9911796707
TMI Blog1970 (9) TMI 126X X X X Extracts X X X X X X X X Extracts X X X X ..... clause (3) of the Memorandum of Association. The company is the holder of a licence granted under the Indian Electricity Act. The subscribed and paid up share capital of the company is ₹ 2,10,000/- divided into 21,000 ordinary shares of ₹ 10/-- each, and ₹ 40,000/- divided into 4,000 preference shares of ₹ 10/- each, The respective shares which are held by the plaintiffs share-holders are 3,983 ordinary shares and 500 preference-share. The plaintiffs between themselves hold more than 10 per cent of the total paid up share capital of the Company who was the defendant No. 1 in the suit. The defendant No. 2 Sana-tan Daw is the Managing Director of the Company and the defendant No. 7, Joydev Daw is the son of the defendant No. 2. The dispute between the parties is with regard to the appointment of the defendant No. 7 as the Chief Accountant of the Company. 2. The defendant No. 7, Joydev Daw was appointed as the Chief Accountant of the Company on and from June 25, 1960. As the defendant No. 7 is the son of the Managing Director, the defendant No. 2, and the total remuneration of the defendant No. 7 was fixed at ₹ 500/-, a special resolution of the genera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 314. 4. On October 22, 1962, for-the purpose of regularising the said subsequent appointments a special resolution was passed in the Extraordinary General Meeting of the share-holders and the increments which were granted to the defendant No. 7 were approved of by the Company in the general meeting. The plaintiffs have also challenged this resolution dated October 22, 1962, as illegal, invalid and void. Further the Managing Director having violated the provisions of Section 314 of the Act by giving subsequent, appointments to his son, the defendant No. 7 without the prior sanction of the* general members of the company, the Managing Director and his son defendant No. 7 should be deemed to have vacated their respective offices with effect from the first of such subsequent appointments, that is, from April 1, 1961. On the aforesaid allegations the plaintiffs prayed for the following reliefs in the plaint- a) Leave under Order 1 Rule 8 of the C.P.C. b) Leave under Order 2 Rule 2 of the C.P.C. c) Declaration that the defendant No. 2 has vacated his office and/or is to be deemed to have vacated his office of Managing Director and Director of the defendant company as from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was not maintainable by the plaintiffs and that the Civil Court had no jurisdiction to try the suit. ' 6. The learned Subordinate Judge came to the conclusion that the suit was maintainable; that the Civil Court had jurisdiction to entertain and hear the suit. The learned Subordinate Judge also came to the finding that there was no violation of the provisions of Section 314 of the Act. In that view of the matter the learned Subordinate Judge dismissed the plaintiffs' suit. 7. On appeal by the plaintiffs, the learned Additional District Judge was of the view that the defendants Nos. 1 and 7 had violated the provisions of Section 314 of the Act. The learned Additional District Judge held that each subsequent increment that was granted to the defendant No. 7 was tantamount to a subsequent appointment within the meaning of the Explanation to Section 314 and that such subsequent appointments having been made without the prior consent of the company in general meeting, both the defendants Nos. 2 and 7 should be deemed to have vacated their respective offices with effect from April, 1961. He also came to the findings that the suit was maintainable and that the court had jur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ill refuse to interfere at the instance of a share-holder even in a suit brought in a representative capacity. But, the question is, if the majority acts in an oppressive manner or does an act which is ultra vires the company, whether the minority has any remedy against the same. There is no difference of opinion that a suit at the instance of the company is always maintainable, but if the majority of the share-holders act, illegally, they will not permit the minority share-holders to use the name of the company for any suit for the purpose of correcting the illegal acts done by the majority or for any other relief against them. In (2) Stroud v. Lawson and o₹ 1898 2 Q.B. 44, the plaintiff, a shareholder sued the directors of the company on behalf of himself and all other share-holders in the company, on the ground that the defendants other than the company declared and paid a dividend on the shares of the company out of capital, which was ultra vires, and he claimed that they should put back the money which was so paid, not into his own pocket, but into the coffers of the company for the benefit of the share-holders as a body. In that case, the plaintiff also on his own behal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... complained of is merely irregular and not when it is ultra vires. The decision in Dhanuka's case has been approved by the Privy Council in an appeal from the decision in that case (See AIR 1950 Privy Council 80.) 13. It is now an accepted principle of law that where an act by the majority of the share-holders is merely irregular and can be rectified by the majority of the share-holders., an action is not maintainable against that act, but if the act is ultra vires the company itself and is beyond the powers of the members of the company or its shareholders to ratify that act or to rectify the same, an individual member of the company may sue the company and its directors, for himself and on behalf of the other share-holders for declaring that act as illegal and for consequential reliefs. In such actions, however, the plaintiff has no larger right to relief than the company would have as plaintiff. 