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V.M. Rao and ors. Vs. Rajeswari Ramakrishnan and ors. - Court Judgment

LegalCrystal Citation
SubjectCivil
CourtChennai High Court
Decided On
Reported in(1976)1MLJ393
AppellantV.M. Rao and ors.
RespondentRajeswari Ramakrishnan and ors.
Cases ReferredNagappa Chettiar v. Madras Race Club
Excerpt:
- .....above named. we are here however concerned with the 6th defendant company. one of the terms of the family arrangement said to have been made by ramakrishna when he was alive in the presence of and with the consent of the parties to the present original action runs as follows. 'participation in the management and affairs of v. ramakrishna sons limited, the then managing agents of the k.c.p. limited will be the exclusive entitlement of the two sons, v.m. rao. (first plaintiff), v.l. dutt (fifth defendant) and/or their respective branches along with their mother v.r. durgamba during her lifetime.' similar mandates are said to have been the subject-matter of the above family arrangement made by the late ramakrishna. the plaintiff's specific case is that that family arrangement which is, no.....
Judgment:
ORDER

T. Ramaprasada Rao, J.

1. These appeals arise out of the order of Mohar, J., in which he refused certain reliefs prayed ad interim by the appellants as petitioners in an original suit filed by them on the original side of this Court. The plaint was by three shareholders of V. Ramakrishna Sons Limited against the other shareholders for certain reliefs. The learned Judge in his order has set out in extenso the reliefs asked for. In the original action the plaintiffs appellants claim that the 6th defendant was the managing agent of a public company known as K.C.P. Limited and the said parent firm Was floated by the common ancestor of the family, the late V. Ramakrishna. When he was alive V. Ramakrishna on his own initiative floated many companies such as the parent company and the R.S. Industrial Corporation Private Limited and the 6th defendant company as well. According to the plaintiffs when Ramakrishna was alive in order to set at rest present or possible bickering in the family, he made certain suggestions which were incorporated by the plaintiffs in the pleadings and reproduced by the learned Judge in his order whereunder certain mandates were set by him in the name of amity and harmony in the family in the case of the management and the affairs of the companies above named. We are here however concerned with the 6th defendant company. One of the terms of the family arrangement said to have been made by Ramakrishna when he was alive in the presence of and with the consent of the parties to the present original action runs as follows. 'Participation in the management and affairs of V. Ramakrishna Sons Limited, the then Managing Agents of the K.C.P. Limited will be the exclusive entitlement of the two sons, V.M. Rao. (first plaintiff), V.L. Dutt (fifth defendant) and/or their respective branches along with their mother V.R. Durgamba during her lifetime.' Similar mandates are said to have been the subject-matter of the above family arrangement made by the late Ramakrishna. The plaintiff's specific case is that that family arrangement which is, no doubt, not incorporated in any instrument in writing wag acted upon and agreed to by all the parties to the present action and the defendants 1 to 5 have acted quite contrary to the letter and spirit of the said family arrangement in the matter of the administration of the affairs of the 6th defendant company and it became necessary for them therefore to come to Court and seek for the necessary declarations which we are not incorporating in' this order which in the main relate to the enforceability of and the binding nature of the family settlement said to have been made by Ramakrishna. Contemporaneous with the initiation of civil action as above, two interlocutory applications are filed, Application No. 3246 of 1975 and Application No. 3247 of 1975. In Application No. 3246 of 1975 which is supported by an independent affidavit sworn to by the first plaintiff, the allegations are in pari materia with the main allegations in the pleading. The plaintiffs sought for a temporary injunction against the respondents 1 to 6 restraining the implementation of a resolution of the 6th defendant company through its Board of Directors held on 3rd December, 1975 whereby the 5th defendant Was authorised to act as the representative of the company with the right to vote at the annual general meeting of the K.C.P. Limited to be held at Madras on the 29th December, 1975. Incidentally, they sought also an injunction as against the second respondent or one Jayaraman, the manager of the 6th defendant company in case they were to act as alternates of the 5th defendant in the matter of the exercise of the voting power of the 6th defendant company at the annual general meeting of K.C.P. Limited. Application No. 3247 of 1975 was another application in which the plaintiffs sought for a mandatory injunction permitting the; plaintiffs as applicants in the said application and respondents 1 to 5 to exercise the voting rights of the 6th defendant company at the annual meeting of K.G.P. Limited to the extent of their respective shareholding in the said company. Both these applications were heard together. The learned Judge was not prima facie satisfied that there was a binding family arrangement which could be taken judicial notice of at the interlocutory stage which would compel him to base his conclusion on that assumption. Having so expressed himself on the material allegations in the plaint the learned Judge would not grant the injunctions as prayed for. It is as against this, the present appeals have been filed.

