Full Judgment Text
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IN THE HIGH COURT OF JUDICATURE AT BOMBAY IN THE HIGH COURT OF JUDICATURE AT BOMBAY IN THE HIGH COURT OF JUDICATURE AT BOMBAY
O.O.C.J. O.O.C.J. O.O.C.J.
COMPANY PETITION NO. 857 OF 2004 COMPANY PETITION NO. 857 OF 2004 COMPANY PETITION NO. 857 OF 2004
In the matter of Companies
Act, 1956;
AND
In the matter of Section 433 (f) of
the Companies Act, I of 1956
AND
In the matter of winding up of
CAPITAL CONTROLS INDIA PRIVATE
LIMITED, ........Company
Severn Trent Water Purification Inc ....Petitioner
R.A. Kapadia i/b. Jyoti Sehgal and Shravan Shah for
the petitioner.
J.J. Bhatt for respondent no.1.
D.D. Madon for respondent no.2.
CORAM: S.U. KAMDAR, J. CORAM: S.U. KAMDAR, J. CORAM: S.U. KAMDAR, J.
DATE : 21ST APRIL, 2005. DATE : 21ST APRIL, 2005. DATE : 21ST APRIL, 2005.
JUDGMENT : JUDGMENT : JUDGMENT :
1. The present petition is filed by the petitioner
for winding up of the respondent company on the
ground of just and equitable under section 434 (e)
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of the Companies Act-I of 1956. Some of the
material facts of the present case are briefly
enumerated as under:
2. A company known as Capital Controls (Delaware)
Company, Inc a company incorporated and registered
under the relevant law of USA and the respondent
herein which is a company incorporated under the
Indian Companies Act decided to carry on business
jointly in India. In pursuance thereof they
executed what is known as shareholders agreement
dated 16.11.1995. Under the terms of the said
agreement both parties agreed that to float a
company in India in the name and style of ‘Capital
Controls India P.Ltd’ In clause-4 of the
shareholders agreement it was inter-alia provided
that the company shall initially have a share
capital constituted of 150,000 equity shares of
Rs.10/- each and the said shares will be subscribed
by the said company namely Capital Controls
(Delaware )P.Ltd of 75,000 equity shares of Rs.10/-
each and Chloro Controls Pvt.Ltd being the
respondent company herein another 75000 equity
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shares of Rs.10 each. Thus under clause-4 f the
shareholders agreement dated 16.11.1995 the holdings
of both the petitioner as well as the respondent in
the said company is 50% each. Under clause-7 of the
said agreement the said company Capital Controls
(Delaware) Ltd hereinafter referred to as "capital
Control")was appointed as a distributor in India of
the products manufactured by Capital Controls an
American company. Under clause-8(i) it was provided
that the total board of directors of the company
will be six including the managing director plus not
more that two directors will be appointed by
financial institution if so required. Pursuant to
the share holders agreement a company has been
incorporated on 14.11.1995 which is known as
‘Capital Controls India P.ltd’. It seems that were
differences and disputes by and between this group
of shareholders who are holding equal shares and
infact it is the case of the petitioner that the
respondent company which is been held by one Mr.
Madhusudan B. Kocha alongwith his sons assumed full
control of the company and is preventing the
petitioner herein from running the said business.
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In view of the fact that most of the disputes have
not been possible to resolve between the parties in
so much so that in 47th Board Meeting of the company
which was held on 27.6.2003 there was a difference
of opinion between the parties and even the draft
minutes of the said meeting could not be finalised.
This state of affairs has been continued in the said
company even today. There are also arbitration
disputes between the parties as well as various
other proceedings are pending in different courts.
3. On 21.7.2004 the joint venture agreement was
terminated and consequently the suit has been filed
in this court which is pending. It is an admitted
position before me that both the group of
shareholders are holding 50% shares each in the said
company. It is also an admitted position that
unless both the joint venture partners concur to the
decision it is not possible to arrive at any of the
decisions for the smooth functioning of the said
company.
4. In the mean time sometime in or about on
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31.3.2003 the said company Capital Controls
(Delaware) Company Inc. merged with the petitioner
company and the said company is now known as Severn
Trent Water Purification Inc, which is a transferee
company in which the original Capital Controls being
the transferor company has merged and ceased to be
in existence. In view of the diverse disputes
between the parties, the said transferee company
namely Severn Trent Water Purification Inc, has
filed the present petition on the ground of just and
equitable for winding up of the said company.
