9911796707
TMI Blog1974 (2) TMI 97X X X X Extracts X X X X X X X X Extracts X X X X ..... ho had a comfortable majority of the shareholding in the company till the issue and allotment of the said 1,000 shares into a minority in the company and also with regard to the removal of Barooah from the office of director of the company. In the said petition, Barooah has asked inter alia for the appointment of a special officer and/or receiver and/or administrator of the company, for an order of injunction against the respondents Khaund, S.K. Mitra and Radhadas Mitra from acting as managing director and/or directors of the company, for a declaration that the purported appointment and/or co-option of the respondent Radhadas Mitra as a director of the company is illegal, void and inoperative, for declaration that the issue and allotment of 1,000 shares to respondent Khaund is illegal, void and inoperative, for a declaration that Barooah is still a lawful and valid director of the company, for an order directing the sale of the shares of the respondents Khaund and S.K. Mitra on a valuation to be made by an independent valuer to be appointed by the court and for other reliefs. The said petition of Barooah came up for final disposal before Salil K. Roy. Chowdhury, J., and the learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of ₹ 100 each. Samar Kumar Mitra, the respondent No. 3 herein and one S.N. Basu Mallick and one Mr. A.K. Sen Gupta were the promoters of the company and the promoters subscribed to 50 shares. 2. Very soon after the company was incorporated, the company entered into an agreement with Barooah on 12.10.1955. Before commencement of business, and by and under the said agreement between the company and Barooah, it was agreed that Barooah would procure a bank guarantee for ₹ 2,00,000 which amount was necessary for enrolment of the company as a member of the Calcutta Tea Traders Association and the company agreed to pay to Barooah interest and commission @ 6% and to set apart for Barooah or his nominee 80% of the shares of the company. The agreement was to remain in force for a period of five years. 3. Barooah procured necessary bank guarantee and the company became a member of the Calcutta Tea Traders association in May, 1956. After the company became a member of the Calcutta Tea Traders Association, the company started carrying on its business as tea-brokers. 4. Various shares were issued and allotted from time to time and on the basis of the agreement between t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nditions mentioned in the agreement. This agreement was entered into at a point when Barooah and his group were in clear majority in the company, although the agreement between Barooah and the company reserving 80% of the shares for the Barooah had expired. 7. The company opened an account with United Bank of India and arranged for overdraft facilities in its account with the said bank. The arrangement in 1965 was that the bank would discount bills submitted by the company to the extent of 70% of the amount of the bills deposited and the limit on this bill discounting accommodation would be ₹ 6 lakhs. The further arrangement was that the bank would allow the company to draw against the cheques in favour of the company deposited by the company with the bank and the limit of the accommodation against the deposit of cheques would be ₹ 8 lakhs. It appears that the sums advanced by the bank by way of discounted bills submitted by the company would be credited in the current account in the company with the bank and sum or sums so credited in the current account by discounting the bills would be debited in the bill discount account. The company would operate on the current ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any of the five Board meetings held in 1960. Barooah also did not attend any of the four Board meetings held in 1961. It, therefore, appears that for the entire period of 1960-61 during which nine Board meetings were held, Barooah had not attended any of the Board meetings. In 1962, Barooah was present at two of the seven Board meetings held during the year. In 1963, nine Board meetings were held and Barooah had attended only three of the Board meetings. In 1964, Barooah was present at only one of the nine Board meetings held, during the year. It appears that Barooah had been absent from eight consecutive Board meetings held between 17.12.63 and 29.9.64. In 1965, Barooah attended only two of the seven Board meetings held during the year and Barooah was absent from four consecutive meetings held during the period of 26.3.65 and 14.7.65. Barooah attended four of the seven Board meetings held in 1966. In 1967, Barooah was present at two of the seven Board meetings held during the year. In 1968, Barooah appears to be present at two of the seven board meetings held during the year. In 1969, eight Board meetings were held and Barooah did not attend any of them. In 1970, it appears that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aneous. Barooah was not present at the meeting. 16. Another Board meeting of the company was held on 16 November, 1970. The notice of this Board meeting is dated 7 November, 1970, and the notice stipulates the following agenda-- (i) To consider the share transfer application received by the company, (ii) To consider the situation created on the operation of Gauhati tea auction centre. (iii) To consider the general affairs of the company. (iv) Miscellaneous. Barooah did not attend this meeting. 17. It appears that after Barooah had floated Assam Tea Brokers (P) Ltd., there were talks of Khaund joining the said company as a director. On 23 November, 1970, 'Barooah addressed the following letter to Khaund-- My dear Bhabani, I have received a telephone call from Govinda saying that he needed Sarkar and a typist (capable of typing accounts sales) at Gauhati and he wanted there two men to come with you. Govinda also wanted that you should stay at Gauhati at least for two weeks so that he could take it a bit easy. When you come to Gauhati, you will be able to judge as to what is actually required and make arrangements accordingly. Govinda seems ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nation of P.K. Barooah, however, appears to have been accepted at the Board meeting held on 4 January, 1971. It appears that P.K. Barooah would not also attend very many of the Board meetings. For non-attending, Board meetings of leave of absence was granted to Mr. P.K. Barooah and also to Mr. H.P. Barooah at the Board 'meeting held on 26.12.69, It appears that at the subsequent Board meetings held on 16.1.70, 11.4.70, 8.5.70, 15.6.70 and 30.7.70, neither Mr. P.K. Barooah nor Barooah was present and it does not appear that any leave of absence was granted to either of them for non-attending the Board meetings. It further appears that at the Board meeting held on 31.7.70 in which neither Barooah nor P.K. Barooah was present, leave of absence was granted to both of them long after the period the expiry of which under statutory provision contained in section 283(1)(g) of the Companies Act, has to result in their vacating their office. 19. The Board meeting which forms the subject-matter of the dispute in the present proceeding is alleged to have been held on 14 January, 1971. The notice of the Board meeting which bears the date 6.1.71 mentions the following agenda'-- ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Board considered that matter and on being proposed by the Chairman, the following resolution was unanimously adopted:-- 'Resolved that necessary returns for the vacation of Sri H.P. Barooah from the Board of directors by virtue of the provisions of section 283(1)(g) of the Companies Act, 1956, be filed with the Registrar of Companies and necessary entries be made in the company's register.' The managing director placed on the table the letter received from the United Bank of India bearing No. Cal/Adv/HD/465/71 with debit voucher, dated 12 January, 1971, wherein the bank had debited ₹ 2,61,800 in the company's account with the bank which has caused the possibility of bouncing of cheques issued by the company for want of adequate funds. In this connection, the managing director informed that he had tried all his known sources to find out necessary finance to meet the bank's liabilities and other pressing demands but in vain. The Board discussed the matter and the financial position of the company thoroughly and in detail. At this, the Chairman suggested raising of funds by sale of shares of the company to meet the financial difficulties. The Boar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion. Your Faithfully, Sd. ...... Agent. The particulars of the bills have been set out thereafter in the letter. 21. At a Board meeting held on 20 January, 1971, 1,000 shares were; allotted to Khaund who had submitted his application for the same and had deposited the application money of ₹ 10,000 by cheque, dated 19 January, 1971. The relevant resolutions at the Board meeting read as follows: 'RESOLVED that the share application for 1,000 equity shares from Sri B.P.; Khaund be and is hereby accepted, and he be allotted 1,000 fully called up equity shares of ₹ 100 each. 'RESOLVED FURTHER that the applicant be and is hereby asked to deposit ₹ 90,000, being the value of 1,000 shares to him on or before 22 January, 1971 in the registered office of the company. 'RESOLVED FURTHER that the necessary entries in respect of allotment of shares be made in the Register of the company and necessary returns of allotment be, filed with the Registrar of Companies' 'RESOLVED FURTHER that the share certificate for equity shares allotted to Sri B.P. Khaund be issued under signature of Sri S.K. Mitra, Sri B.P. Khaund, managing dir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts has, in course of his very elaborate and detailed arguments forcefully advanced, criticised the aforesaid findings of the learned trial Judge and has submitted before us that the aforesaid findings of the learned trial Judge are erroneous and unjustified in the facts and circumstances of this case. Mr. Dutt has contended that the allotment of 1,000 shares to Khaund is perfectly lawful, legitimate and proper and was done bona fide in the interest of the company. He has submitted that Barooah has not been removed or excluded from the Board of directors by Khaund or Mitra or by the Board. He contends that Barooah ceased to be a director as he vacated his office by virtue of the mandatory provisions contained in section 283(1)(g) which is in the following terms: The office of a director shall become vacant if he absents himself from three consecutive meetings of the Board of directors, or from all meetings of the Board for a continuous period of three months, whichever is longer, without obtaining leave of absence from the Board. 6. It is the contention of Mr. Dutt that Barooah who was re-elected a director of the company at the annual general meeting held on 22.8.1970 fail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of absence. Mr. Dutt has stated that such leave was granted to the petitioner Barooah at the Board meeting held on the 26th December, 1969, and again at the Board meeting of the 31st July, 1970. According to Mr. Dutta, when Barooah and Mr. P.K. Barooah failed to attend five consecutive meetings held on 16.1.70, 11.4.70, 8.5.70, 15.6.70 and 30.7.70, it was an act of omission on the part of the Board not to treat Barooah and P.K. Barooah as having vacated their office as directors and to purport to grant them leave of absence at the meeting held on 31.7.70. Mr. Dutt has submitted that the Board of directors must have failed to take notice that Barooah and P.K. Barooah had already failed to attend three consecutive meetings of the Board without leave of absence and the period of three months had also expired. Mr. Dutt has, however, submitted that Barooah was re-elected a director at the annual general meeting of the company held on the 22 August, 1970. Mr. Dutt has pointed out from the affidavit of Barooah that it is Barooah's case that he used to ask for leave of absence and he obtained leave of absence from the company till 31 July, 1970. He has drawn our attention to the follo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ector and is not in any event related to the capacity of Barooah as a member of the company. 