1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORIGINAL SIDE APPEAL APPEAL APPEAL NO.449 OF 2005 NO.449 OF 2005 NO.449 OF 2005 IN IN IN COMPANY COMPANY COMPANY PETITION NO.857 OF 2004 PETITION NO.857 OF 2004 PETITION NO.857 OF 2004 Chloro Controls (India) Pvt.Ltd. 15/AJ, Laxmi Industrial Estate, Link Road, Andheri (West), Mumbai 400 053. Appellant (original Respondent) versus 1. Severn Trent Water Purification Inc., formerly known as Capital Controls Company, Inc., having its principal office at 3000 Advance Lane, Colmar, Pennsylvania 18915, USA. Respondent No.1 (Original Petitioner) 2. Capital Controls India Pvt.Ltd. having their office at 15/AJ, Laxmi Industrial Estate, Link Road, Andheri (West), Mumbai-400 053. Respondent No.2 (original Respondent) Mr.S.H.Doctor with Mr.D.D.Madon, Senior Advocates and Mr.N.A.Agarwal i/b.M/s.B. Munim & Co. for the appellant. Mr.Shyam A.Divan, Senior Advocate with Mr.Prashant Bhagwati i/b.Mr.Shrawan Shah for the respondents. ALONG ALONG ALONG WITH WITH WITH APPEAL APPEAL APPEAL NO.450 OF 2005 NO.450 OF 2005 NO.450 OF 2005 IN IN IN COMPANY COMPANY COMPANY PETITION NO.857 OF 2004 PETITION NO.857 OF 2004 PETITION NO.857 OF 2004 Capital Controls India Pvt.Ltd. 15/AJ, Laxmi Industrial Estate, Link Road, Andheri (West), Mumbai-400 053. Appellant (original Respondent) versus 2 1. Severn Trent Water Purification Inc., a Corporation organised and existing under the laws of the State of Pennsylvania, United States of America, having its principal office at 3000 Advance Lane, Colmar, Pennsylvania 18915, USA. Respondent No.1 (original Petitioner) 2. Chloro Controls (India) Pvt.Ltd. 15/AJ, Laxmi Industrial Estate, Link Road, Andheri (West), Mumbai 400 053. Respondent No.2 (original Respondent No.1) Mr.Pratik Sakseria with Mr.A.S.Kamat i/b.M/s.V.Deshpande & Co. for the appellant. Ms.Rajani Iyer with Mr.Prashant Bhagwati i/b.Mr.Shrawan Shah for the respondent. CORAM : R.M. LODHA & ANOOP V. MOHTA, JJ. DATED : 20th/21st February 2006 ORAL JUDGMENT (Per R.M.Lodha,J.) Severn Trent Water Purification Inc., USA (hereinafter referred to as "the petitioner") 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. The learned Company Judge by his order dated 21st April 2005 admitted the company petition. Aggrieved thereby two appeals have been filed. One appeal (449/2005) is by Chloro Controls (India) Private Limited, which has 50% shareholding in 3 the company and the other appeal (450/2005) is at the instance of the Company. As both the appeals arise out of the common order, we heard these appeals together and by this common order dispose of them. 2. The petitioner set up the case in the petition for winding up thus: (i) The petitioner 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) The petitioner was formerly known as Capital Controls Company, Inc. (iii) In or about the year 1990, the petitioner’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. merged with and into the petitioner and pursuant to the merger Capital Controls (Delaware) Company, Inc. went out of existence. 4 (v) That the reference to the petitioner includes reference to the Capital Controls Company, Inc. as well as Capital Controls (Delaware) Company, Inc. and, therefore, the petitioner 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) The 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 systems from component parts supplied by the petitioner. (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. The petitioner holds 3,75,000 equity shares being 50% of the equity share capital of the company. The other 50% of the shareholder of the company is Chloro Controls (India) Private Limited. 5 (viii) Chloro Controls (India) Private Limited has filed Suit No.233/2004 with the object of circumventing the dispute resolution provisions in the joint venture agreement entered into between the parties. (ix) That due to the wrongful stand and intransigence of Chloro Controls (India) Private Limited, the parties have deadlocked on several joint venture and management issues and despite several meetings between the parties and exchange of idea aimed at resolving differences, relations between the parties have become more strange. (x) The petitioner has terminated the joint venture agreement vide its letter dated July 21, 2004 due to the breaches committed by Chloro Controls (India) Private Limited and Mr.M.M.Kocha and in the termination notice called upon Mr.Kocha to initiate winding up of the company. (xi) If Mr.Kocha is allowed to continue to run the company, the basic substratum of the company will be eroded and the company could inter alia be saddled with liabilities leading to depletion of net worth, third party claims. 6 (xii) The company has been incorporated in the nature of partnership and both parties have equal share in the company, the parties are severely deadlocked on several issues and the petitioner has lost confidence in the Kochas and do not believe that they will return the company to profitability and, therefore, it was just and equitable to wind up the company. 