2. Mr. Parasaran, Learned Counsel for the appellants touched upon the pleadings and the affidavits in support of the applications in which the injunctions are sought for. In the plaint a reference is made to the fact that a family arrangement was thought of by the late V. Ramakrishna and that he devised such an arrangement set out by the plaintiffs in paragraph 6 of the plaint. We have already excerpted the relevant clause. The defendants-respondents who have had the opportunity to plead only in their counter-affidavit refuted the existence of such family arrangement, in particular respondents 2 to in paragraph 4 of their counter-affidavit would deny that there was any family arrangement as elaborated in paragraph 6 of the plaint. They also deny that they agreed to the same at or about the time when it was conceived by the late V. Ramakrishna. They would only harp on the indention of the porosities who at all times inclined that the two brothers should jointly take over the management of the K.C.P. Limited and that his daughter should take over the management of Jaipur Sugars Limited. Repeatedly however they would characterise the family arrangement as an alleged one and would categorically deny it as well. It is in these circumstances, that the request of the appellants-petitioners should be adjudged.

3. For this purpose, however, certain relevant dates chronologically and the events that happened on such dates have to be set out. On 8th March, 1975 a notice to the shareholders was issued at or about the time when the plaintiff was about to retire by rotation. On 21st March, 1975, the first plaintiff apparently apprehending that the 5th respondent was about to induct the first and the second defendants into the Board of the 6th defendant referred once again to the settlement said to have been affected by the late Ramakrishna in 1962 and practically set out in extenso his grievances. If such an induction was permitted he would say, in his own words, I would be deprived of any voice both in the affairs of the company and in the companies in which this company hold substantial shares.' The 6th defendant however by its notice dated 27th March, 1975 called for an annual general meeting of the company on 22nd April, 1975 in which it included in the agenda items of special business such as the appointment of first and the second defendants as additional directors to the Board of the 6th defendant company. The said meeting as notified was held on 22nd April, 1975 in which the first, second and the third plaintiffs were represented by proxy. Amongst other items of agenda carried out on that date, the relevant items which were put forth and carried Were the induction of the first and the second defendants to the Board. Thereafter, three board meetings took place in May, July and October, 1975. From the record it does not appear that till September, 1975 at any rate the plaintiffs took up any cudgels against the induction of the first and the second defendants as directors of the company. But on 2nd September, 1975 the first plaintiff made a formal representation to the company that the minutes of the meeting held on 22nd April, 1975 required a correction. While pointing out, according to him, the mistakes which crept into the record of the company he would in a cursory fashion refer to the fact that his proxy who attended the meeting on 22nd April, 1975 was not allowed to participate in the discussions. 