1. Defendants 1, 2, 4, 6 and 7 arc the appellants before us. The dispute relates to the proceedings of the annual general meeting of the first defendant company held on 22-7-1957.
2. The plaintiff's case is briefly as follows: Plaintiffs are the share-holders of the first defendant company. The share capital of the first defendant company was Rs. 1,20,000 divided into 8000 shares of Rs. 15 each. The shares were all fully paid up. The main business of the company was manufacture and sale of different kinds of tiles.
The defendants 2 to 7 are also some of the share-holders of the first defendant company and defendants 2 to 5 are also, stated to be the directors of whom defendants 2 and 3 claim to be the managing directors. Defendants 4 and 5 are stated to have been co-opted as directors by the Board of Directors in 1956 and their term would expire on the date of the next annual general meeting,
3. One Naracasseri Krishnan owned 4536 shares in the first defendant company. The said Krishnan died on 2-1-1951 leaving a will giving his properties including the shares in. the company to his two daughters who were then minors. The 2nd defendant and. one Sumithra Ammal, wife of N. S. Krishnan had been appointed executors under the will by the deceased Krishnan.
As the management of the estate was not found conducive or beneficial to the interests of the minors, the High Court of Madras, in O. P. No. 274 of 1952 passed an order on 11-12-1952 removing 2nd defendant and Sumithra Ammal from the office of executors' and appointed the 8th defendant, the Official Trustee, Madras as the executor and administrator of the estate of N. S. Krishnan. The name of the 8th defendant was duly entered in the registers of the company as holder of the said 4536 shares in the place of N. S. Krishnan after removing the name of the second defendant and Sumithra Ammal who were originally recorded as executors.
Thus the 8th defendant became entitled to all the rights and privileges of a share-holder in the first defendant company as the holder of 4536 shares.
4. The plaintiffs further alleged that the first defendant company has also recognised the 8th defendant as a qualified share-holder arid had allowed him to lake part and claim all the rights of the share-holder till the annual general meeting of 22-7-1957. The Board of Directors continued in management and at a meeting of the Board of Directors defendants 2 and 3 are stated to have been elected as managing directors on a monthly salary and conveyance of Rs. 1000.
The second and third defendants are in very great financial straits and their management of the company is very prejudicial to the company and the general interests, of the share-holders. They are also inimical to the owners of Naracasseri Estate which is a major share-holder of the company. The 8th defendant has already obtained a preliminary decree against the 2nd defendant for accounting in respect of large amounts due to the estate as the joint executor under the will of N. S. Krishnan.
5. After the 8th defendant was appointed by the Madras High Court as the executor and administrator of the estate, he has been taking very keen interest in the affairs of the company with a view to see that they are all set right. In December 1954 the profit and loss account and the auditor's report and balance sheet for the period ending December 1954 were rejected by the proxy of the 8th defendant.
Similarly for the year 1955 also they were rejected at the annual general meeting in 1956, At the extraordinary meeting held in 1956 a resolution appears to have been passed electing defendants 2 and 3 as managing directors for a term of 5 years which is illegal and opposed to the rules governing the company.
6. The annual general meeting of the company to approve the audit report, balance sheet, election of three new directors as proposed by the first Plaintiff and for transacting other business was notified to be held on 22-7-1957. The 8th defendant who got the notice, appointed the first plaintiff as his proxy and the proxy was duly filed in the office of the defendant company in time. The first plaintiff gave notice of a resolution to elect three persons nominated by him as directors.
The first plaintiff, who was also a director, was due to retire on 22-7-1957 and the period of co-option of defendants 4 and 5 as directors will also expire on that day. Defendants 2 to 5 knew full.well that they will not get a seat in the new directorate to be elected at the general meeting on 22-7-1957. Therefore, they conceived the idea of preventing the 8th defendant from exercising his vote in the matter of election of new directors and in the matter of opposing, the re-election of defendants 4 and 5 and also opposing the balance sheet etc.
7. The annual general meeting held on 28-7-1957 started as usual. The plaintiffs Were present at the meeting. Deliberately and with a dishonest motive, the presence of the 8th defendant by his proxy, the first plaintiff, was not recorded in the minutes book. The 4th defendant presided at the meeting and he did not declare at the commencement of the meeting that the proxy of the 8th defendant has been rejected.
After the reading of the minutes of the last meeting was over, the next item in the agenda, namely, the consideration of the balance sheet and other allied matters were taken up. The first plaintiff opposed the same as he was entitled to and his opposition was duly seconded. A pool was demanded according to the rules and the said requisition was duly handed to the Chairman by the second plaintiff.
According to a pre-arranged secret plan to shut out the proxy of the 8th defendant, the 6th defendant questioned the right of the 8th defendant to be represented hv a proxy and to take part in the meeting. The 4th defendant accepted the objection of the 6th defendant and ruled that the 8th defendant cannot claim to be a share-holder legally competent to appoint a proxy and take, part in the proceedings.
8. The plaintiffs allege that this act of the 4th defendant is an abuse of his pretended authority and that the ruling given by him is illegal and ultra vires of his powers. The Chairman has no right to exclude a share-holder like the 8th defendant, who has been recorded long ago as a share-holder in the registers of the company, andto whom notice of the particular meeting also had already been given.
The 8th defendant has exercised his right as a rshare-holder through a proxy on previous occasions. Notwithstanding the fact that all these matters were brought to the notice of the Chair man, the 4th defendant, the latter declined to reconsider his ruling and directed the plaintiffs to seek their remedy in a court of law. Therefore. the 4th defendant fraudulently and maliciously and with a dishonest motive to serve his own purpose and the purpose of his friends has deliberately excluded the 8th defendant, who had 4536 shares out of 8000 shares, from taking part in the proceedings of the said meeting.
9. The ruling is stated to have been given by the 4th defendant based on Section 153 of the Companies Act which, according to the plaintiffs, has no bearing at all on the point in dispute and could not support the decision of the 4th defendant.
10. The plaintiffs further allege that the 8th defendant is an officer of the Government styled as Official Trustee which is his official designation. According to the provisions of the Official Trustees
Act the official trustee becomes a share-holder of the company for all purposes.
11. The plaintiffs further allege that the exclusion of the 8th defendant's proxy from taking part in the proceedings of the annual general meeting on 28-7-1957 amounts to an exclusion of a share-holder with a majority of votes from taking part in the proceedings and it amounts to a denial of the right of the 8th defendant to exercise his vote through the proxy.
Therefore, the entire proceedings of the meeting held on 22-7-1957 are void, illegal and ultra vires and beyond the powers of the share-holders who passed the various resolutions 011 that day. In consequence, the passing of the audit report, the balance sheet and the election of defendants 4 and 5 as directors and preventing the election of the three directors proposed by the first plaintiff from being placed before the meeting for consideration are illegal and not binding on the company or its share-holders.
Therefore, the plaintiffs claim a declaration to that effect. They also claim a mandatory order ot injunction directing an annual meeting of the share-holders to be properly convened to consider the agenda placed before the meeting held on 22-7-1957, permitting the 8th defendant to take part in the said meeting either in person or by proxy. The election of defendants 4 and 5 as directors at the said meeting is also null and void.
About 3-8-1957 defendants 6 and 7 are also stated to have been co-opted as additional directors which also is not valid. Thus defendants 4 to 7 are not entitled to function as directors of the company. The plaintiffs maintain the action not only in their individual capacity as share-holders, but also in the interests of the general body of share-holders and on their behalf.
