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Issues Involved
1. Jurisdiction of the civil court to try the suit. 2. Interpretation of "subsequent appointment" under Section 314(1) of the Companies Act, 1956. 3. Validity of the increments granted to the Chief Accountant without prior sanction. 4. Validity of the special resolution passed on October 22, 1962. 5. Reliefs sought by the plaintiffs including declarations and injunctions. Detailed Analysis Jurisdiction of the Civil Court to Try the Suit The primary issue was whether the civil court had jurisdiction to entertain the suit. The defendants argued that the civil court had no jurisdiction to interfere with the internal management of the company, citing the principle in Foss v. Harbottle. However, the court clarified that the rule in Foss v. Harbottle is subject to exceptions, particularly when the acts of the majority are ultra vires or oppressive to the minority shareholders. The court concluded that the suit was maintainable because it involved allegations of ultra vires acts and oppression. Interpretation of "Subsequent Appointment" under Section 314(1) The court examined whether the increments granted to the Chief Accountant, who was the son of the Managing Director, constituted "subsequent appointments" under the Explanation to Section 314(1) of the Companies Act, 1956. The plaintiffs argued that each increment required prior sanction by a special resolution. The court interpreted that "subsequent appointment" implies a break in service and a reappointment, not merely increments in pay. Therefore, the increments did not amount to subsequent appointments requiring prior sanction. Validity of the Increments Granted Without Prior Sanction The court found that the increments granted to the Chief Accountant were in line with the company's general policy of granting increments to all employees and did not require prior sanction by the general members. The increments were not considered subsequent appointments under Section 314(1). Validity of the Special Resolution Passed on October 22, 1962 The plaintiffs challenged the special resolution passed on October 22, 1962, which regularized the increments granted to the Chief Accountant. The court held that since the increments did not amount to subsequent appointments, the resolution was valid and did not violate Section 314 of the Act. Reliefs Sought by the Plaintiffs The plaintiffs sought various declarations and injunctions, including: - Declaration that the Managing Director and his son vacated their offices. - Declaration that the special resolution of October 22, 1962, was invalid. - Perpetual injunctions restraining the Managing Director and his son from acting in their respective capacities. - Enquiry into the emoluments received by the Managing Director and his son and a decree for repayment to the company. The court dismissed these reliefs, concluding that there was no violation of Section 314 and the suit was not maintainable on these grounds. The trial court's dismissal of the suit was upheld, and the judgment of the lower appellate court was set aside. Conclusion The appeal was allowed, and each party was directed to bear its own costs. The court affirmed the trial court's decision, holding that the civil court had jurisdiction, the suit was maintainable, and the increments did not constitute subsequent appointments under Section 314(1) of the Companies Act, 1956.
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