Case: Moolchand Gupta Vs. Jagannath Gupta and Company Private Limited

Company has been continuously incurring losses and thus the substratum of the Company has disappeared. The Company had never declared any dividends and is continuously incurring losses. The affairs of the Company are conducted in a manner oppressive to the appellant. 11. On September 4, 1967, the respondent filed a Company Application being No. 229 of 1967 in the High Court for an order restraining the appellant herein from taking steps upon the said petition of advertising the same. An interim order was passed by the High Court on September 4, 1967, staying the publication of the said advertisement till the disposal of that application. The appellant contested that application which came up for hearing before R. N. Dutta, J. who concluding the hearing on February 1, 1968 and reserved the judgment. Before the judgment was announced, certain facts came to the knowledge of the appellant. He brought those facts to the notice of the learned Judge by filing an affidavit and charging the respondent with suppression of facts. Bidya Bhushan Gupta replied by an affidavit, dated April 20, 1968. 12. The learned Judge dismissed the said Company Application (No. 229 of 1967) by his Order, dated April 23, 1968 and declined to stay winding up proceedings. Thereafter, the appellant proceeded to cause the advertisement to be published in the newspapers and the same were duly published, as directed by the High Court. 13. The respondent, however, on May 27, 1968, preferred an appeal (No. 96 of 1968) before a Divisional Bench of the High Court which by its order dated July 26, 1968, allowed the appeal and granted stay of the proceedings in the said company petition (158 of 1967). 14. After obtaining a certificate, under Article 133(1)(a) and (b) of the Constitution, from the High Court, Moolchand Gupta has preferred this appeal against the aforesaid stay order passed by the Division Bench. 15. Although, the High Court has, in the order under appeal, made extensive observations with regard to the merits of the petition for winding up of the Company made by the appellant, the proceedings for winding up have been stayed by the High Court on the ground that on a complaint of the appellant, Moolchand Gupta, a parallel investigation into the affairs of the Company under the provisions of Section 235 of the Companies Act, 1956 is pending. 16. After hearing the learned counsel on both sides, we are of opinion that the High Court was in error in making the stay order it did. for the appellant has taken us through the correspondence annexed to the petition for winding up. It is evident therefrom that although the Registrar and/or the Company Law Board had made certain enquiries of an exploratory nature from the Company, yet no investigation contemplated under Section 235 or 237 or any other provision of the Companies Act, has in fact been commended. Rather, it seems that on account of the winding up proceeding the authorities have stayed their hands. 17. The learned counsel for the appellant has submitted that the Central Government has not appointed any inspectors as envisaged by Sections 235/237 and the matters are in a stalemate. The High Courts order, it is maintained has led to a stand still situation where for the appellant both the avenues for seeking redress are lying frozen. 18. It may be observed that under Section 235, it is not obligatory for the Central Government to direct an investigation. It has a discretion to appoint or not to appoint inspectors for investigating the affairs of the Company, the word used in the section being "may". Before the Government can take such action under Section 235, certain pre-conditions including those specified in Section 236, must be satisfied. Furthermore, unlike the power of the Court in a proceeding for winding up of a Company, the discretionary power of the Central Government to direct investigation is neither judicial nor quasi-judicial. It follow therefrom, that investigation on a complaint under Section 235/237 may not be an adequate substitute for proceedings in Court on a winding up petition. In other words, a petition under Section 235/237/239 may not afford an equally efficacious and alternative remedy as a petition under Section 439 to Court for winding up of the Company. 19. The intention of the Legislature as discernible from Section 243 of the Companies Act, seems to be that when the Court is already seised of the matter, at the instance of a party the Central Government should refrain from taking the initiative. Even where it appears to the Central Government from the report of the investigating inspectors appointed under Section 235/237 that it is expedient to move the court for winding up of the Company on the ground that it is just and equitable to wind it up, or that an application for an order under Section 397 or 398 be made, then also it must stay its hands from doing so if proceedings for winding up of the Company are already being taken by the Court. 20. It is, however, true that in view of Section 258 an investigation under Sections 235, 237 etc. cannot be stopped merely because a company has passed a resolution for voluntary winding up. But, such is not the case here. 21. Be that as it may, in the instant case, no inspectors had been appointed under Section 235 or 237 of the Act, and no parallel investigation by the Central Government or its authorities under the Act into the affairs of the Company was continuing. Nor was it a case where the High Court thought that for a proper and effectual adjudication of the petition pending before it, it was necessary to get the matter investigated through the agency of the Central Government. 22. In the circumstances of the case, therefore, the High Court should not have stayed the proceedings on the petition for winding up filed before it by Moolchand Gupta, but should have disposed it of on merits. 23.

Court's decision (1 = petition accepted / positive for appellant, 0 = rejected / negative): 1

Reasoning from the judgment:
1[ds]16. After hearing the learned counsel on both sides, we are of opinion that the High Court was in error in making the stay order it did. for the appellant has taken us through the correspondence annexed to the petition for winding up. It is evident therefrom that although the Registrar and/or the Company Law Board had made certain enquiries of an exploratory nature from the Company, yet no investigation contemplated under Section 235 or 237 or any other provision of the Companies Act, has in fact been commended. Rather, it seems that on account of the winding up proceeding the authorities have stayed their hands19. The intention of the Legislature as discernible from Section 243 of the Companies Act, seems to be that when the Court is already seised of the matter, at the instance of a party the Central Government should refrain from taking the initiative. Even where it appears to the Central Government from the report of the investigating inspectors appointed under Section 235/237 that it is expedient to move the court for winding up of the Company on the ground that it is just and equitable to wind it up, or that an application for an order under Section 397 or 398 be made, then also it must stay its hands from doing so if proceedings for winding up of the Company are already being taken by the Court20. It is, however, true that in view of Section 258 an investigation under Sections 235, 237 etc. cannot be stopped merely because a company has passed a resolution for voluntary winding up. But, such is not the case here21. Be that as it may, in the instant case, no inspectors had been appointed under Section 235 or 237 of the Act, and no parallel investigation by the Central Government or its authorities under the Act into the affairs of the Company was continuing. Nor was it a case where the High Court thought that for a proper and effectual adjudication of the petition pending before it, it was necessary to get the matter investigated through the agency of the Central Government22. In the circumstances of the case, therefore, the High Court should not have stayed the proceedings on the petition for winding up filed before it by Moolchand Gupta, but should have disposed it of on merits.