TMI Blog1940 (6) TMI 15X X X X Extracts X X X X X X X X Extracts X X X X ..... Jbajharias became selling agents under an agreement, the term of which was 20 years. The managing agents under their agreement became liable for advances to the extent of 20 lakhs in two stages. These advances were secured by the company by hypothecating its stock and by depositing debentures of a certain aggregate value. The actual management of the company was carried on by Ramdhonedas Jhajharia, who gave evidence before me. In January 1933 the managing agents were dismissed. Of the directors who took that action only one survives, Mr. Cama. This breach between the Jhajharias and the company led to a series of suits: a suit by one member of the Jhajharia family impugning the act of the directors; a suit by Morarji Goculdas Co., for damages and/or specific performance of the managing agency agreement; a suit by the Jhajharias in respect of certain debentures relating to their loan; and lastly to certain disputes between the Jhajharias as selling agents and the company, which were submitted to arbitration. The selling agency dispute seems to have dragged on indefinitely. In the suits the Jhajharia interest with the exception of the debenture suit seems to have been uniformly uns ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chinery to the extent of 16 lakhs or more and for the purpose of raising 16 lakhs the directors recommended an increase of capital, i.e., to double the capital of the company and had called a meeting of the shareholders for this purpose advertised for 19th March. The injunction therefore was specifically directed to prevent the Murarkas from using the votes represented by the 163 shares at the proposed meeting. The injunction was not obtained. On 3rd March 1940, this suit was filed in the Calcutta High Court by the plaintiffs, a private company, the shareholders of which are, I gather, the members of the Jhajharia joint family, holding one share in the defendant company. An injunction restraining the directors from acting and prohibiting the company meeting was sought. On the hearing of the application before McNair, J., some arrangement was arrived at, as the result of which a fresh circular was issued en 25th April 1940, for a meeting to be held on 15th May. A second application for injunction was made to me. I refused the injunction for reasons which are now immaterial but which I may possibly have to qualify when I come to discuss the legal aspects of this case. The meeting w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mately embodied in the resolution placed before the company was adopted by the directors. The shares were to be issued at a premium of Rs. 1,000. It was also resolved that the new issue should be under-written by the managing agents at a commission of 2 per cent. It may be convenient to state here that the managing agents are a partnership firm, four partners of which are shareholders in the defendant company and two partners are directors. The next directors' meeting was on 28th February 1940, when various documents were approved and the underwriting agreement concluded by resolving to accept the offer of Murarka Co., contained in their letter of 28th February 1940. On 13th March 1940 there was a joint meeting of the directors and the trustees of the debenture-holders. If I remember rightly, the trustees are represented on the board by two directors who are not shareholders. The proceedings of this meeting have been relied upon by the plaintiffs in connexion with their case that this machinery was not necessary and it does appear from the discussion recorded (for no resolution was actually passed) that the trustees for the debenture-holders doubted the necessity for so much expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were the directors, so simplifying the facts to bring them more in accordance with the English authorities where managing agents do not figure. So read, the charge is that the directors (for this purpose including managing agents) procured the increase of capital with the immediate object of acquiring the majority of shares and with the ultimate object of avoiding enquiry and causing detriment to the company. The directors are supported by the majority of shareholders in the company meeting, that support being due either to the influence or the Coercion of the directors or the joint fraudulent intent of the supporting shareholders, and it was thus that the resolution was passed in company meeting. That, apart from the specific question of the underwriting commission, is the gist of the case. That being so, Mr. Banerjee, supported by the authorities which his learned junior ransacked, has attacked the plaint in its head, in its body and in its tail, that is to say, cause title, body and prayer and has sought to show that the animal is not known to legal science. This has logically led to an enquiry as to the nature of this suit involving an enquiry, as to what kind of suits of this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re is any such thing legally as a wrong done by a bigger group to a smaller group within the company and, therefore, there is a class of action by a minority qua minority against a majority qua majority, I disagree. There can be no such thing as a legal war of parties. Brown v. British Abrasive Wheel Co. [1919] 1 Ch. 290 , is in my opinion not an authority for such a theory nor did Mr. Sanyal cite it as such. In that case, if I remember rightly, the Court would not allow an alteration of articles so that the majority could expropriate a small minority. It was not allowed as being contrary to justice. The real significance of it, in my opinion, is that it was a violation of the constitution, so to speak, the rights in other words of all shareholders who are all citizens. Although this is a matter of theory its results on matters of practice are unusually important. The primary wrong is the wrong done to the company; in other words all the shareholders. There is, it is true, a secondary wrong in the suppression of the opposition of the minority, the overwhelming of the minority. In the normal case the distinction is purely theoretical, the wrong-doers are themselves the majority ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of himself and "other shareholders of the defendant company", i.e., a number of them unspecified. All that is on the plaintiff's side is the plaintiff plus an unspecified body, or an unidentified body of "other shareholders", i.e., " A plus others". On the defendant's side there is the company. If this be regarded as split into its integers, that means A to Z. As a matter of form, in my opinion, this is not in accordance with the English precedents. Mr. Sanyal has showed me certain cases where the shareholders on what I call the credit side do not appear to balance the shareholders on the