U.C. Law, J.
1. The hearing of this application under Sections 397, 398, 399 and 402 of the Companies Act, 1956 has taken considerable time and the arguments were only concluded on 14th June, 1960, when I reserved my judgment; but I directed the matter to appear on the list on 16th June, 1960, marked 'To be mentioned' as I wanted certain information regarding the cash balance in the current banking accounts of the company. It may be mentioned here that prior to this the respondants had given an undertaking to Court (which still subsists) not to withdraw or deal with the compensation money amounting to over Rs. 35,00,000/- and the accrued interest thereon lying invested in short deposit accounts in different banks in the company's account. On 16th June 1960 Mr. R.C. Deb appearing on behalf of P.N. Talukdar informed me that the amount lying in current accounts of the company with several banks amounted to over Rs. 1,67,000/-. Besides, there was also some cash in hand. This undoubtedly is a considerable amount and inasmuch as I had, by then made up my mind as to thd order I was going to pass in this application, except that I had not finally decided as to the form the order should take, I asked Mr. Deb whether the respondents were prepared to give an undertaking not to withdraw the amount lying in the current accounts of the company pending my judgment. Mr. Deb, however, was not inclined to do so when it was submitted on behalf of the applicants that I should, in the circumstances, issue an injunction restraining the respondents from withdrawing any money from the current accounts of the company with different banks. Having regard to the fact that I had already by then come to a conclusion, I thought it proper that no money belonging to the company should any longer be left under the control of the respondents and accordingly I issued an interim injunction restraining, the respondents from withdrawing or dealing with the moneys of the company lying in its current accounts in different banks.
2. Now I proceed to deal with this application,
3. Hindusthan Co-operative Insurance Society Ltd., (hereinafter referred to as the company) is a public company incorporated under the Companies Act and has its registered office fit No. 4, Chittaranjan Avenue Calcutta. The authorised capital of the company is Rs. 1,00,00,000/-divided into 100,000 shares of Rs. 100/- each. From the Balance-sheet of the company for the year ending 31st December 1954, it appears that the issued and subscribed capital of the company was Re. 28,69,500/- divided into 28,695 shares of Rs. 100/- each of which Rs. 25/- was called up per share.
4. The main object for which the company was incorporated was to carry on all forms of Insurance and Guarantee and Indemnity business and all business and work in connection therewith or incidental thereto as mentioned in the Memorandum of the company and to employ the share capital of the company in any trading commercial Or financial business whatever for gain or other benefit in the interest o the shareholders and policy holders. The company, however, admittedly at all material times carried on life insurance business only.
5. The applicants are shareholders of the company holding amongst themselves 1,295 shares and they have obtained consent in writing (which is an annexure to their petition) of other shareholders who hold 3,853 shares, to move this application on behalf and for the benefit of all of them. The total number of shares in support of this application is, therefore, 5,148 which is more than 1/10th of the issued and subscribed share capital of the company as is required under Section 399 of the Companies Act. All calls a'd other sums due on these shares have also been fully paid up.
6. Since this petition was taken out the following persons have been added as parties to this proceeding and are supporting the petition:
(1) Birendra Mallick, registered holder of 300 shares as mentioned in his petition;
(2) Surya Kumar Basu, Mouses Sasson Elias and Profulla Ranjan Roy being registered holder in all of 67 shares as detailed in the petition. They are also being supported by a number of share-holders holding in aggregate more than 1200 shares of the said company as mentioned in the said application;
(3) Jagannath Roy, registered holder of 750 shares; and
(4) S.M. Monoram Paul, Nirmalabala Poddar, Kalyani Paul and Anupama Kundu each holding 50 shares aggregating 200 shares.
7. The applicants have applied under Sections 397, 398, 402 and 403 of the Companies Act, 1956, for the reliefs mentioned in the petition with notice to Central Government as required,
8. It is significant that none of the Director Respondents have affirmed any affidavit in support of their case except P.N. Talukdar whose affidavit, in my opinion, is not worth the paper it is written on. M.M. Chakravartty has not appeared. The other Respondents have appeared through counsel. The main affidavit in opposition is by a person called Bibhuti Bhusan Roy who is not stated to be a principal officer of the company. In paragraph 23 of his affidavit is stated when and how he came to join the company. Towards the end of the paragraph is stated that after he retired from the Life Insurance Corporation in October 1956 he again joined the company in July 1957.
9. I must at once say, that if there be a case where the remedies under Sections 397, 398 and 402 of the Companies Act should be justly available it is before me now. As I relate the facts and the circumstances of this case it would be clearly manifest that not only there has been oppression of the minority shareholders of the company but also it has been the affairs of the company which have been conducted in an oppressive manner and further that the affairs of the company have also been conducted in a manner prejudicial to the interest of the company. It will be convenient here to refer to the Sections:
'Section 397 -- Application to Court for relief in cases of oppression:
(1) Any members of a company who complain that the affairs of the company are being conducted in a manner oppressive to any member or members (including any one or more of themselves) may apply to the Court for an order under this Section, provided such members have a right so to apply in virtue of Section 399.
(2) If, on any application under Sub-section (1), the Court is of opinion :
(a) that the company's affairs are being conducted in a manner oppressive to any member or members; and
(b) that to wind up the company would unfairly prejudice such member or members, but that otherwise the facts would justify the making of a winding-up order on the ground that it was just and equitable that the company should be wound up; the Court may, with a view to bringing to an end the matters complained of, make such order as it thinks fit
Section 398--Application to Court for relief in cases of mismanagement :
(1) Any members of a company who complain
(a) that the affairs of the company are being conducted in a manner prejudicial to the interests of the company; or
(b) that a material change (not being a change brought about by, or in the interests of, any creditors including debenture holders, or any class of shareholders, of the company) has taken place in the management or control of the company, whether by an alteration in its Board of Directors, or of its managing agents or secretaries and treasurers, or in the constitution or control of the firm or body corporate acting as its managing agent, secretaries and treasurers, or in the ownership of the company's shares, or if it has no share capital, in its membership, or in any other manner whatsoever, and that by reason of such change, it is likely that the affairs of the company will be conducted in a manner prejudicial to the interests of the company, may apply to the Court for an order under this Section, provided such members have a right so to apply in virtue of Section 399.
