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Jhajharia Bros. Ltd. Vs. Sholapoor Spinning and Weaving Co. Ltd. - Court Judgment

LegalCrystal Citation
Decided On
Reported inAIR1941Cal174
AppellantJhajharia Bros. Ltd.
RespondentSholapoor Spinning and Weaving Co. Ltd.
Cases ReferredCook v. Deeks
- ameer ali, j.1. the defendant company was formed as long ago as 1874 with a capital of eight lakhs divided approximately into 800 shares. since that date, it has had its ups and downs, but it has spun and woven. it has made its profits. it has turned out goods, and no doubt if its management would devote its attention more exclusively to spinning and weaving it would be a flourishing industrial concern. among the downs, may be mentioned the winding up petition of 1930, which ultimately resulted in borrowing some 70 lakhs upon debentures. in 1931 largely i gather as the result of the need for finance managing agents were obtained in the shape of the jhajharia and dhandhania families, who combining into the unit of morarji goculdas & co., became for a period the managing agents. if i.....

Ameer Ali, J.

1. The defendant company was formed as long ago as 1874 with a capital of eight lakhs divided approximately into 800 shares. Since that date, it has had its ups and downs, but it has spun and woven. It has made its profits. It has turned out goods, and no doubt if its management would devote its attention more exclusively to spinning and weaving it would be a flourishing industrial concern. Among the downs, may be mentioned the winding up petition of 1930, which ultimately resulted in borrowing some 70 lakhs upon debentures. In 1931 largely I gather as the result of the need for finance managing agents were obtained in the shape of the Jhajharia and Dhandhania families, who combining into the unit of Morarji Goculdas & Co., became for a period the managing agents. If I recollect rightly, the Jhajharias became selling agents under an agreement, the term of which was 20 years. The managing agents under their agreement became liable for advances to the extent of 20 lakhs in two stages. These advances were secured by the company by hypothecating its stock and by depositing debentures of a certain aggregate value. The actual management of the company was carried on by Ramdhonedas Jhajharia, who gave evidence before me. In January 1933 the managing agents were dismissed. Of the directors who took that action only one survives, Mr. Cama. This breach between the Jhajharias and the company led to a series of suits : a suit by one member of the Jhajharia family impugning the act of the directors; a suit by Morarji Goculdas & Co. for damages and or specific performance of the managing agency agreement; a suit by the Jhajharias in respect of certain debentures relating to their loan; and lastly to certain disputes between the Jhajharias as selling agents and the company, which were submitted to arbitration. The selling agency dispute seems to have dragged on indefinitely. In the suits the Jhajharia interest with the exception of the debenture suit seems to have been uniformly unsuccessful, subject to this that the managing agents' suit is still under appeal to the Judicial Committee.

2. For the period 1933 to 1937 there were no managing agents. In February 1937 again coupled with arrangements for further advances, this time to the extent of 12 lakhs, the Murarkas were appointed managing agents, and the trouble already indicated became more acute. The Jhajharias before August 1938 had acquired some 255 shares. They represented what might be called the opposition; in particular, they were demanding some form of enquiry into the management of the company. On 31st August 1938, there was a company meeting, which has been the subject-matter of conflicting evidence, rather the circumstances surrounding that meeting have been the subject-matter of conflicting stories. The plaintiffs' case, generally speaking, is that the incidents of this meeting and those surrounding it contained a successful attempt to buy over or dispose of the opposition. To this incident and its implications I may have again to refer. In February 1939 the selling agency was terminated, according to the Jhajharias, wrongfully. This matter was also referred to arbitration. Apparently the company claimed against the Jhajharias considerable sums alleged to be due from them in their capacity as selling agents and in pursuance of this claim the company or the directors purported to declare a lien over a large proportion of the Jhajharias' shares, I think 211 shares. Shortly after this, at any rate before the end of 1939 the Murarkas caused themselves to be registered as owners in respect of 163 shares out of the 265 originally acquired by the Jhajharias. The Murarkas claimed to obtain these by purchase; the Jhajharias claimed that the Murarkas were no more at the highest than subpledgees, the intermediate pledgees being the Dalmias.

