Case Law Companies Act Petitioner Hind Overseas Private Limited Vs Raghunath Prasad Jhunjhunwalla And Anr.

Case Law Companies Act

Petitioner Hind Overseas Private Limited Vs

Raghunath Prasad Jhunjhunwalla And Anr.

 

DATE OF JUDGMENT-10/10/1975

 

BENCH: GOSWAMI, P.K.

BENCH: GOSWAMI, P.K. ALAGIRISWAMI, A. UNTWALIA, N.L.

CITATION: 1976 AIR  565             1976 SCR  (2) 226 1976 SCC  (3) 259 CITATOR INFO : MV          1983 SC  75  (82)

 

ACT: Practice-Company cases-Winding up petitions-Duty of the company Court. English decisions-Usefulness  of-Applicability to cases under the Companies Act. Winding up       of companies-The  Companies  Act  (Act  I), 1956-Sec.433(f)-Scope  of   vis-a-vis  s.   44(g)   of   the partnership Act. “Just and       equitable clause”-  Applicability in case of partnership firms in the guise of a private company.

HEADNOTE: Under s.  433(f) of  the Companies Act, 1956, a company may be  wound up  by the  Court, if  the Court is of opinion that it  is just  and equitable  that the  company should be wound up.  Section 44(g)  of the Partnership Act also speaks of the “just and equitable clause”. One RPJ agreed with VDJ and MPJ who are carrying on the business under  the name and style of “Chimanram Motilal” to start a new business of iron and steel in co-partnership and for that  purpose, an  account was  opened in  the  name  of “Raghunath Prasad  Jhunjhunwalla Ka  Sir Khata” in the books of “Chimanram  Motilal”. It  was agreed that RPJ should have 3/8th share  and VDJ with MPJ should have 5/8th share of the proposed business.  Before the  said proposed business could be started,  at the  suggestion of  VDJ, actually  a limited company was  formed in August,. 1956 under the Companies Act with the  understanding that (i) VDJ with MPJ should finance the entire business. (ii) the share in the company should be held by RPJ, VDJ and MPJ and the members of their respective families in  the proportion  of 3/8th and 5/8th as agreed to before and (iii) that RPJ and his group would generally look after the  day-to-day business  of  the  company  under  the general control  and supervision of VDJ. The nominal capital of the  company was  Rs. 5  lacs divided  into  2500  equity shares of  Rs. 100/-  each. RPJ and another ACD, an employee and nominee of VDJ, became the subscribers to the Memorandum of Association  of the  company and  also became  its  first directors. On  23-8-1956, VDJ  and  MPJ  were  appointed  as directors of  the company.  On 23-11-1957,  ACD resigned and PCJ (son of RPJ) was opted in his place. RPJ was appointed a director-in-charge of  the company and both RPJ and PCJ were paid monthly  remunerations. Following  a  family  partition between VDJ and MPJ in the year 1958, the shares of MPJ were transferred in  the name of the wife of VDJ and MPJ resigned from the  Board of  Directors on  21-1-1959. Since that date till October,  1965 the Board of Directors were RPJ. PCJ and VDJ, when  VDJ  got  his  son  VKJ  appointed  as  Technical Director of  the company. Though the business of the company was managed  by  RPJ  and  PCJ,  the  business  policy,  the appointment of staff, general supervision of the work of the business etc.,

were in  the hands of VDJ. From 1959 onwards the factory commenced its regular production and substantial profits were  made between  1960 and 1965 except in the year 1961 when there was some loss. Finding that there has been a mismanagement of affairs of RPJ and PCJ to the tune of Rs. 8 lacs the  VDJ  group  who  were  holding  the  major  shares numbering, 3125,  in order  to safeguard  their interest and the business,  called the  Board’s meeting  on 27-5-1966 and the Board  countermanded all  the previous  resolutions  and thus took  away all  the powers  of RPJ.  The  extraordinary general meeting  called on  28-5-1966 resolved to remove RPJ and PCJ  as directors  of the company and to appoint persons belonging to  VDJ’s group  as directors.  This  led  to  the filing of  an application  for winding up under s. 433(f) of the Companies  Act by  RPJ before  the company  Judge of the Calcutta High  Court contending  that the company was in the nature of a 227

partnership and is liable to be wound up in view of the loss of confidence  between the  two groups/members  and  on  the alleged ouster of RPJ group. The Petition for winding up was dismissed  by   the  company   Judge  inasmuch  as  (i)  the substratum of  the company  was not  gone; (ii) the deadlock could  be   resolved  by  the  articles;  (iii)  there  were alternative remedies  open: and (iv) lack of probity did not result in  prejudice to  the  company’s  business  affecting petitioner’s rights  as share-holder,  but only affected his right as director. The appellate Bench, however, allowed the appeal of  the respondent  RPJ and ordered the winding up of the company  in the  facts and  circumstances of  the  case, viz., impossibility  of carrying  on business  by RPJ  as  a partner, the  exclusion of  RPJ from the partnership concern and loss of mutual confidence between RPJ and VDJ group. Dismissing the appeal by certificate, the Court,

HELD: (1)  In an  application under s. 433, the company Court will  have to keep in mind the position of the company as a  whole and  the interests  of the  shareholders and see that they  do not  suffer in  a fight  for power that ensues between the  two groups.  The court  should see that a prima facie case  has been  made out  before it is admitted on the allegations in  the petition.  Even admission  of a petition which  will   lead  to   advertisement  of  the  winding  up proceedings us 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. It  is not   proper  principle  to  encourage hasty petitions  under s.  433 without  first attempting  to sort out  the dispute and controversy between the members in the domestic  forum  in  conformity  with  the  articles  of association. There  must be materials to show when “just and equitable clause” is involved, that it is just and equitable not only  to the persons applying for winding up but also to the company and to all its shareholders. [243 C-D, 240 H, 241 A]

 

(2) Section 433 of the Companies Act is modelled on the English Companies  Act. The  Indian law is developing on its own lines  and making progress of its own circle. The courts will have to adjust and adapt limit or extend the principles derived from English decisions entitled as they are to great respect, suiting  the conditions  of  our  society  and  the country  in  general,  always,  however,  with  one  primary consideration in  view that  the general  interests  of  the shareholders may  not be  readily sacrificed at the altar of squabbles of  directors of  powerful groups  for powerful to manage the company. [240A, C-D] Ramanandi Kuer v. Kalawati Kuer, (1928) PC 2, applied.

