1 IN THE HIGH COURT OF JUDICATURE OF BOMBAY IN THE HIGH COURT OF JUDICATURE OF BOMBAY IN THE HIGH COURT OF JUDICATURE OF BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION ORDINARY ORIGINAL CIVIL JURISDICTION ORDINARY ORIGINAL CIVIL JURISDICTION COMPANY APPEAL NO.31 OF 2007 IN COMPANY APPLICATION NO.273 OF 2005 IN COMPANY PETITION NO.48 OF 2004 Mr.Shakuntala K. Shah ..Appellant. V/s. XACA (India) Pvt.Ltd. ..Respondent. Mr.Janak Dwarkadas, Sr.Counsel alongwith Sonali Mathur & M.S.Wadia i/b. Hariani & Co. for Appellant. Mr.Sandeep Parikh a/w Mr.Santosh K. i/b. Bilawala & Co. for Respondent Nos. 1 to 7. CORAM: A.M.KHANWILKAR,J CORAM: A.M.KHANWILKAR,J CORAM: A.M.KHANWILKAR,J DATE : JANUARY 18, 2008. DATE : JANUARY 18, 2008. DATE : JANUARY 18, 2008. P.C. : P.C. : P.C. : 1. None appears for the Respondent Nos. 8 to 13 though served. Heard Counsel for the Appellant and Respondent Nos. 1 to 7. The reliefs claimed before the Lower Court in the Application filed before the Company Law Board was essentially against the Respondent No.2. As Respondent No.2 is represented by Advocate and who has agreed for final disposal of this Petition at admission stage, hearing of the Appeal is proceeded forthwith by consent. Notice to Respondent Nos. 8 to 13 is dispensed with. 2 3. This Appeal takes exception to the Judgment and Order passed by the Company Law Board dated 13th May, 2005 in Company Petition No.48 of 2004. The said decision is rendered in Company Petition filed by the Appellant, which was for following reliefs. "RELIEFS 1. The Petitioner submits that she entertains a justifiable lack of confidence in the conduct of the Respondent No.2 in view of the various acts omissions set out hereinabove. The Petitioner submits that it is not in the interest of the company that Respondent No.2 continues as Director of the Company. The Petitioner therefore submits that in view of what has been set out hereinabove, this Hon’ble Board in exercise of its powers under Sections 397,398,402 and 403 of the Companies Act be pleased to grant relief to the Petitioner by:- (a) directing the purchase of the shares of the Respondent No.2 and his group by the Petitioner and her group at a fair valuation to be made by the Auditors of the Company; (b) termination, setting aside or modification of any agreement purported to be arrived at by the Respondent No.2, on behalf of the Company with any supplier of goods; (c) that the Respondent No.2 be directed to surrender all books and papers and other documents of the Company in his possession; (d) that action be taken against Respondent No.2 under the provisions of the Companies Act, 1946 for having committed the illegalities as more particularly set out hereinabove. (e) that this Hon’ble Board take 3 or direct the Registrar of Companies to take appropriate criminal action against the Respondent No.2 for the fraud, mismanagement and the illegalities committed by the Respondent No.2. (f) for ad-interim reliefs in terms of the reliefs mentioned hereinabove; (g) for cost of these proceedings; (h) for such further and other matters for which in the opinion of this Hon’ble it is just and equitable that provision should be made. INTERIM RELIEFS 2. The Petitioner says and submits that it is in the interest of justice that pending the hearing and final disposal of his Petition, this Hon’ble Board be pleased to:- (a) appoint Mrs. Meena Shekhar Shah, daughter-in-law of the Petitioner as a Director of Company to take day to day charge of the running of the Company with the assistance of the Petitioner or on such terms and conditions as the Hon’ble Board fit and proper. (b) alongwith the Mrs.Meena S. Shah appoint an additional Director from the family of Respondent No.8 who is ready and willing to act as a full time Director alongwith the Petitioner and Mrs. Meena S.Shah. (c) that the Respondent No.2 be directed to render to the Company and to Respondent No.8 a true and fair accounts of all benefits obtained by him with the use of facilities, assets, staff and goodwill of the 1st Respondent Company. (d) that the Respondent No.2 be 4 directed to surrender to the 1st Respondent Company all books and papers and other documents of the 1st Respondent Company which are in his possession. (e) that the Respondent No.2 be restrained by an interim order and injunction from holding out as the Director, Chairman or Manager of the 1st Respondent Company or addressing any communication. (f) that the operation of the Current Accounts with Hongkong Bank at New Delhi, Bombay and Madras and Indian Overseas Bank, Madras and Bank of India at Bombay be resumed on such terms and conditions as this Hon’ble Court deems fit and proper. (g) that this Hon’ble Board take or direct the Registrar of Companies to take appropriate criminal action against the Respondent NO.2 for the fraud, mismanagement, and the illegalities committed by the Respondent No.2. (h) For such further and other reliefs as this Hon’ble Court may in its discretion think fit to grant. The Petitioner says and submits that it is in the interest of justice that the interim reliefs prayed for herein be granted. The Petitioner further says and submits that the balance of convenience is in her favour and that grave and irreparable harm, loss and injury will be caused not only to the Petitioner but also the 1st Respondent Company and its other shareholders if interim reliefs prayed for herein are not granted. The Petitioner prays for ad-interim reliefs in terms of the reliefs mentioned hereinabove. The Petitioner craves leave to add to the above grounds." 