(2) If, on any application under Sub-section (1), the Court is of opinion that the affairs of the company are being conducted as aforesaid or that by reason of any material change as aforesaid in the management or control of the company, it is likely that the affairs of the company will be conducted as aforesaid, the Court may, with a view to bringing to an end or preventing the matters complained of or apprehended, make such order as it thinks fit'.
10. On 21st of December, 1955 the 48th Ordinary Annual General Meeting of the company was held and the Constitution of the Board of Directors was (1) Dr. N.N. Law, (2) Kumar P.N. Roy, (3) S.C. Law, (4) P.N. Talukdar, (5) Dr. M.M. Chakraborty, (6) P.K. Bose (7) J.N. Sen Gupta, (8) B.K. Roy Choudhury, (9) Sir Dhiren Mitter, (10) B.C. Sinha. Of the above, Nos. 1 to 5 were members-directors, Nos. 6 to 8 were policy-holders directors and Nos. 9 and 10 were directors appointed by the Government. Of the members-directors it is admitted that Dr. M.M. Chakraborty was disqualified for not holding the qualification shares thus reducing the number of members-directors to four, namely, Dr. N.N. Law, Kumar P.N. Roy, S.C. Law and P.N. Talukdar.
11. On 19 January, 1956 Life Insurance (Emergency Provisions) Ordinance of 1950 came into force and since its promulgation it is admitted that the directors appointed by the policy holders and the Government became functus officio.
12. Under Section 3, Sub-section (1) of the said Ordinance the management of the controlledbusiness of the company (which was its onlybusiness) vested in the Central Government on andfrom the 'appointed day', namely, 19th January,1956, and the persons in charge of the management of such business immediately before the 'appointed day' took charge of the management of the business for and on behalf of the Central Government.
13. Under Section 7, Sub-section (2) of the Ordinance it was provided that the compensation payable under Section 6 shall be distributed among the persons entitled thereto by the Central Government in such manner as may be prescribed by rules made on that behalf.
Provided that in the case of an insurer who is a company the Central Government shall have due regard to the wishes of the members expressed by them at any general meeting convened for the purpose.
14. Pursuant to the powers vested in it by Section 4 of the Ordinance, the Central Government scon thereafter appointed a custodian who took over the management of the controlled business and thereupon all persons in charge of the management of the controlled business of the company ceased to be in charge of such management
15. On 21st March, 1956 the Life Insurance (Emergency Provisions) Act of 1956 was passed.
16. On 1st July, 1956 the Life Insurance Corporation Act of 1956 came into force and under the said Act the Life Insurance Corporation of India (hereinafter referred to as the Corporation) was established with effect from 1st September, 1956. Under Section 7, Sub-section (1) of the said Act all the assets and liabilities appertaining to the controlled business of all insurers vested in the Life Insurance Corporation with effect from 1st September, 1956.
17. Section 16 of the said Act provides that where the controlled business of an insurer has been transferred to and vested in the Corporation under this Act compensation shall be given by the Corporation to that insurer in accordance with the principles contained in the first schedule. Section 39 of the Act provides :
'Special provisions for winding up of certain insurers: Where any insurer being a company (other than a composite insurer) whose controlled business has been transferred to and vested in the Corporation under this Act has in accordance with the provisions of this Act collected and distributed any moneys paid to him by the Corporation by way of compensation or otherwise and has also complied with any direction given to him by the Corporation for the purpose of securing that the ownership of any property or any right is effectively transferred to the Corporation the Central Government may on application being made to it in this behalf by such insurer grant a certificate to the insurer that there is no reason for the continued existence of the insurer and where such a certificate has been granted shall cause the certificate to be published in the official gazette and upon the publication thereof the insurer shall be dissolved'.
18. On 1st November, 1957 the Life Insurance Corporation paid to the company a compensation amounting to Rs. 33,09,855/- and a further compensation amounting to Rs. 2,30,553/- was paid by the Corporation to the company on 7th January, 1958.
19. The compensation money has not yet been distributed by the company to its share-holders who are entitled thereto and is being retained by the respondents.
20. Besides the above two sums the Corporation has also paid a sum of Rs. 61,613/- to the company for loss of management of its controlled business on 7th December, 1957.
21. I shall go back for a moment to 19th January, 1956, 'the appointed day'', when the management of the controlled business of the company vested in the Central Government and give in broad outline the course of events which led to the petition.
22. It appears that since 19th January, 1950 the Directors of the company did not call any general meeting of the company nor did they make any effort or gesture to place before the shareholders the balance-sheet of the year ending 31st December, 1955. As a matter of fact the shareholders of the company were not thought of by the directors at all and were kept completely in the dark as to what was being done with regard to the company's affairs. It cannot be said that the Directors were not cognizant of their obligations or duties under the law because it appears that the Chairman of the company Dr. N.N. Law for the first time on 5th April, 1956 wrote to the Custodian as follows:
With a view to enabling the Directors of H.C.I.S. Ltd., to discharge their duties to the share-holders I intend to hold a Board meeting inter alia for drawing up the balance-sheet of the Society for the year ended 31st December, 1955 and for taking action about matters of concern to the share-holders in the interest of the latter.
A copy of the notice calling the meeting at 96, Amherst Street, Calcutta on Saturday the 7th April, 1956 at 10-30 a.m. is enclosed for your information.
I shall be glad if you issue instructions to the Secretary and the Chief Accountant of the Society to be present at the meeting .....'
