Salil Kumar Roy Chowdhury, J.
1. This is an interlocutory application in a main petition tinder Sections 397 and 398 of the Companies Act, 1956, presented on the 27th of July, 1979. Ad interim orders were issued in the interim application appointing a special officer to take possession and make an inventory and initial the statutory books and documents of the respondent-company and certain other interim orders. The respondents were given liberty to apply for vacating, modifying and altering the orders if so advised and the petitioners were given liberty to apply for further interim orders on the returnable date. On the returnable date being the 31st of July, 1979, the respondents appeared through Mr. R.C. Deb, Mr. B.K. Bachawat, Mr. H.K. Mitter, Mr. Sujit Sinha and Mr. Ranjan Deb, for the opposing group, and Mr. Sankar Ghosh, appearing with Mr. P.C. Sen and Mr. Jayanta Mitter, for a group of respondents who alleged themselves to be neutral. But according to the opposing group they are really supporting the petitioners. The matter was argued for three days at great length as to why the interim orders should not be vacated on the one hand and on the other hand as to why a special officer should not be appointed. I may point out that it appears that respondent No. 2, Mr. Prasanta Sanyal, the managing director, who is going to retire on the 30th of September, 1979, is now too ill and is not attending office, being a heart patient. The respondent No. 12, Phoni Bhusan Sengupta, a director of the company, has resigned after the present application was moved, from the board of directors of the respondent-company and Mr. Satyajit Roy, respondent No. 14, a person of international reputation and a director of the respondent-company, appearing through Mr. P.C. Sen, submitted that he is not in a position to attend his office as a director of the company due to his pre-occupation and he has no objection if a special officer is appointed to look after the affairs of the respondent-company. The only other director of the respondent-company, being respondent No. 13, Forrak S. Mulla, is a resident of Bombay and, therefore, he is not in a position to look after the business at Calcutta.
2. Now, the only point for consideration at this stage is whether theinterim order should be vacated or maintained or whether in these circumstances of the case which have developed at the time of hearing, a specialofficer should be appointed. It may be mentioned that there is nothing onrecord to show that the directors of the respondent company have authorised anybody to represent the company in this proceeding in court,as there is no board functioning and the last board meeting was held onthe 3rd of July, 1979.
3. The respondent-company was incorporated on the 9th of April, 1956, as a Pvt. Ltd. company. On or about 1st March, 1965, the name of the company was changed to Clarian Mecann Advertising Services Ltd. in pursuance of a collaboration with an American company. After the termination of the collaboration the name of the company was again changed to Clarian Advertising Service Ltd. effective from 28th of September, 1976. The registered office of the company was at all material times, and still is situated at No. 55-B, Mirza Ghalib Street, formerly known as Free School Street, Calcutta. The authorised capital of the company is Rs. 10 lakhs divided into 10,000 equity shares of Rs. 100 each. The paid up, and/or credited as paid up, share capital of the company appears to be Rs. 5 lakhs divided into 50,000 equity shares of Rs. 100 each. The company is admittedly one of the biggest advertising companies in this country. The total number of shareholders of the company as far as known is 340.
