TaxTMI 
TaxTMI 
1974 (2) TMI 97
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....s petition is with regard to issue and allotment of 1,000 shares of the company the effect of which is to reduce Barooah who had a comfortable majority of the shareholding in the company till the issue and allotment of the said 1,000 shares into a minority in the company and also with regard to the removal of Barooah from the office of director of the company. In the said petition, Barooah has asked inter alia for the appointment of a special officer and/or receiver and/or administrator of the company, for an order of injunction against the respondents Khaund, S.K. Mitra and Radhadas Mitra from acting as managing director and/or directors of the company, for a declaration that the purported appointment and/or co-option of the respondent Radhadas Mitra as a director of the company is illegal, void and inoperative, for declaration that the issue and allotment of 1,000 shares to respondent Khaund is illegal, void and inoperative, for a declaration that Barooah is still a lawful and valid director of the company, for an order directing the sale of the shares of the respondents Khaund and S.K. Mitra on a valuation to be made by an independent valuer to be appointed by the court and for ....
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....y, Tea Brokers (P) Ltd., was incorporated in 1955. The authorised capital of the company is Rs. 5,00,000 divided into 5,000 shares of Rs. 100 each. Samar Kumar Mitra, the respondent No. 3 herein and one S.N. Basu Mallick and one Mr. A.K. Sen Gupta were the promoters of the company and the promoters subscribed to 50 shares. 2. Very soon after the company was incorporated, the company entered into an agreement with Barooah on 12.10.1955. Before commencement of business, and by and under the said agreement between the company and Barooah, it was agreed that Barooah would procure a bank guarantee for Rs. 2,00,000 which amount was necessary for enrolment of the company as a member of the Calcutta Tea Traders Association and the company agreed to pay to Barooah interest and commission @ 6% and to set apart for Barooah or his nominee 80% of the shares of the company. The agreement was to remain in force for a period of five years. 3. Barooah procured necessary bank guarantee and the company became a member of the Calcutta Tea Traders association in May, 1956. After the company became a member of the Calcutta Tea Traders Association, the company started carryi....
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.... By an agreement entered by and between the company and Khaund on 2.12.64 Khaund was appointed the managing director of the company for a period of 20 years on the terms and conditions mentioned in the agreement. This agreement was entered into at a point when Barooah and his group were in clear majority in the company, although the agreement between Barooah and the company reserving 80% of the shares for the Barooah had expired. 7. The company opened an account with United Bank of India and arranged for overdraft facilities in its account with the said bank. The arrangement in 1965 was that the bank would discount bills submitted by the company to the extent of 70% of the amount of the bills deposited and the limit on this bill discounting accommodation would be Rs. 6 lakhs. The further arrangement was that the bank would allow the company to draw against the cheques in favour of the company deposited by the company with the bank and the limit of the accommodation against the deposit of cheques would be Rs. 8 lakhs. It appears that the sums advanced by the bank by way of discounted bills submitted by the company would be credited in the current account in the compan....
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....958, Barooah was present only at two Board meetings. It appears that in 1957-58, Barooah was absent from 10 consecutive Board meetings held between 1.7.57 and 1.8.58. Barooah does not appear to have attended any of the five Board meetings held in 1960. Barooah also did not attend any of the four Board meetings held in 1961. It, therefore, appears that for the entire period of 1960-61 during which nine Board meetings were held, Barooah had not attended any of the Board meetings. In 1962, Barooah was present at two of the seven Board meetings held during the year. In 1963, nine Board meetings were held and Barooah had attended only three of the Board meetings. In 1964, Barooah was present at only one of the nine Board meetings held, during the year. It appears that Barooah had been absent from eight consecutive Board meetings held between 17.12.63 and 29.9.64. In 1965, Barooah attended only two of the seven Board meetings held during the year and Barooah was absent from four consecutive meetings held during the period of 26.3.65 and 14.7.65. Barooah attended four of the seven Board meetings held in 1966. In 1967, Barooah was present at two of the seven Board meetings held during the ....
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....ntioned the following agenda-- (i) To consider the letters from Assam Co-operative Apex Bank Ltd. in connection with additional tea finance from the season 1970-71 to different establishments and different companies. (ii) To consider the general affairs of the company, (iii) Miscellaneous. Barooah was not present at the meeting. 16. Another Board meeting of the company was held on 16 November, 1970. The notice of this Board meeting is dated 7 November, 1970, and the notice stipulates the following agenda-- (i) To consider the share transfer application received by the company, (ii) To consider the situation created on the operation of Gauhati tea auction centre. (iii) To consider the general affairs of the company. (iv) Miscellaneous. Barooah did not attend this meeting. 17. It appears that after Barooah had floated Assam Tea Brokers (P) Ltd., there were talks of Khaund joining the said company as a director. On 23 November, 1970, 'Barooah addressed the following letter to Khaund-- "My dear Bhabani, ....
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.... 18. A Board meeting of the company was held on 4 January, 1971, The notice of this Board meeting is dated 29 December, 1970, and the notice contains the following agenda-- (i) To consider the letter of resignation received from Sri P.K. Barooah. (ii) to consider the financial condition of the company, (iii) Miscellaneous. P.K. Barooah who was one of the directors of the company tendered his resignation from the company by his letter, dated 11.8.1970, even before the holding of the annual general meeting on 22.8.1970. The resignation of P.K. Barooah, however, appears to have been accepted at the Board meeting held on 4 January, 1971. It appears that P.K. Barooah would not also attend very many of the Board meetings. For non-attending, Board meetings of leave of absence was granted to Mr. P.K. Barooah and also to Mr. H.P. Barooah at the Board 'meeting held on 26.12.69, It appears that at the subsequent Board meetings held on 16.1.70, 11.4.70, 8.5.70, 15.6.70 and 30.7.70, neither Mr. P.K. Barooah nor Barooah was present and it does not appear that any leave of absence was granted to either of them for non-atte....
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....i Radhadas Mitra is waiting outside the directors' meeting room and Sri Mitra be requested to attend the Board meeting. The Board agreed. Thereupon, the Chairman invited Sri Radhadas Mitra to attend the Board's meeting and Sri Radhadas Mitra joined the Board's meeting. The Chairman pointed out that Shri H.P. Barooah had not been attending several consecutive meetings and had not also taken leave of absence since 10 October, 1970, and that in the past one year, he had not been attending the meetings. As such, the company is not receiving any services from Sri. H.P. Barooah as a director of the company. The Chairman also pointed out that Shri H.P. Barooah had vacated [office] from the Board of directors under the provision of the Companies Act. The Board considered that matter and on being proposed by the Chairman, the following resolution was unanimously adopted:-- 'Resolved that necessary returns for the vacation of Sri H.P. Barooah from the Board of directors by virtue of the provisions of section 283(1)(g) of the Companies Act, 1956, be filed with the Registrar of Companies and necessary entries be made in the company's register.&....
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....ees two lakhs sixty one thousand and eight hundred only). For United Bank of India Sd. ... I... Agent." The letter of the bank referred to in the resolution of the Board appears to have been sent along with the debit note and the letter does not appear to bear any date, but bears the number being ref. No. Cal/Adv/BD/463/71. The material portion of the letter reads as follows: Dear Sirs, Re : Long outstanding bills: Our letter No. Cal/Adv/BD, dated.....' Kindly note that we have adjusted our dues of Rs................. against the under mentioned bills including commission to the debit of your CD A/c with us as per our letter mentioned under reference. Kindly arrange to regularise the a/c, if drawn in excess immediately on receipt of this letter. Please take up the matter with the respective drawees as to the early disposal of the bills in question. Your Faithfully, Sd. ...... Agent." The particulars of the bills have been set out thereafter in the letter. 21. At a Board meeting held on 20 January, 1971, 1,000 shares were; allotted to Khaund who had....
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....illegally issuing the 1000 new shares and allotting the same to respondent No. 2 solely with a view to reducing the petitioner to a minority shareholder in the company. The said allotment is not at all for the benefit of the company but is made in bad faith and solely for the purpose of gaining complete control by the respondent No. 2 of the management of the company turning the majority shareholders group into a minority. This single act as it has been held in the Sindhri Iron Foundry (P) Ltd. 's case [(1964) 34 Comp Cas 510 (Cal)] is itself sufficient for disposing of this application. I also hold that in the facts of this case the removal of the petitioner from the Board of directors is also wrongful as he has not been served with the notice of the Board of directors, at least notice of the meetings in which he has been alleged not to attend, and thereby vacating the office of the director under section 283(1)(g) of the Companies Act, 1956." 5. Mr. B.C. Dutt, learned counsel, who has mainly argued the appeal on behalf of the appellants has, in course of his very elaborate and detailed arguments forcefully advanced, criticised the aforesaid findings of the learned trial Ju....
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.... SC 857, to the decisions of this court in the case of Suhxmar Guha v. Naresh Chandra Ghost reported in AIR 1968 Cal 49 and the case of Kanaklata Ghose v. Amal Kr. Ghose reported in AIR 1970 Cal 328 and also to the decision of the Delhi High Court in the case of Om Prakash Bahal v. A.K. Shroff and another reported in AIR 1973 Del 39. Mr. Dutt has argued that a mere denial is not sufficient to dislodge the presumption and, in the instant case, there is not even a proper denial, as in the petition, there is no proper averment and in the affidavit in answer the averments made are clearly unacceptable, as it can never be true that Barooah has not received any notice under certificate of posting even in the year 1969. Mr. Dutt argues that Barooah hardly attended any Board meeting and had not attended any of the Board meetings of the company in the year 1969-70. According to Mr. Dutt, the petitioner Barooah would, however, ask for leave of absence for not attending the Board meetings and the Board at the request of the petitioner Barooah would grant such leave of absence. Mr. Dutt has stated that such leave was granted to the petitioner Barooah at the Board meeting held on the 26th Decem....
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....t he had made any request for leave of absence in respect of the meetings held on 12.10.70, 26.10.70, 16.11.70 and 4.12.70, it must be held that Barooah vacated his office and ceased to be a director of the company. Mr. Dutt has argued that Barooah's vacating his office as director on the basis of the mandatory provisions of the statute is not and cannot amount to an act of exclusion of Barooah from the Board by Khaund or Mitra or by the Board. According to Mr. Dutt, Barooah ceased to be director by virtue of the operation of the law and not of any act of Khaund or Mitra. Mr. Dutt submits that there is really no question of exclusion of Barooah from the Board by Khaund or by Mitra and as Barooah was not removed from the Board or excluded from the Board by any act on the part of Khaund or Mitra or the Board, there cannot be any question of any act of oppression in this regard. Mr. Dutt further contends that ceasing to be director of the company and vacating his office as director by Barooah is a complaint or grievance relating to the holding of the office of director and is not in any event related to the capacity of Barooah as a member of the company. 7. Mr. Dutt has next co....
