9911796707
TMI Blog1965 (8) TMI 96X X X X Extracts X X X X X X X X Extracts X X X X ..... House to Durgapada who was to run the same under the name and style of Asoke Cinema , as the proprietor thereof. The letter was written for the purpose of obtaining a license for running the said Cinema. Durgapada obtained a temporary license at first and thereafter, a permanent license. In October, 1953 Ratanlal transferred the said properties to Protap Properties Private Ltd., and Durgapada continued to take out the license to run the cinema. On the 24th March, 1955 a private limited company was incorporated under the name and style of Asoke Cinema Private Ltd. , by Durgapada, his wife Kanika Mukherji, Hiralal Sanyal and his wife Santilata Devi. Hiralal Sanyal was at the material time employed by Ratanlal. Sm. Kanika Mukherji is the appellant in this case. In April, 1955 an agreement was entered into between Durgapada and his wife on the one hand and the Asoke Cinema Private Ltd., on the other, to sell to the said company the business run under the name and style of 'Asoke Cinema' by the vendors, for a sum of ₹ 15,000/-, which amount was to be satisfied by the allotment to the vendors or their nominees, of a number of shares in the company and by undertaking to p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the shares were never paid and two receipts had been falsely obtained, in respect thereof. In January/February, 1957 the District Magistrate of Howrah ordered that as the parties were involved in litigation, no license could be issued until the cases were disposed of and that the cinema house would stand closed in the meanwhile. We find that on the 28th February 1957, a directors' meeting of the company expressed an intention to give up the tenancy to the landlord. In fact, on the 24th April, 1957 a general meeting was purported to have been held in which it was inter-alia resolved that Bachraj was authorised to surrender the tenancy to the landlord, and make over possession upon certain conditions. In another resolution dated 6th May, 1957 it was stated that possession of the cinema house together with assets etc., had been given to the landlord with effect from 1st May, 1957. 2. Whatever may be the real truth behind the above transactions, it is admitted by all parties that on 29th May, 1957 Durgapada with the help of hired hooligans made a forcible entry into the cinema house, ejected the employees of the company by force and took possession thereof. It appears that Ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been put in possession with the object of depriving the company of its business and profits. (3) That the several litigations both in the High Court and at Howrah, as also before the Rent Controller, including a criminal proceeding against Durgapada Mukherji were all collusive in nature and were intended to camouflage and cover up the real intention and activities of the respondents other than the company namely, to continue to be in possession of the company's business premises and run the business, either in the name of the said Durgapada or his widow or the said respondent No. 1 and thereafter divide and share the profits of the same, with a view to deprive the shareholders of the dividends they would otherwise be entitled to, and to avoid compliance with the provisions of the Companies Act and the payment of tax liabilities of the company. 3. It may be mentioned here that these statements are made in paragraphs 23, 24 and 25 of the petition, all of which are verified as 'submission' made to court. In paragraph 40 of the petition, which is also verified as submission, the petitioner states that the facts and circumstances mentioned in the petition show tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on at premises No. 67, Howrah Road till the 16th January, 1957 was the business of Asoke Cinema Private Limited. Thereafter a trespasser had been carrying on business at the premises and on his death his wife had been doing so. There is no prayer in the petition for accounts against Kanika Mukherjee. Learned counsel for the petitioner also has not asked for any such relief. 6. On the question of collusion and conspiracy, the learned Judge after exhaustively considering the evidence comes to the following finding:-- The petitioner's case is that there was a conspiracy between Bachraj and Durga and after Durga's death between Bachraj and Kanika. Indeed the petitioner has gone to the extent of saying that there is deep laid collusion and conspiracy among the respondents, other than the Company to exploit the Company's business and to misappropriate the profits arising out of the same. The petitioner has advanced this case in paragraphs 23 to 27, 32 and 34 of the petition. Bachraj has firmly denied this charge in question 23 and 24. I have examined the evidence on this aspect of the matter and am inclined to accept Bachraj's answers to these two questions. I do no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der from the oppression of the majority. It is not a provision of the law which enables a share-holder of the company to question the title of a stranger and have it decided in the application, like a title suit. Briefly speaking, this