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  • B.S.Kamthania
  • L.K.Gaur
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  • Bal Raj Tuli, JJ.
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Advocates
  • B.S.Kamthania
  • L.K.Gaur
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  • Harbans Singh
  • Bal Raj Tuli, JJ.
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Smart Summary

Judgment Summary

Factual and Procedural Background

The appellant, Suresh Chandra Marwaha, a shareholder of Lauls Private Limited holding five shares, filed a petition under sections 397 and 398 of the Companies Act (supported by his mother, who held 754 shares). The learned Single Judge dismissed the petition on March 17, 1972, and this appeal under clause 10 of the Letters Patent challenges that dismissal.

The Company (incorporated 1933) had articles (Articles 6–8 and 9) restricting shareholding largely to descendants of S.R. Laul and vesting the board with discretion over transfers. Over time, several family relations other than direct descendants were allotted shares. A creditor, India Iron Traders Corporation, petitioned for winding up on May 2, 1969; a compromise followed in which members of the Laul family holding 2,869 shares agreed to transfer those shares to Chander Sagar Gupta (a partner of the creditor) and associates at Rs. 30 per share. A board meeting on May 27, 1969 effected transfers and inducted Chander Sagar Gupta and Gyan Sagar Gupta as directors; the management changed thereafter. The appellant was co-opted as a director on July 7, 1969.

Differences arose and, after a board meeting on November 7, 1970 (which the appellant and his mother left), the board co-opted two further directors and sanctioned certain transfers. A resolution to remove the appellant as director was moved and the appellant was ultimately removed under section 284 of the Companies Act at a general meeting convened for December 3, 1970.

The appellant had earlier filed (on November 6, 1970) a suit challenging transfers to respondents 2–26 but withdrew it while the sections 397/398 petition was pending. The appellant's sister filed a separate petition under section 155 for rectification of the register of members challenging those transfers; that section 155 petition remained pending.

The sections 397/398 petition sought a range of reliefs (A–J), including injunctions restraining the respondents from acting as directors or exercising company rights, preventing transfers, constituting a management committee of descendants, removal of the company secretary, and costs. The petition was contested; twenty-two issues were framed, of which seven were treated as preliminary. The learned Single Judge decided some issues for the appellant and others against him, resulting in dismissal of the petition. The appeal was dismissed by the Court of Appeal with costs.

Legal Issues Presented

  1. Whether the petition should be stayed on the ground that two suits relating to the same subject matter filed by the petitioner in the Court of the Subordinate Judge, Ballabgarh, are pending.
  2. Whether the petition is bad for misjoinder of parties.
  3. Whether the consent of Shrimati Shiv Chandrika Marwaha in support of the petition constitutes a valid consent as contemplated by the Act and the Rules framed thereunder.
  4. Whether the petition is not maintainable on the principle of internal management (i.e., that internal management matters should be left to the company) as alleged in the respondents' reply.
  5. Whether the petitioner has given sufficient particulars of his allegations of activities oppressive to the petitioner and prejudicial to the interest of the Company.
  6. Whether the change in management brought about in May 1969 was in the interest of the creditors of the Company and in the interest of the Company.
  7. If issues No. 4, 5 and 6 are decided against the petitioner, whether the petition is maintainable under sections 397 and 398 of the Companies Act.

Arguments of the Parties

Appellant's Arguments

  • The transfers of shares effected on May 27, 1969 and November 7, 1970 were invalid and the management change following those transfers was prejudicial to the interests of the Company and minority shareholders including the appellant.
  • The appellant was improperly removed from directorship; the right to appoint or retain a director is a valuable shareholder right (relied on authorities such as Albert David Ltd.).
  • The board and general meetings transacted business (including transfer of shares) not mentioned in the agenda and this was argued to be improper (relying in part on Asansol Electric Supply Co. v. Chunnilal Daw).
  • The Single Judge erred in holding that the change in management was brought about in the interest of a creditor (India Iron Traders Corporation) and hence section 398(1)(b) would bar a member's complaint; appellant's counsel submitted a creditor is concerned only with recovery, not with taking over management.
  • Counsel also invoked authorities on just and equitable winding up (Rajahmundry Electric Supply Corporation, Mrs. Gajarabai Patny) to illustrate remedies available in appropriate circumstances.