4. The learned counsel appearing for the company as
well as the respondent shareholders has inter-alia
contended that the present petition is not
maintainable. It has been contended that the
petition can be filed for winding up only by those
class of persons who are specifically under
sub-section (1) of section 439. The case of the
petitioner would fall under sub-clause (c) of
sub-section (1) of section 439 which inter-alia
provides for a petition to be filed by any
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contributory or contributories. It has been
contended that under sub-clause (4) of section 439
it has been provided that the contributory shall not
be entitled to present the petition for winding of
the company unless the shares in respect of which he
is a contributory or some of them, either were
originally allotted to him or have been held by him,
and registered in his name for attest six months
during the eighteen months immediately before the
commencing of the winding up. It has been thus
contended that the petitioner herein is not the
registered shareholder of the company because the
name of the petitioner does not appear on the
register of members of the company. However it is
admitted that the name of the erstwhile company which
has since amalgamated namely ‘Capital Controls’ was
and is appearing on the register of members of the
respondent company. It is thus contended that the
petitioner to maintain the present petition must
first apply to the company for transfer of the
shares in their favour under the provisions of
section 111 and bring the name of new amalgamated
company on the record of the register of members
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before the petition can be maintained for winding up
under section 434 read with section 439 of the
Companies Act. In support of the aforesaid
contention the learned counsel for the petitioner
has relied upon the judgment of the apex court in
the case of M/s. General Radio and Appliances M/s. General Radio and Appliances M/s. General Radio and Appliances
Co.Ltd and Ors vs. M.A. Khader reported in 1986 2 Co.Ltd and Ors vs. M.A. Khader reported in 1986 2 Co.Ltd and Ors vs. M.A. Khader reported in 1986 2
SCC 656 SCC 656 and it has been contended that even if the SCC 656
erstwhile company is amalgamated in the petitioner
company still the petitioner being not a member is
not entitled to maintain the present petition. It
has been further contended by relying upon the
aforesaid judgment that the amalgamation is contrary
to the terms and conditions of the shareholders
agreement between the parties and thus invalid and
illegal and therefore the petitioner company cannot
be made shareholder on the register of members of
the respondent company. The learned counsel has
relied upon the para-8 and 10 of the aforesaid
judgment and has contended that transfer of shares
of the erstwile company in the petitioner company
being contrary to shareholder agreement the same be
validated even by amalgamation.
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5. Thereafter the learned counsel has relied upon
the division bench judgment of this court in the
case of Vassant Holiday Homes P.Ltd vs. Madan V. Vassant Holiday Homes P.Ltd vs. Madan V. Vassant Holiday Homes P.Ltd vs. Madan V.
Prabhu reported in 2003 V.116 CC 172 Prabhu reported in 2003 V.116 CC 172 has contended Prabhu reported in 2003 V.116 CC 172
that the person must be a shareholder of the company
for six months in prior to 18 months for maintaining
the said petition. The learned counsel for the
respondent shareholders has also relied upon the
judgment in the case of Shantilal Khushaldas and Shantilal Khushaldas and Shantilal Khushaldas and
Bros P.Ltd vs.Smt. Chandanbala Sughir Shah and Anr. Bros P.Ltd vs.Smt. Chandanbala Sughir Shah and Anr. Bros P.Ltd vs.Smt. Chandanbala Sughir Shah and Anr.
reported in (1993) Vol.77 CC 253. reported in (1993) Vol.77 CC 253. By relying upon reported in (1993) Vol.77 CC 253.
the aforesaid judgment it has been contended that
the present petition preferred by the petitioner is
not maintainable.
6. The petitioner is not the registered shareholder
of the respondent company. It has been further
contended that in view of the provisions of
s.439(4)(b) unless the person is holding the shares
as a registered member for atleast 6 months in last
18 months is not entitled to maintain the present
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petition. On the other hand the learned counsel for
the petitioner has contended that the present
petition is maintainable. He has contended that by
virtue of the amalgamation the erstwhile company
namely Capital Controls Inc. has ceased to exist.