23. To this letter a reply was sent on behalf of the Custodian by the Solicitor to the Central Government at Calcutta, on 6th April, 1956 stating that the notice was very short and that there was no time to refer to the Central Government for instructions. He further informed that the Custodian had already received instructions from the Central Government for the preparation of the balance-sheet for the year ended 31st December 1955 and the Custodian was taking necessary steps in that behalf. This letter of 6th April, 1956 was placed before the Board meeting of the company held on 7th April, 1956 and considered, and the minutes of the meeting records that the Board authorised the Chairman to give a suitable reply to the Custodian; and further the consideration of the steps to be taken for preparation of the balance-sheet for the year ended 31st December, 1955 was postponed. On 3rd May, 1956 the Chairman of the company sent a reply to the letter dated 6th April, 1956. The relevant portion of the letter reads as follows :
'The Board of Directors have been legally advised that as the Board have not ceased to exist they are quite within their rights to confirm the proceedings of the previous Board meetings and the Committee meetings and it is their responsibility to prepare the balance-sheet for the year 1955 as contemplated under the Companies Act. It is stated in the Solicitor's letter under reference that you have already received instructions from the Central Government for the preparation of the balance-sheet for the year ending 31st December, 1955 and that you are taking necessary steps in that behalf. As this absolves the Board from its responsibility for the preparation of the said balance-sheet we are referring this matter to Government of India for confirmation.'
24. At the foot of this letter it was stated that a copy was being forwarded to the Secretary, Ministry of Finance, Department of Company Law Administration for information and with a request for advice as to the steps to be taken by the Board in the circumstances.
25. There is nothing in the affidavits of the respondents, however, to show that any copy of this letter was in fact sent as stated or as to whether any advice was received from the Secretary, Ministry of Finance, Department of Company Law Administration in reply thereto.
26. Since the Board meeting of 7th April, 1956 several purported Board meetings of the company were held but it is curious that although the Board knew about its duties under the Companies Act regarding holding of general meetings and passing of the balance-sheet for the year ending 31st December, 1955 this question was never revived or even discussed until 1959, when only the Balance-sheets for years ending 1956, 1957 and 1958 were considered.
27. It is now contended on behalf of the respondents that
'as the entire management of the controlled business had vested in the Central Government on 19th January, 1958 by virtue of the Life Insurance (Emergency Provisions) Ordinance, 1956, the insurer was divested of its rights of management under provisions of both the said Ordinance and the Life Insurance Emergency Act of 1956. The Board of Directors ceased to manage or to have any right of management. All the books of account and other papers and documents relating to the controlled business were under the law made over to the Custodian and the Custodian in fact took over every stitch of document on 19th January, 1956. The result was the Custodian replaced the Directors of the Company. Preparation of the balance-sheet was one of the ordinary duties of the Directors as part of the management of the company's affairs but as the Directors no longer had any power over the property, assets, staff, books and records it was physically impossible for them to prepare the balance-sheet. Besides the company had no money, no staff or office and to call a meeting expenses had to be incurred. It was further contended that having regard to the provisions of the Life Insurance (Emergency Provisions) Ordinance, 1956 and Life Insurance Emergency Act (IX of 1956) the powers of the Directors with reference to the preparation, signing and placing of the balance-sheet before the general meeting ceased and still remain in that position because the balance-sheet relates to the controlled business (that is the entire business of the company) with reference to which the powers of the Directors had been taken away.'
That in substance is the entire argument on behalf of the respondents on this point.
28. I am unable to accept this contention. Under Section 3 of Ordinance No. 1 of 1956 only the management of the controlled business of the company vested in the Central Government, It is true that the controlled business was the only business of the company at the time but the company as a separate legal entity remained as before (and was asserted by the directors of the company also) with all its rights and obligations and the Directors remained still bound to call the annual general meeting of the company in terms of Section 166 of the Companies Act and lay before the meeting the balance-sheet for year ending 1955.
29. Article 132 of the Articles of Association of the company provides
'that the company shall at the expiration of each year prepare with reference to that year a balance-sheet, profit and loss account, revenue account or accounts ..... in compliance with the provisions of the Act and the Insurance Act. The Directors shall at the ordinary general meeting in each year lay before the company the said balance-sheet, profit and loss account and revenue account made up to a date not more than nine months before the meeting or such other date as permissible in law. The balance-sheet, profit and loss account, revenue account and profit and loss appropriation account shall be audited by the Auditors of the company and Auditors' report shall be attached thereto or .....'
30. Article 133 provides that the Directors shall make out and attach to every balance-sheet a report with respect to the state of the company's affairs, the amount, if any, which they recommend should be paid by way of dividend and the amount, if any, which they propose to carry to the reserve or any other funds and as to the state and conditions of the company.
31. Section 210 of the Companies Act, 1956 provides that the Board of Directors shall lay before the Company at every Annual General meeting a balance-sheet and a profit and loss account for that period.
32. It appears that the company did prepare a balance-sheet which was signed by the Secretary of the Company and also audited by the company's Auditors except that it was so prepared at the instance of the Custodian to which the Directors must foe deemed to have consented by their letter dated 3rd May, 1956. This balance-sheet so prepared by the Custodian was duly filed with the Registrar and also made over to the company and never objected to but instead, was relied on by the Directors in the compensation case before the Tribunal. In my view there was nothing to prevent the Directors from placing the said balance-sheet before the Board of Directors for approval and signature if they were so minded and thereafter lay it before the annual general meeting of the company as required under Section 210 of the Companies Act 1956.
By not doing that the Directors deprived the shareholders of their right to scrutinise the accounts.
33. It is no answer to say that as all the books of account and other papers and documents were under the law made over to the custodian and as there were no funds, no staff and no office, it was not possible to call a general meeting. Under Ordinance No. 1 of 1956 the documents to, be delivered were enumerated in Section 3, Sub-section (6) thereof and all of them appertained to the controlled business. The Share Register and other documents which did not appertain to the controlled business and which were necessary for the purpose of calling a meeting of the share-holders were not required under Ordinance No. 1 of 1956 to be delivered to the Central Government. Mr. Advocate-General on behalf of the company submitted that malting over by the Directors of the Share Register and other documents not appertaining to the controlled business and not required under Ordinance of 1956, to the Central Government at best can be held to be a bona fide mistake on the part of the Directors and cannot amount to oppression or mismanagement. I cannot accept this contention that it was a bona fide mistake of the Directors because of their subsequent conduct in the affairs of the company as reflected in various resolutions passed by them. I have already referred to the minutes of the Board meeting held on 7th April, 1956 when the consideration of the steps to be taken for preparation of balance-sheet for year ending 1955 was postponed. The next Board meeting was held on 9th July, 1956 when P.N. Talukdar was appointed representative of the company to attend the conference in Delhi on 9th July, 1956 and on subsequent dates, for consideration of foreign life business of the company. It is significant that no complaint was made, regarding the want of funds at the meeting. After the meeting of 9th July, 1956 it appears that no further meeting of the Board was held in 1956.
