9911796707
TMI Blog1970 (6) TMI 46X X X X Extracts X X X X X X X X Extracts X X X X ..... d in writing dated November 29, 1955, from the Respondent Haridas Mundhra to Nigel Frederick Turner and by a letter of December 8, 1955, from Hungerford Investment Trust Ltd. to Haridas Mundhra, it was agreed in effect that Haridas Mundhra would purchase and Hungerford Investment Trust Ltd. would sell 2500 fully paid up shares of ₹ 1,000 each in Turner Morrison_& Co. Ltd., and the arrangement, according to that agreement, was that the Respondent H. D. Mundhra would first purchase 49 % of the shares and thereafter would have the right of option to purchase the balance of 51 % shares held by Hungerford Investment Trust Ltd., in Turner Morrison & Co. Ltd. on the terms and conditions mentioned in the said agreement and confirmed by the agreement dated October 30, 1956, between the Petitioner, Turners, British India Company and the said Haridas Mundhra. So far as this agreement relating to 49 % shares is concerned, it has been fully executed and the Respondent H. D. Mundhra has got the shares. In the meantime, Hungerford Investment Trust Ltd. went into voluntary liquidation and its liquidator Mr. Hoon is having this present dispute with regard to the transfer of the balance of 51 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 of the affidavit in support of the summons regarding the Lodna Colliery licensing tax refund, not to be paid over but no year or date is given. The cost making bulk of this petition is plain from the fact that the whole of the original main petition although on record is unnecessarily made an annexure to this petition which was only an interim application. This second application stood to trial. 5. The third application is for injunction relating to the meeting of May 30, 1868 on a summons dated May 29, 1968. 6. The fourth application is on a summons dated September 18, 1968. for restraining sale or disposal of Bombay and Calcutta flats and for restraining Rani Padmabati and Mr. Goenka from acting as Directors of the Respondent Turner Morrison & Co. Ltd. 7. The fifth application is for addition of parties on summons dated August 11, 1969. 8. The last and the sixth application is for restraining the holding of the Annual General Meeting of the Respondent. Turner Morrison & Co. Ltd. on August 30, 1969, on a summons dated August 28, 1969. 9. As the main petition along with these subsidiary petitions and interim application concern inter-related facts with cross-references to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1956, (e) Sections 163, 196 and 214 of the Companies Act, 1956; as alleged in respect of (a) and (b) above in para. 87, in respect of (c) above in para. 89-(iii), in respect of (d) above in para. 93 (ii) and in respect of (e) above in para. 90 of the petition? If so, do the" same amount to oppression or mismanagement within the meaning of Sections 397 and 398 of the Companies Act? (9) Whether the Respondents Nos. 2 to 10 or any of them is responsible for not taking any action for recovering the amounts of ₹ 5,05,364 and ₹ 1,14,342 as alleged in paras. 89(i) and 89(ii) of the petition? If so, what is the effect of such action? (10) Is the Annual General Meeting of the Respondent company No. 1 alleged to have been held on May 30, 1968, valid and the resolutions passed thereat valid as alleged in the third application? (11) Were the sale of flats and the selling of Bombay flat arid giving up lease of house in Dover Park held by Smith Stanistreet & Co. Ltd., the subsidiary of the Respondent company No. 1, acts of mismanagement? (12) Whether in the facts and circumstances, (a) there is a lack of probity and fair dealing on the part of the Respondents in the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anies Act. It is submitted on behalf of the Respondents that this application is wholly misconceived and is not maintainable at all. In any event, it is submitted on behalf of the Respondents that this being a discretionary remedy no relief should be granted to a company in liquidation applying through the liquidator in the facts and circumstances of this case. 17. The liquidator is to liquidate the company of which he is the liquidator and not to carry on the business or interfere with the business of management of companies whose shares the liquidated company holds. A liquidator of a company in a voluntary liquidation can carry on the business of that company only in a limited sense for the purpose of better liquidation. But, here the liquidator wants to carry on the business of another company, Turner Morrison &r Co. Ltd., which is not under liquidation. 18. The Petitioner claims to maintain this application under Sections 397 and 398 of the Companies Act on the ground that the Petitioner company (in liquidation) holds 51 % shares in the Respondent company, Turner Morrison & Co. Ltd., through its liquidator and whose name appears on the register of members of the said Responde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ary for the beneficial winding up of the company. Simonds J. relied on the classical observations of Sir George Jessel In Re: M.R. Wreck Recovery and Salvage Co. 15 Ch.D. 353 (360) where the learned Master of Rolls said, speaking on Section 95 of the English Companies Act of 1862: Now the word 'necessary' means that it must not be merely beneficial but something more, though the necessity must be determined by the Court, having regard to all the circumstances of the case. It does not, of course, mean that no other course would be possible. Then it must be for the 'beneficial winding up' of the business of the company...not with a view to its continuance. No doubt, liquidation does not dissolve the corporate status of the company until the liquidated company is actually dissolved, but that theory does not permit that a company in liquidation through its liquidator would keep on carrying the business of another company indefinitely on the ground that the liquidated company held certain shares, in that other company. Such a right, if permitted, will perpetuate the liquidation which will never end. This aspect of the point is all the more significant and important in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and its liquidator. That decree has taken away the liquidator's or the liquidated company's voting rights and consequently the liquidator has lost all voice and status in calling for better management in respect of the company whose share he held as liquidator and a fortiori there could be no right to manage in respect of the subsidiaries of the companies of Turner Morrison & Co. Ltd. The decree of specific performance, being an act of the Court, cannot be regarded as an act of mismanagement under this section for the simple reason that relief was available to the Petitioner by ordinary processes of appeal. 25. This point requires a further scrutiny and elaboration. Who is a member under Section 399 read with Section 41 of the Companies Act? The Applicant is only a paper-member today with no voting right and with no right of management. Is such an Applicant to be regarded as a member within the meaning of Section 399 of the Companies Act to claim the reliefs mentioned therein? Today, except a money claim under the specific performance decree, the liquidator has no membership right left. Such a member, in my view, cannot be within the meaning of Sections 399 and 417 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hese points, no further question can arise under Section 397 and the power of the Court to make such order 'as it thinks fit' under Section 397(2) is expressly stamped with the purpose of 'bringing to an end -the matters complained of. Therefore, wide as the powers of the Court is, it is nevertheless controlled by the overall objective of the section which must be kept strictly in view. 28. The Applicant's own view about the membership admits this position. The Applicant admits that 'management right is gone' in para. 35 of the petition, that 'injunction is as good as transfer' (the injunction in the specific performance decree is that the Applicant is to vote according to the directions of Mr. H. D. Mundhra, the decree-holder in the specific performance suit). Again, 'management and control gone' in para. 92 of the petition as well as paras. 98 and 99 of the petition. The Petitioner, therefore, knows very well that it or its liquidator has no right whatever as a member any more. No doubt, the Petitioner through its liquidator is a paper-member in the sense that its name appears on the register of share-holders of Turner Morrison & Co. Ltd., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h things as may be necessary for winding up the affairs of the company and distributing its assets. The liquidator appointed in a members' winding up is merely an agent of the company to administer the property of the company for purposes prescribed by the statute. Therefore, it should never be lost sight of that the property continues to vest in the liquidated company and it does not vest in the liquidator so that he can claim to carry on the business of another running company without limit of time and which is obviously not "necessary for winding up the affairs of the company and distributing its assets" as pointed out by the Supreme Court. 32. There is a still more serious obstacle on the way of the Petitioner. The Petitioner is a member who has agreed to sell the shares in question. Fortynine per cent of these shares have already been irretrievably sold. This can no longer be upset. The balance 51 % cannot now in my view be treated differently except as part of a single transaction or one whole contract about half of which is fully performed and executed. The Court, therefore, will not help such a person to go back in the midstream in a discretionary remedy und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssary to cite a few instances relevant on the point. Section 163(6) deals with the order for inspection, but this section has not been used in the present case although alleged refusal to give inspection is one of the complaints and issues in these proceedings. It is argued that this section does not include books of account. But, then there is Section 209 of the Companies Act. Secondly, again Section 167(1) gives the Central Government power to call a meeting. That remedy has not been exercised by the liquidator in the present instance, although not calling a meeting in time is one of the complaints and issues in these proceedings. There is also the power of the Central Government under Section 235 to investigate for mismanagement. That power also has not been invoked by the Petitioner. There is also the power of the Central Government under Section 237 to appoint inspectors for investigation and there is also the specific Section 207 dealing with the right to dividends. It should be understood that Section 397 is an extensive remedy and that by way of summary proceeding and should be used not lightly but with great caution and circumspection. It is intended in the public interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all presently say more--were the Directors of this Bank Hoffman. Hoon in answer to Qs. 877-878 said that Bank Hoffman lent Romanigo, a concern of Mr. Hoon, a sum amounting to £6,50,000 which in Indian currency came to ₹ 86 lakhs which is the very price of these shares under the specific performance decree dated February 25, 1964, being suit No. 600 of 1961 of this Court. This lending by Bank Hoffman by taking the pledge of these shares was after the decree for specific performance had been passed and the lending was on December 9, 1964. Bitter comment has been made by learned Counsel appearing for the Respondents to the effect that without getting any money from H. D. Mundhra, Mr. Hoon was realising this money by practising a fraud on Bank Hoffman, whose Directors were taken as Romanigo Directors, a concern of Mr. Hoon. It will be unnecessary to pursue this allegation against Mr. Hoon. But the fact remains that Mr. Hoon as liquidator of Hungerford Investment Trust has, therefore, lost his right to claim any more as member and he with the company of which he is the liquidator has wiped himself out of the register of members although he remains there only on paper and wan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce suit and (ii) the lien suit stand on the way of any relief being granted in these proceedings. The main argument in support of this contention for the Respondent is that to grant any relief in these proceedings will be to prejudge both the suits in this collateral proceeding. The specific performance decree in suit No. 600 of 1961 directs the liquidator to deliver shares against the money actually specified in the decree. Therefore, to grant management rights to the liquidator now is to whittle down that decree for specific performance which by its specific terms asked the liquidator to vote only according to the buyer H. D. Mundhra's directions . It will mean the management will be altered by the voice of a person, the liquidator or the Petitioner company in liquidation who has lost it under the decree for specific performance. It is needless to say that the specific performance decree, so far as the suit is concerned, has become final. On behalf of the Petitioner it is then urged that there is a proceeding for rescission of the contract and the decree for specific performance. In support of this the order of Masud J. is invoked. But the order of Masud J. is conditioned by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny, and not look at other evidence with regard to the events that might have happened subsequent to the petition. This decision is also an authority for saying that full particulars must be given in an application under Sections 397 and 398 of the Act, of the acts of mismanagement and oppression and mere vague and uncertain allegations of mismanagement or of oppression even though they may constitute grounds for suspicion would not entitle a Petitioner to ask the Court to embark upon an investigation into the affairs of the company in the hope that in consequence of such investigation something will turn up which will enable the Court to grant relief to the Petitioner. [See the observations of the Division Bench (Supra (433) 41. But, this is not the end of the difficulties of the Petitioner. It is urged for the Respondents that the past acts and the delay in the facts of this case are a bar to the granting of any relief under Section 397 of the Companies Act. The facts prove that there was a previous application for mismanagement in the appeal against the decree for specific performance and that application was dismissed and that appeal from the decree of specific performance was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eal pending from the order of Masud J. and where there is an interim stay. 43. This will be the proper stage where I should draw the attention to the terms of injunction which will appear at p. 232 of the petition. Their effect shows that the Applicant or the Petitioner has no right to maintain the application. An application was made on March 31, 1965, in the appeal from the specific performance decree asking for modification of this injunction and expressly asking for the restoration of voting rights on the very same grounds of mismanagement as in the present para. 43 of the petition. This Court refused to grant any relief for restoration of voting rights by modifying the injunction and this is admitted by the Petitioner in para. 44(b) of the petition and the only order there made was to expedite the appeal as admitted at p. 28 of this petition. This shows that the appeal forum was used, by the Petitioner and it failed on this very issue of mismanagement. Thereafter, the second forum that was used by the Petitioner was the rescission application for rescinding the specific performance decree which contained this injunction on August 30, 1965, as admitted in para. 46(a) of the pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to sell these shares and go. But, now this claim to manage Turner Morrison & Co. Ltd. is to go behind this whole reason which cannot be done without destroying the entire contract between the parties and revoking the voluntary liquidation and restoring the Petitioner company. 46. I have no hesitation in holding that behind the veil of this application under Sections 397 and 398 of the Companies Act, this whole petition and its object are entirely speculative. I shall indicate the reasons why I hold this application to be a purely speculative one. The present beneficiaries of the Petitioner company Hungerford Investment Trust Ltd. (in liquidation) are (i) Mr. Hoon himself, (ii) Mr. Richard, (iii) Mr. Carmes and (iv) Mr. Frank, who are all share-holders of Romanigo. This will be found from the clear admissions of Mr. Hoon in answer to Qs. 385-410, 825-827, 808, 775-777 and 830-840. These answers establish that Hungerford Investment Trust Ltd., the Petitioner company in liquidation, was the subsidiary of Romanigo. Romanigo was floated in, March 1963. Romanigo acquired Graham's interests in June 1963. Therefore, Romanigo was buying the share-holding interest of a company already i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ailure of proof be substituted for it. 49. The same principle was emphasized by a Division Bench of this Court (Supra) which I have just quoted. Mismanagement is like fraud and must be clearly particularised in a proceeding under Section 397 of the Companies Act and one kind of mismanagement cannot be pleaded and some other kind of mismanagement proved. 