TMI Blog1965 (9) TMI 65X X X X Extracts X X X X X X X X Extracts X X X X ..... ich may be called the Prosad group of shareholders. The petitioners and their associates who may be called the Saraogi group joined the company in January 1962. 3. Soon thereafter this group acquired no less than 5060 shares for the consideration of ₹ 5,06,000. The objects of the company were, inter alia, to carry on the trade or business of iron founders and iron masters etc. It had its factory at Pathardihi near Sindri in Behar. Article 19 of the Articles of Association of the company provided that until otherwise determined by a general meeting the number of Directors shall not be less than three and not more than five. The first Directors of the company were Sree Radhakissen Prosad the respondent No. 3 to the petition and Biswanath Prosad. Under Article 22 the company in general meeting may from time to time and at any time appoint any other person to be Director and may remove any such person, so appointed. On January 25, 1962 the petitioners were elected Directors of the company at a general meeting so that the Board had five Directors after that date. 4. As there is controversy between the two groups as to the management of the affairs of the company ever sinc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titioners who were lawfully in charge of the management and control of the company. In order to protect the rights and properties of the company the manager made a report to the police at Jorapukur police station. This report goes to show that several persons including Kedarnath, respondent No. 4 herein, accompanied by a large number of undesirables raided the factory sometime after 7 P. M. and made the manager and others quit the same on threat of dire consequences. 2. The respondents 2 and 3 wrongfully alleged that Kedarnath Bhagat, a son of respondent No. 2, was a Director of the company. Such purported appointment denied by the petitioners was illegal and ultra vires the company's articles of association, us it had already five directors. 3. The respondents 2, 3 and 4 purporting to act as Directors fraudulently misappropriated large sums of money belonging to the company. The only instance or such misappropriation given in the petition relates to the sum of ₹ 4102 alleged to have been handed over to the respondent No. 2 in cash to be paid to J. S. Desai and Co. Calcutta, as an advance and/or part payment of the goods supplied by them. 4. In spite of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the petition there is a list of shareholders of the company as on March 14, 1963. This shows that there were altogether 16 shareholders arrayed in two groups, the petitioners and their associates holding no less than 5060 equity shares and the Prosad group holding 3606 shares. The only document which has any bearing on the oppressive conduct of the respondents is the copy of a report made by Chouthmul Saraogi who described himself as manager of the company to the Officer-in-Charge, Jorapukur police station on March 13, 1963. According to this report Kedarnath in company of several persons came into the factory first followed soon after by a large number of hooligans on the evening of 13-3-1963 and compelled Chouthmul and others to leave the factory at once threatening to kill them otherwise. No mention was made in the report about the presence of Ramashankar Prosad at the time of the raid. 8. On 15-3-1963 one Abhoy Narayan Sharma affirmed an affidavit to the effect that he had been employed by the company at its factory at Chasnala and that on 13-3-1963 while he was working in the said factory it was raided by Ramashankar Prosad and Kedarnath Bhagat along with a number of pers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s son-in-law Champalal Saraogi and his son Mohendra Saraogi would become shareholders and directors of the company so as to bring in additional finance and give effect to the expansion programme. 6. The affairs of the company were managed smoothly and efficiently until April 1962 when the petitioners started mismanaging the same both at its factory at Chasnala and at its Calcutta Office. This was objected to by the respondents Nos. 2 and 3. The petitioners tried to take full control of the company to the exclusion of the respondents 2 and 3 and acted to the detriment of the company and its shareholders. The petitioners misappropriated large quantities of imported materials purchased by the company and made fictitious entries in the books of account of the company to suit their purpose. 7. There was an agreement between the directors of the company to the effect that for the convenience of correspondence and business of the company a Calcutta office would be opened at No. 132/1, Mahatma Gandhi Road, Calcutta. There never was any resolution of the directors of the company to have a head office at the said address or to have the registered office removed to 22, Jogendra Nath ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ners had apprehended that the company might hand over the management of the factory to other competent directors and to perpetuate their wrongful possession and mismanagement of the company's affairs at the factory they had started collecting undesirable persons from the locality. 11. The allegations about the misappropriation of the moneys of the company including the sum of ₹ 4,182.00 were false. 12. There was no meeting of the Board of Directors on February 22, 1963 at the registered office of the company at No. 52/1, Dr. Abani Dutt Road, Howrah. No notice of any such meeting was ever served on the respondents or the said Biswanath Prosad. 13. The bankers of the company were duly informed of the resolutions passed by the company. 14. After dismissing some of the employees of the company at the factory at Chasnala as mentioned above Kedar Nath Bhagat found it impossible to carry on the business of the company without raising some loan as a large number of creditors as also workers and labourers of the company were pressing hard for payment of their dues. In order to meet the exigencies of the situation Kedar Nath Bhagat decided to lease out the facto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to which any objection was taken by the respondents as stated in paragraph 14 of the affidavit in opposition. On January 2, 1963 the respondents purported to have complained to Champalal Saraogi that he along with Murali-dhar Jhunjhunwalla Mahendra Kumar Saraogi had forcibly removed the minute books, account books other statutory books common seal of the company on 20-12-1962 from the registered office of the company. By the admitted letter of 9-2-1963 the petitioners were called upon to produce all books of account before the Commercial Tax