34. Before I relate what happened thereafter it would be convenient here to set out the following articles from the Articles of Association of the company.
Article 102 -- At the ordinary general meeting of the company to be held every year one-third of the Members' Directors for the time being or if their number is not three or multiple of three then the number nearest to one-third shall retire from office.
Article 103 -- The Members' Directors to retire in every year shall be those (other than Special Director or Managing Director) who have been longest in office since their last election, but as between persons who became Directors, on the same day those to retire shall (unless they otherwise agree among themselves) be determined by lot: A retiring Members' Director shall retain office till the dissolution of the general meeting.
Article 104 -- A retiring Members' Director shall be eligible for re-election.
Article 110 (i) -- The Directors may meet together for the despatch of business, adjourn or otherwise regulate their meeting and proceedings as they deem fit and may determine the quorum necessary for the transaction of business. Until otherwise determined three Members' Directors shall form a quorum.
35. It may be recalled that after the 48th ordinary general meeting only Dr. N.N. Law, S.C. Law, Kumar P.N. Roy and P.N. Talukdar lemained as Members' Directors, Mr. M.M. Chakraborty having been disqualified for not holding the qualification shares.
36. Of the above four, S.C. Law was longest in office since his last election and was therefore due to retire at the 49th ordinary general annual meeting to be held towards the end of 1956. Thus for year 1957 the Directors would be Dr. N.N. Law, Kumar P.N. Roy and P.N. Talukdar. At the 50th ordinary general annual meeting to beheld towards the end of 1957 one of either N.N. Law or P.N. Talukdar would be due to retire they being longer in office than Kumar P.N. Roy since their last election. Therefore for year 1958 there would only be two Directors, namely, Kumar P.N. Roy and one of either N.N. Law or P.N. Talukdar. Kumar P.N. Roy died on 22nd August, 1958 and this was not denied at the hearing. Therefore at the 51st general meeting to be held towards the end of 1958 the only remaining Director left would be due to retire and thus there would be no Director in 1959.
37. My above conclusion as to the number of Directors for the year 1956, 1957 and 1958 is founded on the rule laid in the following cases reported in Krishnaprasad Jwaladutt v. Colba Land and Mills Co., Ltd., : AIR1960Bom312 , Morris v. Kanssen, 1946 AC 459 at p. 471. In re Consolidated Nickel Mines Ltd., 1914-1 Ch 883, where it was held that a Director who was due to retire by rotation at the annual general meeting vacated his office at the latest on the last date on which that annual general meeting could have been called' as required by Section 166 of the Companies Act, 1956 and cannot continue in office thereafter on the ground that the meeting has not in fact been called.
38. The respondents' case is that they are validly appointed Directors and not that they are protected under Section 290 of the Companies Act. Yet at the hearing the learned counsel for the respondents sought protection under Section 290 of the Companies Act. In. my opinion on the facts and circumstances of this cage the acts of the Directors cannot be validated under Section 290 of the Companies Act. This is not a case where there was a defective appointment but one where there was no appointment of them as Directors at all. The Directors were fully aware of their position and there is ample evidence on record for that also. Section 290 is not applicable to the facts and circumstances of this case.
39. Now I shall return to the last Board meeting of 9th July, 1956 to which I referred before and as I continue to outline the facts it would be clear that not only that the affairs of the company were being conducted in a manner oppressive to the company and other members or the company but were also being conducted in a manner prejudicial to the interest of the company. After 9th July, 1956 the Board held its next meeting on 6th March, 1957. It appears from the minutes of the proceedings that there was no quorum because by then S.C. Law was no longer a Director and had no right to sit at the meeting, yet the remaining two Directors purported wrongfully to conduct the affairs of the company. Kumar P.N. Roy who was then a Director did not attend.
40. At the next meeting held On 18th May, 1957 S.C. Law who was not a Director again wrongfully took part in the meeting. Here again there was no quorum present. Kumar P.N. Roy did not attend the meeting. The minutes clearly show that the Directors without quorum were attempting to augment their number by co-opting J.N. Sen Gupta and P.K. Bose as Directors which was invalid in law. Further they appointed B.B. Roy as Secretary of the company at a monthly remuneration of Rs. 750/- which undoubtedly was invalid, wrongful and also prejudicial to the interest of the company in that expenses were being wrongfully incurred at the costs of the company and its share-holders. It appears that no further Board meeting was held in 1957. Towards the end of 1957 either N.N. Law or P.N. Talukdar was due to retire. Therefore there would he only two directors in 1958 namely, Kumar P.N. Roy and either of Dr. N.N. Law or P.N. Talukdar. On 1 November, 1957 the company received Rs. 33,09,855/- as compensation and on 7th January, 1958 a further compensation of Rs. 2,03,553/-was received by the company as hereinbefore stated. After receipt of these moneys the next Board meeting was held on 1st March, 1958 when it appears that P.K. Bose and S.C. Law who were not Directors again took part in the proceedings. At this point of time it is to be noted that either N.N. Law or P.N. Talukdar had ceased to be a Director as one of them had to retire at the end of September 1957. This meeting was held without a quorum and several resolutions were passed authorising opening of bank account of the company with Central Bank of India Limited, and Punjab National Bank Limited, with power to them to honour the cheques, bills of exchange and promissory notes drawn, accepted or made on behalf of the company by any two Directors jointly and to act on any instructions so given relating to the account whether the same be overdrawn or not or relating to the transactions of the company. This meeting also sanctioned payment of Rs. 8,l42/- for legal expenses incurred in connection with the hearing before the Tribunal. A further sum of Rs. 600/- was also sanctioned for purchase of the office furniture by the Secretary, who was authorised to appoint office staff at a total monthly remuneration of Rs. 750/-. A further sum of Rs. 580/- for travelling expenses and costs of stamps in connection with the Tribunal case was also sanctioned and indeed it is strange that lastly it was resolved
'that the payment of Directors' fees outstanding from January 1956 and payment of the Secretary's salary outstanding from 15th July, 1957 be made.'
