'A Company can be wound up if the court is of the opinion that it is just and equitable'. Comment and illustrate.

Question: 'A Company can be wound up if the court is of the opinion that it is just and equitable'. Comment and illustrate.

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Answer

The phrase "just and equitable" in relation to winding up a company refers to a provision in the laws of many countries which allows a court to order the winding up of a company if it is deemed to be in the best interests of the company and its shareholders. This provision is often used as a last resort when other alternatives, such as a voluntary winding up or a merger or acquisition, are not feasible.

An example of when a court might consider it just and equitable to wind up a company could be a situation where the company is facing financial difficulties and is unable to pay its debts. In this case, the court may determine that it is in the best interests of the company's creditors and shareholders to wind up the company and liquidate its assets in order to pay off the creditors and distribute any remaining assets to the shareholders.

Another example could be when the company is facing issues with internal management and governance. For example, if the company's directors are not acting in the best interests of the company and its shareholders, or if there is a deadlock among the shareholders that is preventing the company from functioning effectively. In such cases, the court may consider that winding up the company is the most appropriate course of action.

It's worth noting that the laws may vary from country to country and the court's decision to wind up a company based on just and equitable is a discretionary power and it's not automatic. The court will consider the facts and circumstances of each case before making a decision.

To claim relief under the provisions of oppression and mismanagement (Sections 241–2441 of the Companies Act, 2013), it is necessary to prove that there exists just and equitable ground for winding up the company. Such ground exists when there is a justifiable lack of confidence in the conduct of the management of the company’s affairs. This concept of just and equitable ground flows from the law of partnership and has its roots in good faith, probity and mutual confidence. However, to impose that the company is a quasi-partnership, proper evaluation has been done by the courts from time to time.

Co-existence of Oppression and Winding-up Clause

Earlier, winding up the company on just and equitable grounds was the only remedy available to the shareholders for any offending act in a company. Such an action of completely winding up the company was held to be a nuclear option and the courts started to refrain from ordering winding up.

P.N. Bhagwati, J in the case of Mohanlal Ganpatram v. Shri Sayaji Jubilee Cotton and Jute Mills Co. Ltd., (1964) 0 GLR 804, also observed that the winding-up remedy was totally inadequate for it meant killing the company to put an end to the alleged oppression and mismanagement. But killing a company would be a clumsy method to end the oppression and such an action might as well turn out against the interests of the minority shareholders. The liquidation of the company will result in the sale of its asset at break-up value and the purchaser of the assets of the company may be the very majority shareholders who have oppressed the minority, affecting the minority shareholders altogether.

The Kerala High Court in Palghat Exports (P) Ltd. v. T.V. Chandran, 1994 79 CompCas 213 Ker, observed that while examining the factual situation in a case, the courts have to caution themselves that the oppression is the core element to be proved and the nature of the oppression to be tested in the context of “cause for winding up”. But it has to be kept in mind that the provision is intended to avoid winding up and is aimed to mitigate the oppression. The relief under Section 397 of the 1956 Act is geared to help members who were oppressed and the relief under Section 398 of the 1956 Act is geared to save the company and it is in the interest of the company alone and not of any particular member.

In Ebrahimi v. Westbourne Galleries Ltd., (1972) 2 WLR 1289, it was held that there are three instances to grant a winding-up order on just and equitable grounds—

(i) When the main object of the company has failed and it becomes impossible for the company to achieve the object.

(ii) Due to the shareholders’ dispute, a deadlock situation arises.

(iii) When there is a complete loss of confidence amongst the shareholders.

In Hanuman Prasad Bagri v. Bagress Cereals (P) Ltd., Special Leave Petition (Civil) 17137 of 2000, the Supreme Court interpreted Section 397(2) of the 1956 Act and observed that in order to be successful to wind up a company in just and equitable ground, the petitioners have to make a case for it. If the facts fall short of the case set out for winding up a company on just and equitable grounds, no relief can be granted to the petitioners. The party who is opposing winding up can demonstrate that there are no just and equitable grounds for winding up and the winding up would be unfair to them.

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