It is been further contended that under the terms
and conditions of the said amalgamation all rights,
liabilities and assets of the respondent company
stood vested in the present petitioner. It is also
contended that the rights in respect of the shares
originally held by the said company stood
transferred and vested in the petitioner herein and
therefore the petitioners are the contributories and
or shareholders of the said company and therefore
the present petition is maintainable. Alternatively
it has been submitted by the learned counsel for the
petitioner that s.439 of the Act inter-alia provides
that any share inrespect of which a person is a
contributory and/or the said shares devolved on him
through the death of a formal holder then such a
person is a contributory as contemplated under
section 439(1)(B) and thus a petition can be filed
by such a person even if his name is not on the
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register of members of the company. It has been
contended that the original shareholder namely
Capital Controls cease to exist by virtue of
amalgamation and it is a natural death of the said
company and thus the shares are devolved on the
petitioner by operation of law. I have considered
the rival submissions of the parties. The provision
of section 439(4)(b) reads as under:
"439. Provisions as to applications "439. Provisions as to applications "439. Provisions as to applications
for winding up. for winding up. for winding up.
(4) A contributory shall not be entitled
to present a petition for winding up a
company unless-
(a)......
(b) the shares in respect of which he is
a contributory, or some of them, either
were originally allotted to him or have
been held by him, and registered in his
name, for at least ix months during the
eighteen months immediately before the
commencement of the winding up, or have
devolved on him through the death of a
former holder."
7. On considering the said section as quoted above
there is no manner of doubt that a contributory is a
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shareholder of the company. Infact in cases of
amalgamation the shareholding of erstwhile company
stood automatically transferred and vested from the
transferor company to the transferee company and
thus the transferee company becomes the successive
holder of the said shares by operation of law. The
judgments which are cited by the learned counsel for
the respondents in support of his contention that
the present petition is not maintainable has no
application to the facts of the present case. The
judgment of the apex court in the case of M/s.
General Radio and Appliances Co.Ltd and Ors.
(supra) has no relevance because that was the case
where the question was whether on amalgamation the
tenancy right stand transferred in the transferee
company inspite of prohibition contained against
sub-letting under a rent law. In the said judgment
it has been held that the tenancy right cannot be
vested in the transferee company by virtue of
prohibition contained in section 10(ii)(a) of the
Andhra Pradesh Buildings (Lease, Rent and Eviction)
Control Act, 1960. By relying the said provisions
of law which prohibits the transfer of tenancy the
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court has come to the conclusion that what is not
permissible in law directly cannot be achieved
through the medium of amalgamation. It is
undoubtedly true that the observation of the ape
court also suggest that the transfer of tenancy was
contrary to the terms and conditions of the tenancy
agreement between the parties and therefore also
invalid. In my opinion the aforesaid judgment has
no application in the present case. The shares in
the company are fully transferable. There is no
prohibition in law which prohibits the transfer of a
share by one person to another. The contention that
the shareholder agreement contains a prohibition on
the part of the erstwhile company to transfer the
shares to the petitioner is the question which
cannot be determined at the admission stage assuming
that such prohibition is legal and or valid. Prima
facie I am of the opinion that there is no breach of
any such shareholders agreement because what is
prevented is a transfer of shares and not merger of
two companies. In cases of the tenancy of the
premises the rights of the landlord are affected and
there is clear prohibition in law. In my opinion no
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such analogy can be extended to the facts of the
present case. The judgment of the division bench of
this court cited in the case of Vassant Holding
Homes (supra) only specifies the requirement which
are expressly set out under section 439 (4)(b) if
the original holder namely Capital Controls was
valid contributory by virtue of the provisions of
s.439(4)(b) then on amalgamation prima facie in my
opinion the petitioner company is also equally
entitled to exercise the very same rights which the
transferor company was entitled to inrespect of the
said shares. Otherwise also prima-facie in my
opinion s.439(4)(b) does not restrict the petitioner
from filing the present petition because it falls in
the last category i.e. ‘or have devolved on him
through the death of a formal holder’. These words
under s.439(4)(b) prima-facie in my opinion takes
into account the situation as in the present case
whether the company has ceased to exist by virtue of
amalgamation of the said company with the petitioner
company. The said original company has ceased to
exist and thus there is a natural death in the eyes
of law and in view thereof by virtue of the
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aforesaid words contained under section 439(4)(b)
prima-facie in my opinion the present petition is
maintainable and the same can be entertained.
8. I am required to give the aforesaid detailed
finding in respect of the maintainability issue
because I was invited by the respondents to do so by
contending that the admission of the petition ought
not to be done without giving detailed reasons about
the maintainability of the present petition.
