Shareholding size and deadlock in closely held companies determine applicability of just and equitable grounds for winding up.

CHANDRAKANTARAJ URS, J.

( 1 ) THIS petition in presented by one Chennabasappa Kothambari purporting to be a petition under s. 433 (e) and (f) read with ss. 397 and 398 of the Companies Act, 1956 (hereinafter referred to as "the Act" ). The prayers in the petition are for an over winding up the first respondent-Multiplast industries (Karnataka) P. Ltd. , Hospet; for a declaration that the notice dated May 25, 1982, issued by the company, a copy of which is at Ex. Q to the petition to be illegal, void and not enforceable against the petitioner and pass an order directing the respondent-company to forbear from exercising its lien on the fully paid-up shares held by the petitioner hand from selling the said shares. In the alternative, he has prayed that the respondent-company and its directors be directed to transfer the share held by the petitioner for a fair present market value and pay the sale proceeds to the petitioner forthwith.

( 2 ) TO summarise the averments in the petition, the following few facts may be stated :

( 3 ) THE petitioner and respondents Nos. 2 to 4 before the formation of the first respondent-company were partners doing the same business in the same name and style of multiplast Industries Corporation. That partnership headed for some trouble and suit was filed for dissolution of the partnership by the petitioner. But, while that suit was pending, the matter was settled out of court and that suit was disposed of in terms of a settlement reached by the parties thereto. It is thereafter that the present first respondent-company was incorporated.

( 4 ) IT is further averred that in 1977, the petitioner was offered life directorship of the newly formed company and that he accepted the same. But action was taken against him by the board of directors by removing him from the directorship on account of his consecutively absenting himself for three board meetings without permission. In other words, he was declared to have ceased to be the director of the company by virtue of s. 283 (g) of the Companies Act, 1956. That matter was agitated in this court by the petitioner. But that also was settled out of court by the petitioner. The effect was, he was released an guarantor in respect of certain debts in respect of which he had executed guarantee in favour of some banks which had advanced monies to the first respondent-company. He accepted his termination of the directorship as well as his liability as guarantor individually.

( 5 ) IT is after all these, the present petition is filed, inter alia, contending that he is holding more than 1/4th of the shares of the company and the company has been mismanaged as shown in the balance-sheet for the period ending December 31, 1981, which is one of the exhibits produced. It shows that the company has incurred loss of rupees two lakhs and, therefore, it is contended, the affairs of the company are not managed in public interest and the directors are trying to recover the sum of Rs. 80,000 said to be due from the petitioner and others have filed suits in respect of alleged loans advanced by them. It is said that the sums demanded are not only due from the petitioner but also from his erstwhile partners in the earlier dissolved firm. It is these acts the petitioner alleged as mismanagement, oppression to the minority shareholders and carrying on business contrary to public interest. Therefore, it is prayed that the petition should be allowed and the company wound up on just and equitable grounds relying upon a decision rendered in davis and Collett Ltd. , In re [1935] 1 Ch 693. It is contended that the principles which apply to the dissolution of a partnership should be extended to the facts of the present case and the respondent-company wound up.

( 6 ) IT is needless to say that the respondents have resisted the petition and the prayers therein. They have filed a detailed counter denying all the allegations made by the petitioner and have contended that the loss is a normal

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