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Mahaliram Santhalia Vs. Fort Gloster Jute Manufacturing Co. Ltd. and ors. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtKolkata High Court
Decided On
Case NumberSuit No. 901 of 1954
Judge
Reported inAIR1955Cal132,[1954]24CompCas311(Cal),58CWN715
ActsCompanies Act, 1913 - Sectiosn 33, 76 and 79
AppellantMahaliram Santhalia
RespondentFort Gloster Jute Manufacturing Co. Ltd. and ors.
Appellant AdvocateAdv. General, ;S.M. Bose, ;H.N. Sanyal and ;A.K. Sen, Advs.
Respondent AdvocateS. Chaudhuri and ;P. Ginwalla, Advs.
DispositionApplication dismissed
Cases ReferredErnest v. Loma Gold Mines Ltd.
Excerpt:
- orderp.b. mukharji, j.1. this is an application by the plaintiff for an injunction to restrain the first defendant, fort gloster jute ., from acting upon and communicating to the central government the resolutions purported to have been passed in the meeting of the defendant company, port gloster jute ., held on 16-3-1954.2. the tussle is over- the managing agency of this company. the main issue in this controversy relates to the transfer by sale of the total interest of ordinary share-holders in kettlewell sullen & co. ltd., the present managing agents, to messrs. mugneeram bangur & co. kettlewell sullen & co. ltd., has been the managing agent of the defendant company for a long time. some share-holders are in favour of such sale of the shares of kettlewell bullen & co. ltd., and others.....
Judgment:
ORDER

P.B. Mukharji, J.

1. This is an application by the plaintiff for an injunction to restrain the first defendant, Fort Gloster Jute ., from acting upon and communicating to the Central Government the resolutions purported to have been passed in the meeting of the defendant Company, Port Gloster Jute ., held on 16-3-1954.

2. The tussle is over- the Managing Agency of this Company. The main issue in this controversy relates to the transfer by sale of the total interest of ordinary share-holders in Kettlewell Sullen & Co. Ltd., the present Managing Agents, to Messrs. Mugneeram Bangur & Co. Kettlewell Sullen & Co. Ltd., has been the Managing Agent of the defendant Company for a long time. Some share-holders are in favour of such sale of the shares of Kettlewell Bullen & Co. Ltd., and others against it. There are allegations that they are being sold at a fabulous price which allegations are denied. Rivalry between Lala Lakshmipat Singhania and Messrs. Mugneeram Bangur & Co. is alleged to be the main motive of these proceedings.

3. At the moment the present controversy relates to a meeting of the share-holders where it was decided that such transfer should be made. The actual resolution before the Company was:

'That the proposed sale of the 100 per cent. interest of the ordinary share-holders in Kettle-well Bullen & Co. Ltd., the Managing Agents of the Company to Messrs. Mugneeram Bangur & Co., of 7 Lyons Range, Calcutta, be and is hereby approved and that the Directors be and are hereby authorised to notify the Managing Agents of this Company's approval of such sale.'

4. At the meeting of 16-3-1954, the Chairman declared the resolution passed with 1164 votes for, and 313 votes against. The voting was not by a show of hands but by a poll.

5. The suit filed by the plaintiff challenges this result of the meeting. Its main ground for the challenge, is that the Chairman of the Company and Directors of the Company in collusion with the scrutineers fraudulently. rejected certain proxies, a list of which is set out in Paragraph 18 of the petition. It is the case of the plaintiff that such rejection was improper and illegal. The main point of submission on the allegation of improper and illegal rejection of proxies is not concerned, however, with any alleged fraud or conspiracy, & the, learned Advocate-General appearing for the plaintiff applicant rightly conceded before me that he was not pressing the question of fraud or conspiracy at this stage of the interlocutory application. Obviously that was the correct approach because no question of fraud and conspiracy can be tried on mere affidavits on an application. The. learned Advocate-General contended that he was putting his client's case, only on a point of law. The point of law on which he says the rejection of the proxies was illegal must, therefore, be briefly set forth.

