9911796707
TMI Blog1990 (7) TMI 297X X X X Extracts X X X X X X X X Extracts X X X X ..... the capital of the company, while the second petitioner holds 3,800 equity shares of Rs. 100 each. The third petitioner is a shareholder of 1,186 equity shares of Rs. 100 each. The nominal capital of the company is Rs. 100 lakhs divided into 1,00,000 equity shares of Rs. 100 each and the issued, subscribed and fully paid-up capital of the company is Rs. 88 lakhs divided into 88,000 equity shares of Rs. 100 each. They have also stated that they have the consent of the members of the company entitled to apply under section 399(1) of the Act, holding an aggregate of 9,260 shares of Rs. 100 each in the capital of the company for presenting the company petition. A letter of consent signed by the members so entitled authorising the petitioners to present the petition on their behalf is annexed to the petition. The first petitioner/respondent has been the general manager of the company since July, 1977, and is a director of the company since 1980. The second petitioner/respondent was the director of the company during the period from 1977 to 1980 and is at present an associate editor of The Hindu, a newspaper belonging to the respondent/appellant company. The first respondent/appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... first respondent) and two whole time directors (the first petitioner and S. Rangarajan, publisher of The Hindu ). Ever since the company was formed, it has been managed jointly, as if it was an extension of the partnership and even though one of the directors had been designated as managing director, no resolutions have been passed by the company in general body meeting or by the board of directors of the company or by virtue of the memorandum or articles of association or by virtue of any agreement with the company entrusting the first respondent with substantial powers of management which would not otherwise be exercisable by him either under the Act or the articles of association of the company. On the other. hand, the board consisted of mostly wholetime directors assigned to function in their respective spheres of management and be responsible to the board. In effect, both the managing director and the wholetime directors were placed on par so far as their powers and functions were concerned in their respective areas and it had always been the established custom and practice that the directors entrusted with specific functions did not interfere with the functions of the whole ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts since October, 1989, as described in the company petition and emerged from other petitions and documents available on record can be divided into three parts and described as genesis, conflicts and crisis. Genesis : The second petitioner/respondent, who is the associate editor of The Hindu, carried some sort of investigations (investigative journalism) relating to the Bofors issue simultaneously in Switzerland, Sweden and India. The first installment of the information gathered in the course of the investigation was published in The Hindu. The second installment report relating to Bofors, however, was not published as the first respondent/appellant, who is the editor of The Hindu, decided against publication of such report. According to the petitioners/respondents, "the Government of the day did not want disclosures to be published since it did not suit them" and the first respondent succumbed to their pressure. Besides that, the first respondent/appellant was also motivated by other extraneous considerations and was also irked by the prominence received by the second petitioner/respondent. When the first respondent/appellant refused to publish the second installment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k the position that 'the whole thing must be published in one go' that he would need to read 'every word' of what might 'eventually' appear, in future stories or installments, before he could consent to having 'any word' of the new round of expose published in The Hindu. Anyone who knows anything about the character of journalism knows the preposterous character and implications of this 'demand'. In turn, I insisted that our investigation and expose, which has been widely recognised and supported for its independence, openmindedness, professionalism and balance, must continue without fear or favour. After blocking publication, Mr. Kasturi changed his mind at the very last minute and consented to the publication of the major expose of the secret part of the SNAB report in the issue of The Hindu, dated October 9, 1989. During all this, Mr. Kasturi has been advocating, in our internal editorial discussions, the view that on the basis of what has been published in The Hindu, the Government of Mr. Rajiv Gandhi should have quit a long time ago if it had any sense of honour. He repeatedly expressed the view internally that because of the Bofors scandal alone, and its proven role ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t-to stop further publication, despite our promise to our readers, to our professional colleagues and to the nation". This press statement also carried the opinion of the second petitioner/respondent that the editor's note published on page 1 of The Hindu of October 11, 1989, was a conspicuous insult to the traditions of independent, intellectually and socially serious, and ethical journalism. And then it said: "After this unilateral step was announced to the public without so much as the courtesy of consultation with me for a professional journalist an extraordinary step. I decided to step out of the four walls of The Hindu as an institution and into the public arena and explain the situation to the readers of various newspapers and to the people of this country. I decided to speak to my colleagues in the profession and ask for the hospitality of their columns to throw light on this vital national and ethical issue. I wonder whether this expose of what