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KPM, SCHOOL OF LAW, MUMBAI

Final Draft Submitted

ON

In re YENIDJE TOBACCO COMPANY, LIMITED. [1916] 2 Ch. 426 All

EP 1050
IN COMPLIANCE TO THE PARTIAL FULFILLMENT OF THE
MARKING SCHEME, FOR TRIMESTER 09 OF 2017-18, IN THE
SUBJECT OF Company law -II

SUBMITTED TO: - SUBMITTED BY:-

Prof. SRIKANT AITHAL SURYA KANT VYAS
BA LLB (Hons.)
(THIRD YEAR)
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SR NO. TOPIC PAGE

NO

1. INTRODUCTION 3

2. RELEVANT SECTIONS/ ACTS/ STATUTES 5

3. BRIEF FACTS/ BACKGROUND 8

4. ISSUES INVOLVED 10

5. FINAL JUDGEMNT OF THE COURT AND RATIO 11

DECIDENDI

6. BIBLIOGRAPHY 12
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In re YENIDJE TOBACCO CO. LTD.

Citation: [1916] 2 Ch. 426 All ER REP 1050

CORAM: LORD COZENS-HARDY M.R., PICKFORD and WARRINGTON L.JJ.

TYPE OF CASE: Subject matter concerning winding up of the company

INTRODUCTION

The Companies Act, 2013 has replaced the Companies Act, 1956.

The Act (2013) has 470 sections and 7 Schedules as against 658 sections and 15 schedules in the
earlier Act. Interestingly, 74% of the Act provides for delegated legislation as a means of
operationalising the provisions as opposed to 16% in the 1956 Act.

What is “winding up” of a company?

Winding up of a company is the process through which life of a company comes to an end and
its property is administered for the benefit of its members & creditors. An Administrator, called a
liquidator is appointed and he takes control of the company, collects its assets, pays its debts and
finally distributes any surplus among the members in accordance with their rights.

Winding up of company differs from the insolvency of an individual as much as a company

cannot be made insolvent under the insolvency laws.
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WINDING UP BY JUST AND EQUITY

The court may order for the winding up of a company if it thinks that there are just and equitable
grounds for doing so. The court has very large discretionary power in this case.

The term ‘just and equitable’ grounds may include any of the grounds for the winding up of the
company. This power has been given to the court to safeguard the interests of the minority and
the weaker group of members.

Court, before passing such an order, will take into account the interest of the shareholders,
creditors, employees and also the general public. Court may also refuse to grant an order for the
compulsory winding up of the company if it is of the opinion that some other remedy is available
to the petitioner to redress his grievances and that the demand for the winding up of the company
is unreasonable. A few examples of ‘just and equitable’ grounds on the basis of which the court
may order for the winding up of the company are given as follows:

(i) Oppression of minority:

In cases where those who control the company, abuse their power to such an extent that it
seriously prejudices the interests of minority shareholders, the court may order for the winding
up of the company.

The court will issue such an order only when it is impossible for the business of the company to
be carried on for the benefit of the company as a whole owing to the way in which voting power
is held and used.

(ii) Deadlock in management:

Where there is a complete deadlock in the management of the company, the company may be
ordered to be wound up. But mere incompatibility of good relations between the rival factions of
the directorate i.e., the majority group and minority group will not be sufficient for ordering
winding up.
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(iii) Loss of substratum:

Where the objects for which a company was constituted have either failed or become
substantially impossible to be carried out, i.e., ‘substratum of the company’ is lost; the company
may be ordered to be wound up on just and equitable grounds.

This case is based on the petition filed for winding up of the company by one of the directors of
the company on the grounds of being “just and equitable” under section 129 of the Companies
(Consolidated) Act, 1908.
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RELEVANT SECTIONS/ACTS/STATUTES

Section 270 Modes of winding up

(1) The winding up of a company may be either—

(a) by the Tribunal; or
(b) voluntary.
(2) Notwithstanding anything contained in any other Act, the provisions of this Act
with respect to winding up shall apply to the winding up of a company in any of the modes
specified under sub-section (1).

Section 271 Circumstances in which company may be wound up by Tribunal

(1) A company may, on a petition under section 272, be wound up by the Tribunal,—
(a) if the company is unable to pay its debts;
(b) if the company has, by special resolution, resolved that the company be
wound up by the Tribunal;
(c) if the company has acted against the interests of the sovereignty and integrity
of India, the security of the State, friendly relations with foreign States, public order,
decency or morality;
(d) if the Tribunal has ordered the winding up of the company under
Chapter XIX;
(e) if on an application made by the Registrar or any other person authorized
by the Central Government by notification under this Act, the Tribunal is of the
opinion that the affairs of the company have been conducted in a fraudulent manner
or the company was formed for fraudulent and unlawful purpose or the persons
concerned in the formation or management of its affairs have been guilty of fraud,
misfeasance or misconduct in connection therewith and that it is proper that the
company be wound up;
(f) if the company has made a default in filing with the Registrar its financial
statements or annual returns for immediately preceding five consecutive financial
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years; or
(g) if the Tribunal is of the opinion that it is just and equitable that the company
should be wound up.

(2) A company shall be deemed to be unable to pay its debts,—

(a) if a creditor, by assignment or otherwise, to whom the company is indebted
for an amount exceeding one lakh rupees then due, has served on the company, by
causing it to be delivered at its registered office, by registered post or otherwise, a
demand requiring the company to pay the amount so due and the company has failed
to pay the sum within twenty-one days after the receipt of such demand or to provide
adequate security or re-structure or compound the debt to the reasonable satisfaction
of the creditor;
(b) if any execution or other process issued on a decree or order of any court or
tribunal in favour of a creditor of the company is returned unsatisfied in whole or in
part; or
(c) if it is proved to the satisfaction of the Tribunal that the company is unable to
pay its debts, and, in determining whether a company is unable to pay its debts, the
Tribunal shall take into account the contingent and prospective liabilities of the
company.