 

(3) Section  433 of  the Companies       Act, 1956, provides six recipes  so that  the company  may be  wound up  by  the court. Under  s. 433(f)  which is identical in terms with s. 222(f) of the English Act of 1948, a company may be wound up by the  court if the court is of opinion that it is just and equitable that  the company  should be  wound up.  It is now well established  that the  sixth clause,  viz.,  “just  and equitable” is not to be read as being “ejusdem generis” with the preceding  five clauses.  The just  and equitable clause leaves the  entire matter  to the  wide  and  wise  judicial discretion of  the court. The only limitations are force and the content  of the  words themselves  “just and equitable”. Section 44(g)  of the  Indian Partnership  Act also contains the words “just and equitable”. [241-B-E] Section 433(f) is to be read with s. 443(2) of the Act, which provides  that where  the petition is presented on the ground that it is just and equitable that the company should be wound  up, the  court may  refuse to  make  an  order  of winding up  if it  is of  opinion that  some other remedy is available to  the  petitioners  and  that  they  are  acting unreasonably in seeking to have the company wound up instead of pursuing that other remedy. Again under s. 307 and 398 of the Act  there are  preventive provisions  in the  Act as  a safeguard against oppression in management. These provisions also indicate that relief under s. 433(f) based on the “just and equitable” clause is in the nature of a last resort when other remedies  are not  efficacious enough  to protect  the general interests of the company. [241 E-G] 228 Madan Lal       and another v. Groin Chambers Ltd., Muzaffar Nagar and  others, [1968]  2 S.C.R.  252 and  S. P.  Jain v. Kalinga Tubes Ltd. [1965] 2 S.C.R. 720, followed.

 

(4)  In  applying       the  principles  of  dissolution  of partnership to  companies, the  following  factors  must  be present: Equal   shareholding;    complete        deadlock   in   the administration  of   the  company;   lack  of   probity  and mismanagement in  the conduct  of affairs of the company [In re Yenidje  Tobacco Co.  Ltd. 1961  2 Ch. 426]. The just and equitable clause  cannot be  invoked if  a deadlock  can  be resolved  by   the  articles  and  if  there  are  alternate remedies. (In  re Cuthbert  Cooper and  Sons Ltd.,  1937 Ch. 392). If there is no justifiable lack of confidence grounded on the conduct of the directors in the conduct of management of  the   companies  affairs  (Rajahmundry  Electric  Supply Corporation  (1955)   2  S.C.R.   1068).  These   are  sound principles  depending   upon  the  nature,  composition  and character of  the company.  The principles  are good as they are their  application in  a given  case or  in  all  cases, generally creates problems and difficulties. [233D-E; 236-D]

 

(5)  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.  When more  than one  family or several friends  and relations  together form  a company and there  is   no  right   as  such   agreed  upon  for  active participation of  members who are sought to be excluded from management the  principles  of  dissolution  of  partnership cannot be  liberally  invoked.  Besides,  it  is  only  when shareholding is  more or  less equal  and there is a case of complete 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. In  a given case  the principles of dissolution of partnership may apply squarely  if the  apparent structure of the company is not the  real structure and on piercing the veil it is found that in  reality it  is a partnership. 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 strict  jacket of an inflexible formula. [247G, D-F] In re  Cathbert Cooper  & Sons Limited, [1937] Ch. 392; and In re Yenidje Tobacco Company Limited, [1916] 2 Ch. 426, discussed. In re Ebrahimi and Westbourane Galleries Ltd. [1973] AC 360, discussed and considered. Lackh and       another v.  John Blackwood Limited [1924] AC 783, quoted with approval. Baird v.  Lees. [1924] AC 83 and D. Davis & Co. Ltd. v. Brunswick (Australia)  Ltd. and  others A.I.R.  1938 PC 114, referred to.

Rajahmundry Electric  Supply  Corporation Ltd.  v.  A. Nageswara Rao  and others[1955]  2 SCR  [1066], Mohan  Lal & Anr. v. Grain Chamber Ltd., Muzaffarnagar and others. [1968] 2 S.C.R.  252 and  S.P. Jain v. Kalinga Tubes Ltd., [1965] 2 S.C.R. 820, followed. (6) In  the present case, assuming partnership had been contemplated  the   idea  was  deliberately  abandoned;  the company was  started with  one ACD  who had no relation with MCJ group  or the  VDJ group  but an  employee of VDJ, which would negative  the idea of partnership which connotes equal status among  the partners; While it is true that a director may work  in the company on remuneration. RPJ however served like an employee on monthly salary not on his own initiative enjoying  an   equal  partner’s  freedom  and  prestige  but directly  under   the  supervision   and  control   of   VDJ acknowledging  a   status  definitely   of   a   subordinate character; The  voluntary financial  involvement of  a large stake by  VDJ carefully  thought  to  be  protected  against erosion of his interests by constant vigil on the day-to-day working does not fit in with the 229 concept of  a partnership; Even the account was being opened for the  purpose of  the formation  of the  company and  the account was  closed on  such formation.  The shareholding is between the  two family  groups, it  cannot be said that the company thereby takes the image of partnership. On the other hand,  the   fact  that   after  discussion,   the   parties deliberately abandoned  the idea  of farming  a  partnership would go  to show  that there  was no  intention to carry on business as partners. [242E-H] There   are    no        special    features   which   would unquestionably lead to the conclusion that the company is in substance a  partnership and  the  principle  of  “just  and equitable clause”  cannot be  therefore,  extended.  [242-H, 245A]

 

JUDGMENT: CIVIL APPELLATE  JURISDICTION: Civil Appeal No. 1785 of 1970. From the  Judgment       and  Order  dated  25-9-69  of  the Calcutta High Court in Appeal No.146 of 1967. S. V.  Gupte, S.  B. Mukherjee,  P. C.  Bhartari, J. B. Dadachanji and Dilip Sinha for the Appellant. A. K.  Sen, R. C. Nag, O. P. Khaitan, B. P. Maheshwari, Suresh Sethi and R. S. Agarwal for Respondents. The Judgment of the Court was delivered by

