Ramakrishna Industries (P). Ltd. and Others vs P.R. Ramakerishnan and Others

V. Ramaswami, J.—O.S.A No.128 of 1981 is against the order dated August 19,1981, in Company Application No.844 of 1981 and

O.S.A.No.189 of 1981 is against the order dated December 7,1981, in Company Application No.843 of 1981. Both these application were filed

pending Company petition No.30 of 1981, which is a petition filed under sections 433 (e)(e)and (f), 434 and 439(1)(b)(c) and (d) of the

Companies Act 196, for winding up of a company by me Ramakrishna Industries private Ltd. Company application No.843 of 1981 is for the

appointment of a provisional liquidator pending disposal of the main company petition and C.A.No.844 of 1981 is an application filed under rule

11 of the Companies (Court)Rules,1959,read with Order 39,rule 1,Civil Procedure Code, for an order of injunction restraining the appellants

herein from borrowing any moneys from banks, financial institutions r others without the prior permission of the court and from alienating and/or

creating any charge or encumbrance over any of the assets of the company in its various enterprises pending disposal of the winding-up petition.

On July 13,1981, the company petition and also the two C.A.Nos.843 and 844 of 1981 were posted before the court. The learned judge

ordered notice to the company petition for the hearing on August 11,1981. He also ordered notice to the appellants herein in the application for the

appointment of a provisional liquidator and in C.A.No.844 of 1981 granted an interim injunction and posted the application for further hearing on

September 27,1981. By an order dated August 19,1981, the learned judge granted the injunction, the operative portion of which is as follows:

In the result, there will be an injunction resaining respondents Nos.1 to 6 from borrowing any moneys from banks, financial institutions or others

and from alienating and/or creating any charge or encumbrances over any of the assets of the first respondent company in its various enterprises

except that the first respondent company is entitled to honour any pending contracts entered into by the company it third parties before the

presentation of this application, all its existing commitments vis-a-vis its staff and a labourers, electric charges, central excise duty, LIC premium,

payments due to employees'' co-operative stores, telephone bills and sales tax due,availing of the existing bank facilities with any of its bankers

subject to the condition that the particulars for all these payment and the source from which such payments were to be met,are furnished in details

in the application. It is made clear that the company is always at liberty to approach the court for further directions and that the applicant''s right to

impugn any such transaction u/s 536(2) is left untouched.

Against this or O.S.A.No,.128 of 1981 has been filed. By another order dated December 7,1981, in C.A.No.843 of 1981, the learned judge

appointed the official liquidator as the provisional liquidator pending the winding-up petition. Against this order, O.S.A.No.189 of 1981 has been

filed.

Both before the learned single judge and before us, learned counsel for the appellants questioned the maintainability of the application of

injunction. This was on the ground that the main winding-up petition was not set for hearing on that date and that, therefore, section 443 of the

Companies Act cannot be invoked by the applicants and that the applications cannot also be sustained either under Order 39,rule 1,of the CPC or

rule IX of the Companies (Court)Rules, 1959.

The relevant portion of section 443(1) reads:

(1) On hearing a winding-up petition, the court may-

(a) dismiss it, with or without costs ; or

(b) adjourn the hearing conditionally or unconditionally;or

(c) make an interim order that it thinks fit; or

(d) make an order for winding up the company with or without costs, or any other order that it thinks fit.

The argument of learned counsel for the appellants is that on July 13,1981, the learned judge have ordered notice for the hearing of the

company petition on August 11,1981, and only when the company petition was to be taken up for hearing on August 11,1981, the court would get

jurisdiction to make any interim order and not on the date when the company petition was admitted and notice of hearing was ordered. We are of

the view that the hearing of the winding-up petition starts even on the day when the winding-up petition is admitted nd entertained and the order of

notice for the hearing to the respondents after deciding to entertain would amount to a hearing of the winding-up petition itself. The words ""on

hearing a winding-up petition"" would cover the entire period from the date of entertainment and issuing of notice till an actual order of winding-up is

made or the winding-up petition is dismissed. ""Hearing""does not mean hearing the respondent to the company petition. Hearing of the petitioner for

the purpose of admitting the petition and issuing notice is also part f the hearing of the winding-up petition. In fact, the Suprement Court in Hind

Overseas (P) Ltd.v.Raghunathh prasad Ihunjhunwalla (1976) 46 Comp Cas 91:

A prima facie case has to be made out before the court can take any action in the matter. Even admission of a petition which will lead to

advertisement of the winding-up proceedings is likely to cause immense injury to the company if ultimately the application has to be dismissed. The

interest of the applicant alone is not of predominant consideration. The interests of the shareholders of the company as a whole apart from those of

other interests have to be kept in mind at the time of consideration as to whether the application should be admitted on the allegations mentioned in

the petition,

Again section 441(2) specifically states that the winding-up of a company by the court shall be deemed to commence at the time of the

prosecution of the petition for winding-up and, therefore, from the date of presentation of the winding-up petition, the court gets jurisdiction.