3. The company as well as Chloro Controls (India) Private Limited opposed the admission of the company petition by filing reply affidavits. The company objected to the maintainability of the petition for winding up on the ground that the petitioner was not a shareholder on the company’s register and, therefore, has no standing to maintain the petition for winding up. The company stated that Capital Control (Delaware) Corporation is the registered holder of 50% of the equity share capital of the company. It is stated that the merger of Capital Controls (Delaware) Company Inc. into and with the petitioner was not intimated to the company prior to the filing of Arbitration Petition No.121/2004 by the petitioner under Section 9 of the Arbitration and Conciliation Act, 1996. That at no point of time until the date any application for mutation of share certificates and/or substitution of the name of the petitioner had been made. The objection was also set up that the assignment of shares by the 7 Capital Controls (Delaware) Company, Inc. to the petitioner 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. 4. The petitioner filed its rejoinder on 4th December 2004 and explained its position regarding the merger. The petitioner annexed certain documents which in its opinion were the merger documents and submitted that the company as well as the Kochas had all along accepted the petitioner 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 M.B.Kocha was not required. The petitioner, in the rejoinder, asserted that it has stepped into the shoes of Capital Controls (Delaware) Company Inc. and entitled to maintain the petition for winding up. 5. On 3rd February, 2005 sur-rejoinder was filed on behalf of the company and it was denied that the petitioner 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 the petitioner. 8 6. The learned Company Judge admitted the Company Petition indicating prima facie, the reasons; (one) that the shareholding of Capital Controls (Delaware) Inc. has vested in the petitioner in the light of the amalgamation/merger; (two) that there was no breach of shareholders agreement since the agreement did not prevent the merger of two companies; (three) that 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 (four) that there was complete deadlock in the functioning of the business of the company because there are only two shareholders and both the shareholders are holding 50% equity capital; unless both the shareholders concur in conducting the business of the company the business cannot be proceeded with and/or carried on and the company cannot be allowed to function and run in that way. 7. The learned senior counsel for the parties argued the appeal at great length. We wondered if it was really necessary as the appeal arose out of an order of admission of winding up petition and the main issue for our consideration was the standing of the petitioner in maintaining the petition for winding up order. 8. Mr.S.H.Doctor and Mr.D.D.Madon, the learned senior 9 counsel for the appellant-Chloro Controls (India) Private Limited in Appeal No.449/2005 made the following submissions: (a) The petition for winding up the company was not maintainable at the instance of the petitioner because the petitioner is not registered shareholder of the company. (b) The petition is an abuse of process as before the petition came to be admitted by the Court, the petitioner issued premature advertisement on 18th December 2004. (c) In the light of the order passed by the learned Single Judge on 23rd December, 2004 in the Suit filed by the appellant and the order of the Appeal Bench on 15th February, 2005, the issue of deadlock and the alleged breaches on the basis of which the company petition is filed being squarely an issue in the previously instituted Suit by the appellant, the order of admission of the company petition ought not to have been passed. (d) The appropriate remedy for the redressal of the grievance raised in the petition lies under Sections 397 and 398 of the Companies Act and since the alternate remedy is available to he petitioner, the petition for 10 winding up was liable to be dismissed. (e) If at all there is any deadlock in the company, it is caused by the petitioner and the petitioner cannot be permitted to seek advantage of its own wrong. (f) The Power of Attorney dated 15th March, 2004 does not grant any specific power to institute winding up petition and, therefore, the winding up petition has been filed without authority. (g) The petition for winding up is malafide to enable the petitioner to conduct competing business in breach of negative convenants of joint venture agreements. 