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Church of South India and ors. Vs. Madras Christian College - Court Judgment

LegalCrystal Citation
CourtCompany Law Board CLB
Decided On
AppellantChurch of South India and ors.
RespondentMadras Christian College
Excerpt:
.....does not appear to be sound. the plea of the petitioners that the first respondent company is a church college and that the management should be vested with the first petitioner and its nominees and not by individual members cannot now be considered, especially, when the amended articles have been acted upon by the members of the company. however, whatever might be the contentions of the respondents relating to the first petitioner having been associated with the company, the fact remains that the first petitioner and other churches have been managing the affairs of the company at least from 1947 upto 1981 when the impugned amended articles came into being. from a reading of the petition and the arguments of the counsel for the petitioners, it appears that the provocation for filing.....
Judgment:
1. The petitioners constituting more than one-tenth of the total members of the Madras Christian College Association ('the company') have filed this petition under Section 397/398 of the Companies Act, 1956 ('the Act') alleging various acts of oppression and mismanagement in the affairs of the company and seeking the following reliefs: (a) to delete Articles II and IV of the articles of association of the company by restoring Articles IV, VII and XXI of association of the year 1964, and (b) to remove respondents 2 to 18 from membership of the company by deleting their names from the register of members of the company.

2. The alleged acts of oppression and mismanagement relate to the following: (i) Illegal deletion of Articles IV, VII and XXI of the articles of association of the company as existed in the year 1964.

(ii) Acts of the second respondent in respect of the management and affairs of the company in manner prejudicial to the interest of the company and against public interest.

3. Shri C. Harikrishnan, Senior Advocate, appearing for the petitioners, while initiating his arguments, submitted that the company was incorporated as a private company in the year 1887 with the non-profiting object to carry on at madras and elsewhere schools or colleges imparting Christian and general education of the highest order. The company, limited by guarantee, has obtained a licence under Section 25 of the Act. The company has been running an educational institution, namely, Madras Christian College, and owns vast extent of both movable and immovable properties worth about Rs. 100 crores. The college and its connected institutions were originally managed and controlled by the Free Church of Scotland and other religious bodies called contributing bodies. The Church of Scotland was the governing authority of the college for the period between 1837 and 1877. Between 1877 and 1911, the college was managed by the Foreign Mission Committee of the Free Church of Scotland. During the period between 1911 and 1947, the college was administered by governing Board consisting of representatives appointed by the contributing missionary societies. In the year 1947, the management of the college was transferred from United Kingdom to Madras. The various missionary bodies had approved establishing an association in India consisting of only nominees of churches in India and of the contributing missionary societies abroad.

The constitution of the college was amended in the year 1947 providing for three categories of membership in the college, namely, church nominees, nominees of the corresponding Board in UK and ex-officio members, viz., Principal and Bursar with no voting powers. By virtue of 1947 amendment, the first petitioner was incorporated by uniting the churches mentioned supra. Later, the amended article of 1959 provided that the company was to consist of six nominees of the first petitioner. By virtue of the 1964 amendment, only nominees of the first petitioner and missionary bodies should manage the college. Thus, prior to 1981, in its history of 144 years since 1837, the college was always managed either by the founding church or nominees of missionary societies and churches. Between 1947 and 1981, the college was managed by the nominees of the first petitioner and the corresponding Board.

The membership of the company always vested with the religious bodies.

No individual member could become a member without being nominated either by the Free Church of Scotland or the other religious bodies.

The articles of association was again amended in the year 1981 at the instance of the Department of Company Affairs to bring it in line with the provisions of the Act. Accordingly, the amended articles relating to membership provided the following: (i) The present members of the association shall be the members of the association for the time being.

(ii) Every person who agrees in writing to become member of the company and whose name is entered in the register of members shall be member of the company.

(iii) The Principal and Bursar of the college and the Headmaster of the School shall be invited to attend all meetings of the association and participate in its deliberation, without the right to vote.