6. The Allahabad Bank Nominees Ltd., and the Bank of India Ltd., were the holders of 256shares and 1735 shares respectively. In respect of their holdings the Allahabad Bank Nominees Ltd., gave two proxies, one to the applicant for 50 and the other to the Directors of the Company for 206, and the Bank of India gave two proxies, one to the applicant for 85 and another to the Directors of the Company for 1650 Ordinary Shares and 61 preference shares. It is the applicant's case that the votes of a share-holder could not be split up in that manner and all should have been rejected but notwithstanding the same the Chairman wrongfully and illegally rejected the proxy given by the Bank of India Ltd., in favour of the applicant and wrongly accepted those in favour of the Resolution. The Chairman also, it is contended, wrongly accepted all the votes cast under the two proxies given by the Allahabad Bank Nominees Ltd.

On behalf of the Company it is stated that the Allahabad Bank Nominees Ltd., is the holder of 196 shares and gave proxies in respect of 30 shares to the applicant and in respect of 165 shares to Geoffrey John Gardner, a Director of the Company and himself a defendant in this suit. It is also said on behalf of the defendants that the Bank of India Ltd., is the holder of 1941 shares and gave a proxy in respect of 95 shares to the applicant which, according to the Company, was lodged too late and proxies in respect of 1292 ordinary shares and 61 first preference shares to the same Geoffrey Gardner.

7. It is contended on this issue by the Company that shares registered in the names of Banks and their nominees are in the majority of cases shares that belong to the constituents of such Banks, and in respect of such shares the Banks are trustees and are bound to vote as their respective constituents may direct. It is also said that it is the usual practice for Banks to issue different proxies in respect of different parcels of shares.

8. It has also been shown on a calculation (which appears an Annexure F to Gardners affidavit) that even if the opponents of the resolution had been allowed to vote in respect of the disputed 445 shares in respect of which registration was refused and even if all the proxies lodged in time which are alleged to have been improperly rejected were counted and corresponding deductions were made from the total of votes cast in favour of the Resolution, the said resolution would still have been passed with a majority. The Advocate-General contends that Annexure P shows a perilous majority of one, and if his contention is accepted this majority of one will be wiped off.

9. This particular point of splitting the proxy has to be decided as a point of law. '

10. In an interlocutory application there must be a prima facie case both on facts and law which should justify the grant of an interim injunction restraining company management. That prima facie case should all the more be clearly made in the case where attempt is made to restrain the normal function of a Company according to the decisions of the domestic forum of the Company. Bearing these principles in mind, I now propose to discuss the prima facie case on law and on facts.

11. By Article 80 of the Articles of Association of the Fort Gloster Jute . it is provided,

'In case of any dispute as to the admission or rejection of any vote the Chairman shall determine the same and such determination made in good faith shall be final and conclusive.' Prima facie therefore, unless a case of bad faith is made, I consider it to be the normal course of the Court to allow the decision of the Chairman to stand as prima facie final until it can be found to be wrong at the trial and decision in the suit. If that principle is once accepted, then there is no scope here in this case for grant of an interlocutory injunction on the ground that the Chairman has wrongly rejected certain votes given by proxy or wrongly accepted such votes.

(12) The principle is fairly well settled on this point. In re: Indian Zoedone Co., (1884) 26 Ch D 70 (A) Lord Chancellor Selborne observes at p. 77:

'The minutes in the books are to be received, not as conclusive, but as prima facie evidence Of resolutions and proceedings at general meetings; and also it may be added, and I think correctly that the Chairman who presides at such meetings and has to receive the poll and declare its result, has prima facie authority to decide all emergent questions which necessarily require decision at the time, his decision of those questions will naturally govern, and properly govern the entry of the minute in the books; and, though in no sense conclusive, it throws the burden of proof upon the other side, who may say, contrary to the entry in the minute-book, following the decision of the chairman, that the result of the poll was different from that there recorded.'

That represents the main principle which should guide these Courts in granting an interlocutory injunction in these matters. In fact, Lord Justice Cotton in the same case observed at p. 81 as follows:

'The appellants seem to consider that it was for the respondents to justify and support the Chairman's decision. In my opinion that is their fallacy; it is for them to satisfy us that that decision was wrong not for those who rely upon that decision to bring evidence to show that' in fact it was right.'

