T. C. I. HOTELS (LANKA) LTD v. MARINA OVERSEAS CORPORATION

035-SLLR-SLLR-2000-V-2-T.-C.-I.-HOTELS-LANKA-LTD-v.-MARINA-OVERSEAS-CORPORATION.pdf


T. C. I. HOTELS (LANKA) LTDv.
MARINA OVERSEAS CORPORATION
COURT OF APPEALJAYASINGHE, J.
JAYAWICKREMA, J.
CA. (Rev.) 144/99D. C. COLOMBO 3902/Spl18th NOVEMBER, 199901st DECEMBER, 19992 1st JANUARY, 2000
Companies Act No. 17 of 1982 – Winding up proceedings – S.255(c).(f) – Failure to commence business within one year of incorporation -Is reliefof winaQig up discretionary? – Just and equitable to wind up.
Marina Overseas Corporation (Respondent) instituted action for thewinding up ofTCI Hotels Ltd., (Petitioner), on the ground that TCI HotelsLtd., has not commenced business within 1 year from its incorporationand that it was just and equitable to wind up the said Company underS.255(c) and (f) of the Companies Act. After inquiry. Court made order towind up the said Company – TCI Hotels Ltd.. (Petitioner).
The contention of the Petitioner was that business of the company hadin fact commenced, but due to the intervention of exemal factors thatwere beyond the control of the Company made the continuance of thebusiness impossible, and further, the jurisdiction of the Court to wind upa company whene it has failed to commence business is discretionary andthat it is not a matter of right.
It was also contended that Marina Overseas Corporation had notventilated its grievances if any, before the Board of Directors or thedomestic forum of the company and it took no steps to agitate for evena voluntary winding up.
Held :
Evidence placed before Court does not support the contention thatthe company has commenced business.
It is a mixed question of fact and law whether the company shouldbe allowed to carry on having considered the reasons adduced by
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Marina Overseas Corporation for the winding up and the objectionstaken thereto. If the Petitioner is to succeed there is a burden caston him to satisfy court that the discretion vested in Court has beenexercised unreasonably.
There was no purpose in agitating for a winding up order whenthe majority shareholders who hold 73% of issued capital wasopposed to winding up.
APPLICATION in Revision from an Order of the District Court of
Colombo.
Cases referred to :
In Re Baku Consolidated Oilfields Lid., 1944 – 1 Alter 24.
In Re Eastern Telegraph Company Ltd.. 1947 – 2 Alter 104.
B. Vishwanathan vs. Seshasqiee Paper Boards Ltd.. – 1992.73Company cases 136 Madras.
New Kerala Chits & Trades (Pvt.) Ltd., vs. Official Liquidator -1981-51 Company cases 601 (Kerala).
TinuskiaVastraBhandarvs.AssamTeaCorporationLtd..- 1992-72Company cases 178 (Ganhati).
Registrar of Companies vs. Bihar Wire & Wire Productions (Pvt.) Ltd..- 1979.45 Company cases 194 (Patna).
Metropolitan Railway Ware housing Company – 1867-36 LJ Ch. 827.
Langham Skating Rink Company – 1877, 5 Ch. D 669 at 685.
In Re. Haven Gold Mining Company – 1881. 20 Ch. D 151.
In Re. Redrock Gold Mining Company Ltd.. – 61 Law Times 785.
Suburban Hotel Company – 1867 L. R. 2 Ch. 737.
Sakunthala Rcqpal os. Mckenzie Philip (India) (Pvt.) Ltd.. – 1988-64Company Cases 585 (Delhi).
KeralaStatelndustrialDevelopmentCorporationLtd.. vs. PoonamundiTea Pack Ltd.. – 1988-63 Company cases 575 (Kerala).
Charles Forte Investment Ltd., vs. Amanda – 1963-2 All E. R. 940.
Nigel Hatch for Petitioner.
K. N. Choksy P. C. with Nihal Fernando and Ms. Nilani Somadasa for
Respondent.
Cur. adv. vult.
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T. C. I. Hotels (Lanka) Ltd., u. Marina Overseas Corporation
(Jayaslnghe, J.)
369
July 05, 2000.
JAYASENGHE, J.
The Petitioner Marina Overseas Corporation institutedaction in the District Court of Colombo for the winding up ofTCI Hotels Limited on 21.12.1993 on the ground that T^THotels Limited has not commenced business within one yearfrom its incorporation and secondly that it was just andequitable to wind up the said company under and in terms ofSection 255(c) and (f) of the Companies Act No. 17 of 1982.