3. In January 1940 a tender was made in order to procure the release of these shares unsuccessfully. Then followed first police Court proceedings, and then a suit in the High Court of Bombay for a declaration of title in respect of 163 shares and for incidental reliefs including an injunction restraining the Murarkas from making use of them for voting power. The importance of this latter matter is that on 13th February 1940, the directors had approved a report of the manager of the Mills dated 6th February 1940, recommending an expenditure on machinery to the extent of 16 lakhs or more and for the purpose of raising 16 lakhs the directors recommended an increase of capital, i. e., to double the capital of the Company and had called a meeting of the share-holders for this purpose advertised for 19th March. The injunction therefore was specifically directed to prevent the Murarkas from using the votes represented by the 163 shares at the proposed meeting. The injunction was not obtained. On 3rd March 1940, this suit was filed in the Calcutta High Court by the plaintiffs, a private company, the share-holders of which are, I gather, the members of the Jhajharia joint family, holding one share in the defendant company. An injunction restraining the directors from acting and prohibiting the company meeting was sought. On the hearing of the application before McNair J., some arrangement was arrived at, as the result of which a fresh circular was issued on 25th April 1940, for a meeting to be held on 15th May. A second application for injunction was made to me. I refused the injunction for reasons which are now immaterial but which I may possibly have to qualify when I come to discuss the legal aspects of this case. The meeting was therefore held and a resolution passed in the following proportion : 412 for the resolution, 134 against. I will refer to the voting in greater detail hereafter.

4. One of the questions of fact which arises is the necessity or otherwise for new machinery. Therefore a considerable part of the evidence, oral and documentary, has been directed to the suggestions made from time to time with regard to the replacements and improvements. The principal proposals may conveniently be enumerated here. They are relied upon by the plaintiffs to show that nothing like a thorough overhaul in February 1940 had even been proposed, and by the defendants to show that there always had been a necessity, and there was a continuing necessity, for replacements or better machinery. In 1935 there was a proposal by the then manager to make replacements to the value of about 5 or 6 lakhs. In 1936 there was an informal meeting of the share-holders, at which Ramdhonedas himself was present, at which the need for new finance for new machinery was mooted. In 1937 the recently appointed managing agents, the Murarkas, if I recollect rightly, obtained a report from the present manager Mr. Ranchorelal. That was before his actual appointment. And in 1938 Mr. Ranchorelal made a report recommending the expenditure of a very modest figure of Rs. 35,000. In 1939 Mr, Ranchorelal made a fresh report recommending an expenditure of 5 1/2 lakhs. On 13th July 1939, this scheme was placed before the directors, who adjourned consideration of it to the month of October. The adjourned meeting took place at the Mills on 8th October 1939, and at this meeting the directors after referring to the increase of prices called upon the manager to make a fresh report showing what was urgent and what could be deferred and asking him to spread the budget expenditure on new machinery or replacements over a period of three years; also directing the managing agents to invite quotations.

5. No other resolution of the directors intervenes before the report of Mr. Ranchorelal of 6/7th February 1940, which we may refer to as the big report. This, as I have already said, was considered by the directors on 13th February 1940, and for the first time the proposed increase of capital is referred to as ' the financial scheme. ' Where and when this scheme had originated is not clear, but as a result apparently of discussion the scheme ultimately embodied in the resolution placed before the company was adopted by the directors. The shares were to be issued at a premium of Rs. 1000. It was also resolved that the new issue should be under-written by the managing agents at a commission of 2 per cent. It may be convenient to state here that the managing agents are a partnership firm, four partners of which are shareholders in the defendant company and two partners are directors. The next directors' meeting was on 28th February 1940, when various documents were approved and the underwriting agreement concluded by resolving to accept the offer of Murarka & Co., contained in their letter of 28th February 1940. On 13th March 1940 there was a joint meeting of the directors and the trustees of the debenture-holders. If I remember rightly, the trustees are represented on the board by two directors who are not shareholders. The proceedings of this meeting have been relied upon by the plaintiffs in connexion with their case that this machinery was not necessary and it does appear from the discussion recorded (for no resolution was actually passed) that the trustees for the debenture-holders doubted the necessity for so much expenditure on new machinery. There are indications that the directors and the managing agents themselves, at any rate, did not regard the money as urgently required for the purchase of new machinery and anticipating the inferences which I may draw, I am inclined to discover indications that the additional capital was regarded as a most useful addition to the funds required for running expenses.

