1957 (8) TMI 15 - HC - Companies Law

Court rejects reconstitution without liability, upholds liquidator's removal in company case

The High Court allowed the appeal against the order sanctioning the reconstitution of the company, emphasizing that the proposed reconstitution without ... Amalgamation and Winding up – General provisions as to liquidators Issues:1. Dismissal of application for removal of liquidator2. Order sanctioning reconstitution of the company3. Charges against the official liquidator and demand for removalIssue 1: Dismissal of application for removal of liquidatorThe judgment involves an appeal by a member of a company in liquidation against the dismissal of his application for the removal of the liquidator. The company, Gothuruthi Educational and Industrial Co. Ltd., was ordered to be wound up, and the liquidator, who was also the managing director, sought permission to convene a meeting for reconstituting the company. Despite opposition from some members, the court granted permission for the meeting. At the meeting, resolutions were passed, including one for reconstitution without any liability to the members. The court below sanctioned the reconstitution, leaving the legal effect of the resolution for later determination. However, the High Court held that the reconstitution as demanded by the members was not legally possible, and the court should have decided this before granting approval. The High Court emphasized that the court cannot alter the terms of the members' resolutions and must withhold approval if the proposed reconstitution is not permissible under the law. As a result, the appeal against the order sanctioning reconstitution was allowed.Issue 2: Order sanctioning reconstitution of the companyThe judgment addresses the legality of reconstituting a company without any liability to its members. The court found that the resolution passed by the majority of members, seeking reconstitution without any liability, was not legally tenable. The court emphasized that under section 153 of the Companies Act, the court cannot approve a compromise or arrangement that introduces substantial alterations or goes against the law. The absence of a detailed scheme or arrangement for approval further undermined the validity of the resolution. Consequently, the High Court allowed the appeal against the order sanctioning the reconstitution, stating that the court cannot approve a reconstitution that contravenes legal requirements.Issue 3: Charges against the official liquidator and demand for removalIn a separate matter, a dissentient member, also a creditor, brought charges against the official liquidator under section 176 of the Companies Act and sought his removal. The lower court dismissed the charges, but the appellant appealed. However, considering that most assets and liabilities of the company had been settled, with a substantial balance in court deposit, the High Court deemed the removal of the liquidator unnecessary. The High Court emphasized that while the charges against the liquidator should not be ignored, they could be addressed at the time of his discharge, ensuring accountability for any potential losses caused to the company. The High Court set aside the lower court's findings on specific charges, allowing the appellant to pursue them during the liquidator's discharge process. Ultimately, the High Court dismissed the appeal against the liquidator's removal, stating that it was no longer required in the company's interests, with no order as to costs.