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TMI Blog1945 (11) TMI 7X X X X Extracts X X X X X X X X Extracts X X X X ..... meeting of the said society is also null and void and for further and other reliefs. The resolutions dated October 8, 1944, enacted certain changes in the constitution of the said society and the plaintiffs allege that the said resolutions are void inter alia as being ultra vires the said society and constituting a fraud on the rights of the minority who voted against the said resolutions, and that the minority of the members of the said society was overborne by the vote of the majority who were acting in their own interests illegally, fraudulently and contrary to the interests and objects of the said society and the rights of the minority of the members of the society present at the meeting and voting against the resolutions. The resolution of January 21, 1945, sanctioned the agreement for sale of the Shenwewadi property belonging to the said society and the agreement for purchase of another property situate at Bangadwadi. The plaintiffs alleged inter alia that the resolution was passed by the majority in fraud of the rights of the minority and against the interests of the society. The plaintiffs further alleged that the managing committee of the said society were about to comple ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice." These observations of Lord Selborne have been quoted with approval by their Lordships of the Privy Council in Gunga Narain Gupta v. Tiluckram Chowdhry [1888] L.R. 15 I.A. 119, at p. 121 and in Bal Gangadhar Tilak v. Shrinivas Pandit [1915] L.R. 42 I.A. 135, at p. 151 He also referred me to the later decision of the Privy Council reported in Bharat Dharma Syndicate v. Harish Chandra [1937] L.R. 64 I.A. 143, where it was held that litigants who prefer charges of fraud or other improper conduct against persons should be compelled to place on record precise and specific details of those charges even if no objection is taken on behalf of the parties who are interested in disproving the accusations. Their Lordships went so far as to observe that in the case before them the petitioner ought not to have been allowed to proceed with his petition and to prove fraud unless and until he had upon such terms as the Court thought fit to impose amended his petition by including therein full particulars of the allegations which he intended to prove, and that such cases would be much simplified if this practice was strictly observed and insisted upon by the Court even if, as in the case befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resentative capacity on behalf of themselves and all other members of the society, which would mean that all the members of the society and therefore the society itself is in the position of the plaintiffs. The first defendant is the president of the society and has been sued as representing the society, which means that the society is the defendant in this suit. Mr. R. S. Billimoria contended that the plaintiffs being an admitted minority of the members of the society could not by any stretch of imagination purport to represent all the members of the society and could not even by availing themselves of the procedure laid down in Order I, rule 8, of the Civil Procedure Code, claim to file this suit as representing all the members of the society, the majority of the members of the society being admittedly against their persuasion. The society had not sanctioned the filing of this suit. No meeting of the society had been called for considering the advisability or otherwise of the institution of the suit. Mr. R.S. Billimoria stated and it was not disputed that if a meeting of the society were called for the purpose of considering whether the suit which had been instituted by the plain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be competent to file a suit on behalf of or against a partnership as such but for the enactment of Order XXX of the Civil Procedure Code, which enables a suit to be filed by or against a partnership in the firm name. That is a statutory enactment which enables the firm name being used for the purpose of filing a suit by or against a partnership. The society of the character we have before us is, however, quite distinct from a partnership. It has nothing in common with a partnership. A corporation or a limited company which is incorporated under the Indian Companies Act has a corporate existence apart from the members constituting the same. A corporation has been defined as a collection of individuals united into one body under a special denomination having perpetual succession under an artificial form and vested by the policy of law with the capacity of acting in several respects as an individual, particularly of taking and granting properties, of contracting obligations and of suing and being sued, of enjoying privileges and immunities in common and of exercising a variety of political rights, more or less extensive, according to the design of its institution or the powers confer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... artnership firms, corporations or companies incorporated under the Indian Companies Act, could it be said that a society registered under the Societies Registration Act, XXI of 1860, becomes a legal entity such as can sue or be sued in the name in which it is registered? The Societies Registration Act, XXI of 1860, is an Act for the registration of literary, scientific and charitable societies, and the object of the Act as stated in the preamble is to make provision for improving the legal condition of societies established for the promotion of literature, science, or the fine arts, or for the diffusion of useful knowledge, or for charitable purposes. Under the provisions of the Act seven or more persons associated for any literary, scientific, or charitable purpose, or for any such purpose as is described in section 20 of the Act may form themselves into a society under the Act by subscribing their names to a memorandum of association and filing the same with the Registrar of Joint Stock Companies. The memorandum of association is to contain the name of the society, the objects of the society and the names, addresses, and