TMI Blog1985 (8) TMI 296X X X X Extracts X X X X X X X X Extracts X X X X ..... . 2 and 4 are two of their sons. The sixth respondent is V. Ramakrishna Sons Ltd. which is a company registered under the Companies Act, 1956, hereinafter referred to as the company. The company was incorporated under the Companies Act and a certificate of incorporation was granted on July 7, 1949. The nominal capital of the company is ₹ 10,00,000 divided into 1,000 shares of ₹ 1,000 each. The company was promoted by the late V. Ramakrishna, I.C.S., and Rajeswari Ramakrishnan as a private limited company, the shareholding being distributed as follows : V. M. Rao ... 199 V. L. Dutt ... 199 Rajeswari Ramakrishnan ... 95 R. Prabhu ... 4 V. Ramakrishna, I.C.S. ... 1 P. R. Ramakrishnan ... 1 V. R. Durgamba ... 1 (V. R. Durgamba got this share from her husband, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rgamba, and that of R. S. Industrial Corporation Ltd., with Rajeswari Ramakrishnan. The arrangement also enjoined that in the event of the shareholding of V. Ramakrishna Sons Ltd. or that of V. M. Rao and V. L. Dutt in Jeypore Sugar Co. Ltd., or Krishna Industrial Corporation were to be disposed of, a right of pre-emption be given to Rajeswari Ramakrishnan and a corresponding right of pre-emption in favour of V. M. Rao and V. L. Dutt in case Rajeswari Ramakrishnan or R. S. Industrial Corporation wanted to dispose of their shares in K.C.P. Ltd., Andhra Cement Co. Ltd. and V. Ramakrishna Sons Ltd. According to the plaintiffs, the family arrangement so brought about by the father was agreed to by Rajeswari Ramakrishnan, V. M. Rao and V. L. Dutt, the children of the late V. Ramakrishna. In accordance with this family arrangement, V. M. Rao, who was on the board of directors of Jeypore Sugar Co. Ltd. and R. S. Industrial Corporation (P.) Ltd. resigned on October 29, 1961, and February 1,1962, from the above companies and also gave up all positions and responsibilities in respect of those companies. He had also transferred to Rajeswari Ramakrishnan and to her branch and/or nominees th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... right of management being vested solely with the first plaintiff, fifth defendant and their mother and their branches, and violation thereof amounts to breach of the basic obligations and manifest lack of probity and the loss of mutual confidence. Such acts of violation of the arrangement constitute fraud on the rights of the plaintiffs. The plaint further states that the first plaintiff has been trying to avoid conflict since March, 1975 and has been trying to arrive at a reasonable and mutually acceptable compromise through very respectable mediators, but the negotiations did not produce any fruitful response. With these allegations, the plaintiffs filed C.S. No. 322 of 1975 on December 17, 1975, praying for a decree declaring : (1)That defendants Nos. 1 to 4, or anyone claiming through or under them, are not entitled to participate in the management of the company ; (2)that the election of defendants Nos. 1 and 2 to the board of directors of the company at the annual general meeting held on April 22, 1975 is null and void ; and, (3)for a permanent injunction restraining defendants Nos. 1 and 2 from functioning as directors; and (4)for a permanent injunction restra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure for the constitution of the board, is void in law, unenforceable and also bit by section 23 of the Indian Contract Act and that the alleged family arrangement not having been reduced to writing and not having been incorporated in the articles of association of the sixth defendant, is also unenforceable. As the family arrangement pleaded is at variance with and contradicts the articles of association of the sixth defendant, such oral agreement pleaded is also barred by the provisions of section 92 of the Indian Evidence Act. They have also contended that having regard to the nature of the allegations in the plaint and, in particular, allegations of fraud against and oppression of the plaintiffs and the nature of the reliefs prayed for which relates entirely to the internal management of the sixth defendant company, this court, as a civil court, will have no jurisdiction to entertain the suit and the matters raised and the reliefs prayed for here can be agitated, if at all, only before the court having jurisdiction under the Companies Act, 1956. The fifth defendant, the brother of the first plaintiff filed a separate written statement, contending that the so-called family arra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed family arrangement. On behalf of the sixth defendant also a written statement was filed in which it was contended that the relevant reliefs prayed for in the plaint cannot be granted, as the same are opposed to the principles of law governing the companies incorporated under the provisions of the Companies Act. The sixth defendant also pleaded that it had no knowledge of any such family arrangement. It was also contended that the rights and liabilities are to be decided only with reference to the memorandum and articles of the company and the provisions of the Act and that the company cannot take note of any family arrangement, even if such arrangement existed between the parties. On these pleadings the following issues were framed on September 15, 1976: (1)Whether the family arrangement pleaded by the plaintiffs is true, valid and binding on the parties ? (2)Whether the said family arrangement was not acted upon and whether the same is not enforceable for any of the reasons set out in the written statement ? (3)Whether the defendants are estopped from denying the truth and validity of the family arrangement ? (4)Whether the suit is not maintainable for any of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s certainly an arrangement or understanding between the parties and the conduct of the respondents in acting contrary to the said understanding itself amounts to an oppression of the minority shareholders like the petitioners. Secondly, it was contended that the company's affairs are being conducted in a manner prejudicial to the public interest and also in a manner oppressive to the members especially, the petitioner. The various acts of oppression and mismanagement relied on by the petitioner are set out in paragraphs 26(A) to G of the petition and on those grounds it was contended that it is a case in which the company can be wound up on just and equitable grounds. It was also contended that the conduct of the company's affairs by the respondents is unfair, burdensome, harsh and wrongful to the other members of the company who constitute 47.3% of the shareholding. It is both oppressive and also against public interest. The petitioner has set out certain features in the administration of the company and the conduct of the directors in paragraph 32 of the petition as justifying interference by this court in exercise of its powers under section 397 of the Companies Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. After the eighth respondent was impleaded as a party to the petition by an order dated October 30, 1977, in Company Application No. 506 of 1977, a counter-affidavit has also been filed on behalf of the eighth respondent. It may be mentioned that one of the acts of oppression and mismanagement alleged was that an extraordinary general body meeting of the eighth respondent company was held on September 25, 1975, in which a special resolution was passed that the sanction of the company under section 81 of the Act be accorded to the directors to issue further shares to any person, whether or not those persons are existing shareholders of the company and in pursuance of that resolution at a subsequent meeting of the board of directors, shares worth ₹ 5,00,400 were allotted to Bajranbali Engineering Co. Ltd. and three other individuals which, according to the petitioner, has resulted in the dilution of the value of the shares of the existing shareholders. Because of this allegation, the eighth respondent was brought on record as a party respondent and a counter-affidavit was filed on behalf of the company. In the counter-affidavit filed, the facts relating to the allotment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ? (12)Whether loans have been borrowed in excess of requirements as alleged in paragraph 26C of the