AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
1960 (7) TMI 19
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....at the amount lying in current accounts of the company with several banks amounted to over Rs. 1,67,000. Besides, there was also some cash in hand. This undoubtedly is a considerable amount and inasmuch as I had by then made up my mind as to the order I was going to pass in this application, except that I had not finally decided as to the form the order should take, I asked Mr. Deb whether the respondents were prepared to give an undertaking not to withdraw the amount lying in the current accounts of the company pending my judgment. Mr. Deb, however, was not inclined to do so when it was submitted on behalf of the applicants that I should, in the circumstances, issue an injunction restraining the respondents from withdrawing any money from the current accounts of the company with different banks. Having regard to the fact that I had already by then come to a conclusion, I thought it proper that no money belonging to the company should any longer be left under the control of the respondents and accordingly I issued an interim injunction restraining the respondents from withdrawing or dealing with the moneys of the company lying in its current accounts in different banks. Now I proc....
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....ng 200 shares. The applicants have applied under sections 397, 398, 402 and 403 of the Companies Act, 1956, for the reliefs mentioned in the petition with notice to Central Government as required. It is significant that none of the director-respondents have affirrned any affidavit in support of their case except P.N. Talukdar whose affidavit, in my opinion, is not worth the paper it is written on. M. M. Chakravartty has not appeared. The other respondents have appeared through counsel. The main affidavit in opposition is by a person called Bibhuti Bhusan Roy who is not stated to be a principal officer of the company. In paragraph 23 of his affidavit is stated when and how he came to join the company. Towards the end of the paragraph is stated that after he retired from the Life Insurance Corporation in October, 1956, he again joined the company in July, 1957. I must at once say, that if there be a case where the remedies under sections 397, 398 and 402 of the Companies Act should be justly available it is before me now. As I relate the facts and the circumstances of this case it would be clearly manifest that not only there has been oppression of the minority shareholders of the....
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....are being conducted as aforesaid or that by reason of any material change as aforesaid in the management or control of the company, it is likely that the affairs of the company will be conducted as aforesaid, the court may, with a view to bringing to an end or preventing the matters complained of or apprehended, make such order as it thinks fit." On 21st of December, 1955, the 48th ordinary annual general meeting of the company was held and the constitution of the board of directors was (1) Dr. N.N. Law, (2) Kumar P.N. Roy, (3) S.C. Law, (4) P.N. Talukdar, (5) Dr. M.M. Chakraborty, (6) P.K. Bose, (7) J.N. Sen Gupta, (8) B.K. Roy Choudury, (9) Sir Dhiren Mitter and (10) B.C. Sinha. Of the above Nos. 1 to 5 were members-directors, Nos. 6 to 8 were policy holders-directors and Nos. 9 and 10 were directors appointed by the Government. Of the members-directors it is admitted that Dr. M.M. Chakraborty was disqualified for not holding the qualification shares thus reducing the number of members-directors to four, namely, Dr. N.N. Law, Kumar P.N. Roy, S.C. Law and P.N. Talukdar. On January 19, 1956, the Life Insurance (Emergency Provisions) Ordinance of 1956 came into force and since its....
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....der this Act has in accordance with the provisions of this Act collected and distributed any moneys paid to him by the Corporation by way of compensation or otherwise and has also complied with any direction given to him by the Corporation for the purpose of securing that the ownership of any property or any right is effectively transferred to the Corporation, the Central Government may on application being made to it in this behalf by such insurer, grant a certificate to the insurer that there is no reason for the continued existence of the insurer and where such a certificate has been granted shall cause the certificate to be published in the Official Gazette and upon the publication thereof the insurer shall be dissolved." On November 1, 1957, the Life Insurance Corporation paid to the company a compensation amounting to Rs. 33,09,855 and a further compensation amounting to Rs. 2,30,553 was paid by the Corporation to the company on January 1, 1958. The compensation money has not yet been distributed by the company to its shareholders who are entitled thereto and is being retained by the respondents. Besides the above two sums the Corporation has also paid a sum of Rs. 61,613 ....