4. Although the Appellant had asked for diverse 5 reliefs, Company Law Board by the impugned Judgment and Order, however, straightaway proceeded to order that it is just and equitable to wind up the Company by resorting to Provisions of Section 433(f) of the Companies Act. Although the parties had filed extensive pleadings and documents in support of their respective cases, the Company Law Board has disposed of the proceedings, if I may say so, by a cryptic Judgment summing up the discussion and conclusion in one paragraph, which reads thus: 8. I have considered the pleading and arguments of the counsel. Even though the petition contains various allegation mostly relating to the period 1994-95 which cannot, not only be raised at this distant point of time, were not also argued by the counsel in detail. From the arguments of the learned counsel for the Petitioner, it is quite obvious that the main purpose for filing this petition is to seek an order for parting of ways. No doubt, the number of cases, especially in family companies when there are only two groups of shareholders holding equal percentage of shares, this Board has directed parting of ways. There can be a no better case than the present one for such a direction as the disputes between the parties have been going on for nearly a decade due to which the company is not doing any business and that even the stocks of the company remain unaccounted for such a long time. The relationship between the parties has strained so much that even the independent Chairman appointed by this Board sought for releasing him from the responsibility as no progress could be achieved either in finalization of accounts or in taking of inventories. Their attempt to get the disputes resolved through arbitration has not reached any finality. There is no consensus even to clear the 6 statutory liabilities like sales tax etc. However, when the respondents are not willing to part ways on the ground that the 8th respondent, forming part of the Petitioner’s group has to account for the moneys of the company before parting of ways, it would not proper to order parting of ways. The object of any order under Section 402 of the Act is to protect the interest of a company. Now the company, admittedly is defunct and the petitioners have not established that once the parting of ways takes place, the company could be revived and can be put back on rails. The circumstances of this case would indicate that there are valid grounds for seeking winding up of the company on just and equitable grounds and as such I am of the view that the provisions of the Sections 397, which are alternative to winding up cannot aid the petitioners. Accordingly, I dismiss the petition with liberty to the petitioner to invoke the provisions of Section 433(f) of the Act, if so advised." 5. In my opinion, the Company Law Board was expected to analyse the materials on record and to reach at the clear finding of fact on each of the issues raised on behalf of the Appellant. In the event, that finding was to be in favour of the Appellant, before concluding that the Company deserved to be wound up, the Company Law Board ought to have examined the possibility of some other option, such as calling upon the Respondent No.2 to make disclosure and comply with the directions of the Board to be issued in exercise of Powers under section 406 read with Schedule 11 of the Act. This 7 proposition is reinforced from the exposition of the Apex Court in M/s.World Wide Agencies Pvt.Ltd. and M/s.World Wide Agencies Pvt.Ltd. and M/s.World Wide Agencies Pvt.Ltd. and Anr. V/s. Margarat T.Desor & Ors reported in (1990) Anr. V/s. Margarat T.Desor & Ors reported in (1990) Anr. V/s. Margarat T.Desor & Ors reported in (1990) 1 Supreme Court Cases 536 1 Supreme Court Cases 536 1 Supreme Court Cases 536. In particular, paragraph-27 thereof, the Apex Court has observed that it has to be borne in mind that a discretion is conferred on the court and it is only when the court is satisfied that the facts justify the making of a winding up order on the ground that it is just and equitable that the company should be wound up, but if the court is further of the opinion that it would be a remedy worse than the disease, then the court can examine whether alternative relief by way of a direction under section 397 can be granted. 6. In the fact situation of the present case, it was open to the Company Law Board to issue direction to the Respondent No.2 to comply with the requirements and obligations, as may be required by provisions of Schedule 11 of the Act or to explore possibility of offering opportunity to the rival parties to buy out the respective shares and if that mechanism was unworkable, may have considered the issue as to whether it is just and equitable to recommend winding up of the Company as last resort. Thus understood, as the Judgment under challenge has 8 not made any effort to analyse these aspects and to consider the matter from that perspective, in such a situation, the appropriate course in my opinion, is to set aside the impugned Judgment and to relegate the parties before the Company Law Board for reconsideration of the matter afresh on its own merits, in accordance with the law. The Company Law Board shall decide the proceedings uninfluenced by any of the observations made in the impugned Judgment or for that matter present order. 7. This Appeal accordingly succeeds on the above terms. The parties shall appear before the Company Law Board on 3rd March, 2008, on which date the matter be notified for direction before the Board. The Company Law Board may then assign suitable date for proceeding as per its convenience, however, shall ensure that the proceedings are finally disposed off not later than end of July, 2008. It is once again made clear that all questions are left open. 8. Appeal disposed off accordingly. (A.M.KHANWILKAR,J) (A.M.KHANWILKAR,J) (A.M.KHANWILKAR,J)