TMI Blog1947 (2) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... ific clause in the memorandum authorising the company to purchase shares of other limited concerns and that in the absence of such a clause in the memorandum the funds of the company could not be invested in the purchase of shares of other concerns. On behalf of the respondent it was urged that clause 3( b ) of the memorandum was wide enough so include the power of carrying on the business of purchase of shares of other companies and that, in any case, what had happened in the present instance was that the directors had merely invested the funds of the company in the shares of other concerns and that was not a matter of memorandum of association but was a matter which purely concerns the power of the directors under the articles of association. It was also urged that a disgruntled shareholder who had with open eyes purchased certain shares in the market could not maintain a suit for a declaration and injunction restraining the company from making such investments as these were purely discretionary reliefs and proper remedy, if any, would have been either by a petition for winding-up or in an action for damages for misfeasance or breach of trust. The plaintiff's motives in instituti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the defendant company was carrying on the business of banking without complying with the provisions of the Indian Companies Act in relation to banking companies; that it was applying the funds of the company in the acquisition of speculative shares of other companies and was unnecessarily borrowing beyond the genuine needs of the business of the Textile Mills. It was contended that the directors are advertising in various newspapers for calling deposits and they are actually receiving deposits on interest and investing the money so received in purchase of shares of speculative character for the company. The plaintiff further stated that he could not get any relief within the company law or by agitating the matter inside the company constitution because of the fact that the managing director of the company polled majority of votes by reason of being the owner of considerable number of deferred shares. The suit was defended by the company on a number of grounds. It was pleaded that the memorandum of association was comprehensive enough to authorise the company to do or to undertake any business as the company may decide and to do any other thing which may be conducive or incident ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red that the costs incurred by the company be paid by the plaintiff. The company's appeal was allowed and the plaintiff's appeal was dismissed. The Senior Sub-Judge held on issue No. 1 that under the memorandum of association the company had very wide powers and it could even carry on the business of buying and selling shares. He remarked that the matter whether the defendant company was doing any banking business was not agitated before him. As regards the allegation that the directors were unnecessarily borrowing beyond the genuine needs of the business of the textile mills, the learned Senior Subordinate Judge noted that it was not alleged before him that the borrowing constituted a business and as such it offended against the objects clause in the memorandum of association. It was observed that there was a clear distinction between the objects of the company's formation and the powers of the company and that the power to borrow is not an object and is nor required to be included in the objects clause and this power was expressly conferred on the directors of the company by the articles. On these findings it was held that the question of the violation of the objects clause did n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng was made in the purchase of shares of the Saraswati Sugar Syndicate, Limited. It is really this investment in shares of the Saraswati Sugar Syndicate, that has given rise to a serious attack on the management of this company. On behalf of the plaintiff it was contended in the two Courts below that money was raised to a very considerable extent in the year 1943 with the sole object of purchasing shares of the Sugar Syndicate in order to confer a status on a near relation of the managing director of this company. It was emphasised that this was wholly foreign to the objects as well as to the articles of the company and that being so, it was ultra vires of the objects clause in the memorandum of association and therefore the plaintiff was entitled to a declaration and an injunction asked for by him in the plaint. Exhibit P. 6 is the balance sheet of the year ending 30th June, 1943. It is disclosed that bankers' overdraft by this time had reached the figure 10,46,357 in one bank and including the overdraft raised from other sources it had come to the figure of 16,45,826. The figure of deposits which was seven lacs odd in the year 1942 had gone up to Rs. 12,89,042. In other words t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e part of the article of association by a resolution of the company in September 1944. The original article dealing with this matter is No. 72, which is in these terms: "The directors or any person or firm appointed to the office of manager, managing director or managing agents appointed under article 71 and specially authorized by a resolution of the board of directors in this behalf may, from time to time, borrow or raise money for the purposes of the company, and for this purpose may charge, mortgage or alienate all or any of its properties, rights, future profits or fund in such form and on such terms as may be expedient." The question for consideration now is whether on the facts proved in this case it can be held that the directors by raising loans in the years 1942 and 1943 and by investing moneys thus raised in the purchase of certain shares, particularly the shares of the Saraswati Sugar Syndicate Limited, have contravened the objects clause of the memorandum of association, or have merely exceeded the powers conferred upon them by the article. The rule of law on this subject has been laid down in a judgment of the Court of Exchequer in the case of Ashbury Railway Ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hares as it is not habitually doing this. These purchases are independent of the act of borrowing, and are individual and solitary acts. The essence of business is that there should be a course of dealings, which has not been proved to exist in the present case. At the best all that can be said on behalf of the plaintiff is that the particular borrowing in the year 1943 was done with a purpose to buy the shares of the Saraswati Sugar Syndicate Limited. As such this borrowing may be said to be extra vires the directors, but it cannot be said to be ultra vires of the company. The company could certainly ratify the act of the directors in raising these loans even if the directors had exceeded their power. Without, therefore, going into the question whether the company actually raised this money for the definite purpose alleged by the plaintiff and conceding for the sake of argument that what he says is right, it cannot be held that the company was doing any business which it was forbidden to do or which was outside the four corners of its memorandum of association. All that could be said is that the directors have been misusing their power and were acting in excess of those given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpanies Act. The question, however, before us is whether as a civil Court we can call upon them to furnish an explanation at the instance of a shareholder as to why they raised these big loans in that year and as to why they invested these moneys in the shares of the Saraswati Sugar Syndicate Limited. I am of the opinion that as a Civil Court we cannot call upon them to give this explanation in this case. But if the matter is properly mooted and proper redress is sought, then under the Indian Companies Act a Judge may call upon them to furnish an explanation of their conduct. Mr. Bali sought to connect the borrowing with the investment. Beyond a conjecture of the learned counsel there is really no evidence to support that suggestion. It may or may not be so, but. the matter cannot be examined in this suit by us. For the reasons given above I would hold that the learned Judge of the lower appellate Court was perfectly right, in his decision that the matters raised in the present suit and disclosed by the evidence on this record are matters which concern the internal and indoor management of the company and cannot, be examined by a civil Court in a regular suit. The learned Senio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if he conceives that they have not.........." In spite of these observations the House of Lords in that case decided that what the company had done and what was sought to be declared ultra vires of the company was within the objects clause, so widely drafted that the company under it could do all kinds of conceivable business. In view of our decision on the first point, it is however, unnecessary to give any decision as to whether clause 3( b ) of the memorandum of association is an objects clause within the meaning of section 6 of the Indian Companies Act. Any decision that we would give on this point would be purely obiter. For similar reason it is unnecessary to decide the effect of section 24 on this case. For the reasons given above I would refrain from finally pronouncing on the validity of clause 3( b ) contained in the memorandum of association of this company. The result of the above discussion is that both these appeals preferred by the plaintiff fail on the ground that the matter raised by the plaintiff is one which cannot be examined by a civil Court, but is a matter of a domestic nature and the remedy for the redress of the grievance lies elsewhere and they are ..... X X X X Extracts X X X X X X X X Extracts X X X X
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