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In Re: Bengal Luxmi Cotton Mills Ltd. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtKolkata High Court
Decided On
Case NumberCompany Petition No. 111 of 1964
Judge
Reported in[1965]35CompCas187(Cal),69CWN137
ActsCompanies Act, 1956 - Sections 145, 397 and 398; ;Companies (Court) Rules, 1959 - Rule 88
AppellantIn Re: Bengal Luxmi Cotton Mills Ltd.
Appellant AdvocateN. De, ;S.C. Sen, ;Gouri Mitter, ;S. Roy Chowdhury and ;B. Chowdhury, Advs.
Respondent AdvocateSubimal C. Roy, ;S. Chaudhuri, ;R. Chaudhuri, ;B. Sen, ;M.K. Banerjee and ;P.K. Das, Advs.
Cases ReferredTrade Auxiliary Co. v. Vickers
Excerpt:
- b.c. mitra, j.1. this is an application for various ad interim reliefs in a company petition under sections 397, 398, 402 and 403 of the companies act, 1956. the material facts relating to this application are set out hereunder.2. in 1906, a company known as bengal luxmi cotton mills ltd. (hereinafter referred to as the company) was incorporated, with the object of purchasing a cotton spinning and weaving mill in bengal or elsewhere and to buy cotton, silk, jute, etc., for carrying on the business of spinning yarn. in 1922, the applicant no. i came in contact with one sachidananda bhattacharjee. these two persons started various business and industrial concerns. in 1927, the company was in financial distress and became indebted to the imperial bank of india in the sum of rs. 21,00,000. it.....
Judgment:

B.C. Mitra, J.

1. This is an application for various ad interim reliefs in a company petition under Sections 397, 398, 402 and 403 of the Companies Act, 1956. The material facts relating to this application are set out hereunder.

2. In 1906, a company known as Bengal Luxmi Cotton Mills Ltd. (hereinafter referred to as the company) was incorporated, with the object of purchasing a cotton spinning and weaving mill in Bengal or elsewhere and to buy cotton, silk, jute, etc., for carrying on the business of spinning yarn. In 1922, the applicant No. I came in contact with one Sachidananda Bhattacharjee. These two persons started various business and industrial concerns. In 1927, the company was in financial distress and became indebted to the Imperial Bank of India in the sum of Rs. 21,00,000. It was at that time that the applicant No. 1 is alleged to have come to the rescue of the company by taking over the managing agency. In 1930, the applicant No. 1 and Bhattacharjee by their combined efforts started an insurance business and promoted the Metropolitan Insurance Co. Ltd. They also promoted the Calcutta Friends Society (Private) Ltd., Bengal Luxmi Soap Works (Private) Ltd. and Metropolitan Printing and Publishing House (Private) Ltd. The shares in all these companies were held by the applicant No. 1 and Bhattacharjee in equal proportion. Bhattacharjee died in 1945, leaving him surviving his widow and four sons of whom Debendranath Bhattacharjee, the respondent No. 2, was the eldest.

3. The managing agency of the company was originally taken jointly by the applicant No. 1 and Sachidananda Bhattacharjee. Thereafter, they promoted a private company known as Bengal Textile Agency Ltd., which took over the managing agency of the company and continued to act as such managing agent till 1957, when the managing agency of the company came to an end by reason of the requirement of the Companies Act, 1956.

4. It is alleged that the applicant No. 1 had great faith and confidence in the respondent No. 2 who was entrusted with the management of all the different companies mentioned above. In January, 1956, life insurance business was nationalised and the life business of Metropolitan Insurance Co. Ltd. was taken over by the Life Insurance Corporation of India. It is alleged that in April, 1957, a sum of Rs. 10,21,107 was received by way of compensation for acquisition of the life business of the said insurance companies.

5. Some time in October, 1958, the respondent No. 2 resigned the managing directorship of the said insurance company and by a resolution dated October 17, 1958, this resignation was accepted. But the respondentNo. 2 continued to be the whole-time director of the Metropolitan Insurance Co. Ltd. In March, 1960, the name of the insurance company was changed to Metropolitan Industrial Corporation Ltd.

6. Some time in the middle of 1962, disputes arose between the respondent No. 2 and his three brothers regarding the partition and division of the properties left by their father.

7. It is alleged that in 1955, 30,000 rights shares of Rs. 100 each of the said insurance company were issued, but the respondent No. 2 manipulated the same in such a way, as to deprive his brothers and also the applicant No. 1 of their respective proportion of rights shares. It is further alleged that fictitious allotments of the said rights issue were made in favour of the nominees of the respondent No. 2.

8. It is further alleged that, towards the end of 1962, or the beginning of 1963, Vaskar Bhattacharjee, the son of the respondent No. 2, endeavoured to issue rights shares of the Metropolitan Printing and Publishing House (Private) Ltd. by suppressing all notices. But this attempt was detected and, by reason of the efforts of the applicant No. 1 and his group, the attempt failed. It is further alleged that owing to the opposition from his brothers, the respondent No. 2 was obliged to cancel the allotment of the rights issue of the insurance company and rectify the position by transferring the rights shares from his different nominees in favour of his three brothers and the applicant No. 1.

9. It is alleged that, in the beginning of 1963, various acts of misappropriation of the compensation money received for acquisition of the life business of the life insurance company were detected, as a result of which the respondent No. 2 and his supporter, A. B. Chatterjee, resigned the directorship of the Metropolitan Industrial Corporation Ltd. This resignation took effect from March 1, 1963. It is alleged that the detection of misappropriation of the compensation money raised suspicion in the mind of the applicant No. 1 and the two brothers of the respondent No. 2, who together controlled the majority of the votes of the said different companies.

10. It is next alleged that, after the detection of the said misappropriation, investigations were started and it was found that huge sums had been misappropriated by the respondent No. 2.

11. The Metropolitan Industrial Corporation Ltd. held 8,500 half paid up shares of the respondent company of the face value of Rs. 40 each. The Metropolitan Printing and Publishing House (Private) Ltd. held 734 fully paid up ordinary shares of the same face value and the Calcutta Friends Society (Private) Ltd. also held 610 fully paid up ordinary shares of the respondent company. It is alleged that, when the said attempt to issue rights shares of Metropolitan Printing and Publishing House (Private) Ltd. failed, the respondent No. 2 realised that he would be unable to control the affairs of both the Metropolitan Industrial Corporation Ltd. and the Metropolitan Printing and Publishing House (Private) Ltd. It is further alleged that failure to control the said two companies meant that the respondent No. 2 would also fail to control the affairs of the respondent company, as the said two companies were holding the controlling block of shares in the capital of the respondent company. It is further alleged that the Metropolitan Industrial Corporation Ltd. alone controlled more than 16 per cent. of the voting rights and the said three companies together controlled more than 20 per cent. of the voting rights. Out of the total, voting strength of 25,298, the respondent No. 2 and his nominees controlled 3,463 votes or nearly 14 per cent. of the voting strength. The applicant No. 1 and his nominees controlled 2,587 shares or approximately 10 per cent. of the voting strength. It is alleged that the rest of the votes are controlled by shareholders of small lots scattered all over India and Pakistan, and they do not exercise any effective control, and these votes are to be treated as dead votes for all practical purposes. In these circumstances, it is alleged that the shares of the respondent company held by the said three companies constituted the controlling block of shares and the whole motive of the respondent No. 2 was to somehow acquire this controlling block of shares to continue his control of the affairs of the company.

12. Anticipating a move by the respondent No. 2 to dispose of the shares held by the said three companies to his own nominees, the applicant No. 1 caused a letter to be written by his solicitor to the respondent No. 2 on January 24, 1963, calling upon the latter, not to change the investments of the Metropolitan Industrial Corporation Ltd. or to dispose of the shares held by that company. This letter, it is alleged, was refused by the respondent No. 2 on January 24, 1963, but was accepted by him on the next day. It was answered by the solicitor for the respondent No. 2 on January 28, 1963, in which it was alleged for the first time that some of the holdings of the Metropolitan Industrial Corporation Ltd. had been sold at the instance of and to the knowledge and approval of the applicant No. 1. It is alleged that the applicant No. 1 had no knowledge of and never consented to transfer of any of the shares held by the Metropolitan Industrial Corporation Ltd. It is further alleged that the applicant came to know that the respondent No. 2, in collusion and conspiracy with his benamidars, fraudulently caused a transfer of 8,500 equity shares of the company, which were held by the Metropolitan Industrial Corporation Ltd. This sale was effected, it is alleged, after receipt of the said letter of January 24, 1963, by an antedated sold note dated January 22, 1963, through a broker, at Rs. 14 per share. It is further alleged that the shares were delivered to the broker on receipt of price on January 28, 1963, but the cheque was not sent for collection until. January 31, 1963. These shares were purchased by two persons, namely, Nathuram Poddar and Tarachand Poddar. At a meeting of the board of directors of the company held on January 31, 1963, transfer of shares in name of the said purchasers was approved. This board meeting is challenged by the applicant No. I on the ground that he received no notice of this meeting. It is alleged that no board meeting was actually held on January 31, 1963, and that the Metropolitan Industrial Corporation Ltd. never authorised any one to sell the said 8,500 shares.

13. The sale of the said 8,500 shares is alleged to have been effected fraudulently by the respondent No. 2, in order to continue his control of the company's affairs. The sale was neither sanctioned nor ratified by the board of directors of the Metropolitan Industrial Corporation Ltd. It is next alleged that, along with the said 8,500 shares, the respondent No. 2 also caused a fraudulent transfer of 734 shares held by the Metropolitan Printing and Publishing House (Private) Ltd. This transfer was alleged to have been made to one Fakir Samaddar, who is an employee of the company, and whose real name is Sachin Chatterjee. A similar transfer was made with regard to 610 shares held by the Calcutta Friends Society Ltd. and this transfer was made in favour of one Sawalram Poddar, who is the son of the said Tarachand Poddar.

14. It is alleged that the said Nathuram Poddar and Tarachand Poddar, who are joint purchasers of the said lot of 8,500 shares, were cotton brokers of the company for more than 15 years and as such were very friendly with the respondent No. 2. It is alleged that, in the circumstances, the transfer of the shares of the company held by all the said three companies is void.

15. Two suits have been instituted in this court being Suits Nos. 1660 of 1963 and 1662 of 1963 by the Metropolitan Printing and Publishing House (Private) Ltd. and the Metropolitan Industrial Corporation Ltd. against the company, the respondent No. 2 and others. In these suits the transfer of the shares has been challenged on the ground that it was a fraudulent transaction, and, therefore, void. Cancellation and delivery of the transfer deeds, and rectification of the share register of the company have also been prayed for. Ad interim injunctions have been issued by this court in the said two suits restraining the defendants, their servants and agents from dealing with or disposing of the said shares. Ad interim orders have also been made, allowing the parties to exercise voting rights in respect of the said shares at the annual general meeting notified to be held on September 27, 1963, only for the purpose of having the meeting adjourned until disposal of the application.

16. After the managing agency came to an end in 1957, the respondent No. 2 was appointed the managing director of the company for a term of five years. In 1960, the respondent No. 2 was reappointed the managing director for a further term of five years. It is alleged that in the board of directors of the company, consisting of five directors, the respondent No. 2 commands a majority of four, with the result that he enjoys all the powers of management and control, and is conducting the affairs of the company as he pleases. It is further alleged that Nalinakshya Chowdhury, son of the applicant No. t, was the secretary of the company. On July 15, 1963, the respondent No. 2, without the approval of the board and without assigning any reason, purported to dismiss the secretary.

17. In the affidavit affirmed by the applicant No. I on June 3, 1964, in support of this application, various charges have been made regarding mismanagement, misappropriation, malpractice and fraudulent acts. I should mention the more important charges, in order to appreciate their nature and scope. It is alleged that the respondent No. 2 took out large sums through fictitious transactions with the Calcutta Friends Society Ltd. and fictitious entries regarding commission and brokerage alleged to have been paid to the Calcutta Friends Society Ltd. Orders have been placed at high rates relating to the company's requirements with the Metropolitan Printing and Publishing House Private Ltd. Violation of Section 314 of the Act has also been alleged.

18. It is next alleged that a sum of Rs. 2,00,000 had been taken out by the respondent No, 2 from the company on November 21, 1955, to help the Republic Engineering Co. Ltd. of which the respondent No. 2 is the principal shareholder. This amount, it is alleged, was taken out on suspense account and was adjusted on March 14, 1956, by a fictitious bill showing purchase of machineries from the Republic Engineering Co. Ltd, The respondent No. 2 is alleged to be maintaining a flat at No. 7, Chowringhee Road, for personal use. Seven servants and eight darwans are engaged at the residence of the respondent No. 2 and they are paid out of the company's funds. One Banamali Pathak, alleged to be a benamidar of the respondent No. 2, though unqualified, had been appointed cashier of the company. Ananth Bandhu Chowdhury, another benamidar of the respondent No. 2 had been appointed market research officer at a salary of Rs. 800 per month. It is next alleged that pay and bonus sheets, for factory workers, are made out in duplicate, and submitted to the company's head office. Funds are sent out to the factory according to the requisition by the head office, but the duplicates at the head office are altered to increase the amount required and by such tampering large sums are taken out from the company. The accounts for the year ended March 31, 1957, show that Rs. 32,59,289 have been debited to salaries, wages and bonus. But the actual expenditure on that account did not exceed Rs. 26,00,000. It is next alleged that the bonus of the operatives up to March 31, 1957, amounted to Rs. 169,836.07 n.P. and the bonus of the factory office did not exceed Rs. 60,000 leaving an extra amount of more than Rs, 4,00,000 which is alleged to have been misappropriated by the respondent No. 2, The labour welfare charges for 1962 were shown at Rs. 92,735, but the actual charges could not exceed Rs, 60,000. It is next alleged that the company's cars are used by the directors and the expenditure for maintenance has gone up from Rs. 27,300 in 1956, to Rs. 36,712 in 1962.

19. It is alleged further that the respondent No. 2 is purchasing cotton from the open market and the bills passed for the same show a higher price than the prevailing market rate. Cotton waste is being sold at much lower than the market rate without calling tender. There are allegations that criminal complaints have been lodged against the respondent No. 2 for breach of trust, defalcation and falsification of accounts and also that the Registrar of Companies has obtained an order for seizure of books and records of the company.

20. On the above allegations the grounds formulated for this application for interim relief are as follows :

(a) The respondents Nos. 2, 3, 4 and 5 in collusion and conspiracy with each other are trying to manipulate the shares so that the respondent No. 2 may retain his control over the company.

(b) The balance sheet for the year ending March, 1963, shows that the company is indebted to the State Bank of India in Rs. 23,81,908 and National Industrial Development Corporation Ltd. in Rs. 19,69,907. The respondent No. 2 is recklessly dissipating the assets of the company and mismanaging its affairs. No arrangements have been made for repayment of the loans.

(c) The applicant No. 1 has guaranteed the said loans. He is the owner of immovable property valued at over Rs. 50,00,000. The other directors collectively are not in a position to satisfy even a fraction of the liabilities of the company.

(d) The respondent No. 2 has sold a major part of his immovable properties and has also taken loans against his insurance policy from the Life Insurance Corporation of India.

(e) The only house belonging to the respondent No. 2 is No. 36/IA, Gariahat Road, but the same stands in the name of his wife.

(f) The respondent No. 4 had one house property, namely, 16, Congress Exhibition Road, which he has exchanged with a property in East Pakistan.

(g) If the applicant No. I withdraws his guarantee the entire amount due to the State Bank of India and the National Industrial Development Corporation Ltd. would become immediately payable.

(h) Unless a special officer is appointed, the applicant No. 1 would have no other alternative but to cancel and withdraw the guarantee.

(i) Apart from transferring the controlling block of shares of the company by fraudulent means, the respondent No. 2 is further endeavouring to create change in the shareholding.

(j) After receipt of notice of the main application, the respondent No. 2 is selling the company's products below market rate to make unlawful gain to the detriment of the company and is fabricating and manipulating the books and records of the company.

21. It is on the grounds mentioned above that the applicants now seek an order for the appointment of an administrator or a special officer and for other reliefs. Certain ad interim orders have already been made by this court, by which a receiver has been appointed of various books and records of the company, and directions have been given for furnishing certain accounts to the applicants. In this application the applicants seek various other reliefs, but though there are prayers for various reliefs, the learned counsel for the applicants has pressed this application for the appointment of a receiver or special officer of the properties, assets and books of accounts and documents of the company and also for an order that the special officer or receiver be given power to carry on the management of the company until further orders of this court.

22. Several points have been urged at great length, both in support of and in opposition to this application and I now proceed to deal with the same.

23. Mr. S. Chaudhuri, appearing for Nathuram Poddar and Tarachand Poddar, who were the purchasers of a block of 8,500 shares of the company, raised a preliminary objection to the maintainability of this application. He argued that the petition under Sections 397 and 398 is being supported by several shareholders, as is required by Section 399 of the Act, and the letters of consent signed by them are annexed to the petition. All these letters were signed by the consenting shareholders on various dates in September, 1963. But the petition in support of the application dealt with matters which happened six months after the consent letters were signed by the members. He referred to the allegations in paragraph 46, sub-paragraph (s), of the said petition, in which it has been alleged that some time in March, 1964, the Registrar of Companies took steps and obtained an order from the Presidency Magistrate for the seizure of books and records of the company. It was urged that there was internal evidence to prove that the supporting members did not have the petition before them, when they gave their letters of consent and indeed they could not possibly have the said petition before them, as the same could not have been ready in September, 1963.