The 8th defendant has been made only a pro forma party and no reliefs are claimed as against him and the plaintiffs state that they have no objection to the: 8th defendant transposing himself as a plaintiff at any time if so willing. Finally, the plaintiffs prayed for a declaration that the entire proceedings and decisions arrived at in the meeting held on 22-7-1957 including the decision of the 4th defendant that the 8th defendant is not entitled to exercise the rights of a share-holder and the election of defendants 4 and 5 as directors and also the co-option of defendants 6 and 7 as directors are absolutely null and void, illegal and ultra vires.
They also pray for the issue of a mandatory order of injunction convening a fresh meeting of the Share-holders to consider the subjec's included in the agenda for the meeting on 22-7-1957. As a consequential relief they also prayed for the appointment of a receiver for the due management and administration of the company's affairs till a valid and legal body of directors is constituted.
12. Defendants 1, 2, 4 to 6 and 7 filed a joint written statement contesting the reliefs claimed by the plaintiffs. They admit that N. S. Krishnan owned 4536 shares in the first defendant company. They also admit the appointment of the Official Trustee, Madras, as the Executor of the estate of deceased N. S. Krishnan by the Madras High Court on 11-12-1952.
They further admit that as requested by the Official Trustee, Madras, to register the said 4536 shares 'in the name of the Official Trustee, Madras', the shares were so transferred, and the Official Trustee, Madras, was shown in the registers of the company as the holder of the said shares. The names of the second defendant and Sumithra Ammal who were previously registered as Executors of N. S. Krishnan's estate were struck off. But they contest the claim that the 8th defendant, by virtue of such registry, became entitled to all the rights and privileges of a shareholder in the first defendant company.
According to them, the 8th defendant is not entitled to vote at the meetings of the first defendant company either in person or by proxy. They allege
'The name of the person who holds the office of official trustee, Madras, should be entered in the register of shareholders and then alone he shall have a right to vote. The provisions in the Companies Act and those in die Articles of Association of the first defendant company relating to transfer and transmission of shares show clearly that the Official Trustee or an executor as such is not entitled to vote in person or by proxy unless his name is entered in the register of shares as the holder of the same'.
13. In paragraph 4 of the written statement they admit that in the meeting held prior to 22-7-1957, the said Official Trustee, the 8th defendant, was allowed to vote by proxy. But this circumstance, by itself, will not clothe the Official Trustee with a right to vote on future occasions also. The Official Trustee represents the estate of the deceased and holds the shares in trust for others and, therefore, he shall have no right to vote by the mere fact of entry of his name in the registers of the company.
The defendants further allege that the Managing Directors began to draw their salary and conveyance allowances from 2-4-1958 and that it has also been subsequently sanctioned by the Central Government. The allegations of mismanagement or prejudice to the company or shareholders are denied. The decree obtained by the 8th defendant for accounting as against the second defendant in respect of the estate of N. S. Krishnan is pending final decision in the High Court.
The profit and loss account and the audit report and balance sheet for previpus years were got rejected by the proxy of the 8th defendant to serve his ulterior purposes. As the plaintiffs have not been able to succeed in bringing their own men on the board of management, they are adopting all sorts of tactics taking the help and assistance of the 8th defendant. Though an extraordinary general meeting for removing defendants 2 and 3 from their managing directorship was called for at the instance of the plaintiffs and was actually held on 5-1-1956, the plaintiffs suffered an ignominous defeat and their resolution for appointing new directors was lost.
But the same meeting passed a resolution appointing defendants 2 and 3 as managing directors with effect from 5-11-1956. The present management has worked for the good of the company and for improving its affairs. The plaintiffs were trying only to usurp the management and put obstruction by an oppressive majority vote.
14. The defendants admit that the 37th annual general meeting of the first defendant company was fixed for 22-7-1957 and notices were sent to all the shareholders including the 8th defendant, the Official Trustee, Madras. The Official Trustee had appointed the first plaintiff as his proxy and the said proxy was filed in the registered office of the company. No doubt, the first plaintiff had given notice of a resolution to elect Messrs. K. P. Viswanathan, V. K. D. Sreedharan and K. P. Ramakrishnan as directors.
It was also no doubt true that the term of office of defendants 4 and 5 and of the first plaintiff as directors would expire on 22-7-1957. But they deny the allegation that defendants 2 to 5 conspired together to reject the proxy of the 8th defendant. The term of defendants 2 and 3 had not expired and they would certainly continue for their full period as managing directors.
15. On 22-7-1957 the shareholders present in person or proxy for the said meeting have been shown in the proceedings of that day. The 8th defendant's proxy has also been duly noted. The 4th defendant was the Chairman of the Board of Directors and he took the chair for the annual general meeting on 22-7-1957. The first item in the agenda, namely the reading of the minutes of the 86th General meeting held on 31-6-1956 and of the 11 th extraordinary meeting held on 5-11-1956 were gone through and duly passed.
The next step was the reading of the annual report of the Board of Directors and the admitted balance sheet and statement of accounts for the year ending 31-12-1956. They were read and the Chairman proposed their adoption. It was then that the first plaintiff opposed the same on the ground that the remuneration paid to the Managing Directors had not been passed by the general body.
A poll was demanded by the first plaintiff and six other shareholders. At that time the 6th defendant challenged the right of the Official Trustee to vote by proxy and the Chairman gave his ruling that the proxy given by the Official Trustee was not valid in view of Section 153 of the Companies Act and Arts. 15, 44 and 77 of the Articles of Association. Therefore, he ruled that the name of the Executor should be entered in the list of shareholders and since it had not been done, the Official Trustee was not entitled to exercise a voting right.
The ruling given by the 4th defendant was perfectly bona fide. At the poll 24 members in person holding 558 shares and 60 members by proxy holding 1293 shares voted for the resolution. Seven members in person holding 106 shares and 10 members by proxy holding 78 shares voted against the resolution. As there was an overwhelming majority in favour of the resolution, the balance sheet and profit and loss account were duly adopted and passed. Then other items in the agency were gone through and were all passed unanimously.
Nobody proposed the first plaintiff for the office of director and the other proposals about the 4th and 5th defendants were duly passed. An auditor proposed was again reappointed for another term. After that the meeting was dissolved.
16. The defendants further contest that the ruling given by the 4th defendant is not at all an abuse of his authority and it was perfectly legal and within his powers and as such it is binding on the company and the shareholders. The exclusion of the proxy of the 8th defendant was perfectly correct and the said exclusion was not done deliberately or fraudulently as alleged in the plaint.
All the proceedings of the meeting held on 22-7-1957 are not void, illegal or ultra vires and all the resolutions passed at that meeting are binding on the company and the share-holders including the plaintiffs. The plaintiffs are not entitled to get either the declaration or the relief of injunction as prayed for by them in the plaint. The meeting has already been held and there was no further business to be transacted at that meeting.
17. The defendants further allege that none of the rights of the plaintiffs as share-holders has been in any way infringed or trespassed upon by defendants 2 to 5. The plaintiffs have no right to file the suit for the reliefs asked for. Even if the 8th defendant has been wrongfully excluded from taking part in the proceedings, it will only be an infringement of the right of the 8th defendant, and on that ground, neither the plaintiffs nor the other share-holders have a cause of action to maintain the present suit.
Even such a suit by the 8th defendant will not lie in a civil court, and the civil court has no jurisdiction to order the calling of the 37th general meeting of the company held on 22-7-1957 on the ground that it was an illegal or improper one or void otherwise. Even if the plaintiffs have any grievance, it is open to them to apply to the Central Government to call for the annual general meeting. The share-holders can, if at all, ask for the summoning of an extraordinary meeting and not annual meetings.