6. I propose now to discuss the pleadings and the issues that arise. There were two applications for injunction before me. The first was made on 13th May before the meeting was held. The second application was made on 4th June or thereabouts to restrain the company from acting upon the resolution and that I rejected upon grounds which are not now material. At the beginning of the hearing an application was made for amendment, first informally and then formally, and my judgment of 3rd June allowing amendment to be made should be read in connexion with the judgment now given. Formal issues were not recorded and for this reason that having regard to the discussion with regard to amendment and the points involved, they have been clear to all, namely (i) jurisdiction; (ii) questions involved in the frame of the suit including all questions of parties, particularly pleading of fraud and so forth; (iii) was there a fraud as alleged; (iv) is the plaintiff entitled to relief, and if so, to what relief? I proposed to deal first with the second issue or set of questions, namely the frame of the suit and at some length. In the plaint the persons who appear to be charged with fraud or concerned in the fraud are of three classes, managing agents, directors and shareholders. It is not easy to distinguish in the original plaint the party charged with what I shall call 'the substantive offence.' The phrase is repeated 'managing agents and/or the directors' bud reading the whole of it, and in particular para. 15, the case, as I understand it, is that the managing agents coerced the directors and the directors coerced the shareholders, the real wrong-doer on the facts alleged being the managing agents. Put from the other hand of the scale the majority shareholders are assisting the directors who are assisting the managing agents to commit a fraud, that is from above down or from down upwards.

7. Generally speaking, however, the matter of principle may be discussed as if the wrong-doers were the directors, so simplifying the facts to bring them more in accordance with the English authorities where managing agents do not figure. So read, the charge is that the directors (for this purpose including managing agents) procured the increase of capital with the immediate object of acquiring the majority of shares and with the ultimate object of avoiding enquiry and causing detriment to the company. The directors are supported by the majority of shareholders in the company meeting, that support being due either to the influence or the coercion of the directors or the joint fraudulent intent of the supporting shareholders, and it was thus that the resolution was passed in company meeting. That, apart from the specific question of the underwriting commission, is the gist of the case. That being so, Mr. Banerjee, supported by the authorities which his learned junior ransacked, has attacked the plaint in its head, in its body and in its tail, that is to say cause title, body and prayer and has sought to show that the animal is not known to legal science. This has logically led to an enquiry as to the nature of this suit involving an enquiry, as to what kind of suits of this nature are allowed by the law.

8. I propose, as shortly as I can without going into the cases in detail, to explain my understanding of the matter. There can of course be suits by shareholders against the company for individual wrong done to them. Apart from individual wrong there may be suits to restrain acts ultra vires. There is no question of ultra vires in this case and I propose to confine the discussion to suits other than those based upon complaints of acts Ultra vires, although I am not suggesting that there is any fundamental difference in principle. Suit to restrain acts ultra vires and suits to restrain certain acts about to be discussed notwithstanding that the acts have the support of the majority of shareholders, are both exceptions to the rule that the Court will not interfere in the affairs of the company or with the decision of the majority. The Court interferes in cases of an ultra vires act, because it is not an act within the constitution. In the other class of cases the Court interferes upon a different basis. They have been referred to generally as cases of 'fraud upon the minority.' These cases of 'fraud upon the minority' however are, in my opinion, only special examples of an action by the company for what is in theory regarded as a wrong done to the company, a special form of the suit being adopted as a matter of machinery to obtain relief under special and peculiar circumstances. If the wrong-doer has the balance of power, and, therefore, the company does not take action, there are two courses open. The minority may take the risk and boldly use the company's name. The other course, and what has been thought to be the better course, where the wrongful act is supported by the majority, is for the minority shareholders to sue in their own name or, as a matter of convenience, for a shareholder to sue on behalf of himself and all the other share-holders. If, however, as generally happens and must happen logically, the wrong-doers are also shareholders, these shareholders as a matter of course must be excluded from the category of the plaintiffs; hence the phrase 'except those who are defendants.'