24. Mr. Chaudhuri argued that Section 399(3) required that the application must be considered by the members who gave their consent, and unless such members had the petition before them, the consent given by them in the letters annexed to the petition is no consent at all, as the members had no means of considering the nature and scope of the charges sought to be made against the company. Mr. Chaudhuri next referred to rule 88 of the Companies (Court) Rules, 1959 (hereinafter referred to as the Rules), and contended that, under the Rules, the letters of consent by the supportingmembers authorising the petitioners to present the petition should be annexed to the petition. Therefore, Mr. Chaudhuri contended that before such letters of consent could be obtained and annexed, the petition in support of the application must be in existence and if the petition itself is not in existence, the letters of consent given by the supporting members are not valid and do not authorise the petitioners to present the application under Section 399(1). The right to apply, Mr. Chaudhuri argued, could be acquired only by compliance with Section 399(1) and rule 88. As the letters of consent were obtained long before the petition was prepared, the supporting members had no opportunity to consider either the nature of the charge made against the respondents or the scope of the relief asked for. That being so, the consent given by the supporting members is not a valid consent under Section 399, and the consent being invalid, the petitioners in the main application under Section 397 and Section 398 had no right to present the petition and that being so, no order could be made for interim relief in this application.

25. It was next argued by Mr. Chaudhuri that Form No. 44 in Appendix IV to the Act required a schedule to be appended to the petition as prescribed by the Form, setting out therein the particulars of the names and addresses of the shareholders, the number of shares held by each of them and whether calls and other sums due on the shares have been paid. There is no such schedule in the present petition under Section 397 and Section 398. The Form prescribed by the Rules, Mr. Chaudhuri contended, must be strictly complied with and if it was not, the petitioner had no right to present a petition or ask for any relief.

26. It was next contended by Mr. S. Chaudhuri that Section 399(3) contemplates that any one or more of the members, having obtained the consent in writing of the requisite number of members, may make the application on behalf of and for the benefit of all of them. He contended that there was no averment in the petition, that it was being made for and on behalf of the petitioners and also for and on behalf of and for the benefit of the other consenting members.

27. Mr. Subimal Roy, appearing for the company and the respondent No. 2, supported the contentions of Mr. S. Chaudhuri. He argued that under Section 399 and rule 88, the petition was required to be placed before the consenting shareholders. Such shareholders, Mr. Roy argued, must know the contents of the petition and also who the petitioners were. The internal evidence in the petition, namely, the said allegations in paragraph 46(3), leaves no room for doubt that the petition was not before the supporting members when they put their signatures to the letters of consent. This, Mr, Roy argued, is fraud on the supporting shareholders.

28. Mr. B. Sen, also appearing for the company, supported the argument of Mr. S. Chaudhuri.

29. Mr. S. Sen, learned counsel for the applicants, contended that this application was not the main application under Section 397 and Section 398 of the Act, but it was an application for ad interim reliefs. If the respondents wished to contend, Mr. S. Sen argued, that the application under Section 397 and Section 398 is not maintainable, because of the alleged infirmities and deficiency, such contention can be raised only at the hearing of the main application and not at this stage. According to Mr. Sen, even if the contention of the respondents is sound, an order dismissing the petition under Section 397 and Section 398 cannot be made in this application. This contention of Mr. Sen, in my view, is not sound because the contention of the respondents is not that the petition under Section 397 and Section 398 should be dismissed, but that, if that petition is not maintainable, no relief should be granted in this application. Ad interim relief, according to the respondents, can be granted only in aid of the relief that may ultimately be granted in the main application under Section 397 and Section 398, but if this application is not maintainable, no ad interim relief can be granted to the applicants. In my view if the court is satisfied that no relief can be granted in the petition under Section 397 and Section 398, either because the petition is not maintainable or because of non-compliance with the requirement of the Act and the Rules, this court should decline to make any order for ad interim relief to the applicants. The principle is well founded that if relief cannot be granted in a suit because the court has no jurisdiction to entertain or give any relief in the same, no ad interim relief should be granted in an interlocutory application in the suit. If it is manifestly clear that the petition under Section 397 and Section 398 cannot be maintained because of patent defects arising from non-compliance with the statute or the Rules or because the court has no jurisdiction to entertain the petition, an order for ad interim relief should be refused.

30. Mr. S. Sen next argued that, under Section 399(3), the consent in writing of the supporting members has to be obtained before the application is moved, and the sub-section did not require that such consent should be obtained after the petition has been prepared. He referred to Rule 88, and submitted that, under the terms thereof, the consent letters are to be annexed to the petition and this could be done only after the petition was got ready and not before. A petition, according to Mr. S. Sen, is a petition with the consent letters annexed thereto and not without such annexure. Rule 88, he argued, required that the consent letters should be annexed to the petition and therefore at the time when such letters are to be annexed, the letters must be in existence and, therefore, such letters must be signed by the supporting shareholders before the petition was prepared.

31. Mr. S. Sen next contended that the argument advanced on behalf of the respondents that no relief could be granted because of infirmities in the main petition could not be sustained. Such objections, according to him, could not be raised by way of objection to this application for interim relief, but should properly be raised in a separate application either for dismissal of the petition or for setting aside the order admitting the petition. The question of maintainability of the application, he argued, could not be raised by way of objection to this application for interim relief. A challenge to the authority of the petitioners, he contended, could only be made by an application for dismissal of the petition on the ground that it was an abuse of the process of this court. In support of this contention, Mr. S. Sen referred to a decision of this court in Shree Tej Protap Textile Mills v. Granaries Ltd., [1961] 31 Comp. Cas. 610. In this suit the plaintiff claimed a decree for Rs. 1,50,000 advanced by way of deposit. A provisional liquidator was appointed for the plaintiff company, and it was alleged that such provisional liquidator refused to institute a suit which was filed in the name of the company. The defence was that, as a provisional liquidator was appointed, the powers of the directors of the company were suspended, and it was no longer open to them to institute a suit in the name of the company. It was held by G. K. Mitter J. that the suit was maintainable and the defendants should have moved an application to strike out the name of the company from the records of the suit, if they wished to have the suit dismissed on the ground that it was not maintainable. Mr. Sen also relied upon the decision in Russian Commercial and Industrial Bank v. Comptoir d'Escompte de Mulhouse, [1925] A.C. 112., in which it was held that it was not open to the defendants to raise by way of defence to the action, the objection that the manager of the London branch of the plaintiff bank had no authority to bring the action in the name of the plaintiff, but that such a step could be taken by an application to strike out the name of the bank as the plaintiff. Mr. Sen referred to another decision of this court in Murarka Paint and Varnish Works Ltd. v. Mohanlal Murarka, [1961] 31 Comp. Cas. 301., in which it was held that if a person without authority brought an action in the name of another, it was an abuse of the process of court, and the court should stop it. But it was not open to the defendants to raise this question by way of defence to the action and the authority to commence the action in the name of the plaintiff company could be challenged by a separate application.

32. In my opinion the decision in the last-mentioned case does not support Mr. Sen's contention because in that case the action was commenced, without authority, in the name of the company. But the other two decisions mentioned above, Shree Tej Protap Textile Mills v. Granaries Ltd. andRussian Commercial and Industrial Bank v. Comptoir d'Escompte de Mulhouse, [1925] A.C. 112., support Mr. Sen's contentions, that the authority to maintain an action can be challenged, not by way of defence to the action itself, but only by a separate and independent motion.

33. As to the meaning and import of consent by members of a company, a reference should be made to the decision of the Allahabad High Court in Makhanlal Jain v. Amrit Vanaspati Co. Ltd., [1953] 23 Comp. Cas. 100., which was relied upon by Mr. B. Sen in support of his argument that consent in writing meant consent given by the members after the petition was made ready. In that case while dealing with the meaning of the phrase 'consent in writing' as required by section I53C and Section 153D of the Indian Companies Act, 1913, it was held that 'consent in writing' implied that the persons who gave the consent had applied their minds to the question before them, and had given their consent to certain action being taken. Mr. S. Sen, however, relying upon this decision, argued that consent in writing was not consent to the petition, but a consent to certain action being taken, namely, an application under Section 397 and Section 398 of the Act. It was not necessary, Mr. S. Sen submitted-, that the petition should be before the members who were giving their consent. It was enough if the consenting members had considered the question of a petition being moved under Section 397 and Section 398. In my opinion, Mr. S. Sen's contention, that Section 399 does not require that the consenting members should have the petition before them before they give their consent, is sound. There is nothing in Section 399 or in Rule 88 to indicate that the members giving their consent should have the petition before them, and, for that purpose, the petition should be prepared well in advance of the consent in writing given by the members.

34. It is true that Forms Nos. 43 and 44 in Appendix IV of the Act, which are Forms prescribed for petitions under Section 397 and Section 398 of the Act, required a schedule to be appended to the petition. It is also true that the applicants have not given the particulars in a schedule to the petition as required. But it is also equally true that all the particulars, which are intended to be furnished in the shape of a schedule to the petition, are to be found in the consent letters which are annexed to the petition. These letters furnished all the particulars which are to be furnished in the shape of a schedule to the petition. In my view, there has been substantial compliance with the Forms prescribed in Appendix IV of the Act. If the schedule was set out under the petition as required by the Forms, no one would have been any the wiser by the particulars required to be set out in the schedule. In this connection a reference should be made to a decision of the Supreme Court relied upon by Mr. Sen in Pratap Singh v. Shri Krishna Gupta, : [1955]2SCR1029 . In this case the Supreme Court was considering the validity of an election to the presidentship of a municipal committee. It was held that the tendency to technicality by the courts is to be deprecated and that it was the substance that counts and must take precedence over form. Some rules are vital and goto the very root of the matter and cannot be broken, others are merely directory and breach of them can be overlooked, provided there was substantial compliance with the rules read as a whole and no prejudice was caused. In the instant case now before me, the petitioners have furnished all the information that is required to be furnished in the schedule by annexing the consent letters to the petition, and that, in my view, is substantial compliance with the requirement of the Forms prescribed in Appendix IV of the Act.

35. Regarding the maintainability of the preliminary objections at this stage, when this court is considering an application for interim relief, I am of opinion that the objections, such as they are, cannot be raised in this application for interim relief. The objections are not such as to make it clear either that the petitioners have no right to apply for non-compliance with the Act and the Rules or that this court has no jurisdiction to entertain the main application under Section 397 and Section 398. The petition under Section 397 and Section 398 has been admitted by this court, and various ad interim orders have been made on that petition. The order admitting the petition is a valid and binding order, and has not been set aside, recalled, varied or modified, either in this or in any other proceedings. That being so, in my view, the respondents cannot raise by way of objection to this application for interim relief, questions of maintainability of the application. I do not wish to say that the respondents cannot raise such objections at all. Indeed it is open to them, if law gives them the right, to apply to have the petition taken off the file, if they are so advised to do. Nor do I wish to say that in no case can the respondent oppose an application for interim relief on the ground that the applicant has no right or that the court has no jurisdiction. Indeed if there is a patent defect of that nature, namely, that on the petition as it is, the petitioners have no right to apply, or that the. court has no jurisdiction to entertain the petition, it is the duty of the court to decline to make any interim order. But in my view there is no such patent defect in the petition under Section 397 and Section 398. In an appropriate case it would be open to the respondents, in a petition under Section 397 and Section 398, to apply to the court for recalling or setting aside the order admitting the petition. But once the petition is admitted, the question of maintainability of the petition cannot be raised by way of defence to an application for ad interim relief. For the reasons mentioned above, the preliminary objections raised on behalf of the respondents cannot be upheld.

36. Before passing to the next point I should notice another argument advanced by Mr. Sen on the question of consent in writing. Mr. Sen argued that, under Section 92 of the Code of Civil Procedure, the Advocate-General is required to give his consent in writing to a suit brought in respect of a public charity. He referred to several decisions on this question, and argued that the courts have construed the consent in writing as required by Section 92 of the Code in a liberal manner, and, therefore, in this case also the consent in writing under Section 399 of the Companies Act should not be construed very rigidly. In my opinion, the consent in writing, required by Section 92 of the Code, is entirely different from the consent in writing required under Section 399 of the Companies Act, 1956, and no analogy can be drawn between the two. In the case of a consent in writing under Section 92 of the Code, the Advocate-General is primarily concerned with the question of public interest in a trust of a charitable or religious nature. But in the case of the consent in writing under Section 399 of the Companies Act, 1956, the members are concerned purely with their private interest in the affairs of the company. Therefore, in my view, the consent in writing given by the Advocate-General required under Section 92 of the Code cannot be compared with the consent in writing required under Section 399 of the Companies Act. Since I have already held, however, that there has been sufficient compliance with Section 399 and Rule 88, and that the application does not suffer from any defect for non-compliance either with the Act or Rules or the Forms prescribed in the appendix, it is not necessary for me to linger any further on this subject.

37. The next point urged on behalf of the respondents are regarding verification of the pleadings and of particulars as furnished of charges of misappropriation, misapplication of funds and other improper conduct alleged by the applicants. Mr. S. Chaudhuri urged that the material paragraphs in the affidavit, affirmed by Satish Chandra Chowdhury on June 3, 1964, being the grounds of this application, are based on information received upon enquiries and investigations made by others and were not true to the knowledge of the deponent. In paragraph 36 of the affidavit it has been alleged that the respondent No. 2, in collusion and conspiracy with his benamidars and henchmen, fraudulently caused an alleged sale and transfer of 8,500 equity shares of the company. Having made this allegation of fraud and collusion, the deponent has set out certain particulars which have been described as particulars of fraud. These particulars are set out in sub-paragraphs (a) to (m) of paragraph 36 of the said affidavit. On a perusal of these particulars, it appears, however, that they are not particulars of any fraud at all or at any rate of the fraud alleged in paragraph 36 of the said affidavit. The other material paragraph in which the applicant has set out particulars of malpractice, mismanagement, misappropriation and fraudulent acts is paragraph 46 of the affidavit. Mr. Chaudhuri contended that sub-paragraphs (a) to (q) of paragraph 46 have been verified as based on enquiries and investigation made by or on behalf of the petitioner and information received therefrom and believed to be true.

38. Mr, S. Chaudhuri argued that where a party is charged with fraud, full particulars of fraud alleged must be furnished, and if such particulars were not furnished, the court would not proceed to investigate them. In support of this proposition, Mr. Chaudhuri relied on a decision of this court in In re Clive Mills Ltd, [1964] 34Comp. Cas. 731.., in which it was held that if particulars of the charge of fraud are not furnished in the petition or affidavit, the court should disregard them altogether. It is now well settled that a general allegation of fraud, however strong the words used, is insufficient even to amount to an averment of fraud of which any court ought to take notice. As I have said earlier, the allegations made in the sub-paragraphs under paragraph 36 of the affidavit are not particulars of the fraud charged, namely, a fraudulent transfer of 8,500 equity shares by the respondent No. 2 to his benamidars and henchmen. That is the fraud charged and the deponent is required to furnish particulars of this fraud and of no other.

39. Mr. S. Sen, however, contended that in so far as applications under Section 397 and Section 398 are applications by the minority, the applicants can but give a limited class of particulars. Members of a company, he urged, were not entitled to all the particulars that they might require for the purpose of an application under Section 397 and Section 398. Such a minority is not in control of the company's affairs, nor can it get all the particulars it would require, on demand. It would, therefore, be impossible for such a minority, who is being oppressed by the majority, to furnish all details of particulars of charges. Further, Mr. Sen argued, that it could not be the intention of the legislature that the minority group of members, who come to court with charges of mismanagement, oppression and fraud, should give all details of such conduct in the petition or affidavit in support of the application. If that was what was required, he argued, every application by a minority group would be liable to be defeated, because no minority could have access to all the books and records of the company which alone contain the evidence of misconduct, misapplication, misappropriation and oppression.

40. While it is true that a minority group of members cannot possibly furnish every single detail that they might wish to furnish, and which would constitute sufficient evidence of misconduct and misappropriation or fraud, it is equally true that where charges of fraud, misappropriation, misapplication and misconduct are made, sufficient particulars must be givenin order to enable the party charged, to know what he is charged with, and what he is required to answer. If that were not so, and if the court were called upon to investigate vague and uncertain charges of fraud or other misconduct, that, in my view, would be a complete departure from the law, which is now well established. If an applicant before the court wants the court to rely upon charges of fraud and other misconduct and investigate them, he must give particulars. Mere vague allegations of fraud and other misconduct would not be enough, and the court should decline to embark upon an enquiry into such charges of fraud and misconduct. If a minority group of shareholders has not in its possession all the particulars of fraud or other misconduct, it should not expect the court to make any order in its favour after making a rambling enquiry into vague and indefinite charges of fraud made in the petition.

41. It may be that in some cases the petitioner has not in his possession all the particulars of fraud, but in such a case he would be entitled to discovery, in order to obtain materials for giving the particulars. But, nevertheless, the particulars must be given. If the applicant, in the instant case, did not have the particulars, he could have, and he should have, applied for particulars, if he wanted to rely on the charge of fraud. But merely because the minority group of shareholders generally has not got in its possession all the particulars of fraud or other misconduct, it is not excused or exonerated from giving particulars of fraud or other alleged acts of misappropriation or other misconduct.

