Sh. M.K. Mahajan and Another vs Indo Rollhard Industries Private Limited

Vipin Sanghi, J.—This Company Petition under Sections 433(c), 433(e) & 433(f) read with Sections 434 and 439 of the Companies Act, 1956 (for short the Act), has been filed to seek the winding up of the Respondent Company namely M/s Indo Roll Hard Industries Ltd. (the Company).

The petitioners have primarily urged the following grounds to seek the relief as sought in this petition:

(i) That the respondent Company is indebted to the petitioner No. 1 personally to the tune of Rs. 7,50,000/- advanced as loan, and the Company is unable to pay the said sum despite the Statutory Notice, and is thus liable to be wound up u/s 433(e) of the Act. I may note that in the Company Petition the petitioners had alleged that the respondent company owes an amount of Rs. 59,06,780/- to petitioner No. 1 and various companies under his ownership and control. However, at the time of arguments, with a view to avoid getting into disputed issues, the petitioners have sought to highlight the amount owed by the Respondent company to petitioner No. 1, without in any way giving up any part of the claim of the other creditor companies.

(ii) That the directors of the Company have misappropriated the proceeds from the sale of the Company''s assets and have diverted the same in their personal accounts, to the exclusion of the company and its shareholders. The company is liable to be wound up u/s 433(f) of the Act as it is just and equitable to do so.

(iii) That the management of the company has totally disregarded the provisions of the Act in their functioning and conduct: (i) by not holding the Annual General Meeting (AGM), (ii) by not filing of the Balance Sheet and Profit & Loss Account, and non compliance of various other mandatory provisions of the Act.

(iv) That the business of the Company has been suspended for over a year thus the company is liable to be wound up u/s 433(c) of the Act.

A brief narration of the petitioners case as found in the petition is as under:

(A) M/s Indo Rollhard Industries Ltd. was incorporated under the provisions of the Companies Act, 1956 as a private limited Company, limited by shares on June, 1981. The said Company was thereafter converted into a Public Limited Company on 08.10.1994. The first directors of the Company were � (1) Mr. M.K. Mahajan, the petitioner No. 1 herein, (2) Mr. Anil Kaushal, (3) Mr. Gulshan Gandhi. The authorized share capital of the Company is Rs. 2,00,00,000 divided into 20 lakhs share of Rs. 10/- each. The paid up capital of the Company is Rs. 66,36,000/- consisting of 6,63,600 fully paid up shares of Rs. 10/-each. Petitioner No. 2, Mr.Vikas Mahajan, undisputedly is a shareholder of the Company, though there is some disagreements as to the quantum of his shareholding in the Company. The main object of the company for which it was incorporated was to fabricate, manufacture and repair rollers used in the rolling mills, and various other activities of similar nature as mentioned in its Article of Association. Admittedly, the aforesaid business was the only business carried on by the Company and the same has run into rough weather since 2000-2001. It is not disputed that Company was carrying on it operations smoothly till the year 1999. However, it is alleged that it went into losses after that period.

(B) A loan to the tune of Rs. 72 lakhs was obtained by the Company from Vijaya Bank in 1998 against hypothecation of raw materials, finished goods and work in progress, and the immovable properties of the Company.

(C) The company was not regular in holding its AGMs as per the provisions of the Act. The company even failed in discharge of its statutory obligations in filing its Balance Sheet and Annual Returns with the Registrar of the Companies. Aggrieved by such a state of affairs of the company, the petitioners-shareholders (who claim to be holding 36.7% shares) of the company gave notice u/s 169 of the Act to the Board of Directors for convening of an Extra Ordinary General Meeting (EOGM) on 26.09.2002 for the purpose of questioning the acts of alleged mis-conduct of the company''s management. But the company failed to hold such a meeting. Eventually the shareholders on their own convened the EOGM on 05.07.2004 and resolved to voluntarily wind up the company by appointing one Mr. Ashok Bhasin as a liquidator. Communication was sent in this regard to the management and request was made to fully cooperate with the liquidator to facilitate the liquidation. The liquidation proceedings were not effectuated on account of non co-operation and non fulfillment of legal requirements on the part of the directors. Hence, the petitioners have came before this Court for seeking winding up of the company.

I have heard the Counsel for the petitioners, Ms. Vibha Mahajan Seth and Mr. S.K. Sarin on behalf of the respondents, and perused the record relied upon by the parties.