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....urther the consideration of the steps to be taken for preparation of the balance-sheet for the year ended December 31, 1955, was postponed. On May 3, 1956, the chairman of the company sent a reply to the letter dated April 6, 1956. The relevant portion of the letter reads as follows: "The board of directors have been legally advised that as the board have not ceased to exist they are quite within their rights to confirm the proceedings of the previous board meetings and the committee meetings and it is their responsibility to prepare the balance-sheet for the year 1955 as contemplated under the Companies Act. It is stated in the solicitor's letter under reference that you have already received instructions from the Central Government for the preparation of the balance-sheet for the year ending 31st December, 1955, and that you are taking necessary steps in that behalf. As this absolves the board from its responsibility for the preparation of the said balance-sheet we are referring this matter to the Government of India for confirmation." At the foot of this letter it was stated that a copy was being forwarded to the Secretary, Ministry of Finance, Department of Company Law Admini....
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....es to the controlled business (that is the entire business of the company) with reference to which the powers of the directors had been taken away." That in substance is the entire argument on behalf of the respondents on this point. I am unable to accept this contention. Under section 3 of Ordinance No. 1 of 1956, only the management of the controlled business of the company vested in the Central Government. It is true that the controlled business was the only business of the company at the time but the company as a separate legal entity remained as before (and was asserted by the directors of the company also) with all its rights and obligations and the directors remained still bound to call the annual general meeting of the company in terms of section 166 of the Companies Act and lay before the meeting the balance-sheet for the year ending 1955. Article 132 of the articles of association of the company provides "that the company shall at the expiration of each year prepare with reference to that year a balance-sheet, profit and loss account, revenue account or accounts ................... in compliance with the provisions of the Act and the Insurance Act, The directors shall a....
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....ents which did not appertain to the controlled business and which were necessary for the purpose of calling a meeting of the shareholders were not required under Ordinance No, 1 of 1956 to be delivered to the Central Government. Mr. Advocate-General on behalf of the company submitted that making over by the directors of the share register and other documents not appertaining to the controlled business and not required under the Ordinance of 1956 to the Central Government, at best, can be held to be a bona fide mistake on the part of the directors and cannot amount to oppression or mismanagement. I cannot accept this contention that it was a bona fide mistake of the directors because of their subsequent conduct in the affairs of the company as reflected in various resolutions passed by them. I have already referred to the minutes of the board meeting held on April 7, 1956, when the consideration of the steps to be taken for preparation of balance-sheet for the year ending 1955 was postponed. The next board meeting was held on July 9, 1956, when P.N. Talukdar was appointed representative of the company to attend the conference in Delhi on July 9, 1956, and subsequent dates, for consi....
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....nied at the hearing. Therefore, at the 51st general meeting to be held towards the end of 1958 the only remaining director left would be due to retire and thus there would be no director in 1959. My above conclusion as to the number of directors for the years 1956, 1957 and 1958 is founded on the rule laid down in the following cases: Krishnaprasad Jwaladutt Pilani v. Colaba Land and Mills Co. Ltd. [1959] 29 Comp. Cas. 273, Morris v. Kanssen [1946] 16 Comp. Cas. 186 , In re Consolidated Nickel Mines Ltd. [1914] 1 Ch. 883; where it was held that a director who was due to retire by rotation at the annual general, meeting vacated his office at the latest on the last date on which that annual general meeting could have been called as required by section 166 of the Companies Act, 1956, and cannot continue in office thereafter on the ground that the meeting has not in fact been called. The respondents' case is that they are validly appointed directors and not that they are protected under section 290 of the Companies Act. Yet at the hearing the learned counsel for the respondents sought protection under section 290 of the Companies Act. In my opinion, on the facts and circumstances of ....