Section 450 also makes this very clear. Sub-sections (1) nd (2) of this section provide that at any time after the presentation of the winding-up

petition and before the making of the winding-up order, the court may, for special reasons to be recorded in writing, dispense with the notice to the

company and appoint a provisional liquidator straight way. These provisions clearly establish that the court''s jurisdiction to make interim orders is

not postponed till the date set for hearing of the company petition after notice to respondents. In fact, this point is concluded by a Bench decision

of this court in Ramakrishna Industrials Private Limited Vs. P.R. Ramakrishnan and Others, . it may be mentioned that case also related to the

same company. On the same day along with CA Nos.843 and 844 of 1981 the respondents herein also filed CA No. 845 of 1981 for the

appointment of a Court Commissioner to take an inventory of the assets and accounts of the company. That application also came up for orders

along with these applications which are the subject-matter of the appeals and by an expert interim order made on July `13,1981, the learned

company court judge appointed a Commissioner and that was questioned in the appeal. One of the objections of the appellants was that the

learned judge had no jurisdiction to pass an interim order u/s 443(1)(c) at the stage of admission of the winding-up petition and that only at the time

of the hearing of the winding up petition the company court can make interim order. While reacting this connection, the Bench has observed (at

page 233):

In our judgment, the investitue of the court with the winding up jurisdiction, as of other powers, must be interpreted as adding to the gamut of the

court''s existing jurisdiction. it would be a mistake to interpret the statute as stripping th court of all its powers first, and then conferring on it only

such powers as are permitted, by section 443(1) and other related provisions. We are satisfied that having regard to the scheme of the Companies

At, we cannot read any provision in the statute which relates to jurisdiction of courts, as being in derogation of the full plenitue of the court''s

powers under the common law, unless we can find in it a clearly expressed, or equally clearly implicit, bar of restriction of the court''s jurisdiction.

We think it necessary for court, such as the Companies Act, according to the wisdom of Parliament and not according to the folly of the draftsman.

Section 443(1) is a case in point. the section sets about enumerating the different ways in which the court can tackle a winding-up petition when it

comes before it for hearing. The section, i this context, enumerates the court''s powers. But here are certain things which go without saying or out

to. Adjournment, for instance, is one of them; you cannot regard it as a remarkable aspect of judicial power. And yet, clause (b) of section 443(1)

very seriously mentions adjournment as one of the ways in which the court can give a disposal to the petition of he day of the hearing. This is quite

an insane provisions. Even without it, nobody would would contend and certainly not practicing lawyers, tat a winding-up court has no power to

adjourn the petition, but must get on with it even at the first hearing. Nor, for that matter, would any one argue that because of clause (b), the court

has lost its power, to grant adjournments on other occasions. So too is the case with clause (c) of section 443(1) which refers to the passing of

interim orders . The presence of this clause in section 443(1) cannot mean that,but for it, the court will have no power to pass any interim orders at

any time, or because of its presence in section 443(1), its existence or exercise on other occasions must be ruled out. Courts and lawyers should

read Acts of Parliament sensibly. They should not match the denseness of the draftsman with a dithering denseness or their part. We are satisfied

that section 443(1)(c) has not the hidden meaning which Mr.Biksheswaran attributed to it, namely, that no interim order can be passed by a

winding-up court at the time of admission of the winding- up application"".

In National Conduit v. S.S.Arora (1967) 37 Comp Cas 786 the Supreme Court was considering the question whether a petition for winding-up

cannot be placed or hearing before the court unless the petitions is advertise. In that case, a director of the comp[ny presented a petition in the

High Court of Delhi under sections 433 and 439 of the Companies Act for an order of conpulsor winding-up of the company. Notice of the

petition was ordered to the company. The company filed an application that the winding-up petition filed by the director be dismissed and that the

petition in the meantime not be advertised. The company petition was dismissed without advertisement on the ground that the proper remedy of the

petitioner on the allegations of mismanagement of the affais of the company ad affairs of the minority shareholders was to file petition u/s 397 and

398 of the Companies Act and the petition was instituted with a view to unfairly prejudice the interests of the shareholders o f the company. After

referring to rules 24 and 96 of th Companies (Court)Rules 1959, the Suprement Court observed (at page 788):

A petition for winding-up cannot be placed for hearing before the court, unless the petition is advertised; that is clear from the terms of rule 24(2).