No suit lies either for calling for an annual general meeting or an extraordinary meeting of the Company. In any event, the calling of a general meeting or of an extraordinary meeting or the rer moval and appointment of directors are all matters relating to the internal management of the company and the court has no jurisdiction to interfere in the internal affairs of a company. Sufficient safeguards are provided under the Companies Act, 11956, and suitable remedies are also provided therein.
If the plaintiffs have any real grievance, the proper course for them would be to approach the various authorities prescribed for such matters under the Companies Act and a suit of this nature in a civil court does not lie. On these grounds the defendants prayed for a dismissal of the suit with their costs.
18. The third defendant filed a separate written statement. He challenges the statement of the plaintiffs about the validity of the appointment of himself and the second defendant as managing directors at the extraordinary general meeting. But he stated that the 8th defendant is entitled to vote and appoint a proxy and this right has been recognised by the company ever since the 8th defendant was entered in the register of the company.
He accepts the position taken by the plaintiffs regarding invalidity and the illegality of the proceedings of the annual general meeting held on 22-7-1957. Finally he points out with regret that it is difficult for him to co-operate with the second defendant in everything he does and to continue as a managing, director along with him in view of the peculiar situation of the present Board of management.
He also prays that early stem may be taken for constituting a proper and valid Board of directors for the proper functioning of the company and till that time he requests the court to pass suitable orders to secure ma safety and welfare of the company by giving the necessary directions on the application filed by the plaintiff.
19. The Official Trustee, Madras, the 8th defendant in the suit, filed a written statement substantially supporting the case of the plaintiffs. The 8th defendant has been entered in the register of members of the company as holding 4536 shares. On 29-6-1957, he received notice for the annual general meeting to be held on 22-7-1957. And the said notice itself intimated that members entitled to attend and vote were entitled to appoint a proxy to attend the meeting and vote instead of the members themselves.
In accordance with that, the 8th defendant appointed the first plaintiff or failing him one Shri K. P. Viswanathan as his proxy to attend and vote for him at the meeting or any adjournment thereof. The meeting was also held on 22-7-1957. Then the written statement of this defendant only reiterates what has been stated by the plaintiffs regarding what happened at the meeting.
20. The 8th defendant challenges the ruling of the 4th defendant about his right to be represented by a proxy and to vote. He relies upon Section 14 of the Official Trustees Act that the entry of the Official Trustee by that name in the books of a company shall not constitute notice of trust, Section 153 of the Companies Act has no application at all.
After accepting what the plaintiffs have already stated the 8th defendant further states that the ruling of the Chairman which resulted in preventing him from exercising his right is wrongful and illegal and therefore the resolutions passed at the said meeting are all invalid and illegal. There is no properly constituted board in charge of the affairs of the company and all the acts of the contesting defendants are illegal and ultra vires.
He also states that he has reason to believe that the ruling given by the 4th defendant regarding his proxy was not bona fide and that it has been brought about by manoeuvring by the second defendant. The second defendant is very inimieally disposed towards the estate of N. S. Krishnan in view of the fact that the 8th defendant had to launch a litigation against him for rendition of accounts.
If the 8th defendant's proxy had been allowed to exercise his legitimate rights, the balance sheet and profit and loss account for the year ending 61-12-1956 would not have been adopted and all the other resolutions stated to have been passed would not also have been passed at that meeting. With a view to have their own way and to prevent proper persons coming on the management, the 4th defendant has given the ruling shutting out the proxy of the 8th defendant arbitrarily and illegally.
The said acts and conduct of defendants 2 to 7 are all mala fide, oppressive and injurious to the 8th defendant, the plaintiffs and the other shareholders of the first defendant company. Finally the 8th defendant supports the plaintiffs and prays for reliefs being granted as prayed for in the plaint.
21. Defendants 9 and 10 filed a joint written statement and defendants 11 and 12 filed another joint written statement. In both the written statements it has been stated that the plaintiffs' suit is vexatious and has been filed only to harass and bring about a statement in the affairs of the company. They support the contesting defendants and oppose the plaintiffs' claim.
22. It will be seen that the main contest between the parties relate to the jurisdiction of the Civil Court to entertain the suit and to the legality of the proceedings on 22-7-1957. There were also other points as to how far the plaintiffs were entitled to claim the reliefs claimed by them.
23. The learned Subordinate Judge of Kozhikode held that the civil court has jurisdiction to entertain the present suit. He also held that it is not necessary for the plaintiffs to approach either the Central Government or the Court, namely, the Company Court as defined in Section 2(11) of the Companies Act read with Section 10. He was of the view that there is no scope for the application of Section 167 or Section 186 of the Companies Act. On the question as to whether the plaintiffs have any cause of action to maintain an action like the present, the trial court came to the conclusion that in this case the Chairman has given an improper ruling which resulted in depriving the share-holder of exercising a valuable right through the proxy.
After the execution of the proxy by the 8th defendant in favour of the first plaintiff, it is the first plaintiff's individual will that prevails, and the first plaintiff thus gets a right to exercise the votes on behalf of the 8th defendant by virtue of the powers conferred upon him under the proxy and therefore the first plaintiff has got a cause of action for maintaining the present suit.
24. The trial court also came to the conclusion that in this case the annual general meeting on 22-7-1957 was properly called for and also actually held; but some of the proceedings therein, after preventing the 8th defendant's proxy from voting were illegal and therefore the meeting has to be continued from the stage when the pool was demanded.
25. On the question as to whether the ruling of the 4th defendant as Chairman of that meeting regarding right of the 8th defendant to vote by proxy was correct, the trial court held that though there is an allegation of mala fides against the 4th defendant the plaintiffs have not established the same. But after consideration of all the relevant provisions of the Companies Act and the provisions of the Official Trustees Act, the learned Judge held that the 8th defendant was entitled to vote either in person or by proxy. The contention that as the personal name of the official trustee has not been entered in the register he is not entitled to vote, was rejected by the learned Judge.
26. As it was admitted before him that the 8th defendant had certainly a right to question the ruling of the Chairman about his proxy, the learned Judge discussed the question as to whether the plaintiffs have also a right to question the said ruling and bring this suit. Here again, the learned Judge accepted the contention of the first plaintiff that his rights as a share-holder proxy-holder have been negatived and, therefore, he has got a right. Even otherwise, as it is a case of the Directors doing or attempting to do what is a fraud upon the minority that also will give a right to the other plaintiffs to maintain an action. In the end the trial court came to the conclusion that the 37th annual general meeting will have to be continued from the point where the wrong ruling of the 4th defendant as Chairman regarding the proxy of the 8th defendant was given. Jn the end the learned Judge passed a decree declaring null and void, illegal and ultra vires the proceedings and decisions arrived at in the meeting held on 22-7-1957 and the learned Judge also issued a mandatory order of injunction convening a fresh meeting of the shareholders to consider the entire subjects included in the agenda for 22-7-1957 and appointed an Advocate as receiver for the due management and administration of the Company till a legally competent board was constituted. The learned Judge also gave certain other directions.
27. On appeal by contesting defendants, the learned District Judge of Kozhikode has agreed with the conclusions arrived at by the trial court on almost all the points and confirmed the decree and judgment of the learned Subordinate Judge. The learned Judge agreed with the contentions of the plaintiffs that the ruling of the 4th defendant was wrong, illegal and ultra vires. The learned District Judge also held that the said ruling was not only wrong, illegal and ultra vires, but differed from the trial court and held that the said ruling was actuated by fraud and mala fides. The learned Judge also was of the opinion that the plaintiffs were entitled to maintain the suit and the Companies Act does not exclude the jurisdiction of the civil court in such matters,
28. The decree of the trial court was confirmed and the directions given by the trial court were also confirmed. The learned District Judge fixed the date for holding the meeting as 1-5-1958 and that court also gave certain other consequential directions.