4. It appears that until April, 1956, one D. J. Kaymer & Co. Ltd., a reputable British Advertising Agency, was carrying on business in India with its head office in Calcutta and branches in other cities in India. In April, 1956, the said company issued retrenchment notices to about 130 executive and other non-managerial staff who were employed in the Calcutta branch of the company as well as at its head office then located at Calcutta. The said retrenched employees got together and formed a new company which is the above-named company in or about April/1956, with an initial paid-up capital of Rs. 50,000. The said paid-up capital was contributed to solely by the executive and other employees who were formerly employed in the D.J. Kaymer & Co. Ltd. The share capital was contributed to by payments of half of the retrenchment compensation received by the employees. It appears that petitioner No. 1, Amal Kumar Mukherjee, and respondent No. 9, Subrata Sengupta, and respondent No. 10, Sovendu Basu, were employees of the said D. J. Kaymer & Co. Ltd. and they continued to be in the employment of the company since 1956. It appears that subsequently the company's paid-up capital was increased from Rs. 50,000 to Rs. 3.18 lakhs in 1976. In or about August, 1976, the board of directors of the company decided to increase the paid-up capital of the company to Rs. 5,00,000 by the issuance of a further 1,822 shares. At that time it appears that no shareholder of the company owned more than 31/2% of the paid-up capital of the company and the total shareholding of the respondents Nos. 2, to 11, at that time was about 19%. In the directors' report to the shareholders for the year ending 31st March, 1976, it was stated that the proposed issue of the said 1,822 unissued equity shares were in order to get further working capital. Thereafter, by a circular notice issued by the managing director by the order of the board of directors, offers were invited from the shareholders for purchasing their proportionate shares out of the said fresh issue of 1,822 equity shares. Such offer was open for 30 days and if not accepted the shares were to be disposed of by the board as they thought most beneficial to the company without further reference to the shareholders. A copy of the said notice is annexed to the petition and is at p. 79. It is now alleged that only 622 shares out of the said 1,822 shares have been applied for by the petitioners and some other shareholders who are alleged to have duly paid for the shares. The said shares were purchased by salary advances made by the company to the employees which was repaid by equal monthly instalments by such employees.
5. Respondent No. 2, Prasanta Sanyal, has been the managing director of the company since 1st January, 1970, and he is due to retire on the 30th of September, 1979. In the circumstances, the question of appointment of his successor, that is, a new managing director, came up and it is alleged by the petitioners that in the course of exploration by the petitioners and other employees it came to light that 1,200 shares out of the said 1,822 shares have been wrongfully, illegally and clandestinely allotted to respondents Nos. 2 to 6, 8 to 11 and one Mr. Amit Sen ; particulars of such allotments are set out in para. 22 of the petition. It is also alleged that each of the said respondents has purchased the said shares out of the advances made by the company and no part of such advances has been repaid. It also appears that the shares of the said Amit Sen numbering 140 has later been allotted to respondent No. 7, Sarbajit Roy. It now also appears from a confidential letter dated the 16th of November, 1976, signed by respondent No. 8, Harbiles Chakravarty, with a copy to respondent No. 6, Raban Sengupta, that the 1,200 shares would be kept separately to be transferred to a link company which will come into existence in future enclosing separate letters for signature of respondent No. 11, C.S. Passanah. Those were applications for 50 shares, and a request for a salary advance of Rs. 5,000 for purchasing the said shares, to be repaid by him, but no, deduction from the salary should be made, and also a letter for disposing of the said 50 shares. Copies of those letters are annexed to the petition and are at pages 62 to 65. It also appears that by a letter dated the 26th of November, 1976, the said respondent No. 11, C.S. Passanah, duly signed the said 3 letters and returned to respondent No. 8, Harbilas Chakravarty.
6. The petitioners allege that the said shares were purchased in violation of art. 5 of the articles of association of the company and Section 77 of the Companies Act, 1956. The said allotments in favour of respondents Nos. 2, to 11 are mala fide and that it was with an ulterior motive with the object of grabbing illegal control and to take over the management and control of the company. It is further alleged that the allotment was alien to the spirit and letter of the reason for the formation of the company and the same was not for the benefit of the company. As the said shares were purchased out of the funds of the company by advancing about Rs. 1,20,000 it amounts to reduction of the share capital of the company without going through the legal procedures. It further appears that the company has paid dividends in respect of the said 1,200 shares in cash and the shares scrips are alleged to be lying with the company; It is further alleged that by that process of allotment of 1,200 shares to respondents Nos. 2 to 11, their shareholding have increased from 19.1% as on 30th March, 1966, to 42.4% as on 30th March, 1977. It is alleged that such allotment was made for getting surreptitious control and management of the company. It also appears that Shri Amit Sen who held 140 shares and also further 10 shares, and who resigned in April, 1978, was allotted 140 shares out of the said 1,200 shares. At the time of his retirement, notice about the 10 shares were issued as belonging to the said Amit Sen suppressing his other holding of 140 shares. It is alleged that the said 140 shares were accordingly allotted to respondent No. 7, Sarbajit Roy, who has recently become the branch manager of the Calcutta office. It is further alleged that the said allotment was clearly in violation of the articles of association of the company and in particular art. 17. It is further alleged that the said 1,200 shares were kept in a separate class by themselves as would appear from the letter dated the 17th of April, 1979, written by respondent No. 5, 'Raban Sengupta, to respondent No. 9, Subrata Sengupta. Copies of those letters are annexed to the petition and would appear from pages 68 and 68A. In the said list of shareholders those 140 shares are marked with asterisks which are alleged to signify a special class. There are other allegations in the petition that the respondents were trying to get control of the company by acquiring shares of those who resigned from the company and wanted to dispose of their shares. Therefore, in the petition one of the charges made is the violation of the provisions of Section 81 of the Companies Act and also the principle of equitable distribution amongst the shareholders who were employees of the company. Out of the new issues the block of 1,200 shares were kept separately under the control of respondents Nos. 2 to 11 so as to acquire the absolute control over the company.