But that is not to say that as soon as the petition is admitted to must be advertised. In answer to a notice to show cause why a petition for winding-

up be not admitted, the company may show cause nd contend that the filing of the petition amounts to an abuse of the process of the court. If the

petition is admitted, t is still open to the company to move the court that in the interest of justice or to prevent abuse of the process of the court, the

petition be not advertised. Such an application may be made where the court has issued notice under the last clause of rule 96,and even when there

is unconditional admission of the petition for winding-up. The power to entertain such an application of the company is inherent in the court, and

rule 9 of the Companies (Court) Rules,199, which reads: Nothing in these rules shall be deemed to limit or otherwise affect the inherent powers of

the court to give such directions or pass such orders as may be necessary for the ends of justice or to prevent abuse f the process of the court.

These are clear authorities for the position that even at the stage of admitting the winding-up petition, or entertaining the winding-up petition the

court has also and inherent power to do that which necessary to prevent the abuse of the process of the court or to advance the cause of justice or

make such orders which are necessary to meet the ends of justice. That inherent power of the court is not taken away in any way restricted by

section 443(1) of the Companies Act. We are, therefore, unable to agree with the contention of learned counsel for the appellants that till the date

set for hearing o the petition, the hearing of he company petition had not commenced and that the court had no jurisdiction to pass any interim

orders.

We my also point ouis case, the facts actually show that the hearing of the company petition had, in fact,m commenced on July 13,1981. When

the applications were moved before the learned judge and the learned judge ordered notice of four weeks for hearing in C.P.No.30 of 1981, Miss

Bhanumathi, an advocate of this court, represented that she has instructions to appear and undertook to file vakalat for the appellants herein and

that they oppose the application and that time might be granted to enable them to file their counter. it is admitted by learned counsel for the

appellants that such a practice of taking notice on behalf of the respondents is in vogue and the courts have been adopting such practice.

Therefore, when the learned advocate took notice and undertook t appear for the appellants herein, it only means that the company had appeared

before the court and the hearing of the winding-up petition itself had commenced. In fact, the company had given a vakalat on July 14,1981, and

counsel appeared for the hearing of the applications on the adjourned date on July 27,1981. In fact, that the appellants herein were represented by

a counsel and took notice of the applications and tie was taken for filing counter was never denied and, in fact, especially admitted in paragraph 4

of the affidavit filed in support of CMP No.7342 of 1981 in OA No.97 of 1981 and also in ground o.4 of the grounds in that OA. therefore, it is

clear that the company had appeared before the court on July 13,1981 and objected to any order being made without giving them time for filling a

counter and that, therefore, in any case the hearing of the winding-up petition shall be deemed to have commenced., We are, therefore, unable to

accept the contention of learned counsel for the appellants that the applications were not maintainable u/s 443 of the Companies Act.

The learned judge gave a finding that the company is out and out a domestic one, that the shareholding by each of the two branches of the

founder''s sons, namely, one belonging to appellants No.s 2 to 5 and respondent No.6 and the other represented by respondents No.s 1 to5 was

almost equal, that the two brothers, namely, the third appellant and the first respondent, have the right of equal participation in the management and

in the affairs of the company and that the right of equal participation by the two branches represented by the third appellant on the one hand and

the first respondent on the other is guaranteed under the constitution of the company. The learned judge was also of the view that the substratum of

the company is based on the cordiality and mutual trust and confidence expected of both the brothers and hen such cordiality and co-ordination

anxiously intended to be preserved by the constitution of the company is completedly under mined, there is compete and irrevocable deadlock in

the company on account of lack of probity . The learned judge further held that the company is in reality a partnership concern under the garb of a

corporate veil. he then referred to article 38 of he articles of association and held that this article enables any under to apply for immediate winding-

up of the company should there be any member to apply for immediate winding-up of the company should there be any disagreement between the

two brothers and, in fact, it is the only solution contemplated,. In view of the open differences and complete deadlock and the virtual exclusion of

the first respondent by the appellants in the management, the leaned judge was of the further view that the balance of convenience is in favour of

grant of an injunction and accordingly made the injunction order as stated above. The learned judge also held that the appellants are guilty of

mismanagement of the affairs of the company and diversion of the funds of the company to their personal use as also manipulating the books of

account and that by the appointment of a provisional liquidator there will be a successful prevention of fraudulent preference and appointed the

official liquidator as provisional liquidator.