7. Mr. Dutt has next contended that the allotment of 1,000 shares of Khaund by the Board is valid. It is the contention of Mr. Dutt that the said allotment was made by the Board in lawful and proper exercise of its powers bona fide in the interest of the company. Mr. Dutt argues that under the articles of association of the company, the Board of directors is competent to issue and allot shares and it is not necessary that shares have to be issued and allotted at the general meeting of the company. In this connection, Mr. Dutt has referred to article 3, article 27 and article 50A of the articles of association of the company. The said article may be set out: Article 3 The capital of the company is ₹ 5,00,000 divided into 5,000 shares each with rights, privileges and conditions attaching thereto as are provided by the regulations of the company for the time being with power to increase and reduce capital for the time being into several classes and to attach thereto respectively such preferential, deferred, qualified or special rights, privileges or conditions as may be deter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allotment of all shares of the company have always been done at Board meetings and nobody has, however, questioned the validity of any such allotment. Mr. Dutt has pointed out that at the Board meeting held on the 19 January, 1957, 523 shares were allotted and out of the said 523 shares, 120 shares were allotted to Barooah and Barooah was present at the said Board meeting. Mr. Dutt has submitted that as the Board meeting of the 14 January, 1971, was properly held on notice to all the directors including Barooah, and as the Board which is competent to issue and allot fresh shares has allotted the said 1,000 shares to Khaund, the allotment must be held to be lawful. Incidentally, Mr. Dutt comments that Barooah who was duly served with notice of the meeting fixed for 14 January, 1971, and who had not attended the said Board meeting, would not have been competent to attend the said Board meeting, as Barooah ceased to be a director with effect from the 12 January, 1971, on the expiry of the period of the three months from the date of his absence from three consecutive Board meetings, the first of which was held on the 12 October, 1970. Mr. Dutt has submitted that the said allotment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any actual cash but by adjustment of sums payable to him on account of commission on the basis of the agreement entered into by and between Barooah and the company on 12 October, 1955. Mr. Dutt has contended that in any event the Board of directors honestly and bona fide believed that issue and allotment of 1,000 shares to Khaund who was agreeable to take them was the only way out to meet the emergency and to save the company from ruination and it is the contention of Mr. Dutt that the Board was perfectly justified in its belief in the situation then prevailing. Mr. Dutt has argued that unless immediate arrangements for finance could be made, cheques issued by the company would have bounced and non-payment of dues to sellers would have entailed serious consequences and would have resulted in complete ruination of the company's business. Mr. Dutt has submitted that allotment of 1,000 shares to Khaund in the situation created as a result of the debit of the said sum of ₹ 2,61,800 by the bank from the company's account, was entirely in the interest of the company and has in fact saved the company from complete ruination. Mr. Dutt has complained that in the petition filed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng observations at page 390: Section 105C, the enactment of which has conferred certain rights and privileges on a shareholder which he did not possess before its enactment, is in these terms: 'Where the directors decide to increase the capital of the company by the issue of further shares, such shares shall be offered to the members in proportion to the existing shares held by each member and such offer shall be made by notice specifying the number of shares to which the member is entitled and limiting the time within which the offer, if not accepted, will be deemed to be declined and after the expiration of such time, or on receipt of an intimation from the members to whom such notice is given that he declines to accept the shares offered, the directors may dispose of the same in such manner as they think most beneficial to the company. This section limits the power of the directors to dispose of further issue of capital in any manner they might think most beneficial to the company. They are under a mandate to offer these shares in the first instance to the members in proportion to the existing shares held by them. In other words, a member becomes entitled under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the submission of Mr. Dutt that in the absence of any provision in the articles limiting the right of the directors and in the absence of any statutory mandate, the directors are perfectly competent to issue and allot shares in any manner they considered best. Mr. Dutt has contended that in the facts of the instant case, the Board considered it best to allot the said 1,000 shares to Khaund and the decision of the Board is not only lawful but also is clearly justified and warranted in the facts and circumstances of the case. Mr. Dutt argues that urgency of the situation created by the debit drawn by the bank to the account of the company hardly brooked any delay in the matter of raising any funds and there was hardly any time to approach the other members of the company, and Mitra who happened to be the other director actively participating in the affairs of the company and was the Chairman at the said meeting, himself made the proposal. Mr. Dutt argues that even if Barooah had been approached there was hardly any possibility of Barooah taking any new shares against payment Mr. Dutt has criticised the conduct of Barooah and has commented that Barooah has not in fact paid a farthin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such member or members, but that otherwise the facts would justify the making of a winding up order on the ground that it was just and equitable that the company should be wound up, the court may, with a view to bringing to an end the matters complained of, make such order as it thinks fit. 398. Application to court for relief in cases of mismanagement.--(1) Any members of a company Who complain-- (a) that the affairs of the company are being conducted in a manner prejudicial to the interest of the company; or (b) that a material change (not being a change brought about by, or in the interests of, any creditors including debenture holders, or any class of shareholders, of the company) has taken place in the management or control of the company whether by an alteration in its Board of directors or of its managing agents, secretaries and treasurers, or manager or in the constitution or control of the firm or body corporate to acting as its managing agents, secretaries and treasurers, or in the ownership of the company's shares or, if it has no share capital, in its membership, or in any other manner whatsoever, and that by reason of such change, it is likely that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any events the vacating of office of the director by Barooah by virtue of the mandatory provisions contained in section 283(1)(g) of the Companies Act can never constitute an act of oppression. It is his argument that the legislature has thought it fit to enact the said provisions and the proper application of the said provisions in an appropriate case cannot constitute an act of oppression and must be considered to be an act beneficial to the interest of company, as the legislature must have introduced the said provision for due administration of the affairs of the company. Mr. Dutt has further argued that it is not a case where Barooah has been excluded or ousted from the Board by any act of Khaund or Mitra or the Board and in the instant case Barooah has ceased to be a director for his own defaults by virtue of the mandatory provisions of the statute. Mr. Dutt submits that Barooah's vacating his office as director affected him in his capacity as a director of the company and does not affect him as a member of the company and the said act, therefore, cannot in any way, be considered to be an act of oppression on any member of the company qua member of the company. 12. Mr. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the interest of the company. Mr. Dutt has commented that as a director of the company Barooah hardly participated in any Board meeting of the company, though it must be considered to be an obligation of a direct of to attend Board meetings. He further comments that Barooah, taking advantage of his position as director and majority shareholder of the company, has obtained huge sums of money by way of loans of his various concerns and he has also persuaded the company to give various guarantees in respect of loans or other liabilities of various other concerns of Barooah. He has argued that Barooah has started his own tea broking company, called Assam Tea Brokers (P) Ltd. at Gauhati and huge business of the company has been diverted to Barooah's Assam Tea Brokers (P) Ltd., causing serious loss and prejudice to the company. Mr. Dutt has further argued that withdrawing the guarantee given by Barooah along with the other directors in respect of the overdraft account with United Bank of India on 29.3.71 Barooah precipitated a financial crisis for the company and with very great difficulty the other directors managed to tide over the situation. Mr. Dutt has submitted that with the mal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany from complete ruination can never be considered to be a valid ground on the basis of which the court can make an order for the winding-up of the company on the ground that it would be just and equitable to do so. Mr. Dutt argues that the court could never make an order of winding up of a company on the just and equitable ground on the basis of an act Which is for the benefit of the company and which really saves the company and to make an order of winding up on the basis of such an act will indeed be unjust and inequitable. Mr. Dutt has argued that the principles governing the dissolution of partnership firm on the just and equitable ground have no 'application to the facts and circumstances of the present case. It is his argument that in the instant case, the company was not formed on the basis of any trust and confidence and the company was also not formed for the purpose of taking over any partnership business. Drawing our attention to the memorandum of association, Mr. Dutt has argued that at the initial stage of the formation of the company, neither Barooah nor Khaund was the member of the company. Mitra with two other persons had promoted the company and Mitra along ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g to the company, the company in its own interest has been paying them remuneration. Mr. Dutt comments that the mere fact that Khaund and Mitra are paid directors of the company does not make their position subordinate to that of Barooah in the Board and does not make them employees of Barooah; and, on the other hand, the agreement that the company has entered into with Khaund at the time of appointing him as the managing director clearly indicates that Khaund enjoys much larger powers than Barooah. It is Mr. Dutt's submission that Khaund and Mitra have virtually been entrusted with the management of the affairs of the company because of their own ability and the company has undoubtedly prospered under the management of Khaund and Mitra. Mr. Dutt has submitted that section 397 can have no application in the instant case, as there is no proper complaint of any act of oppression and in any event, as the company's affairs are not being conducted in a manner oppressive to any member or members of the company and there are no facts and circumstances which would justify the making of a winding up order on the ground that it was just and equitable that the company should be wound ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n is the interest and welfare of the company. Mr. Dutt has also drawn our attention to the balance-sheets of the company beginning from the year ending on 31 December, 1960, till the year ending on 31 December, 1969, which have been accepted and approved at the general meeting of the company and also to the audited statement of accounts for the years ending on 31 December, 1970, 1971 and 1972. Referring to the balance-sheets, Mr. Dutt had contended that the company has steadily prospered and progressed under the management of Khaund and Mitra and the company has maintained its satisfactory progress even in the years 1970-1972 after Barooah had vacated his office and the shares in dispute had been allotted to Khaund. Mr. Dutt has submitted that any order made under section 398 is likely to prejudice the interest of the company and no order should, therefore, be made on the application of Barooah. In support of his submission Mr. Dutt has referred to a large number of decisions which deal with the question of allotment of shares, of applicability of the partnership principles to the winding up of a private limited company and also with the provision contained in section 210 of the En ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aribagh) Ltd. AIR 1962 Cal 127 (DB). (29) Wine Mills Ltd., Re 68 CWN 884. (30) Sidekha Works Ltd., Re AIR 1965 Cal 98. (31) Bengal Luxmi Cotton Mills Ltd., Re (1965) 1 Comp.L.J. 35 (Cal) : (1965) 69 CWN 137 (Cal). (32) Shanti Prasad Jain v. Kalinga Tubes Ltd. (1965) 1 Comp.L.J. 193 (SC) : AIR 1965 SC 1535. (33) Kedar Nath Khetan v. Lakshmi Devi Sugar Mills Ltd. (1965) 1 Comp.L.J. 316 (All). (34) Gajarabai M. Patny and others v. Patny Transport (P) Ltd. (Secunderabad) (1965) 2 Comp.L.J. 234 (AP) : AIR 1966 AP 226. (35) Kanika Mukherji v. Rameshiuar Dayal Dubey (1966) 1 Comp.L.J. 65 (Cal) : 70 CWN 236. (36) Ramashankar Prasad and others v. Sindri Iron Foundry (P) Ltd. and others (1966) 1 Comp.L.J. 310 (Cal) : AIR 1966 Cal 512 (DB) : 70 CWN 520. (37) Seth Mohanlal and another v. Grain Chambers Ltd., Muzaffarnagar (1968) 1 Comp.L.J. 275 (SC) : AIR 1968 SC 772. (38) R. Mathalone and others v. Bombay Life Assurance Co. Ltd. and others AIR 1953 SC 385. (39) Jagannath Gupta Co. (P) Ltd. v. Midchand Gupta (1968) 2 Comp.L.J. 315 (Cal). (40) Mohta Bros. (P) Ltd. and others v. Calcutta Landing and Shipping Co. Ltd. and others (1969) 2 Comp.L.J. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so as to disturb the existing management, because the creditors of the company and other persons dealing with the company have dealt with the company on the basis of the present management and these creditors and persons dealing with the company should not be placed in the hands of the management of the party who feels oppressed by the management. Mr. Dutt lias commented that Khaund and Mitra have served the company and have done their best for the last 18 years in serving the company which has progressed and prospered under their management and these two gentlemen have all the stakes in the company. He has submitted that to ask these gentlemen to sell their shares and to leave the company would bring about a complete disruption of the business of the company and would also mean interfering with the rights of these two persons under their contract with the company and will result in complete ruination of these two persons and also of the company. He submits that Barooah has very little stake it the company and he has already started Assam Tea Brokers (P) Ltd. which is in the nature of a rival company and he should never be allowed to be placed in charge and management of the compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arned junior, Mr. Nag, who has also addressed this court. It has been submitted that the company was essentially a Barooah concern and Barooah, because of his faith and confidence in Mitra and Khaund has made them paid executive directors of the company and has placed them in charge of the affairs of the company. It has been submitted that Barooah was on the scene even before the incorporation of the company and in this connection certain documents which were not referred before the learned trial Judge and are not included in the paperbook have been sought to be referred to and have been included in the supplementary paperbook. 