debit side, but on principle that is the object to be aimed at and for the reason already indicated that all the shareholders are suing or presumably suing as a substitute for the company, only excepting those shareholders who will not actually join the plaintiffs. In my opinion however the absence of any defendant other than the company is not a defect merely of form and it is in connexion with this point that I shall have to discuss Mr. Sanyal's arguments. If my view is correct, the wrong charged is not a wrong done by X Y Z to A W. It is not a wrong of class upon class, but it is a wrong don ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but something beyond the directors, a partnership of which certain members are directors and certain members are shareholders. Whether I be right or wrong on this point, I am indebted to M.T. Sanyal for a very careful argument upon it which I have analyzed as follows: That as a matter of form in England, we do not find in this class of case, the parties or shareholders invariably balanced. He referred to Brown v. British Abrasive Wheel Co. [1919] 1 Ch. 290 , and I think I have seen one other case where the balance did not seem to be perfect. There is a danger in India of becoming more technical on those points than is warranted by the English law, but although I have stressed the matter of form I have intended to do so as indicating the principle. A point I have already mentioned, that the company is the real party: Spokes v. Grosvenor Hotel [1897] 2 Q.B. 124. As I read or have read this case, that is not the significance ; on the contrary, I think the implication is that the company is in fact suing for wrong to the company, but that because certain share holders are the plaintiffs, the company as a unit must be on the record for finality and completeness. I read the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lly or solely a question of parties. It may be that the Court should insist, where fraud is charged, that in proving that case the "accused" should be before the Court. That it should, therefore, be looked at rather from the point of view of particularity than of parties. My ruling for what it is worth is as follows : Where a decision of the directors is attacked on the ground that it is injurious to the company, the directors should be parties. Where that act of the directors so impeached has been confirmed and is still impeached on the basis that the directors have got that confirmation by controlling the majority, still those directors should be parties. The above discussion or analysis is based upon the inferences I have drawn from Alwool v. Merryweather [1868] L.R. 5 Eq. 464; 37 L.J. Ch. 35. , Cook v. Decks [1916] 1 A.C. 554 Series. Mr. Sanyal very pertinently pointed out that in the majority, if not all, of those cases, the wrong of X, Y, Z was some form of taking, and therefore some form of relief was required directly, against X, Y, Z and on this ground sought to distinguish the case before me. It is for this reason that I omitted the Fraser v. Whalley [1864] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y against the directors, in the first case an injunction and in the last case a declaration, and the action impugned was the action of the directors and the directors only. In Punt v. Symons Co. Ltd. [1903] 2 Ch. 506 , the directors had caused their act to be confirmed by the company. But, in my view, these cases do not stand on a principle different to the Atwool v. Merryweather [1868] L.R. 5 Eq. 464n ; 37 L.J. Ch. 35 , cases. Somebody, namely the directors, is interfering with the management of the company, and is doing a wrong to the company as a whole. Somebody is impeding the free working of the constitution. I do not think therefore that any different rule should apply. Now, this series of cases leads me at last to begin upon the facts. In those cases the directors issued the shares. They issued the shares being a minority in the company and a majority in directors' meeting with the object of becoming a majority in the company. The obvious distinction, whether it be fundamental or not, is that here the increase of capita although initiated by the directors, is the act of the majority itself. Generally speaking, you cannot charge a majority in the company with wro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rly and that the scheme prima facie was bound to give them the bulk of the new shares. The two branches of Mr. Sanyal's case, therefore, are as follows: first, the 2 per cent. underwriting agreement; and secondly, the scheme to increase the capital to obtain balance of voting power. The ultimate motive of obtaining this balance seems to be on the authorities immaterial. I will deal quite shortly with the 2 per cent. underwriting commission. The case as made falls within the Cook v. Deeks [1916] AIR 1916 P.C. 161; [1916] 1 A.C. 554 series. Mr. Banerjee contends that this did not form part of the resolution. It is perfectly true. It was, however, part of the scheme sanctioned by the company. There is, therefore, no question of fraud by the majority as regards the 2 per cent. commission But the difficulty is this, that the wrong-doers are not there. The point is particularly obvious in this connexion because the recipients of the 2 per cent. commission are not even all directors. They are partners in the firm of the managing agents. In any event according to the views already expressed and to my understanding of this line of English cases the actual alleged wrong-doers, namely ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pute between the Jhajharias and the Murarkas there is the specific matter of 163 shares. I must not be taken as expressing any view or giving any decision as to what would be the position if it is ultimately established that the Muarakas were not entitled to or have wrongfully used 163 shares as part of their voting power in the meeting. The only manner that this matter has been used before me, if I have not already so indicated, is for the purpose of showing that the actual majority at the date of the meeting was not so secure as to exclude the necessity for the Murarkas to use other means to put it beyond doubt. The plaintiffs, however and Mr. Sanyal with his usual ingenuity have used this Jhajharia Murarka war as a preface or introduction to the scheme which he characterizes as a major engagement in this conflict. Mr. Banerjee on the other side in order to disprove the motive has relied upon the results according to him inconsistent with the alleged intention. His point is that the Murarka's majority on 1,600 is little if at all greater than their majority of the 800. But if I have followed the figures, it seems to me that the Murarkas will be up on their underwriting by a sub ..... X X X X Extracts X X X X X X X X Extracts X X X X
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