GOSWAMI, J.  This appeal  by certificate is against the common judgment  of the  Calcutta High  Court in  respect of respondents’ application for winding up and appellant’s stay application relating to the Hind Overseas Private Limited, a private limited company (briefly the company). The question  that is  raised in this appeal relates to the scope  of section  433(f) of  the  Companies  Act,  1956 (briefly the  Act) and  in particular whether the principles applicable in  the case  of dissolution of partnership could be involved in the case of the company. The allegations  in the  winding up petition before the High Court are as follows: The company  was incorporated  under the  Act in August 1956. The  nominal capital  of the company is Rs. 5,00,000/- divided into 2,500 Equity shares of Rs. 100/- each and 2,500 unclassified shares  of Rs.  100/- each,  the entire nominal capital has been issued and fully paid up. The petitioners  (respondents herein), Raghunath Prasad Jhunjhunwalla  and   his   son,   Phoolchand   Jhunjhunwalla (hereinafter  to   be  described   as  R.P.J.   and   P.C.J. respectively), and  the members  of their  family hold  1875 shares in the company and the remaining 3125 shares are held by one V. D. Jhunjhunwalla and the members of his family. In or  about the  month May,  1956, R.P.J.       and  V.  D. Jhunjhunwalla (briefly  V.D.J.) who  was  then  carrying  on business under  the name  and style  of ‘Chimanram  Motilal’ with his  cousin,  one  Mahabir  Prasad  Jhunjhunwalla  (for brevity M.P.J.)  agreed to  start a new business of iron and steel in co-partnership and for that purpose an account was 230

opened in the name of ‘Raghunath Prasad Jhunjhunwalla Ke Sir Khata’ in  the books  of ‘Chimanram Motilal’. It was further agreed between  the parties that R.P.J. would have six annas share and  V.D.J. along  with M.P.J.  ten annas share in the said proposed partnership business. Before the       said proposed  business could  be  started, V.D.J., however, changed his mind and some time in the month of June  1956, he suggested to R.P.J. that a limited company be formed,  inter alia, to carry on the business in iron and steel and the shares in the company would be held by R.P.J., V.D.J. and  M.P.J.  and  the  members  of  their  respective families in  the same  proportion as mentioned above. V.D.J. further agreed  to provide for and arrange along with M.P.J. the entire  finance that may be necessary for the purpose of the business  of the  company and R.P.J. and his group would generally look  after the day-to-day business of the company under the  general control  and supervision  of V.D.J. It is stated  in   the  petition   that  R.P.J.  in  view  of  the relationship  between  the  parties  and  having  trust  and confidence in  V.D.J. agreed  to the  said  suggestions  and accordingly the  company was  formed on  or about  August 9, 1956, under  the provisions  of the  Act. One  Anil  Chandra Dutta, an  employee and  nominee of V.D.J. along with R.P.J. became the  subscribers to  the Memorandum of Association of the company  and also  became its first directors. After its incorporation, the  company carried  on for  some  time  the business of controlled stockists of iron and steel and since the end o  the year 1958 the company carried on the business of  the  manufacture  and  supply  of  railway  sleepers  in execution of Government contracts.

On or about August 23, 1956, V.D.J. and M.P.J. were co- opted as  directors of the company. On or about November 23, 1957,  Anil   Chandra  Dutta  resigned  from  the  Board  of Directors and  P.C.J. was  co-opted as  a Director  in  this place. R.P.J.  was appointed  as Director  in-charge of  the company on  November 23,  1957 at  a monthly remuneration of Rs. 1000/-.  This remuneration was subsequently increased to Rs. 1250/- per month with effect from October 1, 1961 and he was also  granted further  allowance of Rs. 250.00 per month on account  of  maintenance  of  guest  house.  His  monthly remuneration was  again increased to Rs. 2000.00 with effect from September, 1964. The monthly remuneration of P.C.J. was initially fixed  at Rs.  750.00 per  month with  effect from October 1,  1961  and  was  subsequently  increased  to  Rs. 1500.00 from September 1, 1964. Following a  family partition between V.D.J. and M.P.J. about  the   year  1958,  the  shares  of  the  latter  were transferred in  the name  of the  wife of V.D.J. M.P.J. also resigned from the Board of Directors on or about January 31, 1959. Since  that date  and until October 1965, the Board of Directors of  the company  consisted of  R.P.J., P.C.J.  and V.D.J. In  or about  the month  of October, 1965, V.D.J. got his  son,  Vinode  Kumar  Jhunjhunwalla,  appointed  as  the Technical Director of the company. Since the       year 1958  and until  February 26, 1965, the entire business  of the company has been the manufacture and supply of 231

 

railway sleepers  in execution  of Government contracts. The business of  the company  during this period had been always managed by  R.P.J., P.C.J. under the general supervision and guidance of  V.D.J.  and  the  business  policy  was  always dictated by V.D.J. The Cashier, Manager-cum-Engineer, Munim, and Cash  Peon and  other important  Officers and  employees were always appointed by V.D.J. of his own choice and on his terms. R.P.J.  has been  acting as  the  Director-in  charge throughout since  his appointment at a Board meeting held on November 23,  1957. V.D.J.  asked  for  and  received  daily reports of the working of the factory and of the business of the company  from R.P.J. and gave detailed instructions even relating to  the daily administration. From 1959 onwards the factory commenced its regular production of railway sleepers and made substantial profits between 1960 and 1965 except in the year 1961 when there was some loss.

