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Winding up of the company by the Tribunal

on just and equitable ground


A company may, on a petition under section 272 of the Companies Act, 2013, be wound up by
the Tribunal of the Tribunal is of the opinion that it is just and equitable that the company should
be wound up (Under clause (g) of section 272). The literal meaning of just and equitable can be
fair and impartial or reasonable.
In the UK, a compulsory winding-up can be achieved on grounds of fairness under the
Insolvency Act 1986, section 122 (1) (g). This may occur, for example, when the purpose of the
company cannot be achieved, when the management is deadlocked or has been guilty of serious
irregularities, or, in small companies run on the basis of mutual trust between members, when the
majority has exercised their legal rights in breach of a common understanding between the
members when the company was formed. No order will be made if another form of minority
protection would be more appropriate (Insolvency Act, section 125 (2); this might, for example,
be a relief for unfair prejudice under the Companies Act 2006 (section 99496).
The expression just and equitable used in section 433 (f) of the Companies Act, 1956 is not
ejusdem generis (of the same kind or nature) with the other clauses for winding-up in the statute.1
In the other words, the Court (now Tribunal) will consider such grounds to wind up a company
for just and equitable reason as are not like those specified in the preceding clauses. All these
grounds are not extensive, but distinctly independent. In application of just and equitable rule,
the Tribunal will consider not only the interest of the shareholders but also that of the creditors.2
Where the respondents application for winding-up is not motivated by desire to do justice to the
company or to see that justice is done to shareholders, but for private reasons, that is to injure

1 Sulekha Works ltd. (in Re), AIR 1965 Cal 98.


2 Mohanlal vs Grain Chambers, AIR 1968 SC 772.

directors for acts of omission and commission in which the respondent himself is party, the stay
of winding up in such circumstance may be granted.3

Where the substratum of the company has failed


The substratum of a company is deemed to have failed1. When the subject-matter of the company is gone or the raison de entre (the reason for
existence of the company is gone).
2. Where it is impossible to carry on the business of the company except at a loss which means
that there is reasonable hope that the object of trading at a profit can be attained.
3. Where the object for which it was incorporated has substantially failed.
4. When the existing or probable assets are insufficient to meet the existing liabilities.
When none of these four tests can apply to the facts of the case, the company cannot be wound
up on the ground of disappearance of substratum of a company. It is just and equitable to order
winding-up a company when the paramount or main object of a company for which it was
incorporated cannot be achieved at all or has failed.
But the substratum of a company is not deemed to have gone where there has been loss of certain
means through which it has been carrying out the objects of a company provided those objects
can still be carried on through other means or by the employment of other agencies.4 In Bleriot

3 Jagannath Gupta vs Mulchand Gupta, AIR 1969.


4 (1916) 32 TLR 253.

Aircraft Co.5, the company was ordered to be wound up when its substratum was gone. The
company was incorporated to acquire the English portion of the aircraft of the business of M.
Bleriot, but he refused to perform the contract. Similarly, in the other case, the company was
formed with the object of manufacturing coffee from dates under patent to be obtained from the
German Government and other product. The German Government did not grant the said patent.
The company acquired a Swedish patent for the same purpose. On a petition for winding up of
the company, it was held that the company should be wound up, for the substratum of the
company has failed.

In Madhusudan Goverdhandas vs Madhu Wollen Industries6 case, the Supreme Court in dealing
with the question whether or not the substratum of the company has gone, observed that, the
mere fact that the company has suffered trading losses will not destroy its substratum unless
there is no reasonable prospect of it even making a profit in the future and the court is reluctant
to hold that it has not such prospect.
In Kumarapuran Gopalkrishnan vs Burdwan-Cutwa Rly ltd7, it was held by examining the
principles enunciated in the subtrantum cases that the question whether or not the company
substratum has gone in a case would primarily depend on the true construction of the
memorandum of the company in so far as its objects are concerned.
Where there is a deadlock on the Management
If on the facts of a case it appears that there is a deadlock in the management of the company, the
Tribunal will order winding-up on the just and equitable ground. In Yenidje Tobacco Co ltd8,
there was a complete deadlock in the management due to bitter hostility between two directors of
5 (1882) 20 Ch D 1109.
6 (19720 Comp Cas 125.
7 (1978( 48 Comp Cas 211.
8 (1916) 2 Ch 426 (CA).

the company. In spite of large profits of the company, it was ordered to be wound up. Similarly,
in Davis and Collet ltd9, rivalry between directors was held to be a good ground to wind up the
company. But the Clcutta HC held the view that the winding-up of a company should not be
ordered merely on the grounds of friction and disputed between the directors.10 It seems that not
scramble for power between two rival groups of directors is sufficient ground to wind up the
company.11

Where there is Mismanagement by the Directors


In a domestic or family company if there has been a continuous mismanagement by the majority
of the directors, the company may be wound up for just and equitable ground. A simple example
would be the managing director holding majority shares does not convene meetings regularly,
submits improper accounts, and there is suspicion of his ill motive in doing all these. In such
case, the company is wound up.12
Where the company is formed for a fraudulent purpose
If a company is formed with intent to carry out a fraud or to carry on the illegal business, it is just
and equitable to order winding-up that company. Of course, fraud is the issue of prospect, or
fraud in carrying the business13, is not a ground for winding up of the company. On the other
hand, single or isolated fraud other than a series of fraud on a planned basis to enrich the
9 (1953) Ch 693.
10 Hind Overseas Ltd (1968).
11

Saharay H.K., Company Law (textbook) 5th Edn.

12 Loch vs John Blackwood ltd (1924) AC 783.

company, is not to be considered a just and equitable ground to wind up the company. The only
condition is that an isolated fraud to enrich the company.14
In Hind Overseas Pvt Ltd Vs Raghunath Prasad15, it was held that it is now well established
that the sixth clause, namely, 'just and equitable' is not to be read as being ejusdem generis with
the preceding five clauses. While the five earlier clauses prescribe definite conditions to be
fulfilled for the one or the other to be attracted in a given case, the just and equitable clause
leaves the entire matter to the wide and wise judicial discretion of the court. The only limitations
are the force and content of the words themselves, 'just and equitable.

13 Haven Gold Co. and Medical Battery Co cases.


14 Gonga P P S, Textbook on Company Law.
15 1976 AIR 565