21. It is contended that the agreement which Barooah entered into with the company on 12.10.55 soon after the company was incorporated and before the company had commenced its business, clearly establishes that the company became virtually a Barooah concern as Barooah acquired the right to have 80% of the shares of the company. It has been commented that after Barooah acquired the controlling interest of the company and became its director, Barooah had hardly participated in the Board meetings of the company or in the annual general meetings of the compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by entering into the overdraft arrangement with United Bank Of India and left the day to day administration of the company to be carried on by Mitra and Khaund in whop Barooah had complete confidence. The learned counsel has commented that Khaund had been a particular friend of Barooah for years and Mitra had been associated with the company from the time of its inception and Barooah has always trusted these two persons who also proved their worth to the satisfaction of Barooah. It is the comment of the learned counsel that if these two persons did not enjoy the confidence and support of Barooah who controlled the majority of the shares of the company, they could never have acquired their present status and they would have been out of the Board and of any control of the company, if Barooah had so desired. 22. The learned counsel has submitted that Barooah who has always retained controlling interest of the company would really run the company through Mitra and Khaund who Barboah found to be able and efficient and in whom Barooah reposed great trust and confidence. The learned counsel has argued that so great was the confidence of Barooah in these two persons, particularly, Khaun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Barooah attended the Board meeting held on 26.8.58 without any objection from anybody. Drawing our attention to the minutes of the Board meeting the learned counsel has pointed out that the position was the same with regard to non-resident directors and the learned counsel has commented, referring to the minutes of the Board meetings, that, on other occasions, Barooah and the other non-resident directors would be granted leave of absence as a matter of course, if there was any possibility of the said provision contained in section 283(1)(g) coming into operation. Referring to the minutes of the Board meetings of the company the learned counsel has commented that leave of absence would be granted even long after the expiry of the period when the director by virtue of the provisions contained in section 283(1)(g) should have and must have already vacated his office. In this connection, the learned counsel has pointed out that leave of absence was granted to Barooah and also to P.K. Barooah at the Board meeting held on 26.12.69 in respect of their absence from earlier Board meetings and thereafter the Board held meetings on 16.1.70, 11.4.70, 8.5.70, 15.6.70 and 30.7.70. The learne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the 10 August, 1971, contained in para 11(c) to the effect: Thereafter in or about the middle of October, 1970, the petitioner came back from abroad... The learned counsel has submitted that Barooah could not, therefore, possibly have been served with the notice of the Board meeting held on 12.10.70 and as notice of the said Board meeting was not served on Barooah, Barooah cannot be said to have absented himself from the said Board meeting. Relying on the decision in the case In re London and Northern Bank --Mack's case, reported in (1900) 1 Ch 220 : (1900) WN 114 and also on the decision in re London and Northern Bank -- Mac Connell's claim, reported in (1901) 1 Ch 728, cases which were incidentally referred to by the learned counsel for the appellants, the learned counsel has argued that in any event there has been no voluntary absence from the Board meeting of the 12 October, 1970, by Mr. Barooah and the involuntary absence of Barooah from the said Board meeting does not constitute absence within the meaning of section 283(1)(g) of the Companies Act. It is the argument of the leaned counsel that even if it be assumed that notices of the Board meetings of 26.10. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tment of 1,000 shares to Khaund is illegal, mala fide. The learned counsel has argued that the allotment of 1,000 shares to Khaund is illegal, inasmuch as the Board meeting in which the said allotment has been made is illegal, as no notice of the said Board meeting had been served on Barooah and Barooah had not received any notice of the Board meeting. The learned counsel argues that the said allotment should further be considered to be bad and illegal as the notice of the said Board meeting did not contain any agenda indicating that the Board intended to allot and issue any new shares. It is the argument of the learned counsel that as an agenda had been mentioned in the notice and as the agenda gave no indication of any proposal or intention to allot any new shares, the allotment of such shares in the absence of any mention thereof in the agenda, should be held to be illegal and the resolution passed allotting shares in the absence of any agenda should be considered to be a tricky resolution, because any director who has even received any notice may not have any idea that a business of such great importance can be transacted without any mention thereof in the agenda. The learned c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... favour of any other person but in that event the directors have the option to allot or not to allot the shares to the person in whose favour the shareholder renounces the shares offered to him. The offer, of course, creates fresh rights but also brings in its train liabilities and obligations. It confers the right on a shareholder to purchase shares in the new issue of capital in proportion to his existing shareholdings, but in order to obtain that right he has to fulfill certain obligations and he has to incur certain liabilities. The learned counsel has argued that the right which the shareholder possesses to participate in any future issue by virtue of his being an existing shareholder of the company in preference to strangers came to be recognised by statute in the provisions contained in section 105C of the Act of 1913. It is the argument of the learned counsel that the right of the shareholder was already there and the statute merely gave a recognition to the right which the shareholder possessed. The learned counsel has argued that the statutory provision became necessary as the right of an existing shareholder to [participate in the further issue of shares could be cur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f a private limited company curtailing or modifying the right of an existing member to the participation in any further issue of capital in proportion to his holding and conferring specific power to make any allotment in a manner derogatory to the right of the member the right of the member to participate in further issue of capital remains and any allotment in violation of the right of the existing members is illegal and bad. The learned counsel has argued that, in the instant case, there is no provision in the articles which confers any power on the Board to make any allotment in a manner derogatory to the right the existing members have, as members of company, to participate in the further issue of capital. The learned counsel has also argued that the allotment of shares by the Board of directors is also illegal, as the Board has no such power to allot and issue such shares at any Board meeting and allotment and issue of further capital must be authorised by the company at a general meeting of the company. The learned counsel in this connection has referred to article 27 of the articles of association of the company which reads as follows: The company in general meeting may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any urgency. The learned counsel has argued that the said letter contains no demand of any payment and no letter from the bank making a demand on the company at any subsequent stage has been disclosed. The learned counsel has argued that the story of Khaund's getting information from the bank that the cheques drawn by the company would be dishonoured and Khaund's meeting the bank people is clearly untrue, as the said story is not corroborated by any documents and no such case is even made in the affidavit of Khaund. The learned counsel has submitted that the entire case that the allotment was necessitated by the bank's letter, dated 11/12 January, 1971, which is said to have created a financial crisis of very great urgency, is clearly an afterthought and has been advanced by the counsel to make out a case of necessity for the said allotment and of company's urgent needs for funds to prove the bona fides of the transaction and to justify the allotment, although no such case has been made in the affidavits filed by Khaund or by S.K. Mitra. The learned counsel has commented that the counsel for the appellants, appreciating the very great difficulty in justifying the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the bank clearly belies the case sought to be made out by the appellants. It is the contention of the learned counsel that apart from sending the formal debit note dated 11/12 January, 1971, along with the credit note bearing the same date for the same amount in bill discount account and the formal letter without date along with the said debit note, the bank made no demands whatsoever on the company for payment of any particular sum at any point of time after the said document had been addressed to the company by the bank in the usual course of its business as a matter of routine. The learned counsel has argued that bank could not possibly have made any demands in view of the overdraft facilities that the bank had agreed to allow to the company. The learned counsel has referred to the statement prepared by the company showing the statement of bank position which has been included in part II of the supplementary paper book and the learned counsel has argued that the said statement clearly shows that the bank was going on honouring the cheques drawn by the bank in the normal course of business and the bank did not dishonour any of the cheques issued by the company, as the bank possi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being suspended and we will also not be in a position to allow withdrawal of any amount credited to this account. However, if you so desire, you may open a second account for day-to-day operation, but this account should always remain in credit. Thanking you, Yours faithfully, Sd......D. Maitra Controller of Advances. This letter was addressed by the bank to the managing director of the company. It is the contention of the learned counsel that this letter of the bank gives a lie direct to the story sought to be made out as to the urgent necessity created for raising immediate funds in consequence of the bank's debit note, dated 11/12.1.1971 as the bank had in fact allowed overdraft facilities for ₹ 4,45,500 to the company on the basis of the arrangement then subsisting. The learned counsel contends that this letter clearly indicates that the company could enjoy overdraft facilities notwithstanding the said debit note and in fact on 29 March, 1971, when the letter was addressed by the bank, the company's liabilities on the overdraft account stood at ₹ 4,45,500. The learned counsel in this connection had also drawn our attention to the letters ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had paid the full consideration money. In this connection!, the learned counsel has drawn our attention to the resolution adopted at the Board meeting held on 20 January, 1971, the proceedings whereof appeared at pages 115-117 of the paper-book. The material portions thereof relied on by the learned counsel read as follows: The Chairman placed on table the share application for 1,000 equity shares of ₹ 100 each]received from Sri B.P. Khaund. The Board examined the share application and enquired from the accountant about the deposit of the application money and was informed that the application money of ₹ 10,000 had already been paid. The Board considered the application for shares and being proposed by the Chairman, the following resolutions were unanimously adopted: 'RESOLVED that the share application for 1,000 equity shares received from Sri B.P. Khaund be and is hereby accepted and he be allotted 1,000 fully called up equity shares of ₹ 100 each'. 