Officer, Dhanbad, for assessment of sales tax. There is no reference in this letter to any of the previous letters nor is there any mention of the removal of the books of account. This letter was replied to by the petitioners on February 21, 1963 to the effect that all books of account including the statutory books of the company excepting the minute books of the Directors prior to January 24, 1962 were with the old Directors and consequently it was impossible for the Saraogis to produce the books of account for the year 1961-62 before the Commercial Tax Officer. There is a letter of 14-2-1963 purporting to have been written by the Prosa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the effect that Kedar Nath Bhagat be alone authorised to operate the company's banking accounts. The third resolution was to the effect that as the Saraogis had wrongfully removed the books of account, statutory books etc. of the company, Kedar Nath Bhagat be authorised to take necessary steps for recovery of the same. The fourth resolution was to the effect that Kedar Nath Bhagat be solely empowered to manage the company's Dhanbad works and directed to discharge a number of employees including Chouthmull Saraogi, Sambhu Nath Roy and others and that no other directors shall have authority to take any direct charge or management of the affairs of the company. The fifth resolution authorised Kedar Nath Bhagat to take necessary legal action for enforcement of the directions contained in the other resolutions and for management of the affairs of the company. The last resolution was to the effect that the company do open an account with the United Bank of India, Salkia Branch, to be operated on by Kedar Nath Bhagat. 13. Sambhu Nath Roy, an employee of the company's factory at Chasnala, also affirmed an affidavit to the effect that the goods mentioned in annexure 'E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Chasnala as would be proved from the railway receipts. 6. There was no board meeting of the company on 4-3-1963 and Kedar Nath Bhagat was never authorised by the company to manage or take charge of the company's works and factory at Chasnala. 7. The allegation about the leasing out of the factory by Kedar Nath Bhagat to Shib Nath Singh was patently false. The company had in fact a sum of ₹ 7500 in its till at its factory on 13-3-1963. 15. A number of other affidavits were filed referring to various meetings of the board of directors and other activities of the two groups of shareholders. As a matter of fact two affidavits were filed on behalf of the company one by Murlidhar Jhunjhunwalla on 20-5-1963 claiming to represent the company and another by Radha Kissen Prosad on the same date and making a similar claim. 16. At the hearing before the learned company Judge as also before us two minute books of the board of directors were freely referred to. The minute book produced by the petitioners which appears to be the book originally started in 1957 ends with the resolution passed on 22-2-1963; while that relied on by the Prosad group begins on 21-1-1963 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny's balance sheet for the years 1960-61 and 1961-62. A resolution was passed directing Rama Sankar Prosad and Radha Kissen Prosad to hand over all books, papers and documents required for the preparation of these balance sheets to the auditors of the company forthwith. Further by another resolution the registered office of the company was removed from 52/1, Dr. Abanl Dutta Road, Howrah, to 22, Jogendra Nath Mukherjee Road with immediate effect and it was resolved that the Registrar of Companies and all customers of the company be intimated of such change of address and advertisements be issued once in the Jugantar and once in the Statesman. The last two resolutions were not passed unanimously, but by a majority of directors. 20. According to the respondents: (1) there was a general meeting of the company on 7-5-1962 at which the balance sheet of the company for the year 1960-61 was passed. It is claimed that the petitioners were present at the said meeting and the balance sheet had been duly filed with the Registrar of Joint Stock Companies. (2) There was a Board meeting--disputed by the petitioners--held on January 22, 1963 at which the persons present were R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and other affidavits which were filed, the learned trial Judge held that a case had arisen where sections 397 and 398 could properly be invoked in aid of the petitioners' complaint. According to him by reason of the activities of the rival groups of directors the normal method of administration has come to and end. Two rival groups of directors have set up two different registered offices of the company and are holding meeting at these two different places with the object or nullifying the resolutions passed at the rival meetings of the board of directors. Two rival groups have set up two rival board of directors who were holding meetings at the said two different addresses and are purporting to carry on the Company's business Nobody knows who are the lawful directors of the company The company's bank accounts have become practically frozen because the authority to operate upon the accounts has been purported to be revoked..... One group of directors has purported to call annual general meeting at which accounts of the company are alleged to have been passed, which is disputed. The extraordinary general meeting of the company purports to have transacted business whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions on the interpretation of Section 210 were referred to at the bar and as these decisions have in their turn been relied on by the High Courts in India and leferred to by the Supreme Court it will be useful to set out the wording of the two sections so as to appreciate the difference, if any, between them. The English section is headed 'minorities' and runs so far as is necessary for our purpose as follows:-- Section 210(1): Any member of a company who complains that the affairs of the company are being conducted in a manner oppressive to some part of the members (including himself) or, in a case falling within Sub-section (3) of Section 169 of this Act, the Board of Trade, may make an application to the court by petition for an order under this section. 2. If on any such petition the Court is of opinion- (a) that the company's affairs are being conducted as aforesaid; and (b) that to wind up the company would unfairly prejudice that part of the members, but otherwise the facts would justify the making of a winding-up order on the ground that it was just and equitable that the company should be wound up; the Court, may, with a view to bringing to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9. 