PAMPANA SURYANARAYANA Vs. JOYOTI PICTURES LTD

JUDGEMENT

(1.) This is an application by 14 petitioners under Sections 162 and 166, Companies Act, for compulsory winding up of the Joyoti Pictures Ltd., with its Head Office at Berhampur.

(2.) It is alleged in the petition that petitioners 1 to 14 are contributories, & petitioner 6 and some others are creditors of the Joyoti Pictures Ltd., that the Company is a private Limited Company registered under the Indian Companies Act, 1918 in 1942; that the Company has a Board of 3 Directors; that the registered office of the Company is at Berhampur in Ganjam District; that the authorised capital of the Company originally stood at Rs. 20,000/- but later on increased to Rs. 50,000/-divided into 250 shares of Rs. 200/-each; that the entire share capital is fully paid up and the petitioners 1 to 14 are consequently fully paid-up share-holders; that the objects of the Company are to exhibit cinema shows, carry on business in all kinds of language cinema films etc., that the number of share-holders is 27 including the petitioners; that when the Company was originally started in 1942 by one K. Tarini Rao and two of his nominees, M. Arjunam and V. Ganapati, who subscribed to the memorandum with two shares each, K. Tarini Rao was hopelessly in debt to the extent of about Rs. 8,000/-; that he had mortgaged his only residential house; that his shares which were first only 2, have now increased to 55; that he has managed to acquire by questionable means 82 shares in the name of his son K. Narayan Rao, 30 shares in the name of his wife Ammani and 5 shares in the name of his brother Narasimha Rao, that, in all, the family of K. Tarani Rao owns 172 shares; that as the Company flourished Tarini Rao who was practically the Manager, had fraudulently appropriated the Company's gate collections and other sources of income to himself and shown in the Company's accounts fictitious deposits by persons no other than his wife, son, himself and his wife's sister to the tune of Rs. 25,871/-; that this sum including share capital of the shares standing in the names of the members of the family amounting to Rs. 34,400/- makes up a total of Rs. 60,271/-that Clause (3) of the Articles of Association lays down that the Company shall be managed by Messrs K. Tarini Rao and son; that in the draft agreement between the Company and the Managing Agents, terms were inserted with the approval of his nominees --the two other promoters, which imposed a condition that even in the event of winding up or transfer of the Company's business the same Managing Agents shall continue as such; that these terms are not only unreasonable and excessively onerous but also ultra vires and hence not binding on the Company as the said agreement was never formally approved by resolution after incorporation of the Company; that the Company has thus become a partnership consisting of Tarini Rao's family members and relatives who, own 70 per cent of the Company's shares and, have a preponderating and dominating voice in the Company's affairs; that the Managing Agency has been formally converted into a partnership by a deed which was registered on 16-2-1949; that under Article 4 of the Articles of Association there are to be 5 Directors including 2 Directors ex-officio nominated by the Managing Agents who are not due to retire by rotation; that consequently when matters relating to the conduct of the Managing Agency in any meeting are on the agenda, division is demanded by poll and the managing agents are able to flout the wishes of the members and to over-rule them; that on 25-12-48 a resolution was passed to the effect that the managing agents' monthly allowance shall be Rs. 300/- per month from 1-4-48 and 20 per cent of the net profits shall be paid from 1948-49 or 61/4 per cent of the revenue whichever was higher; that the managing agency on the strength of this resolution are appropriating 61/4 per cent of the total receipts from the sale of tickets construing the term 'revenue' as gross receipts though it was given to understand that 61/4 per cent of the revenue would be calculated on the net profits; that on 29-7-51 an extraordinary general meeting was called by the share-holders when they wanted to put interpolations relating to the misconduct of the managing agency; that the meeting was held on 11-9-51 and it ended in a fiasco; that though the members opposing the managing agents were in a majority, a poll was demanded and the resolutions vvate lost by huge majority; that the income of the cinema business was during this period at its peak but the figures as shown in the accounts are suspiciously low; that they sent a petition to the Registrar of the Joint Stock Companies at Sambalpur; that a notice dated 1-12-53 was given to M. Appalla Narasimham, petitioner No. 14 that in accordance with the resolution of the Board of Directors he was expelled from the Company as he carried on competitive business either directly or indirectly, enclosing a cheque to the credit of the transferee representing his shate capital; that this action was taken by virtue of a resolution passed at a meeting held on 29-11-53; that the accounts of the Company are not properly and correctly maintained; that the machinery of the Company of about Rs. 15,000/- was sold away without the approval of the share-holders and when the share-holders questioned the same they could not succeed as it was carried by a majority poll; that K. Tarini Rao is getting a building constructed at a cost of Rs. 20,000/- benami in the name of his brother; that the depositors Paidamma and Narasarama gave notices of demand dated 24-10-53 for payment of their deposits of Rs. 2000/- and Rs. 1000/- respectively made on 21-8-47 and 19-1-47 to the managing agents; and that the managing agents promised to pay their moneys by the end of January 1954 pleading, their inability to pay on such short notices. The petitioners lastly alleged that the balance sheet for the year ending with 31-31952 shows that the capital liability of the Company is about Rs. 1,40,807-0-3 as against the total value of the assets which according to prevailing prices amounts to Rs. 84,900/-. Consequently the petitioners pray that under Clauses (5) and (6) of Section 162, Companies Act, the Company is unable to pay the debts and that it is also just and proper that the Company should be wound up.

(3.) The Company appeared through its managing agents and refuted all the allegations made by the petitioners. The opposite party contended that the allegations made against the Company are false; that the relationship of the opposite party with the Company is governed by the terms of specific agreement entered into between the two and all the actions done or taken by the opposite party are always made known to the Board of Directors, that the management of the Company is done according to the Articles of the Association and to rules and practice, that the transfer of shares has always been allowed by the Board of Directors and entries in respect of the same had been made in accordance with their decision, that it is false to say that by any questionable means the managing agents got the shares transferred in their names or in the names of their relations; that they were all approved by the Board of Directors " in accordance with the rules; that it is false to say that the loans of the Company are fictitious; that the loans shown are included in the balance sheets which are placed and accepted at the annual general meeting of the share-holders every year; that K. Tarini Rao or his son never appropriated any gate collections; that the subsequent alterations in the agreement made between the Company and the managing agents are according to the terms of the Articles of Association and were approved in the general meeting of the shareholders; that the meetings of the Company are always held at its registered office; that the books and documents of the Company are always available for inspection during the office hours at the registered office; that the managing agents are entitled in law to attend the meetings of the shareholders in their capacity as share-holders and to demand a poll; that all the decisions of the Board of Directors and the general meeting were in accordance with the majority vote; that it is false to say that the Company can no longer be run to the advantage of the share-holders; that the loan that had been procured from Mrs. J. A. Armstead in 1946 has not been discharged although interest of this loan has been regularly paid; that the transfer of shares belonging to Appalla Narasimham was in pursuance of the decision of the Board of Directors after the Articles of Association were altered by the general meeting; that the accounts are maintained as accurately as possible and are properly audited every year by Chartered Auditors who are approved by the general meeting; that the sale of old and unserviceable machineries was effected in the interest of the Company and with the approval of the Board of Directors; that the moneys due to Paidamma and Narasamma have been duly paid; and that the present application has been engineered by a proprietor of a rival cinema house of the locality that is, petitioner No. 14 with a view to closing down the business to the benefit of his own concern.