42. Mr. Salil Roy Chowdhury, supporting Mr. S. Sen, contended that the applicant, if he was in a minority, could not be expected to furnish all the particulars. In support of this contention, he relied upon Kerr on Fraud and Mistake, 7th edition, page 644, for the proposition that where a party is unable to plead fraud except in general terms, he may be entitled to discovery before giving particulars so as to enable him to plead in detail. But in this case no application for discovery was made, and, as I said earlier, a party is not excused or exonerated from giving particulars merely because he does not possess them. Mr. Roy Chowdhury also relied upon the decision in Satish Chandra Chatterji v. Kumar Satish Kaniha Roy, A.I.R. 1923 P.C. 73. in which the Judicial Committee held that charges of fraud and collusion must be proved by those who make them. But, ' that by no means requires that every puzzling artifice and contrivance resorted to by one accused of fraud must necessarily be completely unravelled and cleared up and made plain before a verdict can be properly found against him. If these were not so, many a clever and dexterous knave would escape.' These observations of the Judicial Committee however do not dispense with the necessity of particulars being furnished by a party. Mr. Roy Chowdhury next referred to the decision in Bhikaji Keshao Joshi v. Brijlal Nandalal Biyani, : [1955]2SCR428 . In this case the Supreme Court was considering the question of particulars in an election petition. It was held that the Tribunal, while dealing with the question of particulars, should not have dismissed the application and should have exercised its powers and called for better particulars and on non-compliance therewith, it should have struck out such of the charges which were vague. This case, to my mind, is against Mr. Roy Chowdhury's contention as the Supreme Court held that vague charges in a petition ought to be struck out.

43. Mr. Roy Chowdhury also relied upon the decision in Lady Dinbai Dinshaw Petit v. Dominion of India, I.L.R. [1955] Bom. 72. in which it was held that, when allegations of fraud are made, the party alleging fraud is in possession of the particulars of the fraud practised upon him. In such a case fraud is an objective fact known to the party complaining of it. But when a party is complaining of a state of mind of the other party, it is impossible to expect that a party would give particulars of something which is subjective, and the law has taken notice of this defect by providing in Order 6, rule iOj of the Code of Civil Procedure, that whenever it was material to allege malice, fraudulent intention, knowledge or other condition of the mind of any person, it shall be sufficient to allege the same as a fact without setting out the circumstances from which the same is to be inferred. I do not see how this case helps Mr. Roy Chowdhury because in the instant case now before me the charge is not of a fraudulent intention or a fraudulent state of mind on the part of the respondent No. 2 but the charge is one of fraud alleged to have been actually committed.

44. The next case referred to by Mr. Roy Chowdhury is Bharat DharmaSyndicate Ltd. v. Harish Chandra, (1937) L.R. 64 I.A. 143.in which it was held that litigants whoprefer charges of fraud or other improper conduct should be compelled toplace on record precise and specific details of those charges, even if noobjection is taken on behalf of the parties who are interested indisproving the accusation. This case is entirely against the contention ofMr. Roy Chowdhury and supports the contention raised on behalf ofthe respondents. '

45. In my opinion, no particulars of the fraud alleged in paragraph 36 of the affidavit have been furnished by the applicant. The allegations in the sub-paragraphs thereunder are not particulars of the fraud charged. These allegations are statements regarding certain facts which do not, in my opinion, constitute particulars of the fraud charged. In that view of the matter, the court should not investigate the charges of fraud made in paragraph 36 of the affidavit.I shall now deal with the allegations of fraudulent acts and other misconduct in paragraph 46 of the affidavit along with the other objections raised on behalf of the respondent, namely, that there is no proper verification of the affidavit.

46. In sub-paragraphs (a) to (v) of paragraph 46 of the affidavit, various particulars of misappropriation, misapplication of funds and mismanagement have been furnished. But the allegations in sub-paragraphs (a) to (q) have been verified, as based on enquiries and investigations made by and/ or on behalf of the petitioners, and information received therefrom and believed to be true and the allegations in sub-paragraphs (r), (s), (t), (u) and (v) have been verified as true to the knowledge of the deponent. I should at once point out that all the material particulars of misappropriation and mismanagement are contained in the said sub-paragraphs (a) to (q) and the allegations in the sub-paragraphs (r) to (v) contain no particulars of mismanagement or misappropriation, but are certain allegations of a general nature which cannot be treated as and in fact are not particulars of the charges of fraudulent acts, mismanagement or misappropriation.

47. Mr. S. Sen contended that verification of pleadings has to be done according to the provisions in the Code of Civil Procedure. He argued that under Order 6, Rule 15, of the Code, the verification of the pleading should be done at the foot by the party, or by one of the parties, and the person verifying shall specify, by reference to the paragraphs, what is verified of his own knowledge and what is verified upon information received and believed to be true. Mr. Sen contended that verification of the affidavit has been done according to this rule, and therefore no objection can be raised to such verification. I cannot accept this contention of Mr. Sen. In the first place, Order 6 of the Code of Civil Procedure applies to verification of pleadings, and pleading has been defined in Order 6, Rule 1, to mean plaint or written statement. Quite clearly, Order 6, Rule 15 is confined to verification of plaint and written statement and nothing else. So far as affidavits are concerned, the matters to which they should be confined have been specified in Order 19, rule 3, of the Code. Under this rule affidavits are required to be confined to such facts as the deponent is able of his own knowledge to prove, except on interlocutory applications in which statements of his belief may be admitted, provided the grounds are stated. It cannot, therefore, be said that an affidavit in support of an application should be verified according to Order 6, Rule 15 and that such verification is enough.

48. In the second place, statements in plaints and written statements are not evidence, and are not to be treated as such, until facts stated therein are either admitted or proved by evidence, oral or documentary. On the other hand, statements in affidavit and petitions are to be treated as evidence, and indeed they are so treated, unless the court directs the matter to be tried on evidence. This fundamental difference between the statements in plaint and written statement and those in petitions and affidavits cannot and should not be overlooked. It is because statements in affidavits are required to be treated as evidence that the Code of Civil Procedure requires such statements to be confined only to facts, which the deponent of his own knowledge is in a position to prove. In the application now before me, I am required to act on the statements made in the affidavits, and if those statements are not true to the knowledge of the deponent, the facts contained in the statement are no better than mere hearsay evidence and the court should place no reliance on such statements. The material allegations in the sub-paragraphs under paragraph 46 of the affidavit have been verified as based on enquiries and investigations made by others. They are not, true to the knowledge of the deponent. These others who conducted enquiries and investigations have not come forward to put their statements on affidavits and their names have not even been disclosed. The deponent's statements, therefore, made upon information furnished by these others, whose names have not been disclosed, cannot be relied upon by this court in this application which is to be heard and disposed of on the statements made in the affidavits.

49. Mr. B. Sen referred to a decision of this court in Bisakha Rani Ghose v. Satish Chandra Roy Sinha, : AIR1956Cal496 . in which it was held that affidavits must be affirmed as true to the knowledge or from the information received, provided the source of information is disclosed, or as to what the deponent believed to be true provided the grounds for such belief were stated. Mr. B. Sen also referred to another decision in Bhikaji Keshao Joshi v. Brijlal Nandalal Biyani, : [1955]2SCR428 ,. In this case the Supreme Court pointed out the distinction between a verified pleading and affidavit as follows: ' It is to be noticed that a verified pleading is different from an affidavit, which, by virtue of Order 19, Rule 3, is specifically required to be confined to such facts as the deponent is able of his own knowledge to prove (except on interlocutory applications, on which statements of his belief may be admitted, provided that the grounds thereof are stated).'

50. Mr. Subirnal Roy laid a good deal of emphasis, and I think rightly, on the fact that the deponent had not even disclosed the names of the persons who made enquiries and investigations. He argued that the allegations in sub-paragraphs (a) to (q) of paragraph 46 are of a vital nature so far as this application is concerned. Without proof of those allegations, he contended, an order asked for could not be made. Since those allegations have not been verified as true to the knowledge of the deponent, and the names of persons from whom information was received had not been disclosed,Mr. Roy argued, no reliance should be placed by the court on the allegations made therein. I have already expressed my views on this question and it is not necessary for me to deal with this matter again beyond saying that the allegations in sub-paragraphs (a) to (q) are of such a nature that without them, or in the absence of proof by sufficient evidence, an order under Section 398 cannot be made on the ground of mismanagement, misappropriation, misconduct or acts prejudicial to the interest of the company. That being so, this court cannot in this application make any order relying upon the allegations made in those sub-paragraphs.

51. Mr. Roy next referred to a decision of the Supreme Court in Slate of Bombay v. Purushottam Jog Naik, : 1952CriLJ1269 . In that case the Supreme Court held that verification of an affidavit should be invariably on the lines prescribed by Order 19, Rule 3, of the Code, whether the Code applies in terms or not. It was further held that when the matter deposed to is not based on personal knowledge the source of information should be clearly disclosed. The Supreme Court approved the decision of this court in Padmabati Dasi v. Rasiklal Dhar, (1910) I.L.R. 37 Cal. 259. . Mr. Roy further argued by referring to Rule 18 of the Companies Court Rules that an affidavit must be sworn in the manner prescribed by the Code, Therefore, Mr. Roy argued, that apart from rule 6, which provides that the Code applies, Rule 18 was a clear direction that an affidavit must be made in compliance with the requirement of the Code.

52. Reliance was placed on a decision of this court in In re Clive Mills Co. Ltd., [1964] 34 Comp. Cas. 731. by the learned counsel for all the respondents in support of the proposition that an affidavit in a proceeding under Section 397 and Section 398 must be in terms of Order 19, Rule 3, of the Code. In that case I had, the occasion to go into this question and had held as follows : ' An application under Section 397 and Section 398 of the Act is not an interlocutory application. The matter is finally disposed of by the order made on the application itself. Nothing remains outstanding, unless orders are made keeping certain matters outstanding. The application is disposed of on the basis of the averments in the pleadings, unless the matter is directed to be tried on evidence. The pleadings in the matter including the petition and the affidavits are to be treated as evidence, and that being so, the rules of evidence must be strictly adhered to. The averments in the petition and in the affidavits, which are verified as based on information, are, by their very nature, hearsay evidence and if such averments are the foundation of the case made out by the petitioner or the foundation of the defence made out by the respondents, the court should not rely or act upon the same. To do otherwise, would be to ignore the fundamental principles of the rules of evidence. If the avernments in the pleadings are such that, but for them, an order cannot be made, persons who have personal knowledge of the facts stated must come forward and put what they have to say on affidavits. If other persons, having no personal knowledge of the facts are set up to verify facts stated in petitions or affidavits, as being based on information supplied and believed to be true, the averments so verified cannot be relied on by the court. I must make it clear, however, that my views in this matter are confined to proceedings under Section 397 and Section 398 of the Companies Act, 1956, in which orders are asked for on the basis of charges laid in the petition and affidavits. These views should not be taken to apply to other proceedings under the Companies Act, 1956, or to interlocutory matters in other proceedings. In the petition and affidavits filed in proceedings under Sections 397 and 398 of the Act, the provisions of Order 19, Rule 3, Sub-rule (i), must be strictly complied with, when serious charges of fraud, collusion, mismanagement, misappropriation and misapplication of funds, violations of the provisions of the Companies Act or other similar charges are made or denied.'

53. The law on the question of verification being what it is, as discussed above, in my view, the allegations in sub-paragraphs (a) to (q) of paragraph 46 of the affidavit affirmed by the applicant on June 3, 1964, cannot be relied upon. For the purpose of this application those allegations must be ignored. The allegations in the said sub-paragraphs have been made for the purposes of an interim order in a petition under Section 398 of the Act. That being so, I must hold that there is no evidence, or at any rate not sufficient evidence, for this court to exercise its powers under Section 398 of the Act. I shall revert to the question of an order under Section 397 later in this judgment.

54. It is true that I am now dealing with an interlocutory application. But the main grounds in this application are identical with the grounds in the petition under Section 397 and Section 398, and the main relief prayed for in this application is the same as one of the main reliefs prayed for in the said petition, namely, appointment of a special officer by superseding the board of directors. To hold in this application that the applicants are entitled to that relief in this application, on the verification of the affidavit in support of this application being what it is, would have the effect of holding that the applicants as petitioners in the petition under Section 397 and Section 398 would be entitiled to the same relief on the identical allegations in the petition, verified in the identical manner. This judgment, in my view, should not produce any such effect. Even though this is an interlocutory application, Order 19, Rule 3, of the Code, should have been strictly complied with. Regarding the allegations in the affidavit, which are not true to the deponent's knowledge, but which have been verified by him as believed to be true, the grounds of the belief should have been stated --the names of the persons, who are alleged to have made the enquiry and investigation on behalf of the deponent should have been disclosed. That not having been done, the allegations so verified cannot be relied on.

55. I shall now proceed to deal with the merits of the present application for appointment of a receiver or special officer to take charge of the properties, assets, books and documents of the company and also to carry on the management of the company until further orders. Although there is no mention in the summons of any order for supersession of the board, a prayer for supersession however is implied, because the receiver or special officer can be directed to carry on the company's business only upon an order superseding the board of directors of the company.

56. Mr. Sen contended that in the facts of the case as stated in the affidavit of this client, Satish Chandra Chowdhury, affirmed on June 3, 1964, an order superseding the board of directors of the company and appointing a special officer or receiver is the only appropriate order that should be made. He contended that since 1962, disputes arose between the respondent No. 2 and his brothers regarding partition and division of the joint properties left by their father. It is alleged in the said affidavit that 300 rights shares of Metropolitan Insurance Company Limited were manipulated by the respondent No. 2 in such a way as to deprive the brothers of the respondent No. 2 and also the applicant No. I from getting a proportionate portion of the said rights shares. In the said affidavit of the applicant No. I, there are also allegations of fraudulent and fictitious allotment of shares of Metropolitan Insurance Company Limited, an attempt by the son of the respondent No. 2 to issue rights shares of Metropolitan Printing and Publishing House (Private) Limited and also an attempt to wrongfully allot rights shares of Metropolitan Insurance Company Limited which were frustrated by the efforts of the applicant No. I and the brothers of the respondent No. 2. There are also charges of misappropriation of the compensation money received by the Metropolitan Industrial Corporation Limited for acquisition of the life business of the insurance company by the Life Insurance Corporation of India.

57. The principal and immediate cause of the application under Section 397 and Section 398 and also of this application for interim relief is the sale of the said shares of the company, which were held by the Metropolitan Industrial Corporation Ltd., the Metropolitan Printing and Publishing House (Private) Ltd. and the Calcutta Friends Society (Private) Ltd. The first of these companies held 8,500 half paid up shares of the face value of Rs. 40, the second company held 734 fully paid up ordinary shares of Rs. 40 and the third company held 610 fully paid up ordinary shares of the company. It is alleged that the block of shares held by Metropolitan Insurance Company Ltd. (later on the name of which was changed to Metropolitan Industrial Corporation Ltd.) and Metropolitan Printing and Publishing House (Private) Ltd. is the controlling block. The respondent No. 2, it is alleged, with a view to perpetuate his control of the affairs of the company, caused a fraudulent transfer of the block of shares held by the said three companies. These sales, it is alleged, are fraudulent transfer of the shares of the company to the nominees of the respondent No. 2, and have been purported to be effected in spite of the protest of the applicant No. I. The 8,500 shares held by Metropolitan Industrial Corporation Ltd. have been sold to Nathuram Poddar and Tarachand Poddar who, it is alleged, are the nominees and benamidars of the respondent No. 2. The 734 shares held by the Metropolitan Printing and Publishing House (Private) Ltd. were sold to one Fakir Samaddar, who was an employee of the company, but whose real name is Sachin Chatterjee. The 610 shares held by Calcutta Friends Society Ltd. were sold to Sawalram Poddar who is the son of Tarachand Poddar. All these sales, it is alleged, are fraudulent transactions. They were sold without the sanction of the board of directors of the respective companies and the only motive of the fraudulent sale of the shares, it is alleged, is to enable the respondent No. 2 to control the affairs of the company to the exclusion of the applicant No. 1 and his supporters. The said transfers of the shares, it is contended, are vitiated by fraud and are of no effect.

58. It is further alleged that in September, 1963, Metropolitan Industrial Corporation Ltd. had instituted a suit in this court being Suit No. 1662 of 1963 and at about the same time the Metropolitan Printing and Publishing House (Private) Ltd. had also instituted a suit in this court being Suit No. 1660 of 1963. In both these suits the sale of the shares held by the said two companies respectively has been challenged on the ground that they are fraudulent transactions and are void. The plaintiffs in the said two suits have claimed cancellation and delivery of the transfer deeds and rectification of the share register of the company.

59. Certain interim orders have been made in the said two suits which are of considerable importance for the purpose of this application. On September 13, 1963, an ad interim injunction has been issued in both the suits restraining the defendants, their servants and agents from dealing with or disposing of or encumbering the said shares. On September 16, 1963, further interim orders were made in both the suits, whereby it was provided that the parties would be entitled to exercise voting rights at the general meeting notified to be held on September 27, 1963, and the said meeting was to be held only for the purpose of being adjourned until disposal of the application. The company was also restrained by an injunction from holding any meeting till disposal of this application except the meeting to be held on September 27, 1963, which also was to be held only for the purpose of being adjourned.

60. The institution of the said two suits and the said ad interim orders made therein have a decisive bearing on this application. The sale of the shares of the respondent company held by the said three companies is the main ground of this application. It has been argued that by reason of the said sales the applicants are entitled to relief under the terms of Section 398 of the Act. So far as the sale of the shares is concerned, the allegations in the plaints in the said two suits are identical with the allegations in the petition under Sections 397 and 398 and also in the affidavit in support of this application.

61. The other grounds for supersession of the board and appointment of a special officer have been set out in the sub-paragraphs under paragraph 43 of the affidavit, to which I have already referred in connection with the question of furnishing particulars of allegations of fraud and also verification of the pleadings.