50. The main contention for the Respondents on this point is that the following events are outside the petition: (i) Loan to Grahams Trading (India). (ii) Guarantee in favour of Shalimar Tar Products Ltd. (iii) Appointment of Mr. Jaffrey and Mr. Rodewald as Administrative Officers. (iv) Withholding of, information to share-holders, (v) Attempt to appoint liquidators of Hungerford Investment Trust Ltd. (vi) Indiscriminate loan and advances to subsidiaries and other companies. (vii) Breach of Articles 47 and 50 of the Articles of Association of Turner Morrison & Co. Ltd., and (viii) Loan to Rameswar Daga and British India Corporation. 51. It is plain that no one of these allegations is made in the petition itself. Therefore, on the authorities mentioned above, they do not appropriately come within the ambit of the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay on the application of any party to the proceeding make any interim order which it thinks fit for regulating the conduct of company's affairs upon such terms and conditions as appear to be just and equitable. But then this section only relates to interim order. But, even then they may come under Section 397 even though they are subsequent. To that extent the contention of the Petitioner appears to be sound insofar as events subsequent to the petition are concerned but which relate to or spring directly from the allegations in the petition and which concern interim order 'for regulating the conduct of the company's affairs' within the meaning of Section 403 of the Companies Act. But, then if the main application fails or is not maintainable the interim protective protections cannot endure. 55. Serious and disputed questions of title and controversies, already the subject of pending legal proceedings, should not generally in my view be adjudicated in this summary proceeding under Section 397 of the Companies Act. Section 397 is in the nature of a summary proceeding by way of an application. Serious questions have been raised in the controversies between the parties ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 397 even by a majority of share-holders was maintainable. 58. The recent House of Lords decision in Scottish Co-operative Wholesale Society Ltd. v. Meyer and Anr. (1958) 3 All E.R. 66(83) discusses oppression in this context of company law. Lord Denning in discussing these principles enunciates them as follows: One of the most useful orders mentioned in the section--which will enable the Court to do justice to the injured share-holders--is to order the oppressor to buy their shares at a fair price; and a fair price would be, I think, the value which the shares would have had at the date of the petition, if there had been no oppression. Once the oppressor has bought the shares, the company can survive. It can continue to operate. That is a matter for him. It is no doubt true that an order of this kind gives to the oppressed share-holders what; is, in effect, money compensation for the injury done to them; but I see no objection to this. The section gives a large discretion to the Court and it is well-exercised in making an oppressor make compensation to those who have suffered at his hands. 59. One essential condition under Section 397 of the Companies Act, as indicated, und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was correspondence between the Company Law Board arid the Respondent company Turner Morrison & Co. Ltd. and the refusal to grant inspection; (x) That the Petitioner is unable to cast its vote according to its desire; and (xi) That the balance-sheets of 1964 and 1965 show gross mismanagement of the company and lack of probity in the management of the Respondent Mundhra and other Respondents. 60. I do not consider that these grounds in the particular facts and circumstances of the case, which will be dealt with by me later on under different issues, are enough justification for winding up the Respondent company Turner Morrison & Co. Ltd. The facts are on record that large dividends have been declared by the Respondent company Turner Morrison & Co. Ltd. and a dividend of 16 % has been declared in the year ending December 31, 1966, which is just the last year before this application was made on November 26, 1967. The Respondent Turner Morrison & Co. Ltd. is making profits. In this connection, attention may be drawn to the decision of the Supreme Court in Rajamundry Electricity Corporation v. A. Nageshiuara Rao AIR. 1956 S.C. 213(216) where Venkatarama Ayyar J. delivering the judg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the Petitioner because the Petitioner obviously thinks that when it comes into the management by replacing the present management, it will be able to manage the company better. There is a tacit assumption in this argument of. the Petitioner that the potentiality and prospect of the Respondent Turner Morrison & Co. Ltd. are attractive. But, apart from the potentiality, declaration of dividend at the rate of 16 % is a good enough practical test to show it is not merely a prospect but an existing fact that the company is functioning with profit and credit. In those circumstances, I would hesitate to come to the opinion that facts exist in this particular case which would justify the winding up of the Respondent company Turner Morrison & Co. Ltd. 65. The different counsel appearing for the different sets of Respondents in this case have in this connection drawn my particular attention to the statements made in para. 99 of the petition to show that this petition is demurrable on the face of it. In this paragraph, the Petitioner states as follows: Your Petitioner prays that an order should be made as prayed to safeguard the rights of your Petitioner until the Respondent Mundhra pays ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (c) that such member must have a right to apply in virtue of Section 399 of the Companies Act. Section 399 describes the members of the company who shall have the right to apply either under Section 397 or Section 398 and they are-- (a) in case of a company having a share capital not less than 1Q0 members of the company or not less than 1/10th of the total number of its members, whichever is less, or any member or members holding not less than 1/10th of the issued share capital of the company provided that the Applicant or Applicants have paid all calls and other sums due on their shares, and (b) in case of a company not having a share capital not less than I /5th of the total number of its members. It will be clear from these provisions that the Applicant must be a person who has 'paid all calls and other sums due on their shares' as in Section 399(1) of the Companies Act. The whole issue in this case is that the Applicant is not a person who answers these tests of having paid 'other sums due on their shares. That controversy is represented by the full-fledged lien suit which is now pending appeal in the Supreme Court. Until the Supreme Court decides, it is imp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in a manner prejudicial to public interest or in a manner prejudicial to the interest of the company" within the meaning of Section 398(1)(b) of the Companies Act. I, therefore, hold that the Petitioner has no right to make the application under Section 398(1)(b) on the ground of a material change caused by the decree for specific performance of the Court dated February 25, 1964, and the injunction granted therein. 67. To continue with the analysis of this group of sections, it will be pertinent to observe that Sections 400 and 401 require notice to be given to the Central Government of all applications under Sections 397 and 398 and that the Central Government has also a right to apply under those sections. The fact remains that although notice was given by the Petitioner of this application to the Central Government has not chosen to appear or contest or support this application. Section 401 gives express right to the Central Government to apply under Section 397 or Section 398 of the Companies Act although it is not a member of the company and incidentally the Central Government may cause an application to be made to the Court for such an order by any person authorised by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at they include powers of termination, setting aside or modification of any agreement howsoever arrived at between the company on the one hand and (a) the managing director, (b) any other director, (c) the managing agent, (d) the secretaries and the treasurers, and (e) 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. It also includes the power for termination, setting aside or modification of any agreement between the company and any person not referred to in the categories just mentioned, provided that no such agreement shall be terminated or 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. Finally, these powers include the power of setting aside of any transfer, delivery of goods, payment, execution or other act relating to property made or done by or against the company within three months before the date of the application under Section 397 or Section 398 which would, if made or done by or against any individual, be deemed in his insolvency to be a fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, 1956. Section 408 provides the powers of the Central Government to prevent oppression or mismanagement and Section 409 provides for the power of the Central Government to prevent change in Board of Directors likely to affect the company prejudicially. The reason for noticing these sections is that, apart from the Court, the Central Government had both the power to prevent oppression or mismanagement as well as the power to prevent a change in the Board of Directors likely to affect the company prejudicially. But, in the facts and circumstances of this case, in spite of notice to the Central Government of this petition, the Central Government has not thought it fit to intervene. The only conclusion is that the Central Government must have come to the conclusion that there is neither oppression nor mismanagement nor a change in the Board of Directors likely to affect the company prejudicially. No doubt, the conduct of the Central Government or its action or its view in any manner cannot make any inroad on the powers of the Court under Sections 397 and 398 of the Companies Act. The Court's powers under Sections 397 and 398 are independent subject, of course, to the notice to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts is that this prima facie evidence of the register of members is completely displaced by the facts of orders made in legally constituted proceedings and suits and which I have discussed above. The decision in Pulbrook v. Richmond Consolidated Mining Co. 9ChD. 610 does not, in my opinion, assist the contention of the Petitioner on this point. There it was held that a Director of a company could, if qualified, sustain an action in his own name against other Directors on the ground of individual injury to himself, for an injunction to restrain them from wrongfully excluding him from acting as a Director and where the articles of a company having provided that no person should be eligible as a Director unless he held as registered member in his own right capital of the nominal value of £500 at least, it was held that beneficial ownership was not necessary for a qualification and that a registered holder of the required capital, though he had transferred his shares to another, was properly eligible. The language of the Companies Act considered by the English Court there is very different from the provisions of Sections 397 and 398 of the Companies Act, 1956, which I will have t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p the Petitioner because it points to the equities between the transferor and the transferee but not with the company. But, this is with the company itself in a number of litigations mentioned above. 74. There was another point made by the Respondents that all the liquidators have not joined in making this application. I do not think that the submission of the Respondents has any substance. The answer to this argument of the Respondents is contained in Section 406 read with Section 512(1)(a) and Section 512(4) which will indicate that even one liquidator could exercise powers. Besides, there are minutes authorising the liquidator in this case. 75. Reliance was placed on behalf of the Petitioner on the decision of B. C. Mitra J. In Re: Clive Mills Limited 68 C.W.N 8841(887-99, 905-07) and the observations. That case, however, has no application to the facts of the present case and that decision is also no authority for avoiding the judicial orders, judgment and decree passed in duly constituted proceedings by invoking Section 397 of the Companies Act. That will certainly not be exercising discretion under Section 397. 76. Reference was also made to the decision of the English Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een contended for the Respondents that this application is barred by limitation. Section 402(f) of the Companies Act, 1956, which I have already noticed, gives the Court the power to provide for setting aside any transfer, delivery of goods, payment or execution or other act relating to property made or done by or against the company within three months before the date of the application under Section 397 or Section 398, which would, if made or done by or against an individual, be deemed in his insolvency to be a fraudulent preference. Under this section it would appear that issue No. (9) is covered. Issue No. (9) raises the question whether the Respondents Nos. 2 to 10 or any of them is responsible for not taking any action for recovering the amounts of ₹ 5,05,364 and ₹ 1,14,342 as alleged in paras. 89(i) and 89(ii) of the petition. When I discuss issue No. (9) I shall deal with this question, and it will be enough to say that limitation under Section 402(f) of the Companies Act, 1956, covers issue No. (9) directly. 81. The general question, however, still remains. What is the limitation for an application under Section 397 or Section 398 of the Companies Act, 1956? T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the application of Article 137 of the Limitation Act of 1963, being more than three years before the date of the filing of this petition on November 28, 1967, but others are within the limitation. 83. Finally, I do not think that this Court should exercise the discretion in favour of the petition because of the following reasons apart from those which I have already set out above: (i) There is no letter of demand listing these diverse allegations before commencing such an extensive application on November 26, 1967. (ii) There is no written complaint by the Petitioner about the validity of the Board of Directors regarding which many complaints are now being made in the petition. (iii) There is no complaint in writing regarding the validity of the Annual General Meetings complained of in the present petition. (iv) There is no written complaint regarding notice of the said Annual General Meetings and their services. (v) There is no written complaint regarding issue No. (9) in respect of ₹ 5,05,364 and ₹ 1,14,342. And (vi) There is no written complaint about the selling or surrendering flats which is the subject of issue. No: (11). 84. For the reasons re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngelo Brothers ; similarly the Petitioner company in liquidation holds no share in Shalimar Tar Products Ltd. although it is a subsidiary of the Respondent Turner Morrison & Co. Ltd.; and similar defence is also taken on behalf of Shalimar Works Ltd. 89. Before dealing with these separate subsidiary companies intended to be joined as parties to the present application, I should like to deal with the decision in Life Insurance Corporation of India v. Haridas Mundhra & Ors. 36 Comp. Cases 371 on which reliance was placed by the learned Counsel Mr. Mukherjee appearing for the Petitioner company. This decision was rendered on February 14, 1962, by the Allahabad High Court-. The ratio of this decision is that though a holding company and its subsidiary are separate legal entities, yet, for certain purposes, the affairs of a subsidiary have been treated by the Companies Act, 1956, as affairs of the holding company also. It also lays down the proposition that whether in every case, under Sections 397 and 398 of the Companies Act, 1956, the Court is entitled to make an enquiry into the affairs of the subsidiary company or not, on the facts of that case the Directors of the British India C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er or in any way and with regard to which no allegation is made. No act of Turner Morrison & Co. Ltd. in respect of this English company is challenged in the whole petition. Therefore, there will be no point in joining this company. 