The first dispute is with regard to the status of the petitioner No. 1 as a creditor of the Company. In support of this submission, the petitioners rely upon the acknowledgement of debt issued to petitioner No. 1 dated 31.3.2004 marked as Annexure-F, acknowledging a credit of Rs. 9,50,000/- in petitioner''s favour by a director of the Company viz. Shri Gulshan Gandhi. The petitioner also relies upon the Statement of Account of the petitioner with the Respondent Company, issued by the respondent company, which is placed on record as Annexure-A to the Additional Affidavit of petitioner No. 1 dated 29.08.2006. The petitioners also rely upon the extract of the Balance Sheet of the respondent company as at 31.03.2000, duly signed by the Managing Director of the company, which shows a credit balance in favour of the petitioner standing at Rs. 9,50,000/-. The petitioner has placed on record copies of five cheques aggregating to Rs. 1,80,000/- (1 x 1,00,000/- + 4 x 20,000/-) stated to have been issued by the company towards partial repayment of the said loan. The computerized statement showing balance of Rs. 7,50,000/- after repayment of Rs. 2,00,000/-, stated to have been generated by the company, has been placed on record alongwith the aforesaid additional affidavit.

The petitioners also rely upon Annexure-A-1 to the rejoinder of the petitioners, to the reply filed by the respondents to the additional affidavit of the petitioner. The same shows that in the ledger account of the petitioner No. 1, maintained by the company, as on 31.03.2001 an amount of Rs. 9,50,000/- was shown as outstanding in the books of the company. In the personal income tax returns filed by the petitioner, for the assessment years 1999-2000 and 2000-01 marked as annexure-D, the petitioner has shown the loans advanced to the company of Rs. 11,00,000/- and Rs. 9,50,000/- respectively. These figures tally with the statement filed on record as annexure ''A'' to the additional affidavit of the petitioner dated 29.08.2006. The petitioner demanded the amount of Rs. 9,50,000/- from the respondent vide notice of demand dated 7.5.2004 (Annexure-G). Acknowledgment receipt is placed on record as Annexure ''X''. I may notice that the petitioners have, in their rejoinder to the reply of the respondents, to the additional affidavit, clarified that the claim of Rs. 9,50,000/- as being the outstanding due of the company in the personal account of petitioner No. 1 is erroneous, and that the amount, in fact, due is Rs. 7,50,000/-.

Learned Counsel for the respondents, on the other hand contends that the petitioner is not a creditor of the Company. It is submitted that the entries in the books of the Company are the result of manipulations by the petitioner in connivance with the then Statutory Auditor of the Company, who is also the real brother of the petitioner. It is also claimed that the petitioner is a partner in the said Auditing concern, namely, Mahajan & Co., which audited the accounts of the respondent-Company up to 23.02.2003.

The respondents also submit that Annexure-F to the petition viz. the acknowledgment of debt of Rs. 9,50,000/- as on 31.03.2004, is a forged document and does not match the letter head of the Company. An affidavit of Mr. Gulshan Gandhi, director of the Company to whom the said acknowledgement is attributed, dated 16.10.2006, has been relied upon, in which Mr.Gandhi has categorically stated that he never signed the document i.e. Annexure-F and that the signature on the said document appears to be forged. The letter head of this document does not match the regular letter head of the Company.

Learned Counsels for the respondents also contended that the petitioners have contradicted themselves on several occasions by claiming Rs. 59,06,780/- in the petition (as being outstanding due owed to petitioner No. 1 and his various companies) and later in additional affidavit filed on 30.8.2006, stating that Rs. 7,50,000/- is the outstanding amount, and then again in notice of demand, Annexure-F, by claiming Rs. 9,50,000/-. He stresses that this indicates the malicious and ill founded story by the petitioner. With regard to notice of demand, Annexure-F, the respondents have admitted receiving an envelop but state that the contents of the envelop were waste paper. It is alleged that when the explanation for this action was sought from the petitioners, no reply was given to the same by the petitioners. Further, the respondents allege that petitioners have deliberately filed an incomplete Memorandum Of Association of the company, as the missing pages would have revealed that petitioner No. 1 was an ex director and a partner in the firm which Audited the accounts of the Respondent Company. Learned Counsel for the respondent further submits that several irregularities have been observed in the tax returns filed by the respondent company, and thus they cannot be relied upon by the Court.

In his rejoinder, learned Counsel for the petitioner has submitted that the confusion regarding the amount due to petitioner No. 1 from the respondent company is on account of the fact, that the claim was made by looking at the books of accounts maintained by the Company, which wrongly recorded the amount due to the petitioner as Rs. 9,50,000/- in his personal account as on 31.03.2004, but which stood reduced to Rs. 7,50,000/- as a matter of fact, with the payment of Rs 2,00,000/- during the financial year 2002-03.