62. The immediate cause of the rupture between the parties followed by the petition under Section 397 and Section 398 and thereafter by this application, is the sale of shares by the said three companies. The applicant No. I and his supporters realised that, by reason of the sale of shares, the respondent No. 2 had acquired such voting strength as to enable him to control the affairs of the company, so long at any rate the purchasers of the shares remained under the control of the respondent No. 2.

63. Mr. S. Sen contended that in the events that have happened, so far as this court is concerned, an order should be made superseding the board of directors and appointing a special officer in its place. He argued that the conduct of the respondent No. 2 quite clearly disclosed a lack of commercial probity as enunciated in Lock v. Blackwood, [1924] A.C. 783. Since the lack of probity on the part of the respondent No. 2, Mr. Sen contended, was quite manifest, grounds for a winding up order did exist, as required by Section 397 of the Act. Further, Mr, Sen argued that grounds for intervention under Section 398(1)(b) also existed because a material change had taken place in the management or control of the company by reason of change of ownership in the company's shares. The court had ample power under Section 403 of the Act to make any interim order which it thinks fit for regulating the company's affairs and Mr. Sen submitted that the only manner in which the interest of the applicants could be protected was by an order superseding the board of directors and appointing a special officer to carry on the business of the company.

64. A change has taken place, Mr. Sen argued, in the control of the company's affairs by reason of the sale of the controlling block of shares. The total voting strength as set out in paragraph 33(b) of the affidavit of the applicant No. 1 is 25,298. The position regarding holding of shares hasbeen set out in paragraphs 33(A), (B) and (C). The balance-sheet for the year 1962, Mr. Sen argued, made it clear that 28 per cent. of the total voting strength was defunct. Of the remaining 72 per cent. of the votes, 44 per cent. was controlled by applicant No. 1 and the respondent No. 2 and out of this controlling block, 9,844 shares carrying 5,594 votes were transferred by the respondent No. 2 to his nominees and benamidars. This, Mr. Sen argued, was a fraudulent transfer solely intended to deprive the applicant No. 1 of his control.

65. It was next urged by Mr. S. Sen that the pretended justification for the sale of the shares was the requirement of Section 372 of the Act. But Mr. Sen argued that there was no evidence that the board of directors of the said three companies ever considered the question of compliance with Section 372 or of sale of shares held by them. If the investment was in excess of the limit prescribed by Section 372, Section 373 provided for the method of regularising the matter by sale of the excess holding within two years from the commencement of the Act. But, Mr. Sen argued, that was not done. The period of two years having expired as early as April, 1958, there was no justification for a pretended compliance with Section 372 by sale of the shares in January, 1963. The price paid for the shares by the purchasers was much in excess of the market price of the shares, which was Rs. 28 for each fully paid up share. But, Mr. Sen contended, the 8,500 shares were paid up only to the extent of Rs. 20 per share and these were sold for Rs. 14 for each share, and, therefore, the purchaser had purchased the shares for Rs. 34 each, which was Rs. 6 per share in excess of the market price. This higher price was paid, according to Mr. Sen, because the purchasers acquired the controlling block of shares. Mr. Sen next contended, by referring to the said two pending suits relating to the sale of shares, that this court had come to the conclusion that the sale was unlawful, and therefore issued ad interim injunctions restraining disposal of the shares, and also exercise of voting rights attached to the shares at the general meeting, notice of which was issued.

66. It was next argued by Mr. Sen that the orders for injunction made by this court in the said two suits showed that the machinery of the company had broken down, and it was because of such a break-down that injunction restraining holding of the general meeting of the company was issued. It was contended that prima facie this court had come to the conclusion that the sale of the shares was bad, and should not be given effect to. That being so, Mr. Sen contended that this court should take notice of the orders made by this court in the said two suits and grant appropriate relief to the applicants. A notice was issued for the general meeting of the company to be held on September 27, 1963, and this meeting was directed to be held only to be adjourned. Mr. Sen argued that the fact that the general meeting had been restrained, provided ample justification for superseding the board and appointing a special officer to carry on the company's affairs.

67. The learned standing counsel who also appeared for the applicants contended that investigations have been started by the police with regard to the various charges of fraud. He submitted that criminal complaints have been filed against the respondent No. 2, as mentioned in paragraph 46(r) of the affidavit in support of this application. He also referred to certain orders made by this court on July 7, 1964, on an application by the Registrar of Companies, allowing the police to continue the criminal proceedings. He further contended that there was prima facie ground for investigation of an offence of a criminal nature. Books of the company had been seized and leave had been granted to the police to carry on investigation. This, he submitted, was enough ground to appoint a receiver, and supersede the board of directors.

68. I must at once point out, however, that the mere fact that a criminal complaint had been lodged is no proof that the persons accused are guilty of an offence. Secondly, this court has no concern with the investigation that is being conducted by the police with regard to certain criminal complaints, even though an order has been made permitting investigation to be carried on. Thirdly, even assuming that there was conviction on a criminal complaint, that by itself would be no ground whatsoever for making any order under Section 397 and Section 398. The grounds on which the court can interfere by an order either under Section 397 or under Section 398 are well defined. The principles on which the court interferes with the internal management of a company's affairs are by no means uncertain. If this court is satisfied that grounds exist for interference and that the conditions laid down in Sections 397 and 398 have been satisfied, appropriate orders would undoubtedly be made. But the pendency of criminal proceeding, or of investigation by the police into offences of a criminal nature, and even conviction for a criminal offence, should not induce this court to make an order under Section 397 and Section 398 of the Act. To hold otherwise and to make an order tinder Section 397 or Section 398 on the ground that a criminal complaint has been made against the directors or even on the ground that the directors had been convicted of a criminal offence, would be introducing into the law relating to companies, matters which are entirely foreign to company law and administration, and beyond the ambit of the jurisdiction which this court exercises.

69. Mr. S. Sen next urged that his client's stake in the affairs of the company was very large. He submitted that, on taking the managing agency, his client had made an immediate payment of Rs. 7,00,000 to the Imperial Bank of India and also provided a guarantee to the bank for due repayment of Rs. 14,00,000. He argued that his client was a man ofsubstance owning properties worth Rs. 50,00,000 and mismanagement of the company's affairs would inevitably seriously prejudice his client, because of the guarantee provided by him. The respondent No. 2, Mr. Sen contended, was a person of no substance, .and therefore would not at all be prejudiced if the guarantee was enforced. As there was ample evidence of mismanagement, he contended, his client was entitled to protection from this court by supersession of the board of directors of the company and appointment of a receiver.

70. Mr. R. Chaudhuri, on the other hand, contended that the case of the applicant No. I that he had a large stake in the company as he had furnished a guarantee to the bank for Rs. 14,00,000 in respect of the loans to the company, is a myth. It is true, Mr. Chaudhuri contended, that he had provided a guarantee to the bank regarding the loans. But he was not the only director who had provided such guarantee. Besides, it is the normal obligation of directors to provide such guarantees, when advances are taken by a company from a financing institution. He contended that, in this case, the act of the applicant in providing the guarantee was motivated with the object of making a huge gain at the cost of the company. By referring to the balance-sheet and profit and loss account of the Bengal Textile Agency Ltd. (the previous managing agent of the company) for the year ending with March 31, 1928, he submitted that the company had taken fixed deposits from sundry depositors, the amount of such deposit being Rs. 14,00,000. The interest which the company paid on this fixed deposit was Rs. 81,111-3-0. The applicant No. 1 had borrowed this sum of Rs. 14,00,000. But while interest was paid to the sundry depositors at the rate of 10 to 12 per cent., the interest which the applicant paid to the company on the loan taken by him was only 2| per cent. The total interest that the company received on this loan from the applicant No. I was Rs. 13,123-10-0 only. By this process, the applicant No. I had caused huge loss to the company, year after year, to the extent of Rs. 66,000 every year. The guarantee was given by the applicant No. 1 against full cash security which he held, and therefore Mr. Chaudhuri contended that there was no substance in the contention of the applicant No. 1 that he had a large stake in the company. In my opinion, Mr. R. Chaudhuri's contentions are well founded, and the contention of the applicant No. 1 that he had a large stake in the company is not what it has been made out to be. If he had given the guarantee, he had in the same process benefited himself to the detriment of the interest of the company.

71. The next point urged by Mr. R. Chaudhuri was that no grounds have been made out in the petition for relief either under Section 397 or under Section 398. He contended that an order under Section 397 could not be made unless grounds have been made out for the winding up of the company.

72. And in this case no such grounds have been made out. He argued that the principle of winding up of a private company on the ground of lack of confidence as in the case of a partnership, which was enunciated in Loch v. Blackwood, [1924] A.C. 783., did not apply in this case, as the company in this case was a public company, and not a private company in the garb of a public company. Large number of outsiders were also shareholders of the company.

73. It was next urged by Mr. R. Chaudhuri that sufficient grounds for an order under Section 397 and Section 398 must be made out in the petition itself and if no grounds have been made out, or if the grounds made out are insufficient or inadequate, no order should be made. In support of this proposition, Mr. R. Chaudhuri first of all referred to Buckley, 13th edition, page 471, where, while dealing with the question of winding up it has been stated : ' If a sufficient case is not stated in the petition an order will not be made and if a sufficient case is not alleged in the petition it is demur-rable and the respondents may object to the evidence being read until the demurrer has been decided.'

74. Mr. R. Chaudhuri next referred to the observations of James L.J. in In re Wear Engine Works Co., (1875) 10 Ch. App. 188. in which it was held that a winding up petition must allege facts which justify a winding up order.

75. The next case relied upon by Mr. R. Chaudhuri is In re Steam Stoker Co., (1875) 19 Eq. 416. in which it was held that the petition must contain materials upon which alone the court was bound to decide, and the court should not look at other affidavits but should read only the statements in the petition, and on the facts of that case it was held that the petition could not be sustained.

76. The next case relied upon by Mr. R. Chaudhuri was In re Langham Skating Rink Co., (1877) 5 Ch. D. 669. This was also a petition for winding up which was presented by three shareholders. There was no allegation of insolvency, but there were allegations that the condition of the company was bad and that it had abandoned all but a very small part of its object. It was held that the question whether the company ought to be wound up should be decided by the Domestic Tribunal. In other words, the question of winding up should be left by the court to be decided by the member at a general meeting.

77. The next case relied upon by Mr. R. Chaudhuri was F. Seethiah v. Venkatasubbiah, [1949] 19 Comp. Cas. 107.. In this case it was held that all necessary matters in a winding up petition should be stated succinctly and without elaboration in the statutory affidavit. It was the primary evidence before the court for a winding up order, and if the statutory affidavit disclosed a prima facie ground for winding up, then only it became obligatory for the respondents to let in any evidence to the contrary.

78. Mr. R. Chaudhuri next referred to the decision in In re Cuthbert Cooper & Sons Ltd., [1937] 1 Ch 392. In this case, on the refusal of the directors to register certain transfer of shares, the transferees applied for winding up on the just and equitable ground. It was held that, in considering the question of winding up, the court should look at the allegations in the petition and should not travel beyond them.

79. Relying upon the decisions discussed above, Mr. R. Chaudhuri argued that, as in the case of a winding up petition, grounds for an order under Section 397 and Section 398 must be made in the petition itself, and if they are not so made, the petition should be dismissed, or, at any rate, no order should be made on them. I cannot accept this contention of Mr. Chaudhuri. All the cases, relied upon by him on this question were cases in which winding up of the company was sought for. So far as winding up is concerned, the law indeed is long and well settled, namely, that the grounds for winding up must be stated in the petition itself and the court should not look at any other evidence or any other affidavits to find out if a ground for winding up had been made. But the question is, can this principle of law be applied to an application under Section 397 and Section 398 I think not. These two sections have conferred upon the court a special jurisdiction which the court would not have possessed, but for these two sections. In my opinion, the analogy of a winding up petition cannot and should not be applied to the petition under Section 397 and Section 398. In a winding up petition the court should look at the petition itself and nothing else. The petitioner must be able to show from the averments in the petition that he has made out a case for winding up. But, in an application under Section 397 and Section 398, the petitioner may rely upon, and indeed he should rely upon, supporting affidavits from persons having personal knowledge of the allegations of oppression, mismanagement, misconduct or other act prejudicial to the interest of the company, if the petitioner has no personal knowledge himself. Failure or omission to secure affidavits of persons having personal knowledge of the charges made, if the petitioner has no personal knowledge of the same, may prove fatal to the petition itself as was held in In re Clive Mills Co. Ltd., [1964] 34 Comp. Cas. 731.

80. On this question reliance was placed by Mr. S. Chaudhuri and Mr. R. Chaudhuri on the decision of the Supreme Court in Rajahmundry Electric Supply Corporation Ltd. v. A. N. Rao, [1956] 26 Comp. Cas. 91 (S.C.).. In this case the Supreme Court held that the maintainability of a petition under Section 153C of the Indian Companies Act, 1913, should be judged on the facts as they were at the time of its presentation and a petition which was valid when presented, would not cease to be maintainable by reason of events subsequent to its presentation. These observations, however, were made not with regard to the allegations in the petition itself, but in the context of the fact that 13 of the supporting members withdrew their consent after the petition was presented. Dealing with the argument that allegations in the petition should be sufficient to support a winding up order, it was held that before taking action under Section 153C, the court must be satisfied that circumstances existed in which an order for winding up could be made. It is therefore for the court to consider whether allegations are sufficient to support a petition for winding up. On the same question reliance was placed by Mr. B. Sen on In Ye Cine Industries and Recording Co. Ltd., [1942] 12 Comp. Cas. 215. in which it was held that in the case of a petition for winding up, the petitioner has got to make out a case for winding up in the petition, and he could not be allowed to fish out a case by cross-examination of the deponents or by inspection of accounts. I have already dealt with this question earlier and it is not necessary for me to deal with this question at length again.

81. Mr. S. Sen argued that the court should take notice of events which had happened subsequent to the presentation of the petition. In this case it was urged that investigation has been started by the police with regard to certain criminal offences, that certain books of the company have been seized by the Registrar of Companies for the purpose of this investigation, and also that the magistrate had made various orders in a criminal complaint that has been lodged against the respondent No. 2. It was argued that the oppression contemplated by Section 397 is not a single act of oppression, but a continuous course of oppression over a period of years. And that being so, the court was not precluded from looking into and considering subsequent evidence in aid of the case made in the petition.

82. Mr. R. Chaudhuri, on the other hand, contended that the facts disclosedin the petition must be such as to justify an order for winding up, and ifthere was no evidence or if the evidence was insufficient, for thepurpose of a winding up order, no order should be made under Section 397. In support of this contention Mr. R. Chaudhuri reliedupon the decision in Scottish Co-operative Wholesale Society Ltd. v. Meyer, [1959] 29 Comp. Cas. 1.in which it was held that the facts disclosed in that case were such,that if a petition for winding up of the company was presented, thepetition would have been granted. Mr. R. Chaudhuri contended that,in this case, the grounds disclosed under paragraph 36 of the affidavitwere by no means sufficient for a winding up order on the just andequitable ground. On this aspect of the argument reliance was placed byMr. B. Sen also on the decision of the Supreme Court in Rajahmundry Electric Supply Corporation Ltd. v. A. N. Rao, [1956] 26 Comp. Cas. 91 (S.C.). discussed above and also the decision in Kalinga Tubes Ltd. v. Shanti Prosad, : AIR1963Ori189 .in which it was held that if the facts on the date of the petition as pleaded were not sufficient to make out a case for winding up on the just and equitable ground, then facts arising subsequent to the filing of the application could not be resorted to for the purpose and that the absence of allegation in the pleadings could not be substituted by further evidence either by affidavits or oral and documentary evidence.

83. I have already held that in an application under Section 397 and Section 398, if the petitioner has no personal knowledge of the charges made in the petition or of other material facts alleged therein, supporting affidavits from persons having personal knowledge of the facts should be filed along with the petition, in order to make out grounds for relief to the petitioner. But if the petition and other supporting affidavits filed along with it do not disclose sufficient ground to fulfil the requirement of Section 397 and Section 398, the court should not look into other evidence, either oral or documentary, or in the shape of affidavits affirmed subsequently. The petitioner must in his petition and the supporting affidavits, if any, make out a case for relief. If he has failed to do so, the defect cannot be cured nor the lacuna filled up by other evidence, oral or documentary. This is so, even though the oppression complained of is a continuous course of oppression and continues even after the presentation of the petition. The Act does not impose upon the court a duty to hold a rambling enquiry into allegations made in the petition and supporting affidavits, if any, which by themselves do not constitute grounds for relief under Section 397 and Section 398.

84. It was next urged by Mr. R. Chaudhuri that the dispute between the parties is a private dispute, and this application is the result of a private dispute between the applicant No. 1 and the respondent No. 2. The contention of the applicant No. 1 is that he has been removed from the position of control which he occupied, and the respondent No. 2 has assumed such control. The only object of the applicant No. 1 is to regain such control. Mr. Chaudhuri argued that Section 397 and Section 398 are not intended to resolve such private disputes between rival groups of shareholders. Two suits have been filed in this court relating to the transfer of shares which is alleged to have resulted in a transfer of the control. The subject-matter of the complaint in this application is the same as the cause of action as pleaded in the plaints in those two suits. The applicants in this proceeding have chosen their own forum and also their own remedy in causing these two suits to be instituted and in obtaining orders for injunctions in the said two suits, which are ripe for hearing. That being so, Mr. Chaudhuri submitted, this court in exercise of its discretionary jurisdiction should not make any order in this application. Thewhole object of the applicant No. 1 is to get back the control of the company's affairs. He has even offered to buy back the shares from the purchasers in order to regain such control. He had also offered to pay interest at 6 per cent. on the moneys paid by the purchasers. This offer. Mr. R. Chaudhuri contended, completely demolished the applicant's case that the purchasers were benamidars of the respondent No. 2. This offer also made it clear that the dispute was a purely private dispute between two rival groups of shareholders.