petition and could this matter, if true, be agitated in these proceedings ? (13)Whether the investments of deposits in the New Bank of India Ltd. is prejudicial to the seventh respondent company as alleged in para graph 26D of the petition and is it a matter that could be agitated in these proceedings ? (14)Whether the hundi loans and other transactions referred to in paragraph 26F of the petition were acts of mismanagement by the first respondent and could they, if true, be agitated in these proceedings ? (15)Whether the resolution of the board of directors of the seventh respondent company dated December 3, 1975, concerning the furnishing of copies of documents and information amounts to abuse of power and exclusion of the petitioner from management to warrant action under sections 397 and 398 of the Act ? (16)Whether the allegations in the petition concerning the internal affairs of M/s. K. C. P. Ltd. can be investigated in these proceedings? (17)Whether the proposals dated November 17, 1976, of the seventh respondent company to raise the strength of the board of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the company petition are also found against V. M. Rao. Before we go into the validity and the binding nature of the family arrangement pleaded by the appellants, it is necessary to find out what exactly is the family arrangement pleaded by the plaintiffs and spoken to by the witnesses and whether the plaintiffs have proved any family arrangement. In the plaint, it is stated that late V. Ramakrishna thought it best to bring about a family arrangement by virtue of which the two sons will be in exclusive management of one company and the daughter, the other company . Then it is stated that the family arrangement thus brought about at Madras was as follows : ( a )participation in the management and affairs of V. Ramakrishna Sons Ltd., the then managing agents of K. C. P. Ltd., will be the exclusive entitlement of the two sons, V. M. Rao (first plaintiff), V. L. Dutt (fifth defendant) and/or their respective branches along with their mother, V. R. Durgamba, during her lifetime. ( b )participation in the management and affairs of R. S. Industrial Corporation Private Ltd., the then managing agents of Jeypore Sugar Co. Ltd., will be the exclusive right and privilege of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons or their respective nominees or branches in equal moieties. Likewise, if the sons or their respective branches of family or V. Ramakrishna Sons Ltd. were to dispose of their respective shareholdings in R. S. Industrial Corporation P. Ltd., Jeypore Sugar Co. Ltd., Krishna Industrial Corporation Ltd., they should give her, her branch or her nominees, the first option to buy the shares . It is further stated that her husband put these suggestions to each one of them individually and they accepted the same and acted upon it. Apart from the fact that the affidavit uses the expressions like desirable , advisable and suggested , as against the plaint allegation that the father brought about an arrangement, the affidavit of Durgamba does not confirm the plaint relating to the exclusive right of participation in the management and affairs of the companies by the respective parties. On the other hand, the affidavit refers to the control of V. Ramakrishna Sons Ltd., by the two sons and not the exclusive participation in the management and affairs of the company . In his oral evidence as P.W.-1, V. M. Rao, has stated: Then one day, my father called all of us, my sister, R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid Yes on the previous day, he said Could be . It may be seen from these answers in cross-examination that the evidence was that the alleged family arrangement related to the management of K.C.P. Ltd., Jeypore Sugar Co. Ltd. and Krishna Industrial Corporation Ltd., which are public limited companies and not relating to the management and affairs of V. Ramakrishna Sons Ltd. and R. S. Industrial Corporation (P.) Ltd. The evidence of P.W.-l thus does not establish the family arrangement pleaded in the plaint. One of the parties to the alleged family arrangement according to appellants was R.W.-3, V. L. Dutt. He had completely denied the existence of any such family arrangement. He was cross-examined elaborately by counsel for the plaintiffs, but with no effect. Nothing can be stated to disbelieve his evidence either. Rajeswari Ramakrishnan filed a counter-affidavit in Applications Nos. 3246 and 3247 of 1975. After stoutly denying the alleged family arrangement and the implementation of the same and denying any type of arrangement providing for participation in the management and affairs of V. Ramakrishna Sons Ltd. to be the exclusive entitlement of the first plaintiff and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany, V. R. and Sons, and verifying the accounts. This act was not relished by my son, Rao. Thereafter, my son talked to my husband. He represented to his father that he did not like his sister looking after the affairs of the company which he was doing previously. He also stated that he did not like his sister looking after the affairs of the company and that if he wanted anything to be looked after, he may be given some other work and that there should be no connection between him and his sister. Then we pacified my son and told him that he should not worry very much about the matter and he then looked after the affairs. Then, one or two days later, my husband told me that he did not like his son and daughter quarrelling with each other and he would make some arrangement for them. Then two or three days thereafter, my husband, sons, son-in-law and daughter made the division of the companies. To a question as to what was the division, she answered : It was decided that my sons should look after V. R. and Sons and my daughter should look after R. S. Industrial Corporation. When asked as to the terms of the arrangement, she said : In V. R. and Sons, my daughter was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Jeypore Sugars and that this was necessitated because he feared that Mr. Rao who is a strong-willed man may not allow his daughter to carry on the management of Jeypore Sugars peacefully. It is in these circumstances and probably with a view to get better administration, the father desired the sons to be in management of K.C.P. Ltd. and the daughter to be in management of Jeypore Sugars. The arrangement thus could not be with reference to the management and affairs of V. Ramakrishna Sons Ltd. or R. S. Industrial Corporation Ltd. In the plaint and in the company petition, the first plaintiff has stated that his father had informed about this arrangement to his mother, his mother's brother, A.V. Subramanyam, one A. Visweswara Rao (P.W.-15) and the late A.V. Raghava Rao. It is also mentioned that friends like S.V.R. Appa Rao, a director of K.C.P. Ltd., M. Sitharama Rao (P.W.-8), the then plant manager of Vuyyuru Sugar Factory of the K.C P. Ltd., etc ., A.V.M. Caesar, son of late A.V. Raghava Rao and M.K. Bhandarkar (P.W.-13), the then sales manager of K.C.P. Ltd., also know of the above arrangement. P. Punniah (P.W.-6), a former manager of Jeypore Sugar Co. Ltd., knows of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hen asked what he meant by took over , he replied : I was told by Mr. Ramakrishna, after this change, that he made a settlement between his children the two sons to look after the concern controlled by V. Ramakrishna Sons Ltd. that was K.C.P. Ltd. and the daughter to look after the concerns controlled by R.S. Industrial Corporation Ltd. In cross-examination, he stated that Ramakrishna told him orally about this, that he did not make any note of what was conveyed to him and for the first time in 1975 he made a statement before a notary public at the instance of V.M. Rao after the dispute. Though he stated that the present evidence is in accordance with that statement, the plaintiff has not produced that statement, entitling the court to draw an adverse inference. It may be noted that this evidence also refers to the sons looking after the management of K.C.P. Ltd. and the daughter the management of Jeypore Sugar co. Ltd. and Krishna Industrial Corporation Ltd. It does not speak of any exclusive entitlement of any arrangement relating to V. Ramakrishna Sons Ltd. We may also state that this witness also is a partisan witness and, therefore, his evidence could not be relied on. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Except to state that there was misunderstanding between Mr. V.M. Rao and his elder sister, his evidence does not give the details of the family arrangement. Further, the witness says that Ramakrishna has divided the units. It is nobody's case that there was any such division as if it was a partial partition. In cross-examination he, however, clarified that V. Ramakrishna asked his daughter to look after Jeypore Sugars and the sons to look after K.C.P. . The learned judge has pointed out several materials to show the animosity of this witness against V.L. Dutt and we agree with the learned judge. It should also be remembered that even according to the plaintiffs, the arrangement was devised by the father, put to the sons and daughter and agreed to by them. Admittedly, Durgamba was a life director of V. Ramakrishna Sons Ltd., and she was not a party to the arrangement. The other shareholders who are R. Prabhu and his father, P. R. Ramakrishnan, are also not parties to this arrangement though they are as per the articles eligible to become directors. It is not also pleaded that Rajeswari Ramakrishnan represented or acted on behalf of her son and husband who are the other share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fferences or that any such differences escalated later when the first plaintiff got married in the year 1961. In fact, her case was that it is only the parents who were upset by the marriage and that she did her best to make the parents reconciled to the marriage. She denied the allegation of supercilious behaviour or any other unfriendly feelings in her. She had further stated that after the return of their father and brother from foreign tour, she continued to check the accounts of K. C. P. Ltd., as she was doing in their absence but that was as directed by the father since he was fully occupied with other planning and expansion programmes, but she was not aware that the first plaintiff was upset by her checking of the accounts. The fifth defendant who filed a separate written statement characterised these allegations of the plaintiffs as based on imaginary disbelief in others and are invented by the plaintiffs in order to make it appear that there was some occasion to bring about the so-called family arrangement. In his evidence as, P. W.-1, V. M. Rao, has stated that his sister is a domineering individual and he himself is a very strong-willed individual. His sister was in char ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ife. The allegation of temperamental differences escalating due to the first plaintiff getting married to a foreigner appears to be the imagination of the first plaintiff. May be, because the first plaintiff is a strong-willed man, he was not able to brook any interference, whether it was warranted or not. It is important and noteworthy that there is no allegation of mutual distrust among the brothers and sister or any overbearing conduct of the sister in business matters. Thus, neither this character of P.W.-1 nor the verifying of the accounts by the first defendant could be considered such strong or compelling circumstances which would warrant an inference that the father would have felt compelled to create groups and bring in a family arrangement in the form in which it is referred to in the plaint. In this connection, we may also keep in mind that the alleged family arrangement not only referred to the management of the first plaintiff and the first defendant but grouped the mother, Durgamba, and the other brother, V. L. Dutt, along with the first plaintiff, though no particular reason is suggested as to the reason for excluding the mother and the other brother from participati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... months from the date on which the change takes place or such further time as the Central Government may allow in that behalf, unless the approval of the Central Government has been accorded before the expiry of the said six months or where further time has been allowed by the Central Government before the expiry of that time, to the changed constitution of the body corporate. The explanation to clause 1 of that section defines a change in the constitution of a body corporate as meaning among others ( h ) any change among the directors or managers of the corporation whether caused by the death or retirement of a director or manager, the appointment of new director or manager or otherwise . It may be seen from section 346 of the Act, the family arrangement pleaded, if true, would amount to a change in the constitution of V. Ramakrishna and Sons Ltd. It is the case of the plaintiffs that the alleged family arrangement took place some time in July, 1961. Exhibit R-10 dated October 19, 1961, is a letter written by V. Ramakrishna Sons Ltd. to the Government of India with reference to section 346 of the Companies Act. In this letter, it is stated that ( a ) Rajeswari Ramakrishnan has ten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deemed to be held in trust for the benefit of the first plaintiff. There was, therefore, an occasion for the company to bring into its record the alleged family arrangement and a legal necessity to get the approval of the Central Government under section 346 but that had not been done. This necessarily implies that there could not have been any family arrangement as pleaded in the plaint. Under section 347(1) of the Act, the provisions of Schedule VIII to the Act shall apply to every private company which acts as the managing agent of any company whether public or private. Since V. Ramakrishna Sons P. Ltd. are the managing agents of K.C.P. Ltd., which is a public limited company, the provisions of Schedule VIII are applicable to it. Clause 7 of Schedule VIII requires a declaration signed by a director of the company to be filed whenever there is a sale or transfer of any shares in the company or any other change occurs in regard to any of the matters specified in clause 5. Sub-clause ( a ) of clause 5 relates to the particulars to be furnished in regard to the manner in which each such member deals with his shares or interest, that is to say, whether he owns the same beneficia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly arrangement brought about by the father was agreed to by the two sons and daughter and was given effect to, learned counsel for the appellants relied upon the resignation of the directorship of V. M. Rao in Jeypore Sugar Co. Ltd. and R. S. Industrial Corporation P. Ltd. on October 29, 1961, and February 1, 1962, respectively, and the resignation of Rajeswari Ramakrishnan of her life directorship on the board of V. Ramakrishna Sons Ltd. on October, 19, 1961, which was accepted on January 9, 1962. Learned counsel also relied on the sale of his shares and that of V. Ramakrishna Sons Ltd. in Jeypore Sugar Co. Ltd. to Rajeswar Ramakrishnan and to her branch and/or nominees. It was the contention of Mr. Pai, learned counsel for the respondents, that the resignation of V. M. Rao was not in pursuance of any family arrangement. According to him, V. M. Rao was a strong-willed person and the father thought that he was likely to come in the way of his sister whom he was associating with Jeypore Sugar Co. Ltd. and R. S. Industrial Corporation along with him and in order to enable V.M. Rao to concentrate on K.C.P. where he was in charge of the technical aspect, the father had asked him to res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the father wanted V. M. Rao to be kept away from the sister both in Jeypore Sugars and R. S. Industrial Corporation and, therefore, asked him to resign from those two companies and concentrate on the technical aspect of K.C.P. Ltd. In any case, the resignation appears to be of his individual volition and cannot be attributed to the family arrangement as such. The subsequent conduct of the parties also is not consistent with any family settlement. It is seen from exhibit R.