'But as we said, the two directors were inducted in the annual general meeting on 22nd April, 1975 by a majority vote and in which the plaintiffs exercised their vote through their attorney. It is therefore fairly clear that on 2nd September, 1975 when the first plaintiff expressly referred to the resolution at the annual meeting of the company on 22nd April, 1975 he did not categorically raise any objection against the election of the two directors. He did not even incidentally by necessary implication refer to the family arrangement. He only wanted that certain mistakes in the minutes are to be corrected as suggested by him. Thereafter, he gave another notice on 29th November, 1975 referring to the family arrangement and complaining that the induction of the first and the second defendants to the company as directors was opposed to and contra to the family arrangement. On 3rd December, 1975 the Board once again meets as by then it became necessary for them to pass a requisite resolution under Section 18 of the Companies Act, where by they we e compelled to send one of their representatives to the 34th annual general meeting of the K.G.P. Limited. For this Purpose, a meeting was called for on the 3rd December, 1975. Under items 3 of the agenda therein the 5th defendant failing him R. Prabhu the second defendant or failing him Sri A.V. Jayararnar the manger of the 6th defendant company was authorised to represent the company at an annual general meeting of the K.C.P. to be held on 29th December, 1975 In that meeting a reference was also made to the earlier complaint made by the first plaintiff in his notice dated 29th November, 1975, and the Board resolved that there were no proper grounds for adjourning the meeting which was sought apparently by him. Regarding the vituperative matter in the said letter, the Board thought that the averments pertained to family matters between the concerned directors and it was a matter for the individuals to take it up themselves. Thereafter the first plaintiff repeated one again his grievance in his letter dated 12th December, 1975. The events chronologically set out as above do not give us the impression that the respondents in these applications at any time prior to the institution of the main action gave the plaintiffs the impression that they were agreeing to the alleged family settlement set out by (he first plaintiff; nor did they agree with it by their conduct. Prima facie, therefore we arc of the view that the learned Judge was right in having expressed on merits thus: 'On a reading of the entire plaint. I am unable to make out as to how it will be open to the applicants at this stage without any further proof to contend that there was a family arrangement relating to either the holding on the shares or the division of voting rights.' Mr. Parosaran himself at one state would only depend upon the self-serving pleadings which are before us to project the case of an enforceable family arrangement But the cause is yet to be tried It is for the plaintiffs to establish in the course of the litigation that there was such a binding family settlement which is enforceable in a manner known to law. But these preliminary observations of ours are to find out whether the equitable remedy of injunction should be granted to the plaintiffs at this stage, and no doubt do not bind either of the parties to the litigation at the trial stage. But as the course of litigation is not yet over and as the plaintiffs have to establish in the teeth of opposition that there was such a family settlement thought of, conceived, implemented and acted upon by the members of the family, at this stage they are not able to accept the contention as such to find whether he equitable relief of an injunction could be granted or not.

4. Even assuming for argument's sake that the plaintiffs' case is true, it is difficult for us to accept the contention of Mr. Parasaran that a civil Court can in a summary enquiry like the one be fore us restrain the normal flow of the rights which arc to follow the resolutions passed by an incorporate d company while dealing with its indoor management. It is well established that there is a dischotomy as between the shareholders and the company and as the Supreme Court said in Bacha F. Guzdar v. Commissions of Income-tax, Bombay : [1955]27ITR1(SC) .

There is nothing in the Indian Law to warrant the assumption that a shareholder who buys shares buys an interest in the property of the company which is a juristic person entirely distinct from the shareholders.

