TaxTMI 
TaxTMI 
2009 (12) TMI 516
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.... two vessels in order that the return of investment could be applied towards the repayment of the debt due from Constellation Shipping. 3. On 14-11-2000, a Shareholders' Agreement (SHA) was entered into, in respect of Falcon Marine Management (P.) Ltd. (Falcon), the First Respon-dent to Company Petition 724 of 2008, between the Petitioner and Polaris which was then owned completely by the Khajotia family. The Share-holders' Agreement provided that the Petitioner and Polaris would hold fifty per cent in the equity of Falcon. The initial venture for the Company was to be the purchase of a Multipurpose Indian Vessel which was to be owned by Falcon. By clause 2 of the agreement, the share in the profits of the shareholders, was to be proportionate to their shareholding. The Petitioner was to contribute thirty per cent towards the purchase of the vessel. Under clause 4, the Board of Directors was to consist of four Directors. Each party was to nominate two Directors. Clause 5.1 provided that the vessel was to be under the complete control of Falcon and under the direct supervision of Mehernoosh Khajotia. Clause 8 provided that upon the sale of the vessel, the sale proceeds would be d....
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.... per cent of the beneficial ownership of Polaris from the Third Respondent, who was a shareholder of the Company, to the Petitioner were produced at the meeting. The Board of Directors of Polaris resolved to approve the Joint Venture Agreement (JVA) as well as the transfer of shares of the face value of Rs. 6.50 crores from the Third Respondent to the Petitioner. The Board accepted the application of the Petitioner to be registered as owner of the shares and irrevocably resolved to make appropriate entries in the Register of Members and in the Register of transfers when instructed to do so in writing by the Petitioner. 6. On 15-12-2003, a Joint Venture Agreement (JVA) was executed between the Petitioner and Polaris. The recitals to the agreement provide that the Petitioner has paid a sum of US $ 1 million to Polaris and that Polaris has utilized the investment to purchase a vessel known as Vispataurini. The recitals provide that parties have agreed to share the profits from the vessel. In clause 3, JVA stipulates that the object of the agreement was that the parties would work together to maximize profits generated by the vessel "in order that Cavendish (the Petitioner) may be r....
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.... else. However, the insurance matters will first need to be resolved and the value reclaimed by us. So we have some time to decide upon the best route for us all." [Emphasis supplied] A series of e-mails came to be exchanged between the parties regarding the settlement of disputes. On 20-6-2005, the vessel Ristakez was sold for US $ 4,734,395. According to the petitioner, this amount was to be applied for distribution in accordance with the SHA of 14-11-2000 and the JVA of 15-12-2003. No amount was paid to the petitioner and the surplus from the sale was used towards meeting the cost of repairs and maintenance of another vessel, Vispataurini. On 31-1-2006, the vessel Vispataurini was sold for US $ 5.01 million. The grievance of the petitioner is that despite the sale, neither was the debt due to the petitioner discharged nor has there been a repayment of equity. That has led to the institution of the petition for winding up. Section 439 of the Companies Act, 1956 8. Section 439(1) of the Companies Act, 1956, provides that an application for the winding up of a company shall be by a petition presented, subject to the provisions of the section, inter alia, by any creditor or....
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.... what constitutes an allotment, has been dealt with in a judgment of Mr. Justice Chitty in Florence Land & Public Works Co., In re [1885] 29 Ch D 421 (CA). The statement of law laid down on 26-11-1884 has continued to guide generations of Judges in finding a conceptual basis for the allotment of shares. The judgment holds that an allotment "is appropriation not of specific shares, but of a certain number of shares". That does not make a person who has agreed to take the shares, a member from that moment; for it constitutes a binding contract under which the company is bound to make a complete allotment of the specified number of shares and under which the person, who has made the offer is bound by the acceptance to take that particular number of shares. The judgment of Justice Chitty was confirmed in appeal before the Court of Appeal. 12. Section 224 of the Companies Act in the U.K. enables a winding up petition to be presented either by the company or by a creditor or by a contributory. The meaning assigned to the term "contributory" in section 213 is "every person liable to contribute to the assets of a company in the event of its being wound up". Interpreting these words, Jus....
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....ed to present a petition for winding up. What sub-section (4) of section 439 does is to qualify the right of a contributory to present a petition for winding up by subjecting it to the fulfilment of certain conditions. The expression "originally allotted" in the first of the eventualities noted above, implies that the shares must have been allotted to the contributory by the company itself, in the first instance, as contradistinguished from the holding of shares as a transferee from a shareholder. There is a difference between the original allotment and transfer of shares. The original allotment of shares is a direct allotment of shares by the Company to the individual. A transfer of shares contemplates a transaction between two individuals, one of whom holds shares from a prior date. 14. In Sri Gopal Jalan & Co. v. Calcutta Stock Exchange Association Ltd. AIR 1964 SC 250, the Supreme Court followed the dictum of Chitty, J. in Florence Land & Public Works Co., In re (supra ). The Supreme Court held that in Company Law, allotment means an appropriation out of previously unappropriated capital of a company, of a certain number of shares to a person. The shares come into existence ....
