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TMI Blog2006 (5) TMI 193X X X X Extracts X X X X X X X X Extracts X X X X ..... of 12 elected members and 3 ex officio members and these ex officio members do not have voting powers. At the time of filing of the Company Petition, the number of members of the Company was fixed at 66. Consequent to death of some members, the present membership of the Company has come down to 51. The admission of new members to the board is governed by four articles of the Company, i.e., articles 6, 7, 8 and 9. Articles 8 and 9 cover a special category of members to pay Rs. 25,000 and these persons are called Patron Members and they are admitted to the company by the Board of Directors if any vacancy arises in the membership of the company and these Patron Members are given priority over the other members. Further, a mere payment of Rs. 25,000 would not automatically make the donor a member. He would become a member only if the Executive Committee approves his candidature and invites him to become a member. These Patron Members who pay Rs. 25,000 need not go through the process of getting elected by the General body as provided under articles 6 and 7. 3. It is further case of the appellants that the above said two Articles 8 and 9 have been in existence since 1935 and in the ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce, the present appeal. 6. On the other hand, the respondent Company has filed its counter contending that the Madura College Board originally consisted of 16 members and the number of members of the College Board has been increased to a maximum of 66 members and it may be further increased, if and when, the business of the board and the interest of Madura College and the various institutions referred to it under Article 1, require such increase. At present, the members of the Board can be admitted as per the procedure set out in Articles 6 and 7 which require the approval of the General Body Meeting. Articles 8 and 9 deal with the admission of "Patron Members". As per Articles 8 and 9, Patron Members can be admitted without the approval of the General Body but with the sanction of the Board of Directors. Articles 8 and 9 were included in the year 1935 and since then, only three Patron Members have been admitted in the year 1988. 7. It is the further case of the respondent-Company that Articles 8 and 9 are against the interest of the members of the Company. Any person can be admitted as a member of the board in accordance with Articles 6 and 7 of the Articles of Association of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... without the consent in the General body. As regards the respondent-Company, the retention of Articles 8 and 9 would only enable the induction of new members who are relatives of the Directors and the chance of admitting Patron Members by the Board of Directors is prevented by deleting Articles 8 and 9 of the Articles of Association and therefore, the deletion of the said Articles is not prejudicial to the interest of the public or the members of the Company and except the deletion of Articles 8 and 9, no alteration or amendment has been made in the Articles of Association of the company at the above said General Body Meeting and no prejudice will be caused if the members are admitted by General Body by virtue of Articles 6 and 7 of the Articles of Association which is the usual course for the admission of new members from the date of incorporation of the Company. 9. The respondent-Company has also brought to the notice of this Court that its Memorandum and Articles of Association show that its main object is the promotion of Hindu religion, Hindu culture, Hindu civilization, education and educational institutions and it is running four educational institutions, namely :-- (a)Mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sa Iyer, one of the members passed away and in June, 1986, steps were taken to fill up the vacancy. On 4-9-1986, a member proposed V. Sarangapani, Advocate as a fit and proper person to be admitted as a member of the Board in that vacancy and V. Sarangapani had given his consent for the proposal and had agreed to pay life subscription of Rs. 500 besides donation of Rs. 1,000 on admission as a member. On 22-10-1986, R. Sankar, brother-in-law of the then Secretary, R. Lakshmipathy also filed a nomination as a fit and proper person to be admitted as a member of the Board and he has also agreed to pay life subscription of Rs. 500 and donation of Rs. 1,000 on admission as a member. Since two persons had been nominated for a single vacancy caused by the death of M. Srinivasa Iyer, the procedure of the election by the General Body of the respondent under Article 7(3) had to be followed. However, to favour R. Sankar and to avoid this contest, the first appellant's father Lakshmipathy, the then Secretary, resorted to invoke Articles 8 and 9. On 11-8-1992, the first appellant's father, in the capacity as the Secretary, circulated to the Board of Directors, a letter mentioning that R. Sankar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is specifically contended by the respondent-Company that the first appellant and his father are residing in the same house and the appellants, in collusion with the first appellant's father have filed the company petition. 17. The respondent Company has also challenged the maintainability of the petition by contending that out of nine members who have consented to filing of the Company Petition, N.M.R. Krishnamoorthy, N. Ganapathy Subramaniam and K.S. Venkateswaran had participated in the Annual General Body Meeting held on 14-3-1992 and they were parties to the said unanimous resolution taken in the said Annual General Meeting deleting the said two Articles 8 and 9 and in such a circumstance, if those three members are taken out from the category of the said nine members, the requirement under section 399 of the Act is not fulfilled before filing the Company Petition. It is also contended that those three members have not explained in their respective letters of consent as to what made them reversing their earlier stand and on the above sole ground, the Company Petition is not maintainable and has to be dismissed in limine. 18. The petitioners before the CLB who are the appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... General Body Meeting of the Company would debar the Company in achieving its objects in the nature of public trust and also would interfere with the interests of the members of the Company in the pursuit of the noble objects of the Company and therefore, the deletion is against the public interest of the Company when it has to lookafter the welfare of a large number of students and the development of the Hindu religion as also the advancement of the Hindu culture and tradition, (f)the said three members, K.S. Venkateswaran, N.M.R. Krishnamoorthy and N. Ganapathy Subramanian, having been parties to the said resolution passed on 14-3-1992 deleting Articles 8 and 9, are not estopped from challenging the said resolution by giving consent to the filing of the Company Petition under sections 397 and 398 of the Act, (g)the first appellant was not aware of the said Civil Suit although he happens to be residing with his father in the same house and just by such chance residence, it could not be presumed that there has been any collusion between the first appellant and his father. 