85. In my opinion there is good deal of substance in Mr. R. Chaudhuri's contentions. The dispute, without a doubt, is a dispute between the rival groups for acquiring and retaining control of the company's affairs. Shares of the company, held by the three investing companies referred to earlier in this judgment, have been sold and these sales, it is alleged, have injured the applicants' interest.

86. Then again, Mr. R. Chaudhuri argued that with regard to the sale of the shares, suits have been filed in this court and orders for injunctions have been obtained. The allegations in the two plaints in the said suits are the same as the allegations in the affidavit in support of this application. Should this court in exercise of the discretionary jurisdiction conferred upon it under Section 397 and Section 398 make orders to aid a party who had already sought his relief elsewhere Should the discretionary power conferred under this jurisdiction be exercised in favour of the parties who have already chosen their forum and their remedy with regard to the same alleged wrongful acts Should this court again proceed to decide matters on affidavits when it is clear that the identical matters are being investigated by this court in an action in which no doubt the matter would be more fully investigated and evidence in support or against the rival contentions gone into Is the summary jurisdiction of this court under Section 397 and Section 398 to be exercised when the same questions would be more fully debated and adjudicated upon in the pending actions It is on the answer to these questions that the question of maintainability of this application on this branch of the argument would depend.

87. In my opinion, however, the extraordinary and summary jurisdiction of the court under Section 397 and Section 398 ought not to be exercised when suits covering the same subject have been instituted in this court and interim orders have been obtained restraining voting rights and alienation of shares. If those suits had not been instituted, and the remedy relating to the alleged wrongful sale of the shares not sought for in those suits, the position would have been different. It would have been, in that event, open to this court to go into the questions of propriety, legality, and validity of the transfer of the shares. But the suits are pending and are ready for hearing and so far as the question of validity and legality of the transfer ofthe shares is concerned, this court must stay its hands. The forum has been chosen, and that choice must be adhered to. Remedy has been sought for and that remedy must be pursued in the manner in which it has been sought and to the extent that law sanctions such remedy. This court in exercise of its jurisdiction under Section 397 and Section 398 should not interfere with the legality and validity of the sale of shares, which is the subject-matter of two pending actions. If injury has been caused to the applicants by the sale of the shares, no doubt, they will get their remedy in the actions which have been diligently pursued and in which ad interim orders have been obtained restraining the general meeting and also alienation of the shares sold.

88. Mr. S. Sen next urged that the directors were trustees and the grounds on which a trustee could be removed were also grounds on which the directors of a corporation ought to be removed. He referred to Lewin on Trusts, 15th edition, page 406, and argued that courts had laid down broad principles for removal of trustees, in exercise of their inherent jurisdiction, where such removal was for the benefit and welfare of the beneficiaries. In the case of a positive misconduct the court had no difficulty in removing the trustees who had abused their trust. The acts of omission or misconduct, however, must be such as to endanger the trust property or to show a want of honesty or a want of proper capacity to execute the duties or a want of fidelity.

89. It was urged that the same principles applied to directors as well, as they also were trustees, and the shareholders were beneficiaries. Mr. Sen next referred to Kerr on Receivers, 13th edition, page 14, in support of his proposition that parties in a fiduciary position, if shown to be guilty of a breach of duty, should be removed from their position of trust, and a receiver should be appointed. Mr. Sen argued that in this case the manner in which the respondent No. 2 has dealt with the assets of the company proved beyond doubt a lack of honesty and integrity which would justify the court in superseding the entire board, which is controlled by the respondent No- 2, and appointing in its place a special officer or administrator.

90. Dealing with this aspect of the case, Mr. R. Chaudhuri disputed Mr. Sen's submissions that directors were in the position of trustees and the grounds on which a trustee was liable to be removed should also be treated as grounds for removal of directors or supersession of the board. Mr. R. Chaudhuri relied upon the observations of Lord Romilly in York and North Midland Railway Co. v. Hudson, (1845) 16 Beav. 485.:

'The directors are persons selected to manage the affairs of the company, for the benefit of the shareholders ; it is an office of trust, which, if they undertake, it is their duty to perform fully and entirely.'

91. Mr. R. Chaudhuri also relied upon the observations of Kay J. in In re. Faure Electric Accumulator Co., (1889) 40 Ch.D. 141, 150. as follows :

' They certainly are not trustees in the sense of those words as used with reference to an instrument of trust, such as a marriage settlement or a will. One obvious distinction is that the property of the company is not legally vested in them. Another and perhaps still broader difference is that they are the managing agents of a trading association, and such control as they have over its property, and such powers as by the constitution of the company are vested in them, are confided to them for purposes widely different from those which exist in the case of such ordinary trusts as I have referred to, and which require that a larger discretion should be given to them. Perhaps the nearest analogy to their position would be that of the managing agent of a mercantile house to whom the control of its property and very large powers for the management of its business are confided ; but there is no analogy which is absolutely perfect.'

92. Mr. R. Chaudhuri also referred to the observations of James L.J. in Smith v. Anderson, (1880) 15 Ch. D. 247, 275., which are as follows :

' Now, the Master of the Rolls appears, from his judgment, to have considered that these trustees were, in substance and in law, directors. With all deference to the Master of the Rolls, that appears to me a fallacy. To my mind the distinction between a director and a trustee is an essential distinction founded on the very nature of things. A trustee is a man who is the owner of the property and deals with it as principal, as owner, and as master, subject only to an equitable obligation to account to some persons to whom he stands in the relation of trustee, and who are his cestuis que trust. The same individual may fill the office of director and also be a trustee having property, but that is a rare, exceptional, and casual circumstance. The office of director is that of a paid servant of the company. A director never enters into a contract for himself, but he enters into contracts for his principal, that is, for the company of whom he is a director and for whom he is acting. He cannot sue on such contracts nor be sued on them unless he exceeds his authority. That seems to me to be the broad distinction between trustees and directors.'

93. In my opinion the distinction between a director and trustee has been very succinctly brought out in the above observations of James L.J. It cannot be said that the directors of a company are liable to be removed on the grounds on which a trustee is liable to be removed. For one thing, the members of a company have the right to deal with the conduct of the directors, and irregularities and lapses in a company administration may be overlooked and condoned by the members in a general meeting, which in the case of a trustee would provide grounds for removal. It is only in thecase of more serious misconduct on the part of the directors, namely, fraud, misappropriation and violation of statutory provisions that the court interferes with the administration of a company's affairs by its directors. A mere breach of duty, without anything more, could not be enough to induce this court to remove a director, because the law is well settled that the court would leave matters relating to a company's administration to be decided in the domestic forum except in certain specified cases, namely, fraud, misappropriation and breach of statutory provisions. Even in the case of charges of misappropriation and misapplication of funds, the court hesitates to interfere in a company's affairs and indeed the court interferes only when the remedy available in the domestic forum has become ineffective or cannot be invoked or pursued for one reason or another. For these reasons I cannot accept Mr. Sen's contentions that the directors of the company are trustees and are liable to be removed on the grounds on which a trustee is liable to be removed.

94. The next point urged by Mr. S. Sen was that there was no board of directors of the company. The board of directors that is now purporting to function is an illegal board and should not be allowed to function as a board nor should the directors be allowed to function as directors individually. Before I proceed to deal with this question, I should point out that this case, namely, that there is no board of directors, or that the board that is purporting to function is an illegal board, has not been made out in the affidavit in support of the summons. On the other hand, the applicants' case, as made out in paragraph 42 of the affidavit is that, at all material times up till the time of this application, the board of directors of the respondent company was constituted by five persons, namely, the applicant No. 1, respondents Nos. 2, 3, 4 and 5. The complaint of the applicants in paragraph 43 of the affidavit is that the respondent No. 2 is now commanding a majority of four in a board consisting of five members. The applicants' case as made out in the affidavit is that there is a valid board of directors, but that board is completely under the clutches of the respondent No. 2. But since arguments have been advanced at length on the question that there is no valid board I should deal with this aspect of the case.

95. The proposition that there, is no valid board was formulated by Mr. S. Sen as follows : under article 91 of the articles of association of the company, the number of directors shall not be less than three nor more than five. The board consisted of five members, and if within the limits prescribed by the articles of the company it was intended either to increase or decrease the number of directors, then under Section 258 of the Act it could only be done by the company at a general meeting. No such general meeting was held and no resolution was passed reducing the existing number of directors from five. If the number of directors is sought to be increased, then under Section 259 of Act, sanction of the Central Government is necessary. Therefore, if the board is below strength, and a resolution at a meeting of the company has not reduced the number of members, then there is no board. In this case Khan Bahadur A. Rahman, who retired by rotation, was due to be elected at the general meeting of the company to be held on September 27, 1963, of which notice had been issued. He has attained the age of 84 and, therefore, cannot be a director by reason of the bar in Section 280 of the Act, unless a resolution condoning the age was passed at a general meeting under Section 281 of the Act. Notice of such a resolution was given, but the resolution was not passed, as the meeting was not held by reason of the injunction issued by this court in the pending suits. Therefore, Khan Bahadur A. Rahman has not only retired, but is ineligible to act as a director by reason of the bar imposed by Section 280 and Section 281 of the Act. Hence, it was argued, there was a reduction in the number of directors fixed by the articles of association of the company and such reduction not having been sanctioned at a general meeting, there was no board of directors. Any increase or reduction in the number of directors within the limits fixed by the articles can be sanctioned only by an ordinary resolution at a general meeting of the company. No such resolution having been passed, there is a reduction in the number of directors caused by the retirement and also the ineligibility of A. Rahman, and hence there was no board of directors.

96. Mr. S. Sen next argued that the managing director of a company enjoyed delegated authority from the board of directors, and if there was no lawful board, there could be no delegation. A valid delegation, it was argued, had to be made from year to year by a duly elected board of directors, and the delegation that was made in 1962 could not hold good for 1963, because the board of directors of a company was a changing body. It was further argued that Article 101 of the articles of association of the company, which authorised the continuing directors to act notwithstanding any vacancy in the board, was ultra vires Section 258 of the Act. Under Article 126 of the articles of the company, the general powers of the company are vested in the board of directors and since there was no board, there was a vacuum which could not be overlooked. If there was no board, it was argued, there could be no managing director, as the latter enjoyed only the delegated authority from the board. The delegation by the Board to the managing director was done under Article 127 in 1957, and in 1961 a resolution was passed sanctioning the continuance in office of the managing director. But there was no appointment or confirmation of the appointment of the managing director since 1961, and since there was no valid board there could be neither any appointment of nor any delegation to the managing director, who could not therefore function as a managing director.

97. In support of this argument Mr. Sen referred to the decision in Grundt v. Great Boulder Proprietary Gold Mines Ltd., [1948] 1 All E.R. 21; [1948] Ch. 145, 150. In this case, on a construction of the articles of the company, it was held that the number of directors in office could not be reduced, unless there was a specific resolution of the company to that effect, The plaintiff sought a declaration that though he retired by rotation from the board at the annual general meeting held on July 9, 1947, and though he was not re-elected, yet since his place in the board was not filled up and the number of directors in office was not reduced, since he was willing to continue in office he should be declared to be a director of the company. Wynn-Parry J., who tried the action, dismissed it. But the Court of Appeal reversed the decision and held :

' ......there is a distinction between the number of directors in officeand the number of authorised directors. Article 88 fixes a minimum and a maximum number of directors, and does not deal with the number actually in office. True it is that it impliedly requires the minimum number to be in office, but there is no need for the maximum number to hold office and in my opinion the concluding words are dealing with the actual number in office, not with the minimum allowed to conduct the business.'

98. Mr, Sen argued that Section 258 of the Act produced the same effect as the decision in this case. Though the articles of the company, Mr. Sen argued, fixed the maximum and the minimum, the numerical strength of the existing board could neither be raised nor reduced, except by an ordinary resolution of the company as required by Section 258. In this case, Mr. Sen argued, the applicant No. 1 had ceased to be a director for absence without leave from board meetings since January 31, 1963, and A. Rahman also retired by rotation and was ineligible by reason of his age until a resolution as required by Section 280 and Section 281 was passed.

99. The above decision to my mind does not support Mr. Sen's contentions. In the first place, the court was not considering the question of the validity of the board ; in the second place, it was an action by a director for a declaration that he was a director of the company; and, in the third place, the annual general meeting of the company was held, but this meeting failed to fill up the vacancy caused by the retirement of the plaintiff. Indeed, in the Companies Act, 1956, there are specific provisions to meet such a situation in Sub-sections (4)(a) and (4)(b) of Section 256, which provide that if the place of a retiring director has not been filled up at the adjourned meeting and that meeting has not expressly resolved not to fill up the vacancy, the retiring director shall be deemed to have been reappointed at the adjourned meeting, subject to the conditions laid down in the sub-clauses under Section 256(4)(b). Mr. Sen next relied upon the decision of the Judicial Committee in Ram Kissendas Dhanuka v. S. C. Law, [1950] 20 Comp. Cas. 133 (P.C.).. In that case, however, by an ordinary resolution of the company, seven appellants were appointed directors in addition to the four existing directors. But the articles of the company required that such a resolution should be a special resolution, but the majority by which the resolution was passed was insufficient for that purpose and hence it was argued that the rights of the minority had been infringed. The main question in this decision was the validity of the resolution by which the managing agents were removed from the office by an ordinary resolution, contrary to the articles, which required an extraordinary resolution.

100. It was next urged by Mr. Sen that the company was entitled to the combined wisdom of the board as a whole, and if even the office of a single director remained vacant, the board could not function. In support of this proposition Mr. Sen relied upon Palmer's Company Precedents, 17th edition, Part I, page 579, where it is stated that the directors must prima facie act by resolution at a board meeting duly convened and constituted, as the company is entitled to the benefit of their combined wisdom in board meeting assembled. Mr. Sen next relied upon the decision of the House of Lords in Lennard's Carrying Co. Ltd. v. Asiatic Petroleum Co. Ltd., [1915] A.C. 705. in which Viscount Haldane L.C. held that a corporation was an abstraction having no mind and no body. Its directing will therefore should be sought in the person of somebody who might be called an agent but who was really the directing mind and will of the corporation. Mr, Sen argued that the company can function only through its board, who alone is the directing mind, and the managing director enjoyed authority delegated to him. If, Mr. Sen argued, there was no board or the board could not function, the managing director could not perform his duties either. If that is so, the court should take over the management of the company's affairs through a special officer by superseding the board. The above observations of Viscount Haldane however do not support the particular contention now under consideration.

101. The next case relied upon by Mr. Sen is H. L. Bolton (Engineering) Co. Ltd. v. T. J. Graham & Sons Ltd., [1957] 1 Q.B. 159. In that case, dealing with the question whether the company's intention or desire was to occupy certain premises, which it had let out to another company, could be expressed by any one other than the board as a whole, Denning L.J. held that the company in many ways was like a human body. It had a brain and nerve centre and had also hands which hold the tools and act in accordance with the directions from the centre. Relying upon this case, it was argued, that the company's will and its acts must be represented through an organ which was the board of directors of the company and the managing director, neither of whom in this case could function as there was no board. These general observations regarding functions of the board of directors are not helpful.

102. Mr. Sen next relied upon a decision of this court in B. P. Khaitan v. New Central Jute Mitts Co. Ltd., [1960) 64 C.W.N. 970. In this case the question was whether the board of directors of a company could declare further dividend in respect of accounts of a previous year which had been closed and dividend in respect of which had already been declared. It was held that the declaration of further dividend by the board was not the recommendation of the board of directors of the relevant year and, therefore, the declaration of dividend was beyond the powers of the new directors. This decision was relied upon by Mr. Sen for the proposition that the board functions only for the year for which it was appointed and that the delegation by the board should be made from year to year. Mr. Sen also relied upon another decision of this court in Raghunandan Neotia v. Swadeshi Cloth Dealers Ltd., [1964] 34 Comp. Cas. 570. in which the same question was raised and it was held that the then board of directors of the company was not competent to declare dividend for the years the accounts of which had been closed. The two decisions mentioned above do not support Mr. Sen's contentions. The questions involved in the two decisions are altogether different. The board of directors of a company is a continuing body, subject to retirement and re-appointment of the retiring directors or appointment of new directors in place of the retiring directors. Article 101 of the articles of the company authorises the continuing directors to act subject to there being a quorum. This article is the same as Regulation 75 prescribed in Table ' A ' of Schedule I to the Act. Even if A. Rahman has ceased to be a director, there are four others (according to the applicants), who are continuing directors, and constitute the quorum. Mr. Sen's contention that Article 101 of the company's articles, which is the same as Regulation 75, is ultra vires Section 258 of the Act, is not sound and cannot be accepted.

103. Mr. Sen also referred to the decision in In re Sly Spink & Co., [1911] 2 Ch. 430.In this case the articles of the company authorised the continuing directors to act notwithstanding a vacancy in their body. The articles also provided that the number of directors should not be less than four and more than eight and that the two vendors should be the first directors and also that the first directors should have the power, before the first general meeting, to appoint an additional director. The two first directors appointed a third and the three held board meetings and allotted shares including 2,000 shares as fully paid by way of commission to the promoter of the company. The promoter transferred some of the shares to the solicitor of the company partly as gift and partly in payment of costs. The company was wound up before commencement of business. The liquidator took out a summons for rectification of the share register by striking off the name of the promoter and of the solicitor. In dealing with this application Neville J. held that there never having been a properly constituted board, the allotment made by the three directors could not be justified either because they constituted a quorum or because they were continuing directors. It was held that merely because the three constituted a quorum, their acts did not make legitimate acts by a board consisting of less than four members and that there must be a board before there can be a quorum. Dealing with the question of the authority of continuing directors to act, it was held that the expression 'continuing' applied to cases where the number of the original board had been reduced by death or otherwise and in such cases those who were left would be entitled to conduct the business of the company. The allotments made by the three directors were held to be invalid, as they were done by a board of three and the regulations of the company provided for a board of not less than four.