13. The principle is also emphasised in a morerecent decision in -- 'Wall v. Exchange Investment Corporation Ltd., (1926) 1 Ch 143 (B). There'an Article of Association provided that no objection should be made to the validity of any voteexcept at the meeting at which it was tendered,and that every note, whether given in personor by proxy, not disallowed at any meetingshould be deemed valid for all. purposes. It washeld, affirming Rober, J., that the decision of,the Chairman, who, in the bona fide exerciseof the power conferred upon him by the Article,had refused to disallow a vote by proxy to whichobjection had been taken at the meeting, wasfinal and would not be reviewed by the Court.'Pollock M. R., at p. 145 delivering Judgment observed:

'* * * if the Chairman's discretion or powers are to be wide enough for him to determine the matter, and he does not disallow the votes, they are to stand and to be valid for all purposes whatsoever.'

The Master of the Rolls discusses different situations which it is needless for me to quote. I cannot improve on what has been said by Sargent, L. J., who was one of the members of the Court of Appeal deciding that a case along with Pollock, M.R., at p. 148 and it is this what Lord Justice Sargent says:

'It is obviously desirable that questions of this sort should be determined in a summary way and without the necessity of coming to the Courts. Mr. Swords says that, according to the terms of this article if the Chairman had disallowed a vote his decision is not conclusive. It may well be that in the case where a vote has been disallowed the shareholder whose right has been impeached to that extent should have a right to apply to the Courts. Here all that is done is to take away from a shareholder a right of appeal against a decision disallowing an objection by him against the votes of some other share-holder, and it seems to me quite reasonable that such a question should be allowed to be decided summarily and finally by the Chairman although there should not be the same summary and final effect given to a decision against the right of a shareholder to vote.'

I have only cited these cases to show the general principle in the matter of voting at Company meetings and which can be taken as a guide for granting interlocutory injunctions against Companies in course of their management.

14. Here the Article that I have quoted is very mucn wider than the Article which was considered by Lord Justice Sargent in the case of -- 'Wall v. Exchange Investment Corporation Ltd', (B). I am not concerned at present with the ultimate scope, effect and validity of this provision in the Articles of Association in excluding if it does the review by Courts. What is being emphasised is that prima facie it is the Company's Articles which have said that the Chairman's decision, if in good faith, shall be final and conclusive. Whether it succeeds in completely excluding the Courts from reviewing such decision in any case, is not a matter which I am called upon to decide on this application and I do not do so. But it is quite clear that from the point of view of 'prima facie' case, the Chairman's decision should 'prima facie' be allowed to stand before the suit is heard and a decision is given at the trial.

15. The results of my review of the authorities on this point show that the Courts have evolved certain well-defined principles which regulate Company meetings. Primarily the Articles of Association and the Company Statute provide the matrix of the Company Law on the point. Secondly, the Courts are generally reluctant to interfere with the decisions taken at Company meetings, unless there is almost a manifest breach of the Articles or the Statute, because it is the Company and not the Court which is responsible for its management.

The Court is hardly a substitute for the Company in this respect except in specified cases provided by Statute and these again are mostly cases where the Company itself finds it difficult to manage its own affairs as in liquidation or schemes or where in public interest the Court has to interfere or sanction as in cases of fraud by the majority on the minority or cases of amalgamation or reduction. This is the rule of domestic forum applied to company jurisprudence. The third principle which the Courts have evolved as a corollary of the first two principles, is that 'prima facie' the decision of the Chairman at such company meetings is allowed to stand until it is proved to be in breach of the Articles or the Statute. The burden of proving the Chairman's decision to be wrong rests with the party challenging his decision and it is not for those who rely on his decision to bring evidence in the first instance, to show that the Chairman was right. This is the rule of convenience and of practical wisdom. It is of great practical utility. The Chairman by virtue of his position and the nature of his duties has to decide on the spot all emergent questions that arise at the meeting and it will be mere folly to reduce the prima facie authority of his verdict. The burden of holding and conducting company meetings and recording votes cast therein and for taking decisions at such meetings is the primary responsibility of the Company's share-holders and their chosen directors and not of this Court.

