Tani S. Bhargava vs Sovintorg (India) Pvt. Ltd.
1990 Latest Caselaw 426 Del

JUDGMENT

Y.K. Sabharwal, J.

1. The petitioner is a shareholder holding 400 shares in the respondent-company (for short,the company). The nominal capital of the company is Rs.5 lakhs divided into 5,000 fully paid up shares of Rs.100 each. The company was incorporated on June 10,1981,under the Companies Act,1956 (hereinafter referred to as "the Act"). The main objects for which the company was establish and as mentioned under clause 3 of the memorandum of association are:

(1) to manufacture,buy,sell,assemble,import,export and deal in ophthalmic products of all kinds,including lenses,frames,their accessories and components;

(2) to manufacture,buy,sell,import,export and deal in anamical orthopedic and surgical instruments and applications like catheters,surgical gloves and all other requisites for hospitals,patients and invalids."

2. The petition for winding up has been filed under section 433(c) and (e) and (f) read with section 439 of the Act praying that the company be would up. It is alleged in the petition that the value of the plant and other imported machineries,etc.,was about Rs.26 lakhs and the factories of the company have since been closed and no work is being done by the company for about five years. It is claimed that the object for the company was incorporated is filed and that the substratum of the company has gone and the company is not at all in a position to carry on its business and thus it will be just and equitable that the company should be wound up. It has also been said that,in fact,the company is insolvent and is not able to pay its debts.

3. It all alleged in the petition that Sh.G.S.Kushwaha is one of the shareholders of the company who also holds a controlling interest in another company known as Kushwaha Export (P) Ltd. and is the managing director thereof. Certain acts of the mismanagement of the affairs of the company at the hands of G.S.Kushwaha have also been alleged. After reciting that a petition under section 397 and 398 of the Act (C.P.No.122 of 1983) giving instance of oppression and mismanagement of the company is pending in this court,the petitioner has alleged that,after the filing of company petition No.122 of 1983,the position has changed completely which has necessitated the filling of the present petition of winding up. A grievance has also been made that tax returns have not been filed after the year ending on June 30,1982,and that the Kushwaha group is acting against the interest of the company. It is further averred that the directors of the Sandhu family shall be put to unnecessary harassment on account of the Kushwaha group acting against the interest of the company. The petitioner has admitted that some balance-sheet have been filed by G.C.Kushwaha in C.P.No.122 of 1983 when the question regarding balance- sheets,etc.,was raised.

4. It appears that there are two groups in the company,namely,Sandhu group" and" Kushwaha group". The shareholding of Kushwaha group is 75% and that of Sandhu group is about 25%. The petitioner belongs to Sandhu group.

5. In answer to show cause why the petition be not admitted,reply has been filed by the company. It is,inter alia,alleged in the said reply that the petitioner along with her close relatives,namely,S.S.Sandhu,Shiela Sandhu,Joya Mohan and Puma Lumba,filed the petition under section 397 and 398 of the Act being C.P.No.122 of 1983,that every attempt was made to drag on the said petition on one or the other pretext as the petitioners had obtained ex parte stay in the said petition ;that,after obtaining the restraint order,Sandhu group created all types of hurdles in the day-to-day affairs of the company and the company was forced to close down its business and could not take off again because of none-co-operation by Sandhu group. The company has also filed an additional affidavit of G.C.Kushwaha,inter alia,stating that,after obtaining ex parte stay on November 23,1983,in the petition under section 397 and 398 of the Act,the petitioners sought adjournment on the grounds that the notice of the said petition had not been served on the Central Government under section 400 of the Act and after ultimately serving the said notice,arguments were partly heard and Kushwaha group made an outright offer the purchase the entire shares held by the petitioners and her relations at the face value on which counsel for Sandhu sought adjournments from the time to time and,ultimately,C.P.No.122 of 1983 was unconditionally withdrawn on July 12,1989. It has been suggested the Sandhu groups during the course of hearing of C.P.No.122 of 1983. It has been further stated in the additional affidavit that the petitioner herein is debtor of the company and is liable to pay amongst others,admittedly a sum of Rs.6,78,578.62 which has not paid by the petitioner,her mother and sisters since 1983. It is then averred that Sh.P.N.Khanna,a retired judge of this court made an award on February 19,1990. A copy of the said award has been placed on the recording to which the company is creditor and the aforesaid amount is payable by Industrial Aids,a partnership firm,of which the petitioner is a partner. She was also one of the parties in arbitration proceedings. It is further averred in the additional affidavit that the company has instituted a suit being suit No.2600 of 1986 against Chinar Exports Ltd. in which the petitioner and her brother,father,mother and sister-in-law are the majority shareholders. The said suit is for recovery of Rs.18,45,836. It is claimed that this amount has been withheld by Chinar Exports Ltd. for the last eight years. The further averments in the affidavit are that Kushwaha Exports P.Ltd. is a major creditor of the company which is not at all interested in winding up the company. It has been claimed that the company has substantial assets by way of plant and machinery which been imported to carry on its activities in a profitable manner and is interested in doing so but has been obstructed since 1983 by the petitioner and her relatives. It has been stated that the company,during 1981 and 1982,had made exports worth Rs.12 crores and made substantial profit out of it and is ready and willing to undertake such activities in future also but for the obstruction by the petitioner and her relatives since 1983 onwards by filing one or other litigation against the company. It is claimed that the respondent's net assets when realised are much more than its liabilities. The allegations that the company has lost its substratum has been denied. In short,in the affidavit,the stand taken is that the present winding up petition is purely an abuse of the process of court and has been filed with ulterior motives and mala fide intentions.