9. In a suit so brought, the complaint is said to be of a 'fraud on the minority.' If by this it is understood that the minority in a company have some natural right to sue a majority which is oppressing it, if it is suggested that there is any such thing legally as a wrong done by a bigger group to a smaller group within the company and, therefore, there is a class of action by a minority qua minority against a majority qua majority, I disagree. There can be no such thing as a legal war of parties. Brown v. British Abrasive Wheel Co. (1919) 1 Ch 290 is in my opinion not an authority for such a theory nor did Mr. Sanyal cite it as such. In that case, if I remember rightly, the Court would not allow an alteration of articles so that the majority could expropriate a small minority. It was not allowed as being contrary to justice. The real significance of it, in my opinion, is that it was a violation of the constitution, so to speak, the rights in other words of all shareholders who are all citizens. Although this is a matter of theory its results on matters of practice are unusually important. The primary wrong is the wrong done to the company; in other words all the shareholders. There is, it is true, a secondary wrong in the suppression of the opposition of the minority, the overwhelming of the minority. In the normal case the distinction is purely theoretical, the wrong-doers are themselves the majority. I can conceive, however, of cases where the distinction may become apparent, in other words, where the primary wrong-doers, those committing the fraud or the wrongful act, are not themselves the majority but get the support of the majority.

10. In my opinion if this is the principle, however imperfectly expressed, it explains the matter of the form adopted in the frame of the suit as it is familiar to English lawyers. The formula adopted in the Atwool v. Merryweather (1868) LR 5 EQ 46n series of cases is as I understand this: I retain the symbols which were used in the discussion with counsel. Alphabet Ltd., 24 shareholders A - z. X, Y, z are putting the property of the company into their pockets, whether it be a contract, whether it be commission or anything else. X, Y, z are both shareholders and directors.. They have the majority on the board of directors and can, therefore, make this present to themselves. They are able to override opposition in the company because, though possibly inferior in number they control the majority of votes, either as holders or possibly through shareholders under their control. For instance z might be the director making himself present and X-Y shareholders supporting. Now, the formula of a suit is 'a', on behalf of himself and all other share holders of the company, except those who are defendants-v-X-Y-Z and Alphabet Ltd. It seems to me that in order to provide a process the law regards the company for the purposes of the suit as split up into its units. The presence of the company as defendant requires explanation. For, if the company is the plaintiff, why should the company also appear as the defendant? Spokes v. Grosvenor Hotel (1897) 2 QB 124 indicates the answer. It is there in order that it may enjoy the benefit of any relief obtained for it by shareholders and to be bound by any decree made. I may refer to this again in connexion with Mr. Sanyal's argument on parties, but I do not regard the company as being the real defendant. If that be the correct formula, I come now to consider Mr. Banerjee's criticizm of the cause title in this suit, first as a pure matter of form and then still as a matter of form but indicating a substantial defect.

11. It is to be noted that for reasons which we need not discuss but which can well be appreciated, the plaintiff here sued on behalf of himself and ' other shareholders of the defendant company,' i. e., a number of them unspecified. All that is on the plaintiff's side, is the plaintiff plus an unspecified body, or an unidentified body of 'other shareholders'; i. e. 'a plus others.' On the defendants' side there is the company. If this be regarded as split into its integers, that means A to z. As a matter of form, in my opinion, this is not in accordance with the English precedents. Mr. Sanyal has showed me certain cases where the shareholders on what I call the credit side do not appear to balance the shareholders on the debit side, but on principle that is the object to be aimed at and for the reason already indicated that all the shareholders are suing or presumably suing as a substitute for the company, only excepting those shareholders who will not actually join the plaintiffs. In my opinion however the absence of any defendant other than the company is not a defect merely of form and it is in connexion with this point that I shall have to discuss Mr. Sanyal's arguments. If my view is correct, the wrong charged is not a wrong done by X Y Z to A W. It is not a wrong of class upon class, but it is a wrong done by X Y Z, in theory at any rate on A Z. XYZ commit a wrong upon a group of which they are themselves integers, because by that wrong they obtain advantages superior to the detriment caused to themselves as members of that group. In the typical case Atwool v. Merryweather (1868) LR 5 EQ 46n, Cook v. Deeks ('16) 3 AIR 1916 PC 161 series, X Y Z are directors, they are doing the wrong and they are the majority who hold the power in the company.