16. The learned Advocate-General realised thatunless he could show prima facie that some ofthese proxies which were accepted or rejected werecases of obvious or prima facie illegal rejection orreception of votes, he could not sustain his application for interlocutory injunction. By consent ofMr. Choudhury the learned counsel appearing forthe Company, and the learned Advocate-Generalfor the plaintiff, it was decided to scrutinise thedisputed proxies which were brought into thisCourt to enable the learned Advocate-General toprove his prima facie case. The learned Advocate-General selected two classes of proxies -- one ofSaurashtra and the other of Central Bank of IndiaLtd., and said that he would satisfy me that primafacie his client's case should be accepted. I mustrecord here that on examination it was found thatthere was no prima facie case against the defendants on these two proxies. The prima facie case ofthe plaintiff therefore fails on this aspect of thecase.

17. I am therefore satisfied on the basis of these principles, that the prima facie case on fact in this case, is against the applicant and that justifies the refusal of this Court to grant an interlocutory injunction.

18. Then comes the prima facie question of law. As I have already indicated the main challenge is that the share-holder holding a number of votes cannot split his votes and give a few to one proxy and others to another proxy.

19. The basis of the argument is the plausible one that a share-holder being one person, whether a Company or a Corporation, cannot be expected to say 'yes' and 'no' on the same resolution. The answer that is given is that each share carries the right to vote, and, therefore, logically and legally every share has a voice to be heard and there is nothing in law which prevents such voice being exercised in any way as the holder chooses to do. He may say 'yes' and 'no' in the same resolution and make himself foolish or he may say that he has not been able to come to a decision one way or the other and so distribute his votes equally to maintain the balance by distributing his votes equally on either side. Nor is it unknown in Company meetings or other meetings for the Chairman to have a casting vote in addition to the one he has as a member and there is nothing to the rule of law or practice which prevents the Chairman from using his original vote for and his casting vote against a resolution.

The learned Advocate-General who appears for the plaintiff in this case then proceeds to contend that this view cannot be supported because it is inapplicable in a case where there is voting by show of hands. A man can only show his hands once and having done so, his power is exhausted although he may be holding proxies for numerous other persons. The analogy of voting by show of hands is misleading and its fallacy requires to be demonstrated because the plausibility of that argument appears very convincing at the first blush. The learned Advocate-General has backed up his argument by reference to the new amendment in the English Company Law which is now Section 138 of the English Companies Act of 1948 which says: 'On a poll taken at the meeting of a company or meeting of any class of members of a company, the member entitled to more than one vote, need not, if he votes use all his votes or cast all his votes he uses in the same way. From this the learned Advocate-General concludes that this was, necessary because it could not be done without an Act of Parliament. He backs It up by drawing my attention to paragraph 77 of the Indian Company Law Committees Report where the same proposal has been made with further improvement by including even the proxies. I will presently show from an extract from the Report of the Committee presided over by Mr. Justice Cohen in England which was the precursor of the amended English Companies Act on this point, that the learned Advocate General's hypothesis is wrong.

20. I have carefully gone through the authorities on this branch of the law and I am satisfied that the learned Advocate-General's contention ia not sound and cannot be accepted. The main reason for not accepting his argument is first, that the analogy that proxies cannot be counted on a show of hands and therefore should be rejected is a defective analogy. The. main reason to describe the analogy as defective is that by a long series of cases and judicial pronouncements in England it has been clearly laid down that proxies cannot be used on a show of hands but they can be used on a poll. The second reason for rejecting the Advocate-General's contention is that it is not correct from, the point of view of legal history, when he said that without an Act of Parliament this splitting of votes could not be done. I and from the history of precedents and review of authorities in England that it was done and at least attempted to be done more than once and there was serious conflict of judicial opinion on the point whether it would be done or not.

The reason, therefore, of an Act of Parliament was to clarify the law and to set all this conflict at rest. It is abundantly made clear by a reference to paragraph 135 of the Cohen Committee's Report on English Company Law amendment where it is recorded:

'When a nominee holds shares in a company on behalf of more than one beneficial owner, he normally consults the persons on whose behalf he holds the shares before voting on any resolution before the share-holders. The beneficial owners of the shares may have divergent views on the proposals put before them. Some will instruct the nominee to vote for the proposals, some will instruct him to vote against. Nominees usually carry out these instructions. It is however doubtful whether it is legal for a share-holder to use some of his voting power in support of a resolution and some of it against the same resolution, though in practice, it is obviously desirable that a nominee should express as faithfully as possible the views of the persons on whose behalf he acts. We accordingly suggest that it should expressly be laid down that a share-holder may, if he wishes, either in completing a proxy form or in voting himself on a poll at a meeting, direct that some of his votes shall be cast for the resolution and some against or use only a part of the votes to which he is entitled'.

