TMI Blog1949 (12) TMI 29X X X X Extracts X X X X X X X X Extracts X X X X ..... joria, the 1st plaintiff, was elected a director of the company, and Sir David Ezra, who had retired by rotation and offered himself for reelection, was not elected. On the 28th December, 1945, Dr. Satya Charan Law, Mr. Cumberbatch and Mr. Champalal Jatia requested Mr. Bajoria in writing, in terms of article 116 ( k ) of the articles of association of the company, to resign his directorship of the company and appointed Sir David Ezra in his place. Article 116( k ) runs thus: "The office of a director shall ipso facto be vacated if (k) (not being an ex-officio director) he be requested in writing by all his co-directors to resign or if he be removed from office by an Extraordinary Resolution of the company." The suit, which has given rise to this appeal was instituted on the 14th January, 1946, by Mr. Bajoria and three others, against the four directors of the company, including Sir David Ezra (who has since died), and, in this suit, the company was also made a co-plaintiff. The substance of the allegations made in the plaint was that the three directors, Dr. Satya Charan Law, Mr. Cumberbatch and Mr. Jatia, had acted wrongfully, illegally and mala fide, in asking plain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt. The decision of Edgley, J., was subsequently reversed on appeal by a Division Bench of the High Court which held that the suit had been properly filed and the company had been correctly made a co-plaintiff in the suit. The sole question which we have to decide is which of the views taken by the courts below is correct. For the purpose of answering this question, it is, as will appear presently, material to refer to articles 148 and 149 (6) of the articles of association of the company. Article 148 provides as follows: "The control of the company shall be vested in the directors and the business of the company shall be managed by the directors who in addition to the powers and authorities by these presents or otherwise, expressly conferred upon them, may exercise all such powers, and do all such acts and things as may be exercised or done by the company and are not hereby or by statute law expressly directed or required to be exercised or done by the company in general meeting but subject nevertheless to the provisions of any statute law and of these presents and to any regulations not being inconsistent with these presents from time to time made by the company in general m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing of the ordinary shareholders was held for the purpose of authorising the plaintiffs to file the present suit on behalf of the company, it was conceded by counsel for the defendants before Edgley, J., that it would be unnecessary that such a meeting should be held in order to ascertain the wishes of the majority of the shareholders inasmuch as the plaintiffs commanded a majority of the votes of the shareholders. The case has therefore proceeded in both the courts below on the footing that at a meeting of the ordinary shareholders, the plaintiffs would be able by a majority to assure the passage of a resolution empowering them to continue the suit. The case has also proceeded on the footing that whatever the ultimate decision in regard to the plaintiff's allegations might be, for the purpose of deciding the preliminary issue, it must be assumed that the acts complained of by the plaintiffs, namely, the removal of plaintiff No. I from the board of directors and the appointment of Sir David Ezra, were due to the fraudulent conduct of the defendants, were illegal and were detrimental to the interests of the company. It seems to be well-settled now that in order to redress a wrong ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the company does certainly greatly tend to stop litigation." A similar view has been taken in Fender v. Lushington [1877] 6 Ch. D 70 . In that case, an action was brought by a shareholder whose vote had been rejected on behalf of himself and all others who had voted with him, naming the company as co-plaintiff, against the directors for an injunction to restrain them from acting on the footing of the votes being bad, and Jessel, M.K., dealing with the objection that the company ought not to be plaintiff, observed as follows: "It is said that the company ought not to have been made plaintiffs". The reasons given were reasons of some singularity, but there is no doubt of this, that under the articles the directors are the custodians of the seal of the company, and the directors, who in fact are defendants, have certainly not given any authority to the solicitor for the plaintiffs on this record to institute this suit in the name of the company as plaintiffs. It is equally clear, if I am right in the conclusion to which I have come as to the impropriety of the decision of the chairman in rejecting these votes, that it is a case in which the company might properly sue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich it is unnecessary to cite. But an exception is made to the second rule, where the persons against whom the relief is sought themselves hold and control the majority of the shares in the company, and will not permit an action to be brought in the name of the company. In that case the courts allow the shareholders complaining to bring an action in their own names." These cases make it quite clear that ordinarily the company would be a proper plaintiff in a case like the present, but, as has been already stated, the appellants rely upon the articles of association governing the company in so far as they vest the management of the affairs of the company in the directors and empower them to conduct litigation on its behalf and use its name as plaintiffs, and contend that these specific provisions take the present case out of the ordinary rule and the correct view on the facts of the present case should be that even though the plaintiffs may be in a position to command a majority of votes at an ordinary meeting of the company, they cannot use the company's name as plaintiffs in the suit, so long as articles 148 and 149 (6) stand. In support of this contention, they rely principall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 28,000 shares, and the remaining 600 shares were held by others. The three directors who held 28,000 shares were interested in a rival patent which was worked by defendant company. At a directors' meeting, Marshall proposed a suit against the defendant company for infringement of patent rights. The other three directors overruled his proposition. He therefore brought a suit against the defendant in the name of the company. Thereafter, at a meeting of the board of directors of the plaintiff company, which Marshall did not attend, a resolution was passed that as Marshall had instituted a suit in the name of the company without the sanction of the board of directors, the solicitors of the company should be instructed to apply to the court to have the name of the company struck out. The matter ultimately came up before Neville, J., who dismissed the motion for striking out the name of the company and observed: "The company is of course the owner of Marshall's patent, and alone able to litigate for the protection of that patent. The three directors had, in what I will assume to be the exercise of their discretion, refused on behalf of the company to oppose the grant of the patent t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the name of the company, but when they are themselves the wrongdoers against the company and have acted mala fide or beyond their powers, and their personal interest is in conflict with their duty in such a way that they cannot or will not take steps to seek redress for the wrong done to the company, the majority of the shareholders must in such a case be entitled to take steps to redress the wrong. There is no provision in the articles of association to meet the contingency, and therefore the rule which has been laid down in a long line of cases that in such circumstances the majority of the shareholder can sue in the name of the company must apply. In MacDougall v. Gardiner [1875] 1 Ch. D 13 , and Pender's case ( supra ) specific reference was made to the fact that the directors, being the custodians of the seal of the company, were the persons who should normally sue in the name of the company, but nevertheless it was held that the majority of the shareholders were entitled to sue in the name of the company when relief was sought against the directors themselves. Even in Automatic Self-Cleansing Filter Syndicate Company Ltd. v. Cunninghame [1877] 6 Ch. D 70, it ..... X X X X Extracts X X X X X X X X Extracts X X X X
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