TMI Blog1947 (7) TMI 11X X X X Extracts X X X X X X X X Extracts X X X X ..... Agents is to be the Chairman of the Board of Directors. There is another Article, namely 126, which provides that the Company in General Meeting may from time to time increase or reduce the number of directors subject to the provisions of sec. 83A and 83B (2) of the Indian Companies Act, but this Article is not material in the appeal. As admitted by the parties we must in this appeal proceed on the basis that the number of directors can be four and not more. Articles 121 to 123 provide that one third of the Directors or the number nearest to one third for the time being, except the director appointed by the Managing Agents shall retire at the first ordinary meeting of the company of every year but the retiring director would be eligible for re-election. Article 116 (k) provides that the office of a director (other than ex officio Director) shall ipso facto be vacated if he is requested in writing by all his co-directors to resign and Article 128 provides that casual vacancies occurring among directors may be filled up by the directors. In 1944, some persons called the Dalmia-Jain Group acquired more than half the number of ordinary shares. In that year the Board of Directors consis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned for excluding the majority of share-holders to have an effective control in the management of the company through their elected representative. In paragraph 20 it is alleged that the Defendants had acted wrongfully and mala fide and in the fraudulent exercise of their power, and that the impugned act on their part was and is not for the benefit and interest of the company and the share-holders. Particulars of the statements made in paragraph 20 have been given in paragraph 20A--a paragraph which was introduced by an amendment of the plaint. We need not go into further details for the purpose of the appeal. The substance of the plaint is that the Defendants had acted wrongfully and in a mala fide way and that the rights of the company have been effected by their impugned act. Their case is that apart from the personal injury to Rameswara Prosad Bajoria the company is entitled to see that its affairs are controlled and managed by persons who have the right to do so and that the wrongful exclusion of a person from the Board who has the right to manage and control the affairs of the company and the inclusion of a person in the Board who has no legal title to be there are wrongs to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... right or interest of a company it is the company which can and ought to sue for redress. This is based on the general principle that the person whose rights have been infringed can only sue. Only in exceptional circumstances share-holders would have the right to sue in their names, either individually or in a representative capacity, that is to say, on behalf of themselves and other share-holders, for the redress of such a wrong. 2. A wrong done to a company is in a sense a wrong done to each and every share-holder. But a share-holder or a body of share-holders cannot ordinarily be allowed to sue in their names for the redress of such a wrong, for if that right be admitted in every case it would follow that each and every share-holder would have the right to sue for a wrong done to the company but this cannot be allowed for three weighty reasons, namely:-- (a) for a multiplicity of suits in respect of the same matter would be the consequence, and (b) because a company is itself a juristic personality and its legal entity is quite distinct from the personality of the share-holders. (c) besides, there is the advantage in the general rule that for a wrong done to the compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or a body of human beings. A juristic act must have a will behind it. According to jurists a corporation has a will and that will finds expression through the majority of the corporators assembled in meeting. It would follow from this that ordinarily the majority of vocal share-holders, that is to say share-holders who have the right to vote and voting at a meeting of the company are the persons to perform an act on behalf of the company. Their act purporting to be on behalf of the company is the act of the company because through them the company expresses its will. So ordinarily they are the persons who are to file suits in the name of the company for redress of a wrong done to the company. This in our judgment is the fundamental principle (though not expressly stated therein) which lies behind the observations made in Mozley v. Alston 1 Ph. 790 at 800: s.c. 41 E.R. 833 (1817) that where the Majority of share-holders can put the company in motion the suit must be instituted with the company as the Plaintiff, where the injury complained of is an injury to the company. This is also the fundamental principle on which the observations made in Mac Dougall v. Gardiner 1 Ch. D. 13: s.c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uent to the filing of the suit by a share-holder in the name of the company, approving his action would be sufficient. The observations in the aforesaid two cases are based on these sound principles. We do not think that the observations made in La Champagnie De Mayville v. Whitley [1896] 1 Ch. 788 at 806 bearing on the point we are discussing militates against our view. In that case seven persons had signed the memorandum but no shares had been allotted. Three directors had been appointed of which Seal was one. On the 14th February, 1896, without notice to Seal the remaining two directors met and elected the fourth director. Seal took out a summons on the 14th February, 1896, with the authority of five out of the seven subscribers written on a piece of paper