92. Graham Trading Co. (India) Ltd. Here Turner Morrison owns hundred per cent shares for which see the balance-sheet Ex. 0004 at p. 28. The allegations are at para. 89(F) of the petition. The Directors are: A. Broughton, A. J. Hormasji--both are employees of Turner Morrison. (See Tapuria, Q. 404). But the point remains that Mr. Hoon, the liquidator for the Petitioner company, was not asked a single question in examination-in-chief on any of the allegations made in para. 89(F) nor was Tapuria asked any question either. Yet, this was a clear issue on para. 89 of the petition. Therefore, I must hold the allegations in para. 89(F) are not proved and be it noted that they are denied in the affidavit-in-opposition. Exhibit T(15) showing the minutes of Turner Morrison dated March 26, 1965, do not form at all a part of the allegations made in para. 89(F) of the petition. Exhibit T(5) similarly deals with foreign exchange violation and fine and Tapuria in Q. 9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... poration case (Supra) of the Allahabad High Court that was one of the considerations which appealed to the Court. In the context of the present case, I do not think that this description by the use of the word 'department' makes any difference. The fact remains that Mr. Hoon, who was the witness on behalf of the Petitioner, was never asked a single question in examination-in-chief on this point and, therefore, the allegations in para. 89(B) of the petition are not proved. 95. The next company is Shalimar Works Ltd. This is a subsidiary of T.M. as will appear from Ex. 0004 (p. 62). But here again it is not a question of hundred per cent ownership. T.M. held 21,550 shares out of 31,000 shares and, therefore, had the controlling majority. The Directors of this company are Tapuria, Jaffray, A. K. Roy Chowdhury and Rodewald. [See Ex. 0004 (p. 61).] The allegations on this point are to be found in para. 89(E) of the petition..1 shall deal with this particular allegation when I come to discuss issue No. (9) which covers this point. 96. T.M. Pakistan Ltd. is the next company which is intended to be joined. Here T.M. is the hundred per cent owner, as will appear from Ex. 0004 (p. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and 844-860). 100. Finally, the next company is the British India Corporation. This is 49 % share-holder of Turner Morrison & Co. Ltd. (See Ex. R-l). The only question is whether the British India Corporation gave authority to Mr. Mundhra to repay. But, that surely is no ground nor does it make it necessary for them to be joined as parties to these proceedings under Section 397. 101. Apart from these companies and subsidiaries, two other persons are intended to be joined: one is Rani Padmabati and the other is S. B. Goenka. Rani Padmabati became a Director of Turner Morrison & Co. Ltd. on January 9, 1968, and re-appointed on May 30, 1968. S. B. Goenka became a Director on April 29, 1968, and reappointed on May 30, 1968. The dates would show that these appointments were made subsequent to the filing of the main petition under Section 397 and-Section 398 of the Companies Act, 1956. There was no injunction restraining Turner Morrison & Co. Ltd. from appointing Directors for carrying on the business of the company in the meantime. It is said that the object is to make them parties on the ground that they became Directors after the application was instituted and for this purpose Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actice and procedure of the Court and the provisions of the Code, so far as applicable, shall apply to all proceedings under the Act and these Rules. I have already considered the provisions in Section 405 of the Companies Act, 1956, for addition of the Respondents to an application under Sections 397 and 398. 103. I shall notice the case cited at the bar, Regina v. Board of Trade (1965)) 1 Q.B. 603, on which Mr. Mukherjee, the learned Counsel for the Petitioner, relied. It contains an exposition of the expression 'affairs of the company' in construing Section 165(a) of the English Act of 1948. Phillimore J. observes that the word 'affairs' was unambiguous and must be given its natural meaning of the business affairs of the company which included its goodwill, its profit and loss, its contracts and investments and assets, including its share-holding in and ability to control a subsidiary or a sub-subsidiary and that the affairs of a company do not cease to be its affairs upon the appointment of a Receiver and Manager and the fact that the actions of a Receiver and Manager might primarily be designed to serve the interest of the debenture-holder and to that extent w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , at ₹ 3,000 per month ; (iii) S. S. Mukherjee, Group Accountant and (iv) Gopalakrishnan, Group Advisor, at ₹ 5,000 per month. ' This illustration is intended to support the submission that T.M. with all its subsidiaries are really one concern. There is also a further submission on this branch. The fact that the employees of T.M. are appointed Directors of the subsidiaries is supported by Ex. T(1) being the minutes of T.M. dated July 11, 1967, at p. 95 of the brief of resolutions. Secondly, it is said that there is a common superannuation benefit fund for providing retirement benefits to T.M.'s associated companies like Angelo Brothers, Shalimar Works Ltd. and Shalimar Tar Ltd. 105. These arguments in my judgment proceed on a fundamental misconception about the legal relationship between the holding company and its subsidiaries. There is nothing legally wrong on principle that a holding company should have control of the subsidiaries because that is the very essence of a subsidiary. The question is how does law regulate this relationship between the holding company and its subsidiaries. In this branch of Company Law there are acute controversies. These controve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oceeds to explain what is meant by controlling the composition of the Board of Directors and defines, inter alia, that this control shall be deemed to exist if, but only if, that other company by the exercise of some power exercisable by it at its discretion without the consent or concurrence of any other person, can appoint or remove the holders of all or a majority of the directorships; but for the purpose of this provision that other company shall be deemed to have power to appoint to a directorship with respect to which any of the following conditions is satisfied, that is to say, (a) that a person cannot be appointed thereto without, the exercise in his favour by that other company of such a power as aforesaid; (b) that a person's appointment thereto follows necessarily from his appointment as director, managing agent, secretaries and treasurers, or manager of, or to any other office or employment in, that other company; or (c) that the directorship is held by an individual nominated by that other company or a subsidiary thereof. These provisions are clear enough to show where the control of the composition of the Board of Directors may be said to arise. Thereafter Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall be deemed for the purposes of this Act to be a subsidiary of a public company if the entire share capital in that private company is not held by that body corporate whether alone or together with one or more other bodies corporate incorporated outside India. 109. A glance at this definition would at once show how involved the concept is. The attempt in Section 4 is to specify certain instances which are commonly met in company management and to formulate the tests which should govern the definition of a holding company and its subsidiaries. 110. Section 42 of the Companies Act is the next relevant section in this connection. It deals with the membership of the holding company. It provides, inter alia, that except in the cases mentioned in the section a body corporate cannot be a member of a company which is its holding company and any allotment or transfer of shares in a company to its subsidiary shall be void. Having said that Section 42 engrafts certain exceptions by saying that nothing in that section shall apply, (a) where the subsidiary is concerned as the legal representative of a deceased member of the holding company ; or (b) where the subsidiary is concerned as tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the extent of creating the fiction that a holding company and its subsidiaries are the same and these provisions will indicate that they are still treated separately, no doubt with many restrictions and qualifications. 113. The next significant section is Section 214 of the Companies Act dealing with the rights of the holding company's representatives and members. It provides, inter alia, that a holding company may by resolution authorise representatives named in the resolution to inspect the books of account kept by any of its subsidiaries, and the books of account of any such subsidiary shall be open to inspection by those representatives at any time during business hours and that the rights conferred by Section 235 upon members of a company may be exercised, in respect of any subsidiary, by members of the holding company as if they were alone members of the subsidiary. This will be clear from Sub-section (1) and (2) of Section 214 of the Companies Act, 1956. Reading Sections 212 and 214 together it will be plain that the holding company's inspecting and dealing with the accounts of its subsidiaries is provided by the sections themselves and, therefore, the argument of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tc. to companies under the same management. It provides, inter alia, that no company shall make any loan to, or give any guarantee, or provide any security in connection with a loan made by any other person to, or to any other person by, any body corporate unless the making of such loan, the giving of such guarantee or the provision of such security has been previously authorised by a special resolution of the lending company provided that no special resolution shall be necessary in the case of loans made to other bodies corporate not under the same management as the lending company where the aggregate of such loans does not exceed 10 % of the aggregate of the subscribed capital of the lending company and its free reserves; provided further that the aggregate of the loans made to all bodies corporate shall not exceed without the proper approval of the Central Government certain limits. This is a provision which is intended to prevent interlocking of finance between the holding company and its subsidiary. But, then here again an exception is made in Section 370(2) (a) (i) of the Companies Act by saying that this provision shall not apply to 'any loan made, by a holding company t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lcock Ashdown guarantee and (iv) issue No. (1) relating to Bombay flats and Calcutta leases are all outside the powers under Section 397 of the Companies Act, 1956, against the holding company. The whole of issue No. (9) and part of issue No. (11) are not covered by Section 397 of the Companies Act in these facts and circumstances. 120. An argument was advanced at this stage on behalf of the Petitioner under Section 402 to rope in these transactions, but that argument cannot be sustained because (i) it is not by the company, that is, by the holding company Turner Morrison & Co. Ltd., as I have already indicated, and (ii) because the limitation of three months expressly provided under the statute is within three months before 1967, so that all reliefs on the ground of Richardson and Cruddas, an event of 1967, and Smith Stanistreet and Rameswar Daga, all events of 1957, are barred by special provision under Section 402(f) of the Companies Act, 1956. 121. I need only add here to explain the nexus of legal relationship between the holding company and the subsidiary by making a reference once again to Section 212(10) of the Companies Act and the form at sch. VI at p. 803, item 3, rela ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... detect that this control is itself becoming a kind of property as Lord Uthwatt observed in the House of Lords in Short v. Treasury Commissioners (1948) A.C. 534. The statutory definition in the Companies Act, 1956, of a holding company and a subsidiary and its other provisions relating to control and restriction of the relationship between the two at least placed the fight emphasis on the power to control the composition of the Board of Directors for naturally the Board is the company's brain and controlling centre. But, de facto control over the Board can exist without any legal power at all. In Berle & Means' work The Modern Corporation and Private Property it is explained that in a company with a large and dispersed membership a comparatively small proportion of the total shares, if held in one hand, may enable actual control to be exercised particularly if the hand is that of the existing management with control over proxy-voting machinery. [See the observations of the learned authors (p. 69).] Indeed, the modern company management has brought to light that there are various methods of exercising pressure or power which are perhaps incapable as yet of precise legal def ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and (b) filing of the lien suit was itself oppression. 128. I shall take up the first ground of oppression regarding non-delivery of 707 shares. The answer to this case of the Petitioner to my mind is compelling. The answer is: (a) Non-delivery of these 707 shares is already the subject of both civil and criminal proceedings. These proceedings 'will give complete relief to the parties. In the present application they cannot be pre-judged. (b) These 707 shares are not in danger because they are in the hands of a Receiver appointed by the Court. (c) The liquidator Mr. Hoon for the Petitioner actually made a criminal complaint on this point, but his criminal complaint was dismissed on June 18, 1966. (See for instance Mr. Hoon's answers to Qs. 579, 981, 985, 989 and 991-995). The admission of Mr. Hoon will be clear when in answer to Q. 981 he admits that he filed a criminal complaint with the Police in respect of these 707 shares in 1966 and where again in answer to Qs. 985-986 he admits that it was found that the case was not true and finally in answer to Qs. 990 and 991 Mr. Hoon had to admit that the Chief Presidency Magistrate discharged the accused on this very comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rights of the decree-holder Mundhra under the specific performance decree. The other relevant letters are dated December 9, 1964, at p. 234 of the petition, dated December 22, 1964, at p. 235 of the petition where the Respondent company T.M. writes to the I.T.O. if they have any objection to the delivery of these shares, and this will be found at p. 247 of the petition, the letter dated January 18, 1965, being the reply from the I.T.O. stating the grounds why these 707 shares cannot be released and appearing at p. 250 of the petition and finally the two letters of the I.T.O. dated March 19, 1965, and August 18, 1965, respectively at pp. 252 and 253 of the petition. Thereafter on August 26, 1965, a significant event happened and that was the Petitioner company's appeal from the decree for specific performance was withdrawn by the Petitioner with the result that the decree for specific performance has become final, subject no doubt to the collateral proceedings for its rescission which I have mentioned elsewhere. 130. The reason for mentioning these dates and the letters and correspondence is to show that these letters and correspondence and events including the decrees, and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner Morrison & Co. Ltd. The only point made here by the Petitioner is that the filing of the lien suit is an oppression. This will be found in the second part in para. 77 of the petition and in para. 93(iv) of the petition. 