It is  alleged that after trying to take wrongfully and illegally full  control and management of the affairs of the company in  order to  oust R.P.J.  group, V.D.J.  ultimately succeeded in getting hold of Directors’ Minute Books and the Minute Books  of the General Meetings of the company. V.D.J. with the  help of  the members  of his group, wrongfully and illegally took  away the  keys and the other statutory books and documents  of the company from the registered office and refused R.P.J.  group any  access to  them, R.P.J.  was also assaulted by  an employee  of the company at the instance of V.D.J. and  there were  some  criminal  proceedings  against R.P.J. and  P.C.J. V.D.J.  as a Director called a meeting of the Board  on May  27, 1966,  by Notice  dated May 24, 1966. R.P.J.’s solicitors  on May  27, 1966,  sent a notice to the company and  V.D.J. calling upon them to desist from holding the meeting  which was called with a view to oust the R.P.J. group completely  from the  control and  management  of  the affairs of the company. V.D.J. group did not pay any heed to the Solicitors’ letter and passed various resolutions in the Board’s meeting  held on  May 27, 1966, whereby the previous resolutions of  the Board  were countermanded  and cancelled and R.P.J.  was deprived  of his  all lawful  authority  and powers as  a Director  including the  right to  operate  the banking account  of the  company. R.P.J. was purported to be removed from  the office  of the  Director-in-charge of  the company.  V.D.J.   group  caused   an  advertisement  to  be published in  the Vishwamitra  on or  about  May  20,  1966, intimating the  cancellation of  powers in  favour of R.P.J. V.D.J. taking advantage of the majority holding of shares by himself and  the members  of  group,  caused  to  be  issued through certain  shareholders  belonging,  to  his  group  a requisition  dated  May  28,  1966,  for  calling  an  Extra ordinary general  meeting with  a view  to remove R.P.J. and P.C.J. as  directors of  the company  and to  appoint  other persons belonging  to their  group in  their places instead. The explanatory  statement to that Notice alleged that there was a loss of about Rs. 8 lakhs in the year 1965.

It is  further alleged  that V.D.J.  with the  help  of goondas and  armed guard  took possession  of the  company’s factory and  ousted R.P.J.  and P.C.J. therefrom. It is also alleged that the liabilities of the company would exceed its assets and the same was not commercially 232 solvent. That  serious disputes  and differences  had arisen among the  shareholders of  the  company  and  there  was  a complete deadlock  in the  management of  its affairs. There was also  complete loss  of confidence  of one  group in the other.  Lastly  it  is  averred  that  the  company  was  in substance a  partnership and  it  could  not  carry  on  its business any  more and  the circumstances  would justify the dissolution of the company had it been a partnership. The  above       are  the  allegations  in  the  winding  up petition which  came up  for admission  before  the  learned Company Judge. There was a counter-affidavit filed by V.D.J. in opposing  the prayers.  We may  only note paragraph 14 of his counter-affidavit

 

“The respondent,  Raghunath  Prasad  Jhunjhunwalla was an employee of the firm of Messrs Kamlapati Motilal of Kanpur       of which  I am  the Managing Partner. Having gained confidence       as such  employee the said Raghunath Prasad Jhunjhunwalla  was taken in as a Director of the Company and  entrusted with the powers of management of the Company.  The respondents had no money to subscribe for the  shares of the Company and moneys were procured by me  to enable them to subscribe for the share of the Company. The  applicants on their own admission were in charge of the management of the affairs of the Company. While in  such  management       they  have  mismanaged  the affairs of       the Company  and misappropriated  the funds and assets       of the  company as  would appear  from  the statements made  in my  affidavit affirmed on June 16, 1966.. ”

The only  point which  appears to       have been  canvassed before the  learned  Company  Judge  and  later  before  the appellate court  was that the company was formed as a result of mutual  trust and  confidence  and  the  company  was  in substance a  partnership and,  therefore, the  principles of partnership would  be  attracted.  The  same  arguments  are pressed into  service by  the respondents  before us.  If it were  a   partnership,  says   Mr.  Sen  on  behalf  of  the respondents, on the facts and circumstances disclosed in the petition dissolution  would have  been ordered  by the court under section  44(g) of  the Partnership  Act.  A  case  for winding up has been, therefore, prima facie, made out by the respondents on  these allegations.  It is submitted that the learned  Company   Judge  committed   an  error  of  law  in dismissing the  winding up petition without admitting it and in allowing  the stay  petition of  the  company  (appellant herein) and  that the  Division Bench  in the Letters Patent Appeal was  right in  setting aside the order of the Company Judge. According to the learned Company Judge the principle of dissolution of  partnership applies  to companies  either on the ground of complete deadlock or on the ground of domestic or family  companies. A  complete deadlock, according to the learned Judge,  is where  the Board  has two real members or the ratio  of shareholding  is equal.  In  the  domestic  or family companies, says the learned Judge, courts have 233 applied  the  dissolution  of  partnership

 

principle  where shareholdings are  more or  less equal  and there is ousting not only  from management but from benefits as shareholders. Lack of  probity has  to result  in prejudice  to  company’s business,  affecting   rights  of   complaining  parties  as shareholders and  not as directors. The learned Judge relied on an English case [In re Cuthbert Cooper & Sons Limited(1)] which illustrates  that if a deadlock can be resolved by the articles there  is no deadlock to bring in winding-up and if there are  alternative remedies  the company  should not  be wound up. The learned Judge was also unable to hold that the substratum of  the  company  was  gone.  The  learned  Judge concluded as follows:- “As I    have indicated  these charges  and counter- charges raise  disputed questions       of fact  between two contesting parties       for power.  The petitioners  desire that they       should be in power and the respondents would go on  financing. This  was said to be the heart of the matter by       counsel for the respondents. This comment is not without  foundation. I am unable to hold that there is       any   mismanagement  or  misapplication  either  as regards   shareholders   or   as        regards   directors. Directors’ disputes  are not  grounds for winding up on the facts and circumstances of the present case”. According to  the learned  Judge the  case of  In re Yenidje Tobacco Company  Limited (2) and the cases following it have established that  in applying  the principles of dissolution of partnership  to  companies  the  following  factors  were important: (1)  Equal share-holding. (2)  Complete deadlock  in the  administration  of the company. (3)  Lack of    probity  and  mismanagement  in  the conduct of affairs of the company.