2. If, on any application under Sub-section (1), the Court is of opinion that the affairs of the company are being conducted as aforesaid or that by reason of any material change as aforesaid in the management or control of the company, it is likely that the affairs of the company will be conducted as aforesaid, the Court may, with a view to bringing to an end or preventing the matters complained of or apprenended, make such order as it thinks fit. 27. The right to apply under Section 397 or Section 398 is controlled by Section 399(1) which provides: The following members of a company shall have the right to apply under Section 397 or 398 :-- (a) In the case of a company having a share capital, not less than one hundred members of the company or not less than one-tenth of the total number of its members, whichever is less, or any member or members holding not less than one-tenth of the issued .share capital of the company, provided that the applicant or applicants have paid all calls and other sums due on their shares; (b) in the case of a company not having a share capital, not less than one-fifth of the total number of its members . 28. Section 401 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nciples of commercial administration implicit in the Companies Acts guaranteeing commercial probity and efficiency whether by the action of a member and official of the company or an overwhelming majority was to petition to the court to wind up the company on the ground that it was just and equitable to do so. It was, however, recognised that it might not always be in the interest of the oppressed minority to have the company wound up, for the liquidation of the company might result in the sale of its assets at break-up value, without regard to the value of the goodwill or know-how of the company, and the minority shareholders who urged by the rnaiority oppression petitioned for relief would in effect be going out of the company and clear the field for the majority. According to Palmer's Company Law, 20th eqition. pace 505, in an attempt to meet such cases, the legislator gives now an oppressed minority share-holder a remedy alternative to the petition for compulsory winding up under the just and equitable clause. Further according to Palmer this alternative remedy was available upon two conditions: (1) the affairs of the company were conducted in a manner oppressive to s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shareholders for the purpose of removing George Elder from the board of directors. At the meeting the resolution for George Elder's removal was passed and Walter Elder was appointed Chairman and managing director. At the annual general meeting in March 1949 James Glass was not re-elected a director and on April 28, he was dismissed from employment as factory manager. In the following June two new directors were appointed at an extraordinary general meeting of the company. In July 1949 George Elder gave notice to the company that he was leaving their employment as secretary. The petition under Section 210 was raised more than eighteen months afterwards at the instance of five shareholders disclosing differences of opinion between two directors, removal or exclusion of George Elder and James Glass from the board, Forced retirement or dismissal of them from employment as secretary and factory manager and rejection of their offer to sell their shareholdings to the board. The judgment of Lord President Cooper shows that there was no case made out in the petition that the business had been or was being mismanaged to the detriment of the shareholders. On the contrary, the figures sug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... some part of the members' acquires a certain colour from its collocation in Section 165 with such stronger expression as 'intent to defraud', 'fraud', 'misfeasance' or 'other misconduct', and the essence of the matter seems to be that the conduct complained of should at the lowest involve a visible departure from the standards of fair dealing and a violation of the conditions of fair play en which every shareholder who entrusts his money to a company is entitled to rely. 34. After examining the facts the Lord President noted that the true grievance is that two of them, (the petitioners) George Elder and Tames Glass, have lost the position which they formerly held as directors and officers of the company. I do not consider that Section 210 was intended to meet any such case, the 'oppression' required by the section being oppression of members in their character as such. I do not think that a 'Just and equitable' winding-up has ever yet been ordered merely because of changes effected in the board of directors or the dismissal of officers, and very strong grounds would have needed to justify such a step. From the judgment it app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from a mutual lack of confidence between partners in the management of partnership affairs. A somewhat similar case is that of Thomson v. Drysdale, 1925 SC 311 in which there were only two shareholders, one of whom had in the Lord President's language 'usurped the whole powers of the company and particularly possessed himself of everything.' This shareholder also possessed the voting control in the company. In such a case, as Lord President Clyde said, 'it was impossible that the minority should retain any confidence in the impartiality or probity of the company's administration.' If 'these two eases because they seem to me to illustrate a type of case which comes under Section 210. It is not lack of confidence between shareholders per se that brings Section 210 into play, but lack of confidence which springs from oppression of a minority by a majority in the management of the company's affairs, and oppression involves, I think, at least an element of lack of probity or fair dealing to a member in the matter of his proprietary rights as a shareholder. Cases like that of Loch, 1924 AC 783 (supra) and Thomson 1925 SC 311 (supra) might, I think, readil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e manufacture and sale of rayon materials and get licences to manufacture rayon cloth, the production of which was then controlled and remained so until 1952. The respondents were appointed joint managing directors of the company, which, so long as cotton control lasted, was dependent on their skill and knowledge and experience and on their connections with the trade, and, because of these license were granted. The company traded successfully for several years and earned substantial profits. In 1951 the Society sought to purchase from the respondents their shares at less than their true value but was not successful. The society dropped the attempt but