1. This is a petition against oppression and mismanagement under Sections 397 and 398 of the Companies Act, 1956. The four petitioners are members of the City Hospital Private Ltd. incorporated in 1971. The first respondent is the company and respondents Nos. 2 to 7 are some of the directors including the chairman and the managing director. The authorised capital was originally Rs. 5 lakhs. It was raised to Rs. 10 lakhs (1,000 equity shares of Rs. 1,000 each) in March, 1976. A decision was taken in 1977 to issue some preference shares also. Paid-up capital is now Rs. 10,28,000. The petitioners hold 166 fully paid-up equity shares. The eighth respondent was impleaded subsequently in Application No. 482 of 1981. The Central Govt. has not made any representations in pursuance of notice under Section 400.
2. The company was formed with the object of establishing hospitals and clinics. The City Hospital at Ernakulam belongs to it. Dr. V.K. Thomas, Dr. T.M. Paul, Dr. Roselin Sebastian and managing director, Mr. Albert, were associated with the company from the very beginning. Dr. Paul left for the U.S.A. in 1980 ; and shorn of details, this petition is the result of a fight between two groups for control over the company. The first petitioner is the husband of Dr. Roselin Sebastian. The second petitioner is a brother of Dr. Paul. The third petitioner is his brother-in-law and the fourth his wife. The rival group, which now controls a majority in the board of directors, is led by Dr. V.K. Thomas, the chairman, and Sri Albert.
3. The allegations in the petition are briefly the following ;
(i) After the departure of Dr. Paul to the U.S.A. in July, 1980, the chairman and the managing director began to misappropriate and misapply the funds of the company in collusion with some of the other directors. One method adopted was to debit substantial amounts as salary paid to near relatives of the chairman and the managing director for supervisory work said to have been done in the hospital, while as a matter of fact, they had done no such work ;
(ii) A fictitious entry showing payment of Rs. 29,758.42 as advance to Dr. Paul was made in the books, without making any actual payment ;
(iii) Director, M.V. Poulose, who was a secretary of the company from its inception, was removed from office on August 1, 1980 ;
(iv) Cement allotted for the construction of the third floor of the hospital was misappropriated by the chairman ;
(v) In February, 1980, the board managed to enlist the services of an E.N.T. specialist, Dr. Susheel Cleitus. But before he could take charge. the managing director cancelled the appointment with the support of the seventh respondent, co-opted as director ;
(vi) On March 7, 1981, petitioners Nos. 1 to 3 issued notices of their intention to move resolutions at the annual general body meeting notified for March 28, 1981, for the removal of respondents Nos. 2 to 7 from office ; but the managing director and the chairman did not convene a meeting of the board to consider the notices. They did not also give notice of the resolution to the members of the company as required by Section 190. On the other hand, they informed petitioners Nos. 1 to 3 that they had no right to move such resolutions;
(vii) Notice for the annual general body meeting of March 28, 1981, was issued on February 25, 1981. Immediately thereafter, the controlling group persuaded the additional eighth respondent to file a civil suit (O.S. No. 179 of 1981) for an injunction restraining holders of shares Nos. 501 to 1,000 from exercising their voting rights at the annual meeting. The managing director did not convene any board meeting for considering this development. He did not file objections to the petition for interim injunction. He was colluding with the plaintiff. Hence, two other shareholders had to intervene and get the interim injunction vacated ;
(viii) Further, on receipt of the notices issued on March 7, 1981, respondents Nos. 2 to 7 filed O.S. No. 242 of 1981 for injunction to restrain the petitioners from moving the proposed resolution at the annual meeting. The company was the fourth defendant in the suit, but no appearance on its behalf was made ;
(ix) At the annual meeting held on March 28, 1981, objection was raised to the second respondent's presiding over the meeting, as one of the matters to be considered was a motion of no confidence against him. But the chairman ruled out the objection. A poll was demanded but that also was rejected ;
(x) Another objection taken at the meeting regarding the adoption of the balance-sheet and profit and loss account was also similarly overruled and a demand for poll was also rejected ; and
(xi) The chairman also refused permission for moving the resolutions regarding want of confidence in respondents Nos. 2 to 7.