'RESOLVED FURTHER that the applicant be and is hereby asked to deposit ₹ 90,000 being the full value of 1,000 shares allotted to him on or before 22 January, 1971, in the registered of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had already vacated his office, though Barooah lawfully continued to be a director of the company at that point of time. 26. Mr. S.C. Sen, learned counsel for Barooah, has contended that the aforesaid wrongful acts of removal of Barooah and allotment of 1,000 shares to Khaund clearly attract the provisions contained in both the sections 397 and 398 of the Act, as all the requirements of both the sections are clearly satisfied. Mr. Sen has argued that reducing the majority shareholder illegally, in any event improperly, undoubtedly, constitutes an act of oppression. Referring to the decision of the House of Lords in the case of Scottish Co-operative Wholesale Society v. Meyer and another (1958) 3 All ER 66 (HL) : (1959) AC 324 (HL), Mr. Sen has argued that an act of oppression is considered to be an act which is -- 'burdensome, harsh and wrongful'. It is the argument of the learned counsel that the act of reducing the majority shareholder into a minority is undoubtfully burdensome, harsh and wrongful, as it is contrary to all principles of justice, fairplay and company jurisprudence. Mr. Sen has also relied on the decision of B.C. Mitra, J., in the case of In re Sindri Ir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he technical director of the company. Mr. Sen argues that if Barooah had not reposed faith and confidence in them, they could never be even ordinary directors of the company far from being managing director and technical director of the company and in charge of the affairs of the company. Mr. Sen comments that Khaund and Mitra may be able person and may be sufficiently skilled and capable but their ability alone would not take them to their present position and would not place them in charge of the affairs of the company, unless they inspired confidence in Barooah and unless Barooah reposed trust in them. It is the contention of Mr. Sen that in faith and in confidence Barooah made Khaund and S.K. Mitra whose worth and ability must have otherwise impressed Barooah, the Managing Director and the Technical Director of the company, and these two persons were indeed in the position of professional managers or executive directors of the company. For such persons to try to oust Barooah from the company which happens to be virtually his concern and to grab the company for themselves is, according to Mr. Sen, an act of the grossest possible breach of trust and confidence. Mr. Sen contends t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Mr. Sen argues that all the requirements of section 398 are satisfied in the instant case. He argues that it is not in dispute that Barooah has the right to make the application in virtue of section 399 as he holds the requisite number of shares. It is the argument of Mr. Sen that though the requirements mentioned in (a) and (b) are in the alternative, yet in the facts of the instant case, both the requirements contained therein are indeed fulfilled. He has argued that the affairs of the company are being conducted in a manner prejudicial also to the interests of the company. It is his argument that the act of removing Barooah from the Board and of allotting 1,000 shares to Khaund reducing Barooah into a minority in the company clearly indicates that the affairs of the company are being conducted in a manner prejudicial to the interests of the company. Mr. Sen argues that the company has been virtually a Barooah concern and the reputation and the goodwill that the company has enjoyed is mainly due to the fact of Barooah's association with the company and that the company has been considered to be a Barooah concern. Mr. Sen points out that the company after its incorporatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trying to remove him from the Board and to reduce him into a minority in the company there already is disruption in the smooth working of the company and a situation has now been created where internecine squabble is inevitable for a long time with the prospects of prolonged litigation involving the company. Mr. Sen points out that already the company has been involved in various litigations which are bound to affect the interests of the company prejudicially. He comments that apart from the present litigation in which a special officer has already been appointed to take charge of the affairs of the company, various other suits have been instituted against the company and the company has also instituted various suits unnecessarily against the Barooah concerns. Mr. Sen comments that advances given by the company to Barooah concerns were all essentially business deals which the company had considered to be sound and profitable and the company had been making profits out of the said business deals and the company had never made any complaint with regard to the said deals with Barooah concerns and had never demanded repayment of the money. It is the comment of Mr. Sen that Barooah con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'the ownership of the company's shares, it is likely that the affairs of the company will be conducted in a manner prejudicial to the interest of the company. Mr. Sen has argued that illegal, improper and mala fide acts in the matter of removing a director from the Board or in the matter of allotment of shares are always bound to create a situation where it is likely that the affairs of the company will be; conducted in a manner prejudicial to the interest of the company. It is the argument of Mr. Sen that the situation brought about by the illegal, improper and mala fide acts of removal of Barooah from the Board of directors and allotment of 1,000 shares to Khaund effect the very basis and structure of the company, distrupt the smooth working of the company and set in motion a chain of events which will prejudicially affect the company. Mr. Sen has argued that because of the aforesaid wrongful, illegal and mala fide acts, the company has become involved in various long drawn and expensive litigations and possibility of further litigations is also there. It is the contention of Mr. Sen that such a situation must necessarily affect the company prejudicially, and in fact, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icipated in Board meetings also does not establish that Barooah does not have any interest in the affairs of the company. In this connection, Mr. Sen points out that Barooah entered into an agreement with the company in October, 1955, and Barooah became a director of the company in December, 1956, and never since his appointment as a director in 1956, Barooah hardly attended the Board meetings of the company. It is the argument of Mr. Sen that it cannot be said that Barooah entered into the agreement with the company the effect of which was virtually to make the company a Barooah concern without being interested in the affairs of the company and it cannot be said according to Mr. Sen that when Barooah became the director of the company in 1956, he was not interested in the affairs of the company. Mr. Sen argues that the company is private limited company, which is practically a Barooah concern and as Barooah was running the show, Barooah did not consider it necessary to attend the Board meetings which were in nature of formalities and the Board would always carry out the policy and direction of Barooah. The fact remains, according to Mr. Sen, that Barooah has acquired the controlli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nesses of the company to advance moneys to various parties who produce tea or deal in tea to enable the company not only to earn interest on the money advance but also to get good business from the said parties in the matter of the tea broking. Mr. Sen has! argued that Barooah and Mitra are mainly and primarily responsible for all advances, made including the advances made to the concerns in which Barooah is interested and if any of the advances does not turn to be a satisfactory business proposition Khaund and Mitra must bear the responsibility. It is the submission of Mr. Sen that it does not lie in the mouth of Khaund or Mitra, both of whom are entirely responsible for all advances made including advances made to concerns in which Barooah is interested that Barooah has taken away huge sums from the company by way of loans. Mr. Sen further submitted that it is interesting to know that at no point of time the company made any demands for payment of the loans from any of the Barooah's concerns and though no such demands were made, the concerns in which Barooah is interested paid two sums of ₹ 75,000 each, one in month of January, 1971, and the other in the month of Februa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... responsibility and blame must go to Khaund and Mitra. Mr. Sen has, however, argued that considering the merits of the appeal and in considering whether a proper case for the application under sections 397 and 398 has been made out, the conduct of Barooah is not material, though, according to Mr. Sen, no blame can attach to Barooah's conduct excepting Barooah's over-confidence in Khaund and Mitra. Mr. Sen, therefore, submits that the learned trial Judge was perfectly justified in applying the provisions of sections 397 and 398 on the application of Barooah in the facts and circumstances of the instant case, and there is really no merits in the appeal preferred. Mr. Sen has pointed out that though the learned trial Judge was right in entertaining the application of Barooah and in making an order on the said application under the provisions of sections 397 and 398, the learned trial Judge was not right in directing Barooah to sell his shares to Khaund and apart from this part of the order which forms the subject-matter of the cross-objections, the order of the learned trial Judge is right and should be upheld. 30. Mr. Sen has next proceeded to argue on the cross-objection p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at to allow the minority group of shareholders to acquire the shares of the majority group of shareholders by ordering the majority group of shareholders to sell their shareholding to the minority group will generally be against all principles of justice, fair play and company jurisprudence. Mr. Sen submits that in the facts of the instant case, this kind of order is particularly improper and wrong, as this will have the further effect of putting premium on the wrongful, improper and mala fide acts of Khaund and Mitra and of giving them the benefit of their own wrongful, improper and mala fide acts which have necessitated the proceedings. It is the submission of Mr. Sen that Barooah came to court with the complaint of his wrongful removal from the Board of directors and his being reduced to a minority by the illegal, improper and mala fide acts of Khaund and Mitra, and the court is satisfied that the complaint of Barooah is just and the acts complained of by Barooah are indeed wrongful, illegal, improper and mala fide. Mr. Sen contends after having held that Barooah's grievances are just and proper and the acts of Khaund and Mitra complained of by Barooah are wrongful, illegal, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the learned trial Judge made the order directing Barooah to sell his shares as Barooah has come to court with the complaint of acts of oppression against him merely on the basis that Barooah being the aggrieved party should be directed to sell his shares without properly appreciating that Barooah was in a clear majority in the company which was virtually one of his concerns. Mr. Sen has argued that there is nothing in the conduct of Barooah which may justify such an order and he has submitted that the allegations made against Barooah which he has earlier dealt with, are all baseless and without any substance. Mr. Sen submits that in the facts of instant case the learned trial Judge should never have directed the sale of shares by Barooah and his group and the learned trial Judge should have either directed Khaund and his group to sell their shares by terminating their existing agreements with the company on payment of such compensation as the court considered proper or the learned trial Judge should have directed the status quo ante to continue leaving it to the shareholders to take necessary action in accordance with law. Mr. Sen, therefore, submits that the appeal should be dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Barooah would not have agreed to the same. It may indeed be true that Khaund and Mitra have proved their worth and they may have been appointed to their respective posts because of their ability. Notwithstanding, however, their merits and ability, they could never have acquired their present position, if they did not inspire and enjoy the confidence and support of Barooah who was controlling and was in a position to control the company and its affairs. 34. Barooah became a director of the company in December, 1956, and continued to remain a director of the company ever since till January, 1971, when it is contended that he ceased to be a director as he vacated his office under section, 283(1)(g) of the Companies Act. It is quite clear from the undisputed facts that Barooah hardly participated in Board meetings since his appointment as a director of the company. The facts which I have already recorded and about which there does not appear to be any serious dispute, go to show that Barooah would hardly attend Board meetings of the company and would on many occasions, absent himself for more than three consecutive meetings of the Board or for the longer period of 3 months mentione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d they finally accepted the resignation of P.K. Barooah at the Board meeting held on 4 January, 1971. 