104. In this case the question of the authority of the continuing directors to ac.t was considered and it was held that the directors could not act because there never had been a properly constituted board. But in the instant case now before me, it is not disputed that there was a valid board of the company. The contention of Mr. S. Sen is that this board has become an invalid board by reason of reduction in the numerical strength. That being so, this decision is of no assistance to Mr. Sen.

105. Mr. Sen next referred to the decision in Garden Gully United Quartz Mining Co. v. Hugh Mclister, (1875) 1 App. Cas. 39.. In this case a forfeiture was made by a resolution of a board consisting of a quorum of three, who had been elected at a general meeting by advertisement for the election of a full board of directors. Two of the directors who were elected previously were due to retire, but had not retired, and continued to act as directors. It was held that the election of a full board of directors was invalid, as the meeting of the company was held without due notice according to the articles. The two directors already elected could not act under their former title, for the election of the full board necessarily involved the retirement of those who held the office of directors. Relying upon this decision, Mr. Sen argued that the existing directors who were due to retire must be deemed to have retired on the date on which the general meeting was due to be held and, therefore, they could not act as directors any longer. But in this case only one director was to retire, namely, A. Rahman, and the remaining directors are continuing directors, as I have held earlier.

106. The next case relied upon by Mr. Sen was In re Alma Spinning Co., (1880) 16 Ch. D. 681.In this case the articles of the company prescribed that the company's business should be conducted by not less than a specified number of directors. It was held that the requirement that a specified number of directors was to act was imperative and not merely directory and hence a call made or forfeiture declared by less than the specified number was invalid. The articles had named six persons as directors and three was fixed as a quorum. The number of directors was reduced by death to five and one other director became insolvent and therefore disqualified. The company passed a resolution at an ordinary meeting whereby the requirement of the articles that there must be a minimum of five and a maximum of seven was changed by substituting three for five. This resolution was declared to be invalid not being passed according to the articles. Later the four remaining directors made a call. The insolvent director made default in payment of the call and a resolution was passed declaring the shares of the insolvent director forfeited. The company went into voluntary liquidation and it was found that there were surplus assets available to the shareholders. In these circumstances it was held that the call and forfeiture having been made by four directors only were invalid and hence the insolvent director was entitled on payment of his calls to be treated as shareholder and to participate in the surplus assets. This was not a case of retirement by rotation and the question whether the board of directors becomes invalid by reason of a vacancy caused by retirement was not considered.

107. The next case relied upon by Mr. Sen was In re The British Empire Match Co. Ltd., (1888) 59 L.T. 291.In this case an application was made for shares, which were allotted. The prospectus stated that there were three directors of whom F was one. The articles provided that the number of directors should not be less than three nor more than seven and the names of three directors were set out. Two directors were to form the quorum. The company was directed to be wound up and the applicant's name was put on the list of contributories. This applicant came to know that one of the directors did not authorise his name to be used as a director and did not act as such. He contended that there was no duly constituted board, and that two directors could not constitute a quorum, and hence the acts by the two directors were invalid. He claimed that the allotment of shares to him was void and he was entitled to have his name removed from the list of contributories. It was held that want of a properly constituted board at the time when the shares were allotted rendered the allotment invalid and that the provision in the articles that two directors might form a quorum did not cure the defect. It was also held that the clause in the articles that two directors shall form a quorum pre-supposes the existence of a proper board of which two form a quorum and since no proper board existed at the time, there was no quorum at all and hence the technical objectionmust prevail. This decision is of no assistance to Mr. Sen because according to his client there was a valid board of directors up to the time of making this application.

108. It was argued by Mr. Sen that under Article 77 of the articles of the company and Section 291 of the Act, the board as a whole must function. It was a fluctuating body. The powers to manage the affairs of the company are given not to the directors but to the board as a whole. Section 258 of the Act, Mr. Sen contended, is a bar to a change in the numerical strength without a sanction from a general meeting of the company. He further argued that Section 260 gives power to the board as a whole and not to directors individually. In support of this proposition he relied upon the passages in Gower on Modern Company Law, 2nd edition, pages 16, 20.

109. Mr. R. Chaudhuri, in answer to this branch of the argument, contended that the argument that there was no board and no managing director was fallacious. Mr. Chaudhuri pointed out that under Article 91 there should be a minimum of three and a maximum of five directors. Without disturbing the numerical strength, Mr. Chaudhuri argued, the company might keep a vacancy in the board. If Mr. Sen's argument was correct, then supposing a director died or resigned, the board could not function at all, not even for the purpose of co-opting or appointing an additional director to fill up the casual vacancy. At the annual general meeting, Mr. R. Chaudhuri contended, the members might choose not to fill up a vacancy caused by death or resignation. One-third of the directors retired by rotation and there was no bar under Sections 258, 259 and 260 to a vacancy in the board not being filled up. An office of director, Mr. Chaudhuri contended, could be left vacant without disturbing the number of directors. This did not mean that there was a reduction in the number of directors. The number of directors fixed remaining the same, it was quite competent for the general meeting not to fill up a vacancy.

110. Mr. R. Chaudhuri next argued by referring to the provisions in Section 256(3), Section 256(4)(a) and Section 256(4)(b) that the idea of a vacancy could occur only if the number was fixed and had not been reduced, and within that number one retiring director had not been appointed, or some other person had not been appointed in his place.

111. He argued that if what was contended by Mr. Sen was correct, namely, that there could be no valid board, unless the number of directors was reduced at a general meeting, then the concept of a vacancy in the board could never arise, because the number having been reduced, there could never be any vacancy. The concept of a vacancy in the board arises only if there is a fixed number. But if what Mr. Sen contended was correct, namely, that the number of directors was reduced on the applicant No. I ceasing to be director and A. Rahman being disqualified and not re-appointed, then there could not be any vacancy, as there had already been a reduction in the numercial strength of the board. Then again, Mr. Chaudhuri contended that under Section 256(4)(a), it was possible for a general meeting to pass a resolution not to fill up a vacancy. Therefore, the Act contemplates that the number of directors fixed by the articles of the company remaining the same, and without reducing the number, the general meeting can pass a resolution not to fill up a vacancy which would therefore continue in the board. That being so, Mr. R. Chaudhuri argued, there was no substance in the contention that the moment there was a vacancy, unless the general meeting of the company passes a resolution reducing the existing number of directors, the board becomes invalid and cannot function as a board. Mr. Chaudhuri also referred to Section 256(4)(b) which also contemplates that the general meeting can resolve not to fill up the vacancy and then if such a resolution is passed, the board nevertheless will continue to function as a board keeping the vacancy unfilled.

112. In my opinion this contention of Mr. R. Chaudhuri is sound. There is clear provision in the Act that a vacancy in the board may continue as a vacancy and remain unfilled. Article 101 of the company's articles, as noticed earlier, provides for such a situation. It cannot be said that the moment there is a vacancy, the board becomes invalid unless a general meeting of the company passes a resolution reducing the numerical strength of the existing number of directors. Then again, under Section 262, provision has been made for filling up a casual vacancy. Under this section if the office of a director became vacant, before the expiry of his term, the casual vacancy created thereby could be filled by the board of directors at a meeting of the board. But if the board becomes invalid the moment there is a vacancy, as Mr. Sen contended, because there is a reduction in the number of existing directors, the casual vacancy could not be filled up at the meeting of the board of directors, as it had ceased to be a valid board. In other words, the occurrence of a vacancy in the office of a director by death or resignation does not and cannot make the board invalid. In spite of such a vacancy, the board can function as a board of directors under Section 262 for appointing a director to fill up the casual vacancy. The Act quite clearly recognises that in spite of the reduction in the number of directors, the board does not become invalid and can still function as a board and is still authorised to so function, because it is the board which fills up the casual vacancy.

113. It was next argued by Mr. R. Chaudhuri that the retirement of a director by rotation under Section 255 did not amount to a reduction in the board under Section 258. Under Section 256(4)(a) and Section 256(4)(b) the generalmeeting of a company may not fill up the vacancy, in which case the meeting should stand adjourned to the next week. During this period, therefore, the vacancy continues and if the board has become an invalid board by reason of reduction in the numerical strength, the board cannot function until the next general meeting, when the vacancy created by retirement is to be filled up. If that is so, the board cannot meet nor can it function as a board until this vacancy is filled up. This undoubtedly would create a deadlock as the board cannot function. Indeed such a situation is not contemplated by the Act, much less does the Act require that the board should cease to function, as it has become an invalid board, the vacancy not having been filled up at the general meeting which stands adjourned till the next week.

114. Mr. Chaudhuri next submitted by referring to Article 101 of the company's articles and Regulation 75 that this company has in its Article 101 adopted Regulation 75. Under this regulation the continuing directors may act in spite of a vacancy in the board. But if the board is reduced below the quorum fixed by the Act for a board meeting, the continuing directors can act only for the purpose of increasing the number to that fixed for a quorum or for summoning a general meeting of the company, but for no other purpose. Mr. Chaudhuri argued that even if the number of directors was reduced below the quorum as required by Section 252, the board could still function, though for a limited purpose, namely, either to increase the number to make a quorum or to summon a general meeting. Therefore, Mr. Chaudhuri submitted that if there was a quorum of three members, as required by Section 252(1), the board certainly can function even though there is a vacancy and even though the number of directors has not been reduced at a general meeting of the company.

115. Mr. Chaudhuri next referred to the decision reported in Grundi's case, [1948] 1 All E.R. 21; [1948] Ch. 145.discussed above and submitted that the question involved and decided in that case was entirely different from the argument of Mr. Sen. The decision in that case was given in the light of the claim of a director to be declared a director of the company and it was held that since the retiring director was not re-elected, his vacancy was not filled up as there was no resolution reducing the number. He was to continue as a director of the company. This, Mr. Chaudhuri submitted, was entirely different from saying that the board becomes invalid because there is a vacancy in the board which has not been filled up. I have dealt with the decision earlier and it is not necessary for me to say anything more.

116. In my opinion, Mr. Chaudhuri's contentions are sound. The mere occurrence of a vacancy in the board, by reason of retirement, by rotation or by reason of a disqualification incurred or death or resignation, cannothave the effect of the board becoming invalid, and for that reason unable to function as a board. The Act contemplates the occurrence of vacancy in the board and even contemplates a situation where a general meeting may not have filled up a vacancy which has occurred. Provision has been made for filling up such vacancy and power has been given to the board to appoint directors for the purpose of filling up the vacancy. To hold that a board becomes an invalid board because a vacancy has occurred and a resolution has not been passed by the company reducing the number, would be to introduce a principle in company law, the result of which inevitably will be the creation of a deadlock. If a vacancy occurs by reason of retirement or a disability incurred or death or resignation, then, according to Mr. Sen, the board becomes invalid and it cannot function as a board. But according to him a resolution has to be passed at a general meeting under Section 258 reducing the numerical strength of the existing directors. But the question then would be who is going to call a general meeting, the board having become invalid and unable to function If such is the situation, and if Mr. Sen is right, then a general meeting of the company cannot be called for the purpose of passing a resolution, which Mr. Sen contended, should be passed for the purpose of reducing the number of directors. That plainly is not what the law enjoins.

117. Then again there is a larger question involved. An annual general meeting of the company was duly called to be held on September 27, 1963. This meeting was to appoint a director in place of a retiring director and pass a resolution condoning the age bar as required by Section 281 of the Act. If this meeting was held, no doubt the members would have dealt with the question of appointment of a director and condonation of age as mentioned in the notice. But this meeting could not deal with the matter set out in the notice of the meeting, because of the injunctions obtained in the two suits mentioned above. These orders for injunction were obtained at the instance of the applicants. There was no negligence or omission on the part of the board of directors to take steps for appointment of a new director nor was there any breach of statutory duties imposed on the board. Having obtained injunctions and stopped the general meeting from appointing a director, can the applicants be heard to complain that there is no board because the general meeting did not appoint a director in the place of a retiring director Can they be heard to make a grievance of the fact that there has been omission on the part of the board of directors to appoint directors as required by the Act and the articles of the company In my opinion the events clearly show that it is a case of involuntary non-compliance with the requirement of the Act, assuming it is a non-compliance at all. Orders of this court have prevented the company from holding the general meeting for appointing a director. A litigant at whose instance, and for whose benefit, such orders have been made cannot turn round and complain that there is no valid board, because a vacancy caused by retirement by rotation has not been filled up.

118. There is however a still larger question involved on this aspect of the case. Assuming for a moment that there is no valid board, and again assuming that the present board cannot function as it has ceased to be a lawful board of directors of the company, can this court in exercise of its powers under Section 397 and Section 398 supersede the board and appoint a special officer Is it an act of oppression as contemplated by Section 397 which would justify the court in making an order under that section Or is it an act of mismanagement or act prejudicial to the interest of the company requiring intervention under Section 398 If there is no board of directors or if the board of directors is not a lawful board or the managing director is not a lawful managing director, why should this court interfere in a matter which should be considered in the domestic forum Such difficulties are easily resolved, and are intended to be resolved, by calling a general meeting of the company. If it is a matter of genuine grievance of the applicants, it is for them to take steps to obtain suitable modifications in the orders for injunctions, so that a general meeting may be held and a director appointed in place of the retiring director at such a meeting. Absence of a valid board or want of delegation of authority from a valid board to the managing director, without anything more, do not, in my opinion, create a situation in which the court should exercise its powers under Section 397 or Section 398. There is no doubt that, but for the order for injunction, the general meeting would have dealt with the question of appointment of a director to fill up the vacancy and also the question of condonation of age in its own way. In my opinion, therefore, Mr. Sen's contention that there is no valid board and for that reason this court should supersede the board which is purporting to function as a board of directors of the company, and appoint a special officer to take over the duties of the board, cannot be accepted.

119. Mr. S. Sen next urged that the applicants and the respondent No. 2 have completely lost confidence in each other, that they have become hostile and for that reason the principles on which a partnership is dissolved, should be invoked and applied in this case for the purpose of removing the respondent No. 2 from the office of managing director, superseding the board of directors and taking over the management of the company by appointment of a special officer. In support of this contention he relied upon the decision in In re Yenidje Tobacco Co. Ltd, [1916] a Ch. 426.. In that case two persons, who were carrying on business, combined to form a private company in which they were the only shareholders and directors. Each of them had equalvoting power, and the arrangement was that if a dispute between the two arose, in consequence of which the director's report could not be passed, the matter in dispute was to be referred to arbitration. Disputes arose and the matter was referred to arbitration, and an award was made. But this was not accepted by the director against whom the award was made. He brought an action for the winding up of the company on just and equitable grounds. The parties had become so hostile that they would not speak to each other and communication was carried on through the secretary. The company, however, was in nourishing state and made large profits. It was held that there was a complete deadlock and an order for winding up ought to be made on the just and equitable ground, because this was a private company in the guise of a partnership, and if it was a partnership, there were grounds for dissolution and that being so, the company ought to be wound up. Mr. Sen contended that in this case also the parties had become hostile and therefore the court should interfere under Section 397 and Section 398. But there is a very important distinguishing feature, namely, that in the instant case now before me, there is no deadlock and the application is not an application for winding up nor is the company a private company. It is a public company in which outsiders hold a substantial block of shares. In my opinion, the principle that lack of confidence among the directors in a private company resulting in a deadlock is a ground for a winding up order on the just and equitable ground, cannot be applied in this case, in which the special discretionary jurisdiction of the court under Section 397 and Section 398 has been invoked.

120. Mr. Sen urged that there was a serious dispute between the rival groups of shareholders and also a dispute as to who are the directors and therefore the court should appoint a special officer. In support of this contention Mr. Sen relied upon a decision of this court in In re Lothian Jute Mills Co. Ltd., [1950] 21 Comp. Cas. 290. In this case S. B. Sinha J. held that ordinarily the court would not interfere in the domestic management of a company, but when a meeting cannot be called and there is no doubt and controversy as to who are the directors, and there is a possibility of its being held that one or other or both the meetings called by the rival groups of directors were invalid, the shareholders should not be exposed to the uncertainties following from the situation. In such a case the court should exercise its powers and direct a meeting of the company to be held. It is to be noticed, however, that this was an application under Section 79(3) of the Indian Companies Act, 1913, and the only question before the court was whether it was impracticable to call a general meeting of the company by the directors. In the instant case now before me the impracticability of a general meeting has arisen because of the order for injunction issued by this courtand not for any other reason. Besides, the application now before me is not an application for an order for a general meeting of the company. Therefore, this decision is of no assistance.