9. Mr.Shyam Divan, the learned senior counsel for the respondent, on the other hand, supported the order of the learned Company Judge and submitted that prima facie consideration of the matter by the learned Single Judge needs no interference. He would submit that the petition to wind up the company has been filed on just and equitable grounds in two capacities i.e. as a ‘creditor’ under Section 439(1)(b) and as a ‘contributory’ under Section 439(1)(c) of the Companies Act. Mr.Shyam Divan submitted that Section 428 defines ‘contributory’ and the petitioner falls within the ambit of the definition of the contributory. He invited our 11 attention to the following facts: that the Capital Controls (Delaware) Company Inc. is a part of Severn Trent Group of Companies; that the Capital Controls (Delaware) Company Inc. is the registered and beneficiary holder of 3,75,000 equity share capital of the company, that the company was incorporated in the implementation of the joint venture agreement dated 16th November 1995; that Chloro Controls (India) Private Limited and Capital Controls (Delaware) Company Inc. are joint venture partners in the joint venture company; that the purpose of formation of the company was to fuse and pool together the resources, technology and business of Seven Trent and the Kocha family; that the 50% shareholding of the company is held by Severn Trent through Capital Controls (Delaware) Company Inc. and the balance shareholding of 50% is held by Chloro Controls (India) Private Limited; that before and after the merger of Capital Controls (Delaware) Company Inc. into the petitioner, the directors belonging to Severn Trent have been attending the Board meetings of the company and referred to as Severn Trent directors and not as directors nominated by Capital Controls (Delaware) Company Inc., and that the company has projected on its letterheads that it is a part of Seven Trend Group. The learned senior counsel submitted that from these facts, it would be apparent that the petitioner has right to maintain the petition. He 12 submitted that Capital Controls (Delaware) Company Inc. has merged with and into the petitioner and that the petitioner has stepped into the shoes of Capital Controls (Delaware) Inc. The learned senior counsel submitted that the petitioner is the holder of shares which are fully paid up and as a holder of shares, even if the petitioner is not a member, it has locus standi to maintain the petition for winding up. Mr.Shyam Divan would submit that in order to be considered a contributory, it is not necessary that the petitioner’s name should appear on the Register of Members of the company. He also contended that the petitioner’s entitlement to shares does not arise from a transfer in terms of Section 108 of the Companies Act, 1956. In contradistinction to a ‘transfer’ in the present case, the situation is akin to the legal representative of the dead natural person being recognized by the company and since Capital Controls (Delaware) Inc. has ceased to exist as an entity and the petitioner is the successor entity, it is entitled to maintain the company petition for winding up. Mr.Divan submitted that corporate veil can always be lifted by the Court in appropriate situation and in this case it was clear that Capital Controls (Delaware) Company Inc. was exactly the same as the petitioner inasmuch as it represented the Severn Trent Group. He would submit that the petitioner also fulfils the requirement of Section 439(4)(b) and the 13 petitioner ought to be considered as a successor of the allottee and the party on whom the shares have devolved and in that situation, the requirement of holding the shares for minimum period would not apply. 10. Mr.Shyam Divan, the learned senior counsel for the petitioner also submitted that there are averments in the petition that the petitioner is a creditor of the company and as on 31st July 2004, the total amount due from the company to the petitioner was US $ 575,113.29. As a creditor, therefore, the petitioner has locus standi to maintain the petition. He would submit that a creditor is entitled to file petition on the just and equitable grounds to wind up the company, particularly where there is loss of substratum. According to him, the joint venture agreement having been terminated, the function of the joint venture company has disappeared and substratum of the joint venture company no longer exists. 11. In response to the argument of the learned senior counsel for the appellant that prior to admission of the company petition, public notice dated 18th December 2004 was issued by the petitioner which was an abuse of process of Court, Mr.Shyam Divan submitted that the facts stated in the public notice being accurate, there was no abuse of process and in the facts and 14 circumstances of the case, the public notice was justified. 12. The learned senior counsel for the petitioner submitted that the power of Attorney dated 15th March 2004 confers powers to initiate proceedings including the petitions and other proceedings which would cover the authority to file a winding up petition. 