Respondents' Arguments (as reflected in the opinion)

  • The petition should not be investigated on the same facts as the pending section 155 petition brought by the appellant's sister; section 155 is a better or exclusive remedy to challenge entries in the register of members.
  • The management change was brought about in the interests of the Company's creditor (India Iron Traders Corporation) and was therefore not an actionable ground of oppression under section 398(1)(b).
  • The appellant has not made specific allegations of oppression of members qua members; his grievance mainly relates to his removal as a director and loss of benefits as director (which was carried out under section 284).
  • Board meetings are not constrained to transact only items on an agenda in the same manner as general meetings (so Asansol decision not applicable to board meetings).

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Shanti Prasad Jain v. Kalinga Tubes Ltd. (A.I.R. 1965 S.C. 1535) That complaints under oppression must relate to oppression of rights of members as such (i.e., in the character of a member). The court cited this authority to support the conclusion that the appellant's grievance (largely his removal as a director) did not establish oppression of his rights as a shareholder.
C.L. Joseph v. Jos (A.I.R. 1965 Kerala 68) That a shareholder has two kinds of rights—individual rights and corporate rights; corporate rights require majority endorsement. The court relied on this principle to note that the appellant had not alleged infringement of any individual shareholder right and that corporate rights are enforced by majority action.
Re H.R. Harmer Ltd. (Court of Appeal) There may be oppression of members who are also directors (member-directors) where a majority shareholder uses control to act contrary to decisions of a duly constituted board. The court discussed and distinguished this authority: it acknowledged that member-directors can be oppressed in such circumstances but held that no comparable facts of majority usurpation or acting contrary to the board were shown in the present case.
Re Albert David Ltd. That the right to appoint a director is a valuable right of a shareholder and infringement of that right may entitle the shareholder to relief under section 397. The court noted the principle but found the appellant's removal followed section 284 procedures and no illegality in the removal was shown to ground relief under sections 397/398.
Ramshankar Prosad v. Sindri Iron Foundry (P.) Ltd. (70 C.W.N. 520) Example of gross departure from fair dealing where minority usurped functions of majority and engaged in faked meetings/resolutions—illustrates oppressive conduct offending standards of fair play. The court cited the case as an example of clear oppression and held that the present facts did not amount to such shameless departure from fair dealing as in that case.
The Asansol Electric Supply Co. v. Chunnilal Daw (A.I.R. 1972 Cal. 19) That proceedings cannot be held regarding items not in the agenda at a general meeting (relating to general meetings and the requirements for agenda). The court held this case inapplicable to board meetings because statutory agenda requirements exist for general meetings (sections 171–173) but not for board meetings; thus the Asansol ratio did not invalidate the board's conduct.
Rajahmundry Electric Supply Corporation Ltd. v. I. A. Nageshwara Rao (AIR 1956 SC 213) Considered in context of what is just and equitable for winding up of a company. The court observed that questions of just and equitable winding up did not arise in the present case and therefore the authority was not decisive here.
Mrs. Gajarabai M. Patny v. Patny Transport (Private) Ltd., Secunderabad (AIR 1966 AP 226) Also concerned with just and equitable winding up and related equitable remedies. The court noted the authority but considered that the issue of just and equitable winding up was not engaged in the present appeal.

Court's Reasoning and Analysis

The court proceeded by analysing whether the sections 397/398 petition was the appropriate vehicle to examine the core dispute (the validity of transfers and the composition of the register of members). The court observed:

  1. The appellant's case essentially depended upon the validity of transfers of shares effected in board meetings of May 27, 1969 and November 7, 1970. Those transfers and entries in the register were being challenged in a pending petition under section 155 (filed by the appellant's sister). The court considered section 155 a better remedy to determine validity of entries in the register, and therefore it was not proper to conduct a parallel investigation in a sections 397/398 petition.
  2. While treating the preliminary issues, the Single Judge had found in favour of the appellant on some procedural points but ultimately issues going to substance (sufficient particulars of oppressive conduct; whether the change in management was in the interest of creditors) were decided against the appellant, leading to dismissal. The appellate court upheld that approach.
  3. The court emphasised that it must, for present purposes, presume that those whose names appear in the register are valid members; an order in the sections 397/398 petition could not remove names from the register (that remedy lies under section 155). Hence, as long as the register stands, the members entered in it cannot be restrained from exercising shareholder rights.
  4. The appellant's principal grievance was his removal as a director; the court held this to be a director-related grievance rather than an oppression of shareholder rights. Relying on authorities (including Shanti Prasad Jain and C.L. Joseph), the court stressed that oppression complaints must relate to members' rights as members. The appellant had not shown infringement of any individual right as shareholder.
  5. The court examined analogous authorities (Re H.R. Harmer, Ramshankar Prosad, Re Albert David) and distinguished them on facts: where a majority uses control to act contrary to the duly constituted board or where there is a sham takeover or egregious departure from fair dealing, relief may be appropriate. The court found no such facts here.
  6. On the argument about agenda irregularity for the November 7, 1970 board meeting, the court noted that statutory agenda requirements apply expressly to general meetings (sections 171–173) but there is no comparable statutory requirement governing board meeting agendas; additionally, board meetings commonly include a residuary clause allowing other business with the chairman's permission. Therefore the Asansol Electric Supply Co. decision (relating to general meetings) was inapplicable to the board meeting.
  7. The court addressed the creditor exception in section 398(1)(b): it accepted the Single Judge's conclusion that the legislature intended to exclude from claims of oppression those cases in which creditors become shareholders or otherwise take over management as part of arrangements to recover amounts due, i.e., where change in management arises from creditor interest. In the present case, the change in management was brought about by and in the interest of a creditor (India Iron Traders Corporation), and thus the court upheld the Single Judge's decision that section 398 did not afford relief.
  8. The court also criticised the appellant's litigation conduct: the appellant filed the sections 397/398 petition with his mother's support but did not make his sister (who had filed the section 155 petition) a party to that petition; conversely, the section 155 petition did not include appellant and his mother. The court regarded this as tactical and an improper method of litigating overlapping claims.

Holding and Implications

Final Disposition: Appeal dismissed (the appeal was found to have no merit and dismissed with costs).

Direct effect: The dismissal upholds the Single Judge's order dismissing the appellant's petition under sections 397 and 398. The court concluded that most of the reliefs sought by the appellant could not be granted while the entries in the register of members remained unchallenged and that the appropriate forum to challenge those entries was the pending section 155 petition.

Broader implications: The opinion does not announce any new legal principle; it applies existing authorities to the facts and emphasizes:

  • That challenges to entries in the register of members should ordinarily be pursued under section 155 rather than by collateral attack in sections 397/398 petitions.
  • That complaints of oppression must relate to rights of members as members (not grievances purely in the capacity of a director), and established authorities distinguishing member-oppression claims were followed.
  • That changes in management effected in the interests of creditors may fall within the exception contained in section 398(1)(b), and thus are not necessarily actionable as oppression by members.

No new precedent was established by this decision; the court applied established authorities and dismissed the appeal.

Show full summary ...

    Suresh Chandra Marwaha v. Messrs Lauls Private Limited, N.I.T, Faridabad And Others

    B.R Tuli, J.:— The appellant, Suresh Chandra Marwaha, filed a petition under sections 397 and 398 of the Companies Act against the respondents which was dismissed by the learned Single Judge on March 17, 1972, and this appeal under clause 10 of the Letters Patent has been directed against that order.

    2. The appellant is a shareholder of Lauls Private Limited, Faridabad (hereinafter called the Company), holding 5 shares of Rs. 100.00 each. His mother, Shrimati Shiv Chandrika Marwaha, holds 754 shares and the petition has been filed with her support. Thus, the appellant and his mother hold more than 10 per cent shares of the Company and were entitled to file a petition under sections 397 and 398 of the Companies Act. The Company was incorporated as a Private Company Limited by shares in 1933 and its principal Promoter was Shri S.R Laul, Advocate. Articles 6 to 8 of the Company provided as under:—

    “6. That no shares of this Company shall he held by any person other then the descendants of Mr. S.R Laul except such shares as have been or are transferred with the previous consent of the Board of Directors as laid down in Article 6 or are allotted to any outsider hereafter by the Board.

    Provided that this Article shall not affect holding of shares by Shrimati Ishwara Devi Laul herself personally.

    7. That all shares presently held by the shareholders on the death of Shrimati Ishwara Devi Laul or of any of the descendants of Mr. S.R Laul without any direct issue of such descendant and on the extinction of the line, shall revert to Mr. S.R Laul or in case of his earlier death to his direct descendants and shall be divisible amongst them according to Hindu Law of inheritance subject always to the previsions of Article 6 above.