is what has happened in this case. Whatever may have been the earlier antecedents of Durgapada Mukherjee, it is accepted on all hands that in May, 1957 Durgapada, forcibly and with the help of hired goondas took possession of the cinema house and thereafter continued to carry on business on his own behalf. After his death, it has been found as a fact that the appellant has been carrying on business on her own behalf and she claims the business as belonging to her late husband. She is not a registered share-holder. In fact she applied for letters of administration to the estate of Durgapada but the application was dismissed. In any event, the company has not recognised her and not a single share stands in her name. Therefore, the position briefly is this: A stranger has ousted the company from possession and is claiming its assets, and in fact proceedings, civil and criminal, are pending, including proceedings before the Rent Controller. A share-holde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7; 7,000/- as a consideration. He was then drawing a salary of ₹ 300/- per month. He was asked to show as to how he got ₹ 7,000/- for the purchase of these shares. He said that ₹ 4,000/- was his savings out of his salary. He had ₹ 1500/- with him and ₹ 2500/- he had kept with Ratanlal Chamaria. He was asked as to whether the books of Ratanlal Chamaria would show that ₹ 2500/- was either retained by him or ever paid by him, but he said that there was no record kept of the same. His evidence was that, from time to time he would keep monies out of his salary with Ratanlal and would take monies therefrom whenever he needed. He was asked as to whether any records would show it, but he said that no records were kept. As regards the balance of ₹ 3000/-, he said that he sent for it from his native place and got the money. He said he had a business in his native place, but he has not been able to produce any records to show that he had the money at his native place or brought down ₹ 3000/- from his native place in Rajasthan, for the purpose of buying the shares. At the relevant time, Bachraj, Murarilal and Dubey were all working at the same of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat is so. 247. Q. (Shown) Look at your affidavit filed in these proceedings affirmed on the 26th June 1961--See para (sic) ? A. Yes, he has been impleaded here; he was also a director at that time. 248. Q. Tell me whether he was a party to the conspiracy or not? A. The fact remains that he was a director of the company. 249. Q. Question repeated ? A. I have my doubt in the matter; I have my doubt with regard to his being a party to the conspiracy . 11. It is significant that although collusion and conspiracy is claimed, the petitioner himself called as his witness both Bachraj and Hiralal. As regards Hiralal Sanyal, the petitioner says that he is supporting the company. Upon his point the following questions and answers are revealing:-- 879. Q. Hiralal Sanyal also filed an affidavit in this proceedings --look at his affidavit--paragraph 20 (Reads). He is also supporting you? A. Yes, he is supporting the company. 880. Q. Therefore, you find now that everybody is supporting you and everybody is against Kanika Mukherjee--do you realise that now ? A. But Bachraj certainly is in collusion with her because now I have every reason to suspect that. 881. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hare-holders and exhaust his other remedies under the Companies Act, before invoking the protection of sec. 397. The evidence is that, barring several casual conversations with Bachraj, the petitioner took no step to invoke any of his remedies under the Companies Act. Even when he attended the share-holders' meeting, he admits in Question 626, that he made no protest. He has also admitted that he knows nothing about the accounts of the company and has never looked into it. (Q. 624-627). I have stated above that the application is really an unreal one. This may be elaborated a little. Ratanlal Chamaria, a member of the well known 'Chamaria' family of Calcutta is the owner of the property. It is significant, that the shares, excepting one are held by persons who are connected with Ratanlal. Chandi Prasad does not actually work under Ratanlal but he is the nephew of Bachraj and was one of his nominees when the shares came to be redistributed. The history set out above will show that the carrying of the business in various names did not work out and the ground was prepared for making over possession to Ratanlal, or the Protap Properties Private Limited, which is his compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on behalf of your petitioner against the said Durgapada Mukherjee complaining of the Criminal trespass and taking of forcible possession . In this background, can it be said that the petitioner is an independent person and that the application has been made for the benefit of the company ? I have mentioned above, that rent control proceedings were taken against the landlord in an attempt to decrease the rent. If the rent was reduced it would be to the benefit of the company and its cinema business and yet in those proceedings the petitioner actually looked after the interest of Ratanlal, in opposition to the reduction of rent and gave evidence on his behalf. (Q. 308). He was a party to the proposal for surrendering the tenancy to Ratanlal. His interest and that of the company, do not seem to be identical. It is not difficult to imagine as to the genesis of this application and as to whose interest it was intended to serve. There can be little doubt that the real motive behind it is to regain possession on behalf of Ratanlal. Actually, during his evidence, the petitioner let out the truth. In Question 305, he said that this was an ejectment suit . Hiralal Sanyal in his evidence, fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat both Hiralal and Bachraj were called as witnesses by the petitioner. 