1. This is an appeal from an order made by a learned Judge of this Court exercising jurisdiction under the Companies Act under Sections 397 and 398 of the said Act, at the instance of three persons who joined as members of the company early in the year 1962 and were also on the Board of Directors when in March 1963 they put in the petition complaining of various malpractices of respondents 2 to 4 and their conduct of the company's affairs in a manner oppressive to the petitioners.
2. The Sindri Iron Foundry (P) Limited. the first respondent in the petition, was incorporated under the Indian Companies Act, 1956 on or about September 10, 1957 as a Private Limited Company. Its registered office was then situate at No. 52/1, Dr. Abani Dutt Road, Howrah. Its authorised capital was Rs. 10 lakhs divided into 10,000 equity shares of Rs. 100 each. The paid up capital appears to have been three lakhs sixty thousand six hundred held entirely by a croup which may be called the Prosad group of shareholders. The petitioners and their associates who may be called the Saraogi group joined the company in January 1962.
3. Soon thereafter this group acquired no less than 5060 shares for the consideration of Rs. 5,06,000. The objects of the company were, inter alia, to carry on the trade or business of iron founders and iron masters etc. It had its factory at Pathardihi near Sindri in Behar. Article 19 of the Articles of Association of the company provided that 'until otherwise determined by a general meeting the number of Directors shall not be less than three and not more than five. The first Directors of the company were Sree Radhakissen Prosad the respondent No. 3 to the petition and Biswanath Prosad. Under Article 22 'the company in general meeting may from time to time and at any time appoint any other person to be Director and may remove any such person, so appointed.' On January 25, 1962 the petitioners were elected Directors of the company at a general meeting so that the Board had five Directors after that date.
4. As there is controversy between the two groups as to the management of the affairs of the company ever since the Saraogis joined, it is proper to take note of the respective versions separately.
5. The petitioner's version is as follows: The affairs of the company were far from satisfactory and the company was saddled with huge liabilities at the time when they joined it. By their sustained efforts they were able to bring about all round improvement in the management of the company including its financial position and liquidation of considerable liabilities. The respondents 2 and 3 were in possession of the books of account, documents, papers and statutory books of the company up to January 24, 1962 and they failed and neglected to hand over the same to the new Board of Directors for the purpose of preparation of the balance sheets for the years 1960-61 and 1961-62 and the accounts of the company in spite of demands. Further they failed to make the same available for production before the Commercial Tax Officer, Dhanbad in connection with thepending Sale Tax Case of the company. The oard of Directors passed a resolution on February 22, 1963 at its head office at No. 132/1, Mahatma Gandhi Road, Calcutta, (in which premises two of the Saraogis used to reside) that the registered office of the company would be removed to 22, Jogendra Mukherjee Road, Howrah from 52/1, Dr. Abani Dutt Road, Howrah. Notice under Section 146 of the Companies Act wasfled with the Registrar of Companies on or about February 27, 1963 and the change of address was duly advertised in the newspapers including the Jugantar on February 25, 1963 and the Statesman on March 1, 1963. The respondents caused to be advertised in the Statesman on March 6, 1963 to the effect that the Registered Office of the company was still situate at No. 52/1, Dr. Abani Dutt Road, Howrah. In order to obtain control over the affairs of the company to the exclusion of the Saraogi group the respondents 2 and 3 resorted to various wrongful and illegal acts some of which are detailed below:
(1) On or about March 13, 1963 at about 9-30 P. M. the respondents 2 and 3 accompanied by a large number of hooligans forcibly entered the factory of the company at village Chasnala P. O. Pathardihi and wrongfully and illegally took possession and charge of the affairs of the business and properties including the current books documents and papers of the company. Further they wrongfully ousted the persons including the petitioners who were lawfully in charge of the management and control of the company. In order to protect the rights and properties of the company the manager made a report to the police at Jorapukur police station. This report goes to show that several persons including Kedarnath, respondent No. 4 herein, accompanied by a large number of undesirables raided the factory sometime after 7 P. M. and made the manager and others quit the same on threat of dire consequences.
2. The respondents 2 and 3 wrongfully alleged that Kedarnath Bhagat, a son of respondent No. 2, was a Director of the company. Such purported appointment denied by the petitioners was illegal and ultra vires the company's articles of association, us it had already five directors.
3. The respondents 2, 3 and 4 purporting to act as Directors fraudulently misappropriated large sums of money belonging to the company. The only instance or such misappropriation given in the petition relates to the sum of Rs. 4102 alleged to have been handed over to the respondent No. 2 in cash to be paid to J. S. Desai and Co. Calcutta, as an advance and/or part payment of the goods supplied by them.
4. In spite of the resolution passed at a meeting of the Board of Directors of the Company held on February 22, 1963 that accounts of the company with several banks be operated by the first petitioner Muralidhar Jhunjhunwalla alone or by either of the two Directors Champalal Saraogi, Mahendra Kumar Saraogi jointly along with either Rama Sankar Prosad or Radha Krishna Prosad, the respondents 2 and 3 bad written and/or threatened to write to the banks that the respondent No. 2 alone was authorised to operate the banking account of the company.
5. The respondents threatened and intended to remove various machinery and raw materials lying in the company's factory at Chasnala to other factories and/or workshops in the vicinity belonging to the respondents.
6. The respondents had wrongfully purported to hold several meetings of the Board of Directors of the company at the company's former registered offies.
7. In spite of the fact that fresh sets of books of account were being maintained by the company since January 1962 when the petitioners took over the management of its affairs the respondents were wrongfully writing up the old books of account.
6. In the circumstance the petitioners submitted that an enquiry or investigation into the affairs of the company was necessary, that a receiver or special officer should be appointed to take custody of the assets, books, papers and documents of the company. The petitioners who were also the registered share-holders of 2960 equity shares submitted that in the circumstances it was just and equitable that the company should be wound up but this would unfairly prejudice the petitioners and other shareholders of the company. Various orders were asked for in the petition including (a) an enquiry or investigation into the affairs of the company and the conduct of the respondents 2 to 4 therein, (b) appointment of a receiver and/or special officer and/or administrator to take charge of the company and its books and papers, (c) injunction restraining the respondents 2 to 4 from purporting to act as directors of the company and from interfering with its affairs, (h) directions for the management of the affairs of the company, (j) sale of shares by the respondents 2 to 4 to such persons as the Court should think fit and proper, (1) if necessary, proportionate reduction of the share capital of the company.
7. Annexed to the petition there is a list of shareholders of the company as on March 14, 1963. This shows that there were altogether 16 shareholders arrayed in two groups, the petitioners and their associates holding no less than 5060 equity shares and the Prosad group holding 3606 shares. The only document which has any bearing on the oppressive conduct of the respondents is the copy of a report made by Chouthmul Saraogi who described himself as manager of the company to the Officer-in-Charge, Jorapukur police station on March 13, 1963. According to this report Kedarnath in company of several persons came into the factory first followed soon after by a large number of hooligans on the evening of 13-3-1963 and compelled Chouthmul and others to leave the factory at once threatening to kill them otherwise. No mention was made in the report about the presence of Ramashankar Prosad at the time of the raid.
8. On 15-3-1963 one Abhoy Narayan Sharma affirmed an affidavit to the effect that he had been employed by the company at its factory at Chasnala and that on 13-3-1963 while he was working in the said factory it was raided by Ramashankar Prosad and Kedarnath Bhagat along with a number of persons who assumed control of the company.
9. On 15-8-1963 the learned company Judge appointed the Official Receiver as Receiver of the immovable properties, fixed assets, books and papers of the company on the petition being presented and directed the Official Receiver to act on a signed copy of the minutes.
10. The respondents 2, 3 and 4 affirmed a joint affidavit-in-opposition on March 25, 1963. Their version was as follows :
(1) The registered office of the company was always situate at No. 52/1, Dr. Abani Dutta Road, Howrah. It was never shifted to premises No. 22, Jogendra Mukherjee Road, Howrah, which was a factory belonging to the petitioner Muralidhar Jhunihunwalla under the name and style of Kedarnath Purshuttamdas and Co. (P) Ltd.
2. The authorised and the paid up capital of the company were not as stated in the petition, By a resolution passed at an extraordinary general meeting of the company held on 21-2-1963 the authorised capital of the company had been raised from Rs. 10 lakhs to Rs. 15 lakhs and the paid up capital from Rs. 8,61,600 to Rupees 10,72,900 by the allotment of 2113 equity shares to the creditors of the company at the said extraordinary general meeting. A return of such allotment had been filed with the Registrar of Companies on 22-2-1963 a copy whereof was annexed to the affidavit marked 'A'.
A comparison of the two statements will show that the shares held by the petitioners were practically the same in both the statements, the holding of the respondents and their group was considerably augmented in the statement annexed to the affidavit in opposition.
3. Since their appointment as directors of the company the petitioners had taken part in the management and control of its affairs and the books of account papers and documents which were kept in the registered office at No. 52/1. Dr. Abaui Dutt Road, Howrah had come into the joint possession of the petitioners and the respondents 2 and 3.
4. The board of directors was expanded in January 1962 so as to include the three petitioners and the latter were entrusted with the management of the factory at Chasnala.
5. The company had a programme of expansion and development of its business and the petitioner No. 1 being an intimate friend of the respondent No. 2 Rama Sankar Prosad it was agreed between them that the petitioner with his son-in-law Champalal Saraogi and his son Mohendra Saraogi would become shareholders and directors of the company so as to bring in additional finance and give effect to the expansion programme.
6. The affairs of the company were managed smoothly and efficiently until April 1962 when the petitioners started mismanaging the same both at its factory at Chasnala and at its Calcutta Office. This was objected to by the respondents Nos. 2 and 3. The petitioners tried to take full control of the company to the exclusion of the respondents 2 and 3 and acted to the detriment of the company and its shareholders. The petitioners misappropriated large quantities of imported materials purchased by the company and made fictitious entries in the books of account of the company to suit their purpose.
7. There was an agreement between the directors of the company to the effect that for the convenience of correspondence and business of the company a Calcutta office would be opened at No. 132/1, Mahatma Gandhi Road, Calcutta. There never was any resolution of the directors of the company to have a head office at the said address or to have the registered office removed to 22, Jogendra Nath Mukherjee Road, Howrah.
8. The books of account of the company were in joint possession of the board of directors until 20-12-1962 when they were wrongfully removed from the registered office by the petitioners who failed to return them to the said office of the company at 52/1, Dr. Abani Dutt Road, Howrah. The balance sheet of the company for the year 1960-61 was duly passed at the annual general meeting of the company held on May 7, 1962 and attended by the petitioners. The balance sheet was filed with the Registrar of Joint Stock Companies.
9. When it was found that the petitioners were bent upon persisting in mismanaging the affairs of the company and misappropriating its valuable assets in spite of protests and were also out to oust the respondents 2 and 3 from the control of the company, an extraordinary general meeting of the company was duly called and convened on 21-2-1963. By a resolution passed at the said meeting Clause 19 of the Articles of Association of the Company was altered by decreasing the minimum number of directors to two and increasing the maximum to seven and also increasing the share capital of the company by allotting 2113 new shares to the creditors of the company in full satisfaction of their dues. At this meeting two new directors were appointed namely, Kedarnath Bhagat and Biswanath Prosad.
10. By a resolution passed by the board of directors on March 4, 1963 the company authorised Kedarnath Bhagat to manage and take charge of the company's factory at Dhanbad. He was directed to discharge a number of employees including Chouthmul Saraogi, Ram Niwas Sharma and others. Pursuant to this resolution Kedarnath Bhagat discharged the said employees on March 13, 1963 by serving notices of termination of service on the same date at 4-30 P. M. These people left the factory premises peacefully in the afternoon, but they came back at midnight accompanied by some police officers apparently on the basis of a complaint that looting was going on inside the factory premises. On being informed of the real facts, the police officers asked the discharged men to make a written complaint and this was done by the said men in the presence of Kedarnath Bhagat and handed over to the police at the factory premises. The complaint made to the police under the instruction of the petitioners was false. Even before March 13, 1963 the petitioners had apprehended that the company might hand over the management of the factory to other competent directors and to perpetuate their wrongful possession and mismanagement of the company's affairs at the factory they had started collecting undesirable persons from the locality.
11. The allegations about the misappropriation of the moneys of the company including the sum of Rs. 4,182.00 were false.
12. There was no meeting of the Board of Directors on February 22, 1963 at the re-gistered office of the company at No. 52/1, Dr. Abani Dutt Road, Howrah. No notice of any such meeting was ever served on the respondents or the said Biswanath Prosad.
13. The bankers of the company were duly informed of the resolutions passed by the company.
14. After dismissing some of the employees of the company at the factory at Chasnala as mentioned above Kedar Nath Bhagat found it impossible to carry on the business of the company without raising some loan as a large number of creditors as also workers and labourers of the company were pressing hard for payment of their dues. In order to meet the exigencies of the situation Kedar Nath Bhagat decided to lease out the factory to one Shiv Nath Singh and hypothecated the raw materials for Rupees 25,000 for meeting the immediate liabilities of the company. The petitioners wrongfully instituted the proceedings in this Court and got a receiver appointed who took possession of the factory premises on 17-3-1963. Finding that disputes had already started between the directors leading to the appointment of a receiver, the lessee demanded return of the sum of Rupees 25,000 and offered to surrender the lease. As there was no other alternative the company accepted the surrender and returned the sum of Rs. 25,000 to the said lessee.
15. During the period January 1962 to March 13, 1963 the petitioners had misappropriated assets of the company worth more than three lakhs of rupees ana as such an investigation into the affairs of the company was necessary.
16. The company can now be run smoothly by the present Board of Directors. Tt was the petitioners who were trying to oust the respondents 2 to 4 and usurp the management of the affairs of the company to their exclusion.