adopted a policy of transferring the company's business to a new department within its own organisation, thereby forcing down the value of the company's shares. The nominee directors, though aware of this policy, did not inform the respondents but promoted the society's plans. As a result the company's business came virtually to a standstill and the value of its shares was greatly reduced. In 1953 the respondents presented a petition under Section 210 for an order on the society to purchase the whole of their shares at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be appointed Governing Director for life. After some changes in the share holdings the position was as follows: The father and his wife held respectively 491 and 295 B shares. The two sons held 4 B shares each and their respective wives held 103 B shares each. On the other hand the two sons held approximately nine-tenths to the father's one tenth of the A shares. So far as the directorate was concerned the father and two of the sons were all life Directors, the father being Chairman with a casting vote. Until the presentation of the petition under S. 210 the father was in a position to control the company by the use of his own and his wife's votes, their combined preponderance of voting power being sufficient to procure the passing of extraordinary and special as well as ordinary resolutions. The sons complained that the father had repeatedly abused his controlling power in the conduct of the company's affairs to a point which had left them no option but to apply to the Court For relief under Section 210. The complaint of the sons was that the father continued to regard the business of the company as though it was still his own absolute property and to ignore the int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oppression from the point of view of member directors where a majority shareholder that is to say, a shareholder with a preponderance of voting power proceeds, on the strength of his control, to act contrary to the decisions of, or without the authority of, the duly constituted board of directors of the company.' As to (b) his Lordship held that a wrongdoer could not complain that the person wronged might have chosen another remedy, As to (c) his Lordship was of the view that the acts complained of were calculated to damage the company in one way or the other. As to (d) his Lordship held that 'the sons were at least entitled to require that the proper procedure should be applied', and as to (e) his Lordship said that 'it was not true that the father got no pecuniary benefit out of what he did but even if it were, it was not essential to a case of oppression that the alleged oppressor should obtain some benefit by his act of oppression'. According to his Lordship 'if there is oppression, it remains oppression even though the oppression is due simply to the controlling shareholder's over-weening desire for power and control and not with a view to his own ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... what they say and to resolutions properly passed. If the board is browbeaten and either ignored or overruled by one of its members, in this case the father who was the chairman, in reliance on his superior voting power, the proprietary interest of the minority shareholders cannot fail to be affected and a case of oppression within Section 210 is, in my judgment, made out. 44. Analysing the evidence with regard to oppression Willmer, I,. J. said 'the most dangerous and most oppressive form of conduct is, I think, the habit that the father had of going behind properly constituted decisions of the Board and taking it on himself to countermand them. It seems to me that such conduct cuts at the very root of proper company procedure and makes it virtually impossible for the business of a company to be carried on'. 45. These cases were considered by the Supreme Court of India in Shanti Prasad Jain v. Kalinga Tubes Ltd., . In this case a private limited company was started by two groups of persons who held all but a few of the issued shares, Tbe appellant joined the company sometime after its incorporation and it was agreed that he would be the holder of shares equal in numb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irs of the company. It was also urged that the affairs of the company were being conducted in a manner prejudicial to the interest of the company. The application succeeded before a learned single Judge of the Orissa High Court but his decision was reversed in appeal by a Division Bench. The Supreme Court upheld the judgment of the Orissa High Court. The Court rejected tbe case of oppression put forward on behalf of the appellant holding that there was nothing in tbe initial agreement about the future in the matter of allotment of shares in case capital was actually increased thereafter and observing that that agreement was strictly speaking not binding even on the private company--It was much less binding on the public company when it came into existence in 1957. The agreement did not contain any specific provision as to future issue of capital. Further, at the time when the agreement took place the appellant was not even a member of the private company arid it was really an agreement between a non-member and two members of tbe company, which would go to show that the agreement could in no circumstances hind the company. 46. Referring to S. 210 of the English Act and Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ult thereof Judah was completely ousted from the company and Mukherjee and Neogy assumed control and management. Litigation followed and in March, 1956 Mukherjee and Neogy purporting to act as directors sold the whole bunch of 26752 ordinary shares belonging to Judah to Ramapada Gupta in enforcement ot a lien for a debt of over ₹ 4 lacs alleged to be due by Judah to the Company. Judah instituted a suit in this court challenging the sale as wrongful and to establish his title to the shares. He also took out a notice of motion under Section 397 complaining that the affairs of the company were being conducted in a manner oppressive to him and his group and also prejudicial to the interest of the company. Judah succeeded in his suit wherein it was held that the debt for which the shares were sold was mostly fictitious and unreal, that the sale was illegal, that there was no power of sale under the Articles and that the object of sale was to deprive Judah of his voting power. After examining the facts of the case his Lordship said In my judgment, conditions that prevent the proper functioning of the company, according to the provisions of the Indian Companies Act, the uncertainty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o hand over papers, documents etc. of the company for preparation of the balance sheet for the years 1960-61 and 1981-82 before the company's auditors and complained that the addressees had failed and neglected to do so. If the annual general meeting had in fact been held on 7th May 1962 there should be an immediate reply to that effect. Moreover it is difficult to see what motive the petitioners could have in denying the placing of the audited accounts of the company up to November 1961 before the board of directors or the shareholders when they joined the company in January 1962 and could have had nothing to do with the company's affairs before that date. It was never suggested before us that the minute book of the directors' meetings produced by the petitioners was not a genuine book. The only portion of it which was challenged was that relating to the board meeting on February 22, 1963. 