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....relates to the increase of the authorised capital of the company and to issue of new shares consequent on the increase in the authorised capital of the company. Mr. Dutt argues that article 27 has been incorporated on the basis of the provisions contained in section 94 of the Companies Act to enable the company to take steps for increasing the authorised capital of the company mentioned in its memorandum of association. Mr. Dutt has submitted that there is no provision in the Companies Act requiring issue and allotment of further shares within the authorised capital of the company to be done at a general meeting of the company and there is also no provision in the articles of association of the company which requires that issue and allotment of fresh shares within the authorised limit of capital of the company, should be done at a general' meeting of the company. It is the argument of Mr. Dutt that in the absence of any such provision in the statute or in the articles, the Board of directors is competent to issue and allot such shares by virtue of the provisions contained in article 50A. Mr. Dutt has further commented that issue and allotment of all shares of the company have a....
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....ccount stood overdrawn to the extent of Rs. 4,27,853.33 which was much in excess of the limit. According to Mr. Dutt, the company was entitled to overdraw to the extent of Rs. 2 lakhs on the basis of the further security of Rs. 2 lakhs covered by gold bonds and the debit of Rs. 2, 61, 800 brought about a situation of very great urgency and raising of funds immediately became an imperative necessity for the company. Mr. Dutt has blamed Barooah for the kind of financial situation of the company and he has complained that as Barooah's concerns had taken from the company about Rs. 17 lakhs and had not paid the amounts back, the company had to face the financial crisis. Mr. Dutt argues that as Barooah has not made any arrangement for payment of the huge loans granted by the company to his various concerns, it could not reasonably be expected that Barooah would take any share on payment or would pay any money to the company. Mr. Dutt has 'commented that Barooah has not in fact paid any money in respect of the shares of the company acquired by him and in fact he has acquired the shares, not by making payment of any actual cash but by adjustment of sums payable to him on account of....
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....uination cannot and does not become mala fide merely because the allotment has the effect of affecting Barooah's position as a majority shareholder in the company. It is also Mr. Dutt's contention that such an act cannot also be said to be an act of oppression at all. 9. Mr. Dutt has next contended that the Board was under no obligation to offer shares to the other existing shareholders in proportion to their holding. He has argued that the entrenched or pre-emptive right of any shareholder to participate in any further issue of shares is not recognised in India. He submits that the right of a shareholder to participate proportionately in the further issue of shares came to be conferred on the shareholders for the first time by the enactment of section 105C of the Indian Companies Act, 1913, and before the enactment of the said, section, shareholders did not enjoy any such right. In support of his submission, Mr. putt has referred to the decision of the Supreme Court in the case of R. Mathalone and others v. Bombay Life Assurance Co. Ltd. and others AIR 1953 SC 385 and has relied on the following observations at page 390: "Section 105C, the enactment of wh....
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....aid that there was a kind of common law or equitable right of any member of a company, which, according to Mr. Dtlitt, was never recognised in India, the said right clearly became a statutory right and came to be recognised for the first time in section 105C of the [Indian] Companies Act of 1913 and by virtue of the said enactment, the common law or equitable right as such, if any, ceased to exist. Mr. Dutt argues that the legislature which thought it fit to confer the said right on the shareholders of all the companies, whether public or private, by the Act of 1913 considered it proper and appropriate to limit the said right to the members of a public limited company only and the said right has been denied to the members of a private limited company. It is the argument of Mr. Dutt that as the legislature has thought it fit to take away this right from the members of a private limited company, it cannot be said that the members of a private limited company enjoy any such right. Mr. Dutt has commented that the articles of the company do not make any provision as to issue and allotment of shares proportionate to the existing holdings. It is the submission of Mr. Dutt that in the abse....
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....no exclusion of Barooah from the Board of directors of which he has ceased to be member by virtue of the mandatory provisions of the statute and as allotment of 1,000 shares is lawful, proper and bona fide in the interest of the company the learned trial Judge should have dismissed the application of Barooah under sections 397 and 398 of the Act. Mr. Dutt has drawn our attention to the provisions contained in sections 397 and 398 of the Act, The said section reads as follows: "397. Application to court for relief in cases of oppression.--(1) Any members of a company who complain that the affairs of the company are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members (including any one or more of themselves) may apply to the court for an order under this section, provided such members have a right to apply in virtue of section 399. (2) If, on any application under sub-section (1) the court is of opinion-- (a) that the company's affair are being conducted in a manner oppressive to any member or members, and (b) that to wind up the company would unfairly prejudice s....
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....ing conducted in a manner oppressive to any member or members of the company and the court has to be satisfied that the company's affairs are being conducted in a manner oppressive to any member or members and that to wind up the company would unfairly prejudice such member or members though the facts would otherwise justify the making of a winding up order on the ground that it was just and equitable that the company should be wound up. It is the argument of Mr. Dutt that any of the aforesaid requirements of section 397 is not satisfied in the instant case. Mr. Dutt contends that there is really no complaint in the petition that the affairs of the company are being conducted in a manner oppressive to any member or members as averments made in the petition are not properly verified, and averments made without proper verification cannot be considered to be proper averments and cannot form the basis or foundation of any complaint. It is the contention of Mr. Dutt that as the allegations made in the petition are not properly verified the said allegation, should not be considered, and in the absence of proper allegations, there can be no complaint which may require consideration by....
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....s commented that the learned trial Judge was clearly wrong in not relying on the letter of the 5th January, 1971, addressed by Khaund to Barooah. It is Mr. Dutt's contention that the Board considered the situation very carefully and the managing director had informed all the directors including Barooah of the very grave situation by the circular letter date the 11 January, 1971, and on a very careful consideration of the entire situation, the Board felt compelled to allot the 1,000 shares to Khaund under circumstances which the Board was otherwise unable to cope with. Mr. Dutt has argued that the allotment of the said shares which is lawful, proper and clearly in the interest of the company cannot constitute an act of oppression merely because the said allotment has the effect of reducing Barooah to the position of a minority shareholder in the company. Mr. Dutt has submitted that in the instant case, there has, therefore, been no act of oppression of which Barooah can legitimately complain. It is the submission of Mr. Dutt that on the other hand it is Barooah who has committed various acts which may be considered to be acts of oppression on the other members and which must be ....
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....r. Barooah to serve his own selfish ends. 13. Mr. Dutt has contended that as there is no act of oppression on Mr. Barooah in his capacity as member of the company, the provisions of section 397 cannot be attracted. He has argued that even if the fact of Mr. Barooah's vacating the office of director of the company and the act of allotment of the shares be considered to be acts of oppression, the said fact and the said act would not justify any order of winding up being made on the just and equitable ground. Mr. Dutt argues that Barooah has ceased to be a director of the company by virtue of the mandatory provisions of the statute and not by any act of the appellants and the fact of Barooah's vacating the office under mandatory provisions of the statute can never be considered to be a ground on which the court could make an order for the winding up of the company on the ground that it is just and equitable to do so. Mr. Dutt submits that the act of allotment of 1,000 shares to Khaund is, in the facts and circumstances of the case, perfectly legitimate and is lawful and bona fide and in the best interest of the company. According to Mr. Dutt, this legitimate act of the Boar....
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....rship firm can, therefore, have no application in the instant case. Mr. Dutt has further submitted that in all the cases where partnership principles have been applied, the company was either in the nature of a partnership or the members of the company have become the members of the company on the basis of mutual trust and confidence or on the basis of a kind of understanding or arrangement. He has commented that in the instant case, both Barooah and Khaund became members of the company subsequent to its incorporation and they agreed to be members of the company on the basis of its memorandum and articles of association and not on the basis of any trust and confidence. Mr. Dutt has argued that it cannot be said that Barooah is the owner of the company and Khaund and Mitra are merely professional managers of the company and they cannot be considered to be employees of Barooah. Mr. Dutt contends that all of them are members of the company and have their own peculiar kind of interest in the company and because of their ability and performance Khaund and Mitra have risen to the position of managing director and technical director of the company and taking into consideration the very va....
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.... in the holding of shares of any member cannot be said to bring about a material change unless the effect of the change in the holding of shares by any member affects adversely and prejudicially the interest of the company. Mr. Dutt has argued that in any event the change in the ownership of shares of Barooah and the change in the composition of the Board of directors do not affect prejudicially the affairs of the company and it is not at all likely that the affairs of the company will be conducted in a manner prejudicial to the interest of the company. Mr. Dutt submits that on the other hand the change will enure to the benefit of the company and will ensure smooth and efficient running of the affairs of the company. Mr. Dutt has argued that the facts and circumstances of the case clearly indicate that Barooah has very little interest in the company and interest of Barooah is really in conflict with the interest of the company, as Barooah being interested in his own concern, Assam Tea Brokers (P) Ltd., Assam, is diverting the business of the company to his said concern and is also interested in not repaying the debts of his various concerns to the company. It is the argument of Mr....
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....g Co. Ltd., Re (1962) 3 All ER 68. (12) Charles Forte Investment Ltd. v. Amanda (1963) 2 All ER 940. (13) Surrey Garden Village Trust Ltd., Re (1964) 3 All ER 962 (Ch D). (14) Bellador Silk Ltd., Re (1965) 2 Comp.L.J. 30 (Ch D) : (1965) 1 All ER 667 (Ch D). (15) Lundie Bros. Ltd., Re (1966) 1 Comp.L.J. 30 (Ch D) : (1965) 2 All ER 692 (Ch D). (16) Five Minutes Car Wash Services Ltd., Re (1966) 2 Comp.L.J. 68 (Ch D) : (1966) 1 All ER 242 (Ch D). (17) Fildes Bros. Ltd., Re (1970) 2 Comp.L.J. 173 (Ch D) : (1970) 1 All ER 923 (Ch D). (18) Jermyn Street Turkish Baths Ltd., Re (1971) 3 All ER 184 (CA). (19) Ebrahimi v. Westbourne Galleries Ltd. (1972) 2 All ER 492 (HL). (20) Ripon Press & Sugar Mills Co. Ltd., Bellary v. Gopal Chetti AIR 1932 PC 1 : 58 Ind App 416. (21) Rajahmundry Electric Supply Corp. v. A. Nagesiuar Rao AIR 1956 SC 213. (22) Syed Md. Ali v. Sundaramurthi AIR 1958 Mad 587. (23) Albert David Ltd., Re (1964) 68 CWN 163. (24) Richardson and Cruddas Ltd. and ITC v. Haridas Mundra AI....
