Management Powers vested in directors cannot be displaced by ordinary meeting; directors may continue litigation.

Defendants cannot successfully assert lack of authority to sue as a defence where the articles vest power to institute litigation in the board and the defendants have not proved absence of an authorising resolution; the objection ordinarily requires an interlocutory application and mere allegation is insufficient. Shareholders may not, by ordinary general meeting, usurp management powers conferred by the articles or effect removals or alterations of management without following the statutory procedure or amending the articles; convening a meeting to oust directors or indirectly alter management prerogatives is impermissible and a meeting to decide continuance of the suit must not be used as such a device.

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Issues: (i) Whether the defendants may, by way of defence in this suit, object that the action was instituted without authority of the company; (ii) Whether a general meeting should be convened to ascertain the shareholders' wishes and/or to deprive the board of directors of the power to continue the suit.

Issue (i): Whether the defendants can raise, as a defence in the suit, that the action was instituted without the authority of the company.

Analysis: The Court reviewed authorities on whether lack of authority to sue in the company's name must be raised by a preliminary motion (stay/strike out) or may be relied on as a defence. Having considered precedent, the Court found no conclusive evidence that the plaintiff lacked authority; the articles vest power to institute suits in the board; and the defendants had not discharged the onus of proving absence of authorising resolution. The Court distinguished cases where a motion to strike out was appropriate and examined the allocation of powers between directors and shareholders under the articles.

Conclusion: The defendants are not permitted to raise the objection that the suit was instituted without authority as a defence in this suit; there is no conclusive evidence of want of authority; the articles confer sufficient power on the directors to maintain the suit. The plaintiff may proceed.

Issue (ii): Whether a general meeting should be convened to ascertain the shareholders' wishes about continuing or discontinuing the suit, and whether shareholders may, by ordinary meeting, deprive directors of the power to commence or continue litigation entrusted to them by the articles.

Analysis: The Court analysed the effect of article 121 (management vested in directors but "subject to regulations from time to time made by the company in general meeting") and surveyed authorities on the limits of shareholder control over matters delegated to directors. The Court held that the power of management conferred by the articles is a contractual delegation which can be altered only by amendment of the articles or by removal of directors by the statutory procedure. The Court rejected convening a general meeting as a device to usurp directors' management functions or to effect removals without complying with statutory requirements (including notice under section 284). The Court observed that a meeting convened for ascertaining continuance of the suit must not be converted into an indirect scheme to remove directors or alter management prerogatives without proper procedure.

Conclusion: No general meeting should be held for the purpose of depriving the board of its powers under the articles; shareholders cannot, by ordinary meeting, usurp powers of management vested in directors; a meeting to ascertain the continuance of the suit must not be used as a device to remove or oust directors in breach of the articles or statutory requirements.

Final Conclusion: The Court refused to permit a general meeting to be convened for the purposes contended by the defendants and upheld the directors' authority under the articles to institute and continue the present suit; the earlier order for convening a meeting is recalled and the suit will appear in the list on August 25, 1960.

Ratio Decidendi: Where the articles vest management powers in the board, those powers to commence or continue litigation belong to the directors and may be displaced only by lawful amendment of the articles or by removal of directors in accordance with statutory procedure; absence of authority to sue is not conclusively established by mere allegation and, ordinarily, objection to authority should be raised by appropriate interlocutory application rather than as a defence on the merits.

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