21. I propose to indicate the land marks in the case laws on the point in order to show that the prima facie case in law even is against the contention of the plaintiff.

22. The first decision is -- In re Horbury Bridge Coal, Iron and Waggon Co.', (1879) 11 Ch. D 109 (C), decided in the year 1879. In that case Bacon, V. C. held that the proper mode of voting was by heads or by shares and he was of the view that even on a show of hands the shares had to be counted and that even in a case where no poll was demanded. The decision of Bacon, V.C. was upset in the Court of Appeal by Jessel, M.R. sitting with Bramwell, L. J. and Brett, L. J. Jessel, M. R. at page 115 of that Report observes:

'We will first of all consider what may be termed the common law of the country as to voting at meetings. It is undoubted, and it was admitted by Sir Henry Jackson in his argument for the Respondents, that, according to such common law. votes at all meetings are taken by show of hands. Of course, it may not always be a satisfactory mode -- persons attending In large numbers may be small share-holders, and persons attending in small numbers may be large share-holders, and therefore in companies provision is made for taking a poll, and when a poll is taken the votes are to be counted according to the number of shares, in some casesaccording to the number of shares absolutely, as in this company, viz., a vote for every share, while in other companies there is another scale, and the number of votes increases, but not so rapidly as the number of shares, and there is alimit to the number of votes which a singleshare-holder can have.'

The Court of Appeal came to the conclusion in that case that proxies were to be counted on a show of hands.

23. Chronologically the next case of importance is 'Bidwell Brothers Ltd., In re. It represents an interesting and important episode on the evolution of this branch of the Company law. It came in the year 1893 and the case is reported in (1893) 1 Ch. D. 603 (D). There Vaughan Williams, J. observes at p. 607:

'I have come to the conclusion that the votes of the members who were present only by proxy ought to be taken into consideration even though no poll was demanded.'

The learned Judge also expressed the view at page p. 608:

'It is said the votes of those persons can be counted, and will be counted, when a poll is demanded, and that it is intended that their voice shall be heard on that occasion only. It seems to me that a decision to that effect would create great injustice to the members present at a meeting by proxy only, because, according to the decision in -- 'Beg v. Government Stock Investment Co.', (1878) 3 QBD 442 (E) the proxies do not seem able to demand a poll. I think that, under these circumstances, I ought to hold that the Chairman of this company was right in counting the votes of the members who were present by proxy. The votes of those persons must be counted as the votes of persons actually present, not according to the number of shares they hold, but each person present by proxy must vote as one person and one person only, and the Chairman must ascertain the way in which he wishes to vote from his proxy.'

This case was not followed by Chitty, J. in the year 1896 in -- 'Ernest v. Loma Gold Mines Ltd., (1896) 2 Ch. D. 572 (F). There Chitty, J. came to the conclusion that at a meeting of the. shareholders of a Company convened for the purpose of a special resolution, though the regulations of the Company provide that votes may be given personally or by proxy, a member 'present only by proxy has no right to vote upon a show of hands. Chitty J. disapproved of the decision in Bidwell Brothers Limited'. Most of the arguments of Chitty J. from pages 578 to 580 is concerned with showing the practical inconvenience of counting proxies on a show of hands. But the learned Judge does say at pp. 579-80: 'The proxies come in when, the poll is demanded'.

24. Then in the year 1897 the view of Chitty J. in the above case was upheld in appeal, reported in -- 'Ernest v. Loma Gold Mines Ltd.', (1897) 1 Ch. D. 1 (G), overruling finally the decision in 'Bidwell Brothers Limited'. The real basis of that decision was that it was against the nature of a show of hands that one hand should count for more than another and a man who holds up hishand holds it up in respect of all his voting power. The decision in appeal was rendered by Lindley L. J. sitting with A.L. Smith L.J.