7. The petitioners have disclosed and produced before this court at this stage more than sufficient materials to establish a prima facie case and to show a serious question to be tried that the allotment of the said 1,200 shares was well designed and kept separate under the control of respondents Nos. 2 to 11.
8. A question was raised as to the delay in making this application when admittedly the said allotments were made as far back as September and October, 1976. It is also alleged that the petitioners are not asking for cancellation of the said 622 shares, which the petitioners and other shareholders have got allotted and are alleged to have paid for. It is further alleged that two annual general meetings have taken place between theperiod and nowhere the questions now sought to be raised were everraised. The explanation of the petitioners is that they had full faith andconfidence in respondents Nos. 2 to 11 and they were lulled into inactionby paymeat of dividend at the rate of 20% and the good performanceof the company and it is only in April, 1979, they have discovered thefact of the wrongful, illegal and surreptitious allotment of 1,200 shares byrespondents Nos. 2 to 11, to keep the block apart for the purpose of gaining control of the respondent-company, and the occasion of discovery isalleged to be the question of appointment of a new managing director afterthe retirement of the present ailing managing director on the 30th ofSeptember, 1979, as alleged in paras. 20, 21 to 29 of the petition. Atfirst blush it appeared to me that it is highly improbable for the petitioner not to be aware of the said allotment of 1,200 shares for so long, but,after a careful consideration of the. situation and considering the respective submissions it appears to me that there was no point in the employee-shareholders of the company not applying for allotment of theirproportionate shares in the said 1,200 new shares offered for allotment bythe company by its letter dated 30th of August, 1976, as the payments inrespect of the shares were to be made out of the salary advances fromthe company and not to be repaid or even if to be paid, were to be byvery easy instalments spreading over a long period, as now appears to havebeen the case in respect of the allotments of the said shares in favour ofrespondents Nos. 2 to 11.
9. Such a submission, as has impressed me as highly reasonable and probable and in accordance with the ordinary human conduct and behaviour, was castigated by Mr. Deb, appearing on behalf of the respondents as the leading counsel, as a feeling which cannot form the basis of any order to be made by the court; but I am unable to accept the said submission of Mr. Deb, as, at the interlocutory stage, the court must examine the prima facie case and see whether there is a serious question to be tried after weighing all the relevant facts and also probability according to ordinary human behaviour and conduct, and must see the situation, which can be called the appreciation of the existing facts appearing from the materials before the court and the realities of the situation. After all, the court is not a computer or without any mind so as not to have any feeling at this stage, and to proceed on mere technicalities and rules of pleadings and some reported decisions on various aspects of the matter. Not only that, the way the respondents are resisting the interim orders already passed and also the appointment of a special officer and arguing the matter through different sets of counsel only confirmed that the questions are very serious questions which have been raised by the petitioners to be tried and adjudicated by the court in due course after full disclosure of facts and materials before the court by affidavits or otherwise. At this stage, it appears to me that there is not only a prima facie case made out by the petitioner, but a very serious question, which is analogous to fraud, wrongful and illegal acts on the part of respondents Nos. 2 to 11 has been disclosed and very serious questions as to the interpretation of the articles and provisions of the Companies Act are to be gone into. Further, the directors' minutes book which has been produced before me by the special officer who has taken possession appears to me not a minutes book within the meaning of Section 193 of the Companies Act, 1956, as it is in a loose leaf binder and typewritten. In my view, such a book is not admissible in evidence as the minutes book of a company as it is in violation of the provisions of Section 193(1B) which provides that nothing can be pasted or attached to a minutes book indicating that a minutes book must be a bound book and must be hand written and cannot be a loose leaf