has happened within one major journalistic institution would be kept away from the readers of The Hindu through editorial censorship". To this statement, which expressed the associate editor's resentment to the editor's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t also issued a show-cause notice to the second petitioner/ respondent why he be not suspended from his position as an associate editor. The first petitioner/respondent along with Rangarajan, another director of the company, instituted C.S. No. 826 of 1989 on October 20, 1989, challenging the said notice and on their prayer in a petition for the said purpose, an order of ad interim injunction was granted. The said suit, however, was dismissed as withdrawn in November, 1989, consequent to a settlement of court between the parties concerned. The second petitioner/respondent (N. Ram), however, was not a party to the suit or to the settlement out of court. However, at a meeting of the board of directors held on November 15, 1989, at which meeting all the four directors were present, viz ., G. Kasturi, N. Murali, Nalini Krishnan and S. Rangarajan, a resolution was passed stating: "In view of Mr. N. Ram's willingness to come to an amicable settlement, it is hereby resolved to rescind the show-cause notice dated October 18, 1989, and the suspension order". and in supersession of all the board's resolution, with respect only to the designation and/or functions of the persons named the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the Companies Act representing the interests of all the families involved in the promotion of the newspaper and which had survived till October, 1989, on the basis of the good faith the families and the directors and the members had in each other in running the company". Conflicts : The genesis as above brought to fore the conflicts in the matter of editorial policy and the manner in which news items were to be edited between the associate editor, N. Ram, and the editor, G. Kasturi. It did not remain in the confines of the editorial rooms of The Hindu, but was made public by N. Ram, who came on record as quoted above that the editor of The Hindu, the No. 1 person in the editorial hierarchy, had decided arbitrarily, capriciously and in a manner highly derogatory of the traditions, norms and values of independent, ethical journalism to withhold publication of news concerning Bofors. This invoked a sharp response from the editor, G. Kasturi, who is on record saying that "most parts of it do not call for any comment other than that they reflect gross indiscipline, lack of decency and elementary manners on the part of the individual". Followed by a notice to N. Ram, and inst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... power of management of the affairs of the company in terms of the statute. It was alleged in the company petition that the first respondent/appellant convened a meeting of the board of directors on March 15, 1990, but since S. Rangarajan was unable to attend the meeting, it was postponed. The first respondent/appellant accordingly informed the first petitioner/ respondent that as soon as he was in a position to ascertain the convenience of the members of the board, a date would be fixed for the meeting. On March 29, 1990, the first respondent/appellant informed the other directors that a meeting had been convened on April 4, 1990, to discuss the issues raised by the first petitioner/respondent and S. Rangarajan. On April 4, 1990, however, the first petitioner/respondent submitted a note at the meeting raising various issues. How the first respondent/appellant had not been able to deal with the various complaints raised against him and how the first respondent/appellant to assume powers not vested in him were totally untenable and illegal and not authorised by law. He also stated in his note that the first respondent/the appellant's assumption of unlimited powers of management had l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ticipate and vote. Writing the minutes according to his liking and without reflecting the actual deliberations at the meetings. Recording in the minutes book resolutions which are not passed, as having been passed. Writing the minutes in the minutes book himself so that he can write whatever he wanted. Not circulating the minutes to the directors. (2) Violation of company law. -Violating the company law provisions in regard to: ( a )Powers of the managing director: (Section 2(26) of the Act clearly indicates that substantial powers of management will not be exercisable by the managing director unless they are specifically entrusted to him by any of the modes mentioned therein.) ( b )Directing the company to render free service to the relatives. ( c )Issuing advertisements, free of cost, which are in the nature of political donations. (3) Others. -Unlawfully restraining and refusing to transfer 1.6% of the shareholding throwing to winds the established custom and practice in the company which in effect is a conversion of partnership with equal rights to each family. Not realising the quasi-partnership nature of the company. Asking the wholetime directors to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lmost equally between the families of K. Srinivasan and K. Gopalan. Later, it is not in dispute, under a resolution in terms of section 21 of the Act and the approval of the Central Government, it was converted into a public limited company. After presenting the company petition in the court, the petitioners/respondents presented five applications, being Company Applications Nos. 341 to 345 of 1990. The relief claimed in Company Application No. 341 of 1990 was to restrain the respondents/appellant from holding the proposed meeting of the board of directors on 20th April, 1990; in Company Application No. 342 of 1990, to restrain the respondents from enlarging the present board of directors from the "existing four" pending disposal of the company petition; in Company Application No. 343 of 