1949 (12) TMI 25 - HC - Companies Law

Court sets aside winding-up order due to lack of locus standi and unsubstantiated fraud allegations

Bharat Bank Ltd. Versus Lajpat Rai Sawhney

The court allowed the appeal, setting aside the winding-up order and the appointment of the Official Liquidator due to the lack of locus standi of Lajpat ... Winding up – Definition of contributory and Application for Issues Involved:1. Locus standi of Lajpat Rai Sawhney to apply for winding up.2. Validity of the winding-up order and appointment of the Official Liquidator.3. Allegations of fraud by Bharat Bank Ltd. in the sale of the company's assets.Issue-wise Detailed Analysis:1. Locus Standi of Lajpat Rai Sawhney to Apply for Winding Up:The primary issue was whether Lajpat Rai Sawhney, a holder of 1,000 fully paid-up shares, had the locus standi to file a petition for winding up the company. The court examined section 166 of the Companies Act, which allows a 'contributory' to present an application for winding up. Section 158 defines a 'contributory' as anyone liable to contribute to the assets of a company in the event of its winding up, including fully paid-up shareholders.However, the court referred to several English cases, such as Re Rica Gold Washing Co. [1879] 11 Ch. D. 36 and In re Vron Colliery Co. [1881] 30 Ch. D. 442, which established that a fully paid-up shareholder must allege and prove a tangible interest in the surplus assets of the company to have standing. The court noted that Sawhney did not allege any such surplus, nor did he provide prima facie evidence of a tangible surplus. Thus, the court concluded that Sawhney did not have the locus standi to file the petition.2. Validity of the Winding-Up Order and Appointment of the Official Liquidator:Given the finding on locus standi, the court addressed the validity of the winding-up order and the appointment of the Official Liquidator. The learned District Judge had relied on two Madras cases, Sabapathi Press & Co. Ltd. v. R. Sabapathi Rao [1930] ILR 53 Mad. 38 and Narayandas Girdhardas v. P. & O. Banking Corporation Ltd. [1934] 4 Comp. Cas. 166, to support his decision. However, the court distinguished these cases, noting that they involved situations where a tangible interest or surplus was alleged and proven.The court found that the District Judge had overlooked the requirement that a fully paid-up shareholder must show a tangible interest in the surplus assets. Consequently, the court set aside the winding-up order and the appointment of the Official Liquidator, stating that Sawhney had no locus standi to bring the petition.3. Allegations of Fraud by Bharat Bank Ltd. in the Sale of the Company's Assets:The court also addressed the allegations of fraud by Bharat Bank Ltd. in the sale of the company's assets. Sawhney and other petitioners had claimed that the bank was selling the company's assets at a price much lower than the market value, thereby defrauding other creditors and shareholders.The court noted that there was no substantial evidence on record to support these allegations. The appellants had even offered to set aside the sale if the respondents could pay Rs. 9,00,000 within a reasonable time, but the respondents were not prepared to accept this offer. The court found no merit in the allegations of fraud and concluded that the sale was conducted in accordance with the arrangement agreed upon by the company and the bank.Conclusion:The court allowed the appeal, setting aside the winding-up order and the appointment of the Official Liquidator due to the lack of locus standi of Lajpat Rai Sawhney. The allegations of fraud by Bharat Bank Ltd. were found to be unsubstantiated. The judgment affected only the petition filed by Sawhney and not the one filed by Dr. Leighton. The appellants were awarded costs in both the High Court and the District Court.