Companies Act Case Law Severn Trent Water Purification, Inc Vs Chloro Controls (India)Private Ltd. & Anr

CASE NO.:
Appeal (civil) 1351 of 2008

PETITIONER:
SEVERN TRENT WATER PURIFICATION, INC.

RESPONDENT:
CHLORO CONTROLS (INDIA)PRIVATE LTD. & ANR.

DATE OF JUDGMENT: 18/02/2008

BENCH:
C.K. THAKKER & TARUN CHATTERJEE

JUDGMENT:
J U D G M E N T

CIVIL APPEAL No. 1351 OF 2008
(@Special Leave Petition (C) No. 6161 of 2006)
WITH
CIVIL APPEAL NO. 1353 of 2008
(@Special Leave Petition (C) Nos. 9530 of 2006)

CHLORO CONTROLS (INDIA)
PRIVATE LTD. & ANR. . . . Appellants

Versus

SEVERN TRENT WATER
PURIFICATION, INC. . . . Respondent

 

C.K. Thakker, J.

1. Leave granted.

2. Both these appeals have been
instituted against common judgment and order
passed by the Division Bench of the High Court
of Judicature at Bombay (Original Side) dated
February 20/21, 2006 in Appeal Nos. 449-450 of
2005 in Company Petition No. 857 of 2004.
First appeal has been filed by Severn Trent
Water Purification Inc. while the second appeal
is filed by Chloro Controls (India) Pvt. Ltd.
3. The facts giving rise to the present
appeals, in brief as noted by the Division
Bench of the High Court are as follows.
4. Severn Trent Water Purification Inc.,
USA (hereinafter referred to as “Severn Trent”)
filed a petition for winding up the Capital
Controls (India) Private Limited (hereinafter
referred to as ‘the Company’) on just and
equitable grounds under Section 433(f) of the
Companies Act, 1956 (hereinafter referred to as
‘the Act’). The learned Company Judge by his
order dated 21st April 2005 admitted the
company petition. Aggrieved thereby two appeals
came to be filed. One appeal (Appeal No. 449 of
2005) was filed by Chloro Controls (India)
Private Limited, which has 50% shareholding in
the company and the other appeal (Appeal No.
450 of 2005) was filed by the Company. As both
the appeals arose out of one and the same order
passed by the Company Court, the appeals were
heard together and decided by a common
judgment.
5. The petitioner set up the case in the
petition for winding up of the Company thus:
(i) Severn Trent is a Corporation organized
and existing under the laws of the State
of Pennsylvania, USA having its office
and place of business at 3000 Advance
Lane, Colmar, Pennsylvania 18915, USA.
(ii) Severn Trent was formerly known as
Capital Controls (Delaware) Company,
Inc.
(iii) In or about 1990, Severn Trent’s group
acquired Capital Controls Company, Inc.
and subsequently the name of Capital
Controls Company, Inc. was changed to
Severn Trent Water Purification, Inc.
with effect from 1st April, 2002.
(iv) On March 31, 2003, Capital Controls
(Delaware) Company Inc. amalgamated with
and merged into Severn Trent and
pursuant to the merger agreement,
Capital Controls (Delaware) Company,
Inc. went out of existence.
(v) Reference to Severn Trent includes
reference to the Capital Controls
Company, Inc. as well as Capital
Controls (Delaware) Company, Inc. and,
therefore, Severn Trent in its present
name is entitled to the rights and
benefits of the Capital Controls
(Delaware) Company, Inc. and Capital
Controls Company, Inc. and to file and
maintain the company petition.
(vi) Chloro Controls (India) Private Limited,
a company controlled by Mr. M.B. Kocha
and Capital Controls (Delaware) Company,
Inc. set up joint venture company –
Capital Controls India Private Limited
(the company) in Mumbai with the object
of manufacturing (in India) and
distributing within the geographical
boundaries of India, Nepal, Bhutan and
Afghanistan certain gas chlorination
water treatment systems and a single
product line of brine electro
chlorination system from component parts
supplied by Severn Trent. For the said
purpose, a Joint Venture Agreement was
executed by the parties on November 16,
1995.
(vii) Authorised capital of the company is
Rs.75,00,000 (Rupees seventy five lakhs)
divided into 7,50,000 equity shares of
Rs.10/- each. Severn Trent holds
3,75,000 equity shares being 50% of the
equity share capital of the company. The
other 50% of the shareholding of the
company is held by Chloro Controls
(India) Private Limited.
(viii) Chloro Controls (India) Private Limited
filed Suit No.233 of 2004 against Severn
Trent with the sole object of
circumventing the dispute resolution
provisions in the Joint Venture
Agreement entered into between the
parties.
(ix) Due to wrongful stand and intransigence
of Chloro Controls (India) Private
Limited, there was total deadlock on
joint venture and management. Despite
several meetings between the parties and
exchange of ideas aimed at resolving
differences, relations between the
parties became more and more strain.
(x) Severn Trent, therefore, terminated the
Joint Venture Agreement vide its letter
dated July 21, 2004 due to breaches
committed by Chloro Controls (India)
Private Limited and Mr. Kocha. In the
termination notice, Severn Trent called
upon Mr. Kocha to take steps for winding
up of the company.
(xi) Severn Trent had alleged that if Mr.
Kocha would be allowed to continue to
run the company, the basic substratum of
the company would be eroded and the
company could be saddled with
liabilities leading to depletion of net
worth.
(xii) The company had been incorporated in the
nature of partnership/quasi-partnership
and both parties had equal share in the
company. The parties were severely
deadlocked on several issues, there was
total break down and Severn Trent had
lost confidence in Kochas. Severn Trent
felt that the company would not return
to the normalcy or could run the
business profitability and it was just
and equitable to wind up the company.
6. Severn Trent, in Company Petition No.
857 of 2004, filed on September 22, 2004 in the
High Court of Judicature at Bombay under
Section 433 (f) of the Act sought the following
reliefs;
(a) That the Company viz., Capital Controls
India Private Limited, be wound up under
the just and equitable grounds by and
pursuant to the orders and directions of
the Hon’ble Court;
(b) That the Official Liquidator of this
Hon’ble Court be appointed as Liquidator
of all the assets, properties and affairs
of the Company with all powers and
authorities under the provisions of the
Companies Act, 1956;
(c) That pending the hearing and final
disposal of the petition, the Official
Liquidator of this Hon’ble Court be
appointed as Provisional Liquidator of all
the assets, properties and affairs of the
Company with all powers and authorities
under the provisions of the Companies Act
1 of 1956;
(d) That till such time that a Provisional
Liquidator is appointed by the Court, an
interim injunction be granted restraining
the Company and/or the Kochas from doing
the following:
1. conducting the affairs of the Company,
except by way of resolutions passed at
meetings of the Board of Directors of
the Company with the affirmative vote
of at least one direction nominated by
Severn Trent;
2. operating the Company’s bank accounts,
except as may be jointly operated with
the authorized signatory nominated by
Severn Trent;
3. dealing with any other assets, movable
or immovable of the Company and be
directed to preserve the machinery,