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....omp Cas 308 (Cal). 15. I have to observe that Mr. Dutt has raised a further contention that though Mr. Barooah may have the right to make the application as he undoubtedly holds more than the requisite number of shares as provided under section 399, yet his application is not maintainable as Barooah is guarantor of the various loans advanced by the company to various concerns of Barooah and the shares of Barooah may be attached and sold in execution of the decree or decrees that may be obtained against Barooah on the basis of the said guarantee. 16. Mr. Dutt has, therefore, submitted that the appeal should, therefore, be allowed and the decision [of the learned trial Judge should be set aside and the application of Barooah should be dismissed. 17. Mr. Dutt has contended that the cross-objection must necessarily fail, if the appeal succeeds; and he contends that in any event, the cross-objection must fail whether the appeal succeeds or not. He has submitted that when any shareholder comes and complains to court about oppression and mismanagement, the oppressed party whether he is in the majority or in minority stands on the same footing and the oppressed party is directed a....
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....e interest of any particular member of the company and it is his contention that in the best interest of the company the management of the affairs of the company should continue to remain in the hands of Khaund and Mitra and Barooah should be directed to go out of the company with such compensation as this court may consider fit and proper in respect of his holding in the company. Mr. Dutt has, therefore, submitted that the cross-objection preferred by Barooah cannot in any event be allowed. It is his submission that the appeal should be allowed and necessarily the cross-objection should fail and, in any event, the cross-objection should be dismissed. 18. Mr. S.C. Sen, learned counsel appearing on behalf of Barooah, the petitioner before the trial court and the respondent in the appeal, has submitted that in the facts and circumstances of this case the provisions of section 397 and section 398 are both clearly attracted. According to Mr. Sen, the said sections are independent and they make necessary provisions as to court's power which may be exercised under appropriate circumstance. Mr. Sen has divided his submission into three parts. 19. He has first dealt with what, ac....
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....ons in whom he had confidence to look after the affairs of the company by appointing them as paid directors of the company and Barooah who has varied business interests and is also associated with various other companies, would not care to participate in the Board meetings or the general meetings of the company, as the Board meetings of the company as well as the general meetings of the company, according to the learned counsel, were more or less formalities which are required to be complied with. The learned counsel has submitted that Barooah who was virtually the company would give appropriate directions to Khaund and Mitra and whenever any important decision was necessary to be taken, Khaund and Mitra would contact Barooah and if necessary they would visit Barooah at Assam and would take Barooah's advice and instructions. The learned counsel has submitted that Barooah was responsible for the overdraft facilities from United Bank of India the limit of which was subsequently raised to Rs. 14 lakhs in 1965 and Barooah apart from his personal guarantee, had furnished one of his tea gardens as security for the said overdraft account. The learned counsel has further submitted that....
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....n 283(1)(g) of the Companies Act is absolutely false and has been made only with the object of removing Barooah from the Board of directors. It is the argument of the learned counsel that Barooah, since his appointment as a director of the company in 1956, has hardly been participating in the meetings of the Board of directors and has been absenting himself from Board meetings for much longer period than three months and for very many more than three consecutive meetings on any number of occasions; yet, at no point of time has the question of Barooah's vacating the office as director ever cropped up and leave of absence has been granted to Barooah as a matter of course. The learned counsel has drawn our attention to the proceedings of the minutes of the board meetings held from the 22 December, 1956, till 14 January, 1971, as recorded in the minute book of the company and the learned counsel has pointed out that on a number of occasions, Barooah is supposed to have absented himself without obtaining any leave, but no question was ever raised about his continuing to be a director. In this connection, the learned counsel has referred to the minutes of Board meetings held on 19.11....
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....tors there could be no question of granting any leave of absence to them. The learned counsel has drawn our attention to the minutes of the Board meeting held on 31.7.70 and has pointed out that at the said Board meeting leave of absence was granted to Barooah and to P.K. Barooah who could not possibly have continued to remain directors of the company on that date. The learned counsel has argued that there has never been any question of applying the provisions of section 283(1)(g) to the directors of the company and leave of absence has always been granted as a matter of course to Barooah and also to P.K. Barooah even at a point of time when Barooah or P.K. Barooah should have ceased to be directors of the company on the basis of the provisions contained in section 283(1)(g). It is the argument of the learned counsel that if Barooah had been asking for and enjoying leave of absence since his appointment as a director in December, 1956, there could be no possible reason as to why Barooah would not ask for leave and obtain leave of absence from the meetings held after his re-election as director -- at the annual general meeting on 22.8.70 between October, 1970, and January, 1971, if ....
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....ously, and illegally with the purpose of ousting Barooah from the Board of directors by suppressing the notice of the Board meetings. The learned counsel has submitted that with the only object of grabbing the company Khaund in collusion with S.K. Mitra has purported to remove Barooah from the Board of directors of the company by falsely, mischievously and illegally invoking the provisions contained in section 283(1)(g) and has sought to reduce Barooah into a minority of the company by allotting 1,000 shares to Khaund mala fide, improperly, wrongfully and illegally. It is the submission of the learned counsel that if there were any bona fides on the part of Khaund and Mitter, Khaund would undoubtedly have drawn the attention of Barooah in Khaund's letter to Barooah dated the 30th November, 1970, to the fact that Barooah had already absented himself from three Board meetings held on 12.10.70, 26.10.70 and 16.11.70 without asking for leave and there was every possibility of his vacating the office in the immediate future unless Barooah immediately applied for leave of absence. The learned counsel has argued that after differences between Barooah and Khaund had arisen and Khaund h....
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....he privilege of contributing the new capital called for by the corporation -- an equity that inheres in stock ownership under such circumstances as a quality inseparable from the capital interest represented by the old stock. In this connection, the learned counsel has referred to the decision of the Supreme Court of America in Miles v. Safe Deposit Trust Co. (1921) 66 Law Ed. 923 and he has based his submissions on the observation of the court at page 926. The learned counsel contends that this view of the American Supreme Court has been accepted by the Supreme court in India in the case of R. Mathalone and others v. Bombay Life Assurance Co. Ltd. and others reported in AIR 1953 SC 385 and the Supreme Court, at page 390, has observed: "This is not a fruit of stock ownership, in the nature of a profit, nor does it amount to a division of any part of the assets of the company. It is not an organic product of the original stock like the young animals or the fruit of trees, but, as described by the Supreme Court of America in Miles v. Safe Deposit Trust Co. (1921) 66 Law Ed. 923 at 926, this right to subscribe to new stock is but a right to participate in preference to ....
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....ovisions contained in the articles by which the shareholders would be bound. The learned counsel has submitted that to undo this mischief and to preserve and protect the right of the shareholder in the matter of participation of any further issue of capital, statutory provision was made in section 105C of the Act of 1913 and the effect of the statutory provision is that any provision contained in the articles of association contrary to the said statutory provision will not prevail. The learned counsel has argued that similar provision is also contained in section 81 of the Act of 1956 and the further provision contained in sub-section (8) of section 81 to the effect that section 81 shall not apply to a private company is no way derogatory to the right of a member of a private company to participate in the further issue of capital and does not affect the right he possesses by virtue of his being a member of the company to participate in the further issue of capital unless the articles of a private company contain any provision to the contrary. It is the argument of the learned counsel that the right of an existing shareholder to participate in the further issue of capital is a right....
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....ts that increase contemplates increase in the issued capital. The learned counsel has argued that allotment and issue of shares at Board meetings on previous occasions cannot lead to the conclusion that the Board had the power to make the allotment and the earlier acts of the Board, if they were not legally justified, cannot confer the power of allotment on the Board and cannot validate the present allotment. 24. The learned counsel has submitted that the allotment of shares must in any event be held to be bad and invalid, as the said allotment, even if the same can be said not to be illegal, has been made clearly in improper exercise and abuse of powers by the Board and its directors for gaining control of the company and not in the interest of the company. The learned counsel has commented that since the allotment of shares made in May, 1953, there has been no further allotment of any shares by the company in course of the period of over 12 years before the disputed allotment of 1,000 shares to Khaund in January, 1971. The learned counsel has argued that there has been no necessity for the allotment of any further shares and the allotment of the further 1,000 shares to Khaund ....
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.....J. 315 (Cal) : 72 CWN 872. The learned counsel points out that even in this resolution, there is no mention of any verbal discussion between Mr. Khaund and the bank. The learned counsel has commented that the nature of the resolution alleged to have been adopted at the meeting of the 14 January, 1971, indicates that the said resolutions are not proper business resolutions and have been deliberately framed in the manner with an ulterior motive. The learned counsel has argued that the story of sending an urgent circular letter, dated 11 January, 1971, is clearly false and has been made out for the purpose of the application. The learned counsel has pointed out that no mentions of the said letter is made in any of the affidavit of Khaund and the said letter is not also annexed to the affidavit. 'The learned counsel further points out that even in the proceedings of the Board meeting of the 14 January, 1971, there is no reference to the circular letter. The learned counsel has commented that the said letter has for the first time seen the light of day in the proceedings before the court of appeal and has been included in Part I of the supplementary paperbook at page 3. The learned....
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....1.71, the bank had honoured cheques drawn by the company for very substantial amounts. The learned counsel further points out that further sum of Rs. 90,000 was paid by Khaund for the purchase of the said 1,000 shares on 22.1.71 about 10 days after the issue of the debit note by the bank. The learned counsel has drawn our attention to the letter addressed by the bank on the 29 March, 1971, which appears at pages 274-275 of the paper book. The said letter reads as follows: "Dear Sir, Re : Credit facilities sanctioned by United Bank of India. Your company has been sanctioned overall credit note of Rs. 14 lakhs composed of the following sub-limits: (a) Rs. 8 lakhs against cheques uncleared and late cheques. (b) Rs. 6 lakhs against tea garden invoices entries in our favour by the garden owners supported by the relative R/R, B/L, S/R and air consignment note. This facility is, inter alia, secured by the personal guarantee of Sri H.P. Barooah, who has mortgaged his Mokrung Tea Estate to back up his guarantee. Our dues in the account of your company stood at Rs. 4,45,550 on the close o....
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....y the company and disclosed by the company clearly show that the story of any financial crisis and any immediate necessity for raising funds for preventing the cheques drawn by the company from being dishonoured is palpably false. The learned counsel has further argued that if there was any truth whatsoever in the case of the appellants that there was any financial urgency and the company needed funds immediately, the company would undoubtedly have made demands on the parties from whom the company was to get substantial amounts at that time. The learned counsel in this connection has commented that no demands were ever made on Barooah and he has pointed out that although no demands were made on Barooah or his concerns, Barooah's concerns in fact, paid to the company a sum of Rs. 75,000 on the 27 January, 1971, and a further sum of Rs. 75,000 on 5 February, 1971, in respect of the loans made by the company to the Barooah concerns. The learned counsel comments that the sum of Rs. 1,50,000 paid by Barooah concerns is a larger amount than the sum of Rs. 1,00,000 realised from Khaund in respect of the allotment of 1,000 shares to him, which allotment for realising the said sum of Rs....