5. Family arrangements are arrangements made as between the members of the family in order to avoid genuine disputes in general and to promote corporate amity and goodwill. No doubt disputes in presenti and in future may also be the subject matter of such settlements. The foundation of a family settlement however is to create harmony amongst its members. But the question is whether in a family arrangement, inter se provision could be made touching upon the voting rights of shareholders in a corporate company, may be a private company. In a corporate company, it is an accepted canon that the memorandum of association is its Magna Carta and the articles of association is a business document, though subservient to the memorandum. In some private companies, the regulations in Table A are adopted so as to avoid repetition. If the table A regulations are thus adopted by incorporation as in the instant case, then such articles of association would be a binding contract as between the shareholders and the company. In a private company the bond of domestic relationship is the bedrock of incorporation. The solemnity attached to the articles and the birding nature thereof cannot be lightly whittled down by another contract which is in the nature of a family settlement which may be the equation of a domestic adjustment of differences or rights. Independent and separate rights in each of the shareholders is not built in the infra-structure of a corporate company. This is so because a special provision is made in the Companies Act itself which speaks of the methodology by which the articles of association could be amended, altered or varied. In fact, to amend or vary an article of a company, a special resolution in the prescribed manner is required. In the instant case, apart from the fact that there is no instrument evidencing the family arrangement, which of course is not necessary, the existence of such an agreement is seriously in dispute. What is vaguely suggested is that for several months such an arrangement was freely talked of and the Courts should therefore presume that such an arrangement has been arrived at by the patties having regard to such supervening conduct. We have already referred to the events which do not either collectively taken or independently considered give us the reasonable impression that there was any such binding family arrangement. It is however for the plaintiffs to bring in more hypothesis to establish. Mr. Parasaran however says that the just and equitable rule should be invoked and the Courts are not to be wooder in the matter of the invocation of such principles in cases like this. No doubt, the corporate veil can be pierced through in cases where the Courts' conscience is provoked and there is sufficient and ample material to crack the shell of incorporation. But this doctrine cannot be extended so as to substitute the articles of association which is a binding contract as between the members and the company by another contract which in the eye of law and according to the provisions of the Companies Act cannot be adopted, recognised and captioned as articles of association. It is conceded that the articles have not been so far amended so as to prevent the induction of more directions or to divide the Voting rights in a manner as spoken to by the plaintiffs. If the terms of the family arrangement have been incorporated in the articles there would have been no difficulty But so long as regulation 74 of table A is the guideline and the norm which ought to be followed by the present company then to make an inroad into such an agreed prescription something which is effective in the eye of law is necessary and not a vague assertion about the existence of a family arrangement which as we repeated before is not accepted and is disputed. It is also an accepted principle of law that if a special method is prescribed to do a particular act, there cannot be any Circumvention to that method, even though the alternative procedure sought for might be congenial, genuine, just or equitable. We have referred to the apprehensions of the plaintiffs in his correspondence wherein he complained of the possible oppression by the majority If the plaintiffs are so apprehensive and if they are confident that the affairs of the company, in the hands of such a majority would prejudice them the Companies Act again in Chapter VI has provided under Sections 397 and 398 adequate relief to such aggrieved persons to obtain the necessary reliefs. But, in our view, a civil Court functioning under the normal common law cannot usurp the powers of a Company Court whose jurisdiction springs from an enactment of Parliament and adjudge common law rights on, a priori considerations.

6. The two directors i.e., the first and the second defendants were inducted on 22nd April, 1975 Three further meetings were held after they became qualified to sit in the Board and no objections were raised against their functioning by the plaintiffs as co-directors. As rightly pointed out by Mr. T.R. Ramachandran, if there is any flaw in the appointment of the first and second defendants as directors, Section 290 of the Companies Act would make their acts valid, notwithstanding any invalidity attached to their appointment. Again the resolutions passed on 3rd December, 1975 is a resolution passed in the usual course of corporate business. As the annual meeting of K.G.P. Limited is coming, the 6th defendant as a shareholder in that company is to be represented. The manner of representation, the method by which persons could be sent to represent an incorporated company in an annual meeting of another incorporated company are again prescribed under Section 187 of the Companies Act. Any meeting of the Board is governed by the principle of the rule of majority. This is so because regulation 74 in table A has been incorporated in the articles of association of the 6th defendant company. The resolution passed by the company on 3rd December, 1975 which is seriously challenged by the plaintiffs-appellants is one passed by the company in its usual course and in accordance with the provisions of the Companies Act. It is in these circumstances the content ion of Mr. Parasaran has to be weighed that notwithstanding the technicalities as above, the reasonable apprehension entertained by the plaintiffs that they would be oppressed by the majority should take the field and justice and equity should be done by preventing the 5th defendant or the other nominees as per the resolution dated 3rd December, 1975 to participate in annual meeting of K.C.P. Limited. In fact, the first plaintiff while complaining of such oppression would suggest a resolution by himself which was framed by him in his letter dated 21st March, 1975. If that resolution is passed by the company, he would say, that he would have no objection to the first and second defendants being elected as directors. In the light of this concession made by the first plaintiff, we are afraid that the just and equitable rule pleaded by Mr. Parasaran, would be totally inapplicable. The first plaintiff seeks for equity for the furtherance of his own cause No Court would invoke equity in such circumstances.

