9911796707
TMI Blog1974 (2) TMI 97X X X X Extracts X X X X X X X X Extracts X X X X ..... which is to reduce Barooah who 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. C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ivided into 5,000 shares 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 ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terms and conditions 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as 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 to be a bit nervous on the pressu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccepted 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'-- (i) To co-opt director, (ii) To consider the general affai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing 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 Board considered the matter carefully and in detail and thought it fit to issue shares if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter. 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 director, and Sri Biren Das, accountant of the company, who is specially authorised to sign share certificate and the common seal of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arned 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 failed to attend the Board meeting of the company held on 12.10.70, 26.10.70, 16.1.70 and 4.12.70 notwithstanding due service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6th 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 following statement made by Mr. Barooah in paragraph 9 of affidavit-in-reply affirmed on the 11th of July, 1972: "So fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 determined by or in accordance with the regulations of the company and to vary, modify or abrogate any such rights, privi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 1,000 shares to Khaund was absolutely bona fide made only in the interest of the company. He contends that in consequence of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 by Barooah, he has nowhere made the case that the company did not require any funds and it was not necessary to issue and allot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lder 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 the provisions of this section by reason of his being the holder of a certain number of shares in the company, to obtain shares in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 farthing to the company from his own pocket and the shares that he has acquired in the company have been acquired by him really out of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 affairs of the company will be conducted in a manner prejudicial to the interests of the company, may apply to the court for an order under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompanies 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. Dutt next contends that the act of allotment of the shares is lawful, legitimate and is clearly justified by the urgent necessity of raising ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 mala fide intention of causing further damage to the company Barooah has made this application on false and frivolous allegation which he has n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p 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 with the said two other persons were the promoter-directors of the company and Barooah came into the company by virtue of the agreement of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a 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 up. 14. Mr. Dutt has next contended that the provisions of section 398 of the Act cannot also be attracted in the instant case. It is his con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 English [Companies] Act of 1948 which correspond largely to the provisions contained in section 397 of the Companies Act of 1956. Mr. Dutt has als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) 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. 157 (Cal) : 73 CWN 425. (41) Raghunath Swamp Mathur and others v. Har Swamp Mathur and others (1970) 1 Comp.L.J. 35 (All). (42) Navnitlal Manilal Shah and another v. Atul Drug House and another (1970) 2 Comp.L.J. 274 (G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any 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 company, as in such a case the company will suffer serious prejudice and the amounts advanced to various Barooah concerns by the company will never be recovered. Mr. Dutt has argued that Barooah by filing this application has made himself unfit to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany 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 company. The learned counsel appearing on behalf of Barooah has drawn our attention to the minutes of the various Board meetings commencing from December, 1956, when Barooah first became a director of the company and has pointed out that Barooah hardly att ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, Khaund who was a good friend of Barooah, that Barooah had gone to England leaving in the hands of Khaund the affairs of Assam Tea Brokers (P) Ltd., Barooah's newly started concert in Assam and Khaund had clone all that was necessary on behalf of Mr. Bar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 learned counsel has commented that in the aforesaid five consecutive Board meetings spreading over a period of over six months both Barooah and P.K. Barooah were absent and it does not appear form the minutes that any leave of absence was granted to them. It i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 26.10.70, 16.11.70 and 4.12.70 were served on Barooah, Barooah could not have vacated his office under the provisions of section 283(1)(g) till 26.1.71 as the longer period of three months would expire on that date, namely, 26.1.71. The word 'month&# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid 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 counsel has further argued that the allotment of shares is also illegal as the said allotment is in violation of the law which requires that whenever any new shares are issued and allotted the same must be offered to the existing shareholders in pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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 curtailed and used to be curtailed by the articles of the company and the shareholders who undoubtedly possessed the right to participate in the further issue of capital independently of any statutory provision, would