12. Two questions seem to me to arise, first, is it sufficient to plead simply the dominance of the majority of the shareholders or what I call the secondary fraud? In my opinion, the primary fraud must be clearly indicated. It is the gist of the action, although no doubt the pleading or the particulars may be so framed as to stress the dominance of the majority and the effectuation of the fraud through that dominance. That was the way this pleading and the amendment was framed and I deem that to be sufficient so long as it is made clear what precisely the real wrong is and who is committing it. But the second question is this : Must not the wrongdoers be specified and being specified, be made party defendants to the action? It might, I conceive, be sufficient to make them parties qua shareholders, although if the primary wrong be as it is in this case that of the directors, it seems to me right and proper they should be sued qua directors. What I mean is this: It seems to me better at any rate not to regard their fraud qua directors as merged in the act of coercion by the majority. Whether that view be or be not correct, it is my opinion that you cannot charge the company with committing the fraud. A to Z minus XYZ cannot charge A to Z with committing a fraud. Hence the sense of suing Y Z specifically as wrongdoers, making plaintiffs the whole alphabet minus XYZ and adding the company as defendants. I do not think that the converse of this is good, that is to say specifying the plaintiffs and then making some sort of a body of defendants out of the residue. Moreover, as a matter of form, this was not done because the plaintiffs are not actually specified or identified. In my opinion X Y Z or those represented by these symbols on the facts should be sued. In this case it is to be remembered that the real wrongdoer the managing agent, firm, is not only the directors but something beyond the directors, a partnership of which certain members are directors and certain members are shareholders. Whether I be right or wrong on this point, I am indebted to Mr. Sanyal for a very careful argument upon it which I. have analyzed as follows:

13. That as a matter of form in England, we do not find in this class of case, the parties or shareholders invariably balanced. He referred to Brown v. British Abrasive Wheel Co. (1919) 1 Ch 290 and I think I have seen one other case where the balance did not seem to be perfect. There is a danger in India of becoming more technical on those points than is warranted by the English law, but although I have stressed the matter of form I have intended to do so as indicating the principle. (2) A point I have already mentioned, that the company is the real party: Spokes v. Grosvenor Hotel (1897) 2 QB 124 As I read or have read this case, that is not the significance; on the contrary, I think the implication is that the company is in fact suing for wrong to the company, but that because certain shareholders are the plaintiffs, the company as a unit must be on the record for finality and completeness. I read the observation in this case as strengthening the view that it is really a suit by the company against the wrong-doers to the company, and that the company cannot sue itself. In that case, if I remember rightly, one of the wrong-doers was a third party. I have no doubt that there was relief sought which necessitated the presence of that third party and the wrong-doing director as a defendant. (3) This brings me to Mr. Sanyal's most important point, namely that the presence of defendants is to be regulated by the reliefs sought and that where the reliefs sought are effective by an order on the company, the directors and managing agents being servants and agents of the company, it is not necessary to make any other person a party. (4) Next, Mr. Sanyal dealt with the other aspect of the matter, namely the necessity of having before the Court the party charged with fraud, and this is where in my opinion he experienced his greatest difficulty. He attempted to get rid of it in two ways, and I hope I am not doing an injustice to his argument by an analysis, which is necessarily imperfect. First, that in substance it is a wrong done by the company to itself, and therefore if the company is present as defendant there is nothing to prevent the Court making the declaration that the company has wronged itself. Alternatively, that it is a wrong by the majority of the shareholders. On this line he is faced by a second difficulty, that the wrong-doing shareholders are not defendants except by an inaccurate process of subtraction of an uncertain number of plaintiffs.