equipments, etc. installed;
4. entering into fresh contracts in the
name of the Company and for as
representatives of the Company;
5. making any further purchases and
payments without the consent of Severn
Trent or without approval of the Board
of Directors;
6. borrowing monies or drawing on existing
credit facilities;
7. paying Chloro Controls directors or
their family members monies allegedly
owed by the Company;
8. running the website of the Company.
(e) Till the time of appointment of the
Provisional Liquidator, Mr. Kocha may be
removed from the post of Managing Director
and committees appointed by the Board may
manage the affairs of the Company;
(f) For ad-interim reliefs in terms of prayer
(c), (d) and (e) above;
(h) For such further and other reliefs as the
nature and circumstances of the case may
require;
(i) For the costs of the petition and the
order to be made thereon.
7. The Company as well as Chloro Controls
(India) Private Limited opposed the admission
of the Company Petition. The Company objected
to the maintainability of the petition for
winding up on several grounds. It was, inter
alia, contended that (i) Severn Trent was not a
shareholder on the company’s register and,
therefore, had no standing to maintain the
petition for winding up; (ii) Capital Control
(Delaware) Corporation was the registered
holder of 50% of the equity share capital of
the Company. Merger of Capital Controls
(Delaware) Company Inc. into and with Severn
Trent was not intimated to the company prior to
the filing of Arbitration Petition No.121 of
2004 by Severn Trent under Section 9 of the
Arbitration and Conciliation Act, 1996; (iii)
at no point of time, any application for
transfer of share certificates and/or
substitution of the name of Severn Trent had
been made; (iv) the assignment of shares by the
Capital Controls (Delaware) Company, Inc. to
Severn Trent without the consent of Chloro
Controls (India) Private Limited or for that
matter of M.B. Kocha was contrary to the
Shareholders Agreement and could not be given
effect to.
8. Severn Trent filed a rejoinder
explaining its position regarding the merger.
Severn Trent annexed certain documents which in
its opinion were in the nature of merger
documents and submitted that the company as
well as Kochas had all along accepted Severn
Trent as shareholder and that there was no
‘assignment’ as contemplated under Clause 24 of
the Shareholders agreement and, therefore,
consent of Chloro Controls (India) Private
Limited or of Mr. Kocha was not required.
Severn Trent also asserted that it has stepped
into the shoes of Capital Controls (Delaware)
Company Inc. and was entitled to maintain a
petition for winding up of the Company.
9. This stand of Severn Trent was
countered by the Respondents by filing sur-
rejoinder wherein it was denied that Severn
Trent had stepped into the shoes of Capital
Controls (Delaware) Inc. The Company also
questioned legality and veracity of merger
documents that were relied upon by Severn
Trent. They contended that the petition ought
to be dismissed as there was ‘abuse of process
of law’ by Severn Trent in publishing premature
advertisement of company petition.
10. The learned Company Judge by an order
dated April 21, 2005, admitted the Company
Petition indicating prima facie, the following
grounds,
1. The shareholding of Capital Controls
(Delaware) Inc. has vested in Severn Trent
in the light of the amalgamation/merger;
2. There was no breach of shareholders
agreement since the agreement did not
prevent the merger of two companies;
3. The provisions of Section 439(4)(b) of the
Companies Act pertaining to devolution
through death of a former holder were
applicable in the present case, and
4. There was complete deadlock in the
functioning of the business of the company
because there were only two shareholders and
both the shareholders were holding 50%
equity capital. Unless both the shareholders
concur in conducting the business of the
company the business could not be proceeded
with and/or carried on and the company could
not be allowed to function and run in that
way.
11. The learned Company Judge in the light
of the above findings admitted the Company
Petition on April 21, 2005 and issued the
following directions;
(i) Petition to be admitted and
returnable on 19.8.2005.
Respondent waives service.
(ii) Petition to be advertised in Free
Press Journal, Janmabhoomi and
Maharashtra Government Gazette.
The petitioner to deposit a sum of
Rs.2,000/- in the office of the
Prothonotary and Senior Master,
High Court, Bombay for utilization
thereof to issue the advertisement
if the petitioner fails to issue
the advertisement.
12. Aggrieved by the decision of the
learned Company Judge, Chloro Controls
preferred Appeal No. 449 of 2005 while the
Company filed Appeal No. 450 of 2005. Both the
appeals were heard by a Division Bench of the
High Court of Bombay and disposed of by a
common judgment and order dated 20th/21st
February, 2006. The Division Bench set aside
the order of the Company Judge, holding that
Severn Trent is not entitled to file a petition
for winding up as a contributory, unless it is
registered as a member in the register
maintained by the company. It, however,
remitted the matter on the question of
maintainability in its capacity as a Creditor
of the Company to the Company Judge for
consideration. The Bench also observed that it
would be open to the respondents to oppose the
admission of the petition on all grounds,
including that of premature advertisement by
Severn Trent.
13. Severn Trent being dissatisfied with
order in appeal, filed Special Leave Petition
(Civil) No. 6161 of 2006 in this Court. Notice
was issued on April 13, 2006 and accepted on
Caveat by the respondents. Another Special
Leave Petition (Civil) No. 9530 of 2006 was
filed by Chloro Controls (India) against that
part of Division Bench order which left open
the issue whether Severn Trent could file
winding up petition as a Creditor and remitted
it for consideration to the learned Company
Judge. It is also aggrieved by the order passed
by the Division Bench not dismissing the
petition though Severn Trent had advertised the
Company Petition without the order of the
Company Court as required by law. In that
Special Leave Petition, notice was issued on
Aug, 22 2006 and accepted by the other side.
14. The matters appeared on Board from
time to time. The Registry was directed to
place them for final hearing and that is how,
both the matters have been placed before us.
15. We have heard the learned counsel
appearing on both the sides at considerable
length. We have also given most anxious and
thoughtful consideration to the rival
submissions. Primarily, three questions arise
for our consideration;
1. Whether a winding up petition filed by
Severn Trent is maintainable in the capacity
as a contributory?
2. Whether a winding up petition filed by
Severn Trent is maintainable in the capacity
as a creditor?
3. Whether a winding up petition filed by
Severn Trent is liable to be dismissed at
the threshold on the ground of premature
advertisement by Severn Trent without an
order of the Court as required by law?

