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Vallabhaneni Neelakanteswara Rao and ors. Vs. Sri Edupuganti Raghavendra Rao Memorial High School Committee and anr. - Court Judgment

LegalCrystal Citation
SubjectTrusts and Societies
CourtAndhra Pradesh High Court
Decided On
Case NumberLetters Patent Appeal No. 10 of 1961
Judge
Reported inAIR1963AP20
ActsSocieties Registration Act, 1860 - Sections 6, 10 and 20; Societies Registration (Amendment) Act, 1862 - Sections 16; Code of Civil Procedure (CPC), 1908 - Sections 92
AppellantVallabhaneni Neelakanteswara Rao and ors.
RespondentSri Edupuganti Raghavendra Rao Memorial High School Committee and anr.
Appellant AdvocateN.V.B. Sankara Rao, Adv.
Respondent AdvocateK. Suryanarayana and ;Y.B. Tata Rao, Advs.
DispositionAppeal allowed
Excerpt:
.....under societies registration act and thus can sue and be sued in name of president only - held, suit brought by secretary not maintainable for want of locus standi. - motor vehicles act (59 of 1988)section 149 (2): [v. gopala gowda & jawad rahim, jj] insurers entitlement to defend the action joint appeal by insured and insurer - held, the language employed in enacting sub-section (2) of section 149 appears to be plain and simple and there is no ambiguity in it. it shows that when an insurer is impleaded and has been given notice of the case, it is entitled to defend the action only on grounds enumerated in sub-section (2) of section 149 of the act, and no other grounds are available to it. the insurer is not allowed to contest the claim of the injured or heirs of the deceased on..........in (1843) 67 er 189 is subject to considerable qualifications. it does not apply to individual member's rights but only to corporate memberships. one of the exceptions to this rule recognised in (1843) 67 er 189 is that even though the wrong done was to the company, if the majority refused to take any action to rectify it, any shareholder, for the benefit of the company, could initiate proceedings but it should be on behalf of himself and other aggrieved members, if any. unpleading the company or the president of the society and other members who refused to join the plaintiff as defendant. 14. this principle was re-stated in beattie v. beattie ltd., (1938) i ch 708. this is what sir wilfrid greene m. r. stated discussing this principle: 'the claim which the plaintiff is seeking to.....
Judgment:

Chandra Reddy, C.J.

1. This letters patent appeal is filed by defendants 1 to 3 against the judgment of Srinivasachari, J., in appeal suit No. 476 of 1956 confirming that of the Subordinate Judge, Gudivada in O. S. No. 54 of 1953.

2. The appeal arises out of an action laid in the name of Sri Edupuganti Raghavendra Rao Memorial High School Committee represented by its Secretary, Adusumilli Aswadhanarayana Chowdary and member Sri Edupuganti Raghavendra Rao Memorial High School Committee for directions to the defendants to submit an account of the monies entrusted to Vallabhaneni Bapayya Chowdary, father of defendants 1 to 3, for erecting a building for the High School.

3. For an appraisal of the contentions urged in this appeal, it is necessary to give a brief statement of facts.

4. In the year 1945, the residents of Gudlavalleru, Krishna District, decided to establish a High School in the village to be named after Sri E. Raghavendra Rao, who acted once as the Governor of the then Central Provinces and to raise funds for that purpose from the public. Pursuant to this resolve, they collected contributions and donations from amongst themselves to the tune of one lakh of rupees. To give effect to this project, they formed themselves into a society called the Edupuganti Raghavendra Rao Memorial High School Committee and had it registered under the Societies Registration Act with ten members. Sri Bapayya Chowdary was elected as the President and Adusumalii Aswadhanarayana as its secretary. It is the plaintiff's case that the secretary was in charge of the construction of this building till about the year 1947, when the President Bapayya Chowdary, took over the management and got possession of the funds set apart for the building but never rendered an account thereof, though a large sum of about Rs. 70,000/- is alleged to have been spent by him. It was also recited in the plaint that the said Bapayya Chowdary, who was in an impecunious condition, with the aid and assistance of the others members who were his close associates, utilised the funds belonging to the society for his own purposes and failed to render an account in spite ofrepeated demands of the secretary and the educational authorities. Bapayya Chowdary died in or about 1953 and this suit was filed shortly after his death.

