1971 (3) TMI 124 - HC - Companies Law

Appellate court upholds company resolution validity, dismisses appeal for time-barred accounts suit.

Prakashchandra Rajmal Jain Versus Firm Swarupchand Hukumchand And Co. And Others

Prakashchandra Rajmal Jain Versus Firm Swarupchand Hukumchand And Co. And Others - TMI Issues Involved:1. Validity of the resolution passed on November 14, 1949.2. Competence of the company to give retrospective effect to the resolution.3. Right to sue of the appellant.4. Allegations of ultra vires, fraud, and oppression against the minority shareholders.5. Bar of limitation for the suit.Detailed Analysis:1. Validity of the Resolution Passed on November 14, 1949:The appellant challenged the resolution on the grounds that it was ultra vires the company, fraudulent, collusive, and oppressive to the minority shareholders. The resolution aimed to retrospectively modify the managing agency agreement, allowing the Managing Agent to draw commissions without deducting taxes. The trial court held that the resolution was intra vires the company, there was no collusion, conspiracy, undue influence, or mala fides, and the minority was neither defrauded nor oppressed. The resolution was consistent with the Articles of Association and the terms of the managing agency agreement. The appellate court affirmed this view, stating that the language of Clause 3 of the 1915 agreement was emphatic and clear, allowing commissions on profits without deductions for taxes.2. Competence of the Company to Give Retrospective Effect to the Resolution:The trial court found that the company had the power to vary the terms of the original agreement, and the resolution merely clarified the interpretation of the 1915 agreement. The appellate court agreed, noting that the company could ratify the Managing Agent's actions, and the resolution was a legitimate exercise of the company's powers. The resolution was not ultra vires as the company had the authority to pay remuneration on profits calculated without deducting taxes.3. Right to Sue of the Appellant:The trial court held that the appellant had the right to sue on behalf of the minority shareholders and the company but not in his individual capacity, as he became a shareholder much after the impugned resolution was passed. The appellate court upheld this, stating that a shareholder cannot bring a personal action for a right that did not accrue to him at the time. However, the appellant could sue in a representative capacity and bring a derivative action on behalf of the company.4. Allegations of Ultra Vires, Fraud, and Oppression Against the Minority Shareholders:The appellant argued that the resolution was fraudulent and oppressive, making gratuitous grants without consideration. The trial court rejected these claims, finding no fraud, collusion, or oppression. The appellate court concurred, noting that the resolution was passed transparently, and the managing agents' commission was consistent with the original agreement. The services rendered by the managing agents were themselves consideration for the commission, and no fresh consideration was necessary.5. Bar of Limitation for the Suit:The trial court found the suit for accounts barred by limitation, as it was filed more than three years after the termination of the managing agency. The appellate court agreed, applying Article 89 of the Limitation Act, which provides a three-year limitation period for suits by a principal against an agent for movable property received and not accounted for. The suit for accounts was thus time-barred, but the relief for declaration was within time as it was filed within six years.Conclusion:The appeal was dismissed, and the resolution of November 14, 1949, was upheld as valid and intra vires the company. The appellant's claims of fraud, collusion, and oppression were rejected, and the suit for accounts was deemed barred by limitation. The appellant was ordered to pay costs to the respondents.