133. To appreciate this point it is necessary to recall certain relevant facts with regard to this lien suit. That suit was instituted by Turner Morrison & Co. Limited against Hungerford Investment Trust Ltd. (in voluntary-liquidation) for the recovery of a sum of ₹ 79,70,802 and ₹ 47,96,250-16 P. amounting altogether to a sum of ₹ 1,27,57,452-16 P. The other reliefs claimed in that suit were a declaration that the Respondent company T.M. had a first and para-, mount lien and charge on 2,295 shares which the Petitioner held in the Respondent company T.M., possession of those shares and a decree directing the sale of such shares and appropriation of the sale proceeds thereof in portent satisfaction of the claim of the Respondent company T.M. This suit was instituted on November 15, 1965. A Receiver was appointed of those 51 % shares including the said 707 shares on or about July 13, 1966. I delivered the judgment in that suit on November 13, 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... members of Directors' interest in contract, etc. Section 302(2) of the Companies Act expressly provides that where a company enters into a contract for the appointment of a Managing Director of the company or varies any such contract which is already in existence, the company shall send an abstract of the terms of the contract or variation to every member of the company within the time specified therein. Any breach of this provision is punishable by Sub-section (5) of Section 302 providing that if default is made in complying with this provision, the company and every officer of the company in default shall be punishable with fine which may extend to one thousand rupees. No such procedure was adopted by the Petitioner or its liquidator Mr. Hoon. If the letter of June 16, 1967, was asked for these information's, and if Mr. Hoon did not get them, he could have presented an application for taking of steps to have the Respondent company T.M., and its Directors fined for default under Section 302(5) without initiating this extensive proceedings under Section 397 of the Companies Act in December 1967. 136. In my view, the answer on the facts have been sufficiently given to this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he answer to this allegation is that they were being-prosecuted because of their association with the Respondent company Turner Morrison & Co. Ltd. as its office-bearers. Secondly, it is also covered by Article 122 dealing with indemnity.' It was contended on behalf of the Petitioner that law has now changed by Section 201 of the Companies Act corresponding to Section 205 of the English Act. But, I find there is no real change in law on principle. The only change is in respect of the words 'officer' and 'auditor'. But, 'officer' includes Directors under Section 2(30) of the Companies Act, 1956. In this connection, reference may also be made to Palmer's Company Law (17th ed. p. 645). 141. The second allegation in this respect is that the conduct of the Respondent company and its Directors have caused the loss of managing agency. Reference on this point may be made to para. 93 (ix) of the petition, but this allegation of causing loss of managing agency is not alleged in the petition. Reference may be made to the two exhibits, Ex. T-l 1 and Ex. T-l, in the book of resolutions. The evidence of Mr. K. N. Tapuria on this point is clear and direct and he h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h were doubtful of recovery. It was, therefore, resolved that a provision to be made in the accounts for 1964 for ₹ 29,430 and ₹ 1,54,630, being half of the amounts due from B.I.C. Ltd. and Rameswar Daga. Mr. Tapuria in answer to Q. 562, about the demand for recovery of these amounts, said that so far B.I.C. was concerned they did not have any acknowledgment of debt and no action was taken during the whole period when this very Petitioner was in full control of Turner Morrison & Co. Ltd. and about which the Petitioner through its liquidator is now making a grievance. Then, when the new management came for the first time it got notice of this and subsequently the new management had personal discussions. The B.I.C. had a Government controlled Board and they had a change and some other people came and which was still continuing. There was an enquiry into its present state of affairs and the new management of the Respondent company tried to come to a satisfactory settlement. It is also said by Mr. Tapuria in answer to that Q. 562 that dividends were withheld so that the amount was secured. Therefore, there was no risk at all and nothing prejudicial to Turner Morrison & Co. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... para. 99 of the petition. Reference may also be made in this connection to paras. 41, 47 and 67 of the petition. 148. One submission is made on behalf of the Petitioner and that is that the Respondent H. D. Mundhra has no title to the 49 % shares now because of attachment of these shares mentioned above, therefore, his voice or control in any shape or form is prejudicial to the public interest within the meaning of Section 397 of the Companies Act. The answer, however, to that submission is (a) that no question of title under Section 397 can be decided and (b) that these attachments do not create any title or charge in these shares. 149. The next submission on this point is that public interest is affected because a large number of employees are involved including a large number of subsidiaries. No doubt they do. But the question is, who is the custodian of public interest? I have already held that the present Petitioner and its liquidator made this application as a purely speculative transaction and that they have no further interest left in these shares to qualify even to become a member within the meaning of Sections 397, 398 and 399 of the Companies Act. Who is the primary cu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 are concerned, the relevant allegations are to be found in para. 87 of the petition. The main arguments on these allegations have been confined to five points: Excess remuneration paid to Jaffray and Rodewald; Declining profits; Indiscriminate loans and advances to subsidiaries and other companies; Fine for ₹ 25,000 for violation of Foreign Exchange Regulations; and Withholding dividend payable to the Petitioner company in liquidation. 153. I shall briefly discuss each one of these points. The first allegation is about the excess remuneration and it will be found in paras. 89(iii) and (iv) of the petition. This argument is based on Section 198 read with Section 309 of the Companies Act, 1956. Section 198 of the Companies Act deals with the overall maximum managerial remuneration and the managerial remuneration in case of absence or inadequacy of profits, and Section 309 of the Companies Act deals with the remuneration of Directors. I shall presently discuss these sections. Before I do so I shall deal with some facts and exhibits on the point. 154. In this connection the two balance-sheets of the years ending 1965 and 1966, marked respectively Exs. 0005 and 0004, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this point may be made to other resolutions which are marked Ex. T8 dated March 15, 1967, Ex. T4 dated August 30, 1967, and Ex. T9 dated September 20, 1967. The Company Law Board by its letter dated August 15, 1967, refused to sanction for the excess. Thereafter there was a further application for sanction to the Central Government. Reference may be made to the letter of October 27, 1966, annexed to Hormasji's affidavit-in-opposition. 157. Relevant evidence of K. N. Tapuria will be found in the answers to Qs. 129-148, 587-644, 648-666 and 1022. 158. In addition to this oral evidence there is also the documentary evidence, marked Ex. 0006, giving the details of payments and outstandings with regard to these excess remunerations. 159. If these facts are now analysed in the light of Section 198 of the Companies Act, then it must be held that this ground of excess remuneration is certainly not mismanagement in the facts and circumstances of the case. Section 198 sets a limit of 10 % of net profits of the financial year. Therefore, this can only be ascertained after the year and after the calculations. The methods and requirements of calculation are to be found in Sections 349-3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounsel undertakes to this Hon'ble Court not to withdraw any sum from the said superannuation fund without leaving the balance amount of ₹ 1,55,044/87,768. 160. After this and on these facts it is impossible to hold that this excess remuneration is an act of mismanagement in the facts and circumstances of this case. I hold accordingly. 161. The next submission of the learned Counsel for the Petitioner in this issue is on the basis of declining profits. The allegation on this point is to be found in para. 89(vi) of the petition. On the facts I am bound to hold that it has not been established at all that profits have been declining and certainly not for the cause alleged. There is the evidence of Tapuria in answer to Qs. 108-110, Qs. 645-647 and Qs. 863-870 that instead of the profits declining the profits are increasing. In this connection, the relevant resolutions are dated July 28, 1967, September 20, 1967,. and October 30, 1967, November 21, 1967, December 29, 1967, and March 6, 1968, marked respectively as Exs. T(14), T(19), T(4) and Exs. Q(4), Q(5) and Q(6). 162. Declining profits by themselves, even if any, cannot be a conclusive proof of mismanagement in a compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... different statutory provisions in the Companies Act, loans and advances can be made by the holding company to the subsidiaries as part of its normal business. But the fact remains that there is no averment in the petition about these indiscriminate loans. Secondly, the argument is made now that giving loan is mismanagement, but there is no argument that these loans have not been recovered or that they were unconscionable either in the matter of loan or interest or that the company was not financially in a position to lend. Thirdly, there is no proof at all and I find no question in cross-examination or in examination-in-chief except what Tapuria was asked in Qs. 507, 533-537, 543, 556 and 560-563. Fourthly, I need only repeat that Section 370(2)(a)(i) of the Companies Act, 1956, shows that the restriction on granting loan does not apply to a holding company lending to its subsidiary. 167. For these reasons I must hold that it has not been established by the Petitioner that there have been indiscriminate loans and advances to subsidiaries and other companies to constitute mismanagement within the meaning of Section 397 of the Companies Act of 1956. 168. The next argument for the P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The very order of penalty, which I have quoted above, shows that even the authorities under the Foreign Exchange Regulation Act come to the finding that as regards the other Directors of the company, there is no evidence to indicate that they were either party to or were even aware of what was being done. I would hesitate on that finding to hold that there is mismanagement for the company T.M., in the facts of this case, by reason of this violation of the Foreign Exchange Regulation Act. Learned Counsel for the Respondents point out from the evidence of the liquidator Mr. Hoon that he had also imported foreign cars in violation of Foreign Exchange Regulation Act when his car was seized. So, it was argued before me that if anything happened, then it was the pot calling the kettle black in this case. Leaving that aside, which is neither relevant nor material for my purpose, I also find that this cannot constitute, in the facts and circumstances of the case, an act of mismanagement within the meaning of Sections 397-398 of the Companies Act. Besides, it is a past act, and is not a continuing wrong. It has not been repeated. So, it cannot come even within the meaning of the 'af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... circumstances, I am satisfied that the payment of the fine by the company T.M. was legal and proper both by reason of the terms of the order imposing the penalty and also by reason of Article 122 and by reason of the fact that the cars were used for the purposes of the company and not for the personal use of Mr. Jaffray. 175. For these reasons, I hold that this episode of order for the penalty of ₹ 25,000 under the Foreign Exchange Regulation Act does not constitute an act of mismanagement by the act itself within the meaning of Sections 397-398 of the Companies Act. 176. The next submission of the learned Counsel on this point is that the withholding of the dividends payable to the Petitioner company from 1963 to 1965 is an act of mismanagement. This allegation is made in paras. 89(xiv) and 93(H) of the petition. It is also alleged that this money is used as part of the working capital of the Respondent company T.M. (See the evidence of Hormasji in answer to Qs. 664-669 in suit No. 2005 of 1965. There is also no denial in the affidavit-in-opposition that this is used as part of the working capital). But the fact remains that even in para, 80(ii) of the affidavit-in-opposi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... person shall not be capable of being appointed Director of a company if he has been convicted by a Court of any offence involving moral turpitude and sentenced in respect thereof to imprisonment for not less than six months and a period of not less than five years has not elapsed from the date of the expiry of the sentence. Now, there has been in that sense in my judgment no conviction and he has not been 'convicted by a Court' within the meaning of Section 274(1)(d) nor has there been any sentence of imprisonment which is required in order to disqualify a person from becoming a Director of a company. It is needless to emphasize that these penal provisions should be strictly construed. As indicated there was an order for penalty and that penalty has been paid. This is so far as the law is concerned on the point. On the facts, I find that these two persons Jaffray and Rodewald were in fact responsible for building up the organisation of Turner Morrison & Co. Ltd. in its earlier stages. They were associated with this company for a long period of time. Jaffray was first appointed a Director on February 8, 1958. (See Ex. T-10). Rodewald was appointed Director on December 15, 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty on which it is difficult to base any finding. I have, therefore, no hesitation in holding that Rani Padmabati is a fit and proper person to be on the Board of Turner Morrison & Co. Ltd. 183. Again, the objection is taken on behalf of the Petitioner and its liquidator that S. B. Goenka is an unfit person to be a Director. Now, what are the material and facts' on record? In answer to Q. 101, Tapuria says that S. B. Goenka is a prominent businessman of Calcutta and his main business centres are in coal industry and he owns several coal companies and he has also some tea interests. Tapuria's evidence is that Mr. Goenka is a very well-known businessman in Calcutta and is a very respectable person. As against this again Mr. Hoon's answers to Qs. 58 and 59 are revealing. He says that he never heard of Mr. Goenka and he also says, "I do not know about S. B. Goenka other than what I stated." This will be found from his answers to Qs. 58-59. If that be so and if he does not know and if it is hearsay that he is trying to introduce and even that hearsay does not suggest anything against S. B. Goenka, then it is difficult to see how he makes the allegation that S. B. G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Robert McLean Co. Ltd., Lewis & Tyler Private Ltd., Lucky Trading Co. Ltd., Calcutta Steel Co. Ltd., Bhaskar Textiles Ltd., Jaysree Textile & Industries Ltd., Universal Cables Ltd., Bihar Alloy Steel Ltd., New India Investment Corporation Ltd. and R. M. Appliances (P.) Ltd. This has not been challenged in cross-examination nor has anything been shown that this record is not true. I am, therefore, bound to hold on this record and evidence that Kashi Nath Tapuria is a fit and proper person to be in the Board of Directors and the Management of the Respondent company T.M. Ltd. 185. The next objection is to Respondent Bhubaneshwar Prosad Sinha. The objection to him is on the ground that he has no business experience and that it is strange to find him in the Board of Management of Turner Morrison & Co. Ltd. Nothing has been shown to suggest or establish that the Respondent Bhubaneshwar Prosad Sinha has any practical experience of running a business concern at all nor has this Respondent Bhubaneshwar Prosad Sinha come to the box to assert that he has any business experience. But, the Respondent Bhubaneshwar Prosad Sinha is a retired Chief Justice of India. It has been argued on behalf of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that this notice should have been sent to No. 7 St. Helen's Place, Bishop's Gate, London, E.C. 3, according to a letter of December 9, 1964, which is mentioned at p. 234 of the petition. But, then reference should be made to a letter dated May 18, 1961, marked Ex. 8, and the reply dated May 23, 1961, also marked Ex. 8. Letter dated May 18, 1961, Ex. 8, is from Elvy Robb & Company, Solicitors, London, to the Respondent company T.M. informing them of the appointment of two liquidators of the Petitioner and that the address was St. James' Street, London, S.W. 1. The reply from the Respondent company T.M. of May 23, 1969, noted that address. 