occupations of the governors, council, directors, committee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve any profit upon the dissolution of a society ; whatever surplus that remains after satisfaction of all its debts and liabilities is to go to some other society as may be determined by the votes of three-fifths of the members present personally or by proxy at the time of the dissolution, or, in default thereof, by the Court having jurisdiction in that behalf. Do these provisions of the Societies Registration Act, XXI of 1860, constitute the society as registered with the Registrar of Joint Stock Companies a legal entity capable of suing or being sued? Has the society as registered with the Registrar of Joint Stock Companies a legal existence apart from the members constituting the same ? It is significant to observe that the members of the society are a fluctuating body. A member of the society is a person who having been admitted therein according to the rules and regulations thereof has paid the subscription or signed the roll of the members thereof and has not resigned according to the rules and regulations. The governing body of the society is the governors, council, directors, committees, trustees or other body to whom by the rules and regulations of the society the managem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Societies Registration Act which would go to show that suits by or against the society have got to be filed in a particular manner, viz., every society registered under the Act may sue or be sued in the name of the president, chairman, or principal secretary, or trustees, as shall be determined by the rules and regulations of the society, and, in default of such determination in the name of such person as shall be appointed by the governing body for the occasion ; provided that it shall be competent for any person having a claim or demand against the society to sue the president or chairman, or principal secretary or the trustees thereof, if on application to the governing body some other officer or person be not nominated to be the defendant. These provisions and the provisions for the non-abatement of suits and enforcement of judgments against the society would go to show that the society even though registered with the Registrar of Joint Stock Companies would not be able to sue or be sued in the name of the society but could sue or be sued only in the name of the president, chairman, or principal secretary or the trustees thereof or some other person or officer nominated to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t club, for the simple reason that the name of a club is not the name of a corporation nor of an individual nor of a partnership, which, apart from statute, are the only entities known to the law as being capable of being sued. In order, there fore, that this action can be maintained against the defendants in the name of 'The Amalgamated Society of Railway Servants,' there must be some statute enabling this to be done either by creating the society a corporation or enacting that it may be sued in its registered name; and this, as the learned Judge states-and in this I also agree-depends upon the true con struction of the Trade Union Acts of 1871 and 1876.......... When once one gets an entity not known to the law, and therefore incapable of being sued, in our judgment, to enable such an entity to be sued, an enactment must be found either express or implied enabling this to be done, and it is incorrect to say that such an entity can be sued unless there be found an express enactment to the contrary. Where in the Trade Union Acts is to be found any enactment, express or implied, that a trade union is to be sued in its registered name ? Express there is none, and it is clear that a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... statute of any provision authorizing and directing that it shall sue and be sued in any other name than that given to it by its registration appears to me to lead to no other reasonable conclusion than that in so creating it, it was intended by the Legislature that by that name and by no other it should be known, and that for all purposes that name should be used and applied to it in all legal proceedings unless there was any other provision which militated against such a construction, as, for instance, in the case of trustees, by section 9 of the same Act, who hold real and personal property of the society." Lord Lindley observed (pages 444, 445):- "The Act does not in express terms say what use is to be made of the name under which the trade union is registered and by which it is known. But a trade union which is registered under the Act must have a name...It may acquire property, but, not being incorporated, recourse is had to the old well-known machinery of trustees for acquiring and holding such property, and for suing and being sued in respect of it (sections 7, 8, 9). The property so held is, however, the property of the union: the union is the beneficial owner ... The Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Vol. VIII, page 2, "Registered Trade Union is not a Corporation but a legal entity governed by special rules," and also Halsbury's Laws of England, Hailsham Edition, Vol. XXXII, page 486, para. 776, "A registered trade union is not a corporation nor an individual nor a partnership ; but it becomes by registration a legal entity distinct from an unregistered trade union. Its registered name is to be used and applied in all legal proceedings, unless there is any provision inconsistent with such use."] I am of opinion that the provisions contained in sections 6, 7 and 8 of the Societies Registration Act are not inconsistent with the user of the registered name of the society in connection with legal proceedings. As Lord Lindley observed in Taff Vale Railway Company's case [1901] A.C. 426, "I do not say that the use of the name is compulsory but it is at least permissive." If this is the true legal position of a society registered under the Societies Registration Act, the objection of Mr. R. S. Billimoria that the plaintiffs and the defendants are one and the same and that the suit as framed is not maintainable by reason of the society being the plaintiffs as well