49. Still more diifficult it is to appreciate why the petitioners should fail to attend en bloc bom at the board meeting on January 22, 1963, March 4, 1963 and March 12, 1963 or the extraordinary general meeting on February 21, 1963. I find myself unable to believe that if notice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company? The answer can only be in the negative. It was argued before us that as the matter had not been thrashed out on evidence no conclusion ought to be drawn as to whether the petitioners had received notice of this extraordinary general meeting or not. It was further argued that as the Companies Act allows service of documents by putting them in the post production of certificate of posting was enough to prove service and that the reason why a member or a group of members failed to attend a meeting was immaterial. If the matter was tried on evidence other than affidavit evidence, no better result would have followed, for the petitioners would have deposed that they never received the notices and the respondents would have averred that these had been put in the post and the Court would have had to make up its mind as to whether the petitioners had received the notices but deliberately refrained from attending the meeting. In my opinion, such an argument is worthy of no consideration at all. 50. If the case was such that it could be suggested that the petitioners had some motive in abstaining from attending the extraordinary general meeting one might have hesitated to come to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the police forming annexure 'C' to the petition is open to some doubt. According to the report the raiders who exceeded 100 in number was led by Kedar Nath Bhagat respondent No. 4. There is no mention in the report of Ramashankar Prosad having taken any part therein while according to the affidavit of Abhoy Narain Sharma who claims to have been present in the factory on March 13, 1963 the raiders were led by Ramashankar Prosad and Kedar Nath Bhagat. For the purpose of the application made to this Court or the present appeal it is not necessary to come to a finding as to whether the control of the factory was assumed by the threat of armed violence and by use of criminal intimidation. According to the respondents' own ease there had been a board meeting on March 4, 1963 by which the board delegated all its powers to Kedar Nath Bhagat and gave him express authority to assume control of the factory and to dismiss a number of employees working therein. It is also the respondents' case that Kedar Nath Bhagat took possession of the factory and dismissed all the employees but one mentioned in the board meeting of 4-3-1963. The report to the Officer-in-charge Jorapukur Pol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g on January 21, 1963 at 52/1, Dr. Abani Dutt Road, Howrah at 3 p.m. which was attended by Muralidhar Jhunjhunwalla, Ramasankar Prosad, Champalal Saraogi, Radhakrishna Prosad and Mahendra Prosad. This meeting merely confirmed the transactions which had taken place at the meeting held on October 25, 1962 and discussed the affairs of the company in general. According to the minute book produced by the respondents there was a board meeting on the same date at the same place at 12-30 in the afternoon and the only two persons present were Ramashankar Prosad and Radhakrishna Prosad. The minutes of the last mentioned meeting go to show that the Chairman waited for half an hour to enable the other directors to come but had to proceed in their absence ultimately. Further the minutes show that the three absent directors who were entrusted with the entire management of Dhanbad works were committing various irregularities for which they were censured. This meeting also decided to start a new minute book and call an extraordinary general meeting of the company to be held on February 21, 1963 for increasing the number of directors, altering the articles of association in this behalf, increasing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n by the respondents as also the extraordinary general meeting of 21-2-1963 was motivated by the desire to exclude the petitioners, clearly there was an oppression which could not be neutralised by the petitioners short of coming to court and praying for necessary relief. The oppression was not of long duration when the petitioners came to court but it was of such a nuture that its effect would have persisted indefinitely and kept the petitioners under the complete mercy of the respondents. 54. Leaving out of consideration for the moment the question as to whether the oppressor must be in a majority it is clear that what the respondents did calls for the same comments as were made by the learned Lord Justices in Hanners case, 1958-3 All ER 689. The respondents' group purported to obtain supremacy in the board and at general meetings by a trick i.e. by the suppression of notices of the board meeting on 22-1-1963 and 21-2-1963, if in fact such meetings were ever held. They followed this up by purporting to issue additional shares to third parties when there appeared no occasion for the same, by appointing new directors and taking complete control of the board and delegating al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p under the 'just and equitable' clause, the facts discovered amply demonstrate that there was such a lack of probity in the conduct of the affairs of the company by the respondents that the petitioners could no longer have confidence in them and rightly ask the Court to intercede on their behalf. 