29. In the appeal before us, Mr. K.P.Abraham, the learned counsel for the appellants, has taken the same objections that were raised in the courts below. His main contentions are (1) that the ruling of the 4th defendant as Chairman of the 37th annual general meeting about the right of the 8th defendant to vote is correct; (2) even if the said ruling is not correct, the plaintiffs have only to seek appropriate remedies provided in the Companies Act, namely, by an approach to the Central Government or to the Company Court, and a suit in a civil court is not maintainable; and (3) in any event, the plaintiffs have no right to maintain the present suit.
30. On the other hand, Mr. V. K. K. Menon, the learned counsel for the plaintiffs, has supported the reasoning of the subordinate courts on the material points arising for decision. According to the learned counsel, a suit like the present is maintainable only in a civil court and there is no other remedy provided for obtaining the reliefs prayed for in the suit before any other forum. He also supported the stand taken by the plaintiffs that they are entitled to maintain the present action.
31. Mr, Devan, appearing on behalf of the learned Advocate General representing the 8th defendant, has supported the stand taken by Mr. V. K. Krishna Menon. Mr. Devan has drawn our attention to the correspondence that passed between the 8th defendant and the company, namely, EXS. A(2) to A(5), A(7), A(9), to A(ll), which clearly show that the 8th defendant has been registered and recognised as a share-holder of the 4536 shares in the books of the company. He has also relied upon the order of the Madras High Court, Ex. A(18) appointing the Official Trustee, Madras, as executor of the estate of N. S. Krishnan. He has also referred to some of the provisions of the Official Trustees Act as empowering the Official Trustee to be registered in the books of a company. According to Mr. Devan, the 8th defendant was entitled to vote either by himself or by proxy and the rejection of his proxy by the 4th defendant on 22-7-1957 was illegal and ultra vires of the powers of the Chairman.
32. The 8th defendant has been prevented by an arbitrary act of the 14th defendant from exercising the rights vested in him under the Companies Act.
33. Before we consider the contentions of the learned counsel, in detail, we can deal with and dispose of one minor contention that was raised by Mr, K. P. Abraham, the learned counsel for the appellants. As stated earlier, the trial court held that the ruling given by the 4th defendant about the proxy was illegal and not valid. Though allegations of mala fide had been made by the plaintiffs, the trial court held that the plaintiffs have not substantiated this allegation by letting in the necessary evidence. Therefore, the decision of the trial court about the validity of the ruling of the 4th defendant was rested only on legal basis. But the learned District Judge, while agreeing with the trial court on this point of law, held that fraud can be interred from the facts disclosed and the surrounding circumstances. The lower appellate court was evidently of the view that the 4th defendant gave the ruling with a view to further his self-interest to cling on to the office and therefore he gave such an improper illegal ruling. In this view the learned District Judge held that the ruling of the 4th defendant was actuated by fraud and mala fides also.
34. Mr. K. P. Abraham, learned counsel for the appellants, submitted that there is absolutely no evidence to show that the 4th defendant was actuated by any fraud or mala fides. It is unnecessary for us to pursue this matter further because Mr. V. K. Krishna Menon, learned counsel for the plaintiffs, very fairly stated that there is no evidence on record from which he could support the finding of the learned District Judge about the conduct of the 4th defendant being actuated by fraud and mala fides. Therefore, in view of this statement by Mr. V. K. Krishna Menon, we hold that the learned District Judge was not justified in attributing fraud or mala fides to the 4th defendant when he gave the ruling. Whether the ruling was legal or not we will consider in another context. But whatever the validity of the said ruling may be, we are of opinion that the 4th defendant was not actuated by any fraud or mala fides when he gave that ruling.
35. The first contention of Mr. K. P. Abraham, learned counsel for the appellants, is that the ruling given by the 4th defendant was perfectly correct. According to the learned counsel, unless the personal name of the Official Trustee is entered as a share-holder in the registers of the company, the 8th defendant is not entitled to vote either in person or by proxy. The learned counsel relied upon Section 153 and Section 176 of the Companies Act. Section 153 is to the effect that:
'No notice of any trust, express, implied or constructive shall be entered on the register of members or of debenture holders, or be receivable by the Registrar.'
Section 176 of the Act deals with proxies. It gives a right to any member of a company entitled to attend a meeting and vote to appoint another person, whether a member or not as his proxy to attend and vote instead of himself. There are certain restrictions mentioned regarding the right of the proxy so appointed. The learned counsel relied, in particular, on Sub-clause (5) of Section 176, which runs as follows : --
'(5) The instrument appointing a proxy shall
(a) bo in writing; and
(b) be signed by the appointer or his attorney duly authorised in writing, or, if the appointer is a body corporate, be under its seal or be signed by an officer or an attorney duly authorised by it.'
According to the learned counsel, this sub-clause only contemplates a body corporate, and not a corporation sole. The two provisions relied upon by Mr. Abraham, in our opinion, have no relevancy at all in deciding the question as to whether the Official Trustee is entitled to vote or not. Mr. Abraham accepted the position that the Official Trustee has been already entered in the registers of the company as the share-holder of 4536 shares.
He also agreed that the Official Trustee had been allowed to exercise his vote on previous occasions. But he contends that the entering of the Official Trustee as such will not give him a right to vote because he is really a trustee on behalf of the estate of N. S. Krishnan and at the most he is only a corporation sole which is not recognised in the Indian Companies Act. We cannot accept either of these contentions. Section 153 does not at all stand in the way of recognising a right in the Official Trustee to exercise his power of vote either by himself or by proxy.
Section 176(5) only prescribes the method by which a proxy is to be appointed. It only says that it shall be in writing and that it is to be signed by the appointee or his attorney duly authorised in writing. It further states that if the appointer is a 'body corporate', the appointment is to be under its seal or to be signed by an officer or by an attorney duly authorised by it. The expression 'body corporate' is defined in Section 2, Clause (7) of the Companies Act which is as follows : --
' 'body corporate' or 'corporation' includes a company incorporated outside India but does not include a corporation sole.'
This does not mean that a 'corporation sole' cannot be a share-holder under the Companies' Act or cannot execute a proxy. If it is a 'body corporate', the proxy should be under its seal or in the manner prescribed under Section 176, Clause (5). If it is a 'corporation sole', all that is required is that the proxy shall be in writing and shall be signed by the appointer or his attorney duly authorised in writing. In this case there is no dispute that the proxy executed by the 8th defendant in favour of the first plaintiff has been in writing, and has been Signed by the appointer, namely, the 8th defendant as Official Trustee, Madras.
Further, the provisions of the Official Trustees Act give a direct answer to the contentions of Mr. Abraham. Section 6 of the Official Trustees Act, Central Act II of 1913, states that the Official Trustee shall be a 'corporation sole' by the name of the Official Trustee of the State for which he is appointed, and as such Official Trustee, shall have perpetual succession and an official seal and may sue and be sued in his corporate name. Section 14 of the said Act again says that:
'The entry of the Official Trustee by that name in the books of a company shall not constitute notice of a trust; and a company shall not. be entitled to object to enter the name of the Olficial Trustee on its register by reason only that the Official Trustee is a corporation; and in dealing with property, the fact that, the person dealt with is the Official Trustee shall not of itself constitute notice of a trust'.
In the face of Sections 6 and 14 of the Official Trustees Act it is idle for Mr. Abraham to contend that the entry of the Official Trustee on the Register of members amounts to notice of a trust and that it offends the provisions of Section 153 of the Companies Act, which is the provision relied upon by the 4th defendant for the ruling given by him against the 8th defendant. Section 14 of the Official Trustees Act is quite clear that the entry of the Official Trustee by that name in the books of a company shall not constitute notice of trust.
