2015 (8) TMI 1515 - HC - Companies Law

Court affirms shareholder rights in challenging AGM decisions, emphasizes club's purpose in property matters

Royal Calcutta Golf Club Versus Lalit Kumar Jhalaria

Royal Calcutta Golf Club Versus Lalit Kumar Jhalaria - TMI Issues Involved:1. Maintainability of the suit under Order 7 Rule 11 of the Code.2. Personal or individual cause of action against the petitioner company.3. Infructuous nature of the suit due to subsequent events.4. Relevance of the memorandum and article of association in determining the legality of the AGM resolution.5. Jurisdiction of the Civil Court in light of Section 397 & 398 of the Companies Act.6. Consideration of subsequent events in rendering the original proceeding infructuous.Issue-wise Detailed Analysis:1. Maintainability of the suit under Order 7 Rule 11 of the Code:The petitioner sought rejection of the plaint under Order 7 Rule 11 of the Code on the grounds that the suit had become infructuous, lacked cause of action, and was barred under the Specific Relief Act and Company Law. The Trial Court rejected this application, stating that the grounds for rejection required determination after a full-fledged trial. The High Court upheld this decision, emphasizing that the Court must confine its scrutiny to the averments made in the plaint and the documents annexed thereto. The suit was found to be a simplicitor suit for declaration that the AGM held on 31st August 2007 was in violation of the Article of association of the club and thus illegal, void, and not binding.2. Personal or individual cause of action against the petitioner company:The petitioner argued that an individual member/shareholder could not maintain the suit as it was not a derivative action and lacked any personal or individual cause of action. The High Court, however, noted that the suit at the instance of an individual shareholder, alleging the infringement of a right for an action and the majority shareholders being opposed to the memorandum and article of association, could not be said to be an imperfect suit liable to fail on the parameters of Order 7 Rule 11 of the Code. The Court referenced the Division Bench judgment in Asansol Electric Supply Co. and Ors, which held that individual members could sue to protect their own individual rights as members.3. Infructuous nature of the suit due to subsequent events:The petitioner contended that the suit had become infructuous due to resolutions passed in subsequent AGMs of 2008, 2009, and 2010. The High Court rejected this argument, stating that if subsequent resolutions are based upon the parent resolution taken in the AGM of 31st August 2007, which is the subject-matter of the suit, the suit cannot be deemed infructuous. The Court emphasized that the subsequent events did not render the original proceeding infructuous.4. Relevance of the memorandum and article of association in determining the legality of the AGM resolution:The petitioner argued that the memorandum and article of association permitted the club to sell, mortgage, and deal with its property, thus justifying the AGM resolution. The High Court noted that while the power to deal with the property was present in the memorandum, it must be exercised in consonance with the object and purposes for which the club was formed. The Court referenced the earlier revisional application where it was held that the power to deal with the property must align with the primary object of promoting golf.5. Jurisdiction of the Civil Court in light of Section 397 & 398 of the Companies Act:The opposite party argued that despite the provisions of Section 397 & 398 of the Companies Act, a civil suit is maintainable if the challenge is made to a validity of a meeting that is per se illegal. The High Court agreed, stating that Section 397 & 398 provides a preventive remedy for oppression and mismanagement but does not expressly oust the jurisdiction of the Civil Court to declare a resolution ultra vires to the memorandum and article of association.6. Consideration of subsequent events in rendering the original proceeding infructuous:The Court acknowledged that subsequent events could be considered if they rendered the original proceeding infructuous. However, it held that the subsequent AGMs did not supersede or withdraw the resolution of 31st August 2007, and thus, the suit remained relevant. The Court referenced the judgment in Shipping Corporation of India Ltd., which held that it is the duty of the Court to take necessary action in the interest of justice if the original proceeding has become infructuous due to subsequent events.Conclusion:The High Court concluded that the suit was maintainable, the cause of action was clear and explicit, and the subsequent events did not render the suit infructuous. The revisional application was dismissed, and the Trial Court's order was upheld. There was no order as to costs.