Learned counsel for the appellants seems to have contended before the learned single judge that it cannot be said that the shareholding by the

third appellant''s branch on the one hand and the branch of the first respondent on the other was equal nd that if the shareholding was not equal

there is no room for the contention that the respondents had an equal right in the management of an participation in the affairs of the company. This

contention seems to have been raised on the basis that the third appellant got transferred to himself as managing trustee 300 shares held by

V.Rangaswami Naidu Educational Trust and if hat is taken into account the respondents would be holding only 38.12 per cent of the issued capital

and the appellants; family would be holding 9.02 per cent. Learned counsel seemed to have further placed reliance on the amended articles 30 and

31 of the articles of association also in support of the contention that it is not possible to hold that the two branches have the right of equal

management of and participation in the affairs of the company.

The third appellant and the first respondent are shown as the promoters of the company, though there is no dispute that father is the founder of

the company. The nominal capital of the company is Rs.20,00,000 divided into 2,000 equity shares of Rs.1,000 each. The issued, subscribed and

paid-up capital is Rs.15,95,000 divided into 1,595 enquiry shares of Rs, 1,000 each. The family of the first respondent is holding 608 equity

shares of the face value of Rs.1,000 each. A trust by me V.Rangswami Naidu Educational Trust was holding 300 shares of Rs.1,000 each. The

trust was founded by the father of the third appellant and the first respondent. The third appellant, the first respondent and their father,

V.Rangaswami Nidu, were the satisfied under trustees for life. The father i now dead and the third appellant and the first respondent are now the

family trustees or life.. it was contended on behalf of the appellants that the third respondent got transferred to himself as management trustee the

300 shares held by the trust by virtue of a resolution passed through circulation to the members of the company. the allegation of transfer was

disputed by the respondents herein.

The learned judge after going into this question factually found that the appellants have failed to establish that there was a transfer of 300 shares

of the truest in favour of the third appellant. This finding of fact is not canvassed before us nd no reliable evidence was also produced before us

evidencing such transfer. In the circumstances, therefore, we have no hesitation in holding that the shares held by the two branches are almost

equal.

Articles 30 and articles of association before they were amended in 1971 in the extraordinary general meeting of the company held on

September 2,1971, read as follows:

The general management of the affairs of the company shall vest in the two life directors. The two life directors, their successors and nominees

shall alone exercise all the powers and be entitled to manage the affairs of the company.

Mr.P.R.Ramakrishnan shall be styled as the managing director of the company and he shall be paid a remuneration of not less than Rs.1,000 a

month during the tenure of his office.

The amended articles 30 and 31 read as follows:

The general management and administration of the affairs and matters of the company shall vest in two life director who may be appointed

from time to time.

Sri v.Raj Kumar shall be the managing director of the company and he shall be paid such remuneration as may be fixed by the board of

directors from time to time"".

On the basis of these amendments, learned counsel for the appellants seems to have argued before the learned single judge that the

management of the company vested in the sets of directors, namely, two life directors and a resident director. After a consideration of the

arguments, the learned judge rejected the contention of the appellant that equality in participation which was provided in the unamended articles 30

and 31 is destroyed by the amendment. The leaned judge also did not accepted the contention that articles 20,21 and 24 ruled out the possibility

of equal participation in the management of the affairs of the company between the two life directors. We have to pint out that this finding of the

learned judge was also not canvassed by counsel for the appellants before us. In the light of these facts, we confirm the finding that the first

appellant company is out and out a domestic one,that the management of the company vested in the life directors and continued to vest even after

them in their successors in interest and nominees, that the fifth of equal participation by thee two branches each represented by the first respondent

on the one hand and the third appellant on the other was guaranteed under the constitution of the company and the shareholding by each was

almost equal.