17. No case of continuous oppression or mismanagement of the affairs of the company has been made out in the petition.
11. Annexed to the affidavit are copies of several letters alleged to have been written to the members of the Saraogi group by the respondents and/or the company over the signature of one of them. The genuineness of these letters is denied by the petitioners excepting the one dated February 9, 1963 and the reply thereto dated February 21, 1963. The first of these is dated November 13, 1962 where a complaint is made that the Saraogis were not complying with the request for certain copies of the correspondence to the respondents. The second is dated November 29, 1962 addressed to Mohendra Kumar Saraogi C/o. the Company at Number 132/1, Mahatma Gandhi Road, Calcutta. Here exception is taken to the conduct of the Saraogis in delaying the submission of returns asked for by the Development Officer (Mech) Behar. It was also stated therein that as all the books of reference, registers of arrivals, consumption of stocks etc. had been taken charge of by the Saraogis, the responsibility of filing the required returns lay solely with the office at 132/1, Harrison Road, Calcutta. It is significant to note that there is no mention of any mismanagement of the affairs of the company after April 1962 to which any objection was taken by the respondents as stated in paragraph 14 of the affidavit in opposition. On January 2, 1963 the respondents purported to have complained to Champalal Saraogi that he along with Murali-dhar Jhunjhunwalla & Mahendra Kumar Saraogi had forcibly removed the minute books, account books & other statutory books & common seal of the company on 20-12-1962 from the registered office of the company. By the admitted letter of 9-2-1963 the petitioners were called upon to produce all books of account before the Commercial Tax Officer, Dhanbad, for assessment of sales tax. There is no reference in this letter to any of the previous letters nor is there any mention of the removal of the books of account. This letter was replied to by the petitioners on February 21, 1963 to the effect that all books of account including the statutory books of the company excepting the minute books of the Directors prior to January 24, 1962 were with the old Directors and consequently it was impossible for the Saraogis to produce the books of account for the year 1961-62 before the Commercial Tax Officer. There is a letter of 14-2-1963 purporting to have been written by the Prosad group of Directors to the Registrar of Joint Stock Companies complaining of the forcible removal of the statutory books and records oi the company from its registered office at 52/1, Dr. Abani Dutta Road, Howrah, on 20-12-1962 by the members of the Saraogi group. Complaint is also made that the Saraogis had purported to start a new head office of the company at 132/I, Mahatma Gandhi Road, Calcutta without the consent of the other Directors who had been kept in the dark about it. Lastly, it was recorded in the letter that 'in spite of repeated requests no meeting of the Board of Directors has either been called or held up to 20-12-62 to this date.' Obviously the period referred to is 20-12-1962 to 14-2-1963. There is a letter of 1-3-1963 purported to have been written by Rama Sankar Prasad to Mahendra Kumar Saraogi wherein it was recorded that 'the balance sheet for the year 1960-61 along with annual return (signed by you) has been filed with the Registrar of Companies, Calcutta.' On March 6, 1963 Rama Sankar Prasad wrote to the members of the Saraogi group stating:
'We have definitely come to know that you are mismanaging the affairs of the company and have without authority and illegally withdrawn from the company's banking account large sums of money and have kept the said amount with yourself. You are therefore required to refund the money so obtained and to produce complete account uptodate immediately and without any delay whatsoever.'
12. Annexed to the said affidavit in opposition there was also a copy of the proceedings of the meeting of the board of directors of the company purported to have been held on 4-3-1963. The minutes go to show that the meeting was attended only by the Prosad group of directors namely Rama Sankar Prasad. Radha Krishna Prosad, Kedar Nath Bhagat and Biswanath Prosad. By the first resolution passed in that meeting the directors resolved that the previous resolution regarding the operation of the banking accounts of the company be cancelled and that members pf the Saraogi, group along with Rama Sankar Prasad and Radha Kissen Prosad would no longer be authorised to operate the said account of the company and that the bankers be informed not to honour any cheque, bill etc. signed by any of the directors who had been previously authorised to operate the said banking account for the company. The second resolution was to the effect that Kedar Nath Bhagat be alone authorised to operate the company's banking accounts. The third resolution was to the effect that as the Saraogis had wrongfully removed the books of account, statutory books etc. of the company, Kedar Nath Bhagat be authorised to take necessary steps for recovery of the same. The fourth resolution was to the effect that Kedar Nath Bhagat be solely empowered to manage the company's Dhanbad works and directed to discharge a number of employees including Chouthmull Saraogi, Sambhu Nath Roy and others and that no other directors shall have authority to take any direct charge or management of the affairs of the company. The fifth resolution authorised Kedar Nath Bhagat to take necessary legal action for enforcement of the directions contained in the other resolutions and for management of the affairs of the company. The last resolution was to the effect that the company do open an account with the United Bank of India, Salkia Branch, to be operated on by Kedar Nath Bhagat.
13. Sambhu Nath Roy, an employee of the company's factory at Chasnala, also affirmed an affidavit to the effect that the goods mentioned in annexure 'E' to the main affldavit-in-opposition did not arrive at the factory, nor were they ever consumed at the factory of the company. Some of these goods alleged to have been imported under a licence dated 29-5-1962 and others under a licence dated 1.6-3-1962, were said to have been misappropriated by the petitioners. According to annexure 'B' some industrial scraps imported from foreign countries which had reached the port of Calcutta were taken delivery of in January 1963. There are no details with regard to the arrival of other goods or their being taken delivery of either by the petitioners or the respondents.
14. An affidavit in reply was affirmed by Champalal Saraogi on 26-8-1963. The important averments made in this affidavit are as follows:
(1) The holding of the extraordinary general meeting of 21-2-1963 and the increase of capital alleged to have been sanctioned at the meeting are denied. It was claimed that the petitioners who held the majority shares on the said date were never served with any notice of the alleged meeting, for if any such notice had been received, the petitioners would surely have attended the meeting and raised objections to the conduct of the respondents.
2. There was a board meeting on 22-2-1963 attended by Rama Sankar Prosad and referred to by the Company in its letter to him dated 8-3-1963. This letter goes to show that a resolution was passed at a board meeting on 22-2-1968 to remove the registered office in spite of the addressee's opposition and advertised in the Statesman on 1-3-1963. Rama Sankar Prosad never made any mention at that meeting of the extraordinary general meeting alleged to have been held on 21-2-1963.
3. The election of Biswanath Prosad and Kedar Nath Bhagat as directors was denied.
4. No balance-sheet of the company up to 6-11-1961 was ever prepared or tiled with the Registrar of Companies and the petitioners were never shown a copy of any such alleged Balance sheet. It was not signed by the petitioners and never passed at any meeting of the board of directors of the company or at a general meeting of the company. The minute book of the company in the possession of the petitioners does not purport to record any general meeting on 7-5-1962.
5. The goods mentioned in annexure 'B' to the affidavit-in-opposition were duly despatched to the company's factory at Chasnala as would be proved from the railway receipts.
6. There was no board meeting of the company on 4-3-1963 and Kedar Nath Bhagat was never authorised by the company to manage or take charge of the company's works and factory at Chasnala.
7. The allegation about the leasing out of the factory by Kedar Nath Bhagat to Shib Nath Singh was patently false. The company had in fact a sum of Rs. 7500 in its till at its factory on 13-3-1963.
15. A number of other affidavits were filed referring to various meetings of the board of directors and other activities of the two groups of shareholders. As a matter of fact two affidavits were filed on behalf of the company one by Murlidhar Jhunjhunwalla on 20-5-1963 claiming to represent the company and another by Radha Kissen Prosad on the same date and making a similar claim.
16. At the hearing before the learned company Judge as also before us two minute books of the board of directors were freely referred to. The minute book produced by the petitioners which appears to be the book originally started in 1957 ends with the resolution passed on 22-2-1963; while that relied on by the Prosad group begins on 21-1-1963 and goes on till 22-3-1963.
17. Great stress was laid by learned counsel for the respondents to the tact that according to the affidavit of the Prosad group the parties were in joint possession of the books of account including the minute books up to 20-12-1962 and it was argued that it followed therefrom that the minute book of the directors' meetings produced by the petitioners correctly recorded what had happened at the meetings recorded therein. All these meetings acoording to the minutes were attended by one or other of the Prosad group of directors.
18. Admittedly, there was a general meeting of the company on 24-1-19GS in which the petitioners were elected directors of the company. There was also a Board meeting in which all the five directors participated. It was resolved thereat that the banking account of the company would be operated by Muralldhar Jhunjhunwalla singly, or by two directors jointly one from eaoh group. There were several meetings between 29-1-1962 and 31-3-1962 at which various shares were allotted as fully paid up either to the petitioners or their nominees. According to the minutes of the last meeting on 31-3-1962 it was resolved that the head office of the company be started at 132/1, Mahatma Gandhi Road, Calcutta.
19. On 9-4-1962 there was a Board meeting in which it was resolved that a current account of the company be opened with the CentralBank of India, Jharia Branch to be operated onby Muralidhar Jhunjhunwalla singly or by twonamed members from the two groups jointly.Board meetings were held on 24-4-1962, 25-5-1962 and 31-7-1962 where at the important business transacted was the opening of an overdraftaccount with the Central Bank of India Ltd. andthe allowance of cash credit facilities by the saidBank. According to the minute book producedby the petitioners there was a Board meeting onFebruary 22, 1962 'attended by the three petitioners and Rama Sankar Prosad. The importanttransaction at this meeting was the resolutionthat thenceforth all the banking accounts of thecompany would be operated on by Jhunjhunwallasingly or by two directors out of the four namedone from each group jointly. There was a resolution for the allotment of fifty shares to fivenamed persons, the distinctive numbers of theshares being 8617 to 8686. There was also somediscussion with regard to the preparation of thecompany's balance sheet for the years 1960-61and 1961-62. A resolution was passed directingRama Sankar Prosad and Radha Kissen Prosadto hand over all books, papers and documentsrequired for the preparation of these balancesheets to the auditors of the company forthwith.Further by another resolution the registered officeof the company was removed from 52/1, Dr.Abanl Dutta Road, Howrah, to 22, Jogendra NathMukherjee Road with immediate effect and itwas resolved that the Registrar of Companiesand all customers of the company be intimatedof such change of address and advertisementsbe issued once in the Jugantar and once in theStatesman. The last two resolutions were notpassed unanimously, but by a majority of directors.
20. According to the respondents:
(1) there was a general meeting of the company on 7-5-1962 at which the balance sheet of the company for the year 1960-61 was passed. It is claimed that the petitioners were present at the said meeting and the balance sheet had been duly filed with the Registrar of Joint Stock Companies.
(2) There was a Board meeting--disputed by the petitioners--held on January 22, 1963 at which the persons present were Ramashankar Prasad and Radna Krishna Prosad. According to file Prosad group notice of this meeting had been duly sent out by post and certificate of posting obtained. The original minute book flows that the following resolutions were passed:
(a) The petitioners be censured for not returning the statutory books, minute books etc. to the registered office of the company,
(b) That a new minute book of the meetings of the Board of Directors be started,
(c) That an extra-ordinary general meeting of the company be held on 21-2-63 for:
(i) increasing the number of Directors from 5 to 7 and to appoint new Directors:
(ii) altering the articles of association of the company so as to allow the appointment of seven directors;
(iii) increasing the authorised capital of the Company from Rs. 10 lakhs to 15 lakhs.
The meeting also considered letters alleged to have been received from several creditors including Rama Sankar Prasad, Radha Kissen Prosad and Biswanath Prosad from immediate payment of their loan,
(iv) Letters be sent to the creditors asking for continuation of the loan or the issue of shares of the company in consideration and liquidation of the loan.
(3) There was an extraordinary general meeting of the company held on February 21, 1963 challenged by the petitioners who were not present there. The business transacted at the said meeting were as follows:
(a) A special resolution for change of Clause (19) of the articles of association of the company so as to allow the increase in the number of directors upto seven;
(b) raising of the authorised capital from Rs. 10 lakhs to Rs. 15 lakhs;
(c) increasing the paid up capital from Rs. 8,61,600 to Rs. 10,72,900/-;
(d) allotment of 2113 equity shares to creditors of the company;
(e) the election of two new directors i.e Kedar Nath Bhagat and Biswanath Prosad.
21. There was a board meeting held on March 4, 1963 resolving that Kedar Nath Bhagat be authorised to manage and take charge of the company's works and factory at Dhanbad and be authorised further to discharge certain named employees of the company at the said factory. Intimation was to be given to the bankers that they were not to honour any cheques as per previous authority and such operation was to be conducted by Kedar Nath Bhagat alone.
22. Considering the above and other affidavits which were filed, the learned trial Judge held that a case had arisen where sections 397 and 398 could properly be invoked in aid of the petitioners' complaint. According to him
'by reason of the activities of the rival groups of directors the normal method of administration has come to and end. Two rival groups of directors have set up two different registered offices of the company and are holding meeting at these two different places with the object or nullifying the resolutions passed at the rival meetings of the board of directors. Two rival groups have set up two rival board of directors who were holding meetings at the said two different addresses and are purporting to carry on the Company's business Nobody knows who are the lawful directors of the company The company's bank accounts have become practically frozen because the authority to operate upon the accounts has been purported to be revoked..... One group of directors has purported to call annual general meeting at which accounts of the company are alleged to have been passed, which is disputed. The extraordinary general meeting of the company purports to have transacted business which has a devastating effect on the control and the management of the company's affairs. A large block of new shares have been purported to have been issued and allotted. New directors have been appointed, articles of association of the company have been altered with the object of completely upsetting the control and management of the company's affairs. Serious allegations have been made and not without substance, that notice of board meeting and general meeting of the company have been deliberately suppressed.....
There is no doubt in my mind that the company cannot carry on its business as things stand at present, unless remedies are imposed by this court by appropriate orders.'
23. On behalf of the appellants it was argued that the findings of the learned trial Judge do not show that the case is a fit one for relief under Sections 397 and 398 of the Companies Act and further that the order made does not bring to an end the matters complained of. It was said that when the shareholders are ranged in two different camps who have so fallen foul of each other as to show complete lack of confidence between them the case is not one for interference under the above-mentioned sections of the Companies Act. It was argued that the circumstances under which Section 397 became applicable were as follows:
(a) There must be a complaint by a member qua member and not by a director against another director. The complaint must be that the rights of a member as such have been violated or disturbed.
(b) A member or members complaining must be in the minority.
(c) The acts complained of must amount to oppression.
(d) The complaint must be that the affairs of the company are being conducted oppressively to some.
(e) The nature of the oppression must be such that the case is a fit one for winding up the company under the just and equitable clause.
(f) The oppression complained of must be continuous in its effect and the Court's order must be directed to bring the oppression to an end.
24. Section 397 did not come into the statute book for the first time in 1956. In substance it is the re-production of Section 153C of the old Companies Act which was introduced in the year 1951. That section again was introduced in India on the lines of and adopting the words of Section 210 of the English Companies Act of 1948. As a number of decisions on the interpretation of Section 210 were referred to at the bar and as these decisions have in their turn been relied on by the High Courts in India and leferred to by the Supreme Court it will be useful to set out the wording of the two sections so as to appreciate the difference, if any, between them. The English section is headed 'minorities' and runs so far as is necessary for our purpose as follows:--
'Section 210(1): Any member of a company who complains that the affairs of the company are being conducted in a manner oppressive to some part of the members (including himself) or, in a case falling within Sub-section (3) of Section 169 of this Act, the Board of Trade, may make an application to the court by petition for an order under this section.
2. If on any such petition the Court is of opinion-
(a) that the company's affairs are being conducted as aforesaid; and
(b) that to wind up the company would unfairly prejudice that part of the members, but 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, whether for regulating the conduct of the company's affairs in future, or for the purchase of the shares or any members of the company by other members of the company or by the company and, in the case of a purchase by the company, for the reduction accordingly of the company's capital, or otherwise.'
