1988 (3) TMI 399 - HC - Companies Law

Preference shareholders' winding-up petition dismissed for non-payment; shares not loans under Companies Act

Lalchand Surana Versus Hyderabad Vanaspathy Ltd.

Lalchand Surana Versus Hyderabad Vanaspathy Ltd. - [1990] 68 COMP. CAS. 415 (AP) Issues involved:The petition for winding up a company by three shareholders on the ground of inability to pay debts under section 433(e) of the Companies Act, 1956, challenged by the respondent-company.Summary:The petitioners, holding preference shares, sought winding up of the company due to non-payment of amounts due on the shares. The company objected, arguing that preference shareholders cannot be considered creditors. The court deliberated on whether preference shareholders can be classified as creditors under the Act.The petitioners claimed that as the company failed to pay the due amount on their preference shares, they should be considered creditors. In contrast, the respondent argued that preference shareholders, though holding redeemable shares, do not become creditors as per the Act.The court analyzed the provisions of the Companies Act, particularly sections 80 and 85, to determine the nature of preference shares and the rights of shareholders. It noted that the Act specifies conditions for redeeming preference shares, indicating that shareholders do not automatically become creditors if the company fails to redeem the shares.Referring to legal precedents, the court emphasized that preference shares are part of the company's share capital and do not transform into loans. It also considered an earlier judgment but found it unrelated to the current issue.Ultimately, the court held that the petitioners, as preference shareholders, do not qualify as creditors under the Act when their shares are not redeemed by the company. Consequently, the petition for winding up the company was deemed not maintainable in law and was dismissed with no costs awarded.