It is still more strange that uptill then no attempt or even a gesture was made to call a meeting of the share-holders or any attempt made to inform the members of these material changes that were being made in the management or control of the; Company by alteration of its Board of Directors. No returns were filed with the Registrar of Assurances and the result was the share-holders were left completely in the dark with no information regarding the manner in which the affairs of the company were being conducted, while these men who purported to act as Directors dealt with the company's money in any fashion they liked and to the prejudicial interest of the company. These acts of the respondents who had the majority backing no doubt amounted to oppression by them of the minority share-holders and also I consider oppression in the conduct of the affairs of the company. These were to the detriment of both the Company and its members.
41. After the last Board meeting to which. I have referred a letter was addressed by the Chairman of the company to the Life Insurance Corporation on 6th March, 1958 expressing surprise that the common seal and certain documents, a list whereof was appended.' below, were not returned yet and demanded return of them at the earliest. In the appended list it appears that for the first time the Share Register and Index of members were demanded back and curiously enough the Chairman also asked for copies of the balance-sheet upto 31st of August, 1956 that is upto the date previous to vesting of the assets of the company in the Life Insurance Corporation. I have failed to appreciate the cause of surprise because never before this, did the Chairman or anybody on behalf of the company demand the return of the Share Register from the Corporation. On 23rd May 1968 the Corporation offered to return the Register of members and most of the other documents demanded by the Chairman, but no immediate effort was made by the Directors to take delivery of them. On 6th June 1958 the Divisional Manager of the Life 'Insurance Corporation again wrote to the company to take delivery of the documents but the' company on frivolous excuse deferred taking delivery till about 18th August, 1958. All these actions and inactions on the part of the Directors, in my opinion, clearly indicate that they did not want to hold any general meeting and pass the balance-sheet for the year 1955 and this is confirmed by the fact that even at the hearing it was contended that the Directors had no duty to have the balance-sheet for year ending 1955 passed at a general meeting.
42. During 1958 two further Board meetings were held and in neither of them it appears the quorum was present but instead persons who were not Directors were wrongfully allowed to take parb in the proceedings.
43. This brings us to the end of 1958 when the last of the Directors had retired by rotation. With the close of the year 1958 the company thus did not have any Directors at all. Yet it appears that on 21st January, 1959 a Board meeting was purported to have been held and business transacted concerning the affairs of the company. At the said meeting opening of the deposit account with the United Bank of India Limited, was sanctioned and it was resolved that the account would be operated by two of the Directors although none of them was Director any more. Auditors were appointed. Sir S.S.M. Faroqui was co-opted as additional Director of the company. The minutes record that a letter dated 24th December, 1958 from Regional Director, Eastern Region, Company Law Administration in connection with the Annual General Meeting of the company was read out and noted. This letter of 24th December 1958 is a reply to the letter dated 22nd December, 1958 written by B.B. Roy as Secretary of the company. It is significant that no reference was made or advice sought by the Secretary in this letter about holding of general meeting and passing of the balance-sheet of the year ending 195S which the company had received from the Life Insurance Corporation, nor was any reference made or advice asked regarding the balance-sheets made up to 31 August, 1956. The Regional Director's letter dated 24th December, 1958 is also silent about these balance-sheets. It is not correct to say that no business was done by the company in 1956 as was stated by the Secretary in his letter dated 22nd December, 1958 as the assets of company only vested m the Life Insurance Corporation on 1st September, 1956. Therefore whatever business was done by the company up to 31 August, 1956 was the business of the company, the management of which had merely vested in the Central Government. The Directors of the company were fully aware of it as is manifest from the fact that the balance-sheet up to 31st August, 1956 was demanded by the Chairman of the company in his letter dated 6th March, 1958 from the Life Insurance Corporation. Further the letter of 22nd December, 1958 did not mention that under Article 102 of the Articles of Association of the company one-third of the Directors for the time being must retire from office at the annual general meeting every year. So 1 hold that whatever advice was received in the letter dated 24th December, 1958 was of no consequence and no valid advice at all as the proper materials were not placed before the Regional Director and as such it cannot be accepted or relied upon for any purpose nor can it in any way protect the respondents, as contended on their behalf. I have expressed this view only on the assumption that the Regional Director had authority to give advice without deciding the question.
44. It appears that on 2nd January, 1959 some of the share-holders of the company (numbering about 28) addressed a letter to the Minister of Finance, Government of India complaining that since the last annual general meeting held on 21st December, 1955 no further general meeting had been held and that persons who were no longer Directors were still wrongfully functioning as such and that the compensation money paid by the Lite Insurance Corporation to the company had not been distributed amongst the share-holders of the company who were entitled thereto and further they were afraid that the so-called Directors may fritter away the funds and asked for action to be taken in the matter immediately. It seems soon after this letter to the Finance Minister the so-called Directors suddenly woke up and became intensely active and set about obtaining opinion from Mr. N.K. Petigara, a Solicitor of Bombay, as to what steps were to be taken regarding the company. There is no previous resolution authorising obtaining of such opinion and it would be most interesting to know at whose instance such steps were being taken; surely not at the instance of the shareholders. On 21st January, 1959 they purported to hold a Board meeting and the Resolution No. 4 of the minutes of the meeting records that according to the advice obtained from Mr. Petigara it was resolved that the company should continue and carry on its business as per terms of the Memorandum and the Articles of Association. They further resolved that necessary steps for calling a general meeting of the company be taken as early as possible to consider and if thought fit to pass the following resolution in this regard as an ordinary resolution :
'Having regard to the fact that the company cannot after coming into effect of the Life Insurance Act XXXI of 1956 accept Life Insurance business and issue policies. Resolved that the company do continue its corporate existence and carry on all or any of the businesses authorised by its Memorandum of Association and in particular to do Guarantee and Indemnity business as set out in Sub-clause (a) of Clause 3 as also..... and the company hereby authorise its Board of Directors to carry on and continue to carry on business as described in all or anyone or more of the aforesaid clauses as it in its opinion considers to be in the interest of the company.'
