KIRAN SANDHU Vs. SARAYA SUGAR MILLS LTD

JUDGEMENT

(1.) The petitioners, who are the shareholders of Saraya Sugar Mills Ltd. (respondent No. 1), holding amongst themselves 35.7 per cent. shares, have filed this petition for the winding up of respondent No. 1 under Section 433(1)(f) of the Companies Act, 1956, on the ground that it is just and equitable to wind up the said company. They have further prayed that the official liquidator be appointed as the provisional liquidator to take charge of the assets of the company.

(2.) The relevant facts, as set out in the petition, are that the respondent-company was originally a partnership concern of Majithia family of which Sir Sundar Singh Majithia was the head. The partnership was made on August 21, 1944, between Lady Parson Kaur, widow of the late Sir Sundar Singh Majithia and her sons, namely, Surendra Singh Majithia, Sardar Surjeet Singh Majithia and the sons of a deceased son, Kirpal Singh, namely, Gur Nihal Singh Majithia and Dilip Singh Majithia. In the year 1956, the partnership business was converted into a private limited company and, subsequently, in the year 1974, it was made a public limited company. The said company after its incorporation in the year 1956 took over as a going concern the other businesses being carried on by the members of the family in partnership including the business of Saraya Distillery, Saraya Oil Works and the business of Fairweathers. Apart from the same, the family was also carrying on in partnership, the business of Saraya Engineering Works (P.) Ltd. In the year 1971, pursuant to a decision of all the family members, it was mutually agreed to divide and partition the family business and properties amongst the various members of the family. The parties, therefore, by an agreement dated March 21, 1972, appointed one Sardar R. S. Bindra as the sole arbitrator. As per the said award which was made a rule of the court on January 3, 1974, various businesses including Saraya Distillery, Saraya Oil Mills and Saraya Engineering Works (P.) Ltd. and the business of Fairweathers were completely partitioned and allotted wholly to one or the other branch of the Majithia family. The shares in the respondent-company were distributed amongst all the branches of the family. On account of the said award in the shareholding of the various members of the Majithia family, respondent No. 1 was reallotted with the result the branch of the petitioners and respondent No. 3 held 33.6 per cent., the branch of Surendra Singh Majithia 52.6 per cent. and that of Surjeet Singh Majithia and others 13.8 per cent. Subsequently, Surendra Singh Majithia gifted 70,000 equity shares of respondents Nos. 1 to 6, grandchildren of Sardar Surjeet Singh Majithia, Sardar Gurlabh Singh Majithia and Sardar Gurjeet Singh Majithia. On the death of Sardar Surendra Singh Majithia in May, 1983, the rest of his 32 per cent. shares were distributed in accordance with his will out of which 25.6 per cent. shares came to the branch of Surjeet Singh Majithia. On account of the same, the said branch had absolute majority in the shareholding of the respondent-company. It appears that a dispute between the parties surfaced thereafter. According to the petitioners, taking advantage of its majority shareholding, Surjeet Singh Majithia and his son, Satyajeet Singh Majithia (respondent No. 2), managed to bring on the board their nominees so as to have complete control over the management of the company, and prevented petitioner No. 3, who, after tbe death of his father, was inducted as one of the directors of the company, from participating in the day to day management of the company. It is further alleged that respondent No. 2 committed defalcation of the accounts, misappropriation of the funds of the company and committed all kinds of oppression against the petitioners. In view of the same, petitioners Nos. 1 and 2 filed Company Petition No. 6 of 1986 before this court for the winding up of the company on the ground that it was just and equitable that the company be wound up. This petition was admitted. However, an amicable settlement was reached between the petitioners and the respondents which resulted in the signing of a memorandum of understanding (MoU), dated April 29, 1986, between respondent No. 5 of the first part, respondent No. 3 and petitioners Nos. 1 and 2 of the second part and petitioner No. 3 of the third part. As a result of the MoU, Company Petition No. 6 of 1985 was got dismissed as withdrawn and further petitioner No. 3 was nominated as a director on the board of directors and respondent No. 2 along with his father, Surjeet Singh Majithia, and brother resigned from the board. Respondent No. 3 was appointed chairman of the company for a period of five years and respondent No. 5, Gurjeet Singh Majithia, was appointed managing director of the company for the same period. Further, according to petitioner No. 3, he was appointed as director-in-charge of the company for a period of five years with effect from June 8, 1986. However, this was not liked by respondent No. 2 who in connivance with respondent No. 5 and to discredit petitioner No. 3 got a false and fraudulent complaint filed against petitioner No. 3 and exerted pressure on petitioner No. 3 to resign and succeeded in getting his resignation as the director-in-charge of the company, though he continued to remain a working director during this period. In the place of petitioner No. 3, respondent No. 2 was appointed as a director contrary to the MoU dated April 29, 1986. Having acquired complete control of the management of the company and after having engineered the removal of petitioner No. 3 as a director of the company, respondent No. 2 in collusion with respondent No. 5 started diverting the funds of the company and acting against the interest of the shareholders of the company. As a result of mismanagement, the mill was brought to a stage of total ruination. They also withheld vital and relevant information from the petitioners and other shareholders. It has been stated in paragraphs 50 and 51 of the petition that on account of the mismanagement and the conduct of respondent No. 2, the substratum of the company was dissipating and there was oppression of the minority shareholders and large scale destruction of the official records of the company. On account of complete lack of probity on the part of the present directors, the mutual trust and confidence of the other shareholders was lost and, therefore, there was no other alternative readily available to them, but to seek the winding up of the company on the just and equitable ground.

