1985 (12) TMI 343 - HC - Companies Law

Court rules in favor of petitioners, allowing petition under Companies Act. Jurisdiction affirmed for share purchase alternatives.

The court ruled in favor of the petitioners, rejecting the respondents' objections. It held that the petitioners, as legal representatives of the deceased ... Company when deemed unable to pay its debts, Winding up - Application for Issues Involved:1. Maintainability of the petition under Section 439(4) of the Companies Act, 1956.2. The effect of the petitioners giving up the claim for winding up.3. Jurisdiction of the court to order the purchase of shares under Section 443(1)(d) of the Companies Act, 1956.Detailed Analysis:1. Maintainability of the petition under Section 439(4) of the Companies Act, 1956:The first contention raised by the respondents was based on the language of Section 439(4) of the Companies Act, 1956, which stipulates that a contributory shall not be entitled to present a petition for winding up a company unless the shares in respect of which he is a contributory were originally allotted to him, have been held by him and registered in his name for at least six months during the eighteen months immediately before the commencement of the winding up, or have devolved on him through the death of a former holder. The respondents argued that the petitioners, being legal representatives of the deceased shareholder and not having their names registered in the company's register, did not meet the requirements.The court, however, observed that petitioners Nos. 2 to 6 are contributories even though the shares on the basis of which the petition has been filed are fully paid-up shares and even though they stand in the name of the deceased shareholder, S.P. The court rejected the interpretation that the six-month holding period applies to legal representatives, as it would result in an inequitable situation where the legal representatives, despite being liable as contributories, would be unable to exercise their rights. The court emphasized that a legal representative should be able to file a winding-up petition even if their name has not been entered on the register of members.2. The effect of the petitioners giving up the claim for winding up:The second principal ground raised by the respondents was that the petitioners had specifically given up their claim for the winding up of the company, and therefore, there was nothing further left in the petition to argue. The respondents contended that the court could not admit the petition to the limited extent of determining the price at which the petitioners' shares should be purchased by the respondents.The court, however, disagreed with this contention. It held that the relief by way of winding up is to be granted only as an ultimate necessity where it is in the best interests of all creditors and contributories. The court has the jurisdiction under Sections 443(1)(d) and 443(2) to pass an order other than winding up that would effectively resolve the disputes between the parties. The court emphasized that the powers conferred on it under the Companies Act are very wide and allow it to explore alternatives to winding up, such as directing the purchase of shares by one group of shareholders from another.3. Jurisdiction of the court to order the purchase of shares under Section 443(1)(d) of the Companies Act, 1956:The court addressed the respondents' argument that the purchase of shares can only be done in accordance with the procedure prescribed in Section 77 or as incidental to a petition under Sections 397 and 398. The court clarified that the winding-up court has full jurisdiction under Sections 443(1)(d) and 443(2) to pass orders that effectively resolve the disputes between the parties, including ordering the purchase of shares.The court noted that the relief of winding up is not an automatic remedy available for the asking and that the court can consider whether some relief short of winding up can meet the situation. The powers of the court in this regard are plenary and are expressed in very wide terms in Section 443(1)(d). The court can mould the relief to the circumstances of the particular case before it, and it is not limited to only dismissing the petition or ordering winding up.Conclusion:The court overruled the objections raised by the respondents and declined to dismiss the company petition at this stage. The court held that the petitioners, being legal representatives of the deceased shareholder, are competent to file the petition and that the court has the jurisdiction to consider alternatives to winding up, including the purchase of shares. The petition was listed for hearing on January 29, 1986.