MOHANLAL DHANJIBHAI MEHTA Vs. CHUNILAL B MEHTA

JUDGEMENT

(1.) The main relief sought in the petition was under section 153C of the Indian Companies Act 1913 and the relief of winding up was only an alternative relief. The learned Advocate General who appeared on behalf of the petitioner did not press for the relief under section 153C of the Indian Companies Act 1913 but confined his arguments to the alternative relief for winding up. This he could do because even for claiming relief under section 153C of the Indian Companies Act 1913 the petitioner had to establish that the facts were such as would justify the making of a winding up order on the ground that it was just and equitable that the Company should be wound up and that it was because in his submission to wind up the Company would unfairly and materially prejudice the interests of the Company or any part of its members that the petitioner did not want the Company to be wound up but wanted relief under section 153C of the Indian Companies Act 1913 The petitioner had in any event to establish that it was just and equitable to wind up the Company. If the facts were such as justified the making of a winding up order on the ground that it was just and equitable to do so the petitioner could always abandon the relief under section 153C of the Indian Companies Act 1913 and ask the Court to make an order for compulsory winding up of the Company. The only point which I have therefore to consider in the present case is whether there are sufficient reasons for making a compulsory winding up order against the Company on the ground that it is just and equitable that the Company should be wound up. Before I proceed to deal with the arguments advanced by the learned Advocate General in support of the petition I must observe that this is a shareholders petition. The principles applicable in dealing with a shareholders petition are now well-settled and may be stated in the following words of Chagla J. as he then was in Re The Cine Industries & Recording Company Limited (XLIV Bombay Law Reporter 387) at page 398 : ...It is true that as the law stands to-day 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. But there is a special rule that the Courts have laid down in exercising their discretion in winding up a company on the petition of a shareholder. The Court constantly bears in mind that the internal management of the Company is its own concern and it is a much better judge of business prospects of a trading venture than the Court can ever hope to be. If therefore the majority of the shareholders show confidence in the management of the company and have faith in its future prospects the Court has rarely interfered. In Pioneer Bank Limited In the matter of Chaniram In re (1914) I.L.R. 39 Bom 16 Mr. Justice Macleod stated that a shareholders petition must be scrutinized much more carefully than a creditors petition. In In re Suburban Hotel Company ( 1867) L.R. 2 Ch. App. 737 Lord Justice Cairns refused to wind up the affairs of the Company against the wishes of the majority of shareholders of the Company because the business had been carried on at a loss and appeared likely to continue as a losing concern. Similarly in In re London Suburban Bank (1871) L. R. 6 Ch. App. 641 the majority of the shareholders were opposed to a winding up and there too the order was refused. It is clear from these decisions that it is a well settled principle that as between shareholders the wishes of the majority shall prevail. It is very important. said James L. R. in Re Langham Skating Rink Co. (1877) 5 Ch. D. 669 that the Court should not unless a very strong case is made take upon itself to interfere with the domestic forum which has been established for the management of the affairs of a Company. There must be strong ground for exercising the power of interference at the instance of a shareholder. The Act creates as between shareholders a domestic tribunal and the Court would be slow to withdraw from it the decision as to whether the Companys business shall be carried on or the Company shall be wound up. In the present case the subscribed and paid up capital of the Company is Rs. 16 45 400 and out of this shareholders holding share capital to the extent of Rs. 2 43 210 support the petition while shareholders holding share capital to the extent of Rs. 9 49 501 oppose the petition. The rest of the shareholders have not appeared before me but even assuming that they support the petition the total share capital in support of the petition would be Rs. 5 50 950 as against share capital of Rs. 9 49 50 opposing the petition. It will thus be seen that the majority of the shareholders are against the winding up of the Company. They are of the opinion that the continuance of the Company is in the best interests of the shareholders and that the Company should not be wound up. The Government of Gujarat is the largest single shareholder opposing the petition its share holding being Rs. 5 0 0 and the point of view of the Government is succinctly set out in the written statement filed by Shri S. K. Gangopadhyaya as the Government nominated Director on the Board of Directors of the Company. The relevant passage is in paragraph 19 of the written statement and runs as follows : ..

(2.) The fact that the majority of the shareholders including an independent shareholder like the Government of Gujarat are against the winding up of the Company and desire the Company to continue is an important circumstance which must weigh with me in deciding whether I should or should not make a compulsory winding the order against the Company. Of course if I hold that the substratum of the Company is gone this consideration would be entirely irrelevant for in such a case the majority cannot force the minority to continue the Company.

(3.) The grounds on which the winding up of the Company is sought by the petitioner can be broadly divided into five heads :