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1955 Supreme(Ori) 1
HIGH COURT OF ORISSA
P. V. B. Rao, J.
PAMPANA SURYANARAYANA - Appellant
Versus
JOYOTI PICTURES LTD. - Respondent
Company Act Case 2 Of 1954
Decided On : JANUARY 07, 1955
B.MISRA, H.G.Panda, H.MOHAPATRA, R.N.Mishra, Srinivas Mishra
A fully paid-up shareholder is not a contributory within the meaning of Section 156 of the Companies Act, 1913, and therefore cannot maintain an application for winding up under Section 166 of the Act.
Headnote:
COMPANY - WINDING UP - APPLICATION BY FULLY PAID-UP SHAREHOLDERS - MAINTAINABILITY - INTERPRETATION OF SECTIONS 156, 158 AND 166 OF THE COMPANIES ACT, 1913 - WHETHER A FULLY PAID-UP SHAREHOLDER IS A CONTRIBUTORY - ANALYSIS OF ENGLISH AND INDIAN CASE LAW - APPLICATION OF THE PRINCIPLE OF STARE DECISIS - REQUIREMENT OF ALLEGATION AND PROOF OF SURPLUS ASSETS - APPLICABILITY OF THE DICTUM OF JESSEL M.R. IN 'IN RE RICA GOLD WASHING CO.' - EXCEPTIONS - GROUNDS FOR WINDING UP UNDER CLAUSE (6) OF SECTION 162 - INTERPRETATION OF 'JUST AND EQUITABLE' - ANALYSIS OF CASE LAW - APPLICATION TO THE FACTS OF THE CASE.
Fact of the Case:
Petitioners, fully paid-up shareholders of Joyoti Pictures Ltd., filed an application for compulsory winding up of the company under Sections 162 and 166 of the Companies Act, 1913, alleging mismanagement, misappropriation of funds, and inability to pay debts. The company, through its managing agents, denied the allegations and contended that the application was not maintainable as it was filed by fully paid-up shareholders who were not contributories under Section 156 of the Act.
Finding of the Court:
1. A fully paid-up shareholder is not a contributory within the meaning of Section 156 of the Companies Act, 1913, and therefore cannot maintain an application for winding up under Section 166 of the Act. 2. The principle of stare decisis applies to the interpretation of the relevant provisions of the Companies Act, and the long series of decisions of Indian High Courts holding that fully paid-up shareholders can maintain winding up petitions should be followed. 3. In the absence of an allegation and proof of a surplus remaining after winding up in which fully paid-up shareholders can claim payment, the application for winding up cannot be maintained. 4. The dictum of Jessel M.R. in 'In re Rica Gold Washing Co.' that a fully paid-up shareholder must show a tangible interest in the surplus assets of the company to succeed in a winding up petition is not an absolute rule of law and may not apply in cases where the majority of shareholders side with the directors who have committed fraud and prevent the company from bringing an action against them. 5. The grounds for winding up under Clause (6) of Section 162, that it is just and equitable to wind up the company, are not satisfied in the present case as the company is carrying on its business successfully, getting accounts audited regularly, paying dividends to shareholders, and meeting current demands.
Issues: 1. Whether a fully paid-up shareholder is a contributory within the meaning of Section 156 of the Companies Act, 1913, and can maintain an application for winding up under Section 166 of the Act. 2. Whether the principle of stare decisis applies to the interpretation of the relevant provisions of the Companies Act, and whether the long series of decisions of Indian High Courts holding that fully paid-up shareholders can maintain winding up petitions should be followed. 3. Whether, in the absence of an allegation and proof of a surplus remaining after winding up in which fully paid-up shareholders can claim payment, the application for winding up can be maintained. 4. Whether the dictum of Jessel M.R. in 'In re Rica Gold Washing Co.' that a fully paid-up shareholder must show a tangible interest in the surplus assets of the company to succeed in a winding up petition is an absolute rule of law, and whether it applies in cases where the majority of shareholders side with the directors who have committed fraud and prevent the company from bringing an action against them. 5. Whether the grounds for winding up under Clause (6) of Section 162, that it is just and equitable to wind up the company, are satisfied in the present case.