5. Defendants 1 to 3 were sought to be made liable to account! as they were in possession of the assets of their father, Bapayya Chowdary. The fourth defendant was called upon to render accounts for the period during which he was the delegated president.

6. This claim was contested on several objections, the chief of them relating to the form of the suit. It was also pleaded in the written statement that no liability to render an account attached to the defendants, as the accounts were looked into by all the members of the society except the secretary and were passed as being correct and in order.

7. The trial Court, on these pleadings, struck as many as sixteen issues, though there were in main only two questions arising for consideration. The same idea was repeated in a number of issues in different words, the principal issues in the suit being:

(i) Whether it was competent for Adusumilli Aswadhanarayana styling himself as the Secretary to file a suit for and on behalf of the Society? And

(ii) Whether the defendants were liable to account to the plaintiff?'

8. As the defence did not find favour with the trial Court, both the issues were answered against the defendants. In the result, the suit was decreed with costs as prayed for.

9. The aggrieved defendants carried an appeal to this Court in S. A. No. 476 of 1956. The same points on the basis of which the suit was resisted were repeated before our learned brother. The learned Judge agreed with the conclusions of the Subordinate Judge with the result that he dismissed the appeal as against defendants 1 to 3. The fourth defendant was exonerated for reasons which need not be set out here.

10. Having been unsuccessful in obtaining any relief in A. S. No. 476 of 1956, defendants 1 to 3 have preferred this appeal. Here again, it is urged that the Secretary of Sri Edupuganti Raghavendra Rao Memorial High School Committee had no locus standi to bring the suit and, therefore, the suit ought to have been dismissed in limine. Some other arguments also were advanced before us, but we refrain from referring to them as we feel it unnecessary having regard to the course we propose to adopt.

11. Before we proceed to deal with the nature and scope of the action in question, it is as well we recapitulate the principles that govern actions of this kind. It is a generally accepted notion that if a cause of action belongs to a company, it is only the company that could agitate the right alleged to have been invaded. If the plaint is founded on an alleged wrong done to the company, the company which is a legal entity is entitled to sue at law and only a person authorised to initiate proceedings on its behalf could institutethe suit. The rights of a company even against a member could be enforced only through the medium of the company.

12. This is the rule stated in the off-quoted case, Foss v. Harbottle, (1843) 67 ER 189. There, two share-holders took proceedings on behalf of themselves and other share-holders against the directors to compel them to make good the loss sustained by the company by reason of alleged fraudulent acts of the directors. It was contended on behalf of the defendants that the suit complaining of injuries to the corporation was wholly informal in having only some of its individual members and not the corporation itself before the Court, that this defect could not be cured by adding the corporation as party-defendant, that the plaintiffs were not entitled to represent the corporate body even as distinguished from the defendants and for the purpose of impeaching the transactions complained of and that the plaintiffs' bill could not, therefore, be sustained. Accepting the demurrers, the suit was dismissed. It was stated that for the alleged breach of duty owed to the company, action must be brought by the company, as, otherwise, the Court might be acting vainly, for the breach could be ratified by the company in general meeting. It was further observed that as the company was an incorporated body and the conduct with which the defendants were charged was an injury not to the plaintiffs exclusively but was an injury not to the whole corporation by individuals whom the corporation entrusted with powers to be exercised only for the good of the corporation, a bill or information by a corporation would lie to be relieved in respect of the injuries which the corporation had suffered at the hands of persons standing in the situation of the directors on record at the instance of the directors.