-1 series which are the annual reports of Jeypore Sugar Co. Ltd. that V. L. Dutt became a director in Jeypore Sugars in 1963 and continued as such till the filing of the suit. The father, V. Ramakrishna, was the chairman till his death in 1968 and, thereafter, from 1969, his wife, Durgamba, became the chairman and continued as such. Thus, both Durgamba and V. L. Dutt who, according to the family arrangement, had to carry on the business of K.C.P. Ltd. only through V. Ramakrishna Sons Ltd. were taking active participation as chairman and director in the management of Jeypore Sugar Co. Ltd., which is not consistent with the terms of the family arrangement pleaded by the plaintiffs. If the family arrangement was t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould not be a party to breaking it or bypassing the same. The plaint allegation relating to sale of the shares of the first plaintiff and the company is that the first plaintiff transferred to the first defendant and to her branch or nominee the shares which he held in Jeypore Sugar Co. Ltd. The sixth defendant, V. Ramakrishna Sons Ltd., also sold its 37,790 equity shares in Jeypore Sugar Co. Ltd. to R. S. Industrial Corporation P. Ltd. and Rajeswari Ramakrishnan during the assessment year 1966-67 and 36,900 equity shares in Jeypore Sugar Co. Ltd. were sold by the company to Baba Chandrasekhar, the second son of the first defendant, during the assessment year 1967-68. With reference to this allegation, it was stated in the written statement of defendants Nos. 1 to 4 that it was not in pursuance of any family arrangement. The sale of the shares of the first plaintiff in Jeypore Sugar Co. to the first defendant was a small number of shares which were offered to the first defendant and which she purchased to avoid the shares being disposed of to any third party. With reference to the alleged disposal of the shares of the sixth defendant in Jeypore Sugar Co. Ltd. to R. S. Industrial Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich, according to the plaintiffs, should bar Rajeswari Ramakrishnan and Prabhu from becoming directors, the first plaintiff should have stated so immediately on his receiving the notice about the nomination of those two individuals as directors of V. Ramakrishna Sons. He did not do so. In his letter, exhibit P-3, he only says that there was no need to expand the board. He also admitted in his evidence that no reference was made to the family arrangement in exhibit P-3. There was also no reference to the right of pre-emption in that letter and no mention about exclusive rights of management. The statement of the first plaintiff in exhibit P-3 that he will have no objection to Rajeswari Ramakrishnan becoming a director if a special resolution is passed allowing proportional voting rights to the members of the company totally negatives the existence of a family arrangement. Further, the first plaintiff's proxy attended the annual general meeting held on April 22, 1975. The proxy voted at the election held on that day but did not register any protest that the first and second defendants were not eligible to contest for directorship on account of any family arrangement or agreement. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P. R. Ramakrishnan, Mrs. Rajeswari Ramakrishnan, Mr. S. R. K. Prasad and Mr. R. Prabhu have wrongfully exercised their voting power in the annual general meeting of the company held on April 22, 1975, in so far as they interfered with the management of the company which is the exclusive right of the undersigned, Mr. V. L. Dutt and their mother, Mrs. V. R. Durgamba. Mr. V. L. Dutt has also exercised his voting power wrongfully in so far as he supported Mrs. Rajeswari Ramakrishnan and Mr. R. Prabhu to become directors and in the reduction of the dividend. I hasten to point out that the continued functioning of Mrs. Rajeswari Ramakrishnan and Mr. R. Prabhu as directors of V. Ramakrishna Sons Ltd. is illegal and opposed to the family arrangement. and states that : It is opposed to and contrary to the family arrangement brought about by late father, Sri V. Ramakrishna, I.C.S. (Retd.) in the year 1961, and is calculated to exclude me from my rightful participation in the management of the company of which I was assured in the year 1961, as this leads to a disruption of the special relationship which is the sub stratum of the domestic company. Promptly, this allegation was d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... As to why the family arrangement was conceived, the defendants also would state that there were internal dissensions between V. M. Rao and his brother, V. L. Dutt. The lack of mutual confidence between these two brothers even led to V. M. Rao cancelling the power of attorney given in favour of his brother. When there was such a deadlock on account of the disputes and dissensions between the brothers, we agree with the view of the learned judge that even assuming that the family arrangement alleged was true, the two brothers put in a group were at loggerheads and there developed a deadlock and the company, to avoid a paralysis of its affairs, had to interfere and elect directors that would ease the situation. Learned counsel for the appellants contended that an arrangement or agreement between two groups of shareholders that one group will not participate in the management and affairs of the company and the other will have exclusive rights of such management, is valid. He also contended, if certain things have been done, though not embodied in the articles, automatically, the articles shall be deemed to have been amended. In support of his argument he relied on the following deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gned by nine persons and their signatures were duly attested. The memorandum was accompanied by a small printed book purporting to contain articles of association of the company, but those articles were not signed. The Registrar, however, registered them with the memorandum, and thereupon gave a certificate of incorporation of the company. The articles so registered have been in use by the company from that day for over 19 years. They had been twice amended by special resolutions which had also been registered. A purchaser and transferee of shares in the company applied for registration. The articles contained power for the directors to prevent and disallow the sale or transfer of shares to a transferee whom they do not consider a fit person to hold shares. In exercise of this power, the directors refused to register the transferee. Thereupon, the transferee moved the court to have the register rectified by registering him as the holder of the shares on the ground that since the articles had not been validly registered, Table A only was applicable. It may be mentioned that Table A did not authorise the directors to reject any transfers. Overruling the contention of the plaintiff, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany which she had mortgaged to the defendant, the shares being transferred in his name. The terms of the loan were contained in an agreement dated February 14, 1913, but the court in the proceedings held that there was a collateral agreement binding on the defendant relating to the voting power in respect of the shares, the terms of which were contained in a letter dated January 20, 1913, sent by the defendant to the plaintiff and that read as follows (at p. 200): I should have mentioned to you today that your voting rights in virtue of the shares held in mortgage by me during the period of the loan will be untouched. Though the shares will be in my name and my voice may give the vote, I shall give no such vote without first consulting you, I shall vote in all cases when a vote is necessary in respect of these shares as you wish me to do. This proviso will not be mentioned in the agreement, but you can preserve this note if you like. Differences had arisen in connection with the management of the company's business, and at the last general meeting of the company, the defendant who was himself a director of the company had voted in respect of the mortgaged shares agai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... member's right to poll in proportion to the shares held by him could not in any way be affected or separated. Thus, the voting right and number of votes arise out of and with reference to the number of shares held as that right cannot be separated or taken away. In fact, sections 88 and 89 of the Act prohibit the issuing of any shares not being preference shares which carry voting right or rights in a company as to dividend, capital or otherwise which are disproportionate to the rights attaching to the holders of other shares; and even if