7. Learned Counsel for the appellants referred to In re Westbourne Galleries (H.L.(E)) (1973) A.C. 360, in which the just and equitable rule was invoked in a cast where a company was sought to be wound up. At page 375 the learned law Lords were told where a limited company, however, small, essentially differs from a partnership; and that in the case of a company the rights of its members are governed by the articles of association which have contractual force and that the Court has no power or at least ought not to dispense parties from observing their contracts'. These submissions made to the learned law Lords were accepted by the House of Lords. Further, that was a case where the history of the company was traced to a partnership and the Court found as a fact that the company was working more on the lines of quasi-partnership and having regard to the facts of that case it had to be wound up because of certain circumstances, on the principle of just and equitable rule. In Ram Autar Jalan v. Coal Products (P.) Ltd. (1970) 40 C.C. 715, the Supreme Court was considering a case where the aggrieved person was not shown as a shareholder and was not appointed as a director of the Company as claimed by him. In those circumstances, the Supreme Court said a civil action could be founded by the company so as to disclaim the claims of an impostor Nagappa Chettiar v. Madras Race Club : (1949)1MLJ662 , was a case prior to the passing of 1956 Companies Act which was later amended. That was a situation where the Court granted relief to the aggrieved person against the oppression of the majority by allowing him to agitate such problems in a civil Court. But on the date when the present action had been filed, there was an alternative remedy provided under the Companies Act itself which would enable the plaintiffs to secure such reliefs in case of mismanagement or oppression when the affairs of the company were not properly or regularly carried out. The case in In re A and B C Chowing Gum (Ch.D) (1975) 1 W.L.R. 579, was one in which, there was an open violation of the articles of association It was in those circumstances the just and equitable rule Was invoked, and a civil action which was contemporaneously filed along with the proceedings under the Companies Act, was entertained and adjudicated upon.

8. In the present case however it is for consideration whether the injunction asked for by the appellants could be granted either under Order 39, Rule 2 or Order 39, Rule 1, Civil Procedure Code, Rule 2 of Order 39, refers to the grant of an injunction to restrain repetition or continuance of breach of a contract or other injury. This is not a case of breach of contract But it is argued that the plaintiff, are injured by the resolution dated 3rd December, 1975 An injury could be projected only if there is a base for complaint The resolution as we expressed already could be passed by the 6th defendant and its Board and it is within their competence. In fact, no relief is asked for by the plaintiffs as against the 6th defendant or even the 5th defendant. It is by virtue of the resolution of the Board of Directors of the 6th defendant that the 5th defendant or the other nominees mentioned in the resolution are going to represent the 6th defendant at the annual meeting of the K.C.P. Limited If no relief is asked as against the 6th defendant, then it passes our comprehension as to how under Rule 2 of Order 39 the plaintiffs may complain of any injury to him Under Order 39, Rule 2, Indian Penal Code also in our view the plaintiff, cannot get an ad interim injunction No property of the 6th defendent is in dispute or is in danger of being wasted, damaged or alienated nor is it pretended that the company or the other defendants intend to defraud the creditors and dispose of unauthorisedly the property of the company. As long as the resolution made by the company through its Board of Directors on 3rd December, 1975 is not questioned in the sense not questionable, the complaint about a future breach rests purely on a self-projected hypothesis of a family arrangement. The material before us is not sufficient to accept the contention of Mr. Parasaran that there is an enforceable family arrangement. There is time enough for the plaintiffs to establish the same. But as matters stand we agree with the learned Judge that the plaintiffs are not entitled to the ad interim injunctions as prayed for. The appeals are therefore dismissed. There will be no order as to costs.


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