Ratio Decidendi: 1. The definition of 'contributory' in Section 158 of the Companies Act, 1913, read with the qualification in Clause (iv) of Section 156, clearly indicates that a fully paid-up shareholder is not a contributory. 2. The principle of stare decisis applies to the interpretation of the relevant provisions of the Companies Act, and the long series of decisions of Indian High Courts holding that fully paid-up shareholders can maintain winding up petitions should be followed, despite the difference in wording between the corresponding sections of the English Companies Act of 1862 and the Indian Companies Act, 1913. 3. In the absence of an allegation and proof of a surplus remaining after winding up in which fully paid-up shareholders can claim payment, the application for winding up cannot be maintained, as a fully paid-up shareholder has no interest in the winding up and is not a contributory within the meaning of Section 166 of the Act. 4. The dictum of Jessel M.R. in 'In re Rica Gold Washing Co.' that a fully paid-up shareholder must show a tangible interest in the surplus assets of the company to succeed in a winding up petition is not an absolute rule of law and may not apply in cases where the majority of shareholders side with the directors who have committed fraud and prevent the company from bringing an action against them. 5. The grounds for winding up under Clause (6) of Section 162, that it is just and equitable to wind up the company, are not satisfied in the present case as the company is carrying on its business successfully, getting accounts audited regularly, paying dividends to shareholders, and meeting current demands.
Final Decision: The application for winding up of Joyoti Pictures Ltd. filed by fully paid-up shareholders is dismissed.
P. V. B. RAO, J.
( 1 ) THIS is an application by 14 petitioners under Sections 162 and 166, Companies act, for compulsory winding up of the Joyoti Pictures Ltd. , with its Head Office at berhampur.
( 2 ) IT is alleged in the petition that petitioners 1 to 14 are contributories, and petitioner 6 and some others are creditors of the Joyoti Pictures Ltd. , that the company is a private Limited Company registered under the Indian Companies act, 1918 in 1942; that the Company has a Board of 3 Directors; that the registered office of the Company is at Berhampur in Ganjam District; that the authorised capital of the Company originally stood at Rs. 20,000/- but later on increased to Rs. 50,000/-divided into 250 shares of Rs. 200/-each; that the entire share capital is fully paid up and the petitioners 1 to 14 are consequently fully paid-up share-holders; that the objects of the Company are to exhibit cinema shows, carry on business in all kinds of language cinema films etc. , that the number of share-holders is 27 including the petitioners; that when the Company was originally started in 1942 by one K. Tarini Rao and two of his nominees, M. Arjunam and V. Ganapati, who subscribed to the memorandum with two shares each, K. Tarini Rao was hopelessly in debt to the extent of about Rs. 8,000/-; that he had mortgaged his only residential house; that his shares which were first only 2, have now increased to 55; that he has managed to acquire by questionable means 82 shares in the name of his son K. Narayan Rao, 30 shares in the name of his wife Ammani and 5 shares in the name of his brother Narasimha Rao, that, in all, the family of K. Tarani Rao owns 172 shares; that as the Company flourished tarini Rao who was practically the Manager, had fraudulently appropriated the company's gate collections and other sources of income to himself and shown in the Company's accounts fictitious deposits by persons no other than his wife, son, himself and his wife's sister to the tune of Rs. 25,871/-; that this sum including share capital of the shares standing in the names of the members of the family amounting to Rs. 34,400/- makes up a total of Rs. 60,271/-that Clause (3) of the articles of Association lays down that the Company shall be managed by Messrs K. Tarini Rao and son; that in the draft agreement between the Company and the managing Agents, terms were inserted with the approval of his nominees --the two other promoters, which imposed a condition that even in the event of winding up or transfer of the Company's business the same Managing Agents shall continue as such; that these terms are not only unreasonable and excessively onerous but also ultra vires and hence not binding on the Company as the said agreement was never formally approved by resolution after incorporation of the company; that the Company has thus become a partnership consisting of Tarini rao's family members and relatives who, own 70 per cent of the Company's shares and, have a preponderating and dominating voice in the Company's affairs; that the Managing Agency has been formally converted into a partnership by a deed which was registered on 16-2-1949; that under Article 4 of the Articles of association there are to be 5 Directors including 2 Directors ex-officio nominated by the Managing Agents who are not due to retire by rotation; that consequently when matters relating to the conduct of the Managing Agency in any meeting are on the agenda, division is demanded by poll and the managing agents are able to flout the wishes of the members and to over-rule them; that on 25-12-48 a resolution was passed to the effect that the managing agents' monthly allowance shall be Rs. 300/- per month from 1-4-48 and 20 per cent of the net profits shall be paid from 1948-49 or 61/4 per cent of the revenue whichever was higher; that the managing agency on the strength of this resolution are appropriating 61/4 per cent of the total receipts from the sale of tickets construing the term 'reve