4. All the respondents have filed counter-affidavits. Respondents Nos. 1 to 7 not only deny the allegations regarding the misappropriation, falsification of accounts and the like, but allege that it was Dr. Paul, as superintendent of the hospital till 1980, who was misappropriating the company's funds and falsifying its records. The circumstances relating to the removal of M.V. Poulose, the cancellation of the appointment of Dr. Susheel Cleitus, diversion of the cement quota/etc., are all explained in detail. As for the notices issued by petitioners Nos. 1 to 3 on March 7, 1981, the stand is that they were not in accordance with law. The demand for poll was rejected because there was no provision for taking poll. A suggestion has also been made that the allotment of equity shares Nos. 501 to 1,000, after raising the capital to Rs. 10 lakhs in 1976 was irregular. The eighth respondent's counter-affidavit is mainly devoted to this question. According to him, the additional 500 shares were cornered by Dr. Paul and his group in an illegitimate manner. Allotments were made against the provisions of the articles of association and without the knowledge of the general body. Shares were not offered to the existing members but were given to close relatives of Dr. Paul and his group, on the basis of lists prepared by the then secretary, M.V. Poulose. There were no board resolutions ' allotting the shares to persons '.
5. The first petitioner has been examined as P.W. 1, and the sixth respondent as R.W. 1. Documentary evidence consists of Exs. A-1 to A-5 on the one hand, and Exs. B-1 to B-24 on the other. Mr. Meenattoor, for the petitioners, submitted at the hearing that reliefs are claimed not so much on grounds of oppression under Section 397, but mainly on the basis of Section 398. It is, therefore, unnecessary to examine the question whether the company is liable to be wound up under the just and equitable clause. Oppression is also out of the picture ; but as some of the allegations pertain both to oppression and mismanagement, I shall briefly deal with them in so far as they appear to be relevant for the purpose of Section 398.
6. Section 398(1)(a) enables the members of a company to complain that the affairs of the company are being conducted in a manner--
(i) prejudicial to the public interest ; or
(ii) prejudicial to the interests of the company.
7. Referring to the marginal note and relying on the observations of the Supreme Court in Shanti Prasad Jain v. Kalinga Tubes Ltd.  35 Comp Cas 351, the respondents contend that Section 398 comes into play only when there is actual mismanagement and that 'mismanagement', in the context, must mean maladministration of the day to day affairs of the company. The marginal note cannot control the plain language of the section ; and the Supreme Court has also not said so. Conducting the affairs of a company in a manner prejudicial to its interests or to public interest attracts Section 398, and the marginal note only compendiously describes such a state of affairs as mismanagement. The business of a company may be running smoothly in a commercial sense and there may be nothing wrong with the day to day management of its affairs in a business sense ; but still there may be cases which attract Section 398 because ' the affairs of the company ' and the manner in which they are conducted need not necessarily be confined to its day to day business management.
8. Turning to the specific complaints, the first relates to diversion or misappropriation of the company's funds by the chairman and the managing director by the method of debiting substantial amounts in the names of their relatives as salary for supervision. Exhibit B-9 shows that attempts to divert profits in such a manner had started from May, 1979, and that persons belonging to the petitioners' group were also beneficiaries. R.W. 1 would, say that Ex. B-9 was prepared by M.V. Poulose and Dr. T.M. Paul and that the first page of Ex. B-9 is in the handwriting of Poulose and the second in the handwriting of Dr. Paul. At any rate, it is undisputed that members belonging to the petitioners' group had also siphoned off substantial amounts like those in the opposite group under the same scheme, and that the scheme itself was hatched when the two groups were sailing together and long before July, 1980. The mismanagement complained of under this head was a joint venture of the two groups and not a monopoly of the group now in control. The remedy under Sections 397 and 398 is equitable and the petitioners' hands are not clean. The practice has also since been given up and the state of affairs is not continuing.