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....and the common seal of the company be affixed thereto in their presence'. The learned counsel comments that the entire money was not paid by Khaund on the 20 January, 1971, and was to be paid on or before the 22 January, 1971, but the company issued and allotted 1,000 fully paid up shares to Khaund on the 20 January, 1971. It is the submission of the learned counsel that the unseemly and undue haste in the matter of allotment to Khaund even before receipt of the entire consideration money clearly goes to establish the lack of bona fides on the part of the Board. 25. The learned counsel has submitted that the act of removal of Barooah and the further act of allotment of shares to Khaund done simultaneously at the meeting of 14 January, 1971, indicate that Khaund and S.K. Mitra had chalked out a deliberate plan of grabbing control of the company and of reducing Barooah into a non-entity and the said acts were done in implementation of the plan or design of virtually ousting Barooah from the company and for gaining for themselves the control of the company and for no other purpose. The learned counsel has commented that the fact that Radhadas Mitra was already in the office ....
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....y entitled to complain that the affairs of the company are being conducted in a manner oppressive to Barooah, as this act of reducing Barooah into a minority is and will remain a continuing act and will set in motion a chain of events the consequences of which will be of a continuing and permanent character. Mr. Sen argues that on the application of Barooah who is legitimately entitled to compalain that the affairs of the company are being conducted in the manner oppressive to him and who has undoubtedly the right to apply in virtue of section 399, there can be no manner of doubt that all the requirements of the section are satisfied in the instant case. Mr. Sen argues that the act of reducing Barooah wrongfully and improperly into a minority clearly establishes that the company's affairs are being conducted in a manner oppressive to Barooah and the requirement of sub-section 2(a) is, therefore, clearly satisfied. Mr. Sen has further argued that the facts and circumstances of the case are such as would undoutedly justify the making of winding up order on the ground that it was just and equitable that the company should be wound up, but such an order would unfairly prejudice Bar....
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.... (HL). Mr. Sen has also argued that the principles of partnership are clearly applicable in the facts of the instant case. Mr. Sen has, therefore, submitted that all the requirements of section 397;are satisfied in the facts of the instant case and the said section 397 has been rightly applied by the learned trial Judge. 27. Mr. Sen has next submitted that section 398 of the Companies Act also applies to the facts of the instant case. It is the submission of Mr. Sen that section 398 is an independent section introduced in the Companies Act, 1956 and there is no provision corresponding to this section in the English Act. Mr. Sen has contended that by this section wide powers have been conferred on the court to meet the requirements of justice in cases which may not strictly and properly fall under section 397. Mr. Sen has argued that the requirements in section 398 are-- (a) that the affairs of the company should be conducted in a manner prejudicial to the interests of the company, or (b) that a material change (not being a change brought about by or in the interest of any creditors including debenture-holders, or any class of shareholders, of the co....
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.... of Rs. 14 lakhs on the basis of the guarantee given by Barooah is clearly evidenced by the bank's letter, dated 29.3.71 which has earlier been set out and by which the bank informed the company of its inability to allow the existing overdraft facilities to continue because of the withdrawal of the guarantee by Barooah. Mr. Sen has commented that because of the wrongful, illegal and improper acts of Khaund and Mitra in removing Barooah from the Board and reducing him into a minority in the company Barooah was compelled to withdraw and was perfectly justified in withdrawing the guarantee previously given by him and the effect of Barooah's withdrawal of the guarantee was that the company could not enjoy the overdraft facilities previously allowed to the company by the bank. Mr. Sen comments that withdrawal of the overdraft facilities by the bank is bound to affect prejudicially the interest of the company and the interest of the company is bound to suffer. It is the complaint of Mr. Sen that this situation has been brought about by Khaund and Mitra by their wrongful, improper, illegal and mala fide acts of trying to remove Barooah from the Board and of reducing him into a min....
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.... of] promoting its business and its business relationship is now indulging in fruitless litigations involving heavy expenditure and this situation has resulted as a direct consequence of the wrongful and illegal act of Khaund and Mitra in trying to oust Barooah from the company. Mr. Sen has further argued that because of the aforesaid wrongful and illegal act of Khaund and Mitra in trying to oust Barooah from the company, other companies which have entered into business with the company, and have allowed credit facilities to the company have filed suits against the company. Mr. Sen has contended that the various litigations which have already started and prospect of further litigations in the future clearly establish that the affairs of the company have been and are being conducted in a manner prejudicial to the interests of the company. Mr. Sen has referred to the balance sheets of the company and has argued that the balance sheets of the company and the statement of accounts prepared for the subsequent years go to show that the affairs of the company have been and are being conducted in a manner prejudicial to the interest of the company. Mr. Sen submits that the requirement in s....
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....so in Palmer's Company Law, to the reports of Jenkins Committee and Cohen's Committee and also to an article by M.R. Chesterman published in Modem Law Review in 1973 March issue. 29. Mr. Sen has next submitted that the allegations made against Mr. Barooah are all baseless and without any foundation. Mr. Sen submits that it is fruitless to try to argue that Barooah who has acquired the controlling interest of the company which happens to be virtually one of his concerns, will have no interest in the company which he has succeeded in making a flourishing concern. In this connection, Mr. Sen points out that Barooah, apart from furnishing personal guarantee to the bank for the overdraft facilities has also furnished one of his personal properties as security. Mr. Sen argues that for furtherance of Barooah's business interest and because of the situation that had arisen in consequence of the decision of Assam Government to start tea auctions at Gauhati, Barooah had to start his other concern, Assam Tea Brokers (P) Ltd. at Assam and the fact that Barooah has started another concern at Assam does not imply that Barooah has lost interest in the company. Mr. Sen, in this conn....
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....ctor in December, 1956. Mr. Sen submits that as Barooah had reposed trust and confidence in Khaund and Mitra and had been impressed with their ability and had appointed them as managing director and technical director, Barooah undoubtedly came to rely on them more and more after he had placed the company on a sound footing; and in trust and confidence Barooah had agreed to confer wide powers on Khaund and Mitra in the management of the affairs of the company. Mr. Sen has submitted that the allegations against Barooah that he has exploited the company for his personal ends and has obtained huge sums of money from the company for his various concerns and has forced the company to stand surety or guarantee for his various concerns, is false and mischievous. Mr. Sen has argued that it is undoubtedly true that various sums of money have been advanced by the company in course of its business to certain concerns in which Barooah is interested, but the said advances have all been made by the company in the business interest of the company and they are all proper business deals. Mr. Sen has pointed out form the minutes of the Board meeting that at the meetings of the Board where loans to th....
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....antee on behalf of other concerns including the concerns in which Barooah is interested, is found to be done improperly not in the interest of the company, the entire responsibility and blame must go to Khaund and Mitra and they cannot be permitted to lay the blame on Barooah. Mr. Sen has argued that there is no basis to justify the comment or criticism of Mr. Dutt that business of this company has been diverted to Assam Tea Brokers (P) Ltd. There is no material, according to Mr. Sen, which goes to indicate that any business of the company has been diverted to Assam Tea Brokers (P) Ltd. Mr. Sen has submitted that as a result of the decision of the Government of Assam to hold auction in Gauhati some business which would previously be done through the Calcutta market is now being done at Gauhati. It is the submission of Mr. Sen that that is the normal effect of the Assam Government's decision to start a tea auction centre at Assam and this is the kind of a situation which every businessman is called upon to face in course of his trading activities and Barooah cannot possibly be held responsible for the situation created by the decision of the Assam Government. Mr. Sen, in this co....
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....affairs of the company subject to various rights and safeguards provided for the minority shareholders. Mr. Sen contends that the right of the majority shareholders to manage the affairs of the company is clearly recognised by the provisions of the Companies Act, as in accordance with the provisions of the said Act, the Board of directors which is generally vested with the powers of management is elected by the shareholders who control the majority of the shareholding in the company, and unless any particular member enjoys the support of the majority, he cannot be elected a director of the company. It is the contention of Mr. Sen that generally the majority shareholder who has the right to manage the affairs of the company should never be ordered or directed to sell his shares to the minority group of shareholders and only the minority group of shareholders who may feel oppressed by the majority and who may not have any effective remedy of permanently curing or undoing the mischief of majority oppression, as the minority group of shareholders can never, acquire the control of the company, should be directed to sell out their shares to the majority group and to go out of the company....
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....ts which are found to be so, is indeed rewarded and is allowed to reap the benefits of his own wrong. Mr. Sen comments that in the facts of the instant case, the said order indeed enures to greater benefit of Khaund than what he would otherwise be entitled to if no order was made on the said application of Barooah. According to Mr. Sen, Khaund had atleast to pay rupees one lakh for the 1,000 shares to get the control of the company but on the basis of the order made by the learned trial Judge, Khaund becomes entitled to a refund of the said sum of Rs. 1,00,000 and he still acquires the control of the company by paying a lesser sum as compensation in respect of the shares held by Barooah and his group. Mr. sen argues that shares are ordered to be sold at a value by a party as reasonable compensation for the wrong or injury done to the party concerned and it is the argument of Mr. Sen that the order directing Barooah and his group who hold the majority shares in the company to sell their shares, afford no compensation to Barooah and his group and indeed operate very harshly against them and give undue and improper benefit to Khaund and Mitra who are the parties at fault. Mr. Sen cont....
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....been invoked mala fide to remove him from his office? and (2) whether the allotment of 1,000 shares to Khaund was done bona fide in the interest of the company, or the said allotment was made mala fide with the object of reducing Barooah into a minority for gaining the control of the company? 32. On the determination of these two questions, the further question as to the applicability of the provisions of sections 397 and 398 will arise and will need consideration. 33. I do not consider it necessary to go into the question whether Barooah had anything to do with the formation of the company, and I do not propose to take any note of the documents sought to be disclosed and relied upon in course of the hearing of the appeal before us on behalf of Barooah. There cannot, however, be any manner of doubt that the true effect of the agreement between Barooah and the company entered into on 12.10.1955 soon after the incorporation of the company and even before the company had commenced its business, was to make the company virtually a Barooah concern. Barooah by virtue of the said agreement acquired the right to control 80% of the shareholding of the company and thereb....
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....ied for such leave of absence. On no occasion in the past, had the provisions of section 283(1)(g) been resorted to and leave of absence as a matter of course appears to have been granted to Barooah and, as I have already noted, such leave has even been granted long after the period when Barooah should have already vacated his office by virtue of the provisions contained in section 283(1)(g), if the said provision had been resorted to and applied, as the mischief of the said section had already come into operation. It may be noted that this was the position not peculiar to Barooah alone, but similar was the position with regard to P.K. Barooah who would also hardly attend Board meetings of the company. Leave of absence would be granted to P.K. Barooah in the same way as a matter of course. Even on occasion when P.K. Barooah should have already vacated his office in terms of the provision contained in section 283(1)(g) if the said section, which appears to have become applicable, had been applied, leave of absence to P.K. Barooah had also been granted, notwithstanding the situation that P.K. Barooah should have ceased to be a director of the company by virtue of said provision conta....
