1
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
O. O.C. J.
COMPANY PETITION NO.723 OF 2008
Cavendish Shipping Limited. ...Petitioner.
Versus
Polaris Marine Management Pvt.Ltd. & Ors. ...Respondents.
.......
igWITH
COMPANY PETITION NO.724 OF 2008
Cavendish Shipping Limited. ...Petitioner.
Versus
Falcon Marine Management Pvt.Ltd. & Ors. ...Respondents.
.......
Mr. Janak Dwarkadas, Sr. Advocate with Mr. Sharan Jagtiani,
Mr.Girish Dave and Mr.Ankit Rajput i/b. Dave & Girish & Co. for the
Petitioner.
Mr.Snehal Shah with Ms.Divya Gurbuxani i/b. Dutt Menon
Dunmorrsett for the Respondents.
......
CORAM : DR. D.Y. CHANDRACHUD, J.
December 17, 2009.
JUDGMENT:
The Petitioner is a Company incorporated in the U.K. and is stated to be a group company of Dallah Albaraka Investment ::: Downloaded on - 09/06/2013 15:26:07 ::: 2 Company Limited (DAICO). The First Respondents ("POLARIS and FALCON") in both the Company Petitions are Joint Venture Companies.
-2. Captain Mehernoosh Khajotia owned a Shipping Company by the name of Constellation Shipping (Bahamas) Ltd. Some time prior to 2000, the Company was financed by DAICO for acquiring five marine shipping vessels. According to the Petitioner, the loans of three vessels were repaid. The outstanding debt of Constellation was US $ 2.5 million. In 2000, Mehernoosh Khajotia is stated to have approached DAICO to invest in his Company for the acquisition of two vessels in order that the return of investment could be applied towards the repayment of the debt due from Constellation Shipping.
-3. On 14th November 2000, a Shareholders' Agreement (SHA) was entered into, in respect of Falcon Marine Management Pvt.Ltd (Falcon), the First Respondent to Company Petition 724 of 2008, between the Petitioner and Polaris which was then owned completely ::: Downloaded on - 09/06/2013 15:26:07 ::: 3 by the Khajotia family. The Shareholders' Agreement provided that the Petitioner and Polaris would hold fifty percent in the equity of Falcon. The initial venture for the Company was to be the purchase of a Multipurpose Indian Vessel which was to be owned by Falcon.
By clause 2 of the agreement, the share in the profits of the shareholders, was to be proportionate to their shareholding. The Petitioner was to contribute thirty percent towards the purchase of the vessel. Under Clause 4, the Board of Directors was to consist of four Directors. Each party was to nominate two Directors. Clause 5.1 provided that the vessel was to be under the complete control of Falcon and under the direct supervision of Mehernoosh Khajotia.
Clause 8 provided that upon the sale of the vessel, the sale proceeds would be disbursed and all outstanding payments would be made in the following order of priority, namely (i) In repayment of outstanding loans of Banks/Financial Institutions; (ii) In payment to the Petitioner of an amount upto US $ 1 million; and (iii) The residual balance from the sale proceeds was to be divided between the parties according to their shareholding. Clause 8.3(d) provided that parties ::: Downloaded on - 09/06/2013 15:26:07 ::: 4 would be just and faithful in all transactions relating to the Company and would render full information and truthful explanations to the other parties on all matters relating to the affairs of the Company.
Clause 8.6 provided that upon the determination of Falcon, the assets would be sold and the proceeds that were realized would be utilized to pay debts and the balance distributed between the shareholders.
The Shareholders' Agreement was executed on behalf of Polaris and by Mehernoosh Khajotia.
4. In May 2001, Falcon acquired a vessel, Ristakez, utilizing the investment of US $ 1 million made by the Petitioner. On 6th August 2001, there was an Addendum to the Shareholders' Agreement. Clause 2 of the Addendum provided that parties were desirous of acquiring a further vessel to be included in the fleet of Falcon and that the Petitioner would provide a second tranche of US $ 1 million of equity to Falcon for the acquisition of the second vessel.
Parties agreed in Clause 4 of the Addendum that the 50 : 50 shareholding pattern would continue. On 18th October 2001, in ::: Downloaded on - 09/06/2013 15:26:07 ::: 5 pursuance of the Addendum, the Petitioner invested an amount of pound sterling 691,563 equivalent to US $ 1 million. This amount was reflected in the accounts of Polaris. According to the Petitioner, as subsequently agreed, the second vessel was to be purchased by Polaris and the equity investment was to be treated as an equity investment in Polaris entitling the Petitioner to fifty percent of the share capital of Polaris.
