Appeal No 312 of 1955
On appeal by special leave from the judgment and order dated the 19th October 1955 of the Andhra High Court at Guntur in 0
section Appeal No I of 1955 1068 arising out of the Order dated the 26th day of September 1955 of the said High Court in its Ordinary Original Civil Jurisdiction in OP No 3 of 1955
M section K Sastri for the appellant
D Narasaraju Advocate General Andhra T Anantha Babu and T V R Tatachari with him for respondent No 1 D Narasaraju Advocate General Andhra A Krishnaswami and K B Chowdhry with him for respondents Nos 2 and 3 1955
December 16
The Judgment of the Court was delivered by VENKATARAMA AYYAR J
This appeal arises out of an application filed by the first respondent under section 162 clauses v and vi of the Indian Companies Act for an order that the Rajahmundry Electric Supply Corporation Ltd be wound up
The grounds on which the relief was claimed were that the affairs of the Company were being grossly mis managed that large amounts were owing to the Government for charges for electric energy supplied by them that the directors had misappropriated the funds of the Company and that the directorate which had the majority in voting strength was riding roughshod over the rights of the shareholders
In the alternative it was prayed that action might be taken under section 153 C and appropriate orders passed to protect the rights of the shareholders
The only effective opposition to the application came from the Chairman of the Company Appanna Ranga Rao who contested it on the ground that it was the Vice Chairman Devata Ramamobanrao who was responsible for the maladministration of the Company that he had been removed from the directorate and steps were being taken to call him to account and that there was accordingly no ground either for passing an order under section 162 or for taking action under section 153 C
The learned Judge of the Andhra High Court before whom the application came up for hearing held that 1069 the charges set out therein had been substantially proved and that it was a fit case for an order for winding up being made under section 162vi
He also held that under the circumstances action could be taken under section 153 C and accordingly appointed two administrators for the management of the Company for a period of six months vesting in them all the powers of the directorate and authorising them to take the necessary steps for recovering the amounts due paying the debts and for convening a meeting of the shareholders for the purpose of ascertaining their wishes whether the administration should continue or whether a new Board of Directors should be constituted for the management of the Company
Against this order the Chairman Appanna Ranga Rao acting in the name of the Company preferred an appeal to a Bench of the Andhra High Court
The learned Judges agreed with the trial Judge that the affairs of the Company as they stood justified action being taken under section 153 C and dis missed the appeal
Against this order the Company has preferred this appeal by special leave
On behalf of the appellant it was firstly contended that the application in so far as it was laid under section 153 C was not maintainable as there was no proof that the applicant bad obtained the consent of the requisite number of shareholders as provided in sub clause 3ai to section 153 C
That clause provides that a member is entitled to apply for relief only if he has obtained the consent in writing of not less than one hundred in number of the members of the company or not less than one tenth in number of the members whichever is less
The first respondent stated in his application that he bad obtained the consent of 80 shareholders which was more than onetenth of the total number of members and had thus satisfied the condition laid down in section 153 C sub clause 3 a i
To this an objection was taken in one of the written statements filed on behalf of the respondents that out of the 80 persons who had consented to the institution of the application 13 were not share holders at all and that two members 1070 had signed twice
It was further alleged that 13 of the persons who had given their consent to the filing of the application had subsequently withdrawn their consent
In the result excluding these 28 members it was pleaded the number of persons who had consented would be reduced to 52 and therefore the condition laid down in section 153 C sub clause 3 a i was not satisfied
This point is not dealt with in the judgment of the trial court and the argument before us is that as the objection went to the root of the matter and struck at the very maintainability of the application evidence should have been taken on the matter and a finding recorded thereon
We do not find any substance in this contention
Though the objection was raised in the written statement the respondents did not press the same at the trial and the question was never argued before the trial Judge
The learned Judges before whom this contention was raised on appeal declined to entertain it as it was not pressed in the trial court and there are no grounds for permitting the appellant to raise it in this appeal
Even otherwise we are of opinion that this contention must on the allegations in the statement assuming them to be true fail on the merits
Excluding the names of the 13 persons who are stated to be not members and the two who are stated to have signed twice the number of members who had given consent to the institution of the application was 65
The number of members of the Company is stated to be 603
If therefore 65 members consented to the application in writing that would be sufficient to satisfy the condition laid down in section 153 C subclause 3a i
But it is argued that as 13 of the members who had consented to the filing of the application bad subsequent to its presentation withdrawn their consent it thereafter ceased to satisfy the requirements of the statute and was no longer maintainable
We have no hesitation in rejecting this contention
The validity of a petition must be judged on the facts as they were at the time of its presentation and a petition which was valid when 1071 presented cannot in the absence of a provision to that effect in the statute cease to be maintainable by reason of events subsequent to its presentation