The  learned  Company  Judge  held  that  the  principle  in Yenidje’s case (supra) was not attracted in this case. On the other hand, according to the appellate court the principles in Yenidje’s case were to the effect that- “if a    private company  could be  fairly called  a partnership in  the guise of a private company then the things which   might  be a       ground for dissolution of a partnership will  apply also  in the  case of a private company” and  that “in  this connection deadlock is not material”. The appellate  court then  described the circumstances which according  to   Lindley  justify   the  dissolution  of  the partnership: (1)  if the  partnership agreement  is wilfully or persistently violated; 234 (2)  if one partner so behaves in matters relating to the  partnership business  that the  other partners  find  it  impossible  to  carry  on business in partnership with him; (3)  if some    partners are in effect excluded from the concern; (4)  if the  misconduct of one or more partners is such that  the mutual  confidence which must subsist in a partnership is destroyed; (5)  if  there  is  a    state  of  animosity  which precludes all reasonable    hope    of reconciliation and friendly cooperation; (6)  if it is impossible for the partners to place that confidence in each other which each has a  right  to  expect,   provided  that   the impossibility has  not  been  caused  by         the persons seeking to take advantage of if

Having noted  the  above,  the  appellate  court  held  that conditions (2), (3) and (4) were unquestionably fulfilled in this  case  and,  therefore,  allowed  the  application  and rejected the stay application. Before we       proceed further  we may  refer to  a  recent decision of  the House  of Lords  in Ebrahimi and Westbourne Galleries Ltd.  and Others  (1)  (briefly  Ebrahimi’s  case) wherein after reviewing all the earlier cases it was held as follows:- “The foundation  of it all lies in the words ‘just and equitable’  and, if  there is       any respect in which some of  the cases may be open to criticism, it is that the Courts       may sometimes  have been  too  timorous  in giving them  full force. The words are a recognition of the fact  that a  limited company  is more  than a mere legal entity,  with a  personality in  law of  its own; that there  is room  in company  law for recognition of the fact  that behind  it, or  amongst  it,  there  are individuals, with  rights, expectations  and obligation inter se  which are  not necessarily  submerged in       the company structure.       That structure  is defined  by  the Companies Act  and by  the articles  of association  by which shareholders agree to be bound. In most companies and in most contexts, this definition is sufficient and exhaustive, equally  so whether the company is large or small. The       ‘just and  equitable provision does not, as the respondents suggest, entitle one party to disregard the obligation  he assumes       by entering  a company, nor the court  to dispense  him from it. It does, as equity always does,  enable the  court to subject the exercise of  legal    rights   to   equitable considerations: considerations,  that   is,  of  a personal  character arising between  one individual  and another, which may make it unjust, or inequitable, 235 to insist       on legal  rights, or  to exercise  them in a particular way….

“The superimposition    of equitable  considerations requires something       more, which  typically may  include one, or probably more, of the following elements: (i)  an association  formed or  continued  on    the basis of         a personal  relationship, involving mutual confidence-this  element will often be found where  a pre-existing  partnership         has been converted into a limited company; (ii) an agreement,  or understanding, that all, or some (for  there may  be ‘sleeping’ members), of the  shareholders shall participate in the conduct of the business; (iii)restriction upon the transfer of the members’ interest in the company-so that if confidence is  lost,  or  one  member  is  removed from management, he  cannot take out his stake and go elsewhere.” The respondents  have laid great emphasis on the ratio of the above decision. It is true that section 222(f) of the English Companies  Act, 1948  which the  House of  Lords was considering corresponds to section 433(f) of the Act. In the above decision the House of Lords had to deal with a private limited company  consisting of three members, the petitioner therein, being one of the three. Lord Wilberforce delivering his reasoned speech has himself noted that-

“It is  a fact  of cardinal  importance that since about 1945  the business  had been  carried on  by  the appellant and  Mr. Nazar  as partners,  equally sharing the management and the profits”. It was also noticed that- “the company    made good profits, all of which were distributed as  directors’ remuneration.  No  dividends have ever       been paid,  before or after the petition was presented.” In Ebrahimi’s  case (supra) the company which was first formed by  the two  erstwhile partners,  Ebrahimi and Nazar, was joined  by Nazar’s  son,  George  Nazar,  as  the  third director  and   each  of   the  two   original  shareholders transferred to  him 100 shares so that at all material times Ebrahimi held  400 shares, Nazar 400 shares and George Nazar 200 shares.  The Nazars, father and son, thus had a majority of the  votes in  general meeting. Until the dispute all the three remained  directors. Later  on an  ordinary resolution was passed by the company in general meeting by the votes of Nazar and  George Nazar removing Ebrahimi from the office of director. That led to the petition for winding up before the court.

The following features are found in Ebrahimi’s case:- (1)  There was  a prior  partnership    between  the only two         members who  later  on  formed  the company. 236 (2)  Both the    shareholders were directors sharing the profits  equally as remuneration and  no dividends were declared. (3)  One of  the shareholders’ son acquired shares from  his   father  and  from   the   second shareholder, Ebrahimi, and joined the company as the  third shareholder-director  with         two hundred shares (one hundred from each). (4)  After that,  there was  a complete  ouster of Ebrahimi from  the management by the votes of the other two directors, father and son. (5)  Although Ebrahimi  was a    partner, Nazar  had made it perfectly  clear  that  he  did  not regard Ebrahimi as a partner but regarded him as an  employee in  repudiation of Ebrahimi’s status as well as of the relationship. (6)  Ebrahimi through    ceasing to  be  a  director lost  his  right         to  share  in  the  profits through directors’   remuneration  retaining only the         chance of  receiving dividends as a minority shareholder. Bearing in mind the above features in the case, the House of Lords allowed  the petition  for winding up by reversing the judgment of  the court  of appeal and restoring the order of Plowman, J.