Further, Section 14 of the Official Trustees Act is also quite clear that a company is not entitled to object to enter the name of the Official Trustee on its register by reason only that the official trustee is a corporation. Section 6 of the Official Trustees Act has definitely stated that the Official Trustee shall be a corporation sole by the name of the Official Trustee of the State for which he is appointed with a perpetual succession and seal; Section 14 negatives the right of the company to object to enter the name of the Official Trustee On its register on the ground that the Official Trustee is a corporation.
Reading Sections 6 and 14 together, in our view, the Official Trustee is entitled, as a 'corporation sole' to be entered as a share-holder in the registers of a company. Therefore, the contention of Mr. Abraham that it is only a body corporate that is recognised in the Companies Act and that a corporation sole has no place in the scheme of the Companies Act cannot also be accepted in view of the specific provisions of the Official Trustees Act. It further follows that the entry of the Official Trustee by that name shall not constitute notice J of trust.
There is absolutely no conflict between the provisions of Section 153 of the Companies Act and Section 14 of the Official Trustees Act. Section 153 is only to the effect that no notice of a trust shall be entered on the register of the members. And Section 14 of the Official Trustees Act is very clear that the entry of the Official Trustee by that name shall not constitute notice of a trust. Therefore, by the entry of the Official Trustee as the shareholder of a company there is no question of any notice of trust being recognised contrary to the provisions of Section 153 of the Companies Act.
Therefore, the reliance placed upon Section 153 by the 4th defendant for negativing the right of the 8th defendant to vote by proxy cannot be sustained. Nor are we able to find in Articles 15, 44 and 74 of the Articles of Association, any support for the stand taken by the Chairman. Article 15 is only to the effect that the Company shall not be bound by or recognise any contingent, future, partial or equitable interest in. the nature of a trust or otherwise in any share.
Article 44 is also only to the effect that the executor or administrator of a deceased shareholder shall be the only person recognised by the company as having any title or interest in the shares registered in his name etc. Article 77 provides that any person becoming entitled to any share by transmission as provided by the Articles shall be entitled to vote in respect of such share as if he were the registered owner thereof in person or by proxy etc.
We do not see how any of these articles support the stand taken by the 4th defendant for ruling out the right of the Official Trustee to vote by proxy. In fact, Article 44 is clear that an executor or administrator of a deceased share-holder shall be the only person recognised by the company as having any title or interest in the shares registered in his name etc. There is no dispute that the 8th defendant was appointed as executor by the Madras High Court under its order evidenced by Ext. A-18.
Therefore, the Official Trustee becomes the executor of the deceased share-holder under Article 44 and he has been rightly recognised as the shareholder entitled to represent the shares of N. S. Krishnan. These articles far from supporting the ruling of the 4th defendant, Chairman, are really against the stand taken by him.
36. We may also refer to Section 41(2) of the Companies Act to the effect that every other person who agrees to become a member of a company and whose name is entered in its register of members, shall be a member of the company. In this case, the official trustee has been entered in the register of members and as such he becomes a member of the company. As a member of the company he is given the auxiliary rights of taking art in meetings and voting either by himself or by proxy.
In this case the Official Trustee, having been entered in the register of the company as a shareholder, it was not open to the 4th defendant to hold that the official trustee is not entitled to take part in the proceedings, without having taken the necessary steps under Section 155 to have the register of members rectified, if he was so advised. If the 4th defendant or anybody else felt that the official trustee has been without sufficient cause, entered in the register of members of the company, it was open to the 4th defendant or to any member of the company or the company to apply under Section 155 for rectification of the register of the company.
So long as no such proceedings have been taken, the official trustee was entitled to vote and take part in the proceedings either by himself or by proxy. Whether even such an application under Section 155 can be successfully maintained does not arise now.
37. We cannot accept the contention of Mr. Arbaham that the actual name of the holder of the office of Official Trustee must be entered in the register so as to entitle him to vote. We do not see any warrant for this contention in any of the provisions of the Official Trustees Act, namely, Central Act II of 1913 or the Companies Act. The name contemplated under the Act is only the Official Trustee of the State and it is only by that name that Section 6 empowers him to sue and to be sued in his corporate name.
Section 6 is also clear that the Official Trustee shall be a corporation sole by the name of the Official Trustee of the State. In this case the Official Trustee is the Official Trustee, Madras, and he has been entered as such in the registers of the Company. He has no other name and the contention of Mr, Abraham that the personal name of the Official Trustee must be entered before he can claim a right to vote is devoid of any merits.
Therefore, the foregoing discussion will clearly show that the ruling of the 4th defendant that unless the personal name of the Official Trustee has been entered in the books of the company the 8th defendant is not entitled to vote, is clearly wrong in law and cannot be supported.
38. The next contention of Mr. Abraham is that even if the ruling of the Chairman is wrong in law, the plaintiffs nave got adequate remedies provided under the Companies Act. Mr. Abraham, referred us to Sections 166 - 169, and Sections 186 and 234 - 239 of the Companies Act. According to the learned counsel, it is open to the plaintiffs to approach either the Central Government or 'the court' as defined in Section 2, Clause (II) read with Section 10 of the Companies Act.
Section 2, Clause 11, defines 'a court' as meaning with reference to any matter relating to a company, the court having jurisdiction under the Act] with respect to that matter in relation to. that company as provided in Section 10. Section 10(1)(a) and (b) is as follows:
''10. Jurisdiction of Courts-- (1) The Court having jurisdiction under this Act shall be--
(a) the High Court having jurisdiction in relation to the place at which the registered office of the company concerned is situate, except to the extent to which jurisdiction has been conferred on any District Court or District Courts Subordinate to that High Court in pursuance of Sub-section (2); and
(b) where jurisdiction has been so conferred, the District Court in regard to matters falling within the scope of the jurisdiction concerned, in respect of companies having their registered offices in the district.'
39. Section 166 runs as follows:
'166. Annual general meeting.-- (1) (a) Every company shall, in addition to any other meetings, hold a general meeting which shall be styled its annual general meeting at the intervals, and in accordance with the provisions specified below.
(b) The first annual general meeting shall b0 held by a company within eighteen months of its incorporation.
(c) The next annual general meeting of the company shall be held by it within nine months after the expiry of the financial year in which the first annual general meeting was held; and thereafter an annual general meeting shall be held by the company within nine months after the expiry of each financial year:
Provided that the Registrar may, for any special reason, extend the time within which any annual meeting (not being the first annual general meeting) shall be held by a further period exceeding six months.
(d) Except in the case referred to in the fore going provisions not more than fifteen months shall elapse between the date of annual general meeting and that of the next.
(e) Every annual general meeting shall be called for a time during business hours, on a day that is not a public holiday, and shall be held either at the registered office of the company or at some other place within the city, town or village in which the registered office of the company is situate; and die notices calling the meeting shall specify it as the annual general meeting'. Section 167 is as follows:
'167. Power of Central Government to call annual general meetings--(1) If default is made in holding an annual, general meeting in accordance with Section 166, the Central Government may, notwithstanding anything in this Act or in the articles of the company, on the application of any member of the company, call or direct the calling of, a general meeting of the company and give such ancillary or consequential directions as the Central Government thinks expedient in relation to the calling, holding and conducting of the meeting.
Explanation: The directions that may be given under this sub-section may include a direction that one member of the Company present in person or by proxy shall be deemed to constitute a meeting.
