Case: Severn Trent Water Purification, Inc Vs. Chloro Controls (India) P.Ltd.

4. Severn Trent Water Purification Inc., USA (hereinafter referred to as "Severn Trent") 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 (hereinafter referred to as the Act). The learned Company Judge by his order dated 21st April 2005 admitted the company petition. Aggrieved thereby two appeals came to be filed. One appeal (Appeal No. 449 of 2005) was filed by Chloro Controls (India) Private Limited, which has 50% shareholding in the company and the other appeal (Appeal No. 450 of 2005) was filed by the Company. As both the appeals arose out of one and the same order passed by the Company Court, the appeals were heard together and decided by a common judgment.5. The petitioner set up the case in the petition for winding up of the CompanySevern Trent 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) Severn Trent was formerly known as Capital Controls (Delaware) Company, Inc.(iii) In or about 1990, Severn Trents 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. amalgamated with and merged into Severn Trent and pursuant to the merger agreement, Capital Controls (Delaware) Company, Inc. went out of existence.(v) Reference to Severn Trent includes reference to the Capital Controls Company, Inc. as well as Capital Controls (Delaware) Company, Inc. and, therefore, Severn Trent 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) 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 system from component parts supplied by Severn Trent. For the said purpose, a Joint Venture Agreement was executed by the parties on November 16, 1995.(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. Severn Trent holds 3,75,000 equity shares being 50% of the equity share capital of the company. The other 50% of the shareholding of the company is held by Chloro Controls (India) Private Limited.(viii) Chloro Controls (India) Private Limited filed Suit No.233 of 2004 against Severn Trent with the sole object of circumventing the dispute resolution provisions in the Joint Venture Agreement entered into between the parties.(ix) Due to wrongful stand and intransigence of Chloro Controls (India) Private Limited, there was total deadlock on joint venture and management. Despite several meetings between the parties and exchange of ideas aimed at resolving differences, relations between the parties became more and more strain.(x) Severn Trent, therefore, terminated the Joint Venture Agreement vide its letter dated July 21, 2004 due to breaches committed by Chloro Controls (India) Private Limited and Mr. Kocha. In the termination notice, Severn Trent called upon Mr. Kocha to take steps for winding up of the company.(xi) Severn Trent had alleged that if Mr. Kocha would be allowed to continue to run the company, the basic substratum of the company would be eroded and the company could be saddled with liabilities leading to depletion of net worth.(xii) The company had been incorporated in the nature of partnership/quasi-partnership and both parties had equal share in the company. The parties were severely deadlocked on several issues, there was total break down and Severn Trent had lost confidence in Kochas. Severn Trent felt that the company would not return to the normalcy or could run the business profitability and it was just and equitable to wind up the company.Severn Trent, in Company Petition No.857 of 2004, filed on September 22, 2004 in the High Court of Judicature at Bombay under Section 433 (f) of the Act sought the followingThat the Company viz., Capital Controls India Private Limited, be wound up under the just and equitable grounds by and pursuant to the orders and directions of the Honble Court;(b) That the Official Liquidator of this Honble Court be appointed as Liquidator of all the assets, properties and affairs of the Company with all powers and authorities under the provisions of the Companies Act, 1956;(c) That pending the hearing and final disposal of the petition, the Official Liquidator of this Honble Court be appointed as Provisional Liquidator of all the assets, properties and affairs of the Company with all powers and authorities under the provisions of the Companies Act 1 of 1956;(d) That till such time that a Provisional Liquidator is appointed by the Court, an interim injunction be granted restraining the Company and/or the Kochas from doing the following:1. conducting the affairs of the Company, except by way of resolutions passed at meetings of the Board of Directors of the Company with the affirmative vote of at least one direction nominated by Severn Trent;2. operating the Companys bank accounts, except as may be jointly operated with the authorized signatory nominated by Severn Trent;3. dealing with any other assets, movable or immovable of the Company and be directed to preserve the machinery, equipments, etc. installed;4. entering into fresh contracts in the name of the Company and for as representatives of the Company;5. making any further purchases and payments without the consent of Severn Trent or without approval of the Board of Directors;6. borrowing monies or drawing on existing credit facilities;7. paying Chloro Controls directors or their family members monies allegedly owed by the Company;8. running the website of the Company.