TMI Blog1960 (5) TMI 18X X X X Extracts X X X X X X X X Extracts X X X X ..... of association of the company shows that its name was the Goenka Commercial Bank Ltd. Clause 3 of the memorandum enumerates the various objects of the company. The clause is divided under 29 heads. Sub-clauses (1), (2) and (3) of clause 3 are as follows: (1) Establishing and carrying on the business of a bank whereof the head office or place of business shall be Darjeeling, with such branches or agencies within India or elsewhere as may from time to time be determined. (2) Accepting deposits of money on current account or otherwise, subject to withdrawal by cheque, draft or order or otherwise. (3) Carrying on the business of banking in all its branches and departments, including the borrowing, raising or taking up money, the lending or advancing money either upon or without security, the drawing, making, accepting, discounting, buying, selling, collecting and dealing in bills of exchange, hundis, promissory notes, coupons, drafts, bills of lading, railway receipts, warrants, debentures, certificates, scrips and other instruments and securities, whether transferable or negotiable or not, the granting and issuing letters of credit, travelling charge and circular notes, the buy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ., Kurseong Hydro Electric Supply Co. Ltd. and Atal Tea Co. (1943) Ltd. Dhanoomal Chirimar was the chairman of the board of directors of the bank from the year 1951 to 1955. The present directors of the company are : ( i )Mr. S. K. Datta. ( ii )Mr. N.J. Chatterjee. ( iii )Mr. J.N. Mogre. ( iv )Mr. Prithvi Nath Chaturvedi. ( v )Mr. Onkar Shankar Gupta. The petitioner states that J. N. Mogre is an employee of Goenka Co. and is a nominee of the Goenka group of shareholders. Onkar Shankar Gupta is also described as a director of other Goenka concerns and a nominee of the said Goenka group. In fact the petitioner claims that all the directors of the company belong to and/or are nominees of the said group. It is not denied that there were runs on the bank once in the year 1951 and twice in the year 1952, namely, in the months, February and August, 1952. The petitioner states that the Central Government, acting upon a report of the Reserve Bank of India, prohibited the company from receiving fresh deposits and since then the company has ceased to carry on banking business. This is supported by the minutes of the extraordinary general meeting of the company held on October ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itioner complains that there is a justifiable lack of confidence of the shareholders of the company in its management and that the company is not carrying on any business whatsoever. The affidavit-in-opposition herein is affirmed by J.N. Mogre. The deponent admits that the company was originally incorporated as a banking company with the object stated in paragraph 4 of the petition and adds that since then there has been a change of objects by special resolution passed on March 28, 1956. The change appears to be inconsequential as there has been deletion only of some of the original objects or powers. The deponent stresses the history of the litigation between the petitioner's mother Mrs. N.Y. Samdup and the widow of Nagarchand Goenka for moneys advanced by the creditor to Nagar-chand Goenka during his lifetime and also after his death as a result whereof it is stated that 20,000 shares in the company came to be purchased for a very paltry sum by the petitioner. The deponent admits that the majority of the shares of the company are held by persons belonging to the family of Nagarchand Goenka or by his friends or relatives. The stoppage of the banking business is also admitted. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... denying the fact that banking was the primary object of the company although it had taken powers to engage in other activities. Again it is undisputed that the majority of the shares of the company are held by members of the family of Nagarchand Goenka and/or his friends and nominees. The directors of the company are the nominees of the said majority group of shareholders. All the funds of the company are invested in concerns in which the Goenka group of shareholders has a very large interest. The payments made by the debtors of the company from the year 1952 to 1958 have been negligible. The unrealisable debts of the company have been mounting up. The company has done little or no business for some time. Nor is there any possibility of engaging in any fresh business unless the debtor concerns pay up. No steps appear to have been taken against any of the debtor companies between the years 1952 and 1958. The necessary consequence is that the minority group of shareholders including the petitioner is getting no return on their investments and is not likely to get anything unless the Goenka group of shareholders take pity upon them. In my view, it is proper that in a situation lik ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Precedents, Volume II, page 38, where after referring to the earlier cases the learned commentators add "this narrow rule of construction was, however, not followed in Pedlar v. Road Block Gold Mines [1905] 2 Ch. 427 ; and may be taken to have been overruled in Cotman v. Brougham [1918] A.C. 514. That case related to the question whether a certain act was ultra vires, and did not directly deal with the application of the 'primary object clause' rule to the question of whether the substratum has gone. It has, however, since been held in In re Kitson Co. Ltd. [1946] 1 All. E.R. 435 and In re Taldua Rubber Co. Ltd. [1946] 2 All. E.R. 763 , that the same rule applies also in such cases." With all respect to the learned authors of Palmer's Company Precedents, 16th edition, Volume II, it appears to me that the comment is not very happily worded. Neither Pedlar's case ( supra ) nor Cotman's case ( supra ) was one of winding up a company although the failure of substratum of the company was canvassed at the Bar. In Pedlar's case ( supra ) an application was made by a group of shareholders for restraining the company from entering into an agreement for purchas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed judge did not accept the suggestion and observed that [1918] A.C. 514, 520: "The question whether or not a transaction is ultra vires is a question of law between the company and a third party. The truth is that the statement of a company's objects in its memorandum is intended to serve a double purpose. In the first place it gives protection to subscribers, who learned from it the purposes to which their money can be applied. In the second place it gives protection to persons who deal with the company, and who can infer from it the extent of the company's powers. The narrower the objects expressed in the memorandum