45. This resolution and the persistent conduct of the respondents in the affairs of the company since 19th January, 1956 clearly establish that they never intended to distribute the compensation money amongst the share-holders who are entitled thereto but to hold it in their hands and at their disposal and benefit by the strength of their majority or controlling voting power. This conduct of the respondents was no doubt oppressive to the company and to the applicants' minority share holding in the company. Section 39 of the Life Insurance Corporation Act clearly envisages distribution, of the compensation money amongst the share-holders of the (Insurer) company whose controlled business has been transferred to and vested in the Corporation. The Directors of the company in allfairness to the share-holders should have done soas the very substratum of the company was gone.Section 39 also provides the procedure for dissolution of the company after such distribution. But the Directors did not choose to do so. From theirconduct thus described it is impossible to supposethat that was no part of the deliberate policy of the Directors.
46. The next meeting of the so-called Board was held on 25th April, 1959 when the balance-sheets for years ending 31st December 1956, 31st December 1957 and 31st December 1958, were approved and signed and the Board recommended declaration of a Dividend for 1958 at 5 per cent per annum free of income-tax. No reference was made to the Balance-Sheet for year ending 1955. At the meeting held on 22nd July, 1959 the date of the annual general meeting was fixed on the 24th August, 1959 and by Resolution No. 7 the notice of the annual general meeting to be held on the 24th August, 1959 with explanatory statement as required by Section 173 of the Companies Act, 1956 was approved and signed. It is important to note here that in the printed consolidated balance-sheet Item No. 7 of the notice of the meeting, the resolution as set out, is somewhat different from the resolution approved of at the meeting of 21st January, 1959 as it appears to have been altered by adding at the end the words 'and to utilise the compensation money for the aforesaid purpose'. When this alteration was resolved I have not been told nor is there any resolution before me authorising addition of these words which had been added to the resolution set out in the notice dated 22nd July, 1959 except that the minutes of the meeting of 22nd July, 1959 recorded that the notice was approved and signed.
47. These so-called Board meetings in 1959 were no doubt not valid meetings at all because the persons who held the meetings were not Directors nor could constitute any valid Board and thus the notice issued on 22nd July, 1959 was not valid also.
48. The next fact I shall refer, to is the consolidated balance-sheets for years ending 1956, 1957 and 1958 preprred by the company which the so-called Directors in control of the affairs or the company intended to place before the annual general meeting of the company fixed for 24th August, 1959 for adoption. These balance-sheets obviously are nat in accordance with law. Under Section 210, Sub-section (3) (b) the balance must relate
'to the period beginning with the day immediately after the period for which the account was last submitted and ending with a day which shall not precede the day of the meeting by more than nine months .....'
That has not been done here., The account which was last submitted was for year ending 31st December, 1954. Therefore the balance-sheet must c0m-mence from 1st January, 1955 to keep up continuity of the account. Here the balance-sheet for year ending 1955 is deliberately left out. Balancesheet for 1956 as prepared does not give a true and fair view of the state of affairs of the company during the year 1955 and thereafter from 1st January to 31st August, 1956. It was only on 1st September, 1956 that the controlled business of the company vested in the Corporation, The conduct of the affairs of the company remained with the company as before. The share-holders were entitled to be apprised of the affairs of the company for the year 1955 and also for the period from 1st January 1956 to 31st August, 1956. The so-called Directors in charge simply suppressed the said accounts from the share-holders. The consolidated balance-sheets make no reference to 1955 account. The report of the Board of Directors at page 18 of the printed consolidated balance-sheets for years 1956, 1957 and 1958 (being Annexure H to Bibhutt Bhusan Roy's affidavit dated 11th August, 1959) is not at all a fair and honest report- At page 18 under the heading 'Nationalisation of Life Insurance' it has been stated
'accordingly since 19th January, 1956 the Directors of the company had no access to any books and records, documents and fund of the company and it was not possible for them to discharge their duties as entrusted to them under the Companies Act or under the Articles of Association of the company.'
From these words it would be reasonable to infer that the Directors knew that they had a duty to Perform but could not do so for reasons stated (which I have not accepted). But the report does not mention that the balance-sheet for year 1955 as prepared by the custodian was forwarded to the company and that the company relied on that before the Tribunal in the compensation case. Nor does it say as to why the said balance-sheet of 1955 was not being placed before them for adoption. In my opinion it was a part of the policy of these Directors not to apprise the share-holders of the affairs of the company during year ending 1955 and thereafter for the period from 1st January, 1956 to 31st August, 1956. I cannot see any other reason to justify this conduct of these Directors who had the control of the affairs of the company by their superior voting power. This superior voting power it may be mentioned here is entirely due to 2920 shares belonging to N.R. Sarkar Trust, voting rights whereof are in Dr. N.N. Law who has, however, no beneficial interest in the shares. The beneficial interest lies in some of the applicants. It is by use of these votes against persons who have the beneficial interest therein that these Directors have maintained control over the affairs of the company. There is ample evidence on record, namely, the affidavits of Bibhuti Bhusan Roy dated 4th March, I960 and Santi Ranjan Sarkar dated 12th March, 1960 to establish this fact. It is with these votes which gave the Directors their voting1 strength that they attempt now to force these accounts for periods 1956, 1957 and 1958 on the minority share-holders and change the principal object of the company. The consolidated balance-sheets further show that the company did no business since 19th January, 1956 and yet a sum of well over Rs. 30,000/- was wrongly spent or withdrawn as Directors' fees and other expenses during years 1957 and 1958 by these so-called Directors out of the funds of the company. The original Minute Book which was produced at the hearing showed that Rs. 16,000/- was sanctioned to be spent subsequently in law charges and it further appears and it was not denied at the hearing, that a sum of over Rs. 8,50,000/- out of the compensation money was kept uninvested for well over ten months when it could earn at least 4 per cent interest in short deposit account like the rest of the compensation money, as a result whereof no doubt the company and the share-holders suffered considerable loss. The minority share-holders were absolutely powerless to do anything in the matter against these so-called Directors with their majority voting strength and were thus oppressed by them.