25. Section 397 of the Indian Act reads:
'(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.'
26. Section 398 runs as follows:--
'(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 agent, or secretaries and treasurers or manager, or in the constitution or control of the firm or body corporate acting as its managing agent, or 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 chance, 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 apprenended, make such order as it thinks fit.'
27. The right to apply under Section 397 or Section 398 is controlled by Section 399(1) which provides:
'The following members of a company shall have the right to apply under Section 397 or 398 :--
(a) In the case of a company having a share capital, not less than one hundred members of the company or not less than one-tenth of the total number of its members, whichever is less, or any member or members holding not less than one-tenth of the issued .share capital of the company, provided that the applicant or applicants have paid all calls and other sums due on their shares;
(b) in the case of a company not having a share capital, not less than one-fifth of the total number of its members'.
28. Section 401 gives the Central Government a power comparable to that given by Section 210 of the English Act to the Board of Trade, to apply to the Court for an order under Section 397 or 398.
29. Section 402 specifies some of the reliefs which the Court is empowered to make under Section 397 or 398. Under this section such orders may provide for
'(a) the regulation of the conduct of the company's affairs in future;
(b) the purchase of the shares or interest of any members of the company by other members thereof or by the company;
(c) in the case of a purchase of its shares by the company as aforesaid, the consequent reduction of its share capital;
(d) the termination, setting aside or modification of any agreement, howsoever arrived at, between the company on the one hand, and any of the following persons, on the other, namely.
(i) the managing director;
(ii) any other director;
(iii) the managing agent;
(iv) the secretaries and treasurers, and
(v) the manager;
upon such terms and conditions as may, in the opinion of the Court, be just and equitable in all circumstances of the case.'
30. It will, therefore, be noted that whereas under the English Act a single member, no matter what his share-holding is, has a right to complain under Section 210, the right given under the Indian Companies Act, in the case of a company having a share capital, is given to a group of not less than one hundred members of the company or not less than one-tenth of the total number of its members, whichever is less, or to a member or members holding not less than one-tenth of the issued share capital of the company. In the Indian Act no upper limit is specified but in the heading of the English Act if Section 210 is to have any effect it is the right of the minorities to apply under the section. The marginal note of Section 210 is 'alternative remedy to winding up in case of oppression' whereas Section 397 finds a place in Chapter VI of the Act headed 'Prevention of oppression and mismanagement' and has the marginal note 'Application to Court for relief in cases of oppression'.
31. Before the introduction of Section 210 in the English Companies Act the only available remedy open to a minority group of shareholders who complained that the business of the company was being deliberately and systematically conducted in disregard of principles of commercial administration implicit in the Companies Acts guaranteeing commercial probity and efficiency whether by the action of a member and official of the company or an overwhelming majority was to petition to the court to wind up the company on the ground that it was just and equitable to do so. It was, however, recognised that it might not always be in the interest of the oppressed minority to have the company wound up, for the liquidation of the company might result in the sale of its assets at break-up value, without regard to the value of the goodwill or know-how of the company, and the minority shareholders who urged by the rnaiority oppression petitioned for relief would in effect be going out of the company and clear the field for the majority. According to Palmer's Company Law, 20th eqition. pace 505, 'in an attempt to meet such cases, the legislator gives now an oppressed minority share-holder a remedy alternative to the petition for compulsory winding up under the just and equitable clause.' Further according to Palmer this alternative remedy was available upon two conditions:
(1) the affairs of the company were conducted in a manner oppressive to some part of the members; and
(2) the court would be prepared to make a winding up order under the just and equitable clause but such winding up would unfairly prejudice the members.
It will be noted that the two conditions are also present in Section 397; but whereas Section 210 with its heading goes to show that the right is available only to the minority shareholders, Section 397 contains no such limitation, the right to apply being circumscribed by Section 399.
32. So far as the cases cited before us are concerned the first decision, in which the word 'oppression' was used in connection with the management of the affairs of the company, is that of Cook v. Deeks, (1916) 1 AC 554: (AIR 1916 PC 161). In this case three directors of a company carrying on business as contractors obtained a contract in their own names to the exclusion of the company in circumstances which amounted to a breach of trust on their part and constituted them trustees of its benefits on behalf of the company. By their votes as holders of a majority of the shares they passed a resolution at a general meeting declaring that the company had no interest in the contract. Allowing the appeal of the minority shareholders the Judicial Committee observed (page 564) (of AC): (at p. 166 of AIR) 'even supposing it be not, ultra vires of a company to make a present to its directors, it appears quite certain that directors holding a majority of votes would Viot be permitted to make a present to themselves. This would be to allow a majority to oppress a minority.'
33. One of the earliest eases under Section 210 of the English Act of 1948 was that of Elder v. Elder and Watson Ltd. 1952 SC 49. The facts in that case may be briefly summarised as follows: A private limited company had twelve shareholders drawn from the families of two promoters and their relatives. There were sharp differences of opinion between two directors culminating in an assault by one upon the other in May 1948. It was clear that failing a reconciliation one of the two would have to go and the board would have to be reconstructed. One of these two (Walter Elder) and two shareholders asket! the other George Elder in September 1948 to remove James Glass, another director, who was also a factory manager from the board. On February 15, 1949 an extraordinary general meeting of the company was requisitioned by two shareholders for the purpose of removing George Elder from the board of directors. At the meeting the resolution for George Elder's removal was passed and Walter Elder was appointed Chairman and managing director. At the annual general meeting in March 1949 James Glass was not re-elected a director and on April 28, he was dismissed from employment as factory manager. In the following June two new directors were appointed at an extraordinary general meeting of the company. In July 1949 George Elder gave notice to the company that he was leaving their employment as secretary. The petition under Section 210 was raised more than eighteen months afterwards at the instance of five shareholders disclosing differences of opinion between two directors, removal or exclusion of George Elder and James Glass from the board, Forced retirement or dismissal of them from employment as secretary and factory manager and rejection of their offer to sell their shareholdings to the board. The judgment of Lord President Cooper shows that there was no case made out in the petition that the business had been or was being mismanaged to the detriment of the shareholders. On the contrary, the figures suggested that its position and prospect were commercially sound and the single source of trouble was the quarrel which began three years back between certain members of the management and which was solved in 1949 by reconstituting the board. Walter Elder against whom alone the attack was developed did not hold the controlling voting power and the policy complained of could not have been adopted without the voting support of other shareholders. The Lord President further observed that there was no relevant averment any where in the petition that the petitioners had suffered in their character as members of the company. Analysing the Section (210) the learned Judge said 'on such a petition the court can only act under the section on being satisfied of three matters: (i) that the company's affairs are being conducted in a manner oppressive to some part of the members including the petitioner (ii) that to wind up the company would unfairly prejudice that part of the members; and (iii) that otherwise the facts would justify the making of a winding-up order under the 'just and equitable' clause.' It was conceded that condition (ii) was satisfied. According to the Lord President 'the justice and equity which led to the grant of a winding-up order have often been found in conduct reasonably eapable of being described as oppressive to some part of the company's members, the oppression being usually exerted by a person with predominating voting power which was employed for his own advantage to the detriment of a helpless minority. The decisions indicate that conduct which is technically legal and correct may nevertheless be such as to justify the application of the 'just and equitable' jurisdiction and conversely, that conduct involving illegality and contravention of the Act may not suffice to warrant the remedy of winding-up especially where alternative remedies are available, Where the 'just and equitable' jurisdiction has been applied in cases of this type, the circumstances have always, I think, been such as to warrant the inference that there has been at least an unfair abuse of powers and an impairment of confidence in the probity with which the company's affairs are being conducted, an distinguished from mere resentment on the part of a minority at being outvoted on some issue of domestic policy. The phrase 'oppressive to some part of the members' acquires a certain colour from its collocation in Section 165 with such stronger expression as 'intent to defraud', 'fraud', 'misfeasance' or 'other misconduct', and the essence of the matter seems to be that the conduct complained of should at the lowest involve a visible departure from the standards of fair dealing and a violation of the conditions of fair play en which every shareholder who entrusts his money to a company is entitled to rely.'
34. After examining the facts the Lord President noted that 'the true grievance is that two of them, (the petitioners) George Elder and Tames Glass, have lost the position which they formerly held as directors and officers of the company. I do not consider that Section 210 was intended to meet any such case, the 'oppression' required by the section being oppression of members in their character as such. I do not think that a 'Just and equitable' winding-up has ever yet been ordered merely because of changes effected in the board of directors or the dismissal of officers, and very strong grounds would have needed to justify such a step. From the judgment it appears that the appeal was dismissed on the preliminary ground that the facts disclosed that conditions (i) and (iii) mentioned by his Lordship were not satisfied.
35. According to Lord Carmont 'an employee who had been treated oppressively has no remedy under this section and a member who is an employee can, in my opinion, have no recourse to this section merely because of treatment he has suffered as an employee. The same holds, in my opinion, of a member who is a rector or holds other office in the company, and whose only complaint is of deprivation of such office by whatever manner achieved. I do not suggest that such conduct towards a director, officer or employee may not have some relevance in an application under Section 210 if it is part and parcel of conduct designed to react on the rights of members as such or to further a scheme whereby the rights of a section of members may be prejudiced.' The argument that the company should be treated as a partnership and that if there were shown such a loss of confidence between the principal shareholders as would in the case of partners justify a winding-up on the authority of such cases as In re, Yenidje Tobacco Co. (1916) 2 Ch 426 was repelled by his Lordship on the ground that in the Yendije case there were only two shareholders with equal voting powers and conduct of the business jointly by mem had become quite impossible. His Lord-ship went on to add that 'but apart from this, the question of absence of mutual confidence per se between partners, or between two sets of shareholders, however relevant to a winding-up, seem to me to have no direct relevance to the remedy granted by Section 210. It is oppression of some part of the shareholders by the manner in which the affairs of the company are being conducted that must be averred and proved. Mere loss of confidence or pure deadlock does not, I think, come within Section 210.' Referring to the dicta of Lord Shaw in Loch v. John Blackwood Ltd., (1924) AC 783 at p. 788 that 'whenever the lack of confidence is rested on the lack of probity in the conduct of the company's affairs, then the former is justified by the latter, and it is under the statute just andequitable that the company be wound up,' his Lordship said that 'lack of confidence rested on a lack of probity in the conduct of a company's affairs seems to me to be something quite different from a mutual lack of confidence between partners in the management of partnership affairs. A somewhat similar case is that of Thomson v. Drysdale, 1925 SC 311 in which there were only two shareholders, one of whom had in the Lord President's language 'usurped the whole powers of the company and particularly possessed himself of everything.' This shareholder also possessed the voting control in the company. In such a case, as Lord President Clyde said, 'it was impossible that the minority should retain any confidence in the impartiality or probity of the company's administration.' If'te these two eases because they seem to me to illustrate a type of case which comes under Section 210. It is not lack of confidence between shareholders per se that brings Section 210 into play, but lack of confidence which springs from oppression of a minority by a majority in the management of the company's affairs, and op-pression involves, I think, at least an element of lack of probity or fair dealing to a member in the matter of his proprietary rights as a shareholder. Cases like that of Loch, 1924 AC 783 (supra) and Thomson 1925 SC 311 (supra) might, I think, readily have come under Section 210. I doubt whether a case like Yenidje Tobacco Company could be brought under the section.'
36. His Lordship was satisfied that there were no circumstances averred in the petition relevant to infer oppression within the meaning of the section. The petition, according to his Lordship, 'disclosed differences of opinion between the first named petitioner and his brother as directors of the company, some violence used to him in the course of a quarrel, removal or exclusion from office of the first and second petitioners as directors, forced retirement or dismissal from employment of the first and second named petitioners as secretary and factory manager respectively and declination of an offer of the same petitioners to sell their shareholdings to the then board of directors.' He went on to add 'I can find, however no suggestion that anything that was done was designed to injure the petitioners in their rights as shareholders or did in fact do so. At the most the averments seem to me to disclose no more than differences of opinion as to the management of the company, giving rise perhaps to animosities and to exclusion of the first and second named petitioner from office and employment in the company. There is nothing to suggest that the company is not being conducted efficiently by the existing board in the interest of the members as a whole'.
37. This case which was approved by the House of Lords establishes that mere differences of opinion between two sets of directors as to the conduct of the affairs of the company leading to their dismissal from offices of profit held by them in the company although accompanied by quarrel and personal violence would not bring the case to the winding up jurisdiction in terms of the just and equitable clause and far less would excite the powers of the court under Section 210 on the ground of oppression. The act or acts complained of as oppressive must at least be shown to have been designed to injure the petitioners in their rights as shareholders or show that the company was not being! conducted efficiently in the interest of the members as a whole.
38. In Scottish Co-operative Wholesale Society Ltd. v. Meyer 1959 AC 324 the facts were as follows: In 1946 the Co-operative Wholesale Society Ltd. (to be referred to as the Society) formed a subsidiary company to enable it to participate in the manufacture and sale of rayon materials and get licences to manufacture rayon cloth, the production of which was then controlled and remained so until 1952. The respondents were appointed joint managing directors of the company, which, so long as cotton control lasted, was dependent on their skill and knowledge and experience and on their connections with the trade, and, because of these license were granted. The company traded successfully for several years and earned substantialprofits. In 1951 the Society sought to purchase from the respondents their shares at less than their true value but was not successful. The society dropped the attempt but adopted a policy of transferring the company's business to a new department within its own organisation, thereby forcing down the value of the company's shares. The nominee directors, though aware of this policy, did not inform the respondents but promoted the society's plans. As a result the company's business came virtually to a standstill and the value of its shares was greatly reduced. In 1953 the respondents presented a petition under Section 210 for an order on the society to purchase the whole of their shares at a price based on their previous value or such other price as the Court may think fit. There was no dispute that at the date of the petition it was just and equitable that the company should be wound up. Viscount Simonds came to the conclusion that the society pursued a course which was ruthless and unscrupulous in design and was promoted by the action or inaction of the nominee directors. His Lordship said that it was 'incontrovertible that the society have behaved to the minority shareholders of the company in a manner which can justly be described as oppressive. They had the majority power and they exercised their authority in a manner burdensome, harsh and wrongful--I take the dictionary meaning of the word.' His Lordship approved of the views of Lord President Cooper that Section 210 'warranted the Court in looking at the business realities of a situation and not to confine itself to a narrow legalistic view.' In the result, the order directed the society to purchase the shares of the respondents at a fixed value.