According to the learned counsel for the respondent
it is necessary that the maintainability issue ought
to be decided at the threshold and not at the final
hearing of the petition.
9. Now turning to the case on merits there is a
complete deadlock in functioning of the business of
the company because there are only two shareholders
and both the shareholders are holding 50% equity
capital. Thus unless both the shareholders concure
in conducting the business of the company the
business cannot be proceeded with and or carried on.
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The apex court has in the case of Hind Overseas Hind Overseas Hind Overseas
Private Limited vs. Raghunath Prasad Jhunjhunwala Private Limited vs. Raghunath Prasad Jhunjhunwala Private Limited vs. Raghunath Prasad Jhunjhunwala
and Anr reported in AIR 1976 SC 259 and Anr reported in AIR 1976 SC 259 has in turn held and Anr reported in AIR 1976 SC 259
that where the company is closely held company or
private limited company then it is in nature of
glorified partnership and in such cases for winding
up of the company on the ground of just and equitable
the court must apply the principles of partnership.
However the learned counsel has contended that the
present petition is malafide because the present
situation has been brought in by the petitioner
themselves. They are carrying on competing business
and therefore they want this company to be wound up.
This issue I cannot determine at the admission stage
and it would have to be looked into at the final
hearing of the petition. However prima-facie I am
of the opinion tat there is a complete deadlock in
the functioning of the company. Furthermore it is
important to notice that if the company is allowed to
function today then in that event the business of the
company would be run by the one group of shareholder
by contending that petitioners are not the
shareholder of the company. Thus the respondent
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alongwith his two sons would run the company as if it
is their sole proprietary concern and that also by
holding only 50% of the shares not even a majority
of the shares in the said company. It is not
permissible that by adopting such a method the
company can be allowed to function and run. In any
event the aforesaid issue also will be considered at
the final hearing of the petition. Today I am at the
prima-facie stage of the admission of the petition.
I am satisfied that prima-facie case has been made
out that the present company petition requires
consideration.
10. However the learned counsel for the respondent
company has contended that even if I am of the
prima-facie opinion that the present petition should
be admitted still the admission of the petition
should not be advertised. It has been contended by
the learned counsel by relying upon the judgment of
the apex court in the case of National Conduits (P) National Conduits (P) National Conduits (P)
Ltd reported in 1967 Vol.37 CC 786 Ltd reported in 1967 Vol.37 CC 786 in which the Ltd reported in 1967 Vol.37 CC 786
court has held that the court has three options
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open.
(i) to issue notice to the company to
show cause why the petition should not be
admitted.
(ii) Secondly, Admit the petition and fix the
date of hearing and issue notice to the
company before giving advertisement of the
petition
(iii) Thirdly admit the petition and fix the
date of hearing of the petition and see
that the petition be served on the persons
specified in that order.
11. In my opinion the aforesaid three eventualities
which the apex court has considered is at a stage
where the company is not heard. In any event Mr.
Kapadia learned counsel for the petitioner has
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rightly pointed out the following sentence from the
said judgment.
" A petition for winding up cannot be
placed for hearing before the court,
unless the petition is advertised;
that is clear from the terms of rule
24(2)."
12. I have heard the petition at the admission
stage and after giving an opportunity both to the
company a well as the other group of shareholders
having 50% shares in the company. Having heard the
petition in my opinion it is not required to
further postpone the advertisement and once agin
hear the parties before the advertisement can be
issued. From the aforesaid judgment it is clear
that the petition cannot be final heard unless the
advertisement is issued under the Company court
rules. In view thereof I am not inclined to accept
the contention of the respondent company that even
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if I admit the petition I should not advertise the
same. In the aforesaid circumstance I pass the
following order :
(i) Petition to be admitted and returnable on.
19.8.2005. Respondent waives service.
(ii) Petition to be advertised in Free Press
Journal, Janmabhoomi, and Maharashtra
Government Gazette. The petitioner to
deposit a sum of Rs.2,000/- in the office
of the Prothonotary and Senior Master, High
court, Bombay for utilisation thereof to
issue the advertisement if the petitioner
fails to issue the advertisement.
13. At this stage the learned counsel for the
respondent as well as the shareholders seek stay of
the issuance of the advertisement. I grant stay of
the advertisement for a period of three weeks from
today.
