Cavendish Shipping Limited vs Polaris Marine Management ...
2009 Latest Caselaw 121 Bom

                                         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

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

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

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

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

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

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

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).

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

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

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

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

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

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

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

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

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

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

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

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

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.

20. 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.

21. 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

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

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

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

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

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

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

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)

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

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.

9 AIR 1992 SC 453

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

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

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

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.

.....