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TMI Blog1960 (8) TMI 39X X X X Extracts X X X X X X X X Extracts X X X X ..... by all his co-directors to resign. On or about February 24, 1960, Sohanlal Murarka, Kissenlal Murarka and Shankarlal Murarka acting under article 111 requested Mohanlal Murarka in writing to resign. The plaintiff's case is that Mohanlal Murarka immediately thereafter ceased to be director of the plaintiff. On or about February 25, 1960, the board of directors of the plaintiff at a meeting held by it on the same day appointed in accordance with the articles one Mahabir Prasad Murarka in place and stead of Mohanlal Murarka. The plaintiff alleges that in the premises on and from February 25, 1960, the lawful directors of the plaintiff were and are: Sohanlal Murarka, Kissenlal Murarka, Shankarlal Murarka and Mahabir Prasad Murarka. On or about February 25, 1960, the plaintiff, through its solicitors, Messrs. Khaitan and Co., issued notices in various newspapers to the effect that all power and authority of the defendant, Mohanlal Murarka, as a director had been terminated. The defendants, Chunilal Murarka, Radheylal Murarka, Beharilal Murarka, Hiralal Murarka and Kunjalal Murarka, it is alleged, are not registered shareholders of the plaintiff. The defendant, Mohanlal, is the joint r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e defendants acted illegally and without any authority or jurisdiction. It is alleged that the only persons entitled to manage the affairs of the business and properties in accordance with the memorandum and articles of association and the provisions of the Companies Act are the present board of directors as mentioned in paragraph 9 of the plaint. It is further alleged that the defendants trespassed into the office and interfered with the management of the affairs, business and properties. The plaintiff company asks for a permanent injunction restraining the defendants, their servants, nominees and/or agents from occupying the office of the plaintiff and from interfering with the management and control of the plaintiff and also injunction restraining the defendants from usurping the management and control of the affairs, business and properties of the plaintiff and further injunction restraining the defendants, their servants, nominees and/or agents from in any way acting as directors of the plaintiff and reliefs regarding books, furniture and cash monies. Defendants Nos. 1 to 6 filed a joint written statement. One of the points taken in the written statement is that the suit has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... name of Maniklal Murarka and others jointly were registered in violation of the provision contained in article 14. Maniklal Murarka and others are supporting the plaintiff. These 6,250 shares are in the names of Maniklal Murarka, Lachmiprasad Murarka, Ajit Prasad Murarka, Iswari Prasad, Narayan Prasad and Mani Bai. Article 14 states that shares may be registered in the names of any limited company but not in the name of a minor nor usually more than four persons be registered as joint holders of any share. Counsel for the plaintiff contended that article 14 referred to allotment of shares but did not relate to transmission of shares on death et cetera. It was contended on behalf of the plaintiff that under article 47 there could be no limitation upon the number of heirs to be registered in respect of any share. It was also contended on behalf of the plaintiff that 6,250 shares which were shown to be standing in the name of Beharilal Murarka and which were alleged to be transferred on March 24, 1960, were so done wrongfully. Similarly it was contended that 2,750 shares standing in the name of Kunjalal Murarka were purported to be transferred wrongfully. Beharilal Murarka and Kunjal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on. A general meeting would be necessary to find out if the suit is to be continued or discontinued. It was thirdly contended that the dispute in the present case related purely to the internal management and, therefore, the court would not interfere. As to the first point, namely, the use of the name of the company by the plaintiff, counsel for the plaintiff contended that it was not open to the defendants to take that objection as a defence to the suit and that they should have proceeded by way of motion to stay the suit. On behalf of the defendants counsel contended that it was not an absolute rule that the objection should be by way of motion to stay the suit but that it could be brought to the notice of the court that the plaintiff was not authorised to sue in the name of the company. Reliance was placed by the defendants on the decision of La Compagnie de Mayville v. Whitley [1896] 1 Ch. 788, Daimler Co. Ltd. v. Continental Tyre and Rubber Co. (Great Britain) Ltd. [1916] 2 A.C. 307, Danish Mercantile Co. Ltd. v. Beaumont [1951] 1 Ch. 680. It is well settled that if authority is wanted to use the name of the company, it must be authority got from the proper quarter, either fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uestion by way of defence to the action. If the defendants desired to dispute the authority of Mr. Jones to commence these proceedings in the name of the plaintiff company their proper course was to move at an early stage of the action to have the name of the company struck out as plaintiff and so to bring the proceedings to an end." Again in the case of John Shaw and Sons (Salford) Ltd. v. Shaw [1935] 2 K.B. 113 a question arose as to whether a suit was properly instituted in the name of the company. In the trial court no objection was taken that the court could not decide the question of the authority of the directors to commence the action as a defence to the suit but only on a motion to stay the action. On appeal, Greer, L.J., held that where the power to commence an action is vested by the articles in the permanent directors then an ordinary resolution of the company would not control their exercise of that power. Slesser, L.J., held otherwise. Roche, L.J., held that the onus was on the defendant to prove that the action was unauthorised and that the defendant failed to discharge the onus and failed to produce material information. It was indicated that the minute books