With regard to the relation of petitioner No. 1 with the Auditors of the Company, it is averred that the auditors of the Company make their reports on the basis of books of accounts maintained by the Company. The allegation of manipulation is denied.

The undisputed position, which emerges from the documents filed on record and the respective averments of the parties, is that the respondent company in its Balance Sheet as on 31.03.2000 showed a closing balance of Rs. 9,50,000/- outstanding and payable to the petitioner No. 1. This Balance Sheet is signed by the then Managing Director of the company. The argument that no amount whatsoever was due and payable to petitioner No. 1, and that he was not a creditor of the company cannot, therefore, be accepted. The defence that the brother of petitioner No. 1 was a partner of the firm that acted as the statutory auditors of the company till March 2003 does not explain the conduct of the Managing Director in signing the Balance Sheet as on 31.03.2000 which showed an outstanding amount of Rs. 9,50,000/- payable to the petitioner No. 1. As rightly contended by learned Counsel for the petitioner, the accounts are maintained by the company. The auditor merely audits the accounts as maintained by the company. It was certified by the Managing Director of the Company that an amount of Rs. 9,50,000/- is payable to the petitioner No. 1 as on 31.03.2000.

It is also pertinent to note that the respondents do not explain as to why, on what account, payment of Rs. 1,80,000/- as reflected by various cheques issued in the name of petitioner No. 1 was made to him. In fact, in the statement of account pertaining to petitioner No. 1 the respondent company shows payment of Rs. 2,00,000/- in the year 2002-03 reducing the outstanding balance from Rs. 9,50,000/- to Rs. 7,50,000/- as on 06.09.2002. Merely stating that the payment was made on account of certain other transactions is not sufficient. The respondent could well have placed on record the documents to show the existence of any other transaction in relation to which the amount of Rs. 1,80,000/- or Rs. 2,00,000/- was paid to the petitioner. However, apart from making a vague assertion as aforesaid, no other document has been placed on record by the respondent in support of their submission. On the other hand, the petitioner No. 1 has placed on record the Income Tax returns filed by him, inter alia, for the assessment years 1999-00 and 2000-01 showing the details of loans and advances as on 31.03.1999 and 31.03.2000. According to the said returns, as on 31.03.1999, the loans advanced to the respondent company have been shown as Rs. 11,00,000/- and as on 31.03.2000 the said amount has been shown as Rs. 9,50,000/-. I may notice that as on 31.03.1999, according to the affidavit filed by the petitioner in compliance of the order dated 31.07.2000, the outstanding amount was Rs. 9,50,000/- whereas in the income tax returns for the period ending 31.03.1999 the outstanding amount shown by the petitioner is Rs. 11,00,000/-. However, for the next year i.e. financial year ending 31.03.2000, the amount as shown in the income tax return tallies with the amount shown in the Balance Sheet of the respondent company as at 31.03.2000. Had the petitioner not advanced the amounts, as aforesaid, to the respondent company from time to time, it does not stand to reason as to why the petitioner No. 1 would have reflected the aforesaid amount as credited to the respondent company in the Income Tax returns filed by the said petitioner from time to time, contemporaneously.

I am also satisfied with the explanation furnished by the petitioner for the discrepancy in the amount claimed to be outstanding in the petition, and in the amount subsequently stated to be outstanding by the petitioner. The amount as claimed in the petition was Rs. 59,06,780/-. This amount was stated to be due to petitioner No. 1 and his various other concerns. The petitioner has given the breakup of the aforesaid amount in his rejoinder to the reply filed by the respondent company, to the additional affidavit of the petitioner.

The petitioner states that while preparing the petition he relied upon only the documents/statement maintained by the respondent company provided to the petitioner, like the copy of the ledger accounts of the respondent company. The figures as reflected in the respondent''s ledgers/books of accounts in relation to the petitioner No. 1 and the company owned/controlled by him have also been disclosed. On a comparison of these statements/tabulations it is clear that the discrepancy in the amount claimed to be due to petitioner No. 1 has arisen on account of an error of accounting on the part of the Company itself.

Merely because the demand made by the petitioners in their notice of demand dated 07.05.2004, in relation to the amount allegedly due in favour of petitioner No. 1 was for Rs. 9,50,000/-, the same would not render the demand illegal and the said notice would still be considered as a valid notice for the purposes of Section 433 and 434 of the Act. Reference in this regard may be made to Devender Kumar Jain v. Polar Forgings & Tools Ltd. 1993 Cri LJ 184 (Delhi). The Supreme Court has held in Madhu Woolen Industries Private Ltd. 1970 (3) SCC 632 that where the debt is bona fide, and there is no doubt that the company owes the creditor a debt, the creditor would be entitled to seek winding up of the company even if the exact amount is disputed. The Court would order winding up of the company without requiring the creditor to quantify the precise debt.