35. The above facts, to my mind, clearly establish Khaund and Mitra have deliberately taken recourse to section 283(1)(g) for the first time in history of the company mala fide with the intention of getting rid of Barooah from the Board of directors. Leave of absence had been granted to Barooah systematically for over a decades and on occasion even after the said section had become applicable and mischief had come into operation without any evidence as to such leave of absence being asked for by Barooah or by P.K. Barooah. I fail to understand why the company would take recourse to the provisions of the said section soon after Barooah's re-election to the Board at the annual general meeting held on 22 August, 1970, and particularly, at a point of time when it is clearly doubtful whether the said section has at all become applicable. If Barooah had been in the habit of asking for leave of absence in the past for over a decade of his association with the company as its director, I do not understand why Barooah who was re-elected a director after his retirement from the Board a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d and prospered without calling for any fresh capital. The only ground that has been put forward for the new allotment of 1,000 shares to Khaund after this long lapse of time is that sudden financial crisis had been precipitated as a result of debit note issued by the bank which is dated 11/12 January, 1971, and which I have earlier set out in its entirety. There is, in my opinion, force in the contention of the learned counsel for Barooah that this ground urged before us and the case sought to be made out before us in the appeal is indeed an after thought, and no such case has been properly made in the affidavits filed by Khaund and by Barooah and mere reference to the resolution of the Board of directors at its meeting held on the 14 January, 1971, is not sufficient to found this case. In any event, in the facts and circumstances of this case this ground to my mind is wholly untenable and is without any substance. The bank's debit note which is said to have brought about the financial crisis resulting in immediate necessity of funds appears to be purely a routine matter and the said debit voucher was issued as a matter of routine in the usual course of business. The bank was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... half of the appellants. The said chart clearly indicates that the company could, and in fact, did operate on the overdraft account in the usual course and cheques drawn by the company for large sums were all honoured by the bank. It is also interesting to note that the bank also made no demand on the company's account as a result of the debit voucher in consequence of the return of the bills to the company. The bank could not possibly make any demand in the view of the existing overdraft agreement between the company and the bank, the letter of the bank, dated 29 March, 1971, indicates that the bank allowed overdraft facilities in the said account for much larger sum. 37. The conduct of the parties, to my mind, also clearly indicates that there was no financial crisis, and there was no necessity for raising any immediate funds. Had there, been any such urgency, the company would certainly have made demand on the various party who were debtors to the company for payment. It is also to be noted that there was no immediate payment even by Khaund and a sum of ₹ 75,000 was paid by Barooah's concerns, soon after payment by Khaund of the a sum of ₹ 90,000 for allotm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of allotment was being done mala fide. 38. It is well settled that the directors may exercise their powers bona fide and in the interest of the company. If the directors exercise their powers of allotment of shares bona fide and in the interest of the company, the said exercise of powers must be held to be proper and valid and the said exercise of powers may not be questioned and will not be invalidated merely because they have any subsidiary, additional motive, even though this be to promote their advantage. An exercise of power by the directors in the matter of allotment of shares, if made mala fide and in their own interest and not in the interest of the company, will be invalid even though the allotment may result incidentally in some benefit to the company. In the case of Punt v. Symons Co. Ltd., Re (1903) 2 Ch 506, it was held that where shares had been issued by the directors, not for the general benefit of the company, but for the purpose of controlling the holders of the greater number of shares by obtaining a majority of voting power, the directors should be restrained from holding the meeting at which the votes of the new shareholders were to have been used. Byrne, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d under the general and fiduciary power of the directors for the express purpose of acquiring an unfair majority for the purpose of altering the rights of parties under the articles, I think I ought to interfere. 39. In the case of Piercy v. S. Mills Co. Ltd. (1920) 1 Ch 77 (Ch D), it has been held that the power to issue shares in a limited company is given to directors for the purpose of enabling them to raise capital when required for the purpose of the company -- is a fiduciary power to be exercised by them bona fide for the general advantage of the company, and when the company is in no need of further capital, directors are not entitled to use their power of issuing shares merely for the purpose of maintaining their control or the control of themselves and their friends, over the affairs of the company, or merely for the purpose of defeating the wishes of the existing majority shareholders. Paterson, J., after referring to the case of Fraser v. Whalley (1864) 2H M. 10 and the case of Punt v. Symons Co. Ltd., Re (1903) 2 Ch 506, observed at pages 84-85: The basis of both cases is, as I understand, that directors are not entitled to use their powers of issuing sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue further capital, but they will be liable if they exercise this or any other power for the purpose of maintaining their control of the company, and this notwithstanding that they honestly believe that to be in the best interests of the company. The power is delegated to them in order that they can raise money if the company needs it, not to enable them to keep themselves in the saddle. But if their primary purpose is legitimate, the action will not be invalidated, merely because they have an additional subsidiary motive, even though this be to promote their own advantage. 42. In the instant case, for reasons stated, I have held that the allotment of 1,000 shares to Khaund was not an act done in good faith in the interests of the company and the said allotment was done mala fide only with the intention of reducing Barooah who held the majority of shares in the company into a minority and of acquiring the majority holding in the company for the purpose of gaining control of the company by Khaund and Mitra. Khaund and Mitra were both clearly aware of the illegitimate purpose for which the said allotment had been made. Removal of Barooah from the Board of directors by seeking ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otherwise, the facts would justify the making of a winding up order on the ground that it was just and equitable that the company should be wound up. The court, therefore, can pass appropriate orders under section 397 read with section 402, if it comes to the conclusion that the affairs of the company are being conducted in a manner oppressive to any member or members and that to wind up the company would unfairly prejudice such member or members, but the facts would otherwise justify the making of a winding up order on the ground that it was just and equitable that the company should be wound up. The legislature in its wisdom has thought it fit not to define what is oppression for purpose of this section and it is left to courts to decide on the facts of each case whether there is any act of oppression justifying action under this section. It is, however, to be borne in mind that the oppression to the member has to be in its capacity as a member of the company and not otherwise. If a member who holds the majority of the shares in a company is reduced to the position of minority in the company by an act of the company or by its Board of directors mala fide the said act, in my o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... minishing the voting power of Barooah as the existing majority shareholder of the company. At that very meeting on 14 January, 1971, Khaund and Mitra had removed Barooah from the Board of directors by seeking to take recourse to the provisions contained in section 283(1)(g). Their position in charge and management of the affairs of the company would still, however, not be safe, because Barooah, as the majority shareholder, could assert his position, and if necessary, remove Khaund and Mitra from the Board in accordance with law. To consolidate their position and power and to grab effectively the control of the company, Khaund and Mitra found it necessary to reduce Barooah into a minority and with that sole intention the said 1,000 shares were allotted to Khaund. The said allotment, as I have already held, is mala fide, improper and invalid. The said allotment, in the facts of the instant case, has an effect which is persistent and persisting as also continuous and continuing and clearly constitutes an oppression on Barooah. The said allotment which constitutes an act of oppression on Barooah establishes that the company's affair are being conducted in a manner oppressive to Bar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is defined by the Companies Act, 1948, and by the articles of association by which the shareholders agree to be bound. In most companies and in most context, this definition is sufficient and exhaustive, equally so whether the company is large or small. The just and equitable' provision does not, as the respondents suggest, entitle one party, to disregard the obligation he assumes by entering a company, and the court to dispense him from it. It does, as equity always does, enable the court to subject the exercise of legal rights to equitable considerations; considerations, - that is, of a personal character arising between one individual and another, which may make it unjust, or inequitable, to insist on legal rights, or to exercise them in a particular way. It would be impossible, and wholly undesirable, to describe the circumstances in which these considerations may arise. Certainly, the fact that a company is a small one, or a private company, is not enough. There are very many of these where the association is a purely commercial one, of which it can safely be said that the basis of association is adequately and exhaustively laid down in the articles. The super-impositi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efly justify the application in such cases of the just and equitable clause. The question is, as always, whether it is equitable to allow one (or two) to make use of his legal rights to the prejudice of his associate(s). The law of companies recognises the right, in many ways, to remove a director from the Board. Section 184 of the Companies Act, 1948, confers this right on the company in general meeting whatever the articles may say. Some articles may prescribe other methods, for example, a governing director may have the power to remove. And quite apart from removal powers, there are normally provisions for retirement of directors by rotation so that their re-election can be opposed and defeated by a majority, or even by a casting vote. In all these ways, a particular director member may find himself no longer a director, through removal, or non-re-election; this situation he must normally accept, unless he undertakes the burden of proving fraud or mala fides. The just and equitable provision nevertheless comes to his assistance if he can point to, and prove, some special underlying obligation of his fellow member(s) in good faith, or confidence, that so long as the business cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 49. In the facts of the instant case, the winding up order though justified on just an equitable ground will undoubtedly prejudice Barooah who happens to be the majority shareholder of the company. The effect of winding up order will undoubtedly mean the loss to Barooah of one of his concerns which is otherwise a flourishing one and is of considerable advantage to him. 50. All the requirements of section 397 are, therefore, satisfied in the facts of the instant case and the said section, to my mind, is clearly applicable. I am, therefore, of the opinion that the learned trial Judge was right in applying the provisions of section 397 of the Act to the facts of the instant case. 51. I may incidentally observe that to constitute an act of oppression within the meaning of section 397 of the Act, the act complained of need not necessarily be prejudicial to the interest of the company. Section 397 provides 'that the affairs of the company are being conducted in a manner oppressive to any member or members' and does not make any provisions as to prejudice the interest of the company. Prejudice to the interest of the company is mentioned in section 398 and is a requirement of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be, is removed from the company. The requirement laid down in section 398(1)(a) is, therefore, satisfied in the instant case and the said section, therefore, becomes applicable. 53. As a result of ouster of Barooah from the Board of directors and as a result of the allotment of the said 1,000 shares, undoubtedly, a material change has taken place in the management and control of the company and also in the ownership of the company's shares'. These changes brought about by the improper and mala fide acts of removal of Barooah from the Board and reducing him to a minority by allotment of 1,000 shares to Khaund, have already prejudiced the interest of the company, as I have already indicated; and in any event, it is likely that as a result of the aforesaid improper and mala fide acts, the affairs of the company will be conducted in a manner prejudicial to the interest of the company. The requirement of section 398(1)(b) are, in my opinion, also satisfied in the instant case. The learned Judge, in my view has, therefore, rightly held that section 398 is also attracted in the instant case, as the satisfaction of the requirement contained in either (1)(a) or (1)(b) is enoug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er foundation and due consideration. 