5. On 11th December 2003, a meeting took place of the Board of Directors of Polaris. The Minutes of the Meeting record the presence of Mehernoosh Khajotia and the Second Respondent. The Second Respondent, it may be noted, was also a Director of Polaris and was a member of Mehernoosh Khajotia's family. At the meeting of the Board of Directors, a draft of a proposed Joint Venture Agreement with the Petitioner, was produced and considered. Duly executed stock transfer forms representing the transfer of fifty percent of the beneficial ownership of Polaris from the Third Respondent, who was a shareholder of the Company, to the Petitioner were ::: Downloaded on - 09/06/2013 15:26:07 ::: 6 produced at the meeting. The Board of Directors of Polaris resolved to approve the Joint Venture Agreement (JVA) as well as the transfer of shares of the face value of Rs.6.50 crores from the Third Respondent to the Petitioner. The Board accepted the application of the Petitioner to be registered as owner of the shares and irrevocably resolved to make appropriate entries in the Register of Members and in the Register of transfers when instructed to do so in writing by the Petitioner.
6. On 15th December 2003, a Joint Venture Agreement (JVA) was executed between the Petitioner and Polaris. The recitals to the agreement provide that the Petitioner has paid a sum of US $ 1 million to Polaris and that Polaris has utilized the investment to purchase a vessel known as Vispataurini. The recitals provide that parties have agreed to share the profits from the vessel. In Clause 3 JVA stipulates that the object of the agreement was that the parties would work together to maximize profits generated by the vessel "in order that Cavendish (the Petitioner) may be repaid their investment ::: Downloaded on - 09/06/2013 15:26:07 ::: 7 and monies advanced to Falcon and Khajotia respectively at the earliest opportunity and that the parties will share profits equally after such repayment". Clause 5.5 of the agreement provided that all profits available for distribution at the end of each Financial Year would be applied in the following order: (i) Towards discharge of liabilities to the State Bank of India; (ii) Towards discharge of the investment; and (iii) Towards discharge of all sums paid by the Petitioner which remained outstanding under the terms of the Shareholders' Agreement, (iv) Towards repayment of all sums due to the Petitioner or to its holding Company, DAICO; and (v) Towards distribution of the residue in the profit sharing ratio of 50 : 50. Clause 7 of the JVA provided that the vessel shall not be sold without prior written consent of the Petitioner and upon the sale of the vessel, the proceeds shall be applied, after the discharge of taxes and statutory charges, in the same order stated in Clauses 5.5.1 to 5.5.5 namely, towards the repayment of the investment made by the Petitioner and of all sums owing to the Petitioner after the dues of the Banks were paid. Clause 11.6 provided that parties shall act in good faith. The ::: Downloaded on - 09/06/2013 15:26:07 ::: 8 JVA was executed by all members of the Khajotia Family.
7. On 28th August 2003, an e-mail was addressed by the Second Respondent to a representative of the Petitioner by which there was an admission of the equity investment made by the Petitioner in and the loan payable by Falcon. The e-mail discussed possible options for repayment of the loan and equity and recognized that one of the options for repayment would be voluntary winding up of the Company. The letter inter alia contained the following reference to the desire of the Petitioner to exit from the Company :
"I am aware from our discussions that your priority is to (A) maximize value received by DAICO, and (B) close the operations here. I think we need to discuss the above options carefully. Bear in mind that once insurance amounts are received, I can register the companies to a P.O. box address, maintain the services of just a company auditor and one book keeper, and drive the expense to a nominal amount until liquidation. I will of course keep vigil on matters regularly, but with there being zero income into the company, I am also feeling the pressure of needing to do something else. However, the insurance matters will first need to be resolved and the value reclaimed by us. So we have some time to decide upon the best route for us all." (emphasis supplied).::: Downloaded on - 09/06/2013 15:26:07 ::: 9
A series of e-mails came to be exchanged between the parties regarding the settlement of disputes. On 20th June 2005, the vessel Ristakez was sold for US $ 4,734,395. According to the Petitioner, this amount was to be applied for distribution in accordance with the SHA of 14th November 2000 and the JVA of 15th December 2003. No amount was paid to the Petitioner and the surplus from the sale was used towards meeting the cost of repairs and maintenance of another vessel, Vispataurini. On 31st January 2006, the vessel Vispataurini was sold for US $ 5.01 million. The grievance of the Petitioner is that despite the sale, neither was the debt due to the Petitioner discharged nor has there been a repayment of equity. That has led to the institution of the petition for winding up.