16. In my opinion, in the background of these facts, it is obvious that the application is not a genuine one and is not made by a minority share-holder, because of oppression by the majority, nor for the benefit of the company. In my opinion also, it has been amply established by evidence that Durgapada became a trespasser, and since he trespassed into the premises on 29th May, 1956 he had been claiming the business for himself and had been running it for his own benefit. It has also been established that the appellant Sm. Kanika Mukherji is not a share-holder and is not in possession of the cinema house on behalf of the company but is claiming adversely to it. She is claiming title on her own behalf that is to say, on behalf of herself and her minor children as the heirs and legal representatives of Durgapada. The question is whether this application lies under section 397 against a trespasser, and particularly in the absence of the minor children of the appellant. This involves the question as to whether an application of this description can be transformed into a title suit against a stranger, and an ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he company's affairs in future ; (b) the purchase of the shares or interests of any members of the company by other members thereof or by the company, (c) in the case of a purchase of its shares by the company as aforesaid, the consequent reduction of its share capital; (d) the termination, setting aside or modification of any agreement, howsoever arrived at, between the company on the one hand, and any of the following persons, on the other, namely: (i) the managing director, (ii) any other director, (iii) the managing agent, (iv) the secretaries and treasurers, and (v) the manager, upon such terms and conditions as may, in the opinion of the Court, be just and equitable in all the circumstances of the case; (e) the termination, setting aside or modification of any agreement between the company and any person not referred to in clause (d), provided that no such agreement shall be terminated, set aside or modified except after due notice to the party concerned and provided further that no such agreement shall be modified except after obtaining the consent of the party concerned; (f) the setting aside of any transfer, delivery of goods, payment exec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nst them. Two of the minority shareholders took legal proceedings against the directors and others to compel them to make good the losses to the company, but the court dismissed the action on the ground that, as the acts of the directors were capable of confirmation by the majority of members, the Court should not interfere. It was thus left to the majority to decide what was for the benefit of the company. There are many exceptions to the rule laid down in Foss v. Harbottle (supra). For example, the majority could not confirm an act which was ultra-vires the company, or was illegal; or an act which constituted a fraud against the minority or where the wrongdoers were themselves under the control of the company etc. The matter however, did not rest there. The English Companies Act, 1948 is itself based upon the report of the Cohen Committee, which was published in 1945. The great majority of the recommendations of that Committee were incorporated in the Companies Act, 1947, which was consolidated with the Companies Act, 1929, and other relevant enactments in the Companies Act, 1948. It was always the law that if a majority acted in oppression of the minority, the latter may petitio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r or authorise the purchase of the shares of any member, the majority might find itself bought out by the minority under the section, a risk which might considerably affect the attitude of a majority in its negotiations with the minority. Section 210 does not give the courts unlimited jurisdiction to intervene in the affairs of the company. The court can exercise its jurisdiction only if the requirements of the section are satisfied. The most important of them are : firstly the minority must prove that the majority conducted the affairs of the company in an oppressive manner--not only that minority share-holders have been oppressed--and secondly, the oppression must be upon the members in their capacity as members and not in any other capacity, e.g., that of directors. However, the requirements of the section in spite of its somewhat restrictive wordings, should be interpreted in a liberal spirit in order to carry out the intention of Parliament which designed this remedy in order to suppress an acknowledged mischief...... 