(2) A general meeting held in pursuance of Sub-section (1) shall, subject to any directions of the Central Government, be deemed to be an annual general meeting of the company.' ft is not necessary to quote Section 168 because it only provides for penalty for default in complying with 6s. 166 and 167. Then Section 169 which deals with calling for extraordinary general meeting on requisition is as follows:
'169. Calling for extraordinary general meeting on requisition.-- (1) The Board of directors of a company shall, on the requisition of such number of members of the company as is specified in subsection (4), forthwith proceed duly to call an extraordinary general meeting of the company.
(2) The requisition shall set out the matters For the consideration of which the meeting is to be called shall be signed by the requisitionists, and shall be deposited at the registered office of the company.
(3) The requisition may consist of several documents in like form each signed by one or more requisitionists.
(4) The number of members entitled to requisition a meeting in regard to any matter shall be
(a) in the case of a company having a share capital, such number of them as hold at the date of the deposit of the requisition, not less than one-tenth of such of the paid up capital of the company as at that date carries the right of voting in regard to that matter;
(b) in the case of the company not having a share capital, such number of them as have at the date of deposit of the requisition not less than, one tenth of the total voting power of all the members having at the said date a right to vote in regard to that matter.
(5) Where two or more distinct matters are specified in the requisition, the provisions, of subsection (4) shall apply separately in regard to each such matter; and the requisition shall accordingly be valid only in respect of those matters in regard to which the condition specified in that sub-section is fulfilled.
(6) If the Board does not, within twenty-one days from the date of the deposit of a valid requisition in regard to any matters, proceed duly to call a meeting for the consideration of those matters on a day not later than forty-five days from the date of the deposit of the requisition, the meeting may be called--
(a) by the requisitionists themselves,
(b) in the case of a company having a share Capital, by such of the requisitionists as represent either a majority in value of the paid-up-share capital held by all of them or not less than one-tenth of such of the paid up-share capital of the company as is referred to in Clause (a) of Sub-section (4), whichever is less; or
(c) in the case of a company not having a share capital, by such of the requisitionists as represent not less than one-tenth of the total voting power of all the members of the company referred to in Clause (b) of Sub-section (4).
Explanation.-- For the purposes of this subsection, the Board shall, in the case of a meeting at which a resolution is to be proposed as a special resolution, be deemed not to nave duly convened the meeting if they do not give such notice thereof as is required by Sub-section (2) of Section 189.
(7) A meeting called under Sub-section (6) by the requisitionists or any of them--
(a) shall be called in the same manner, as nearly as possible, as that in which meetings are to be called by the Board; but
(b) shall not be held after the expiration of three months from the date of the deposit of the requisition.
Explanation.-- Nothing in Clause (b) shall be deemed to prevent a meeting duly commenced before, the expiry of the period of three months aforesaid, from adjourning to some day after the expiry of that period.
(8) Where two or more persons hold any shares of interest in a company jointly, a requisition, or a notice calling a meeting, signed by one or some only of them shall, for the purposes of this section have the same force and effect as if it had been signed by all of them,
(9) Any reasonable expenses incurred by the requisitionists by reason of the failure of the Board duly to call a meeting shall be repaid to the requisitionists by the company; and any sum so paid shall be retained by the company out of any sums due or to become due from the company by way of fees or other remuneration for their services to such of the directors as were in default.'
40. According to Mr. Abraham, in this case as the whole grievance of the plaintiffs is that no meeting at all has been held on 22-7-1957, it is as good a default having been made in the holding of the annual general meeting within the meaning of Section 166 and, therefore, the plaintiffs have a right to move the Central Government under Section 167 which is given a power to call or direct the calling of a general meeting and to give consequential or ancillary directions to the calling, holding and conducting of the meeting.
He also relied upon Section 167, Clause (2) which states that a meeting held in pursuance of Sub-section (1) shall, subject to any directions of the Central Government be deemed to be an annual general meeting of the company. Therefore, when there is a remedy provided under Section 167, the learned counsel contends, that it is the forum which has to be approached and not the civil court.
41. Similarly, Mr. Abraham relied upon Section 186 giving the power to a court to order a meeting to be called. Section 186 runs as follows:
'186. Power of court to order meeting to be called.--
(1) If for any reason it is impracticable to call a meeting of a company, other than annual general meeting, in any manner in which meetings of the company may be called, or to hold or conduct the meeting of the company in the manner prescribed by this Act or the Articles, the Court may either ot its own motion or on the application of any director of the company, or of any member of the company who would be entitled to vote at the meeting,--
(a) order a meeting of the company to be called, held and conducted in such manner as the Court thinks fit; and.
(b) give such ancillary or consequential directions as the Court thinks expedient, including directions modifying or supplementing in relation to the calling, holding and conducting of the meeting, the operation of the provisions of this Act and of the company's articles.
Explanation. The directions that may be given under this sub-section may include a direction that one member of the company present in person or by proxy shall be deemed to constitute a meeting.
(2) Any meeting called, held and conducted in accordance with any such order shall, for all purposes, be deemed to be a meeting of the company duly called, held and conducted.' Sections 234 - 239 have also been relied upon by Mr. Abraham as giving a right to the plaintiffs to seek relief elsewhere. We do not see any scope for the application of Sections 234 - 239 in this case and therefore we do not at all think it necessary to advert to those provisions which deal with contingencies arising under totally different circumstances.
42. Mr. Abraham further contended that if some wrong resolutions have been passed it is open to the plaintiffs even then to proceed under the sections mentioned earlier and have those resolutions cancelled in such meetings convened under those provisions.
43. Mr. V.K.K. Menon, learned counsel for the plaintiffs, contended that the various sections referred to by Mr. Abraham have no bearing at all to the circumstances of this case. The learned counsel contended that there is no scope for application of Sections 166, 167 or 169. Nor is there any scope for the application of Section 186, Further Mr. V.K.K. Menon has also contended that the reliefs (Claimed in the present suit can only be granted by a civil court and not by any of the forums mentioned in the sections relied upon by Mr, Abraham.
Learned counsel further contended that the Companies Act makes a clear distinction between an annual general meeting and general meetings. Election of directors, passing of balance sheets and such other matters can be done only in an annual general meeting. Once these are done, no other general meeting can deal with the same over again. Section 166 deals specifically with an annual general meeting to be held in the intervals mentioned therein.
Section 210 of the Act provides for the annual general meeting held in pursuance of Section 166 dealing with balance sheet and profit and loss accounts for the purpose mentioned therein. Again, Section 224 of the Act provides for the appointment of an auditor to be decided at the annual general meeting to be held under Section 166. Again, Section 256 provides for rotation and election of directors at annual general meetings.
By relying upon these sections Mr. V.K.K. Menon strenuously contends that neither the Central Government nor 'the court' i, e., the Company Court, can grant the declaration asked for in the present suit. Further the learned counsel also contends that such things mentioned above can only be done in an 'annual general meeting' and there is no provision for doing these things in any other meeting except the annual general meeting.
Further, the conditions necessary for invoking the power of either the Central Government ot 'the Court' contemplated in the Companies Act do not exist in this case for having recourse to those authorities. Even if the relief can be granted by the Company Court, or the Central Government, the civil court has nevertheless jurisdiction even in such matters and in such circumstances.
44. After consideration of the various sections relied upon by both sides we are of opinion that Mr. V K. K. Menon is well founded in his contentions.
45. Section 166 provides for the company holding a general meeting within the periods mentioned therein which is styled its annual general meeting. The subjects mentioned in Sections 210, 284 and 256 can be transacted only at such annual general meetings. Though the plaint is not very. happy in certain respects, nevertheless the plaint proceeds only on the basis that an annual general meeting was held on 22-7-1957.'