39. The facts in the case of Re. H. R. Harmer Ltd. (1958) 3 All ER 689, are illustrative of conduct which came to be held as oppressive on a section of the members. One H. R. Harmer was the founder of a very successful business of philatelic auctioneering and dealing in and valuing stamps. He converted his business into a company in 1947 taking his three sons therein. The company had two classes of ordinary shares--A and B as also preference shares. The preference shares conferred the right to dividend at a fixed rate and priority as to capital in winding up. The A ordinary shares had the right to the residue of the divisible profits after payment to the preference shareholders and the B ordinary shares conferred no right to participate in the profits but carried the whole of the voting power. In a winding up the A and B shares were to rank equally as regards return of capital and participation in surplus assets. Under the agreement for sale of the business to the company the consideration was to be satisfied by the issue to the father or nominees of his 22,325 preference shares, all the 10,000 A shares and all the thousand B shares. The father nominated the sons as allottees in equal shares of 6750 of the A shares and 240 of the B shares. Under the Articles of Association the father was to be the Chairman of the Board of Directors. He was to be appointed Governing Director for life. After some changes in the share holdings the position was as follows: The father and his wife held res-pectively 491 and 295 B shares. The two sons held 4 B shares each and their respective wives held 103 B shares each. On the other hand the two sons held approximately nine-tenths to the father's one tenth of the A shares. So far as the directorate was concerned the father and two of the sons were all life Directors, the father being Chairman with a casting vote. Until the presentation of the petition under S. 210 the father was in a position to control the company by the use of his own and his wife's votes, their combined preponderance of voting power being sufficient to procure the passing of extraordinary and special as well as ordinary resolutions. The sons complained that the father had repeatedly abused his controlling power in the conduct of the company's affairs to a point which had left them no option but to apply to the Court For relief under Section 210. The complaint of the sons was that the father continued to regard the business of the company as though it was still his own absolute property and to ignore the interests of the shareholders and in particular of the petitioners, the wishes of his co-directors and the resolutions of the Board of Directors of the company. The father further had always acted as though he had the sole right of appointing and dismissing the senior staff of the company, and he extended his attitude to embrace the Directors of the company claiming that his views alone were to be considered as to who shall be appointed or elected a Director and whether or not a Director should be removed from office or be not re-elected. The judgment of Roxburgh, J., as quoted in the judgment of the appeal court shows that 'the father has acted and acted consistently,.....
On the footing that he can whenever he likes override any decision of the board, or regulate any matter of the company's business exactly as he wishes without any formality, even by the method of giving instructions direct to the staff behind the backs of his co-directors ..... Fora long time he has been deliberately interfering with the company's business and overriding the board in a manner which he knew to be beyond his power.' Among the points raised on behalf of the father the relevant ones for our purpose were:
(a) What was done by the father was not oppressive of the rights of the sons as members but merely oppressive of their rights as directors.
(b) The acts complained of might have been restrained by injunction in so far as they were acts done without the authority of the board.
(c) The acts complained or were not in their result oppressive, because it could not be demonstrated mat the company suffered any loss -from any of them.
(d) The acts complained of might have been lawfully done by calling a general meeting and passing the requisite resolution ordinary or special
(e) The father got no pecuniary benefit out of what he did.
40. All these contentions were turned down by Jenkins, L. J. holding as follows:
As to (a) his Lordship said that the sons were oppressed not merely as directors but also shareholders by the singular conduct of their father. According to his Lordship 'the oppression must, no doubt, be oppression of members as such, but it does not follow that the fact that the oppressed members are also directors is a disqualifying circumstance when the question of relief under Section 210 arises. I think that there may well be oppression from the point of view of member directors where a majority shareholder that is to say, a shareholder with a preponderance of voting power proceeds, on the strength of his control, to act contrary to the decisions of, or without the authority of, the duly constituted board of directors of the company.' As to (b) his Lordship held that a wrongdoer could not complain that the person wronged might have chosen another remedy, As to (c) his Lordship was of the view that the acts complained of were calculated to damage the company in one way or the other. As to (d) his Lordship held that 'the sons were at least entitled to require that the proper procedure should be applied', and as to (e) his Lordship said that 'it was not true that the father got no pecuniary benefit out of what he did but even if it were, it was not essential to a case of oppression that the alleged oppressor should obtain some benefit by his act of oppression'. According to his Lordship 'if there is oppression, it remains oppression even though the oppression is due simply to the controlling shareholder's over-weening desire for power and control and not with a view to his own pecuniary advantage. The result rather than the motive is the material thing.'
41. The submissions for the petitioners were to the effect: (i) The question is whether the course of conduct complained of was burdensome, harsh or wrongful to shareholders, that is to say, a part of the shareholders, including the petitioners, (ii) If a person, relying on majority control in point of voting power, dispenses with the proper procedure for producing the result which he desires to achieve and simply insists on this or that being done or omitted, his conduct is oppressive because it deprives the minority share-holders of their right as members of the company to have its affairs conducted in accordance with its articles of association. (iii) It is not shown that, if the father had acted strictly in accordance with the articles of association, he could have achieved his object. The proper procedure cannot be put on one side as mere machinery.
42. After noting the arguments on either side his Lordship came to the conclusion that the reasonings of the counsel for the petitioners should be preferred to that of the father and that it was really impossible for the business of the company to be carried on successfully as matters stood before the order of Roxburgh, J.
43. According to the judgment of Romer, L. J., the mere use of voting power at board meetings or at a general meeting to secure the passing of resolutions, which the other members of the board or shareholders oppose, would not in general constitute oppression for the purpose of the section or for any other purpose. For a petition to succeed it must be shown that there has been oppression in a real sense of members qua shareholders and not merely a subordination of their wishes to the power of a voting majority. As to this, however, I accept the submission of counsel for the petitioners that shareholders are entitled to have the affairs of a company conducted in the way laid down by the company's constitution. Members are entitled to expect that their board shall perform its functions as a board and that the proceedings of the directors shall be carried out in a normal and orthodox manner. They are entitled to the benefit of the collective experience of the directors, and to expect that the directors and each of them can freely express their views at board meetings and that regard shall be had to what they say and to resolutions properly passed. If the board is browbeaten and either ignored or overruled by one of its members, in this case the father who was the chairman, in reliance on his superior voting power, the proprietary interest of the minority shareholders cannot fail to be affected and a case of oppression within Section 210 is, in my judgment, made out.
44. Analysing the evidence with regard to oppression Willmer, I,. J. said 'the most dangerous and most oppressive form of conduct is, I think, the habit that the father had of going behind properly constituted decisions of the Board and taking it on himself to countermand them. It seems to me that such conduct cuts at the very root of proper company procedure and makes it virtually impossible for the business of a company to be carried on'.
45. These cases were considered by the Supreme Court of India in Shanti Prasad Jain v. Kalinga Tubes Ltd., : 2SCR720 . In this case a private limited company was started by two groups of persons who held all but a few of the issued shares, Tbe appellant joined the company sometime after its incorporation and it was agreed that he would be the holder of shares equal in number to those held by the said two groups. The agreement was confined to the appellant and these two groups and was not entered into either by the company or by the few other shareholders. It was further agreed that the three groups would have equal number of representatives on the board of directors of the company. Sometime after this arrangement the share capital of the company was increased and the three groups held one third of the new shares leaving out of account the said few shares. For getting loans from the Industrial Finance Corporation the parties converted the company into a public company and amended its articles of association, but no attempt was made to incorporate the original agreement between the three parties under the amended articles. It became necessary for_ the company to raise its capital still further and sanction was obtained in that regard from the Controller of Capital Issues. Under S. 81 of the Companies Act the new shares had to be offered in the first instance to the existing share-holders in proportion to the capital paid up on the existing shares at that date subject to any direction to the contrary which may be given by the company in general meeting. Sharp differences arose between the parties with regard to the new issue. Without going into the details it is sufficient to say that the two groups of persons opposed to the appellant succeeded in passing a resolution that the shares should be allotted privately in the best interest of the company at the sole discretion of the directors. This was followed by a suit by the appellant and some other shareholders of his group for a declaration that the resolutions were ultra vires and void. The injunction granted against the issue of the shares ex parte was later vacated. In 1960 an extraordinary general meeting of the company was called to consider an increase of the share capital from Rs. 1 crore to Rs. 3 crores by issue of additional equity shares and preference shares and it was also intended that the new shares should be offered to outsiders with a view to making the Company more broad based. It was at this stage that the appellant made an application tinder sections 397 and 398 urging that the issue of new shares was in furtherance of the continuing and continuous process of oppression to himself and his group and excluding mm and his group from all control in the affairs of the company. It was also urged that the affairs of the company were being conducted in a manner prejudicial to the interest of the company. The application succeeded before a learned single Judge of the Orissa High Court but his decision was reversed in appeal by a Division Bench. The Supreme Court upheld the judgment of the Orissa High Court. The Court rejected tbe case of oppression put forward on behalf of the appellant holding that there was nothing in tbe initial agreement about the future in the matter of allotment of shares in case capital was actually increased thereafter and observing that 'that agreement was strictly speaking not binding even on the private company--It was much less binding on the public company when it came into existence in 1957. The agreement did not contain any specific provision as to future issue of capital. Further, at the time when the agreement took place the appellant was not even a member of the private company arid it was really an agreement between a non-member and two members of tbe company, which would go to show that the agreement could in no circumstances hind the company.'
46. Referring to S. 210 of the English Act and Section 153(c) of the old Companies Act, Section 397 of the present Act and quoting from the cases referred to above the Court said that:
'These observations ... . apply to Section 397 also which is almost in the same words as Section 210 of the English Act, and the question in each case is whether the conduct of the affairs of the company by the majority shareholders was oppressive to the minority shareholders and that depends upon the facts proved in a particular case ...... it is not enough to show that there is just and equitable cause for winding up the company, though that must be shown as preliminary to the application of Section 397. It must further be shown that the conduct of the majority shareholders was oppressive to the minority as members and this requires that events have to be considered not in isolation but as a part of a consecutive story. There must be continuous acts on the part of the majority shareholders, continuing up to the date of petition, showing that the affairs of the company were being conducted in a manner oppressive to some part of the members. The conduct must be burdensome, harsh and wrongful and mere lack of confidence between the majority shareholders and the minority shareholders would not be enough unless the lack of confidence springs from oppression of a minority by a majority in the management of the company's affairs, and such oppression must involve at least an element of lack of probity or fair dealing to a member in the matter of his proprietary rights as a shareholder. It is hi the light of these principles that we have to consider the facts in this case with reference to Section 397.'
47. Reference may usefully be made to the judgment of Mallick, J. In Re. A'lbert David Ltd., (1964) 68 Cal WN 163 delivered in July, 1958 when the English decisions were not available and the Scottish case was not cited. The facts in that case were shortly as follows: One Judah promoted the company as a private company later converted into a public company. Judah and his wife owned more than 90 per cent of the ordinary shares of the company. Judah also held a very large number of preference shares and was the Managing Director of the company. Two persons by the name of Mukherjee and Neogy later joined the company as directors. There was a friction between Judah on the one hand and Mukherjee and Neogy on the other. As a result thereof Judah was completely ousted from the company and Mukherjee and Neogy assumed control and management. Litigation followed and in March, 1956 Mukherjee and Neogy purporting to act as directors sold the whole bunch of 26752 ordinary shares belonging to Judah to Ramapada Gupta in enforcement ot a lien for a debt of over Rs. 4 lacs alleged to be due by Judah to the Company. Judah instituted a suit in this court challenging the sale as wrongful and to establish his title to the shares. He also took out a notice of motion under Section 397 complaining that the affairs of the company were being conducted in a manner oppressive to him and his group and also prejudicial to the interest of the company. Judah succeeded in his suit wherein it was held that the debt for which the shares were sold was mostly fictitious and unreal, that the sale was illegal, that there was no power of sale under the Articles and that the object of sale was to deprive Judah of his voting power. After examining the facts of the case his Lordship said 'In my judgment, conditions that prevent the proper functioning of the company, according to the provisions of the Indian Companies Act, the uncertainty as to the de jure character of the present Board and difficulty of having this state of affairs rectified in the usual way, the patent fact that the company is being run by the present Board in their own interest overriding the wishes and interest of the majority of shareholders which inevitably involves the company in costly litigations are facts from which I am bound to conclude that the affairs of the company are being conducted in the interest of a group and certainly not in the interest of the company.' On the facts of the case his Lordship was of opinion that the petitioner had made out a ease for relief under Sections 397 and 398 of the Act.
48. Considering the affidavits and their an-nexures and the minutes of the Board meetings and the transaction alleged to have taken place in the extraordinary general meeting of February (sic) as well as die correspondence which passed between the parties, it appears to me that the earned trial Judge was amply justified in coming to the conclusion with regard to the affairs of the company already quoted by me. It is true that in tike petition there is no reference to some of the board meetings and the two general meetings relied on by the respondents and the resolutions which were passed thereat. According to the petitioners this was because they had no knowledge of these alleged Board meetings and general meetings and that these meetings, if held, were without notice to them and as such null and of no effect. In my opinion the position taken by the petitioners is amply borne out by the circumstances. In May 1962 there were little, if any, differences between the two groups and in such a situation it is difficult to comprehend why the petitioners should in a body fail to attend the general meeting convened on the 7th of that month. At this meeting a balance sheet of the company for the year 1960-61 and its accounts up to November 1961 are alleged to have been passed by the shareholders. If the meeting had, in fact, taken place there should have been a prior board meeting at which the balance sheet should have been approved and the directors should have resolved to call a general meeting for the purpose. The minute books of the board meetings do not corroborate the respondents' case. On the other hand the petitioners called upon Rama Sankar Prosad and Radha Krishna Prosad by letter dated February 23, 1963 to hand over papers, documents etc. of the company for preparation of the balance sheet for the years 1960-61 and 1981-82 before the company's auditors and complained that the addressees had failed and neglected to do so. If the annual general meeting had in fact been held on 7th May 1962 there should be an immediate reply to that effect. Moreover it is difficult to see what motive the petitioners could have in denying the placing of the audited accounts of the company up to November 1961 before the board of directors or the shareholders when they joined the company in January 1962 and could have had nothing to do with the company's affairs before that date. It was never suggested before us that the minute book of the directors' meetings produced by the petitioners was not a genuine book. The only portion of it which was challenged was that relating to the board meeting on February 22, 1963.
