TaxTMI 
TaxTMI 
2008 (2) TMI 612
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..... Ltd. 3. The facts giving rise to the present appeals, in brief as noted by the Division Bench of the High Court are as follows. 4. Severn Trent Water Purification Inc., USA (hereinafter referred to as 'Severn Trent') filed a petition for winding up the Capital Controls (India) Private Limited (hereinafter referred to as 'the Company') on just and equitable grounds under section 433(f) of the Companies Act, 1956 (hereinafter referred to as 'the Act'). The learned Company Judge by his order dated 21-4-2005 admitted the company petition. Aggrieved thereby two appeals came to be filed. One appeal (Appeal No. 449 of 2005) was filed by Chloro Controls (India) Private Limited, which has 50 per cent shareholding in the company and the other appeal (Appeal No. 450 of 2005) was filed by the Company. As both the appeals arose out of one and the same order passed by the Company Court, the appeals were heard together and decided by a common judgment. 5. The petitioner set up the case in the petition for winding up of the Company thus: (i)Severn Trent is a Corporation organized and existing under the laws of the State of Pennsylvania, USA having its office and place of business at ....
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....e parties became more and more strain. (x)Severn Trent, therefore, terminated the Joint Venture Agreement vide its letter dated 21-7-2004 due to breaches committed by Chloro Controls (India) Private Limited and Mr. Kocha. In the termination notice, Severn Trent called upon Mr. Kocha to take steps for winding up of the company. (xi)Severn Trent had alleged that if Mr. Kocha would be allowed to continue to run the company, the basic substratum of the company would be eroded and the company could be saddled with liabilities leading to depletion of net worth. (xii)The company had been incorporated in the nature of partnership/quasi-partnership and both parties had equal share in the company. The parties were severely deadlocked on several issues, there was total break down and Severn Trent had lost confidence in Kochas. Severn Trent felt that the company would not return to the normalcy or could run the business profitability and it was just and equitable to wind up the company. 6. Severn Trent, in Company Petition No. 857 of 2004, filed on 22-9-2004 in the High Court of Judicature at Bombay under section 433(f) of the Act sought the following reliefs : (a)That the Compa....
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....of the petition for winding up on several grounds. It was, inter alia, contended that (i) Severn Trent was not a shareholder on the company's register and, therefore, had no standing to maintain the petition for winding up; (ii) Capital Control (Delaware) Corporation was the registered holder of 50 per cent of the equity share capital of the Company. Merger of Capital Controls (Delaware) Company, Inc. into and with Severn Trent was not intimated to the company prior to the filing of Arbitration Petition No. 121 of 2004 by Severn Trent under section 9 of the Arbitration and Conciliation Act, 1996; (iii) at no point of time, any application for transfer of share certificates and/or substitution of the name of Severn Trent had been made; (iv) the assignment of shares by the Capital Controls (Delaware) Company, Inc. to Severn Trent without the consent of Chloro Controls (India) Private Limited or for that matter of M.B. Kocha was contrary to the Shareholders Agreement and could not be given effect to. 8. Severn Trent filed a rejoinder explaining its position regarding the merger. Severn Trent annexed certain documents which in its opinion were in the nature of merger documents and s....
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....ioner fails to issue the advertisement. 12. Aggrieved by the decision of the learned Company Judge, Chloro Controls preferred Appeal No. 449 of 2005 while the Company filed Appeal No. 450 of 2005. Both the appeals were heard by a Division Bench of the High Court of Bombay and disposed of by a common judgment and order dated 20/21-2-2006. The Division Bench set aside the order of the Company Judge, holding that Severn Trent is not entitled to file a petition for winding up as a contributory, unless it is registered as a member in the register maintained by the company. It, however, remitted the matter on the question of maintainability in its capacity as a Creditor of the Company to the Company Judge for consideration. The Bench also observed that it would be open to the respondents to oppose the admission of the petition on all grounds, including that of premature advertisement by Severn Trent. 13. Severn Trent being dissatisfied with order in appeal, filed Special Leave Petition (Civil) No. 6161 of 2006 in this Court. Notice was issued on 13-4-2006 and accepted on Caveat by the respondents. Another Special Leave Petition (Civil) No. 9530 of 2006 was filed by Chloro Controls ....
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....n the case of a private company, below two; (e)if the company is unable to pay its debts; (f )if the Tribunal is of the opinion that it is just and equitable that the company should be wound up; (g )if the company has made a default in filing with the Registrar its balance sheet and profit and loss account or annual return for any five consecutive financial years; (h)if the company has acted against the interests of the sovereignty and integrity of India, the security of the State, friendly relations with foreign States, public order, decency or morality; (i )if the Tribunal is of the opinion that the company should be wound up under the circumstances specified in section 424G : Provided that the Tribunal shall make an order for winding up of a company under clause (h) on application made by the Central Government or a State Government." 17. Section 439 of the Act permits presentation of petition for winding up. It is also an equally important provision and may be quoted in extenso : "439. Provisions as to applications for winding up. -(1) An application to the Court for the winding up of a company shall be by petition presented, subject to the provisions of....