13. This ruling also lays down a doctrine relating to the supremacy of the majority. The Rule in (1843) 67 ER 189 is subject to considerable qualifications. It does not apply to individual member's rights but only to corporate memberships. One of the exceptions to this rule recognised in (1843) 67 ER 189 is that even though the wrong done was to the company, if the majority refused to take any action to rectify it, any shareholder, for the benefit of the company, could initiate proceedings but it should be on behalf of himself and other aggrieved members, if any. unpleading the company or the president of the society and other members who refused to join the plaintiff as defendant.

14. This principle was re-stated in Beattie v. Beattie Ltd., (1938) I Ch 708. This is what Sir Wilfrid Greene M. R. stated discussing this principle:

'The claim which the plaintiff is seeking to enforce in the action -- I am now only dealing with the new matter which it is sought to introduce -- is, and must be, in a representative action of this character, a claim of the company itself, because a minority share-holder suing in a representative action is suing to enforce rights of the company.'

15. This is also the principle enunciated bythe Supreme Court in Chiranjit Lal Chowdhuri v. The Union of India, : [1950]1SCR869 . It was stated by Fazl Ali, J., that the company and the share-holders were, in law, separate entities and that if the allegation was made that any property belonging to the company had been taken possession of without compensation or the right enjoyed by the company under Article 19(1)(f) had been infringed, it would be for the company to come forward to assert or vindicate its own rights and cot for any individual share-holder to do so. To a like effect was the law stated by Mukherjea, J., in the same case. 1 is unnecessary to multiply citations. Suffice it to say, that in regard to an injury done to a corporate body, a suit could be brought only as representing the society and not by an individual member in his individual capacity. But proceedings could be instituted for the vindication or establishment of the rights of an individual, in which case, the company or the president and members and other share-holders or directors who declined to join in the suit should be impleaded as parties thereto.

16. It is now well settled that the position of the members of a registered society is similar to that of share-holders of a company and in regard to the wrong complained of, in respect of the society redress could be sought only on behalf of the society. This proposition is established by Krishnan v. Sundaram, ILR (1941) Bom 497 : (AIR 1941 Bom 312).

17. Bearing these principles in mind, we shall now consider whether the suit out of which this appeal has arisen satisfies the test propounded above. At this stage, it is useful to reproduce the relevant provisions of the Societies Registration Act (XXI of 1860). Section 6 recites:

'Every society registered under this Act may sue or be sued in the name of the president, chairman, or principal secretary, or trustees, as shall be determined by the rules and regulations of the society, and, in default of such determination, in the name of such person as shall be appointed by the governing body for the occasion:

Provided that it shall be competent for any person having a claim or demand against the society, to sue the president or chairman, or principal secretary or the trustees thereof, if on application to the governing body some other officer or person be not nominated to be the defendant.' Section 10, in so far as it is relevant for the present enquiry, runs as follows: 'Any member who may be in arrear of a subscription which, according to the rules of the society he is bound to pay, or who shall possess himself of or detain any property of the society in a manner or for a time contrary to such rules, or shall injure or destroy any property of the society, may be sued for such arrear or for the damage accruing from such detention, injury or destruction of property in the manner hereinbefore provided.'

17a. The society in question has framed Articles of Association as contemplated by Section 6. We are only concerned in this context with Article 20, which provides that the Committee shallsue and be sued in the name of the President. in the light of the statutory provisions and the Articles of Association, is it competent for the Secretary or the member to start proceedings in the name of the Secretary or member? Indisputably, the Articles of Association constitute a contract by each member of the company and regulate the rights and obligations of the members as amongst themselves and as between the members and the company. No member has, as between himself and another member, any right beyond that which the company gives.

17b. This is the proposition enunciated in Welton v. Saffery, 1897 AC 299 at P. 315. We may here extract the observations of Lord Herschell occurring at page 315 of the report.