with reference to an existing company, if the shares carry voting rights in excess of the voting rights attaching under sub-section (1) of section 87 to equity shares, the company shall reduce the voting rights so as to bring them in conformity with the voting rights attached to such equity shares under sub-section (1) of section 87. Sections 255, 256, 257, 260, 261 and 262 deal with the appointment of directors and sections 274 and 283 relate to the qualifications, disqualification and vacation of office of directors. The family arrangement pleaded is also contrary to these provisions. We are, therefore, of the view that the family arra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1950] 20 Comp. Cas. 133 ; AIR 1950 PC 81 and Nagappa Chettiar v. Madras Race Club [1949] 19 Comp. Cas. 175 ; [1949] I MLJ 662. Since Burland v. Earle [1902] AC 83 (PC), had dealt with the earlier English cases and Nagappa Chettiar v. Madras Race Club [1949] 19 Comp. Cas. 175 ; [1949] I MLJ 662 ; AIR 1951 Mad. 831(2) is a case decided by this court, we would think it sufficient to deal with these two cases in this judgment. The Judicial Committee of the Privy Council in Burland v. Earle [1902] AC 83 at pp. 93 and 94 observed: It is an elementary principle of the law relating to joint stock companies that the court will not interfere with the internal management of companies acting within their powers, and in fact has no jurisdiction to do so. Again, it is clear law that in order to redress a wrong done to the company or to recover moneys or damages alleged to be due to the company, the action should prima facie be brought by the company itself. These cardinal principles are laid down in the well-known cases of Foss v. Harbottle [1843] 2 Hare 461; 67 English Reports 189 and Mozley v. Alston [1847] 1 Ph 790, and in numerous later cases which it is unne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the ordinary management of a company acting within its powers and has no jurisdiction to do so at the instance of the shareholders. A shareholder is entitled to institute a suit to enforce his individual rights against the company such as his right to vote, or his right to stand as a director of a company at an election. If the shareholder, however, intends to obtain redress in respect of a wrong done to the company or to recover monies as damages alleged to be due to the company, the action should ordinarily be brought by the company itself. In order, therefore, to enable a shareholder to institute a suit in the name of the company, in such a case, there must be the sanction of the majority for corporate action. In ordinary cases, therefore, this principle implies the supremacy of the will of the majority. It is open to a majority always to set right a thing which was done by the majority either illegally or irregularly, if the thing complained of was one which the majority of the company were entitled to do legally and was within the powers of the company by calling a fresh meeting. That is the reason why in such cases the court refuses to interfere at the instance of a shareho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o determine it; but that every litigation must be in the name of the company, if the company really desire it.' From this it follows that a shareholder or shareholders are entitled to bring an action (1) in respect of matters which are ultra vires the company and which the majority of shareholders were incapable of sanctioning (see Burland v. Earle [1902] AC 83 (PC)); (2) where the act complained of constitutes a fraud on the minority; and (3) where the action of the majority is illegal. The decisions in Baillie v. Oriental Telephone and Electric Co. Ltd. [1915] 1 Ch 503 and Cotter v. National Union of Seamen[l929] 2 Ch 58, recognised a fourth exception where a special resolution was required by the articles of the company and the company obtained the assent of the majority to such special resolution by a trick, or even where a company authorised to do a particular thing only by a special resolution does it without a special resolution duly passed as, in such a case, to deny a right of suit to the shareholders without using the name of the company would in effect result in the company doing the thing by an ordinary resolution. In other words, this means that wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , V. Ramakrishna Sons Ltd. Any violation thereof amounts to an interference in the management of the company and manifests lack of mutual confidence and of probity. (2) The company's affairs are being conducted in a manner prejudicial to public interest and also in a manner oppressive to the members especially the petitioner. The petitioner has referred in paragraphs 26A to 26G of the company petition to acts of oppression and mismanagement affecting the rights of the minority shareholders like the petitioner. Before we deal with these contentions, it would be useful to refer to certain decided cases dealing with similar questions. In Shanti Prasad Jain v. Kalinga Tubes Ltd. [1965] 35 Comp. Cas. 351 , the Supreme Court had considered the provisions of sections 397 and 398 elaborately. The facts in that case were as follows. The company was floated as a private limited company on December 1, 1950, with an authorised capital of ₹ 25 lakhs. Originally, shares worth ₹ 21 lakhs were held by two groups of shareholders equally and the two groups were represented by one Patnaik and Loganathan. In 1954, the company was in financial difficulties. One S.P. Jain, the app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rol of the company. The board passed a resolution rejecting the proposal of the appellant and accepting that of Patnaik. The general body also rejected the proposal of the appellant and passed a resolution that the new shares should not be offered or allotted to the existing shareholders or to the public and that they should be allotted privately in the best interest of the company at the sole discretion of the directors to such persons as might have applied or thereafter apply. On April 18, 1958, the appellant filed a suit praying for a declaration that the resolutions of the general body were ultra vires , illegal, void and not binding on the appellant the company and its shareholders with a prayer for permanent injunction restraining the defendants in the suit from issuing and allotting the new shares in terms of the impugned resolutions of the general body. An ex parte interim injunction was granted. However, the injunction was vacated later on July 30, 1958. On the same day, a meeting of the board of directors was held and the new shares were allotted to 7 persons who had applied for the same. On the same day, the return as required by the Act was also duly filed with the R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a declaration that the resolutions passed by the board of directors on March 1, 1958, and at the general meeting on March 29, 1958, were null and void. To this application, the company and the seven persons to whom new shares were allotted were also made parties. The Supreme Court held that for a petition under section 397 to succeed, it is not enough to show that there is just and equitable cause for winding up the company, though that must be shown as preliminary to the application under section 397 . It was also held that the petitioner should further show that the conduct of the majority shareholders was oppressive to the minority as members and this requires that events have to be considered not in isolation but as a part of a consecutive story. There must be continuous acts on the part of the majority shareholders, continuing up to the date of the petition, showing that the affairs of the company were being conducted in a manner oppressive to some part of the members. The conduct must be burdensome, harsh and wrongful and mere lack of confidence between the majority shareholders and the minority shareholders would not be enough unless the lack of confidence springs from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are, therefore, clear authority for the position (1) that the oppression complained of must affect a person in his capacity or character as a member of the company; harsh or unfair treatment in any other capacity, e.g., as a director or a creditor is outside the purview of the section; (2) there must be continuous acts