1. Whether a winding up petition filed by
Severn Trent is maintainable in the
capacity as a contributory?
16. Before adverting to the above
question, it is necessary to keep in mind the
relevant provisions of the Act at the time
company petition was presented. Part VII of the
Act relates to ‘Winding up proceedings’.
Whereas Section 425 of the Act lays down ‘Modes
of winding up’, Section 433 enumerates
‘Circumstances in which a Company may be wound
up by Court’. The said section reads thus:
433. Circumstances in which company
may be wound up by Tribunal
A company may be wound up by the
Tribunal,
(a) if the company has, by special
resolution, resolved that the company
be wound up by the Tribunal;
(b) if default is made in delivering
the statutory report to the Registrar
or in holding the statutory meeting;
(c) if the company does not commence
its business within a year from its
incorporation, or suspends its
business for a whole year;
(d) if the number of members is
reduced, in the case of a public
company, below seven, and in the case
of a private company, below two;
(e) if the company is unable to pay
its debts;
(f) if the Tribunal is of the opinion
that it is just and equitable that the
company should be wound up;
(g) if the company has made a default
in filing with the Registrar its
balance sheet and profit and loss
account or annual return for any five
consecutive financial years;
(h) if the company has acted against
the interests of the sovereignty and
integrity of India, the security of
the State, friendly relations with
foreign States, public order, decency
or morality;
(i) if the Tribunal is of the opinion
that the company should be wound up
under the circumstances specified in
section 424G:
Provided that the Tribunal shall make
an order for winding up of a company
under clause (h) on application made
by the Central Government or a State
Government.
17. Section 439 of the Act permits
presentation of petition for winding up. It is
also an equally important provision and may be
quoted in extenso;
439. (1) An application to the Court
for the winding up of a company shall
be by petition presented, subject to
the provisions of this section,

(a) by the company; or

(b) by any creditor or creditors,
including any contingent or
prospective creditor or creditors; or

(c) by any contributory or
contributories; or

(d) by all or any of the parties
specified in clauses (a), (b) and (c),
whether together or separately; or

(e) by the Registrar; or

(f) in a case falling under section
243, by any person authorised by the
Central Government in that behalf.
(2) A secured creditor, the holder of
any debentures (including debenture
stock) whether or not any trustee or
trustees have been appointed in
respect of such and other like
debentures, and the trustee for the
holders of debentures, shall be deemed
to be creditors within the meaning of
clause (b) of sub-section (1).

(3) A contributory shall be entitled
to present a petition for winding up a
company, notwithstanding that he may
be the holder of fully paid-up shares,
or that the company may have no assets
at all, or may have no surplus assets
left for distribution among the
shareholders after the satisfaction of
its liabilities.

(4) A contributory shall not be
entitled to present a petition for
winding up a company unless-

(a) either the number of members is
reduced, in the case of a public
company, below seven, and, in the case
of a private company, below two; or

(b) the shares in respect of which he
is a contributory, or some of them,
either were originally allotted to him
or have been held by him, and
registered in his name, for at least
six months during the eighteen months
immediately before the commencement of
the winding up, or have devolved on
him through the death of a former
holder.

(5) Except in the case where he is
authorised in pursuance of clause (f)
of sub-section (1), the Registrar
shall be entitled to present a
petition for winding up a company only
on the grounds specified in clauses
(b), (c), (d), (e) and (f) of section
433;

Provided that the Registrar shall
not present a petition on the ground
specified in clause (e) aforesaid,
unless it appears to him either from
the financial condition of the company
as disclosed in its balance sheet or
from the report of a special auditor
appointed under section 233A or an
inspector appointed under section 235
or 237, that the company is unable to
pay its debts;

Provided further that the
Registrar shall obtain the previous
sanction of the Central Government to
the presentation of the petition on
any of the grounds aforesaid.

(6) The Central Government shall not
accord its sanction in pursuance of
the foregoing proviso, unless the
company has first been afforded an
opportunity of making its
representations, if any.

(7) A petition for winding up a
company on the ground specified in
clause (b) of section 433 shall not be
presented 
(a) except by the Registrar or by a
contributory; or
(b) before the expiration of fourteen
days after the last day on which the
statutory meeting referred to in
clause (b) aforesaid ought to have
been held.

(8) Before a petition for winding up a
company presented by a contingent or
prospective creditor is admitted, the
leave of the Court shall be obtained
for the admission of the petition and
such leave shall not be granted 

(a) unless, in the opinion of the
Court, there is a prima facie case for
winding up the company; and

(b) until such security for costs has
been given as the Court thinks
reasonable.

18. Section 439 has to be read with
Section 428 which defines the term
‘Contributory’. It reads thus:
428. Definitions of ‘Contributory’.
The term “contributory” means every
person liable to contribute to the
assets of a company in the event of
its being wound up, and includes the
holder of any shares which are fully
paid-up; and for the purposes of all
proceedings for determining, and all
proceedings prior to the final
determination of the persons who are
to be deemed contributories, includes
any person alleged to be a
contributory.

19. Bare reading of Section 439 makes it
clear that it is couched in positive as well as
negative words. Whereas sub-section (1) of the
said section permits the presentation of
application for winding up of a Company by any
person enlisted therein, it clarifies that the
said provision is ‘subject to the provision’ of
the said section and, hence, the entire section
has to be read with a view to consider the
right of a person presenting a petition for
winding up of a Company.
20. Sub-section (4) of Section 439 is in
negative form and declares that a contributory
shall not be entitled to present a petition
unless it is covered either by clause (a) or by
clause (b) of the said provision. As regards
shares held by the contributory, clause (b)
enacts that a contributory shall not be
entitled to present a petition for winding up
of a company unless the shares in respect of
which he is a contributory have been; (i)
originally allotted to him; or (ii) held by him
and registered in his name for at least six
months during the eighteen months immediately
before the commencement of the winding up; or
(iii) devolved on him through the death of the
former holder.
21. Section 41 of the Act defines ‘Member’
thus:
41. Definition of “member”.(1) The
subscribers of the memorandum of a
company shall be deemed to have agreed
to become members of the company, and
on its registration, shall be entered
as members in its register of members.

