Asra Estates Limited

Ramesh Ranganathan, J.—This petition is filed, u/s 433(a), (c), (e) & (f) and 439 of the Companies Act, 1956 read with Rule 95 of the Companies (Court) Rules, 1959, for winding up of the petitioner company.

The petitioner, hitherto a partnership firm carrying on business in the name of M/s Asra Estates, was incorporated under Part IX of the Companies Act, 1956 on 23.02.2000 as Asra Estates Private Limited. Its name was subsequently changed to Asra Estates Limited and a fresh certificate of incorporation was issued. The Registered office of the petitioner is at Hyderabad. Its authorized share capital is Rs. 5.00 lakhs divided into 50,000 equity shares of Rs. 10/- each and its issued, subscribed and paid up capital is Rs. 1.00 lakh divided into 10,000 equity shares of Rs. 10/- each. The objects for which the petitioner company was incorporated is to carry on the business of builders and contractors and to purchase, acquire, take on lease land, buildings and structures for its development and also to build, take on lease, purchase or acquire houses and flats, to let or dispose of the same in installment, hire purchase or by outright sale and to set up orchards, gardens, farms, agricultural houses etc.,

In the petition filed before this Court, it is stated that prior to its incorporation, the promoters of the petitioner were carrying on business in the name of four different partnership firms viz., M/s Asra Housing, M/s Asra Sheep Farm and Plantations, M/s Asra Hospitals and M/s Asra Textiles, that all the four firms had common partners and were being operated from the same premises. It is stated that, in the course of its business, the partnership firm invited deposits from the public, that several people deposited their money with the firms, that Reserve Bank of India came up with certain guidelines with the avowed object of safeguarding the interest of deposit holders of non-banking finance companies, as several finance companies across the country had defaulted in repaying their deposit holders, resulting in the depositors panicking, that while the petitioner had repaid deposits on maturity till September, 1999 other than those unclaimed, the Manager of one of the firms at Gulbarga had, in collusion with her husband, misappropriated the firm's funds and, when disciplinary proceedings were initiated against her, she had lodged a false complaint against the firms on 20.12.1999, on the basis of which investigation was initiated under the A.P. Protection of Depositors of Financial Establishments Act, 1999 and some of the partners were arrested. It is further stated that, during the course of investigation, the police had seized some of the title deeds of the lands purchased by the firms, that the false complaint had resulted in rumours being spread against the firms, that depositors started agitating for repayment of their monies even before the maturity date, that in January, 2000 the activities of all the firms were reconstituted into one firm viz, Asra Estates with a view to streamline their operations and derive synergies, that with a view to enlarge the scope of operations of the firm and to protect the interests of the deposit holders the merged firm was registered as a Company under Part IX of the Companies Act under the name of Asra Estates Private Limited and that all the properties of the firm stood vested in the petitioner company. It is stated that the landlady of the premises, where the registered office of the petitioner company was situated, had broken open the locks and had removed all books, records, blank deposit certificates and computers along with the office furniture, that immediately the employees of the petitioner company had lodged complaints with the police at Langer House Police Station and thereby their effort to realize their assets and repay the deposit holders had received a set back, that in the meanwhile some of the depositors had approached the Company Law Board, u/s 58-A of the Companies Act, for repayment of the deposits, that on the petitioner furnishing details of the matured and un-matured deposits and proposing a scheme for their repayment, the Company Law Board, by order dated 22.05.2000, had directed the petitioner to sell its assets and repay the deposits and that, in compliance with the orders of the Company Law Board, the petitioner had paid about Rs. 30.00 lakhs to various depositors and had issued several advertisements calling upon the deposit holders to submit applications for repayment of the deposits. According to the petitioner it has assets worth more than Rs. 5.20 crores, in the form of immovable property situated in and around Hyderabad and agricultural lands in Karimnagar and Prakasam Districts, as against its total liabilities of Rs. 3.73 crores payable to deposit holders out of which the company has already re-paid Rs. 30.00 lakhs. It is stated that the company thought it fit to settle all the dues of depositors by way of an one time settlement in terms of a scheme of arrangement, that the Board of Directors of the petitioner company had considered and approved the scheme of arrangement and that C.A. No. 225 of 2003 was filed to convene a meeting of the deposit holders for the purpose of considering and, if thought fit, to approve the proposed scheme of arrangement with or without modification, that by order of this Court dated 07.03.2003 Sri P.V. Markandeyulu, Advocate was appointed as the Chairman for the meeting, that a meeting of the deposit holders was held on 25.04.2003 at 11.00 a.m. which was attended by 67 deposit holders who unanimously approved the proposed scheme of arrangement, that after the Chairman submitted his report the petitioner company sought sanction of the Court to the scheme of arrangement, that, in the meanwhile, some depositors had approached the High Court objecting to the scheme of arrangement and some other deposit holders had proceeded to initiate criminal proceedings, that the Directors of the Company, on perceiving a threat to their lives, went into hiding, and that the petitioner has so far paid a sum of Rs. 96,13,000/- to various deposit holders disposing of some of the assets. It is stated that the company had adequate assets which was more than sufficient to repay the balance due on deposits of Rs. 2.77 crores, that fresh complaints being lodged by various deposit holders, and continuation of the old cases, had resulted in the petitioner company neither being able to reach a settlement with its depositors nor to revive its operations and, under these circumstances, they thought it appropriate to wind up the company.