Section 439 of the Companies' Act, 1956 :
8. Section 439(1) of the Companies' Act, 1956, provides that an application for the winding up of a company shall be by a petition presented, subject to the provisions of the Section inter alia by any ::: Downloaded on - 09/06/2013 15:26:07 ::: 10 creditor or creditors (Clause b) or by any contributory (Clause c).
Sub section (4) of Section 439 prescribes certain conditions before a contributory can present a petition for winding up. Sub section (4) provides as follows :
"(4) A contributory shall not be entitled to present a petition for winding up a company unless-
-(a) either the number of members is reduced, in the case of a public company, below seven, and, in the case of a private company, below two; or
-(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 six 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."
9. In the present case, it is Clause (b) of Sub Section (4) which is in issue. In Clause (b) of Sub Section (4), the shares in respect of which a person is a contributory must (i) either be originally allotted to him; or (ii) have been held by him and registered in his name, for at least six months during the eighteen ::: Downloaded on - 09/06/2013 15:26:07 ::: 11 months immediately before the commencement of winding up; or
(iii) have devolved on him through the death of a former holder.
10. Now in the present case, the Petitioner is not registered as the owner of the shares of Polaris. The submission of the Petitioner, however, is that a contributory need not be a person whose name is on the register of members in the first category defined by Clause (b) of Sub Section (4) of Section 439. The Petitioner made an offer to subscribe to 50% of the share capital of Polaris. The Board by its resolution dated 11th December, 2003 took the view that instead of issuing unallotted shares, the existing 50% share capital held by the Third Respondent should be allotted to the Petitioner for consideration. The submission is that the Petitioner has an undisputed entitlement to 50% of the share capital of Polaris and consequently, must be regarded as a contributory for the purposes of Clause (b) of Sub Section (4) of Section 439.
11. The first part of Section 439(4)(b) requires that the shares ::: Downloaded on - 09/06/2013 15:26:07 ::: 12 should have been "originally allotted" to the contributory who seeks to present a petition for winding up. The first question which needs to be answered, is what constituted an allotment of shares? The question as to what constitutes an allotment, has been dealt with in a judgment of Mr. Justice Chitty in re Florence Land and Public Works Company.1 The statement of law laid down on 26th November, 1884 has continued to guide generations of Judges in finding a conceptual basis for the allotment of shares. The judgment holds that an allotment "is apropriation not of specific shares, but of a certain number of shares". That does not make a person who has agreed to take the shares, a member from that moment; for it constitutes a binding contract under which the company is bound to make a complete allotment of the specified number of shares and under which the person, who has made the offer is bound by the acceptance to take that particular number of shares. The judgment of Justice Chitty was confirmed in appeal before the Court of Appeal.
12. Section 224 of the Companies Act in the U.K. enables a 1 29 Chancery Division 421 ::: Downloaded on - 09/06/2013 15:26:07 ::: 13 winding up petition to be presented either by the company or by a creditor or by a contributory. The meaning assigned to the term "contributory" in Section 213 is "every person liable to contribute to the assets of a company in the event of its being wound up".
Interpreting these words, Justice Brightman in his judgment in re J.N.
2 Ltd.2 held thus :
"There seems to be no doubt that entry on the register is an essential qualification for a contributory who desires to present a petition, if he is not the original allottee and if the shares have not devolved on him through the death of a former holder; for if neither condition is satisfied, section 224(1)(a)(ii) requires that the shares must have been held by him and registered in his name for at least six months during the preceding 18 months. Plainly, if a transferee is not and never has been on the register, he cannot satisfy that condition. And it would not seem to be an answer that he ought to have been on the register, unless perhaps, the company has been ordered to place him on the register and has disobeyed that order." (emphasis supplied).
Brightman, J. held that there was nothing in the wording of Section 224 which expressly requires registration in the case of an original allottee or a holder who has succeeded to his shares on the death of 2 (1978) 1 W.L.R. 183 ::: Downloaded on - 09/06/2013 15:26:07 ::: 14 another. In several reported cases, an allottee of shares has been held liable to contribute to the assets of a company upon winding up though his name was absent from the register of shareholders.
Consequently, where a person is an original allottee of shares from a company, he would be entitled to present a petition for winding up although his membership is not recorded in the register of members.
