IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE P.R.RAMACHANDRA MENON MONDAY, THE 14TH SEPTEMBER 2009 / 23RD BHADRA 1931 Co.Pet.No. 40 of 2008() ---------------------------------- PETITIONER(S): ------------------------ 1. VAMADEVAN.N., S/O.NARAYANAN, AGED 55 YEARS, CHARUVILA VEEDU, SASIMALA P.O., POLPALLY, WAYANAD DISTRICT. 2. V.K.CITARANJAN, AGED 46 YEARS, S/O.KUMARAN, VELLIMATTOM HOUSE, RAMALOOR, KOTHAMANGALAM P.O., ERNAKULAM DISTRICT. 3. P.K.GIRISH KUMAR, AGED 32 YEARS, S/O.P.K.KUMARAN, PALLITHAYATHU VEEDU, PARAVOORTHARA, NORTH PARAVUR, ERNAKULAM DISTRICT. 4. N.J.SUKUMARAN, AGED 68 YEARS, S/O. GOPALAN, SREE NILAYAM, PRAPOYIL P.O., PAYYANNUR , KANNUR. 5. P.K.VIDYADHARAN, AGED 73 YEARS, S/O. KUNJIKRISHNAN, AMRUTHAM, SREENIVASAPURAM, VARKALA, TRIVANDRUM DISTRICT. BY ADV.MR.S.RAJEEV RESPONDENT(S): -------------------------- 1. SREE NARAYANA DHARMA PARIPALANA YOGAM, PUBLIC LIMITED COMPANY, HAVING ITS REGD., OFFICE AT KOLLAM, REP.BY GEN. SECRETARY V.K.NATESAN. 2. MR.V.K.NATESAN, GENERAL SECRETARY, S.N.D.P.YOGAM, KOLLAM. CP. NO.40/2008 3. MR.SOMAN, PRESIDENT, S.N.D.P. YOGAM, KOLLAM. 4. M.B.SREEKUMAR, VICE- PRESIDENT, SNDP YOGAM, KOLLAM. 5. MR.THUSHAR VELLAPPALLY, CEVASWOM SECRETARY, SNDP YOGAM,KOLLAM. ADDL. R6 & R7 ARE IMPLEADED. 6. THE INSPECTOR GENERAL OF REGISTRATION, (THE REGISTRAR DESIGNATEDUNDER SECTION 2 (3) OF THE KERALA NON-TRADING COMPANIES ACT, 1961), TRIVANDRUM. ADDL. R6 IS IMPLEADED AS PER ORDER DTD. 29.1.09 IN CA. 12/09 IN CP. 40/08. 7. THE REGISTRAR OF COMPANIES, KERALA. ADDL. R7 IS IMPLEADED SUOMOTU AS PER ORDER DTD. 29.1.09 IN CP. 40/08. R1 & R2 BY ADV. MR.A.N.RAJAN BABU R3 BY MR.N.N.SUGUNAPALAN, SR. ADVOCATE R3 BY ADV. MR.S.SUJIN R4 BY MR.P.HARIDAS R5 BY MR.MOHAN PULICKAL, SMT.MANJU RAJAN. BY MR.P.PARAMESWARAN NAIR (ASST. SOLICITOR GENERAL ) THIS COMPANY PETITION HAVING BEEN FINALLY HEARD ON 14/09/2009, THE COURT ON THE SAME DAY PASSED THE FOLLOWING: tss (C.R.) P.R. RAMACHANDRA MENON, J. ........................................................................ C.P. No. 40 OF 2008 ......................................................................... Dated this the 14th September, 2009 J U D G M E N T 'Sree Narayana Dharma Paripalana Yogam' ('Yogam' in short) is sought to be wound up in this Company Petition. 2. The first respondent 'Yogam' is a Charitable Non-trading Company' incorporated in 1903 under the Travancore Regulation I of 1063 M.E., corresponding to Act 6 of 1882 of the Indian Companies Act (herein after referred to as the 'Act'). The petitioners were elected office bearers of the SNDP Unions/Sakhas under the first respondent. The case of the petitioners is that, ever since assuming the office as the General Secretary of the 'Yogam', the second respondent had been functioning in a quite autocratic manner, suspending the petitioners and others from their office and also bringing the Unions/Sakhas under the management of the Administrators, without any regard to the rules or procedures contemplated under the bye-laws of the 'Yogam'. It is alleged that the affairs C.P. No. 40 OF 2008 2 of the 'Yogam' are being mismanaged; the funds are being misappropriated and there is complete oppression of minority members, coupled with acts of fraud and such other illegal activities, in total disregard to the statutory prescriptions. The petitioners have approached this Court under Section 203(b) (ii), read with 433(f) of the Companies Act with the following prayers: “a) To appoint a committee of not less than five members to take over the administration and management of SNDP Yogam and institutions functioning under that company; b) To declare that respondents 1 to 4 are disqualified from continuing as office bearers of SNDP Yogam; c) To direct respondents 2 to 4 to make available to this Hon'ble Court true and correct details of the income and expenditure of the Yogam including Micro Finance Account and amount received from Kerala State Backward Development Corporation and C.P. No. 40 OF 2008 3 details of persons to whom such amounts were distributed from November 1996 onwards; d) To direct the respondents to take immediate steps for ordering elections in all Unions and branches under Administrator Control to have elected representatives and to hand over the assets and management to such elected bodies within a time frame; e) To render to this Hon'ble Court the correct and complete records and documents which are maintained in connection with micro-finance operations and to direct payments to the needy members in accordance with the stipulations of NABARD; f) To direct the 2nd respondent not to alienate or dispose of any movable or immovable properties of SNDP Yogam without prior permission from this Hon'ble Court. C.P. No. 40 OF 2008 4 g) In the alternative, the 1st