22. Per contra, Mr. Arvind P. Datar, learned Senior Counsel for the respondent-Company has contended that : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the Company Petition had to be dismissed on that sole ground. (i)the appellants have slept over their alleged right in challenging the said resolution dated 14-3-1992 deleting the Articles 8 and 9 for full five years and there has been no explanation as to the delay in making the Company Petition and hence, the CLB has rightly dismissed the Company Petition on the ground of delay and laches. 23. In dealing with the contentions made on behalf of the appellants that the said provisions under Articles 8 and 9 should be preserved for the interest of the Company as the induction of members under the said two Articles on payment of Rs. 25,000 each would procure substantial mone-tary benefits to the Company, Mr. Datar has contended that the factual position would be otherwise as the income of the Company varies from Rs. 1.50 crores to Rs. 2.26 crores during the period 1990-91 to 1994-95 and the Company is in a better shape from the financial point of view. 24. Mr. N. Venkataraman, learned counsel for the respondent-Company, following Mr. Datar, has contended that : (a)the Patron Members even under the provisions of Articles 6 and 7 of the Articles of the Company can be elected on c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in a manner prejudicial to the interests of the Company; or (b)that a material change (not being a change brought about by, or in the interests of, any creditors including debentureholders, or any class of shareholders of the Company) has taken place in the management or control of the Company, whether by an alteration in its Board of Directors or Manager 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 Tribunal 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 Tribunal 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 Tribunal may, with a view to bringing to an end or pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otes polled in the event of circulation by the Secretary, that there is an elaborate provision aiming to achieve the democratic method of selection and the General Body is empowered to select such persons. Whereas under Article 8 which came into effect in the year 1985, a person donating Rs. 25,000 can become a Patron Member. Article 9 bestows upon a Patron, a special privilege by which the Board of Directors admit a Patron to be a member. Under the provisions of Article 8, a member does not go through the electoral process as contemplated by Articles 6 and 7 and a Patron Member automatically becomes a member of the Company in the event of any vacancy of membership. It is not disputed till the year 1986 no Patron Member was admitted in pursuance of Articles 8 and 9. It is also seen that though Articles 8 and 9 were introduced in the year 1935 only once in the year 1988, the Articles were invoked. 32. Reliance has been placed by the learned counsel for the appellants on a decision of this Court in M. Gomathinayagam Pillai v. Sri Manthiramurthi High School Committee [1963] 33 Comp. Cas. 346 (Mad.), wherein it was held as under: ". . .There is no distinction in this country between ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e words as section 210 of the English Act, and the question in each case is whether the conduct of the affairs of a company by the majority shareholders was oppressive to the majority shareholders and that depends upon the facts proved in a particular case. As has already been indicated, it is not enough to show that there is just and equitable cause for winding-up the Company, though that must be shown as preliminary to the application of section 397. It must further be shown that the conduct of the majority shareholders was oppressive to the minority as members and this requires that events have to be considered not in isolation but as a part of a consecutive story. There must be continuous acts on the part of the majority shareholders, continuing up to the date of petition, showing that the affairs of the Company were being conducted in a manner oppressive to some part of the members. The conduct must be burdensome, harsh and wrongful and mere lack of confidence between the majority shareholders and the minority shareholders would not be enough unless the lack of confidence springs from oppression of a minority by a majority in the management of the Company's affairs, and such o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ind-up the Company will unfairly prejudice the members complaining of oppression, but that otherwise the facts will justify the making of a winding-up order on the ground that it is just and equitable that the Company should be wound-up. The rule as regards the duty of utmost good faith, on which stress was laid by Lord Keith in Meyer, received further and close consideration in Ebrahimi v. Westbourne Galleries Ltd. [1973] AC 360 (HL) wherein Lord Wilberforce considered the scope, nature and extent of the "just and equitable" principle as a ground for winding-up a Company. The business of the respondent Company was a very profitable one and profits used to be distributed among the directors in the shape of fees, no dividends being declared. On being removed as a director by the votes of two other directors, the appellant petitioned for an order under section 210. Allowing an appeal from the judgment of the Court of appeal, it was held by the House of Lords that the words "just and equitable" which occur in section 222(f) of the English Act, corresponding to our section 433(f), were not to be construed ejusdem generis with clauses (a) to ( e) of section 222 of corresponding to our c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... meeting was a 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 that such violation was burdensome, harsh and wrongful. But, a series of illegal acts following upon one another can, in the context, lead justifiably to the conclusion that they are a part of the same transaction, of which the object is to cause or commit the oppression of persons against whom those acts are directed. This may usefully be illustrated by reference to a familiar jurisdiction in which a litigant asks for the transfer of his case from one Judge to another. An isolated order passed by a Judge which is contrary to law will not normally support the inference that he is biased; but a series of wrong or illegal orders to the prejudice of a party are generally accepted as supporting the inference of a reasonable apprehension that the Judge is biased that the party complaining of the orders will not get justice at his hands." (p. 1319) 35. On behalf of the respondent Company three submissions were made before the CLB and they are as follows : (a)the appellants are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ally abolished. The copies of the notice and proceedings of the meeting dated 14-3-1992 were annexed to the Company Petition and collectively marked as Exhibits before the CLB and they were obtained from the Registrar of Companies, Madras. 