56. I shall now consider the cross-objection of Barooah. In the cross-objection filed by Barooah, his main grievance is against the order of the learned trial Judge directing him and his group to sell the shares to Khaund and his group. The learned Judge does not appear to have given any particular reason for having made that order and given that direction. It appears that the learned Judge has proceeded on the basis that as Barooah made this application to court complaining of oppression to him, he should leave the company by selling his shares to Khaund and his group who are the oppressors, so that there may not be any future and further complaint of oppression by Barooah and Barooah will be sufficiently compensated for the acts of oppression done to him by receipt of the monetary consideration to be paid to him for the shares held by Barooah and his group. Generally, speaking if an order has to be made directing sale of the shares by any member in any application under sections 397 and 398 of the Act, the party who makes the application is directed to be properly compensated for the act of oppression done to him and to sell his shares to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hareholders comes into power and management of the company. The majority shareholders by virtue of their majority will usually be in a position to redress all wrongs done and to undo the mischief done by the minority group of shareholders as it will always be possible for the majority group of shareholders to regain control of the company so long as they remain in majority in the company by virtue of the majority. Except in unusual circumstances the majority group of shareholders, in my opinion, should never be ordered or directed to sell their shares to the minority group of shareholders. An order directing the majority group of shareholders to sell his shares to the minority group of shareholders will not redress the wrong done to the majority group of shareholders and will not give him sufficient compensation or relief against the acts of oppression complained of by him, and, on the other hand, may add to his suffering and grievance and cause him greater hardship. Such an order, to my mind, will not further the ends of justice and indeed the cause of justice! may be defeated. The decision of the House of Lords in the case of Scottish Co-operative Wholesale Society Ltd. v. Meyer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to Khaund. Barooah has come to court with the main grievance that he has been wrongfully ousted from the management of the company and has been sought to be reduced to a minority in the company. If the court directs Barooah to sell his shares and to go out of the company the grievance of Barooah instead of being redressed and remedied will become permanent and ever-lasting. Barooah instead of having his just grievance redressed, will naturally and rightly feel more aggrieved. Such an order, in the facts and circumstance of this case, cannot meet the ends of justice and will be unjust. To my mind, there is no force in the contention of Mr. Dutt that Barooah because of his conduct should not be allowed to continue his association with the company and should not be permitted to come into power and take control of the affairs of the company. The main argument of Mr. Dutt has been that Barooah has no interest in the company. The main argument of Mr. Dutt has been that Barooah has no interest in the company, has drained the company of its resources by taking huge loans from the company for his other concerns, has saddled the company with various liabilities by forcing the company to stan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at in January and February, 1971, a sum of ₹ 1,50,000 had been paid to the company by the Barooah concerns. Similar is the position with regard to guarantees given by the company on behalf of other concerns of Barooah and the entire responsibility and blame, if any, for such acts must necessarily rest with Khaund and Mitra. It is not necessary and proper to consider in this proceeding about the propriety of the loans and guarantees given by the company. It is sufficient to observe that blame, if there be any, in respect of the aforesaid acts and transactions, lies not with Barooah but with Khaund and Mitra. Khaund and Mitra cannot be heard to complain of Barooah's conduct. There is further no material to indicate that the loans which have been granted by the company to various concerns of Barooah are not sound business propositions and that the company has been saddled with any liability in respect of any of the guarantees given by the company on behalf of any Barooah concern. To my mind, it appears that all these transactions were usual business transactions of the company done in the interest of the company. I may incidentally note that the company has also advanced var ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the company and in getting the full control of the company for himself and his group by paying to Barooah and his group the value of the shares held by them and price that Khaund and his group will have to pay Barooah and his group for their shares will be a much smaller amount than the sum of ₹ 1,00,000 which Khaund had to pay for the said 1,000 shares for seeking to gain control of the company. In consequence of the said order of the learned trial Judge directing Barooah and his group to sell their shares to Khaund and his group, Khaund and his group will succeed in achieving their purpose of completely ousting Barooah from the company by spending much smaller sum. Order of learned trial Judge directing Barooah and his group to sell their shares will, therefore, result in greater benefit for Khaund and Mitra who have found to be guilty of wrongful, improper and mala fide conduct, and said order will not redress the grievance of Barooah which has been found to be just and legitimate and will indeed have the effect of making him more aggrieved. The said order of learned trial Judge directing Barooah and his group to sell their shares to Khaund and his group cannot, in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udge declaring that the issue and allotment of 1,000 shares by the company to Khaund to be illegal and void and setting aside the said allotment is upheld and confirmed. 3. The order of learned trial Judge directing the special officer to investigate whether the sum of ₹ 1,00,000 was paid into the till of the company by Khaund in respect of the said 1,000 shares allotted to him and in the event of his finding that the said sum was so paid by Khaund to the company, directing refund of the said sum of ₹ 1,00,000 to Khaund is upheld and confirmed. The special officer is further directed to complete his investigation within a month from date, if he has not already completed the said investigation. 4. The order of learned trial Judge directing cancellation of the return filed by the company in respect of allotment of the said 1,000 new shares is upheld and confirmed. 5. The order of learned trial Judge directing the special officer to appoint a competent valuer for valuing the shares of the company and further order that after such valuation Khaund and his group will have the option to purchase the shares of Barooah and his group at such valuation and in the even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w Board to be so elected without any contest The election at the meeting will be confined to the three remaining directors who will be elected at the said meeting to be convened by the special officer. The special officer will act as the Chairman of the meeting to be convened by him for the election of the new Board. The special officer will stand discharged within a fortnight from the election of the new Board of directors. Pending the election of the new Board of directors in terms of this order, the special officer is directed not to spend any money of the company on any litigation without obtaining necessary sanction from the learned Judge presiding over the Company Court. The special officer will ask for and obtain such sanction on three clear days notice to the solicitors of the parties. 9. The order regarding cost of learned trial Judge is upheld. The appellants, excepting the appellant No. 1 which happens to be the company shall pay the cost of the appeal and of the cross-objection to Barooah. Certified for two counsel. 10. The special officer and all parties will act on a signed copy of the order. 11. The supplementary paperbook which have been filed on behalf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned brother in court. I have myself prepared a summary of facts and a judgment containing my reasons in the matter. I agree with the reasonings and orders of my learned brother, but I think I should also express my own views in the matter. 60. This is an appeal against the judgment and order, dated 4 December, 1972, of Salil K. Roy Chowdhury, J., in a petition, under sections 397 and 398 and 402 and 237 of the Companies Act, 1956 (hereinafter referred to as the Act) made by, Hemendra Prosad Barooah (hereinafter called 'Barooah') relating to a company called 'Tea Brokers (P) Ltd. (hereinafter called 'the company'). 61. In the petition by Barooah, respondents are the company, Bhawani Prosad Khaund (hereinafter called Khaund') the Managing Director of the company, Samar Kumar Mitra, a [director and Radha Das Mitra, a co-opted director. Before us in this appeal, the respondents are appellants. 62. In the appeal, a cross-objection has been filed by the petitioner Barooah. 63. In the composite petition under sections 397 and 398 of the Act, Barooah has prayed for several orders. I am not setting out here all the prayers made by Barooah in his petit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany on 22 March, 1971, to take inspection of the minute books and the books of accounts of the company Khaund wrongfully, and illegally refused to allow him access to the books and records of the company and contended that Barooah was no longer a director of the company. Khaund handed over a typed sheet where it was recorded : (i) P.K. Barooah, another director has vacated his office as director and the same has been filled up by the appointment of Radha Das Mitra; (ii) Barooah has vacated his office under section 283 of the Act; and (in) due to acute financial shortage of the company accentuated by the United Bank of India's debit balance of more than ₹ 2.60 lakhs without notice against overdue accommodation has resulted in the company's cheques which had already been issued being returned unpaid; and (iv) the company has purported to raise finance by issuing fresh shares and the respondent No. 2 Khaund has purchased such shares against full cash payment. Barooah then caused searches to be made in the office of the Registrar of the Companies and it transpired that a total number of 1,000 equity shares of the value of ₹ 1,00,000 was allotted to Khaund on 20 Jan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... complete deadlock in the management and affairs of the company. The respondents are threatening and intend to hold Board meeting without any reference to Barooah who is a lawful director. The wrongful act or conduct of Khaund and the said two directors had a devastating effect on the control and management and affairs of the company. The aforesaid act and conduct of Khaund and the said two directors are oppressive and designed to injure Barooah in his rights as shareholder and/or as director. It is stated by Barooah that the affairs of the company are conducted in a manner prejudicial to the interests of the company and oppressive to Barooah. He also complains that material change-has taken place in the management and control of the company by alteration of its Board of directors and/or in the ownership of the company's shares as aforesaid (the factum and validity whereof he denies and disputes) and by reason of such change it is likely that the affairs of the company will be conducted in a manner prejudicial to public interest or in a manner prejudicial to the interest of the company and oppressive to Barooah. Barooah states that; the acts and deeds of Khaund and Samar Kumar M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. The said guarantee was given at the instance of Barooah to obtain credit facilities for organisations in which he and/or his wife, and' or his relations are partners-co-owners or trustees in which he and/or his relations are vitally interested. Khaund denies the complaint made by Barooah and states that 1,000 equity shares were allotted upon payment made by him. It is denied that the issue and allotment of the said shares is illegal, ultra vires, void, inoperative, mala fide and in abuse and in excess of the powers of the directors. It is denied that there was any usurpation of the powers and function by Khaund and other two directors or that there was a complete deadlock in the management and affairs of the company. It is stated that this application by Barooah has been made with ulterior motive and is abuse of the process of the court. 71. In the affidavit-in-reply, Barooah, inter alia, stated that he had reposed immense faith in the respondent Khaund until such time when it was betrayed and/or abused by him. He said that at his instance, Khaund was appointed as the managing director of the company. On or about 23 March, 1971, he learnt that 'the coup' has bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the supplementary paperbook filed in this court. 75. On behalf of the appellants, it has been urged before us that certain averments made by Barooah in the petition are not properly verified. I do not think that there is any force in the said argument at this stage of the proceedings. The matter has been fully argued by both the parties, and reliance has been placed not only on the papers and documents which were included in the paperbook but also on several other papers and documents which are included in the supplementary paperbook filed before us. In my view, for the purpose of shortening the litigation and doing complete justice to the parties, the matter should be decided not only on the averments in the petition, but also on other papers and documents which are either proved or accepted or admitted by both the parties. 76. As this is a composite petition under sections 397 and 398 of the Act, it is necessary at this stage to refer to the relevant provisions of sections 397 and 398 of the Act. Section 397 refers to an application to court in case of 'oppression'. The counterpart of section 397 is section 210 of the English Companies Act. Section 398 refers to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... affairs of the company will be conducted as aforesaid, the court may with a view to bringing to an and or preventing the matters complained of or apprehended, make such order as it thinks fit. In order to qualify for relief tinder section 397 of the Companies Act, Barooah must show that the company's affairs are being conducted in a manner oppressive to some part of the members (including himself). He will further have to show that (a) the facts of the situation will justify the winding up of the company on the grounds that it would be just and equitable; and (b) to wind up the company would unfairly prejudice the oppressee members. 