None of  the parties  questions the  principles as such adumbrated by  the House of Lords in Ebrahimi’s case (supra) or even  those in  the earlier  Yenidje’s case  (supra)  and indeed these are sound principles depending upon the nature, composition and  character of  the company,  The principles, good as  they are,  their application  in a given case or in all cases, generally, creates problems and difficulties. The respondents’ counsel  is well  cognizant of  this  difficult aspect and,  therefore, rests  his argument  on the  footing that  the   company  is   in  substance  a  partnership  and necessarily, therefore,  according to him, the principles of partnership should be attracted. Before we       come to  the facts  of the  present case, we have to  deal with  the principles  of  the  Yenidje’s  case (supra) which  were the  cornerstone  of  the  arguments  on behalf of  both the parties before the Company Judge as well as the  appellate court.  Ebrahimi’s case  (supra)  was  not available to the parties at that stage. Yenidje’s case  (supra) has  acquired celebrity  and in application of  the   ratio of  that case varying shades and colour have  been sought  to be  given from  time to time in England and  appropriate  to  occasions  and  to  facts  and circumstances of cases coming before the courts. It is  not necessary for us to go over the labyrinth of cases wherein  the Yenidje’s  principle was  applied and  it will be  sufficient to  gather the  ratio from  the words of Lord Cozens-Hardy M.R. expressed in the decision itself. The learned Master  of Rolls  posed the  question thus  in  that case: “I think  it right to consider what is the precise position of  a private company such as this and in what respects it  can be  fairly called a partnership in the guise of a private company.” 237 This was  a company  of the  two shareholders  and       two directors who  had earlier traded separately but amalgamated their businesses  and formed  a private limited company. The constitution of the company was such that under its articles of association for any case of difference or dispute between the directors there was a provision for arbitration. In fact in one  of such disputes a reference was made to arbitration which  resulted  in  an  award  to  which  one  of  the  two shareholders declined  to give effect. It was proved in that case that the two directors were not on speaking terms, that the so-called  meetings of  the board  of directors had been almost a  farce or  comedy, the directors would not speak to each other on the board, and some third person had to convey communications between  them which ought to go directly from one to  the other. Under the above situation it was observed by the learned Master of Rolls as follows:

“Is it  possible to  say that    it is  not just and equitable that  that state of  things  should  not  be allowed to continue, and  that the  Court  should  not intervene       and   say  this  is  not  what  the  parties contemplated by the arrangement into which they entered ?” “Certainly, having  regard to    the fact  that  the only two directors will not speak to each other, and no business which  deserves the  name of  business in the affairs of the company  can be carried on, I think the company should  not be  allowed  to  continue.  I       have treated it  as a partnership, and under the Partnership Act of  course the  application for a dissolution would take  the       form  of  an  action;  but  this  is  not  a partnership strictly,  it is not a case in which it can be dissolved  by action.  But ought  not precisely       the same principles  to apply  to a case like this where in substance it  is a partnership in the form or the guise of a  private company  ? It  is a       private company, and there is  no way  to put  an end to the state of things which now exists except by means of a compulsory order. It has  been urged       upon us that the just and equitable clause has… been held.. not to apply except where the substratum of  the company has gone or where there is a complete deadlock.       Those are  the two  instances which are given,       but I  should be  very sorry,  so far as my individual opinion goes, to hold that they are strictly the limits       of the ‘just and equitable’ clause as found in the Companies Act”. “If ever  there was  a case of deadlock I think it exists here; but, whether it exists or not, I think the circumstances are       such that  we  ought  to  apply,  if necessary, the  analogy of       the partnership  law and to say that this company is now in a state which could not have been       contemplated by the parties when the company formed and       which ought  to be  terminated as  soon  as possible”. 238

It is  clear that although Yenidje’s case (supra) was a case of  a complete  deadlock, that was not stated to be the sole basis  for a  conclusion to  wind up  the company.  The House of  Lords  in  Ebrahmi’s  case  (supra)  approved  the decision in  Yenidje’s case  (supra). We  may also point out that the  House of  Lords  did  not  approve  of  the  undue emphasis put  on the  contractual rights  arising  from  the articles  over   the  equitable   principles,  derived  from partnership  law  in  re  Cuthbert  Cooper  &  Sons  Limited (supra). We may also refer to the Privy Council decision in Loch and Another  and John  Blackwood Limited(1), wherein section 127 of  the Companies Act, 1910, of Barbados, identical with section 433(f)  of the  Act was  considered.  Lord  Shaw  of Dunfermline quoted  in the  judgment a passage from the case of Baird v. Lees(2), which is as follows :- “I have no intention of attempting a definition of the  circumstances        which  amount   to  a   `just  and equitable’ cause.       But  I  think  I  may  say  this.  A shareholder puts  his money  into a  company on certain conditions. The  first of       them is that the business in which he  invests shall  be limited to certain definite objects. The  second is  that it shall be carried on by certain persons  elected in  a specified  way. And       the third is  that  the  business  shall  be  conducted  in accordance       with   certain  principles   of  commercial administration defined  in the  statute, which  provide some guarantee of commercial probity and efficiency. If shareholders find that these conditions or some of them are deliberately  and  consistently  violated  and   set aside by  the action  of a  member and  official of the company who wields an overwhelming voting power, and if the result       of that  is that,  for the  extrication  of their rights  as shareholders  they are deprived of the ordinary facilities which compliance with the Companies Acts would provide them with, then there does arise, in my opinion,  a situation  in which       it may  be just and equitable for the Court to wind up the company”. We may  also refer       to another  decision of  the  Privy Council in  D. Davis  & Co.  Ltd. v.  Brunswick (Australia), Ltd. and  others(3) which  was from the decision of the Full Court of the Supreme Court of New South Wales. Section 84(e) of the  New South  Wales Companies  Act (1899) also provides for winding up, inter alia, on just and equitable ground. In dealing with  that clause,  the Privy  Council  observed  as follows :- “The position    of the Court in determining whether it is  just  and  equitable  to  wind  up       the  company requires a       fair consideration of all the circumstances connected with the formation and the carrying on of the Company during the short period which had elapsed since 12th May, 1930; and the 239 common misfortune which had befallen the two shareholders in the Company  does not,  in their Lordships view, involve the consequence that  the ultimate  desires  and  hopes  of  the ordinary, shareholders  should be disregarded merely because there  is   a  strong  interest  in  favour  of  liquidation naturally felt by the holders of the preference shares”.