121. Mr. Sen also referred to another decision of this court in In re Malhati Tea Syndicate Ltd., [1951] 21 Comp. Cas. 323. This was also an application under Section 79(3) of the 1913 Act and the only question was whether it was impracticable to call a general meeting of the company. It was held that if there was doubt as to the existence of a board of validly appointed directors and there was a possibility of prejudice to the interest of the company, if a meeting was held otherwise than under the direction of the court, the court should make an order calling a meeting of the company under Section 79(3) of the 1913 Act. This decision again was restricted to the question of practicability of calling a meeting of the company and the observations were confined only to that question and in my view this decision is also of no assistance. Mr. Sen next referred to another decision of this court in In re Albert David Ltd., (1963) 68 C.W.N. 163, He contended that in that case also an injunction had been obtained by the applicant restraining the transfer of shares and also voting rights. Yet the court made an order under Sections 397 and 398. Therefore, Mr. Sen contended that the mere fact that the applicant had obtained an order for injunction in the pending suits should not debar the applicant from getting relief in this application. It was further held in that case that conditions that prevented proper functioning of the company according to the provisions of the Act, the de jure character of the board, and the difficulty of having this state of affairs rectified in the usual way, and the fact that the company was being run by the board in its own interest overriding the wishes and interest of the majority of shareholders, the prospect of costly litigation, were facts from which the court was bound to conclude that the affairs of the company were being conducted in the interest of a group and not in the interest of the company. Mr. Sen contended that in the instant case also there was a serious question as to the validity of the board, litigation is pending by reason of the sale of shares, injunction has been issued restraining voting rights, the machinery of the company has broken down and normal administration under the Companies Act was not possible. Therefore, Mr. Sen contended this court should interfere by appointing a receiver or special officer as was done in Albert David's case. But in that case, before the application under Section 397 and Section 398 was heard, the court had passed a decree relating to a block of shares which was held to have been unlawfully sold. Besides, the minority wrongfully continued to be in control of the company's affairs and kept the majority at bay, and it was found as a fact that a very small minority of shareholders had completely excluded the majority. It was further found that the existing board was not interested in having a board duly elected, and generalmeetings for election of directors were not held. In those circumstances it was held that a state of affairs existed in which no proper general meeting could be held for the purpose of electing a valid board of directors. The facts in Albert David's case, (1963) 68 C.W.N. 163. are entirely different from the facts in the instant case, which is not a case where the undoubted majority of shareholders have been kept out from the control of the company's affairs. For the reasons mentioned above, the decision in Albert David's case does not assist the applicants in this case.

122. Relying upon another decision of this court in Clive Mills Co. Ltd, [1964] 34 Comp. Cas. 731.., Mr. Sen contended that it was held in that case that serious charges of mismanagement, misappropriation and misapplication of the company's assets are strong grounds for supersession of the board and appointment of an administrator. I have already dealt with the allegations of fraud, mismanagement and misappropriation and also the question of verification of the affidavit regarding those charges. The manner in which those charges have been made do not justify this court, as I have already held, in investigating those charges. There is however another reason why those charges cannot form grounds for interference under Section 397 and Section 398, to which I shall refer hereafter. Mr. Sen also referred to another decision of this court in Indian Spinning Mills Ltd. v. Madan Shumsher Jang Bahadur Rana, [1952] 22 Comp. Cas. 162.. This was also an application for an order directing a meeting of the company under Section 79(3) of the 1913 Act. As I have already expressed my views on a similar question, it is not necessary for me to deal with this case.

123. It was next urged by Mr. Sen that the applicant No. I was a guarantor, and had as such guaranteed repayment of the loans taken by the company. The applicant, therefore, Mr. Sen argued, was entitled to protection under Section 145 of the Indian Contract Act. Under that section, in every contract of guarantee, there is an implied promise by the debtor to indemnify the surety and the surety is entitled to recover from the debtor whatever sum has been rightfully paid under the guarantee. That being so, Mr. Sen contended, his client having furnished a guarantee for a large sum was entitled to repayment from the debtor any sums that he might be called upon to pay to the creditor. But Mr. Sen contended, if the assets of the company were allowed to be frittered away by the respondent No. 2 and his group, there would be no assets left from which his client could expect payment. Mr. Sen referred to the summary of the accounts furnished by the company and submitted that the total payments made by the company were Rs. 3,51,378.33 and the total receipts were Rs. 3,46,677.51. The payments, therefore, Mr. Sen contended, exceed the receipts, and that was all the more reason why the guarantor should be protected by taking over the assets of the company from the hands of the present board of directors. Mr. Sen relied upon Section 402(g) of the Act and contended that the court had the power to give protection to the guarantor under that sub-section. He further submitted that if a suit was filed by the guarantor, the court would protect him by making appropriate orders on the basis of Section 145 of the Indian Contract Act.

124. This argument of Mr. Sen suffers from more than one fallacy. In the first place, the applicant alone is not the guarantor, the respondent No. 2 has also furnished a similar guarantee. If, therefore, the guarantors are made to suffer by reason of the company's assets being frittered away, both the guarantors have the same prospective liability on the guarantee. In the second place, the guarantor's right to protection under Section 145 would arise if, and only if, he pays the creditor. It is only when the guarantor is called upon to discharge the liability of the principal debtor, that he can enforce the implied promise by the principal debtor to indemnify him. There is no evidence in this case, and indeed it is nobody's case, that the applicant No. 1 as a guarantor has been called upon to discharge the debts of the company, or that such debts have in fact been discharged by the applicant. That being so, there is no question of affording protection to the applicant No. 1 who has furnished the guarantee. Besides, there is no evidence that the creditor has called upon either the principal debtor or the guarantor to repay the debts. The State Bank of India and the National Industrial Development Corporation, who have taken the guarantee, have not called upon the company to discharge the debts nor have they given any notice to the company or the applicant No. 1 that they require or demand repayment. That being the position, there cannot be any question of giving the applicant No. 1 any protection because of his guarantee.

125. Both Mr. S. Chaudhuri and Mr. R. Chaudhuri contended that the applicant's allegation was that shares of the company held by Metropolitan Industrial Corporation Ltd., Metropolitan Printing and Publishing House (Private) Ltd., and Calcutta Friends Society (Private) Ltd. have been wrongfully and fraudulently sold. They contended that assuming that was so, the transfer of the shares was not an act of either oppression or mismanagement, so far as this company was concerned. It might be an act of oppression or mismanagement so far as the three holding companies mentioned above were concerned. If the directors of those three companies have wrongfully, unlawfully or fraudulently sold the shares held by those companies, such acts of transfer of shares might amount to an act of oppression or mismanagement by the majority of shareholders of those companies and the minority of shareholders of those companies might have a grievance on that account. But both Mr. S. Chaudhuri and Mr. R. Chaudhuri contended that the transfer of the shares, even assuming them to be unlawful and fraudulent, was an act either of oppression or mismanagement so far as the minority shareholders of this company were concerned. It was argued that in order to constitute an act of oppression of the minority shareholders of this company, it must be an act relating to this company and no other. In my opinion, there is a good deal of force in this contention of Mr. S. Chaudhuri and Mr. R. Chaudhuri. According to the applicants. Metropolitan Industrial Corporation Ltd. sold 8,500 shares of this company. Metropolitan Printing and Publishing House (Private) Ltd. sold 734 shares and Calcutta Friends Society (Private) Ltd. sold 610 shares. If the sale of these shares is an act of oppression or mismanagement, such oppression and mismanagement must necessarily be on the minority shareholders of these three companies. The oppression of the minority of these three other companies or an act of mismanagement regarding the affairs of these three companies, cannot be treated as either an act of oppression of the minority shareholders of this company or an act of mismanagement regarding the affairs of this company.

126. It was urged by Mr. R. Chaudhuri that the applicant No. 1 was the managing director of the managing agency company up to January 14, 1957, when the managing agency came to an end, and since then he was the chairman of the board of directors of the company. Since January 15, 1957, all the balance-sheets have been signed by the applicant No. 1. It was next urged that all the allegations regarding acts of mismanagement, misappropriation and misapplication of funds of the company relate to a period when the applicant No. 1 himself was in control.

127. Mr. R. Chaudhuri next contended that the only material allegation of mismanagement is in sub-paragraph (c) of paragraph 46 of the affidavit which relates to the alleged misappropriation of a sum of Rs. 2,00,000 which Bhattacharjee is alleged to have taken out from the company's funds on November 21, 1955, and which is alleged to have been adjusted on March 14, 1956. Mr. R. Chaudhuri submitted that this was done assuming it was done wrongfully at a time when the managing agency company was in office and the applicant No. 1 was the managing director of this managing agency company. This alleged withdrawal took place nearly nine years ago and the applicants are complaining of this act although it was done with the full knowledge and approval of the applicant No. 1. If this large sum was misappropriated by the respondent No. 2, Mr. Chaudhuri argued, the applicant No. 1 would not have remained silent all these years. On this question, I should refer to another matter. In the course of his reply, Mr. S. Sen produced under subpoena a cheque for Rs. 2,00,000 which was alleged to represent the sum of Rs. 2,00,000 which was misappropriated by the respondent No. 2. If this cheque is any evidence of misappropriation, the learned counsel for the applicant should have caused it to be produced in his opening address and not in the course of his reply, so that the respondents might have dealt with the cheque. But as this cheque was caused to be produced after the respondents had closed their case and concluded their arguments, it should not be looked into by this court or relied upon.

128. Mr. R. Chaudhuri thereafter referred to the other allegations in the sub-paragraphs under paragraph 46 of the affidavit. He contended that in sub-paragraph (e) it has been alleged that one Banamali Pathak, a benamidar of the respondent No. 2, in spite of having no qualification at all had been appointed the cashier of the company on a handsome salary. Mr. R. Chaudhuri submitted that Pathak was in the employ of the company for the last thirty years, as has been stated in paragraph 65 of the affidavit affirmed by the respondent No. 2 on June 22, 1964. The allegations in sub-paragraphs' (g), (h) and (i) relate to pay and bonus-sheets. It is alleged in sub-paragraph (i) that the accounts for the year ending with March 31, 1957, show that Rs. 32,59,289 have been debited to salaries and bonus, but that the salaries and wages of the employees of the factory and the head office staff did not exceed Rs. 26,00,000. Mr. R. Chaudhuri contended that these allegations relate to events that happened at a time when the applicant was in charge and the managing agency company was in office. The same remarks applied to the bonus of the operatives which in the accounts have been shown to be Rs. 1,69,836.07 nP. But the payment for bonus did not exceed Rs. 60,000, leaving an extra amount of more than Rs. 4,00,000 unaccounted for. On the figures in sub-paragraph (j), however, it seems that the unaccounted amount according to the figures should be Rs. 1,09,836.07 nP. This also, Mr. R. Chaudhuri contended, happened at a time, assuming it did happen at all, when the applicant himself was the managing director of the managing agency company which was in office. The managing agency, Mr. R. Chaudhuri submitted, continued till January 14, 1957, and therefore if anybody, it was the applicant No. 1 who was responsible for the acts of misappropriation, assuming there was any such act at all. All the allegations of misappropriation and mismanagement. Mr. R. Chaudhuri contended, were confined to the years 1955-56 when his client, the respondent No. 2, was not in control of the company's affairs. On the contrary it was the applicant No. 1 who was the managing director of the managing agency company until January 14, 1957, and thereafter held the office of the chairman of the board of directors of the company. It is strange, Mr. R. Chaudhuri contended, that the applicants should now complain of acts which were done under the direction, supervision and control of the applicant No. 1. If such acts were wrongful acts or if there were any acts of misappropriation, it was for the applicant No. 1 to check and prevent them. But not having done so, he should not be allowed to complain and take advantage of his own acts and hold the respondent No. 2 responsible for the same.

129. Dealing with the conduct of the applicant No. 1, Mr. R. Chaudhuri referred to sub-paragraph (f) of paragraph 3 of the affidavit in reply affirmed by the applicant No. 1 on June 29, 1964, and submitted that the offer made by the applicant No. 1 to refund the principal amount with interest at 6 per cent. paid by the purchasers of the shares, made it quite clear that the applicants were accepting the transaction to be a genuine and valid transaction and it was for that reason that the applicant No. I offered to buy back the shares and pay interest on the amount invested by the purchasers. Mr. R. Chaudhuri contended that this allegation completely demolished the applicant's case that the sale was a fictitious sale and the purchasers were benamidars of the respondent No. 2. The sale being fictitious, and the purchasers being benamidars of the respondent No. 2, there could be no question of the applicant's making the offer to buy back the shares and pay interest at 6 per cent. per annum on the amount spent by the purchasers. It seems to me that there is a good deal of force in Mr. Chaudhuri's contention.

130. Mr. R. Chaudhuri next contended that the acts of misconduct alleged against the respondent No. 2 took place, according to the applicants, in 1956-57. Yet he nominated the respondent No. 2 as the managing director in 1959, knowing all about his misdeeds and misconduct. The respondent No. 2 was a nominee of the applicant No. 1, it was he who had appointed the respondent No. 2 the managing director of the company. Having made this appointment knowing all about his alleged misdeeds, can the applicant No. 1 be now heard to complain about the conduct of the respondent No. 2 Mr. Chaudhuri argued that if there was any substance in the allegations of misconduct, misappropriation and fraud, the applicant No. 1 would certainly not have nominated the respondent No. 2 to the office of managing director of the company and put him in sole charge of the affairs of the company. There is great force in this contention also.

131. Mr. R. Chaudhuri next contended that the real object of the applicants would be clear if the prayers in this application are looked at. The applicants are minority shareholders and they want to acquire control of the company by purchasing the holding of the majority group. Even in this application for interim relief, the applicants wish to buy up the majority and thereby acquire control. If that is so, and indeed there can be no doubt that that is the real object of the applicants, Mr. Chaudhuri contended, that no order can be made in this application in order to settle a private dispute between the parties.

132. In my opinion the conduct of the applicant No. 1 regarding the alleged acts of misappropriation, mismanagement and misapplication of funds by the respondent No. 2 quite plainly proves that he was not only aware of the alleged misdeeds by the respondent No. 2, but having been aware of such acts, he did not hesitate to have the respondent No. 2 appointed the managing director of the company. Then again these alleged wrongful acts happened in the year 1955-56. Nothing has been done by the applicants so far to put an end to such mismanagement or misappropriation by the respondent No. 2. It was only when the shares were transferred by the said three companies that the applicants appear to have suddenly become aware of the injury caused to the minority shareholders and also the company by the alleged acts of misappropriation, mismanagement and misconduct. This leaves little room for doubt that the real object of the applicant is to somehow regain control of the company's affairs by acquiring majority voting strength.

133. Connected with the question of the conduct of the applicant No. I is another question, namely, the question of delay. One aspect of this question has already been dealt with by me, namely, that the allegations of misappropriation, misapplication of funds and assets of the company relate to matters that happened in 1955-56 and this application for relief regarding the said alleged acts of misappropriation was not moved until June 4, 1964. This enormous delay, Mr. S. Chaudhuri contended, completely debars the applicant in asking for reliefs under Section 397 and Section 398. Then again Mr. S. Chaudhuri contended that the transfer of the shares took place in January, 1963, nearly a year and a half before this application was moved. He also contended that since the petitioner had waited for a year and a half to see how things shaped out, there could certainly be no urgency, for any ad interim relief. He further argued that nothing had happened since January, 1963, which demands the supersession of the board.

134. In answer to the argument regarding delay, Mr. S. Sen contended that delay would bar his clients' remedy only if they had been indolent and if by reason of their inactivity the respondents have in some way or other been prejudiced. Relying upon certain passages in N. D. Basu's Law of Injunction, 2nd edition, pages 107-110, Mr. Sen contended that delay and laches on the part of his clients would bar a remedy if only it caused disadvantage to the respondents. Secondly, it was argued that delay was a principle in equity which enjoins that equity aids the vigilant. It was further urged that delay would be no bar if limitation did not impose such a bar and limitation imposed a bar in the case of an action at law. But Mr. Sen contended that in an application under Section 397 and Section 398, the bar of limitation did not operate and, therefore, the delay would not bar the remedy since the law of limitation did not impose anysuch bar. The applicants, it was argued, had been diligent, they had taken steps in the police court, they had approached the Government, they had caused suits to be filed and obtained ad interim orders for injunction.

135. In support of this argument Mr. Sen relied upon a decision of the Judicial Committee in Bulli Coal Mining Co. v. Patrick Hill Osborne, [1899] A.C. 351.. In this case the appellant had furtively, for a number of years, taken the respondent's coal by means of secret underground operations and no laches was attributed to the respondents in not discovering the existence of the wrongful work by the appellant. It was held that although the courts of equity are not within the words of the statute of limitation, yet they are within its spirit and meaning and have uniformly adopted its rules. In law the injured parties seek damages in an action for trespass, and if in law the relief is not barred by limitation, it will not be barred in equity as it is in respect of the same trespass that the party injured claimed compensation. Relying upon this decision Mr. Sen argued that if the law of limitation was not bar to relief, mere delay in seeking redress would not bar the applicant's right to relief. Mr. Sen also referred to In re City Equitable Fire Insurance Co. Ltd., [1925] 1 Ch. 407.This case was relied upon for a definition of the duties of a director. It was held that the director must quite honestly exercise a degree of skill and diligence. But he need not, in the performance of his duties, show a greater degree of skill than can be reasonably expected from a person. This decision to my mind does not help the applicant No. I because it is not a case where he was unaware of the alleged wrongful acts committed by the respondent No. 2.

136. It is true that delay by itself may not bar the remedy, if the applicant has otherwise made out a case for relief. But if delay in seeking the remedy is such that it is evidence of acquiescence or condonation of the wrongful acts, the discretionary relief which the court exercises under Section 397 and Section 398 of the Act will not be granted. But in this case the question is not whether the petitioners in the petition under Section 397 and Section 398 would be entitled to relief which they have applied for on the ground of delay, but the question is whether there is any urgency at all for giving ad interim relief to the applicants by superseding the board of directors and appointing a special officer to perform the duties of the board by taking over the management and control of the company's affairs. Indeed if the applicants have waited since 1955-56 when the alleged acts of misappropriation were committed and since January, 1963, when the transfer of shares took place, there is no reason why this court, in dealing with an application for ad interim relief, should make an order for supersession of the board and appoint a special officer. I am not at the moment considering the petition under Section 397 and Section 398 and I say nothingas to whether delay would bar the remedy in that application. But so far as the present application for ad interim relief is concerned, the delay in moving this court provides strong grounds for not making any order for the reliefs asked for.

