SETH MOHAN LAL V. GRAIN CHAMBERS LTD., AIR 1968 SC 772
FACTS
- The respondent company was formed for carrying out definite business that communicates with the give-and-take of commodities that included ‘gur’.
- On March 14, 1949, the Board of Directors of the Company passed a resolution sanctioning transaction of business in “futures” in gur for Phagun Sudi 15 Samvat 2006 (March 4, 1950) settlement.
- On August 9, 1949, Seth Mohan Lal and Company purchased one share of the Company and qualified for membership. They commenced dealing with the Company in “futures” in gur.
- By December 1949 Seth Mohan Lal and Company – who will hereinafter be called ‘the appellants’ – had entered into transactions with the Company which aggregated to 1136 Bijaks of sale of gur for the Paush Sudi 15, 2006 delivery.
- In January 1950 there were large fluctuations in the prices of gur, and in order to stabilise the prices, the directors of the Company passed a resolution in a meeting held on January 7, 1950, declaring that the Company will not accept any settlement of transaction in excess of Rs. 17-8-0 per maund.
- The appellant company had entered into a transaction with the respondent and had made significant financial deposits in the respondent's account in connection with the transaction.
- On February 15, 1950, the Indian government issued a decree prohibiting anyone from engaging in 'future' in jaggery transactions or making or receiving payments relating to any futures after that date.
- On February 22, 1950, the appellants and their partner Mohan Lal filed a petition in the High Court of Judicature at Allahabad for an order winding up of the Company.
ISSUE
- Whether it would be justified to wind up the company or not?
HELD
Orders passed by Brij Mohan Lal, J., dismissing the petitions were confirmed by the High Court of Allahabad in its appellate jurisdiction. The circumstances existing as at the date of the petition must be taken into consideration for determining whether a case is made out for holding that it is just and equitable that the Company should be wound up, and the Supreme Court also agreed with the High Court that no such case is made out.
- The High Court held that by the notification dated February 15, 1950 the outstanding transactions of “futures” in gur did not become void.
- Finally, it was urged that by reason of the notification issued by the Central Government, the substratum of the Company was destroyed and no business could be carried on by the Company thereafter. It was said that all the liquid assets of the Company were disposed of and there was no reasonable prospect of the Company commencing or carrying on business thereafter.
- The Company was carrying on extensive business in “futures” in gur, but the Company was formed not with the object of carrying on business in “futures” in gur alone, but in several other commodities as well.
- There is no evidence that the Company was unable to pay its debts. Under S. 162 of the Indian Companies Act, the Court may make an order for winding up a Company if the Court is of the opinion that it is just and equitable that the Company be wound up.
- In the present case the object for which the Company was incorporated has not substantially failed, and it cannot be said that the Company could not carry on its business except at a loss, nor that its assets were insufficient to meet its liabilities.
- The business organisation of the Company cannot be said to have been destroyed, merely because the brokers who were acting as mediators in carrying out the business between the members had been discharged and their accounts settled.
COMMENTARY
“Thus, it is a question of fact in each case whether the substratum of the company is gone or not. In Seth Mohan Lai v Grain Chambers Ltd, Shah J (later CJ) of the Supreme Court observed: The substratum of a company can be said to have disappeared only when the object for which it was incorporated has substantially failed, or when it is impossible to carry on the business of the company except at a loss, or the existing and possible assets are insufficient to meet the existing liabilities. In that case owing to a long drawn out litigation the business of a company had come to a standstill and a part of its business was banned by legislation, Shah J (later CJ) held that "we cannot on that ground direct that the company be wound up. The company could always restart business with assets it possessed."