Where a person is not the original allottee, entry on the register is a sine qua non.
-13. In India, Section 428 of the Companies' Act, 1956, defines the term "contributory" to mean every person liable to contribute to the assets of a company in the event of its being wound up, and to include the holder of any shares which are fully paid up. Clause (b) of Sub Section (4) of Section 439, as noted earlier, contemplates three situations which would entitle a contributory to present a petition for winding up. Firstly, the shares must have been originally allotted to the person who is a contributory; or secondly, the shares must be held by him and registered in his name for at least six months during the ::: Downloaded on - 09/06/2013 15:26:07 ::: 15 eighteen months immediately before the commencement of winding up; or thirdly, the shares should have devolved on him through the death of a former holder. If either one of the conditions is satisfied, a contributory would be entitled to present a petition for winding up.
What Sub Section (4) of Section 439 does is to qualify the right of a contributory to present a petition for winding up by subjecting it to the fulfillment of certain conditions. The expression "originally allotted" in the first of the eventualities noted above, implies that the shares must have been allotted to the contributory by the company itself, in the first instance, as contradistinguished from the holding of shares as a transferee from a shareholder. There is a difference between the original allotment and transfer of shares. The original allotment of shares is a direct allotment of shares by the Company to the individual. A transfer of shares contemplates a transaction between two individuals, one of whom holds shares from a prior date.
14. In Sri Gopal Jalan and Co. v. Calcutta Stock Exchange ::: Downloaded on - 09/06/2013 15:26:07 ::: 16 Association Ltd.,3 the Supreme Court followed the dictum of Chitty J. in re Florence Land and Public Works Company (supra). The Supreme Court held that in Company Law, allotment means an appropriation out of previously unappropriated capital of a company, of a certain number of shares to a person. The shares come into existence only upon allotment. The words "allotment of shares" mean the creation of shares by appropriation out of unappropriated share capital to a particular person. The Supreme Court held that the word "allotment" has not been used in the Companies' Act, 1956 as descriptive of a transaction in an existing share after it has been created by appropriation out of the authorized share capital to a particular individual. In Gopal Paper Mills Co. Ltd. vs. Commissioner of Income Tax, Central, Calcutta, 4 the Supreme Court held that there are three steps with regard to new capital. The first is the creation of capital. Until capital is created, it does not exist at all. When capital is created, it may remain unissued for years and when it is issued, it may be issued on such terms as appear to be expedient. Next comes allotment, which is an appropriation by the 3 AIR 1964 SC 250 4 AIR 1970 SC 1750 ::: Downloaded on - 09/06/2013 15:26:07 ::: 17 directors of shares to a particular person.
15. In Severn Trent Water Purification, Inc. vs.Chloro Controls (India) Private Ltd.,5 the Supreme Court, while construing the provisions of Section 439(4), cited the principle of law laid down in the judgment of Justice Brightman in re Florence Land And Public Works Company (supra) and held that the provisions of the Act must be complied with, before presenting a winding up petition under Section 439(4)(b) of the Act. The Supreme Court held that Severn Trent could not be treated or regarded as a contributory since the provisions of Section 439(4)(b) were not complied with. The name of Severn Trent had not been registered in the register of the company and hence, it could not present a petition for winding up in its capacity of a contributory. The Court held that Section 439(4) was a self contained code as regards the presentation of a petition by a contributory and a person claiming to be a contributory and presenting a petition for winding up in that capacity, must fulfill the conditions laid down in the Section. An omission, default or illegality 5 AIR 2009 SC 1290 ::: Downloaded on - 09/06/2013 15:26:07 ::: 18 on the part of the company in not registering the name of a contributory, would entitle a person aggrieved to avail of the remedy provided by the law, for effecting registration but, unless the name of a contributory is borne on the register, his entitlement to present a petition for winding up, would stand excluded.
16. Now, in the present case, the Petitioner is not an original allottee of shares from the Company. There was no original allotment of shares from Polaris. as no new shares were issued by the Company. The Petitioner is not the original allottee and does not satisfy the first condition in clause (b) of sub-section (4) of Section
439. The Petitioner does not satisfy the second eventuality mentioned in Clause (b) of Sub Section (4) of Section 439 either. The Petitioner has not been registered on the register of Polaris. The Petitioner is undoubtedly at liberty to adopt such remedies as are available in law to rectify that grievance, but unless the Petitioner was to be borne on the register of the company, for at least six months during the eighteen months immediately before the commencement of winding ::: Downloaded on - 09/06/2013 15:26:07 ::: 19 up, the Petitioner would not satisfy the requirement for presenting a petition for winding up as a contributory.