25. The review of those authorities shows that certainly from 1879 until 1897 there was great divergence of judicial opinion. This fact alone indicates that it cannot be suggested that the new Section 138 in the. English Companies Act was only introduced to create a new statutory right which was never recognised before.

26. From these authorities two propositions emerge quite clearly. First, while there was at. common law no right of voting by proxy it has come in by way of special company regulations and company statutes. It was never questioned that proxies must be counted at a poll though not by a show of hands and therefore the Advocate General's argument of reducing votes by poll to the same level as votes by show of hands is unsound. The next proposition then is that if the proxies are to be counted at a, poll, and I need only repeat here that in the case before me it is not a case of show of hands but of poll, then how are the proxies to be counted? In this case, for instance, the Allahabad Bank Nominees Ltd., and the Bank of India Ltd., held a number of shares for which, they appointed simultaneously two proxies, each with a number of shares. The shares in this case with which I am concerned carry the right to vote attached to each share. All authorities are clear on the point that proxies have the right to vote. Now, if each share has a vote, then the fact that one person happens to hold a number of shares and therefore a number of votes cannot preclude the operation of the separate voting right-attached to each share.

27. In a sense it is remarkable how this argument has been developed. It is accepted without demur that 'X' holding some forty shares with a vote for each share will have forty votes and he can exercise all these forty votes on one side. Yet it is the argument that while all the vote can be used on one side they cannot be used one against the other, because it is said to be against common sense that a person should be allowed to vote both for and' against the same resolution. Supposing a man wishes to do so, he may be whimsical or he can make himself a nuisance or he may genuinely be vacillating or he may genuinely think that his voting rights should be distributed In some proportion both for and against the same resolution. The central idea in solving this particular problem, apart from authorities, is to remember and consider that each share carries with it a right to vote. The fact that all the shares happen to be in the hands of one person does not merge the different voting rights and make them one. The plurality of votes cannot disappear because of the singularity of the person who holds these votes.

It is settled in company law that the right to vote attached to a share is a property and it will in my judgment be a most wanton confiscation of property rights in respect of company shares which cannot be Justified in law by the magic of one person holding many shares or by the innovation of a spurious doctrine of new fangled merger. Those who advocate obliteration of thedifferent voting rights in respect of different shares because of the fact that the relative shares happen to be held by one person do not seem to realize that such a holder may sell his different shares to different persons and if that is so these different voting rights will have to re-emerge be cause the persons holding them become different again.

The fallacy of the view lies in the failure to realise that the holders of these shares may coalesce 'but neither the shares nor the votes do. The right to vote, therefore, is to be judged not by the personality but by the share. If the shares are different, the votes can be different and the holder need not be precluded by any doctrine of convenience or inconvenience or propriety that he cannot vote both 'yes' and 'no' in the same resolution. As owner of the specific property in each specific share he can distribute his votes on the shares he holds in any manner as he chooses. The way he votes cannot take away the legal right in each share carrying the right to vote.

28. There is one other point made by the Company. It is not disputed that the Allahabad Bank Nominees Ltd., and the Bank of India held the shares on behalf of their individual constituents and it is only proper that holding their proxies they must vote according to the desires of their individual constituents although in paper these Corporations are holders of the shares. The Learned Advocate-General argued that to recognise that fact will mean that the company has to recognise trusts which of course the company cannot do. I am afraid this argument misconceives the whole doctrine of non-recognition of trust in company jurisprudence. What is said in Section 33, Indian Companies Act is that no notice of any trust, express or implied or constructive shall be entered on the register or receivable by the registrar. Nothing of that kind is done by allowing the Allahabad Bank Nominees Ltd., and the Bank of India to vote according to the dictates of the constituents on whose behalf they hold the shares. Indeed to extend the doctrine of non-recognition of trust in the manner argued by the learned Advocate-General will be to destroy the whole principle of voting by proxy. I am therefore unable to uphold the Advocate-General's contention on this point.

29. On these grounds I am satisfied prima facie that there should be no interlocutory injunction, first, because prima facie Article 90 is on the way, secondly, because the trend in law and in fact is against the applicant.

30. I, therefore, dismiss this application with costs. I certify this motion for two counsel.


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