2004 (8) TMI 384 - HC - Companies Law

Appeal allowed in Company Act case, 'just and equitable' clause applied judiciously

The court held that the appeal was maintainable and overturned the decision of the Company Judge to admit the petition under section 433(f) of the ... Appeals from orders, Winding up - Circumstances in which a company may be wound up Issues Involved:1. Locus standi of stand members to file a company petition.2. Invocation of the 'just and equitable' clause under section 433(f) of the Companies Act, 1956.3. Maintainability of the appeal against the order admitting the company petition.4. Interpretation and legality of the Articles of Association concerning voting rights and membership.Issue-wise Detailed Analysis:1. Locus standi of stand members to file a company petition:The appellant-company argued that the respondents, being stand members and not club members, have no locus standi to file the petition under the Companies Act. Article 3(a) of the Articles of Association specifies that only club members are deemed to be members for the purposes of the Act. The respondents, being stand members, lack the standing to file a petition for winding up the company. The court noted that the Articles of Association clearly differentiate between club members and stand members, with only the former having voting rights and being recognized as members under the Act.2. Invocation of the 'just and equitable' clause under section 433(f) of the Companies Act, 1956:The appellant contended that the 'just and equitable' clause should be invoked only as a last resort, citing Hind Overseas (P.) Ltd. v. Raghunath Prasad Jhunjhunwalla. The respondents argued that the learned Company Judge correctly invoked section 433(f) to admit the petition. The court emphasized that the 'just and equitable' clause should be applied judiciously and in exceptional cases. The court found that the respondents, having knowingly accepted the status of stand members without voting rights, could not now seek winding up on the basis of alleged inequity in the Articles of Association.3. Maintainability of the appeal against the order admitting the company petition:The respondents argued that the appeal was not maintainable since the impugned order merely admitted the petition without issuing an advertisement. The appellant relied on Pradeshiya Industrial & Investment Corpn. of Uttar Pradesh v. North India Petro Chemical Ltd., where the Supreme Court held that an order of admission has serious civil consequences and is appealable under section 483 of the Act. The court agreed with the appellant, stating that the appeal is maintainable as the order of admission does have significant implications.4. Interpretation and legality of the Articles of Association concerning voting rights and membership:The court examined the relevant provisions of the Articles of Association and section 29 of the Act. Article 3(a) and Article 8 clearly state that only club members have voting rights and are considered members for the purposes of the Act. The court also referred to section 41 of the Act, which outlines the criteria for membership. The court found that the Articles of Association, as framed, are consistent with the Act and that the inclusion of additional matters in the articles is permissible under section 29. The court noted that the respondents, having accepted the terms of their membership as stand members, could not challenge the legality of the Articles of Association now.Conclusion:The court concluded that the appeal is maintainable and that the learned Company Judge erred in admitting the petition under section 433(f) of the Act. The court emphasized that the 'just and equitable' clause should be invoked only in exceptional circumstances and that the respondents, as stand members, lacked the standing to seek winding up of the company. The court set aside the order of the learned Company Judge, thereby allowing the appeal.