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SUPREME COURT OF INDIA
16th December 1955.
BOSE AND VENKATARAMA AYYAR, JJ.
Rajahmundry Electric Supply Corporation Ltd., Appellant
Versus
A. Nageshwara Rao and others Respondents.
Civil Appeal No. 312 of 1955.
Advocates appeared
Mr. M. S. K. Sastri, Advocate, for Appellant; Mr. D. Narasaraju, Advocate-General, Andhra (Mr. T. Anantha Babu & Mr. T. V. R. Tatachari, Advocates, with him) (for No. 1), and Mr. D. Narasaraju Advocate-General, Andhra (Mr. A. Krishnaswami and Mr. K. R. Chowdhry, Advocates, with him) (for Nos. 2 and 3), for Respondents.
-it is no doubt the law that court will not in general, intervene at the instance of shareholders in matters of internal administration, and will not interfere with the management of a company by its directors, so long as they are acting within the power conferred on them under the Articles of Association. But this rule can by its very nature apply only when the company is a running concern, and it is sought to interfere with its affairs as a running concern. But when an application is presented to wind up a company, its very object is to put an end to its existence, and for that purpose to terminate its management in accordance with the Articles of Association and to vest it in the court. In that situation there is no scope for the rule that the court should not interfere in matters of internal management. And where a case had been made out for an order of winding up, the appointment of administrators cannot be attacked on the ground that it is an interference with the internal management of the affairs of the company. If a liquidator can be appointed to manage the affairs of the company when an order of winding up so made under Section 433, administrators could also be appointed to manage its affairs, when action is taken under Sections 397, 398, 401, 399, 402 (Section 153-C of the old Act),
-where the facts proved do not make out a case for winding up, no order could be passed as such,
-the validity of a petition must be judged on the facts as they were at the time of its presentation, and a petition which was valid when presented cannot, in the absence of a provision to that effect in the statute, cease to be maintainable by reason of events subsequent to its presentation. In the case of Rajahmundry Electric Supply Corporation Ltd. v. A. Nageshware Rao, AIR 1956 SC 213 = 1956 SCJ 218 = 1956 SCR 1066 = 1956 SCA 200 = 23 Com. Cas. 91 = 1956 Mad. L.J. (SC) 95 it appeared that 13 of the members who had consented to the filing of the application had, subsequent to its presentation, withdrawn their consent, which in the opinion of the Supreme Court, even if true, cannot affect either the right of the applicant to proceed with the application or the jurisdiction of the court to dispose it off on its own merits.
-the words “just and equitable†are not to be construed “ejusdem generies†and whether mismanagement of directors is a ground for winding up order becomes question to be decided on the facts of each case. Where nothing more is established than that the directors have misappropriated the funds of the Company, an order for winding up would not be just and equitable, because if it is a sound concern, such an order must operate harshly on the rights of the shareholders. But if, in addition to such misconduct, circumstances exist which render it desirable in the interests of the shareholders that the Company, should be wound up, there is nothing which bars the jurisdiction of the Court to make such an order, as held in the case of Rajahamundry Electric Supply Corporation Ltd. v. A. Nageshwara Rao, AIR 1956 SC 213 = 1956 SCJ 218 = 1956-2 SCR 1066 = 1956 SCA 300 = 26 Com. Cas. 97. In this case the Vice-Chairman grossly mismanaged the affairs of the Company, and has drawn considerable amounts for his personal purposes and the arrears due to the Government for supply of electric energy was over rupees three lacs and large collections had to be made and machinery was in a state of disrepair and by reason of death and other causes the directorate had become greatly attenuated and “a powerful local junta was ruling the roost†and that the shareholders outside the group of the Chairman were pathetic and powerless to set matters right. On these findings, it was held the Court had the power to order winding of the Company.
Judgment
VENKATARAMA AYYAR, J. : This appeal arises out of an application filed by the first respondent under S. 162, cls. (v) and (vi), Companies Act, for an order that the Rajahmundry Electric Supply Corporation Ltd., be wound up. The grounds on which the relief was claimed were that the affairs of the Company were being grossly mismanaged, that large amounts were owing to the Government for charges for electric energy supplied by them, that the directors had misappropriated the funds of the Company, and that the directorate which had the majority in voting strength was "riding roughshod" over the rights of the shareholders.
In the alternative, it was prayed that action might be taken under S. 153-C and appropriate orders passed to protect the rights of the shareholders. The only effective opposition to the application came from the Chairman of the Company, Appanna Ranga Rao, who contested it on the ground that it was the Vice-Chairman, Devata Ramamohanrao, who was responsible for the maladministration of the Company, that he had been removed from the directorate, and steps were being taken to call him to account, and that there was accordingly no ground either for passing an order under S. 162, or for taking action under S. 153-C.
2. The learned Judge of the Andhra High Court before whom the application came up for hearing, held that the charges set out therein had been substantially proved, and that it was a fit case for an order for winding up being made under S. 162 (vi).
He also held that under the circumstances action could be taken under S. 153-C, & accordingly appointed two administrators for the management of the Company for a period of six months vesting in them all the powers of the directorate and authorising them to take the necessary steps for recovering the amounts due, paying the debts and for convening a meeting of the shareholders for the purpose of ascertaining their wishes whether the administration should continue, or whether a new Board of Directors should be constituted for the management of the Company.
3. Against this order, the Chairman, Appanna Ranga Rao, acting in the name of the Company preferred an appeal to a Bench of the Andhra High Court. The learned Judges agreed with the trial Judge that the affairs of the Company, as they stood, justified action being taken under S. 153-C, and dismissed the appeal. Against this order, the Company has preferred this appeal by special leave.
4. On behalf of the appellant, it was firstly contended that the application in so far as it was laid under S. 153-C was not maintainable, as there was no proof that the applicant had obtained the consent of the requisite number of shareholders as provided in sub-cl (3) (a) (i) to S. 153-C. That clause provides that a member is entitled to apply for relief only if he has obtained the consent in writing of not less than one hundred in number of the members of the company or not less than one-tenth in number of the members, whichever is less.
The first respondent stated in his application that he had obtained the consent of 80 shareholders, which was more than one-tenth of the total number of members, and had thus satisfied the condition laid down in S. 153-C, sub-cl. (3) (a) (i). To this, an objection was taken in one of the written statements filed on behalf of the respondents that out of the 80 persons who had consented to the institution of the application, 13 were not shareholders at all, and that two members had singed twice.
It was further alleged that 13 of the persons who had given their consent to the filing of the application had subsequently withdrawn their consent. In the result, excluding these 28 members, it was pleaded, the number of persons who had consented would be reduced to 52, and, therefore, the condition laid down in S. 153-C, sub-cl. (3) (a) (i) was not satisfied.
5. This point is not dealt with in the judgment of the trial court, and the argument before us is that as the objection went to the root of the m
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