constituting oppression up to the date of the petition ; (3) the events have to be considered not in isolation but as a part of a continuous story ; (4) It must be shown as a preliminary to the application of section 397 that there is just and equitable ground for winding up the company ; (5) The conduct complained of can be said to be oppression only when it could be said that it is burdensome, harsh and wrongful; oppression involves at least an element of lack of probity and fair dealing to a member in matters of his proprietary right as a shareholder. The contention of the petitioner is that as per the family arrangement, he, his brother and mother alone can manage the company and persons belonging to his and his brother's branch alone can be elected as directors and that the election of his sister and her son though they are also shareholders, is invali ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may include one, or probably more, of the following elements : ( i )an association formed or continued on the basis of a personal relationship, involving mutual confidence-this element will often be found where a pre-existing partnership has been converted into a limited company; ( ii )an agreement, or understanding, that all, or some (for there may be 'sleeping' members), of the shareholders shall participate in the conduct of the business; ( iii )restriction upon the transfer of the members' interest in the company-so that if confidence is lost, or one member is removed from management, he cannot take out his stake and go elsewhere. The Supreme Court in Hind Overseas P. Ltd. v. Raghunath Prasad Junjhunwalla [1976] 46 Comp. Cas. 91 considered the ratio of the English decisions including that in Ebrahimi v. Westbourne Galleries Ltd. [1973] AC 360 (HL) and held (at pages 104 and 105): 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 of members who are sought to be excluded from management, the principles of dissolution of partnership cannot be lib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hen 'just and equitable' clause is invoked, that it is just and equitable not only to the persons applying for winding up but also to the company and to all its shareholders. The company court will have to keep in mind the position of the company as a whole and the interests of the shareholders and see that they do not suffer in a fight for power that ensues between two groups. In our case, the company was started in the year 1949. The subscribers to the memorandum of association were V. Ramakrishna, I.C.S. (father of V. M. Rao and V. L. Dutt and Rajeswari Ramakrishnan) and Mrs. Rajeswari Ramakrishnan. The nominal capital of the company was ₹ 10 lakhs divided into 1,000 shares of ₹ 1,000 each. The issued and paid up capital was 500 shares of ₹ 1,000 each and they were subscribed by the following members as follows : V.M. Rao ... 199 V. L. Dutt ... 199 Rajeswari Ramakrishnan ... 95 R. Prabhu ... 4 V. Ramak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the company petition were filed, the company's affairs continued to be conducted efficiently and to the best interests of the members. It had declared a dividend at the rate of 66% for the year ended September 30, 1975, and at the rate of 160% for the years ended September 30, 1976, and September 30, 1977. It is also seen that even though the company-petitioner did not attend the annual general meeting held on April 22, 1975, he was proposed as director by his sister and was unanimously elected. The petitioner's mother also continued to be a director. There are five directors of whom, the petitioner states, that he was not on speaking terms with V. L. Dutt, Rajeswari Ramakrishnan and R. Prabhu. This statement is also not wholly true. It is the petitioner who does not want to talk to them. But as seen from the evidence of V. L. Dutt and the affidavits of Rajeswari Ramakrishnan and Prabhu that they do not entertain any animosity against the petitioner. Therefore, the petitioner himself could not say that he is not on talking terms and then claim there is a deadlock in the management of the affairs of the company. Hence, there is no justification for the allegation of the pet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shareholders are against winding up, on the ground that it is just and equitable to wind up the company, but to wind up a company on this ground it must be shown that the whole of the business which the company was incorporated to carry on had become impossible ; and the principle on which this ground for winding up is based is that the shareholders who subscribe money for one purpose are not bound to permit it to be used for another purpose , even though the majority of the shareholders desire that the company should be continued for the purpose of carrying on that business. The learned judge also held that the question whether or not the substratum of the company is gone cannot be dependent on the intention of the board of directors or shareholders of the company , but should be decided, by the court on the construction of the memorandum of association and the actual facts of the case, for the board of directors or shareholders may change their intention if the business had not become impossible. The learned judge further observed that in order to bring the case within the principle underlying substratum cases, it is not enough to show that the main or dominant object for wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res and options in gur. One of the members of the company thereupon filed a petition for winding-up the company on various grounds. One of the grounds was that the substratum of the company ceased to exist as the company could not after the Government notification carry on business in gur. Though the Supreme Court found that the company was carrying on extensive business in futures in gur, after referring to the memorandum and articles of association came to the conclusion that the company was not formed with the object of carrying on business in futures in gur alone but several other commodities as well , that the object for which the company was formed has not failed and that the company could always re-start the business with the assets which it possessed and prosecute the objects for which it was incorporated. It would be very relevant to note that in coming to this conclusion, the learned judge also took note of the fact that there was no evidence that the company was unable to pay its debts, that the object for which the company was incorporated has not substantially failed and that it could not be said that the company could not carry on its business except at a loss nor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he just and equitable ground. The various acts of oppression and mismanagement complained of in support of the contention that the company's affairs are being conducted in a manner prejudicial to public interest and also in a manner oppressive to the minority shareholders are listed in paragraphs 26A to 26G of the company petition. However, at the time of argument of the appeal, learned counsel for the appellants pressed only the grounds in paragraphs 26A, E and G. We shall first deal with the ground in paragraph 26A. At an extraordinary general meeting of Bajrangabali Iron and Steel Co. Ltd., which was a wholly owned subsidiary of V. Ramakrishna Sons Ltd., held on September 25, 1975, a special resolution was passed under section 81 of the Companies Act, authorising the issue of further shares to any person whether he is a shareholder of the company or not. In accordance with the special resolution passed at the meeting of the board of directors of Bajrangabali Iron and Steel Co. Ltd. held on September 27, 1975, shares worth ₹ 5,00,400 were issued to the following persons: Rs. M/s. B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shares for its existing shareholders. It was also denied that the allotments were either arbitrary or without reference to the board of directors or shareholders of V. Ramakrishna Sons Ltd. The counter further asserted that the insinuation of the petitioner that the logical inference to be drawn from this transaction is that V. L. Dutt and his supporters have received substantial benefit is wholly mischievous and untrue and slanderous. He also asserted that the petitioner had been a close ally of Agarwal and even at the time of the petition, he was acting in concert with the said Agarwal. The counter denied that there is anything prejudicial or oppressive to the shareholders in the allotment of shares to outsiders. He further stated that he had no personal interest in the transaction and it was only done in the normal course of business of Bajrangabali Iron and Steel Co. Ltd. in the bona fide belief that it is in the interest of the business of V. Ramakrishna Sons Ltd. also. Almost identical contentions are also raised in the counter-affidavit filed by Rajeswari Ramakrishnan. The learned judge held that there was a justification for Bajrangabali Co. to allot further shares to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred to V. Ramakrishna Sons Ltd. However, A. V. Jayaraman and B. Kalyanasundaram continued to have the five shares standing in their respective names as nominee shareholders of V. Ramakrishna Sons Ltd. It was in these circumstances Bajrangabali became the subsidiary of V. Ramakrishna Sons Ltd. The company-petitioner himself was authorised to execute the sale and he did so under exhibit R.