6. While considering this position,it will have to be born in mind that none of the creditors is before the court. It has also to be borne in mind that the petition filed against the company for the mismanagement and oppression was withdrawn unconditionally on July 12,1989. It is also to be kept in view that the petitioner in C.P.No.122 of 1983 and the present petitioner belong to the same group,namely,the Sandhu group. Bearing in mind these factors,this court has to consider the ground and the facts on which the winding up is being based. Though various allegations have been made in the petition and a number of ground for winding up have been taken,the main ground passed by the counsel for the petitioner is that the company is liable to be wound up as it has suspended its business since 1983. A company can be wound up if it does not commence its business within one year from its incorporation or suspends its business for a whole years.

7. In support of the plea that if a company suspends its business for a whole year,it is liable to wound up,Mr.Jaon has placed reliance on the decision in the State Of Andhra Pradesh v.Hyderabad Vegetable Products Co.Ltd. . There is no doubt that the suspension of the business by a company for a whole year provides a ground for its winding up under section 433(c) of the Act. However,before exercising direction to wind up a company on that ground,the court can go in to the acts which led to the suspension of the business. The court is also required to see what are the possibilities of the resumption of the business of the company. In the cited decision,on facts,the Andhra Pradesh High Court come to the conclusion that there was not the slightest possibility of the business of the company being resumed. In that case,the liabilities far exceeded the assets. No concrete proposal was made before the court for revival of the company. The company was found to be insolvent.

8. Reverting to the facts here,the worth of the plant and other imported machinery as per the +petitioner herself was about Rs.26 lakhs. As per the award,more than Rs,6,50,000 is due to the company from a firm in which the petitioner is partner. The company has also instituted a suit for recovery of about Rs.8 lakhs against Chinar Exports (P) Ltd..a company in which the petitioner and her relations have substantial financial interest. The company was defending C.P.No 122 of 1983 for nearly six years and was under an order of restraint which stood vacated only when the said petition was dismissed as withdrawn. As against this,the petitioner has not been able to show any substantial liability of the company. The dispute between the Sandhu group and the Kushwaha group seems to be the reason for the suspension of the business of the company.

9. Mr.Jain placed strong reliance on the averments made by the company in C.A.No.9 of 1987 filed by in C.P.No.122 of 1983 inter alia,averring that the company is not carrying on the commercial or industrial activities since 1983 and,therefore,all the plant,machinery,fixture and furniture are now of no use and are deteriorating day by day. Reliance was also placed by Mr.Jain on the averments made in the said application about the financial hardship of the company. Mr.Jain contained that, in the said application,the case of the company itself was that it did not carry on any business and permission was sought for disposing of the plant,machinery and fixture of the company and urged that,in view of the said averments by the company itself,it is clear that a ground under section 433(c) has been made out. Counsel also contended that there are no prospects for the resumption of business.

10. The aforesaid averments made by the company in C.A.No.9 of 1987,in my opinion,cannot in the facts and circumstances of this case,be made the basis of the order of winding up in view of the subsequent facts and the explanation given by the company for suspension of its business. This stand of the company has been noticed above. The explanation emerging from the stand of the company seems to reasonable. The company is also justified in referring to to the subsequent facts of disclosed in its additional affidavit in resisting this petition,including the facts of award and the filling of the suit against Chinar Exports (P.) Ltd. and the dismissal of C.P.No.122 of 1983. If the facts as emerge from the additional affidavit are kept in view,it would be difficult to reach a conclusion that there is no possibility of the company resuming its business. The facts also show that the petition is bona fide and has been filed with a view to pressurise the company. I have also gone through the orders made from time in C.P.No.122 of 1983. The petitioner,on the facts and circumstance of the case,has filed to establish the ground under section 433(c) of the Act.

11. The aforesaid discussion on the main ground also shows that there is no substance in the half-hearted contention put forth on behalf the petitioner that the company is unable to pay its debts and is liable to be wound up under section 433(e) of the Act. That contention was also based solely on the averments made by the company in C.A.No.9 of 1987 which aspect has been dealt with above. Apart from that,the petitioner did not show how the company is unable to pay its debts. Consequently,this contention is also rejected.

12. Lastly,counsel for the petitioner contended that it is just and equitable that the company should be wound up under section 433(f) of the Act as the substratum of the company has gone. Substratum of a company is said to have disappeared when the object for which it was incorporated has substantially failed,or when it is impossible to carry on the business of the company except at a loss,or the existing and possible assets are insufficient to meet the existing liabilities (see Seth Mohanlal v. Grain Chambers Ltd. ). While considering this ground,the court has also to consider the interest of the shareholders as well as of the creditors. No creditor is before the court. The majority of the shareholders are opposed to the winding up of the company. The petitioner and her group are prima facie debtors of the company. The said group unconditionally withdraw the petition alleging mismanagement and oppression. The assets of the company are not insufficient to meet the liabilities. In view of these facts and circumstances,it is not possible for this court to accept the contention that the substratum of the company has disappeared and that it is just and equitable to direct the winding up of the company. This contention is also rejected.

13. For the reasons aforesaid,C.P.No.52 of 1989 is dismissed with costs. Counsel's fee Rs.2,500.