Section 272. Petition for winding up

(1) Subject to the provisions of this section, a petition to the Tribunal for the
winding up of a company shall be presented by—
(a) the company;
(b) any creditor or creditors, including any contingent or prospective creditor or
creditors;
(c) any contributory or contributories;
(d) all or any of the persons specified in clauses (a), (b) and (c) together;
(e) the Registrar;
(f) any person authorised by the Central Government in that behalf; or
(g) in a case falling under clause (c) of sub-section (1) of section 271, by the
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Central Government or a State Government.

(2) A secured creditor, the holder of any debentures, whether or not any trustee or
trustees have been appointed in respect of such and other like debentures, and the trustee
for the holders of debentures shall be deemed to be creditors within the meaning of clause (b)
of sub-section (1).
(3) A contributory shall be entitled to present a petition for the winding up of a company,
Notwithstanding that he may be the holder of fully paid-up shares, or that the company may
have no assets at all or may have no surplus assets left for distribution among the shareholders
after the satisfaction of its liabilities, and shares in respect of which he is a contributory or
some of them were either originally allotted to him or have been held by him, and registered
in his name, for at least six months during the eighteen months immediately before the
commencement of the winding up or have devolved on him through the death of a former
holder.
(4) The Registrar shall be entitled to present a petition for winding up under subsection
(1) on any of the grounds specified in sub-section (1) of section 271, except on the
grounds specified in clause (b), clause (d) or clause (g) of that sub-section:
Provided that the Registrar shall not present a petition on the ground that the company
is unable to pay its debts unless it appears to him either from the financial condition of the
company as disclosed in its balance sheet or from the report of an inspector appointed under
section 210 that the company is unable to pay its debts:
Provided further that the Registrar shall obtain the previous sanction of the Central
Government to the presentation of a petition:
Provided also that the Central Government shall not accord its sanction unless the
company has been given a reasonable opportunity of making representations.
(5) A petition presented by the company for winding up before the Tribunal shall be
admitted only if accompanied by a statement of affairs in such form and in such manner as
may be prescribed.
(6) Before a petition for winding up of a company presented by a contingent or
prospective creditor is admitted, the leave of the Tribunal shall be obtained for the admission
of the petition and such leave shall not be granted, unless in the opinion of the Tribunal there
is a prima facie case for the winding up of the company and until such security for costs has
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been given as the Tribunal thinks reasonable.

(7) A copy of the petition made under this section shall also be filed with the Registrar
and the Registrar shall, without prejudice to any other provisions, submit his views to the
Tribunal within sixty days of receipt of such petition.
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LEGAL ANALYSIS

FACTS OF THE CASE

A company YENIDJE TOBACCO CO. LTD. was incorporated in 1914 having the object to
acquire, amalgamate and carry on two businesses, one being a tobacconist and other of a
cigarette manufacturer separately carried out by Marcus Wienberg and Louis Rotham
respectively. The company being a private company had only two shareholders who were the
directors themselves holding equal shares. The arrangement was that both the parties will have
equal management rights and voting rights of the company. The articles of association (AOA)
were drawn in a way that neither party was in the position to outvote the other or carry a
resolution in the opposition to the other. It was also clearly stated that in the case of any dispute,
it will directly lead to arbitration.

The company was running smoothly until June, 1915 when differences arose between the
directors. In August, Rothman brought an action against the other director for inducing him to
enter into an agreement of sale of his business to the company by fraudulent misrepresentation
and non-disclosure. The parties were in constant friction from that point. Meanwhile, a lot of
quarrels happened which led to situation where all the communication between both of them was
made through a third person.

Under these circumstances, it was held that the company had come in a situation of complete
deadlock and it is essential for both the parties that the company should wind up accordingly.

ISSUES INVOLVED:

It was appealed that this is not a case of complete deadlock as the company was able to carry on
its business, make profits and prosper. The disputes that have arisen are trivial in nature and are
now at an end.

Secondly it was contented that the allegations for misrepresentation made by him never
proceeded beyond service of writ.
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Thirdly, taking the reference of In re Sailing Ship Kentmere Co. and In re Furriers Alliance Ltd.
it was argued that winding up on the grounds of being “just and equitable” not ejusdem generis
with those mentioned in the five sub sections of S. 129 of the Companies Act, 1908 has not been
extended beyond the cases of deadlock.

FINAL JUDGMENT AND RATIO OF THE CASE

JUDGMENT: The Company was not in a state that could have been contemplated at the time
when the company had been formed and it should be terminated as soon as possible. Lord
Cozens-Hardy MR referred to the grounds for winding up a partnership set out in Lord Lindley’s
textbook on Partnership as including ‘Refusal to meet on matters of business, continued
quarrelling, and such a state of animosity as precludes all reasonable hope of reconciliation and
friendly cooperation’.

It was not necessary to show gross misconduct as a partner but only that the court must be
satisfied that it is impossible for the partners to place that confidence in each other which each
has a right to expect and that such impossibility has not been caused by the person seeking to
take advantage of it.

RATIO: A company had been set up by two tobacco manufacturers, Mr Rothman and Mr
Weinberg. The relationship between them had broken down to the extent that the two
shareholders were not on speaking terms and that no business which deserved the name of
business in the affairs of the company could be carried on. Even though the company was
prosperous and making large profits, an application was now made for the company to be wound
up.
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BIBLIOGRAPHY

Websites –

a. www.manupatra.com

b. www.lexisnexis.com

c. www.ssconline.in