137. In the next place it is to be noticed that the allegations in paragraphs 1 to 55 of the affidavit affirmed by the applicant No. 1 on June 3, 1964, in support of the summons in this application are identical with those in the petition under Section 397 and Section 398. An order superseding the board of directors of the company and appointing a special officer was not made in the allegations of the petition. But various other ad interim orders were made to which I need not refer in greater detail at this stage. The grounds for the ad interim relief in this application are to be looked for in paragraphs 56 to 72 of the said affidavit. But there is nothing in the allegations in the said paragraphs to disclose an urgency which necessitates immediate intervention by an order superseding the board of directors and appointing a special officer. There is nothing again in the allegations in paragraphs 56 to 72 of the said affidavit that events have happened subsequent to the presentation of the petition under Section 397 and Section 398, which should be taken into consideration, and which form the grounds for supersession of the board of directors of the company. There are allegations of indebtedness to the bank and to the National Industrial Development Corporation Ltd. The applicant No. 1 states that he has guaranteed such loans, that he was the owner of immovable properties the value of which would exceed Rs. 50,00,000 and that the other directors do not hold considerable properties and are even collectively not in a position to satisfy a fraction of the liabilities of the respondent company. There is also an allegation without particulars that the respondent No. 2 is recklessly dissipating the assets of the company and mismanaging its affairs. There is also a threat to cancel and withdraw the guarantee as the applicants have no longer any faith and confidence in the respondent No. 2. It is alleged that in the event of cancellation or withdrawal of the guarantee by the applicant No. 1, the entire amount due to the State Bank of India and the National Industrial Corporation Ltd. would become immediately payable, and the respondent company not being in a position to repay the same would have no other alternative but to be wound up. It is on these fresh allegations made in the said affidavit in support of the summons that the prayer for appointment of a special officer has been founded.

138. In my opinion the allegations in the said paragraphs of the affidavit do not provide any ground for interference nor do they disclose a state of urgency, which would justify interference by an order for supersession of the board of directors of the company. While alleging that in the event of withdrawal of the guarantee given by him the company will be wound up being unable to pay its debts, the applicants have said nothing to show or establish that a winding up order would unfairly prejudice them or other supporting members of the company. It is not enough for an applicant to allege that the company's affairs are being conducted in such a manner that a winding up order would be appropriate, but he must also show that such an order would unfairly prejudice the applicant and other members. No such grounds have been made out of the possibility of prejudice to the applicants or supporting members.

139. The next question to be considered is the justification for the sale of shares by the said three companies by reason of the requirement of Section 372 of the Act. Mr. R. Chaudhuri contended that the transfer of the shares by the said three companies was made by reason of the requirement of Section 372 of the Act. Under Section 372(2) the investing company is authorised, to invest up to 10 per cent. in the share capital of another company, provided that the aggregate of the investments made by the investing company shall not exceed 30 per cent. of the capital of the investing company and also provided that the aggregate of the investments made in all other companies in the same group shall not exceed 20 per cent. of the share capital of the investing company. Mr. R. Chaudhuri's argument was that the investment of the said three companies, namely, Metropolitan Industries Corporation Ltd., Metropolitan Printing & Publishing House (Private) Ltd. and Calcutta Friends Society (Private) Ltd., were in excess of the limits prescribed by Section 372 and, therefore, the excess investments had to be disposed of. Under Section 373, if sanction of the Central Government is not obtained to investment in excess of the limits prescribed, the company is required to dispose of the excess within two years from the commencement of the Act. Mr. Chaudhuri argued that the sale of the shares was made because the investments in the shares of the company were in excess of the limits prescribed by Section 372. I cannot, however, accept this contention of Mr. R. Chaudhuri. There is no evidence before me that the board of directors of the said three companies ever considered the question of the excess investments and authorised the transfer of the shares on that account.

140. Mr. S. Sen first of all contended that Section 372 does not apply to the company because it is an insurance company. He argued that although Mr. R. Chaudhuri had contended that the life business of the company was taken over by the Life Insurance Corporation, the company was still carrying on general insurance business and was therefore an insurance company and as such the section did not apply to the company and that being so, Mr. Sen submitted that there was no substance in Mr. R. Chaudhuri's contention that the sale of shares was made because of the requirement of Section 372.

141. In my opinion, the exception provided in the case of an insurance company under Section 372(14)(a) has no application in this case at all, because the investing companies in this case are the said three companies, none of which carry on any insurance business. The bar imposed under Section 372(2) apply only to the investing company, none of which in this case are insurance companies nor do they carry on insurance business of any description. The opening words of Section 372(1) quite clearly indicate that the restrictions are imposed on the investing company and not on the company in whose shares the investment is made. For this reason, Section 372 has no application at all. Therefore, neither in fact nor in law, can the argument of Mr. R. Chaudhuri, that the transfer of shares was made to comply with the requirement of Section 372, be accepted.

142. The next question to be considered is whether any relief can be granted tinder Section 397 and Section 398 of the Act, Before proceeding to discuss this question, I should point out that in this application for interim relief, it would not have been necessary for me to consider this question, namely, whether the petitioners are entitled to relief in the petition under Section 397 and Section 398, But it has been contended on behalf of the respondents that if no relief can be granted to the petitioners in the petition under Section 397 and Section 398, no order should be made in this application for interim relief. It was contended by Mr. R. Chaudhuri that interim relief could be granted to an applicant only if he satisfies the court that he would be entitled to the same or a greater relief in the main application or if the application was made in a suit, in the decree which might be passed in the plaintiff's favour. In this case, Mr. R. Chaudhuri contended that the petitioners were not entitled to any relief in the petition under Section 397 and Section 398 of the Act.

143. In support of the contention that no interim relief should be granted in this application, a reference was made by Mr. B. Sen to a decision of the Patna High Court in Rameswar Prosad v. Md. Ayyub, : AIR1950Pat527 . In this case it was held that no interim relief should be granted, unless the court was satisfied that at the final hearing of the matter the plaintiff or the petitioner would be entitled to the particular relief which was asked for in the interim application or unless the interim order asked for was in aid of the main relief. It was also held that the court had to consider on prima facie grounds the existence of a legal right to the relief, and that the fact that the issues raised in the interim application were issues to be decided in the suit, did not exclude such issues from consideration of the court at the hearing of the interim application. On the same question, Mr. Subimal Roy referred to the decision in Lumley v. Ravenscroft, [1895] 1 Q.B. 683.. This was an action for specific performance of a contract, which was entered into on behalf of two parties, one of whom was admittedly a minor. An application was made for an injunction restraining the vendors from entering into the contract until after the disposal of the suit. Lindley L.J. held that one of the parties being admittedly a minor, specific performance could not be granted and therefore an injunction could not be issued in an interlocutory application, as the main relief in the suit could not be granted. Mr. Roy argued that since relief could not be granted in the petition under Section 397 and Section 398, no order for interim relief in this application should be made. In my opinion, this 'proposition is well founded, namely, that an applicant for ad interim relief must satisfy the court that he would be entitled to similar or a greater relief if he succeeds in the action. If, on the other hand, it appears that relief cannot be granted in the action itself or in the main petition, ad interim relief which is always granted by the court in aid of the relief in the action itself should be refused.

144. I shall now proceed to consider if relief can be granted to the applicant in the petition under Section 397 and Section 398 of the Act. Mr. R. Chaudhuri firstly contended that under Section 397 of the Act an order could not be made unless there were grounds for making an order for the winding up of the company on the just and equitable ground. But Mr. Chaudhuri argued that an order for winding up on the just and equitable ground could not be made in this case. He referred to Section 443(2) of the Act and contended that the court should refuse to make an order for winding up, if it was of opinion that some other remedy was available to the petitioners and they were acting unreasonably in seeking to have the company wound up, instead of pursuing that other remedy. Mr. Chaudhuri contended that Sections 397 and 443(2) read together made it plain that if the petitioner for winding up had an alternative remedy, an order for winding up on the just and equitable ground should be refused if the court was satisfied that in spite of having the other remedy the petitioner was acting unreasonably in seeking a winding up order. There is a similar provision in Section 225(2) of the English Companies Act, 1948.

145. Mr. Chaudhuri argued that it was amply clear that the main ground in the petition and the main relief asked for therein relate to the transfer of the shares. With regard to this transfer of the shares, the petitioner has an alternative remedy by way of an action. Not only that, Mr. Chaudhuri argued, the alternative remedy has been chosen and adopted and two suits have been filed in this court challenging the validity of the transfer of the shares. Ad interim orders have been applied for and obtained in those two suits regarding alienation of the shares transferred. The petitioner therefore has been vigorously pursuing the other remedy. That being so, no order can be made for the winding up of the company on the just and equitable ground, assuming such grounds did exist. And if a winding up order cannot be made on the just and equitable ground, no order can be made under Section 397 of the Act. Therefore, Mr. Chaudhuri submitted that even if the petitioners had made out a case of oppression, such oppression could not be the ground for an order under Section 397, because the statute bars the remedy. In support of this contention, Mr. R. Chaudhuri referred to several decisions under Article 226 of the Constitution and submitted that it has been held that if a petitioner in an application under Article 226 of the Constitution had an alternative remedy, which he had adopted and pursued, such conduct would bar relief under Article 226 of the Constitution. He referred to a Full Bench decision of this court in Abanindra Kumar Maity v. A. K. Majumdar, : AIR1956Cal273 . In that case, Chakravartty C.J. held that, although the existence of an alternative remedy was not an absolute bar to an application under Article 226 of the Constitution, if a party had availed himself of the alternative remedy, he could not after having exhausted those remedies, or gone a certain way in their pursuit, turn round to Article 226 and start a fresh line of proceedings. Mr. R. Chaudhuri also referred to the decisions in Marwari Mills Stores Co. v. A. K. Bandopadhya, (1962) 66 C.W.N. 170., K.S. Rashid & Sons v. Income-tax Investigation Commission : [1954]25ITR167(SC) . and Radhakissen v. Rajaram Rao, : AIR1955Cal241 .. Relying upon these decisions Mr. R. Chaudhuri submitted that as in the case of Article 226, relief under Section 397 was a discretionary relief and if the applicant had adopted and pursued an alternative remedy, an order under Section 397 should not be made. In this case, Mr. Chaudhuri contended that the petitioners had caused suits to be filed in regard to the sale of the shares and thus they had pursued the alternative remedy open to them and having done so, they had disentitled themselves to any relief under Section 397, even assuming that they had made out grounds for relief under that section.

146. Mr. S. Sen, on the other hand, contended that the alternative' remedy contemplated under Section 443(2) was an application under Section 397 and Section 398 and not an action at law. He next contended that the relief asked for in the petition under Section 397 and Section 398 could not be obtained in the two suits, which relate to the transfer of the shares only. He further contended that a suit is instituted to remedy the breach of an individual right, but an application under Section 397 and Section 398 is made to remedy the breach of a corporate right. In support of this proposition reliance was placed upon Palmer's Company Precedents, 17th edition Part II, page 37. Mr. Sen next argued that the plaintiffs in the two suits were not the petitioners and therefore it could not be contended that the petitioners had sought the alternative remedy. He next referred to Palmer's Company Law, 20th edition, page 505, and contended that an application under Section 210 of the English Act was the alternative remedy to a winding up order on the just and equitable ground. The learned editors of Palmer's Company Law have indeed expressed the opinion that an application under Section 210 of the English Act is intended as an alternative remedy to the petition for a compulsory winding up on the just and equitable ground. But it has not been stated that an application under Section 210 of the English Act is the only alternative remedy and that an action at law for similar relief cannot be treated as a remedy alternative to the winding up of the company on the just and equitable grounds. I wish to make it clear that if the learned editors had expressed that view, namely, that an application under Section 210 is the only alternative remedy to an order for winding up on the just and equitable ground under section 225(2), I would have no hesitation in differing from that view. The learned editors have not stated that an application under Section 210 of the English Act is the only alternative remedy. But if on the basis of the commentaries mentioned above, it is contended that an action at law is not an alternative remedy, and that the only alternative remedy contemplated under Section 225(2) of the English Act is an application under Section 210 of the same Act, that would not be, in my view, the correct interpretation of the law. Sections 397 and 443 of the Companies Act, 1956, are based on Section 210 and Section 225 of the English Companies Act, 1948. Section 443(2) of the Companies Act, 1956, provides that if the court 'is of opinion that some other remedy is available to the petitioners and that they are acting unreasonably in seeking to have the company wound up instead of pursuing that other remedy, the court may refuse to make an order for winding up,' Quite plainly the legislature is contemplating some remedy other than winding up of the company. If it was the intention of the legislature that the other remedy contemplated by Section 443(2) is nothing but an application under Section 397 and Section 398, nothing would have been simpler than to make it clear that the court would refuse to make an order for winding up if it was of opinion that a remedy under Section 397 and Section 398 was available to the petitioner who was unreasonably seeking to have the company wound up instead of proceeding with an application under Section 397 and Section 398. To hold that the other remedy contemplated by Section 443(2) is nothing but an application under section 397 and Section 398, would have the result of reading into Section 443(2) something which is not there at all. In my opinion, therefore, the said two suits cannot be excluded from the class of other remedies contemplated by Section 443(2) of the Act.

147. Mr. S. Sen contended that the affairs of the company are being conducted in such a manner that the court ought to interfere. He argued that in a case of mismanagement and oppression an order under Section 397 and Section 398 was the only appropriate remedy. He referred to the decisionin Trade Auxiliary Co. v. Vickers, (1873) 16 Eq. 303.. In that case there was violence and force was used in taking possession of the company's office and, therefore, an order was made appointing a receiver for a limited period and during that period the register of the members of the company was set right and a meeting of shareholders was held. This decision, however, does not help the applicant because in this case unlawful possession of the company's office was taken by use of force and the interference by the court by appointment of a receiver was only for a limited purpose, namely, calling of a meeting and appointment of a board of directors.

148. In my opinion, a winding up order on the just and equitable ground cannot be made, as there is another remedy available for redress of the grievance relating to the transfer of shares and that remedy has been resorted to. That being the position, an order for winding up of the company on the just and equitable ground cannot be made and for that reason no order can be made under Section 397 of the Act.

149. It is next to be considered if relief can be granted to the petitioners under Section 398 of the Act. Mr. Sen argued that Section 398 is attracted because a material change has taken place in the management or control of the company by an alteration in the ownership of the company's shares as contemplated by Section 398(1)(b). He also argued that a dispute arising out of a change in management or control by reason of sale of shares must, in the very nature of things, be a private dispute.

150. In order to understand this contention, it is necessary to see if in fact Section 398(1)(b) is at all attracted. Under Section 398(1)(b) it is required that the complaint by the members should be based on a material change in the management or control of the company. In this case the ground for the alleged change is the transfer of shares. But in this case no change has taken place either in the management or in the control of the company. No new directors have been appointed. All that the respondents contend is that the applicant No. I has ceased to be a director by reason of non-attendance at three meetings of the board. Can it be said that the fact that a director has vacated his office or has ceased to be a director by reason of the operation of law, namely, failure to attend meetings of the board of directors, creates or produces such a change in the management or control of the company as to attract Section 398(1)(b) Admittedly, the only change in the management or control of the company is the respondents' contention that the applicant has ceased to be a director. But no new directors have been appointed nor has any meeting of the company been held in which the purchasers of the shares have exercised their voting rights, so that it might be said that a change in the control had takenplace. If a vacancy in the office of a director caused by retirement, resignation or death or caused by operation of law, is to be treated as a change in the management or control, then in every case where such vacancy occurs, a minority group of shareholders would have the right to come to court and ask for relief under Section 398. That, in my view, is not the import of Section 398 of the Act. Then again, it is to be noticed that the material change in the control or management of the company is to arise from certain specified facts as laid down in Section 398(1)(b), and in this case the cause, of such change is the transfer in the ownership of a block of shares. That is the only change in the management or control complained of by the petitioners. But has any change in the management or control of the board taken place by reason of the sale of shares Has any new director been appointed in exercise of the voting power attached to the shares transferred No such change in the management or control of the company's affairs has taken place by reason of the transfer of shares. In my view, therefore, no material change as contemplated by Section 398(1) and Section 398(2) has taken place by reason of the transfer of shares and for that reason Section 398 also is not attracted.

151. As I said earlier, in this application, it would not have been necessary for me to consider the question, if the petitioners are entitled to relief in the petition under Section 397 and Section 398. But that question ought to be considered, as it was argued on behalf of the respondents that no interim relief should be granted in this application if it appeared that no relief could be granted in the petition under Section 397 and Section 398, But I wish to make it clear, however, that as the petition under Section 397 and Section 398 still remains undisposed of, my views as to whether relief can be granted under Section 397 and Section 398 are confined to this application for interim relief.

152. I have considered the rival contentions of the parties, the facts alleged in the petition and the affidavits and also the questions of law involved. I have also taken into consideration the conduct of the parties relating to the affairs of the company. In my opinion, for the reasons mentioned above, no order should be made on this application. The ad interim orders already made, however, should remain in force until final disposal of the petition under Section 397 and Section 398. The costs of this application should be costs in the petition under Sections 397, 398, 402 and 403 of the Act. Certified for two counsel.


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