(2) Every other person who agrees in
writing to become a member of a
company and whose name is entered in
its register of members, shall be a
member of the company.

(3) Every person holding equity share
capital or company and whose name
is entered as beneficial owner in
the records of the depository
shall be deemed to be a members of the
concerned company.

22. Sub-section (2) of Section 41
referred to above clarifies that a person who
agrees in writing to become a Member of a
Company and whose name is entered in its
register of members, shall be a member of
the company.
23. Section 108 provides that a Company
shall not register transfer of shares unless
a proper instrument of transfer duly
stamped and executed by or on behalf of
the transferor and by or on behalf of the
transferee and specifying the name, address
and occupation, if any, of the transferee,
has been delivered to the company alongwith
necessary certificate or letter of allotment.
Section 109 deals with transfer of shares by
legal representative of deceased Member of the
Company. Section 109A relates to nomination of
shares while Section 109B provides for
transmission of shares. Section 110 requires
making of an application for registration for
transfer of shares (or other interest) of a
Member in the Company either by transferor or
by transferee. Section 111 provides legal
remedy of an appeal in case the Company refuses
to register transfer of shares or transmission
of shares by operation of law.
24. From the above scheme of the Act, it
is abundantly clear that a contributory’s right
to present a winding up petition must be one
either under clause (a) or under clause (b) of
sub-section (4) of Section 439. It is nobody’s
case that clause (a) of Section 439(4) is
attracted in the instant case. Hence, Severn
Trent can only claim the right to present a
winding up petition under clause (b) of sub-
section (4) of Section 439 of the Act. As
already seen earlier, in the following three
eventualities, a winding up petition can be
presented by a contributory;
(i) shares must have been originally
allotted to him; or
(ii) shares must have been held by him
and registered in his name for at
least six months during the eighteen
months immediately before the
commencement of the winding up
proceeding; or
(iii) shares must have devolved on him
through the death of former
shareholder.
25. Admittedly, Severn Trent is not the
original shareholder. Eventuality (i),
therefore, has no application in the present
case. Regarding eventuality (ii), it is an
admitted fact that the name of Severn Trent has
not been registered in the Register of the
Company. In the circumstances, it was contended
by the learned counsel for the Company before
the learned Company Judge, before the Division
Bench of the High Court as well as before us
that Severn Trent was not entitled to institute
a petition for winding up of the Company.
26. The counsel for the parties, in this
connection, invited our attention to numerous
foreign decisions. Probably, this is the first
case before this Court of the type and, hence,
there are no precedents covering the
controversy raised before us.
27. Before more than a century, a question
came up for consideration before an English
Court of Chancery Division in A Company, in Re,
(1894) 2 Ch 394. In that case, a petition
against the company was presented by X who was
neither an original allottee of shares nor
shares were registered in his name for a
particular period required by law. He thus
could not have presented the petition under
Section 40 of the Companies Act, 1867 (similar
to Section 439 of our Act). It was contended on
behalf of X that the Company allotted shares to
wrong persons who ought not to be allowed to
avail themselves of Section 40 of the Act. It
was submitted that in equity ‘what ought to
have been done must be taken as having been
done’, and X should be treated as original
allottee.
28. Negativing the contention and holding
the petition not maintainable, Vaughan
Williams, J. stated;
“There is an express statutory
provision as to the qualification of a
contributory to present a winding up
petition, and that cannot be modified
by saying that he ought to be in a
position in which he is not. The
provisions of sect.40 are not complied
with, and I see no reason why the
company should not set up that
defence.” (emphasis supplied)

29. In H.L. Bolton Engineering Co. Ltd.
Re., (1956) 1 All ER 799 : (1956) 2 WLR 844 :
1956 Ch 577; the Chancery Court held that
Section 224(1) of the Companies Act, 1948 was
designed to provide an ‘exhaustive list’ of
those who are entitled to present a petition
for compulsory winding-up. If the petitioner is
to qualify as a person entitled to present such
a petition, it must be on the ground that he is
a contributory at the time of presentation of
petition.
30. Relevant part of Section 224(1) reads
thus;
“(1) An application to the court for
the winding-up of a company shall be
by petition presented, subject to the
provisions of this section, either by
the company or by any creditor or
creditors (including any contingent
or prospective creditor or
creditors), contributory or
contributories, or by all or any of
those parties, together or
separately:

Provided that

(a) a contributory shall not be
entitled to present a winding-up
petition unless

(i) either the number of members is
reduced, in the case of a
private Company, below two, or,
in the case of any other
Company, below seven; or

(ii) the shares in respect of which
he is a contributory, or some
of them, either were originally
allotted to him or have been
held by him, and registered in
his name, for at least six
months during the eighteen
months before the commencement
of the winding-up, or have
devolved on him through the
death of a former holder”

31. Section 224(1) of Companies Act, 1948
is in pari materia to sub-section (4) of
Section 439 of our Act, quoted above.
32. Again, in Gattopardo, Ltd. Re, (1969)
2 All ER 344 : (1969) 1 WLR 619, a similar
question came up for consideration before a
Court of Appeal. Attention of the Court was
invited to a decision in A Company in Re, and
the observations of Vaughan Williams, J.
Quoting with approval the observations of
Vaughan Williams, Russel, L.J. stated;
“I am left with the plain language of
the section, and I find myself
entirely able to agree with the
remarks made in the course of argument
by Vaughan Williams, J. . . I echo
those words.”
(emphasis supplied)
33. In J.N. 2 Ltd., Re, (1978) 1 WLR 183 :
(1977) 3 All ER 1104, the Court highlighted the
extent and applicability of Section 224 (1) of
the Companies Act, 1948. It observed;
“There seems to be no doubt that
entry on the register is an essential
qualification for a contributory who
desires to present a petition, if he
is not the original allottee and if
the shares have not devolved on him
through the death of a former holder;
for if neither condition is satisfied,
section 224(1)(a)(ii) requires that
the shares must have been held by him
and registered in his name for at
least six months during the preceding
18 months. Plainly, if a transferee is
not and never has been on the
register, he cannot satisfy that
condition. And it would not seem to
be an answer that he ought to have
been on the register, unless, perhaps,
the company has been ordered to place
him on the register and has disobeyed
that order.
(emphasis supplied)
34. Reference was also made to leading
commentaries by well-known authors on the
subject. In Palmer’s Company Law, (24th Edn.,
Vol. I, p.1377), the learned Author stated;
“No contributory of a company is
capable of presenting a petition
unless