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....al allotment of shares from Polaris, as no new shares were issued by the Company. The petitioner is not the original allottee and does not satisfy the first condition in clause (b) of sub-section (4) of section 439. The petitioner does not satisfy the second eventuality mentioned in clause (b) of sub-section (4) of section 439 either. The petitioner has not been registered on the register of Polaris. The petitioner is undoubtedly at liberty to adopt such remedies as are available in law to rectify that grievance, but unless the petitioner was to be borne on the register of the company, for at least six months during the eighteen months immediately before the commencement of winding up, the petitioner would not satisfy the requirement for presenting a petition for winding up as a contributory. 17. The judgment of the Gujarat High Court in Gulabrai Kalidas Naik v. Laxmidas Lallubhai Patel of Baroda [1978] 48 Comp. Cas. 438 on which counsel for the petitioner placed reliance is distinguishable. The Learned Single Judge of the Gujarat High Court held that in a given case, a petitioner who invokes the jurisdiction of a Court under sections 397 and 398, may be in a position to show th....
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.... methodology suggested by Mehernoosh Khajotia and was adopted to bring about a particular result, namely, the repayment of the original debt and the investment made. The investment of US $ 1 million was to be treated as a debt and was to be paid on the sale of the vessel. The Company was a party to the agreement and undertook to repay the debt on the sale of the vessel. 20. On the other hand, it has been submitted on behalf of the respondents that the investment, in the present case, was made under the SHA and JVA. The correspondence refers to an attempt being made to settle the debt. But there was no ascertained debt repayable by the Company to the petitioner. The non-compliance alleged, is of a mechanism prescribed in the SHA, which is sought to be made binding on the Company. This ought to have been a part of, but was not included in the Articles of Association. The dispute in other words, it was urged, emanates from the SHA, which has not been incorporated in the Articles of Association. The terms would, therefore, not be binding on the Company. Counsel submitted that the requirement of a petition on the just and equitable ground, has not been fulfilled and the Petitioner ha....
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....d of the Shareholders' Agreement support the submission of the petitioner that the terms agreed upon between the parties establish that the business of the two Companies and the investment made by the Petitioner in them for the acquisition of the two vessels, was interconnected and attempted to bring about the discharge and repayment of the investment made by the petitioner in both the Companies and the repayment of the debt owing by the Companies and the Khajotia Family. 24. In this background, the correspondence and the record demonstrate an acknowledgement on the part of the respondents of the debt due and payable to the petitioner. A brief reference to the correspondence would be in order. The annexures to the Company Petitions include an e-mail of 15-12-2004 of Mehernoosh Khajotia, referring to a DAICO loan of US $ 250,000. On 20-2-2006, the Second respondent informed the petitioner's representative by another e-mail, of the sale of the vessel Vispataurini for a consideration of US $ 5.01 million. On 22-2-2006, the Second respondent informed the petitioner that he was working on management accounts, which would be ready by the end of March. The e-mail of the Second Responde....
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....nding debt and reneged on its promise; (iii) No business has been carried out by the Company for a period of more than one year; (iv) Neither DAICO nor the petitioner have been paid; and (v) No material has been placed before the Court to show that there was a bona fide dispute. 26. The test of the maintainability of a petition for winding up under section 439(4)(d) has been met as a creditor in the first case (Company Petition 723/08) and as a creditor and shareholder in the second case (Company Petition 724/08). In Madhusudan Gordhandas & Co. v. Madhu Woollen Industries (P.) Ltd. AIR 1971 SC 2600, the Supreme Court laid down the following proposition of law, which continues to guide Company Judges on the principles on which the Court must act in matters relating to winding up : "Where the debt is undisputed the Court will not act upon a defence that the company has the ability to pay the debt but the company chooses not to pay that particular debt (See Re. A. Company 94 SJ 369). Where however there is no doubt that the company owes the creditor a debt entitling him to a winding up order but the exact amount of the debt is disputed the Court will make a winding up order with....
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....wound up. 28. In the present case, the record before the Court indicates that the petitioner has not acted unreasonably and has furnished more than abundant opportunities to the respondents to comply with their obligations. The relationship between the parties was governed by the obligation to be just and faithful in all transactions relating to the Company. Parties were liable to render full information and truthful explanations to the other. The obligation to act in good faith is emphasized in clause 8.3(d) of the Shareholders' Agreement and Clause 7 of the Joint Venture Agreement. The petitioner brought in capital to finance the acquisition of vessels and the understanding in good faith was that the operation of the vessels would be utilized to repay the outstanding debt to DAICO and the petitioner. This obligation towards the petitioner and the agreement arrived at between the parties was not fulfilled. Disbursement was not made to the petitioner upon the monies realised by the sale of the vessels. The substratum of the Companies has also disappeared. The vessels have been sold. What is left of the companies is the shell. The principle which has been laid down in V.B. Rangar....
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.... statutory demand, it would be giving the company an extra three weeks' grace in which such assets as the company may have may be dissipated in attempting to keep an insolvent business afloat, or may be absorbed into the security of a debenture holder bank. So there are practical reasons for not allowing extra time, particularly where commercial conditions and competition require promptness in the payment of companies' debts so that the creditor companies can manage their own cash flow and keep their own costs down. . . . The first limb is that if a debt is due and an invoice sent and the debt is not disputed, then the failure of the debtor company to pay the debt is itself evidence of inability to pay." 31. That apart, in the present case, it has been averred in the Company Petition that the statutory notice was addressed to the Registered Office of the Company as stated in the records of the Registrar of Companies, Maharashtra (ROC). The Petitioner obtained a certified copy from the record of the ROC with regard to the registered office address of the Company. However, the notices having been remitted on the address of the Registered Office as shown in the record of the ROC, a....