Ceylon Textiles Ltd. V. Chittampalam Gardiner

1952 Present : Pulle J. and L. M. D. de Silva J.

CEYLON TEXTILES LTD. et al, Appellants, and CHITTAMPALAM
GARDINER et al, Respondents

S. C. 504-D. C. Colombo, 365/S

Companies Ordinance, No. 51 of 1938-Section 162 (6)-Public Company-Winding up by Court-Deadlock-Perverse use of voting power-" Just and equitable cause "-Scope of functions of Court.

Where an application to Court was made under section 162 (6) of the Companies Ordinance for the winding up of a public company on the ground of a deadlock in the management and conduct of the company's affairs owing to disputes between the directors and the agents and secretaries of the company and between the directors inter se-

Held, that the constitution of a public company generally made it possible for disputes to be resolved in a domestic forum or at the worst in a court of law. Only if it was impossible to arrive at a solution by such means would a Court pronounce a winding up order. The embarrassment caused by conflicts between directors and the possible delays inevitable in litigation in achieving their resolution do not necessarily lead to the conclusion that a company should be wound up under section 162 (6) of the Companies Ordinance.

Observations on perverse and oppressive use of voting power as a ground for winding up a company.

APPEAL from an order of the District Court, Colombo.

H. V. Perera, Q.C., with N. Nadarasa, for the appellants. - The question is whether, in the circumstances found by the trial Judge in this case, the order for the winding up of the Ceylon Textiles Limited should have been made. Under section 162 (6) of the Companies Ordinance, No. 51 of 1938, a company may be wound up by the Court if the Court is of opinion that it is " just and equitable " that the company should be wound up. The words " just and equitable " do not mean " whenever the Court thinks it reasonable ". They are words of limitation. The particular sets of circumstances which fall within the "just and equitable" clause have not been laid down, but the categories are three :-first, where the substratum of the company has disappeared; secondly, where an individual or group with a majority of shares makes a perverse use of the majority power ; and thirdly, when there is a deadlock. These categories are not illustrative but nearly exhaustive. English Courts have refused to give relief in cases falling outside these categories- Re Anglo-Continental Produce Co. Ltd. 1[(1939) A. E. R. 99.]

The state of deadlock must be complete to justify an order for winding up. Mere interruptions or disputes, which can be resolved by resort to the domestic forum or by the ordinary processes of Court, do not constitute a complete deadlock-Re Yenidje Tobacco Co. Ltd. 2[(1916) 2 Ch. 426.]; Re American Pioneer Leather Co. 3[(1918) 1 Ch. 556.]. See also Re Eastern Telegraph Co. Ltd. 4[(1947) 2 A. E. R. 104.]

and Be Taldua Rubber Co. Ltd. 1[(1946) 2 A. E. R. 763.]. The mere fact that there may be a deadlock in the future is insufficient. There must be a present deadlock incapable of solution. In the present case the deadlock, if it did in fact exist, was remediable.

With regard to the question of unconscionable use of majority voting power, it is submitted that the trial Judge has misapplied the words of Lord Clyde's judgment quoted in Loch v. John Blackwood 2[(1924) A. C. 783.]. Where there is an illegality for which there is no adequate remedy available either under the Articles of Association or through the ordinary processes of Court then only is an order of winding up made. Winding up by order of Court is only the last resort. See Be Langham Skating Rink Co. 3[(1877) 5 Ch. D. 669.] ; Re Cuthbert Cooper 4[(1937) 2 A. E. R. 466.] ; Re Anglo-Continental Produce Co. Ltd. (supra).

D. S. Jayawickreme, with E. B. S. B. Coomaraswamy, for the 1st to 7th petitioners respondents.-It is implicit in the contrac

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