13. Mr.Shyam Divan, the learned senior counsel for the petitioner strenuously urged that the two groups are deadlocked and joint venture company has lost its substratum inasmuch as it no longer functions as a quasi-partnership and, therefore, the prima facie consideration of the matter by the learned Company Judge admitting the company petition does not call for any interference. He relied upon the following authorities: (i) Saraswati Industrial Syndicate Ltd. v. C.I.T. Haryana, Himachal Pradesh, Delhi-III, New Delhi, AIR 1991 S.C.70; (ii) National Organic Chemical Industries Ltd. & anr. v. State of Maharashtra & ors., Vol. 118 Company Cases 556; (iii) M/s.World Wide Agencies Pvt.Ltd. & Anr. vs.Margarat T.Desor & ors., (1990) 1 SCC 536; (iv) Re: Bayswater Trading Co.Ltd., 1970(1) All E.R. 608; (v) Indian Chemical Products Ltd. v. State of Orissa & anr., A.I.R. 1967 SC 253; 15 (vi) Syndicate Bank v. Printersall (P) Ltd. & ors., (1991) Vol.71 Company Cases 215; (vii) M/s.Rajdhani Grains & Jaggery Exchange v. The Punjab Exchange Ltd., 1982 Company Law Journal 174; (viii) State of U.P. & ors. v. Renusagar Power Co. & ors., A.I.R.1988 SC 1737 and (ix) Re: Patent Steam Engine Company, 1878 Chancery Division Vol.VIII 464. 14. Mr.Pratik Sakseria, the learned counsel for the company adopted the submissions of Mr.S.H.Doctor and Mr.D.D.Madon, the learned senior counsel who argued for Chloro Controls (India) Private Limited in Appeal No.449/2005. 15. We reflected over the submissions of the learned senior counsel and the counsel appearing for the parties. 16. That the admission of petition for winding up the company has an immediate and potentially damaging effect needs no elaboration. Such order of admission is seriously prejudicial to the Company affecting it to a great extent. In this view of the matter, the standing of the petitioner to maintain the petition for winding up order has to be clearly established before an order of admission is made. The Company as well as Chloro Controls (India) Private Limited (50% shareholder of the 16 company) have raised preliminary objection about the maintainability of the Company Petition on the ground that the petitioner is not a registered holder of the company. The question, therefore, that needs to be addressed in these Appeals is, whether Severn Trent Water Purification Inc. (petitioner) has a standing to petition for winding up order under Section 433(f) of the Companies Act, 1956. 17. We refer to the broad facts first. 18. In paragraph 1 of the petition, the petitioner set up the case that Capital Controls (Delaware) Company Inc. merged with and into the petitioner on 31st March, 2003 and pursuant to the merger, Capital Controls (Delaware) Inc. went out of existence. In the petition, not much facts are averred concerning merger. However, in the rejoinder dated 4th December, 2004 the position regarding the merger has been elaborated and certain documents annexed. 19. Legal position is well settled that foreign law is a question of fact and must be pleaded by the parties who relies upon it. The petitioner has not pleaded about the relevant laws of merger. The documents that have been placed on record only show that certain documents were filed by the petitioner in the Office of 17 the Secretary of the State of Delaware. Nothing is pleaded about its legal effect. These documents only show that the certificate of ownership and merger merging Capital Controls (Delaware) Inc. (Delaware Corporation) into Severn Trent Water Purification Inc. were filed before same authority. In the absence of pleading of relevant laws of merger prevalent in the State of Delaware or under the law of the commonwealth of Pannsylvania under which merger is said to have taken place, it is very difficult to examine the aspect as to whether by virtue of the said merger, there is blending of the two entities and the status of the two companies thereafter. 20. The Company and the other shareholder have raised serious doubts in respect of the petitioner’s contention with regard to the merger of the two companies on 31st March, 2003 by relying minutes of the Annual General Meeting dated 9th October, 2003, letter dated 9th October, 2003 in terms of Form No.22-A, the Praecipe dated 5th March 2004 and the order dated 26th February 2004. 21. For the present we assume that Capital Controls (Delaware) Company, Inc. has merged with Seven Trent Water Purification Inc. To answer the question whether the petitioner has standing to maintain the petition for 18 winding up order, we shall briefly survey the relevant statutory provisions of the Companies Act, 1956. 22. Section 439 provides for the qualification in respect of the person who can present the petition for winding up. It reads thus: Provisions Provisions Provisions as to applications for winding up. as to applications for winding up. as to applications for winding up. 439. 439. 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). 19 (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 Provided 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 Provided Provided further that the Registrar 20 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