1950, to restrain the first respondent from chairing the meeting of the board of directors of the third respondent/appellant company pending disposal of the company petition; and for directing the next senior most director to chair the meeting of the board of directors pending disposal of the company petition; in Company Application No. 344 of 1990 to direct the first respondent not to interfere wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rol of the company, whether by an alteration in its board of directors, or of its managing agent or secretaries and treasurers or manager, or in the constitution or control of the firm or body corporate acting as its managing agent or secretaries and treasurers, or in the ownership of the company's shares, or, if it has no share capital, in its membership, or in any other manner whatsoever, and that by reason of such change, it is likely that the affairs of the company will be conducted in a manner prejudicial to public interest or in a manner prejudicial to the interests of the company; may apply to the court for an order under this section, provided such members have a right so to apply in virtue of section 399. (2) If, on any application under sub-section (1), the court is of opinion that the affairs of the company are being conducted as aforesaid or that by reason of any material change as aforesaid in the management or control of the company, it is likely that the affairs of the company will be conducted as aforesaid, the court may, with a view to bringing to an end or preventing the matter complained of or apprehended, make such order as it thinks fit". Section 400 stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equitable that the company should be wound up. Section 398 of the Act speaks of the affairs of the company being conducted in a manner prejudicial to public interest or in a manner prejudicial to the interests of the company. The first clause "being conducted in a manner prejudicial to public interest" is common to both sections 397(1) and 398, the clause that the affairs of the company are being conducted prejudicially to the interests of the company is exclusive to section 398. The other ground to attract the provisions of section 398 will require a proof of material change not being a change brought about by or in the interests of any creditors including debenture-holders or any class of shareholders of the company brought in the management or control of the company, whether by an alteration in the board of directors or of its managing agent or secretaries and treasurers or manager and by reason of such change, it is likely that the affairs of the company will be conducted in a manner prejudicial to the interests of the company. The court's power to make any interim order which it thinks fit, pending the making by it of a final order under section 397 or 398, as the case may be, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the plaintiff's right, or if his right is not disputed, but its violation is denied, the court, in determining whether an interlocutory injunction should be granted, takes into consideration the balance of convenience to the parties and the nature of the injury which the defendant, on the one hand, would suffer if the injunction was granted and he should ultimately turn out to be right, and that which the plaintiff, on the other hand, might sustain if the injunction was refused and he should ultimately turn out to be right. The burden of proof that the inconvenience which the plaintiff will suffer by the refusal of the injunction is greater than that which the defendant will suffer, if it is granted, lies on the plaintiff". In para 778, Halsbury's Laws of England, third edition, volume 21, says: "In general an injunction lies against a company regulated by the Companies Act, 1948, in circumstances in which it would lie against an individual. In addition, an injunction may lie against a company in relation to its powers or the conduct of its affairs as a corporation regulated by statute. If a company attempts to act ultra vires, it may be restrained by injunction at the inst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which a class of the community have a pecuniary interest, or some interest by which their legal rights or liabilities are affected", a definition which has been noticed by the learned company judge also. In fact, the learned company judge has dealt with this aspect of the case more than needed, but held that non-publication of such news item as one released by N. Ram was an act prejudicial to the public interest. We have difficulty in accepting this conclusion. Our first reason not to do so is that a decision regarding publication of a news item would be in public interest or not cannot in any manner be said to affect or prejudice public interest. Whether interest of the public is in prejudice or not will be known only after publication but not before. That the publication of the second installment served a greater public interest can thus be no ground to say that its non-publication went against the public interest. Moreover, the two opinions reflected in the editor, Kasturi, deciding against publication and N. Ram's insisting for publication, were/are limited to the difference of opinion between the associate editor and the editor incidentally though the editor happens to be the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re within their rights to bring on the agenda of the board's meeting the issue which involved consideration of the conduct of the editor and the associate editor including such actions which were taken concerning the editorial affairs of The Hindu. L' affaire Bofors never remained exclusive to The Hindu. N. Ram saw to it that it was published elsewhere instead of fighting for its publication in The Hindu. The editor responded by issuing instructions to all departments to prevent N. Ram from using The Hindu's authority without the editor/managing director's permission. True, N. Ram was