79. In order to succeed under section 398, Barooah must show that the affairs of the company are being conducted in a manner prejudicial to the interests of the company or that a material change has taken place in the ownership of company's shares and that by reason of such change, it is likely that the affairs of the company will be conducted in a manner prejudicial to the interests of the company. 80. With regard to the meaning of the word 'oppressive', a number of general definitions have been adopted by courts. Great Judge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion and the resolution, dated 20 January, 1971, which followed the same was to make alteration in the Board of directors of the company and to convert Khaund as the majority shareholder. Thus as a result of the said resolution, dated 14 January, 1971, a material change has taken place in the ownership of shares and in the management or control of the company. The question is whether there was 'oppression' of the petitioner, as member of the company? Or, whether the affairs of the company are being conducted in a manner prejudicial to the interests of the company? Is it likely that the affairs of the company will be conducted in a manner prejudicial to the interests of the company? 87. To answer these questions I have to consider the facts and events which led the two directors --S.K. Mitra, the technical director and Khaund, the managing director, to pass the said resolution in the Board meeting on 14 January, 1971, with another co-opted director, Radha Das Mitra. The event has to be considered not in isolation but in its proper sequence. 88. Appearing for the appellants, Mr. B.C. Dutt submitted that issue and allotment of 1,000 shares to the managing director Khaund ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , December, 1970. The third period is between January, 1971, till the filing of this petition by Barooah on 17 May, 1971. The fourth period is the period after filing of the company's petition in May, 1971, till March, 1973. 92. In considering the matter, I have taken note of facts and events which are either admitted or proved or at least not disputed before us. First Period 93. The company was incorporated in the month of September, 1965., with an authorised capital of ₹ 5 lakhs divided into 5,000 equity shares of ₹ 100 each. The main object of the company is to carry on business of tea broking and tea financing. The promoters of the company were S.N. Basu Mallick Samar, Mitra and A.K. Sengupta who subscribed 50 shares each. In other words, the promoters contributed ₹ 15,000 only towards the capital of the company at the time of its incorporation. It appears from the documents disclosed before us that Samar Mitra was an employee of a Barooah concern. To carry on broking business, it was necessary for the company to become a member of the rea Brokers Association. After incorporation, the company applied for broker-membership. One condition upon which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elatives, R.R., B.L., S.R. and A.N. consignment notes. The said facilities were granted by the bank on proper security. The personal guarantee of Barooah was further secured by mortgage of his Mokrung Tea Estate. 94. It appears that in course of broking business, the company gave guarantee to the tune of ₹ 27 lakhs to the Tea Board and Williamson Magor Co. The said guarantee was given to obtain credit facilities to organisations in which Barooah and/or his wife and/or his relatives and/or his partners were co-owners or trustees. Barooah and/or his wife and/or his relatives also borrowed from time to time over ₹ 16 lakhs from the company 95. By the end of the year 31 December, 1969, the Board of directors of the company consisted of P.K. Barooah, H. Barooah, S.K. Mitra and B.P. Khaund. By letter, dated 11 August, 1970, A.R. Barooah, another director, resigned from the Board of directors. In the annual general meeting, dated 27 August, 1970, the petitioner Barooah was re-elected as one of the directors. In October, 1970, Barooah floated Assam Tea Brokers (P) Ltd. (hereinafter called the Assam company). During this period, the company was well-managed by the Board ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... know what type of man is required for this purpose, But if a man capable of writing letters, answering phones and receiving buyers is sufficient, then probably, I can send someone from Jorhat office. I can also request Kamal Khaund to be there for the next one month, if you feel that he can fill the need. I am sending herewith two applications for shares. Please sign those and send two drafts, one for ₹ 10,000 and one for ₹ 2,500. In case of Tea Brokers the shares are 50% paid up. In your case, however, as you are being co-opted as director in the next meeting, the shares are 100% paid up. I am asking for your personal application stipulating the minimum qualifying shares for a directorship immediately as I want you to join the Board without any delay. Please send the forms and the drafts to our Jorhat office immediately. With best wishes, Yours faithfully, Sd. Hemen H.P. Barooah Shri B.P. Khaund, M/s. Tea Brokers (P) Ltd. 29, Ganesh Ch. Avenue, Calcutta-13. The second letter, dated 30 November, 1970, viz., the reply is as follows: 29, Ganesh Ch. Avenue. P.B. No. 8963 Calcutta-13. 30th November, 1970 Dear Hemen, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12 January, 1971. On 11 January, 1971, a letter is alleged to have been written by Khaund to Barooah by which he informed Barooah and all other directors of the company about some financial involvement of the company. This letter, dated 11 January, 1971, has been referred to in another letter, dated 15 January, 1971 by Khaund to Barooah informing him that Barooah has vacated his office as director and that he had no other alternative but to raise finance by subscribing shares for ₹ 1 lakh. Barooah disputes the fact that this letter has been sent to him or that the same was received by him. However, it is clear that the circular letter dated 11 January, 1971, which is not included in the paperbook nor has been shown to us could not have been despatched on 11 January, 1971, because the bank's letter could not have been received by the company before 12 January, 1971. On 19 January, 1971, Khaund states that he made over a cheque for ₹ 10,000 for purchase of shares. On 20 January, 1971, 1,000 shares were allotted to him and share scrips were issued and the name of Khaund was registered on 22 January, 1971. Khaund states that he paid ₹ 20,000 by cheque. 100. Bar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e when the impugned resolution dated 14 January, 1971, was passed? If there was such urgent need of money, the next question is whether the issue of 1,000 shares only to Khaund was a bona fide exercise of powers by the Board of directors. The question will also arise whether the same was done for the benefit of the company or was done only to make Khaund a majority shareholder. Mr. B.C. Dutt for the appellants submitted that the issue of shares was the result of debit balance to the extent of ₹ 2,61,500 raised by the bank. Three members of the Board of directors at the relevant time considered the position and decided to minimise the debit by raising money immediately. The court will have to consider [whether] what was done by the Board of directors on 14 January, 1971, was reasonable or not which an ordinary businessman may be expected to do. The position at that time was that there was no alternative but to bring ₹ 1 lakh to minimise the debit balance. Although the overdraft limit was to the extent of ₹ 14 lakhs, it does not mean that the bank would give overdraft to the extent of ₹ 14 lakhs. The gold-bond as further security was for ₹ 2 lakhs. There ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... director and the minutes of the resolution show that this letter caused the possibility of bouncing cheques issued by the company for want of adequate funds'. I have carefully read this letter of the bank, but it does not seem to me that this letter indicates possibility of bouncing cheques as recorded in the minutes of the Board meeting held on 14 January, 1971. This letter seems to me to be nothing but a formal letter by the bank to regularise the account, if drawn in excess. 108. By the letter, the bank did not inform the company that they are unable to continue the credit arrangement unless immediately the company arranges to deposit a sum of ₹ 1 lakh in the account. 109. In this connection, a comparison may be made with the letter, dated 29 March, 1971, written by the United Bank of India to the managing director, Tea Brokers (P) Ltd. when Barooah withdrew his personal guarantee and the mortgage of Mokrung Tea Estate to back up his guarantee. The Controller of Advances of the United Bank of India wrote: We regret to inform you that we are unable to continue the credit arrangement sanctioned in the a/c of Tea Brokers Pvt. and hereby request you to repay o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being covered by gold bond, but it appears that the limit of overdraft facilities was ₹ 14 lakhs and the same was guaranteed amongst others on the security of tea gardens belonging to Barooah. The security of Mokrung Tea Estate was then subsisting. From the statement of account relating to bank position, it appears that all the cheques were honoured. 112. From the statement of account and the balance sheet as at 31 December, 1970, it appears that loans and advances in December, 1970, made by the company amounted to more than ₹ 25 lakhs to other parties and advances to Barooah and others shows that the company has taken loan from the bank to the extent of ₹ 5,97,010.40 and has taken loan from others to the extent of ₹ 13,50,348.60. The company has made advances [to producers and sellers to the extent of ₹ 25,40,283.60. These are secured loans. The unsecured advances also were to the extent of ₹ 13,83,403.58. Advances and loans to producers and sellers including advances to Mrs. Usha Barooah was to the extent of 3,37,445.70. Advances recoverable in cash or in kinder for value to be received including advances to Barooah and Associates (P) Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39; room. S.K. Mitra then invited Radha Das Mitra to attend the Board meeting and then Radha Das Mitra joined the Board meeting. 119. With regard to this part of the minutes of the meeting held on 14 January, 1971, it appears that by a letter dated 11 August, 1970, Shri P.K. Barooah resigned from the Board of directors of the company and his resignation was accepted on 14 January, 1971. In the meeting, dated 14 January, 1971, this vacancy in the Board was filled up by co-opting Radha Das Mitra. The relationship of Radha Das Mitra and S.K. Mitra is that of father and son. It is recorded in the minutes of the meeting held on 14 January, 1971, as follows: That Shri H.P. Barooah had not been attending several consecutive meetings and had not also taken leave of absence since 10 October, 1970, and that in the past one year, he had not been attending the meetings. As such, the company is not receiving any service from H.P. Barooah as director of the company. 120. It is pointed out by the Chairman S.K. Mitra that Shri H.P. Barooah has vacated from the Board of directors under the provisions of the Companies Act. It is to be noted that there was no Board meeting on 10 October, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade by the appellants in this part of the minutes of the meetings. 128. In the affidavit of Samar Kumar Mitra affirmed on 4 June, 1971, it is stated: Since 31 July, 1970, the petitioner did not obtain any leave of absence from the Board of directors of the respondent company and as such, the petitioner vacated the office of director of respondent company and/or ceased to be a director of the respondent company by absenting himself from three consecutive meetings of the Board of directors, according to the provisions of the Companies Act, 1956. 129. But in the minutes of this meeting, it is recorded: Shri H.P. Barooah had not been attending several consecutive meetings and had not also taken leave of absence since 10 October, 1970. 130. The contention of the learned counsel for Barooah is that Khaund is trying to invoke section 283(1)(g) of the Act for the first time to suit his own purposes. Otherwise, why should not Barooah attend Board meeting in which he is vitally interested if he had notice of the Board meeting. It is argued that if Barooah had notice of the impugned Board meeting, dated 14 January, 1971, he would have done either of the two things, viz., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rector for the first time from the date of this meeting could not honestly vote, because he could not possibly know the financial difficulty with regard to the bouncing of the cheques or the difficulty for raising funds. He should have asked for adjournment to consider the matter as he could not take part in the deliberations for want of knowledge. So far as the managing director Khaund is concerned, he could not vote with regard to the part of the resolution which was adopted, viz., that B.P. Khaund is requested to subscribe for 1,000 fully paid equity shares of ₹ 100 each. He is asked to submit his application for shares with the application money of ₹ 10 per share by 19 January, 1971. Khaund should not have voted with regard to this part of the resolution as he himself was interested. Thus, it appears that although the minimum number of directors who are authorised to act at a Board meeting was there in the meeting, to constitute a quorum but still one director could not vote in respect of the resolution passed at the meeting in which he was interested, another director should not have voted because he had no necessary knowledge. On the question whether the directors ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... avit-in-reply, Barooah stated that the said notice was not served or received by him. The case of the appellant is that the said notice was duly sent to Barooah, and it is further stated that since 1969 all notices of the Board meeting were sent to directors residing outside Calcutta 'under certificate of posting'. 