17. The judgment of the Gujarat High Court in Gulabrai Kalidas Naik v. Laxmidas Lallubhai Patel,6 on which Counsel for the Petitioner placed reliance is distinguishable. The Learned Single Judge of the Gujarat High Court held that in a given case, a Petitioner who invokes the jurisdiction of a Court under Sections 397 and 398, may be in a position to show that even though his name is not to be found in the register of members, yet, he has "such an indisputable and unchallengeable title to the membership of the company" that the Court may entertain a Petition at his behest (page
159). These observations, which have been made in the context of Sections 397 and 398 of the Companies' Act, 1956, cannot be used to construe the express statutory requirement contained in Sub Section (4) of Section 439 of the Companies' Act, 1956. The requirements for presenting a petition for winding up are those set out in Section
439. Those requirements have to be fulfilled.
6 1977 Vol.47 Com.Cases 151 ::: Downloaded on - 09/06/2013 15:26:07 ::: 20 Section 433, clauses (c), (e), (f) :
18. Counsel appearing on behalf of the Petitioner submitted that the Petition has been filed in three capacities: (i) as a contributory; (ii) as a member having an undisputed right; and (iii) as a creditor of the Company. The earlier part of the judgment contains a finding that the Petitioner, in Company Petition 723 of 2008, is not a contributory of Polaris, who is entitled to present a petition for winding up since the requirement under Section 439(4)(b) has not been fulfilled. There is, however, no dispute about the position that in so far as the second Petition against Falcon is concerned, (Company Petition 724 of 2008), the Petitioner is a contributory, who is entitled to maintain the petition for winding up.
19. Counsel appearing on behalf of the Petitioner, however, submitted that in the Petition against Polaris as well, the winding up of the Company has been sought on the grounds set out in Clauses
(c), (e) and (f) of Section 433. The submission is that the Petitioner ::: Downloaded on - 09/06/2013 15:26:07 ::: 21 brought in money for investment in the vessels and the Petitioner is entitled to return of the capital contribution from the Company. It is urged that there is an admission, on the part of the Company, of the liability to repay the debt and there is an admission of the liability to repay the loan to DAICO. Both the vessels came to be sold in both the Companies, which have not done business for a period of one year.
This was, it was urged, a single venture and the purpose for which the Company, has been incorporated, has come to an end. Counsel submitted that in the present case, the investment made, when construed in the background of the correspondence, was not an investment between two business partners for the first time. The JVA and the SHA was a methodology suggested by Mehernoosh Khajotia and was adopted to bring about a particular result, namely, the repayment of the original debt and the investment made. The investment of US $ 1 million was to be treated as a debt and was to be paid on the sale of the vessel. The Company was a party to the agreement and undertook to repay the debt on the sale of the vessel.
::: Downloaded on - 09/06/2013 15:26:07 ::: 2220. On the other hand, it has been submitted on behalf of the Respondents that the investment in the present case, was made under the SHA and JVA. The correspondence refers to an attempt being made to settle the debt. But there was no ascertained debt repayable by the Company to the Petitioner. The non-compliance alleged, is of a mechanism prescribed in the SHA, which is sought to be made binding on the Company. This ought to have been a part of, but was not included in the Articles of Association. The dispute in other words, it was urged, emanates from the SHA, which has not been incorporated in the Articles of Association. The terms would, therefore, not be binding on the Company. Counsel submitted that the requirement of a petition on the just and equitable ground, has not been fulfilled and the Petitioner has an alternate remedy under Sections 397 and 398 of the Companies' Act, 1956. Finally, it was urged that the audited accounts would show that an amount, as a matter of fact, is due and payable by the Petitioner to the First Respondent and that a Summary Suit is pending before this Court.
::: Downloaded on - 09/06/2013 15:26:07 ::: 2321. In dealing with the rival submissions on whether a ground for the admission of the Petitions has been made out, it must, at the outset, be noted that the JVA dated 15th December 2003 between the Petitioner and Polaris contains an express acknowledgement that the Petitioner has paid an amount of US $ 1 million to Polaris. The agreement was signed for and on behalf of Polaris by Mehernoosh Khajotia. The JVA records that the Petitioner and Polaris signed a Shareholders' Agreement dated 14th November 2000, pursuant to which they agreed to form Falcon. The JVA provided that all profits available for distribution would be applied firstly, towards the discharge of Bank liabilities; secondly, towards the discharge of investment; thirdly, towards the discharge of all sums paid by the Petitioner, which remained outstanding under the Shareholders' Agreement; fourthly, towards the repayment of all sums due from Khajotia to the Petitioner or to DAICO; and fifthly, the residue would be distributed equally.