49. Soon after this meeting of 22nd July, 1959 this application under Sections 397. 398 and 402 of the Companies Act, 1956 was filed by the applicants on 3rd August, 1959 for reliefs mentioned in the petition.
50. The learned counsel for the applicants contended that not only that the company's affairs are being conducted in a manner oppressive to the members (including themselves) but also that the affairs of the company are being conducted in a manner prejudicial to the interest of the company. Further that to wind up the company would unfairly prejudice them but otherwise the facts would justify the making of a winding up order on just and equitable rule; and also that a material change has taken, place in the management or control of the company by alteration in its Board of Directors and thus it is a fit and proper case where the powers given under Sections 397, 398 and 402 of the Compames Act should be justly invoked and reliet granted to the petitioners. It was further contended that by reason of Section 7 of the Life Insurance Corporation Act of 1956 the entire assets of the 'controlled business' of the company vested in the Corporation and the 'controlled business' was the principal and the only business of the company; and as by reason of the Life Insurance Corporation Act, 1956 it could no longer carry on Life Insurance business and issue policies, the very Sub-stratum of the company was gone and that fact alone would justify winding up of the company on just and equitable rule thus satisfying the last condition in Section 397 of the Companies Act. The leimed counsel relied on Re: Haven Gold Mining Co., (1882) 20 Ch D 151 at p, 157 and Re: German Date Coffee Co., (1882) 20 Ch D 169. I accept this Contention. Mr. R.C. Deb on behalf of his client, however, contended that the present case is distinguishable from the facts of the cases cited above and drew my attention to the object clause In the Memorandum of Association of the company which runs as follows :
'(a) To carry on all forms of Insurance and Guarantee and Indemnity business and all business and work connected therewith......'
He argued that Insurance, Guarantee and Indemnity are to be treated as separate businesses authorised under the object clause of the Memorandum of Association. I am not inclined to accept this contention which in my opinion has no merit. The language is 'ah1 forms of Insurance and Guarantee and Indemnity business'. They must be taken together. The word 'business' is in singular. The inclusion of the word 'Insurance' in the name of the company is in this respect significant also and is a pointer to its principal object. Taking the Memorandum and the Articles of Association together as a whole, in my opinion the principal object of the company was Insurance and all others were ancillary to it. The principal business is the business which is actually carried on by the company. Here the only business carried on by the company was Life Insurance business which was therefore the principal business of the company. So I hold that the principal business having gone the very substratum of the company also disappeared and that alone would justify winding up of the company under just and equitable rule. Apart from this aspect of the matter there is ample evidence on record which will also justify winding up of the company on just and equitable principle following the rule laid down in Loch v. Blackwood, Ltd., 1924 AC 783. If the applicants at the date of this application lodged a petition for winding up of the company compulsorily it would undoubtedly have been granted and it can hardly be denied that such an order would unfairly prejudice the applicants. So they now seek to invoke the new remedy given by Sections 397, 398 and 402 of the Companies Act, 1956.
51. Upon the facts as I have outlined them, I consider that the acts complained of, all refer to the continuous conduct of the affairs of the company and it cannot be denied that the affairs of the company have been conducted in a manner which can justly be described as oppressive to the minority share-holders. I further consider that the affairs of the company have also been conducted in a manner prejudicial to the interest of the company and lastly I find that a material change has taken place in the management or control of the company by alteration in its Board of Directors (which in fact is now non-existent) with the result that the affairs of the company are being conducted in a manner prejudicial to the interest of the company.
52. Viscount Simonds in the House of Lords case of Scottish Co-operative Wholesale Society Ltd. v. Meyer, 1958-3 All ER 66 at p. 71 adopted the meaning of oppression as 'burdensome, harsh and wrongful' taking the dictionary meaning of the word. Adopting the same meaning if appears to me that the Directors-in-control who had the majority voting power exercised their authority wrongfully in a manner burdensome, harsh and wrongful. All the so-called Board meetings held between 1957 and 1959 and the resolutions passed were no doubt oppressive and also prejudicial to the interest of the company. By the resolutions passed at the .meeting held on 21 January 1959 and 22 July 1959 the so-called Directors who had the majority voting power attempted to force the applicants and the minority shareholders to invest their money in a different kind of business against their will. The applicants and its supporters who constitute the minority shareholders invested their money in a Lite Insurance business with all its safeguard and statutory protection. But they were being forced to invest where there would be no such protection or safeguard. Further it must not be overlooked that the shares of the company are only partly paid to the extent of Rupees 25/- per share value of Rupees 100/-each and in case the company is to continue and cany on a different business as the so-called Directors are attempting to do with their superior voting power the applicants may in future be forced to pay the uncalled balance of Rs. 75/-per share in a business which they do not wish to cany on and that would undoubtedly be 'burdensome, harsh and wrongful'' to the applicants.
53. By adopting such attitude the Directors-respondents failed to behave witii scrupulous fairness to the minority shareholders as was incumbent on them as holding a position of trust. They further failed to maintain the utmost good faith between themselves and the minority shareholders by their unlawful conduct of the affairs of the company so that the minority shareholders were driven to apply under these sections for an order inter alia for appointment of a Special Officer and also for an order that the company do purchase the shares including theirs at a valuation. Such a remedy is permissible under Section 402 of the Companies Act, 1956. I have no doubt that this is a case where the powers under Sections 397, 398! and 402 of the Companies Act should be justly invoked.
54. It is said that the object of Section 387 is to save the company so that it may be allowed to operate instead of being wound up. It may be that there is such a suggestion in the words of Section 397 but it would be wrong to infer there-from that the remedy under Section 397 is limited to cases where the company is still in active business. The object of the remedy is to bring to an end the matters complained of, that is 'oppression', and this can be done even though the business of the company has been brought to a standstill. The same reasonings apply also to cases falling under Section 398. I have no hesitation in holding that the facts and circumstances of this case have fully established that the relief under this Section should be justly available to the applicants.