as the defendants ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... corporation or an incorporated company joints the same on the basis that prima facie the majority of its members is entitled to exercise its powers and control its operations generally. The same would be the position in the case of unincorporated associations of individuals whether the same be registered under the Societies Registration Act or not. The rule of the majority is the normal basis of these associations. The members of these associations do join these associations whether incorporated or unincorporated, whether registered or unregistered, knowing full well that the affairs of these associations would be conducted normally by the vote of the majority of the members thereof. In the absence of any specific rules and regulations governing the conduct of these affairs, this would be the normal presumption, and no member who joins any association would be heard to contend to the contrary. If unanimity of opinion were needed for the passing of any proposition, it would have to be expressly provided for. In the absence of any such provision the normal state of affairs would be that the opinion of the majority would be binding on the whole association. In the present case, howeve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ory, the plaintiffs would under those circumstances be entitled to institute a suit on behalf of themselves and all other members of the society except the defendants making the society and the defendants party defendants to this suit and it would not be necessary to obtain the previous sanction and consent of the society for the institution thereof, simply because the control of the affairs of the society is in the hands of the majority whose acts are complained of and it would be futile to attempt to obtain the sanction and consent of the society for the institution of the suit, it being an absolute certainty that no such sanction and consent would ever be available to the plaintiffs. Two principles emerge clearly from the authorities and they are (1) that the Court will not interfere with the internal management of the companies acting within their powers and in fact has no jurisdiction to do so, and (2) that in order to redress a wrong done to a company or to recover money or damages alleged to be due to a company the action should prima facie be brought by the company itself. The leading cases on this subject are Foss's case (supra), Mozley's case (supra), and Lord v. Governo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ose rights to which in their corporate character they were entitled, I cannot but think that the principle so forcibly laid down by Lord Cottenham in Wallworth v. Holt [1840] 4 Myl. & Gr. 619, at p. 635; see also Adlev v. Whitstable Company [1809-10] 17 Ves. 320, per Lord Eldon and other cases, would apply, and the claims of justice would be found superior to any difficulties arising out of technical rules respecting the mode in which corporations are required to sue. But, on the other hand, it must not be without reasons of a very cogent character that established rules of law and practice are to be departed from,-rules, which, though in a sense technical, are founded on general principles of justice and convenience, and the question is, whether a case is stated in this bill, entitling the plaintiffs, to sue in their private character.........but the majority of the proprietors at a special general meeting assembled, independently of any general rules of law upon the subject, by the very terms of the incorporation in the present case, has power to bind the whole body, and every individual corporator must be taken to have come into the corporation upon the terms of being liable to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bill in its corporate character to remedy the evil complained of." Finally he relied on the ground that it was without precedent for the Court to interfere "solely on the ground of the supposed invalidity of the title of persons claiming to be corporate officers." In Lord v. Governor and Company of Copper Mines [1848] 2 Ph. 740, demurrer of a bill by one of the shareholders of an incorporated mining company on behalf of himself and all other shareholders except the members of the governing body who were the defendants, impeaching several transactions of that body which it appeared had been sanctioned by majorities at general meetings of the shareholders and amongst which was a project to vest all the property of the company in trustees for the purpose of liquidating its affairs was allowed notwithstanding some vague and general charges of fraud and misconduct on the part of the defendants and an allegation that by the constitution of the company no one but the governing body could convene a general meeting the specific acts complained of not being clearly such as in the opinion of the Court it was incompetent to a majority of shareholders to sanction. Lord Cottenham, L.C., observ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the latter case Viscount Haldane observed (pages 371, 373):- "There is, however, a restriction of such powers, when conferred on a majority of a special class in order to enable that majority to bind a minority. They must be exercised subject to a general principle, which is applicable to all authorities conferred on majorities of classes enabling them to bind minorities; namely, that the power given must be exercised for the purpose of benefiting the class as a whole, and not merely individual members only. Subject to this, the power may be unrestricted. .........But their Lordships do not think that there is any real difficulty in combining the principle that while usually a holder of shares or debentures may vote as his interest directs, he is subject to the further principle that where his vote is conferred on him as a member of a class he must conform to the interest of the class itself when seeking to exercise the power conferred on him in his capacity of being a member. The second principle is a negative one, one which puts a restriction on the completeness of freedom under the first, without excluding such freedom wholly." In this connection I may as well refer