TMI Blog1979 (7) TMI 182X X X X Extracts X X X X X X X X Extracts X X X X ..... e (since deceased) of Sardar Bakshi Dalip Singh. The only outsider is Sardar Teja Singh who holds 2 shares in the company. The present petition has been filed under sections 397 and 398 of the Companies Act, 1956, asking for various relief set out in the petition on the ground of oppression and mismanagement. When the petition was admitted some time in December, 1974, the petitioners were directed to give notice to Sardar Bakshi Dalip Singh and Sardar Teja Singh. Sardar Teja Singh has throughout remained absent. Till 15th June, 1979, the company was represented through various advocates, who were instructed to appear on behalf of the company by Sardar Bakshi Dalip Singh who is the managing director of the company. At one stage, Sardar Bakshi Dalip Singh appeared personally. On 14th June, 1979, when the matter reached hearing, the company was represented by Mr. F.E. Merchant, advocate, and he was being instructed by Sardar Bakshi Dalip Singh. On June 14, 1979, a compromise was arrived at between Mr. S.H. Doctor who appeared on behalf of the petitioners and Mr. F.E. Merchant who appeared on behalf of the company. Various alterations were made in the draft consent terms on that day in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay decline to accept any document which is presented otherwise than in accordance with these Rules or the practice and procedure of the court." Section 141 of the CPC lays down that the procedure provided in the CPC in regard to suits shall be followed as far as it can be made applicable, in all proceedings in any court of civil jurisdiction. Relying upon these provisions in the Companies Act and the CPC, Mr. Kapadia has urged that the provisions of Order 23, rule 3, apply to a compromise arrived at in a proceeding under the Companies Act including a proceeding under sections 397 and 398 of the Companies Act. The provisions of Order 23, rule 3, as amended are as follows: "3. Compromise of suit. Where it is proved to the satisfaction of the court that a suit has been adjusted wholly or in part by any lawful agreement or compromise (in writing and signed by the parties) or where the defendant satisfies the plaintiff in respect of the whole or any part of the subject-matter of the suit, the court shall order such agreement, compromise or satisfaction to be recorded, and shall pass a decree in accordance therewith (so far as it relates to the parties to the suit, whether or not t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e provisions of section 643(1)( b )( v ) of the Companies Act, 1956, read with rule 6 of the Companies (Court) Rules, 1959, the provisions of the CPC apply to a proceeding under the Companies Act "in so far they are applicable". Similarly, under section 141 of the CPC also the procedure provided for in the Code is required to be followed as far as it can be made applicable in all proceedings in any court of civil jurisdiction. To what extent, therefore, are the provisions of Order 23, rule 3, applicable to a petition under sections 397 and 398 of the Companies Act? Basically the provisions of both these sections provide for relief in cases of oppression of minority shareholders and in cases where 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. Wide powers are given under these sections to the court to pass an order which will be in the interests of the company. Similar powers are given when a relief is asked for in the case of mismanagement. In such a situation, where the petitioners ask for relief from oppression or mismanagement, any compromise which deals with the manner in which the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res, 200 unpaid shares were issued in the name of Maya Dalip Singh, wife of Sardar Bakshi Dalip Singh (since deceased) and further 200 unpaid shares were issued in the name of Sardar Bakshi Dalip Singh. These 400 shares are the subject-matter of dispute in the present petition. At the time when the petition was filed 120 shares stood in the name of Major Jagtar Singh who had died on November 13, 1972. It seems that after the petition was filed these shares have been transferred to the name of the widow of Major Jagtar Singh, that is to say, in the name of Anoop Jagtar Singh, while out of the 2 shares, which stood in the name of Anoop Jagtar Singh, one share has been transferred to Kamalbir Singh and one share has been transferred to Rajbir Singh, the two sons of the deceased, Major Jagtar Sing. There is a dispute regarding transfer of these shares to them. It is not necessary to examine this dispute at the present stage. Kamalbir Singh and Rajbir Singh claim to be the directors of the company since November, 1978, but this claim is also disputed by the petitioners. In any case, it is clear that the two petitioners are the minority shareholders of the company holding between them 14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns 299 and 300 of the Companies Act, whenever a director of a company is directly or indirectly concerned or interested in a contract or arrangement entered into by or on behalf of the company he is not merely required to disclose his interest but he also cannot participate or vote in the proceedings of the board of directors. It is a moot point whether these two sections will apply in a case where the directors of the company have filed suits against the company which the company is required to defend. In any case, assuming that the two sections do apply, and that the petitioners will have no say in the conduct of litigation on behalf of the company, the only person who will be in charge of the conduct of litigation on behalf of the company will be Sardar Bakshi Dalip Singh who is to-day 90 years old and against whom a number of allegations have been made in the petition. In fact, it is the case of the petitioners that Sardar Bakshi Dalip Singh has mismanaged the company and has run the company in a high-handed manner as if he were the sole owner of the company. Thus, it would not be in the interests of the company to leave the management of the company in the hands of Sardar Baks ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are parties to the compromise it cannot be recorded unless those persons are brought on the record as parties to the suit. This is because the court has to be satisfied before recording a compromise under this rule that there is a lawful compromise, and this is not possible in the absence of those that are not parties to the suit." The present compromise affects not merely the parties involved in the compromise, that is to say, the petitioners, the company and Sardar Bakshi Dalip Singh but it also affects the rights of other shareholders who are not in the present petition before the court. For that reason also the compromise must be rejected. In this connection a reference may be made to the ease of Dooly Chand v. Mohanlal, AIR 1924 Cal. 722, wherein it is stated that the compromise which affects persons who are not parties to the suit will not be considered as a lawful compromise. In Shanti Prasad Jain v. Kalinga Tubes Ltd. [1965] 35 Comp. Cas. 351 (SC), which was cited before me, the scope of an inquiry under sections 397 and 398 of the Companies Act has been fully examined. It, however, does not deal with the point in issue in the present proceedings, namely, whethe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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