(e) Till the time of appointment of the Provisional Liquidator, Mr. Kocha may be removed from the post of Managing Director and committees appointed by the Board may manage the affairs of the Company;(f) For ad-interim reliefs in terms of prayer (c), (d) and (e) above;(h) For such further and other reliefs as the nature and circumstances of the case may require;(i) For the costs of the petition and the order to be made thereon.The Company as well as Chloro Controls (India) Private Limited opposed the admission of the Company Petition. The Company objected to the maintainability of the petition for winding up on several grounds. It was, inter alia, contended that (i) Severn Trent was not a shareholder on the companys register and, therefore, had no standing to maintain the petition for winding up; (ii) Capital Control (Delaware) Corporation was the registered holder of 50% of the equity share capital of the Company. Merger of Capital Controls (Delaware) Company Inc. into and with Severn Trent was not intimated to the company prior to the filing of Arbitration Petition No.121 of 2004 by Severn Trent under Section 9 of the Arbitration and Conciliation Act, 1996; (iii) at no point of time, any application for transfer of share certificates and/or substitution of the name of Severn Trent had been made; (iv) the assignment of shares by the Capital Controls (Delaware) Company, Inc. to Severn Trent 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.8. Severn Trent filed a rejoinder explaining its position regarding the merger. Severn Trent annexed certain documents which in its opinion were in the nature of merger documents and submitted that the company as well as Kochas had all along accepted Severn Trent 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 Mr. Kocha was not required. Severn Trent also asserted that it has stepped into the shoes of Capital Controls (Delaware) Company Inc. and was entitled to maintain a petition for winding up of the Company.9. This stand of Severn Trent was countered by the Respondents by filing sur-rejoinder wherein it was denied that Severn Trent 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 Severn Trent. They contended that the petition ought to be dismissed as there was abuse of process of law by Severn Trent in publishing premature advertisement of company petition.10. The learned Company Judge by an order dated April 21, 2005, admitted the Company Petition indicating prima facie, the followingThe shareholding of Capital Controls (Delaware) Inc. has vested in Severn Trent in the light of the amalgamation/merger;2. There was no breach of shareholders agreement since the agreement did not prevent the merger of two companies;3. 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, and4. There was complete deadlock in the functioning of the business of the company because there were only two shareholders and both the shareholders were holding 50% equity capital. Unless both the shareholders concur in conducting the business of the company the business could not be proceeded with and/or carried on and the company could not be allowed to function and run in that way.The learned Company Judge in the light of the above findings admitted the Company Petition on April 21, 2005 and issued the following directions;(i) Petition to be admitted and returnable on 19.8.2005. Respondent waives service.(ii) Petition to be advertised in Free Press Journal, Janmabhoomi and Maharashtra Government Gazette. The petitioner to deposit a sum of Rs.2,000/- in the office of the Prothonotary and Senior Master, High Court, Bombay for utilization thereof to issue the advertisement if the petitioner fails to issue the advertisement.12. Aggrieved by the decision of the learned Company Judge, Chloro Controls preferred Appeal No. 449 of 2005 while the Company filed Appeal No. 450 of 2005. Both the appeals were heard by a Division Bench of the High Court of Bombay and disposed of by a common judgment and order dated 20th/21st February, 2006. The Division Bench set aside the order of the Company Judge, holding that Severn Trent is not entitled to file a petition for winding up as a contributory, unless it is registered as a member in the register maintained by the company. It, however, remitted the matter on the question of maintainability in its capacity as a Creditor of the Company to the Company Judge for consideration. The Bench also observed that it would be open to the respondents to oppose the admission of the petition on all grounds, including that of premature advertisement by Severn Trent.13. Severn Trent being dissatisfied with order in appeal, filed Special Leave Petition (Civil) No. 6161 of 2006 in this Court. Notice was issued on April 13, 2006 and accepted on Caveat by the respondents. Another Special Leave Petition (Civil) No. 9530 of 2006 was filed by Chloro Controls (India) against that part of Division Bench order which left open the issue whether Severn Trent could file winding up petition as a Creditor and remitted it for consideration to the learned Company Judge. It is also aggrieved by the order passed by the Division Bench not dismissing the petition though Severn Trent had advertised the Company Petition without the order of the Company Court as required by law. In that Special Leave Petition, notice was issued on Aug, 22 2006 and accepted by the other side.14. The matters appeared on Board from time to time. The Registry was directed to place them for final hearing and that is how, both the matters have been placed before us.

