K.C.MaJ/itw v. The State of T ravancore-Cochin

filed by the first the directors had misappropriated VENKATARAMA AYYil J.-This appeal arises out respondent under of an application section 162, clauses (v) and (vi) of the Indian Com panies Act for an order that the Rajahmundry Elec tric Supply Corporation Ltd., be wound up. The grounds on which the relief was claimed were that the Company were being grossly mis the affairs of large amounts were owing to the Gov managed, that supplied by ernment for charges for electric energy them, funds of the Company, and that the directorate which in voting strength was "riding roughshod" over the rights of the shareholders. In the alternative, it was prayed that action might be section 153-C and appropriate orders taken under the rights of the shareholders. The passed only effective opposition to the application came from the Chairman of the Company, Appanna Ranga Rao, who contested that it was the Vice Chairman, Devata Ramamohanrao, who was respon sible for the maladministration of the Company, he had been removed from the directorate, and steps were being · taken to call him there was accordingly no ground either for passing an order under section 162, or for taking action under section 153-C. to account, and it on the ground to protect The learned Judge of the Andhra High Court before whom the application .came up for hearing, held 1955 Rajalunundry El1ctric Supply CorporaJion Lid. v. A. Nageswara RatJ and others V 1nkatarama AY.)'ar J. 2 S.C . .R. SUPREME COURT REPORTS 1069 the necessary substantially the charges set out therein had been it was a fit case for an order for proved, and section 162(vi). He winding up being made under also held that under the circumstances action could be taken under section 153-C, and accordingly ap the management of pointed two administrators the Company for a period of six months vesting them all the powers of the directorate and authorising them to take the debts and for convening a amounts due, paying meeting of the shareholders the purpose of ascer taining their wishes whether the administration should continue, or whether a new Board of Directors should be constituted fo:r the management of the Company. this order, the Chairman, Appanna Ranga the name of the Company preferred to a Bench of the Andhra High Court. trial Judge they stood, justified taken under section 153-C, and dis the Company Against Rao, acting an appeal The learned Judges agreed with the the affairs of the Company, as action being missed has preferred this appeal by special leave. the appeal. Against this order, recovering in so far as it was is entitled the application that the applicant had obtained ( 3) (a) ( i) that a member On behalf of the appellant, it was firstly contended laid under section 153-C was not maintainable, as there was no the consent of the requisite number of shareholders as provided section 153-C. That clause sub-clause provides to apply for relief only if he has obtained the consent in writing of not less than one hundred in number of the members of in ·number of the company or not less than one-tenth the members, whichever is less. The respondent stated than one consent of 80 shareholders, which was more tenth of the total number of members, and had satisfied in section 153-C, sub-clause (3)(a)(i). To this, an objection was taken in one of the written statements filed on behalf of that out of the 80 persons who had the respondents consented to the 13 were not share-holders at all, and that two members that he had obtained in his application the application, the condition institution of laid down 1070 SUPREME COURT REPORTS [1955] 1955 Rajalimund,:Y El1etric Supply Corporation LJd. v . .A:. N agtswara Rao and others Vtnkatarama A,J.:var J. It was further alleged their consent had signed twice. the persons who had given of the application had subsequently withdrawn consent. it was pleaded, sented would be reduced dition laid down was not satisfied. that 13 of to the filing these 28 members, the number of persons who had con to 52, and therefore the con in section 153-C, sub-clause (3)(a)(i) result, excluding In recorded This point to entertain Judge. The is not dealt with in the judgment of the trial court, and the argument before us is that as objection went to the root of the matter and struck the very maintainability of the application, evi the matter and a dence should have been taken on thereon. We do not find any sub finding the objection was stance in this contention. Though raised in the written statement, respondents did not press the same at the trial, and the question was learned never argued before Judges before whom this contention was