9. The entry relating to advance payment of Rs. 29,758.42 to Dr. Paul does not also appear to be entirely fictitious. According to the respondents, Dr. Paul was drawing amounts from the hospital's counter for various purposes, real and fanciful, and had failed to render satisfactory accounts and they were, therefore, treated as an advance. This case of the respondents is supported by Exs. B-10 to B-17 and the evidence of R.W. 1. Dr. Paul or his wife (the fourth petitioner) has not come forward to deny those allegations. I am not holding that the above amount of Rs. 29,000 odd is actually due to the company from Dr. Paul ; I am only holding that the relevant entries in the books and balance-sheet are not entirely fictitious. Possibly, the petitioners are attempting to take advantage of the auditor's remark that the entry is not supported by vouchers or receipts signed by Dr. Paul. The second head of complaint should also, therefore, fail.
10. As regards the removal of M.V. Poulose from the office of secretary of the company, the petitioners' case was that he was removed because he was not towing the line of the controlling group. The case of the other side is that Poulose was not giving effect to the decisions of the board and was also responsible for unnecessary appointments and falsification of vouchers and disbursements. The mere removal of a person from the office of secretary by a majority decision of the board of directors. without anything more, cannot attract Section 398 of the Act. The same should be said about the cancellation of the appointment of Dr. Susheel Cleitus. It is not shown that the cancellation has prejudicially affected the interests of the company or the public interest.
11. The allegation regarding misappropriation of cement by the second respondent also remains unproved. According to the respondents, there was delay in getting cement for the hospital, and the second respondent, who was constructing a building for himself, came forward to lend 100 bags. This was returned when the hospital got its allotment. The answers given by P.W. 1 during the course of cross-examination indicate that he had no definite personal information about the matter.
12. All the other complaints can be dealt with together, as they are connected with the annual general body meeting held on March 28, 1981. Complaint No. (vi) is about the refusal of the company to circulate the no confidence motions tendered by petitioners Nos. 1 to 3 and the answer furnished is that their sponsors had not the requisite voting strength prescribed by Section 188 read with Regulation 25 of the articles of association of the company. Items (vii) and (viii) are connected with the two civil suits challenging the allotment of shares Nos. 501 to 1,000, and items (ix) to (xi) deal with the refusal of the chairman to allow poll at the meeting. The crux of the matter seems to be that the petitioners' group had obtained control over a sizeable section of the shares, after the allotment above referred to. R.W. 1, the managing director, was quite candid when he said :
' 70% of the additional shares issued on March 28, 1979, were in favour of Dr. Paul and his friends and relatives. The other shares were issued to the relatives of other directors, i.e., to director Joshua, my late brother, Lazar Godfrey, who is a co-brother of Dr. Paul, to my nephew, Dr. Joseph Rajendren. But he has not fully paid when call was made. If the allotment of shares in 1979 is valid, the petitioners' group will get a majority in the company.'