22. The Shareholders' Agreement in respect of Falcon between ::: Downloaded on - 09/06/2013 15:26:07 ::: 24 the Petitioner and Polaris, which was entered into on 14th November 2000, provides that the initial venture of the Company shall be the purchase of a multi-purpose Indian Vessel. The Petitioner was to contribute an equity of 30% towards the purchase of the vessel and parties were to have a share in the profits proportionate to their shareholding. Upon the sale of the vessel, Clause 8.1 stipulated that the amount realized would be disbursed firstly, in the payment of dues of the Banks/Financial Institutions; secondly, in the payment to the Petitioner of an amount upto US $ 1 million; and thirdly, the residue would be divided between the parties proportionate to their shareholding. By an Addendum dated 6th August 2001, parties noted that they desired to acquire another vessel and that the Petitioner would provide a second tranche of US $ 1 million of equity to Falcon for the acquisition of the vessel. Pursuant to the Addendum, the Petitioner invested an amount equivalent to US $ 1 million.
23. The clauses of the Joint Venture Agreement and of the Shareholders' Agreement support the submission of the Petitioner that ::: Downloaded on - 09/06/2013 15:26:07 ::: 25 the terms agreed upon between the parties establish that the business of the two Companies and the investment made by the Petitioner in them for the acquisition of the two vessels, was interconnected and attempted to bring about the discharge and repayment of the investment made by the Petitioner in both the Companies and the repayment of the debt owing by the Companies and the Khajotia Family.
24. In this background, the correspondence and the record demonstrate an acknowledgement on the part of the Respondents of the debt due and payable to the Petitioner. A brief reference to the correspondence would be in order. The annexures to the Company Petitions include an e-mail of 15th December 2004 of Mehernoosh Khajotia, referring to a DAICO loan of US $ 250,000. On 20th February 2006, the Second Respondent informed the Petitioner's representative by another e-mail, of the sale of the vessel Vispataurini for a consideration of US $ 5.01 million. On 22nd February 2006, the Second Respondent informed the Petitioner that he was working on ::: Downloaded on - 09/06/2013 15:26:07 ::: 26 management accounts, which would be ready by the end of March.
The e-mail of the Second Respondent dated 19th March 2006 refers to the amount payable to DAICO as Rs.212 lakhs. The letters of the Respondents leave a clear impression of an undisguised attempt at various stages to delay the payment due to the Petitioner. On 5th April 2006, the Second Respondent stated that the accounts of Falcon and Polaris had been jumbled up and due to the delay of the Insurance Companies, the account could not be regularised before the end of fiscal year. On 18th April 2006, the Second Respondent sought a break up of the amount due to DAICO, which was provided by an e-
mail dated 19th April 2006. The break up of the debt was provided.
By his e-mail dated 28th August 2006, the Second Respondent stated that he had been "digging for solutions to the matter of sending back to DAICO the loan and equity amount." One of the options set out was to consider voluntary winding up of the Company. The e-mail recorded that the option to maximize the value received by DAICO and to close operations needed to be discussed. Once Insurance payment was received, the operation of the Company would be scaled ::: Downloaded on - 09/06/2013 15:26:08 ::: 27 down. The e-mail notes that there were "Zero income into the Company" and that the insurance matters would need to be resolved first. On 16th November 2006, the Second Respondent offered to remit an amount of Rs.2 crores by the end of the month and proposed to assign the insurance claim to the Petitioner. All these assurances which were held out to the Petitioner have been in vain. The admitted position is that the two vessels were sold. One of the vessels was sold on 20th June 2005 for an amount of US $ 4.7 million, while the second vessel was sold for an amount of US $ 5.01 million on 21st January 2006. No payment has been made to the Petitioner.