raised on it, as it was not pressed appeal declined fot per trial court_, and there are no grounds in the it in this appeal. Even mitting to raise the appellant otherwise, we are of opinion this contention statement, assuming must, on the allegations them to be names of the 13 persons who are stated to be not members and the two who are stated to have signed the number of members who had given consent twice, the application was 65. The to the institution of number of members of the Company to be 603. application in writing, in section 153-C, sub satisfy that as 13 of the clause (3) (a) (i). But members who had consented the ap to the filing of to its presentation, with plication had, to satisfy requirements of the st:Hute, and was no longer maintainable. We rejecting have no hesitation this contention. The validity of a petition must be iudged on the facts as time of its and a petition which was valid when presentation, fail on the merits. Excluding therefore, 65 members sufficient thereafter ceased that would be their consent, they were at the condition it is argued subsequent laid down consented is stated in the true, If, 2S.C.R. SUPREME COURT REPORTS 1071 in the reason of events statute, cease subsequent in the absence of a provision presented cannot, that effect In our opinion, the members, even if true, canot affect either right of the applicant or the jurisdiction of the court to dispose of it on own merits. to be maintainable its presentation. the withdrawal of consent by 13 of to proceed with the application 1955 Rajahmundry Eltctric Supply <Arporation lJd. \'. A. Nageswara Rao and others Venkatarama ..{l!)'ar J. therefore, that before It was next contended that the allegations in the sufficient to support a winding application were not up order under section 162, and therefore no action could be taken under section 153-C. We agree taking action under with the appellant section 153-C, that circum the court must be satisfied stance~ exist on which an order for winding up could be made under section 162. The true scope of section 153-C is that whereas prior to its enactment the court had no option but to pass an order for winding up when the conditions mentioned section 162 were ir could now in exercise of the powers con satisfied, ferred by that section make an order for its manage to its being ultimately ment by the court with a view salvaged. Where, the facts proved do not make out a case for winding up under section 162, no order could be passed under section 153-C. The ques the facts tion therefore. found make out a case for passing a winding up order under section 162. this application the first res pondent relied on section 162, clauses (v) and (vi) for an order for winding up. Under section 162(v), such an order could be made pay its debts. the arrears due to the Government on 25-6-1955 by way of charges for energy supplied by them amounted to Rs. 3,10,175-3-6. But to pay the amount and was trial Judge commercially inapplicable. rightly held But he was of that on the facts established it was just and equitable to make an order for wind ing up under section 162(vi), and that view has been affirmed by the learned Judges on appeal. insolvent, and the the opinion learned section 162 ( v) was there was no evidence the company is unable .COmpany was unable to be determined in the application It was alleged is whether In - ' 1955 JMahtnurttby Elidrie Su/JIJW Cor/JOtalion -lid. v. A..Hagu-a Rao an4 .,,,,,, I' lllkala"'""' 4u•r j. 1072 SUPREME COURT REPORTS [1955] the appellant It was argued for established that the evidence -only the Vice-Chairman, Devata Ramamohan Rao, who had been in effective manage ment was guilty of misconduct, and that by itself for making an order for was not a sufficient ground winding up. It was further argued that the words "just in clause (vi) must be construed ejus -and equitable" dem generis with the matters mentioned in clauses (i) that mere misconduct of the directors was not to (v), a ground on which a winding up order could be made, it was. a matter of internal management for and that which resort must be had to the other remedies pro vided in the Act. The decisions in In re Anglo-Greek Steam Company(!) and In re Diamond Fuel Company('} In re were relied on in support of this position. that the Anglo-Greek Steam Company('), misconduct of the directors of a company was not a ground on which the court could order winding up it was such mismanagement established the company had become In re Dia In it was observed by Baggallay, mond Fuel Company(•), L.J. that, just and equitable clause, unless that by reason of it was held insolvent. In " ...... mere misconduct or mismanagement