1947 (7) TMI 11 - HC - Companies Law

Summary

Issues Involved:
1. Whether the company was properly impleaded as a plaintiff.
2. Whether the removal of Rameswara Prosad Bajoria as a director was wrongful, illegal, and mala fide.
3. Whether the appointment of Sir David Ezra as a director was illegal, inoperative, and void.

Issue-wise Detailed Analysis:

1. Whether the company was properly impleaded as a plaintiff:
The court examined whether the company was correctly listed as a plaintiff in the suit. The general principle is that if a wrongful act affects a company, the company itself should sue for redress. Shareholders can sue in their names only in exceptional circumstances, such as when the majority of shares are controlled by those against whom relief is sought, and the act complained of is ultra vires, fraudulent, or where the majority cannot legally bind the minority. The court referred to several precedents, including Foss v. Harbottle, Mozley v. Alston, and MacDougall v. Gardiner, to establish that the company must act through its human agency, typically the Board of Directors, as designated in the Articles of Association. However, if the directors themselves are the wrongdoers, shareholders representing the majority can sue in the company's name. The court concluded that the company was properly impleaded as a plaintiff since it was admitted that a majority of shareholders would support the continuation of the suit in the company's name.

2. Whether the removal of Rameswara Prosad Bajoria as a director was wrongful, illegal, and mala fide:
The plaintiffs argued that the three directors, Dr. Law, Cumberbatch, and Champalal Jatia, acted wrongfully, illegally, and mala fide in asking Bajoria to resign, exercising their power under Article 116(k) of the Articles of Association for their own ends and the interest of the Managing Agents. The court noted that the wrongful removal of a director is an injury to the company and cited La Campaigne De Mayville v. Whitley, Mozley v. Alston, and MacDougall v. Gardiner to support this view. The court accepted the allegations in the plaint as true for the purpose of the preliminary issue, concluding that the removal of Bajoria was wrongful and illegal, causing injury to the company.

3. Whether the appointment of Sir David Ezra as a director was illegal, inoperative, and void:
The plaintiffs contended that the appointment of Sir David Ezra as a director by the remaining three directors was illegal, inoperative, and void. The court examined the Articles of Association, which designated the Board of Directors to act for the company, including the power to appoint directors. However, since the act of appointing Ezra was alleged to be illegal and caused injury to the company, the court found that the appointment was indeed illegal and void. The court cited cases like MacDougall v. Gardiner and Marshall Valve Gear Company v. Manning Wardle & Company to emphasize that shareholders can sue in the company's name when the directors are the wrongdoers.

Conclusion:
The court disagreed with the earlier judgment that directed the removal of the company's name from the category of plaintiffs. It held that the company was properly impleaded as a plaintiff, the removal of Bajoria was wrongful and illegal, and the appointment of Ezra was void. The appeal was allowed, and the order for costs was set aside, with costs awarded to the appellants.