to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he benefit of the majority. If passed, the majority may acquire all the shares and provide further capital. That would be for the benefit of the company as then constituted. But the proposed alteration is not for the present benefit of this company." This discussion as to the power of the majority to bind the minority contains within itself the limitations on the power of the majority. Subject to those limitations, however, the powers of majority are supreme in matters of internal management of the company. As was observed by James, L.J., in MacDougall v. Gardiner [1875] 1 Ch. D. 13:- "I think it is of the utmost importance in all these companies that the rule which is well-known in this Court as the rule in Mozley's case (supra) and Lord v. Copper Mines' Company [1848] 2 Ph. 740 and Foss's case (supra) should be always adhered to; that is to say, that nothing connected with internal disputes between the shareholders is to be made the subject of a bill by some one shareholder on behalf of himself and others, unless there be something illegal, oppressive, or fraudulent-unless there is something ultra vires on the part of the company qua company, or on the part of the majority of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which they are entitled to do has been done irregularly; and that, as I understand it, is what has been decided by the cases of Mozley's case (supra) and Foss's case (supra). In my opinion that is the rule that is to be maintained. Of course if the majority are abusing their powers, and are depriving the minority of their rights, that is an entirely different thing, and there the minority are entitled to come before this Court to maintain their rights; but if what is complained of is simply that something which the majority are entitled to do has been done or undone irregularly, then I think it is quite right that nobody should have a right to set that aside, or to institute a suit in Chancery about it, except the company itself." This supremacy of the majority is therefore subject to the following exceptions which are laid down in the authorities, viz., (1) where the act complained of is ultra vires the company; (2) where the act complained of is a fraud on the minority; and (3) where there is absolute necessity to waive the rule in order that there may be no denial of justice. (Palmer's Company Precedents, Vol. I, page 1246). As was observed by Lord Davey in Burland v. Earle [1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the regulations of the company, a shareholder is not debarred from voting or using his voting power to carry a resolution by the circumstance of his having a particular interest in the subject-matter of the vote. This is shewn by the case before this Board of North-West Transportation Company v. Beatty [1887] 12 App. Cas. 589. In that case the resolution of a general meeting to purchase a vessel at the vendor's price was held to be valid, notwithstanding that the vendor himself held the majority of the shares in the company, and the resolution was carried by his votes against the minority who complained." This position is further emphasised by another decision of their Lordships of the Privy Council reported in Dominion Cotton Mills Company, Limited v. Amyot [1912] AC 546. In that case Lord Macnaghten observed (page 551):- "The principles applicable to cases where a dissentient minority of shareholders in a company seek redress against the action of the majority of their associates are well-settled.... In order to succeed it is incumbent on the minority either to shew that the action of the majority is ultra vires or to prove that the majority have abused their powers and are dep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor sues the corporation to prevent the corporation either commencing or continuing the doing of something which is beyond the powers of the corporation. Such a bill, indeed, may be maintained by a single corporator, not suing on be half of himself and of others, as was settled in the House of Lords in the case of Simpson v. Westminster Palace Hotel Company [1860] 8 HLC 712......... ...But that is not the only case. Any other case in which the claims of justice require it is within the exception. Another instance occurred in the case of Atwool v. Merryweather [1867] 5 Eq. 464 N in which the corporation was controlled by the evildoer, and would not allow its name to be used as plaintiff in the suit. It was said that justice required that the majority of the corporators should not appropriate to themselves the property of the minority, and then use their own votes at the general meeting of the corporation to prevent their being sued by the corporation, and consequently in a case of that kind the corporators who form part of the minority might file a bill on their own behalf to get back the property or money so illegally appropriated. It is not necessary that the corporation should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of the company, mere irregularity or informality which can be remedied by the majority being insufficient." The reason for this exception is very forcibly brought out in the observations of Sir W.M. James, L.J., in Menier v. Hooper's Telegraph Works [1874] 9 Ch A 350, at p. 353:- "It is said, however, that this is not the right form of suit, because, according to the principles laid down in Foss v. Harbottle45 , and other similar cases, the Court ought to be very slow indeed in allowing a shareholder to file a bill, where the company is the proper plaintiff. This particular case seems to me precisely one of the exceptions referred to by Vice Chancellor Wood in Atwool v. Merryweather [1867] 5 Eq 464 N, a case in which the majority were the defendants, the wrongdoers, who were alleged to have put the minority's property into their pockets. In this case it is right and proper for a bill to be filed by one shareholder on behalf of himself and all the other shareholders." and also in the observations of Lord Davey in Burland v. Earle [1902] AG 83 above quoted. I may also refer to the observations of Lindley, M.R., in Alexander v. Automatic Telephone Company [1900] 2 Ch 56. "It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und that