This Court, in its order dated 05.01.2007, noted that, though no copy of the resolution had been filed, it was asserted by the learned Counsel for the petitioner that a resolution had been passed by the Board of Directors and, pursuant thereto, the company petition was filed. This Court appointed the Official Liquidator as the Provisional Liquidator and, after noting that the documents relating to the properties had been seized by the Police pursuant to criminal complaints being filed against the Company and its Directors, directed the official liquidator to take possession of the assets after issuing notice to the present management of the company and to file a report. By order dated 13.02.2007 the petitioner was directed to hand over the assets of the company to the Official Liquidator within a period of two weeks failing which the Ex- Managing Director was to appear before the Court and file an affidavit as to why he could not hand over the assets to the official liquidator.

C.A. No. 401 of 2007 was filed by the Managing Director of the Petitioner Company, under Rule 9 of the Companies (Court) Rules, 1959, seeking appointment of a Committee of Advocate-Commissioners to take over the assets of the Company, dispose it off, adjudicate the claims of depositors and disburse the same to the deposit holders. This Court, by order dated 29.03.2007, noted that, in view of the criminal complaints made by the depositors, the Central Crime Station, Hyderabad had seized the entire records of the company on 28.02.1999 under a seizure panchanama, that the Managing Director and other Directors of the Company were not in a position to carry on business, that the Company owned large number of assets, some of which were under agreements of sale whereunder substantial amounts were paid to the vendors, that it was necessary to negotiate with the vendors and it was essential that the properties be disposed of expeditiously so as to settle the claims of the depositors after adjudication. This Court further noted that the Official Liquidator was already overburdened with the work of a number of companies which were under winding up, that if this matter was also to be dealt with by the official Liquidator it would take a long time which would cause hardship to the depositors as well as to the Ex-Directors of the company.

This Court took note of the report of the Official Liquidator that they had taken symbolic possession of the landed properties situated at Dacharam, Badwel, Anmagal, Gachibowli, Dasarapalli and Keesara on their being identified by the Managing Director's representative and had moved an application seeking a direction to the Central Crime Station to deliver the documents and records seized by them, that a reference was made to the absence of any statutory provision contemplating appointment of an Advocate-Commissioner to discharge the duties of the Official Liquidator especially when the Company had not been ordered to be wound up and that it was only the Official Liquidator, attached to the Court, who was competent to discharge the functions under the Act.

This Court, however, held that it had the power to entrust the work of disposal of the assets of the Company and adjudication of the claims to any other competent person taking into account the need for expeditious disposal of the assets and adjudication of the claims. This Court observed that it was its experience that the Official Liquidator took time even to take possession of the assets and that the Official Liquidator was already over-burdened with a large number of cases where he had to take appropriate steps for disposal of the assets, filing claim petitions, adjudication etc. This Court also noted that it had appointed an Advocate-Commissioner for winding up of M/s Southern Udhayans Limited wherein the number of claims of depositors was around 50,000, that this Court was able to get a good response from the Advocate-Commissioner, that a majority of the items of property had already been disposed of and that adjudication of a major part of the claims of the depositors had already been completed. This Court noted that the Official Liquidator was appointed as the Provisional Liquidator in respect of M/s Allwyn Watches Limited wherein he was able to depute only one company paid assistant. This Court held that it was just and appropriate to appoint Advocate-Commissioners for disposal of the assets of the company as well as for adjudication of the claims of the depositors of the company under liquidation and to pay off the realizable amounts to the claimants expeditiously. Sri M. Anil Kumar, Advocate was appointed as the Advocate-Commissioner and was asked to take over possession of the assets, dispose of the same and to adjudicate the claims of the depositors subject to further orders and directions of this Court from time to time. Sri L. Venkateswara Rao, Advocate was called upon to assist the Advocate Commissioner in discharging his duties. Both the counsel were held entitled for remuneration from out of the sale proceeds. The Official Liquidator was directed to hand over the properties of the Company under provisional liquidation to the Advocate-Commissioner.

