TMI Blog1985 (4) TMI 245X X X X Extracts X X X X X X X X Extracts X X X X ..... l to shift the registered office of the company from Secunderabad to Tirupathi was accepted by the board of directors at a meeting dated June 13, 1980. At Tirupathi, the company was to be located in premises bearing No. 194/C, Prakasam Road, Tirupathi, as a lessee of another firm, M/s Triveni Enterprises, which, in its turn, was the principal lessee from the owners of the building. Certain disputes arose among the directors of the petitioner-company in September, 1983. The matters came to a crisis during February, 1984. The second respondent-plaintiff was a partner of M/s Avanthi Enterprises with whom the petitioner-company entered into the sub-lease. The second respondent had not "specifically" disclosed the fact of his being a partner of M/s Avanthi Enterprises to the company as required by section 293 read with section 299 of the Act. On that ground, the other directors are said to have passed a resolution on February 13, 1984, that the petitioner has become disqualified from being a director with retrospective effect from June 13, 1980. This was because June 13, 1980, was the date on which the company passed a resolution to shift the registered office from Secunderabad to Tirup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cation specified in sections 283(1)( i ) and 299 of the Act relates to certain rights unknown to the common law and that these rights as well as the remedies in that regard are those specially created by the Companies Act and the second respondent should have approached the company court (the High Court) and not the civil court for adjudication of disputes relating to his disqualification. Sri M. Ramachandra Reddy, learned counsel for the second respondent, has contested the above propositions. The only question that arises for consideration is : Whether the civil court has jurisdiction to decide the question relating to the alleged disqualification of the second respondent under section 283(1)( i ) read with section 299 of the Companies Act in the context of section 211 and section 10 of that Act, and section 9, Civil Procedure Code. Before going into the main question, it is necessary to refer to the relevant statutory provisions. It is provided in section 283(1)( i ) and section 299 that a director has to disclose his interest in a contract to be entered into by the company at the first meeting, or otherwise he becomes disqualified. Section 10 of the Act deals with the j ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sub-section (2) by a notification issued by the Central Government. The Central Government can empower a District Court to exercise all or any jurisdiction conferred by this Act "upon the court", except the jurisdiction conferred by sections 237, 391, 394, 395 and 397 to 407 (both inclusive) and not being the jurisdiction conferred in respect of companies with paid-up share capital of not less than Rs. 1 lakh by Part VII and the provisions of the Act relating to winding up of companies. It may be seen that there are various provisions in the Act which refer to "the court", such as sections 107, 155, 163(6), 237, 391, 394, 395 and 397 to 407, 425, etc . The Central Government is empowered, however, to confer jurisdiction on the District Court powers only in respect of some of these sections but not all. In my view, section 10 of the Act only proceeds to enumerate or specify "the court having jurisdiction under this Act", wherever such jurisdiction is conferred on "the court" by the other provisions of the Act. Powers are conferred by the Act not only on courts but also on other authorities like the Central Government, the Company Law Board and the Registrar; and where a power ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amely, the majority cannot confirm (1)an act which is ultra vires the company or illegal; (2)an act which constitutes a fraud against the minority and the wrongdoers are themselves in control of the company; or (3)a resolution which requires a qualified majority but has been passed by a simple majority. In other words, the rule in Foss v. Harbottle [1843] 2 Hare 461 does not apply to such acts as referred to above inasmuch as the majority cannot sanction those acts. A resolution which is ultra vires or illegal or is a fraud on the minority or is not bona fide or for the benefit of the company as a whole or is intended to discriminate between the majority shareholders and the minority shareholders, is illegal and can be questioned by a separate action in the civil court. The reason for this is that if the minority were denied that right, their grievance could never reach the court because the wrongdoers themselves being in control, do not allow the company to sue. In some cases, it has been held that further exceptions to the rule in Foss v. Harbottle [1843] 2 Hare 461, are permissible in cases in which "justice requires that the courts should intervene" to assi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions in the memorandum and articles which cannot be waived by a bare majority of shareholders". And, the plnintiff's right to move the civil court was upheld. Bearing these general principles in mind, I shall now refer to certain rulings of the Madras and other High Courts wherein the infringement to an individual right of the shareholder was upheld. In T.A.K. Mohideen Pichai Taraganar v. Tinnevelly Mills Co. Ltd., AIR 1928 Mad 571, a suit for declaration that the plaintiffs were the validly elected "policy-holders directors" of the company and that the defendant