The submission of learned Counsel for the respondents that they did not receive the notice of demand and that the petitioners had merely sent some waste paper cannot be believed. If there was any truth in this statement, one would have expected the respondents to have immediately put the petitioners to notice that they have been served with waste paper in a registered cover. It does not stand to reason that the respondents would not bring such a fact on record, had there been any truth therein.

From the record, it is thus clear that there is a bona fide debt of Rs. 7,50,000/- outstanding and payable by the respondent company to the petitioner No. 1 and the said debt has not been discharged despite service of a statutory notice upon the respondent company within the period of three weeks from the date of service of the notice. I am, therefore, of the view that the ingredients of Section 433(e) are made out in the present case.

Now I will deal with the remaining allegations in order to examine whether a case for winding up under the "just and equitable" and "business of the company being suspended for over year" Clauses is also made out or not.

It is admitted that a loan to the tune of Rs. 72 lakhs was obtained by the Company from Vijaya Bank in 1998 against:

1) Hypothecation of raw materials, finished goods and work in progress.

2) Company''s factory (land and building) at 61/1 Naresh Park, Nangloi, Delhi.

3) Company''s factory at E-24, Industrial Area, Bahadurgarh, Rohtak,

4) Plant and machinery at E-24, Industrial Area, Rohtak.

It is not disputed that the credit from Vijaya Bank was reduced to Rs. 37 lakhs by releasing the property at Nangloi (at Sl. No. 2 above), and that it was sold off in April, 2000.

To substantiate allegations made in the petition the petitioners submit that original title deeds of property belonging to the company situated at 61/1 Naresh Park, Nangloi, New Delhi, hypothecated as a collateral security with Vijya bank for obtaining credit facility of Rs. 72 lakhs, were fraudulently procured by Mr. Anil Kaushal, Managing Director of the Company in connivance with the officials of the Vijaya Bank. The said property has been subsequently sold without any information, approval or requisite authority from the other shareholders/guarantors/Directors of the Company, and Mr. Anil Kaushal has misappropriated its sale proceeds for his personal gain. Petitioners submit that the respondents had, before the Registrar of the Companies, NCT, Delhi and Haryana taken the stand that the sale of the property was with the approval of the Board of Directors. However, they had not produced the record before the R.O.C. and, even before this Court the respondents have not produced the original records including the Resolution alleged to have been passed by the Board on 01.10.1999 to substantiate their defence that the said sale was authorized. From the order dated 30.05.2005 of the R.O.C., the petitioners rely upon the following passage wherein the reference to first party is to the petitioners and reference to the second party is to the respondents:

The 2nd party has denied the allegation leveled by the 1st party and has submitted that the property situated at 61/1 Naresh Park, Nangloi, Delhi has been sold by the 2nd party in April 2000 only after complete authority from the shareholders and Board of Directors and had produced one certified true copy of the resolution of the Board of Directors passed in the meeting held on 1.10.99 authorising Sh. Anil Koshal, Managing Director of the company authorizing the sale of the property. The certified true copy was issued by Sh. Mohinder Kumar Mahajan the then Chairman of the company who was present in the hearing. The original certified copy of the true copy was shown to the 1st party and Sh. Mohinder Kumar Mahajan was specifically questioned as to whether the signatures upon the Board Resolution dated 1.10.99 certifying the true copy are that of Sh. Mohinder Kumar Mahajan or not. Sh. Mohinder Kumar Mahajan, the 1st party, replied in affirmative but stressed upon the production of original resolution of the minutes and minute book dated 1.10.99 as the signature of the Chairman of the meeting shows as "Sd/-". The 2nd party did not produce any minute book, minutes, resolution, title deeds, sale deed or any other documents in original despite several opportunities.