1. either the number of members is
reduced below two; or

2. the shares in respect of which
he is a contributory or some of them
were

(a) originally allotted to him, or

(b) have been held by him and
registered in his name for at
least six months during the
eighteen months before the
commencement of the winding
up, or

(c) have devolved upon him through
the death of a former holder
[Insolvency Act, s. 124(2)].

The object of these provisions is
to prevent a person buying shares in
order to qualify himself to wreck the
Company. “Held” means standing in the
name of the contributory petitioner.
The provisions of section 124(2) must
be applied strictly, unless, perhaps,
the company itself is in default in
allotting shares or registering a
transfer”.
(emphasis supplied)

35. Another renowned author Buckley
(Buckley on the Companies Act, 14th Edn., Vol.
I, p. 537) also considered the scope of Section
224 of the Companies Act, 1948 and stated;
“This section is apparently
exhaustive, so that a person not
within its ambit cannot petition,
unless authorized to do so by some
other enactment”.
(emphasis supplied)

36. From the above discussion, it is clear
that the provisions of the Act must be complied
with before presenting a winding up petition
under Section 439(4)(b) of the Act. If a person
intends to present a petition for winding up of
a company as a contributory, he/it has to
satisfy the Company Court that his/its case is
covered by one of the eventualities
contemplated by clause (b) of sub-section (4)
of Section 439 of the Act.
37. Let us now consider some of the
decisions referred to by the learned counsel
for Severn Trent.
38. In Bayswater Trading Co. Ltd., Re,
(1970) 1 All ER 608, a petition was presented
by an Administrator of a lady, who was a member
of the Company and whose name was struck off
from the Register. The lady was a substantial
shareholder. She died in 1964. The petitioner
was her ‘personal representative’. Considering
the provisions of Section 224(1) of the
Companies Act, 1948, the Court held that
‘personal representative’ of a shareholder was
entitled to present a petition for the winding
up of the Company, and the word ‘contributory’
should be construed accordingly. It was held
that by the Chancery Court that on a true
construction of sub-section (1) of Section 224,
the words ‘any member’ must be so construed as
to extend to the ‘personal representative’ of a
deceased member, although not on the register
of shareholders.
39. In our considered opinion, the ratio
in Bayswater Trading Co. does not help Severn
Trent. It was a case of ‘natural person’ who
was a shareholder of the Company, whose name
had been struck off which was sought to be
restored. It was not a case of ‘corporate
entity’ or ‘juristic personality’. Obviously,
therefore, in case of her death, ‘personal
representative’ could present a petition for
winding up of the Company and such right
available under sub-section (1) of Section 224
could not be denied.
40. This is clear form the observations of
Buckley, J., who after reproducing sub-section
(1) of Section 224, observed;
“There is nothing there to indicate
that a person on whom shares have
devolved on the death of a former
holder must have been registered as
the holder of those shares before he
is entitled to present a petition
under Section 224, and I think that
those words in the proviso of the sub-
section clearly indicate that a
personal representative of a deceased
shareholder is entitled to present a
petition and that the word
‘contributory’ in this sub-section
must therefore be construed in a way
so as to extend to such a personal
representative”.

41. National Bank of Greece & Athens,
South Asia v. Metliss, (1957) 3 All ER 608 :
(1957) 3 WLR 1056 : 1958 AC 509 is also
distinguishable. There, the Greek Act governing
amalgamation of Banking Companies provided that
a new Company absorbing another Company by
amalgamation would become ‘universal successor’
to the rights and liabilities in general of the
amalgamated Companies without any other
formality or act. It was, therefore, held that
the ‘universal successor’ could institute an
action or an action could be continued against
him.
“The persona of the deceased is
recognized as continued in the heir,
or, as it is otherwise expressed, he
is eadem personal cum defuncto. He is
no more to be regarded as a new party
introduced into a contract than is an
executor or administrator of a dead
man’s estate in English law”.
(per Lord Keith)
(emphasis supplied)

42. It is thus clear that the decision was
based on the Greek Law governing amalgamation
of Companies. As already adverted hereinabove,
in the instant case, neither the foreign law
was pleaded nor such evidence has been produced
to prove merger/amalgamation. But even
otherwise, in our considered opinion, Severn
Trent cannot be treated as or said to be
‘contributory’ unless and until the
requirements of law i.e. the provisions of
Section 439(4)(b) have been complied with. It
is not disputed that the name of Severn Trent
has not been registered in the Register of the
Company and hence, it cannot present a petition
for winding up of the Company in the capacity
of a contributory.
43. Toprak Enerji Sanayi A.S. v. Sale
Tilney Technology plc, (1994) 3 All ER 483 was
a case of substitution of party as plaintiff in
the place of a foreign company ceasing to exist
during the course of proceedings and was not a
case of initiating winding up proceedings. The
case in our view, therefore, is not relevant to
the controversy in present appeals.
44. Strong reliance was placed by the
learned counsel for Severn Trent on a decision
in Patent Steam Engine Company, in Re, 1878 Ch
464 in support of the contention that a
petition for winding up can be presented by a
person who is holder of a share in the Company
although his name is not entered in the
Register at the time of presentation of
petition. In that case, an order was passed by
a Court to allot forthwith to the petitioner,
certain preferential shares of the Company and
to register them as shareholders and to issue
certificates. The order was not complied with
by the Company. When a winding up petition was
presented by the petitioner, a preliminary
objection was raised by the Company that since
the petitioner could not be said to be
shareholders as their names were not
registered, they were not entitled to institute
a petition.
45. The contention was negatived and
petition was held maintainable by the Court. In
a brief order, Bacon, V.C. said:
“In my opinion the technical
objection has no weight. The
petitioner have been declared by the
Court entitled to be shareholders, and
the company have been ordered to allot
them these shares, and to register
them as shareholders in respect of
them. These orders the company have
failed to comply with, and it is only
through their default that the
petitioners’ names were not on the
register upwards of six months ago”.
(emphasis supplied)