“Nor on  the other  hand can    any general  rule be laid down  as to  the nature of the circumstances which have to  be borne       in mind  in considering  whether the case comes within the phrase”. This Court       had to  deal with  the `just and equitable’ clause under  section 162(vi)  of the  Indian Companies Act, 1913, in  Rajahmundry Electric  supply Corporation Ltd. v. A Nageswara Rao  and  others(1)  and  the  Court  quoted  with approved the following passage in Loch’s case (supra) : “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, not 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 outvoted 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  is wound up”. Again in  Mohan  Lal  &  Anr.  v.       Grain  Chamber  Ltd. Muzaffarnagar & Ors.,

(2) this Court had held that- “Primarily the  circumstances existing at the date of the  petition must  be taken  into consideration for determining whether a case is made out for holding that it is  just and  equitable that  the company  should be wound up” (See also  Rajahmundry Electric  Supply  Corporation’s  case (supra) and S. P. Jain v. Kalinga Tubes Ltd.(3). Keeping the  ratio of  Ebrahimi’s case in the forefront of his  argument Mr.  Sen submits  that in  the present case also  there  was  a  definite  understanding  and  agreement between the  two family  groups for  equal status  and equal participation in management and, therefore, exclusion of the respondents from  the directorship is burial of mutual trust and denial  of that  relationship on which alone the company was formed  and hence  there  is  a  prima  facie  case  for admitting the petition. 240 Although the  Indian Companies  Act is  modelled on the English Companies  Act, the  Indian law is developing on its own lines.  Our law  is also  making significant progress of its own  as and when necessary. Where the words used in both the Acts are identical, the English decisions may throw good light and  reasons may  be  persuasive.  But  as  the  Privy Council observed  long ago  in Ramanandi  Kuer  v.  Kalawati Kuer(1)- “It has  often been pointed out by this Board that

where there  is a  positive  enactment  of  the  Indian legislature,  the  proper  course  is  to  examine  the language of  that statute       and to  ascertain its proper meaning-uninfluenced by any considerations derived from the previous  state of  the law  or of  the English law upon which it may have been founded.” If it  was true in the twenties it is more apposite now that the background,  conditions and  circumstances of the Indian society, the  needs and requirements of our country call for a somewhat  different treatment.  We will have to adjust and adapt, limit  or extend, the principles derived from English decisions, entitled  as they  are to  great respect, suiting the conditions  of our  society and  the country  in general always, however, with one primary consideration in view that the general interests of the shareholders may not be readily sacrificed  at  the  altar  of  squabbles  of  directors  of powerful groups for power to manage the company. When more       than  one  family  or  several  friends  and relations together  form a  company and there is no right as such agreed upon for active participation of members who are sought to  be excluded  from management,  the principles  of dissolution of  partnership  cannot  be  liberally  invoked. Besides,

it is only when share-holding is more or less equal and there  is a  case of complete 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. In  a given  case the  principles of  dissolution of partnership may  apply squarely if the apparent structure of the company  is not  the real  structure and on piercing the veil it is found that in reality it is a partnership. On the allegations and  submissions in the present case, we are not prepared to extend these principles to the present company. 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 241 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 question  that is  raised in  this appeal  is as to what is  the scope of section 433(f) of the Act. Section 483 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 counter-part, section 433 (f).  It is  now well  established that the sixth clause namely,

‘just  and equitable’  is not  to be  read as  being ejusdem generis  with the  preceding five clauses. While the five earlier  clauses prescribe  definite conditions  to  be fulfilled for  the one  or the  other to  be attracted  in a given case,  the just and equitable clause 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’. Section 433(f)  under which  this application  has been made has  to be  read with  section 443(2) of the Act. Under the latter  provision where the petition is presented on the ground that it is just and equitable that the company should be wound  up, the  court may  refuse to  make  an  order  of winding up  if it  is of  opinion that  some other remedy is available to  the  petitioners  and  that  they  are  acting unreasonably in seeking to have the company would up instead of pursuing that other remedy. Again under  sections 397       and 398 of the Act there are preventive provisions  in the  Act as  a  safeguard  against oppression in  management. These  provisions  also  indicate that relief  under section  433(f) based  on  the  just  and equitable clause  is in  the nature  of a  last resort  when other remedies  are not  efficacious enough  to protect  the general interests of the company. Coming to the present case we find that the company was formed first  with  R.P.J.  and  Anil  Chandra  Dutta.  Anil Chandra Dutta was admittedly an employee of V.D.J. and it is also claimed  that even  R.P.J. was an employee of a company in which  V.D.J. was a managing partner. Although the entire finance was to be arranged by V.D.J., it appears the company was started by the above two persons 242 with V.D.J.  remaining in the background.

Anil Chandra Dutta soon resigned  and other people came in and in 1965-66 there were 19  shareholders, nine  headed by R.P.J. and ten headed by V.D.J.,  clearly showing  two family  groups-R.P.J. group had 1875  shares and  V.D.J. group  had 3125  shares. V.D.J. stood guarantee  for bank  overdraft to  the tune  of Rs. 47 lakhs and  as the  learned Company Judge has noted the stake of the  appellant in  the company  was about Rs. 63 lakhs as opposed to  the stake  of the  respondents amounting  to Rs. 1.87 lakhs.  It is,  therefore, clear  that  R.P.J.  group’s interest in  the company  was not  of the  same magnitude as that of  the appellants.  The learned  Company Judge put the picture as follows:- “The    entire  affidavit  evidence  brings  in  the forefront two  broad features.  First, that  there       are disputes between  the petitioners       and the  respondents regarding appointment of Vinode Kumar Jhunjhunwalla and Hariram Modi.  It is  said on behalf of the petitioners that these       appointments in  breach of  articles and in breach of       the provisions  of  the  Companies  Act  are adequate grounds  for winding  up. It  is, on the other hand said       by the  respondents that  the allegations of breach of articles and provisions of the Act are denied and these       are the subject-matter of remedy by suit and are not  the subject-matter  of winding  up. The  other feature is that the respondents charge the petitioners with misappropriation.  The petitioners also charge the respondents with  having  utilised       the  funds  of  the company.” Is this  company, in  substance a partnership or in the image of  a partnership  as claimed  ? We may now address to this aspect  strenuously emphasised  by Mr.  Sen. It  as  in Ebrahimi’s  case   (supra)  there   had  been   an   earlier partnership and the partners later on formed into a company, the matter  would have  stood on a different footing. In the present case,  however, we  do not find any special features which would  unquestionably lead  to the conclusion that the company is in substance a partnership. On the other hand the following aspects are noteworthy: Assuming partnership  had been  contemplated,