These amendments were without the knowledge of the first petitioner and the original contributors. However, the aforesaid amendment did not alter the position of the first petitioner, as the first petitioner was continuing to nominate and withdraw its nominees. Before the 1981 amendment, the first petitioner's nominee could chair the annual general meeting or extraordinary general meeting. After the said amendment, private members other than those nominated by any organisation were allowed to become Chairpersons. No nominee of the first petitioner was ever elevated to the Board. By virtue of the amended articles, the private members are virtually the life members, which is not in consonance with the founding philosophy that only representatives of the first petitioner or similar bodies could form the company. As per the amended articles, new members could only be admitted by the general body of members of the company. But, in practice, the Board of directors admitted the new members. The Board of directors was not in existence till the year 1981. Pursuant to the amended articles of 1990, all the existing members automatically became members and whosoever desired to become a member by giving written consent became members. The petitioners have alleged the following acts of oppression in the affairs of the company: (i) Improper appointment of Chairpersons and lack of transparency in the matter of administration of the college.

(ii) Alleged misdeeds of the Chairpersons resulting in disputes between the company and teaching faculty.

(iii) Financial indiscipline an maladministration in the affairs of the company.

(iv) Exclusion of the first petitioner and its nominees in the management of the college and gaining control of the affairs of the company by a few private individuals.

(v) Unlawful gain by sharing the income out of diploma course in management introduced by the second respondent.

(vi) Alleged losses by conducting self-financing and diploma courses and adopting mal-practices in the examinations.

(vii) Inclusion of six members into the company in order to increase the number in favour of the second respondent and against the nominees of the first petitioner.

(viii) Continuance of the second respondent as the Chairman without re-election.

(ix) Improper appointment of professors without considering merits of the candidates.

(x) Several acts of mismanagement during the tenure of second respondent as the Principal Selection Committee in the year 1994.

(xii) Closure of a school at Tambaram in order to run a restaurant therein.

(xiii) Wasteful expenditure in litigations and other activities of the company.

(xiv) Mismanagement and closure of a model farm used for horticulture and rearing animals.

(xv) Closure of a clinic called Pammal Leprosy Clinic and a Family Life Institute at Mappedu.

(xvii) Non-refund of hostel and college deposits and misappropriation of such monies.

(xviii) Construction of a number of hostels, quarters, buildings without prior approval of the competent authority.

(xix) Permitting operation of bank branch within the campus of the college without proper approval of the competent authority.

(xx) Ill-treatment of teachers and non-payment of retirement dues to retired teachers.

According to the petitioners, the present state of affairs prevailing in the college are on account of the private individuals becoming members of the company under the guise of the amended articles. At present, the respondents having no personal stake in the college have excluded the petitioners from the management of the college. The petitioners have approached the Company Law Board in order to restore the old system of the church conducting the affairs of the college in the interest of the students, professors and in public interest. Though the first respondent is a company, it being religious body with no profit motive, principles of trust should be made applicable. Members of the first respondent company became the trustees, whose action is questionable by the beneficiaries invoking the provisions of Section 92 of the Civil Procedure Code. The beneficiaries are entitled to institute a suit for proper administration of the college and other reliefs and, in this connection, Harikrishnan relied on Gamathi Nayangam Pillai v. Manthiramurthi High School Committee (1963) 33 Comp Cas 346 (Mad). Under Section 402 of the Act, the Company Law Board has wider powers than the civil court. Shri Harikrishnan further pointed out that this Bench will have to see whether the amendment to the articles in the year 1991 is in the interest of the company. As has been held in the case of Needle Industries (India) v. Needle Industries Newey (India) Holding Ltd. (1982) 1 Comp LJ 1 (SC), even if the act of members is legal, it should not be oppressive in nature. According to the petitioners, the amendment of the articles eliminating the first petitioner from the management of the affairs of the company, though legal, is oppressive in nature. The company being a Section 25 company incorporated not with the object of making profit and all along controlled by the church cannot be left in the individual's hands. This can be remedied by deletion of the amended articles introduced in 1981.

The respondents have now sought to amend the articles so as to impose contribution of Rs. 20,000 for becoming members of the company [which] is not in the interest of the company. Though this resolution for amending the articles was not passed, the petitioners apprehend that it will be implemented in view of the majority of the members on the side of the respondents group. This attempt of the respondents is to oust the petitioners from the management of the day-to-day affairs of the company. Shri Harikrishnan has, therefore, sought for the reliefs made in the petition.