not a party to the civil suit in which notice of suspension given to him had been challenged, that is to say, C.S. No. 826 of 1989. It is also true that he was not present at any of the Board's meetings including the meeting held on November 15, 1989. His co-petitioner, N. Murali, incidentally his full brother, who has made complaints regarding the interests of the family, was one of the plaintiffs in the said suit. He was present at the Board's meetings, including the meeting held on November 15, 1990, in his capacity as a wholetime director/member of the board. A decision was taken in his pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s; by interfering in the day-to-day working and functioning of other wholetime directors; by exceeding the authority and power by assuming substantial powers of management and thereby usurping the powers of the board; by bringing about a material change in the management and control of the company affecting the interests of the company and public interest; by declaring the second petitioner as persona non grata and refusing to withdraw the notice issued on October 15, 1989, even after the so-called settlement; by indulging in acts having adverse impact on the morale of the employees thereby affecting the company's interest; by exercising parallel powers in areas designated to the other wholetime directors thereby causing a deadlock in the management of the company resulting in paralysing the administration and organisation; by attempting to double the strength of the board by co-option of four wholetime directors so that the petitioners are reduced to a minority in the board and management; by deliberately planning series of actions to systematically eliminate when they attend international assembly at Manila and by various acts of omission and commission as illustrated in the peti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. Meyer [1958] 3 All ER 66; [1959] 29 Comp Cas 1, which was an appeal from George Meyer's case [1954] SC 381 and H.R. Harmer Ltd., In re [1958] 3 All ER 689; [1959] 29 Comp Cas 305, the Supreme Court said (at page 364 of 35 Comp Cas): "Among the important considerations which have to be kept in view in determining the scope of section 210, the following matters were stressed in Elder's case [1952] SC 49, as summarised at page 394 in George Meyer's case [1954] SC 381: '(1)The oppression of which a petitioner complains must relate to the manner in which the affairs of the company concerned are being conducted; and the conduct complained of must be such as to oppress a minority of the members (including the petitioners) qua shareholders. (2)It follows that the oppression complained of must be shown to be brought about by a majority of members exercising as shareholders a predominant voting power in the conduct of the company's affairs. (3)Although the facts relied on by the petitioner may appear to furnish grounds for the making of a winding up order under the "just and equitable" rules, those facts must be relevant to disclose also that the making of a winding up o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apply to every case in which the facts would justify the making of a winding up order under the 'just and equitable' rule, but only to those cases of that character which have in them the requisite element of oppression". It was also held in H.R. Harmer Ltd.'s case [1958] 3 All ER 689; [1959] 29 Comp Cas 305 (CA) that (at page 366 of 35 Comp Cas): "The result of applications under section 210 in different cases must depend on the particular facts of each case, the circumstances in which oppression may arise being so infinitely various that it is impossible to define them with precision. The circumstances must be such as to warrant the inference that 'there has been, at least, an unfair abuse of powers and an impairment of confidence in the probity with which the company's affairs are being conducted, as distinguished from mere resentment on the part of a minority at being outvoted on some issue of domestic policy'. The phrase 'oppressive to some part of the members' suggests that the conduct complained of 'should at the lowest involve a visible departure from the standards of fair dealing, and a violation of the conditions of fair play on which every shareholder who entrusts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g to a member in the matter of his proprietary rights as a shareholder. It is in the light of these principles that we have to consider the facts in this case with reference to section 397". In Hind Overseas Pvt. Ltd. v. Raghunath Prasad Jhunjhunwalla, AIR 1976 SC 565; [1976] 46 Comp Cas 91 (SC), section 433 of the Act had fallen for consideration. That case is relevant also on the question as to what may be a consideration to apply to the winding up petition. In a case where on piercing the veil it is found that in reality it is a partnership although constituted as the company, the management is more or less in the nature of a partnership. This case would also help to find out when a company may be said to be in substance a partnership. The Supreme Court reversed the judgment of the Calcutta High Court saying that merely because the shareholding is between two family groups it could not be said that the company thereby takes the image of a partnership. The Supreme Court referred to the decision of the House of Lords in Ebrahimi v. Westbourne Galleries Ltd. [1973] AC 360, 379, wherein, after reviewing all the earlier cases, it was held as follows (at page 98 of 46 Comp C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he company. (2)Both the shareholders were directors sharing the profits equally as remuneration and no dividends were declared. (3)One of the shareholders' son acquired shares from his father and from the second shareholder, Ebrahimi, and joined the company as the third shareholder-director with two hundred shares (one hundred from each) (4)After that, there was a complete ouster of Ebrahimi from the management