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IN THE HIGH COURT OF JUDICATURE AT BOMBAY IN THE HIGH COURT OF JUDICATURE AT BOMBAY IN THE HIGH COURT OF JUDICATURE AT BOMBAY
O.O.C.J. O.O.C.J. O.O.C.J.
COMPANY PETITION NO. 857 OF 2004 COMPANY PETITION NO. 857 OF 2004 COMPANY PETITION NO. 857 OF 2004
In the matter of Companies
Act, 1956;
AND
In the matter of Section 433 (f) of
the Companies Act, I of 1956
AND
In the matter of winding up of
CAPITAL CONTROLS INDIA PRIVATE
LIMITED, ........Company
Severn Trent Water Purification Inc ....Petitioner
R.A. Kapadia i/b. Jyoti Sehgal and Shravan Shah for
the petitioner.
J.J. Bhatt for respondent no.1.
D.D. Madon for respondent no.2.
CORAM: S.U. KAMDAR, J. CORAM: S.U. KAMDAR, J. CORAM: S.U. KAMDAR, J.
DATE : 21ST APRIL, 2005. DATE : 21ST APRIL, 2005. DATE : 21ST APRIL, 2005.
JUDGMENT : JUDGMENT : JUDGMENT :
1. The present petition is filed by the petitioner
for winding up of the respondent company on the
ground of just and equitable under section 434 (e)
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of the Companies Act-I of 1956. Some of the
material facts of the present case are briefly
enumerated as under:
2. A company known as Capital Controls (Delaware)
Company, Inc a company incorporated and registered
under the relevant law of USA and the respondent
herein which is a company incorporated under the
Indian Companies Act decided to carry on business
jointly in India. In pursuance thereof they
executed what is known as shareholders agreement
dated 16.11.1995. Under the terms of the said
agreement both parties agreed that to float a
company in India in the name and style of ‘Capital
Controls India P.Ltd’ In clause-4 of the
shareholders agreement it was inter-alia provided
that the company shall initially have a share
capital constituted of 150,000 equity shares of
Rs.10/- each and the said shares will be subscribed
by the said company namely Capital Controls
(Delaware )P.Ltd of 75,000 equity shares of Rs.10/-
each and Chloro Controls Pvt.Ltd being the
respondent company herein another 75000 equity
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shares of Rs.10 each. Thus under clause-4 f the
shareholders agreement dated 16.11.1995 the holdings
of both the petitioner as well as the respondent in
the said company is 50% each. Under clause-7 of the
said agreement the said company Capital Controls
(Delaware) Ltd hereinafter referred to as "capital
Control")was appointed as a distributor in India of
the products manufactured by Capital Controls an
American company. Under clause-8(i) it was provided
that the total board of directors of the company
will be six including the managing director plus not
more that two directors will be appointed by
financial institution if so required. Pursuant to
the share holders agreement a company has been
incorporated on 14.11.1995 which is known as
‘Capital Controls India P.ltd’. It seems that were
differences and disputes by and between this group
of shareholders who are holding equal shares and
infact it is the case of the petitioner that the
respondent company which is been held by one Mr.
Madhusudan B. Kocha alongwith his sons assumed full
control of the company and is preventing the
petitioner herein from running the said business.
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In view of the fact that most of the disputes have
not been possible to resolve between the parties in
so much so that in 47th Board Meeting of the company
which was held on 27.6.2003 there was a difference
of opinion between the parties and even the draft
minutes of the said meeting could not be finalised.
This state of affairs has been continued in the said
company even today. There are also arbitration
disputes between the parties as well as various
other proceedings are pending in different courts.
3. On 21.7.2004 the joint venture agreement was
terminated and consequently the suit has been filed
in this court which is pending. It is an admitted
position before me that both the group of
shareholders are holding 50% shares each in the said
company. It is also an admitted position that
unless both the joint venture partners concur to the
decision it is not possible to arrive at any of the
decisions for the smooth functioning of the said
company.
4. In the mean time sometime in or about on
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31.3.2003 the said company Capital Controls
(Delaware) Company Inc. merged with the petitioner
company and the said company is now known as Severn
Trent Water Purification Inc, which is a transferee
company in which the original Capital Controls being
the transferor company has merged and ceased to be
in existence. In view of the diverse disputes
between the parties, the said transferee company
namely Severn Trent Water Purification Inc, has
filed the present petition on the ground of just and
equitable for winding up of the said company.