be deprived of the said rig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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, from time to time, increase the capital and issue new shares on terms and conditions as may be deemed expedient." The learned counsel contends that article 27 refers to the capital structure of the company, whether authorised, issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 allotment and having the same upheld in the absence of any necessity for the same has sought to make out the said case in course of the arguments, although no such case has been made out in the affidavits. The learned counsel has submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te 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 possibly could not dishonour any such cheque in view of the existing overdraft agreement with the bank. Drawing our attention to the statement which appears at page 5 of Part II of the supplementary paper book the learned counsel has commented ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, dated July 6/8, 1957 at pages 2/3 of Part II of the supplementary paperbook and the letter, dated 20.3.1969 at page 4 of the said supplementary paperbook and the learned counsel has argued that, the said letters clearly indicate the nature of overdra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aterial 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 office of the company'. 'RESOLVED FURTHER that the necessary entries in respect of the allotment of the shares be made in the register of the company and necessary return of allotment be filed with the Registrar of Companies'. 'RESOLVE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Iron Foundry (P) Ltd. (1964) 68 CWR 118 and the decision of the court of appeal in the case of Ramashankar Prasad and others v. Sindri Iron Foundry (P) Ltd. and others (1966) 1 Comp.L.J. 310 (Cal) : 70 CWN 520, which upheld the decision of B.C. Mitra, J., in suppor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 that removal of Barooah from the Board of directors is clearly an act of ouster of Barooah from the management of the affairs of the company. This act of ouster of Barooah from the management of the affairs of company and the further act of trying to grab the comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 incorporation was not in a position to commence its business before Barooah came into the scene and procured the necessary guarantee. He comments that the United Bank of India agreed to allow overdraft facilities to the company to the extent of ₹ 14 lakhs mainly because of the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ged 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 concerns had been making regular payments to the company and had in fact made two payments of ₹ 75,000 each -- one in January and another in February, 1971, but in view of the wrongful and improper act of Khaund and Mitra in seeking to oust Barooah from the company the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 company's interests have already been seriously prejudiced. Mr. Sen, therefore, submits that the requirements of section 398 are also satisfied in the instant case. 28. In support of various submissions made by Mr. Sen he has referred to and relied on various decisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny 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 controlling interest of the company and has been a director of the company since December, 1956, and has hardly attended the Board meetings of the company and Mr. Sen argues that it is impossible to contend or suggest that Barooah had acquired the controlling interest of the company an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 February, 1971. Referring to the minutes of the Board meeting Mr. Sen has submitted that position is the same with regard to guarantee given by the company on behalf of the concerns in which Barooah is interested and the resolutions for giving such guarantee were adopted at Board me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h, 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 preferred by Barooah with regard to the part of the learned trial Judge's order directing Barooah to sell his shares to Khaund and Mr. Sen has argued that this part of the order of the learned trial Judge is clearly untenable. Mr. Sen has argued that a majority shareholder no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urisprudence. 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, improper and mala fide, it was the duty of the court to make such an order as would remove the just grievance of Barooah. It is the grievance of Mr. Sen that the learned trial Judge has, however, made an order which instead of removing the just grievances of Barooah adds to his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ciating 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 dismissed and cross-objections should be allowed. 31. The case has undoubtedly been presented on very a wide canvas and has been argued at great length in various aspects, as I have already noted. To my mind, however, the real problem lies within a reasonable compass. The two prin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sent 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 mentioned in section 283(1)(g). On many occasions the grant of leave of absence to Barooah would be recorded in the minutes of the Board meeting to avoid the mischief of the provision contained in section 283(1)(g) operating against him and even on occasions which I have earlier noted, such leave o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tention 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 at the annual general meeting held on the 22 August, 1970, would not ask for such leave of absence from the Board meeting which he had not attended. The only possible explanation, to my mind, is that either Barooah was not served with the notices of the Board meetings or the arrangement was th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 returning to the company certain bills which had been made over by the company to the bank for collection on the basis of agreement and arrangement between the company and bank. On the basis of arrangement between the company and the bank in the overdraft account, the agreed percentage of the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 allotment of the (shares to him. The case of prior intimation by the bank to the company over the telephone and Khaund's