which he had circulated to them individually and on which he got their signatures. That authority was not given to him by the persons in a meeting of the company. The letter of authority therefore expressed their individual wills--not the will of the company. Before this writ was served seal received on the 32nd February, the notice of a meeting of directors to be held on the 24th February, 1896, on the footing that there was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... observations are :-- He has got the authority of five out of seven subscribers, it is true, got by him. I suppose, by sending round the letter of authority asking them for sanction. But that authority seems to me to be not worth the paper it is written upon. If authority is wanted to use the name of the company it must be authority got from the proper quarter--either from the directors or from the share-holders convened for the purpose. 14. The question whether a suit or proceeding commenced by a share-holder in the name of the company would be allowed to continue if later on the majority of share-holders in meeting had approved did not and could not have come up for consideration in that case as after the meeting of the 24th February, 1896, Seal could not have had any pretence to say that he had the majority of share-holders at his back. The two directors against whom he was complaining had between them all the 1000 shares that had been allotted up to the date when the objection to the use of the company's name by Seal was taken and heard. Kay, L.J., makes the position quite clear at p. 807 of the report, and A.L. Smith, L.J., at page 810 observed that the authorisation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the company and also to compound and allow time for payment or satisfaction of any debts due and of any claims or demands by or against the company. 17. The power to institute suits in the name of the company would have flowed from Article 148 and Article 149 is illustrative. For convenience, we would mention Article 149 (b) only in dealing with the question before us. 18. In our opinion Article 149 (b) designates the Board of Directors to be the persons who are to file suits in the name of the company for recovering debts due to the company, for enforcing claims of the company against others, as also for obtaining redress for an injury done to the company. As Articles of Association embody a contract between all the share-holders and the company and a contract between the share-holders inter se, they cannot be altered except with the consent of all, and that consent must be given by all the shareholders, both vocal and also those who are not entitled to vote, without a single exception. The only other way of altering any Article would be by following the machinery provided for in the Articles or in the Statute Law, that is to say, by the special resolution of the majorit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We have already commented upon the case of La Campaigne de Mayville [1896] 1 Ch. 788 at 806 on which our learned brother has relied in making his order. 20. The facts of MacDougall's case 1 Ch. D. 13 : s.c. 45 L.J. Ch. 27 1875) are better. They were as follows: The Plaintiff, MacDougall held 1750 shares in the Emma Silver Mining Company, Limited. Colonel Gardiner was a director of the company and was the Chairman of the Board of Directors. The Plaintiff and a large body of share-holders believed that the company had been cheated by certain fraudulent transactions in which the majority of directors including Gardiner were the participators along with the promoters and certain other persons. For that purpose they wanted the Plaintiff MacDougall to be elected as a director at the meeting of the company fixed for the 15th May, 1874, at which the election was to be held. To frustrate an investigation into the affairs of the company the Plaintiff alleged that the said directors, promoters and the other persons had set up a rival candidate, namely, Hutton. At the election at the meeting held on the 15th May, 1874, Hutton was declared elected. A suit was filed by the Plaintiff and o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out in the authorised report. The material portion of Article 74 runs thus: The business of the company shall be managed by the directors who may .... exercise all such powers of the company as are not by the Companies Act, 1862 and 1867, or by these Articles required to be exercised by the company in general meeting subject nevertheless to any regulations of these Articles, to the provisions of the foregoing Acts and to such regulations, being not inconsistent with the aforesaid regulations or provisions, as may be prescribed by the company in general meeting. 21. Article 82 is as follows:-- The directors shall have power to carry on or discontinue or refer to arbitration any actions, suits, claims and demands for or against the company, whether by or against other persons or companies or its own members. 