49. Still more diifficult it is to appreciate why the petitioners should fail to attend en bloc bom at the board meeting on January 22, 1963, March 4, 1963 and March 12, 1963 or the extraordinary general meeting on February 21, 1963. I find myself unable to believe that if notice of the board meeting on January 22, 1963 had been duly issued they could have failed to reach all the petitioners in time or that the latter would all have deliberately stayed away from the meeting. It is quite clear from the affidavits that towards the end of December 1982 if not before, the parties had become openly hostile to each other and it does not stand to reason that one group should absent itself en bloc from a board meeting so as to let the other carry the day as regards the affairs of the company. More so if there was any agenda for the meeting--which is not disclosed--which would have shown what the respondents were after. The petitioners commanded a majority in the board of directors and were in a position to rout the respondents if any attempt was made to impair their supremacy. It is unimaginable that the petitioners would have allowed an extraordinary general meeting to be held in their absence when the object of the meeting was to increase the number of directors from 5 to 7 and to alter the articles of association so as to allow such increase to be effected. If notices of the extraordinary general meeting were suppressed the resolution to increase the authorised capital of the company from Rs. 10 lakhs to 15 lakhs and to repay the alleged loans of several creditors by the issue of new shares in the company is to say the least a fraud of the worst character. The prior board meetings of the company do not show that any creditors of the company were pressing for payment or that there had been any discussion about the payment of the loans by the issue of shares or that the creditors had expressed their willingness to take such shares. No agenda of the extraordinary general meeting alleged to have been held on February 21, 1963 has been disclosed and I can see no reason why if they had been served with notices of these meetings the petitioners and their associates should again abstain from attending the same in a body. Such conduct is tantamount to committing hara kiri. Is it to be believed that the petitioners who held the majority of shares in a company would sit quietly and allow the respondents to effect alteration in the articles of association by increasing the number of directors and the creation of new shares to suit their purpose so as to reduce the majority into a helpless minority both on the board and at general meetings of the company? The answer can only be in the negative. It was argued before us that as the matter had not been thrashed out on evidence no conclusion ought to be drawn as to whether the petitioners had received notice of this extraordinary general meeting or not. It was further argued that as the Companies Act allows service of documents by putting them in the post production of certificate of posting was enough to prove service and that the reason why a member or a group of members failed to attend a meeting was immaterial. If the matter was tried on evidence other than affidavit evidence, no better result would have followed, for the petitioners would have deposed that they never received the notices and the respondents would have averred that these had been put in the post and the Court would have had to make up its mind as to whether the petitioners had received the notices but deliberately refrained from attending the meeting. In my opinion, such an argument is worthy of no consideration at all.
50. If the case was such that it could be suggested that the petitioners had some motive in abstaining from attending the extraordinary general meeting one might have hesitated to come to a definite conclusion that the petitioners had not been served with notice or the meeting. A man may no doubt behave strangely on a particular occasion, but it is impossible to believe that a number of hard-boiled business people will keep themselves away from meetings where their doom may be effectually sealed in their absence & where they have only to attend & win the day by their superiority in number and voting strength. The fact that no reference has been made in the petition either to the board meeting of January 22, 1963 or the extraordinary general meeting of February, 21, 1963 is only consistent with the conclusion that the petitioners had no knowledge of them on March 14 and 15, 1963 when they moved this court. The happenings at the extraordinary general meeting could have been made capital of by the petitioners as regards their case of oppression. If it had been the case of a particular shareholder or director not receiving the notice sent through the Post, one might possibly take the view that it had gone astray, but it is impossible to believe that all the notices of the board meetings as also those of the extraordinary general meeting should have failed to reach all the addressees. Leaving aside the shares which were alleged to have been issued after the extraordinary general meeting of February 21, 1963 the company had 16 shareholders those in the respondents' group being 4 while the number of members in the petitioners group was 12. If any person in the petitioners' camp had received the notice, he or she would undoubtedly have made it known to the others, and although letters are known to lose their way in the post, I find myself unable to believe that the notices addressed to all these 12 persons in the petitioners' camp had gone astray. In my opinion, the conclusion is irresistible that these notices had never been put in the post, although certificates of posting purport to have been obtained in respect thereof. It is only too well known that certificates of posting can be got hold of without actually putting letters in the post and the respondents must have adopted that course so far as the board meeting of January 22, 1963 or the extraordinary general meeting of February 21, 1963 was concerned.
51. The question as to whether there was a violent raid of the factory at Ghasnala on March 13, 1963 as alleged in the report to the police forming annexure 'C' to the petition is open to some doubt. According to the report the raiders who exceeded 100 in number was led by Kedar Nath Bhagat respondent No. 4. There is no mention in the report of Ramashankar Prosad having taken any part therein while according to the affidavit of Abhoy Narain Sharma who claims to have been present in the factory on March 13, 1963 the raiders were led by Ramashankar Prosad and Kedar Nath Bhagat. For the purpose of the application made to this Court or the present appeal it is not necessary to come to a finding as to whether the control of the factory was assumed by the threat of armed violence and by use of criminal intimidation. According to the respondents' own ease there had been a board meeting on March 4, 1963 by which the board delegated all its powers to Kedar Nath Bhagat and gave him express authority to assume control of the factory and to dismiss a number of employees working therein. It is also the respondents' case that Kedar Nath Bhagat took possession of the factory and dismissed all the employees but one mentioned in the board meeting of 4-3-1963. The report to the Officer-in-charge Jorapukur Police station on March 13, 1963 must have been exaggerated but there can be no denial of the fact that as a result of the operation on that day the factory passed out of the possession of the majority shareholders through their representatives, the petitioners, and went into the control of the respondents with the help of Kedar Nath Bhagat who could not have acted as a director unless he was appointed as such at the extraordinary general meeting of February 21, 1963. If the said extraordinary general meeting was a sham, there was no justification for Kedar Nath Bhagat assuming control of the factory to the exclusion of the petitioners through their directors. Further, if Kedar Nath Bhagat was doing all this as a measure adopted by the respondents to the utter negation and supersession of the rights of the petitioners, the conduct of the respondents was oppressive and reprehensible in the extreme. There was no chance of the company being run normally by directors appointed by shareholders in the ordinary course of things and by the shareholders exercising any control over the company through general meetings. The company had two separate registered offices according to the two groups in conflict. There could never be a board meeting at which all the directors would attend. If there ever was such a meeting, the petitioners would be outvoted on every resolution if there were seven men on the board.
52. In my opinion the course of events clearly establish that the respondents were determined to overthrow the supremacy of the petitioners both in the board and at general meetings of the company and to this end they held a board meeting on January 22, 1963 and an extraordinary general meeting on February 21, 1963 in the absence of the petitioners. Such absence was not through any deliberation of the latter but the machination of their rivals. The resolutions passed at the directors' meeting on February 22, 1963 were clearly aimed at tightening the grip of the petitioners on the management of the company in a manner not resorted to before. This was obviously not to the liking of the respondents who in order to counter the effect of the said resolutions sought to bet a whiphand on the company by increasing the number of members and the number of directors to suit their own ends. According to the minute book produced by the petitioners the directors held a meeting on January 21, 1963 at 52/1, Dr. Abani Dutt Road, Howrah at 3 p.m. which was attended by Muralidhar Jhunjhunwalla, Ramasankar Prosad, Champalal Saraogi, Radhakrishna Prosad and Mahendra Prosad. This meeting merely confirmed the transactions which had taken place at the meeting held on October 25, 1962 and discussed the affairs of the company in general. According to the minute book produced by the respondents there was a board meeting on the same date at the same place at 12-30 in the afternoon and the only two persons present were Ramashankar Prosad and Radhakrishna Prosad. The minutes of the last mentioned meeting go to show that the Chairman waited for half an hour to enable the other directors to come but had to proceed in their absence ultimately. Further the minutes show that the three absent directors who were entrusted with the entire management of Dhanbad works were committing various irregularities for which they were censured. This meeting also decided to start a new minute book and call an extraordinary general meeting of the company to be held on February 21, 1963 for increasing the number of directors, altering the articles of association in this behalf, increasing the authorised capital of the company and issuing new shares to nine creditors who had been pressing for payment of their dues. It is surprising that such devastating changes could be resolved at by two directors who represented only a minority of the shareholders whose object was clearly to put the majority in the shade. If the petitioners attended the board meeting at 3 p.m. there is no reason why they should not nave attended a similar meeting fixed at 12-30 p.m. on the same day. There was no resolution of any importance passed at the meeting held at 3 p.m. which appears to have been attended by one of the respondents. If the petitioners were aware of the meeting held at 12-30 p.m. they could surely have passed resolutions at the meeting at 3 p.m. to nullify the effect of the earlier resolutions. The board meeting at 12-30 p.m. on January 22, 1963 was followed up by the holding of an alleged extraordinary general meeting in the absence of the petitioners and their associates and holding a board meeting on March 4, 1963 whereby the directors present took complete charge of the affairs of the company and elegated all their powers to Kedar nath Bhagat. The allegation that the factory had been leased out and the story of the lessee's surrendering the lease only demonstrate to what extent the respondents were prepared to go to set at nought the supremacy of the petitioners in the company and even to forestall any act on their part by trying to obtain relief from court.
53. It is no doubt true that this picture can only be pieced out after taking into consideration all the affidavits which are on record and the minutes of the meetings of the Board of Directors and of the shareholders of the company. What was lacking in fhe petition has been filled up by the subsequent affidavits and the court must guide itself by all the evidence before it. It must be said that the petitioners had not made a strong case of oppression or mismanagement in the petition. The only material averment of oppression alleged therein was the overthrow of the majority by forcible possession of the factory taken by Kedarnath Bhagat and others on 13-3-1963 but the evidence now available shows that the respondents had started their campaign sometime before that and that their plan was to dethrone the petitioners from the position held by them. If the board meeting of 21-1-1963 relied on by the respondents as also the extraordinary general meeting of 21-2-1963 was motivated by the desire to exclude the petitioners, clearly there was an oppression which could not be neutralised by the petitioners short of coming to court and praying for necessary relief. The oppression was not of long duration when the petitioners came to court but it was of such a nuture that its effect would have persisted indefinitely and kept the petitioners under the complete mercy of the respondents.
54. Leaving out of consideration for the moment the question as to whether the oppressor must be in a majority it is clear that what the respondents did calls for the same comments as were made by the learned Lord Justices in Hanners case, 1958-3 All ER 689. The respondents' group purported to obtain supremacy in the board and at general meetings by a trick i.e. by the suppression of notices of the board meeting on 22-1-1963 and 21-2-1963, if in fact such meetings were ever held. They followed this up by purporting to issue additional shares to third parties when there appeared no occasion for the same, by appointing new directors and taking complete control of the board and delegating all its powers to one of them (Kedarnath Bhagat) thereby completely ousting the petitioners. All this did not atfcci the petitioners merely in their capacity as directors but also as shareholders in that the latter lost all right to participate in the management of the company. There was oppression in that there was negation of the shareholders' rights to have the affairs of the company conducted in the way laid down in the Companies Act, in utter disregard of the functions of the board by committing all its powers to one member of the respondents group. The overthrow of the petitioners may not have been caused by the show of arms as alleged in the petition but there can be little doubt that it was achieved by subterfuge in disregard of company procedure. The conduct of the respondents on and after 22-1-1963 had no vestige of probity or rectitude.
55. It was practically conceded on behalf of the appellants that the case was one where an application could successfully have been made to wind up the company under the just and equitable clause. We have also to see whether the oppression was continuous in effect and could not be put an end to in the domestic forum of the company. While it is true that the oppression was not of long duration having at best commenced only a few weeks before the matter was brought into court, there can be no doubt that its effect was continuous and would have persisted but for the intervention of the Court. The eases of Harmer, 1958-3 All ER 689 and Scottish Co-operative Society Ltd., 1959 AC 324 afford instances where the oppression had been going on for some time but in my opinion it is not necessary that the petitioner who comes to court for redress under Section 397 should have submitted himself to oppression over a period before he can invoke the powers of the court. If the oppression is of short duration but is of such a lasting character that redress is impossible by calling board meetings or general meetings of the company, a case for intervention under Section 397 is made out. In this case where the majority is eclipsed both on the board and at the general meeting of the company by the manipulations of the respondents, normal functioning of the company under the Companies Act was out of the question. In my opinion the facts amply justify exercise of power under Section 397. Not only was the case a fit one for winding up under the 'just and equitable' clause, the facts discovered amply demonstrate that there was such a lack of probity in the conduct of the affairs of the company by the respondents that the petitioners could no longer have confidence in them and rightly ask the Court to intercede on their behalf.
56. Relying on the English cases and Shantiprasad Jain's case : 2SCR720 before the Supreme Court it was argued that the right to apply under Section 397 or 398 must be confined to cases where the complaint is by a minority against the majority and not vice versa. It was further said that the majority had the power to put things in order by calling meetings and passing necessary resolutions. I however find myself unable to accept this argument. So far as the English section and English cases are concerned, it cannot be gainsaid that the Judges have laid down in no unmistakable terms that the right is given to a minority. So far as the English section is concerned it is the heading 'minorities' which affords some clue to its interpretation. The English Act does not contain a section like Section 399 of the Indian Act which is a code by itself as to the qualification necessary for application under Sections 397 and 398. I see no reason for holding that Section 399 was only aimed at fixing the lower limit of qualification of any shareholder or group of shareholders complaining of oppression and mismanagement. If the legislature has fixed a lower limit but no upper limit as to qualification for relief and if the object of the section be to prevent a mischief and to remove oppression and mismanagement of the company. I see no reason why an upper limit should be implied so as to bring the section in line with the English section. If the section is of a remedial nature, its proper construction should be to give the words used their widest amplitude. Probably the legislature in England did not contemplate belligerent and unprincipled shareholders like the appellants before us in this case. The facts in this case show very clearly that there is no chance of redress in the domestic forum of the company. If a Board meeting was to be called, one group would contend that there were five directors, whereas the other group would urge that there were seven. If a meeting of the shareholders was to be convened, according to one group there would be only sixteen shareholders while according to the other the number would exceed twenty-five. One group would contend that the number of shares issued was 8606, while the other group would assert that another lot of 2113 had been issued. There is no certainty even about the registered office of the company. According to one group the registered office is at Dr. Abani Dutta Road, while according to the other it is at Jogendra Mukherjee Road. There would be complete chaos and confusion if any meeting was to be summoned.
57. With regard to the importance given to a heading of a section reference may usefully be made to the well-known works of Craies and Maxwell. In Craies, 5th edition, page 192 the matter is put thus:
'Headings are divisible into those which can and those which cannot be grammatically read into the following sections of the statute. Headings of the first class are now used in the more recent statutes. They constitute a sort of preamble prefixed to a class of clauses for the purpose of connecting those clauses with other classes of clauses.' The same learned author however notes at page 195 'but the same general rule which regulates the effect of the preamble applies also to these headings--namely, that they are not to be taken into consideration if the language of the enactment is clear.'
58. According to Maxwell, 9th edition, page 54. 'The headings prefixed to sections or sets of sections in some modern statutes are regarded as preambles to those sections.'
59. In Martins v. Fowler, 1926 AC 746, the Privy Council had to consider the effect of the heading to a section in Marriage Ordinance 1884 (Law of Southern Nigeria, Cap. XCV) and held 'such headings ..... may be regarded as preambles to the provisions following them.' Reference may also be made to the judgment of Harman, L. J. in Quarter, Hall and Co. Ltd. v. Board of Trade, 1962 Ch 273 at P. 287, where his Lordship said quoting from Lord Herschell's opinion in Inglis v. Robertson, 1898 AC 616 at page 629, 'these headings are not, in my opinion, mere marginal notes, but the sections in the group to which they belong must be read in connection with them and interpreted by the light of them.' In this case the question for consideration before the Court was the effect of the heading 'exception for banking or finance company providing capital' to paragraph 7 of Schedule VII of the Companies Act of 1948. All the learned Judges agreed that the scope of paragraph 7 in schedule VII was marked out by the heading.