At the inquiry into the winding up held on or about25.07.1997 the Petitioner Company led the evidence of arepresentative from the Registrar of Companies and markeddocuments ‘PI’ to ‘P18’. The company sought to be woundup – TCI Hotels Limited produced marked ‘Rl’ the AnnualReport of 1990/1991 and led in evidence atn affidavit filed inopposition to the said winding up by P. K. Davey. At the saidinquiry it was admitted and/or established that TCI Hotelswas incorporated as a private limited liability company on orabout 24.09.1980 for the establishment of Sheraton Hotel ona land leased from the Urban Development Authority; that dueto political disturbances in Sri Lanka in 1983 TCI Hotels hadbeen compelled to modify the proposed project from a 350roomed to a 200 roomed 5 Star Hotel; that due to the UrbanDevelopment Authority repossessing the land leased to thesaid company, it was seeking to identify a suitable alternativeproject; commenced arbitration proceedings with the UrbanDevelopment Authority with a view to settling the company’sclaim for compensation in view of the Urban DevelopmentAuthority resuming possession of the lease hold.
By the order delivered on 08.01.1999 the learned AdditionalDistrict Judge made order winding up the company.
TCI Hotels Limited is now seeking to revise the said orderof the learned Additional District Judge of Colombo.
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Mr. Nigel Hatch Counsel for the company sought to bewound up submitted that the contention of the PetitionerMarina Overseas Corporation that TCI Hotels Limited hadfailed to commence business within an year of its incorporationon 24.09.1980 is untenable as the documentary evidencegpoduced by the Petitioner Company itself would establishinter alia that the project was in fact started but due to anunsettled economic environment it was scaled down and afterthe Urban Development Authority repossessed the land TCIHotels Limited continued its efforts to identify an alternativeto the original concept resulting in a reduction in theshare capital. The learned Counsel sought to rely on certainpreliminary steps taken to satisfy Court that it had commencedbusiness within a year of incorporation; that it secured % leasehold from the Urban Development Authority; that after March1983 shares were issued and fully paid up by the promoters;that a sum in excess of Rs. 25 million was paid to architects;interior designers; for soil and water tests etc.; that in 1984/1985 the paid up capital being Rs. 138 million; that it wascompelled to modify the project from the original concept andthat the foreign and local promoters were anxious to proceedto a scaled down project of a 200 roomed luxury hotel; that dueto riots in July 1983 and consequential investor pessimism thedirectors continued with their efforts to identify a suitablealternative project; that the Urban Development Authorityrepossessed the land and thus an alternative ro the originalproject too was not possible; that arbitration proceedingscommenced regarding compensation to be paid after UrbanDevelopment Authority repossessed the land.
The learned Counsel also complained that the learnedAdditional District Judge failed to take cognizance of anaffidavit in opposition filed by the P. K. Davey.
It was the contention of the Petitioner that TCI HotelsLimited never commenced business which it was constitutedto undertake. The business was that of a 350 Room Five StarHotel operated by Sheraton at a site at Galle Face.
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(Jayasinghe, J.)
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The Petitioners also contended that when the UrbanDevelopment Authority repossessed the land on which thesaid hotel was to be sited, the entire project was at an end. Asa matter of fact Prakash Kanyalal Davey in his affidavit ‘P2’ hadaverred that;
While the said company endeavoured to construct'aSheraton Hotel in Colombo and obtained the requisiteapprovals including the lease of the land from the UrbanDevelopment Authority, due to inter alia civil strife and/orthe unsettled political situation in Sri Lanka the saidproject became frustrated and had to be abandoned withthe knowledge and/or approval of the Government inSgi Lanka which the Petitioners acquiesced in and isestopped from denying.
Two vital considerations emerge from the above averment.Firstly there is an admission by Davey that the project hasnot proceeded beyond obtaining the requisite approvals andleasing of the land from the Urban Development Authority andsecondly that the project had become frustrated and had to beabandoned. This affidavit is dated January 1994. When theland reverted back to its source with it went any hope there wasthat the project might get off the ground.
Davey h&s in his affidavit also averred that in view ofthe improvement of the political situation in Sri Lanka theprincipal shareholder is considering establishing a hotel andthat a proposal to that effect has been received; that they wouldbe presented to the Board no sooner they are finalised. Daveygoes on further and avers that in the event of such a projectbearing fruition… exchange earnings generated for Sri Lankaand the said company.