discussion with the bank authorities, does not impress me at ail. Had this been true, there would certainly have been a mention of this fact in the minutes of the Board meeting h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st 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, J. observed at pages 515-516: "I am quite satisfied that the meaning, object and intention of the issue of these shares was to enable the shareholders holding the smaller amount of shares to control the holders of a very considerable majority. A power of the kind exercised by the direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (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 shares merely for the purpose of maintaining their control or the control of themselves and their friends over the affairs at the company, or merely for the purpose of defeating the wishes of the existing majority of shareholders. That is, however, exactly what has happened in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted 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 to invoke the provisions of section 283(1)(g) and reducing him into a minority in the company at the same time by Khaund and Mitra at the Board meeting held on 14 January, 1971, to my mind, indicate and establish that there had been a deliberate plan or design on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 opinion, must ordinarily be considered to be an act of oppression to the said member. The member who holds a majority of the shares in the company is entitled by virtue of his majority to control, manage and run the affairs of the company. This is a benefit or advantage which the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Barooah. 47. The facts and circumstances of the case, to my mind, indicate and establish that the court would be justified in making a winding up order on the ground that it was just and equitable that the company should be wound up. The simultaneous act of removal of Barooah from t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 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-imposition of equitable considerations requires something more, which typically may include one, or probably more, of the following elements : (1) an association formed or continued on the basis of a personal relationship, involving mutual confidence -- this element will often be found whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ays, 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 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." 48. In the instant case, the company might not have been formed to take over the assets of a partnership. B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 section 398. In the facts of the instant case, however, the acts complained of are, in my opinion, also prejudicial to the interest of the company as I shall indicate presently. 52. I now propose to consider whether section 398 is attracted to the facts of the instant case. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lotment 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 enough to attract the section. In the instant case, the requirements of both are indeed satisfied. 54. In view of my aforesaid findings, I must, therefore, hold that the learned trial Judge was right in applying the provisions of sections 397 and 398 to the facts of the instant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the party who does the act of oppression, so that the party oppressed may not be oppressed by the oppressor in future. This direction is generally given because the party who is oppressed and who makes the application to court complaining of such acts of oppression is usually in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ority 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 and another (1958) 3 ALTER 66 (HL): (1959) AC 324 (HL), relied on by Mr. Dutt is, in my opinion, no authority for the proposition that whichever party comes to court with an application complaining of acts of oppression to the said party, must necessarily be directed and ordered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vance 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 stand as surety or guarantee on behalf of other concerns of Barooah and has injured the business of the company by withdrawing the guarantee given by him to the bank and by starting a rival business concern and Barooah's interest is in conflict with the interest of the company. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h 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 various large sums of money to various other parties. I have already held that starting of Assam Tea Brokers (P) Ltd. by Barooah at Assam does not indicate that Barooah has lost interest in the company. The said company cannot be considered to be a rival company and it cannot be sai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 facts and circumstances of the case, be considered to be a just order. The said order cannot, therefore, be upheld and must be set aside and the cross-objection preferred by Barooah must succeed. I, therefore, set aside the order of the learned trial Judge directing Barooah and his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 00 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 event of Khaund and his group not being able or willing to buy the shares, Barooah and his [group will have the option to purchase the shares is hereby set aside. There will be no order or any direction on any of the parties to buy or sell the shares held by them. 6. The order of the learned t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 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 of the parties at the hearing of the appeal are directed to be kept on the records. It is to be noted that the parties have not objected to and have agreed to many of the documents contained in supplementary paper books filed on behalf of the parties as being exhibited in the appeal. The said documents ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 petition. In substance, the main prayers of Barooah are, inter alia, for a declaration that the purported issue and allotment of 1,000 equity shares to the managing director Khaund are illegal, void and inoperative and for a declaration that the purported appointment and/or co-option of Radha Das Mitra is illegal, void and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed : (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 January, 1971. A return of allotment was filed by Khaund on or about 7 February, 1971. The case of Barooah is that the said purported issue and/or allotment of shares is illegal, ultra vires, void and mala fide. Barooah says that he had no notice or knowledge of the alleged Board meeting at which the alleged issue and/or allot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany. 