TMI Blog1958 (3) TMI 24X X X X Extracts X X X X X X X X Extracts X X X X ..... blic limited company with a subscribed share capital of Rs. 3,15,000 consisting of 6,150 shares, 4,000 founder shares of Rs. 25 each and 2,150 ordinary shares of Rs. 100 each. The company owns a studio and an equipment for the production of cinematograph pictures. The company hires out the premises and the equipment and affords facilities to producers of pictures for monetary consideration. The fortunes of the company do not depend on the success or failure of the pictures produced by it as it does not itself produce any picture. Such being the nature of the business of the company there is no scope for loss if its affairs were properly managed. The directors of the company, viz., respondents Nos. 2 to 8, were interested either as directors or as partners or proprietors in several picture producing concerns like the Jupiter Pictures, Jupiter Pictures (Private) Ltd., Saravanabhava Pictures, Manohara Pictures, Unity Pictures and Jyothi Pictures. These producing concerns will hereafter be referred to as the Jupiter group. The second respondent who had interest in more than one concern in the group became a director of the company in 1951. In course of time respondents Nos. 2 to 8 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inal rents for the machinery or the premises of the company used by them in connection with the business of the Jupiter group ; that they were debiting the company with exorbitant charges whenever the machinery or other equipment belonging to the Jupiter group were utilised for the purposes of the company; that the wages of the employees working under the Jupiter group were being paid out of the funds of the company; unserviceable articles belonging to the Jupiter group were sold to the company at high prices ; such articles being of no use resulted in loss ; that the company's moviola and sound recording equipment were kept in disrepair and were not used while the moviola belonging to the Jupiter group was being lent to the company at an unconscionable rate of hire. Other charges of a minor nature such as consumption of electric current etc. were also made. The directors were also charged with having closed the main entrance of the company at the Adyar bridge road and of having made an opening to the company's premises through the property of the Jupiter group so that anyone coming into the company must of necessity pass through their premises. Another charge was that they gained ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. It was stated in the counter-affidavit of the first respondent in Applications Nos. 2133 and 2134 of 1957 that the compromise proposals emanated from Syed Mahomed Ali himself and that there had been numerous sittings of the parties at which there were elaborate discussions. No objections were taken to the correctness of this statement by means of any reply affidavit by Syed Mahomed Ali and having regard to the other affidavits filed in the case we can take it that Syed Mahomed Ali himself sponsored the compromise up to the stage when it became clear that he would not be included in the committee of management proposed to be set up under the compromise. This exclusion disappointed Syed Mahomed Ali and he filed Applications Nos. 2133 and 2134 of 1957 complaining that the committee of management appointed by the High Court as an interim arrangement did not function properly and that another officer should be appointed to act with him in the conduct of the affairs of the company and also praying for an order restraining the other members of the committee from interfering with his management. In the affidavit in support of the application he repudiated the compromise which by then ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the books of the company and exoneration of the directors from all liability in respect of the various allegations and claims made against them in the original petition. He refused to decide the genuineness of the transactions under which respondents Nos. 9 to 13 were claiming to be the creditors of the company and left their claims to be agitated in a proper suit. He disallowed the provision for management of the affairs of the company by a committee but directed the shareholders to elect their directors under the articles of association of the company at a meeting to be held on January 6, 1958, but disqualified the persons who were directors or partners or proprietors of the various concerns in the Jupiter group from standing for election as directors for a period of one year. Provision was also made for the retirement of the directors in rotation and also for the appointment of a receiver pending the taking over of the management by the newly elected directors and for the conduct of the election of the directors. The application filed by Joseph Pallipat and Syed Mahomed Ali were dismissed except to the extent of making Joseph Pallipat a party to Application No. 2179 of 1957. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated from the Bar that the respondents had practically prepared a counter-statement but that they did not proceed with the same as there were talks for compromise in which even Syed Mahomed Ali participated. While we accept that statement it must be pointed out that in a matter of this kind where the complaint is one of oppression by a powerful majority it was essential that the directors should have filed their counter-statement and even tendered some prima facie evidence by affidavit, auditor's report or otherwise to show that there was no substantial basis for the charges and that the matter could be disposed of by compromise. The omission of the respondents even to deny the charges has given rise to a not wholly unjustified criticism that the compromise might have been a manoeuvre to prevent the court from investigating the state of affairs. Proceedings under sections 397 and 398 of the (Indian) Companies Act are not like suits between private parties which could be compromised in any manner they choose. The interests of the company are paramount. Under section 406, there is jurisdiction in court to assess damages against delinquent directors. In such circumstances the court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sought whether it be for the appointment of a director or of some other kind. His contention was that in the petition the only relief prayed for was regulation of the conduct of the affairs of the company in future and not in regard to any action against the directors for the alleged malfeasance and misfeasance. That may be so ; but the petition contains an elaborate statement of the charges against the directors and an investigation into those charges would be necessary even for the purpose of regulating the affairs of the company. We do not think that the absence of any formal prayer in the petition under section 397 would entitle the court to refrain from investigating into the various charges levelled against the directors. In Gower's Modern Company Law, 2nd Edn. at page 513, the scope of section 210 of the English Act which corresponds to section 397 of the (Indian) Companies Act is discussed and referring to the Cohen Report, on which the section in the English Act was based, the learned author says "that it was the intention that the court should 'have power to impose upon the parties whatever settlement the court considers just and equitable.' While recognising that the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue. Despite the paucity of reported cases it has been extensively and effectively invoked as a threat to induce those in control to behave reasonably towards all interests and as a weapon in the investors' armoury it will probably always prove more efficacious when brandished in terrorem than when actually used to strike." In regard to the regulation of the future conduct of the company's affairs the learned Judge's order would be quite sufficient. The only persons who could be dissatisfied with it are the persons belonging to Jupiter group who are disqualified from standing for election for one year but they have gracefully accepted the direction. The learned Judge has, if we may say so with respect, made a correct approach to the question by considering the compromise put before him on the merits and adopting only such portions of it which were in the interests of the company. We are then left with the only question which was pressed before us with great insistence by V.C. Gopalaratnam as to the desirability or expediency of remanding the case for disposal after giving an opportunity to the appellant to prove the charges against the directors. Though the charges required inve ..... X X X X Extracts X X X X X X X X Extracts X X X X
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