According to the Annual Report ‘X4’/‘P4’ for the year1984/1985 it appears that as at 31.03.1985 the company hadnot yet commenced its business and that there appears to be
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no prospect of commencing its business for the declaredreasons viz. the unfortunate circumstances prevalent inthe country; the decline in tourism, the excess capacity ofhotel rooms in Colombo; the lack of support from financialinstitutions and Banks towards any hotel related projects andyj£hdrawal of support by most of the shareholders themselvesdespite considerable efforts made to identify and evaluatean alternate project; no encouragement was received fromimportant institutions that investors would normally expect.
The Petitioners contend that since a substantial investmenthad been made by the Petitioner towards the project as farback as in the year 1983/1984 and the project, on theadmission of the TCI Hotels Limited itself had become fru&ratedand had to be abandoned, the Petitioners have become entitledto pray for a winding up order of the said company in terms ofsection 255(c) and (f) of the Companies Act No. 17 of 1982.
In Re. Baku Consolidated Oilfields Limited1'1 Bennett,J. took the view that the majority of the shareholders haveno right to compel a minority to embark upon any otherundertaking. A similar view was taken by Jenkins, J. in Re.Eastern Telegraph Company Limited.121
Mr. Hatch also submitted that the jurisdiction of Court towind up a company is entirely discretionary and that it isnot a matter of rigljft. He relied on the word may in Section 255to support his argument that winding up is discretionary. In
Vishwanathan us. Seshasayee Paper Board Ltd.,131 it washeld that it is a settled principle of law that the relief of windingup is a discretionary relief and the Court has to find outwhether winding up would be in the interest of justice and alsoin the public interest. In New Kerala Chits & Trades (Put.) Ltd.,us. Official Liquidator141 Court held that a company may bewound up by Court, among others, if the company, has, byspecial resolution, resolved that the company be wound up by
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T. C. 1. Hotels (Lanka) Ltd., v. Marina Overseas Corporation
(Jayasinghe, J.)
373
Court, or if the company is unable to pay its debts or if theCourt is of opinion, that it is just and equitable that thecompany is wound up. The word may in the Section denotesthat the Court is vested with the discretion in taking a decision.The discretion no doubt is to be exercised in a judicial manner.The Court has discretion in taking a decision under all clauseof Section 433. (Section 433 corresponds to Section 255 of theCompanies Act). In Tinuskia Vastra Bhandar vs. Assam TeaCorporation Ltd.,151 Court held that it is not bound to make anorder of winding up under Section 433 although grounds forwinding up under Section 433(a) to (p) is made out. In Registrarof Companies vs. Bihar Wire & Wire Productions (Pvt.) Ltd.,l6>Court held that the mere fact that business had notcommenced within a year by itself is not a ground for a Courtto order winding up and the Court must ascertain whetherthere was some good reason for the failure. That anotherconsideration in the matter of an order for winding up arethe wishes of the majority of shareholders. In MetropolitanRailway Warehousing Company171 it was held that thejurisdiction given to Court by Section 222(c) of the CompaniesAct of 1948 vests a discretionary jurisdiction in Court as towhether a winding up order should be issued. It was held thatthe circumstance that a business has not been commencedwithin a year does not give a member an absolute right to awinding up order. Hence where the delay is sufficiently ac-counted for and there appears to be a reasonable prospect thatthe company if allowed to go on may succeed or if the greatmajority of members desire to go on an order may be refused.In Langham Skating Rink Company<81 at 685 it was held that ashareholder presenting a petition is largely at the mercy of themajority and that it is a settled principle that as betweenshare holders the wishes of the majority shall prevail. It washeld that it is very important that the Court should not unlessa very strong case is made take upon itself to interferewith the domestic forum which has been established for the
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management of the affairs of the company. To justifyinterference there must be something unreasonablesomething like tyranny something amounting to an injury, ofwhich the minority have a right to complain.
The resistance of Mr. Hatch for the winding upwas primarily on two grounds. He argued that businessof the company in fact had commenced. But due to theintervention of external factors that were beyond the control ofthe company made the continuance of the business that hascommenced impossible. He then submitted that in any eventthe jurisdiction of the Court to wind up a company where ithas failed to commence business is discretionary and that itis not a matter of right.
