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Madras High Court
PALANISWAMY
S.Parameswari - Appellant
Versus
Kamadhenu Metal Rolling Mills Pvt.Ltd., Tirupur - Respondent
Decided On : 12/01/1969
COMPANY LAW - WINDING UP - PETITION BY SHAREHOLDER - JUST AND EQUITABLE - FAMILY QUARREL - ABUSE OF PROCESS - COMPANIES ACT, 1956, SS. 153, 433(E), (F).
Fact of the Case:
A shareholder and creditor filed a petition under Sections 433(e) and (f) of the Companies Act, 1956, to wind up a company on the grounds of commercial insolvency, mismanagement, and inability to pay debts. The company's Managing Director, who was the petitioner's husband, opposed the petition, alleging that it was motivated by a family quarrel and that the petitioner was not a genuine shareholder or creditor.
Finding of the Court:
The court found that the company was commercially insolvent and that its affairs were not being conducted properly. However, it held that it would not be just and equitable to wind up the company, as the petition appeared to be the result of a family quarrel between the petitioner and her husband. The court also found that there was a bona fide dispute about the petitioner's status as a shareholder and creditor.
Issues: 1. Whether the company was commercially insolvent and its affairs were being mismanaged? 2. Whether it was just and equitable to wind up the company? 3. Whether the petitioner was a genuine shareholder and creditor?
Ratio Decidendi: 1. The court held that the company was commercially insolvent and that its affairs were not being conducted properly, based on the report of the Registrar of Companies and the auditors' report. 2. However, the court held that it would not be just and equitable to wind up the company, as the petition appeared to be the result of a family quarrel between the petitioner and her husband. The court noted that no other creditor or shareholder of the company had opposed or supported the petition, and that the petitioner's son, who was also a creditor, had not filed an affidavit in support of the petition. 3. The court held that there was a bona fide dispute about the petitioner's status as a shareholder and creditor, as the Managing Director had alleged that the petitioner was only his benamidar. The court noted that Section 153 of the Companies Act, 1956, did not preclude the company from taking notice of or recognizing any trust brought to its notice otherwise than by entry in the register.
Final Decision: The court dismissed the petition with costs, holding that it was an abuse of the process of court.
ORDER :- This petition is filed under Section 433(e) and (f) of the Companies Act, 1956 to wind up Kamadhenu Metal Rolling Mills Pvt. Ltd., Thirupur, Coimbatore District. The Company was incorporated on 30-5-1962 as a private limited company by shares. The main object of the company is to deal and sell metal wares and products and to establish Iron foundry and rolling mills. The petitioner claims to be a shareholder as
well as a creditor. According to her, a sum of Rs. 16,840-48 is due to her as per the books of the company. Her case is that the company is commercially insolvent and is unable to pay its debts, that there has been increase in the loss from year to year, that the affairs of the company are being mismanaged and that it is, therefore, just and necessary that the company should be wound up.
2. The petitioner is the wife of Subbaraya Chettiar, the Managing Director of the respondent company. The Managing Director has sworn to a counter-affidavit stating that there is misunderstanding between him and his wife, that the petitioner has come forward with this application to cause annoyance to him on account of the family quarrel, that the petitioner is neither a shareholder nor a creditor and that he has advanced his own money and made entries in the name of the petitioner benami for his benefit. It is also his contention that though the company has not been able to make profit due to initial difficulties during the period of recession and other causes, the company is slowly turning round the corner and would very soon be able to show profit. It is his submission that the petitioner should not be allowed to use the provisions of the company law for the purpose of spiting him. The petitioner has filed a reply affidavit denying the allegations of benami set up by her husband.
3. Prior to the institution of the petition, there was no statutory notice of demand for the payment of the amount said to be due to the petitioner. So far as the financial position of the company is concerned the report filed by the respondent to Registrar of Companies, to which is attached the auditors' report, no doubt shows that all is not well with the company. The company appears to be commercially insolvent. The company also appears to be a regular defaulter in the matter of filing balance sheets and annual returns, with the result some criminal proceedings have been taken against the directors for such defaults. The auditors report also shows that the accounts have not been kept in a proper way.
4. The further case of the petitioner is that her son Anandan is also a creditor, the amount due to him being Rs. 14512-10. But the contention of the Managing Director is that his son also is a benamidar so far as the amount entered in the son's name is concerned. The son has not chosen to file an affidavit in support of the allegation of the petitioner. But in the family quarrel, the son seems to be on the side of the mother, the petitioner.
5. It is no doubt true, as seen from the report of the Registrar of Companies and the auditors' report, that the company is not commercially solvent and that the affairs of the company are not being conducted in such a way as they should be conducted. But the question is whether it is just and equitable that the company should be wound up. As already pointed out, this petition appears to be the result of estrangement of feeling between the petitioner and her husband, the Managing Director. The explanation of the Managing Director is that ever since the incorporation of the company in the year 1962 it had to meet with some difficulties or other resulting in some loss, and that in view of the change in the industrial market at present, he hopes to meet the situation and work the company to the advantage of the share-holders. One important thing to be noted in this connection is that no other creditor or share-holder of the company either opposes or supports this petition. That clearly shows that the other share
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