4. The learned counsel appearing for the company as
well as the respondent shareholders has inter-alia
contended that the present petition is not
maintainable. It has been contended that the
petition can be filed for winding up only by those
class of persons who are specifically under
sub-section (1) of section 439. The case of the
petitioner would fall under sub-clause (c) of
sub-section (1) of section 439 which inter-alia
provides for a petition to be filed by any
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contributory or contributories. It has been
contended that under sub-clause (4) of section 439
it has been provided that the contributory shall not
be entitled to present the petition for winding of
the company unless the shares in respect of which he
is a contributory or some of them, either were
originally allotted to him or have been held by him,
and registered in his name for attest six months
during the eighteen months immediately before the
commencing of the winding up. It has been thus
contended that the petitioner herein is not the
registered shareholder of the company because the
name of the petitioner does not appear on the
register of members of the company. However it is
admitted that the name of the erstwhile company which
has since amalgamated namely ‘Capital Controls’ was
and is appearing on the register of members of the
respondent company. It is thus contended that the
petitioner to maintain the present petition must
first apply to the company for transfer of the
shares in their favour under the provisions of
section 111 and bring the name of new amalgamated
company on the record of the register of members
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before the petition can be maintained for winding up
under section 434 read with section 439 of the
Companies Act. In support of the aforesaid
contention the learned counsel for the petitioner
has relied upon the judgment of the apex court in
the case of M/s. General Radio and Appliances M/s. General Radio and Appliances M/s. General Radio and Appliances
Co.Ltd and Ors vs. M.A. Khader reported in 1986 2 Co.Ltd and Ors vs. M.A. Khader reported in 1986 2 Co.Ltd and Ors vs. M.A. Khader reported in 1986 2
SCC 656 SCC 656 and it has been contended that even if the SCC 656
erstwhile company is amalgamated in the petitioner
company still the petitioner being not a member is
not entitled to maintain the present petition. It
has been further contended by relying upon the
aforesaid judgment that the amalgamation is contrary
to the terms and conditions of the shareholders
agreement between the parties and thus invalid and
illegal and therefore the petitioner company cannot
be made shareholder on the register of members of
the respondent company. The learned counsel has
relied upon the para-8 and 10 of the aforesaid
judgment and has contended that transfer of shares
of the erstwile company in the petitioner company
being contrary to shareholder agreement the same be
validated even by amalgamation.
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5. Thereafter the learned counsel has relied upon
the division bench judgment of this court in the
case of Vassant Holiday Homes P.Ltd vs. Madan V. Vassant Holiday Homes P.Ltd vs. Madan V. Vassant Holiday Homes P.Ltd vs. Madan V.
Prabhu reported in 2003 V.116 CC 172 Prabhu reported in 2003 V.116 CC 172 has contended Prabhu reported in 2003 V.116 CC 172
that the person must be a shareholder of the company
for six months in prior to 18 months for maintaining
the said petition. The learned counsel for the
respondent shareholders has also relied upon the
judgment in the case of Shantilal Khushaldas and Shantilal Khushaldas and Shantilal Khushaldas and
Bros P.Ltd vs.Smt. Chandanbala Sughir Shah and Anr. Bros P.Ltd vs.Smt. Chandanbala Sughir Shah and Anr. Bros P.Ltd vs.Smt. Chandanbala Sughir Shah and Anr.
reported in (1993) Vol.77 CC 253. reported in (1993) Vol.77 CC 253. By relying upon reported in (1993) Vol.77 CC 253.
the aforesaid judgment it has been contended that
the present petition preferred by the petitioner is
not maintainable.
6. The petitioner is not the registered shareholder
of the respondent company. It has been further
contended that in view of the provisions of
s.439(4)(b) unless the person is holding the shares
as a registered member for atleast 6 months in last
18 months is not entitled to maintain the present
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petition. On the other hand the learned counsel for
the petitioner has contended that the present
petition is maintainable. He has contended that by
virtue of the amalgamation the erstwhile company
namely Capital Controls Inc. has ceased to exist.