46. In our opinion, the decision in Patent
Steam Engine Company will also not help Severn
Trent herein. Firstly, the fact-situation in
that case and in the case on hand is totally
different. There, the Court ordered the Company
to allot to the petitioners, certain specified
preferential shares and to register them as the
holders of those shares. There was non-
compliance of the order of the Court by the
Company. Based on entitlement order, the
petitioners presented a petition for winding up
of the Company which was held maintainable in
view of the fact that there was default in
carrying out the direction of the Court by the
Company. In the instant case, despite merger
and amalgamation of Capital Controls (Delaware)
Company Inc. into Severn Trent, no step has
been taken by Severn Trent for rectification of
the register and registration of shares in its
name. In our opinion, the Division Bench of the
High Court is right in observing that it cannot
be contended by Severn Trent that in view of
dispute between Severn Trent and Kochas, the
Company would not have registered shares in the
name of Severn Trent. Had Severn Trent applied
and the prayer rejected, an appropriate action
could have been taken in accordance with law.
Secondly, we have ‘some’ reservation about the
proposition of law laid down in Patent Steam
Engine Company. It is debatable whether a
direction can be issued by a Court to allot
shares or to register name of a particular
person as a share-holder. It is also doubtful
whether an objection as to maintainability of
petition can be said to be objection of a
‘technical’ nature. In fact, when Patent Steam
Engine Company was cited in Gattopardo Ltd.,
Russell, L.J. said; “I reserve for a further
occasion, consideration whether the exception
in the Patent Steam Engine case is one which is
to be supported”. Thirdly, we have already held
that to present a petition for winding up of a
Company in the capacity of a ‘contributory’,
the person must be eligible under clause (b) of
sub-section (4) of Section 439 of the Act. If
he does not fall in any of the categories
enumerated therein, he cannot present such
petition. We are, therefore, unable to persuade
ourselves that on the basis of the ratio laid
down in Patent Steam Engine Company, Severn
Trent must be held ‘contributory’ and granted
locus standi to present a petition for winding
up of the Company.
47. Severn Trent, no doubt, contended that
‘purposive construction’ should be given to the
provisions of Section 439 (4) of the Act and
Severn Trent must be treated as ‘contributory’.
It was also submitted that Severn Trent
fulfills all the requirements of Section
439(4)(b) of the Act. On March 31, 2003,
Delaware Corporation was merged into Severn
Trent. Delaware Corporation was thus ceased to
exist and the surviving Corporation, i.e.
Severn Trent came to be substituted. All assets
and liabilities of Delaware Corporation became
the assets and liabilities of Severn Trent and
Severn Trent became the ‘contributory’ within
the meaning of Section 439 (4) (b) read with
Section 428 of the Act. Severn Trent,
therefore, could present a winding up petition.
According to the learned counsel, if strict and
literal interpretation as advanced by the
Company is accepted, a corporate entity or a
juristic personality can never become a
contributory and consequently a share-holder.
It was submitted that there was total deadlock
between the two groups. It had not been
engineered by Severn Trent, but was the result
of illegal acts and wrongful deeds of the
Company and Kochas. It is, therefore,
impossible that the Company would register the
name of Severn Trent in the Register of Company
and extend Severn Trent an opportunity to
present a winding up petition against the
Company.
48. We must express our inability to
uphold the contention of learned counsel. In
our judgment, sub-section (4) of Section 439 is
a ‘self-contained Code’ as to presentation of
petition by a contributory. A person claiming
to be a contributory and presenting a petition
for winding up of a Company in that capacity
must fulfill the conditions laid down in the
said section. Moreover, as observed by us, if
there is omission, default or illegal action on
the part of the Company in not registering the
name of the contributory even though he/it can
be said to be a contributory by holding the
shares as required by clause (b) of sub-section
(4) of Section 439, the law provides a remedy.
In the instant case, however, no such course
has been adopted by Severn Trent. In the
circumstances, in our opinion, it cannot be
said that the Division Bench of the High Court
was in error in holding that Severn Trent could
not be said to be a contributory to present a
winding up petition.
49. The learned counsel for Severn Trent
finally relied upon the last part of clause (b)
of Section 439(4) contending that shareholding
of the original company (Delaware Company) had
devolved on Severn Trent through ‘death’ of
that company which was a former holder. It was
also submitted that Section 430 of the Act
enacts that if a contributory dies, his legal
representatives will become contributories.
Section 431 deals with contributories in case
of insolvency of a member. Section 432 relates
to cases of winding up of a body corporate
which is a member. The counsel urged that the
Act does not provide for a situation where a
corporate shareholder ceases to exist otherwise
than by way of winding up. It was also
submitted that Section 394(1)(b)(iv) of the Act
speaks of dissolution of a company without
winding up. In such situations, it is evident
that the successor-in-interest will be the
surviving entity and, as such, can be said to
be contributory for the purpose of presenting a
winding up petition. It was, therefore, urged
that Severn Trent must be held to be a
successor of the original allottee of shares,
i.e. Delaware Corporation and the party on whom
the shares have devolved, i.e. Severn Trent.
The situation in the present case, according to
the learned counsel, is akin to ‘civil death’
of Delaware Corporation. Since there is
‘death’ of former holder which expression would
include dissolution/winding up of a corporate
shareholder, the right to present a winding up
petition must be conceded to Severn Trent,
successor of former holder. It was submitted
that it would be incorrect to urge that the use
of expression ‘he’, ‘his’ or ‘him’ would apply
only to natural persons and not to corporate
personalities. If the said view is accepted,
winding up petition can never be filed by a
successor Company even if it holds shares
earlier held by the ‘former holder’.
50. The above argument weighed with the
learned Single Judge and he observed that
though Severn Trent was not the person who was
originally allotted shares nor its name was
registered in the register of the Company but
the expression ‘or have devolved on him through
the death of former holder’ would get attracted
inasmuch as upon merger/amalgamation of Capital
Controls (Delaware) Company, Inc. in Severn
Trent, the former Company i.e. former holder
can be said to have been met with ‘death’ and
the shares held by the said Company could be
said to have devolved on Severn Trent. If it is
so, obviously, a petition filed by Severn Trent
as a ‘contributory’ was maintainable.
51. The learned Company Judge, after
referring to Section 439(4)(d) observed as
under:
“On considering the said section as
quoted above there is no manner of
doubt that a contributory is a
shareholder of the company. In fact in
cases of amalgamation the shareholding
of erstwhile company stood
automatically transferred and vested
from the transferor company to the
transferee company and thus the
transferee company becomes the
successive holder of the said shares
by operation of law”.