In our opinion the withdrawal of consent by 13 of the members even if true cannot affect either the right of the applicant to proceed with the application or the jurisdiction of the court to dispose of it on its own merits
It was next contended that the allegations in the application were not sufficient to support a winding up order under section 162 and that therefore no action could be taken under section 153 C
We agree with the appellant that before taking action under section 153 C the court must be satisfied that circumstances exist on which an order for winding up could be made under section 162
The true scope of section 153 C is that whereas prior to its enactment the court had no option but to pass an order for winding up when the conditions mentioned in section 162 were satisfied it could now in exercise of the powers conferred by that section make an order for its management by the court with a view to its being ultimately salvaged
Where therefore the facts proved do not make out a case for winding up under section 162 no order could be passed under section 153 C
The question therefore to be determined is whether the facts found make out a case for passing a winding up order under section 162
In his application the first respondent relied on section 162 clauses v and vi for an order for winding up
Under section 162v such an order could be made if the company is unable to pay its debts
It was
alleged in the application that the arrears due to the Government on 25 6 1955 by way of charges for energy supplied by them amounted to Rs 310175 3 6
But there was no evidence that the Company was unable to pay the amount and was commercially insolvent and the learned trial Judge rightly held that section 162v was inapplicable
But he was of the opinion that on the facts established it was just and equitable to make an order for winding up under section 162vi and that view has been affirmed by the learned Judges on appeal
1072 It was argued for the appellant that the evidence only established that the Vice Chairman Devata Ramamohan Rao who had been ineffective management was guilty of misconduct and that by itself was not a sufficient ground for making an order for winding up
It was further argued that the words just and equitable in clause vi must be construed ejusdem generis with the matters mentioned in clauses i to v that mere misconduct of the directors was not a ground on which a winding up order could be made and that it was a matter of internal management for which resort must be bad to the other remedies provided in the Act
The decisions in In re Anglo Greek Steam Company1 and In re Diamond Fuel Company2 were relied on in support of this position
In In re Anglo Greek Steam Company1 it was held that the misconduct of the directors of a company was not a ground on which the court could order winding up under the just and equitable clause unless it was established that by reason of such mismanagement the company bad become insolvent
In In re Diamond Fuel Company2 it was observed by Baggallay LJ that  mere misconduct or mismanagement on the part of the directors even although it might be such as to justify a suit against them in respect of such misconduct or mismanagement is not of itself sufficient to justify a winding up order
The contention of the appellant is that as all the charges made in the application amounted only to misconduct on the part of the directors and as there was no proof that the Company was unable to pay its debts an order for winding up under section 162 could not be made
The authorities relied on by the appellant reflect the view which was at one time held in England as to the true meaning and scope of the words just and equitable in the provisions corresponding to section 162vi of the Indian Act
In Spackman s Case3 Lord Cottenham LC construed them as ejusdem 1 1866 LR 2 Eq
2  408
3 1849 1 M  G 170   1230
1073 generis with the matters mentioned in the other clauses to the section and that construction was followed in a number of cases
Vide Re Suburban Hotel Co1 In re Anglo Greek Steam Company2 Re European Life Assurance Society3 and In re Diamond Fuel Company4
But a different view came to be adopted in later decisions vide In re Amalgamated Syndicate5 and the question must now be taken to be settled by the pronouncement of the Judicial Committee in Loch vs John Blackwood Ld6 where after an elaborate review of the authorities Lord Shaw observed that   it is in accordance with the laws of England of Scotland and of Ireland that the ejusdem generis doctrine as supposed to have been laid by Lord Cottenham does not operate so as to confine the cases of winding up to those strictly analogous to the instances of the first five sub sections of section 129 of the British Act 
The law is thus stated in Halsbury s Laws of England Third Edition Volume 6 page 534 para 1035 The words just and equitable  in the enactment specifying the grounds for winding up by the court are not to be read as being ejusdem generis with the preceding words of the enactment
When once it is held that the words just and equitable are not to be construed ejusdem generis then whether mismanagement of directors is a ground for a winding up order under section 162vi becomes a question to be decided on the facts of each case
Where nothing more is established than that the directors have misappropriated the funds of the Company an order for winding up would not be just or equitable because if it is a sound concern such an order must operate harshly on the rights of the share holders
But if in addition to such misconduct circumstances exist which render it desirable in the interests of the shareholders that the Company should be wound up there is nothing in section 162vi 1 3 5 2 1866 LR 2 Eq
4  408
6   790
1074 which bars the jurisdiction of the court to make such an order
Loch vs
John Blackwood1was itself a case in which the order for winding up was asked for on the ground of mismanagement by the directors and the law was thus stated at page 788 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
Further more 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 be wound up