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....ho were not directors again took part in the proceedings. At this point of time it is to be noted that either N. N. Law or P.N. Talukdar had ceased to be a director as one of them had to retire at*the end of September, 1957. This meeting was held without a quorum and several resolutions were passed authorising opening of bank accounts of the company with the Central Bank of India Ltd. and the Punjab National Bank Ltd. with power to them to honour the cheques, bills of exchange and promissory" notes drawn, accepted or made on behalf of the company by any two directors jointly and to act on any instructions so given relating to the account whether the same be overdrawn or not or relating to the transactions of the company. This meeting also sanctioned payment of Rs. 8,142 for legal expenses incurred in connection with the hearing before the Tribunal. A further sum of Rs. 600 was also sanctioned for purchase of the office furniture by the secretary, who was authorised to appoint office staff at a total monthly remuneration of Rs. 750. A further sum of Rs. 580 for travelling expenses and costs of stamps in connection with the Tribunal case was also sanctioned and indeed it is strange t....
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....ll these actions and inactions on the part of the directors, in my opinion, clearly indicate that they did not want to hold any general meeting and pass the balance-sheet for the year 1955 and this is confirmed by the fact that even at the hearing it was contended that the directors had no duty to have the balance-sheet for the year ending 1955 passed at a general meeting. During 1958, two further board meetings were held and in neither of them it appears the quorum was present but, instead, persons who were not directors were wrongfully allowed to take part in the proceedings. This brings us to the end of 1958 when the last of the directors had retired by rotation. With the close of the year 1958, the company thus did not have any directors at all. Yet it appears that on January 21, 1959, aboard meeting was purported to have been held and business transacted concerning the affairs of the company. At the said meeting opening of the deposit account with the United Bank of India Ltd. was sanctioned and it was resolved that the account would be operated by two of the directors although none of them was director any more. Auditors were appointed. Sir S. S. M. Faroqui was co-opted as ....
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.... the last annual general meeting held on December 21, 1955, no further general meeting had been held and that persons who were no longer directors were still wrongfully functioning as such and that the compensation money paid by the Life Insurance Corporation to the company had not been distributed amongst the shareholders of the company who were entitled thereto and further they were afraid that the so-called directors may fritter away the funds and asked for action to be taken in the matter immediately. It seems, soon after this letter to the Finance Minister, the so-called directors suddenly woke up and became intensely active and set about obtaining opinion from Mr. N. K. Petigara, a solicitor of Bombay, as to what steps were to be taken regarding the company. There is no previous resolution authorising obtaining of such opinion and it would be most interesting to know at whose instance such steps were being taken ; surely not at the instance of the shareholders. On January 21, 1959, they purported to hold a board meeting and the resolution No. 4 of the minutes of the meeting records that according to the advice obtained from Mr. Petigara, it was resolved that the company shoul....
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....er cent, per annum free of income-tax. No reference was made to the balance-sheet for the year ending 1955. At the meeting held on July 22, 1959, the date of the annual general meeting was fixed on the August 24, 1959, and by resolution No. 7 the notice of the annual general meeting to be held on the August 24, 1959, with explanatory statement as required by section 173 of the Companies Act, 1956, was approved and signed. It is important to note here that in the printed consolidated balance-sheet item No. 7 of the notice of the meeting, the resolution as set out, is somewhat different from the resolution approved of at the meeting of January 21, 1959, as it appears to have been altered by adding at the end the words "and to utilise the compensation money for the aforesaid purpose". When this alteration was resolved I have not been told nor is there any resolution before me authorising addition of these words which had been added to the resolution set out in the notice dated July 22, 1959, except that the minutes of the meeting of July 22, 1959, recorded that the notice was approved and signed. These so-called board meetings of 1959 were no doubt not valid meetings at all because t....
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....m these words it would be reasonable to infer that the directors knew that they had a duty to perform but could not do so for reasons stated (which I have not accepted). But the report does not mention that the balance-sheet for the year 1955 as prepared by the custodian was forwarded to the company and that the company relied on that before the Tribunal in the compensation case. Nor does it say as to why the said balance-sheet of 1955 was not being placed before them for adoption. In my opinion it was a part of the policy of these directors not to apprise the shareholders of the affairs of the company during year ending 1955, and thereafter the period from January 1, 1956, to August 31, 1956. I cannot see any other reason to justify this conduct of these directors who had the control of the affairs of the company by their superior voting power. This superior voting power it may be mentioned here is entirely due to 2,920 shares belonging to N. R. Sarkar Trust, voting rights whereof is in Dr. N.N. Law who has, however, no beneficial interest in the shares. The beneficial interest lies in some of the applicants. It is by use of these votes against persons who have the beneficial int....