14. Some other English decisions were cited at the Bar. We, however, prefer to refer to the following passage from Halsbury's Laws of England (3rd Ed. Vol. 6, page 418, paragraph 810) which contains a summary of the law on the point:-- The court has no jurisdiction to in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iction has been conferred on any District Court or District Courts subordinate to that High Court in pursuance of sub-section (2); and (b) where jurisdiction has been so conferred, the District Court in regard to matters falling within the scope of the jurisdiction conferred, in respect of companies having their registered offices in the district. (2) The Central Government may, by notification in the Official Gazette and subject to such restrictions, limitations and conditions as it thinks fit, empower any District Court to exercise all or any of the jurisdiction conferred by this Act upon the Court, not being the jurisdiction conferred-- (a) in respect of the companies generally, by Sections 231, 391, 394, 395 and 397 to 407, both inclusive. (b) in respect of the companies with a paid-up share capital of not less than one lakh of rupees, by Part VII (sections 425 to 560) and the other provisions of this Act relating to the winding up of companies. (3) For the purposes of jurisdiction to wind up companies, the expression registered office means the place which has longest been the registered office of the company during the six months immediately preceding th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing jurisdiction to deal with any matter provided for in those other provisions. 17. Mr. Banerjee relied upon a decision of the Madhya Pradesh High Court in (6) Nava Samaj Ltd., Nagpur v. Civil Judge, Class I, Rajnandgaon, AIR 1966 M.P. 286. It has been held in that case that the provisions of section 2(11) and Section 10 of the Act, exclude the jurisdiction of other courts in regard to matters covered by the Act. With great respect, we are unable to agree with the said decision of the Madhya Pradesh High Court. In our view, on a proper construction of the provisions of Section 2(11) and Section 10, it must be held that the Act does not altogether exclude the jurisdiction of the civil court. As already stated above, when any provision of the Act requires that any action has to be taken in the court in that case only the jurisdiction of the civil court will be barred and the High Court will alone have jurisdiction. 18. Mr. Banerjee then relied upon the well-known principle that where a right or liability is created by a statute which gives a special remedy for enforcing it, the remedy provided by that statute only must be availed of (See (7) Wolverhampton New Water Works Co. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... technical adviser, banker or trustee for the holders of debentures of the company. (i) under the company; or (ii) under any subsidiary of the company, unless the remuneration received from such subsidiary in respect of such office or place of profit is paid over to the company or its holding company: Provided that where a relative of a director or a firm in which such relative is a partner, is appointed to an office or place of profit under the company or a subsidiary thereof without the knowledge of the director, the consent of the company may be obtained within three months from the date of the appointment; and if such consent is not obtained within that period or is refused, the relative or the firm shall be deemed to have vacated his or its office or place on and from the date of expiry of that period and shall be liable to refund to the company any remuneration drawn by him or it for the period immediately preceding that date. Explanation.--For the purpose of this sub-section, a special resolution according consent shall be necessary for every appointment in the first instance to an office or place of profit and to every subsequent appointment to such office or pla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or in a manner oppressive to any member or members (including any one or more of themselves) may apply to the Court for an order under this section, provided such members have a right so to apply in virtue of section 399. (2) If, on any application under, subsection (1), the Court is of opinion-- (a) that the company's affairs are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members, and (b) that to wind up the company would unfairly prejudice such member or members, but that otherwise the facts would justify the making of a winding-up order on the ground that it was just and equitable that the company should be wound up, the Court may, with a view to bringing to an end the matters complained of, make such order as it thinks fit. 398. Application to Court for relief in cases of mismanagement. (1) Any members of a company who complaint (a) that the affairs of the company are being conducted in a manner prejudicial to the interest or 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 includ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cumstances exist which make it just and equitable so to do, authorise any member or members of the company to apply to the Court under section 397 or 398, notwithstanding that the requirements of clause (a) or clause (b), as the case may be, of sub-section (1) are not fulfilled. (5) The Central Government may, before authorising any member or members as aforesaid, require such member or members to give security for such amount as the Central Government may deem reasonable, for the payment of any costs which the Court dealing with the application may order such member or members to pay to any other person or persons who are parties to- the application. 