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 Mitra and Radha-Das Mitra are wrongful, illegal and fraudulent and are harsh and burdensome to him and/or detrimental to the interest of the company and the petitioner. It is also stated that the company is a small private limited company in the nature of partnership. The shareholders and/or directors have lost confidence amongs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 been staged against him and as a result of machinations, stated in his affidavit (that) he was converted into a minority shareholder and also was ousted from the Board. 72. The learned Judge in the court below relied on a Bench decision of this court reported in 70 CWN 520 (Ramashankar Prasad and others v. Sindri Iron Foundry (P) Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es, 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 an application to court in case of 'mismanagement'. This section has no counterpart in the English Act. 77. Section 397 as far as it is material for the purpose of this application, reads: "397. [Application to court for relief in cases of oppression.--]. (1) Any members of a company, who complain that the affairs of the compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Judges have defined the said word in the corresponding section of the English Companies Act, as 'burdensome, harsh and wrongful', 'an element of lack of probity and fair dealing' and 'a visible departure from the standard of fair dealing and violation of the condition of fair play'. 81. These definitions are in general terms. It seem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y. 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 was not made with a view to reduce the petitioner Barooah to minority shareholder and to get complete control of the company, but the resolution was passed legally. The issue of the said shares was made as a result of debit raised by the United Bank of India. The company was in urgent need of funds at that time and the Board of directors thought that it was for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 the Committee of the Tea Brokers Association at Calcutta could consider the application was that the company should furnish the Committee of the said Association with a bank guarantee of ₹ 2 lakhs. This was done by Barooah. He was by occupation a tea planter. He entered into an agreement with the company on 12 October, 1955, for such guarantee by the bank. The said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 of directors. Barooah who was a director from the inception of the company and had the majority shareholding and controlling interest in the company had complete faith and trust in his friend Khaund who was in management of the company as the managing director. During this period, Barooah was not regular in his attendance to the Board meetings. He absented himself from the Boa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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, I am sorry that you could not visit Gauhati on the 26th. I expected you greatly. I have received your letter with regard to the ATB share drafts and thought, you will advise me of the final shape at Gauhati. As you know, the question is of vital importance to me. Please advise me if you are coming to Calcutta within the next few days. Alternatively, please phone me, giving a date so that I may go to Jorhat. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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. Barooah says that he came down to Calcutta on 27 January, 1971. His allegation is that there was wrongful refusal of the inspection of the minute books. He was given a typed sheet of paper by Khaund. Then he caused searches to be made at the office of the Registrar of Companies and ascertained that 1,000 shares were allotted to Khaund on 20 January, 1971. Barooah then obtained consent of supporting shareholders. On 29 March, 1971, Barooa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Therefore, money was immediately needed at least for ₹ 1 lakh. The only person who was willing to pay was Khaund, and he will not pay without shares being allotted to him. No other known source or avenue of getting the money was available at that time. 105. Mr. B.C. Dutt in course of his argument placed before the court, a letter from the bank, dated 11/12 January, 1971, to show that there was debit of ₹ 2,61,500 in the bill discount of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ourdues outstanding as at the close of business of 27.3.71 amounting to a ₹ 2,45,550 immediately since the guarantees given by Sri Barooah stands determined, operations in your existing overdraft a/c is being suspended and we will also not be in a position to allow withdrawal of any amount credited to this a/c." 110. From the statement of bank position of the company, it appears that on 12 January, 1971, after debit by the bank of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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. was to the extent of ₹ 8,49,330.91. Advances to M/s. S. Barooah Family Trust was ₹ 4,63,858.32. 113. Thus, it appears that by the end of 1970, although Barooah loans were to the extent of not less than ₹ 17 lakhs and non-Barooah loans were over ₹ 20 lakhs, there was no letter of demand for realisation of the money and no information about the urgent financial stringency of the company was given to Barooah. 114. It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, 1970. In the affidavit affirmed by Samar Kumar Mitra on 4 June, 1970, it is stated that Barooah did not obtain leave of absence since 31 July, 1970. 