60. It appears that headings are treated differently from side-notes. In Chandler v. Director of Public Prosecutions, 1964 AC 763, it was observed by Lord Reid at page 789,
'Side-notes cannot be used as an aid to construction. They are mere catch words and I have never heard of it being supposed in recent terms that an amendment to alter a side-note could be proposed in either House of Parliament Side-notes in the orginal bill are inserted by the draftsman. During the passage of the bill through its various stages amendments to it or other reasons may make it desirable to alter a side-note. In that event. I have reason to believe that alteration is made by the appropriate officer of the House--no doubt in consultation with the draftsman. So side-note cannot be said to be enacted in the same sense as the long title or any part of the body of the Act'.
61. No doubt in Shanti Prosad Jain's case, 1965 SCA 556: (AIR 1965 SC 1538) the Supreme Court referred extensively to the English decisions and observed more than once that it was the minority which had the right to complain of oppression by majority. But Shanti Prosad Jain's case, 1965 SCA 556: (AIR 1985 SC 1535) was one of complaint by a minority and the court was not cafied upon to go into the question as to whether a majority which had been paralysed by the wrongful acts of a minority could seak the protection of the court under that section. Indeed, speaking of Section 397 read with Section 399 the court observed 'it gives a right to members of a company who comply with the conditions of Section 399 to apply to the court for relief under Section 402 of the Act or such other reliefs as may be suitable in the circumstances of the case if the affairs of a company are being conducted in a manner oppressive to any member or members including any one or more of those applying.' This quotation goes to show that in the view of the Supreme Court a member or members applying under Section 397 had to qualify under Section 399.
62. It was faintly argued on behalf of the appellant that no case had been made out that the petitioners would be unfairly prejudiced if the company was directed to be wound up. It is true that there is a bald allegation to that effect in paragraph 36 of the petition asserting that winding up would be prejudicial. The affidavit-in-opposition however snows that the main business of the company was that of manufacturing railway sleepers and that the company had valuable quota rights of iron goods. This in my opinion goes prima facie to show that if properly managed the company is assured not only of the supply of raw materials but also of the sale of its out-turn, two essential conditions requisite for the successful functioning of a manufacturing business. The petitioners who advanced over five lakhs of rupees for acquisition of shares can therefore reasonably assert that winding-up of the company would not be to their benefit, for it is almost axiomatic that if the company ceases to function, it will lose both the supply of raw materials as also the outturn of the finished products.
63. In the view taken by me of the rights of the petitioners under Section 397 of the Act it is hardly necessary to deal at length on their rights under Section 398. Suffice it however to say that the facts show that a case under Section 398(1)(b) has been made out. If the version of the respondents be correct then a material change did take place in the management or control of the company in February and March 1963 by the alteration in the board of directors and in the ownership of the company's shares, and that such change was brought about in a manner which is inconsistent with the conduct of the affairs of the company according to the procedure laid down in the Companies Act and so likely to be prejudicial to the interests of the company according to the observation in Harmer's case 1958-3 All ER 689.
64. It must be admitted that a strong case was not made out in the petition and what view the court would have taken if a point of demurrer had been argued it is difficult to say. But once all the evidence is before the court and the case of oppression clearly emerges from the facts disclosed, it would not be proper to measure the rights of the parties only in terms of the assertion made in the petition. In Firm Sriniwas Ram Kumar v. Mahabir Prasad, : 2SCR277 , the court observed that 'there would be nothing improper in giving the plaintiff a decree upon the case which the defendant himself makes. Again in Kedar Lal v. Hari Lal, : 1SCR179 , if was observed by Bose, J. (paragraph 51) 'I would be slow to throw out a claim on a mere technicality of pleading when the substance of the thing is there and no prejudice is caused to the other side, however clumsily or inartistically the plaint may be worded. In any event, it is always open to a court to give a plaintiff such general or other relief as it deems just to the same extent as if it had been asked for, provided that occasions no prejudice to the other side beyond what can be compensated for in costs.' In this case the respondents ought not to be heard to complain that the case of oppression had not been fully made out in the petition if it transpires as a result of the hearing that the petitioners were oppressed so as to bring the case under Section 397 of the Companies Act. The case of justice will not suffer by the court arriving at a conclusion on a consideration of all the evidence before it even if the original plaint was lacking in particulars. Moreover in cases like this the dictum of Lord President Cooper in Elder's case,1952 SC 49 that 'the section warrants the court in looking at the business realities of a situation and does not confine them to a narrow legalistic view' adopted by Jenkins, L. J. in (1958) 3 All ER 689 at p. 701, ought to be borne in mind.
65. Lastly, we have got to address ourselves to the question as to whether the order made was proper in the circumstances of the case. It will be noted that the parties made charges and counter-charges with regard to the misapplication of the funds of the company and misappropriation of the raw materials imported or otherwise. There is at present no certainty as to the composition of the board of directors. In order to remedy these two main complaints the learned trial Judge made an order of supersession of the board of directors and appointed an administrator to take charge of the company's business and cany on the same. He was to be assisted by an advisory board consisting of two members: One from the petitioners group and another from the respondents group. The learned Judge also directed the appointment of a special auditor to make a report on various matters including the quantities of raw materials obtained by the two groups, their disposal, the accounting of the sale proceeds of the finished products and other incidental matters. He further directed an extraordinary general meeting of the company to be held after the receipt of the report of the Special auditor for the purpose of electing a new board of directors at which the administrator was to function as the chairman. The administrator was to stand discharged within a fortnight from the election of the board of directors.
66. A complaint was justly made that the learned Judge failed to evolve a formula for emedyina the permanent evil of the company, namely, the conflict between two groups of shareholders. In my opinion, the company cannot function properly if these two warring groups continue to hold the shares. As a matter of fact, at the early stage of the hearing of the appeal, a suggestion was made that one oF the two groups should buy up the other's holding but nothing tangible came out of attempts made by counsel on that behalf. In my opinion, the special auditor should be directed to find out the fair value of the shares at the date of the petition as was directed by Lord Denning in Scottish Co-operative Wholesale Society Ltd.'s case 1959 AC 324. We also order the oppressor i.e. the respondents to the petition to buy the sharas of the petitioners. In case the respondents are unable or unwilling to buy the shares, the petitioners should have an option to buy the respondent's shares at the same price. The price is to be arrived at on the basis of the break-up value of the shares. The respondents should be given three months time after the submission of the report of the special auditor and the ascertainment of the value of the shares to buy out the petitioners'. In default the petitioners will have the right to buy up the respondents' shares within a further period of three months from that date. Except for this modification the order made by the learned trial Judge will stand.
67. The appeal should be dismissed and the appellants should pay the costs of the con-testing respondents. Certified for two counsel.
Bijayesh Mukherji, J.
68. I agree that appeal fails.
At first sight it very much looks that the respondents' petition dated March 15, 1963, initiating proceedings under Sections 397 and 398 of the Companies Act, 1 of 1956, is such that were a point of demurrer taken, the petition would have probably come to shipwreck. Indeed, some of the averments are so vague and devoid of particulars that they may perhaps serve as models of what a solemn petition of this nature should not contain. No wonder, they have been subjected to severe criticism on behalf of the appellants. What to speak of the appellants, even the petitioning respondents were not happy about the shape their petition took, the day it was filed, as is clear from the last paragraph thereof--paragraph 40--which hears:
'40. In view of the extreme urgency with which this application had to be got ready, your petitioners crave leave to and/or modify the same as when so found necessary.': vide page 12 of the paper-book.
The leave craved for, though in so cumbrous a manner, was not apparently thought of during the subsequent carriage of the petition with the result that it remained just the same, from the day it was presented in Court (March 15, 1963) till September 19, 1963, when the learned Judge (B.C. Mitra J.), seized of this petition, rendered his judgment.
69. But when this is said, this is almost all that can be said against the respondents' petition--a closer examination of which reveals that there are allegations which tell. Take, for instance, paragraph 17. The gist of the averment it contains is-
'Only two days prior to the filing of the petition on March 15, 1963, that is to say, on March 13, 1963, at 9-30 P.M. or thereabouts, two of the Prosad group of shareholders, to wit, Rama Sankar Prosad and Radha Kissen Prosad, father and son, directors both, and respondents 2 and 3 aided and abetted 'by a large number of persons and goondas', gate-crashed into the company's factory at Chasnala within the jurisdiction of Jorapukur police station in the subdivision of Dhanbad in the State of Bihar and thus 'wrongfully and illegally' ousted the petitioners and their men 'lawfully in charge of the management and control of the company.' A report was made to the police of the occurrence.: Vide page 8 of the paper-book (for report to the police containing allegations of an aggravated form of theft, namely, dacoity see page 36 ibid.)
Does the main outline of so serious an allegation stand? It is said that it does not. Why, because the police investigated the case and submitted a final report upon which the Sub-divisional Magistrate, Dhanbad, recorded an order reading:
'2. Final Report received. This case is false under Section (s) 147/379 of Indian Penal Code. File in record.
Sd. B. Misra': vide Exhibit B to the affidavit dated 20-5-1963, of the Prosad group commencing from page 184 of the paper book, this order or the Sub-divisional (sic) strate, Ext B, being at page 213 ibid.
The order just reproduced is an unofficial translation of the original in Hindi. Exhibit B to the affidavit of the Prosad group says as much: that it is an unofficial translation. Since there is a controversy on the text of the order, the original one in Hindi be reproduced, on the foot of the certified copy thereof :
*In figures in the original'Antim Patra Prant Hua YahaKand Dhara Ekso Saintalish*/ Tinso Athatthar Bha. Dah Bih,** Key Antargat Asajhya Hai.Samanya Panji mey Dari Kareyn**Abbreviation for Bharatiya Dand Bidhi. (Indian Penal Code). Ha. B. Misra,.' As. Pa.
On behalf of the respondents, an official translation of the above has been placed before us. It bears:
'Received the final form. This case is not maintainable under Sections 147/378 of the Indian Penal Code. Enter in the ordinary files register.
Sd. B. Misra.
S. D. O.'
I have not reproduced the number of the order. It is 2 everywhere. Nor the date of the order; it is April 15, 1963, in each. But I must notice some words in the original order. Patra I would render as letter or report, and not as form--which I see in the official translation. Indeed, form conveys no meaning. Did the magistrate receive then only the form or even the final form? Surely it carries little sense. As is well known, an investigating officer submits his final report in the form of a letter to the address of the Magistrate accompanied by the requisite form duly filled up, when necessary. The next word I comment upon is Asajhya. The alphabet Jha is too clear to be missed. It is not ta. So, you cannot read it as Asatya. More, Jha is followed by what we Bengalis call Jafala and what Hindi speaking people call Ya, so that it becomes Jha Men Ya. So, clearly the word is Asajhya, the English equivalent of which is intolerable. And, in the context here, to say that the case is intolerable' is to say that it is not maintainable, though, left to myself, I would have used Ayogya, perhaps a better and therefore crisper word. I should comment on still another word Samanya. Looking up the Hindi--English dictionary, I find its meaning to be--common, general, universal. General fits the context here so nicely. Ha at the foot of the order, just on the left of the signature 'B. Misra', needs a comment too. It is an abbreviation for Hastaksher, just as Sd. is an abbreviation for Singned. What appears below the signature of B. Misra--Aa. Pa. is nothing but an abbreviation for Abar Paramandal, meaning the Subdivisional Magistrate. The heading in English in the certified copy of the order;
'In the Court of the S. D. O. DhanbadG. R. Case No. 417 of 1963
Kedar Babu and others
Under Section 147/379 I. P. C.
goes to show just that. Strictly speaking, the Code of Criminal Procedure does not know a S. D. O., an abbreviation for Sub-divisional Officer It knows a Sub-divisional Magistrate (see Section 13. But, loosely enough, he is referred to as S. D. O. The translation I therefore make of this Hindi order will read:
Received the final report. This case under Sections 147 and 378 of the Indian Penal Code is intolerable, that is, not maintainable. Enter (so) in the General Register.
G. R. Case No. 417 of 1963, as it appears in the heading of the certified copy of the order (just noticed), means General Register Case No. 417 of 1963.
. The text of the order of the Dhanbad Sub-divisional Magistrate (loosely referred to as S. D. O.--an abbreviation for Sub-divisional Officer) thus settled, let the law on the point be now looked into. The sections referred to in the order are 147 and 378 of the Penal Code. The former is the penal section for rioting, prescribing punishment therefor. The latter defines what constitutes theft, the penal section being, among others Section 379. The Magistrate obviously meant that Section 379, when he referred to Section 378 in his order. Because, a complaint is made, whether to the police or the Magistrate, invariably under the penal section; never under the substantive section (here Section 378 defining theft). The heading of the certified copy of the order, it will be noticed, refers to Section 379. Each of the two offences--rioting and theft--is a cognizable offence the definition of which, as provided for by Section 4(f) of the Code of Criminial Procedure, is, denuded of the words not material here.
'Cognizable offence means an offence for which a police-officer, within or without the presidency-towns, may, in accordance with the second schedule, arrest without warrant.'
The second schedule to the Code prescribes just that:
Whether the police may arrestwithout warrant or not
May arrest without warrant.
May arrest without warrant.
71. So, for two cognizable offences a complaint was made to the police. The report dated March 13, 1963, of Chouthmal Saraogi to the police (page 36 of the paper-book) reveals offences more heinous than theft. For the point I am on now, let that be left alone. Suffice it to note that the police treated the report as 'information relating to the commission of' cognizable offences within the meaning of Section 154 of the Procedure Code and proceeded to do its duty by undertaking an investigation under other sections in Chapter 14 where Section 154 occurs, the heading of the chapter being-
'Information to the Police and their power to investigate.' Investigation completed and dosed, the police submitted their final report under Section 173 ibid., the last but three sections in Chapter 14 again. This is what has been referred to in the Dhanbad Subdivisional Magistrate's order of April 15, 1963, as Antim Patra--a literal translation of final report. Now, a final report under Section 173 may be of two kinds. If the result of the investigation under Chapter 14 discloses prima facie the commission of a cognizable offence, the police submit what is called the charge-sheet, for which the Calcutta police have a nomenclature of their own: Challan. If, however, the completion of the investigation reveals anything short of that (not necessarily a false case), the police do submit a final report too. but stating according to the materials gathered: 'no case against the accused', 'no dependable evidence, though the case is true', 'a false case', 'dispute of a civil nature7 etc, etc. The final report in the form of a charge-sheet or challan leads to the trial of the accused. The final report in the form the different varieties of which are just set out leads to the discharge of the accused. The Magistrate's approval has to be there in either case.