Reasoning:
19. Bare reading of Section 439 makes it clear that it is couched in positive as well as negative words. Whereas sub-section (1) of the said section permits the presentation of application for winding up of a Company by any person enlisted therein, it clarifies that the said provision is subject to the provision of the said section and, hence, the entire section has to be read with a view to consider the right of a person presenting a petition for winding up of a Company.From the above scheme of the Act, it is abundantly clear that a contributorys right to present a winding up petition must be one either under clause (a) or under clause (b) of sub-section (4) of Section 439. It is nobodys case that clause (a) of Section 439(4) is attracted in the instant case. Hence, Severn Trent can only claim the right to present a winding up petition under clause (b) of sub-section (4) of Section 439 of the Act.. in theinstant case, neither the foreign law was pleaded nor such evidence has been produced to prove merger/amalgamation. But even otherwise, in our considered opinion, Severn Trent cannot be treated as or said to be contributory unless and until the requirements of law i.e. the provisions of Section 439(4)(b) have been complied with. It is not disputed that the name of Severn Trent has not been registered in the Register of the Company and hence, it cannot present a petition for winding up of the Company in the capacity of a contributory.From the above discussion, it is clear that the provisions of the Act must be complied with before presenting a winding up petition under Section 439(4)(b) of the Act. If a person intends to present a petition for winding up of a company as a contributory, he/it has to satisfy the Company Court that his/its case is covered by one of the eventualities contemplated by clause (b) of sub-section (4) of Section 439 of the Act.We must express our inability to uphold the contention of learned counsel. In our judgment, sub-section (4) of Section 439 is a self-contained Code as to presentation of petition by a contributory. A person claiming to be a contributory and presenting a petition for winding up of a Company in that capacity must fulfill the conditions laid down in the said section. Moreover, as observed by us, if there is omission, default or illegal action on the part of the Company in not registering the name of the contributory even though he/it can be said to be a contributory by holding the shares as required by clause (b) of sub-section (4) of Section 439, the law provides a remedy. In the instant case, however, no such course has been adopted by Severn Trent. In the circumstances, in our opinion, it cannot be said that the Division Bench of the High Court was in error in holding that Severn Trent could not be said to be a contributory to present a winding up petition.The above argument weighed with the learned Single Judge and he observed that though Severn Trent was not the person who was originally allotted shares nor its name was registered in the register of the Company but the expression or have devolved on him through the death of former holder would get attracted inasmuch as upon merger/amalgamation of Capital Controls (Delaware) Company, Inc. in Severn Trent, the former Company i.e. former holder can be said to have been met with death and the shares held by the said Company could be said to have devolved on Severn Trent. If it is so, obviously, a petition filed by Severn Trent as a contributory was maintainable.In the context of Company Law, winding up of a body corporate is not the same thing as or equivalent to death of a member. An individual and a body corporate expressly have been treated separately which is clear from Sections 430, 431 and 432 of the Act. Under the scheme of the Act, every creditor may present a petition for winding up of a company, but every contributory cannot. A contributory to be eligible and qualified to present a winding up petition must be covered by sub-section (4) of Section 439 of the Act and the Legislature, in its wisdom, excluded certain categories of persons from being entitled to present a petition for winding up as contributory. As already held by us earlier, the provision is exhaustive in nature and its sweep cannot be extended by judicial interpretation. Upholding of argument of Severn Trent and conceding the right to present a petition for winding up of a Company though it cannot be said to be a contributory would, in our judgment, result in re-writing of the provision. A Court of law cannot adopt a construction which would result in amendment of a statute. The contention of the learned counsel for Severn Trent, therefore, must be rejected.For the aforesaid reasons, we answer question No.1 in the negative and hold that a winding up petition filed by Severn Trent in the capacity as a contributory is not maintainable.So far as second question is concerned, reading of the order passed by the learned Company Judge makes it clear that no such argument was raised on behalf of Severn Trent presumably because there was no occasion for such argument inasmuch as according to the learned Company Judge, Severn Trent