Learned counsel for the appellants contended that article 30 of the articles o association which was heavily relied on by the learned judge in

support of his finding it prima facie case has been made our for winding up the company u/s 433(f), is void u/s 9 of the Companies Act on the

ground it is opposed to the provisions of section 433(f) and also on the ground that it is opposed to public policy. The learned judge has overruled

this objection holding that article 38 does not run counter to section 9 of the Act or the provisions of section 433(f). Article 38 of the articles of

association reads as follows:

In the event of disagreement between the directors at any time prejudicially effecting the emoluments or the interest of any members of the board,

then the aggrieved party may either sell his shares to the other members at a fair value or purchase the share of the other members at a fair price,

thus settling the matter between them. In case any member fails agree to the method above said to end the deadlock, then the company shall be

wound up forthwith, and for the purpose of realisation of assets, the assets may either be sold for monetary consideration or may be distributed

among he members in specie provided all the debts and liabilities due by the company shall entirely be discharged. For the purpose of the special

resolution, every member shall vote in favour of the resolution for winding up when such contingencies arise.

It is well-settled that he articles of association will have a contractual force between the company and its members as also between members

inter se in relation to their right as such members. Therefore, the parties are bound by such contractual obligations. Section 9 of the Companies Act

provides that save as otherwise expressly provided in the ACt, the provisions of this Act shall have effect notwithstanding anything to the contrary

contained in the memorandum or articles o a company and that any provision contained in the memorandum and articles shall, to the extent to

which it is repugnant to the provisions of the Act, become void/. It was contended, on behalf of the appellant, that the provisions of article 38 are

void in so far as they enabled the company to be wound up on a ground which is not specified u/s 433 of the Companies Act. We are unable to

agree with learned counsel that article 38 adds may be seen from the last sentence in that article, the company passes a special resolution for

winding up when such a contingency arises. Section 433(a) contemplates the company resolving by a special resolution that it may be wound up by

the court. it is this resolution for voluntary liquidation that is provided under article 38 also and, therefore, it could not be contended that it adds any

new ground to section 433./ It is not contrary to and does not in any way affect the power of the court to order a company to be wound up when

it is of opinion that it is just and equitable. The court may consider that in a case where article 38 is applicable, it will be just and equitable to wind

up. The power of the court is not in any a way fettered in considering whether to pass an order of winding up or not in exercise of its power u/s

433(f). necessarily, the court may while considering the question whether it is just and equitable that the company should be wound up(sic). But it

cannot be contended that it is in any way derogatory to the powers o the court u/s 433(f) We are, therefore, of the view that article 38 is valid and

binding on the company and its members.

it is then contended by learned counsel for the appellants that till the provision in the first limb of article 38 is complied with, the second limb

will not come into operation, that the conditions specified in the first limb of article 38 have not been complied with by the respondents and that

since it is the respondents who complained that the appellants have acted detrimentally to their interests they should have offered to sell the shares

to the appellants the appellants have a right to purchase the shares at a fair price to be fixed in conformity with the articles and, that it is only when

the appellants fail to agree to purchase the shares at a fair value to be fixed that the contingency, namely, that the company should be would up

would arise. In the instant case since there had been no offer at all by the respondents to sell the shares, they are not entitled to invoke to their aid

the second limb of article 38. Learned counsel for the appellants also contended that the learned judge erred in construing article 38 in isolation.

The learned judge has overruled this contention of the appellants and held that it was unnecessary to claim the relief under the second limb of article

38 to go through the farce of the offer of selling the shares and a waiting the rejection thereof. It is the disagreement that would matter. The learned

judge also held that the disagreement within the meaning of article 38 relates to then ""method"" as such but not to the several ;processes involved in

the said method such as a member offering his share for sale and the other member refusing to purchase the share at the fair value to be fixed in

conformity with the articles. Since the respondents herein have stated that they are not willing to adopt the method provided for in the first part of

article 38, automatically they are entitled to proceed on that basis and claim that the company should be would up forthwith.

We are in agreement with the learned judge that the two limbs of article 38 provide for two difference methods of settling the deadlock. It is

open to the party aggrieved to choose either of the methods to end the deadlock. If he chooses the first method, he has to offer his shares to the

other members at a fair value or offer to purchase the share of the other members at a fair price. If the other party agrees to sell or purchase, the

deadlock is ended by such settlement. This part uses the words thaht the aggrieved party may either sell his shares or purchase the shares of the

others and thus settle that matter. The right is thus to purchase the others shares or sell his shares. The word ""may"" here cannot also be reads

shall"" ; if the word ""may cannot be read as ""shall"" it is obvious that he first part also deals with the method of settlement and not a condition for

invoking the second limb of article 38. If the member does not wont to get the matter settled by the process contemplated in the first part, then he

is entitled to invoke the method provided for in the second part.