respondent Sree Narayana Dharma Paripalana Yogam be wound up by this Hon'ble Court under the provisions of the Companies Act, 1956; h) To appoint provisional liquidator to preserve the assets of the respondent company; and i) To pass such other order or orders as this Hon'ble Court may deem fit, appropriate and just.” 3. When the above matter came up for admission before this court on 01.01.2009, another learned Single Judge of this Court ordered as follows: “Admitted without prejudice to contentions including on the question of jurisdiction. Notice by Special Messenger. List on 13.01.09 for consideration of the application for interim reliefs. No immovable property of the SNDP Yogam shall be alienated or encumbered until the next date of hearing.” C.P. No. 40 OF 2008 5 Pursuant to service of notice, the respondents entered appearance and the matter has been brought up for further consideration, challenging the very question of maintainability, at the instance of the respondents 1 and 2. 4. Mrs. Nalini Chidambaram, learned Sr. Counsel appearing on behalf of the petitioners submits that the Company Petition is very much maintainable, simultaneously adding that the doubts, if any, can be entertained only along with the merits of the case, particularly, since the matter has already been admitted by this Court. The learned Sr. Counsel referred to the sequence of events and also the relevant provisions of law, to sustain the said submission. 5. Mr. Nageswara Rao, learned Sr. Counsel appearing on behalf of the first and second respondents submits that the Company Petition is not at all maintainable in view of the other effective, alternate remedy available and also by virtue of the clear mandate under sub section (2 )of Section 443 of the Act. It is also stated that 'admission' of the matter does not curtail the rights of the respondents to challenge the very C.P. No. 40 OF 2008 6 maintainability of the petition, particularly in view of the rider placed by the learned Judge while admitting the matter, holding that 'admission' is subject to maintainability. The learned Sr. Counsel referred to the relevant provisions in the Companies Act, which clearly deal with the rights and liberties of the parties concerned, to have redressal in respect of the prayers made in the instant case at Sl.Nos. (a) to (f), pointing out that the prayer for 'winding up' has been sought for at Sl.No.(g) only as an 'alternative'. Reliance is also placed on the very admission of the petitioner in Ground (D) under the head-'Disappearance of Substratum'- given at running page 48 of the Company Petition. The learned Sr. Counsel also referred to the judicial precedents rendered by the Apex Court, a Division Bench of this Court and various other High Courts, to substantiate that the remedy by way of winding up under Section 433 (f) is not liable to be granted in view of the other effective, alternate remedy available and also for the fact that it is only sought for as 'an alternative' prayer. It is the specific case of the respondents 1 and 2, as put forth by the learned Sr. Counsel, that 'winding C.P. No. 40 OF 2008 7 up' has been sought for, as an alternative prayer, only to sustain the prayer for interference under Section 203(b)(ii), which, otherwise is not permissible, unless 'in the course of winding up' of a Company. 6. The first respondent 'Yogam' is a 'Non-trading Public Limited Company' deemed to be incorporated under the provisions of the Kerala Non-trading Companies Act,. 1961. The affairs of the first respondent are governed by the Companies Act, by incorporation. After considering the rival submissions, this Court decided to hear the legal aspects as to the scope of the order passed at the time of 'admission'(the question of maintainability) before proceeding with the merits of the case and accordingly, heard all the learned Counsel in detail. 7. Mr. Nageswara Rao, learned Sr. Counsel appearing for the respondents 1 and 2 , explained the scheme of the Statute, particularly with reference to the nature and extent of the reliefs sought for. 8. Obviously, the prayers at Sl.Nos. (a) to (f) are with C.P. No. 40 OF 2008 8 regard to the mismanagement, fraud, oppression of minority, misappropriation and in turn to take over the administration and management of the 'Yogam', after declaring the respondents 1 to 4, as disqualified from continuing in office. The above prayers are very much inter-connected and of course, based on the provisions under Section 203 (b)(ii), which is extracted below for the purpose of convenience of reference. “203. Power to restrain fraudulent persons from managing companies:-(1) Where- (a) xx xx xx (b) in the course of winding up a company it appears that a person-- (i) xx xx xx xx (ii) has