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....ly invoked and relief granted to the petitioners. It was further contended that by reason of section 7 of the Life Insurance Corporation Act of 1956 the entire assets of the "controlled business" of the company vested in the Corporation and the "controlled business" was the principal and the only business of the company; and as by reason of the Life Insurance Corporation Act, 1956, it could no longer carry on life insurance business and issue policies the very substratum of the company was gone and that fact alone would justify winding up of the company on the just and equitable rule thus satisfying the last condition in section 397 of the Companies Act. The learned counsel relied on In re Haven Gold Mining Co. [1882] 20 Ch. D. 157 and In re German Date Coffee Co. [1882] 20 Ch. D. 169 I accept this contention. Mr. R. C. Deb on behalf of his client, however, contended that the present case is distinguishable from the facts of the cases cited above and drew my attention to the object clause in the memorandum of association of the company which runs as follows: "(a) To carry on all forms of insurance and guarantee and indemnity business and all business and work connected therewith, ....
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....ial to the interest of the company. Viscount Simonds in the House of Lords case of Meyer v. Scottish Co-operative Wholesale Society Ltd. [1958] 3 All. E.R. 71 ; 29 Comp. Cas. 1 adopted the meaning of oppression as "burdensome, harsh and wrongful" taking the dictionary meaning of the word. Adopting the same meaning it appears to me that the directors-in-control who had the majority voting power exercised their authority wrongfully in a manner burdensome, harsh and wrongful. All the so-called board meetings held between 1957 and 1959, and the resolutions passed were no doubt oppressive and also prejudicial to the interest of the company. By the resolutions passed at the meetings held on January 21, 1959, and July 22, 1959, the so-called directors who had the majority voting power attempted to force the applicants and the minority shareholders to invest their money in a different kind of business against their will. The applicants and its supporters who constitute the minority shareholders invested their money in a life insurance business with all its safeguard and statutory protection. But they were being forced to invest where there would be no such protection or safeguard. Further....
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....ement and affairs of the company including the compensation money with all accrued interest thereon lying in the following banks in the account of the company without any right to operate or withdraw any amount therefrom and subject to this that he will have power to renew the short deposit account for further periods from time to time. (1)F.D.R. /533385/30/60 dated 2nd February, 1960, for Rs. 8 lakhs of the Punjab National Bank Ltd., New Market, Calcutta. (2)S.D.R. 164396 and 45/627 dated 22nd March, 1960, for Rs. 12 lakhs of the Central Bank of India, Calcutta. (3)S.D.R. 164481 and 45/696 dated 4th April, 1960, for Rs. 2 lakhs of the Central Bank of India Ltd., Calcutta. (4)Receipt No. 75510 re: 75339 dated 23rd March, 1960, for Rs. 15 lakhs and Account No. F. 126/17 for Rs.15 lakhs of the United Bank of India, Clive Ghat Street, Calcutta. (5)Amounts lying in the current account of the Central Bank of India, 33 Netaji Subhas Road and the Punjab National Bank, New Market Branch, Calcutta. The special officer is not to withdraw or operate on any of the aforesaid banking accounts and the short deposit accounts and the current accounts of the company without further order of th....
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....The company, through the special officer, is directed to purchase and pay for the shares standing in the names of the applicants and their supporters whose names appear in annexure "A" to the petition, including the added parties to this application as in paragraph 3 above at the valuation so arrived at out of the funds of the company. Such payment is to be made by the special officer upon obtaining directions from the court and make consequent reduction of the share capital of the company. (6) After such purchase by the company the special officer is directed to convene an extraordinary general meeting of the remaining shareholders of the company to consider and if thought fit to pass either of the following resolutions with or without modifications : (i)Resolved that the company do distribute the compensation money received by the company from the Life Insurance Corporation of India to the shareholders in accordance with law ; or (ii)Resolved that the company do carry on any other business authorised by its memorandum of association and utilise the compensation money for the aforesaid objects. Such meeting is to be called in accordance with law by sending 21 days notice alon....