189. Significantly, the Petitioner company here, as I have already stated, even in the present petition states as having its registered office at Singapore. If the notices are sent to the registered office then what is wrong in law, because H.I.T., the Petitioner company in liquidation, is the share-holder, and the liquidator's personal residence cannot change the registered office of the company in liquidation. But these are not the only contradictions of the Petitioner on this point. 190. Actual copies of the notices of these t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tever. Its liquidator Mr. Hoon produced no records or register of liquidators to show what letters were received. It is necessary at this stage to examine some of the answers which Mr. Hoon gave on this point. As a liquidator, whose responsibility Is to keep himself informed about the affairs of the company he is liquidating, Mr. Hoon strangely says in answer to Q. 282 on the question whether there was book or a record containing entries of the letters received by the Petitioner company (in liquidation) in London, that 'I do not know.' Then I asked him in Q. 283: 'Who would?' And his only answer was: "I have been out from London here fighting this case in and out, but each time I have gone there I have checked up particularly if notices were received in London--the answer "was 'no'." The series of question that followed from the Court from Q. 283 showed that he was prevaricating throughout to give an answer straight on the point whether the Petitioner company in liquidation had a register or a record of incoming letters. And finally in answer to Q. 289 he said: T believe we have a register'. I cannot help coming to the conclusion, as I wat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 99, 1802-1837 and Mr. Hoon's letters dated February 3, 1967, February 13, 1967 and June 14, 1967. 198. On facts, there is still more insuperable difficulty -on the way of the liquidator Mr. Hoon in this issue. His complaint is that there was no proper service of this notice and, therefore, these meetings are bad in law. But, the fact remains that this liquidator Mr. Hoon claimed dividends declared at these very meetings and, in fact, successfully made his point in the lien suit No. 2005 of 1965, which Turner Morrison & Co. Ltd. brought against him, and which success perhaps went into his head while he was giving evidence in these proceedings. Surely, if the liquidator Mr. Hoon claimed dividends declared at these meetings, his point about the non-service of notices of these meetings must be deemed to have been waived, for he cannot in one breath claim dividends declared at these meetings and at the same time say that the meetings were illegal or bad because there was no service of notices of these meetings on the Petitioner and its liquidator. 199. At this stage, I shall conclude my discussion on this issue No. (5) by reference to certain aspects of law relating to irregularit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rved, as hereinafter provided. This is followed by Article 51 which expressly says: The accidental omission to give any such notice to any of the members shall not invalidate any resolution passed at any such meeting. 203. Thereafter, Article 54 deals with the business of the ordinary meeting, quorum and choice of the Chairman, followed by Article 57 providing for a declaration of the Chairman to be conclusive and an entry to that effect to the book of the proceedings of the company shall be a conclusive evidence of the fact without proof of the number or proportion of the votes recorded in favour or against any such resolution. 204. In support of this proposition the authorities seem to my mind to be clear. The facts established here are that these impugned notices, even if they were not sent at the addresses the liquidators wanted, a fact which I hold has not been established, cannot save the Petitioner because of the fact that I find that the presence of the Directors at the meetings actually held is clear ratification in this case and, in any event, because of the fact that the share-holders have passed and allowed this. The English Court of Appeal in Browne v. La Trini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e has no registered address in India, to the address, if any, within India supplied by him to the company for the giving of notices to him. A glance at this provision will at once make it clear that a notice may be served by a company to its member at 'his registered address'. Now, in this case, the Petitioner company claims to be a registered member of the Respondent company T.M. Ltd. and the registered address of the Petitioner company is Singapore. That cuts across-the whole case of the Petitioner company where its liquidator claims that the notices are to be sent wherever the liquidator happens to reside and in this case it was in London. It is further provided by Section 53(2) that a service of a document or notice by post will be deemed to be effected by properly addressing and posting a letter, provided that where the member has intimated to the company in advance that the document should be sent to him under certificate of posting or by registered post with or without acknowledgment due, such service will not be deemed to be- effective unless it is sent in the manner intimated by the member. That, in my opinion, has been done in the facts of this case. Coming back ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... significant because it states, inter alia: Further to the discussion that Mr. N. S. Hoon had with your Mr. A. J. Hormasji today, please note that in future a copy of all correspondence addressed to the registered office of Hunger-ford Investment Trust Ltd. (in voluntary liquidation) should be sent to Mr. N. S. Hoon at the above address (Camp Room No. 255, Grand Hotel, Calcutta 13) until further notice. Mr. Hoon, although being in Calcutta, could not attend the meeting of Turner Morrison & Co. Ltd. held recently as the notice of the meeting was sent to Singapore. We, therefore, request you to send a copy of the minutes of the meeting and a copy of the annual accounts to Mr. Hoon at the above Calcutta address at your earliest. On February 13, 1967, the Respondent company T.M. Ltd. through its Secretary replied to this letter sending the liquidator Mr. Hoon a certified copy of the minutes of the 54th Annual General Meeting of the company which was held on January 30, 1967, and adjourned and also a copy of the minutes of the adjourned general meeting which was held on February 6, 1967, and a copy of the audited accounts of the company for the year ending December 31, 1965,, together ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the Directors or other proper authority is invalid, but such a notice may be ratified by the Directors before the meeting. Besides, the evidence of Mr. Tapuria, to which reference has already been made, makes the point clear that these notices had the Directors' approval. 212. The Annual General Meeting for year ending 1963 should have been held by June 1964 (52nd Annual General Meeting), but in fact held in September 1964, adjourned till October 7, 1964, and adjourned again till December 15, 1964, and again further adjourned till September 7, 1965, and again adjourned till September 14, 1965, when it was ultimately held. This is said to be in breach of Section 166 of the Companies Act read with Section 210(2)(b) of the Companies Act. As already pointed out Articles and accounts of the meeting were taken on behalf of the Petitioner company by its liquidator Mr. Hoon on January 17, 1966, but no protest was made at that time. 213. The answer is that the 52nd Annual General Meeting was held in September 1964 and was adjourned which can be done. The reasons for the delay appears from the evidence and records of these proceedings and that reason is that the delay was due to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nagement of the Respondent Turner Morrison 8a Co. Ltd., but no such step of course was taken by the Petitioner company or its liquidator Mr. Hoon. 216. I shall discuss here at this stage whether meeting held in violation of time is invalid for all purposes or whether the Directors are liable to fine and penalty only as specified in the statute. It appears to me from my study of the cases that there is no direct authority on the point. In Re: Coal Marketing Co. of India Ltd. 71 C.W.N. 449(455) I came to the conclusion on the expression 'other than an Annual General Meeting' in Section 186(1) of the Companies Act, 1956: This expression makes it quite clear that Parliament did not want this Court to exercise any power with regard to annual general meeting but granted this power to the Court to order meeting in respect of meetings other than the annual general meeting. This is express statutory exclusion of the annual general meeting from the Court's power to order meetings. The annual general meeting therefore in case of default can only be called by either the directions of the Registrar within the meaning of the exemption under section 166(1) of the Companies Act or b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany, be voidable as against the company and the person who enters into such contract, or every officer of the company who is in default, as the case be, shall be punishable with fine which may extend to ₹ 200. Now, this is a case of a default under Section 416 relating to contracts but which does not make the contracts void but voidable. Similarly, under Section 303(8) of the Companies Act, 1956, the word 'default' is used and only punishment with fine is provided for without saying that the default would render any act void or illegal with regard to registers to be kept under that section. Similarly, under Section 307(8) the word 'default' is used and only punishment with fine is provided for but no act is said to become void or illegal by reason of such default. Similarly, under Section 308 of the Companies Act providing for duty of the Directors and persons deemed to be Directors to make disclosures of share-holdings, it is provided by Sub-section (3) thereof that the default or failure to comply with such requirements would be punishable with imprisonment or fine but without saying that any act done or conduct would become illegal or void. At the same ti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 956, has no power-to extend or grant time for Annual General Meeting. If the Central Government does not sanction under Section 210 of the Companies Act, 1956, such meeting, then the default is without remedy and continuing default, having regard to the provisions in Section 168, would throw open the company's Directors to continuing penalties with fines without remedy. Therefore, I come to this construction that the default regarding time in holding Annual General Meeting is penalisable as by statute and according to the terms thereof. But, the meeting can nevertheless be held and such meeting would not be void. The statutory provisions for fine, which I have quoted above, also show that the meeting is not void. Otherwise, the situation would be impossible in law. Section 168 of the Companies Act, 1956, speaks of continuing default. If the default is to be discontinued, the fine has to be paid under the terms of that section. Payment of the fine under the penalty should cure the default or else the payment of the fine and the penalty would not resolve the difficulty because the company could not hold its meeting by itself. I have already contrasted sections of the Companies Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r this section and that will also involve the liquidator himself. There are two other sections to which reference may be useful. One is Section 293(5) which says that no debt incurred by the company in excess of the limit imposed by Section 293(1)(d) shall be valid or effectual unless the lender proves that he advanced the loan in good faith and without knowledge that the limit imposed by that clause had been exceeded and Section 534 of the Companies Act, 1956, renders a floating charge invalid in the circumstances mentioned therein. It is significant that in Sections 166, 167 and 168 of the Companies Act, 1956, in respect of the holding and conduct of the Annual General Meetings such words as 'valid' or 'invalid' are not used. 222. Another submission made on behalf of the Petitioner company is with reference to the minutes of the adjourned 52nd Annual General Meeting held on October 7, 1964, and-appearing at p. 312 of the annexures to the petition. The argument is that the Directors' appointment was adjourned for more than one week in contravention of Article 50 of the Articles of the Respondent company TM. Ltd. Article 50 of the Articles of the Respondent com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... retire on December 31, 1965, at the latest. Secondly, Rodewald was not a valid Director because the purported appointment of him on February 8, 1966, was invalid on the ground that the Board which appointed him consisted of Jaffray and Hajarat Khan. Thirdly, the Respondents Bhubaneshwar Prosad Sinha and Meyer were not valid Directors because they were taken as Directors on March 29, 1966, by a Board which was itself not valid. Similarly with the Respondents A. K. Roy and K. N. Tapuria. In any event, it is submitted on behalf of the Petitioner company that assuming B. P. Sinh'a, E. R. Meyer, A. K. Roy and K. N. Tapuria were validly co-opted, they ceased to be Directors on September 30, 1966, on which date they should have been re-elected. 227. The next submission made by the Petitioner company on this point is that these appointments caused an increase in the Board of Directors in violation of Section 258 of the Companies Act and Article 82 because there is no resolution in the Annual General Meeting increasing the number of Directors beyond three. 228. This briefly is the contention of the Petitioner on this point. 229. Section 258 of the Companies Act, 1956, deals with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Companies Act. For the purpose of additional Directors provisions are made in Sections 258 and 260 of the Companies Act. Section 260 of the Companies Act, 1956, expressly provides for additional Directors which lays down that nothing in Section 255, Section 258 or Section 259 shall affect any power conferred on the Board of Directors by the Articles to appoint additional Directors, provided that such additional Directors shall hold office only upto the date of the next Annual General Meeting of the company; provided further that the number of Directors and additional Directors together shall not exceed the maximum strength fixed for the Board by its Articles. This clearly shows that Section 260 by express terms overrides the provisions of Section 258 of the Companies Act, 1956. Coming to the Articles of the Respondent company T.M. Ltd., the relevant Articles are (i) Article 70, providing until otherwise determined by a general meeting the number of directors shall not be less than two, nor more than twelve, but the continuing directors may act, notwithstanding any vacancy, (ii) Article 80 providing the company in general meeting may from time to time increase or reduce th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .I.R. 1960 Bom. 312 laying down the proposition that the Court has to ascertain the tenure of the office of the -elected Director not merely from Section 256 but also from the language of Sections 166, 255 and 256 read together and in a case where despite the mandatory provisions of Section 166 and in breach of their duty as Directors, the Directors do not call an Annual General Meeting of the company for any length of time, they cannot claim to continue in their office of Directors after the expiry of the period mentioned in the section for calling the statutory meeting because a Director vacates his office at the latest on the last day on which an Annual General Meeting could have been called as required by Section 166. The next case on which he relies is a decision of this Court to which reference has already been made, namely, In re Coal Marketing Co. of India Ltd. (Supra). 236. But, I have discussed the provisions of Section 260 of the Companies Act dealing with additional Directors and Article 82 dealing with the Directors' power to fill up casual vacancies. 237. Here also Mr. Mukherjee, the learned Counsel for the Petitioner argues, that the defect, if any, is not cura ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , or, if their number is not three or a multiple of three, then, the number nearest to one-third shall retire from office. Section 256(2) then proceeds to state that the Directors to retire by rotation at every Annual General Meeting shall be those who have been longest in office since their last appointment, but as between persons who became Directors on the same day, those who are to retire shall, in default of arid subject to any agreement among themselves, be determined by lot. Then Section 256(3) provides that at the Annual General Meeting at which a Director retires as aforesaid, the company may fill up the vacancy by appointing the retiring Director or some other person thereto. 