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....und in his letter dated 30 November, 1970, to Barooah would draw the attention of Barooah to this aspect and would request him to ask for leave, as it appears that by 30 November, 1970, the company had already held three board meetings, one on 12 October, 1970, another 26 October, 1970, and the other on 16 November, 1970. In my view, there is also considerable force in the argument of the learned counsel for Barooah that section 283(1)(g) could not in any event be applicable, when it was sought to be invoked, as the notice of the first Board meeting which was held on 12 October, 1970, after Barooah's re-election at annual general meeting held on 22 August, 1970, could never have been served on Barooah as, to the knowledge of Khaund and Mitra, Barooah was at that time away in England and Barooah could not possibly receive the notice and could not possibly have attended the said Board meeting held on 12 October, 1970. I have, therefore, no hesitation in the facts of instant case in coming to conclusion that the provisions contained in section 283(1)(g) have been sought to be resorted to and invoked mala fide by Khaund and Mitra only with the object of removing Barooah from the Bo....
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....s also made in the bill discount account. In view of overdraft arrangement between the company and bank existing at that point of time, the said voucher did not and could not materially affect the company's financial position and therefore, there could be no financial crisis. The letter of the bank, dated the 29 March, 1971, to the company clearly falsified the case sought to be made out. As a result of the debit voucher, the account of the company stood overdrawn to the extent of Rs. 4,27,853.33 as indicated in the chart showing the bank position which has been included in Part II for the supplementary paperbook filed on behalf of the appellants. The said chart further indicated that on 14 March the accounts stood overdrawn to the extent of Rs. 3,80,983.16. The letter of the bank, dated the 29 March, 1971, which appears at pages 274-275 of the paperbook and which I have earlier set out shows that the company's account stood overdrawn on the 29 March, 1971, to the extent of Rs. 4,45,550 and the said letter clearly establishes that the company could enjoy overdraft facility for a much larger sum. This letter of the bank and the overdraft agreement that the company had entere....
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....mergency at all. I am of the opinion that the only object of allotting the said 1,000 shares to Khaund was to reduce Barooah into a minority in the company and to gain the control of the company for Khaund and Mitra. It is also significant to note that although the amount debited was Rs. 2,61,800 only 1,000 shares, the value of which was 1,00,000, were allotted as 1,000 shares were just sufficient to reduce Barooah into a minority and to give Khaund and Mitra the majority in the company, though the value of the said shares was very much less than the amount debited in the company's account. I must, therefore, hold that 1,000 shares were allotted to Khaund mala fide with the only object of reducing Barooah into a minority and of gaining the control of the company by Khaund and Mitra and the allotment was not made in the interest of the company at all. In view of my finding that the allotment was made mala fide with the object of reducing Barooah into a minority and not in the interest of the company, I do not consider it necessary to decide whether the said allotment is otherwise illegal on the ground urged by the learned counsel for" Barooah, as, in my view, it is well settled ....
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.... further proceeds to observe at pages 516-517: "In Fraser v. Whalley (1864) 2H & M. 10, the directors of railway company acted on an old resolution which authorised the issue of shares for a particular purpose. The particular purpose had ceased, and, the directors being afraid that at a general meeting, they would be removed, were attempting to issue shares to enable them to be supported, and kept in office. Page Wood V.C. says: "The directors are informed that at the next general meeting, they are likely to be removed; and therefore, on the very verge of a general meeting, they, without giving notice to anyone, with this indecent haste and scramble which is shown by the times at which the meetings were held, resolve that shares are, on the faith of this obsolete power entrusted to them for a different purpose, to be issued for the very purpose of controlling the ensuing general meeting. I have no doubt that the court will interfere to prevent so gross a breach of trust. I say nothing on the question whether the policy advocated by the directors, or that which I am told is to be pursued by Savin, is more for the interest of the company. That is a matte....
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....nd they were entitled, so long as that majority remained, to have their views prevail in accordance with the regulations of the company; and it was not, in my opinion, open to the directors, for the purpose of converting a minority into a majority, and solely for the purpose of defeating the wishes of the existing majority, to issue the shares which are in dispute in the present action. In my opinion, therefore, the issue of the shares in question to the four defendants was a breach on the part of the directors of their fiduciary powers. In the case of the last two allotments, those to Mr. Skellett and Mr. Wainwright, they were made to them with their full knowledge that the allotments were being made for the illegitimate purpose which I have described. I am, therefore, of opinion that these four allotments were invalid and ought to be declared void." 40. In Palmer's Company Law, 20th Edn., it is stated at page 84: "The duty of the directors as to allotment, as in all matters -- is that they are bound to act in good faith in the best interests of the company." 41. In Modern Company Law by L.C.B. Gower, 3rd Edn., the proposition....
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....upport to this view and the minutes do not appear to be usual business-like minutes of ordinary Board meetings and the minutes as recorded appear to be inspired and motivated. 43. I must, therefore, hold in the instant case that the allotment of 1,000 shares to Khaund is invalid and improper. In the facts of the instant case, I have also to hold that the removal of Barooah from the Board of directors by seeking to invoke the provisions of section 283(1)(g) is motivated, mala fide, unjust and not proper. 44. On the basis of aforesaid findings, I now proceed to consider the applicability of the provisions contained in sections 397 and 398 of the Act. I shall separately deal with the applicability of the said sections which are independent. 45. Section 397 gives a right to members of the company who comply with the conditions of section 399 to apply to the court for relief under section 402 of the Act or such other relief as may be suitable in the facts and circumstances of the case. In the instant case, it cannot be disputed that the conditions of section 399 are complied with. There is no substance in the contention of Mr. Dutt that Barooah is not entitled to make the appli....
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....ffairs of the company by electing his own men to the Board of directors of the company and by refusing to elect persons whom he does not want to be on the Board by exercising his majority voting right in the matter of such election and also in other matters where the views of the majority are to prevail in accordance with the provisions of the company law and administration. This is undoubtedly, a right and privilege which a member enjoys in his capacity as a member of the company. It will ordinarily be an act of oppression on the member if he is deprived of his privilege and right. Such an act will undoubtedly be harsh, burdensome and wrongful and will necessarily be an act of oppression to the member concerned. Such an act may be even a single act done on one particular occasion, if the effect of such an act will be of a continuing nature and the member concerned is deprived of his rights and privileges for all time to come in future. If the affairs of the company are so conducted as will result in this kind of oppression to any member or members, the affairs of the company must be considered to be as 'being conducted in a manner oppressive to any member or members' as la....
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....ame was done with unseemly haste without even caring to inform Barooah, indicate, to my mind, that Khaund and Mitra had chalked out the plan to oust Barooah from the company which was virtually Barooah's concern and had decided to gain control of the company for themselves and to reduce Barooah to non-entity in the company. I have already held that the attempt to invoke the provision of section 283(1)(g) in the facts of instant case to get rid of Barooah from the Board of directors is unjustified and mala fide and the said provision has been sought to be invoked with the intention of ousting Barooah from the Board of directors. The purported removal of Barooah from the Board of directors by seeking to attract the provisions of section 283(1)(g) is unwarranted, wrongful and unjustified and has been done mala fide with the only intention of ousting Barooah from the Board of directors of the company. These mala fide acts of wrongful and improper ouster of Barooah from the Board and of allotment of 1,000 shares to Khaund for effectively removing Barooah from the company which has been one of his concerns by reducing him to the position of the non-entity there, constitute, in my opi....
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....ding, that all, or some (for there may be sleeping members), of the shareholder who shall participate in the conduct of the business; (iii) restriction on the transfer of the members interest in the company -- so that if confidence is lost, or one member is removed from management, he cannot take out his stake and go elsewhere." In the instant case, the company is a private limited company and there is a restriction on the transfer of the members' interests in the company. Barooah in view of the mala fide acts of Khaund and Mitra naturally loses confidence in them and, after his removal from management, he cannot take out his stake and go elsewhere. The noble Lord further proceeds to observe: "It is these, and analogous, factors which may bring into play just and equitable clause, and they do so directly, through the force of the words themselves. To refer, as so many of the cases do, to "quasi-partnerships' or in substance partnerships' may be convenient but may also be confusing. It may be convenient because it is the law of partnership which has developed the conceptions of probity, good faith and mutual confidence, and the remedies where these are ....
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....lear that by virtue of the agreement that Barooah had with the company in 1955, the company became virtually his concern and has in fact remained a Barooah concern. Khaund and Mitra, however, worthy and able they may be, could not have been and would not have been placed in charge of the affairs of the company and for that matter in the Board of directors of the company, unless Barooah had reposed trust and confidence in them. The facts and circumstances of the case clearly indicate, to my mind, that Barooah had reposed trust and confidence in Khaund who had been an old friend of his and also in Mitra and Khaund and Mitra did attain their present position, which they might otherwise well deserve, mainly because they enjoyed the confidence of Barooah. There appears to be some force in the contention of Mr. Sen that Khaund and Mitra are really in the position of professional managers or paid executives of the company though termed directors and clothed with all the powers of the directors and Barooah had agreed to give them the present position because of his faith and confidence in them. The conduct of Khaund and Mitra in seeking to oust Barooah from the company by taking advantage ....
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....- "the affairs of the company must be carried on in a manner prejudicial to the interest of the company or that a material change (not being a change brought about by, or in the interest of, any creditors including debenture-holders, or in any class of shareholders of the company) has taken place in the management or control of the company, whether by an alteration in its Board of directors ... or in the ownership of company's shares.....or in any other manner whatsoever, and that by reason of such change, it is likely that the affairs of the company will be conducted in a manner prejudicial to the interest of the company." In the instant case, the acts of allotment of the 1,000 shares to Khaund and the ouster of Barooah from the Board of directors have undoubtedly resulted in the affairs of the company being conducted in a manner prejudicial to the interest of the company. As a result of the aforesaid acts which I have already held to be improper and mala fide and not in the interest of the company, a series of litigations has already started and there is a possibility of prolonged litigation involving the company. Because of the litigations and because of ou....
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....efore I leave this chapter and proceed to consider the cross-objection preferred by Barooah, I have to observe that the criticism of Mr. Dutt of the manner in which the petition filed by Barooah in this proceeding has been verified has a good deal of justification. It is true that very many of the paragraphs have not been properly verified. It is indeed not proper that a petition of this nature should be without proper verification. It is eminently desirable that every petition on which the court is moved to act should be properly verified. This criticism of Mr. Dutt, though justified, is not, however, of any material consequence in the facts of the instant case. The main purpose and object of verification is to enable the court to adjudicate upon the truth of the allegations made and to decide on the correctness or otherwise of the statements made to ascertain the facts and [the facts] I have taken into consideration are, to my mind, clearly established and borne out by documents, statements, statements made in the affidavits including the affidavits of Khaund and Mitra, the surrounding circumstances and the conduct of the parties. It is open to the court to take into consideratio....