In his report dated 07.08.2007, the Advocate-Commissioner informed that he had deputed two officials from the office of the Official Liquidator on 11.04.2007, along with the Ex-Managing Director, to take possession of the landed property of the Company under provisional liquidation and that they had reported that almost all the landed properties of the company were under litigation. The Advocate-Commissioner stated that he had taken symbolic possession of the landed property of an extent of Ac. 0-24 guntas in Sy. No. 64 of Anmagal, Hayatnagar Village on 11.04.2007 and that there were no boundaries for identification of the exact extent of land of the company, that C.A. No. 741 of 2007 had been filed for survey of the land which was still pending, that both the Ex-Managing Director and the Official Liquidator had brought to his notice that the land of the Company, of an extent of Ac. 8-63 cents in Sy. No. 55, 1376 & 1377 at Karedu Village, Ulavapadu Mandal, Prakasam District, was sold by the MRO, that the sale consideration was yet to be received, that C.A. No. 912 of 2007 was filed for appropriate orders, that pursuant to the orders of this Court the C.C.S. Police as well as the Metropolitan Sessions Judge, Criminal Court, Nampally, Hyderabad had handed over some of the books/records of the Company to the Advocate Commissioner and, after perusal of the available counter foils of the F.D. receipts of the company, it was observed that the Company had collected Rs. 1,59,34,300/- from depositors details of which were mentioned in Annexure-A to the report. The Advocate-Commissioner stated that some of the agents, of the company from Srikakulam area, had approached his office and had informed that the Company had collected Rs. 30.00 lakhs from the depositors in their area, that the Ex-Managing Director had not filed the Statement of Affairs and had not submitted any information/records in respect of the depositors of the company, that almost all the properties of the Company were under litigation, and that the Ex-Managing Director had not been cooperating with him. The Advocate Commissioner has sought permission to be relieved from liquidation proceeding entrusted to him by this Court on 29.03.2007.

In his report dated 10.08.2007 the Advocate-Commissioner states that the Ex-Managing Director of the Company had informed him that C.C.S Hyderabad had registered criminal cases against the Directors of the company in Crime Nos. 356/99, 540/2001 and 525/2002 which were numbered as C.C. Nos. 3/2001, 5/2002 and 64/03 and that, on C.A. No. 833 of 2007 being allowed, the Advocate Commissioner had brought the records from C.C.S Hyderabad and Metropolitan Sessions Judge's Court, Hyderabad.

The Managing Director of the petitioner company, along with his affidavit dated 28.09.2007, has furnished details of the criminal proceedings pending against the directors of the petitioner company which are as under:

LIST OF COMPLAINTS FILED BY DEPOSIT HOLDERS OF ASRA ESTATES LIMITED AGAINST THE FORMER DIRECTORS

Sl. Name of Police Station/Court FIR No. Complaint No. No. 1 IInd Sessions Metropolitan 97/2002 253/2005 Magistrate, Visakhapatnam (Visakhapatnam II Town P.S) 2 VIII Metropolitan Magistrate, 72/2002 140/2003 Visakhapatnam (Gajuwaka P.S.) 3 VII Metropolitan Magistrate, 192/2002 421/2003 Visakhapatnam (Gajuwaka P.S) 4 4th Court, Additional 35/2006 Judicial First Class Magistrate, Kakinada III Town P.S.) 5 3rd Court, Additional Judic- 52/2006 ial First Class Magistrate, Kakinada (Samalkota P.S.) 6 Judicial First Class 66/2006 350/2006 Magistrate, Tuni, (Tuni P.S.) 7 Addl. Judicial First Class 47/2006 Magistrate, Ramachandrapu- ram (Ramachandrapuram P.S.) 8 Junior Civil Judge cum First 52/2006 Class Magistrate, Alamuru (Mandapeta P.S.) 9 Special Judge for Economic C.C. No. 530/2002 Offences, City Criminal Co- urts, Nampally, Hyderabad 10. Metropolitan Sessions Judge, 540/2001 Nampally, Hyderabad (Central Crime Station, Hyderabad) 11. Metropolitan Sessions Judge, 356/1999 Nampally, Hyderabad (Central Crime Station, Hyderation) 12. Metropolitan Sessions Judge, 64/2003 Nampally, Hyderabad (Central Crime Station, Hyderabad)

WINDING UP: A REMEDY OF THE LAST RESORT:

Part VII of the Companies Act relates to winding up and Section 425, under Chapter I thereof, prescribes different modes of winding up to include winding up by the Court. Section 433, in chapter II of Part VII, confers a discretion on the Court to wind up the company under certain circumstances. Under Sub-section (a) thereof a company may be wound up by the Court if the company has, by a special resolution, resolved that it be wound up by the Court. A winding up petition, praying for the economic death of a company, is an extreme remedy to be resorted to sparingly. (Kesar Enterprises Ltd. v. IDI Limited Vol. (2002) 112 CC 174 (Bombay High Court)). The discretion to pass an order of winding up is, by Section 433, vested in the Court and that discretion has to be exercised judiciously. (Jugalkishore Benarsidas v. South India Saw Mills (P) Ltd. (1975) 45 Comp. Cas.273 (Kerala High Court)). A petition for winding up is not a remedy which can be resorted to as of right. Mysore Sales International Limited Vs. United Breweries Limited, . A winding-up petition, particularly after advertisement, assumes the character of a representative action on behalf of all the contributories and creditors of a company. It is the duty of the Court, therefore, to exercise its discretionary power of winding up a company with great care and caution. (Darjeeling Commercial Company Ltd v. Pandam Tea Co. Ltd. Vol. (1983) 54 CC 814).