otherwise been guilty, while an officer of the company of any fraud or misfeasance in relation to the company or of any branch of his duty to the company; the Court or the Tribunal, as the case may be, may make an order that that person shall not, without the leave of the Court or the Tribunal, as the case may be, be a director of , or in any way, whether directly or indirectly, be concerned or take part in the promotion, formation or C.P. No. 40 OF 2008 9 management of a company, for such period not exceeding five years as may be specified in the order. “ 9. Obviously by virtue of the specific stipulation in the Statute, the power to restrain fraudulent persons from managing the companies as provided in the said provision can be exercised only in the course of winding up of a company. As such, the basic question to be considered is whether the prayer for winding up, inserted at Sl. No. (g) of the Writ Petition, is liable to be entertained. As stated herein before, the prayer for winding up at Sl. No. (g) has been raised by the petitioner only as an 'alternative prayer'. The description of the sequence of events and the facts and figures more relate to the alleged misappropriation, mismanagement, fraud and oppression of the minority sector, which need not constitute or warrant a 'winding up' on the ground of 'just and equitable reason', as envisaged under Section 433(f). The terms 'just and equitable' as they appear under Section 433(f) are not to be read as 'ejusdem generis' with the preceding words of the enactment (Halsbury's C.P. No. 40 OF 2008 10 Laws of England, Vol. 7 (3) IVth Edition 2004 Re-issue). It is in the nature of 'last resort', when other remedies are not efficacious enough to protect the general interests of the Company. In this context, it is also relevant to note the pleading of the petitioners in the Company Petition, as to the foundation laid for pressing the relief of winding up, as contained in paragraph 12 and also in Ground “D” under the head 'Disappearance of Substratum', which are extracted below: Paragraph 12: “This petition is necessitated on account of gross mismanagement, misappropriation of money, acts of fraud, misconduct, diversion of funds, illegal and ultra vires acts, oppression of minority members of the Company by the 2nd respondent in collusion with the Board of Directors, office bearers and some of the council members of the Company and their henchmen who are indulging in acts of mismanagement, misfeasance and oppression. The affairs of the Company are conducted in such a way to promote and assist their kith and kin, in total exclusion of C.P. No. 40 OF 2008 11 90% of the members of the Company, by resorting to acts prejudicial to and destructive of the very object of the Yogam. The following are the acts of fraud, misconduct, oppression, mis-management and ultra vires acts committed by the Board of Directors and Council members and office bearers of the Yogam. “ Ground 'D': “The minority of members of the Company has completely lost confidence in the majority of the Board of Directors of the 1st respondent and there is no alternative for the minority members to seek relief in the matter except to invoke jurisdiction of this Hon'ble Court for appropriate relief as a last resort, if only circumstances warrant, order winding up of the 1st respondent company.” 10. From the above, it is very much clear that the basic grievance of th petitioners in respect of the reliefs sought for at Sl.Nos. (a) to (f) and the prayer for 'winding up' has been raised C.P. No. 40 OF 2008 12 stating that there is no other alternate remedy for the minority members, except to invoke the jurisdiction of this Court for appropriate reliefs as the last resort, however, conceding in Ground “D” as noted above that, it was to be granted only if circumstances warranted the same. 11. Considering the moot question put forth by the petitioners, as to whether the circumstances warrant 'winding up', as projected in Ground “D' of the Company Petition, nothing else is seen pleaded specifically, so as to grant the remedy of 'winding up' on just and equitable ground as the 'last resort'. In other words, is there any other alternate remedy for redressal of the grievance with regard to the reliefs at Sl.No. (a) to (f) and if any such remedy is available , whether the same is efficacious enough or has any of the minority petitioners been prevented from availing the benefit thereunder, is not discernible from the pleadings on record. As such, it has become necessary to ascertain whether the contention of the petitioners in Ground 'D', that there is no other alternate remedy for them is correct or sustainable. C.P. No. 40 OF 2008 13 12. Section 235(1) of the Companies Act, 1956 deals with the power