56. Relying on the English cases and Shantiprasad Jain's case before the Supreme Court it was argued that the right to apply under Section 397 or 398 must be confined to cases where the complaint is by a minority against the majority and not vice versa. It was further said that the majority had the power to put things in order by calling meetings and passing necessary resolutions. I however find myself unable to accept this argument. So far as the English section and English cases are concerned, it cannot be gainsaid that the Judges have laid down in no unmistakable terms that the right is given to a minority. So far as the English section is concerned it is the heading 'minorities' which affords some clue to its interpretation. The English Act does not contain a section like Section 399 of the Indian Act which is a code by itself as to the qualification necessary f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ings--namely, that they are not to be taken into consideration if the language of the enactment is clear. 58. According to Maxwell, 9th edition, page 54. The headings prefixed to sections or sets of sections in some modern statutes are regarded as preambles to those sections. 59. In Martins v. Fowler, 1926 AC 746, the Privy Council had to consider the effect of the heading to a section in Marriage Ordinance 1884 (Law of Southern Nigeria, Cap. XCV) and held such headings ..... may be regarded as preambles to the provisions following them. Reference may also be made to the judgment of Harman, L. J. in Quarter, Hall and Co. Ltd. v. Board of Trade, 1962 Ch 273 at P. 287, where his Lordship said quoting from Lord Herschell's opinion in Inglis v. Robertson, 1898 AC 616 at page 629, these headings are not, in my opinion, mere marginal notes, but the sections in the group to which they belong must be read in connection with them and interpreted by the light of them. In this case the question for consideration before the Court was the effect of the heading exception for banking or finance company providing capital to paragraph 7 of Schedule VII of the Companies Act of 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... serting that winding up would be prejudicial. The affidavit-in-opposition however snows that the main business of the company was that of manufacturing railway sleepers and that the company had valuable quota rights of iron goods. This in my opinion goes prima facie to show that if properly managed the company is assured not only of the supply of raw materials but also of the sale of its out-turn, two essential conditions requisite for the successful functioning of a manufacturing business. The petitioners who advanced over five lakhs of rupees for acquisition of shares can therefore reasonably assert that winding-up of the company would not be to their benefit, for it is almost axiomatic that if the company ceases to function, it will lose both the supply of raw materials as also the outturn of the finished products. 63. In the view taken by me of the rights of the petitioners under Section 397 of the Act it is hardly necessary to deal at length on their rights under Section 398. Suffice it however to say that the facts show that a case under Section 398(1)(b) has been made out. If the version of the respondents be correct then a material change did take place in the management ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 65. Lastly, we have got to address ourselves to the question as to whether the order made was proper in the circumstances of the case. It will be noted that the parties made charges and counter-charges with regard to the misapplication of the funds of the company and misappropriation of the raw materials imported or otherwise. There is at present no certainty as to the composition of the board of directors. In order to remedy these two main complaints the learned trial Judge made an order of supersession of the board of directors and appointed an administrator to take charge of the company's business and cany on the same. He was to be assisted by an advisory board consisting of two members: One from the petitioners group and another from the respondents group. The learned Judge also directed the appointment of a special auditor to make a report on various matters including the quantities of raw materials obtained by the two groups, their disposal, the accounting of the sale proceeds of the finished products and other incidental matters. He further directed an extraordinary general meeting of the company to be held after the receipt of the report of the Special auditor for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evere criticism on behalf of the appellants. What to speak of the appellants, even the petitioning respondents were not happy about the shape their petition took, the day it was filed, as is clear from the last paragraph thereof--paragraph 40--which hears: 40. In view of the extreme urgency with which this application had to be got ready, your petitioners crave leave to and/or modify the same as when so found necessary. : vide page 12 of the paper-book. The leave craved for, though in so cumbrous a manner, was not apparently thought of during the subsequent carriage of the petition with the result that it remained just the same, from the day it was presented in Court (March 15, 1963) till September 19, 1963, when the learned Judge (B.C. Mitra J.), seized of this petition, rendered his judgment. 69. But when this is said, this is almost all that can be said against the respondents' petition--a closer examination of which reveals that there are allegations which tell. Take, for instance, paragraph 17. The gist of the averment it contains is- Only two days prior to the filing of the petition on March 15, 1963, that is to say, on March 13, 1963, at 9-30 P.M. or th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eport, and not as form--which I see in the official translation. Indeed, form conveys no meaning. Did the magistrate receive then only the form or even the final form? Surely it carries little sense. As is well known, an investigating officer submits his final report in the form of a letter to the address of the Magistrate accompanied by the requisite form duly filled up, when necessary. The next word I comment upon is Asajhya. The alphabet Jha is too clear to be missed. It is not ta. So, you cannot read it as Asatya. More, Jha is followed by what we Bengalis call Jafala and what Hindi speaking people call Ya, so that it becomes Jha Men Ya. So, clearly the word is Asajhya, the English equivalent of which is intolerable. And, in the context here, to say that the case is intolerable is to say that it is not maintainable, though, left to myself, I would have used Ayogya, perhaps a better and therefore crisper word. I should comment on still another word Samanya. Looking up the Hindi--English dictionary, I find its meaning to be--common, general, universal. General fits the context here so nicely. Ha at the foot of the order, just on the left of the signature B. Misra , needs a comme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce may arrest without warrant or not Rioting May arrest without warrant. Theft May arrest without warrant. 