72. This, in brief, is the law on the point. How is it then that the Sub-divisional Magistrate recorded in his order of April 15, 1963:
This case under Sections 147 and 378 (379?) of the Penal Code is not maintainable (Asajhya Hai). Enter so in the register.
The mandate of Section 173 of the Procedure Code is not that Nor docs any other section of the Code prescribe so. The answer to the question posed is to be found in the Bihar and Orissa Police Manual (1914) which is still going strong, as J discover from the National Library, though the usual mosaic of correction slips for various amendments is there. The pith of the matter is that for statistical purposes certain returns are needed. Hence the Manual makes suitable provisions by a rule in Chapter XIII. Here is the rule:
'Chapter XIII.Magistrate's 314. (a) A register in P. M.general form No. 66 shall be kept inregister every Court office, in ac-of cases. cordance with the instructions affixed to it. All firstinformation reports and final reports in cogni-zable cases received from stations and outpostsshall be entered in it. (b) The Magistrate of the district or the Magistrate in charge of criminal cases at sadr., and Magistrates in charge of sub-divisions shall record in the general register orders passed by them in all cases reported in final report form.
Method of (c) The Magistrate shall re-showing cord in the general registercases in how each case shall be showngeneral in the returns.....register. (d) The order shall be clear and intelligible in the form for one of the following-
True: enter section.
Intentionally false: enter section.
Mistake of law: enter section.
Mistake of fact: enter section.
Non-cognizable: enter section.
Not investigated: enter section.
(e) In cases in which no one is sent up for trial, it will rest with the Magistrate to say whether the case is true or not and if he considers that the offence has been committed, it will rest with him to say under what section it is to be entered in Statement A, Part I.'
[For similar provisions in West Bengal, see Rule 430, Police Regulations, Bengal, 1927.]
73. It is thus seen why the Subdivisional Magistrate had directed: 'Enter in the register that the case is not maintainable.' (The paradigms of orders set out in Rule 314(d) of the Manual are illustrative and not exhaustive.) A routine order--and an administrative order at that, not for the purpose of doing justice between the parties, but tor the purpose or supplying the statisticial returns--it was made on the basis of the police report in the final form, and that again behind the back of the complainant (Saraogi). Therefore, to rely on an order as this (anything but judicial) in support of the plea, that the petitioning respondents' version of Chasnala raid on March 13, 1963, is false, is to rely on a broken reed. Worse than broken, it is rotten, so far as the appellants contention is concerned. The magistrates order does not record that the case is untrue, as has been imagined on behalf of the appellants. It records that the case is not maintainable (Asajhya).
74. The matter may be examined from another point of view. The date of Chasnala raid is March 13, 1963. And the date of the Sub-divisional Magistrates order is April 15, 1963. So, the date of the final report by the police must be a little ahead of April 15, 1963. It is not Dhanbad Police-Station. In that case, the date of the police report and the date of the Dhanbad Magistrate's order might have been the same. It is Jorapukhar police-station a little in the interior. Hence, it may be taken for granted in safety that the final report by the police was a little earlier than April 15, 1963, when the magistrate had recorded his order thereupon. Say, it was a certain day early in April 1963. But this Court was moved on March 15, 1963. And important developments took place in quick succession:
(i) March 15, 1963. This Court appointed the Official Receiver, the Receiver of the immovable properties, fixed assets, books, papers and documents of the company, and directed him to make an inventory of all goods: vide pages 41 and 349-51 of the paper-book.
(ii) March 17, 1963. Pramatha Nath Chatter-jee, an assistant to the Official Receiver, 'walked over all the premises, store room, machine shed etc. of the company' at Chasnala and 'took formal possession of the immovable properties' from 3-45 p.m. to 8 p.m. vide pages 116-119 ibid.
(iii) March 18, 1963. The Official Receiver's assistant commenced preparing the inventory at '12 noon' and continued the work up to 5-30 p.m. vide pages 124-125 ibid.
I cannot conceive of an investigating officer of having blinked at events of such magnitude. So soon as that is said, the edge of the investigation is gone. And all that the police-officer investigating a cognizable offence of the type here is very likely, almost certain, to do in such circumstances is to report: 'the dispute between two factions is not in seisin of the High Court which has appointed a receiver. So, let us proceed no more with such a dispute of civil nature, dressed though it has been in criminial garments.' An investigating officer who will not report so must be rare indeed. Hence, even without the final report under Section 173 of the Procedure Code by the investigating officer of lorapukhar police-station having been made available to us in the manner in which it should have been, it may be found that in all probability he had reported so. Once that is that, the remark about the case being not maintainable (Asajhya)--the remark which the magistrate directed to be entered in the general register--explains itself without any stigma on the merits of the complaint. And should perchance the remark the magistrate directed to be recorded be taken as not true (Asatya) though there is no room whatever for doing so, in the light of all that goes before, the very remark itself then becomes not true and can ill afford a safe resting place for the finding that the petitioning responddents' version of Chasnala raid on March 13, 1963, is unworthy of belief.
75. This is only a negative approach to the inelegance of March 13, 1963, at Chasnala, and that too to counter the contention, advanced on behalf of the appellants, on the basis of the magistrate's order dated April 15, 1963. The positive approach (to which I now proceed) appears to be a revelation. One Kedarnath Bhagat, the third appellant in the appeal before us, who introduced himself as a director of the company, before the receiver's assistant, Pramatha Nath Chatterjee, on March 17, 1963, pledged the raw materials of the company on a consideration of Rs. 25,000 in cash to one Shiv Nath Sinha, said to be a new shareholder, on March 15, 1963: vide the stamped receipt over the signature of Kedarnath Bhagat at page 120 of the paper-book. More than a pledgee of raw materials, Shiv Nath Sinha was the lessee too of the company's factory at Chasnala and appointed as such one S D. R. Gupta as the manager thereof on March 15, 1963: vide the letter of appointment bearing that date over the signature of Shiv Nath Sinha at page 121 ibid. The fact that Kedarnath Bhagat had leased out the factory to Shiv Nath Sinha and hypothecated the raw materials to him to raise a loan of Rs. 25,000, with a view to meeting the pressing claims of the workers, labourers, employees and creditors of the company is admitted, (see paragraph 31 of the joint affidavilt in opposition ot the three appellants--the Prosad group--affirmed on March 25, 1963, at page 54 ibid and the separate affidavit of Badha Kissen Prosad, the second appellant, affirmed on May 20, 1963, at page 167 ibid). Are admitted there too the surrender of the lease by Shiv Nath Sinha and the refund of Rs. 25,000 by the company to him on March 18, 1983, in view of the receiver having taken possession of 'the factory premises' on March 17, 1963.
76. On these broad facts, the question arises: what led to this sort of an upheavel? That this was nothing short of an upheaval is plain to be seen. On the appellants' own admission, the petitioning respondents, the Saraogi group, were in charge of the factory at Chasnala right from January 1962 when the board of directors was expanded by including them (the Saraogi group) therein. Such indeed is the averment in the twelfth paragraph of the joint affidavit in opposition of the Prosad group affirmed on March 25, 1963, which recites all this and concludes:
'The petitioners were entrusted with the management of the factory of the respondent company at Chasnala, Dhanbad.' : page 48 of the paper-book.
On March 13, 1963, the petitioning respondents (the Saraogi group) went out of the factory at Chasnala. So did Chouthmal Saraogi (also Sarawagi), working though he was as the manager of the factory from July 27, 1962, or thereabouts. (see his affidavit dated May 20, 1963, at page 126 ibid.) Came instead the Prosad group, the appellants before us. Kedar Nath Bhagat lost no time in leasing out the factory and hypothecating the raw materials to Shiv Nath Sinha for Rs. 25 000. And Shiv Nath Sinha, in turn, appointed S. D. R. Gupta as the manager of the factory--all on March 15, 1963. (See the preceding paragraph.) For such a change, we have before us, as the learned Judge of the first instance had before him, two versions. One is the version of the petitioning respondents (the Saraogi group) attributing all this to the brute force brought into play by the appellants (the Prosad group) on March 13, 1963, and culminating in Chasnala raid with the complete ouster of the Saraogi group. The other is the version of the appellants denying the raid and proclaiming the change as nothing but the natural and legitimate outcome of the resolutions passed at the extraordinary general meeting of the company on February 21, 1963, no less at the board meeting on March 4, 1963 and the like--reviewed in detail by my learned brother in his judgment just delivered. In so far as it is material for the point under discussion now, what these resolutions secured was (i) election of Kedar Nath Bhagat, the third appellant before us, as one of the two new directors and (ii) authorizing him (Kedar Nath Bhagat) to take charge of the company's factory at Chasnaia, to dispense with the services of certain employees and to run the organization as best as ho could. Kedar Nath Bhagat, it is said, did no more. That, the Prosad group's version concludes, is the reason of the change on March 13, 1963--and not the so-called Chasnala raid.
77. On a version as this of the Prosad group, I shall try not to repeat what my learned brother has said. I adopt instead all he says and observes that it is difficult even for credulity to swallow all it comes to:
Here are the petitioning respondents (the Saraogi group) who hold 5,060 shares at the relevant time against 3,606 shares held by their adversaries, the Prosad group. More, ever since January 1962, when they became directors, 'they have put in large sums of monies aggregating to about Rs. 5 lacs,' as they aver in paragraph 9 of their petition dated March 15, 1963 (page 6 of the paper-book)--an averment which the appellants (the Prosad group) traverse in paragraph 12 of their joint affidavit in answer (page 48 ibid) in a manner that it is akin to an admission or investment by the Saraogi group of Rs. 5 lakhs. And such ones would be resting on their oars whan all they had to do was to be present in the momentous meetings of February 21 and March 4, 1963, in order to foil the nefarious design of the Prosad group of converting a minority into a majority by manifestly dishonest means:
Let not common sense be made a casualty of in this litigation or, for the matter of that, in any other. Nobody throws a garotter round his neck. And what nobody does, the Saraogi group would not do either. In vain therefore nave we heard so much in the course of the address on behalf of the appellants of notices of the meetings having been sent through certificates of posting, as if these certificates are clothed with sacrosanctity. No doubt, under illustration (e) to Section 114 of the Evidence Act, 1 of 1872, the Court may presume that an official act has been regularly performed. But such a presumption is optional. Not that the court is bound to presume so in every case. Here the court shall not draw this presumption. The court shall not, because it is completely satisfied upon all it sees that the Saraogi group could not but have attended the meetings where they had so much at stake, by attending which they had everything to gain and by absenting from which they would lose lakhs and lakhs of rupees and, worse, would be digging their graves, if they had receiv. ed the notices supposed to have been sent to them with certificates of posting. That apart, how much of a letter sent with a certificate of posting is an official act? No officer of the Post Office guarantees even the address on the letter and the address on the certificate being the same. All that is guaranteed is the postal seal on the certificate impressed generally by a menial of the Post Office without any manner of comparison. Nothing, I imagine, is easier for an unscrupulous person that to use a certificate of this sort as a bluff. So, let no more be said of such agency of service of notices of all-important meetings, when the Prosad group in their wisdom and with deliberation did not take the elementary precaution of sending such valuable notices by registered post with acknowledgment due.
78. Without more--and a lot more can yet be stated, as has indeed been stated by my learned brother--it can safely be held that Kedar Nath Bhagat is a sham director, sprung upon the company by sham meetings, making out a sham lease, an ephemeral one too lasting for four davs, if that, in favour of Shiv Nath Sinha, a sham shareholder, the allotment of shares having been such a sham that even the learned counsel for the Prosad group had to concede the illegality of the whole thing before the learned trial Judge; vide the judgment under appeal at page 318 of the paper-book. Now, how could an imposter of a director, as Kedar Nath Bhagat was, get into the factory at Chasnala on March 13, 1963, except by gate-crashing? And this is just what the Saraogi group contends for. A conspectus of all material facts here is therefore apt to convince a prudent man that the main outline of the raid of the factory at Chasnala on March 13, 1963, stands, no matter that there are discrepancies, here a little or more or there a little or more. In no other manner could a rightless one have installed himself there by driving away the rightful ones.
79. If this is not oppression, in its plain dictionary meaning--tyranny: feeling of distress or of being weighed down; 'burdensome, harsh and wrongful', a meaning accepted by decisions in the books--I confess, I do not know what oppression means. It is said that in order to constitute oppression there must be 'a visible departure from the standards of fair dealing, and a violation of the conditions of fair play on which every shareholder who entrusts his money to a company is entitled to rely.' Just what the Lord President, Lord Cooper, said in 1952 SC 49. And, the contention concludes, the raid simpliciter or merely outsting is not an oppression far less an oppression affecting the Saraogi group qua shareholders. To contend so is to belittle the raid and its manifest baneful consequences much--too much. The majority rule is one of the fundamental concepts of the company jurisprudence. Here is a minority which drives away the majority by sheer force and thereby usurps the functions of the majority. What is it but shameful and shameless 'departure from the standards of fair dealing' the visibility of which is all too clear to all except to the blind? What is it but a gross and naked violation of the conditions of fair play'? If the Saraogi group are the directors, they are shareholders too by virtue of having invested Rs. 5 lakhs. Did they entrust that much to the company relying on the doctrine, might is right--a doctrine the Prosad group translated into practice on March 13, 1963, after having made earlier preparations to that end by faked minutes and faked resolutions? Certainly not. They parted with such a heavy sum in favour of the company in the sure belief that decency and probity would rule the affairs of the company and that right would be might, not vice versa. So, the Saraogi group are very much affected too qua shareholders as well. Surely, it is no disqualification for a shareholder to be a director. And by being a director he does not lose his separate entity as a shareholder, just as in 1958-3 All ER 689, the sons did not lose their identity as members, directors though they were. The test to go by is oppression on members, it being of little consequence that the members are directors too. To quote from the judgment of Jenkins, L. J., in Harmer's case, 1958-3 All ER 689.
'It appears to me that the sons as members, and not merely as directors, were oppressed by the singular conduct of the father. The oppression must no doubt, be oppression of members as such, but it does not follow that the fact the oppressed members are also directors is a disqualifying circumstance when the question of relief under Section 210 arises. I think there may well be oppression from the point of view of member-directors where a majority shareholder (that is to say, a shareholder with a preponderance of voting power) proceeds, on the strength of his control, to act contrary to the decisions of, or without the authority of, the duly constituted board of directors of the company.'