55. In the circumstances I make the following order:
(1) Sir Dhirendra Nath Mitter, failing Mr. A.B. Gupta, the Chartered Accountant, is appointed Special Officer of the Company at a remuneration of Rs. 1,000/- per month inclusive of all his travelling and. other incidental expenses. He is directed forthwith to take over the management and affairs of the Company including the compensation money with all accrued interest thereon lying in the following banks in the account of the company without any right to operate or withdraw any amount therefrom and subject to this that he will have power to renew the short deposit account for further periods from time to time.
(1) F.D.R./533385/30/60 dated 2nd February, 1960 for Rs. 8 lakhs of the Punjab National Bank Ltd., New Market, Calcutta.
(2) S.D.R. 164396 and 55/627 dated 22nd March 1960 for Rs. 12 lakhs of the Central Bant of India, Calcutta.
(3) S.D.R. 164481 and 45/696 dated 4th April1960 for Rs. 2 lakhs of the Central Bank of IndiaLtd., Calcutta.
(4) Receipt No. 75510 re: 75339 dated 23rd March 1960 for Rs. 15 lakhs and Account! No. F 126/17 for Rs. 15 lakhs of the United Bank of India, Clive Ghat Street, Calcutta.
(5) Amounts lying in the current account of Central Bank of India, 33 Netaji Subhas Rd. and Punjab National Bank, New Market Branch, Calcutta.
The Special Officer is not to withdraw or operateon any of the aforesaid banking accounts and the short deposit accounts and the current accounts of the company without further order of this Court.The said accounts are to remain' standing in the name of the company as they now stand and the respective banks are not to allow any withdrawalwithout further order from this Court. Let, the Registrar, O. S; of this Court immediately inform the respective banks of this entire order and aftersuch information is given make a report to Courtthat such information has been sent and receivedby the banks.
(2) The Special Officer is directed to take immediate possession of the registered office of the Company and also to take possession of all books of account, share-registers and all other papers, documents, records whatsoever belonging to the Company now lying with and under the control of the respondents. The respondents do forthwith make over such possassion to the Special Officer and also make over the cash in their hands belonging to the Company.
(3) Immediately upon obtaining possession of the registered office of the company and the share registers and other records mentioned above, the Special Officer is directed to prepare a list of the names of the applicants and their supporters as mentioned in Annexure A to the petition and including the added parties to this application who have supported this application, and ascertain the number of shares held by each of them and recorded in the register of the Company.
(4) The Special Officer is directed thereafterto make a valuation of the shares in the followingmanner:
(a) Ascertain the total sum available in respect of the compensation money paid by the Life Insurance Corporation to the Company including the said sum paid as compensation for vesting the management under the Life Insurance (Emergency Provisions) Act, 1956.
(b) Ascertain the total sum received and/or receivable for interest due on the said sum lying in short deposit accounts in the name of the Company in different banks mentioned, up to this date.
(c) Deduct income-tax payable on the interest paid or payable and ascertain the net interest available.
(d) Add the net interest to the compensationmoney and also the money paid: as compensationfor vesting the management as aforesaid.
(e) Divide the total with the total number of shares issued by the company, namely, 28,695 shares. The quotient will be the value of one share.
I consider this is the simplest way to value the shares on the facts and circumstances of this case. (5) The Company through the Special Officer is directed to purchase and pay for the shares standing in the names of the applicants and their supporters whose name appears in Annexure A to the petition, including the added parties to this application as in paragraph 3 above at the valuation so arrived at, out of the funds of the company. Such payment is to be made by the Special Officer upon obtaining directions from the Court and make consequent reduction of the share capital of the company.
(6) After such purchase by the company the Special Officer is directed to convene an Extra-Ordinary General Meeting of the remaining shareholders of the company to consider and if thought fit to pass either of the following resolutions with or without modifications :
(i) Resolved that the Company do distribute the compensation money received by the company from the Life Insurance Corporation of India to the shareholders in accordance with law; or
(ii) Resolved that the Company do carry on any other business authorised by its Memorandum of Association and utilise the compensation money for the aforesaid objects.
Such meeting is to be called in accordance with law by sending 21 days' notice along with the usual forms of proxy for general meeting as per schedule 9 of the Companies Act, 1956. Notices .together with the forms of proxy be sent to each and every shareholder at their respective addresses as recorded in the books of the Company. The Said meeting will be presided over by the Special Officer and to be held at such place as the Special Officer may think fit and proper. Such meeting is also to be held upon proper advertisement in the Calcutta Gazette, Statesman, Amrita Bazar Patrika, Ananda Bazar Patrika, Times of India, Bombay and Hindu, Madras at least a fortnight before the date of the meeting. In ascertaining the aforesaid positions the votes in respect of all the trust shares be recorded in terms of the order of H.K. Bose, J. passed on 10 December, 1959.
(7) The respondents Nos. 1 to 4 are removed from the Board of Directors of the Company,
(8) Prasanta Kumar Bose and Nawab K.G.M. Faroqui were not elected as Directors and they are not to act or represent themselves as such Directors any more.
(9) B.B. Roy was not validly appointed as the Secretary of the Company and he is not to act as such. He is removed from the office of the Secretary. .
(10) Let there be an injunction restraining the respondents Nos. 1 to 4 from acting or representing themselves as Directors of the Company and/or dealing with the assets of the Company including the compensation money, the accrued interest thereon and also the money lying in the current account of the company. They are also restrained by an injunction from operating on any of the banks mentioned above.
(11) The Special Officer upon purchase of the shares as aforesaid is directed to submit a report to the Court for obtaining further directions.
(12) There will be liberty to the Special Officer to apply and also to apply for funds.
(13) The Special Officer is also to make a report to the Court after holding the meeting as directed above and apply for further orders.
(14) Costs of and incidental to this application are to be paid by the respondents Nos. 1 to 3 to the applicants. Costs of the Central Government will be paid out of the funds of the Company.
(15) Certified that this is a fit case for engaging two counsel.
(16) All parties and the Banks are to act onthe signed copy of this minute.