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TMI Blog1937 (6) TMI 10X X X X Extracts X X X X X X X X Extracts X X X X ..... . 1000 and the rate of commission payable to them shall not exceed more than 5 per cent of the net profit. On April 30th, 1933, a general meeting of the shareholders of the company was held to consider a special resolution for altering these provisions in Article 63 with the object of increasing the monthly allowance of the Managing Director or Managing Directors to Rs. 1500 and the commission to 7 per cent of the net profits, if the profits would exceed to per cent. of the subscribed capital of the company. At this meeting the Chairman declared on a show of hands that the resolution was carried. No poll was demanded. On May 22nd, 1933, the Respondent No. 1 instituted a suit in the third Court of the Munsif at Dacca against the appellants and the other respondents in this appeal for a declaration that the resolution was not binding on the company as it was not carried by the majority as required by section. 81 of the Indian Companies Act and for consequential injunctions. The Appellants contested the suit. Their defences so far as they are material for the purpose of the present appeal, are: (1) that the suit is not maintainable in law; and (2) that the resolution was bindin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore the rule that it is the corporation which must decide whether or not litigation shall be undertaken has been generally taken to apply only to cases where the act complained of is ratifiable. There is some weak authority for a view that all decisions as to whether litigation shall proceed are of an internal character and it has been held even in cases where the act is covered by a majority resolution that a locus poenitentiae should be allowed, and the action has been adjourned for a general meeting. The case for such adjournment is strong where the act impugned is that of directors acting on their own responsibility and it may be urged that a company should in every case have an opportunity of expressing its view whether litigation should be avoided since, if not involving it in costs, it may still affect its credit. "The bulk of the cases in which corporators have been allowed to succeed on proof of ultra vires or fraud give no clear guidance as to whether, in the absence of any explanation for the corporation not being consulted, the action could have succeeded. They are rather occupied in pointing out the circumstances which make the action good, and where the action f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of the defendants in the present suit is that the resolution was carried by a majority. Immediately after the resolution was passed on April 30th 1933, the plaintiff wrote to the company stating that it was not passed by the statutory majority. The company took no steps in the matter. On May 22nd 1933, the plaintiff instituted the present suit impleading the company as a defendant in the suit. The company it its defence took up the position that the resolution was carried by the statutory majority. It would have been therefore useless for the plaintiff to ask the company to call a meeting to decide whether a suit should be instituted for a declaration that the resolution was not binding on the company. For the aforesaid reasons we are of opinion that the suit cannot be thrown out on the ground that the plaintiffs did not consult the views of the majority before they instituted the present suit, if from the allegations from the plaint it would appear that the act complained of was ultra vires. Plaintiff's case is that the alteration of Article 63 was ultra vires and is not binding on the company and its members as the majority of the three fourths of the shareholders pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce of the fact without proof of the number or proportion of the votes recorded in favour of or against the resolution. If the plaintiff succeeds in showing that the alteration of Article 63 was not in accordance with these statutory provisions the alteration will not be binding on the company. The decision on the question whether the present suit is maintainable by the plaintiff will depend upon the decision on its merits. The next point for determination therefore is whether the special resolution was passed in contravention of the provisions contained in section 81 of the Indian Companies Act. Clause 3 of Section 81 makes the declaration of the Chairman that the resolution is carried conclusive evidence of the fact that it was carried by the majority of the shareholders as laid down in Clause (1) It therefore excludes evidence to show that at the meeting less than three fourths of the members voted for the resolution. But before the bar under this clause can be applied, the Court has to determine what the declaration is. If there is no dispute about the Chairman's declaration no difficulty arises, but if there is a dispute the Court has to determine on evidence what the decl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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