Petitioner further alleges that Mr. Anil Kaushal played a further fraud on the company''s shareholders and guarantors by again procuring the title deeds of the two plots situated in Mundka Village, which were hypothecated with the Vijaya Bank in place of property at 61/1 Naresh Park, Nangloi against the loan, without approval of the shareholders in the board meeting. This property was also sold by him and proceeds thereof were also pocketed in his personal coffers. From Form No. 8 filed with the ROC dated 04.05.2001 the details of the said plots are found to be as under:

(i) located at Khasra No. 57/17 min. (1-00); and

(ii) located at Khasra No. 57/17 min. (0-08)

Counsel for the petitioner points out that the respondents as per their own admission in their reply to the petition, state that the properties at Mundka, Delhi were purchased from the sale proceeds of the Nangloi property to start the work unit. In Form-8 filed before the R.O.C., dated 04.05.2001, the factum of the two properties at Mundka being substituted for the property at Nangloi has been recorded. The relevant extract of this statement reads as follows:

The charger on property at 61/1, Naresh Park, Extension, Nasafgarh Industrial Area, New Delhi is vacated with the release of documents of title in respect of the said property. However, in place of the above property, the charge for OLCC limit of Rs. 37 Lac is now secured by equitable mortgage by deposit of title deeds of two plots at Khasra No. 57/17, min (1-00) and 57/17 min (0-08) measuring of Bigha and 08 Biswas respectively situate in the revenue village of Mundka, Delhi � Other terms and conditions remain same.

It is clearly shown that property at Nangloi was released in lieu of two plots in Mundka located at Khasra No. 57/17 min. (1-00) and 57/17 min. (0-08). This is also reflected in Form 13 dated 04.05.2001 filed with the ROC. Counsel for the petitioners further points out that the resolution stated to have been passed in the meeting of the Board of Directors on 11.01.2001, which purports to authorize the sale of the two plots at Mundka, records that these plots were acquired vide sale deeds dated 17.02.2000. Whereas, as per the admission made by the respondents before the ROC, as recorded in his order dated 30.05.2005, the Nangloi property was sold in April, 2000. Accordingly, he asserts that the submission that the Mundka land was purchased from the sale proceeds of Nagloi land falls flat on the ground. Thus, he contends that the respondents have failed to provide any explanation regarding the manner of utilization of the sale proceeds of Nangloi land and this further strengthens the case of misappropriation done by the Directors of the company at the cost of the shareholders of the Company.

Counsel for the petitioner gives another illustration i.e. disposal of property at Bahadurgarh without any knowledge, authority or approval from the shareholders or even from the Vijaya Bank with which this property was mortgaged, to demonstrate how the Directors in Control of the Affairs of the Company are disposing of the assets of the company for their personal gain. He relies on the explanatory statement appended to the Notice dated 02.09.2003 issued to the members/shareholders of the company convening the AGM of the company on 29.09.2003 pursuant to Section 173(2) of the Act to prove the point that the property at Village Jhakoda, Bahadurgarh was sold vide sale deeds dated 19.10.2001 and 24.10.2001 to one M/s Ramniwas. That this property was sold in the year 2002-2003 is also established from the fact that in Schedule-4 list of (fixed assets) appended to the balance sheet for the year ended 31.03.2003 shows the value of land at Bahadurgarh at Rs. 14,26,430/-, but it is shown nil as on 31.03.2003. Counsel for petitioner states that this sale was unauthorized as the property at E-24, Old Industrial Area, Bhadurgrah was mortgaged with Vijaya Bank at the time when the sale was effected. He refers to O.A No. 43/2004 preferred by the Bank to show that the said property was still mortgaged with Vijaya Bank and the original title deed of the property was deposited with the Bank. This clearly demonstrates the manipulation and fraud perpetuated by the directors. Even this property was sold in a very clandestine manner and its proceeds were fraudulently misappropriated by the Directors of the company. In this regard, it is pertinent to take note of the remark made by the auditor in Schedule No. 16 pertaining to Significant Accounting Policies and Notes on Accounts for the year ended 2002-03, which states that the company had sold land at Bahadurgarh and Delhi during the year for which no details/evidence is available.