It may also be seen that the words ""any member"" in the second limb of article 38 are wide enough to include any member who may or may not

be an aggrieved party. The aggrieved party may refuse to sell or purchase or it may be the other party who refuses to purchase or sell at a fair

price. The only condition is that he should be a person who is not willing to follow the procedure prescribed in the first limb. In this case, the

respondents have stated that they are not willing to adopt the method provided for in the first limb. They are entitled to state that they are not

willing to agree to the methods provided therein to end the deadlock. In fact, the learned judge has referred to the wide and open differences

between the respondents'' group and the appellants'' group and has also cataloged the complaints of the respondents against the appellants. In the

light of those circumstances there can be no doubt that it would be asking for the moon to expect the parities to agree to the method contemplated

under the first limb of article 38. We also agree with the learned judge that it is unnecessary in order to claim the relief under the second limb of

article 38 to go through the farce of offering to sell or purchase the shares and that it is the disagreement that mattered. We may also point out that

the respondents have expressed that mattered. We may also point out that the respondents have expressed that the appellants would not have the

fair value fixed, when they have the majority in the meeting and it would be a futile exercise to go through the formality. In the light of the mutual

distrust and lack of confidence among the two warring groups, we are also satisfied that it is highly improbable that there would be any agreement

between the parties to settle their disputes.

In consonance with the right of equal participation in the management and in the affairs of the company, article 38 also guarantees that should

there be any disagreements between the two brothers, the only solution is to have the company would up. The object and purpose of article 38

also seem to us to be to guarantee against any undue advantage to any one branch and to ensure, under the thereat of losing the entire business

itself, that better sense would prevail and the brothers would co-ordinate with each other and that one does not exclude that other from active

participation in the management and affairs of the company. In the circumstances, therefore, we entirely agree with the learned judge that the

substratum of the company is based on the cordiality and mutual trust and confidence expected of both the brothers in the smooth running of the

company. When such cordiality and co-ordination is completely undermined as found by the learned judge with which we agree, there could be no

doubt that there is a complete and irresolvable deadlock in the company on account of lack of probity and there is no hope or possibility of smooth

and efficient continuance of the company as a commercial concern.

The Supreme Court in Hind Overseas (P) Ltd. v. Raghunath Prasad Jhunjhunwalla [1976] 46 Comp Cas 91, observed that:

... when shareholding is more or less equal and there is a case of completed deadlock in the company on account of lack of probity 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.

There could, therefore, be no doubt that a prima facie case for winding-up u/s 433(f) has been made out.

The amendment to article 15 has in no way affected the scope or interpretation of article 38. Under article 15, as it originally stood, there was

an embargo on selling the shares to an outsider under any circumstances. The amended provision only enables the selling of the shares to an

outsider in certain circumstances.

Learned counsel for the appellants then contended that no grounds have been made out in the common affidavit, filed in support of

C.A.Nos.843 and 844 of 1981 and also in the affidavit filed in support of the company petition itself for the appointment of a provisional liquidator

that the application for such appointment of provisional liquidator should have been disposed of on the averments made in those affidavits only and

the court should no have taken into consideration the subsequent events. The subsequent event, by itself, cannot be a ground for appointment of a

provisional liquidator ; and, in the instant case, the learned judge has not relied on any ground in the affidavit, but only on an alleged subsequent

event of diversion of funds of the company for personal benefit. In support of this contention, learned counsel placed before us the following

decision : Rajahmundry Electric Supply Corporation Ltd. Vs. A. Nageswara Rao and Others, , Mohta Bros. (P.) Ltd. and Others Vs. Calcutta

Landing and Shipping Co. Ltd. and Others, . In Rajahmundry Electric Supply Corporation Ltd. Vs. A. Nageswara Rao and Others, , the Supreme

Court held that (at page 95):

The validity of a petition must be judged on the facts as they were at the time of its presentation, and a petition which was valid when presented

cannot, in the absence of provision to that effect in the statue, cease to be maintainable by reason of events subsequent to its presentation.

In that case, what happened was that an application was filed for the winding up of a company. The petitioner had stated that he had obtained

the consent of 80 shareholders, which was more than one-tenth of the total number of members, and had thus satisfied the condition laid down in

section 153C of the Indian Companies Act, 1913. Certain shareholders who had given their consent to the filing of the application had

subsequently withdrawn that consent and the number of persons who had consented was reduced to 2. It was, therefore, contended that the

condition laid down in section 153C was not satisfied. It is with reference to this point the Supreme Court made the above observation.

