1958 (3) TMI 32 - HC - Companies Law

Shares Power, to issue of at discount, Validity of acts of directors, Directors Power of and Board s sanction to be required for certain contracts in which directors are interested

Issues Involved:
1. Bar of Suit under Order II, Rule 2(3) and/or Order XXIII, Rule 1(3) of the Code of Civil Procedure.
2. Validity of Annual General Meetings and Election of Directors.
3. Existence and Validity of Directors.
4. Plaintiff's Indebtedness and Company's Lien on Shares.
5. Legality of Sale of Shares to Defendant.
6. Alleged Conspiracy by Defendant with Directors.
7. Entitlement to Rectification of Share Register.
8. Ownership of Shares Post-Sale.
9. Vacation of Office by Directors.
10. Non-joinder of Necessary Parties.
11. Reliefs Entitled to Plaintiff.

Detailed Analysis:

1. Bar of Suit under Order II, Rule 2(3) and/or Order XXIII, Rule 1(3) of the Code of Civil Procedure:
The court held that the withdrawal of suits Nos. 3112 and 3117 of 1954 did not operate as a bar to the institution of the present suit. The plaintiff was allowed to proceed with the current suit despite the withdrawal of previous suits without permission to institute a fresh suit.

2. Validity of Annual General Meetings and Election of Directors:
The court found that no proper annual general meetings were held from December 7, 1950, to April 6, 1953, which invalidated the re-election of directors. The meetings held on December 30, 1954, and January 6, 1955, were also deemed illegal as they were convened by a defunct board of directors whose office had expired.

3. Existence and Validity of Directors:
The court determined that Dr. Mukherjee and Dr. Neogy were not validly appointed directors as their office had expired in July 1954. Consequently, their actions, including the resolution to enforce the lien and the sale of shares, were unauthorized and illegal.

4. Plaintiff's Indebtedness and Company's Lien on Shares:
The court held that the plaintiff was not indebted to the extent of Rs. 4,00,887-14-6 as claimed by the company. The actual indebtedness was significantly lower, around Rs. 50,000. The court also found that the company had no power to sell the shares under Article 17 as the shares were only subject to an equitable charge, not a lien at law.

5. Legality of Sale of Shares to Defendant:
The sale of shares was declared illegal and void as it was conducted by unauthorized persons (Dr. Mukherjee and Dr. Neogy) and without fulfilling the conditions precedent outlined in Article 17. The court also noted that the defendant Ramapada Gupta did not act bona fide and had knowledge of the wrongful nature of the transaction.

6. Alleged Conspiracy by Defendant with Directors:
The court found sufficient evidence to conclude that the defendant Ramapada Gupta had conspired with Dr. Mukherjee and Dr. Neogy in effecting the sale of shares. The defendant's refusal to testify further supported the inference of bad faith and conspiracy.

7. Entitlement to Rectification of Share Register:
The court ruled in favor of the plaintiff, granting the rectification of the share register to restore the plaintiff's name as the holder of the shares. The registration of shares in the name of Ramapada Gupta was deemed unlawful due to the absence of a proper instrument of transfer.

8. Ownership of Shares Post-Sale:
The court held that the plaintiff continued to be the owner of the shares after the date of the alleged sale, as the sale was unauthorized and illegal.

9. Vacation of Office by Directors:
The court confirmed that Dr. Mukherjee and Dr. Neogy had vacated their office as directors by July 1954, which invalidated their subsequent actions, including the sale of shares.

10. Non-joinder of Necessary Parties:
The court dismissed the argument that the suit was bad for non-joinder of Dr. Mukherjee and Dr. Neogy, noting that no serious argument was advanced on this point.

11. Reliefs Entitled to Plaintiff:
The court granted the plaintiff the reliefs sought, including a declaration of ownership of the shares, an injunction against the defendant Ramapada Gupta from exercising any rights attached to the shares, rectification of the share register, and damages. The plaintiff was also awarded costs, certified for three counsel.

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