21. Section 153C in the Indian Act of 1913 was introduced by the Amending Act 52 of 1951 and is based on section 210 of the English Act. It however enlarge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mbit of the rule are subject to certain exceptions. It has been noted in the course of argument that in cases where the act complained of is wholly ultra vires the company or association the rule has no application because there is no question of the transaction being confirmed by any majority. It has been further pointed out that where what has been done amounts to what is generally called in these cases a fraud on the minority and the wrongdoers are themselves in control of the company, the rule is relaxed in favour of the aggrieved minority who are allowed to bring what is known as a minority shareholders' action on behalf of themselves and all others. The reason for this is that if they were denied that right, their grievance could never reach the court because the wrongdoers themselves, being in control, would not allow the company to sue. Those exceptions are not directly in point in this case, but they show especially the last one, that the rule is not an inflexible rule and it will be relaxed where necessary in the interests of justice. The next case to be considered is Scottish Co-operative Wholesale Society Ltd. v. Meyer anr., (supra). In that case the facts were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e company could not be charged with any specific act of oppression but only perhaps with inaction. On the first point, Lord Morton said as follows:-- My Lords, it is, I think, manifest that the oppressive operations so clearly described were all operations in the conduct of the society's affairs, not in the conduct of the company's affairs. The society so conducted its affairs as to oppress the company by shutting it off from its previous source of supply. By so doing, the society did, I think, oppress the minority shareholders in the company; but, as I have already pointed out, the respondents can only bring themselves within s. 210 of the Act of 1948 if they prove that the affairs of the company whereof they are members are being conducted in a manner oppressive to themselves as minority share-holders. They cannot succeed, in my opinion, merely by proving that the affairs of another company are being so conducted, even if that other company holds the majority of the shares in the company whereof the respondents are members and nominates the majority of its directors. It may be unfortunate that this form of oppression is not covered by the section; but this is, to my mi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the minority of knowledge that it is material for the company to know. That, in my opinion, is what happened here. Lord Denning severely criticised the conduct of the nominee directors. He said as follows:-- It is plain that, in the circumstances, these three gentlemen could not do their duty by both companies, and they did not do so. They put their duty to the society above their duty to the company in this sense, at least, that they did nothing to defend the interest of the company against the conduct of the society. They probably thought that, 'as nominees' of the society, their first duty was to the society. In this they were wrong. By subordinating the interest of the company to those of the society they conducted the affairs of the company in a manner oppressive to other shareholders. It is said that these three directors were, at most only guilty of inaction--of doing nothing to protect the company. But the affairs of a company can, in my opinion, be conducted oppressively by the directors doing nothing to defend its interest when they ought to do something--just as they can conduct its affairs oppressively by doing something injurious to its interest when ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder any circumstances or that the rule is of universal application. 25. In Elder v. Elder and Watson (1952) S.C. 49 the scope of section 210 was summarised thus:-- (1) The oppression of which a petition 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 order would unfairly prejudice the minority members qua shareholders. (4) Although the word 'oppressive' is not defined, it is possible, by way of illustration, to figure a situation in which majority shareholders, by an abuse of their predominant voting power, are 'treating the company and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder the 'just and equitable' rule, but only to those cases of that character which have in them the requisite element of oppression. Thirdly, the phrase 'the affairs of the company are being conducted' suggests, prima facie, a continuing process and is wide enough to cover oppression by any one who is taking part in the conduct of the affairs of the company, whether de facto or dejure. Fourthly, the section gives no guidance as to the meaning of the word 'oppressive', although it does, as already mentioned, indicate that the victim or victims of the oppressive conduct must be a member or members of the company as such. Prima facie, therefore, the word 'oppressive' must be given its ordinary sense and the question must be whether in that sense the conduct complained of is oppressive to a member or members as such. Inasmuch as in the present case it is not in dispute that the facts would justify a winding-up order under the 'just and equitable' rule and it is recognised that such an order would unfairly prejudice the complaining members, this would appear to be, in effect, the only question in issue. 