Mehnga Singh Ghag and Others vs Mohali Steels P. Ltd.

Hemant Gupta, J.—The petitioners have sought up winding up of the respondent-company u/s 433(c) and (f) read with Section 439 of the Companies Act, 1956 (hereinafter to be referred as "the Act").

It is the case of the petitioners that the respondent-company was incorporated on June 30, 1977, under the Act with authorised share capital of the company as Rs. 10,00,000 divided into 1000 shares of Rs. 1,000 each. The paid up equity share capital of the company is Rs. 5,75,000. Petitioners Nos. 1 and 2 and their father Gurbachan Singh were allotted 100 equity shares of Rs. 1,000 each fully paid up and after the death of Gurbachan Singh, his shares devolved upon petitioners Nos. 1 and 2. Petitioner No. 3 was allotted 10 equity shares of Rs. 1000 each. Thus, the petitioners have a sizeable share holding in the company. It has been pleaded that from the funds gathered from the shareholders, the respondent-company purchased a large plot of land measuring 10 Kanals at Mohali. A shed was also constructed on the said plot. Apart from this property, there are many other tangible assets in the hands of the company as well. It has been pleaded that the company was incorporated with the object of carrying on the business of manufacturing of ferrous and non-ferrous castings of all kinds but the respondent-company could even could take initial steps to commence the business of manufacturing for the past more than 20 years. Apart from the shed being constructed and a lathe machine being operated from a small room in the otherwise large premises, no activity takes place in the company premises at Mohali. Even, the lathe machine is operated by the so called directors of the company not as a business of the company but for their own benefit. Still further, it has been pointed out that as per records of the Registrar of Companies at Jalandhar, the last balance-sheet available on record is of the year ending March 31, 1997. The annual income of Rs. 18,000 towards rent received and that in the column meant from showing the general names of three principal products/services of the company, all the columns were filled with the word "Nil". It is also reported by the auditors that the company is not doing any business since 1985. Another balance-sheet which is available on the record is of the year ending March 31, 1989, in which the net receipt of the company on account of rent receipt is to the tune of Rs. 12,000. The company is not transacting any business for the last more than 20 years. The sole aim of the directors is to enjoy and hold a prime piece of commercial property exclusively for their own benefit and not for the benefit of the company. Even, the Registrar of Companies has prosecuted the directors, namely, P.S. Dhillon, Kashmir Singh and Rattan Singh, for not having filed the annual returns, balance-sheets and profit and loss accounts of the company for a long time. It is also the case of the petitioners that the company has neglected to hold the annual general meetings and whatever general meetings the company has shown on the record are only fictitious meetings. The petitioners have not paid any dividend in all these years. This, the company is liable to be wound up on the ground that it failed to commence any business within a year of its incorporation and further it has suspended its business for several years altogether. Still further, it is just and equitable that the company should be wound up in the facts stated in the petition.

In reply, it has been pointed out that the respondent-company is a running company and transacting the business in accordance with the objects as enshrined in the memorandum of association and the articles of association. The respondent-company started manufacturing cast iron pipes and man hole covers which activity is clearly reflected in the balance-sheets and profit and loss accounts for the years ending December 31, 1974, December 31, 1979 and December 31, 1980. The photo copies of such documents were produced on the record. Another balance-sheet along with profit and loss account for the year ending March 31, 2000, and March 31, 2001, have also been attached with the written statement. It has been pointed out that on April 1, 1999, the company made a memorandum of understanding to lease out its machinery. The said agreement is in consonance with the objects of the company and is profitable for the company as the machines have been let out at a profitable rent of Rs. 26,500 per month. The respondent-company has also attached the electricity bills for the month of November 2000, and January 2001, to show that the company is carrying out the operation and other related activities. It has also been pointed out that 88 per cent, of the shareholders have full faith in the management of the respondent-company and are opposed to the winding up. Affidavits of some of the shareholders have been produced on record. By filing affidavit of Kashmir Singh, the respondent has sought to dispute the director''s report dated September 1, 1989, annexure P5, as a forged document. Interpolation in annexure P6 was also alleged in respect of which complaint was lodged with the Station House Officer, Police Station Division No. 6, Model Town, Jalandhar City. On the merits, it was pointed out that the plot of land in Mohali was not purchased from the money received from the shareholders but was owned by Col. P.S. Dhillon and was allotted to him. The actual possession was given to Col. P.S. Dhillon on February 7, 1973. Subsequently, Shri Dhillon transferred the ownership of the said plot to the company. The rent was purported to be received from M/s. Chardi Kalan Dharam Kanta who has taken a room of the factory premises for installation of the machine for the purpose of weighing trucks, etc.

Replication has been filed controverting the averments made by the respondent in the written statement.

Learned Counsel for the petitioners have vehemently argued that in the balance-sheets for the year ending March 31, 1989, and March 31, 1997, annexures P5 and P6 respectively, it is part of the directors report that the company is not doing any business since 1985 and that fact alone is sufficient to return a finding that the respondent-company has ceased to continue its business and, therefore, it is liable to be wound up. Reliance was placed upon Registrar of Companies, Bihar v. Shreepalpur Cold Storage P. Ltd. 1974 44 Comp Cas 479 (Patna).

On the other hand, learned Counsel for the respondent has pointed out that the balance-sheets for the years 1974, 1979 and 1980 leave no manner of doubt that the company did commence its business. Though for some time the company suspended its manufacturing activity by the subsequent balance-sheets for the year ending March 31, 2000, and March 31, 2001, the respondent-company is doing business and has rental income. Relying upon Article 35(c) of the articles of association, it was alleged that letting the premises of the company on rent is within the jurisdiction of the managing director and, therefore, the income derived from the rental of the property of the company is also reflective of the fact that the company has not ceased to carry out its operations. It was also argued that remedy of the petitioners, if any, as minority shareholders of the company is before the Company Law Board to establish any mismanagement but the respondent-company cannot be wound up on the grounds pleaded by the petitioners.

After going through the records, I do not find that any firm finding can be returned that the respondent-company has ceased to commence its business operations within a year from its incorporation or suspended its business for a whole year. The balance-sheet for the year ending March 31, 1974, shows that the company did some business in the first year. Still further, some business is reflected to be carried out in the subsequent years including the income derived from the rental of the premises. Therefore, the question whether the respondent-company has ceased to carry out its business is not clearly established and it is bona fide disputed question of fact. Therefore, I am of the opinion that the respondent-company cannot be ordered to be wound up for the reason either that it has not commenced its business within a year from the date of its incorporation or suspended its activity for a whole year thereafter. It appears that the main grievance of the petitioners is that being minority shareholders, the petitioners are excluded from whatever activities the respondent-company is carrying out. The remedy for such grievance is before the Company Law Board under Sections 397 and 398 of the Act and not to seek winding up of the respondent-company.

Consequently, I do not find any justification for admitting the present petition for winding up.

Dismissed.