135. Under section 286 of the Indian Companies Act, notice of every meeting of the Board of directors shall be given in writing to every director. Such notice is essential for the validity of any resolution passed at the meeting. Mr. Dutt relied very much on a recent decision of the Delhi High Court reported in AIR 1973 Del 39 (Om Prakash Bahal v. A.K. Shroff) and submitted that a presumption arises by posting a letter in the ordinary course without registration under section 114(g) of the Evidence Act and also under section 27 of the General Clauses Act. The case of Delhi High Court relied upon by Mr. Dutt is not a case under the Companies Act, but a case of notice by a landlord against a tenant under section 106 of the Transfer of Property Act and all the three modes of service of notice -- (a) by post, (b) by delivery to the addressee at his residence, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14th January, 1971, at 10.30 a.m. to transact the following business. Agenda 1. To co-opt a director. 2. To consider about the general affairs of the company. 3. Miscellaneous. 142. The agenda in the notice does not disclose the real nature of business to be transacted in the meeting to enable Barooah to determine in his own interest whether or not he ought to attend the meeting. Mr. Dutt, in this connection, argued that it is not obligatory to have an agenda of a Board meeting nor to particularise the items of business in the agenda. 143. Mr. B.C. Dutt relied on (1896) 1 Ch 788 (La Compagnie de Mayville v. Whitley). At page 797, of the report, Lindley, LJ, observed: The great point is whether, when a directors' meeting is to be held, it is necessary to give a notice not only of the meeting, but also of the business to be transacted at the meeting. I am not prepared to say as a matter of law that it is necessary. As a matter of prudence, it is very often done, and it is a very wise thing to do it; but it strikes me, as it struck Lord Tenterden in Rex v. Pidsford, that there is an immense difference between meeting of shareholders or corporators and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re liable accordingly. But it probably makes for clarity to distinguish between an act ultra vires the directors, because they have usurped a power which they never had, and an act which prima facie is within the powers delegated to them, but, they have abused by exercising it for an improper purpose. Occasionally; their purpose may be improper because it is illegal or contrary to public policy. More often the impropriety will merely be because this purpose is not that contemplated by the article conferring it. Thus the directors will normally be authorised to issue further capital but they will be liable if they exercise this or any other power for the purpose of maintaining their control of the company and this notwithstanding that they believe that to be in the best interest of the company. The power is delegated to them in order that they can raise money if the company needs it, not to enable them to keep themselves in the saddle. But if their primary purpose is legitimate, the action will not be invalidated merely because they have additional subsidiary motive even though this be to promote their advantage. 148. With regard to the issue and allotment of 1,000 shares to Kha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the meetings were held, resolve that shares are, on the faith of this obsolete power entrusted to them for a different purpose, to be issued for the very purpose of controlling the ensuing general meeting. I have no doubt that the court will interfere to prevent so gross a breach of trust. 149. It seems to me that this is a case of abuse of powers by directors. The facts of this case indicate an element of manipulation or at least impropriety in passing the impugned resolution with undue haste. It cannot be said that the impugned resolution was passed for the benefit of the company as a whole. In my view, the principle in Punt's case applies under the facts of this case. 150. The allotment of shares, according to Mr. Sen, is also illegal for two reasons : (a) this was made in violation of the common law pre-emptive doctrine of the right of every shareholder to participate in new shares; and (b) under article 27 of the articles of association, the company in general meeting may increase the capital and issue new shares. A new article has been introduced, namely, article 50A which provides: 50A. The management of the business of the company shall be vested in the dir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er observed: This is not a fruit of stock ownership, in the nature of a profit; nor does it amount to a! division of any part of the assets of the company. It is not an organic product of the original stock like the young animals or the fruit of trees, but, as described by the Supreme Court of America in 'Miles v. Safe Deposit Trust Co. (1921) 66 Law Ed. 923', at page 926(c), this right to subscribe to new stock is but a right to participate in preference to strangers and on equal terms with other existing shareholders in the privilege of contributing new capital called for by the corporation -- an equity that inheres in stock ownership under such circumstances as a quality inseparable from the capital interest represented by the old stock. The exercise of the privilege depends on the option of the shareholder. If he likes, he can invest further money and purchase a proportionate share of the new issue of capital. He is of course not obliged to do so. He has also the right to assign the offer made to him in favour of any other person; but in that event the directors have the option to allot or not to allot the shares to the person in whose favour the shareholder renoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l interest represented by the old stock, recognised so universally as to have become axiomatic in American Corporation Law. Evidently, this inherent equity was recognised in the statute and the resolution under which the new stock here in question was offered and issued. 153. Mr. Sen also referred to the book 'Modern Corporation Law', vol. I, by Howrah L. Oleck, at page 50, section 202, where the following passage occurs: Issuance of New Stock, Merger and Consolidation A common method by which the majority can act to the prejudice of the minority interest is by issuing new stock without giving the minority owner an opportunity to purchase his proportionate share of the new issue. Such an action not only reduces the minority owner's voting power, but also dilutes his percentage interest in the corporate assets. To prevent such a result, a corporate shareholder has a common law pre-emptive, or interest right to purchase his pro rata share of the new stock. If the pre-emptive right is violated, he can sue the corporation for damages, enjoin the stock issue, obtain an order permitting him to subscribe or obtain a cancellation of the issue. However, because the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... areholder and he controlled the company. If Barooah was displeased with him, he must have realised that he could only continue as managing director subservient to Barooah. He must have realised that unless he could convert Barooah into a minority shareholder or, in other words, he could make himself majority shareholder, he will have no other alternative but to act under his direction; and, therefore, what he did was to get the impugned resolution passed by which further 1,000 shares were issued and the same were allotted to him alone on the plea of urgent need of funds by the company. I have no doubt, in my mind, that the said exercise of powers by Khaund along with S.K. Mitra and (his father Radha Das Mitra was made for improper motive, namely, to make Khaund a majority shareholder. I accept the case made by the respondent Barooah in his petition that Khaund along with S.K. Mitra and Radha Das Mitra made a plan to oust Barooah. 157. In this connection, reference may be made to the case of Piercy v. S. Mills Co. Ltd. (1920) 1 Ch 77 (Ch D) where directors, who controlled merely a minority of the voting power in the company allotted shares to themselves and their friends not fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whether section 397 applies. 162. In my opinion, the facts of this case indicate that the company's affairs were conducted in a manner oppressive to Barooah, qua member. In this connection, I will also rely on the Bench decision of this court in Ramashankar Prasad and others v. Sindri Iron Foundry (P) Ltd. and others 70 CWN 520. 163. As to whether section 397 also applies, further question is whether facts of this case would justify the making of a winding up order under the just and equitable clause. Mr. Dutt argued that the facts of the case would not justify the making of the winding up order on just and equitable grounds. Mr. Dutt strongly relied on the case Cuthbert Cooper and Sons Ltd., Re, reported in (1937) 2 All ER 466 (Ch D), at page 398, where Simonds, J., observed: Whether it be a matter of articles of association or articles of partnership, the rights of the parties are determined by those articles, and the question whether it is right for me applying here the principles of partnership to the question of dissolution to wind up this company or not, largely depends on what are the contractual rights of the parties as determined by the articles of associati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o doubt partly a question of fact on which, even though my own view is clear though I should respect the opinion of the trial Judge; but, this matter apart, I am unable to agree as to the undue emphasis he puts on the contractual rights arising from the articles over the equitable principles which might be derived from partnership law, for in the result, the latter seem to have been entirely excluded in the former's favour. I think that the case should no longer be regarded as of authority. Lord Wilberforce then referred to in Lundie Bros. Ltd., Re (1966) 1 Comp.L.J. 30 (Ch D) : (1965) 2 All ER 692 (Ch D) : (1965) 1 WLR 1051, at page 1295 of WLR, of the report and observed: This was a case where the petitioner, one of three shareholders and directors, was excluded from participation in the management and from directors' remuneration. Plowman, J., applying partnership principles made a winding up order under the just and equitable clause. If that decision was right, it assists [the present appellant. The Court of Appeal in the present case disagreed with it and overruled it, insofar as it related to a winding up. The respondent argues that this was the first case wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able provision nevertheless comes to his assistance if he can point to, and prove, some special underlying obligation of his fellow member(s) in good faith, or confidence, that so long as the business continues, he shall be entitled to management participation, an obligation so basic that, if broken, the conclusion must be that the association must be dissolved'. 167. It seems to me that the principle enunciated in Ebrahitni's case lays down the trend of the latest judicial concept in the matter. Judicial concept progresses in a changing society. The speech of Lord Wilberforec is a very useful guide in this respect. 168. In my view, the principles laid down in Ebrahimi's case, may be applied in the instant case. It seems to me that under the facts of this case winding up remedy is permissible on equitable ground although the directors apparently exercised their powers under the articles of association in the Board meeting. What facts would render the 'just and equitable' ground for winding up of a company cannot be resolved under a particular set of categories. It depends upon the facts of each case. 169. It seems to me that an unjustified exclusion of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he acted against the interest of the company. Mr. Dutt argued that Barooah opened another company, namely, Assam Tea Brokers (P) Ltd. at Gauhati in September, 1970, solely with the object of diverting good part of the business of the company. There was persistent opposition by Barooah to membership of the company in Gauhati Tea Auction from May, 1971, as a member of the Gauhati Tea Auction committed until the membership was allowed in April, 1972. He withdrew guarantee of ₹ 14 lakhs jointly given with Khaund and S.K. Mitra with the object of crippling the company's financial sources. He attempted to create dissatisfaction amongst the employees of the company in November/December, 1970, in the name of holding discussion with the employees' representative and persuaded them to change over to Assam Tea Brokers (P) Ltd. He instituted proceedings for the purpose of harassing the company. He rejected bona fide settlement at the intervention of eminent persons and, lastly, he attempted to create bad name by this proceeding under sections 397 and 398 of the Act. 175. I do not think that Barooah is disentitled to relief under sections 397 and 398 of the Act, as submitted by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt and it is well exercised in making an oppressor make compensation to those who have suffered at his hands. 178. It is true, under the facts of the above case, the court gave leave to the oppressor to buy out the oppressed shareholder. But, in my view, each case has to be decided on its own facts. Sections 397 and 398 and 402 have given discretionary power to court and the discretion has to be exercised on the facts and circumstances of each case. In the instant case, I cannot allow Khaund to purchase the shares of Barooah because, if I do this, I will be doing great injustice to Barooah who has started this company, had majority shareholding and controlled the company from the inception, as such majority shareholder. The actual management was entrusted in the hands of his friend Khaund. It is unfortunate that for some reasons, Barooah and Khaund had differed. Only by the impugned resolution, Khaund became the majority shareholder. If I pass an order to allow Khaund to buy out the shares of Barooah, I do not think that Barooah could be compensated properly. If, on the other hand, the impugned resolutions, dated 14 and 20 January, 1971, are set aside and the company is resto ..... X X X X Extracts X X X X X X X X Extracts X X X X
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