4. Shri K. Ramachandran, senior counsel appearing for the respondents 1, 2 and 6, raised a preliminary objection on the ground that the petitioners have no locus standi to maintain the petition, as they are not members of the company. The first petitioner is an unregistered religious association of persons without any statutory personality. The first petitioner neither constitutes a firm within the meaning of the Indian Partnership Act. The first petitioner being an unregistered and uncertain floating body of individuals cannot constitute a legal person. The first petitioner cannot, therefore, be admitted and had not been admitted as a member of the company and cannot join the petition.

The first petitioner has not invested in the company and has no stake.

The petitioner 2 to 5 have filed the petition not as members of the company, but are claiming for the first petitioner. According to the petitioners, the articles of association does not envisage that memebership to the company was vested with the religious bodies. The membership was not related to the religious bodies. The college was never totally related and connected with any church. The membership was never confined to churches or their nominees. He referred to a letter dated 13.3.1992 of Church of Scotland to show that the college was not handed over to the first petitioner at the time of union in 1947 in view of the fact that the college was not seen as a church institution.

With regard to the amended articles, Shri Ramachandran submitted that the article on membership was duly amended with the approval of the Regional Director, Company Law Board, at the annual general meeting held on 26.9.1981. The amendment became necessary to bring the articles in conformity with the provisions of the Act. Bishop Sunder Clarke, one of the six nominee members of the first petitioner, presided over the meeting on 26.9.1981 and the sixth petitioner participated in the annual general meeting and consented to the amendment made to the articles. The petitioners 2 to 4 are important functionaries and employees of the first petitioner. They cannot plead ignorance of the amendment made in the annual general meeting on 26.9.81. The amendments made to the articles of association of the company in the year 1981 have been acted upon for more than 18 years since the date of carrying out the amendment. He further pointed out that the petitioners actively participated in all meetings relating to the amendment of articles. In the circumstances, the petitioners cannot plead ignorance of the resolution passed in the year 1981 amending the articles. Even after the amendment of articles, 1981, the first petitioner continues to nominate every two years six member. The admission of such members has been made in accordance with the procedure prescribed in the amended articles. The intention of the first petitioner is not only to cancel the 1981 amendment articles. The intention of the first petitioner is not only to cancel the 1981 amendment but also to exercise control of the management of the company in exclusion of other nominees of other churches. The respondents 2, 3, 5 to 7, 12 and 16 were legally admitted to membership of the company and elected by the company in general meeting in accordance with Section 255 of the Act. These respondents all distinguished Christian men of character and professional standing had agreed to be admitted as members and elected to serve as directors.

They have not derived any personal benefit by becoming members of the company. There is no bar to the election of any nominee of the first petitioner as director provided they possess the qualifications prescribed in the present article in force. With regard to the alleged acts of oppression, it was argued that the award given by Justice Senkottuvelavan is under dispute before the High Court. The teachers strike of 1991 was instigated and actively started by the first petitioner with the object of establishing the first petitioner's control over the company. The 1991 strike having failed, the first petitioner has been making false and irresponsible allegations of corruption and wrong doing against the present management. Shri Ramchandran has denied the other acts of oppression, namely, closure of the Oxfans School, alleged irregular expenditure, the loss sustained by the farm and MCA Department, misappropriation and loss of jeep, non-return of deposits, leakage of question papers and violation of the terms of assignment of Government land, etc. The petitioners cannot allege inefficiency and impropriety in the administration of the college. The company has observed proper procedure in appointment of the teaching staff as well as Principal and the charges are baseless.

The second respondent, a qualified professional, has rendered service to the college without any blemish. Shri Ramchandran further submitted that the petitioners have failed to implead the members who were party to the resolution passed in the year 1981 amending the articles of association. The member against whom the allegations of acts of oppression and mismanagement had been alleged is not made a party to the petitioner. The petition is bad for non-joinder of necessary parties. He relied upon the Needle Industries to show that if the action of the respondents is int he interest of the company, such an act can be upheld by the courts. Shri Ramchandran further pointed out that the various acts of oppression and mismanagement do not amount to oppression of the petitioners at all. The various alleged irregularities are the acts in the normal course of the college resulting perhaps, in loss, but do not entitle the petitioners to seek relief under Sections 397/398.

