R. Sabapathy Rao and Others vs Sabapathy Press Co., Ltd.

Charles Gordon Spencer, Officiating C.J.

This is an appeal in the matter of an application for the winding up of the Sabapathy Press Co., Ltd., Bellary, u/s 162 of the Indian Companies

Act. The learned Judge who heard the petition admitted evidence both documentary and oral adduced by the petitioners, but he did not call upon

the respondents to adduce any evidence, as he thought that no case had been made out for winding up the company. He made some observations

to the effect that everything that had taken place in the company''s proceedings might not be quite regular and proper and that the minority had

some real grievances as proved by the evidence adduced by the petitioners. But he held that there was no ground made out u/s 162, Clause (6) for

a winding up order, the other clauses of this section being not applicable to the case before him. Clause 6 provides that a company may be wound

up if the Court is of opinion that it is just and equitable that the company should be wound up. In a recent case before the Privy Council Loch v.

John Blackwood, Ltd. (1924) AC 783, it was held that the reasons for a Court considering it to be just and equitable that a company should be

wound up were not necessarily ejusdem generis with the reasons given in Clauses 1 to 5. That was a case coming up from the Barbados which had

several features resembling those of the case before us. There, as in the present case, it was alleged that the directors were able to exercise a

dominant influence on the management of the company and the managing director was able to outvote the minority of the shareholders and retain

the profits of the business between the members of his family. Their Lordships held that, where there was a lack of confidence in the conduct and

management of a company''s affairs based on a lack of probity on the part of the Managing Directors not in respect of their private life affairs, but

in regard to the company''s business, then it would be just and equitable under the statute that the company should be wound up. In the present

case, it was recognised by Mr. Justice Kumarasami Sastri, J., that Mr, Venkat Rao had a preponderating voice in the company by controlling a

large number of shares. There are several other matters which seem to require an explanation at the hands of the respondents, Ramachander &

Co. were appointed treasurers of the company and Mr. K. Ramachander himself, who is Mr. Venkat Rao''s son and has several shares standing in

his name, took leases of all the factories and disposed of them by sub-leases to other persons, thereby making a profit to himself which might have

been secured to the company if the sub-leasing of the rights of lessees had been prohibited. Then Rule 109 of the Articles of Association in Table

A of the 1st Schedule of the Indian Companies Act requires that a copy of the balance sheet and the Director''s report should be sent to every

person entitled to receive notice seven days before the general meeting. There have been several complaints that the shareholders did not receive a

copy of the balance sheet, nor was the auditor''s report read at the general meeting or attached to the balance sheet, as required by Section 131 of

the Act. Dividends have not been regularly paid, and the rate of dividend has been steadily diminishing which may be attributed to the factories not

having been leased for larger amounts. It is true that in some cases where the shareholders have sued the company''s officials for the recovery of

dividends, the defence has been based upon some technical ground such as the want . of succession certificate, failure to get the shares transferred

in their names, or some similar reasons. But in one case, Ex.M series, it appears that the company raised an untenable defence that they were not

responsible for the appropriation of dividends made by the former treasurers under"" an arrangement between those treasurers (Arumugam and

Sambadham Mudaliar) and Ramachander and Co., their present Treasurers and they refused to pay the dividend on that plea. That plea was found

to be untenable, and the shareholder got his decree and the company had to pay the costs, which fell indirectly upon the shareholders. In a well-

regulated company dividends are paid regularly and punctually and it is almost unheard of that shareholders should be driven to bring suits against

the company before they can get payment of their dividends. These and similar objections require further investigation. Neither Venkat Rao nor

Ramachander have as yet gone into the witness-box and attempted to explain the ugly facts appearing against them. I am of opinion that the

petitioners have proved sufficient facts to call upon the respondents to enter on their defence in the conduct of the affairs of the company is capable

of an honest explanation. The order dismissing the petition is therefore set aside. Costs of this appeal will be costs in the cause and will follow the

event.

Srinivasa Aiyangar, J.

I agree to the order proposed.