of the Central Government to investigate the affairs of the Company on receipt of a report from the Registrar under Sub section (6) or (7) of Section 234. Sub section (2)(b) of the very same provision deals with such power conferred on the Tribunal in the case of a Company having no share capital(as in the instant case) where an application is received from not less than '1/5th' of the persons on the Company's register of members. The petitioner has no case that they moved the Tribunal by filing an application preferred by not less than 1/5th of the persons on the Company's register of members or that such course is not available or has been turned futile due to some or other reason, so as to make it ineffective. 13. Without prejudice to the powers of the Central Government under Section 235, it has been specifically stipulated under Section 237 that the Central Government can exercise the powers of investigation into the Company's affairs in other circumstances as well, as stipulated therein. 14. Admittedly, there is no case for the petitioners that C.P. No. 40 OF 2008 14 they have resorted to any such steps to persuade the Central Government to pursue such appropriate steps for redressal of their grievances and that the same did not yield any positive result. 15. In the case of oppression of the minority, the power is vested with the 'Tribunal' under Section 397 of the Act for granting necessary reliefs. Similar power is vested with the Tribunal to deal with the situation of mismanagement as well, as provided under Section 398. By virtue of the power specifically conferred under Section 397 and 398, if necessary application is preferred in the manner as specified therein, after considering the facts and circumstances, the Tribunal, if satisfied as to the 'just and equitable' reason to have the Company wound up, it can pass appropriate orders to meet the situation. The circumstances under which a petition can be moved before the Tribunal under Section 397 or 398 are stipulated under Section 399. Sub section (1)(b) of Section 399 clearly stipulates that in the case of a Company not having a share capital (as in the instant case ), the right to apply under section 397 or 398 C.P. No. 40 OF 2008 15 will be available, if the application is preferred by not less than 1/5th of the total number of its members. To put it more clear, the petitioner, by virtue of the above statutory prescription is very much entitled to agitate the matter before the 'Tribunal' , if an application is preferred by 1/5th of the total number of members of the first respondent 'Yogam'. That apart, sub section (4) of Section 399 provides that the Central Government may, if in its opinion circumstances exist, which make it just and equitable to do so, authorise any member or members of the Company to apply to the Tribunal under Section 397 or 398, notwithstanding that the requirements of clause (a) or clause (b), (as the case may be) of sub section (1) are not fulfilled. Why the petitioners have not resorted to such an exercise and why they have shut their eyes against the alternate remedy provided under the statute, rather remain to be obscure. 16. The case of the petitioners, as asserted by the learned Sr. Counsel Mrs. Nalini Chidambaram, is that the respondents cannot dictate terms to the petitioners and it is for the petitioners to choose the appropriate remedy and Forum, C.P. No. 40 OF 2008 16 when different remedies are available to the petitioners. When the petitioners assert that, it is by virtue of their discretion that they have chosen to approach this Court, by filing the Company Petition, seeking to wind up the first respondent on just and equitable ground, invoking the power under Section 433(f) without resorting to the alternate remedy, the mandate under Section 443 (2) has also necessarily to be looked into, which provision is extracted below;. “443. Powers of Tribunal on hearing petition:-(1) On hearing a winding up petition, the Tribunal may- (a) xx xx cc (b) xx xx xx © xx xx xx (d) xx xx xx xx (2) Where the petition is presented on the ground that it is just and equitable that the company should be wound up, the Tribunal may refuse to make an order of winding up, if it is of the opinion that some other remedy is available to the petitioners and that they are acting unreasonably in seeking to have the company wound up instead of C.P. No. 40 OF 2008 17 pursuing that other remedy.” 17. This shows that unlike other grounds for sustaining the petition to wind up the Company as provided under Section 433, if it is sought for on 'just and equitable' grounds under clause (f) of Section 433, the relief can be declined, if there is other alternate remedy and in the opinion of the Court, if the petitioners are acting unreasonably seeking for 'winding up', instead of pursuing the alternative remedy. 