14. Now this idea of the real wrong-doer being the majority is, I think, based upon the conception of the directors' or the managing agents' wrong being absorbed or merged into the general wrong of oppression by the majority. I have already expressed my view on that. In my opinion the gist of the wrong is still the advantage gained or intended to be gained by Z. Notwithstanding that, Z is supported in obtaining his advantage by X and Y shareholders under his control. The gist of the wrong is still, and I am probably repeating myself, Z obtaining an advantage by using his power over x and Y, or put otherwise, X, Y, Z conspiring to assist Z to get his advantage. If you take the latter point of view X, Y, Z are the wrong-doers, and X, Y, Z have not been sued. It may be that Mr. Sanyal is right in suggesting that it is not really or solely a question of parties. It may be that the Court should insist, where fraud is charged, that in proving that case the 'accused' should be before the Court. That it should, therefore, be looked at rather from the point of view of particularity than of parties. My ruling for what it is worth is as follows: Where a decision of the directors is attacked on the ground that it is injurious to the company, the directors should be parties. Where that act of the directors so impeached has been confirmed and is still impeached on the basis that the directors have got that confirmation by controlling the majority, still those directors should be parties.

15. The above discussion or analysis is based upon the inferences I have drawn from Atwool v. Merryweather (1868) LR 5 EQ 464n; Cook v. Deeks ('16) 3 AIR 1916 PC 161 series. Mr. Sanyal very pertinently pointed out that in the majority, if not all, of those cases, the wrong of X,Y,Z was some form of taking, and therefore some form of relief was required directly against X, Y, Z and on this ground sought to distinguish the case before me. It is for this reason that I omitted the Fraser v. Whalley (1864) 2 H & M 10 series, the facts of which are analogous to the case made by Mr. Sanyal. In Fraser v. Whalley (1864) 2 H & M 10 the details are complicated, but in substance there were two parties differing upon policy, and what was called the Whalley group had the balance of power as directors. The Eraser group had the power in the company. To meet the situation the directors proposed to issue or take up shares. The formula for the suit was F on behalf of the shareholders except the defendants against the company, and the directors forming the Whalley group. The Court refused to concern itself with the question of policy, but, as I read the observations at pp. 29, 30 and 32, notwithstanding that the directors had no ill intent they were regarded as interfering with the constitution, with the management of the company qua company and thus causing a mischief to the company. The directors were restrained from issuing the shares. In Punt v. Symons & Co. Ltd. (1903) 2 Ch 506 the application was for an injunction to restrain a confirmatory meeting of the company to confirm a resolution by the company to alter the articles for the purpose of changing the balance of power. The directors had issued certain new shares in order to get the resolution passed. Now I am not sure whether the directors were defendants. It may be that Mr. Sanyal is right; but I think not.

16. In the last case Piercy v. Mills & Co. Ltd. (1920) 1 Ch 77 the plaintiff sued for a declaration that allotments made by the directors for the purpose of varying the balance of power were void. One P had the power in the company and wanted to be a director. The directors issued shares to themselves and to two other persons in order to get control of the company and therefore keep out P. It was proved that the company was not in need of any further capital and that the issue of shares was to obtain the passing of a special resolution to alter the articles which would keep P out. The declaration sought was therefore granted. In the first case Fraser v. Whalley (1864) 2 H & M 10 so far as the form is concerned, I think the plaintiff did sue on behalf of himself and all the other shareholders. I have not been able to ascertain the exact form of the plaint in the other cases, but in Fraser v. Whalley (1864) 2 H & M 10 and Piercy v. Mills & Co. Ltd. (1920) 1 Ch 77 the relief sought was certainly against the directors, in the first case an injunction and in the last case a declaration, and the action impugned was the action of the directors and the directors only. In Punt v. Symons & Co. Ltd. (1903) 2 Ch 506 the directors had caused their act to be confirmed by the company. But, in my view, these cases do not stand on a principle different to the Atwool v. Merryweather (1868) LR 5 EQ 46n cases. Somebody, namely the directors, is interfering with the management of the company, and is doing a wrong to the company as a whole. Somebody is impeding the free working of the constitution. I do not think therefore that any different rule should apply. Now, this series of cases leads me at last to begin upon the facts. In those cases the directors issued the shares. They issued the shares being a minority in the company and a majority in directors' meeting with the object of becoming a majority in the company. The obvious distinction, whether it be fundamental or not, is that here the increase of capital, although initiated by the directors, is the act of the majority itself. Generally speaking, you cannot charge a majority in the company with wrong in adding to the voting power of the directors. So far as I know there is no inherent wrong in that. A majority can increase its own majority, generally speaking, unless there be an element of expropriation or coercion. Mr. Banerjee, therefore, contends that in no way can the present case by analogy be brought within Fraser v. Whalley (1864) 2 H & M 10 in particular, as under our law of companies, all the existing share-holders must be given an equal chance of getting the additional capital, and were in fact given, so far as the scheme was concerned, that chance.