Petitioner submits that there is justifiable lack of confidence in conduct of the company''s affairs as the management has totally disregarded the provisions of the Act by not holding the Annual General Meeting for last three years, in contravention of Section 166 of the Act, despite repeated letters and reminders in this respect on behalf of the shareholders. The respondent Company, it is alleged, did not convene an Extraordinary General Meeting as provided u/s 169 of the Act despite notices. It did not convene a creditors meeting, despite notices as provided u/s 500 of the Act. It did not supply the copies of the Auditor''s Accounts despite repeated requests and did not file balance sheets and annual return with the Registrar of Companies. Petitioners point out the order of the Registrar of Companies, NCT, Delhi and Haryana requesting the Ministry of Company Affairs to examine the books of accounts and other statutory records of the respondent company, and the filing of the complaint u/s 220(3) r/w Section 162 of the Act with the Additional Chief Metropolitan Magistrate, New Delhi to indicate the dismal state of affairs prevailing in the respondent company, and to show that the company is being managed in a manner prejudicial to the interest of shareholders and creditors of the company. It is further alleged that the substratum of the Company is lost and the business has come to a standstill and the Company has sold off its plant and machinery, factory building, lab equipments etc. Thus neither is there any intention, nor any resources available to commence the business of the Company. The opposition to this petition is only to facilitate the further misappropriation of the Company''s remaining assets by its directors. Reliance is sought to be placed on schedule-IV, ''Fixed Assets'' of the audited balance sheet as at 31st March, 2005 to show that plant and machinery, factory building, lab equipments, furnace, crane were disposed of in the year 2004-2005, amongst other assets. Reliance is also placed on the Directors Report, with the report for the year 2004-05 where it is stated that the production has come to a standstill, and Directors of the Company do not foresee any breakthrough in its operations. Thus the learned Counsel for the petitioner has contended that the Company be ordered to be wound up u/s 433(f) of the Act keeping in view the aforesaid condition of the company.

Petitioners have relied on Rajahmundry Electric Supply Corporation Ltd. Vs. A. Nageswara Rao and Others, , Virenderasingh Bhandari And Ors. v. Nandlal Bhandari and Sons P. Ltd. 50 CC 54 (MP) and Hari Kumar Rajah v. Sovergien Dairy Industries Limited and Ors. (1998) 4 Comp LJ (Mad) in support of their case that it is just and equitable to wound up the Company.

On the other hand, learned Counsel for the respondent company submits that the petitioners have been indulging in forum shopping as they have approached different forums for the same cause of action and with the same reliefs. They had earlier filed a petition before Company Law Board (CLB) u/s 167 of the Act which was dismissed on 20.02.04 for want of prosecution. Writ petitions were also filed before this Court being W.P.(C) Nos. 451/2005, 452, 453, 455, 456, 457 & WP(C) 458/2005 which were disposed of without granting the reliefs as claimed . Even a petition u/s 397 and 398 of the Act was preferred before the CLB, but the same has not been pursued and is lying in defect. On the non holding of Annual General Meeting, the respondent states that a petition had been filed before the CLB, Northern Region u/s 167 of the Act. The same was disposed off on the ground that the company has already held its Annual General Meeting.

The respondent company has also sought to resist the present petition on the ground that it is filed pursuant to the resolution dated 05th July 2005, passed at the EOGM which was illegally convened by the petitioners in violation of various provisions of the Act. No notice for convening EOGM was sent to all the shareholders of the company. The EOGM was held under the Chairmanship of Mr. M.K. Mahajan, who is not even a shareholder of the company.

With regard to allegation of misappropriation of the assets of the Company, the respondent has denied the allegations that the original title deeds of the Company''s property bearing No. 61/1, Naresh Park, Nangloi, New Delhi were fraudulently procured by, and handed over to Mr. Anil Kaushal, the Managing Director of the Respondent Company by the bank official without any information, approval and requisite authority. He submitted that it was unanimously decided in the Board Meeting of the respondent Company which was held on 1st October, 1999 under the chairmanship of Petitioner No. 1 i.e. Shri M.K. Mahajan, that the said property is to be sold after getting it released from the Vijaya Bank. As at that time the said property was hypothecated with Vijaya Bank, Shri Anil Kaushal, M.D. of the Company was authorized to negotiate with the relevant parties. Reference is made in this regard to Annexure-R-V to the reply of the company to the petition viz. copy of the resolution passed in its Board meeting held on 01.10.1999. Learned Counsel for the respondent further argued that the properties at Mundka were never hypothecated with the bank, thus question of obtaining the title deeds by fraud does not arise.

In Rajahmundry Electric Supply(supra) Supreme Court had laid down that where in addition to the mismanagement by the directors , some circumstances exist which render it desirable in the interest of the shareholders that the company should be wound up, there is nothing to prevent the making of such an order.

In Hari Kumar Rajah (supra) the issue before the court was with regard to the Power of Court to grant relief against oppression and mismanagement u/s 397 & 398. The Court held that the power of the court to grant relief in a petition under Sections 397 and 398 is vast, and even the fact that the other provisions of the Act enable the petitioner to secure relief from the forums would not come in away of such relief being granted. The case before me is not u/s 397/398 of the Act but u/s 433 r/w 434 and 439 of the Act and if the petitioner is able to make out their case for winding up on the grounds enumerated in Section 433 this Court has ample power to grant the relief.