the  idea was deliberately abandoned. The company was started with one Anil Chandra Dutta who  was no relation of the two families but was  an employee  of V.D.J. This would negative the idea of partnership  which  connotes  equal  status  amongst  the partners. While  it is  true that a director may work in the company on  remuneration, R.P.J.,  however, served  like  an employee  on  monthly  salary  not  on  his  own  initiative enjoying  an   equal  partner’s  freedom  and  prestige  but directly  under   the  supervision  and  control  of  V.D.J. acknowledging  a   status  definitely   of   a   subordinate character. The  voluntary financial  involvement of  a large stake by  V.D.J. carefully  sought to  be protected  against erosion of his interests by constant vigil on the day-to-day working does not fit in with the concept of a partnership. All the  above features  do not enable us to accept the submission of  the respondents that the company in this case is in substance a partnership. 243 In the  present case  there is  yet  another  important feature against  the respondents. Serious trouble apparently arose on  or about  May 23,  1966, when  a Board meeting was notified.  Prior   to  that  even  though  something  might, perhaps, be  brewing inside, but nothing came to the surface although the  respondents alleged  that V.D.J’s  son, Vinode Kumar  Jhunjhunwalla,   had  been  sent  to  the  States  at company’s expense  and was  later on,  after  completion  of education, appointed  as Technical  Director  and  that  all these were  illegal actions.  It is  significant that R.P.J. group was present in the meeting when these resolutions were passed and  they made  no grievance  at the  time about  the same. The petition for winding up was filled on June 7, 1966 and the foundation for it was laid in the solicitors’ letter to the  appellants on  May 27,  1966. That may be said to be nucleus of the dispute so far as the records show. It       is  not  a  proper  principle  to  encourage  hasty petitions of  this nature  without first  attempting to sort out the  dispute and  controversy between the members in the domestic  forum   in  conformity   with  the   articles   of association. There  must be materials to show when ‘just and equitable’ clause  is invoked, that it is just and equitable not only  to the persons applying for winding up but also to the company  and to  all its shareholders. The company court will have  to keep  in mind the position of the company as a whole and  the interests  of the  shareholders and  see that they do  not suffer in a fight for power that ensues between two groups. The cases       of small  companies  stand  on  a  different footing from  a  company  like  the  present  with  nineteen shareholders, although  apparently arrayed in two groups. It is not, prima facie, established on the allegations that the company cannot  run smoothly  in the  best interest  of  the general shareholders, including the R.P.J. group, after exit of the quondam directors. The conclusion  of the  Division Bench that the company is in  substance a  partnership venture  was  based  on  the following principal reasons:- (1)  The original  idea was to start a partnership venture and  that idea  was given  ultimately the shape of a private company

 

(2) The Sir Khata account shows that the starting on a partnership venture the parties set up a private company. (3)  The shareholding    shows division  amongst two family groups. (4)  There was  no denial  by the  appellants of a specific averment of the respondents that the company was in substance a partnership. (5)  The respondents were all along functioning as working partners         and the  respondent, V.D.J. was the financial partner. We will examine each of these reasons. 244 With regard to the first reason, the solicitors’ letter of May  27, 1966,  which is  the nucleus  of the  subsequent winding up  petition filed in court is of great significance and the  improvement in  the version  later in  the petition will lose  its importance.  It was stated in the solicitors’ letter that “some time in May 1956 it was agreed between our client Shri R. P. Jhunjhunwalla and Shri V. D. Jhunjhunwalla and Shri  Mahabir Prasad  Jhunjhunwalla to  do some  type of business in  partnership, Shri V. D. Jhunjhunwalla suggested that a  limited company should be formed in which our client could hold  shares to  the extent of -/6/- annas and Shri V. D. Jhunjhunwalla  and Shri  Mahabir Prasad  Jhunjhunwalla to the extent  of annas -/10/- and that our client would manage the business  of such  company as and when it was formed and that the  requisite finance  for the  working of the company would be  made by  Shri V. D. Jhunjhunwalla and Shri Mahabir Prasad Jhunjhunwalla.” There is  nothing in  the above  paragraph which is the corner-stone of  the plea  of partnership  in substance that there was  any  active  contemplation  about  forming  of  a partnership.  Reference   to  ‘some   type  of  business  of partnership’ is  very casual  in the  above extract.  On the other hand,  it is more reasonable to conclude that although there might  have been  discussion about  the advantages and disadvantages of  partnership vis-a-vis  a  private  limited company, no  time was lost in deciding to form a company.

If this is  the only  basis of agreement between the parties to sustain the claim, we are unable to accept the same. Regarding the  second reason,  the       Sir  Khata  account which has  been heavily relied upon to found an agreement or understanding is wholly misconceived. It merely shows that a joint account was, for the time being opened for the purpose of the  formation of  the company and the account was closed on such formation. It does not indicate any understanding as to the  right of  management of  the company by any group of shareholders. Thirdly,  because the  shareholding is between two family  groups, it  cannot  be  said  that  the  company thereby takes  the image  of partnership. On the other hand, the fact  that after  discussion, the  parties  deliberately abandoned the idea of forming a partnership would go to show that  there  was  no  intention  to  carry  on  business  as partners. Fourthly,  after going  through the correspondence it is  not possible  to say  that there was no denial of the averment  by   the  respondents  that  the  company  was  in substance a  partnership. Apart  from anything  else  it  is enough to  point out that in the letter of V.D.J. dated June 3, 1963,  the allegations  have been  clearly denied. It is, therefore, a  very weak reason to reckon. With regard to the last reason, it appears that the respondents themselves took the position  in their petition that R.P.J. was managing the affairs of  the company  under daily supervision and control of  V.D.J.   Whether  this   position  is  accepted  by  the appellants or  not, their statement in that respect gives no indication of  their right  to  manage  the  business  as  a working partner as claimed. Besides, working on remuneration by a  director is  not an  unknown feature  even in  company business and we have already adverted to the status in 245 which he  worked. Nothing, therefore, turns on this feature. All the  above reasons,  therefore, fail to convince us that the conclusion  of the Division Bench that the company is in substance a partnership, is correct. We should  observe, that nothing observed by us in this appeal may  be taken  as expression  of any  opinion on  the merits of  the allegations  and counter-allegations  of  the parties. In the  result the  appeal is  allowed with  costs. The judgment of  the Division Bench is set aside. The winding up petition stands  dismissed and  the  stay  petition  of  the appellant is allowed. S.R.

Appeal allowed. 246

Leave a Comment