1958 (10) TMI 50 - HC - Companies Law

Summary

Issues Involved:
1. Legality of the ruling excluding the 8th defendant's proxy from voting.
2. Jurisdiction of the civil court to entertain the suit.
3. Plaintiffs' right to maintain the present suit.
4. Validity of the resolutions passed at the annual general meeting on 22-7-1957.

Detailed Analysis:

1. Legality of the Ruling Excluding the 8th Defendant's Proxy from Voting:

The plaintiffs argued that the exclusion of the 8th defendant's proxy from the annual general meeting on 22-7-1957 was illegal and ultra vires. The 8th defendant had been recorded as a shareholder and had exercised his voting rights through a proxy in previous meetings. The ruling by the 4th defendant, based on Section 153 of the Companies Act, which states that no notice of any trust shall be entered on the register of members, was deemed incorrect. The court found that the provisions of the Official Trustees Act, particularly Sections 6 and 14, clearly allowed the Official Trustee to be entered in the company's register and to exercise voting rights either in person or by proxy. Therefore, the ruling of the 4th defendant was legally incorrect and could not be sustained.

2. Jurisdiction of the Civil Court to Entertain the Suit:

The defendants contended that the plaintiffs should seek remedies under the Companies Act, such as approaching the Central Government or the Company Court, rather than filing a suit in a civil court. However, the court held that the civil court had jurisdiction to entertain the suit. The court noted that the remedies provided under Sections 166, 167, 169, and 186 of the Companies Act were not applicable to the circumstances of this case. The court emphasized that the reliefs sought by the plaintiffs, such as declaring the resolutions passed at the meeting null and void, could only be granted by a civil court.

3. Plaintiffs' Right to Maintain the Present Suit:

The court recognized that the 8th defendant had a cause of action to challenge the proceedings that negated his right to vote by proxy. The plaintiffs argued that they had been deprived of their legal rights due to the wrongful exclusion of the 8th defendant's proxy. The court agreed with the plaintiffs, stating that the action complained of was ultra vires the company's powers and constituted a fraud on the minority shareholders. The court cited several precedents, including the rule in Foss v. Harbottle, and recognized exceptions to the rule, such as acts that are ultra vires, fraudulent, or illegal, which justified the plaintiffs' right to maintain the suit.

4. Validity of the Resolutions Passed at the Annual General Meeting on 22-7-1957:

The court examined whether the resolutions passed at the annual general meeting on 22-7-1957 were valid. The plaintiffs contended that the exclusion of the 8th defendant's proxy rendered the proceedings illegal and void. The court found that the meeting was properly called and held, but the subsequent exclusion of the proxy was illegal, affecting the validity of the resolutions passed. The court declared the proceedings and decisions of the meeting null and void, illegal, and ultra vires. The court also issued a mandatory order to convene a fresh meeting to consider the agenda items from the disputed meeting.

Conclusion:

The court confirmed the decrees and judgments of the lower courts, recognizing the plaintiffs' right to maintain the suit and the civil court's jurisdiction to entertain it. The ruling excluding the 8th defendant's proxy was deemed illegal, and the resolutions passed at the meeting were declared null and void. The court ordered a fresh meeting to be held and appointed a receiver to manage the company until a proper board was constituted.