It is been further contended that under the terms
and conditions of the said amalgamation all rights,
liabilities and assets of the respondent company
stood vested in the present petitioner. It is also
contended that the rights in respect of the shares
originally held by the said company stood
transferred and vested in the petitioner herein and
therefore the petitioners are the contributories and
or shareholders of the said company and therefore
the present petition is maintainable. Alternatively
it has been submitted by the learned counsel for the
petitioner that s.439 of the Act inter-alia provides
that any share inrespect of which a person is a
contributory and/or the said shares devolved on him
through the death of a formal holder then such a
person is a contributory as contemplated under
section 439(1)(B) and thus a petition can be filed
by such a person even if his name is not on the
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register of members of the company. It has been
contended that the original shareholder namely
Capital Controls cease to exist by virtue of
amalgamation and it is a natural death of the said
company and thus the shares are devolved on the
petitioner by operation of law. I have considered
the rival submissions of the parties. The provision
of section 439(4)(b) reads as under:
"439. Provisions as to applications "439. Provisions as to applications "439. Provisions as to applications
for winding up. for winding up. for winding up.
(4) A contributory shall not be entitled
to present a petition for winding up a
company unless-
(a)......
(b) the shares in respect of which he is
a contributory, or some of them, either
were originally allotted to him or have
been held by him, and registered in his
name, for at least ix months during the
eighteen months immediately before the
commencement of the winding up, or have
devolved on him through the death of a
former holder."
7. On considering the said section as quoted above
there is no manner of doubt that a contributory is a
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shareholder of the company. Infact in cases of
amalgamation the shareholding of erstwhile company
stood automatically transferred and vested from the
transferor company to the transferee company and
thus the transferee company becomes the successive
holder of the said shares by operation of law. The
judgments which are cited by the learned counsel for
the respondents in support of his contention that
the present petition is not maintainable has no
application to the facts of the present case. The
judgment of the apex court in the case of M/s.
General Radio and Appliances Co.Ltd and Ors.
(supra) has no relevance because that was the case
where the question was whether on amalgamation the
tenancy right stand transferred in the transferee
company inspite of prohibition contained against
sub-letting under a rent law. In the said judgment
it has been held that the tenancy right cannot be
vested in the transferee company by virtue of
prohibition contained in section 10(ii)(a) of the
Andhra Pradesh Buildings (Lease, Rent and Eviction)
Control Act, 1960. By relying the said provisions
of law which prohibits the transfer of tenancy the
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court has come to the conclusion that what is not
permissible in law directly cannot be achieved
through the medium of amalgamation. It is
undoubtedly true that the observation of the ape
court also suggest that the transfer of tenancy was
contrary to the terms and conditions of the tenancy
agreement between the parties and therefore also
invalid. In my opinion the aforesaid judgment has
no application in the present case. The shares in
the company are fully transferable. There is no
prohibition in law which prohibits the transfer of a
share by one person to another. The contention that
the shareholder agreement contains a prohibition on
the part of the erstwhile company to transfer the
shares to the petitioner is the question which
cannot be determined at the admission stage assuming
that such prohibition is legal and or valid. Prima
facie I am of the opinion that there is no breach of
any such shareholders agreement because what is
prevented is a transfer of shares and not merger of
two companies. In cases of the tenancy of the
premises the rights of the landlord are affected and
there is clear prohibition in law. In my opinion no
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such analogy can be extended to the facts of the
present case. The judgment of the division bench of
this court cited in the case of Vassant Holding
Homes (supra) only specifies the requirement which
are expressly set out under section 439 (4)(b) if
the original holder namely Capital Controls was
valid contributory by virtue of the provisions of
s.439(4)(b) then on amalgamation prima facie in my
opinion the petitioner company is also equally
entitled to exercise the very same rights which the
transferor company was entitled to inrespect of the
said shares. Otherwise also prima-facie in my
opinion s.439(4)(b) does not restrict the petitioner
from filing the present petition because it falls in
the last category i.e. ‘or have devolved on him
through the death of a formal holder’. These words
under s.439(4)(b) prima-facie in my opinion takes
into account the situation as in the present case
whether the company has ceased to exist by virtue of
amalgamation of the said company with the petitioner
company. The said original company has ceased to
exist and thus there is a natural death in the eyes
of law and in view thereof by virtue of the
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aforesaid words contained under section 439(4)(b)
prima-facie in my opinion the present petition is
maintainable and the same can be entertained.
8. I am required to give the aforesaid detailed
finding in respect of the maintainability issue
because I was invited by the respondents to do so by
contending that the admission of the petition ought
not to be done without giving detailed reasons about
the maintainability of the present petition.