17. That is a formidable difficulty in the way of Mr. Sanyal. It means that Mr. Sanyal will have to show on the facts a great deal, more than what was established and easily established in Fraser v. Whalley (1864) 2 H & M 10 But, I shall not rule that in no case a wrong could arise. It is to my mind conceivable that the directors, though not themselves issuing the shares, might so arrange a scheme of new issue, including the resolution to be passed by their influence, so that automatically the result will be to give them the bulk of the new shares. The first obvious comment is that in order to do so they must already have a majority in the company, which should make the whole scheme unnecessary. To this on the facts of this case Mr, Sanyal has rejoined that that majority in this company meeting was doubtful. It was doubtful in respect of the 163 shares then and still the subject-matter of a title suit. It seems to me therefore and I shall not rule to the contrary, that the directors might be assailed if it is established first that the increase of capital is for the purpose of power; secondly, that the passing of the company resolution confirming the increase was procured by their own power, by the power of their dependants or by any kind of device. In this case certain devices have been alleged. The device of suppression of notice and of shortness of time has gone by the board. The devices now relied upon are the underwriting agreement and what is alleged to be a trick or whatever other phrase may be appropriate, namely the 163 shares. In that indirect manner the 163 shares are relevant. Mr. Sanyal cannot of course claim that the 163 shares should have been on the one side and not on the other. But he relies upon these circumstances as an indication that the company's consent was brought about improperly and that the scheme prima facie was bound to give them the bulk of the new shares. The two branches of Mr. Sanyal's case, therefore, are as follows : first, the 2 per cent. underwriting agreement; and secondly, the scheme to increase the capital to obtain balance of voting power. The ultimate motive of obtaining this balance seems to be on the authorities immaterial.

18. I will deal quite shortly with the 2 per cent. underwriting commission. The ease as made falls within the Cook v. Deeks ('16) 3 AIR 1916 PC 1614 series. Mr. Banerjee contends that this did not form part of the resolution. It is perfectly true. It was, however, part of the scheme sanctioned by the company. There is, therefore, no question of fraud by the majority as regards the 2 per cent. commission. But the difficulty is this, that the wrong-doers are not there. The point is particularly obvious in this connexion because the recipients of the 2 per cent. commission are not even all directors. They are partners in the firm of the managing agents. In any event according to the views already expressed and to my understanding of this line of English cases the actual alleged wrong-doers, namely the Murarkas and their immediate* supporters, the directors, should have been the defendants. As regards evidence, there is not sufficient, in my opinion, to find that the action, if it be regarded as the action of the company because it is implied or involved in the general scheme, was either fraudulent or so unreasonable as to lead inevitably to the conclusion that they were helping to make a present to the Murarkas. The underwriting, however, can still be used and was used by Mr. Sanyal as a part of the other branch of the case, namely a means of getting the bulk of the capital for themselves.