on the it might be such in respect of such is not of itself suffi part of the directors, even although as to justify a suit against misconduct or mismanagement, cient to justify a winding-up order". is that as all the The contention of charges made misconduct on the part of the directors, and as there was no proof that to pay its debts, an order for winding up under section 162 could not be made. the application amounted only the Company was unable the appellant The authorities relied on by the appellant reflect the view which was at one time held in England as to the true meaning and scope of the words "just and section equitable" in the provisions corresponding 162(vi) of the Indian Act In Spackman's Case( ), them as ejusdem Lord Cottenham, L.C. construed (1) [1866] L.R. 2 Eq. !. (2) [1879] 13 Ch. D. 400, 408. (3) [1849] l M. & G. 170; 41E.R.1228, 1230. 1955 Rajahmund,, E/eetrie Supply Corporation Ud • v. A. Nageswara Rao and others Ymkatarama A»ar ]. 2 S.C.R. SUPREME COURT REPORTS 1073 section, and the matters mentioned the other genem with that construction was clauses in a number of cases. Vide Re Suburban followed Hotel Co.(1 ), In re Anglo-Greek Steam Company( 2 ), Re European Life Assurance Society( 3 and In re Diamond Fuel Company( 4). But a different view came to be adopted In re Amalgamated Syndicate( 5 taken to Judicial in Loch v. John Blackwood Ld.(9 ), where Committee after an elaborate the authorities, Lord Shaw observed that, ), and the question must now be the pronouncement of in later decisions settled by review of (vide ) " ...... it is thus stated the grounds (as supposed to. have been five sub-sections of "The; words 'just and equitable' in read as being ejusdem generis with in accordance with Ireland laws of Eng· that the ejusdem laid by to confine section land, of Scotland and of generis doctrine Lord Cottenham) does not operate so as the cases of winding up to those strictly analogous the instances of the first 129 of the British Act". The law in Halsbury's Laws of Eng· land, Third Edition, Volume 6, page 534, para 1035 : the enactment for winding up by the court specifying are not to be preceding words of the enactment". the words "just and equit· When once it is held that able" are not whether mismanagement of directors a winding-up order under section 162(vi) becomes a question facts of each case. Where nothing more directors have misappropriated the funds of the Com· pany, an order for winding up would not be just or equitable, because if it is a sound concern, such an order must operate harshly on the rights of the share· to such misconduct, holders. But in addition if, circumstances exist which render it desirable interests of the Company should be wound up, there is nothing in section 162(vi) (3) f 1869 L. R. 9 Eq. 122. to be construed ejusdem generis, is a ground is established (2) [1866) L. R 2 Eq. I. (4) [1879] 13 Ch. D. 400, 408. (6) [ 1924] A. C. 783, 790. to be decided on (I) [186~2 Ch. App. 737. (5) 1897 2 Ch. 600. shareholders 1955 RaJahmundr)1 Eltch'ic Supply Curpr>ration Ltd. v. A .. Vage1wara Raa and others V enkalarama Ayyar J. 1074 SUPREME COURT REPORTS [1955] for on that at in which jurisdiction of '·It is undoubtedly for winding up, on there must which bars the court such an order. Loch v. fohn Blackwood Ld.(1 self a case the ground of mismanagement by directors, and the law was thus stated at page 788 : · to make ) was it the order for winding up was lie a the conduct and management of foundation of applications 'just and rule, equitable' justifiable · lack of confidence lack of confidence must company's affairs. But be grounded on conduct of the directors, not in re life or affairs, but in regard to gard to their private the company's business. Furthermore lack of from dissatisfactio·1 at confidence must spring not the business affairs or on what is being outvoted on called the domestic policy of the company. On other hand, wherever the lack of confidence rested on a lack of probity in the conduct of the company's affairs, is justified by the latter, and that the just and equitable company be wound up". the former the statute is under Now, the Vice-Chairman grossly mismanaged to be made, that by for l,iis personal purposes, the facts as found by the courts below are affairs of the Company, and had drawn considerable amounts that arrears due to the Government for supply of electric energy as on 25-6-1955 was Rs. 3,10,175-3-0, large collections the machinery was in a state of disrepair, reason of death and other causes the directorate had become greatly attenuated and "a powerful roost", and junta was ruling the group of the Chair man were apathetic and powerless set