-18, dated September 24, 1973. In the sale deed, the company-petitioner declared the value of the buildings at ₹ 1 lakh and the value of the land which was about 50 grounds at ₹ 94,219. The document was presented for registration on September 25, 1973. The petitioner was called to appear on a later date to enable the Registrar to verify the value for the purpose of registration and after verification of the valuations, the same was registered on October 10, 1975. The sale of the foundry unit was, by a later resolution passed at the meeting of the board of directors of V. Ramakrishna Sons Ltd. held on February 8, 1974, approved. The first question for consideration is whether the special resolution passed on September 25, 1975, at the extraordinary general meeting of Bajrangabali auth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r ended June 30, 1974, at the time when V. Ramakrishna Sons Ltd. was in the control of the company-petitioner himself and no disputes between the parties that the chances of working the re-rolling mill on economic lines are bleak and that the loss accumulated in the next year has nearly wiped out the entire capital of ₹ 5 lakhs with no prospect of recovering ₹ 7.5 lakhs due by Bajrangabali to V. Ramakrishna Sons Ltd., if the board of directors of V. Ramakrishna Sons Ltd. did not think it prudent to apply for rights share in Bajrangabali, that could not be said to be an imprudent and unbusinesslike transaction. It may also be noted that it is only the loan already due to Bajrangabali Engineering Co. P. Ltd. that has been adjusted and converted into share capital. Conversion of the loan given by V. Ramakrishna Sons Ltd., on which no dividend would be payable except when profits accrued, was also considered by the board of directors as not beneficial to V. Ramakrishna Sons Ltd. A special resolution of Bajrangabali as required under section 81 of the Companies Act had also been duly passed. The increase of share capital or allotment of shares is also a matter of internal ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngs of Bajrangabali. In any case, we find that his action was ratified at the meeting of board of directors of V. Ramakrishna Sons Ltd. held on January 10, 1977. On such ratification, the representation of Ramanathan gets full validity. The resolution passed on September 25, 1975, was, therefore, valid, the invalidity, if any, having been cured. In Bamford v. Bamford [1969] 39 Comp. Cas. 838 (CA), the board of directors of a company resolved to allot all the unissued shares to a third-party who is not a shareholder at par. One of the directors who did not agree for this resolution resigned and then questioned the validity of the allotment on the ground that it was made in bad faith and that it was not in the interest of the company. As a counter to that proceeding, the directors convened a general body meeting of the shareholders of the company and the general body passed a resolution approving and ratifying the allotment. Plowman J. held that the allotment was capable of being ratified and approved by an ordinary general meeting of the company and since it has been so approved, the allotment was valid even if the directors had acted in bad faith and in an improper manner in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any working sheet to show how he has arrived at the area for different buildings and how he had adjusted the depreciation on different dates and in respect of which buildings. Even if this type of valuation is to be permitted, the value adopted for small plots of land cannot be the basis for vast extent of lands. The evidence is meagre and does not advance the case of the petitioner in any way. P.W.-5 is a retired engineer. He has produced exhibit P.-29 as the valuation of plant and machinery of Bajrangabali and this is stated to have been prepared at the request of Agarwal. There is complete lack of specification. Several machines are combined and value given under one item. The working sheets and data explaining how each item was valued by him are said to be missing. He admitted that he did not take into account the cost of each machine, the period during which it was working or the book value. He did not adjust depreciation for each item either based on cost or even the present estimated value. He claimed that he estimated the value based on output, but stated that he could not state as to how he valued the re-rolling machine at ₹ 3.30,000, because his papers were missi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenses from the share capital, he arrived at the value of the capital at ₹ 75,187. But he chose to arrive at a larger figure by two imaginary additions to the net assets. After having arrived at the value of the net assets on the figures contained in the balance-sheet of the company as on June 30, 1975, he proceeded to make two adjustments. One is a sum of ₹ 2,67,884 stated to be the tax benefit of 63% on the losses sustained by the company. The reason given by him for this adjustment was that in the event of the company amalgamating with any other successful one, there might be a tax benefit to the amalgamated company to the extent of 63% on the amount of losses. The amount so arrived at was added to the net assets of ₹ 75,187. Again he added another sum of ₹ 11,90,695. According to him, this sum represents the increase in the value of assets less an adjustment of 63% on the increased value. There could be no doubt that this type of valuation is unrealistic and could not be accepted for finding the value of shares of a running concern. In fact, when he was questioned on the basis that even in the subsequent years the company had been incurring losses, he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... value of the building as ₹ 1 lakh and the value of 50 grounds of land as ₹ 94,219. We have to keep in mind that, in view of the provisions of the Stamp Act, he is required to state in the document the real market value of the land irrespective of the fact that the bargain between the parties is for an amount less than the market value. In fact, the petitioner was called upon to appear to enable the Sub-Registrar to verify the value for the purpose of registration and after verification through the Revenue Officials, finding that the market value of the land was correctly stated, it was registered on October 10, 1973. If really the property value was more on that date and the petitioner had not given the true value, he shall be deemed to be a party to a fraud in evading payment of stamp duty and, therefore, he cannot contend that the value of the land was more. There is no evidence to show that the value of the land as on June 30, 1975, is not the same as that was on September 25, 1973, and even if there was an increase, there was such a phenomenal increase of more than 3 times between that date and 1975. We, therefore, agree with the finding of the learned judge that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e respondents and for such purposes, have freely indulged in distortion of facts concerning other public companies. They also contended that the several allegations in the petition make it clear that the petitioner's only desire is to dominate over others and for achieving this, he keeps on abusing others and harassing them. The learned judge, seeing that these allegations have not been proved, was inclined to hold that the present proceedings initiated by the petitioner lack bona fide s and they do amount to an abuse of process of this court. We have already seen that the allegation relating to issue and allotment of shares in Bajrangabali has no merit and that it was a bona fide transaction done in the best interest of the company and that it was valid. The allegation of fraud or unworthiness of any confidence being reposed in relation to the affairs of this company is, therefore, not made out. We see from the records that the Collector of Central Excise, in his order dated October 23, 1974, in the proceedings marked as exhibit R.