Page 225 - DCOM106_COMPANY_LAW

Company Law

Notes held that ‘the Court will not be justified in making winding up order merely on the
ground that the company has made losses and it was likely to make further losses.
(vii) Where a private company is in essence or substance a partnership: It may be ordered to be
wound up if such circumstances exist under which it would be just and equitable for
the Court to order for the dissolution of the partnership firm. In Re Davis & Coltett
Ltd. [(1935) Ch. 693] one member improperly excluded the other, who held half the
shares, from taking part in the company’s business. Held, the company be wound
up.
In this context, some guiding principles for the application of just and equitable
ground for winding up were laid down in Ebrahimi v. Westbourne Galleries Ltd.
[1972] 2 All ER 492. These are:
(a) The company was formed based on personal relationship and mutual
confidence;
(b) An agreement or understanding that all or some of the shareholders will
participate in the conduct of the business as in the case of a partnership concern;
and
(c) Restrictions on the transfer of a members’ interest in the private company.

However, the fact that an existing partnership firm was converted into a private
company does not necessarily imply that the company retains the features of a
partnership firm [Official Liquidator v. Ram Swarup (1997) Cas 569.]
(viii) Requirements for Investigation: Where Directors were making allegations of dishonesty
against each other in respect of defalcations of the funds of the company, the company
was ordered to be wound up on the ground that, it was a case in which the conduct
of some of the officers of the company required an investigation which could only
be obtained in a winding up by the Court [Re Varieties Ltd. (1893) 2 Ch. 235].

Task Company was incorporated for the purpose of manufacturing machinery tools,
implements, etc. It spent a substantial part of its subscribed capital on fixed assets. It
borrowed a sum of 30 Lakhs from a bank for providing working capital. As the company
was unable to pay back this loan, the bank obtained a decree from a court. The stock-in-
trade, plant and machinery and all the fixed assets of the company were sold out in
execution of the decree, leaving no surplus for the company.
Would it be just and equitable to wind up the company in the circumstances?

[Hint: The company in question may be wound up on just and equitable grounds since its
subject matter is gone.]

Self Assessment

Fill in the blanks:

1. .............................. of a company is the process whereby its life is ended and its property
administered for the benefit of its creditors and members.
2. The statutory process by which this is achieved is called ......................................

3. If a company does not commence business ...................................... from incorporation or
suspends business for a whole year, it may be ordered to be wound up.

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