TMI Blog1984 (6) TMI 182X X X X Extracts X X X X X X X X Extracts X X X X ..... s paid up is Rs. 30,000. Ajit Kumar Roy, the petitioner in this application, was one of the subscribers of the company. Fourteen shares, of the face value of Rs. 1,000 each, had been allotted to the petitioner who still holds the same. Eighty percent. of the face value of the said shares have been paid up and no call is presently outstanding on the same. The petitioner has been all along a director and is still a director of the company. Neli Poddar, respondent No. 2, is the wife of respondent No. 3. She holds 16 shares of the company of the face value of Rs. 1,000 each. She is also a director of the company. Apart from the petitioner and respondent No. 2, the company has no other shareholder or director at present. Eighty percent. of the face value of the shares held by the petitioner and respondent No. 2 have been paid up or credited as paid up. Sudhir Chandra Poddar, respondent No. 3, is a chartered accountant. He was appointed as the auditor of the company at its inception and he has continued as the auditor. Respondent No. 2 was appointed as a director of the company under a resolution of its board passed in a meeting held on December 4, 1978. The petitioner was pres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rved by the petitioner on respondents Nos. 2 and 3 calling upon them to produce and allow inspection of copies of the annual returns filed by the company. Respondent No. 2 did not attend the board meeting on December 31, 1982, and the petitioner treated the said meeting as automatically adjourned till January 7, 1983. On January 1, 1983, the petitioner, it is alleged, received a telegram from respondent No. 2 recording that she had written a letter to the petitioner on December 31, 1982, for adjournment of the said board meeting scheduled to be held on that date. The adjourned meeting held on January, 7, 1983, was also not attended by respondent No. 2. The petitioner held the said meeting by himself where he appointed one P. K. Ghose as an additional director. Another meeting of the board was called on February 5, 1983, notice whereof was served on respondent No. 2. By her letter dated February 2, 1983, respondent No. 2 challenged the meetings of the board held on December 31, 1982, and January 7, 1983. The petitioner and the said additional director held a further meeting of the board on February 5, 1983, at which also respondent No. 2 was absent. At that meeting, the petiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the company, the petitioner, it is alleged, has been looking after its manufacture and production. Respondent No. 2, it is alleged, is a housewife and has no knowledge or experience of business nor of manufacture or production. It is alleged that she is, in fact, a benamidar of respondent No. 3, who has continued as the auditor of the company on the strength of the majority shares held by respondent No. 2. The annual general meetings of the company were being in fact con-ducted by respondent No. 3, respondent No. 2 taking practically no part. Apart from the accounts, the minutes of the annual general meetings, the register of shares and other statutory books and papers of the company, it is alleged, used to be maintained by respondent No. 3. Similarly respondent No. 2 never took any real part in the meetings of the board of directors except being present. Respondent No. 3 used to be present also in the board meetings but the same was never recorded in spite of the request of the petitioner. The entire minutes of the meetings of the board were dictated by respondent No. 3. The petitioner did not record his protest at the said meetings as he was in a minority and also as he was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a manner prejudicial to the public interest and also in a manner oppressive of the petitioner. The conduct of respondent No. 2 shows lack of probity and fairness. Mutual trust and confidence between the directors have been totally lost. In the facts, an order for the winding up of the company would be justified but would prejudice the petitioner. Respondent No. 2 has affirmed an affidavit on July 1, 1983, which has been filed in opposition to the petition. It is alleged, in this affidavit, inter alia , that no meeting of the board of directors of the company could be held on February 5, 1983, in the absence of respondent No. 2 and no shares could be allotted to the petitioner alone as was purported to be done at the said meeting. The appointment of the additional director, it is contended, was also wrongful and illegal. It is contended further that the petitioner, constituting a minority, was treating the company as his personal property and was acting in a manner oppressive of the majority. The main business of the company, it is alleged, consists only of assembling parts and components of industrial fans and blowers and not manufacture of any product. The petitioner used to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the board meetings and created a deadlock in the management of the company. Respondent No. 2 has invited the investigation as prayed for by the petitioner and it is alleged that the petitioner has been guilty of misappropriation of funds and assets of the company. It is contended that to put an end to his illegal and wrongful acts, the petitioner should be directed to sell his shares in the company to respondent No. 2 which will be in the interest and for the benefit of the company. Sudhir Chandra Poddar, respondent No. 3, has affirmed an affidavit on July 1, 1983, which has also been filed in opposition to the petition. Respondent No. 3 alleges that the petitioner has made incorrect allegations against him in order to implicate him in the disputes of the company and to cause damage to his profession as a chartered accountant. It is alleged that respondent No. 3 did not accept the secretarial job in the company when requested but at the instance of the petitioner rendered various services to the company, as and when required, including making entries in the books of the company. It is denied that respondent No. 2 is a benamidar of respondent No. 3. It is denied that the boo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ondent No. 2 and the employees of the company. The employees, in fact, have appeared in the proceedings and supported the petitioner. There was no possibility of the petitioner obtaining any relief in the domestic forum. In order to resolve the deadlock in the management, the petitioner took certain steps in good faith and a meeting was convened on December 31, 1982, to co-opt another director and to increase the share capital of the company. The said steps, it was submitted, were neither detrimental nor prejudicial to the interests of the company. Respondent No. 2, however, put a stop to the