(3.) Along with this petition, the petitioners also filed an application under Section 443(1) of the Companies Act read with Rule 9 of the Companies (Court) Rules, 1959, praying for an ex parte interim order to restrain the board of directors of the respondent-company from issuing any further equity shares or creating any further liability on the company with fresh borrowings from the institutions and the banks. While entertaining the petition during the vacations, this court had issued notice to the respondents calling for a counter affidavit within one month. It also passed an ex parte interim order restraining the company from issuing further equity shares or creating any further liabilities on the company with fresh borrowings from the banks and other financial institutions and from disposing of the fixed assets of the respondent-company in any manner. In response to the notice, an application (A-6) praying that the winding up petition be dismissed and the interim order passed by this court be vacated was filed along with a counter-affidavit on behalf of respondents Nos, 1 and 2. It has been stated on behalf of respondents Nos, 1 and 2 that the company petition has been filed by distortion and misstatement oi facts and on the basis of wild and unfounded allegations against respondents Nos. 2 and 5. It has been further pleaded that petitioner No. 3 who was in charge of the affairs of the company between the period 1986 and 1992 completely mismanaged the affairs of the respondent-company and the company suffered loss of 1.90 crores in the year ending March 31, 1992. A criminal complaint was filed against petitioner No. 3 and others and the management of the respondent-company by the cane-growers, and petitioner No. 3 had voluntarily resigned from his position as the managing director of the respondent-company and, thereafter, respondent No. 2 who was associated with the management and affairs of the respondent-company during the period 1979 to 1986 and as during this period, the respondent-company had progressed well and in the year ending October 31, 1986, had made a cash profit of 1.43 crores, he was called upon to join the board and to retrieve the deteriorating condition of the company. Since respondent No. 2 took over as director-in-charge of the affairs of the company in September, 1992, the position of the company has changed, all the liabilities have been paid up and, during the year ending March 31, 1994, the company had made a profit of Rs. 1.84 crores. The present petition for winding up on just and equitable grounds has been filed mainly by petitioner No. 3 out of frustration and in collusion with respondent No. 3 and petitioners Nos. 1 and 2 who are the daughters of respondent No. 3. The petition has been filed at a point of time when the company has negotiated an arrangement with the PICUP for financial assistance to modernise/replace some balancing equipments in order to achieve the enhanced utilisation of cane crushing capacity of the sugar unit at Sardar Nagar, District Gorakhpur. The petitioners are invoking the partnership on just and equitable grounds when there exists no legal or factual ground for the same. The petitioners together hold only about 25 per cent. of the total equity capital in the company. There is no equality of the shareholding and no deadlock in the management. The petition is not maintainable. Besides, it suffers from the guilt of laches.