Both Counsel sought to rely on the jnst and equitableprinciple.
I have carefully considered the submission of Mr. Hatch.Evidence placed before Court does not support the contentionthat the company has commenced business. Davey’s affidavitdoes not bear that out. In fact there is no Sheraton andthe Petitioner claims that the company has not commencedbusiness for 13 years after incorporation. With the site meantfor the construction repossessed by the Urban DevelopmentAuthority there was no prospect of the hotel coming up. Ineffect substratum of the company has disappeared.
I do not think the Petitioner would seriously dispute thecontention of TCI Hotels Limited that the jurisdiction of theCourt to wind up a company is discretionary. Section 255provides that a company may be wound up by Court if any ofthe grounds set out from (a) to (f) are present. However it isalways open to the Respondents who are objecting to thewinding up to adduce sufficient evidence to controvert the
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T. C. I. Hotels (Lanka) Ltd., v. Marina Overseas Corporation
(Jayasinghe, J.)
375
positions taken up by the Petitioner for a winding up order andto invite Court to disallow an application for winding up. It isa mixed question of fact and law whether the company shouldbe allowed to carry on having considered the reasons adducedby the Petitioner for the winding up and the objections takenthereto. If the Petitioner is to succeed there is a burden cast, onhim to satisfy Court that the discretion vested in Court hasbeen exercised unreasonably. Mr. Choksy, P. C. contendedthat the company was unable to raise the balance share capitaleither from the investors or financial institutions due tounsettled conditions in the country including the riots of July1983. The learned President’s Counsel relied on ‘X4’/‘P4’ – theProject Report for the year 1984/85. That the Board ofDirectors decided to scale down the project to a two hundredroomed hotel which he says failed to get off the ground.Thereafter the Lfrban Development Authority repossessed theland for non use for the purpose for which it was leased.Consequently the hotel was without a site for its construction.In this background, the Annual Report for 1984/95 marked‘X4’/‘P4’ also states that in view of the unfortunatecircumstances prevalent in the country, the decline in tourism;the excess capacity of hotel rooms in Colombo, the lack ofsupport from financial institutions towards any hotel relatedproject and^vithdrawal of support by most of the shareholdersthemselves; despite the considerable efforts made to identifyand evaluate an alternate project no encouragement wasreceived from important institutions that investors wouldnormally expect. While the directors would continue in theireffort to try and identify a suitable alternate project, theUrban Development Authority resumed the land and thus analternative to the original project was not possible. P. K. Daveyin his affidavit had averred that the project has becomefrustrated and had to be abandoned with the knowledgeand/or approved of the Government of Sri Lanka. In Re. Haven
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Gold Mining Company,9> it was held that if the Court is satisfiedthat the subject matter of the business for which a companywas formed substantially ceased to exist it will make an orderfor winding up the company although the large majority ofshareholders desire to continue to carry on the company. Herethe company was established for working a gold mine in NewZealand and it turned out that the company had no title to themine and had no prospect of obtaining possession of it exceptas to a small portion for a few months. A winding order wasmade although there were general words in the Memorandumof Association enabling the company to purchase andwork other mines in New Zealand. The large majority of theshareholders wished to continue the company. In Re.Redrock Gold Mining Company Ltd..110’ where a company wasincorporated in January 1888 with the object of purchasingand working the Redrock mines. There were further objectsmentioned in the memorandum namely to purchase andotherwise acquire mines and other properties in the Colony ofNew South Wales and elsewhere and generally carry on thebusiness of milling and mining in all its business. In October1889, the Directors reported to the shareholders that theRedrock mines was a failure and that the company must eithergo into liquidation or employ the unexpended capital in otherways. Court held that the main object for which the companywas formed has failed and therefore though there were largesubsidiary powers in the Memorandum of Association, theremust be a winding up order. Even though the power of Courtfor winding up is discretionary I am unable to accept thecontention of Counsel that the discretion has been improperlyexercised.
Mr. Hatch also submitted that it is not just and equitablefor the company to be wound up. Mr. Choksy, P. C. submittedthat the Petitioner had waited for 13 years before filingproceedings for winding up on 20.12.1993. He submitted thatwithout question the company had not commenced business .
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T. C. I. Hotels (Lanka) Ltd., u. Marina Overseas Corporation
(Jayasinghe, J.)
377
for not only 1 year but for 14 years after its incorporation andaccordingly the Petitioner is entitled for an order of winding up.