company had no power to nominate such directors and for a permanent injunction restraining the defendants from excluding the plaintiffs or in any way restraining or interfering with the plaintiffs' acting or attending as directors was held maintainable. Pydah Venkatachalapathi v. Guntur Cotton, Jute and Paper Mills Co. Ltd., AIR 1929 Mad 353, related to a suit for a declaration that the defendant ceased to hold office from March 31, 1928, and for a permanent injunction restraining them from interfering with the management of the company and for accounts and damages; M.K. Srinivasan v. Watrap S. Subrahmany ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made at a meeting was invalid and for a permanent injunction; Marikar ( Motors ) v. M.I. Ravi Kumar [1982] 52 Comp. Cas. 362 (Ker.), was a suit for a declaration that the co-option of certain defendants as directors was illegal and for removing some of them from the board of directors as being unfit for holding office by reason of mismanagement, oppression and fraud and for appointment of an administrator; these suits were held maintainable. In our High Court in Bhagawandas Garg v. Canara Bank Ltd. [1978] 1 An WR 504; [1981] 51 Comp. Cas. 38 (AP), Chennakesav Reddi J. (as he then was) held that a suit for recovery of money against the Canara Bank in respect of the deposit amount payable by the plaintiff in respect of twelve shares was maintainable, observing (at page 46 of 51 Comp. Cas.): "Section 10 of the Companies Act also confers exclusive jurisdiction on the High Court only in respect of matters covered by sections 237, 391, 394, 395 and 367 to 497 (both inclusive) and in respect of matters covered by Part VII of the Companies Act with a paid-up capital of one lakh of rupees and over and in respect of other provisions relating to winding up of companies. Except ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of proceeding either under the statute or at common law. Then there is a second class, which consists of those cases in which a statute has created a liability, but has given no special remedy for it; there the party may adopt an action of debt, or other remedy at common law to enforce it. The third class is where the statute creates a liability not existing at common law, and gives also a particular remedy for enforcing it........with respect to that class it has always been held that the party must adopt the form of remedy given by the statute". The question, therefore, is whether the rights and obligations in question in this case owe their very creation to the Companies Act, or whether they are traceable to a basic contract which is statutorily regulated. What is the historical background of the company statutes ? In the eighteenth and the beginning of the nineteenth centuries, the association, namely, the unincorporated company, became increasingly popular. As the Industrial Revolution advanced, men of business began again to recognise the advantages derived from co-operation in commercial enterprise, namely, the advantage of raising funds for the purposes of large underta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is of the "deed of settlement company" was regulated by a statute at various stages. It is, therefore, clear that the position in law is that the rights and liabilities between the contracting parties and governed by the articles of association are regulated by the various statutes relating to company law, and these laws have not created any special rights and remedies. This was also recognised by the Madras High Court in the following case. A Division Bench of the Madras High Court, consisting of Srinivasa Ayyangar J. and Anantha Krishna Iyer J., in T.A.K. Mohideen Pichai Taraganar v. Tinnevelly Mills Co. Ltd., AIR 1928 Mad 571, to which I have already referred, also pointed out the "regulatory" nature of the Act vis-a-vis the common law and held that the general right of suit cannot be considered to have been taken away merely because of some "regulatory" provisions. A civil suit was held maintainable. I, therefore, hold that the general law of contracts is the basis of the rights of parties and that the Companies Act, 1956, merely regulates these rights and does not create any new rights or remedies. Unless, as stated in Wolverhamptons's case [1859] 6 CB (NS) 336, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lleged disqualification in question cannot be the subject-matter of a civil suit. I, therefore, dissent from Hirendra Bhadra v. Titwin Engineering Co. [1975-76] 80 CWN 242, of the Calcutta High Court. I also dissent from the view taken by the Allahabad High Court in Patna Devi v. Harihar Prasad [1978] Tax LR 2292, to the effect that a suit for a declaration that the defendants are not directors of the company and for restraining the defendants in financial matters is not maintainable. In that case, the differing views expressed in Nava Samaj Ltd. v. Civil Judge, Rajnandgaon, AIR 1966 MP 286, were referred to. For the aforesaid reasons, I hold that the suit filed by the second respondent is maintainable. It is argued for the second respondent, relying upon Costa Rica Railway Co. Ltd. v. Forwood [1901] 1 Ch 746, that the knowledge of the other directors with regard to information which the second respondent shall, according to the petitioner, have intimated to the other directors, was sufficient to take the second respondent out of the disqualification , if any, imposed by sections 283(1)( i ) and 299. The above English ruling has been referred to in Pydah Venk ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
