TMI Blog1981 (6) TMI 111X X X X Extracts X X X X X X X X Extracts X X X X ..... beyond his competence. The board so constituted called the 38th annual general meeting in December, 1978. The board was not competent to approve the balance-sheet and profit and loss accounts or to call the meeting. No proper notice was given to many members. Defendants Nos. (2) to (6) were indulging in fraudulent practices detrimental to the interests of the company. Part of the company's business was transferred to another company of which the 2nd defendant's wife was the managing director. Funds were diverted to still another company of which the 2nd defendant himself was the managing director. Manipulations were made in transferring agency business. Recoverable debts were written off as bad debts. Assets of the company were transferred unauthorisedly and illegally. Defendants Nos. (2) to (6) were mismanaging the affairs of the company and oppressing the minority. The main reliefs claimed on the above allegations were : ( i )declare the co-option of defendants Nos. (3) to (6) as illegal and void; ( ii )remove defendants Nos. (2) to (6) from the board of directors as unfit for holding office by reason of mismanagement, oppression and fraud; ( iii )appoint an administrator t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w, and the indications available in the statute itself. A company is an association of persons for doing business and such associations were in existence in England at least by the end of the 16th century, long before any law relating to companies was placed on the statute book. They were a kind of a loose partnership or a quasi-partnership. The strict rules of partnership law under which each partner is an agent of the others could be applied only to small compact bodies where each member has trust and confidence in the others ; they could not be usefully applied to a more complicated form of association having larger and fluctuating membership. But men and women were doing business in that form and, therefore, the equity courts of England were applying the doctrine of trust to regulate their relationship. The first type of business organisation with the name "company" appended to it was formed by the merchant adventures of England for trading overseas; and they obtained charters from the Crown, conferring privileges of monopolistic trade. The members of these companies could carry on their trade privately also, but there was a "joint stock" to which they contributed. The joint st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Joint Stock Companies Act of 1856, recognised the principle of limited liability, provided for mere registration, abolished the need for the deed of settlement, replacing it with the memorandum and articles of association, and also made provisions for winding up. Subsequent legislation in the field of company law has been directed towards imposing more restrictions and greater controls, and towards insisting on more publicity with a view to eschew fraud and underhand dealings. The above history shows that legislation in the field of company law was only trying to keep pace with its development, stepping in to prevent malpractices in certain areas and providing for safeguards in others ; there has never been an attempt to codify the entire law on the subject. In other words, the various enactments dealt with only certain aspects of the law relating to companies, and were never exhaustive. Gower in Principles of Modern Company Law, 4th Edn., pp. 8, 51, says: "No attempt has ever been made to codify English company law. The Companies Act, 1948, was merely a consolidation of the existing statutory rules and as a result of subsequent legislation, notably the Acts of 1967 and 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de cannot, therefore, be accepted, even if it is assumed that the effect of codification is to oust the jurisdiction of the ordinary courts. Turning to the second contention based on Foss v. Harbottle [1843] 2 Hare 461, it is true that the courts do not interfere with the internal management of a company, at the instance of a minority of members dissatisfied with the conduct of its affairs by the majority. It is a good policy that management functions are left to those in management with the support of the majority and that the court's views are not imposed on them. And if it is a matter of policy only, that is, of reluctance to interfere with the right of the majority, no question of jurisdiction arises. The jurisdiction is there, but in its exercise, the court forges some fetters on itself. But the rule has no doubt been stretched further in some cases at least, the courts refusing to remedy wrongs done to the company unless the grievance is backed by the majority. The question then is one of locus standi , and the principle seems to be that the company, with a separate legal personality of its own, can alone complain of wrongs done to it. An action brought by a dissatisfi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by such acts. Similarly, it is open for members to sue for restraining a threatened breach of the provisions of the memorandum or articles. A member can also seek a declaration against a resolution altering the memorandum or articles, though passed in proper form, on the ground that it is not in good faith for the benefit of the members as a whole. Again where a resolution is passed by a general meeting, when it should have been passed as a special or extraordinary resolution, its validity can likewise be challenged by the members. A representative action to restrain the company from doing an act contrary to the provisions of the Companies Act, or the general law, or from giving effect to an invalid decision of the general meeting, is also permissible. At the root of the above exceptions lies either a question of vires or contract, and the remedy is mostly to prevent a threatened act, and not to get undone something improperly done. Apart from corporate rights which are but rights to get remedied wrongs done to a company, a member has also personal rights to sue for wrongs done to himself in his capacity as a member. These individual rights stem partly from contract, express or i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the interests of justice require that the general rule, requiring suit by a company, should be disregarded." The decisions in Joseph v. Jos [1964] KLT 234 ; 34 Comp. Cas. 931 (Ker.) and Star Tile Works v. N. Govindan, AIR 1959 Ker. 254 also support the view that instances of the present kind are recognised exceptions to Foss v. Harbottle [1843] 2 Hare 461. The last question is as to whether the provisions of Chap. VI of the Act exclude the jurisdiction of civil courts in matters relating to oppression and mismanagement. Section 397 provides that any members of a company having a grievance that its affairs are being conducted in a manner oppressive to them "may apply to the court for an order under this sub-section". Section 398 makes a like provision where the grievance is that the affairs are conducted in a manner prejudicial to the company's interests. But only a group of members having the specified voting strength under section 399 could resort to these remedies. Section 408 empowers the Central Govt. also to grant some relief from oppression and mismanagement to the minority, but here again the application must be by a specified number of shareholders. If the a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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