52. The learned Judge proceeded to
state;
“Otherwise also prima-facie in my
opinion s.439(4)(b) does not restrict
the petitioner from filing the present
petition because it falls in the last
category i.e. ‘or have devolved on him
through the death of a formal holder’.
These words under s.439(4)(b) prima-
facie in my opinion takes into account
the situation as in the present case
whether the company has ceased to
exist by virtue of amalgamation of the
said company with the petitioner
company. The said original company has
ceased to exist and thus there is a
natural death in the eyes of law and
in view thereof by virtue of the
aforesaid words contained under
section 439(4)(b) prima-facie in my
opinion the present petition is
maintainable and the same can be
entertained”.

53. The Division Bench again considered
the matter and observed that the analogy drawn
by the learned Company Judge was not well
founded. According to the Division Bench, the
category, “or have devolved on him through the
death of former holder” would be applicable
only to personal representative in his
individual capacity and not to corporate entity
or juristic personality.
54. In paragraph 37 of the judgment, the
Division Bench of the High Court observed;
“37. We are afraid, the analogy drawn
by the learned company Judge is wholly
fallacious. The category, “or have
devolved on him through the death of
former holder” is applicable only to
personal representative of a person
holding shares in the company in his
individual capacity. The said
expression applies to devolution of
rights on the death of natural person
and has no application to a corporate
entity or the juristic person. The
submission of Mr. Shyam Divan that
these words could also be applied to
the company which has ceased to exist
like the Courts have held that the
corporate entity was liable to be
contempt jurisdiction of the Court
does not appeal us. If we accept the
reasoning of the learned Company Judge
and the submission of the learned
senior counsel for the petitioner, it
would be tampering with the plain
language used in the last category of
clause (b) of subsection (4) of
Section 439 which we cannot do”.

55. In our opinion, the Division Bench of
the High Court was right in holding that the
phrase “or have devolved on him through the
death of former holder” would apply to natural
persons who are holding shares in their
individual capacity and not to juristic
entities.
56. The word ‘death’ mentioned in a
statute normally refers to the seizing of life
of a natural person. In Stroud’s Judicial
Dictionary of Words and Phrases, (Vol. I, 6th
Edn. P.610), it is stated;
“Where ‘death’ is mentioned in a
statute, the word generally refers to
the ceasing to live of a natural
person; it will require a strong
context to make the word include the
dissolution of an artificial entity,
e.g. a partnership or a Company”.

57. In Stewart v. Brown, 35 SLR 828, the
Court held that it was invited to interpret the
words ‘deceased debtor’ as being equivalent to
‘dissolved company’ and the word ‘death’ as
being equivalent to ‘dissolution of
partnership’. The Court further held that such
interpretation could not be given.
58. Lord M’Laron said;
“I am not sure that I understand the
theory or principle of construction
under which the suggested readings are
admissible; but I think it must be a
theory in which fancy takes the place
of logic, and in which the question
proposed is, how the statute is to be
made to fit the case, and not whether
the conditions of the case fit the
statute”. (emphasis supplied)
59. In the context of Company Law, winding
up of a body corporate is not the same thing as
or equivalent to death of a member. An
individual and a body corporate expressly have
been treated separately which is clear from
Sections 430, 431 and 432 of the Act. Under
the scheme of the Act, every creditor may
present a petition for winding up of a company,
but every contributory cannot. A contributory
to be eligible and qualified to present a
winding up petition must be covered by sub-
section (4) of Section 439 of the Act and the
Legislature, in its wisdom, excluded certain
categories of persons from being entitled to
present a petition for winding up as
contributory. As already held by us earlier,
the provision is exhaustive in nature and its
sweep cannot be extended by judicial
interpretation. Upholding of argument of Severn
Trent and conceding the right to present a
petition for winding up of a Company though it
cannot be said to be a contributory would, in
our judgment, result in re-writing of the
provision. A Court of law cannot adopt a
construction which would result in amendment of
a statute. The contention of the learned
counsel for Severn Trent, therefore, must be
rejected.
60. A decision of this Court in M/s World
Wide Agencies Pvt. Ltd. & Anr. v. Margaratt.
Desor & Ors. (1990) 1 SCC 536 has no
application to the facts of the case. It was
not a case of corporate personality, but of an
individual shareholder and a claim was based by
a legal representative of the member.
61. Saraswati Industrial Syndicate Ltd. v.
Commissioner of Income Tax, 1990 Supp SCC 675
also does not carry the case of Severn Trent
further. In that case, the question before the
Court did not relate to locus of the petitioner
to present a petition for winding up of a
company as a contributory.
62. Dr. Saibaba v. Bar Council of India &
Anr., (2003) 6 SCC 186 and Union of India v.
Rajiv Kumar, (2003) 6 SCC 516 lay down
principles of interpretation of statutes. These
principles are well-known and the learned
counsel for the Company did not dispute them.
They are, however, not applicable to the facts
of the case.
63. For the aforesaid reasons, we
answer question No.1 in the negative and hold
that a winding up petition filed by Severn
Trent in the capacity as a contributory is not
maintainable.
2. Whether a winding up petition filed by
Severn Trent is maintainable in the
capacity as a creditor?
64. So far as second question is
concerned, reading of the order passed by the
learned Company Judge makes it clear that no
such argument was raised on behalf of Severn
Trent presumably because there was no occasion
for such argument inasmuch as according to the
learned Company Judge, Severn Trent could be
said to be a ‘contributory’ within the meaning
of Section 439 (4)(b) of the Act and a petition
presented by Severn Trent in that capacity was
tenable. Since the order passed by the Company
Judge was challenged by the Company before the
Division Bench and the Division Bench upheld
the objection of the Company and reached a
conclusion that the learned Company Judge was
wrong in treating Severn Trent as
‘contributory’ and granting it locus to present
a petition for winding up of Company, that an
alternative argument was raised on behalf of
Severn Trent that Severn Trent was also a
Creditor of the Company and in that capacity
i.e. in the capacity of a Creditor, the
petition for winding up of the Company was
maintainable.
65. The Division Bench considered the
alternative contention and in paragraph 54,
observed;
“54. This aspect was not canvassed by
the petitioner before the learned
Company Judge in response to the
preliminary objection raised by the
appellants that the company petition
was not maintainable and, therefore,
not considered by the learned Company
Judge. We are of the view that this
aspect has to be considered by the
learned Company Judge before admitting
the petition for winding up on the
just and equitable grounds in the
capacity as creditor. In so far as the
reasons that have been indicated by
the learned Company judge for
admitting the petition are concerned,
we find these reasons unsustainable.
As already held by us, the petition
for winding up order as a contributory
under Section 433(f) read with Section
439(4)(b) of the Companies Act, 1956
is not maintainable. Until the
petition is legally maintainable, the
issue of deadlock in the company pales
into insignificance”.