matters right. On these findings, the winding up of the Company under to direct section 162(vi), and no grounds have been shown for our interfering with their order. the shareholders outside the courts below had It was urged on behalf of the appellant responsible Vice-Chairman who was management had been (') [1924] A.G. 783, 790. removed, that as the the mis the present 2S.C.R. SUPREME COURT REPORTS 1075 to set taking steps the courts below are actively co-operated with things right and management was to put an end to the matters complained of, there was to take action under section 153-C. But the no need that the Chairman findings of the Vice himself either Chairman in various acts of misconduct and mal rate, on his administration or him, and that as the affairs of the Company where in it was neces a state of confusion and embarrassment, sary to take action under section 153-C. We are of the ~earned Judges were justified on the opinion in passing the order which they did. above findings the entire management that he had, at any showing abdicated 1955 Rajahmund1y Electrie Supply Corporation Ltd. V· A. Nageswara Rao and others Vmkatarama Ay.var J. to manage the law internal internal management. that courts will not, It was also contended instance administration, the appointment of in supersession of the directorate and administrators the Company was in them vesting power It an interference· with in general, no doubt shareholders intervene and will not matters of the management of a company by its interfere with the power directors, so long as they are acting within conferred on them under the Articles of Association. But this rule can by its very nature apply only when the company sought is a running concern, and it interfere with its affairs as a running concern. But when an application is presented to wind up a com is to put an end to its existence, pany, and for that purpose accordance with is no scope for the rule that interfere internal management. And where in matters of accordingly a case had been made out for an order for winding up under section 162, the appointment of administrators under section '153-C cannot be attacked on the ground that it is an interference with nal management of the affairs of the Company. If a Liquidator can be appointed the affairs of a 1s made under section 162, administrators could also be its management the Articles of Association and company when an order the court should not In that situation, for winding up it in the court. its very object to manage terminate 1955 Rajalzmundry Eketric Supp/;! Corporation Ltd. v. A· Nageswara Rao and others 1955 D1tnnbt' 19. 1076 SUPREME COURT REPORTS [1955] appointed to manage its affairs, when action section 153-C. This contention must ingly be rejected. accord- In the result, with costs, of the administrator will come out of the estate. the appeal fails and first respondent. The costs of is dismissed THE UNION OF INDIA v. THE COMMERCIAL TAX OFFICER, WEST BENGAL AND OTHERS (WITH CONNECTED APPEAL) [S, R. DAs, ACTING C. J., VIVIAN BosE, BHAGWATI, JAGANNADHADAS and B. P. SINHA JJ.] Sales Tax-Sale of hessian to the Ministry of Industry and Supplies of the Government of India-If exempt from payment of sales tax-Bengal Finance (Sales Tax) Act, 1941 (Bengal Act VI of 1941), s. 5(2)(•)(iii). . -Per S. R. DAs, AcTING C.J., V1v1AN BosE, BHAGWATI AND JAGANNADHADAS JJ., SINHA J. · dissenting.-The exemption created by the provisions of s. 5(2)(a)(iii) of the Bengal Finance (Sales Tax) Act of 1941 must be construed strictly and cannot be extended to sales to Government departments other than those mentioned there in. The Department of Industries and Supplies, which was subse quently rcdesignated as the Ministry of Industries and Supplies, was not ·the same as the Indian Stores Department or the Supply Dc- partmcnt of the Government. of India and~ consequently, sales _made to the Ministry of Industries and. Supplies are not exempt from pay~ ment of sales tax under that section. In a welfare State with ever expanding activities in different fields including trade and commerce, Government departments arc often entrusted with the performance of well~defined activities and are authorised to deal with the outside world and enter into transac tions in the .same way as an ordinary person or a Company may do and may well 0 be. regarded as distinct units or quasi-legal entities for µie ·purpose for which they are created. Consequently, Industries and Supplies of lant Mills were hot exempt Act and the State of West Bengal was entitled to levy the same. the. sales _of hessian made to the Ministry of the Government of India by the appel from payment of sales tax under the