13. When the annual general meeting was fixed for March 28, 1979, therefore, the petitioners' group fired the first shot on March 7, 1981, by giving notices of their intention to move no confidence resolutions against respondents Nos. 2 to 7 and despite all protestations of neutrality by the eighth respondent, the attempt behind O.S. No. 179 of 1981 filed by him, as disclosed by Exs. B-18 and A-5, was to prevent the petitioners from asserting their majority. O.S. No. 242 of 1981 was another attempt by the respondents to prevent the moving of the no confidence resolutions. And finally, when poll was demanded on March 28, 1981, the second respondent again relied on Regulation 25 of the articles of association to reject the demand. Two questions arise in this context :
' (i) whether the allotment of equity shares Nos. 501 to 1,000 made in pursuance of the 1976 decision to enhance capital, was valid and
(ii) whether the members of the company had a right to demand poll at the general meeting '
14. A definite pronouncement on the first question may not be within the scope of the present proceedings. That question is also engaging the attention of the learned Munsiff in O.S. No. 179 of 1981. Even so, I shall examine it to see whether there is material on record to establish the respondents' case, at leastprima facie. There is a faint suggestion that the decision to enhance the capital was itself part of a scheme hatched by the petitioners to get control over the company; but the records do not support it. The decision was taken unanimously at the extraordinary general meeting held on March 20, 1976, at the instance of the second respondent himself. Respondents Nos. 3, 6, 7 and 8, were present at the meeting, while the petitioners were not. Dr. Roseline Sebastian and Dr. Paul were also not present at the meeting. The minutes of the board and general body meetings indicate that the two groups were sailing together till at least March, 1980. What is now urged is that shares Nos. 501 to 1,000 were issued on the strength of lists placed before the board by the then secretary, and the minutes of the concerned board meetings do not even show who the applicants were or how many shares were there in each of the lists approved. But Exs. B-1 and B-7 show that shares Nos. 1 to 500 were also issued in the same fashion, with the result that if allotment of shared Nos. 501 to 1,000 was bad for the reason advanced, the same should be said about all the earlier allotments also. Nothing has been brought to my notice to suggest that the board was bound to notify all existing shareholders before the additional shares were allotted. Besides, many of the respondents and their supporters had also obtained allotments out of additional shares. Respondents Nos. 2 and 3 got 20 shares each and the fifth respondent got 45 shares, the sixth respondent's brother got 8 shares and the brother's son got 24 shares. Dr. Chacko George was allotted 50 shares and Dr. Varghese T. Varghese got 5 shares. R.W. 1 himself admitted 1
' At no time in its history had the board's resolutions regarding allotment of shares indicated the number of sharers involved or the total amount of allotment or the number of names of the allottees. All the share certificates were duly issued to the allottees. There was no complaint about those things. Myself as managing director and two other directors had signed the certificates. No director had ever objected to the above method of allotting and issuing shares.'
15. An attempt was made later in the cross-examination to limit the above remarks to allotment of shares Nos. 1 to 500, but it is seen that shares Nos. 501 to 1,000 were also allotted in the same manner. There was no complaint against these allotments also till O.S. No. 179 of 1981 was filed.
16. As to the next question relating to the demand for poll, the matter seems to be governed by Section 179 of the Companies Act read with Section 170(1). In the case of a private company which is not a subsidiary of public company, the members have a right to demand poll unless the articles of association provide otherwise. Section 90(2) only excludes the operation of Section 87 by its own force ; it does not affect the position emerging from Section 170 and Section 179 read along with the appropriate provisions of the articles of association. Section 28(2) read with regulation 56 of Table A in Schedule I, also reads to the same conclusion. The articles of the City Hospital are to be found in Ex. A-1, Regulations 2b to 24 deal with ' general meetings ' and Regulation 25 with ' votes of members '.
This regulation reads :
'25(a). On a show of hands every member present in person shall have one vote :
(b) On a poll, the voting rights of members shall be as laid down in Section 88 of the Companies Act, 1956.'
17. It is argued that Section 88 referred to in (b) above deals with something other than voting or polling and that, therefore, Section 170(1)(ii) is not attracted. I cannot agree. A reading of Regulations 20 to 25 suggests that the framers of the articles had no intention of excluding the right to demand poll governed by Section 179 ; on the other hand, they had definitely thought of providing for a poll, though while prescribing the voting rights in the event of a poll, Section 88 was referred to by mistake instead of Section 87. It might have been a drafting or printing mistake, but a mistake it was and that too unintentional. Regulation 25(b) provides for a poll in terms ; the mistake or confusion is only as regards how the votes are to be reckoned. Regulations 20 to 25 of Ex. A-1, correspond to Regulations 47 to 50 and 56 of Table A, and this is another indication that, the reference to Section 88 in Regulation 25(b) is a mistake for Section 87. It may probably be open for the respondents to contend that even if a poll were to be allowed at a general meeting, counting of votes as laid down in Section 87(1)(b) would have become impermissible in view of the mistake ; but on the question whether poll is totally excluded by reason of reign. 25 read with Section 170(1)(ii), the answer can only be in the negative. The provisions of Section 28(2) also lead to the same result. The circumstances that proxies were sent out for the annual general meeting and that O.S. No. 179 of 1981 was filed on its eve is also significant. The respondents knew that poll would be demanded at the meeting in the light of Regulation 25 and they were anxious to avoid such a course.