121. With regard to this part of the resolution the question is whether Barooah vacated his office under section 283(1)(g) of the Companies Act, 1956 for non attendance with leave, and if so, when? 122. Under section 283(1)(g) of the Act, the office of the director shall become vacated if he absents h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eetings 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., either he would have attended the Board meeting or he would have asked for leave. This contention of the learned counsel for Barooah seems to me to be legitimate inference from the circumstances of the case and I accept the same. 131. Again, in the minutes of the impugned Board meeting, it is recorded: "that in the past one year, he (Barooah) had not been attending the meeting. As such, the company is not receiving any service from Shri H.P. Baro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 have passed the resolution bona fide and for the benefit of the company it seems to me that these are relevant points to be taken note of. 133. Assuming, it was necessary, on 14 January, 1971, to issue shares to Khaund, the managing director in the exercise of powers given to the directors under article 50A of the articles of association of the company, because the bank had debited ₹ 2,61,800 in the company's account, a question may a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iting 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 (c) by affixation to a conspicuous part of the property were adopted by the landlord. The notice was sent in that case also by registered post. 136. Presumption as to service of notice under section 27 of the General Clauses Act also arises if the same [i.e., the notices] were sent by registered post. Admittedly, in this case, the notice was not sent by registered post. 137. With regard to sending of the notice under certificate of posting, I d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gatory 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 meeting of those whose business it is to attend to transaction of the affairs of the company or corporation. It is not uncommon for directors conducting a company's business to meet on stated days without any previous notice being given either of the day or of what they are going to do. Being paid for their services -- as; they generally are, as is the case in the company -- it is their duty to go when there is any business to be done and to attend to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se 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 Khaund by the impugned resolutions, Mr. S.C. Sen submitted that this is a case of abuse of legal power, and it has been done with undue haste. There is an element of manipulation under the facts of this case which will show that this was done for the purpose of grabbing power and, therefore, according to Mr. Sen, this is a case of oppression of the petitioner. In this connection, Mr. Sen, referred to Punt v. Symons & Co. Ltd., Re (1903) 2 Ch 506. In that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opriety 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 directors, and the directors may exercise all such powers and do all such acts and things as the company is, by its memorandum of association or otherwise, authorised to exercise and do, and are not hereby or by statute directed or required to be made, exercised or done by the company in general meeting, but subject nevertheless to the provisions of the Act, and of these presents and to any regulations not being inconsistent with these presen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 renounces the shares offered to him. The offer, of course, creates fresh rights, but it 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 shareholding but in order to obtain that right he has to fulfill certain obligations and he has to incur certain liabilities." The said observation of the Supreme Court was m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g 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 pre-emptive right proved to be unwieldy in many stock issue situations, several exceptions have developed. The pre-emptive right is almost universally recognised as an issue of newly authorised stock which is being sold for cash. The right may be recognised in an additional issue of originally authorised stock, but sometimes, it is not extended to such an issue. Other exceptions have arisen where the stock is issued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 for the general benefit of the company, but merely with the intention of thereby acquiring a majority of the voting power and of thus being able to defeat the wishes of the existing minority of shareholder, it was held that, even assuming that the directors were right in considering that the majority's wishes were not in the best interests of the company, the allotments were invalid and ought to be declared void. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould 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 association in this case." The argument of Mr. Dutt is that the directors have passed the resolution under the rights conferred on them by the articles of association and, therefore, the case for dissolution of the partnership on just and equitable ground cannot apply when powers are exercised under the contractual rights given under the articles. He stressed on the word 'largely' in view the judgment of Simonds, J., in Cu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. 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 where exclusion of a working director, valid under the articles, had been treated as a ground for winding up under the just and equitable clause and that as such, it was an unjustifiable innovation." Lord Wilberforce in his judgment referred to several English cases and further observed at page 1296 as follows: "This series of cases, and there are others, amounts to a considerable body of authority in favour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at 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 Barooah in the manner in which it has been done in the instant case is a ground for winding up under the just and equitable clause. It does not make any difference whether there was originally a partnership or whether the partnership is a small one or not. 170. In my view, the facts of the instant case will justify the making of a winding up order on the ground that it is just equitable that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 Mr. Dutt. It is true that Assam Company was floated but this does not mean that the said company was floated with the object of diverting the business of the company. Khaund himself wanted to join the Assam company, but could not agree to the terms; that is why he did not join. I am not satisfied that there was any diversion of business of the company by any activities of Barooah. I cannot also accept that B ..... X X X X Extracts X X X X X X X X Extracts X X X X
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