RAJAHMUNDRY ELECTRIC SUPPLY CORPORATION LTD. v. A. NAGESWARA RAO AND OTHERS.
Citation: [1955] 2 S.C.R. 1066; 1955 INSC 76
Court: Supreme Court of India
Bench: VIVIAN BOSE , T.L. VENKATARAMA AIYYAR
Judgment date:
Case summary
1955 INSC 76. Supreme Court of India judgment dated 1955-12-16. RAJAHMUNDRY ELECTRIC SUPPLY CORPORATION LTD. v. A. NAGESWARA RAO AND OTHERS. Read the...
Judgment text
1955 K. C. MaJ/itw and oth. trs v. The State of T ravancore-Cochin Bolt J. 1955 Decembtr 16. 1066 SUPREME CO:URT REPORTS (1955] but when it allowed the appeal by the State and passed the lesser sentence it said that "the sentences passed on each accused will run con~rrently". We are not sure whether the learned Judges meant that the sentences imposed by ihem should run concur- rently with the others or whether they meant to allow the appeal to that extent. In order to remove all doubts, we allow the appeal to the extent of direct- ing that the sentences imposed on each accused shall run concurrently and not consecutively. Except for that, the appeal is dismissed. RAJAHMUNDRY ELECTRIC SUPPLY CORPORATION LTD. ti. A. NAGESWARA RAO AND OTHERS. [VIVIAN BosE and VENKATARAMA AYYAR JJ. ] Indian Companies Act, 1913 (Vil of 1913), s. 153-C sub-clause (J)(a)(i) and s. 162(v) and (vi)-Application for an order under s. 153-C-Validity t!
tereof to be judged Oil the facts at the time of presentation thereof-Subsequent events-Effects thereof-Order under s. 153-C-Whether competent before facts proved make out a case for u1inding up under s. 162-Wordsi "just and equitable" in s. 162(vi) -Whether ejusdem generis with the matters mentionned in clauses (i) to (v) of the section--Mere misconduct of Directors in misappropriat. ing funds of a Company-Apart from other circumstances-Whether warrants an order for the winding up of a Company-CircumstanceJ under which an order for winding up can be passed by the court. An application was filed by the first respondent under s. 162 clauses (v) and (vi) of the Indian Companies Act for the winding up of the Company on the grounds, inter-alia, that the affairs of the Con1pany were being mismanaged and that the directors had mis- appropriated the funds of the Company. In the alternative it was prayed that action might be taken under s.
153-C and appropriate orders be passed to protect the interests of the shareholders. The High Court held (i) that the charges set out in the application had been substantially prove~ and that it was a fit case for an order for winding up being made under s. 162 (vi) and (ii) that under the circumstances action could be taken under s. 153-C and accordingly it appointed two administrators with all the powers of directors to look after the affairs of the Company. On appeal by special leave to the Supreme Court by the Company it was contended that the 2S. C. R. SUPREME COURT REPORTS 1067 application under s. 153-C was not maintainable inasmuch as there was no proof that the applicant had obtained the consent of requisite number of shareholders as provided in sub-clause (3)(a)(i) to s.
153-C, that clause providing that a member applying for relief must obtain the consent in writing of not less than one hundred members of the Company or not less than one-tenth of the members of the Company whichever is less.. It was alleged that thirteen members who had given their consent to the filing of the application had sub- sequently withdrawn their consent. Held, that the validity of a petition must be judged on the facts as they vv· ere at the time of its presentation, and a petition which was valid when presente ration Ltd. v. A .. Vage1wara Raa and others V enkalarama Ayyar J. 1074 SUPREME COURT REPORTS [1955] which bars the jurisdiction of the court to make such an order. Loch v. fohn Blackwood Ld.
( 1 ) was it- self a case in which the order for winding up was asked for on the ground of mismanagement by the directors, and the law was thus stated at page 788 : · '·It is undoubtedly true that at the foundation of applications for winding up, on the 'just and equitable' rule, there must lie a justifiable · lack of confidence in the conduct and management of the company's affairs. But this lack of confidence must be grounded on conduct of the directors, not in re- gard to their private life or affairs, but in regard to the company's business. Furthermore the lack of confidence must spring not from dissatisfactio·1 at being outvoted on the business affairs or on what is called the domestic policy of the company. On the other hand, wherever the lack of confidence is rested on a lack of probity in the conduct of the company's affairs, then the former is justified by the latter, and it is under the statute just and equitable that the company be wound up".