239. I shall now quote in extenso Sub-section (4) of Section 256 of the Companies Act, 1956, relevant for the present purpose, which is as follows: 4(a). If the place of the retiring Director is not so filled up and the meeting has not expressly resolved not to fill the vacancy, the meeting shall stand adjourned till the same day in the next week, at the same time and place, or if that day is a public holiday, till the next succeeding day which is not a public holiday, at the same time and place. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... according to the true interpretation of the Articles, the Directors would hold office only for one year from the date of their appointment, and if no general meeting is held at the lapse of one year, the Directors would automatically vacate their office and the company would go on without any Directors at all. I am unable to accept this contention of the learned Advocate as it seems to me that it would be unreasonable to hold that this is the true meaning of the Articles of Association. 242. The other decision is the decision of a learned single Judge of this Court In Re: The Hindusthan Co-operative Insurance Society Ltd. A.I.R. 1961 Cal. 443 (448) where it followed the Bombay decision in Krishnaprasad Jwaladutt Pilani v. Colaba Land if Mills Co. Ltd. A.I.R. 1960 Bom. 312 But, then that case is to be distinguished by reason of the finding of the learned Judge when the learned Judge said that this is not a case where there was a defective appointment, but one where there was no appointment of Directors at all. That surely is not the case here. The observations by Lord Greene M.R. in Grundt v. Great Boulder Proprietary Mines Ltd. (1948) 1 Ch.D. 145 (158-59) may in this connection ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 256 of the Companies Act it uses the words 'meeting held' and that can only mean that the retirement takes place at the actual meeting 'held'. To my mind Section 356(4) makes the intention plain and clear. Further, I consider that Section 260 of the Companies Act also deals with the actual dates of the meeting. In other words, the meetings are not void. Determinations like remuneration do not make the meeting void. Again Section 283 of the Companies Act specified various circumstances in which the Director vacates, but this is not one of such circumstances -mentioned in the section. Not holding the meeting is not mentioned as a circumstance leading to automatic vacating of the Director's office. 245. For these reasons, I answer issue No. (7)(b) also in the affirmative and I hold that the present Board of Directors is validly constituted. Issue No. (5): 246. I come now to issue No. (8). Issue No. (8) is as follows: Have the Respondents violated the provisions of: (a) Section 158 of the Companies Act, 1956, and Article 80 of the Articles of Association of the Respondent company No. 1?- (b) Section 260 of the Companies Act, 1956, and Article 82 of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s contained in Sections 163, 196 and 214 of the Companies Act, 1956. Section 163 of the Companies Act provides for the place of keeping and inspection of registers and returns. So far as these registers and returns are concerned, special provisions are made in Sub-sections (5) and (6) of Section 163 in case of any default. Section 163(5) of the Companies Act provides, inter alia, that if any inspection, or the making of any extract required under this section is refused or if any copy required under this section is not sent within the period specified in Sub-section (4), the company and every officer of the company who is in default shall be punishable in respect of each offence with fine which may extend to fifty rupees for every day during which the default or refusal continues and Sub-section (6) of Section 163 provides, inter alia, that the Court may also, by an order, compel an immediate inspection of the document or direct that the extract required shall forthwith be allowed to be taken by the person requiring it, or that the copy required shall forthwith be sent to the person requiring it, as the case may be. Now, when there is a refusal, there is a penalty for fine and ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act of oppression unless the facts justify. This Division Bench was followed by another Division Bench in Mohta Brothers v. Calcutta Landing and Shipping Co. (Supra (433)). The facts here show that inspection under Sections 163 and 196 of the Companies Act, insofar as the right belongs to a member, has been fully offered and given while the right under Section 214 arose only after the passing of the resolution and that, as I have shown on the facts, was offered but not followed up by the Petitioner company and its liquidator. In such circumstances I am bound to hold, which I do, that these facts do not amount to oppression or mismanagement within the meaning of Sections 397 and 398 of the Companies Act, 1956, and I answer the issue accordingly. Issue No. (9): 255. I proceed now to consider issue No. (9) which is in the following terms: Whether the Respondents Nos. 2 to 10 or any of them is responsible for not taking any action for recovering the amounts of ₹ 5,05,364 and ₹ 1,14,342 as alleged in paras. 89(i) and 89(ii) of the petition? If so, what is the effect of such action? As the issue indicates it involves two major questions: (i) Non-recovery of ₹ 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r on this point. One of the Respondents' witnesses Leslie Desmond Valliant has proved the seizure by the Police of these shares between December 1959 and February 1960. (See Qs. 13 to 17). He has also proved the seizure list dated December 28, 1959, bearing his signature (Ex. 10). It is his clear evidence that these 5,000 shares were seized by the Police and the balance of the shares in February I960 being altogether in two lots, one of 5,000 and the other of 700 shares. He also proved the written statement filed in suit No. 1556 of 1959 in the Calcutta High Court, i.e. Jessop & Co. Ltd. v. Richardson & Cruddas. That written statement with the affidavit is marked Ex.12. The actual share scrips were produced from the Police custody in Court in these proceedings. He was asked a number of questions in cross-examination by Mr. Mukherjee, learned Counsel for the Petitioner, about the forgery of these shares or share scrips, but the witness could not naturally help the learned Counsel for the Petitioner. 260. Then there is also the evidence of the witness Sachi Dulal Mitra for the Respondents. He proved the voucher dated May 6, 1957, and his instructions that he should prepare a vou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it will be clear that the whole ground on which this allegation is made that these 5,700 shares were forged and, therefore, this sum of ₹ 5,05,364 should have been recovered by the Respondent T.M. Ltd., the foundation of this allegation has not been proved. There is no proof that the shares were forged. No Court has held that these shares are forged. There is no proof and no record about this alleged forgery. The Petitioner or its liquidator has not even produced the criminal prosecution records. The issue is litigated even in civil suits as in the written statement, Ex. 12, which I shall describe as 'Jessop suit' mentioned above. In fact, Tapuria has also in his evidence said in answer to Q. 20 that these shares were quoted in the Stock Exchange when the shares were purchased and the shares were also registered by the company. (See Tapuria's answer to Q. 23). Again, this allegation regarding non-recovery of ₹ 5,05,364 does not relate to an affair of the company but of its subsidiaries. 265. Apart from these points, the answer on the merits to this allegation is that this purchase was made in 1957 when Hunger-ford Investment Trust Ltd. was the hundred per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an advance to one of the Mundhra-concerns, viz. Smith Stanistreet & Co. Ltd. 270. The evidence of the witness-Respondent Tapuria will be found in answer to Qs. 25-36 and 341-373 on this point. He says there is an entry in the balance-sheet showing that this sum of ₹ 1,14,342 advanced from the funds of Smith Stanistreet & Co. Ltd. has been shown as doubtful advance. In the balance-sheet of 1964 the total figure of ₹ 1,14,342 appears, but this doubtful advance has continued from 1957 or 1958. In answer to Qs. 341-373 Tapuria says that this sum of ₹ 1,14,342 was advanced to one Jetmull Kallumul and Richardson & Cruddas Ltd. He has also said that in 1957 or', 1958 the Respondent H. D. Mundhra was a Director and a major share-holder in Richardson & Cruddas. But he has said that Haridas Mundhra was dot connected with Jethmull Kalumul. It is also his evidence that the money was advanced in 1957 when Smith Stanistreet was a subsidiary and under control of the Respondent company T.M. Ltd. 271. The evidence of Hormasji on this point, without advancing matters any further, appears in answer to Qs. 941-943 in his evidence in suit No. 2005 of 1965. 272. An accountant o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. (7); (iii) the question of quorum raising the question of interpretation of Article 53 and Section 174 of the Companies Act. This issue raises also subsidiary questions like challenging the explanatory statement given in the notice of the resolutions passed at the meeting and the presence of Mundhra at the meeting of May 30, 1968. 276. Broadly speaking this meeting of May 30, 1968, which is the 55th Annual General Meeting, is challenged to be bad on two grounds by the Petitioner ; (i) it is not valid, (ii) the resolutions passed at that meeting also are not valid. 277. The validity of the meeting of May 30, 1968, is challenged by the Petitioner on the grounds, (i) that it was not covered by a valid Board of Directors, and (ii) it was held beyond the statutory period by reason of. Section 166 read with Section 210 of the Companies Act, 1956. The contention for the Petitioner is that this meeting was for the year ending December 31, 1966, and should have been held at the latest by September 30, 1967, and the Central Government did not extend the time nor was any intimation given to the Central Government. Reliance was placed, on this aspect of the argument, by Mr. Mukherjee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned for lack of quorum on January 10, 1966, (wide p. 319 of the annexure to the petition), the 54th Annual General Meeting adjourned for lack of quorum on January 30, 1967, (vide p. 322 of the annexure to the petition) and the 55th Annual General Meeting adjourned for lack of quorum on May 30, 1968, (vide p. 161 of the annexure to Hormasji's affidavit-in-opposition affirmed on June 18, 1968). Therefore, Mr. Mukherjee submits that on the basis of these precedents it must be taken that this meeting of May 30, 1968, was bad for lack of quorum. The argument is prima facie attractive having regard to these precedents. But the question has to be decided on law. 281. Section. 174 of the Companies Act, 1956, deals with the quorum for meeting. Under Sub-section (1) of that section it is provided, inter alia, that unless the Articles of the company provide for a larger number, five members personally present in case of a public company other than a public company which has become such by virtue of Section 43A, and two members personally present in the case of any other company shall be the quorum for meeting of the company. In the present case the latter part of Section 174 applies whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the number remains '2' and Article 53 has not provided for a larger number.: The remaining expression in Section 174(1) of the Companies Act, 'two members personally present' is satisfied in this instance by the persons noted in the minutes, of the meeting of May 30, 1968, as stated above. The qualification of the two members to represent two-thirds part of the value of the issued ordinary share capital does not reduce the number '2' or increase the number '2'. 284. I need only refer to Section 43A of the Companies Act, 1956, dealing with the case where private companies become public companies in certain cases in order to pin-point the expression 'any other company' in Section 174 of the Companies Act, 1956, where the number is fixed at '2'. 285. But then it is argued on behalf of the Petitioner company that Tulsidas Mundhra, who was representing British India Corporation Ltd., had no authority to represent B.I.C. Ltd. at that meeting. Prima facie, the authority of Tulsidas, Mundhra to represent B.I.C. Ltd. is based on the extract from the minute No. 12630 of the minutes of the meeting of the Board of Directors of the B.I.C. Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olution by suggesting to T. D. Mundhra in Q. 93-94 that although this resolution was dated September 21, 1957, yet the only meeting that T. D. Mundhra attended on the authority of that resolution was this general meeting of May 30, 1968, and because of the fact that a letter from one Rameswar Tantia dated July 25, 1968, was produced to show that B.I.C. Ltd. had not given any authority to T. D. Mundhra. It is the evidence of T. D. Mundhra in the questions I have mentioned above that this resolution was never rescinded by B.I.C. Ltd. and the shares were the shares of H. D. Mundhra and B.I.C. Ltd. was only holding them as a trustee for H. D. Mundhra (vide Qs. 367-368). 289. The evidence of the witness-Respondent Tapuria will be found in his answers to Qs. 60-65, 111-114, 727-735. He also confirms and supports this authority in favour of Tulsidas Mundhra and also says that this resolution has never been rescinded by the B.I.C. Ltd. When Mr. Tapuria was cross-examined on the point as to how this resolution of the B.I.C. Ltd. came to be passed on September 21, 1957, when B.I.C. Ltd. had not become a member of T.M. Ltd. until October 16, 1957, Mr. Tapuria explained it in answer to Q. 732 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , it is inexplicable why two letters of the same date should be written, one by Rameswar Tantia, the Managing Director, himself and another by somebody else, R. K. Murthy, signing for Rameswar Tantia. Finally, the fact remains that this Rameswar Tantia has not been called by the Petitioner or its liquidator Mr. Hoon to come and give evidence in this proceeding on this question of authority for Tulsidas Mundhra. This Rameswar Tantia is said to be now the Managing Director of the B.I.C. Ltd. Putting the best interpretation to the letters of Tantia dated July 25, 1968, they only show that there was no specific authority for the last Annual General Meeting, but that is consistent with the general authority as shown by Ex.20 being resolution dated December 21. 1957, on the basis of a formal certified resolution of the Board of Directors of the B.I.C. Ltd., marked Ex. 20. This letter again of Rameswar Tantia dated July 25, 1968, was a reply to' Mr. Hoon's letter dated June 10, 1968, which had not been produced in spite of demands made for the same for which see the cross-examination of Mr. Hoon in Qs. 1959, 1962 and 1975-1976. It is not even known when Tantia became the Managing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d nothing could be due because the evidence shows that the due is ₹ 58,000, but the dividend withheld amounted to more than ₹ 351,840 on 2,199 shares of B.I.C. Ltd. in the Respondent T.M. Ltd., each share of ₹ 1,000 with declared dividend at 16 %. (See Ex. 0004). The evidence of Haridas Mundhra in suit No. 600 of 1961 in answer to Qs. 643-644 and Qs. 816-818 also support that the B.I.C. Ltd. was only a trustee for Mundhra and, therefore, between T.M. Ltd. and the" beneficiary there may be a question, but no question can arise between B.LC. Ltd. and the Respondent T.M. Ltd. Again, in the petition at pp. 236 and 242 and in the affidavit of Jay Narayan Chowdhury, the Income-tax officer, affirmed on May 3, 1967, filed in suit No. 600 of 1961 it is shown that there has been no appropriation of this dividend towards this alleged due of ₹ 58,000. It is noteworthy and significant that this allegation that B.I.C. Ltd. is indebted to T.M. is not in the petition or in the issues specifically, although these alleged letters of authority were questioned and debated in the petition and affidavit. The fact remains that dividend due to B.I.C. Ltd. has been withheld. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be found in Qs. 41-63, 91-96, 138-141, 150, 173, 184-186, 208-210. Now, this Dumra was a chance witness. He suggested in answers to these questions that he was the person who accompanied the liquidator Mr. Hoon to the Bankshall Police Court here in Calcuta on this very May 30, 1968, where this Mr. Hoon was defending himself against a warrant of arrest and was in need of help for arrangements for bail. He did not offer him bail but he says that if he asked him, he would have and he went prepared for it (Q. 49). His evidence is that he was there, in the Police Court and off for two hours and tried to fix the time from 10-15 or 10-20 a.m. onwards upto 12 o'clock. At the same time, he says he was not all the time inside the Court. There he supposes to have seen H. D. Mundhra on that date and he tried to suggest in Q. 56 that he thought he almost saw him all the time. In answer to Q. 91, this Dumra says that he offered protection to Mr. Hoon when he was homeless in 1948 and kept him in his house. On that slender evidence Mr. Hoon tried to build up the case to dispute the presence of H. D. Mundhra at the meeting of May 30,1968. Mr. Dumra produced no record, no diary, nothing to conne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the sureties actually completed giving of the bail. Again, I find neither Mr. Hoon nor Mr. Dumra was present at the meeting of May 30, 1968, and, therefore, they would not be appropriate persons to speak about who was present at the meeting of May 30,1968. A person T. D. Mundhra who was present has spoken on the subject. Finally, there is another compelling circumstance in this regard. The particular point of the absence of H, D. Mundhra from the meeting of May 30,1968, was not mentioned or even alleged in the third petition as will be seen from the answers of Mr. Hoon to Qs. 466-467, 521 and 527-529. What is worst, this was for the first time alleged from the box by Mr. Hoon in answer to Qs. 44-45. Yet this Mr. Hoon had the minutes on June 18, 1968, when the affidavit-in-opposition of Hormasji was filed. But, Mr. Hoon's affidavit-in-reply never challenged the minutes of May 30, 1968, on the ground that H. D. Mundhra was not present. (See particularly para. 19 of Mr. Hoon's affidavit-in-reply dated August 1, 1968, and his answer to Q. 466). It is also plain that the minutes of this meeting appear at p. 166 of the third petition and the affidavit-in-opposition of Hormasji. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... presenting B.I.C. Ltd. and were passed unanimously. The actual point of objection in the special business, items Nos. (6) and (7), on behalf of the Petitioner is again that the explanatory statement lacks in material particulars and that it is misleading. (But see the third petition and the notice at p. 25 and the explanatory statement at p. 29). It is also contended that the explanatory statement does not mention that the approval was being sought under Article 89 of the Articles of Association of the Respondent company T.M. Ltd. and it is emphasized as important because the Articles do not mention appointment of Managing Directors but only mention Managers. It is also submitted that Ex. T-10, the resolution dated February 8, 1966, mentions an agreement which is not stated in the explanatory statement. It is necessary to state that under Section 2(24) of the Companies Act, 1956) a Manager means an individual (not being the Managing Agent) who, subject to the superintendence, control and direction of the Board of Directors, has the management of the whole, or substantially the whole of the affairs of a company, and includes a Director or any other person occupying the position of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... planatory statement is misleading. To appreciate this point, reference is to be made to the letter of August 15, 1967, from the Central Government to the Respondent company T.M. Ltd. This is Ex. T-4. But, Ex. T-4 mentions this letter of August 15, 1967, although it was not disclosed. It cannot, therefore, be said that there is no notice about that letter. Then the letter of May 9, 1968, is said to have never been placed before the share-holders. (But see annex. H in Tapuria's affidavit-in-opposition dated September 9, 1969, and also Ex. TJ3). In fact, the previous letter of October 27, 1966, from the Central Government to the Respondent T.M. Ltd. is mentioned in the explanatory statement, and in this connection annex. J to Hormasji's affidavit-in-opposition affirmed on June 18, 1968, may be seen. The complaint of the Petitioner is that these appointments were not brought up in the general meeting of June 30, 1967. (But on this point see the evidence of Tapuria in answer to Qs. 736-744). 313. The next challenge by the Petitioner is with respect to a special business resolution No. 8 mentioned in the third application in para. 25(x) on the subject of securing finance from th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansaction which the Defendants intend to enter into is not one which is ultra vires of the company. Even if it was held that the Directors of the company cannot enter into these transactions without the assent of the company, a point on which I give no final opinion, it is a matter which can be sanctioned or ratified by the share-holders. In other words, it can be approved of by the share-holders or is capable for being approved. 316. The next challenge of the Petitioner is against the special resolution No. 9 relating to the guarantee in connection with a loan made to Alcock Ashdown & Co. Ltd. The answer, so far as the Respondent is concerned, on the facts will be found in para. 20(xi) of the affidavit-in-opposition of Hormasji. 317. The Petitioner's contention on this point is that this guarantee is bad because (i) it contravenes Section 370 of the Companies Act, 1956, and (ii) the explanatory statement does not give material facts as the guarantee was first given in 1965 and renewed from time to time. 318. On Section 370 of the Companies Act, 1956, the following points are to be noticed: (a) previous authorisation by special resolution was not given here and here they wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . So far as these individual resolutions under issue No. (10) are concerned, the following points are, in my view, essential to be noticed: (1) what are the particulars wanted in the explanatory statement; (2) their sufficiency from the common sense point of view; and (3) knowledge if already there, then would the lack of particulars be an obstacle. 324. The Division Bench of this Court in Maharani Lalita Rajya Lakshmi, M.P. v. Indian Motor Co. Ltd. A.I.R. 1962 Cal. 127 lays down that failure to comply with the details of Section 173(2) of the Companies Act, 1956, does not make it a case ipso facto of oppression in conducting the affairs of the company because the breach of Section 173(2) can at best make the meeting called invalid and no more and, if such a meeting is invalid, then the Companies Act itself provides the procedure for calling valid or regular meetings or for regularising irregular proceedings. That right is always open to every share-holder. It was further pointed out in that decision of the Division Bench that a share-holder who by his conduct shows that he knew the legal effect of the work to be transacted at a meeting, cannot complain of a notice on the gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jects for which the meeting was called was not sufficiently expressed in the notice calling it. I do not think it necessary to decide that point, having regard to the opinion that we all entertain on the second objection; but at present advised, I think that the notice clearly and reasonably expressed to the share-holders what matters were going to be discussed at the meeting. No doubt, the other member of the Court of Appeal Lopes L.J. expressed his doubts on the point how far the notice was sufficient. The explanatory statement and the notice in the present case before me were all annexed to the third petition, filed by the Petitioner on May 29, 1968, and solemnly affirmed by the affidavit of Baijnath Garg on May 29, 1968, and the affidavit of the liquidator Nirmaljit Singh Hoon affirmed on the same day. The petition shows that the Petitioner and its liquidator and Mr. Garg affirming the affidavit knew very well what was the notice, what was its object and what were the particulars of the explanatory statement because they themselves were saying that these particulars were wanting in the explanatory statement. Taking, therefore, the test that such notices and explanatory stateme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... astrol Ltd. is a well-known U.K. company having world-wide interest and their business is connected with lubricating oils. For about six years before the sale to Castrol Ltd. this flat was not occupied by the Respondent T.M. although formerly it was used by T.M.'s shipping employees. Castrol Ltd., therefore, who were already in occupation of the flat, purchased it. 331. Here, the Articles of the Hill Properties Ltd., which are marked Ex. 2, are relevant because by Article 4(b) of the Hill Properties Ltd. there is a restriction on the right of sale. (See also Articles 52-57 dealing with transfer and transmission with special provision for existing members to have the right of pre-emption). The entire correspondence on this point consisting of (i) letter dated August 18, 1969, Ex. 18, (ii) letter dated April 8, 1968, Ex. 17, (iii) letter dated April 1, 1968, Ex. 16, (iv) letter dated March 21, 1968, Ex. 15, and (v) letter dated March 11, 1968, Ex. 14, completely answer the case of the Petitioner under this issue No. (11) regarding the Bombay flat. I am satisfied that there was nothing irregular or unconscionable in this transaction in favour of Castrol Ltd. both on the evidence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 18, 96 and 132). What the Petitioner contends is that the resolution dated April 29, 1968, marked Ex. Q(2), shows that the resolution was to sell flat 12 for ₹ 2,25,000, but then there is the other resolution marked Ex. Q(3) dated May 28, 1968, by which flat 8 was sold at ₹ 1,55,000. (See Bhave's answers to Qs. 53-54, 85-89, 135-138 and 173-175). On that evidence, I am completely unable to accept this allegation of sale at an under-value having regard to the fact that the allocation of the price was made between the flat and furniture and the fixtures along with it. While both the Respondent Tapuria as well as Bhave gave evidence about the price and the negotiations for sale of flat, no evidence was called by the Petitioner or its liquidator to show that higher prices could be obtained in Bombay for flats of this description in the area where, this flat is situate. 335. There is no evidence to contest the evidence led on behalf of the Respondents, and I am bound to accept that evidence in the circumstances of this case. I do not find there anything unfair or unconscionable in this transaction. 336. The other charge under this issue No. (11) is with regard to the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on the facts stated above, I hold that the sale of the Bombay flat and the giving up of the lease of the house at Dover Park, Calcutta, held by Smith Stanistreet & Co. Ltd., a subsidiary of the Respondent company T.M. Ltd., was not at all an act of mismanagement, and I hold accordingly. Issue No. (12): 340. I proceed now to issue No. (12); This issue is a general summary issue relating to probity and fair dealing and is in the following terms: Whether in the facts and circumstances (a) there is a lack of probity and fair dealing on the part of the Respondents in the management and affairs of the Respondent company No. 1? (b) the acts and conduct of the Respondents are burdensome, harsh and wrongful? 341. Insofar as they cover many of the allegations already dealt with in the foregoing issues, I do not propose to repeat them. Almost all the foregoing issues cover the grounds of probity and fair dealing and burdensome and harsh and wrongful act or conduct as specified in those issues. It will be unnecessary to repeat them here. 342. But there are certain arguments advanced by the Petitioner which are new for this particular issue No. (12). I propose to deal with them in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resolution dated July 28, 1967. That resolution shows that the Board authorised the purchase of East India Clinic debentures only to the value of ₹ 3,000. 348. The answer here again is that not a single question was put to any of the Respondents' numerous witnesses who came to the box on this point and there is no allegation to that effect in the petition which has been supported by any evidence-led by the Petitioner. In any event, I would not surely act under Sections 397-398 of the Companies Act for this purchase of East India Clinic debentures of only ₹ 3,000. 349. For the reasons recorded above and in the foregoing issues, I hold that there is no lack of probity or fair dealing or any burdensome or harsh or wrongful act or conduct in the part of the Respondents or any one of them under this issue and which can come under Sections 397 and 398 of the Companies Act. Issue No. (13): 350. The next issue No. (13) is in these terms: Has there been any material change in the management or control of the company as a result of which the affairs of the said company were conducted in a manner prejudicial to the interest of the said company. 351. The company in thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... main petition in these proceedings was filed. But this issue is already covered by my decision in issue No. (11). (ii) The other post-petition act of mismanagement is with respect to the Annual General Meeting of May 30, 1968. But this again has been Covered by my decision on issue No. (10). 356. I have already said that there is one main petition under Sections 397 and 398 of the Companies Act, 1956, with four other subsidiary applications, viz., (i) summons dated November 21, 1967, where the prayers are the same as the prayers in the main petition, except prayer (t) relating to Lodna Colliery income-tax refund; (ii) application for injunction regarding the meeting of May 30, 1968, and summons dated May 29/1968; (iii) application and summons dated September 18, 1968, for restraining sale or disposal of the Bombay flat or the Calcutta flats and for restraining Rani Padmabati and Mr. Goenka from acting as Directors; and (iv) an application for addition of parties on summons dated August 11, 1969, regarding subsidiaries and other companies and other Directors. 357. There is yet another application, which I shall call as the sixth application, for restraining the Annual General Meet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ling for extensive remedies thereunder. I need also to add that Section 398 of the Companies Act, 1956, is an original introduction, and there is no corresponding English section in the English Companies Act whose model the Indian Companies Act has been following for a very long time. 362. The danger of opening out the proceedings under Sections 397 and 398 of the Companies Act, 1956, too widely in circumstances revealed in the present proceedings is very real indeed. A Division Bench of the Madras High Court in N.V. Vaidyanatha Ayyar v. Indian Bank Ltd. A.I.R. 1955 Mad. 486 (488-9) made significant observations on this aspect of the problem as follows: A share-holder is no doubt interested in the property of the company in which he holds shares; if the property is riot properly looked after and administered, the share-holder would naturally suffer in his pocket. But this does not" mean that every shareholder, who apprehends that the property of the company is being mismanaged or is even fraudulently disposed of, is entitled to come to Court in the manner the Petitioner has done. It is easy to see that if such a course were permitted, the business of the company can be br ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. (Supra), Section 210 of the English Act, as it stood then, called for amendment if it was to afford effective protection to minorities in circumstances such as those with which it was intended to deal. The Jenkins report at para. 196 observes: Firstly, there was the requirement that the Applicant, in order to succeed, had to show not only that the affairs of the company were being conducted in a manner oppressive to some part of the members (including himself), but also under Sub-section (2)(b) that to wind up the company would unfairly prejudice that part of the members, but otherwise the facts would justify the making of a winding up order on the ground that it was just and equitable that the company be wound up. A case for winding up under the just and equitable rule at the instance of a contributory was difficult to establish and it was suggested that there was no sufficient reason for making the establishment of such a case an essential condition of intervention by the Court. It proceeds to the discussion that the basic condition for relief under this section was that there had to be 'oppression' which indicated a course of conduct as distinct from an isolated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nfortunate. Be that as it may, that expression does occur in the statute and also in the Indian Companies Act, 1956. While Gower quotes the Jenkins Committee's report, when it said that it was not the intention of that Committee to encourage litigation in cases in which, for instance, an independent majority had reached a bona fide decision to the effect that in the interests of the company as a whole no action should be taken, has made this observation that implementation of this recommendation, when coupled with those enabling a petition to be based on a single act and empower the Court to grant an injunction, would certainly strengthen the position of a minority. No doubt, that is a very bold suggestion, but having regard to the language of the Indian Companies Act, 1956, in Sections 397 and 398 and specially the expression 'are being conducted', the company statute has yet to go a long way to amend it before such a view could be taken of the present provisions. I have already noticed the observations of our Supreme Court in Shanti Prosad Jain v. Kalinga Tubes Ltd. (Supra (1542-43)). 