efforts of the petitioner by filing a suit in the District Court of Alipore and obtaining an interim order therein. It was last submitted that, in the facts and circumstances of the instant case, in the interest of the company, the petitioner should be given the option to purchase the shares of respondent No. 2 though the petitioner is in a slight minority. Respondent No. 2 was interested in continuing the deadlock and was not being supported by the workers. Whether respondent No. 2 was in majority in the company would depend on the result of the suit filed in the Alipore Court where the v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x. " ( c ) National Textile Workers' Union v. P. R. Ramakrishnan [1983] 53 Comp. Cas. 184 (SC). This decision was cited for the following observations in the majority judgment of the Supreme Court (p. 207): "We are, therefore, of the view that the workers are entitled to appear at the hearing of the winding-up petition whether to support or to oppose it so long as no winding-up order is made by the court. The workers have a locus to appear and be heard in the winding-up petition both before the winding-up petition is admitted...also after the admission...even when an application for the appointment of a provisional liquidator is made by the petitioner in a winding-up petition, the workers would have a right to be heard if they so wish because the appointment of a provisional liquidator may adversely affect the interest of the workers. " ( d ) Hind Overseas P. Ltd. v. Raghunath Prasad Jhunjhunwalla [1976] 46 Comp. Cas. 91 (SC). This decision was cited for the following observations of the Supreme Court (headnote) : "When more than one family or several friends and relations together form a company and there is no right as such agreed upon for active participation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... director nor was there any complaint of ouster. Mismanagement or damage to business as a result of inaction or non-action of respondent No. 2 was also not established. There was no evidence of removal of books by the respondents. Accounts up to 1982 had been signed by the petitioner and were filed. There was no complaint of misappropriation. Respondent No. 2 was invited by the petitioner himself to become a director of the company without any question being raised as to her competency or ability. The petitioner also admittedly acquiesced all along to the presence of respondent No. 3 at the meetings of the company and its board. Learned counsel next submitted that only eight persons were employed by the company and their supposed interest in the company could not override the interest of a member who held the majority of the shares. The workers might have locus standi to make representations if the company was going to be wound up, but no authority was cited to show that the workers were entitled to have a say in the management while the company was functioning. It was next submitted that the petitioner acted wrongfully in allotting to himself further shares unilaterally an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers should be kept out of management." ( c ) In re Sindhri Iron Foundry (P.) Ltd. [1964] 34 Comp. Cas. 510 (Cal.); 68 CWN 118. In this case, another learned judge of this court approved the views of P. C. Mullick J. in In re Albert David Ltd. [1964] 68 CWN 163 followed the same. ( d ) In re Bengal Luxmi Cotton Mills Ltd. [1965] 35 Comp. Cas. 187 ; 69 CWN 137. The decision was cited for the following observations (at pp 219 and 220 of 35 Comp. Cas.): "...the extraordinary and summary jurisdiction of the court under section 397 and section 398 ought not to be exercised when suits covering the same subject have been instituted in this court and interim orders have been obtained restraining voting rights and alienation of shares. If those suits had not been instituted, and the remedy relating to the alleged wrongful sale of the shares not sought for in those suits, the position would have been different. It would have been, in that event, open to this court to go into the questions of propriety, legality and validity of the transfer of the shares. But the suits are pending and are ready for hearing and so far as the question of validity and legality of the transfer of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o ask the majority who are normally entitled to run the affairs of the company to go out of the company will not meet the ends of justice and except in extraordinary circumstances it would be unfair and unjust to deprive the majority shareholders of their valuable rights for all times to come. In the facts and circumstances of the instant case, it has been established by the petitioner that there is a deadlock in the management of the company. One of the two directors, namely, respondent No. 2, has ceased to attend the board meetings and has stopped the operation of the bank account of the company. It was open to respondent No. 2 who holds the majority in the company to resolve the deadlock by calling a general meeting of the company and appoint an additional director but for reasons best known to her she has not chosen to do so. The petitioner who is in a minority sought to resolve the deadlock in his own way. He held a board meeting all by himself and issued to himself further shares thereby converting himself into a majority. He also co-opted another director. The said acts of the petitioner have been challenged by respondent No. 2 and is now pending adjudication in Title Su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as respondent No. 2 and is in a minority only in a technical sense. The petitioner also relies on the support of the workers of the company. His additional grounds are that he alone has the experience and technical qualification to run the company while respondent No. 2 is not competent technically or otherwise to manage the company by herself. The contention of respondent No. 2, on the other hand, is that she is in a majority and it is settled law so far as this court is concerned that the majority should never be forced to sell its shares to a minority. In view of the decisions, In re Albert David Ltd. [1964] 68 CWN 163, In re Sindhri Iron Foundry (P.)Ltd. [1964] 34 Comp. Cas. 510 (Cal.); 68 CWN 118 and Tea Brokers (P.) Ltd. (AFOO No. 312 of 1972 February 19, 20, 1974), the contentions of respondent No. 2 cannot be brushed aside. Whatever be her competence, she, in my view, cannot ultimately be kept out of the management. Majority is a matter of arithmetic and in law she also should not be directed by this court to sell her shares to the petitioner. The fact that the employees are supporting the petitioner makes little difference to the legal position. No authority ha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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