The decision in Vidyasagar Cotton Mills Ltd. Vs. Mt. Nazmunnessa Begum, , does not support the case of the appellant and infact it was held

therein that subsequent events can be taken into consideration. In that case, a shareholder who was having a large number of fully paid up shares

died intestate on March 11, 1960, leaving his widow, Nazmunnessa Begum, and some other persons as his heirs. His widow as the administratrix

to the estate of her husband applied for rectification of the share register by placing her name therein in the place of the deceased. On December

24, 1960, the board of directors of the company resolved to hold the annual general meeting on February 9,1961, and notice was also issued that

the share transfer book of the company would be closed from January 26,to February 9,1961. The widow of the deceased shareholder obtained

letters of administration on January 20,1961, and on the same date her attorneys wrote to the company requesting registration of the shares of her

husband formally in her name, enclosing the original letters of administration and other relevant papers. The widow and her attorneys desired the

shares to be transferred before January 2,1961, by rectifying the share register so as to enable her to vote on February 9, though the board of

directors called for a meeting on January 2,1961, by to consider her application for rectification of the share register. They did not rectify the

register but adjourned the subject. The share register remained closed from January 26 to February 9,1961. Thereupon the widow moved an

application on January 30 to the court u/s 1 of the Companies Act, 196, praying for the rectification of the register. On February 8, the company

court passed an order restraining the company and its directors from holding the annual general meeting on February 9, except for the purpose of

adjourning the same and directed the company to hold a meeting of its board of directors on February 14, for the purpose of considering the

application of the widow for rectification of the share register and taking a final decision thereon and giving liberty to file further affidavits. It

appeared form the further affidavits filed that one Manzoor Ahmed had applied on February 14 for revocation of the grant of letters of

administration of the estate to the widow. On February 14, a meeting of the board of directors was also held, but the meeting resolved that the

application of the widow be adjourned till the decision of the country in respect of Manzoor Ahmed''s application for revocation of the Letters of

Administration. Manzoor Ahmed''s application for revocation was dismissed on April 10,1961; but the rectification of the register was not done.

On September 28,1961, the application of the widow filed u/s 1 was allowed and the court directed the rectification of the share register by

inserting her name as the holder of the shares standing in the name of her deceased husband. In the appeal filed against that order, on of the

contentions on behalf of the company was that there had been no default or unnecessary delay within the meaning of section 1 (1)(b) of the Act

and, consequently, the court had no jurisdiction to pass the order of rectification u/s 1. This was on the ground, namely, that on January 30,1961,

when the application u/s 1 was filed, the board of directors had not considered the application, nor had they rejected it, nor could it be said that

there was any unreasonable delay before the application u/s 1 was filed. On the scope of section 155(1)(b), the Division Bench held that the

section covers all cases of improper refusal or neglect and that it has been held that default on the part of the company is not essential and that if

upon deciding the question of legal title it appears that the right name is not registered, there is jurisdiction to rectify. The facts disclosed in the

further affidavits filed in pursuance of the order to the court made on February 8, namely, that the company had not considered the request for

rectification in its board meeting on February 14, and the board adjourning the decision till the decision of the court in respect of Manzoor

Ahmed''s application for revocation and the fact that the revocation petition was dismissed and still the company had not rectified the register, were

taken into account by the learned judges. These events which took place subsequent to the filing of the application u/s 155 were taken into account

for holding that there was a default and unnecessary delay in entering on the register the fact of the widow becoming a member and the fact of the

deceased ceasing to be a member. Learned counsel for the appellant contended that these subsequent events could not be taken notice of by the

court, relying on the decision in Rajahmundry Electric Supply Corporation Ltd. Vs. A. Nageswara Rao and Others, . The Division Bench of the

Calcutta High court held that the decision of the Supreme Court is in no way inconsistent with the principle enunciated in Raincharan Mondal v.

Biswanath Mondal, AIR 1915 Cal 103 ; 20 Cal LJ 107 and that the court may take notice of events which have appeared since the making of the

application and afford relief to the parties on that basis of these events where it is necessary to base the decision on the altered circumstances in

order to do complete justice between the parties.

It may be seen from the decision that on the date when the application was filed, there was no default or unnecessary delay in the rectification

of the register within the meaning of section 155(1)(b). However, the subsequent facts disclosed there was default or unnecessary delay which was

relied on in support of the application for rectification of the order.

In Mohta Bros. (P.) Ltd. and Others Vs. Calcutta Landing and Shipping Co. Ltd. and Others, , a Division Bench ;of the Calcutta High Court

held (at page 127):

In our view, this question is well settled, namely, that, in a petition u/s 397 and 398 of Companies Act, 1956, the court must confine itself to the

case as made out in the petition and to the allegations in the petition itself and supporting affidavits, if any, and not look at other evidence with

regard to events that might have happened subsequent to the petition.