The next case which is heavily relied upon by the petitioners is of Virenderasingh Bhandari and Ors. (supra) in which the Court has analysed the scope of Section 433(f). The relevant para is reproduced hereunder:

The question that is raised in this appeal is as to what is the scope of Section 433(f) of the Act. Section 433 provides for the circumstances in which a company may be wound up by the court. There are six recipes in this Section and we are concerned with the sixth, namely, that a company may be wound up by the court if the court is of the opinion that it is just and equitable that the company should be wound up. Section 222(f) of the English Companies Act, 1948, is in terms identical with the Indian counterpart, Section 433(f). It is now well established that sixth clause, namely, ''just and equitable'', is not to be read as being ejusdem generis with the proceeding five clauses. While the five earlier Clauses prescribe definite conditions to be fulfilled for the one or the together to be attracted in a given case, the just and equitable Clauses leaves the entire matter to the wide and wise judicial discretion of the court. The only limitations are the force and content of the words themselves, ''just and equitable''. Since, however, the matter cannot be left so uncertain and indefinite, the courts in England for long have developed a rule derived from the history and extent of the equity jurisdiction itself and also born out of recognition of equitable considerations generally. This is particularly so as Section 35(6) of the English Partnership Act, 1890, also contains, inter alia, an analogous provision for the dissolution of partnership by the court. Section 44(g) of the Indian Partnership Act also contains the words ''just and equitable''.

The Court also quoted with approval the following passages from Loch v. John Blackwood Ltd. [1924] AC 783 (PC)

It is undoubtedly true that at the foundation of applications for winding up, on the ''just and equitable'' rule, there must lie a justifiable lack of confidence in the conduct and management of the company''s affairs. But this lack of confidence must be grounded on conduct of the directors, nor in regard to their private life or affairs, but in regard to the company''s business. Furthermore the lack of confidence must spring not from dissatisfaction at being out-voted on the business affairs or on what is called the domestic policy of the company. On the other hand, wherever, the lack of confidence is rested on a lack of probity in the conduct of the company''s affairs, then the former is justified by the latter and it is under the statute just and equitable that the company be wound up.

In Hind Overseas P. Ltd. v. Ragunath Prasad Jhunjhunwalla [1976] 46 Comp Cas 91, the meaning of the just and equitable Clause was reiterated again by the Supreme Court on the basis of Loch�s case. The relevant extracts from this decision are as under:

The principle of ''just and equitable'' Clause baffles a precise definition. It must rest with the judicial discretion of the court depending upon the facts and circumstances of each case. These are necessarily equitable considerations and may, in a given case, be superimposed on law. Whether it would be so done in a particular case cannot be put in the strait-jacket of an inflexible formula. In an application of this type allegations in the petition are of primary importance. 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.

The proposition that emerges from the above decisions is that the foundation of applications for winding up, on the "just and equitable" rule must be based on a justifiable lack of confidence in the conduct and management of the company''s affairs. Mis management by the directors as a ground for winding up is a question to be decided on the facts of each case. Applying the above proposition in the present case, I shall probe whether there is justifiable lack of confidence among the shareholders in the manner the business of the company has been carried on by the directors of the company.

The fact that the business of the company has been carried on in a non transparent and clandestine manner is clearly evident from the contradictory stand taken by the company. Respondent company had admitted the sale of Nangloi land in April 2000 before the ROC, NCT, Delhi And Haryana and also in their reply to the petition dated 17.1.2006 they have admitted that property at Mundka, Delhi was purchased from the sale proceeds of Nangloi property to start the work at its units. But as per Form-8 it can be clearly seen that property at Nangloi was released in lieu of properties at Mundka located at Khasra No. 57/17, min (1-00) and 57/17 min (0-08). The same fact is reiterated in Form-13 filed under the Act. Further in the resolution passed in the meeting of the Board of Directors on 11.01.01(marked as Annexure-VI to the reply of the company) , there is a specific admission that plot at Mundka was acquired vide sale deed dated 17.2.2000, whereas, as per admissions before Registrar Of Companies , the Nangloi land was sold in April, 2000. Thus there are serious contradictions to the claims of the respondent that the sale proceeds of the Nangloi land were used to purchase the Mundka land. It is evident that the sale proceeds of the Nangloi property were not utilized in the purchase of the plots in Mundka. How these sale proceeds have been appropriated has not been explained by the respondents. Thus in my view the manipulation and fraud are clearly established.

