Case: National Conduits (P) Ltd Vs. S. S. Arora

1. The appellant - a private limited Company - is engaged in the manufacture of electric conduit pipes. The respondent who is a director of the Company presented a petition in the High Court of Delhi under Ss. 433 and 439 ofthe Companies Act, 1956, for an order for compulsory very winding up of the Company. The respondent claimed that it was "just and equitable" within the meaning of S. 433 (f) ofthe Companies Act, 1956, to make an order for compulsory winding up, because one of the three factories of the Company had been closed, that the accounts of the Company were not being shown to the respondent, that no meeting of the Company had been held, no balance-sheet had been, prepared and a letter of resignation purported to be signed by the respondent had been forged. On July 18, 1966. Capoor, J., directed that notice of the petition be issued to the appellant Company. The order has not been formally drawn up, and it is not clear whether by that order it was intended to call upon the Company to show cause why the petition should not be admitted, or that by the order the petition was admitted and notice under R. 96 of the Companies (Court) Rules, 1959 was issued.2. The appellant Company filed its reply controverting the allegations made by the respondent. The Company also filed an application that the winding up petition filed by the respondent be taken off the file and be dismissed and that the petition in the meantime be not advertised. H. R. Khanna, J., held that the appropriate remedy of the respondent on the allegations of mismanagement of the affairs of the Company and oppression of the minority share-holders by the group of Anandi Lal was to file a petition under Ss. 397 and 398 of the Companies Act. The learned Judge further held that the petition for winding up was instituted with a view "to unfairly prejudice the interests of the share-holders of the Company ", respondent having set up a rival factory in the name of his son for manufacturing electric conduit pipes. The learned Judge directed that the petition be not advertised and be dismissed.3. In appeal against the order passed by H. R. Khanna, J., the High Court of Delhi held that under the Companies (Court) Rules, 1959, once a petition is admitted to the file, the Court is bound forthwith to advertise the petition. The Company challenges that order in this appeal.

Reasoning: We may state that the High Court of Punjab in Lord Krishna Sugar Mills Ltd. v. Smt. Abnash Kaur, AIR 1961 Punjab 505 was right in observing that the Court in an appropriate case has the power to suspend advertisement of a petition for winding up, pending disposal of an application for revoking the order of admission of the petition, though we may hasten to state that we cannot agree with all the observations made in that judgment.For reasons already set out in our judgment, the High Court erred in holding that a petition for winding up must be advertised even before the application filed by the Company for staying the proceeding for the ends of justice, or to prevent abuse of the process of the Court.The view taken by the High Court that the Court must, as soon as the petition is admitted, advertise the petition is contrary to the plain terms of Rule 96. Such a view, if accepted, would make the Court an instrument, in possible cases of harassment and even of blackmail, for once a petition is advertised, the business of the Company is bound to suffer serious loss and injury.