22. Mallins, V.C., overruled the demurrer [MacDougall v. Gardiner 1 Ch. D. 13 : s.c. 45 L.J. Ch. 27 1875)]. On appeal it was held that the company ought to have been the Plaintiff. The further ground on which the demurrer was admitted, namely, that the Bill concerned the internal management of a company with which the Court would not interfere at the suit of a share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the majority of shares he, as share-holder, could bring that action in the name of the company. He noticed the decision in Automatic Self Cleansing Filter Syndicate v. Cunninghame [1906] 2 Ch. 34 but distinguished it on the ground that the shareholders who had brought that action in the name of the company to restrain the sale of the undertaking by the directors, who had by the Articles the power to do so, had only a simple majority, whereas the Articles required a special resolution--a majority of three-fourths--to take away the said power given to the directors under the Articles. He refused to follow the other observations on the ground that they were obiter dicta and so not binding on him. The point to be noted in Marshall Valve Gear Company's case [1909] 1 Ch. 267 is that in the Board of Directors of the Plaintiff company the interest of the majority of directors clashed with the interest of that company respecting the subject-matter of the suit, for they had large interests in the rival company's patent against which in the plaint there was the charge of infringement of the patent held by the Plaintiff company. By reason of the conflict of their personal interest as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... matter of management of the affairs of the company Cozens Hardy, L.J., did not consider directors to be agents of the company. Their position according to him was like that of managing partners of a partnership business. He held that when the Articles themselves provide that the contract which confers the powers on the directors can be modified only by a special resolution, that contract cannot be modified in any other way. Cozen Hardy, L.J.'s decision was, therefore given not on the special wording of Article 96 but on the basis of another Article, an Article of the company which provided the machinery for the alteration of any of the Articles of Association. In this view this case cannot be distinguished on the ground on which Neville, J., distinguished it in Marshall Valve Gear's case [1909] 1 Ch. 267, and the learned Counsel appearing before us for the Plaintiffs Appellants wishes to distinguish it on the self same grounds. There is in our opinion, no point of distinction in the fact that in Marshall Valve Gear's case [1909] 1 Ch. 267 and in the case before us the Articles had made the powers of the directors subject to regulations (not inconsistent with the provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany's affairs. The directors are not the servants to obey the directions given by the share-holders as individuals; they are not agents appointed by and bound to serve the share-holders as their principals. They are persons who may by the regulations be entrusted with the control of the business, and if so entrusted they can be dispossessed from that control only by the statutory majority which can alter the articles. Directors are not. I think, bound to comply with the directions even of all the corporators acting as individuals. Of course the corporators have it in their power by proper resolutions, which would generally be special resolutions, to remove directors who do not act as they desire, but this in no way answers the question here to be considered, which is whether the corporators are engaged in carrying on the business of the corporation. In my opinion they are not. To say that they are involved is a complete confusion of ideas. 26. These observations support the view we are taking of the ratio decidendi in Automatic Self Cleansing Filter Syndicate's case [1906] 2 Ch. 34 and lends strength to our view that that case cannot be distinguished on the ground on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch had been covered by simple majority was ineffective and to have any effect it required such majority as would be necessary to alter the Articles of Association The cases of Automatic Self-Cleansing Filter Syndicate [1906] 2 Ch. 34 and Gramophone Typewriter Ltd. [1908] 2 K.B. 89 were cited in support of his contention and Marshall Valve Gear's case [1909] 1 Ch. 267 was sought to be distinguished by him on the ground that there the directors whose acts were challenged as illegal had acted for their own personal interest and in breach of the duty which they owed to the company. The correctness of the decision in Marshall Valve Gear's case [1909] 1 Ch. 267 on the facts on which it was given was not challenged by the Appellant's counsel. Exception was taken to the observations of Neville, J., where he doubted the soundness of some of the observations made in the Automatic Self Cleansing Filter Syndicate's case [1906] 2 Ch. 34 and Gramophone Typewriter Ltd's. case [1908] 2 K.B. 89. The Court of appeal did not express doubt on the actual decision in Marshall Valve Gear's case [1909] 1 Ch. 267. It left it unnoticed but by approving the other two cases it must ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtunity. This was a case where the suit was instituted in the company's name by persons, who, under the articles had the authority to sue for the company. It was not a case where persons who had the authority under the articles had refused to sue in the name of the company by reason of circumstances of the nature appearing in Mac Dougalls case 1 Ch. D. 13 : s.c. 45 L.J. Ch. 27 1875) and Marshall Valve Gear's case [1909] 1 Ch. 267 and were either unable or unwilling to put the Court in motion. We do not therefore think that the aforesaid observations made by Slesser, L.J., are correct. 29. In note No. 4 at page 420 of Gore Browne on Joint Stock Companies (40th Edition) the learned author remarks that it seems difficult to reconcile Pender v. Lushington 6 Ch. D. 70 at 79 (1877), Imperial Hydropathic Hotel Co. v. Hampson 23 Ch. D. I. (1882) and La Campaigne De Mayville v. Whitley [1896] 1 Ch. 788 at 806 with Salmon v. Quin Axten Ltd. [1909] 1 Ch. 311 and Automatic Self Cleansing Filter Syndicate v. Cunningham [1906] 2 Ch. 34 and observes that none the less the former series of cases have been followed. We have already distinguished the last mentioned two cases and the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X
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