25. The Joint Venture and Shareholders' Agreements were a methodology adopted to bring about a desired result, namely, the repayment of the original debt and the investment made. The sum of US $ 1 million was to be treated as a debt and was to be repaid on the sale of the vessel. The Company was a party to the agreement and undertook to repay the amount on the sale of the vessel. The material on the record indicates, prima facie, that (i) The Petitioner ::: Downloaded on - 09/06/2013 15:26:08 ::: 28 entered into the venture, on the promise that the debt would be repaid on monies realised by the sale of the vessel(s); (ii) The Company utilised the money of the Petitioner to buy the vessel, sold the vessels, but failed to pay the outstanding debt and reneged on its promise; (iii) No business has been carried out by the Company for a period of more than one year; (iv) Neither DAICO nor the Petitioner have been paid; and (v) No material has been placed before the Court to show that there was a bona fide dispute.
26. The test of the maintainability of a petition for winding up under Section 439(4)(d) has been met as a creditor in the first case (Company Petition 723/08) and as a creditor and shareholder in the second case (Company Petition 724/08). In Madhusudan Gordhandas & Co. vs. Madhu Woolen Industries Pvt.Ltd.,7 the Supreme Court laid down the following proposition of law, which continues to guide Company Judges on the principles on which the Court must act in matters relating to winding up:
"Where the debt is undisputed the Court will not act upon a 7 AIR 1971 SC 2600 ::: Downloaded on - 09/06/2013 15:26:08 ::: 29 defence that the company has the ability to pay the debt but the company chooses not to pay that particular debt (See Re. A. Company 94 SJ 369). Where however there is no doubt that the company owes the creditor a debt entitling him to a winding up order but the exact amount of the debt is disputed the Court will make a winding up order without requiring the creditor to quantify the debt precisely (See Re.Tweeds Garages Ltd., 1962 Ch. 406). The principles on which the court acts are first that the defence of the company is in good faith and one of substance, secondly, the defence is likely to succeed in point of law and thirdly the company adduces prima facie proof of the facts on which the defence depends."
The judgment in Madhusudan Gordhandas also lays down the principle which must guide the determination as to whether the substratum of a Company has disappeared:
"In determining whether or not the substratum of the company has gone, the objects of the company and the case of the company on that question will have to be looked into."
27. In so far as the just and equitable ground is concerned, in Hind Overseas P. Ltd. vs. R.P.Jhunjhunwalla,8 the Supreme Court cited with approval, the judgment of the House of Lords in Ebrahimi 8 1976 (Vol.46) Com.Cases 91 ::: Downloaded on - 09/06/2013 15:26:08 ::: 30 vs. Westbourne Galleries Ltd.9 The House of Lords held that the "words just and equitable constituted recognition of the fact that a Limited Company is more than a mere legal entity and that there is room in Company Law for recognition of the fact that behind it, or amongst it, there are individuals with rights, expectations and obligations inter se which are not necessarily submerged in the Company structure". The House of Lords noted that the just and equitable provision enables the Court to subject the exercise of legal rights to equitable considerations; considerations of a personal character arising between one individual and another. Such considerations may inter alia include a situation where an association is formed or continued on the basis of a personal relationship, involving mutual confidence. In Hind Overseas, the Supreme Court held that the principle underlying the 'just and equitable' clause "baffles a precise definition" and must rest with the judicial discretion of the Court depending upon the facts and circumstances of each case.
These are, noted the Supreme Court "necessarily equitable considerations and may, in a given case, be superimposed on law".
9 (1973) AC 360, 379 (HL) ::: Downloaded on - 09/06/2013 15:26:08 ::: 31 The Court may of course, refuse to exercise its discretion inter alia where some other remedies are available to the Petitioner and the Court finds that the Petitioner is acting unreasonably in seeking to have the Company wound up.
28. In the present case, the record before the Court indicates that the Petitioner has not acted unreasonably and has furnished more than abundant opportunities to the Respondents to comply with their obligations. The relationship between the parties was governed by the obligation to be just and faithful in all transactions relating to the Company. Parties were liable to render full information and truthful explanations to the other. The obligation to act in good faith is emphasized in Clause 8.3(d) of the Shareholders' Agreement and Clause 7 of the Joint Venture Agreement. The Petitioner brought in capital to finance the acquisition of vessels and the understanding in good faith was that the operation of the vessels would be utilized to repay the outstanding debt to DAICO and the Petitioner. This obligation towards the Petitioner and the agreement arrived at ::: Downloaded on - 09/06/2013 15:26:08 ::: 32 between the parties was not fulfilled. Disbursement was not made to the Petitioner upon the monies realised by the sale of the vessels. The substratum of the Companies has also disappeared. The vessels have been sold. What is left of the companies is the shell. The principle which has been laid down in V.B. Rangaraj vs. V.B.Gopalakrishnan,9 can have no application to a situation like the present, where the just and equitable ground is pressed in aid of an application for winding up. That is because the just and equitable ground seeks to impose upon the formal structure of a Company, the real obligations of trust and confidence which are assumed by individuals either when they come to form a Company or to make investments in a Company. The formal structure is in such cases not regarded by the law as being decisive of the decision as to whether it is just and equitable to order the winding up of a Company.