I also find no force in the contention that the land at Mundka was never hypothecated, because as evidenced from the record, it is clear that the land at Mundka was hypothecated with Vijaya Bank in lieu of Nangloi property being released. The cloud on the sale of land situated at Bahadurgarh has also not been cleared by the respondent. In the explanatory statement issued by the respondent pursuant to Section 173(2) of the Act for proposing the passing of a special resolution, it is specifically mentioned that the land was sold vide Deed of Sale Agreement dated 19.10.2001 and 24.10.2001. Even as per schedule No. 4 (Fixed Assets) appended to the Balance sheet as at 31.03.03 it is clear that the property at Bahadurgarh was sold during 2002-2003. As mentioned above, the details regarding the said property was not made available to the auditors and it is clear that they were purposely withheld to keep the shareholders in dark.

The respondents have not provided any satisfactory explanation as to how the proceeds of the land situated at Nangloi, Mundka and Bahadurgarh were appropriated. They have failed to produce satisfactory records before the Court. The explanations furnished by the respondents in this regard are vague and self-contradictory.

It is pertinent to mention here that this Court had directed the respondents, vide an order dated 16.1.2008, to file all the annexures to the balance-sheet of the Company for the year 2001 onwards. The respondents were put to notice that if the same are not filed, the Court would be free to draw adverse inference against the respondent. These annexures would have demonstrated the manner of appropriation of the sale proceeds of the aforesaid properties of the company. But the respondents have failed to comply with the directions of this Court, leading the Court to draw an adverse inference to the effect that if these documents were produced, the same would have further established the misappropriation of the funds of the company by its Directors. The aforesaid state of affairs of the company are sufficient to cause justifiable lack of confidence in the conduct and management of the company''s affairs and also lack of probity in the conduct of Company''s affairs.

On perusal of Statement of Accounts of the company it appears to me that the substratum of the Company is lost and the business of the company can not be carried on in its current financial state. The ''List of Fixed Assets'' under Schedule 4 appended to the balance sheet for the year ending on 31.03.05, shows the entire plant and machinery, factory building, lab equipments, crane, furnace, with other assets of the Company have been disposed of during the year 2004-2005. These are basic ingredients for running the business of this nature without which a Company can not sustain itself as a running concern. Company is not being able to run in an efficient manner and its output has fallen drastically is evidenced from its profit and loss account for the year ended 31st March, 2005, which shows material consumed at Rs. 12,55,000/- and the sales figure are at Rs. 16,48,285/- whereas the corresponding figure for the year ended 31st March, 2004 shows sales at Rs. 3,31,565/- as against Rs. 2,94,340/-of raw material consumed. Even the directors in their Director''s Report presented along with audited Statement of Accounts of the company for the year ended 31.03.2006 have categorically admitted that the production has come to a standstill and they do not foresee any breakthrough in its operations.

The Respondents have failed to account for the discrepancies found in the accounts of the Company when the accounts were audited by Mukesh Gupta & Co., an independent set of Auditors appointed by the Directors. The said auditors in Schedule No. 16 pertaining to Significant Accounting Policies and Notes on Accounts for the year 2002/03 have remarked that "The Company has sold land at Bahadurgarh and Delhi during the year for which no details/evidence is available". The said auditors have also observed and reported in their Auditor''s Report submitted along with the audited Balance Sheet for the year ended on 31.03.05 that the Company is not regular in depositing dues and various taxes like income tax, sales tax, employees'' state insurance, provident fund, wealth tax, customs duty, excise duty and other material dues. In fact Income Tax Department has raised demand to the tune of Rs. 79,783/- for the year 2001-2002 for which the Company had filed an appeal with CIT, (A), which was dismissed and the Company has still not made any provision for this demand.

The income of the company has nosedived to a dismal figure of Rs. 20,204/- in the year ended 31st March, 2006 as compared to its income of Rs. 1,78,88,963/- in the year ended 31st March, 2002 i.e. within a span of four years. The Balance Sheets of the Company continues to show losses year after year and there is nothing shown to suggest any improvement in the coming years.

In view of the law discussed above and by carefully analysing the facts and records relied upon by both counsels, I am of the considered view that it is just and equitable to wind up the Company and allow this petition, under Sections 433(e), Section 433(f) & 433(c) read with Section 434 and 439 of the Act.

I, accordingly, admit this petition and direct that the respondent company be wound up. The official liquidator attached to this Court is appointed as the liquidator in respect of the respondent company. He shall forthwith take over all the assets and records of the respondent company and proceed according to law. Citation shall be published in the ''Statesman'' (English) and ''Jansatta'' (Hindi) for 16.03.2009. Petitioner may take steps accordingly.