Since the remedy of winding up is discretionary, and not as a matter of course, and is a remedy of the last resort, it is only if the conditions prescribed for its winding up are satisfied would the Court exercise its discretion to wind up the company.

SECTION 433(a): IS A SPECIAL RESOLUTION OF THE SHAREHOLDERS NECESSARY FOR A PETITION FOR WINDING UP TO BE FILED BY THE COMPANY ITSELF?

The conditions prescribed under Clauses (a) to (f) of Section 433 require strict compliance. To authorize the company to file a petition for its winding up, u/s 433(a), it is not enough that the shareholders of the company, by an ordinary majority, so permit. u/s 189(2), a resolution shall be a special resolution when (a) the intention to propose the resolution as a special resolution has been duly specified in the notice calling for the general meeting; (b) the notice required under the Act has been duly given of the general meeting; and (c) the votes cast in favour of the resolution by members are not less than three times the number of the votes cast against the resolution. It is only by a special resolution of 3/4th in value of the shareholders, attending the meeting and voting in favour, would the requirement of Clause (a) of Section 433 be satisfied.

When the Companies Act itself prescribes a special resolution to be passed, and not merely an ordinary resolution, can it be said that failure on the part of the Board of Directors, even to place it before the general body of the shareholders of the company for its decision, would enable the High court to wind up such a company? While the Board of Directors are in overall charge of the management of the company, its ownership rests with the shareholders. The distinction between the management of the company and its ownership has to be borne in mind. A company functions under its "basic Constitution" consisting of the Companies Act and the Memorandum of Association. The members in a general meeting and the directorate are the two primary organs of a company. The Directors are answerable to the shareholders in a general meeting. The modern practice is to confer on the Directors the right to exercise all the company's powers except such as the Companies Act and the Articles of Association of the Company expressly provide must be exercised in a general meeting of the share- holders. Life Insurance Corporation of India Vs. Escorts Ltd. and Others, . Unlike the Board of directors who may not have any monetary stake in the company, it is the interest of the members of the company, who have invested in its share-capital, which will be adversely affected on the Company being wound up. The Board of Directors of the Company cannot be held to have the power, to file a petition for winding up of the Company, on their own without authorization of the general body of members of the company, that too by a special resolution.

A similar question fell for consideration, in "In re Patiala Banaspati and Allied Products Co. Ltd. Doraha AIR 1953 PEPSU 195", where a petition for winding up of the company was submitted in the name of the company by its Managing Director, u/s 162 of the Companies Act, 1913, without the authority of the General meeting. Section 162 of the Companies Act, 1913 is in parimateria with Section 433 of the Companies Act, 1956. The PEPSU High Court held:

...the right to petition is thus conferred by statute upon the above mentioned persons. Sections 166 and 162. Cl. (1) should be read together and if they are so read, there can be little doubt that it is the company that can apply for compulsory winding up and in that case the company can be wound up only when its members assembled in a general meeting decide to present a petition for winding up by the Court. If the petition is to be by the company it must have behind it the decision of the general meeting. Section 162 Cl. (1) says that a company may be wound up by the Court if the company has by a special resolution resolved that it be wound up by the court. The Managing Director or for the matter of that any number of Directors cannot constitute the company for the purposes of making an application for the purposes of making an application for winding up. It may be that the Directors in case they find the company to be insolvent or unable to pay its debts, or in case there is any other urgent or important matter affecting the company which requires an investigation by the court, would be justified in applying to the court for compulsory winding up, but if they make such an application they would be doing so in their individual capacity and not in the name of the company. The present petition was, as stated above, submitted in the name of the company and was subscribed for it by the Managing Director. The Managing Director or the Board of Directors through whom S. Sewa Singh Gill claims to have derived his authority to present the petition for winding up do not form the company, as the company has other members also nor had they any power under the law or the Articles of Association to present the petition in the name of the company without the authority of the resolution passed at a general meeting. The company means the company as composed of all its members and for a matter as grave as compulsory winding up, their views must be consulted and expressed by a resolution adopted at a general meeting. It is true that the Managing Director does under the Articles of Association possess the power to institute of defend suits or other litigation on behalf of the company. But that power, in my opinion, does not include the power to make an application for winding up in the name of the company; as it is the company itself which will decide whether to apply for compulsory winding up or not. Of course, if it decides to do so, it might authorize the Managing Director or any other member or person to make the necessary petition....

Reliance however is placed by Sri L. Venkateswara Rao, Learned Counsel appearing on behalf of the petitioner company, on State of Madras v. Madras Electric Tramways Ltd. AIR 1956 Mad 131 to contend that, even in the absence of a Special resolution by the Company, the Board of Directors are entitled to present a petition on behalf of the company seeking its winding up.