But this is not the whose statements of the law as may be seen from the latest judgment of the Supreme Court in Needle Industries (India) Ltd.

v. Needle Industries Newey (India) Holding Ltd. [1981] 51 Comp Cas 743 (SC). In that case the Supreme Court did take into account facts

which came into existence after the company petition was filed. The Supreme Court observed on the facts there (at page 797):

It is true that in saying this, we have partly taken into account facts which came into existence after the company petition was filed. But those facts

do not reflect a new trend or a new thinking on the part of Coats, generated by success in the litigation. Finding that they had succeeded in the

High Court, Coats took courage to pursue relentlessly their old attitude with the added vigour which success brings.

The ratio of these decision, therefore, is that normally the court dealing with an application should confine itself to the allegations in the petition

itself and not embark on a rambling enquiry into indefinite charges. However, there is no prohibition to either rely on the subsequent events as

pieces of evidence to sustain the grounds already alleged or where having regard to the question to be decided if the court considers it necessary to

base a decision on the altered circumstances in order to shorten the litigation or to do complete justice between the parties.

In the instant case, though the learned judge has relied on a subsequent diversion of substantial money of the company to the personal benefit

of the appellants, the learned judge himself had stated that in the catalogue of charges contained in the main petition itself, the respondent have

charged applicants Nos.2 and 3 with diversion of the funds of the company to their personal benefit, but only adduced events which had taken

place subsequent to the filing of the petition also as evidence thereof and, therefore, it is not contrary to law. The learned judge had, after setting

out briefly ;the charges petition filed for winding up concentrated his attention on the charge of diversion of the funds of the company by appellants

Nos.2 and 3. After referring to the evidence available and the contention of the parties, the learned judge held that the respondents have

established that large funds of Rs.11,10,000 are diverted else where by the appellants and not utilised for the benefit of the company. We may

point out that except making the legal submission, learned counsel for the appellants did not canvass the finding of the learned judge on facts

relating to this diversion, though learned counsel for the respondents referred to many documents supporting the finding of the learned judge. We

do not think it necessary, in the circumstances, to again trace all the evidence available which shows the diversion of the funds of the company. We

may also state that learned counsel for the appellants is not fully correct in stating that the learned judge has relied only on his diversion of the

company funds in support of the claim for appointment of a provisional liquidator. The learned judge had referred to the manipulation of records,

particularly the minutes books relating to the meeting of the board of directors, by making false entries in the minutes book relating to the meeting,

taking advantages of the custody of minutes books in their hands, collusive transfer of share held by the company in Radhakrishana Milla Ltd. to

Sri Kanchanal Hiralal Nanvathi and another at the instance of Vysya Bank Ltd., making false entries in the general body minutes book, transferring

300 shares held by the trust in favour of the third appellant fraudulently and in illegal manner in order to gain superiority in the strength of the

shareholding, making feverish attempts to dispose of some of the valuable assets of the company as could be seen from the resolution dated

September 25,1979, and some other facts. We must also pint out that though C.A.Nos. 843 and 844 of 1981, which is for an injunction, the

learned judge had made the order on August 19, 1981, in which he had dealt with the question of mismanagement, manipulation of accounts, etc.,

in detail and it was in those circumstances the learned judge said that he is giving his supplemental or additional justification in this order foe holding

that appellants Nos.2 and 3 are guilty of mismanagement of the affairs of the company and diversion of funds of the company to their personal use

as also of manipulating the books of account. The learned judge also held that, in order to prevent the fraudulent preferences and malpractice, it is

necessary to appoint a provisional liquidator. We are in entire agreement with this view of the learned judge.

On the above findings there is no scope for the contention that the respondents have an alternative remedy of resorting to the provisions of

section 397 and 398 of the Companies Act and the other argument that the application for injunction and for the appointment of a provisional

liquidator would amount to interfering in matters of internal administration of the company. There is also no substance in the contention of the

appellants that by reason of the institution of certain suits in civil court, the respondents should be demand to have availed of the alternate remedy in

the form of suits and that consequently they cannot file the petition for winding up. As pointed out by the learned judge, the relief sought for in this

court court could not have been obtained in the suits instituted by the respondents and, therefore, no question f election could arise.

For the foregoing reasons, both appeals are dismissed with costs.