5. We have considered the pleadings and arguments of senior counsel for the petitioners as well as respondents. We shall first deal with the objections raised by the learned counsel for the respondents about the maintainability of the petition. Even though the first petitioner is not a member of the company, the petitioners 2 to 7 are admittedly members representing the first petitioner. Therefore, the petitioners 2 to 7 have a locus standi to file this petition. The main claim of the petitioners is that the amendment of Articles III and IV of the articles of association of the company made in the year 1981 is oppressive in nature so as to exclude the first petitioner in the day-to-day affairs and management of the company. The contention of the respondents is that the articles of association of the company relating to membership was duly amended at the annual general meeting held on 26.9.1981 and that the amendments are in the interest of the company.

It is observed that the company was incorporated as an association not for profit in the year 1987 with the main object of establishing and carrying on at Madras and elsewhere, schools or colleges to impart a sound liberal Christian and general education. The company was initially under the control and management of the General Assembly of the Free Church of Scotland and other religious bodies. The Church of Scotland was entitled to nominate members and liberty was given to other religious bodies to nominate to her members. Accordingly, the articles of association of the company provided for the power of nomination by the religious bodies. The report of the Regional Director dated 12.9.2000 shows that the company had amended its articles from time to time at the meetings held on 27.10.1903, 11.4.1991, 26.041911, 28.101930, 12.3.1947, 28.10.1957, 22.11.1957, 18.09.1959, 23.9.1963, 25.04.1964 and 24.09.1966. The articles of 1911 provided for administration of the company by (a) Governing body, (b) College Council and (c) Senatus. In the year 1911, the established Church of Scotland merged its institution with the company. Even in the year 1947, the membership of the company consisted of persons nominated by the South Indian United Church/the first petitioner and other churches.

After passing of the Act, the articles provided for a membership consisting of six persons nominated by the first petitioner. The article were amended at the annual general meeting held on 26.9.1981.

The need for the amendment was discussed at council meetings and general meeting of the company on various occasions, the fact of which has not been denied by the petitioners. The amendment articles provided that the present members of the company shall be the members of the company for the time-being. Every person who agrees in writing to become member of the company and whose name is entered in its register of members shall be the members of the company. At the annual general meeting held on 26.9.1981, Bishop Sundar Clarke, one of the nominee members of the first petitioner presided over the meeting and the sixth petitioner participated in the meeting and consented to the amendments made at the annual general meeting held on 26.9.1981. The amendments made in the year 1981 were implemented and acted upon all these years.

However, the petitioners have chosen to challenge the amendments to the articles after a period of 18 years on the ground that the respondents had excluded the first petitioner from day-to-day affairs and management of the company. Admittedly, the resolution amending the articles was passed by among others the representatives of the first petitioner. There has been no complaint over the amended articles for a long period and the first petitioner continued to nominate six persons from time to time. The contention of the petitioners at this stage that the amendments were made with the intention to exclude the first petitioner from the management of the company does not appear to be sound. The plea of the petitioners that the first respondent company is a church college and that the management should be vested with the first petitioner and its nominees and not by individual members cannot now be considered, especially, when the amended articles have been acted upon by the members of the company. However, whatever might be the contentions of the respondents relating to the first petitioner having been associated with the company, the fact remains that the first petitioner and other churches have been managing the affairs of the company at least from 1947 upto 1981 when the impugned amended articles came into being. From a reading of the petition and the arguments of the counsel for the petitioners, it appears that the provocation for filing the petition is the proposal of the company to amend the articles in 1998, wherein it was proposed that any Christian church or other Christian body in india or abroad shall be entitled to nominate one person for admission as a member to the company on such body paying a sum of Rs. 20,000 per annum and the membership would be valid for two years. This is evident from the fact that till this petition was filed in 1999, the petitioner did not choose to challenge the alterations made in the articles in 1981. Therefore, considering the historical background of the company and the fact that even after the amendment was carried out in 1981, the first petitioner continued to have six of its nominees as members of the company, this act of imposing financial obligation on churches alone and not on other members is definitely discriminate. Therefore, even though the company did not pass this resolution, we consider that the most appropriate and equitable relief that we could grant in this petition is that the first petitioner will continue to have six nominees as members of this company as hereto-before and no amendment to the articles depriving the first petitioner of this right and putting any other obligation, financial or otherwise, for continuing to have six members shall be carried out by the company. Articles containing any such provision shall also not be approved by the Central Government. Even though there are other allegations relating to mismanagement, we do not find much substance in these allegations for want of particulars and as such, we are not considering these allegations. The petition is accordingly disposed of with the above directions.


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