the same have been passed in fraud of the rights of the minority and against the interests of the said society. Even though when arguing issue No. (4-a) at the commencement Mr. M.V. Desai gave me to understand that he was not relying upon fraud as such in support of his contentions as regards the said resolutions, it became abundantly clear whilst arguments proceeded, that the statement which he made to me on the earlier occasion was due to some misapprehension. He made it clear that he was relying upon fraud alleged to have been perpetrated by the majority of the members of the society upon the minority consisting of the plaintiffs and several others in the matter of the passing of the said resolutions and expressed his willingness to furnish particulars of the fraud alleged in paragraphs 4(b) , 4(c) and 16 of the plaint if the Court thought that the particulars of fraud contained in the plaint were insufficient. I shall, therefore, deal with this part of the case on the basis that the plaint contains averments of fraud against the majority of the members of the said society. If the majority of the members of the society were guilty of any act which was ultra vires the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the defendants the particulars of the fraud alleged by them in paras. 4(b) , 4(c) and 16 of the plaint. I may none the less refer to the observations of Marten, J., in Vadilal v. Maneklal [1925] 49 Bom. 291:- "Where fraud is alleged, and where consequently it is alleged that the suit is within one of the recognised exceptions to the principles laid down in Foss's case ( supra), it will, I think, in general be found that the case is allowed to go to trial to ascertain the facts before it is finally determined whether the action of the majority can in fact bind the minority. This is because until the facts are ascertained with some distinctness, it is difficult to say what is the precise action of the majority, and whether it only amounts on the one hand to those matters of internal management where the majority of the shareholders can rightly impose their will upon the minority, or whether on the other hand it is one of those cases in which the assets of the company are being improperly distributed by an attempt to pay them into the pockets of the majority of shareholders of the company or their friends at the expense of the minority." The only thing which remains to be conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ho are made defendants for that purpose, it is correct not to except them out of the number of shareholders on whose behalf the bill is expressed to be filed ; because they are not sued as shareholders, but as directors, and, in their character of shareholders, they would be entitled to participate in the fruits of the suit: Mocatto v. Ingilby [1836] 5 LJ Ch. (N.S.) 145. And in like manner where two or more shareholders in a numerous joint-stock company sue on behalf of themselves and all other shareholders, and one of the shareholders has acted as the agent of the company, the plaintiffs may sue on his behalf in his character as shareholder, although they may make him a defendant in his character of agent: Taylor v. Salmon [1838] 4 Myl & Cr 134." The above-mentioned passage goes to show that the Courts in Chancery did not allow the ends of justice to be thwarted by being trammelled by the rules of procedure like this in proper cases. The Courts in India are not merely Courts of Law but are also Courts of Equity. Order XXX, rule 9, of the Civil Procedure Code has enacted an equitable exception to the elementary rule of procedure which I have stated above, in that it allows suits b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Bangadwadi property, and in para. 17 of the plaint the plaintiffs have submitted that defendants Nos. 2 to 4 should be restrained from completing the said sale of Shenwewadi property and purchase of Bangadwadi property and from acting on the said resolution dated October 8, 1944, and carrying the same into effect. The prayer (c) of the plaint is based on these allegations against defendants Nos. 2, 3 and 4. When one turns to the written statement of defendants Nos. 2 to 4, they merely aver that the plaint discloses no cause of action against them and that they are unnecessarily made parties to the suit. There is no denial of the allegations which have been made in para. 16 of the plaint that the managing committee is about to complete the sale of the Shenwewadi property and purchase of the Bangadwadi property. In the absence of a specific denial in that behalf, I would be entitled to assume that the allegations in that behalf are admitted by defendants Nos. 2, 3 and 4. Mr. M.P. Amin, however, pointed out para. 2 of the written statement of the defendants Nos. 2 to 4 where they joined in all and singular the defences raised by the 1st defendant in his written statement as their ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rusal of the relevant paragraphs of the plaint, however, reveals that there are no sufficient particulars of fraud which could be culled out from the various allegations contained therein and that on the vary statement of the case made by Mr. M.V. Desai in his opening there were various facts which were relied upon by him as constituting fraud which did not find their place in the various paragraphs of the plaint relied upon by him for the purpose. I have therefore come to the conclusion that the plaintiffs are bound to furnish to the defendants the particulars of the fraud which they want to rely upon in support of their contentions set out in the plaint. I accordingly order that the plaintiffs do make an affidavit giving particulars of the fraud alleged by them in paras. 4(b) , 4(c) and 16 of the plaint and furnish a copy thereof to the defendants' attorneys within fourteen days. The defendants will be at liberty to plead to the same and file a supplemental written statement or written statements as they might be advised within fourteen days of such affidavit of particulars made by the plaintiffs. The cost of the issues disposed of by me above and the cost of the supplemental wr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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