ATUL DRUG HOUSE LTD. Vs. STATE

JUDGEMENT

(1.) THE two petitioners -contributories, one of whom is the managing director of the company, have filed this petition for winding up this admittedly solvent, sound, flourishing concern on the ground that it is just and equitable to do so under section 433(f) of the Companies Act, 1956, hereinafter referred to as 'the act'. As the admission of this petition and the consequent public advertisement would result in irreparable and irrversible damage to such a solvent concern, the company I pursuance to the notice by this court has appeared and vehemently objected to this petition being admitted. The shorts facts which have given rise to this petition are a under : The concerned company, Atul Drug House Ltd., originally started as a small family concern of the petitioners' minority group or the Shah group as it was registered on June 30, 1956, as a private limited company with its registered office at Kindle with the initial authorized capital of Rs. 5,00,000. The issued capital of 500 shares of Rs. 50,000 was subscribed by this minority group or the Shah group. The licence was obtained by the company to establish a plant for chemicals on March 15, 1960. On August 17, 1965, what is hereinafter referred to as 'the basic agreement' was reached between the Shah group and the East African Match company Ltd., hereinafter referred to as 'the East African Company', for capital participation. The capital of the company was increased to Rs. 10,00,000 and further capital was issued allotting 4,000 shares of Rs. 100 each to the East African Co., while another 1,500 shares were issued to the shah group. Thus the initial capital when this financial arrangement was made was shared between the East African Co., and the Shah group in the proportion of 66 2/3% and 33 1/3%. The basic agreement also provided for the constitution of the board of directors with two permanent directors from the respective parties or their nominees and for the provision of finance to be made by the East African Company. Clause (9) also provided that in order to carry out the basic agreement effectively all necessary changes would made in the articles of association of the company. Pursuant to that, the articles of association were amended on November 10, 1960, and again on June 26, 1965. Article 6(a) provided for the distribution of the entitle share capital of Rs. 6,00,000 in the aforesaid pupation between these parties. Article 141 provided that until otherwise determined by the company in a general meeting by a special resolution, the number of directors shall not be less than three nor more than six exclusive of a debenture director appointed under article 146. Four of such directors were always directors to be elected by the company according to the principle of proportionate representation in the manner laid down in article 164 and the remaining two directors were always to be directors appointed by the four elected directors as provided in article 163. Under article 191(a), the petitioner No. 1, Navnitlal M. shah of the shah group, and Shri Maganlal P. Chanderia of the other group, were to be the first managing directors. Sub -clause (c) provided that subject to the provisions of the act and these articles, the board of directors shall always appoint two managing Directors for the purpose of the management of the business of the company, one of who shall be a representative of the East African Company and the other shall be a representative of Navnitlal M. Shah and/or Shri Gunvantlal M. Shah and the members of their representative families It should also be noted that article 4 provided for the limitation of number of members so as not to exceed fifty and the right of transfer to share was restricted as well as the invitation to subscribe for the share or debenture or debenture -stock was prohibited so as to keep this company as a private limited company. Article 67 provided for the right of pre -emption on transfer of the shares as laid down and in the subsequent article. Articles 74(a) provided that in the even of Messrs. Bhagawanji and Co. Ltd. and/or Messrs. Premchand Brothers Ltd. ceasing to hold controlling interest in the East African company, the shares in this company held by the East African company shall be transferred in the first instance to Messrs. Bhagawanji and Co. and Messrs. Premchand Brother Ltd. in equal proportion and if the board of directors of Messrs. Bhagawanji and Co. and/or Messrs. Premchand Brothers Ltd. so require, the shares may be transferred to the members of the said Messrs. Bhagawanji and Co. Ltd. and Messrs. Premchand Brother Ltd. in equal proportion. The proviso provided that if Messrs. Bhagawanji and Co. Ltd. and/or Messrs. Premchand brothers Ltd. fail to get the shares transferred either to themselves or their members within a period of two months from the day on which they ceased to hold controlling interest in the Set African company and after due notice was given to them by the company in this regard the shah group would have the option to be exercised at any time of purchasing at a fair value to be determined in the manner laid down in article 68 the whole of the outstanding shares in the company's capital not held by persons exercising such option. There is no dispute that in the East African Company more than 90% holding of the shares is of these two families of the majority group, viz., Chanderias and Khimsias, respectively.

(2.) ON the insertion of section 43A by the Amending Act 65 of 1960 this private company was deemed to be a public limited company as the East African company was the shareholder as aforesaid. Therefore, article 3 was again amended on June 26, 1965. In December, 1966, the company issued 24,000 equity shares by way of bonus shares by capitalizing the amount to Rs. 24,00,000 from the general revenues of which 16,000 shares were issued to the East African Company, while 8,000 shares were allotted to the Shah group. Thereafter, on or about February, 1968, the company issued some more equity shares of which 1,000 shares were allotted in the name of two Jersey companies which were private limited companies with shares held exclusively by these two families respectively while the remaining 1,000 shares were allotted to the shah Group.

(3.) THE secured loans in 1968 are to the tune of Rs. 79 lakhs and the unsecured loans are about Rs. 22 lakhs. Thus, this is a very sound flourishing concern and there is no allegation whatsoever that there is any situation of a deadlock or that the concern is unable to work successfully and with affiance. The bonus and dividends were also declared in the past and the concern is on the way to prosperity.