71. So, for two cognizable offences a complaint was made to the police. The report dated March 13, 1963, of Chouthmal Saraogi to the police (page 36 of the paper-book) reveals offences more heinous than theft. For the point I am on now, let that be left alone. Suffice it to note that the police treated the report as information relating to the commission of cognizable offences within the meaning of Section 154 of the Procedure Code and proceeded to do its duty by undertaking an investigation under other sections in Chapter 14 where Section 154 occurs, the heading of the chapter being- Information to the Police and their power to investigate. Investigation completed and dosed, the police submitted their final report under Section 173 ibid., the last but three sections in Chapter 14 again. This is what has been referred to in the Dhanbad Subdivisional Magistrate's order of April 15, 1963, as Antim Patra--a literal translation of final report. Now, a final report under Section 173 may be of two kinds. If the result of the investigation under Chapter 14 discloses prim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear and intelligible in the form for one of the following- True: enter section. Intentionally false: enter section. Mistake of law: enter section. Mistake of fact: enter section. Non-cognizable: enter section. Not investigated: enter section. (e) In cases in which no one is sent up for trial, it will rest with the Magistrate to say whether the case is true or not and if he considers that the offence has been committed, it will rest with him to say under what section it is to be entered in Statement A, Part I. [For similar provisions in West Bengal, see Rule 430, Police Regulations, Bengal, 1927.] 73. It is thus seen why the Subdivisional Magistrate had directed: 'Enter in the register that the case is not maintainable.' (The paradigms of orders set out in Rule 314(d) of the Manual are illustrative and not exhaustive.) A routine order--and an administrative order at that, not for the purpose of doing justice between the parties, but tor the purpose or supplying the statisticial returns--it was made on the basis of the police report in the final form, and that again behind the back of the complainant (Saraogi). Therefore, to rely on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , let us proceed no more with such a dispute of civil nature, dressed though it has been in criminial garments.' An investigating officer who will not report so must be rare indeed. Hence, even without the final report under Section 173 of the Procedure Code by the investigating officer of lorapukhar police-station having been made available to us in the manner in which it should have been, it may be found that in all probability he had reported so. Once that is that, the remark about the case being not maintainable (Asajhya)--the remark which the magistrate directed to be entered in the general register--explains itself without any stigma on the merits of the complaint. And should perchance the remark the magistrate directed to be recorded be taken as not true (Asatya) though there is no room whatever for doing so, in the light of all that goes before, the very remark itself then becomes not true and can ill afford a safe resting place for the finding that the petitioning responddents' version of Chasnala raid on March 13, 1963, is unworthy of belief. 75. This is only a negative approach to the inelegance of March 13, 1963, at Chasnala, and that too to counter the conte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : page 48 of the paper-book. On March 13, 1963, the petitioning respondents (the Saraogi group) went out of the factory at Chasnala. So did Chouthmal Saraogi (also Sarawagi), working though he was as the manager of the factory from July 27, 1962, or thereabouts. (see his affidavit dated May 20, 1963, at page 126 ibid.) Came instead the Prosad group, the appellants before us. Kedar Nath Bhagat lost no time in leasing out the factory and hypothecating the raw materials to Shiv Nath Sinha for ₹ 25 000. And Shiv Nath Sinha, in turn, appointed S. D. R. Gupta as the manager of the factory--all on March 15, 1963. (See the preceding paragraph.) For such a change, we have before us, as the learned Judge of the first instance had before him, two versions. One is the version of the petitioning respondents (the Saraogi group) attributing all this to the brute force brought into play by the appellants (the Prosad group) on March 13, 1963, and culminating in Chasnala raid with the complete ouster of the Saraogi group. The other is the version of the appellants denying the raid and proclaiming the change as nothing but the natural and legitimate outcome of the resolutions passed at the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, 1 of 1872, the Court may presume that an official act has been regularly performed. But such a presumption is optional. Not that the court is bound to presume so in every case. Here the court shall not draw this presumption. The court shall not, because it is completely satisfied upon all it sees that the Saraogi group could not but have attended the meetings where they had so much at stake, by attending which they had everything to gain and by absenting from which they would lose lakhs and lakhs of rupees and, worse, would be digging their graves, if they had receiv. ed the notices supposed to have been sent to them with certificates of posting. That apart, how much of a letter sent with a certificate of posting is an official act? No officer of the Post Office guarantees even the address on the letter and the address on the certificate being the same. All that is guaranteed is the postal seal on the certificate impressed generally by a menial of the Post Office without any manner of comparison. Nothing, I imagine, is easier for an unscrupulous person that to use a certificate of this sort as a bluff. So, let no more be said of such agency of service of notices of all-import ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the standards of fair dealing the visibility of which is all too clear to all except to the blind? What is it but a gross and naked violation of the conditions of fair play ? If the Saraogi group are the directors, they are shareholders too by virtue of having invested ₹ 5 lakhs. Did they entrust that much to the company relying on the doctrine, might is right--a doctrine the Prosad group translated into practice on March 13, 1963, after having made earlier preparations to that end by faked minutes and faked resolutions? Certainly not. They parted with such a heavy sum in favour of the company in the sure belief that decency and probity would