should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that the only way by which the management in the hands of the board could be controlled was by virtue of the provisions in the Act or provisions in the articles and by alterations of the articles. Under article 121 it is stated that the management of the business of the company shall be vested in the managing agents or directors, who, in addition to the powers and authorities by these presents or otherwise conferred upon them, may exercise all such powers and do all such acts and things as may be exercised or done by the company as are not hereby or by statutes expressly directed or required to be exercised or done by the company in general meeting but subject nevertheless to the provisions of the statute and all these presents and to any regulations from time to time made by the company in general meeting. Counsel for the defendants laid emphasis on the words "any regulations from time to time made by the company in general meeting" as empowering the shareholders by a general meeting to continue or discontinue the suit. Counsel for the plaintiff on the other hand contended that the word "regulations" was synonymous with "articles" and that the shareholders could control the act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hole of the subscribed share capital of the company. A held a majority but not a three-fourth majority of the shares. Disputes arose at a meeting between A and the other three directors who were interested in a patent vested in the N company which, so A was advised, infringed the M company's patent and was admittedly a competing patent. The three directors bona fide declined to sanction any proceedings against the N company in the name of the M company to restrain the alleged infringement. Thereupon the three directors moved in the name and on behalf of the M company to strike out the name of that company as plaintiff and to dismiss the action on the ground that the name of the M company had been used without authority. It was held that under article 55 in Marshall's case (supra) the majority of the shareholders in the company at a general meeting had a right to control the action of the directors so long as they did not affect to control any direction contrary to any of the provisions of the article which bound the company. In the case of Salmon v. Quin & Axtens Ltd. [1909] 1 Ch. 311 the Court of Appeal followed Cuninghame's case (supra) and the House of Lords upheld the decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which by articles are vested in the directors, nor the directors can usurp the powers vested by the articles in the general body of the shareholders." Similarly, in the case of Scott v. Scott case (supra ) it was held that when powers had been delegated to the directors the members at the general meeting could not interfere with their exercise until they were taken away by the amendment of articles. The law as laid down in Halsbury's Laws of England, 3rd edition, volume VI, at page 445, is as follows : "As regards litigation by an incorporated company, the directors are, as a rule, the persons who have authority to act for the company; but, in the absence of any contract to the contrary in the articles of association, the majority of the members of the company are entitled to decide, even to the extent of overruling the directors, whether an action in the name of the company should be commenced or allowed to proceed." The preeminent question, therefore, is as to whether the directors under the articles in the present case can be controlled by a general meeting with regard either to the commencement or to the continuance of this suit. Counsel for the defendants contended that in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ult is that the powers of management can be challenged only by alteration of the articles. In my opinion, there is a contract providing for management by the board and such a contract is contrary to regulation of the exercise of the powers of directors by the general meeting. Counsel for the defendants contended that under section 284 of the Companies Act, the directors could be got rid of at a general meeting and, therefore, if a general meeting were convened, it would appear whether the shareholders would accept the acts of the directors. Under section 284 of the Companies Act it is provided that a company may by ordinary resolution remove a director before the expiry of his period of office. A special notice is contemplated under that section of any resolution to remove a director or to appoint somebody instead of a director so removed. It is further contemplated in that section that on receipt of a notice of a resolution the company is to send a copy thereof to the directors concerned and the director shall be entitled to be heard on the resolution at the meeting. Counsel for the plaintiff, in my view, rightly contended that no general meeting should be allowed to be convened ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... voting power would be to allow the members to usurp powers of management which are entrusted to the board by the articles. Counsel for the defendants made a distinction between a general and particular delegation of powers to directors. As to particular delegation of powers counsel conceded that they could not be taken away from the directors without amendment of articles. Instances o£ such particular delegation were illustrated with reference to articles 20, 26 and 45 which related to calls on shares, forfeiture of shares and transfer of shares. Counsel for the defendants contended that articles 121 and 122 were instances of general delegation and related to the general management. Counsel for the defendants contended on the authority of Burland v. Earle [1902] A.C. 83 that the court would not interfere with the internal management. The two principles laid down in that case are, first, that the court would not interfere with the internal management of the company acting within their powers and, secondly, that in order to redress a wrong done to the company or to recover money or damage alleged to be due to the company, the action would prima facie be brought by the company ..... X X X X Extracts X X X X X X X X Extracts X X X X
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