According to the learned counsel for the respondent
it is necessary that the maintainability issue ought
to be decided at the threshold and not at the final
hearing of the petition.
9. Now turning to the case on merits there is a
complete deadlock in functioning of the business of
the company because there are only two shareholders
and both the shareholders are holding 50% equity
capital. Thus unless both the shareholders concure
in conducting the business of the company the
business cannot be proceeded with and or carried on.
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The apex court has in the case of Hind Overseas Hind Overseas Hind Overseas
Private Limited vs. Raghunath Prasad Jhunjhunwala Private Limited vs. Raghunath Prasad Jhunjhunwala Private Limited vs. Raghunath Prasad Jhunjhunwala
and Anr reported in AIR 1976 SC 259 and Anr reported in AIR 1976 SC 259 has in turn held and Anr reported in AIR 1976 SC 259
that where the company is closely held company or
private limited company then it is in nature of
glorified partnership and in such cases for winding
up of the company on the ground of just and equitable
the court must apply the principles of partnership.
However the learned counsel has contended that the
present petition is malafide because the present
situation has been brought in by the petitioner
themselves. They are carrying on competing business
and therefore they want this company to be wound up.
This issue I cannot determine at the admission stage
and it would have to be looked into at the final
hearing of the petition. However prima-facie I am
of the opinion tat there is a complete deadlock in
the functioning of the company. Furthermore it is
important to notice that if the company is allowed to
function today then in that event the business of the
company would be run by the one group of shareholder
by contending that petitioners are not the
shareholder of the company. Thus the respondent
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alongwith his two sons would run the company as if it
is their sole proprietary concern and that also by
holding only 50% of the shares not even a majority
of the shares in the said company. It is not
permissible that by adopting such a method the
company can be allowed to function and run. In any
event the aforesaid issue also will be considered at
the final hearing of the petition. Today I am at the
prima-facie stage of the admission of the petition.
I am satisfied that prima-facie case has been made
out that the present company petition requires
consideration.
10. However the learned counsel for the respondent
company has contended that even if I am of the
prima-facie opinion that the present petition should
be admitted still the admission of the petition
should not be advertised. It has been contended by
the learned counsel by relying upon the judgment of
the apex court in the case of National Conduits (P) National Conduits (P) National Conduits (P)
Ltd reported in 1967 Vol.37 CC 786 Ltd reported in 1967 Vol.37 CC 786 in which the Ltd reported in 1967 Vol.37 CC 786
court has held that the court has three options
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open.
(i) to issue notice to the company to
show cause why the petition should not be
admitted.
(ii) Secondly, Admit the petition and fix the
date of hearing and issue notice to the
company before giving advertisement of the
petition
(iii) Thirdly admit the petition and fix the
date of hearing of the petition and see
that the petition be served on the persons
specified in that order.
11. In my opinion the aforesaid three eventualities
which the apex court has considered is at a stage
where the company is not heard. In any event Mr.
Kapadia learned counsel for the petitioner has
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rightly pointed out the following sentence from the
said judgment.
" A petition for winding up cannot be
placed for hearing before the court,
unless the petition is advertised;
that is clear from the terms of rule
24(2)."
12. I have heard the petition at the admission
stage and after giving an opportunity both to the
company a well as the other group of shareholders
having 50% shares in the company. Having heard the
petition in my opinion it is not required to
further postpone the advertisement and once agin
hear the parties before the advertisement can be
issued. From the aforesaid judgment it is clear
that the petition cannot be final heard unless the
advertisement is issued under the Company court
rules. In view thereof I am not inclined to accept
the contention of the respondent company that even
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if I admit the petition I should not advertise the
same. In the aforesaid circumstance I pass the
following order :
(i) Petition to be admitted and returnable on.
19.8.2005. Respondent waives service.
(ii) Petition to be advertised in Free Press
Journal, Janmabhoomi, and Maharashtra
Government Gazette. The petitioner to
deposit a sum of Rs.2,000/- in the office
of the Prothonotary and Senior Master, High
court, Bombay for utilisation thereof to
issue the advertisement if the petitioner
fails to issue the advertisement.
13. At this stage the learned counsel for the
respondent as well as the shareholders seek stay of
the issuance of the advertisement. I grant stay of
the advertisement for a period of three weeks from
today.
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