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....d continue to remain in a position by virtue of the majority, to control the affairs of the company and the minority shareholder is not, generally speaking, in a position to take control of [the affairs of the company. Generally speaking, the majority shareholders who control the company, conduct the affairs of the company and in conducting the affairs of the company, they are in a position to commit acts of oppression to the minority group of shareholders. The minority shareholders do not have any effective remedy against such acts of oppression and they can only come to court with their complaint. It may not always be possible for the court to grant an adequate relief to the minority I shareholders and protection against acts of oppression done or to be done by the majority shareholders, if the majority shareholders are inclined to commit such acts of oppression on the minority shareholders. To protect the minority shareholders and to prevent them from the harassment and suffering from such acts of oppression by the majority, the court in appropriate cases orders suitable compensation to be paid to the minority shareholders and directs the minority shareholders to sell or transfe....
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....aid decision lays down no such proposition and indeed, to my mind, no such broad proposition can be laid down. Orders are passed by the court to meet the requirement of justice in the facts of a particular case. As I have already noted in a case where the minority shareholder complains of acts of oppression by the majority, and that is what generally happens in most of the cases, the ends of justice may require that the minority share-holder should be directed to leave the company on payment of proper compensation to him. To ask a majority shareholder who is normally entitled to run the affairs of the company to go out of the company, will not, generally speaking, meet the ends of justice, as it will indeed be unfair and unjust to deprive the majority shareholder of his valuable right for all time to come. In the facts of the instant case, the company in question has been virtually a concern of Barooah. Khaund and Mitra could be and have been placed in charge of the affairs of the company because of the confidence and trust reposed by Barooah in them. The acts of ouster of Barooah from the Board and of seeking to reduce him to a minority by allotment of 1,000 shares to Khaund, whic....
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....arooah has started another company in Assam in view of the decision of the Assam Government to start a tea auction centre in Assam does not mean that Barooah has lost interest in this company. A businessman for promoting his business interests may start a number of concerns which may do similar business in different places. This is entirely a business proposition and a business consideration and it does not follow that simply because a businessman has started another concern in another State doing the same kind of business, he has lost interest in his other concern started earlier in another State for doing the same business. So far as the loans to various other concerns of Barooah granted by the company [are concerned], the minutes of the Board meetings clearly establish that those loans were sanctioned at Board meetings in which Khaund and Mitra were present and Barooah was not present. Khaund and Mitra must have, therefore, considered these loans to other concerns of Barooah to be sound business propositions. In any event, the responsibility for the said loans to the various concerns of Barooah must squarely rest on Khaund and Mitra. If they try to make out a case that the loans....
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....;s interest is in conflict with the interest of the company. Both are concerns of Barooah and Barooah is necessarily interested in the prosperity and welfare of the company. If the company's interests have in any way been prejudiced by Barooah's withdrawal of his guarantee from the bank, Khaund and Mitra must be held responsible for the same, as the withdrawal of the guarantee was the direct consequence of the wrongful ouster of Barooah. 57. There is considerable force in the contention of Mr. Sen that the order of the learned trial Judge directing Barooah and his group to sell the shares to Khaund will have the effect of enabling Khaund and Mitra to reap the benefits of their own wrong and of putting premium on their mala fide and wrongful conduct and the said order may indeed give Khaund further and additional advantage. As I have already held, the only object of Khaund and Mitra has been to gain control of the company for themselves and only with the said end in view, Khaund and Mitra removed Barooah from the Board of directors of the company and sought to make him a non-entity in the company by reducing him into a minority shareholder. The order of the learned trial ....
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....I do not think it will be also just and proper to direct Khaund and Mitra to sell their shares to Barooah, as in my opinion, Khaund and Mitra substantially contributed to the welfare and prosperity of the company. Khaund and Mitra have also existing agreements with the company. The prosperity can best be attained and maintained by Barooah, Khaund and Mitra acting together. All of them have been associated with the company for years and the position that the company has acquired is due to combined efforts of all of them. It is indeed unfortunate that they have fallen out and disputes have arisen between them. Khaund and Barooah have also been friend for years. I sincerely hope that they will all forget the past and sink their differences and will continue to work together to serve the best interest of the company. It is, however, indeed a matter for them. If, however, they are not in a position to compose their differences and work together, the members of the company have necessarily to decide as to how the affairs of the company are to be managed. To enable the members of the company to decide as to how the affairs of the company are to be managed in accordance with law and to ena....
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....ing the special officer to refund to Khaund the purchase price of the said 1,000 shares out of the funds of the company if they are available with him in the meantime is upheld and confirmed provided however that the special officer is satisfied on his investigation that the said sum of Rs. 1,00,000 as purchase price has been paid by Khaund to the company. In the event of special officer being satisfied that Khaund has in fact paid the said sum of Rs. 1,00,000 to the company for the allotment of the said 1,000 shares to him. The special officer is directed to refund to Khaund the said sum of Rs. 1,00,000 within six weeks from date. If for paucity of funds, the special officer is not in a position to refund the said sum of Rs. 1,00,000 to Khaund within the said period, the said sum of Rs. 1,00,000 will carry interest @ 6% p.a. from the date of expiry of the said period of six weeks from date and the sum payable to Khaund will form a charge on the assets of the company. 7. The special officer will be at liberty and entitled to pay remuneration of the valuer if he has already engaged one in terms of the order made by learned trial Judge. The remuneration of the special ....
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.... appeal. The said documents about which there is no objection have already been admitted. Of the other documents in the supplementary paper books, only those which have been referred to or considered in the judgment will stand admitted. With regard to other documents contained in the supplementary paperbooks, I do not consider it necessary to decide and pass any order as to the admissibility of the same or otherwise, as I have not considered it necessary to refer to the same. I, however, direct that they will be kept on the records without any adjudication as to the admissibility or otherwise of the same. 12. Any further directions, if necessary, will be obtained by the special officer of the parties from the learned Judge dealing with company matters on notice to all parties. 58. In concluding, I have to observe that the lawyers of the parties have rendered very great assistance to court. They have argued the respective cases of their clients ably and fully. In course of the submissions made to court, they have referred to, cited and relied on various authorities which I have noted in my judgment. As, however, the principles of law involved in the present proceed....
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.... co-option of Radha Das Mitra is illegal, void and inoperative. It is also prayed that an order be made removing Khaund from his position as managing director and also for removing Samar Kumar Mitra and Radha Das Mitra as directors of the company and for restraining the directors from usurping the function of the directors of the company or from interfering with the affairs of the company. Prayer has also been made for an order directing the sale of the shares of Khaund and Samar Kumar Mitra to Barooah at a valuation to be made by an independent valuer to be appointed by this court. 64. The petition of Barooah is supported by a number of shareholders who have given their consent to the petition. 65. The main complaint of Barooah as stated in the petition is substantially as follows : Barooah and his friends and relations were majority shareholders of the company having 67% of the total issued capital of the company. Barooah himself was the owner of 300 equity shares out of 1,155 shares issued by the company. He was at all material times a director of the company. His case is that he has been wrongfully and illegally ousted from the management of the company. Khaund had 110 sh....
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.... meeting at which the alleged issue and/or allotment of shares was considered. Barooah disputes the factum of alleged payment. According to him, there was no quorum and could not be any quorum of the alleged Board meeting at which the shares were purported to be issued or allotted to Khaund. The purported issue and/or allotment of shares to Khaund was illegal, ultra vires, void and inoperative and mala fide and was an abuse of and in excess of the powers of the respondents. The sole intention of the respondents was to give effect to their plan to oust Barooah from the management and the affairs of the company and to convert Barooah into a minority. 67. In the petition, Barooah stated that he floated a company called 'Assam Tea Brokers (P) Ltd.' in Assam to carry on business as tea brokers and agents in Assam. The business of the company was, however, not in any way affected or sought to be affected as the company continued to act as tea brokers and agents as before. The respondent, Khaund, however, apprehending that his position as managing director of the company and the benefits which he derived therefrom may be adversely affected, wrongfully and illegally hatched a pl....
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....holders and/or directors have lost confidence amongst each other. Barooah would be entitled to ask for a dissolution of the company had it been a partnership. It is stated that in the facts and circumstances of the case, it is just and equitable that the company should be wound up and to do so will unfairly prejudice Barooah and the members who are supporting him in these proceedings. 69. In the affidavit-in-opposition affirmed by Khaund on 10 August, 1971, it is stated that by a resolution dated 20 January, 1971, 1,000 equity shares of Rs. 100 each was validly allotted to Khaund and the said allotment is binding on the company. It is also stated that Barooah was fully aware of the said allotment but did not raise any objection thereto at any time before the institution of the present proceedings. Barooah did not attend any Board meeting during 1970 and he obtained leave of absence from the Board of directors till 31 July, 1970. Thereafter, he did not obtain any leave of absence. Therefore, he vacated his office under section 283(1)(g) of the Companies Act. 70. The case of Khaund is that the reputation which the company enjoys in the tea market is entirely due to his ceaseles....
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....asad and others v. Sindri Iron Foundry (P) Ltd. and others) and was of the view that the facts of the case amounted to an act of oppression and mismanagement within the meaning of sections 397 and 398 of the Companies Act. The learned Judge passed an order, inter alia, declaring that the issue or allotment of 1,000 equity shares by the company to Khaund at the Board meeting, dated 14 January, 1971, is illegal. The learned Judge appointed Mr. S.N. Modak, Barrister-at-law, as special officer, and directed the special officer to appoint a competent valuer so as to value the shares of the company. However, the learned Judge ordered that after such valuation is made, Khaund and his group would have the option to purchase the shares of the petitioner and his group at such valuation, but in case Khaund and the said two are unable to or unwilling to buy the shares -- then Barooah and his group would have the option to purchase the shares of Khaund and other two directors at the said valuation. After such sale is complete, the special officer will call an extraordinary general meeting of the company for the purpose of electing a new Board of directors at which the special officer is to func....
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....y members of a company, who complain that the affairs of the company are being conducted . . . in a manner, oppressive to any member or members (including any one or more of themselves) may apply to court for an order under this section provided such members have a right so to apply in virtue of section 399. (2) If, on any application under sub-section (1), the court is of opinion-- (a) that the company's affairs are being conducted.....in a manner oppressive to any member or members, and (b) that to wind up the company would unfairly prejudice such member or members, but that otherwise the facts would justify the making of a winding up order on the ground that it was just and equitable that the company should be wound up; the court may with a view to bring to an end the matters complained of make such order as it thinks fit." 78. Section 398, so far as it is material for the purpose of this application, reads: 398. Application to court for relief in cases of mismanagement.--] (1) Any members of a company who complain-- (a) that the affairs of the company are being conducted.....in a ma....