the less is the subscribers' risk, but the wider such objects the greater is the security of those who transact business with the company. Moreover experience soon showed that persons who transact business with companies do not like having to depend on inference when the validity of a proposed transaction is in question. Even a power to borrow money could not always be safely inferred, much less such a power as that of underwriting shares in another company. Thus arose the practice of specifying powers as objects, a practice rendered possible by the fact that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... E.R. 435 there was an application for winding up of a company on the ground that it was just and equitable to do so. The company was incorporated in the year 1899; the objects for which the company was established were, inter alia : (1) to acquire and take over as a going concern the business, carried on at Airedale Foundry, Hunslet, in the city of Leeds, under the style or firm of "Kitson Co." and all or any of the assets and liabilities and to enter into an agreement for the purpose. Clause 3(2) began with the words " to carry on the business of locomotive engine manufacturers, iron founders, mechanical engineers and manufacturers of agricultural implements and other machinery, tool-makers, brass founders, metal workers, boiler makers, etc.", and clause 3(3) enabled the company "to carry on any business relating to the mining and working materials, the production and working of metals, and the production, manufacture and preparation of any other materials which may be usefully or conveniently combined with the engineering or manufacturing business of the company, or any contracts undertaken by the company." Delivering judgment Loed Greene M.R. observed: "We have no real inf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee case [1882] 20 Ch. D. 109. A patent is a defined subject-matter and if the main object of a company is to acquire and work a patent and it fails to acquire that patent to compel the shareholders to remain bound together in order to work some other patent or make some unpatented article is to force them into a different adventure to that which they contracted to engage together, but when you come to a subject-matter of a totally different kind like the carrying on a type of business then so long as the company can carry on that type of business it seems to me that prima facie at any rate it is impossible to say that its substratum has gone." Lord Greene was of opinion that the substratum of the company had not disappeared because it had a subsidiary carrying on a similar type of business which however for the moment had its factory and premises requisitioned by the admiralty and if the company could carry on the business of the subsidiary it would be doing business of the same nature as that which Kitson Co. Ltd. carried on. The learned Advocate-General relied on the case of Taldua Rubber Co. Ltd. [1946] 2 All. E.R. 763, where an application for winding up of the compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ascertained by valuation. The directors had power to bind the company by accepting that offer but they thought fit to refer the matter to the shareholders and convened a meeting by a notice accompanied by a circular setting out in clear terms the nature of the offer. At a meeting held on March 7, 1946, a resolution was passed unanimously directing the acceptance of the offer. Pursuant thereto a contract was entered into for the sale of the company's property and business. The company received 20,704 as consideration for the sale. The circular convening the meeting of March 7 , 1946, contained an intimation that if the offer was accepted the liquidation of the company will be recommended. At a later meeting held on July 17, 1946, a resolution for the voluntary liquidation was not passed. Although no poll was taken it appeared that 14,958 shares were against liquidation and 14,886 in favour of it. In August, 1946, the application for winding up of the company was presented to the court. Two of the directors were in favour of liquidation and the third against it. Construing the memorandum of association, the learned judge said "it is to be observed that, unlike a number of other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the articles of association of the company according to which "the company shall maintain by way of cash reserve or cash balance such amount in any such manner as may be required by the provision of the Act or the Reserve Bank of India Act (II of 1934) as the case may be or any other law for the time being in force if any as may be applicable to the company." In my view notwithstanding the presence of sub-clause (2) and all other sub-clauses which gave the company power to carry on business which could be indulged in by a non-banking company, the paramount object of the company was certainly to carry on a banking business. Sub-clauses (1), (2) and (3) are really the primary objects for which the company was established, sub-clauses (4) to (7), (12) and (13) contain powers which banking companies usually have. Some of the other sub-clauses no doubt give power to the company to carry on business which non-banking companies could transact but that does not take away from the fact that the main and primary object for which the company was established was to carry on a banking business. Article 59 of the articles of association also supports my view. Any business transacted by the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emselves open to the suspicion that by omitting to hold general meetings, submit accounts and recommend a dividend their object was to keep the petitioners in ignorance of the truth and acquire their shares at an undervalue. No such motive has been alleged in this case but there can be no doubt that the directors of the company are nominees of the Goenka group of shareholders and are content to allow the Goenka concerns to have the full benefit of the entire share capital and moneys of the company. For years they have taken no steps to realise the loans given by the company to the said concerns and it is reasonable to infer that they are not interested in doing so. It would appear that so long as the directors are allowed to function they being all nominees of the Goenka group of shareholders will only look to their interest while the petitioner and others who are not interested in the Goenka concerns will be passive spectators without receipt of any profits from their investments. In my view it is right and proper that such a state of affairs should be put an end to and that justice and equity require that the company should be wound up so that its assets may be speedily realised ..... X X X X Extracts X X X X X X X X Extracts X X X X
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