TMI Blog1972 (8) TMI 91X X X X Extracts X X X X X X X X Extracts X X X X ..... l promoter was ShriS. R. Laul, advocate. Articles 6 and 8 of the company provided as under : "6. That no shares of this company shall be held by any person other than the descendants of Mr. S.R. Laul except such shares as have been or are transferred with the previous consent of the board of directors as laid down in article 6 or are allotted to any outsider hereafter by the board: Provided that this article shall not affect holding of shares by Shrimati Ishwara Devi Laul herself personally. 7. That all shares presently held by the shareholders on the death of Shrimati Ishwara Devi Laul or of any of the descendants of Mr. S.R. Laul without any direct issue of such descendant and on the extinction of the line, shall revert to Mr. S.R. Laul or in case of his earlier death to his direct descendants and shall be divisible amongst them according to Hindu law of inheritance subject always to the provisions of article 6 above : Provided that the provisions of this article shall not apply to bona fide outsider transferees or allottees or their representatives as are contemplated in article 6 above but shall apply to all shares re-transferred to the original holder out of his hold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Some differences seem to have arisen between the appellant and the other directors excluding his mother and one of the removal of the appellant from the directorship of the company under section 284 of the Companies Act ( sic ). That notice was considered by the board of directors in the meeting held on November 7, 1970, of which notice was given to the appellant and his mother and both went to attend the meeting but left on the ground that the holding of the meeting was contrary to the restraint order issued by the civil court in spite of the assurance of the chairman that the proceedings that were going to be conducted at the meeting would not violate the restraint order. After the appellant and his mother left, the board of directors co-opted two more directors, Ashok Kumar Gupta and Anand Prakash Jain, and sanctioned certain transfers of shares. One of the resolutions passed at the meeting was to convene an extraordinary general meeting of the company to be held on December 3, 1970, at 3 p.m. to consider and, if thought fit, to pass the following resolution as proposed by Subodh Kumar Gupta, one of the members of the company: "Resolved that Shri S.C. Marwaha, one of the dir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the management or handing over the control of the company to respondent No. 2 or his associates ( benamis ). (D)Restraining all the respondents from distributing, selling out, or transferring of their shares, assets, machineries, fixtures, properties, or lands of the company, owned or possessed by it or belonging to it, without the prior permission of this hon'ble court. (E)Restraining all the respondents from operating bank accounts, for and on behalf of the company, or incurring expenditure, raising loans, in vesting the funds of the company, or in any way appropriating the raw material, finished material or liquid cash taken from any Government or repayment of any loans taken by them for and on behalf of the company. (F)Restraining the respondents from enjoying any fringe benefits, privileges, or other facilities granted or afforded by the respondent-company in any capacity. (G)To remove the secretary, Shri Tirath Ram Kundi, from the secretaryship of the respondent-company, and to appoint a new impartial and qualified secretary for the company. (H)Constituting a committee of management consisting of the descendants of Shri S. R. Laul, Advocate, alone shown in serial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 969, and November 7, 1970, in the meetings of the board of directors which have been challenged in the petition under section 155 of the Companies Act by the appellant's sister, Mrs. Abha Kumar. Since the petition under section 155 of the Companies Act is a better remedy, it is not proper to make investigation into the same facts in the petition under sections 397 and 398 of the Companies Act, particularly because the names of respondents Nos. 2 to 26 cannot be removed from the register of members by an order passed in this case nor has any such relief been claimed. For the purpose of this petition and appeal, it will have to be presumed that all the members whose names are entered in the company's register of members are valid members. The present board of directors, having been constituted by the existing members, cannot be held to be improperly constituted. It is, therefore, necessary that the petition under section 155 of the Companies Act should be decided first. As long as the present register of members of the company continues, those members cannot be restrained from exercising their individual and corporate rights as shareholders and most of the reliefs prayed for by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the shares should have been offered to him for purchase before the members holding them had transferred them in favour of respondents Nos. 2 to 26, in support of which no provision of law or the articles of association of the company has been cited, and that he should not have been removed from the directorship of the company. The matter with regard to the validity of the transfer of shares is pending in this court in a petition filed under section 155 of the Companies Act and his removal from directorship was by the company in a general meeting held in accordance with section 284 of the Companies Act. It cannot, therefore, be said that any right of the appellant as a shareholder has been oppressed by the present management. The learned counsel referred to In re H. R. Harmer Ltd. [1958] 3 All ER 689; [1959] 29 Comp. Cas. 305 (CA), In re Albert David Ltd. [1964] 68 CWN 163 (Cal.), Ramshankar Prasad v. Sindri Iron Foundry (P.) Ltd. [1966] 70 CWN 520 (Cal.) and Asansol Electric Supply Co. v. Chunnilal Daw, AIR 1972 Cal. 19, which are all distinguishable. In In re Albert David Ltd. [1964] 68 CWN 163 (Cal.), it was held that: "The right to appoint a director is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... qualifying circumstance when the question of relief under section 210 (corresponding to section 397 of the Companies Act subject to one exception) arises. I think there may well be oppression from the point of view of member-directors where a majority shareholder (that is to say, a shareholder with a preponderance of voting power) proceeds, on the strength of his control, to act contrary to the decisions of, or without the authority of, the duly constituted board of directors of the company." In H.R. Harmer's case [1958] 3 All ER 689 ; [1959] 29 Comp. Cas. 305 (CA), the facts were that the company consisted of the father and his two sons. The majority of shares were held by the father but all three of them were the only shareholders and directors of the company. The father went to Australia in January, 1948, and decided to open a branch there against the wishes of his sons. In 1954, the father purported to dismiss summarily a Mr. Edwards which was opposed by the two sons as directors but the father exerted his authority as the majority shareholder. On these facts, it was held by Jenkins L.J. that there may well be oppression from the point of view of member-directors where a ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g up of the company. That question does not arise in the present case in view of the discussion made above. Lastly, the learned counsel for the appellant submitted that the learned single judge erred in law in holding that the change in the management was see ought about by and in the interests of the company's creditor Messrs. india Iron Tracers Corporation and, therefore, no grievance can be made by the appellant under section 398 of the Companies Act in view of what is convened in section 398(1)( b ) within brackets. The argument is that a creditor is only concerned with the recovery or realisation of the amount due to him and not with the management of the company's affairs. We are of the opinion that the argument of the learned counsel is clearly wrong. The legislature, while providing exception in clause ( b ) of section 398(1) of the Companies Act, clearly visualized that cases might occur in which financially hard-pressed companies might save themselves by arranging with their creditors to become shareholders and directors in lieu of remaining creditors for the whole or part of the amount due to them and that such a change occurring in the management will not afford a cau ..... X X X X Extracts X X X X X X X X Extracts X X X X
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