by the votes of the other two directors, father and son. (5)Although Ebrahimi was a partner, Nazar had made it perfectly clear that he did not regard Ebrahimi as a partner but regarded him as an employee in repudiation of Ebrahimi's status as well as of the relation ship. (6)Ebrahimi though ceasing to be a director lost his right to share in the profits through director's remuneration retaining only the chance of receiving dividends as a minority shareholder". The Supreme Court also made a reference to the principles laid down in Yenidje Tobacco Co. Ltd., In re [1916] 2 Ch 426, which was the cornerstone of the arguments advanced on behalf of both the parties before the company judge as well as the appellate court. The question posed by the learned Master of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the substratum of the company has gone or where there is a complete deadlock. Those are the two instances which are given, but I should be very sorry, so far as my individual opinion goes, to hold that they are strictly the limits of the "just and equitable" clause as found in the Companies Act. . . If ever there was a case of deadlock I think it exists here; but, whether it exists or not, I think the circumstances are such that we ought to apply, if necessary, the analogy of the partnership law and to say that this company is now in a state which could not have been contemplated by the parties when the company was formed and which ought to be terminated as soon as possible.' " The Supreme Court has then concluded (at page 102): "It is clear that although Yenidje Tobacco Ltd.'s case [1916] 2 Ch 426 was a case of a complete deadlock that was not stated to be the sole basis for a conclusion to wind up the company. The House of Lords in Ebrahimi's case [1973] AC 360 (HL) approved the decision in Yenidje Tobacco Co. Ltd.'s case [1916] 2 Ch 426. We may also point out that the House of Lords did not approve of the undue emphasis put on the contractual rights arising from the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany during the short period which had elapsed since 12th May, 1930: and the common misfortune which had befallen the two shareholders in the company does not, in their Lordships' view, involve the consequence that the ultimate desires and hopes of the ordinary shareholders should be disregarded merely because there is a strong interest in favour of liquidation naturally felt by the holders of the preference shares . . . Nor on the other hand can any general rule be laid down as to the nature of the circumstances which have to be borne in mind in considering whether the case comes within the phrase". The Supreme Court then referred to the case of Rajahmundry Electric Supply Corporation Ltd. v. A. Nageswara Rao [1956] 26 Comp Cas 91 , 97; AIR 1956 SC 213, the case of Seth Mohanlal v. Grain Chambers Ltd. [1968] 38 Comp Cas 543; AIR 1968 SC 772 and Shanti Prasad Jain v. Kalinga Tubes Ltd. [1965] 35 Comp Cas 351 ; AIR 1965 SC 1535 and stated (at page 104 of 46 Comp Cas): "Although the Indian Companies Act is modelled on the English Companies Act, the Indian law is developing on its own lines. Our law is also making significant progress of its own as and when necessary. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... each case. These are necessarily equitable considerations and may, in a given case, be superimposed on law. Whether it should be so done in a particular case cannot be put in the strait-jacket of an inflexible formula. In an application of this type allegations in the petition are of primary importance. A prima facie case has to be made out before the court can take any action in the matter. Even admission of a petition which will lead to advertisement of the winding up proceedings is likely to cause immense injury to the company if ultimately the application has to be dismissed. The interest of the applicant alone is not of predominant consideration. The interests of the shareholders of the company as a whole apart from those of other interests have to be kept in mind at the time of consideration as to whether the application should be admitted on the allegations mentioned in the petition. The question that is raised in this appeal is as to what is the scope of section 433( f ) of the Act. Section 433 provides for the circumstances in which a company may be wound up by the court. There are six recipes in this section and we are concerned with the sixth, namely, that a company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purpose of section 397 of the Act and what may provide just and equitable grounds for winding up a company and referred to several judgments including the one in Shanti Prasad Jain v. Kalinga Tubes Ltd. [1965] 35 Comp Cas 351 ; AIR 1965 SC 1535 and the various judgments of the Privy Council and other courts of England and observed (at page 780 of 51 Comp Cas): "Neither the judgment of Bhagwati J. nor the observations in Elder's case [1952] SC 49 are capable of the construction that every illegality is per se oppressive or that the illegality of an action does not bear upon its oppressiveness. In Elder's case [1952] SC 49, a complaint was made that Elder had not received the notice of the board meeting. It was held that since it was not shown that any prejudice was occasioned thereby or that Elder could have bought the shares had he been present, no complaint of oppression could be entertained merely on the ground that the failure to give notice of the board meeting was an act of illegality. The true position is that an isolated act, which is contrary to law, may not necessarily and by itself support the inference that the law was violated with a mala fide intention or t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion by the management of the company against the petitioners/respondents affecting their legal and proprietary rights as shareholders. Our answer to it is obviously no. The admitted facts of this case reveal: (1)The existing four members of the board of