18. The resulting position is that, while the petitioners' group has sufficient voting strength to control the company, the respondents are continuing in office by taking advantage of the mistake noticed above. Does it, however, mean that the affairs of the company are being conducted in a manner prejudicial to the interests of the company or prejudicial to public interest, in order to attract Section 398 The section is comparatively new, and there is little case-law around it. But if there is any one principle which is well entrenched in the company law of England and India, it is the one recognised in Foss v. Harbottle  2 Hare 461, that the affairs of a company should ordinarily be allowed to be carried on in accordance with the wishes of the majority of its members. The members in general meeting are said to be the ' supreme governing body ' of a company and courts have been reluctant to interfere with their decisions, because the interests of the company are ordinarily best known to them. The legitimate manner of conducting the affairs of a company, including a private company whose articles conceive of a poll at general meetings, is to allow the supreme body to have its say and if a drafting or printing mistake stands in the way of this being done, that is something prejudicial to the interests of the company. A structural defect, placing the majority of investors at the mercy of a minority, and that too only by reason of an inadvertent mistake cannot be in the interests of any joint venture. The directors of a company owe some fiduciary duties to the company ; and the most effective method of enforcing these duties is to make them subordinate to the wishes of the majority at general meetings. The company has a legal personality of its own, and if any injury is done to it by the directors, the company alone can normally maintain an action. The recognised exceptions to the rule in Foss v. Harbottle  2 Hare 461, are only attempts to get over this difficulty by allowing members to initiate derivative actions, supposedly on behalf of the company itself. Dealing with intra-corporate duties, Gower's Principles of Modern Company Law, fourth edition, p. 641, says :
' Though incorporation solves many procedural problems, it does not wholly remove those which arise when there is a dispute within the company ; indeed, it may render them more intractable. If one partner is breaking the duties which he owes to his fellows, the latter can call him to account. When, however, the directors or controllers of an incorporated company are breaking their duties, the other members of the company normally have no locus standi. The duties are owed not to them but to the company itself ; and, therefore, it is the company itself which should sue. But, those against whom the action is to be brought may themselves be the appropriate organ for instigating proceedings in the company's name. Hence, some alternative means of enforcement have been made available in certain circumstances as a result of intervention both by the equity courts and the legislature.'
19. Sections 397 and 398 are instances of legislative intervention permitting members to initiate action for enforcing the fiduciary duties the directors owe to the company.
20. It is true that Sections 397 and 398 are intended primarily to protect the minority interests. In ordinary cases, the majority will be able to protect itself by controlling the directors at general body meetings. But, where the majority is prevented from doing so, despite the clear indication in the articles that majority rule based on the right to demand poll should operate as a correcting influence, the majority becomes an artificial minority entitled to claim protection under Sections 397 and 398. When the directors with the majority backing, oppress the minority and misconduct the affairs of a company, occasion arises for interference by the courts. But, when the directors, with only minority support, seek to stifle the majority by taking advantage of some defect or error, I think such a situation can also be remedied in a like manner. The Calcutta High Court has held in Sindhri Iron Foundry (P.) Ltd., In re  34 Comp Cas 510, that such a remedy is available to the majority when it is rendered ineffective by the wrongful acts of a minority. (The decision was confirmed in appeal--See Ramashankar Prosad v. Sindri Iron Foundry (P.) Ltd., AIR 1966 Cal 512). Even the worst form of majority rule has built-in-mechanism for correction, the absence of which is the basic flaw of every other form of rule, be it the most benign and enlightened. The court may not be justified in reading into the articles of a company its own philosophy; but it is bound to police their boundaries. Reading Regulation 25 of Ex. A-1, I feel no doubt that the founders of the company wanted majority rule to prevail ; and to the extent the printing or drafting mistake therein stands in the way, I should hold that the affairs of the company are being conducted in a manner prejudicial to its own interests.