18. The above issue had come up for consideration before the Apex Court, which has been considered and explained as per the decision in Hind Overseas Private Limited vs. Raghunath Prasad Jhunjhunwalla and another [1976 (3) SCC 259]. The observations of the Apex Court in this regard are very much contained in paragraph 37, 38 and 44, which are extracted below. “37. Section 433(f) under which this application has been made has to be read with Section 443(2) of the Act. Under the latter provision where the petition is C.P. No. 40 OF 2008 18 presented on the ground that it is just and equitable that the company should be wound up, the court may refuse to make an order of winding up if it is of opinion that some other remedy is available to the petitioners and that they are acting unreasonably in seeking to have the company wound up instead of pursuing that other remedy.” “38. Again under Sections 397 and 398 of the Act there are preventive provisions in the Act as a safeguard against oppression in management. These provisions also indicate that relief under Section 433(f) based on the just and equitable clause is in the nature of a last resort when other remedies are not efficacious enough to protect the general interests of the company.” “44. It is not a proper principle to encourage hasty petitions of this nature without first attempting to sort out the dispute and controversy between the members in the domestic forum in conformity with the articles of association. There must be C.P. No. 40 OF 2008 19 materials to show when 'just and equitable' clause is invoked, that it is just and equitable not only to the persons applying for winding up but also to the company and to all its shareholders. The company court will have to keep in mind the position of the company as a whole and the interests of the shareholders and see that they do not suffer in a fight for power that ensues between two groups. “ 19. In Malabar Industrial Comp. Ltd. vs. John Anthrapper [1985] 57 Comp. Cases 717 (Ker.), a Division Bench of this Court , following the dictum in Hind Overseas Private Limited vs Raghunath Prasad Jhunjhunwalla and another [1976 (3) SCC 259] = [AIR 1976 SC 565] observed that under Section 397 and 398 of the Act, there are preventive provisions as a safeguard against oppression in management. These provisions also indicate that the relief under Section 433 (f) based on the 'just and equitable' clauses is in the nature of 'last resort', when other remedies are not efficacious enough C.P. No. 40 OF 2008 20 to protect the general interest of the Company. It is also observed therein that, it is very much necessary to bear in mind that the relief under Section 433(f) is in the nature of 'last resort', thus obliging the Court to give relief to the parties, when moved under the Section, only under compelling circumstances. Accordingly, relying on the mandate under Section 443(2), the appeal was allowed and the Company Petition was dismissed without prejudice to the rights of the petitioner to take appropriate remedies to safeguard the interest as provided under the relevant provisions of the Statute. 20. Later, the issue came up again for consideration before another learned Judge of this Court in Jose J. Kadavil and K.T. Mathew vs. Malabar Industrial Co. Ltd. [(1986) 59 Comp. Case 969 (Ker.)]. Following the dictum laid down by the Apex Court in Hind Overseas Private Limited vs Raghunath Prasad Jhunjhunwalla and another [1976 (3) SCC 259] and also the observation made by the Division Bench in [(1985) 57 Comp. Case 717 (Ker.)], interference was declined in the Company Petition seeking to wind up the C.P. No. 40 OF 2008 21 Company on 'just and equitable' ground under Section 433(f), placing reliance on Section 443(2). The observations made by the learned Judge in paragraph 18 are very much relevant and hence it is extracted below: “18. I am in respectful agreement with the dictum laid down in A.P. Pothen's case [(1967) 37 Comp. Case 266; AIR 1968 Ker. 148 and George's case (1965) 35. Comp. Case 17; AIR 1964 Ker. 212, referred to above. The observations of the learned Judge in these cases is a complete answer to the contentions of the petitioners that they do not have any effective remedy under Sections 397 and 398 in view of the limitations placed under Section 399 of the Act and that this Court having admitted these petitions, it is to be presumed that this Court was satisfied that there was a prima facie case and, therefore, this court is bound to allow the petitioners to adduce evidence and that an order under Sections 443(2) can be passed only after taking evidence or at the conclusion of the enquiry. The petitioners have