In Madras Electric Tramways Ltd. AIR 1956 Mad 131 a petition for winding up was made on behalf of a company, incorporated under the English Companies Act with its registered office in England, by its duly constituted attorney. The principal place of business of the petitioner company was situated in Madras. Winding up of the Company was sought on the grounds that the company had ceased to carry on business and that it was unable to pay its debts. The petitioner prayed that it may be wound up by the Court as an unregistered company under the provisions of the Indian Companies Act. The petition was supported by two of the creditors of the Company who filed their affidavits. While the respondents did not dispute the facts stated in the petition, their objection was to the maintainability of the winding up petition itself on the ground that a foreign company doing business in India could not itself file an application for its being wound up and that such a petition could be filed only at the instance of its creditors or its contributories. u/s 271(3) of the Companies Act, 1913, a company incorporated outside India, which was carrying on business in India and had ceased to carry on such business, could be wound up as an unregistered company under Part IX, notwithstanding that it had been dissolved or had otherwise ceased to exist as a Company under, or by virtue of, the laws under which it was incorporated. Under Article 99, of the Articles of Association of the petitioner company, the Directors were empowered to exercise all such powers and do all such acts and things as could be exercised or done by the Company. The Division bench of the Madras High Court, after holding that there was no statutory provision expressly requiring the consent of a general meeting for the presentation of a winding up petition and that the Directors had the power to do what the company could have done, namely, to present the petition, observed:

...The next contention was that even assuming that a foreign company as an unregistered company can file a petition for winding it up, it can do so only when the company at a meeting of its shareholders has resolved to file such a petition. In the present case there has been no such decision or resolution. Though the Directors may have large powers in the conduct of the affairs of the company, they cannot themselves decide to put an end to the corporate existence of the company. He sought support for this contention in the provisions of Section 162 of the Indian Companies Act as interpreted by him. That section runs as follows:

A company may be wound up by the Court -

i. if the company has by special resolution resolved that the company be wound up by the court;

ii. if default is made in filing the statutory report or in holding the statutory meeting;

iii. if the company does not commence its business within a year from its incorporation, or suspends its business for a whole year;

iv. if the number of members is reduced, in the case of private company, below two or in the case of any other company, below seven;

v. if the company is unable to pay its debts;

vi. if the Court is of opinion that it is just and equitable that the company should be wound up.

According to the learned Advocate General, it follows from the provisions of this section that a company can be wound up by the court on an application by the company only if the requirement of Clause (i) is complied with, that is to say, only if the company has by special resolution resolved that the company be wound up by the Court. In the absence of such a resolution, even if one or other of the other conditions in Clauses (ii) to (vi) is satisfied, the Directors on behalf of the company cannot file a petition for winding up the company.

There is nothing in Section 162 or Section 166 of the Indian Companies Act which compels one to come to this conclusion. The only direct authority which the learned Advocate General was able to cite in support of his contention is a decision in - In re Galway and Salthill Tramways Co. 1918-1 Ir R 62 (D). There the directors of a company presented a winding up petition in the name of the company. An objection was taken by some of the shareholders who opposed the petition that the petition not having been authorized by a meeting of the shareholders was incompetent. O''Connor M.R. held that the directors as such had no power to present the petition. This was because the powers of the directors were only powers of managing and the object of management is the working of the company's undertaking, while the object of a winding up is its stoppage.

Therefore, the powers of the directors would not include a power to bring about the stoppage of the company's affairs without the authority of the shareholders.

The learned Master of the Rolls, however, did not think it fit to dismiss the petition on this ground. In his opinion the proper course to adopt was to adjourn the hearing so as to enable the directors duly to summon a meeting of the shareholders with the object of getting authority from them to proceed on the petition, because it was open to the company to ratify the unauthorized proceeding of the directors....

...Even assuming that the Irish precedent should be followed by us, the petition cannot be dismissed, but it should be adjourned to enable the directors to summon a meeting of the shareholders and obtain their authority. I am not sure if this is what the learned Advocate General wants, because it is obvious that the shareholders are not against this petition, as by this time they should have been aware of the proceeding and no one has come up to protest against the action of the directors. The share-holders must in the circumstances be deemed to have impliedly ratified the action of the directors.

Our attention was also drawn to the decision of a single learned Judge of the Pepsu High Court in - In re ''Patiala Banaspati etc., Co. AIR 1953 Pep 195 which certainly supports his contention but with respect I am not inclined to follow it.

The argument of the learned Advocate General that the directors only cannot put an end to the company's existence by filing a winding up petition does not appeal tome because the court is not bound to direct a winding up merely because the directors have presented a petition. The Court will make a winding up order only if it is satisfied that the requirements of the law are satisfied and the facts justify the course. Moreover it will be open to the shareholders to oppose the petition and to apprise the court of the fact that the majority of the shareholders are opposed to the petition. It will be then open to the court before passing final orders to have a meeting of the shareholders convened a ascertain the wish of the majority....

