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S.K. Ghandy Vs. L.P.E. Pugh - Court Judgment

LegalCrystal Citation
Decided On
Reported inAIR1924Cal598,83Ind.Cas.376
AppellantS.K. Ghandy
RespondentL.P.E. Pugh
Cases ReferredCockburn v. Newbridge Sanitary Steam Laundry Co.
- .....done regularly would be within the powers of the company and the intention of the majority of the shareholders is clear. this maybe illustrated by the judgment of mellish, i.j., in mac dougall v. gardiner (1875) 1 ch. d. 13.' this passage was approved in dominion cotton mills co. v. amyot (1912) a.c. 546 and applied by kekewich, j., in normandy v. ind. coppe & co. (1908) 1 ch. 84. the same view was affirmed in cook v. deeks (1916) 1 a.c. 554 where lord buckmaster, l.c., referred to north-west transportation co. v. beatty 12 a.c. 589 and jacobus marler estates v. marler (1913) 85 l.j. p.c. 167.6. the question consequently arises, whether on the facts of this case, the plaintiff hits established that the suit as framed comes within the scope of this rule. the answer, in our opinion, must.....

1. This an appeal by the plaintiff in a suit for damages. The plaintiff is a share-holder in the Hoogly Coal Company, Limited, incorporated under the Indian Companies Act. The first defendant, a share-holder of the company, was appointed its first director by the articles of association and has been a director thereof since its incorporation. The company has been joined as the second defendant. The circumstances which have given rise to the claim for damages may be briefly narrated.

2. On the 23rd September, 1914, the first defendant obtained a lease for 999 years of coal land in Mouza Bon Bistupur held under proprietary right by one Sanjilal. The consideration was the payment of Rs. 30,000 as premium and royalties on; the working. On the 23rd June, 1915, the defendant company was incorporated to take over the Bon Bistupur concern from the first defendant on terms contained in a draft agreement. The capital was fixed at two and a half lacs of rupees covered by 50,000 shares of Rs. 5 each. This agreement between the first defendant and the company was executed on the 2nd July, 1915. On the 5th July, 1915, 40,000 fully paid-up shares were awarded to the first defendant as consideration. Messrs. W.A. Lee & Co. were at the same time appointed Managing Agents and they continued as such for about a year when their services were dispensed with. The evidence showed that till September, 1917, the concern was looked after by the first, defendant who was also the sole director. During all this time, the premium of Rs. 30,000 had not been paid to the vendor nor had he executed the conveyance to the company. But in January, 1916, the first defendant had agreed to deposit shares to the extent of one lac to secure the company against the charge for premium, as, under the agreement, the company took the property free of encumbrances. On the 3rd September, 1917, the first defendant granted a sub-lease for 999 years to one Bagchi. This sub-lease included not only the Bon Bistupur concern but also two other collieries which were owned by the defendant. The consideration for the transfer was an aggregate sum of Rs. 80,000 premium. Royalties were also to be paid but at increased rates which were double the original rates. Possession was given to Bagchi under this sub-lease. The case for the plaintiff is that this sub-lease, in so far as it relates to Bon Bistupur, is fraudulent and in breach of the duty of the first defendant as director of the company. On the 17th September, 1917, the first defendant gave notice of meeting of the share-holders of the defendant company for the next day; but the meeting was not held, apparently because no one was present. After further notice, a meeting was held on the 26th November, 1917, when a resolution was proposed to confirm the lease to Bagchi on payment of royalty. The first defendant was in the chair and voted in favour of it while others present voted against it; he then declared the resolution carried. A doubt, however, was raised as to the legality of the proceeding, and a further meeting was held on the 16th February, 1918. The plaintiff protested but a resolution was carried in these terms:

That the company confirm the lease granted by the first defendant on the 3rd September, 1917, so far as it relates to the lease of Bon Bistupur on royalty and accepts the offer of the first defendant to pay over the royalties as they accrue due to the company and to make no further claim on him.

3. The case for the plaintiff is that this resolution was a fraud on the minority and was not binding on the company. On these allegations the plaintiff instituted the present suit on behalf of himself and the other share-holders of the defendant company. The reliefs claimed were framed in the following terms:

1. Judgment for Rs. 50,000 as damages for wrongful acts, to be paid to the defendant company. 2. Judgment that the first defendant may be ordered to deliver up to the defendant company certificates of the said shares held by him or his nominees in order that the same may be cancelled and that the first defendant be ordered to pay to the defendant company at the rate of Rs. 5 per share in respect of such shares, if any, as have been transferred to bona fide holders for value.