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....aling' and 'a visible departure from the standard of fair dealing and violation of the condition of fair play'. 81. These definitions are in general terms. It seems to me that it is dangerous to attempt to make any universal definition. It will depend on the facts of each case. In a case where question arises for determination of what conduct falls within the ambit of the word 'oppressive', the answer to it will depend upon the question whether there was fair dealing which a member is entitled to expect and whether the conduct was wrongful or lacking in probity. 82. In this connection, the observation of late Lord President, Lord Cooper in [Meyer v. Scottish Co-operative Wholesale Society Ltd.] 1954 SC 381, 391, quoted in [Scottish Co-operative Wholesale Society Ltd. v. Meyer and another] 1959 AC 324, at page 343, may be referred to. It runs thus: "In my view, the section warrants the court in looking at the business realities of a situation and does not confine them to a narrow legalistic view." 83. The word 'prejudice' or causing 'prejudice' means 'detrimental, damaging to the rights and interest'. The dictionary....
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.... issue of the said shares was made as a result of debit raised by the United Bank of India. The company was in urgent need of funds at that time and the Board of directors thought that it was for the benefit of the company to issue the said shares to Khaund. Khaund was the only-man who was willing to pay. There was no other source or avenue of getting the funds. Khaund was willing to pay the money provided the shares are issued to him. According to Mr. Dutt, this is not a case of oppression to the petitioner or prejudicial to the interests of the company. Reducing a majority shareholder into a minority is not oppression. Gaining control of the company is not oppression. The Board in the instant case acted bona fide in the interest of the company and the money was required for the company. 89. Mr. S.C. Sen, the learned counsel appearing for Barooah, submitted that by the issue and allotment of 1,000 shares to Khaund, a most violent type of wrong has been done to the petitioner. Turning a majority into minority, according to Mr. Sen, is the most vital wrongful [act] as the substratum of the company management is majority rule. By the issue and allotment of the shares to the managi....
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....ntee of Rs. 2 lakhs. This was done by Barooah. He was by occupation a tea planter. He entered into an agreement with the company on 12 October, 1955, for such guarantee by the bank. The said agreement provided, inter alia, that the company would reserve in favour of Barooah 80% of the company's shares as reserve shares to be allotted to Barooah or to his nominee or nominees. The company shall not allot, deal or dispose of the said reserve shares or any portion thereof to any person other than Barooah or his guarantor or his nominee or nominees except with his consent in writing. The agreement shall remain in force for a period of five years from the date of its execution. Guarantee of United Bank of India was continued by Barooah on his guarantee to the bank. In the month of June, the company was accepted as a broker member of the said Tea Traders Association and started operating on 10 September, 1956. In June/July, 1956, Khaund who was then an officer in Carritt Moran & Co. (P) Ltd., and had experience as tea-tester and tea broker joined the company as an officer and took charge of its administration. He was a personal friend of Barooah. On 29 May, 1957, Khaund became a direc....
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.... of the company as the managing director. During this period, Barooah was not regular in his attendance to the Board meetings. He absented himself from the Board meetings on several occasions and from all Board meetings for a continuous period of three months or from three consecutive meetings on several occasions. He did not attend any Board meeting in the year 1960, 1961, 1969 and 1970. Leave of absence was given to him on all such occasions. Thus, it appears that Barooah had trust and confidence in Khaund, Mitra and the members of Board of directors of the company who managed the company. Second period 96. After floating the Assam Company, Barooah wanted Khaund to join he Assam Company. Admittedly, Khaund as a personal friend of Barooah. Barooah requested Khaund to assist the business of the new company and Khaund also agreed to assist the new company in the first auction which was scheduled to be held at Gauhati in September 1970. In this connection, it is necessary to set out two letters which passed between the parties, namely, letter dated 23 November, 1970, from Barooah to Khaund and the reply, dated 30 November, 1970, by Khaund to Barooah. The first letter, dated 23 ....
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....Gauhati on the 26th. I expected you greatly. I have received your letter with regard to the ATB share drafts and thought, you will advise me of the final shape at Gauhati. As you know, the question is of vital importance to me. Please advise me if you are coming to Calcutta within the next few days. Alternatively, please phone me, giving a date so that I may go to Jorhat. It is necessary that this matter is finalised without further delay. All the best, Yours Sd. Bhabani." H.P. Barooah Club Road Jorhat. 97. In the second period also, it appears that there was no dispute or difference between Barooah and Khaund uptil 30 November, 1970, even after Assam Company was floated. But what happened thereafter, viz., in December, 1971? Obviously Khaund and Barooah did not agree as to the terms on which Khaund could join Assam Company. Admittedly, Khaund did not join Assam Company. Third period 98. The events in the third period, i.e., the period between January, 1971, till the filing of the company petition by Barooah on 17 May, 1971, has to be noted carefully because sometime....
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....00 by cheque. 100. Barooah says that he came down to Calcutta on 27 January, 1971. His allegation is that there was wrongful refusal of the inspection of the minute books. He was given a typed sheet of paper by Khaund. Then he caused searches to be made at the office of the Registrar of Companies and ascertained that 1,000 shares were allotted to Khaund on 20 January, 1971. Barooah then obtained consent of supporting shareholders. On 29 March, 1971, Barooah revokes the guarantee in respect of the company which was given by all the three directors jointly. Thereafter, this company petition was filed on 17 May, 1971. 101. It seems; to me that Khaund and Barooah could not agree as to the terms on which Khaund would be joining the Assam company sometimes during the end of 1970 and disputes and differences started between the parties since then. Fourth period, 102. The events during this period show what happened after filing 'of the company petition. After the company petition was filed there was negotiation for settlement. Certain terms were made regarding amalgamation of Tea Brokers (P) Ltd. and the Assam company. On 17 April, 1971, the company was registered as a; me....
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....e, money was immediately needed at least for Rs. 1 lakh. The only person who was willing to pay was Khaund, and he will not pay without shares being allotted to him. No other known source or avenue of getting the money was available at that time. 105. Mr. B.C. Dutt in course of his argument placed before the court, a letter from the bank, dated 11/12 January, 1971, to show that there was debit of Rs. 2,61,500 in the bill discount of the company. He also placed before us certain statement of the bank position of the company between 10 January, 1971, and 22 January, 1971. It is to be noted that Mr. Dutt did not produce the statement of account from the bank to its customer, namely, the company, but a statement made by the company relating to its bank position. The statement of bank position between 10 January, 1971, and 22 January, 1971, shows in red ink that overdraft for Rs. 2,00,000 is covered by gold bond offered from a personal trust of B.P. Khaund. The letter by the bank and the statement regarding the bank position of the company which, was relied upon by Mr. B.C. Dutt was not either admitted or accepted by the learned counsel appearing on behalf of Barooah. However, argume....
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....anding as at the close of business of 27.3.71 amounting to a Rs. 2,45,550 immediately since the guarantees given by Sri Barooah stands determined, operations in your existing overdraft a/c is being suspended and we will also not be in a position to allow withdrawal of any amount credited to this a/c." 110. From the statement of bank position of the company, it appears that on 12 January, 1971, after debit by the bank of the sum of Rs. 2,61,800 the balance amount of the overdraft was Rs. 4,27,853.33. But at that time the overdraft limit was 14 lakhs and the sub-limit was upto Rs. 8 lakhs and upto Rs. 6 lakhs. A scrutiny of the bank's statement of account would show that on 14 January, 1971, that the total amount overdrawn was Rs. 3,69,614.23. On 15 January, 1971, the company deposited Rs. 10,181.55 and withdrew Rs. 4,006.90. On 16 January, 1971, the company withdrew Rs. 3,314.62 and the amount overdrawn was Rs. 3,66,754.20. On 18 January, 1971, two sums of Rs. 1,69,750.00 and Rs. 7,29,987.87 aggregating to Rs. 8,99,737.87 were deposited and the company dishonoured Rs. 7,53,594.80 and the balance of the overdraft showed Rs. 2,20,611.13. On 19 January, 1971, a sum of Rs. 10,000....
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.... end of 1970, although Barooah loans were to the extent of not less than Rs. 17 lakhs and non-Barooah loans were over Rs. 20 lakhs, there was no letter of demand for realisation of the money and no information about the urgent financial stringency of the company was given to Barooah. 114. It is to be noted in this connection that without making any demand to Barooah and others on 27 January, 1971, Rs. 75,000 was received by the company in repayment of the loan from Barooah Associates and on 5 February, 1971, a further sum of Rs. 75,000 was received by the company from Barooah Associates. This repayment of loan from Barooah and his associates shows that at least it would not have been difficult to realise a sum of Rs. 1 lakh from creditors of the company, if the company was in need of Rs. 1 lakh at that time. 115. In view of the above matter, I cannot accept the case made by the appellants that the company was in urgent need of money at the date of the impugned resolution. 116. I will now consider the minutes of the meeting of the Board of directors held on 14 January, 1971, to see what appears on the face of it. 117. From the minutes of the meeting of the Board of direc....
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.... With regard to this part of the resolution the question is whether Barooah vacated his office under section 283(1)(g) of the Companies Act, 1956 for non attendance with leave, and if so, when? 122. Under section 283(1)(g) of the Act, the office of the director shall become vacated if he absents himself from three consecutive meetings of the Board of directors or from all meetings of the Board for a continuous period of three months whichever is longer without obtaining leave of absence from the Board. 123. According to Khaund he obtained leave of absence from Board meeting till 31 July, 1970. After this date Board meetings were held on 12 October, 1970; 26 October, 1970; 16 November, 1970; 4 December, 1970; 4 January, 1971, and thereafter the impugned Board meeting was held on 14 January, 1971. Admittedly, Barooah left for England in August, 1970, and came back in the middle of October, 1970. Barooah was re-appointed by the annual general meeting on 27 August, 1970. He was elected in absentia. 124. In the resolution, dated 14 January, 1971, it is not recorded when did Barooah vacate office by virtue of section 283(1)(g). 125. In course of argument, Mr. Dutt submitted t....
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....ems to me to be legitimate inference from the circumstances of the case and I accept the same. 131. Again, in the minutes of the impugned Board meeting, it is recorded: "that in the past one year, he (Barooah) had not been attending the meeting. As such, the company is not receiving any service from Shri H.P. Barooah as a director of the company." This statement in the minutes cannot also be fully correct as it appears that on 23 November, 1970, Barooah wrote a letter to Khaund regarding allotment of shares of Assam Tea Brokers Ltd., stating : 'in case of Tea Brokers, the shares are 50% paid'. Khaund replied to this letter on 30 November, 1970, stating that with regard to A.T.B. share draft, he wanted to know the final shape and the question was of vital interest to him. It cannot be said that Barooah was not taking any interest at all with regard to the affairs of the company. 132. With regard to the impugned meeting of the Board of directors, point has been taken on behalf of Barooah that there was no quorum. For the purpose of transaction of business, it may be said that the necessary number of directors was present in the meeting and, therefore, ....
