The Supreme Court of India decided in a recent case that in the context of company law, the winding-up of a body corporate is not equivalent to the death of a member.
It was held that in the absence of the registration of the name of the contributory (a form of corporate entity) in the register of a company, the contributory is not entitled to initiate a petition for the winding-up of a company.
While interpreting section 439 of the Companies Act, 1956, the Supreme Court decided the issue regarding locus standi and other requirements for a person to maintain a winding-up petition in the capacity of a contributory under section 439(4) of the act.
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In Severn Trent Water Purification Inc v Chloro Controls (India) Private Ltd & Anr (2008), the Supreme Court considered whether a winding–up petition filed by the petitioner-company, Severn Trent, was maintainable in its capacity as a contributory or as a creditor. The court decided that under the scheme of the act, every creditor may present a petition for the winding-up of a company, but every contributory may not.
Chloro Controls and Capital Controls (Delaware) had set up a joint venture company called Capital Controls (India) with the object of manufacturing and distributing certain gas chlorination water treatment systems. Subsequently, the Delaware company merged with Severn Trent, however, the petitioner-company did not take any steps to obtain the shares held by the joint venture company in its name, and accordingly the name of the petitioner company was not borne in the register of members of the Indian company.
Disputes later arose between the joint venture partners resulting in the termination of the joint venture agreement by Severn Trent. Severn Trent subsequently filed a petition for the winding–up of Capital Controls under section 433 (f) of the act.
The Supreme Court, while passing judgment, dismissed the appeal and the petition filed by the company and held that the winding-up of a body corporate does not equate to the death of a member. While every creditor is entitled to present a winding-up petition, a contributory must be covered by section 439(4) to be eligible to do so.
It was also held that if the petitioner’s name is absent from the register of members of the joint venture company, the petitioner cannot be considered to be a contributory and therefore the company petition would not be valid.
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The legislative and regulatory update is compiled by Nishith Desai Associates, a Mumbai-based law firm that provides legal and tax counselling. The authors can be contacted at nishith@nishithdesai.com. Readers should not act on the basis of this information without seeking professional legal advice.