There is no dispute even on the side of the appellants that notices for such meeting were issued. According to the contesting defendants the meeting was held, items in the agenda were gone through and ultimately the meeting was dissolved. Whereas according to the plaintiffs, the meeting was announced, meeting commenced, some items of the agenda were gone through, then the right of the 8th defendant to note by proxy was negatived; after that certain other resolutions were passed but they are all illegal, void and of no effect.
Therefore, both parlies agree that the 27th annual general meeting was called for and held. But the proceedings after a certain stage in that meeting are challenged by the plaintiffs. In paragraph 9 of the plaint it is stated that the annual general meeting of the company to approve the audit report, the balance sheet and for transacting other business, was to be held on 22-7-1957 and notices were sent to all the shave-holders. It is also stated that the first plaintiff deposited the proxy in time.
In paragraph 10 again it is stated that the plaintiffs were present at the meeting on 28-7-1957 at the appointed time. Then it is further stated that after a particular stage the poll was demanded and it is also stated that the Chairman did not declare at the commencement of the meeting that the proxy of the 8th defendant has been rejected. Paragraph 11 gives particulars of the objection raised by the 6th defendant questioning the right of the 8th defendant to vote by proxy.
Then the further paragraphs of the plaint also are clear to the effect that the plaintiffs are only challenging the proceedings after the ruling given by the 4th defendant regarding the proxy or the 8th defendant. Therefore, Mr. Abraham is not correct in his contention that the plaintiffs are completely ignoring the entire proceedings and have framed their plaint as if no meeting at all was held on 22-7-1957. It is not necessary to advert to the written statement of the contesting defendants because according to them the meeting was held and concluded after disposing of the items in the agenda.
46. In these circumstances we are not able to see how Section 167 comes into play. As stated earlier, Section 166 relates to the annual general meeting to be held at the intervals mentioned in that section. Section 167 gives power to the Central Government to call annual general meetings; but only if default is made in holding an annual general meeting in accordance with Section 166.
It is nobody's case that the meeting of 22-7-1957 would not have complied with the provisions of Section 166, if all the proceedings were gone through to the satisfaction of all parties. The fact that some of the regulations passed at the meeting held on that day are being challenged cannot, in our opinion, drive us to conclude that there has been default in holding an annual general meeting within the meaning of that expression under Section 167.
As already stated, notices were issued and agenda was published and the meeting was also held. We fail to see where 'default is made in holding an annual general meeting in accordance with Section 166'. It is only in that restricted contingency that power is given to the Central Government to intervene on the application of any member and call for a general meeting of the company, which under Section 167(2) will be deemed to be 'an annual general meeting'.
Therefore, the application of Section 167 has to be ruled out. Section 169 provides for calling of extraordinary general meetings on requisition. Even there it is only the matters set out in the particular requisition that can be considered. But in view of the nature of the subjects that could be discussed only at annual general meetings and referred to earlier, there is no scope for the application of Section 169 at all.
47. Section 186 gives power to the Company Court to call a meeting of a company other than an annual general meeting and it has reason to believe that it is impracticable to call such a meeting. We need not discuss this section any further because the power is given only to call a meeting, other than an annual general meeting. As stated earlier, the approving of a balance sheet and such other matters can be done only at an annual general meeting, and in this case we are only concerned with an annual general meeting and not with any meeting.
Section 186 does not give power to call for an annual general meeting. This is enough to dispose of the contention of Mr. Abraham based upon Section 186. Therefore, it is not possible for us to accept the contention of Mr. Abraham that the plaintiffs have got adequate remedies provided in the Act itself. In fact the stand taken by Mr. V. K. K. Menon, is that even if there is provision made in the Act itself for approaching either the court Or any other authority, the jurisdiction of the civil court to entertain suits of the present nature, is not in any way barred.
48. Then the last contention of Mr. Abraham was that the plaintiffs have no right to maintain the present action. It has been conceded even in the trial court that the 8th defendant has certainly got a cause of action to challenge the proceedings negativing his right to vote by proxy. This position was not also seriously challenged in this Court. But Mr. Abraham's contention is that the plaintiffs have no right to institute a suit of this nature.
On the other hand, Mr, V. K. K. Menon contended that there have been four exceptions at any rate, recognised to the rule in Foss v. Harbottle, (1843) 67 ER 189, namely (a) the act complained of being ultra vires of the company, (b) fraud, (c) where it is impossible for the minority to get redress, and (d) the ends of justice require the intervention of the court. According to Mr. V. K. K. Menon this case clearly comes under exceptions (a), (c) and (d).
The action complained of cannot certainly be ratified even by the majority and, therefore, it is ultra vires the powers of the company itself, He also contended that this is an instance where it is impossible for the plaintiffs to get redress anywhers except in a civil court. The 4th defendant, one of the Directors, will preside at any of these meetings and if they preside, then the Official Trustee's votes will not be accepted and, therefore, the intervention of the court is absolutely necessary.
In this connection he has relied upon Articles 65 and 66 of the Articles of Association of the 1st deft, company (Ex. A-15). Article 65 states that the Chairman (if any) of the board of directors shall preside as Chairman at every meeting of the company. Article 66 provides that if there be no such Chairman or if at any meeting he is not present within 15 minutes after the time appointed for holding the meeting, the members present shall choose some director to act and if there be no directors present and willing to act the members present snail choose some one of their number to be the Chairman.
These articles clearly show that it is only the 4th defendant or one of the directors that will preside at any of the meetings, and therefore Mr. V. K. K. Menon is justified in his contention that it is impossible for the plantiffs to get redress even if they approach the company for another meeting for the purpose of having the resolution cancelled.
49. The first plaintiff has been given a proxy by the 8th defendant and the first plaintiff has certainly been deprived of a legal right of exercising his vote on behalf of the 8th defendant and this has been the result of the action of the 4th defendant in negativing the right of the 8th defendant to be represented by a proxy. The learned counsel for the appellants has attempted to argue that most of the decisions relied upon by the lower courts are decisions which do not deal with the provisions of the new Company Act of 1956 which according to him has really enlarged the powers of the Central Government and other authorities.
We cannot accept this contention. We have already adverted to the particular provisions relied upon by Mr. Abraham as giving a right to tho plaintiffs to approach the Central Government or the 'Court' under the Act and have also held that these sections do not have any application to the facts of the present case. We do not find any provision in the Companies Act excluding the powers of a civil Court in respect of any matter.
Again, what is asked for in the plaint is that certain proceedings evidenced by certain resolutions purported to have been passed at the meeting of 22-7-1957 have not been validly passed and are not binding on the Company or the shareholders. That such a relief can be obtained in Civil Court and that by share-holders like the plaintiffs have been held in a number of decided cases.
We do not propose to deal with all those cases and we would confine ourselves to referring only to a few of those cases where the principles have been succinctly laid down. That even in respect of matters provided in the Companies Act the jurisdiction of the Civil Court is not taken away has been held in a decision of a Divison Bench of the Madras High Court in Mohideen Pichai v. Tinnevelly Mills- Co. Ltd,, AIR 1928 Mad 571, consisting of Shrinivasa Iyengar and Ananthakrishna Iyer JJ.
That related to a right of rectification of a share register, under Section 38 of the Act and the aggrieved party instituted a suit. The said decision was quoted with approval a later decision of the.
Madras High Court in Bank of Hindustan Ltd. v. Surianarayana Rao, (S) AIR 1957 Mad 702. In the later decision, the learned Chief Justice and Mr. Justice Fanchapakesa Iyer observed at p. 703 as follows:
'Though a petition is the normal way for moving the Court for rectification of the register a suit also can be filed under that Section, either alternatively or in addition as in this case. A ruling of a Bench of this Court in AIR 1928 Mad 571, shows this clearly.'