21. The question then is whether the position can be corrected in the present proceedings. Section 398 empowers the court to make 'such orders as it thinks fit' with a view to bringing to an end the matter complained of. Under Section 402, the court can pass any order providing for ' the regulation of the conduct of the company's affairs in future '. The powers conferred are thus wide, and an amendment of Regulation 25(b) can be ordered. Counsel for the respondents rely on Scott v. Frank F. Scott (London) Ltd.  3 All ER 508 (CA), to contend that the court cannot rectify or amend the articles of association of a company. That was a case where the power to rectify a document as a measure of specific relief was attempted to be invoked, and the court held that the statutory provision for alteration ousted the ordinary jurisdiction of courts to rectify documents. Luxmoore L.J. said (p. 516) :
' It is quite true that, in the case of the rectification of a document, such as a deed inter paries, or a deed poll, the order for rectification does not order an alteration of the document, but merely directs that it be made to accord with the form in which it ought originally to have been executed. This cannot be the case with regard to the memorandum and articles of association of a company, for it is the document in its actual form which is delivered to the registrar and is retained and registered by him, and it is that form, and no other, which constitutes the charter of the company and becomes binding on it and its members. The legal entity only comes into existence as a corporate body distinct from the subscribers to the memorandum and articles registered upon registration. '
22. The decision is no authority for the proposition that reliefs, including alteration of the articles, cannot be granted in statutory proceedings of the present nature. That the articles of a company could be amended in proceedings under Sections 397 and 398, has been held by the Bombay High Court in Bennet Coleman & Co. v. Union of India  47 Comp Cas 92. Apart from the plenitude of power conferred by Sections 398 and 402, already noticed, Section 404 of the Act also recognises a power in the court to amend the articles in proceedings under Chapter VI.
23. The respondents apprehend that amending Regulation 25 and leaving the matter at that will only enable the petitioners' group to gain control over the company and resort to their own brands of oppression and mismanagement. Reliefs cannot be moulded in advance on the basis of mere apprehensions, till a change of management actually takes place, and the aggrieved parties move this court under Section 398(1)(b). There is no presumption that every majority in every company would oppress and mismanage ; and a mere attempt to get a majority, or to assert majority rights in accordance with law, will not attract Sections 397 and 398 (See Maharani Lalita Rajya Lakshmi v. Indian Motor Co. (Hazaribagh) Ltd.  32 Comp Cas 207 (Cal). The normal rule in proceedings under Chapter VI is that the state of affairs complained of should exist at the time the petition is presented ; and the apprehensions of the respondents, based on a possible change of management yet to take shape, cannot justify remedial action at this stage. The City Hospital is one of the leading medical institutions of Cochin, and its members are educated and enlightened people, including doctors, advocates and businessmen. There is no reason to think that their elected representatives, whoever they may be, would misconduct themselves and try to justify the divisive description that the board of directors of a company is 'one or two ambitious men,--and a lot of ballast'. And if it comes to that, it will then be time enough to remind that, apart from the interest of the company, public interest would also be a ground for dealing with them under Section 398, in view of the nature of the business carried on.
24. In the result, I allow this company petition to the extent of directing thaf Section 88 in regulation 25(b) of the company's articles of association will stand amended as 'Section 87 '. The consequence will be that members of the company present in person or by proxy at its general meetings shall be entitled to demand poll, and on a poll, their voting rights shall be as provided for in Section 87 of the Companies Act, 1956,
25. No costs.