-93 in this case, has held that the charges levelled against the Jeypore Sugar Co. Ltd. have not been proved and he dropped all further procee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansport of sugar right from 1971 onwards. They were also contractors for transport on behalf of the STC for K.C.P. Ltd. and all these were only on negotiated rates. Similarly, M/s. Vedde Co. were the contractors for transport of limestone and cement, right from 1966. These contracts were sanctioned at the meetings of the directors of K.C.P. Ltd. even before the disputes arose. In 1975 also, the board had continued the same arrangement. When asked as to why now only for the first time he is raising this objection, the petitioner stated that he came to know that the transport operators are willing to transport at a lesser rate and that is why he objects. However, it is not necessary for us to pursue further this matter as learned counsel for the appellant did not press this ground. In the foregoing circumstances, a character assasination has been made without any regard for truth and it makes the submission of learned counsel for respondents that these allegations against respondents Nos. 1 to 4 have been made mala fide and only with a view to prejudice the court and by pressurising the respondents to gain dominance over them somehow or other more probable and we cannot counte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd strength in the board. The further suggestion was that V. M. Rao was the man behind this complaint. P. W.-13, Bhandarkar, on whose behalf a petition was filed, admitted in his evidence that he filed the petition, exhibit R.-92. When confronted further, he also admitted having filed another petition, exhibit C.-7, dated January 24, 1977. The subject-matter of this petition given there is V. Ramakrishna Sons Ltd., Company Petition No. 94 of 1976 under sections 397 and 398 of the Companies Act filed by V. M. Rao in the High Court of Madras'. The allegations in these petitions to the Government and the allegations in the company petition are almost identical. To a suggestion made by counsel for Rajeswari Ramakrishnan stating : Will I be right (in saying) that your advocate added it because the Janata Party was in power and any allegation of any donation to the Congress Party would prejudice them against the present management , the answer given by P. W.-13 was Possibly so, I cannot say. We have read through the evidence of P. W.-13, We are left with a definite impression that this man belongs to the group of V. M. Rao and also has a common cause against Rajeswari Ramakri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... petition had mentioned to the court that he would like to summon the records of Jeypore Sugars for further cross-examination of V. M. Rao, it is seen from the petition which is marked as exhibit R. 97 (Company Act Petition No. 11 of 1978 on the file of the High Court of Orissa) that this denial cannot be true. The petitioners in that case are P. Punnaya (P. W-6), Dr. Subba Rao and another. Dr. Subba Rao who is the second petitioner has filed an affidavit stating that the following statement in the petition is true to his knowledge and that he has been authorised by petitioners Nos. 1 and 3 therein to file the affidavit on their behalf also. The relevant portion in the petition reads as follows: 2. That for quite sometime, the petitioners, have been collecting materials, consulting lawyers in drafting the petition. The petitioners are aware that the opposite parties had also become aware of the proposed move of the petitioners and were keeping watch over the situation. Petitioner No. 2, Dr. Subba Rao, has received a telephonic message during these two previous days from petitioner No. 1 that the opposite parties have become aware that the petitioners have gone to Cuttack with t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it appeared that the real object of presenting the petition was to get repayment of a loan owed by the company to the petitioner's group of companies. The financial position of the company was such that, on a winding-up, the assets would not realise enough to leave anything for the contributories after the creditors' claims were met. It was held that the petitioner was not entitled to relief under section 210 because A petition which is launched not with the genuine object of obtaining the relief claimed, but with the object of exerting pressure in order to achieve a collateral purpose is, in my judgment, an abuse of the process of the court. In Sulekha Works Ltd. In re, AIR 1965 Cal 98 a petition for winding-up of a company was filed. The petition was admitted and various interim orders were made. On the next day, an application was moved on behalf of the company for an order for dismissal of the winding-up petition and for an order recalling or setting aside the orders of advertisements and stay of further proceedings. Along with the petition, the company-petitioner had pressed for an interim order restraining the holding of the annual general meeting of the compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... W.-1. We therefore, agree with the finding of the learned Judge that the present proceedings lack bona fides and that also amounts to an abuse of the process of this court. The allegation in paragraph 26(E) relates to the resolution of the Board of Directors of V. Ramakrishna Sons Ltd., held on March 26, 1975. This resolution has been passed to the effect that V. L. Dutt, or failing him, R. Prabhu, or failing him, A. V. Jayaraman be appointed as the company's authorised representative under section 187 of the Companies Act to attend and vote on behalf of the company at the meetings of the shareholders of each of the other companies in which V. Ramakrishna Sons Ltd., holds shares. It is stated that at the annual general meeting of K. C. P. Ltd. held on January 29, 1976, V. L. Dutt himself exercised the voting power of the company and voted against the retiring director, A. V. Subramanyam, and in favour of V. Veerabadra Rao and P. Koteeswara Rao. The passing of this resolution nominating the three persons is alleged as manifesting the intention of the respondents to consolidate themselves as a pivot of power and control excluding other directors such as V. M. Rao and Durgamb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is an ally and close associate of V. L. Dutt, carrying out and acting according to his instructions. He has also been nominated in August, 1976, on the board of Bajrangabali. Thus, in practice, V. L. Dutt and others got whatever information they required from A. V. Jayaraman, the manager who is at their beck and call. But so far as the petitioner is concerned, such information which he is entitled to get is shut out from him until scrutinised by others and this is an instance of excluding the petitioner from the management and abuse of power by persons in majority. The resolutions which we have extracted above show no discrimination against the petitioner. Nor have the resolutions in terms curtailed in any manner the rights of the petitioner. All the directors are entitled only to information and copies of the minutes of the board's proceedings and the annual general mettings and copies of other documents which they want. The resolution only prescribes a procedure for the office staff so as to enable them to follow a uniform pattern. The first respondent has further pointed out in his counter-affidavit that it was open to any director to visit personally the registered offic ..... X X X X Extracts X X X X X X X X Extracts X X X X
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