1933 (12) TMI 23 - HC - Companies Law

Summary

Issues Involved:
1. Validity of the board of directors' resolution passed on February 18, 1933.
2. Validity of the extraordinary general meeting and the resolutions passed therein on February 27, 1933, and the confirmatory meeting on March 15, 1933.
3. Maintainability of the suit by the plaintiffs.
4. Jurisdiction of the Court to interfere with the internal management of the company.
5. Allegations of fraud and ultra vires acts by the defendants.

Detailed Analysis:

1. Validity of the Board of Directors' Resolution Passed on February 18, 1933:
The plaintiffs contended that the resolution passed by the board of directors on February 18, 1933, was invalid due to the presence of interested directors, lack of proper quorum, and the meeting being held in violation of a previous decision to hold the next meeting on February 20, 1933. The plaintiffs argued that the notice of the meeting was served in a manner ensuring the absence of the 2nd plaintiff. However, the court noted that there was no complaint in the plaint regarding another resolution passed on the same day to call an extraordinary general meeting. The minutes showed that this resolution was passed unanimously by all members present, including plaintiff No. 3, and was duly confirmed and signed at the next meeting by plaintiff No. 2.

2. Validity of the Extraordinary General Meeting and the Resolutions Passed Therein:
The plaintiffs claimed that the extraordinary general meeting held on February 27, 1933, and the confirmatory meeting on March 15, 1933, were irregularly and improperly convened, rendering the resolutions passed therein invalid. The extraordinary resolutions pertained to the execution of an agreement appointing the 7th defendant company as managing agents. The court found that the plaintiffs participated in these meetings without raising objections at the time, and the resolutions were discussed, amended, and voted upon with the majority of shareholders approving them.

3. Maintainability of the Suit by the Plaintiffs:
The court examined whether the suit was maintainable, considering the plaintiffs represented a minority of shareholders challenging the internal management of the company. The court adhered to the rule in Foss v. Harbottle, which restricts the court's jurisdiction to interfere in the internal management of companies acting within their powers. The court noted that the majority of shareholders, as evidenced by the Commissioner's report, decided not to proceed with the suit, effectively approving the resolutions with full knowledge of the alleged irregularities.

4. Jurisdiction of the Court to Interfere with the Internal Management of the Company:
The court emphasized that it has no jurisdiction to interfere with the internal management of companies acting within their powers unless the act complained of is ultra vires, constitutes fraud on the minority, or there is an absolute necessity to avoid a denial of justice. In this case, the court found no allegations of ultra vires acts or fraud on the minority. The plaintiffs failed to allege any personal wrong suffered, and the majority of shareholders ratified the resolutions, nullifying the plaintiffs' claims.

5. Allegations of Fraud and Ultra Vires Acts:
The plaintiffs alleged that the 7th defendant company was a bogus entity created to perpetrate fraud on the 6th defendant company. However, the court found the allegations of fraud too vague and lacking particulars. The court stated that there is nothing in law preventing a company from appointing a so-called bogus company as its managing agents if the company so desires. The court also noted that the acts complained of were capable of being approved and ratified by the company, which had been done by the majority of shareholders.

Conclusion:
The court allowed the demurrer, dismissing the suit with costs. The court held that the plaintiffs, representing a minority, could not maintain the suit against the majority's decision. The resolutions passed were ratified by the majority of shareholders, and the court found no grounds to interfere with the internal management of the company. The costs of the suit and the notice of motion were to be borne by the plaintiffs, with separate sets of costs allocated to different defendants.