27. In the case of (6) Rajahmundry Elect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e must lie a justifiable lack of confidence in the conduct and management of the company's affairs. But this lack of confidence must be grounded on conduct of the directors, not in regard to their private life or affairs, but in regard to the company's business. Furthermore the lack of confidence must spring not from dissatisfaction at being out-voted on the business affairs or on what is called the domestic policy of the company. On the other hand wherever the lack of confidence is rested on a lack of probity in the conduct of the company's affairs then the former is justified by the latter, and it is under the statute just and equitable that the company be wound up........ 29. The learned Judge also held that under section 153C an administrator could be appointed just as a liquidator can be appointed to manage the affairs of the company under the orders under section 162. 30. The next case to be considered is another decision of the Supreme Court--Shanti Prasad Jain v. Kalinga Tubes Ltd. (1965) 1 Com. L.J. 193. In that case, the dispute was between, two groups of shareholders in Messrs. Kalinga Tubes Ltd., namely P and L groups. An application was made under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 oppression must involve at least an element of lack of probity or fair dealing 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. 31. Let us now consider the facts of this case in the light of the principles of law laid down in the decisions mentioned above. The first thing that the petitioner would have to show is that there were grounds for which it was just and equitable that the company should be wound up. Secondly, it would have to be shown that the majority in the company was oppressing the minority and that such oppression was continuous, harsh and wrongful and affecting the proprietary interests of the petitioner. Lastly, that winding-up of the company would unfairly prejudice the petitioner. Let us see what the allegations of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nika Mukherjee was in collusion and conspiracy with all the respondents other than the company, in order to exploit the company's business and to misappropriate the profits arising out of the same. It is then stated that Bachraj had set up Sm. Kanika Mukherjee to take possession of the business and the wrongful gains were being shared by him. Certain litigations have been instituted, but they were not being properly conducted and Bachraj was not taking any steps in order to safeguard the interest of the company. Prayers in the petition are that an administrator or special officer be appointed to take possession and remain in charge of the business of the company carried on under the name of Asoke Cinema at 67, Howrah Road, Salkia and to carry on the said business, and that the respondents Nos. 1, 3 and 4 be restrained from acting as directors of the respondent No. 5 and that the respondent No. 2 her servants and agents be restrained from inter-meddling or interfering with the business and affairs of Asoke Cinema at 67, Howrah Road, Salkia, Howrah. There is also a prayer for an injunction restraining the respondent No. 2 her servants and agents from dealing with transferring, se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eholder, and although she is claiming an independent title which has nothing to do with the company, her title was decided in this application, in spite of protest and virtually an ejectment order was made against her. She protested against the adjudication of her title in this application but her objections were not entertained. In contesting the title, many points were raised by Sm. Kanika Mukherjee, but the learned judge held that inasmuch as the said respondent had not pleaded the said matters in her affidavit-in-opposition, she could not be heard to agitate the same. This appears to be rather odd, because the petition itself was not one for adjudication of title and naturally no such pleadings were made regarding title. If at all, these proceedings are to be altered into a title suit, then the least that should have been done was to allow proper pleadings to be made, to permit the parties to raise all the necessary facts in regard to the title. As regards oppression, nothing whatsoever has been established in the evidence. All that has been found is that the petitioner mentioned the matter several times to Bachraj who did not take any active steps. The learned judge has held t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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