In R. K. Dhanuka v. S. C. Law, AIR 1950 PC 81, two resolutions passed at a meeting of a Company were challenged by way of a suit. It was also alleged that the said resolutions were an illegal infringement on the rights of the minority and the plaintiff asked for declarations to that effect and for consequential injunctions. The trial Court and the High Court granted the reliefs prayed for in the suit. In dealing with the objection that the matter was one concerning the internal management of the company in which the Court cannot interfere, their Lordships at p. 85 of the report observed as follows:
'The last point was that the matter was one concerning the internal management of the company in which the court will not on principle interfere. In their Lordships' opinion it is much more than that. To treat the resolution as effective would mean that the company could terminate the payment of the managing agents by ordinaiy resolution contrary to the Article which requires an extraordinary resolution.
This requirement was obviously intended as a protection to a minority who are not to have the appointment terminated against their will unless a particular majority finds in favour of it. Accordingly, their Lordships are in agreement with the decision of the Indian Courts in regard to resolution No. 2.'
Similarly in T. H. Vakil v. Bombay Presidency Radio Club Ltd., AIR 1945 Bom 475, a suit was filed by a share-holder of a company for a declaration that a ruling given by the Chairman of the Club at its last general meeting was invalid and for consequential reliefs. The learned Judge granted the declaration asked for in the plaint and also declared that the resolution on refusing to accept or adopt the accounts etc., was invalid.
The learned Judge directed the general meeting to be convened for the purpose of working out the relief granted. In Sree Krishna Jute Mills v. Krishna Rao, AIR 1947 Mad 322, Clerk J., observed at p. 324 as follows:
'Further. I cannot accept the second part of the appellants' contention, namely, that this Court as the Company Court is the only court having jurisdiction to inquire into these matters ...........
There is in my view no provision in the Indian Companies Act which gives the Company Court (i. e., the court having jurisdiction under the Act), exclusive jurisdiction in all company matters.
The law reports, both in India and in England, are full of cases which refute any such contention. I have been referred to a large number of those cases by counsel for the respondent, but I think it will bo sufficient if I observe that there are undoubtedly many such cases .................. There is also a considerable body of authority for the proposition that many of the special remedies provided by the Act are equally enforcible in the other courts by suit. That being so, it is, in my view, Impossible to regard the Company Court as having exclusive jurisdiction in all matters pertaining to companies.'
in Srinivasan v. Subramania Ayyar, AIR 1932 Mad 100, the dispute related to the election of directors and a suit was instituted for that purpose. At p. 104 of the reports the reliefs claimed by the plaintiffs have been extracted and they were for a declaration that the plaintiffs and the other shareholders arc entitled to elect five share-holders directors and for a declaration that a proper election by poll be ordered and they also asked for a declaration that the appointment of persons to fill the vacancies by co-option was illegal and invalid. The learned Judges observed at the same page:
'In substance, therefore, the suit is one to establish and enforce the right of a share-holder to exercise his vote.'
In dealing with the contention that the plaintiffs therein should have availed themselves of the remedies provided under the Articles of the Company, the learned Judges observe at p. 105 as follows:
'Nor do we think that the contesting respondents are on any better ground in contending that the plaintiffs should have availed themselves of facilities for rectifying the position afforded by the Articles of the Company. The learned trial Judge considered that it was open to the share-holders by special resolution to remove the so-called director from office, a course dependent upon securing 3/4ths majority.'
In the end the learned Judges granted the declaration that the co-option of certain persons as directors was illegal and that the share-holders were entitled to elect some of their number to those vacancies. A case analogous to the present one is to be found in the decision reported in Nagappa Chettiar v. Madras Race Club, AIR 1951 Mad 831 (2), decided by Satyanarayana Rao and Panchapakesa Sastri JJ. That was a suit filed by some share-holders for a declaration that a meeting of the general body of members of the Madras Race Club held on 7-11-1947 was invalid and void and that all business transacted thereat was invalid null and void and also for a declaration, that the managing committee purported to have been elected at the said meeting was not lawfully or validly elected and were not entitled to remain in office and to function.
There were also certain other declarations asked for along with the prayer for an injunction against the persons who claimed to have been elected to the managing committee. If we may say so with respect, Mr. Justice Satyanarayana Rao who delivered the leading judgment in that case, has very exhaustively considered the several leading decisions about the maintainability by share-holders of an action like that and also the jurisdiction of the civil courts to interfere in such matters and we entirely agree with the reasoning and principles laid down by the learned Judges in that decision.
At p. 835 the learned Judges discuss the question whether the suit as framed was maintainable. The trial Judge had held that suit as framed was incompetent as according to the learned Judge the rule in (1843) 67 ER 189, applied to the case. In dealing with this contention the learned Judges observe at p. 835 :
'A share-holder is entitled to institute a suit to enforce his individual rights against the Company such as his right to vote or his right to stand as a director of a company at an election ...........
It is open to a majority always to set right a thing which was done by the majority either illegally or irregularly if thing complained of was one which the majority of the company were entitled to do legally and was within the powers of the company, by calling a fresh meeting. That is the reason why in such cases the court refuses to interfere at the instance of a share-holder even in a representative action brought by him. If the majority, however, acts in an oppressive manner, it is not as if the minority are without a remedy.'
The learned Judges quote a passage of Sir James Wigram. Vice Chancellor, in (1843) 61 ER 189. After discussing the principle laid down in (1843) 67 ER 189, the learned Judges observed that later decisions have recognised exceptions to what is conveniently known as the rule 1: (1843) 67. ER 1189. At p. 836, the learned Judges observe:
'From this it follows that a share-holder or share-holders are entitled to bring an action (1) in respect of matters which are ultra vires the company and which the majority of share-holders were incapable of sanctioning (See Burland v. Earl, 1902 AC 83); '(2) Where the act complained of constitutes a. fraud on the minority and (3) where the action of the majority is illegal'.
50. In that case the plaintiffs attempted to bring their grievances under two exceptions, namely that the acts complained of are illegal acts and secondly, that if the said resolution was not passed or passed illegally, the effect of applying the rule in (1843) 67 ER 189, to that case would be in directly to sanction by an ordinary resolution which the law requires to be passed only by a special resolution.
The learned Judges accepted the contention that the said case fell within the said two exceptions and that the suit was maintainable. At p. 841 of the reports it is also seen that the learned Judges held that the special resolution being item 2 in the agenda before them was not passed that the meeting of the 7th November was not legal and that the members of the managing committee were not duly elected. To a similar effect is the decision of Mr. Justice Satyanarayana Rao and Mr. Justice Chandra Reddi in Narayana Chettiar v. Kaleeswara Mills Ltd., AIR' 1952 Mad 515.
From p. 519 of the reports it will be seen that two unseated directors instituted the suit challenging the right of the share-holders to elect a particular person as the Chairman and that certain votes recorded under certain proxies should not have been excluded. The learned Judges granted the declaration asked for and also granted an injunction as against the company, from giving effect to those resolutions. Therefore, the decisions referred to above clearly show that the plaintiffs have a cause of action to agitate their grievances in the civil court and that civil courts have got jurisdiction to grant appropriate reliefs in such cases.
51. In this view, all the contentions of Mr. Abraham fail and the decrees and judgments of both lower courts are confirmed and this appeal dismissed with costs of plaintiffs. The trial court fixed the 1st of March 1958 as the date for holding the continuation meeting of the 37th annual general meeting. The learned District Judge fixed the date as 1-5-1958.
52. As that date also has expired we fix that the said meeting be held on Monday the 1st December 1958 for which the necessary steps will be taken by the Commissioner already appointed by the trial court. We also confirm the appointment of the Receiver to be in management till a proper Board is elected and we also confirm the other directions given to the said Receiver.