'Section 16 of the Act of 1862 provides that the articles of association, when registered, shall bind the company and the members thereof to the same extent as if each member had signed his name and affixed his seal thereto, and there worn in such articles contained a covenant on the part of himself, his heirs, executors, and administrators to conform to all the regulations contained in such articles, subject to the provisions of this Act. The article thus become in effect a contract under seal by each member of the company, and regulate his rights.'

17c. This is also the dictum laid down by the Supreme Court in Harinagar Sugar Mills v. Shyam Sunder, : [1962]2SCR339 . It is thus manifest that if there is an article providing for the mode in which a suit has to be brought on behalf of the Company, that should be conformed to, and it is not open to a member to vary the procedure indicated therein unilaterly. Sri Suryanarayana sought to get over this difficulty by contending that Sections 6 and 20 envisage suits by or against strangers and they would not come into operation in regard to suits to be filed by the company against the member of the society or the company. The answer to this is furnished by Section 10 of the Societies Registration Act itself which contemplates a suit being instituted by the society against a member in regard to arrears of subscription which the member is bound to pay or in regard to detention of any property consequent upon which damage would accrue to the society. This need not detain us any longer, as, in our opinion, this contention does not merit serious consideration. It follows that it was not open to a member of the society to lay this action as representing the society. It is only an accredited representative of the society that could bring an action in its name. If that were so, the suit as framed is not a tenable one.

18. Sri Suryanarayana, learned counsel for the respondents, next invites us to treat this a suit brought by an individual member of the society to secure a redressal of the wrong done to him and as such it falls within the ambit of one of the exceptions recognised by (1843) 67 ER 189. Is there any foundation for this submission? At the outset, it should be mentioned that the cause-title of the suit itself is 'Sri Edupuganti Raghavendra Rao Memorial High School Committee represented by its Secretary Adusumalli Aswadhanarayan Chowdary and member Sri Edupuganti Raghavendra Rao Memorial High School Committee'. Again, it is the society's address that is given as the address of the plaintiff. The averments in paragraph 3 of the plaint have the same effect. It commences with the recital. 'The plaintiff is a registered society, holding property and assets'. It is added that it was registered in the year 1945 under the Societies Registration Act XXI of 1860. Moreover, in paragraph 12, it is averred: -

'The suit is brought by the society through its secretary and member Sri Edupuganti Raghavendra Memorial High School Committee, amended as per order dated 6-7-1956 in I. A. No. 522/ 56.'

19. We searched in vain for an indication in the plaint that it was a suit for vindication of the rights of an individual member. The plaint does not show what the personal right of Adusumilli Aswadhanarayana. is vis-a-vis the company or the president or the members and in what way such right was invaded. Sri Suryanarayna is not able to point out any recitals in the plaint which would denote the rights of his client or the infraction of such rights. In the face of the allegations in the plaint and the reliefs asked for therein, it is difficult To postulate that the object of the suit was to assert certain rights of the individual member and to get redress of any wrong or injury done to him in his individual capacity. Our learned brother has not viewed this problem from that angle. The learned Judge has approached this question from the stand-point of the bar created by Section 92 Civil Procedure Code. He stated that suits for establishment of rights of one trustee as against another would not fall within the ambit of Section 92 Civil Procedure Code, but he had not considered tbe point whether the instant case was for the vindication of any right alleged to have been infringed by one or other trustees of the institution.

20. We have, therefore, no option in this case except to dismiss the suit as being not maintainable.

21. In the view we have taken of the matter, we are not called upon to decide whether the act of the majority of the members in approving of the accounts relates to the internal management of the institution or it is ultra vires their power and as such it could be questioned by individual members. The dismissal of this suit would not stand in the way of the present secretary of the society or a member of the public pursuing such other remedy as may be available to him.

22. In the result, the appeal is allowed. The appellant will get his costs of this appeal. In the trial Court and before our learned brother, parties will bear their own costs.


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