The Judgment of the Division bench of the Madras High Court in Madras Electric Tramways Ltd. AIR 1956 Mad 131 can neither be extended to winding up of companies incorporated under the Companies Act, 1956 nor can it be so read as to hold that the High Court should exercise its discretion to wind up a company, u/s 433(a), on a petition presented by the Managing Director of the company without being supported by an authorization from the General body of its shareholders, let alone by a special resolution.

This question can be examined from another angle also. u/s 439(1) an application to the Court, for winding up of the Company, shall be presented, by way of a petition, by:

(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 u/s 243, by any person authorized by the Central Government in that behalf.

The aforesaid categories of applicants in Clauses (a) to (f) of Section 439(1) must also satisfy the requirements of Sub-sections (2) to (8) of Section 439 for being entitled to present a petition for winding up.

It is only on a petition being presented by any of the aforesaid categories of applicants would the High Court have the jurisdiction u/s 433 of the Companies Act to exercise its discretion to order winding up of the company. A conjoint reading of Sections 439(1)(a) and 433(a) would require a petition for winding up, presented by the Company itself, to be supported by a special resolution of the shareholders of the company resolving that the company be wound up by Court. While a Managing Director may present a petition for winding up on behalf of the company, he cannot, on his own accord and without authorization of the company by a special resolution, present the petition either by himself or on being authorized to do so by the Board of Directors. A resolution of the Board of Directors cannot be a substitute for the special resolution of the shareholders of the company. Any such interpretation would render the very prescription of Clause (a) in Section 433 and the words "by special resolution resolved" used therein redundant and inapposite surplussage. As noted above, since winding up is a remedy of the last resort strict compliance, of the statutory conditions prescribed in this regard, is essential.

DOES THE HIGH COURT HAVE THE INHERENT POWER TO SUO MOTU ORDER WINDING UP OF A COMPANY?

The question which, however, remains to be examined is whether the power to wind up a company, without a petition being present by the categories specified in Clauses (a) to (f) of Section 439(1), inheres in the High Court, more particularly u/s 433(f), when the Court is of the opinion that it is just and equitable that the company be wound up? Section 443 relates to the power of the Court on hearing of a winding up petition and, under Sub-section (2) thereof, it is in the discretion of the Court to refuse an order of winding up, on a petition presented on the ground that is just and equitable that the company be wound up, if the Court is of the opinion that some other remedy is available to the petitioner and that they are acting unreasonable in seeking to have the Company wound up instead of pursuing the other remedy. Existence of an alternative remedy, and failure to pursue it without reasonable cause, is enough ground to refuse an order of winding up a company under the "just and equitable clause", for the remedy u/s 433(f) is a remedy of the last resort. Hind Overseas Private Limited Vs. Raghunath Prasad Jhunjhunwalla and Another, . Sections 397 and 398 respectively enable an application to be made to the Company Law Board for relief in cases of oppression and mismanagement and where such a remedy has not been invoked without just cause, the Court may refuse to exercise its discretion u/s 433(f) to Order winding up of the Company on just and equitable grounds. It is, however, necessary to note that the right to make an application under Sections 397 and 398 is limited to the categories specified in Section 399. Just as a complaint of oppression and mismanagement must satisfy the requirements of Section 399 for it to be entertained by the Company Law Board, a petition for winding up must satisfy the requirement of Section 439(1) before it can be entertained by the High Court.

The provisions of the Companies Act restrict and circumscribe exercise of discretion by the Court, to wind up a company, only on its jurisdiction being invoked by the categories of persons specified in Clauses (a) to (f) of Section 439(1). Since the underlying purpose of the Act is to regulate the functioning of companies, and it is only when the circumstances are such that the company can no longer, or has ceased to, function, would its end be brought about by the process of winding up, it is only on a petition filed by persons specified in Clauses (a) to (f) of Section 439(1), and on the conditions of Sub-sections (2) to 8 of Section 439 and Clauses (a) to (f) of Section 433 being satisfied, would the Court exercise its discretion to wind up the company. In the light of the express stipulation u/s 439(1) it is only the persons specified therein and none other who can invoke the Court's jurisdiction to order winding up of a company.

The High Court, while exercising jurisdiction under the Companies Act, has to act in accordance with the provisions of the Act and the Rules made thereunder. Since exercise of discretion to wind up a company is circumscribed and limited to the circumstances mentioned u/s 433, that too on a petition presented to it by one or the other categories of persons mentioned in Section 439(1), it is difficult to read an inherent power of the High Court to suo motu wind up a company.