directors are so divided that at any meeting of the board of directors, unless S. Rangarajan, who on many occasions joined hands with N. Murali, decided on any issue to side with the managing director, G. Kasturi, no decision could be taken at any meeting of the board to the prejudice of any shareholder; (2)The dispute with N. Ram related to the editorial policy of The Hindu, a publication of the company and was not with respect to any legal or proprietary right of N. Ram as a shareholder; (3)The directions which Kasturi issued as managing director either concerning N. Ram or concerning N. Murali's activities were all related to activities of N. Ram as the associate editor of The Hindu and N. Murali as the general manager of the company. (4)The resolutions of the board of directors, which are complained of are all concerning the managing director's actions and actions otherwise of the board of directors with respect to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent. It is not a case in which all shareholders ever participated in the conduct of the business of the company. It is also not a case in which there is any restriction upon the transfer of members' interest in the company. It is this element which goes against the plea that the company is more or less a partnership company. In all the cases qua partnership courts have held that the company was in substance a partnership if it was a small private company founded on a personal relationship involving mutual confidence between the members. In the chapter of winding up of the company in England by the court in Palmer's Company Law, volume I, 24th edition, at page 1370 (paras 88-07, 88-08 and 88-09), it is said: "It has sometimes been suggested that there is an exhaustive list of situations that may fall within the scope of the 'just and equitable' clause, but it now seems that, although such classification may be convenient for purposes of presentation, the words 'just and equitable' require a more flexible interpretation. In the words of Lord Wilberforce, 'illustrations may be used, but general words should remain general and not be, reduced to the sum of particular instances.' By ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he company are being conducted in a manner prejudicial to the interests of the company. Interest of a shareholder to participate in the management of the company cannot be clubbed with the interests of the company. Certain shareholders may find a place as members of the board of directors, a wholetime director or a managing director. It shall be open to the shareholders to make changes in the constitution of the board of directors. They may, for reasons good or bad, remove a director and appoint anyone in his place. In the course of the management of the affairs of the company, they may decide to increase the number of directors of the company. A question may arise, viz ., can it be said that once a member is elected or nominated as a director, he cannot be removed from office? That has to be answered in the negative. No member of the company on his appointment as a director or a managing director can be above the law and the interests of the shareholders. Interests of the shareholders and that of the company must always be preferred over the interests of any one else irrespective of the position occupied by him. Still, since there has been some allegations such as that on some oc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order of injunction to restrain the first respondent appellant, G. Kasturi, from chairing the meeting of the board of directors of the third respondent company or to restrain the respondent/appellant from enlarging the present board of directors from the existing four. We have, however, taken notice of two items of information on record that there is dispute as to whether the first respondent/appellant is still validly continuing as managing director/director of the board after attaining the age of 65 years when according to the petitioners, there was no notice for the special agenda for the said purpose when the board of directors resolved to let him continue him until the expiry of his term of five years and that N. Murali has since ceased to be a director of the company. We may state in this regard that in the entire company petition, except for raising the question of want of notice, the petitioners/respondents have acknowledged the first respondent/appellant as the managing director in office. The first petitioner/respondent has disputed the allegation of the respondent/appellants that he has ceased to be a wholetime director. This issue can be resolved by the board of directo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0. Before us, learned counsel for the petitioner/respondents, however, expressed the view that a person, who is not a shareholder may be named by the court as additional director besides the four, who constituted the board of directors. We do not, however, propose to put any stranger on the board of directors because it has been invariably pointed out that it should generally be left to the discretion of the shareholders and the members of the company to decide who may represent their interests in the management of the affairs of the company than to some one else to do the job. It shall be open to the board of directors to decide who may be added to the board of directors as a director. We hope, no problem shall arise as the first petitioner/respondent shall be present at such meetings of the board of directors where decision, if any, in this regard may be taken and besides him, S. Rangarajan shall also be present, who it appears, took a positive stand on many occasions in the past. It shall, however, be open to the parties to move the court when the occasion arises for any interference in the functioning of the board of directors on grounds, inter alia , covered by sections 397 a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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