could be said to be a contributory within the meaning of Section 439 (4)(b) of the Act and a petition presented by Severn Trent in that capacity was tenable. Since the order passed by the Company Judge was challenged by the Company before the Division Bench and the Division Bench upheld the objection of the Company and reached a conclusion that the learned Company Judge was wrong in treating Severn Trent as contributory and granting it locus to present a petition for winding up of Company, that an alternative argument was raised on behalf of Severn Trent that Severn Trent was also a Creditor of the Company and in that capacity i.in the capacity of aCreditor, the petition for winding up of the Company was maintainable.We have given anxious consideration to the above submission. In our opinion, however, it cannot be said that the Division Bench was in error in passing the impugned order and remitting the matter to the learned Company Judge to consider the question as to maintainability of company petition filed by Severn Trent as a Creditor of the Company. In this connection, our attention has been invited by the learned counsel for Severn Trent to the company petition. In para 16 of the petition, it was stated by Severn Trent that it was also a Creditor of the Company and admitted sums owed by the Company to Severn Trent had not been paid. It was further stated that the Board of Directors of the Company and the Managing Director had acknowledged the Companys liability to Severn Trent in various communications and Board Meetings. It was further stated that in the circumstances, Severn Trent was constrained to issue legal notice on August 4, 2004 demanding payment of all outstanding dues. A copy of the demand notice was also annexed to the company petition. According to Severn Trent, total amount due and payable by the Company to Severn Trent as on July 31, 2004 came to US $ 575113.29. In ground (i) also, it was the case of the Company that there was intentional refusal by Mr. Kocha to allow the Company to pay its admitted debts to Severn Trent. In paragraph 41, it was stated by Severn Trent that it was just, equitable, necessary and in the interest of justice and in order to secure the dues of the petitioner that Provisional Liquidator should be appointed.So far as the third question is concerned, neither the learned Company Judge, nor the Division Bench has decided it. Before the learned Company Judge, no such contention appears to have been advanced by the Company. Before the Division Bench, it was argued that since there was premature advertisement by the Severn Trent without any order from the Company Court, there was abuse of process of the Court by Severn Trent and the petition was liable to be dismissed only on that ground. Before us also, the above contention was reiterated by the learned counsel for the Company and in support thereof, case-law has been cited. The learned counsel for the Severn Trent, however, submitted that the advertisement was qualified, carefully worded and the facts stated therein were accurate. It was essentially a notice to creditors, contributories and other persons intimating about presenting of winding up petition and there was no mala fide intention or oblique motive in issuing the advertisement. We may only state that since the Division Bench of the High Court has remitted the matter to the learned Company Judge and granted liberty to the Company to oppose admission of the Company petition on all available grounds including the ground of premature advertisement, we need not express any opinion one way or the other. As observed by the Division Bench of the High Court, at the time the company petition will be taken up by the Company Judge for admission, it will be open to the Company or contesting respondent to oppose the admission on all grounds available.It is thus clear that though the case put forward by Severn Trent in the winding up petition was as a contributory, the factum of the Company being Debtor and Severn Trent being Creditor and in spite of dues being admitted by the Company, there was non payment on the part of the Company had been mentioned in the petition. The learned counsel for Severn Trent appears to be right that in view of the finding by the learned Company Judge that the petition instituted by Severn Trent as a contributory was maintainable, it was no more necessary for the learned Company Judge to consider the question whether the company petition filed by Severn Trent was maintainable in the capacity as aour opinion, it would not be appropriate to express any opinion one way or the other since we are of the view that the Division Bench of the High Court was not wrong in allowing Severn Trent to argue that point before the learned Company Judge as that point did not arise before him earlier. We may, however, hasten to add that we may not be understood to have recorded a finding that the petition presented by Severn Trent is maintainable. We clarify that as and when the matter will be taken up by the learned Company Judge, it will be open to the Company to raise a contention that no such petition as presented is maintainable in the capacity as a