rule the affairs of the company and that right would be might, not vice versa. So, the Saraogi group are very much affected too qua shareholders as well. Surely, it is no disqualification for a shareholder to be a director. And by being a director he does not lose his separate entity as a shareholder, just as in 1958-3 All ER 689, the sons did not lose their identity as members, directors though they were. The test to go by is oppression on members, it being of little consequence that the members are directors too. To quote from t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... surdum. Then, this is a case, with features all its own, where what matters is the result obtained by the wrong-doers, to wit, the Prosad group, and not the duration of the wrong and illegal method resorted to by them. And it needs no imagination to see that but for the intervention by the learned trial Judge on March 15, 1963, the devastating effect of Chasnala raid would have continued to this day with a spate of all sorts of litigations here, there and everywhere--just the thing the Companies Act is in the statute book to guard against for. Thus on the foot of Chasnala raid alone, the petitioning respondents, the Saraogi group, are entitled to the relief they pray the Court for. 81. Again, the very assumption which has been made in the preceding paragraph that only Chasnala raid has been there, and nothing else--appears to be an unwarranted one. Chasnala raid has no doubt been there. But, by no means, it deserves to be considered in isolation . It deserves to be considered instead as part of a consecutive story from January 22, 1963, or thereabouts, when faked board meetings and general meetings, ordinary or extraordinary, were being held, false resolutions were being pass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e can dp so when he tries a suit or sets down a petition for a trial on evidence, by parity of reasoning he can do just the same when he proceeds to hear the petition upon affidavit-evidence. And what are affidavits we see here but allegations made on oath by the parties or persons present on their behalf? So, what wrong has the learned Judge done by travelling beyond the pleadings (the originial petition of March 15, 1963, and the joint affidavit in opposition of March 25 following, pages 3-37 and 45-78 of the paper-book) and by taking into consideration all the affidavits on record? I do not see any. And what is there to nurse a grievance about? I do not see any either. As my lenrned brother points out in his judgment: What was lacking in the petition has been filled up by subsequent affidavits and the Court must guide itself by all the evidence before it. So, let no fetish be made of the original petition of which the Court is certainly not a slave, when it has other telling materials to draw upon to come to a just decision of the cause before it without causing the least surprise to any party. If I may quote from what I said in Snow White Food Product (Private) Ltd. v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nced by any considerations derived from the previous state of the law, and not to start with inquiring how the law previously stood, and then, assuming that it was probably intended to leave it unaltered, to see if the words of the enactment will bear an interpretation in conformity with this view. If a statute, intended to embody in a code a particular branch of the law, is to be treated in this fashion, it appears to me that its utility will be almost entirely destroyed, and the very object with which it was enacted will be frustrated.' It is on account of the principle, which was thus laid down, that I do not refer to the English cases, which were cited to us during the argument, and I decide this case having regard to the language of Section 239 of the Contract Act. Governing myself by these observations, I say: here is Section 397, a positive enactment of our Parliament. And I proceed to examine the language of this section, uninfluenced by Section 210 of the corresponding English statute. In the course of my examination, the first thing I find is that Section 397 is the section, Chapter VI Captioned: Prevention of oppression and mismanagement. A. Powers of Court st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I PREVENTION OF OPPRESSION AND MISMANAGEMENT PREVENTION OF OPPRESSION AND MISMANAGEMENT A. POWERS OF COURT A. POWERS OF COURT 396. Application to Court for relief in cases of oppression - 397. Application to Court for relief in cases of oppression. (1) Any members of a company who complain that the affairs of the company are being conducted in a manner oppressive to any member or members (including any one or more of themselves) may apply to the Court for an order under this section, provided such members have a right So to apply in virtue of section 398 (1) Any members of a company who complain that the affairs of the company are being conducted in a manner oppressive to any member or members including any one or more of themselves) may apply to the Court for an older under this section, provided such members have a right so to apply in virtue of section 399. (2) If, on any application under sub-section (1), the Court is of opinion (2) If, on any application under sub-section (1), the Court is of opinion (a) that the company's affairs are being conducted in amanner oppressive to any member or members, and (a) that the company's affairs are bei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of a company having a share capital, not less than one hundred members thereof or not less than one-tenth of the total number of its members, whichever is less, or any member or members holding not less than one-tenth of the issued share capital of the company, provided that the applicant or applicants have paid all calls and other sums due on their shares: B. in the case of a company not having a share capital, not less than one-fifth of the total number of its members. The purist will eye askance at the use of'Iess' in Section 399. Whitten and Whitaker have the following in Good and Bad English: Less appertains to degree, quantity or extent; fewer to number. Thus, less outlay, fewer expenses; less help, fewer helpers; less milk, (ewer eggs. Leaving the purist to wrestle with the drafter of the section, I proceed to notice that, in the context here, not less than means not fewer than and carries with it the ineluctable meaning that there may be more than the number specified after not less than, no matter whether such number constitutes minority or majority. As a matter of words, therefore, it is impossible to say that only a minority can apply u ..... X X X X Extracts X X X X X X X X Extracts X X X X
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