' He submitted that it will be just and equitable to make an orderfor winding up for the reason that the project has beenfrustrated and abandoned but nevertheless the TCI held on tothe Petitioners investments for 14 years. That with no prospectof a Sheraton Hotel being constructed at Galle Face andwithout the Petitioner receiving any return whatsoever on itsinvestments, it is just and equitable that the company shouldbe wound up. He submitted that when the project has beenfrustrated and abandoned due to the emergence of certaincircumstances, the substratum of the company hasdisappeared and that was why it is just and equitable to windup the company under Section 255(f). In Suburban HotelCompany0 !l Lord Cairns suggested that if the substratum ofa company were^one, that might render it just and equitableto make a compulsory winding up order. Courts have over theyears extended this principal and it is now possible to say thatthe substratum of a company is deemed to be gone when thesubject matter of a company is gone, the object for which it wasincorporated has substantially failed or it is impossible tocarry on business of the company except at a loss. In RedrockGold Mining Company (supra) Kay, J. stated “The principleof this Cou# is that when an association is formed for aparticular purpose it does not matter that it has large powersin addition to that particular purpose. If that particularpurpose fails any shareholders have a right to say “put an endto it, pay me my money.” In Re. Haven Gold Mining Company(supra) it was stated that where the Court is satisfied that thesubject matter of the business has substantially ceased toexist it will make an order for winding up of the companyalthough a large majority of shareholders desire to continue tocarry on the company. In Re. Eastern Telegraph Company(supra) Ltd.,02’ Jenkins, J. stated “that, I take it, means thata shareholder has invested his money in the shares of the
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company on the footing that it is going to carry on someparticular object, he cannot be forced against his will by thevotes of his fellow shareholders to continue to adventure hismoney on some quite different project or speculation.”
In Re. Baku Consolidated Oilfields Ltd., (supra) thecompany was formed to acquire the undertakings of four othercompanies carrying on oil business in Russia. Before theundertakings could be acquired they were confiscated by theRussian Government. For several years nothing happenedand then a shareholder petitioned for winding up. The petitionwas opposed by the majority of shareholders. Court madeorder for winding up and stated “In my judgment it is clear onthe facts that the purpose for which this companji wasoriginally formed has gone. It can never carry on the businessit was formed to cany on. That seems to uie to be clear. Italso seems to me to be clear that majority of shareholders haveno right to compel a minority to embark upon any otherundertaking.”
Mr. Hatch also complained that the Petitioner MarinaOverseas Corporation had not ventilated its grievances if anybefore the Board of Directors or the domestic forum of thecompany before it sought relief from Court. It took no steps toagitate for even a voluntary winding up within the domesticforum of the company and that it acquiesced in all that tookplace being a promoter and minority shareholders. InSakunthala Rajpal vs. McKenzie Philip (India) (Pvt.) Ltd.,1121it was held that winding up is granted only as an ultimatenecessity where it is in the best interest of all concerned. If thefight is only between two groups of shareholders one concievablemethod of resolution could be by giving all the assets ofthe company to one group of shareholders, the other beingcompensated in terms of money or put in another way thepurchase of one groups interests in the company by the other.
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T. C. I. Hotels (Lanka) Ltd., v. Marina Overseas Corporation
(Jayasinghe, J.)
379
In Kerala State Industrial Development Corporation Ltd., vs.Poonamudi Tea Pack Ltd.,1131 It was held that a hasty petitionwithout attempting to sort out the dispute and the controvercyin the domestic forum provided by the Articles would have tobe discouraged. Just and equitable ground has to be not onlyfor the Petitioner but also to the company and all shareholder.The principles of winding up cannot be deliberately invoked. InCharles Forte Investments Ltd., vs. Amandaf1-41 it was held thatin order to obtain a winding up order the party seeking theexercise of discretionary power of the Court has not only toestablish the circumstances obtaining in the company aresuch that the winding up is the only alternative remedy butalso to show that it had no other remedies available.
In the light of the state of affairs prevalent within TCIHotels Limited I cannot see an alternative to winding up. Assubmitted by the learned President's Counsel there was nopurpose in agitating for a winding up order when the majorityshareholders who hold 73% of issued capital was opposed towinding up. I see no reason to interfere with the findings ofthe learned District Judge. Application for revision is refusedwith costs fixed at Rs. 25,000/-.
JAYAWICKRAMA, J.I agree.
Application dismissed.