THE EXTENT AND LIMITS OF THE INHERENT POWERS u/s 151 C.P.C. APPLY EQUALLY TO RULE 9 OF THE COMPANIES C0URT RULES, 1959:

Rule 9 of the Companies Court Rules, 1959 relates to the inherent power of the Court and provides that nothing in the rules shall be deemed to limit or otherwise affect the inherent powers of the Court to give such directions or pass such orders as may be necessary to meet the ends of justice or to prevent abuse of the process of the Court. Rule 9 of the Companies Court Rules, 1959 is a replica of Section 151 of the CPC excepting that for the word "rules" the word "Code" has to be substituted. The extent and limit of the inherent powers u/s 151 C.P.C. will apply mutatis mutandis to Rule 9 also. P.R.M. Abdul Huq Vs. Katpadi Industries Ltd. and Another, .

It is well settled that the inherent powers of the Court cannot override the express provisions of the law. Purapabutchi Rama Rao Vs. Purapa Vimalakumari, ; In re Shri Ambica Mills Ltd. 1986 (59) Comp. Cas. 368 and cannot be exercised contrary to the express provisions of the Act. Commissioner of Income Tax, Mumbai Vs. Anjum M.H. Ghaswala and Others, ). The power u/s 151 CPC may be exercised where there is a proceeding lawfully before the High Court. It does not authorise the High Court to invest itself with jurisdiction where it is not conferred by law. Raja Soap Factory and Others Vs. S.P. Shantharaj and Others, . Inherent jurisdiction of the Court must be exercised subject to the Rule that if the Code contains specific provisions which would meet the necessities of the case, such provisions should be followed and inherent jurisdiction should not be invoked. Nain Singh Vs. Koonwarjee and Others, ; Padam Sen and Another Vs. The State of Uttar Pradesh,

If there are specific provisions of the Code dealing with a particular topic and they, expressly or by necessary implication, exhaust the scope of the powers of the Court, or the jurisdiction that may be exercised in relation to a matter, the inherent power of the Court cannot be invoked in order to cut across the powers conferred by the Code. Arjun Singh Vs. Mohindra Kumar and Others, . Express provisions, exhaustively covering a particular topic, necessarily imply that no power shall be exercised in respect of the said topic otherwise than in the manner prescribed by the said provisions. Ram Chand and Sons Sugar Mills Pvt. Ltd. Vs. Kanhaya Lal Bhargava and Others, . Since Section 439 of the Companies Act is an express provision as to who can present a petition for winding up of a Company, it necessarily implies that no power should be exercised by the High Court, otherwise than in the manner prescribed by Section 439, to entertain a petition for winding up of a company. The power under Rule 9 of the Companies Court Rules, 1959 does not authorize the High Court to invest itself with jurisdiction to suo motu order winding up of a company, as such a power is not conferred upon it by the Companies Act.

RULES CANNOT TRAVEL BEYOND THE SCOPE OF THE ACT UNDER WHICH IT WAS MADE:

The inherent power which a Court has under Rule 9 is notwithstanding anything contained in any other Rule. The inherent powers conferred by way of rules, made in exercise of the powers conferred by Section 643 of the Companies Act, cannot so read as to confer an inherent power on the Court to act contrary to the provisions of the Companies Act under which these rules were made, for it is well settled that the conferment of rule-making power by an Act does not enable the rule-making authority to make a rule which travels beyond the scope of the enabling Act or which is inconsistent therewith or repugnant thereto. State of Karnataka and Another Vs. H. Ganesh Kamath and Others, . Rules can neither be framed as not to carry out the purposes of the Act nor can it be in conflict therewith. Laghu Udyog Bharati and Another Vs. Union of India and Others, . Subordinate legislation cannot violate plenary legislation. Kerala Samsthana Chethu Thozhilali Union Vs. State of Kerala and Others, . A protection given by the statute cannot be nullified by rules and regulations authorised by the statute itself. The Management of D.T.U. Vs. Shri B.B.L. Hajelay and Another, . As the Companies Act does not confer power on the High Court to suo motu wind up a company, such a power cannot be said to inhere in it by virtue of Rule 9. The provisions of the Companies Act, more particularly in matters relating to winding up, must be strictly construed and when so read the High Court cannot be said to have the inherent power to suo motu order winding up of a company without even a valid petition for its winding up being presented to it.

APPOINTMENT OF A PROVISINAL LIQUIDATOR WOULD NOT BY ITSELF NECESSITATE WINDING UP OF A COMPANY:

The provisions of the Act and the Rules must be read harmoniously and the Rules must be interpreted so as to conform to the statutory provisions contained in the Act. The Companies Act makes a clear and specific distinction between the stage of presentation of a petition for winding up and the stage when the petition is admitted and is directed to be advertised. The stage of presentation of the petition is anterior to the stage of admission. Section 450(1) of the Act provides that the Court has the discretionary jurisdiction to appoint a provisional liquidator in an appropriate case at any stage after the petition for winding up is presented. Rule 106 of the Companies (Court) Rules, 1959 merely enables the Court to appoint a Provisional Liquidator after admission of the petition. The said rule is procedural and cannot be so construed as to wipe out the statutory jurisdiction of the Court u/s 450 of the Act to appoint a Provisional Liquidator after presentation of the petition for winding up of the company and before admission thereof. In a situation where the Court is prima facie satisfied as to jeopardy to the assets of the Company, or a strong case for appointment of a provisional liquidator is made out on some other relevant grounds, the Court would be justified in appointing a provisional liquidator of the Company immediately on presentation of the petition, as provided in Section 450(1) of the Act. Darshan Anilkumar Patel Vs. Gitaneel Hotels Pvt. Ltd. and others, . The mere fact that a Provisional Liquidator has been appointed would not, by itself and without anything more, justify winding up of a company more particularly when none of the conditions prescribed under the Act, to enable the High Court to exercise its jurisdiction in this regard, are satisfied.

