Derivative action and statutory corporate consent: unauthorized sale of a company undertaking could not be saved by indoor management.

A shareholder may maintain a derivative action where the alleged wrongdoers control the company and the company is unlikely to sue, so the shareholder was prima facie entitled to protect the company's interests. A transfer of the whole or substantially the whole of an undertaking without lawful consent in general meeting, proper notice, an explanatory statement and reliable minutes was prima facie contrary to section 293 of the Companies Act, 1956, so the sale was prima facie void. The form-of-contract rule, indoor management and bona fide purchase could not cure or protect a transaction that was itself beyond statutory power, so none of those defences defeated the challenge.

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Issues: (i) whether a shareholder could maintain a derivative action to challenge an allegedly unauthorized sale of the company's property; (ii) whether the sale of the undertaking was invalid for want of a lawful general meeting and compliance with the mandatory requirements governing notice, explanatory statement and minutes; (iii) whether the sale deed could be protected by the form-of-contract provision, the doctrine of indoor management, or the plea of bona fide purchase.

Issue (i): whether a shareholder could maintain a derivative action to challenge an allegedly unauthorized sale of the company's property

Analysis: A shareholder does not ordinarily sue for wrongs done to the company, since the company itself is the proper plaintiff. An exception applies where the alleged wrongdoers control the company and the company is unlikely to sue to protect its own interests. Here, the directors who executed the sale deed were themselves the alleged wrongdoers and continued to control the company, making it unlikely that the company would bring proceedings against them.

Conclusion: The derivative action was maintainable, and the shareholder was entitled, prima facie, to sue to protect the company's interests.

Issue (ii): whether the sale of the undertaking was invalid for want of a lawful general meeting and compliance with the mandatory requirements governing notice, explanatory statement and minutes

Analysis: Section 293 of the Companies Act, 1956 bars the board from selling the whole or substantially the whole of an undertaking without the company's consent in general meeting. The unrebutted pleadings showed that no valid general meeting had been held, no proper notice had been issued at least 21 days in advance, no explanatory statement accompanied the notice, and no reliable record of minutes or attendance was produced. On those materials, the alleged resolution could not be treated as a lawful corporate consent. The transfer was therefore in breach of the statutory restriction.

Conclusion: The sale was prima facie void for non-compliance with section 293 and the associated mandatory procedural requirements.

Issue (iii): whether the sale deed could be protected by the form-of-contract provision, the doctrine of indoor management, or the plea of bona fide purchase

Analysis: Section 46 of the Companies Act, 1956 regulates the form of contracts made by a company, but it does not override substantive statutory restrictions on the company's power to transfer its undertaking. The doctrine of indoor management cannot be invoked to cure a breach of a statutory prohibition, and a purchaser cannot rely on assumed compliance with mandatory statutory conditions where the transaction itself is outside corporate power. The plea of bona fide purchase also could not defeat the prima facie statutory breach at the interlocutory stage.

Conclusion: None of the defences protected the transfer against the statutory invalidity.

Final Conclusion: Interim protection was warranted because the plaintiff established a prima facie case that the impugned conveyance was executed without lawful corporate authorization and in breach of mandatory statutory requirements governing disposal of the company's undertaking.

Ratio Decidendi: A shareholder may maintain a derivative action where the wrongdoers control the company, and a transfer of the whole or substantially the whole of a company's undertaking without the mandatory consent of the company in general meeting is prima facie void and cannot be saved by indoor management or by the form of contract provision.

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