19. Section 397 provides for relief in cases of oppression. It enables the members of the company who comes within the provisions of section 399, to make an application under section 397. If the affairs of the company are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members, the court may, if satisfied about the same, instead of winding up the company make such order as it thinks fit with a view to bringing to an end the matters complained of. In our view section 397 has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Act to find the adequacy or sufficiency of the remedies provided may be relevant but is not decisive to sustain the jurisdiction of the civil court. Where there is no express exclusion the examination of the remedies and the scheme of the particular. Act to find out the intendment becomes necessary and the result of the inquiry may be decisive. In the later case it is necessary to see if the statute creates a special right or a liability and provides for the determination of the right or liability and further lays down that all questions about the said right and liability shall be determined by the tribunals so constituted, and whether remedies normally associated with actions in civil courts are prescribed by the said statute or not. 22. Now, we have to find whether by necessary implication the jurisdiction of the civil court is excluded. Under section 398 only those share-holders who come under section 393 can make an application under section 398. Section 399 provides that in the case of the company having a share capital, not less than 100 members of the company or not less than 1\10th. of the total number of its members, whichever is less or any member or members holding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w of section 399 of the Act. In the decision of the Madhya Pradesh High Court referred to above it has been observed that the idea in giving exclusive jurisdiction to the courts under s. 10 in regard to matters within the purview of section 398 of the Act and restricting the right to apply under section 398 only to certain members of the company is to ensure that the business of the company is not brought to complete standstill on proceedings initiated by any member of the company in an ordinary Court . We are unable to agree with the aforesaid view of the Madhya Pradesh High Court. To accept this view, will mean that a member or members who do not come within section 399 will be without any remedy whatsoever even in extreme cases of oppression and also where the affairs of the company are being conducted by the majority in a manner prejudicial to the interest of the company. 23. Secondly, although, the members indicated in section 399 of the Act have the right to make an application under section 397 or section 398, the granting of relief by the court on such an application is discretionary, which is apparent from the words the court may make such order as it thinks fit as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e footing that the instant suit was governed by section 34 and that accordingly, the plaintiffs not being entitled to any legal character, or to any legal right as to any property, the suit was nor, maintainable. It is true that the plaintiffs themselves are not entitled to any legal character or to any right as to any property. The suit has been instituted by the plaintiffs for the benefit of the company and if the suit is decreed the company will be benefited. It is not for the personal interest of the plaintiffs that the plaintiffs instituted the instant suit. The question is whether the instant suit comes within the purview of section 34 of the Specific Relief Act, 1963. In this connection we may refer to a decision of the Supreme Court in (10) Ramraghava Reddy v. Seshv, Reddy-- AIR 1967 S.C. 436. The plaintiffs in that case, instituted a suit for a declaration that the compromise decree was not binding on the deity. It was held by the Supreme Court that a declaration of that character, namely, that the compromise decree was not binding upon the deity was in itself a substantial relief and had immediate (sic) effect and that a (sic). of that, kin I fell outside the purview of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld not be said that, merely because the defendant No. 7 was granted increments in his pay from time to time, each time the increment was granted to the defendant No. 7, he was appointed in that post. According to Mr. Banerjee if that construction is put on the word 'appointment' or on the expression subsequent appointment' occurring in Explanation to Section 314(1), it would lead to anomalous results. 28. Mr. Sen, on the other hand submitted that the words and to every subsequent appointment to such office or place of profit on a higher remuneration not covered by the special resolution except where an appointment of a time scale has already been approved by the special resolution would clearly indicate that any increment granted but not covered by the special resolution, would mean subsequent appointment within the meaning of the provisions of the Explanation. The Explanation does not specifically say about granting of increments, but it provides for subsequent appointment on a higher remuneration not covered by the special resolution. In the instant case, the defendant No. 7 was appointed as a permanent incumbent to the post of the Chief Accountant of the compan ..... 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