66. It was contended on behalf of the
Company that the Division Bench has committed
an error of law in observing that the petition
filed by Severn Trent was maintainable in the
capacity as a Creditor of the Company and in
remitting the matter before the Company Judge.
It was submitted that looking to the company
petition in its entirety and also the grounds
and prayers, it is clear that the petition was
not presented by Severn Trent as ‘Creditor’ of
the Company but as a ‘Contributory’. The
contention as to ‘Creditor’ was raised
belatedly for the first time in argument before
the Division Bench which was an afterthought.
This is apparent from the observations of the
Division Bench in the impugned order in para 54
extracted earlier. It was, therefore, submitted
that no such argument could have been permitted
and to that extent, the order passed by the
Division Bench of the High Court deserves to be
interfered with.
67. We have given anxious consideration to
the above submission. In our opinion, however,
it cannot be said that the Division Bench was
in error in passing the impugned order and
remitting the matter to the learned Company
Judge to consider the question as to
maintainability of company petition filed by
Severn Trent as a Creditor of the Company. In
this connection, our attention has been invited
by the learned counsel for Severn Trent to the
company petition. In para 16 of the petition,
it was stated by Severn Trent that it was also
a Creditor of the Company and ‘admitted sums
owed by the Company to Severn Trent’ had not
been paid. It was further stated that the Board
of Directors of the Company and the Managing
Director had acknowledged the Company’s
liability to Severn Trent in various
communications and Board Meetings. It was
further stated that in the circumstances,
Severn Trent was constrained to issue legal
notice on August 4, 2004 demanding payment of
all outstanding dues. A copy of the demand
notice was also annexed to the company
petition. According to Severn Trent, total
amount due and payable by the Company to Severn
Trent as on July 31, 2004 came to US $
575113.29. In ground (i) also, it was the case
of the Company that there was intentional
refusal by Mr. Kocha to allow the Company to
pay its admitted debts to Severn Trent. In
paragraph 41, it was stated by Severn Trent
that it was just, equitable, necessary and in
the interest of justice and ‘in order to secure
the dues of the petitioner that Provisional
Liquidator should be appointed’.
68. It is thus clear that though the case
put forward by Severn Trent in the winding up
petition was as a ‘contributory’, the factum of
the Company being Debtor and Severn Trent being
Creditor and in spite of dues being admitted by
the Company, there was non payment on the part
of the Company had been mentioned in the
petition. The learned counsel for Severn Trent
appears to be right that in view of the finding
by the learned Company Judge that the petition
instituted by Severn Trent as a ‘contributory’
was maintainable, it was no more necessary for
the learned Company Judge to consider the
question whether the company petition filed by
Severn Trent was maintainable in the capacity
as a Creditor.
69. It was then contended by the learned
counsel for the Company that the ground for
winding up of Company under clause (f) of
Section 433 was not available to Severn Trent
in case it had presented a petition as a
Creditor of the Company. In this connection,
our attention was invited to certain decisions.
In our opinion, it would not be appropriate to
express any opinion one way or the other since
we are of the view that the Division Bench of
the High Court was not wrong in allowing Severn
Trent to argue that point before the learned
Company Judge as that point did not arise
before him earlier. We may, however, hasten to
add that we may not be understood to have
recorded a finding that the petition presented
by Severn Trent is maintainable. We clarify
that as and when the matter will be taken up by
the learned Company Judge, it will be open to
the Company to raise a contention that no such
petition as presented is maintainable in the
capacity as a Creditor.
70. Question No. 2 is answered
accordingly.
3. Whether a winding up petition filed by
Severn Trent is liable to be dismissed at
the threshold on the ground of premature
advertisement by Severn Trent without the
order of the Court as required by law?

71. So far as the third question is
concerned, neither the learned Company Judge,
nor the Division Bench has decided it. Before
the learned Company Judge, no such contention
appears to have been advanced by the Company.
Before the Division Bench, it was argued that
since there was premature advertisement by the
Severn Trent without any order from the Company
Court, there was ‘abuse of process of the
Court’ by Severn Trent and the petition was
liable to be dismissed only on that ground.
Before us also, the above contention was
reiterated by the learned counsel for the
Company and in support thereof, case-law has
been cited. The learned counsel for the Severn
Trent, however, submitted that the
advertisement was qualified, carefully worded
and the facts stated therein were accurate. It
was essentially a notice to creditors,
contributories and other persons intimating
about presenting of winding up petition and
there was no mala fide intention or oblique
motive in issuing the advertisement. We may
only state that since the Division Bench of the
High Court has remitted the matter to the
learned Company Judge and granted liberty to
the Company to oppose admission of the Company
petition on all available grounds including the
ground of ‘premature advertisement’, we need
not express any opinion one way or the other.
As observed by the Division Bench of the High
Court, at the time the company petition will be
taken up by the Company Judge for admission, it
will be open to the Company or contesting
respondent to oppose the admission on all
grounds available.
72. Question No. 3 is answered
accordingly.
73. For the aforesaid reasons, the appeal
filed by Seven Trent Water Purification Inc.
petitioner of the company petition, deserves to
be dismissed and is hereby dismissed. So far as
the appeal filed by the Chloro Controls (India)
is concerned, it is disposed of in the light of
the observations made in the judgment.
74. On the facts and in the circumstances
of the case, all the parties are directed to
bear their own costs.

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