80. Again, it is contended that, in order to be an oppression, the acts complained of must be persistent and persisting. Chasnala raid, it is true, was over inside of half an hour, if that, on March 13, 1963. And its effect lasted not even for four days, the receiver's assistant having taken 'formal possession of the immovable properties' there towards the latter part of March 17, 1963. (See paragraph 8 ante.) So, it is said, nothing like a continuous and continuing process can be spelt out of it. To my thinking, there can be no uniform yardstick of oppression in all cases. What is or is not an oppression will depend on the facts and circumstances of each case. To quote Jenkins, L. J. again from his Lordship's decision in Harmer's case, 1958-3 All ER 689:
'Inevitably the result ot applications under Section 210 in different cases must depend on the particular facts of each case, the circumstances in which oppression may arise being so infinitely various that it is impossible to define them with precision.'
Let it be assumed that there is no circumstance here save Chasnala raid--a raid which leads to the majority going out and the minority coming in. This strikes at the very root of the company administration and turns upside down what the Companies Act provides for with a view to regulating the affairs of the Company. And still it has to be held that there is no oppression here. To say so is to say that Section 397 will catch the slowfooted only and let go the 'fleet-footed' ones who can accomplish their illegal object in the course of a day or an hour--a clear reductio ad absurdum. Then, this is a case, with features all its own, where what matters is the result obtained by the wrong-doers, to wit, the Prosad group, and not the duration of the wrong and illegal method resorted to by them. And it needs no imagination to see that but for the intervention by the learned trial Judge on March 15, 1963, the devastating effect of Chasnala raid would have continued to this day with a spate of all sorts of litigations here, there and everywhere--just the thing the Companies Act is in the statute book to guard against for. Thus on the foot of Chasnala raid alone, the petitioning respondents, the Saraogi group, are entitled to the relief they pray the Court for.
81. Again, the very assumption which has been made in the preceding paragraph that only Chasnala raid has been there, and nothing else--appears to be an unwarranted one. Chasnala raid has no doubt been there. But, by no means, it deserves to be considered 'in isolation'. It deserves to be considered instead 'as part of a consecutive story' from January 22, 1963, or thereabouts, when faked board meetings and general meetings, ordinary or extraordinary, were being held, false resolutions were being passed, a dubious balance-sheet was being 'cooked' presumably antedating such meeting--matters which have been dealt with my learned brother--right up to March 13, 1963. when the wrong-doers, the Prosad group, were toiling for all these days and weeks reached its fruiting. Regarded so, a continiuous process, a persistent and persisting oppression, becomes self-evident.
82. An approach as this is met with the objection that the petitioning respondents, the Saraogi group, cannot be allowed to travel beyond the petition of March 15, 1963, they came to Court with. Such objection merits two answers. One, you cannot go on holding meetings after meetings surreptitiously behind the back of the Saraogi group and then turn round with a grievance: they have not pleaded these matters in their petition. Well, how can they when you have dishonestly and deliberately shut them out from such meetings? To allow you to do so will be putting a premium on chicanery. Two, let the petition of March 15, 1963, be equated with a plaint which, indeed, in a manner it is. And let the joint affidavit in opposition dated March 25, 1963, of the Prosad group be equated with a written statement which again in a manner it is. Let it be supposed too that the trial judge is minded to try this matter on evidence. (Indeed, a grievance is made that he has not done so, as if the ugly manifestations of lack of probity and fair dealing we see before us upon affidavit evidence would not have come out in bolder relief from the witness-box.) So minded, he proceeds to fix issues. Will he then be bound to confine himself to the averments in the petition and the joint affidavit in opposition only? Certainly not.
In adjudicating an original petition of this sort upon evidence, he has as much freedom to look to, and draw upon, materials other than those contained in the pleadings, for fixation of issues, as he has when he adjudicates a suit proper. And what are such materials he goes in fixing issues for a suit? Answers to interrogatories delivered in the suit; allegations made on oath by the parties, or by any persons present on their behalf or made by the pleaders of such parties; and the contents of documents produced by either party; just what Order 14, Rule 3 of the Procedure Code provides for. And it is a rule which Order 49 does not keep away from the original side of this Court. If the Judge can dp so when he tries a suit or sets down a petition for a trial on evidence, by parity of reasoning he can do just the same when he proceeds to hear the petition upon affidavit-evidence. And what are affidavits we see here but allegations made on oath by the parties or persons present on their behalf? So, what wrong has the learned Judge done by travelling beyond the pleadings (the originial petition of March 15, 1963, and the joint affidavit in opposition of March 25 following, pages 3-37 and 45-78 of the paper-book) and by taking into consideration all the affidavits on record? I do not see any. And what is there to nurse a grievance about? I do not see any either. As my lenrned brother points out in his judgment:
'What was lacking in the petition has been filled up by subsequent affidavits and the Court must guide itself by all the evidence before it.'
So, let no fetish be made of the original petition of which the Court is certainly not a slave, when it has other telling materials to draw upon to come to a just decision of the cause before it without causing the least surprise to any party. If I may quote from what I said in Snow White Food Product (Private) Ltd. v Sohanlal Bagla, AIR 1964 Cal 209 at p. 212, bottom: left-hand side-
'The technical rules of pleadings are no doubt good. But what subserves the ends of justice is better still.'
Hence, the sort of an approach (on behalf of the appellants) this paragraph opens with, appears to be destitute of merit.
83. Reference to one other matter I cannot very well do without. The fact that the petitioning respondents (the Saraogi group) form the majority is said to stand between them and the relief under Section 397 they pray the Court for. Why? because, Section 397 of our Act is available only to the minority for oppression by the majority as the corresponding section of the English Act (Section 210) is. Thus, the contention concludes, Section 397 canot avail the majority as the petitioning respondents (the Saraogi group) are.
84. Let the matter be examined. I preface such examination with two observations--one from the Judicial Committee of the Privy Council and another from a Bench decision of our Court of Appeal consisting of three distinguished and eminent judges of this Court: Sir Lancelot Sanderson (Chief Justice), Sir Asutosh Mookerjee and Sir Nalini Ranjan Chatterjee. In Mt. Ramanandi Kuer v. Mt. Kalawati Kuer, 32 Cal WN 402: (AIR 1928 PC 2) Lord Sinha delivering the advice of the Board observed:
'It has often been pointed out by this Board that where there is a positive enactment of the Indian Legislature the proper course is to examine the language of that Statute and to ascertain its proper meaning, 'uninfluenced by any consideration derived from the previous state of the law'--or of the English law upon which it may be founded.' The italics (here into ' ') are mine.
In Raghumuli Khandewal v. Official Assignee of Calcutta : AIR1924Cal424 Sanderson, C. J. observed:
. .I desire to emphasize in this case, that which I have said on previous occasions, viz., that the principle which was laid down by Lord Herschell in the case of Governor and Company of the Bank of England v. Vagliano Brothers, (1891) A C 107 at p. 144 should be observed when the Court has to consider the interpretation which ought to be put upon a section such as that now under consideration. The learned Lord said as follows: 'I think the proper course is in the first instance to examine the language of the statute and to ask what is its natural meaning, uninfluenced by any considerations derived from the previous state of the law, and not to start with inquiring how the law previously stood, and then, assuming that it was probably intended to leave it unaltered, to see if the words of the enactment will bear an interpretation in conformity with this view. If a statute, intended to embody in a code a particular branch of the law, is to be treated in this fashion, it appears to me that its utility will be almost entirely destroyed, and the very object with which it was enacted will be frustrated.' It is on account of the principle, which was thus laid down, that I do not refer to the English cases, which were cited to us during the argument, and I decide this case having regard to the language of Section 239 of the Contract Act.'
Governing myself by these observations, I say: here is Section 397, a positive enactment of our Parliament. And I proceed to examine the language of this section, uninfluenced by Section 210 of the corresponding English statute. In the course of my examination, the first thing I find is that Section 397 is the section, Chapter VI Captioned: 'Prevention of oppression and mismanagement. A. Powers of Court' starts with. The next thing I find is that its marginal note bears:
'Application to court for relief in cases of oppression.'
I stop here for the moment and ask myself: 'do the heading and the marginal note I have just reproduced from part of the statute, the Companies Act 1 of 1956?' And I answer: 'Yes; if they appeared in the draft bill and were voted upon by Parliament. No; if they did not appear so, were not therefore voted upon by Parliament, but were inserted by clerks or other irresponsible persons who could not arrogate to themselves the functions of Parliament.' Such an answer is in conformity with authorities. In a reported decision, Harries C. J. (with whom Das and Banerjee, JJ. agree) notices the former view of the Courts of England and India that the marginal note forms no part of the statute itself, and observes:
'It is noticeable however that the Courts in England have somewhat changed their views because the marginal notes now appear in the draft bill which they did not do in earlier years.'
Iswari Prosad Goenka v. N. R. Sen, : AIR1952Cal273 . In so far as it is held so, the decision remains good law to this day in spite of reversal on other points by the Supreme Court. Again, Crawford in Construction of Statutes (1940) points out that to interpret a statute on the basis of headings inserted by clerks or revisors who cannot exercise legislative power will be to allow such clerks or revisers to encroach upon the prerogative of the legislature--a reasoning which cannot be applicable where the headings are inserted by the legislature when the bill is drafted or enacted.
85. This being the test to determine whether or no the heading and the marginal note I see in Section 397 form part thereof, let it now be found out in what shape the corresponding clause of Section 397 was in the draft bill voted upon by Parliament and how it compares with the section as enacted. For facility of comparison, the clause of the bill voted upon by Parliament after the Joint Committee had presented its report to the Lok Sabha on May 2, 1955, and the section as enacted, after the Lok Sabha had voted upon it, are placed below side by side, Clause 396 of the bill being the matter corresponding to Section 397 :
The Companies Bill, 1953
[As amended by the JointCommittee.]
No. 1 of 1956
Bill No.46-B of 1953
PREVENTION OF OPPRESSION ANDMISMANAGEMENT
PREVENTION OF OPPRESSION ANDMISMANAGEMENT
A. POWERS OF COURT
A. POWERS OF COURT
396. Application to Court for relief in cases of oppression -
397. Application to Court for relief in cases of oppression.
(1) Any members of a company whocomplain that the affairs of the company are being conducted in a manneroppressive to any member or members (including any one or more of themselves) may apply to the Courtfor an order under this section, providedsuch members have a right So to apply in virtue ofsection 398
(1) Any members of a company whocomplain that the affairs of the company are being conducted in a manneroppressive to any member or members including any one or more of themselves) may apply to the Courtfor an older 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 -
(2) If, on any application under sub-section (1), theCourt is of opinion -
(a) that the company'saffairs are being conducted in amanneroppressive to any member or members, and
(a) that the company'saffairs are being conducted in a manner oppressive to any member or members and
(b) that to wind up thecompany would unfairly prejudice such memberor members, but that otherwise the facts wouldjustify the making of a winding- up order onthe ground that it was just and equitable that the company should be wound up, the Court may , with a view to bringing to an endthe matters complained of, make such order asit thinks fit.
(b) that to wind up thecompany would unfairly prejudice such member,or members but that otherwise the facts would justify the making of awinding up orderon the ground that it wasJust and equitable that company shouldbe wound up, the Court may, with a view to bringing to an end the matterscomplained of, make Such order as it think fit
(For the Companies Bill, Bill No. 46B of 1953, wherefrom I nave reproduced Clause 396, see Gazette of India, extraordinary, of May 2, 1955, Part II--Section 2, at page 241/265) Thus, it is seen that the heading and the marginal note appeared in the draft bill and were voted upon by Parliament. No work of clerks, revisors or irresponsible persons this. It is the work of Parliament. Hence, the side-note and the heading do form part of Section 397 and furnish no indicium of a minority coming anywhere near, just as the fasciculus sub-title--'Minorities--in Section 210 of the Companies Act, 1948, 11 and 12 Geo. 6, Ch. 38, does.
86. Indeed, the only change discernible, as made by Parliament, is that Section 398 in Sub-clause (1) of Clause 296 has been replaced by Section 399 in Section 397(1) of the Act. That has to be so. Because Clause 396 has been enacted as Section 397, So, necessarily, Section 398 has to be changed to Section 399, the numbering being advanced by one. This verbal change only in the numbering of the sections explains itself and is neither here nor there, for the point I am on now.
87. I resume my examination of Section 397, the positive enactment of our Parliament, and find, because of the proviso to Section 397(1) curtailing what goes earlier, that only those members who can avail Section 399, have the right 'so to apply', that is to say, to apply for relief under Section 397. Who are such members? Have they to be a minority always? Section 399 answers these questions by prescribing inter alia that the following members shall nave the right to apply under Section 397:
'A. In the case of a company having a share capital, not less than one hundred members thereof or not less than one-tenth of the total number of its members, whichever is less, or any member or members holding not less than one-tenth of the issued share capital of the company, provided that the applicant or applicants have paid all calls and other sums due on their shares:
B. in the case of a company not having a share capital, not less than one-fifth of the total number of its members.'
The purist will eye askance at the use of'Iess' in Section 399. Whitten and Whitaker have the following in Good and Bad English:
'Less appertains to degree, quantity or extent; fewer to number. Thus, less outlay, fewer expenses; less help, fewer helpers; less milk, (ewer eggs.'
Leaving the purist to wrestle with the drafter of the section, I proceed to notice that, in the context here, not less than means not fewer than and carries with it the ineluctable meaning that there may be more than the number specified after not less than, no matter whether such number constitutes minority or majority. As a matter of words, therefore, it is impossible to say that only a minority can apply under Section 397 and that a majority cannot. Thus, to sustain the interpretation the appellants want us to make clear words are needed in the statute--words which are not simply there. And the words which are there tend to a conclusion the other way about.
88. The company we are dealing with is a company having a share capital. Clause (a) of Sub-section (1) of Section 399 is therefore attracted. Or, there, is, of course, a disjunctive one. Whichever way you calculate, whatever permutation or combination you make, the petitioning respondents (the Saraogi group) do come to not fewer than, or in the words of the section 'not less than', one-tenth of the total number of its members. So they have the right to apply under Section 397 a right which Section 399 confers on them by the clearest words.
89. To read the Supreme Court decision in : 2SCR720 to mean that Section 397 avails the minorities only is to read it divorced from its facts and to read, too, much more than what the decision bears. Everything apart, the infirm agreement of July 27, 1954, apart, once it is borne in mind that Shanti Prasad Jain held one-third of the shares (excluding those held by a French company), it is plain to be seen that he was in a minority. The Supreme Court was not therefore called upon to lay down the law on the point: whether or no S. 397 avails the minorities only, and not the majorities. And it did not lay down the law at that either. The observations their Lordships made must be tuned to the facts befora them. And one important fact was that the appellant before their Lordships was a minority shareholder.
90. In vain have we been addressed on the possibility of a minority oppressing the majority. Speaking for myself, if I had ever any doubt in my mind on that score, though I confess I had none, it is completely resolved by all that the appellants did here down to the raid of the factory at Chasnala.
91. All the other matters argued at theBar have been fully dealt with by my learnedbrother, if I may say so, with respect. So Ihave nothing more to add but to agree that thisappeal should be dismissed subject to the modification proposed in the judgment just delivered.