In the case on hand there is not even a resolution of the Board of Directors, let alone a special resolution of the shareholders, that the company be wound up. There is no justification, therefore, in entertaining such a petition for winding up of the company on the premise that this Court has the inherent power to, suo motu, order winding up of the company.

HIGH COURT CAN, u/s 237(a)(ii) OF THE ACT R/W RULE 9 OF THE COMPANIES COURT RULES, DIRECT THE CENTRAL GOVERNMENT TO INVESTIGATE INTO THE AFFAIRS OF THE COMPANY:

Since, however, this Court has already appointed a Provisional Liquidator with a view to protect and safeguard the interests of the depositors, the consequence of rejecting the petition for winding up should not result in their being left to the mercy of unscrupulous persons in-charge of the management of the Applicant Company.

It is evident that the petition presented by the Managing Director, for winding up of the company, is just a ruse to avoid repayment of the deposits taken from several thousand depositors and to evade criminal liability. The Advocate Commissioner, in his report dated 07.08.2007, has informed that, even from the counter-foils of the available F.D. receipts of the petitioner-company, it was clear that Rs. 1.59 crores had been collected from several depositors and that, in addition, some of the agents from Srikakulam had informed that the Company had collected Rs. 30.00 lakhs from the depositors of that area. Neither the Managing Director nor any of the other Directors of the petitioner-company have chosen to file the Statement of Affairs. As such there are no details forthcoming as to the exact amount which the petitioner company had received from its depositors. The report of the Advocate Commissioner also shows that almost all the properties of the petitioner company are under litigation and that the Managing Director did not extend any cooperation for early resolution of these disputes. The company petition, as presented by the Managing Director, without even a resolution of the Board of Directors, let alone satisfying the requirement of a special resolution of the shareholders in the general meeting, is clearly an abuse of process of Court.

While the petition filed for winding up is not maintainable, and this Court does not have the jurisdiction to suo motu wind up the company, the only action which this Court can take, to ensure that ends of justice are met and the several thousand depositors are not left to the mercy of unscrupulous persons in the management of the petitioner company, is to exercise its inherent powers under Rule 9 of the Company Court Rules and declare, u/s 237(a)(ii) of the Companies Act, that the affairs of the petitioner company be investigated by an Inspector to be appointed by the Central Government. It is well to remember that the High Court is not invested with powers of investigation. All that it can do is to exercise jurisdiction u/s 237(a)(ii) of the Companies Act and direct the Central Government, to carry out an investigation, to enquire into the mis-management, misappropriation and other illegal acts indulged in by persons in management of the petitioner company. After an investigation is conducted, and the report is submitted to the Central Government, the Central Government shall take appropriate action in accordance with law. Uunet India Limited and Others Vs. I.C. Rao and Others, .

Since the Advocate Commissioner has expressed his inability to continue any further, he is permitted to hand over all the records, of the Company in provisional liquidation, available with him to the Official Liquidator after preparing a list of such documents. The Official Liquidator shall take over custody of these records and retain it till it is otherwise required either by the Inspector to be appointed by the Central Government or by any of the Criminal Courts wherein cases are pending against the Managing Director and other Directors of the petitioner company.

The Central Government shall, within one month from the date of receipt of a copy of this order, appoint an Inspector to investigate the affairs of the petitioner company and direct him to submit his report within a specified period. A copy of this order be furnished to the Official Liquidator attached to the High Court of A.P. who, in turn, shall forward a copy thereof to the Ministry of Company Affairs, Government of India, for necessary action. Since the depositors have already initiated action against the former Directors of the petitioner company and matters are pending in several Criminal Courts, it is made clear that the criminal proceedings shall go on and be completed at the earliest. The Official Liquidator shall inform the Presiding Officers of the concerned Criminal Courts, as referred to herein above, that the company petitioner is no longer pending adjudication before this Court and that they may proceed and try the criminal cases, in accordance with law, at the earliest. Since the Company Petition itself is being disposed of, the interlocutory applications filed therein do not necessitate examination and are, therefore, dismissed.

C.P. No. 3 of 2007 is disposed of and C.A. Nos. 741, 911, 912, 977 and 1227 of 2007 are, accordingly, dismissed.