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....taken note of. 133. Assuming, it was necessary, on 14 January, 1971, to issue shares to Khaund, the managing director in the exercise of powers given to the directors under article 50A of the articles of association of the company, because the bank had debited Rs. 2,61,800 in the company's account, a question may also arise in this connection : why shares of Rs. 1 lakh should be issued to Khaund only and why shares for the balance sum of Rs. 1,61,800 should not be offered to other members of the company or to other directors of the company? What attempt was made on behalf of the directors to raise funds if finance was badly needed at that point of time is also not clear from the minutes of the meeting. It appears that no demand for funds was made by the managing director or any resolution was passed for the same. There was no attempt to raise funds from H.P. Barooah who was not only a director from the inception of the company, but-also admittedly arranged finance for the company since the date of its incorporation. Admittedly, Barooah was the owner of several tea gardens and a tea planter having money and resources. Could it be said that the directors who are entrusted with....
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.... registered post. 136. Presumption as to service of notice under section 27 of the General Clauses Act also arises if the same [i.e., the notices] were sent by registered post. Admittedly, in this case, the notice was not sent by registered post. 137. With regard to sending of the notice under certificate of posting, I do think that there can be any presumption that notice has been duly served when the person who is actually interested says that the notice was not given to him. However, this is essentially a question of fact. 138. In 70 CWN 520 (Ramashankar Prasad and others v. Sindhri Iron Foundry (P) Ltd. and others) G.K. Mitter, J., as he then was observed: "It is too wellknown that certificates of posting can be got hold of without actually putting the letters in the post." 139. Mr. Nag appearing for the respondents submitted that if notice was received by Barooah he would have done either of the two things : (a) either he would have attended the meeting, or (b) he would have asked for leave of absence. I have no hesitation in accepting the submission of Mr. Nag. The meeting is a very vital meeting so far as Barooah is concerned and it cannot be belie....
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....to transaction of the affairs of the company or corporation. It is not uncommon for directors conducting a company's business to meet on stated days without any previous notice being given either of the day or of what they are going to do. Being paid for their services -- as; they generally are, as is the case in the company -- it is their duty to go when there is any business to be done and to attend to that business whatever it is, and I cannot now say for the first time that as a matter of law, the business conducted at the directors' meeting is invalid if the directors have had 'no notice of the kind of business which is to come before them. Such a rule would be extremely embarrassing in the transaction of the business of companies." 144. The object of requiring a proper notice of the purpose for which the meeting is to be held is to enable a member to exercise his own judgment as to whether he will attend the meeting or not. The agenda in the notice does not indicate that the company was in an urgent need of finance at that time, the further share's would be issued or that the allotment of shares would be made to any particular director of the company. 14....
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....S.C. Sen submitted that this is a case of abuse of legal power, and it has been done with undue haste. There is an element of manipulation under the facts of this case which will show that this was done for the purpose of grabbing power and, therefore, according to Mr. Sen, this is a case of oppression of the petitioner. In this connection, Mr. Sen, referred to Punt v. Symons & Co. Ltd., Re (1903) 2 Ch 506. In that case, Byrne, J., observed at page 515 of the report: "I now come to the last and most important point. It is argued on the evidence that but for the issue by the directors of the shares under the power as directors, and, therefore, in their fiduciary character under the general power to issue shares, it would have been impossible to pass the resolution proposed and that the shares were not issued bona fide, but with the sole object and intention of creating voting power to carry out the proposed alteration in the articles. On the evidence, I am quite clear that those shares were not issued bona fide for this general advantage of the company, but that they were issued with the immediate object of controlling the holders of the greater number of shares in th....
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....rs, and the directors may exercise all such powers and do all such acts and things as the company is, by its memorandum of association or otherwise, authorised to exercise and do, and are not hereby or by statute directed or required to be made, exercised or done by the company in general meeting, but subject nevertheless to the provisions of the Act, and of these presents and to any regulations not being inconsistent with these presents from time to time made by the company in general meeting, provided that no such regulation shall invalidate any prior act of the directors which would have been valid if such regulations had not been made." Mr. Sen argued that the meaning of this article is that whatever the company has been asked by the article to do in a general meeting is still preserved. Mr. Sen admitted, however, that the Board of directors have been issuing shares from time to time, but he said that nobody has challenged the powers of the directors in this respect. In my view, it may be that this article has not been drafted with care but admittedly, new shares have been issued by the Board of directors from time to time. Further, section 81 of the Companies Act, 1956, whi....
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....shareholder renounces the shares offered to him. The offer, of course, creates fresh rights, but it also brings in its train liabilities and obligations. It confers the right on a shareholder to purchase shares in the new issue of capital in proportion to his existing shareholding but in order to obtain that right he has to fulfill certain obligations and he has to incur certain liabilities." The said observation of the Supreme Court was made in connection with interpretation of section 105C of the (Indian) Companies Act, 1913. 151. Under the said section where directors decide to increase the capital of the company by issue of further shares, such shares shall be offered to the members in proportion to the existing shares held by each member. However, as under the corresponding section 81 of the Companies Act, 1956, it is expressly stated that the said section shall not apply to a private company, I do not think that I can apply the principles laid down by the Supreme Court in that case under the facts of this case; because, in this case, section 81 of the Companies Act, 1956, is applicable. Mr. Sen realised this difference and argued that apart from section 81, there is a c....
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....to subscribe or obtain a cancellation of the issue. However, because the pre-emptive right proved to be unwieldy in many stock issue situations, several exceptions have developed. The pre-emptive right is almost universally recognised as an issue of newly authorised stock which is being sold for cash. The right may be recognised in an additional issue of originally authorised stock, but sometimes, it is not extended to such an issue. Other exceptions have arisen where the stock is issued for property or consideration other than cash, in payment of a debt, to satisfy conversion or where the corporation issues treasury shares. In all cases, the stockholder can waive the pre-emptive right. (Ballantine, Corporations, section 209, Rev. Edn., 1946)." 154. The argument of Mr. Sen is that it is illegal on the basis of common law doctrine, to issue shares to one shareholder only in violation of the principle of common law right of every shareholder. Mr. Sen also submitted that one of the types of abuse of legal power is the issue of shares to directors and others at advantageous position. 155. On principle, there may be some force in the argument of Mr. Sen on this point. There is no ....
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....wer in the company allotted shares to themselves and their friends not for the general benefit of the company, but merely with the intention of thereby acquiring a majority of the voting power and of thus being able to defeat the wishes of the existing minority of shareholder, it was held that, even assuming that the directors were right in considering that the majority's wishes were not in the best interests of the company, the allotments were invalid and ought to be declared void. It follows from this case that the exercise by directors of fiduciary powers for purposes other than those for which they were conferred is invalid. It may be said that although the power of issuing shares is given to directors primarily for the purpose of enabling them to raise capital when required for the purpose of the company, this was not the object of the directors in this case when they issued the new shares as, in my view, it is difficult to accept the case made on behalf of the appellants that the company had need of further capital. 158. On the facts and in the circumstances of the case, it appears to me that the managing director Khaund did not exercise his powers and position for the....
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....are the contractual rights of the parties as determined by the articles of association in this case." The argument of Mr. Dutt is that the directors have passed the resolution under the rights conferred on them by the articles of association and, therefore, the case for dissolution of the partnership on just and equitable ground cannot apply when powers are exercised under the contractual rights given under the articles. He stressed on the word 'largely' in view the judgment of Simonds, J., in Cuthbert Cooper and Sons Ltd., Re (1937) 2 All ER 466 (Ch D). According to Mr. Dutt, this is not a case where it is just and equitable for winding up following the principles in Cuthbert Cooper's case. 164. The leading case on this point is Yenidje Tobacco Co. Ltd., Re (1916) 2 Ch 426 (CA). In Raghnnath Prasad Jhunjhunwalla v. Hind Overseas (P) Ltd. reported in (1970) 1 Comp.L.J. 213 (Cal) : (1971) 41 Comp Cas 308 (Cal), a Division Bench of this court considered Yenidje Company's case and held that if a private company can be fairly called a partnership in the guise of private company then the things which may be ground for dissolution of the partnership will apply also ....
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....overruled it, insofar as it related to a winding up. The respondent argues that this was the first case where exclusion of a working director, valid under the articles, had been treated as a ground for winding up under the just and equitable clause and that as such, it was an unjustifiable innovation." Lord Wilberforce in his judgment referred to several English cases and further observed at page 1296 as follows: "This series of cases, and there are others, amounts to a considerable body of authority in favour of the use of the just and equitable provision in a wide variety of situations, including those of expulsion from office. The principle has found acceptance in a number of Commonwealth jurisdiction." Then the learned Judge further observed at page 1297: "The 'just and equitable' provision does not, as the respondents suggest, entitle one party to disregard the obligation he assumes by entering a company, nor the court to dispense him from it. It does, as equity always does, enable the court to subject the exercise of legal rights to equitable considerations; considerations, that is, of a personal character arising between one indivi....
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.... company cannot be resolved under a particular set of categories. It depends upon the facts of each case. 169. It seems to me that an unjustified exclusion of Barooah in the manner in which it has been done in the instant case is a ground for winding up under the just and equitable clause. It does not make any difference whether there was originally a partnership or whether the partnership is a small one or not. 170. In my view, the facts of the instant case will justify the making of a winding up order on the ground that it is just equitable that the company should be wound up; but to wind up the company would unfairly prejudice the petitioner. In my view, the learned trial Judge was right in holding that the principle laid down by the Division Bench of this court in Ramashankar Prasad and others v. Sindri Iron Foundry (P) Ltd. and others (1966) 1 Comp.L.J. 310 (Cal) : 70 CWN 520 is equally applicable under the facts of this case. Therefore, in my view, the case under section 397 has also been made out. 171. Mr. B.C. Dutt referred to several English decisions under section 310 of the English Companies Act as well as several decisions under sections 397 and 398 of the Indi....
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....ng under sections 397 and 398 of the Act. 175. I do not think that Barooah is disentitled to relief under sections 397 and 398 of the Act, as submitted by Mr. Dutt. It is true that Assam Company was floated but this does not mean that the said company was floated with the object of diverting the business of the company. Khaund himself wanted to join the Assam company, but could not agree to the terms; that is why he did not join. I am not satisfied that there was any diversion of business of the company by any activities of Barooah. I cannot also accept that Barooah has lost his interest in the company, because he floated the Assam company. It is true that he withdrew guarantee of Rs. 14 lakhs, but this he did at a stage when he found that 1,000 shares were issued in the name of Khaund and he was made minority shareholder and removed from the Board of directors. Therefore, I cannot accept the case that Barooah has done wrong to the company for which he is disentitled to any relief under sections 397 and 398 of the Act. In the premises, the question is what order should this court pass to remedy the matters complained' of. Now, I will have to consider the cross-objection of B....