4. The defendant contended that no relief could be claimed in the suit as framed. Mr. Justice Pearson has found that the share-holders have not lost by what took place or that no more profitable way of dealing with the property was open, considering the position of affairs at the time, when the sub-lease was granted by the first defendant on the 3rd September 1917. He has consequently held that upon the suit as framed the plaintiff was not entitled to the relief sought. In our opinion, the view taken by Mr. Justice Pearson is correct and his judgment must be upheld.

5. The principles of law applicable to a case of this character were enunciated by Lord Davey in Burland v. Earle (1902) A.C. 83 in a well-known passage which is quoted by Mr. Justice Peterson in Foster v. Foster (1916) 1 Ch. 532:

It is an elementary principle of the law relating to joint stock companies that the Court will not interfere with the internal management of companies acting within their powers, and in fact has no jurisdiction to do so. Again, it is clear law that in order to redress a wrong done to the company or to recover moneys or damages alleged to be due to the company, the action should prima facie be brought by the company itself. These cardinal principles are laid down in the well-known case of Foss v. Harbottle (1843) 2 Here. 461 and Mozley v. Alston (1847) 1 Ph. 790 and in numerous later cases which it is unnecessary to cite. But an exception is made to the second rule' - that is to say, that the company ought to bring the action - 'where the persons against whom the relief is sought themselves hold and control the majority of the shares in the company, and will not permit an action to be brought in the name of the company. In that case the Courts allow the share-holders complaining to bring an action in their own names. This, however, is mere matter of procedure in order to give a remedy for a wrong which would otherwise escape redress, and it is obvious that in such an action the plaintiffs cannot have a larger right to relief than the company itself would have if it wore plaintiff, and cannot complain of acts which are valid if done with the approval of the majority of the share-holders, or are capable of being confirmed by the majority. The cases in which the minority can maintain such an action are, therefore, confined to those in which the acts complained of are of a fraudulent character or beyond the powers of the company. A familiar example is where the majority are endeavouring directly or indirectly to appropriate to themselves money, property, or advantages which belong to the company, or in which the other share-holders are entitled to participate, as was alleged in the case of Menier v. Hooper's Telegraph Works 9 Ch. 350. It should be added that no more informality which can be remedied by the majority will entitle the minority to sue, if the act when done regularly would be within the powers of the company and the intention of the majority of the shareholders is clear. This maybe illustrated by the judgment of Mellish, I.J., in Mac Dougall v. Gardiner (1875) 1 Ch. D. 13.' This passage was approved in Dominion Cotton Mills Co. v. Amyot (1912) A.C. 546 and applied by Kekewich, J., in Normandy v. Ind. Coppe & Co. (1908) 1 Ch. 84. The same view was affirmed in Cook v. Deeks (1916) 1 A.C. 554 where Lord Buckmaster, L.C., referred to North-West Transportation Co. v. Beatty 12 A.C. 589 and Jacobus Marler Estates v. Marler (1913) 85 L.J. P.C. 167.

6. The question consequently arises, whether on the facts of this case, the plaintiff hits established that the suit as framed comes within the scope of this rule. The answer, in our opinion, must be in the negative. We have been pressed to hold that the grant of the lease to Bagchi for a premium of Rs. 80,000 on the 3rd September, 1917, was fraudulent and was in breach of the obligation of the first defendant as the director of the Hoogly Coal Company. The transaction, however, was not merely in respect of the Bon Bistupur property but also in respect of two other collieries which belonged to the first defendant alone. The plaintiff has not been able to establish that this premium of Rs. 80,000 was not fair consideration for the two collieries held by the defendant. This distinguishes the present case from the decision in Cockburn v. Newbridge Sanitary Steam Laundry Co. (1915) 1 Ir. R. 237 which illustrates how the application of well-settled principles to concrete facts may be beset with difficulties. We see no reason to dissent from the view taken by Mr. Justice Pearson that the lease was neither an act of fraud nor a breach of duty.

7. The result is that the decree made by Mr. Justice Pearson is confirmed and this appeal dismissed with costs.

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