Now, the facts as found by the courts below are that the Vice-Chairman grossly mismanaged the affairs of the Company, and had drawn considerable amounts for l,iis personal purposes, that arrears due to the Government for supply of electric energy as on 25-6-1955 was Rs. 3,10,175-3-0, that large collections had to be made, that the machinery was in a state of disrepair, that by reason of death and other causes the directorate had become greatly attenuated and "a powerful local junta was ruling the roost", and that the shareholders outside the group of the Chair- man were apathetic and powerless to set matters right. On these findings, the courts below had the power to direct the winding up of the Company under section 162(vi), and no grounds have been shown for our interfering with their order. It was urged on behalf of the appellant that as the Vice-Chairman who was responsible for the mis- management had been removed, and the present (') [1924] A. G. 783, 790. 2S. C. R.
SUPREME COURT REPORTS 1075 management was taking steps to set things right and to put an end to the matters complained of, there was no need to take action under section 153-C. But the findings of the courts below are that the Chairman himself either actively co-operated with the Vice- Chairman in various acts of misconduct and mal- administration or that he had, at any rate, on his own showing abdicated the entire management to him, and that as the affairs of the Company where in a state of confusion and embarrassment, it was neces- sary to take action under section 153-C. We are of opinion that the ~earned Judges were justified on the above findings in passing the order which they did. It was also contended that the appointment of administrators in supersession of the directorate and vesting power in them to manage the Company was an interference· with its internal management.
It is no doubt the law that courts will not, in general, intervene at the instance of shareholders in matters of internal administration, and will not interfere with the management of a company by its directors, so long as they are acting within the power conferred on them under the Articles of Association. But this rule can by its very nature apply only when the company is a running concern, and it is sought to interfere with its affairs as a running concern. But when an application is presented to wind up a com- pany, its very object is to put an end to its existence, and for that purpose to terminate its management in accordance with the Articles of Association and to vest it in the court. In that situation, there is no scope for the rule that the court should not interfere in matters of internal management.
And where accordingly a case had been made out for an order for winding up under section 162, the appointment of administrators under section '153-C cannot be attacked on the ground that it is an interference with the inter- nal management of the affairs of the Company. If a Liquidator can be appointed to manage the affairs of a company when an order for winding up 1s made under section 162, administrators could also be 1955 Rajahmund1y Electrie Supply Corporation Ltd. V· A. Nageswara Rao and others Vmkatarama Ay. var J. 1955 Rajalzmundry Eketric Supp/;! Corporation Ltd. v. A· Nageswara Rao and others 1955 D1tnnbt' 19. 1076 SUPREME COURT REPORTS appointed to manage its affairs, when action under section 153-C. This contention must ingly be rejected. [1955] is taken accord- In the result, the appeal fails and is dismissed with costs, of the first respondent. The costs of the administrator will come out of the estate. THE UNION OF INDIA v.
THE COMMERCIAL TAX OFFICER, WEST BENGAL AND OTHERS (WITH CONNECTED APPEAL) [S, R. DAs, ACTING C. J. , VIVIAN BosE, BHAGWATI, JAGANNADHADAS and B. P. SINHA JJ. ] Sales Tax-Sale of hessian to the Ministry of Industry and Supplies of the Government of India-If exempt from payment of sales tax-Bengal Finance (Sales Tax) Act, 1941 (Bengal Act VI of 1941), s. 5(2)(•)(iii). . -Per S. R. DAs, AcTING C. J. , V1v1AN BosE, BHAGWATI AND JAGANNADHADAS JJ. , SINHA J. · dissenting. -The exemption created by the provisions of s. 5(2)(a)(iii) of the Bengal Finance (Sales Tax) Act of 1941 must be construed strictly and cannot be extended to sales to Government departments other than those mentioned there- in. The Department of Industries and Supplies, which was subse- quently rcdesignated as the Ministry of Industries and Supplies, was not ·the same as the Indian Stores Department or the Supply Dc-- partmcnt of the Government. of India and~ consequently, sales _made to the Ministry of Industries and.
Supplies are not exempt from pay~ ment of sales tax under that section. In a welfare State with ever expanding activities in different fields including trade and commerce, Government departments arc often entrusted with the performance of well~defined activities and are authorised to deal with the outside world and enter into transac- tions in the . same way as an ordinary person or a Company may do and may well 0 be. regarded as distinct units or quasi-legal entities for μie ·purpose for which they are created. Consequently, the. sales _of hessian made to the Ministry of Industries and Supplies of the Government of India by the appel- lant Mills were hot exempt from payment of sales tax under the Act and the State of West Bengal was entitled to levy the same.
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