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....tral Government to the presentation of the petition on any of the grounds aforesaid. (6) The Central Government shall not accord its sanction in pursuance of the foregoing proviso, unless the company has first been afforded an opportunity of making its representations, if any. (7) A petition for winding up a company on the ground specified in clause (b) of section 433 shall not be presented- (a )except by the Registrar or by a contributory; or (b )before the expiration of fourteen days after the last day on which the statutory meeting referred to in clause (b) aforesaid ought to have been held. (8) Before a petition for winding up a company presented by a contingent or prospective creditor is admitted, the leave of the Court shall be obtained for the admission of the petition and such leave shall not be granted- (a )unless, in the opinion of the Court, there is a prima facie case for winding up the company; and (b )until such security for costs has been given as the Court thinks reasonable." 18. Section 439 has to be read with section 428 which defines the term 'Contributory'. It reads thus : "428. Definition of 'contributory'.-The term 'contributory' mea....
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.... the company. 23. Section 108 provides that a Company shall not register transfer of shares unless a proper instrument of transfer duly stamped and executed by or on behalf of the transferor and by or on behalf of the transferee and specifying the name, address and occupation, if any, of the transferee, has been delivered to the company along with necessary certificate or letter of allotment. Section 109 deals with transfer of shares by legal representative of deceased Member of the Company. Section 109A relates to nomination of shares while section 109B provides for transmission of shares. Section 110 requires making of an application for registration for transfer of shares (or other interest) of a Member in the Company either by transferor or by transferee. Section 111 provides legal remedy of an appeal in case the Company refuses to register transfer of shares or transmission of shares by operation of law. 24. From the above scheme of the Act, it is abundantly clear that a contributory's right to present a winding up petition must be one either under clause (a) or under clause (b) of sub-section (4) of section 439. It is nobody's case that clause (a) of section 439(4) is a....
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....petition, and that cannot be modified by saying that he ought to be in a position in which he is not. The provisions of section 40 are not complied with, and I see no reason why the company should not set up that defence." [Emphasis supplied] 29. In H.L. Bolton Engg. Co. Ltd., In re [1956] 1 All ER 799; the Chancery Court held that section 224(1) of the Companies Act, 1948 was designed to provide an 'exhaustive list' of those who are entitled to present a petition for compulsory winding-up. If the petitioner is to qualify as a person entitled to present such a petition, it must be on the ground that he is a contributory at the time of presentation of petition. 30. Relevant part of section 224(1) reads thus : "(1) An application to the court for the winding-up of a company shall be by petition presented, subject to the provisions of this section, either by the company or by any creditor or creditors (including any contingent or prospective creditor or creditors), contributory or contributories, or by all or any of those parties, together or separately : Provided that- (a )a contributory shall not be entitled to present a winding-up petition unless- (i )either the n....
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....ich he is a contributory or some of them were (a )originally allotted to him, or (b )have been held by him and registered in his name for at least six months during the eighteen months before the commencement of the winding up, or (c )have devolved upon him through the death of a former holder [Insolvency Act, section 124(2)]. The object of these provisions is to prevent a person buying shares in order to qualify himself to wreck the Company. 'Held' means standing in the name of the contributory petitioner. The provisions of section 124(2) must be applied strictly, unless, perhaps, the company itself is in default in allotting shares or registering a transfer." [Emphasis supplied] 35. Another renowned author Buckley (Buckley on the Companies Act, 14th Edn., Vol. I, p. 537) also considered the scope of section 224 of the Companies Act, 1948 and stated : "This section is apparently exhaustive, so that a person not within its ambit cannot petition, unless authorized to do so by some other enactment." [Emphasis supplied] 36. From the above discussion, it is clear that the provisions of the Act must be complied with before presenting a winding up petition under sect....
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....onal representative." 41. National Bank of Greece & Athens, South Asia v. Metliss [1957] 3 All ER 608, is also distinguishable. There, the Greek Act governing amalgamation of Banking Companies provided that a new Company absorbing another Company by amalgamation would become 'universal successor' to the rights and liabilities in general of the amalgamated Companies without any other formality or act. It was, therefore, held that the 'universal successor' could institute an action or an action could be continued against him : "The persona of the deceased is recognized as continued in the heir, or, as it is otherwise expressed, he is eadem personal cum defuncto. He is no more to be regarded as a new party introduced into a contract than is an executor or administrator of a dead man's estate in English Law. (per Lord Keith)" [Emphasis supplied] 42. It is thus clear that the decision was based on the Greek Law governing amalgamation of Companies. As already adverted hereinabove, in the instant case, neither the foreign law was pleaded nor such evidence has been produced to prove merger/amalgamation. But even otherwise, in our considered opinion, Severn Trent cannot be treated ....
