed that the appellant, the Bangalore Turf Club Ltd., was incorporated as company under the Act on 1.3.1962 under Certificate of Incorporation No. 1449/1962, having its registered office at Race Course, Race Course Road, Bangalore. It is also seen that the respondents knowing fully well that the rights of the Stand Members are not identical to the rights of Club Members applied for becoming Stand Members, acquiesced in and conducted themselves in that manner for several years. Nothing has been placed on record to show that any of the respondents had submitted any representation to the Company at any point of time. However, as alleged one N.M. Lingaraju made a representation dated 15.7.1997 and 13.8.1997 to the Chairman of the appellant-Company to consider the Stand Members also as Club Members and to extend the same privileges and rights which are extended to the Club Members. It is alleged in the company petition that no action was taken and hence the respondents filed the company petition. As stated, admittedly, none of the respondents had made any representation to the appellant- company and under the circumstances, they cannot take advantage of the so-called representation dated 15.7.1997 (Annexure-B), filed by some other person, and approach this Court seeking winding up of the appellant-company invoking Section 433(f) of the Act.
13. Learned Counsel for the respondent has placed reliance on Article 14 of Table -C of the First Schedule to the Act, which provides that every member shall have one vote. In our considered opinion, it is applicable only to a person who is a member of the company and as per the provisions of the Articles of Association the respondents being Stand Members, are not members within the meaning of the Act. The appellant-company has provided various amenities and facilities in the race course for the purpose of conducting horse racing and also separate enclosures for its members, punters and bookmakers. In addition to the members of the appellant, members of the public are permitted into the precincts of the club to witness horse races and to participate in the betting. The regular punters who are interested to come to the race course, though they are not members of the appellant-company can apply to become stand members. The respondents applied for being admitted as stand members and were admitted as such. As stated, stand members have no right to vote and therefore, the absence of a voting right for Stand Members does not in any way violate Article 14 of Table-C, and therefore, the respondents cannot seek for winding up of the appellant-company on the basis of 'just and equitable' clause invoking Section 433(f) of the Act.
14. The other argument that Sections 397 & 398 of the Act can be invoked only when there is a mis-management of company affairs is also not helpful in the facts of the given case.
15. It is seen that the Companies Act empowers a company to have different categories of members and there is no provision in the Act, which prohibits such categorisation of members. In the instant case, the respondents being fully aware of the contents of the Articles of Association, made applications to become stand members and were admitted as such and filed the company petition invoking Section 433(f) of the Act on the ground that as per Article 2e) they are members of the Company according to the context and under Article 14 of Table -C of the First Schedule they have voting rights. As stated, the Articles of Association is clear that the stand members are not members of the Company for the purpose of the Act and also do not have any voting rights in the company.
16. A reference can also be made to the Supreme Court decision in Needle Industries's (India) Ltd. and Ors. v. Needle Industries Newey (India) Holdings Ltd. and Ors., wherein the Supreme Court at para 49 pointed out that every illegality committed by a Company or persons in its management need not be oppressive and that every act of oppression need not be illegal, and at Page 1319 observed as follows:
'The question sometimes arises as to whether an action in contravention of law is per se oppressive. It is said, as was done by W.H. Bhagwati J. in S.M. Ganapatram v. Sayaji Jubilee Cotton and Jute Mills Co., : (1964)0GLR804 that 'a resolution passed by the directors may be perfectly legal and yet oppressive, and conversely a resolution which is in contravention of the law may be in the interests of the shareholders and the company'. On this question, Lord President Cooper observed in Elder v. Elder (1952) SC 49:
'The decisions indicate that conduct which is technically legal and correct may nevertheless be such as to justify the application of the 'just and equitable' jurisdiction and, conversely, that conduct involving illegality and contravention of the Act may not suffice to warrant the remedy of winding up, especially where alternative remedies are available. Where the 'just and equitable' jurisdiction has been applied in cases of this type, the circumstances have always, I think been such as to warrant the interference that there has been, at least, an unfair abuse of powers and an impairment of confidence in the probity with which the company's affairs are being conducted, as distinguished from mere resentment on the part of a minority at being outvoted on some issue of domestic policy.'
17. Keeping in view the settled law, the Clause 'just and equitable' should be invoked as a last resort when no other remedies are available and using the wide and wise judicial discretion of the Court. The company petition for winding up of the appellant-company is not filed for realisation of admitted dues; the stand members, who have no right, have filed the petition seeking the winding up of the company on just and equitable ground. Otherwise also, even for the sake of argument, the application can be said to be maintainable, as the dispute is with regard to the contents of Articles of Association, concerning the relationship between the company and the members inter se. As stated, prima facie, no ground is made out for winding up of the appellant-company under the provisions of the Act. Even if such relief is granted it will effect the closure of the company and will be detrimental to the sports. It will also result in great loss to the State Exchequer. The company petition was admitted on the ground that the contentions required detailed consideration and adjudication. As discussed, it was not necessary as the Clause 'just and equitable' under Section 433(f) of the Act could not have been invoked in the facts of the given case. Under the circumstances, the order of the learned company Judge is not sustainable and is liable to be set aside.
In view of what we have stated above, this appeal is allowed, the order passed by the learned Company Judge in Co.P. 17/1998 dated 2.2.1999 is set aside, with no order as to costs.