38. It is argued that the appellants are attempting to re-agitate the matter which was already been decided against their interest on the ground of delay and laches and they are trying to obtain relief through preliminary remedies with an approach being misconceived in law as mala fide and clearly without jurisdiction. In this context, reliance was placed on a decision of the Allahabad High Court in Raghunath Swarup Mathur v. Har Swarup Mathur [1970] 40 Comp. Cas. 282 . "Those complaints of the petitioners against the conduct of the affairs of the Company by the contesting opposite parties which could be supported by some particulars relate to a period before 30-9-1965, when a new Managing Director was elected. The petition in this Court was filed on 23-8-1967. Delay, if considerable and unexplained, is enough to defeat equities and to justify a refusal to exercise discretionary powers. In this case delay is both considerable and unexplained so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) 41. Taking overall aspects of the matter, the CLB has dealt with the three issues namely, the relief sought for by the appellants before it was entitled after the decision of the Civil Suit filed by the father of the first appellant and on the point of delay and laches in filing the petition and also the validity of the consent of the three persons in filing the Company Petition. The CLB, on going through the material evidence and the contentions raised by both sides, has given findings on all the issues and dismissed the Company Petition filed by the appellants herein. 42. In that view of the matter, whether this Court will interfere in any of the findings under what circumstances in accordance with the scope of the law made in respect of the findings of the CLB. 43. Now, let me look into the findings of the CLB in respect of three issues as stated supra. 44. In respect of first contention that the subject-matter as challenged in the petition before the CLB similar to the one with what had been agitated in the Civil suit and the same was disposed of in favour of the defendant- Company. 45. It is seen that there was a suit in City Civil Court filed by the father of the first ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame subject-matter of the challenge had already been agitated in the Civil Suit. It is seen that there was a suit in the City Court and it was decided in favour of the respondent Company and the deletion of Articles 8 and 9 was upheld by the Civil Court. The appellants have not taken any step from March 1992 until the filing of Company Petition before the CLB challenging the said resolution. It appears that the appellants conveniently waited to know the result of the suit filed by the father of the first appellant challenging the very same resolution which is challenged practically on the same grounds as were taken in the suit filed by the father of the first appellant and the legality of the said resolution was affirmed by the judgment delivered by the said Civil Court and the delay in presenting the Company Petition without assigning proper reasons had not been appreciated by the CLB and rejected the same. In this respect also, no reason has been assigned or argued before this Court for the delay in presenting the Company Petition and hence, this Court is not convinced to interfere with the findings of the CLB in rejecting the Company Petition on the ground of delay and laches. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plated under Articles 6 and 7, the Articles 8 and 9 have given a power only to the Executive Committee which may go against the very object of the respondent Company and this would be one of the short cut methods to become a patron and then enter into the Board. This would have been the reason felt by the respondent Company to delete the Articles 8 and 9 in the interest of the Company and therefore, the contention that the resolution passed by the Company in the said General Body Meeting could not go against the larger public interest of the Company. It would appear from the Objects Clause that the aim of the Company is to promote Hindu culture, civilization and educational institutions established on the basis of the Hindu tradition or culture and I think that the General Body of Members is the proper and should be the proper authority to consider who should be inducted into the membership of the Company in furtherance of the promotion of said objects of the Company. 52. In respect of the inviting members by the Executive Body as per the provision of Article 8, in order to achieve the above object, the General Body would have felt that it is unnecessary that the Articles 8 and 9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emplated under sub-section (2)(b) of section 397 of the Act which stipulates that if the Company Law Board is of opinion that to wind up the Company would unfairly prejudice such member or members but that otherwise the facts would justify the making of a winding-up order on the ground that it was just and equitable that the Company should be wound-up, the CLB may make such an order as it thinks fit. There has been no point made out by the appellants that the Company is liable to be wound-up on just and equitable grounds, but the facts would justify not to make a winding-up order on such ground. The CLB has concluded that the question of oppression can only be considered if the nature of oppression is such or if the affairs of the Company are being conducted in such a manner prejudicial to the public interest that the winding-up of the Company would be the proper course but the facts of the case would justify in not making of a winding-up order with a view to bringing an end the matters complained of. This view of the Company Law Board is in my opinion, is in conformity with the provision of law and no case is made out by the appellants before the CLB under sections 397 and 398 of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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