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TMI Blog2007 (5) TMI 337X X X X Extracts X X X X X X X X Extracts X X X X ..... l room, to the cable television operators. Its members are the cable operators each of whom has a dual relationship with the company. Members of the company are also its only clients. Amid charges of mismanagement brought by the respondents, the amendment of two articles of the company and the forfeiture of their shares pursuant to the amended articles were cited as grounds of oppression. The subsequent re-allotment of the forfeited shares were also challenged by the respondents, though some of them acquired such forfeited shares. Charges of defalcation and misappropriation of funds were brought against those in management by some members. It is claimed in the petition before the Company Law Board, that as a retaliation those in management sought to amend the articles of the company to include oppressive provisions to arm themselves with the ammunition for silencing the complaining members by banishing them from the company altogether. The respondents in this appeal, some of whom had made a belated and failed attempt to carry their independent appeal from the same order on the ground that their charges of mismanagement were not adequately addressed, appear to have cited the amend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and ( f ) therein to the following effect : "( e )Any member who has been declared a defaulter by the company by reason of his failure to fulfil any financial engagement between himself and the company and who fails to fulfil such engagement within 15 days from the date upon which he has been so declared defaulter, shall at the expiration of such period of 15 days automatically ceases to be a member and shares held by such member shall ipso facto be forfeited and any share so forfeited shall be declared to be the property of the company and the company shall sell, re-allot and otherwise dispose of the same in such manner to the best advantage for the satisfaction of all dues which may then be due and owing to the company (amended vide resolution dated July 9, 2004). ( f )A member of the company will be expelled if the member deserts the company and ceases to be a business associate/partner of the company and in such a situation, to protect the sanctity and interests of its own the company will forfeit the shares of such a member and any share so forfeited shall be declared to be the property of the company, shall sell, re-allot and otherwise dispose of the same in such manner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Board held that the idea of introducing the amendments to the articles by those in management of the company was an act of oppression, calculated to oust persons who had raised questions that inconvenienced those who controlled the company. If the Board had rested there, the appellants would have little ground to challenge the conclusions drawn on facts in an appeal restricted to questions of law. But the appellants question the Board's approach to the issue. The Board proceeded to test the legality of the amendments and held that forfeiture of shares on the grounds of cessation of business and non-payment of dues were alien to corporate jurisprudence. Having found that the amendments were not permissible in law, the Board then sought reasons as to what prompted those in management of the company to resort to such acts of illegality. If this first step, that of finding that the amendments were illegal, was not there, the appellants would have found the ultimate conclusion difficult to challenge as such conclusion is on facts and on the Board s appreciation of facts which would not ordinarily be upset unless found perverse. In reaching a finding that the incorporation of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the authority questionable. The final conclusions of the Board in the instant case were tinged by the finding of illegality. It appears the question that the Board proceeded to answer was as to why the management resorted to such acts of illegality. If the Board had posed the same question without referring to the alleged illegality, it is possible that it may have arrived at the same conclusion. But it has tainted the question with its conclusion of illegality and, thus, the answer cannot be sustained. In holding that there was per se illegality in the conduct of those in management of the company, a high test of justification was set for the appellants which the appellants, in the Board's opinion, could not meet. If the Board had formed a view that the amendments, or material parts thereof, were permissible, then a lesser test was required to be set for the appellants : the test that, despite the acts complained of being legal, whether the brute majority of the management s numerical strength was used to ride roughshod over the contesting respondents to maim them as to the charges of defalcation brought against the management. It was this simple test that was required to be a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat case that the plaintiffs were in competition with the company. The Court of Appeal discharged the judgment of the vice-chancellor by relying on the following principle (page 162) : "Possibly the limitation on the power of altering the articles may turn out to be that the alteration must not be such as to sacrifice the interests of the minority to those of a majority without any reasonable prospect of advantage to the company as a whole." In the present case, the company came to be incorporated by cable operators who pooled in their resources to have better bargaining power against such person from whom they would collectively receive the signals for distribution inter se. Per se illegality could not be attributed to the company, as the Board did, for introducing a provision that would require members who had aligned with a rival to be required to sever their ties with the company. In the Naresh Chandra Sanyo v. Calcutta Stock Exchange Association Ltd. [1971] 41 Comp. Cas 51 ; [1971] 1 SCC 50, the legality of a series of articles was questioned. Paragraph 4 of the report sets out the relevant articles (pages 53 to 55) : " Article 21. The committee shall have power t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12 per cent, per annum and the committee may enforce the payment thereof, without any deduction or allowance for the value of the share at the time of forfeiture. Article 29. The forfeiture of a share shall involve the extinction of all interest in and also of all claim and demands against the association in respect of the share, and all other rights incidental to the share, except only such of those rights as by these articles expressly saved. Article 31. The association shall have a first and paramount lien upon the share registered in the name of each member and upon the proceeds of sale thereof for his debts, liabilities and engagements ... Article 32. For the purpose of enforcing such lien the association may sell the share subject thereto in such manner as they think fit... Article 33. The net proceeds of any such sale shall be applied in or towards satisfaction of the debts, liabilities, or engagements, residue (if any), paid to such member, his executors, administrators, committee curator or other representatives." The Supreme Court referred to an old decision of this court reported at Calcutta Stock Exchange Association Ltd. v. S.N. Nandy and Co. 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