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....rtain specified preferential shares and to register them as the holders of those shares. There was non-compliance of the order of the Court by the Company. Based on entitlement order, the petitioners presented a petition for winding up of the Company which was held maintainable in view of the fact that there was default in carrying out the direction of the Court by the Company. In the instant case, despite merger and amalgamation of Capital Controls (Delaware) Company Inc. into Severn Trent, no step has been taken by Severn Trent for rectification of the register and registration of shares in its name. In our opinion, the Division Bench of the High Court is right in observing that it cannot be contended by Severn Trent that in view of dispute between Severn Trent and Kochas, the Company would not have registered shares in the name of Severn Trent. Had Severn Trent applied and the prayer rejected, an appropriate action could have been taken in accordance with law. Secondly, we have 'some' reservation about the proposition of law laid down in Patent Steam Engine Co.'s case (supra). It is debatable whether a direction can be issued by a Court to allot shares or to register name of a p....
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....bility to uphold the contention of learned counsel. In our judgment, sub-section (4) of section 439 is a 'self-contained Code' as to presentation of petition by a contributory. A person claiming to be a contributory and presenting a petition for winding up of a Company in that capacity must fulfil the conditions laid down in the said section. Moreover, as observed by us, if there is omission, default or illegal action on the part of the Company in not registering the name of the contributory even though he/it can be said to be a contributory by holding the shares as required by clause (b) of sub-section (4) of section 439, the law provides a remedy. In the instant case, however, no such course has been adopted by Severn Trent. In the circumstances, in our opinion, it cannot be said that the Division Bench of the High Court was in error in holding that Severn Trent could not be said to be a contributory to present a winding up petition. 49. The learned counsel for Severn Trent finally relied upon the last part of clause (b) of section 439(4) contending that shareholding of the original company (Delaware Company) had devolved on Severn Trent through 'death' of that company whic....
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....) observed as under : "On considering the said section as quoted above there is no manner of doubt that a contributory is a shareholder of the company. In fact in cases of amalgamation the shareholding of erstwhile company stood automatically transferred and vested from the transferor company to the transferee company and thus the transferee company becomes the successive holder of the said shares by operation of law." 52. The learned Judge proceeded to state : "Otherwise also prima facie in my opinion section 439(4)(b) does not restrict the petitioner from filing the present petition because it falls in the last category, i.e., 'or have devolved on him through the death of a formal holder'. These words under section 439(4)(b) prima facie in my opinion takes into account the situation as in the present case whether the company has ceased to exist by virtue of amalgamation of the said company with the petitioner company. The said original company has ceased to exist and thus there is a natural death in the eyes of law and in view thereof by virtue of the aforesaid words contained under section 439(4)(b) prima facie in my opinion the present petition is maintainable and the ....
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....further held that such interpretation could not be given. 58. Lord M' Laron said : "I am not sure that I understand the theory or principle of construction under which the suggested readings are admissible; but I think it must be a theory in which fancy takes the place of logic, and in which the question proposed is, how the statute is to be made to fit the case, and not whether the conditions of the case fit the statute." [Emphasis supplied] 59. In the context of Company Law, winding up of a body corporate is not the same thing as or equivalent to death of a member. An individual and a body corporate expressly have been treated separately which is clear from sections 430, 431 and 432 of the Act. Under the scheme of the Act, every creditor may present a petition for winding up of a company, but every contributory cannot. A contributory to be eligible and qualified to present a winding up petition must be covered by sub-section (4) of section 439 of the Act and the Legislature, in its wisdom, excluded certain categories of persons from being entitled to present a petition for winding up as contributory. As already held by us earlier, the provision is exhaustive in nature an....
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....ition for winding up of Company, that an alternative argument was raised on behalf of Severn Trent that Severn Trent was also a Creditor of the Company and in that capacity, i.e., in the capacity of a Creditor, the petition for winding up of the Company was maintainable. 65. The Division Bench considered the alternative contention and in paragraph 54 observed : "54. This aspect was not canvassed by the petitioner before the learned Company Judge in response to the preliminary objection raised by the appellants that the company petition was not maintainable and, therefore, not considered by the learned Company Judge. We are of the view that this aspect has to be considered by the learned Company Judge before admitting the petition for winding up on the just and equitable grounds in the capacity as creditor. Insofar as the reasons that have been indicated by the learned Company judge for admitting the petition are concerned, we find these reasons unsustainable. As already held by us, the petition for winding up order as a contributory under section 433(f) read with section 439(4)(b) of the Companies Act, 1956 is not maintainable. Until the petition is legally maintainable, the ....
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....as just, equitable, necessary and in the interest of justice and 'in order to secure the dues of the petitioner that Provisional Liquidator should be appointed'. 68. It is thus clear that though the case put forward by Severn Trent in the winding up petition was as a 'contributory', the factum of the Company being Debtor and Severn Trent being Creditor and in spite of dues being admitted by the Company, there was non-payment on the part of the Company had been mentioned in the petition. The learned counsel for Severn Trent appear to be right that in view of the finding by the learned Company Judge that the petition instituted by Severn Trent as a 'contributory' was maintainable, it was no more necessary for the learned Company Judge to consider the question whether the company petition filed by Severn Trent was maintainable in the capacity as a Creditor. 69. It was then contended by the learned counsel for the Company that the ground for winding up of company under clause (f) of section 433 was not available to Severn Trent in case it had presented a petition as a Creditor of the company. In this connection, our attention was invited to certain decisions. In our opinion, it w....