1940 (6) TMI 15 - HC - Companies Law

Summary

Issues Involved:
1. Jurisdiction
2. Frame of the Suit
3. Allegation of Fraud
4. Entitlement to Relief

Detailed Analysis:

1. Jurisdiction:
The court briefly touched upon the issue of jurisdiction, but ultimately deemed it unnecessary to make a definitive ruling on this point. The decision was based on the assumption that the court had jurisdiction to hear the case.

2. Frame of the Suit:
The court scrutinized the frame of the suit extensively. It noted that the plaintiff sued on behalf of himself and "other shareholders of the defendant company," which was deemed not in accordance with English precedents. The court emphasized that the wrong charged is not a wrong done by a specific group to another but a wrong done by certain individuals (directors and managing agents) to the company as a whole. The court stated, "A to Z minus X Y Z cannot charge A to Z with committing a fraud." It was highlighted that the managing agents and directors should have been specifically named as defendants. The court concluded that the suit's frame was defective as it did not properly identify the wrong-doers and failed to include them as parties to the suit.

3. Allegation of Fraud:
The court examined the allegations of fraud in detail. The plaintiffs alleged that the managing agents and directors procured an increase in the company's capital to acquire a majority of shares and avoid scrutiny. The court analyzed whether the directors and managing agents had coerced the shareholders and whether the resolution to increase capital was passed fraudulently. It was noted that the plaintiffs had to establish that the motive behind the scheme was to increase voting power and that the directors and managing agents controlled the shareholders. The court found insufficient evidence to prove that the action of the company was fraudulent or unreasonable. The court stated, "I am therefore unable to find on the facts that a fraud was committed upon the company of the nature alleged."

4. Entitlement to Relief:
The court discussed whether the plaintiff was entitled to any relief. It was emphasized that in cases alleging fraud, the wrong-doers must be specified and made party defendants to the action. The court found that the plaintiffs failed to do so, which was a significant defect. The court also addressed the underwriting commission of 2% and concluded that the alleged wrong-doers, namely the Murarkas and their immediate supporters, should have been the defendants. The court ultimately held that the suit failed on both technical and factual grounds, stating, "On these two grounds the suit fails."

Conclusion:
The suit was dismissed with costs, including reserved costs. The court found that the plaintiffs failed to properly frame the suit and provide sufficient evidence of fraud. The managing agents and directors, who were alleged to have committed the fraud, were not made party defendants, which was a critical defect. The court also noted that the necessity for new machinery and the need for capital were not adequately disproven by the plaintiffs. The judgment highlighted the importance of correctly framing suits and providing clear evidence when alleging fraud in corporate matters.