Now the facts as found by the courts below are that the Vice Chairman grossly mismanaged the affairs of the Company and had drawn considerable amounts for his personal purposes that arrears due to the Government for supply of electric energy as on 25 6 1955 was Rs 310175 3 6 that large collections had to be made that the machinery was in a state of disrepair that by reason of death and other causes the directorate had become greatly attenuated and a powerful local junta was ruling the roost and that the shareholders outside the group of the Chairman were apathetic and powerless to set matters right
On these findings the courts below had the power to direct the winding up of the Company under section 162vi and no grounds have been shown for our interfering with their order
It was urged on behalf of the appellant that as the Vice Chairman who was responsible for the mismanagement had been removed and the present 1   790
1075 management was taking steps to set things right and to put an end to the matters complained of there was no need to take action under section 153 C
But the findings of the courts below are that the Chairman himself either actively co operated with the ViceChairman in various acts of misconduct and maladministration or that he had at any rate on his own showing abdicated the entire management to him and that as the affairs of the Company where in a state of confusion and embarrassment it was necessary to take action under section 153 C
We are of opinion that the learned Judges were justified on the above findings in passing the order which they did
It was also contended that the appointment of administrators in supersession of the directorate and vesting power in them to manage the Company was an interference with its internal management
It is no doubt the law that courts will not in general intervene at the instance of shareholders in matters of internal administration and will not interfere with the management of a company by its directors so long as they are acting within the power conferred on them under the Articles of Association
But this rule can by its very nature apply only when the company is a running concern and it is sought to interfere with its affairs as a running concern
But when an application is presented to wind up a company its very object is to put an end to its existence and for that purpose to terminate its management in accordance with the Articles of Association and to vest it in the court
 In that situation there is no scope for the rule that the court should not interfere in matters of internal management
And where accordingly a case had been made out for an order for winding up under section 162 the appointment of administrators under section 153 C cannot be attacked on the ground that it is an interference with the internal management of the affairs of the Company
If a Liquidator can be appointed to manage the affairs of a company when an order for winding up is made under section 162 administrators could also be 136 1076 appointed to manage its affairs when action is taken under section 153 C
This contention must accordingly be rejected
In the result the appeal fails and is dismissed with costs of the first respondent
The costs of the administrator will come out of the estate


Summary:
An application was filed by the first respondent under section 162 clauses v and vi of the Indian Companies Act for the winding up of the Company on the grounds inter alia that the affairs of the Company were being mismanaged and that the directors had misappropriated the funds of the Company
In the alternative it was prayed that action might be taken under section 153 C and appropriate orders be passed to protect the interests of the shareholders
The High Court held i that the charges set out in the application bad been substantially proved and that it was a fit case for an order for winding up being made under section 162vi and ii that under the circumstances action could be taken under section 153 C and accordingly it appointed two administrators with all the powers of directors to look after the affairs of the Company
On appeal by special leave to the Supreme Court by the Company it was contended that the 1067 application under section 153 C was not maintainable inasmuch as there was no proof that the applicant had obtained the consent of requisite number of shareholders as provided in sub clause 3ai to section 153 C that clause providing that a member applying for relief must obtain the consent in writing of not less than one hundred members of the Company or not less than one tenth of the members of the Company whichever is less
It was alleged that thirteen members who had given their consent to the filing of the application had subsequently withdrawn their consent
Held that the validity of a petition must be judged on the facts as they were at the time of its presentation and a petition which was valid when presented cannot in the absence of a provision to that effect in the statute cease to be maintainable by reason of events subsequent to its presentation
The withdrawal of consent by thirteen of the members even if true could not affect either the right of the applicant to proceed with the application or the juris diction of the court to dispose of it on its own merits
Held further that before taking action under section 153 C the court must be satisfied that circumstances exist on which an order for winding up could be made under section 162 and where therefore the facts proved do not make out a case for winding up under section 162 no order can be passed under section 153 C
The words just and equitable in section 162vi are not to be construed ejusdem generis with the matters mentioned in clauses i to v of the section
If there is merely a misconduct of the directors in misappropriating the funds of the Company an order for winding up would not be just and equitable but if in addition to such misconduct circumstances exist which render it desirable in the interests of the shareholders that the Company should be wound up section 162vi would be no bar to the jurisdiction of the court to make such an order
The order for winding up was just and equitable in the cir cumstances of the present case
In re Anglo Greek Steam Company 1866 LR 2 Eq 1 In re Diamond Fuel Company 1879  Spackman s Case 1849 1 M  G 170 Be Suburban Hotel Company 1867  Be European Life Assurance Society 1869 I
R  In re Amalgamated Syndicate 1897 2 Ch
600 and Loch vs John Blackwood Ltd 1924 A C 783 790 referred to