binder and typewritten. This is for obvious reasons for preventing interpolation, manipulation, fabrication and substitution and I am further satisfied at this stage that there is no active board of the respondent-company at the present moment and, therefore, the administration of the company cannot be left in the hands of the executives against whom serious allegations have been made in the petition which appears to be, prima facie, maintainable and the balance of convenience appears to me to be in favour of a proper order to be made for the protection of the company's books, assets and funds until further orders. The principle is now well settled by the House of Lords decision in American Cyanamid Co? v. Ethican Ltd.  1 All ER 504;  2 WLR 316 and the Court of Appeal decision in Fellowes & Sows v. Fisher  2 All ER 829;  3 WLR 184. It is admitted and is apparent from the contentions of both the petitioners and the respondents through their respective counsel that the matter involves a serious question to be tried. The charges are the clandestine, illegal and wrongful allotment of 1,200 shares about which I have already mentioned and also the renovation of the respondent-company's flat at heavy expense for respondent No. 2, the ailing managing director of the company, to occupy after retirement. There are sufficient allegations in the petition and the annexures that the said respondent No. 6 is the prime mover in respect of such wrongful acts by draining out the company's funds for the personal use of respondents Nos. 2 to 11. The allegations are in paras. 44, 45 and annex. 1 at page 86 of the petition. I am also prima facie satisfied that there are diversions of the funds of the company by respondents Nos. 3, 4, 6 and 7 by way of taking loans and advances for their personal benefit without having any intention to repay the same. The books of account of the company which has been taken into possession by the special officer was produced before me and it appears that advances taken by the respondents have not been paid in spite of their promise to pay by monthly instalments. That will also appear from para. 43 and page 84 of the petition. Further, the other allegation that the company is diverting its business through another company of which respondent No. 6, Raban Sengupta, is also a director, makes out a prima facie case at this stage for an interim order. The allegations are in para. 66 of the petition. There also appears to be a prima facie case of violation of the provisions of Section 295 of the Companies Act, 1956, by respondent No. 2, Prasanta Sanyal, for obtaining a loan from the company in the name of others as alleged in para. 39 of the petition and from the documents annexed with the petition, being at pages 41, 42, 81 and 82. At this stage, I am inclined to accept the prima facie case made out by the petitioner and also the statements in para. 40 that the petitioners discovered the said facts only in or about April, 1979, and, thereafter, the present application has been made.
10. It is an admitted position that the company has extensive business and high profitability and the matter, as it stands at the present moment, is certainly not to be left as it is, particularly in the hands of the executives, who appear to be in complete control of the company. The executives, who are respondents Nos. 2 to 11 and other officers of the company, are very well paid and the particulars will appear from the statements and particulars of the employees under Section 217(2)(a) of the Companies Act in the annual report of the company for 19.78.
11. Having regard to the nature of the charges and the materials at this stage before me, as I have indicated above, and also due to the fact that it does not appear to this court, at this stage from the present array of advocates appearing for the different parties, as to what is the attitude of the directors of the company, save and except respondent No. 2, Prasanta Sanyal, managing director, against whom most of the charges are levelled, it may be necessary to ascertain the duties of the board, if there is any, of the company, about which statements have been made from the bar that there is no board at the present moment, as, being a public company, it must have three directors to constitute a quorum in a board and at the present moment, there is none.
12. Mr. R. C. Deb, learned counsel, submitted that these statements cannot be relied on by the court at this stage when there is no affidavit and no positive material before the court. But, in my view, that submission appears to be a sort of argument in despair when it appears that there is no board which can be made to function after the disputes have come before the court.