29. For all these reasons, a case has been made out for the admission of the Petitions for winding up under clauses (c ), (e) and
(f) of Section 433 of the Companies' Act, 1956.
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30. Before concluding, it would be necessary to advert to the submission that service of the statutory notice was not effected at the Registered Office of the Company. The requirement of serving a statutory notice under Section 434(1)(a) arises when the deeming fiction that is created by the provision is sought to be pressed in aid.
The deeming fiction under Section 434(1)(a) is, however, not exhaustive of the power of the Company Court if a Company is unable to pay its debts within the meaning of clause (e) of Section 433. The effect of Section 434(1)(a) is to create a deeming fiction that the Company is unable to pay its debts if a creditor has served upon the Company by registered post or otherwise a demand under his hand requiring the Company to pay the sum due and the Company has neglected to pay the sum or to secure or to compound it for a period of three weeks. In Tailors Industrial Flooring Ltd. vs. M& H Plant Hire (Manchester) Ltd.10 the Court of Appeal in the U.K. held:
"There is no requirement that a creditor must serve a statutory demand. The practice for a long time has been that the vast majority of creditors who seek to petition for 10 1990 BCLC 216 ::: Downloaded on - 09/06/2013 15:26:08 ::: 34 the winding up of companies do not serve statutory demands. The practical reason for that is that if a statutory demand is served, three weeks have to pass until a winding up petition can be presented. If, after the petition has been presented, a winding up order is made, the winding up is only treated as commencing at the date of the presentation of the petition; thus, if the creditor takes the course of serving a statutory demand, it would be giving the company an extra three weeks' grace in which such assets as the company may have may be dissipated in attempting to keep an insolvent business afloat, or may be absorbed into the security of a debenture holder bank. So there are practical reasons for not allowing extra time, particularly where commercial conditions and competition require promptness in the payment of companies' debts so that the creditor companies can manage their own cash flow and keep their own costs down. ... The first limb is that if a debt is due and an invoice sent and the debt is not disputed, then the failure of the debtor company to pay the debt is itself evidence of inability to pay."
31. That apart, in the present case, it has been averred in the Company Petition that the statutory notice was addressed to the Registered Office of the Company as stated in the records of the Registrar of Companies, Maharashtra (ROC). The Petitioner obtained a certified copy from the record of the ROC with regard to the registered office address of the Company. However, the notices having been remitted on the address of the Registered Office as ::: Downloaded on - 09/06/2013 15:26:08 ::: 35 shown in the record of the ROC, all notices came back with the remark "not known". The affidavit in reply does not proceed on the basis that the address mentioned in the statutory notice is not the Registered Office of the Company. In a judgment of the Delhi High Court in Hotline Teletubes & Components Ltd. vs. A.S. Impex Ltd.,11 Dr.Justice Mukundakam Sharma (as he then was) dealt with a case where a statutory notice addressed to the Registered Office of the Company was returned with the remark that the addressee had left the premises. The Delhi High Court held that the documents which were placed on the record indicated that the Petitioner had sent the statutory notices to the Company at the address at which the Registered Office was located. In the meantime, the Company changed the address of its Registered Office as a result of which the statutory notices were not served. The Court held that sending of the notices by the Petitioner at the Registered Office of the Company in terms of the official records had to be regarded as legal and valid and the proceedings could not be held to be not maintainable because the Company had, in the meantime, changed its office. There is, 11 (2004) 49 SCL 590 ::: Downloaded on - 09/06/2013 15:26:08 ::: 36 therefore, no merit in the submission in regard to the maintainability of the Petition for want of a statutory notice under Section 434(1)(a).
32. For the reasons indicated in the judgment, therefore, the Company Petitions are admitted. The Petitioner shall advertise the Petitions in two local newspapers viz. Free Press Journal and the Maharashtra Times, besides the Maharashtra Government Gazette.
The Petitioner shall deposit Rs.10,000/- with the Prothonotary and Senior Master towards the publication charges, within a period of three weeks with intimation to the Company Registrar failing which the Petitions shall stand dismissed for non-prosecution.
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