19. It is convenient to restate what Mr. Sanyal in order to succeed in a suit of this kind has to establish. First, that the Murarkas' motive in putting forward the scheme was substantially, if not solely, to increase their voting power and obtain a majority, that the directors supported the Murarkas either because they ware under the control of the Murarkas or with the same object; and lastly that the shareholders supported the directors and the Murarkas either because they were under the control of the Murarkas and/or directors or because they had a similar wrongful intent. In connexion with this particular kind of complaint, there is the word ' fraud ', but it is clear that no immediate or ultimate dishonest motive is necessary. It is superfluous, if Mr. Sanyal establishes his case, to prove that the Murarkas are going to do wrong, or going to injure the company. If it was necessary, it has not been proved and it was impossible to prove. Secondly, and here I touch upon a point which I should have liked time to allow Mr. Khaitan to argue further, it is necessary to prove that the shareholders have supported the directors and managing agents, either because controlled by them or because they had substantially the same motive. The mere fact that they support frivolously or unreasonably might not be sufficient. I do not, however, propose to rule that it is essential in all cases that the supporting shareholders should have the same identical wrongful intent as the directors they support. Proof of party feeling or animosity by itself. would not be enough. That such animosity existed is obvious. The major animosity between the Jhajharias and the Murarkas and how many minor animosities, no one knows. This question of animosity, however, cuts both ways. In connexion with the dispute between the Jhajharias and the Murarkas there is the specific matter of 163 shares. I must not be taken as expressing any view or giving any decision as to what would be the position if it is ultimately established that the Murarkas were not entitled to or have wrongfully used the 163 shares as part of their voting power in the meeting. The only manner that this matter has been used before me, if I have not already so indicated, is for the purpose of showing that the actual majority at the date of the meeting was not so secure as to exclude the necessity for the Murarkas to use other means to put it beyond doubt.

20. The plaintiffs, however and Mr. Sanyal with his usual ingenuity have used this Jhajharia Murarka war as a preface or introduction to the scheme which he characterizes as a major engagement in this conflict. Mr. Banerjee on the other side in order to disprove the motive has relied upon the results according to him inconsistent with the alleged intention. His point is that the Murarkar's majority on 1600 is little if at all greater than their majority of the 800. But if I have followed the figures, it seems to me that the Murarkas will be up on their underwriting by a substantial number of shares. The question is whether this is only the normal result of any such proceeding or whether it is the real object of the whole scheme. In order to prove the motive it is necessary for the plaintiffs to establish that there was no need for capital and it is upon this that the main conflict of evidence has turned. Mr. Sanyal makes the attack on two lines, first that the machinery was not necessary and secondly assuming that machinery was necessary, that the company had funds, That, as I stated, was the main subject-matter of the evidence, documentary and oral. The other subject-matter of oral evidence which is of importance is the question of control, how far the directors controlled the other shareholders who supported them. (After examining evidence his Lordship concluded.) I am therefore unable to find on 'the, facts that a fraud was committed upon the company of the nature alleged. I have already held on the technical branch of the case that it is not sufficient to allege that fraud against, so to speak, persons unknown, or rather to allege it generally against the company and not against specific persons who must be made parties to the suit. On these two grounds the suit fails.

21. I have not had time to refer to the evidence on the point of jurisdiction. In the result, my decision on that point is unnecessary, and subject to possibly a reference to the evidence, I give my decision on the basis that this Court has jurisdiction. There are one or two minor technical points that were argued before me, one of which I shall refer to in its proper place, namely Mr. Banerjee's point with regard to Order 1, Rule 8. I am not so interested in the point that after the passing of the resolution and the amendment there was a different class. In a case of this kind, it is not possible for the officer, dealing with the matter of leave as he does departmentally, to consider the question involved. I find it a matter of doubt whether leave should be granted to an indefinite group, such as 'other shareholders.' When the matter comes to be analyzed microscopically as it has been before me it is not possible to say whether 'other shareholders' as they appear in this cause title, are or are not in the same interest. I think on principle and in practice it should be 'all the other shareholders except the defendants.' Also, in the course of discussing the evidence, I should have referred to the inference which Mr. Sanyal asks me to draw from the fact that the directors have given no evidence. That we might have learned from them in connexion with the meetings of October 1989 and February and March 1940 quite a lot, I think, is true. But, on the other hand, if the view which I have expressed is right, it was not natural to expect them to afford the plaintiffs that opportunity. The case has been ably argued on both sides, both by seniors and as to a considerable part by juniors, especially Mr. Sanyal, for the plaintiffs. The suit must be dismissed with costs including reserved costs.

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