V.V. Projects and Investments P. Ltd. Vs. 21st Century Constructions P. Ltd. - Court Judgment

Excerpt:
company - winding up - sections 235, 397, 398, 433 and 443 (2) of companies act, 1956 - directors of respondent company played fraud on petitioner - as result of fraud petitioner ceased to have any say in management of company - petition filed before high court contending that it was just and equitable ground under section 433 (f) for winding up of company - petitioner had alternative remedy of approaching company law board either under section 397 and 398 or under section 235 for causing investigation by central government - petition dismissed on ground of alternative remedy. - - it is further stated that some disputes arose and on compromise at the instance of well-wishers it was agreed that the petitioner-company will transfer its shareholding worth rs.1. the petitioner, a private limited company, has filed this petition under section 433(f) of the companies act, 1956 (for short, 'the act'), for winding up of the respondent-company on the ground that it is just and equitable. according to the petition, the authorised capital of the respondent-company is rs. 10,00,000 divided into 10,000 equity shares of rs. 100 each and the amount of paid-up capital is rs. 5,75,000 which is the value of 5,750 shares. prior to the formation of the company there was a partnership firm under the same name of 21st century constructions. by subsequent retirement deeds many partners retired and as a consequence of the last retirement deed which was executed on march 31, 1987, mr. e. pratap reddy, mr. b.v. satya sai prasad, and the petitioner retired from the firm and all the assets and liabilities of the firm vested in the respondent-company, which possessed valuable assets in the form of immovable property in hyderabad. it was agreed in the retirement deed that the equity in the respondent-company would be allotted in favour of the petitioner-company, mr. e. pratap reddy and mr. b.v. satya sai prasad, in the proportion of 50 : 25 : 25. the petitioner further says that after periodical rotation of directors the board of directors consists of sri c. satyanarayana and sri vijayaraju gupta and pursuant to the retirement deed dated march 31, 1987, the petitioner was allotted 1,730 equity shares on april 30, 1987, and 4,000 equity shares on november 10, 1987. it is further stated that sri e. pratap reddy and sri b.v. satya sai prasad, colluded with each other and played fraud on the petitioner and forcibly took over the registered office of the company and all the assets of the company; that they have allotted further shares to themselves and their friends and associates in gross violation of the terms of the retirement deed dated march 31, 1987, excluding the petitioner from the alleged issue which is not for the benefit of the company; that no real funds were channelled into the purchase of the said shares and that the sole motive of the alleged issue was the exclusion of the petitioner from participation in 50% of the shareholding and profits of the respondent-company. as the respondent-company is in illegal control of persons, the petitioner is not in a position to have any say in the management of the company. as there is a total irresolvable deadlock in the management of the company and the actions of sri e. pratap reddy and sri satya prasad, are totally in contravention of the provisions of the companies act, resulting in total lack of probity and fairness in the conduct of the business of the company, it is proposing to move the company law board under sections 397 and 398 of the act. accordingly, the petitioner seeks winding up of the respondent company on the just and equitable ground. 2. notice before admission was ordered by this court. the respondent has filed a counter stating that the petitioner does not hold any shares in the company and, hence, has no locus standi to file this petition. it has also denied the allegations made in the petition regarding the rotation of the retirement of the directors. it is further stated that some disputes arose and on compromise at the instance of well-wishers it was agreed that the petitioner-company will transfer its shareholding worth rs. 9,00,000 in favour of the continuing directors or their nominees and to release the documents of the property of the respondent-company illegally hypothecated with the vysya bank and that sri t.g. venkatesh, sri c. satyanarayana, sri vijaya raju guptha, sri ravi naidu and sri singhal, will retire from the respondent-company. accordingly, rs. 4,50,000 was paid on january 7, 1989, by bank's pay order and the balance was paid later and the petitioner which transferred all its shares is now no more a shareholder in the company. the counter also denies the allegation that sri e. pratap reddy and sri satya sai prasad, are not legally entitled to the control of the company. lastly, the counter says that the petitioner has got alternative remedy under sections 397 and 398 of the act. 3. the petitioner filed a reply affidavit reiterating that it holds 5,730 shares as on date and also filed original share certificates. it is also alleged in the reply that in the annual returns for the years ending march 31, 1990, march 31, 1991, and march 31, 1992, the share capital of the company has been shown at rs. 25,15,000 divided into 25,150 equity shares and it has also been shown as if the shares of the petitioner have been transferred in favour of one n. krishna murthy. 4. mr. kannabhiran, learned senior counsel for the respondent, raised a preliminary objection that the petition cannot be admitted for two reasons, namely, (i) that the petitioner is not a shareholder and, hence, has no locus standi to move under section 433(f) of the act, and (ii) that there is alternative remedy available under sections 397 and 235 for investigation by the central government. regarding the first contention, the parties are at issue regarding the shareholding. while it is the case of the petitioner that it is still holding 5,730 shares, the respondent-company says that the petitioner has transferred all its shares for rs. 9,00,000. the question whether the petitioner holds 5,730 shares or for that matter any shares at all in the respondent-company cannot be decided unless full enquiry is made. for this reason, the first objection fails. but, the respondent has to succeed on the second objection. the respondent relies on section 443(2) which says : '443, (2) where the petition is presented on the ground that it is just and equitable that the company should be wound up, the court may refuse to make an order of winding up, if it is of opinion that some other remedy is available to the petitioners and that they are acting unreasonably in seeking to have the company wound up instead of pursuing that other remedy.' 5. as the petitioner has alternative remedy of approaching the company law board either under sections 397 and 398 or under section 235 for causing investigation by the central government, the petition cannot be admitted. 6. in lokenath gupta v. credits pvt. ltd, [1968] 38 comp cas 599 (cal), it was held that mere mismanagement or misappropriation or misconduct on the part of the directors or the managing director, by itself or general allegation or oppression of minority shareholders is not a ground for winding up. it was also held that the petition for winding up has to be rejected on the ground that the petitioner has alternative remedy. 7. in atul drug house ltd., in re [1971] 41 comp cas 352 (guj), it was held that at the time of admission of a petition for winding up under section 433(f), the petitioner must convince the court not only of a just and equitable ground for so doing but also that there is no alternative remedy open to the petitioner; that this is because if such a petition is admitted and there is a public advertisement it would cause irreparable harm to a solvent company even if the company succeeds ultimately. 8. the next decision is jose j. kadavil v. malabar industrial co. ltd. [1986] 59 comp cas 969 (ker). there it was held that the court can refuse to make an order of winding up, if it is of opinion that some other remedy is available to the petitioners and that they are acting unreasonably in seeking to have the company wound up instead of pursuing the other remedy. the court, while interpreting section 433(f) of the act, held that there is no restriction or limitation to the effect that an order under section 443, sub-section (2), can be made only after taking evidence at the time of the enquiry or at the conclusion of the enquiry. as against these authorities, mr, s. ravi, learned counsel for the petitioner, has relied on a division bench decision of the bombay high court in jeeva bai patel v. extrusion processes (p.) ltd. [1966] 2 comp lj 74. but, neither the said report is available nor a copy of the judgment filed. hence, it is not considered. 9. in view of the above, i have no hesitation in dismissing the petition on the ground of alternative remedy either under section 397 or under section 235 or any other provision of the act. no costs.