AI Drafter 
Generate professional replies, appeals, opinions to Show Cause Notices, assessment orders, audit objections, and other legal communications using TaxTMI's AI Drafter. 
TaxTMI 
TaxTMI 
2010 (2) TMI 587
X X X X Extracts X X X X
X X X X Extracts X X X X
....s that having regard to the nature of the affairs which are not satisfactory, company needs to be wound up. It was alleged that the respondent-company was incorporated on 4-12-1971 for the purpose of carrying on the business which was run by a partnership firm under the name and style of "Pressteels & Fabrications". The first petitioner who was the partner in the earlier firm later became a Director with effect from 27-10-1980 and ceased to be a Director with effect from 20-6-1984. The first petitioner was holding 1819 shares, while second and third petitioners held 851 and 825 shares respectively. The nominal share capital of the company is Rs. 1,00,00,000 consisting of 1,00,000 equity shares of Rs. 100 each. The issued, subscribed and paid up capital was Rs. 33,00,000 comprising of 33,000 equity shares which are fully paid up. Later, the authorized share capital of the company was raised for further sum of Rs. 17,00,000 by issuing 17,000 shares and again during the year 2001, the share capital has been raised from Rs. 50,00,000 to Rs. 1,00,00,000. The business includes manufacturing and selling of precision tools, jigs, fix- tures, dies, machinery spares and carrying on business ....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... Initially the company had acquired Ac. 4.30 guntas of land at Fathenagar in Ranga Reddy District for the purpose of the aforesaid business and the petitioners who were allotted due shares i.e., the first petitioner initially was allotted 300 shares of Rs. 100 each and later 1107 bonus shares were allotted, as per his entitlement. He acquired further 412 shares through transfer from Smt. Raghavamma during the year 1990. The second and third petitioners were allotted 400 equity shares each and they again acquired 876 shares from Smt. Raghavamma, by way of transfer. Therefore the share pattern of the petitioners hardly comes to 4 per cent only of the total shareholding of the company. The company acquired land admeasuring Ac. 3.5 at Paloncha for construction of quarters. The company had executed a power of attorney on 11-11-1974 in the name of the first petitioner for pursuing the said transaction, however, the first petitioner got the said land transferred in his own name, which was objected to, but however later on the company has taken a lenient view. Clandestinely the first petitioner has established a partnership firm under the name and style of "Indwell Constructions" and flou....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... these checkered events and the proceedings which have been suppressed by the petitioner, there are absolutely no bona fides, hence, there exist warrant nor any justification for winding up and sought for dismissal. The learned Single Judge after taking into consideration the rival submissions and the scope of provision under section 433(1) of the Companies Act, 1956 vis-a-vis the principles laid down in Hind Overseas (P.) Ltd. v. Raghunath Prasad Jhunjhunwalla [1976] 46 Comp. Cas. 91 (SC), found that the petitioners have absolutely not made out any prima facie case to warrant such extreme step of winding up of the company and entire events would only show some personal vendetta, ill feelings rather than any deficiency or any affect the regular affairs of the company and dismissed the said application. 5. On considering the submissions and on perusal of the material filed from both sides, the point which arises for consideration is whether on the facts and circumstances the application as filed by the appellants/petitioners is liable to be proceeded with for winding up of the respondent company. 6. At the outset, it is to be stated that all the aforesaid events as mentioned b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....per the orders dated 28-1-2003 with a liberty to the petitioners to opt for additional shares as they are entitled as on 30-6-2001 and the company would give the liberty of inspection of the records and the balance sheets to them in accordance with the provisions of the Act. Not satisfied, the petitioners have filed an appeal in Company Appeal No. 13 of 2003 in this Court and the same was dismissed as per the orders dated 1-8-2004. Against the said orders a Special Leave Petition (Civil) No. 25834 of 2004 was filed before the Supreme Court and the same was dismissed as per the orders dated 9-1-2006. 9. Of the other litigation between the parties, includes one suit by the Company in OS No. 424 of 2006 on the file of the Chief Judge, City Civil Court, Hyderabad seeking for rendition of accounts of the firm of the first petitioner and to account for such sums that would found due. In another suit in OS No. 67 of 2001, filed by the first petitioner, where he sought for injunction against the company, not to interfere with the properties of the company situated at Gannavaram. Similarly, the company had filed another suit in OS No. 241 of 2003, on the file of the Additional Senior Civ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the vague allegation of mismanagement. No specific averment or details are made out showing the incidents. Nothing has been shown as to any serious lapse or such irregularities having a direct impact on the very business or its activities much less on the finance of the company. Curiously, there is no proper reference or any explanation to those earlier litigations and the results therein. There is clear suppression. 12. The aforesaid checkered events amply show that in view of the consistent proceedings between the parties in some or other Court, authority or otherwise, the more concentration is drawn for the company in proceedings outside rather than raising pointer to the company's affairs. Therefore, the company as such itself cannot be said to have been reached such a point where it possibly could not carry on business either due to finances or otherwise. The company has been successfully contesting all the proceedings initiated at the instance of the petitioners and others. All those would indicate sincerity on the part of the company and management in trying to protect the interest of the company in particular and larger interests of the shareholders in general. The reli....
X X X X Extracts X X X X
X X X X Extracts X X X X
....m of the Company has been lost out or eroded. Further, the Respondent-Company was shown paying Income-tax for the past few years, thus, indicating that the expenditure booked by it in its books of account towards staff salaries and the fee paid to the professional services secured by it, is not an act of auditing gimmick or artificial booking of an expenditure, but, a real and genuine one. The Respondent-Company has offered its explanation as to why its plant and machinery was sold for purposes of liquidating it's liabilities and as to how the increase in the capital has come in handy for clearing its debts and liabilities to the bank. Further, if an unproductive asset of the Company is sought to be developed, in which process the Company can gain substantially, does not amount to any unauthorized activity. No other shareholder of the Company raised any demand for winding up of the Company and hence, it can be assumed that it is not in the interest of the entire class of the Members of the Company to wind up the Company. As was rightly pointed out by the learned Counsel, the percentage of the petitioners share holdings, as of now, in the Company's paid up share capital, is less tha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ity in the management of the company and there is no hope or possibility of smooth and efficient continuance of the company as a commercial concern, there may arise a case for winding up on the just and equitable ground. In a given case the principles of dissolution of partnership may apply squarely if the apparent structure of the company is not the real structure and on piercing the veil it is found that in reality it is a partnership: Held, on the facts, that the principles for the dissolution of a partnership did not apply to the appellant-company, and in the absence of allegations that the company could not run smoothly in the best interests of the shareholders, the winding up petition under section 433(f) of the Companies Act, 1956, had to be dismissed." 14. From the above principles in decision, it has to be seen, if there exists any just and equitable ground. It squarely depends upon the totality of the circumstances. It should not rest on mere bald and sweeping allegations, without a specific case being made out on allegations and material in support. The aforementioned very events as evident from the proceedings all-along would show that there is a vituperous attemp....