367. The view that I have taken of Sections 397 and 398 of the Companies Act, 1956, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oppression it is difficult, if not impossible, to deal with bare allegations in an application of this nature. Again, the words 'are being conducted' mean a kind of continuity which may not be continuous or may be interrupted but nevertheless it must suggest a course of conduct or act. The condition that the Court must be satisfied that the facts pleaded would justify the making of a winding up order on the ground that it is just and equitable that the company should be wound up and that to do so would unfairly prejudice a member or members is a condition which must be respected. Otherwise, a large and profitable business conducted by a company will be thrown at the mercy of a disgruntled member under Section 397 of the Companies Act. Again, the statutory requirement is that while the Court may make such order as it thinks fit, it must do so with a view to bring an end to the matters complained of. If the Court is satisfied that the matters complained of cannot be put an end to, then one of the conditions under Section 397 of the Companies Act, 1956, is not satisfied and in that case the Court might take other actions but not an action under Section 397 of the Act. Almost ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al/administrative officers of the Respondent company T.M. Ltd. These reliefs are really consequential following upon reliefs claimed in prayers (a) and (b). I have already given my findings on the relative issues on this point. 371. The next prayers in the relief claimed are (e) and (f) calling for investigation of the affairs of the Respondent T.M. Ltd., and of the dealings of the Respondents Nos. 2 to 10 with regard to the said company for the purpose of finding out losses caused by them to the Respondent No. 1 and to its subsidiaries or controlled companies and consequent upon such investigation and tracing out of the losses an order to all the Respondents to contribute to the assets of the Respondent company T.M. Ltd. and its subsidiaries or controlled companies as compensation. I have already dealt with these prayers under the relative issues discussed above. These prayers indicate that what the Petitioner company is really after is a full-fledged investigation not only of the whole management of the Respondent company T.M. Ltd. but also of its subsidiaries and controlled companies more in the nature indicated by Sections 408 and 409 of the Companies Act. 372. Prayer (g) in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1592; 1453; 1454; 1455; 1595; 1597; 1598; 1599; 1600; 1452; 1593; and 1594 for the sum, of ₹ 1,27,67,052-16 P. upto 15th November, 1965, and as claimed in suit No. 2005 of 1965 of this Hon'ble Court (Turner Morrison & Co. Ltd. v. Hungerford Investment Trust Limited (in voluntary liquidation) and for further interest on the said sum from 16th November, 1965, onwards. Hungerford Investment Trust Ltd. (in voluntary liquidation) has filed Company Petition No. 274 of 1967 and made three applications therein and has also filed or caused to be filed suits bearing No. 129 of 1966 (Hungerford Investment Trust Ltd. (in voluntary liquidation) v. Turner Morrison & Co. Ltd.) and suit No. 1275 of 1966 (Geoffrey Turner if Co. Ltd. v. Turner Morrison if Co. Ltd.). In order to defend the said applications and the said suit No. 129 of 1966 and No. 1275 of 1966 of this Hon'ble Court, Turner Morrison & Co. Ltd. has to incur costs and further the pendency of such applications and suits are affecting the reputation and management of Turner Morrison & Co. Ltd. and, accordingly, Turner Morrison & Co. Ltd. desire to settle such suits and applications. 2. As it appears that no settlement ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Hungerford Investment Trust Ltd.). The sum of ₹ 1 lakh deposited by Turner Morrison & Co. Ltd. with this Hon'ble Court as security in appeal No. 203 of 1968 (Turner Morrison & Co. Ltd. v. Hungerford Investment Trust (in voluntary liquidation) shall be refunded to Turner Morrison & Co. Ltd. and Hungerford Investment Trust Ltd. will have no claim in respect thereof. (c) Turner Morrison & Co. Ltd. shall pay to Hungerford Investment Trust Ltd. (in voluntary liquidation) as dividends the sum of- ₹ 12,16,350 less the sum of ₹ 3,02,251-50 P. (being the amount of tax deductible on ₹ 12,16,350) upon receipt of the permission of the Reserve Bank of India to enable it to make such payment if necessary. 3. Save as aforesaid, Hungerford Investment Trust Ltd. and Turner Morrison $c Co. Ltd. shall have no claim against one another. 4. All parties shall act on a signed copy of the Minutes. 376. I direct that these written undertakings be kept with the records of these proceedings and as part thereof. 377. The point on which it is essential to focus attention is that although full payment of ₹ 86 lakhs and odd which is the price for 51 % of the shares dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... answers to Qs. 738-744 and 1175-1194). He, therefore, came forward with another explanation that he could not take this money now offered by the Respondent company T.M. and Haridas Mundhra because there has been devaluation of the Indian rupee in the meantime. It is difficult to understand what has devaluation to do with this question. The decree for specific performance fixed the price of these shares at ₹ 86 lakhs and odd and that decree was payable in India and performable in Indian rupee.... From that point of view devaluation of the Indian rupee in relation to foreign currency has nothing to do with this question. Secondly, for the act of devaluation neither the Respondent company T.M. Ltd. nor Haridas Mundhra is responsible. It is an act of the State. I need only say that the decree for specific performance was passed in the year 1964, and it specified no time for payment but directed that payment to be made against delivery of shares. Mr. Hoon's allegation against Mr. Mundhra is that there is no offer of payment and Mr. Mundhra's allegation against Mr. Hoon is that he was not in a position to deliver the shares. Having regard to the Bank Hoffman episode, which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eiver within a fortnight from today. Unless an execution Court otherwise directs, and after payment of the said sum, the Receiver will hand over the said 51 % shares to Mr. Mundhra's Solicitor and also the proper transfer deeds signed by the Petitioner company, or in their refusal, signed by the Receiver, after a fortnight from today. If such payment is made by Mr. Mudhra within the said period, the Receiver will forthwith pay the said sum to the Petitioner's Solicitor. The pay-merit of the said sum to the Receiver or to the Petitioner's Solicitor will be operative forthwith unless the Appeal Court or Supreme Court otherwise directs. On delivery of the shares to Mr. Mundhra's Solicitor and on payment of the said sum to the Petitioner's Solicitor, the Receiver will stand discharged....... In default of payment of the said sum of ₹ 86,60,000 to the Receiver within a fortnight from today, the agreement between the parties dated 30.10.56 and the decree dated 25.2.64 including the injunction order set out in the said decree do stand rescinded and the Petitioner is absolved from all obligations under the said contract or the decree. 382. Then followed the curio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eetings and the validity of the Board of Directors of the Respondent company T.M. Ltd., discussed in the foregoing issues, it is strange that in one breath' this liquidator Mr. Hoon is asking for dividends declared and passed at those very meetings and then challenging those very meetings as illegal and invalid. Other prayers in the petition are covered by the different issues already discussed. 384. On a consideration of all these facts and the reasons, I do not think that the Petitioner company in liquidation is entitled to any of the reliefs claimed and I hold, accordingly, on this issue No. (15). 385. This disposes of the specific issues raised in these applications. 386. On a total consideration of the entire case of the Petitioner company, as disclosed in the petition and the evidence of Mr. Hoon and of Mr. Dumra, who was the only other witness called by the Petitioner apart from Mr. Hoon, certain striking features of the case appear uncontroverted. This liquidator Mr. Hoon, representing, the Petitioner company in liquidation has produced no records of the liquidators of liquidators' books of accounts in spite of repeated questions while he was giving evidence in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1315 he at first says that he kept no accounts and then ultimately peters down into the answer that these things are so old that it was impossible to pinpoint. 390. In answers to Qs. 1358 and 1359 he said he floated American and Canadian companies but no Indian company. He has shown no Indian asset, not an iota of Indian property. The Canadian episode of which he spoke appears as a kind of South Sea bubble. In answer to Qs. 1364 and 1365 he says all these Canadian companies ended up by their being a huge tax claim of three million and odd dollars in one year. According to his evidence in answer to Q. 1364, I protested because it was impossible for me to make 30 or 40 million dollars in any year in America. But they seized and sent a writ to all the people who owned money and my bank and other by putting a tax on me with a total aggregate of over 3 million dollars, and with the result that he left Canada for good. . His typical answers when he wished to avoid telling the truth to the Court will appear from some of the questions. In Qs. 254-260 he was being asked about the injunction to the effect that Hungerford Investment Trust Ltd., in liquidation, had to vote according to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... daughter. Ramanigo owned Turner Morrison and Graham group o£ companies and that group in turn, amongst other companies, owned this Petitioner company in liquidation. The share-holders of this Ramanigo were this liquidator Mr. Hoon, Mr. Richards, Mr. Carnes and Mr. Frank. According to Mr. Hoon's evidence, Romanigo was floated as a company with one million Franc in Luxemburg, and is governed by the laws of Luxemburg. In answer to Q. 815, Mr. Hoon says that his nationality is British. When I asked him in Q. 824 to produce the Articles of Association or the Memorandum of Romanigo, Mr. Hoon replied to my question that they were in Luxemburg and he did not have any. The significant point about this Romanigo is that three people, to begin with, controlled the entire group (Q. 828). He has admitted, as I have already pointed out, in answer to Q. 1064 that Mr. Hoon's combining the post of a liquidator of the Petitioner company in liquidation and the major share-holder and a partner of Romanigo created a conflict between duty and interest. He admits in answer to Qs. 857-872 that there are only three contributories in this context so far as the Petitioner company in liquidation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 030, that the car belonged to Central Jute Mills Ltd. Finally, the suggestion was very squarely put to this liquidator Mr. Hoon in Q. 2031 that this car belonged to Sahu Jain group of industries placed at the disposal of this liquidator Mr. Hoon. In answer to that Q. 2031, Mr. Hoon said: "I do not know, I cannot deny it. I took it from Dr. Tarneja who works there." The moment he said 'THREE', he was immediately asked in Q. 2032: In the New Central Jute Mills Ltd? And then he realised that he did let himself in for trouble and he answered back by saying, 'I do not know'. Ultimately he had to admit in Q. 2033 that this Dr. Tarneja from whom he was supposed to be taking the car works as a Personnel Manager in Sahu Jain in one of their companies. (See the series of his answers to Qs. 2025 to 2035). The result of all this evidence is that he cannot explain how he is incurring the large costs and expenses of these litigations and how he is defraying his expenses here in India and he cannot produce any bank books or any record to show that he had brought any money whatever from London. The suggestion remains that some one else is behind him to finance this litiga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed August 6, 1969, will be adjourned and the other two items Nos. (2) and (3), if considered and passed at the meeting to be held on August 30, 1969, will be subject to any order that may be passed in this application. 401. This was really a Chambers Summons dated August 28, 1969, asking, inter alia, for an injunction restraining the Respondents from holding the Annual General Meeting convened to be held on August 30, 1969, pursuant to the notice dated August 6, 1969, against considering or passing any resolution set out in such notice. The interim order virtually or in fact disposed of the application. But, what is attempted now in this application is to have a probe into what happened at the meeting of August 30, 1969. 402. Annexure 'A' to Mr. Boon's affidavit dated August 27, 1969, in support of this application shows two letters stating the objections and their answers. The letters in reply are retrospectively dated August 21, 1969, and August 26, 1969. In the letter of August 21, 1969, the usual allegations are repeated, with which I have dealt with in the issues before, that there is no valid Board of Directors, that no Annual General Meeting could be held after ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not filed any affidavit to support his minutes as he was supposed to be the Chairman, but in his place Mr. Pathak, Who ultimately wrote the minutes, also has not filed any affidavit. Mr. T. D. Mundhra and another person who attended has not filed any affidavit either. In those circumstances, learned Counsel for the Petitioner Mr. Mukherjee argues that there is really no opposition. 406. Mr. Mukherjee, learned Counsel for the Petitioner company, is, not quite correct on this point because Respondent H. D. Mundhra has filed an affidavit and he is one of the persons who was present both at the original meeting on August 30, 1969, and the adjourned meeting on September 1, 1969. It is contended for the Petitioner that S. K. Pathak has informed the Registrar of Joint Stock Companies on September 1, 1969, but that information is questioned as suspicious. But, beyond the suspicion nothing else could be said about it because it is a matter of record. Then it is argued, the Respondent B. P. Sinha could not adjourn the meeting of August 30, 1969, without 'consent' of the meeting under Article 59 of the Articles of Association of the Respondent company T.M. Ltd. But there the consent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s representative at any meeting of the company and the person so authorized being entitled to exercise the same powers on behalf of the corporation which he represents as if he were an individual share-holder of the company. (See also Buckley on Companies Act, 13th ed., p. 327). 410. Mr. Garg's minutes at p. 52 of the affidavit-in-reply of the liquidator Mr. Hoon and the minutes of the Chairman Mr. B. P. Sinha are completely at variance. One of the, points taken is, according to Mr. Garg's minutes, that half-an-hour after the notified time and place the next adjourned meeting was to be held at Mr. Hoon's residential flat. Reference on this point may be made to Section 174(4) of the Companies Act, 1956, and Article 55 of the Articles of Association of the Respondent company No. 1. 411. Now, there are innumerable difficulties in Mr. Garg being elected as Chairman according to the version of Mr. Hoon about the proceedings of this meeting. Mr. Garg cannot be a Chairman because he cannot be proposed by Mr. Hoon nor seconded by Mr. Meyer who is an outsider. Secondly, Mr. Garg also is personally disqualified to become the Chairman on the ground that he is not a member under ..... X X X X Extracts X X X X X X X X Extracts X X X X
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