13. It is an admitted position that respondent No. 12, Sri Phoni Bhusan Sengupta, a director, has resigned pending this application. But a submission was sought to be made by Mr. R. C. Deb that he might be persuaded to withdraw his resignation and the resignation has not yet been accepted by the company. It also appears that both the groups have given a requisition for holding a meeting and, in fact, respondent No. 2 purporting to represent the board of the respondent-company has convened two general meetings on 10th August, 1976, one at 10.30 a.m. and another at 4 p.m. pursuant to the requisitions given by the petitioners and other shareholders of the company and the others being some of the respondents, The notice of the requisition-meetings called is annexed to the petition being annex. J-2 and annex. J-6. It starts at pages 96 and 104.
14. From the resolutions proposed to be placed in the said meetings it appears that the affairs of the company are not in order and serious disputes and, in fact, forgeries and defalcations have taken place amounting to mismanagement and misappropriation. Therefore, it will not be proper to allow any of the meetings to be held until this interim application is disposed of after hearing the parties, after the filing of the affidavits and the placing of other documents.
15. Therefore, I am making the following ad interim order:
In addition to Mr. Moni Bhusan Sarkar, learned advocate, who was appointed a special officer, I will also appoint Mr; Monindra Kumar Bose, Barrister-at-Law, as joint special officer to supervise and control the business and management of the company by the present management of the company. They will act jointly and severally. Any one of them should attend the office of the company during the office hours and look after the business of the company so that it is carried on in the usual course, i.e., all the debts due to the company are realised expeditiously by taking proper steps, and see that the business of the company is not in any way interfered with or hampered by anybody including respondents Nos. 2 to 11. The joint special officers will convene a meeting of the board of directors of the company forthwith to be held within a week from date and see whether the directors are willing to act and constitute a quorum and a valid board and they should decide as to the conduct of the present litigation in this court, i.e., whether they will contest the litigations in this court and if so in what manner. The joint special officers will be at liberty, in case of any doubt, difficulty or dispute to apply before this court with notice to all the parties to this proceeding for appropriate directions and orders whenever they think it fit and necessary. At present the joint special officers will represent the company in these proceedings until further orders of this court. The appointment of special officers by this ad interim order will not affect the business of the company in any manner or in any way whatsoever. On the other hand, the intention of this appointment is only to facilitate the smooth running of the companywhich appears to have been impeded or interfered with by the internecine squabbles amongst the shareholders and the employees of the company including the executives.
The special officer, Mr. Moni Bhusan Sarkar, will return the books, papers and documents including the statutory books which have been taken possession of by him to the registered office of the company for the purpose of carrying on the day to day business of the company and also to discharge the statutory obligations of the company under the Companies Act and the Rules made thereunder and also under any other law. All the payments to be made by the company are to be scrutinised and sanctioned by any one of the special officers.
16. The joint special officers are directed to make a report to this court about the working of the company and on the holding of the directors' meeting which is to be convened in terms of this order in which any one of the special officers will be entitled to be present as mere observers and will see that it is conducted properly and in a regular manner. Such report is to be filed within a fortnight from date.
17. The ad interim order passed on the 27th July, 1979, will continue so far as prayers (g), (h), (i) and (j) are concerned. So far as the order made in terms of prayer (k) directing the respondent No. 6 to take leave until further order of this court is concerned, the said order is vacated, i.e., respondent No. 6 will forthwith join his duties with the respondent-company. The interim order made in terms of prayer (1) is vacated and the joint special officers are entitled to determine about the conduct of the present litigation and if any expenses are to be made they will sanction the same for that purpose. So far as the ad interim injunction in terms of prayers (m) and (n) are concerned, they will continue.
18. The two requisition meetings scheduled to be held on the 10th August, 1979, called by the two groups of requisitionists, will be held only for the purpose of adjourning the same for a period of one month.
19. The joint special officers are appointed at a remuneration of 60 G.Ms, each per month until further orders of this court. The joint special officers and all parties to act on a signed copy of the minute.
20. The respondents will file their affidavit-in-opposition by 13th August, 1979, and the matter to appear at the top of the list on 22nd August, 1979.
21. The above order is made without prejudice to the rights and contentions of the parties at this stage. The remuneration of the special officers will be paid out of the funds of the company. So far as the clerk of Mr. Sarkar is concerned, he will be sanctioned a sum of Rs. 100 to be paid by the company out of the funds of the company through the special officers.
22. Formally stay was asked for and formally it was refused.