    Provided that the provisions of this Article shall not apply to bona fide outsider transferees or allottees or their representatives as are contemplated in Article 6 above but shall apply to all shares re-transferred to the original holder out of his holding, the holder shall include his or her descendants.

    8. The provision of Articles 6 and 7 shall also be applicable to all shares hereinafter allotted to any person by way of gift from or in consideration of money paid by Mr. S.R Laul”

    3. Article 9 makes a provision for the transfer of shares by the Board of Directors who have been given the right to decline to transfer shares without assigning any reason etc.

    4. From urns to time many relations of Shri S.R Laul, other than his descendants, were allotted shares, as is clear from annexure III, wherein two sons in law, two daughters in-law, one grand daughter (daughter of a daughter) and one niece (brother's daughter) are mentioned. The appellant is the son of Shrimati Shiv Chandrika Marwaha, a daughter of Shri S.R Laul.

    5. India Iron Traders Corporation, Motia Khan, Delhi, was a creditor of the Company to the tuns of about Rs. 4 lacs Failing to re-cover the amount from the Company, the said firm filed a petition for the winding up of the Company in this Court on May 2, 1969. It appears from the averments in the petition and the annexures annexed thereto that a compromise was arrived at between some of the Directors of the Company and the partners of India Iron Traders Corporation under which the members of the Laul family owning 2869 shares agreed to transfer their shares to Chander Sagar Gupta, a partner of India Iron Traders Corporation and his associates, for a consideration of Rs. 30.00 per share. A meeting of the Board of Directors was held on May 27, 1969, to give effect to the said transfers and to make Chander Sagar Gupta and Gyan Sagar Gupta directors of the Company in place of Navin Deepak Laul and Arvind Laul. It may be noted here that on May 27, 1969, the board of directors consisted of Navin Deepak Laul, Arvind Laul and Shrimati Shiv Chandrika Marwaha. At the meeting held on that date, Shrimati Shiv Chandrika Marwaha was absent and Chander Sagar Gupta and Gyan Sagar Gupta were present by invitation. As a result of the transfer of shares in favour of various persons, the management of the Company changed. Nivin Dsepak Laul and Arvind Laul ceased to be the directors of the Comany and their places were taken by Chander Sagar Gupta and Gyan-Sagar Gupta. Shrimati Shiv Chandrika Marwaha continued to be a director and the appellant was also co-opted as a director on July 7, 1969. Some differences seem to have arisen between the appellant and the other directors excluding his mother and one of the shareholders sent a notice to the Company for removal of the appellant from directorship of the Company under section 284 of the Companies Act. That notice was considered by the board of directors in the meeting held on November 7, 1970, of which notice was given to the appellant and his mother and both went to attend the meeting but left on the ground that the holding of the meeting was contrary to the restraint order issued by the civil Court in spite of the assurance of the Chairman that the proceedings that were going to be conducted at the meeting would not violate the restraint order. After the appellant and his mother left, the board of directors co-opted two more directors, Ashok Kumar Gupta and Anand Parkash Jain, and sanctioned certain transfers of shares. One of the resolutions passed at the meeting was to convene an extraordinary general meeting of the Company to be held on December 3, 1970, at 3 p.m, to consider and, if thought fit, to pass the following resolution as proposed by Subodh Kumar Gupta, one of the members of the Company:

    “Resolved that Shri S.C Marwaha, one of the Directors of the Company, be and is hereby removed from the office of Director as he is guilty of activities prejudicial to the interest of the Company.

    Resolved further that the copy of the notice received from Shri Subodh Kumar Gupta, be forthwith sent to Shri Suresh Chandra Marwaha to enable him to make his representation, if any, to place before the general meeting.

    Resolved further that if any representation is received from Shri Suresh Chandra Marwaha, the same be promptly circulated to all the shareholders and placed before the General Body meeting along with the notice of Shri Subodh Kumar Gupta.

    Resolved further that the Secretary of the Company is strictly directed to comply with the provisions of the law, including the dispatch of notice and explanatory note with other papers and all other matters relating to the meeting.”

    6. The appellant was thus removed by a resolution of the Company under section 284 of the Companies Act.

    7. On November 6, 1970, the appellant filed a suit challenging the transfer of shares in favour of respondents 2 to 26. That suit was with, drawn during the pendency of the petition under sections 397 and 398 of the Companies Act. A petition under section 155 of the Companies Act was, however, filed by Mrs. Abha Kumar, a sister of the appellant, in this Court for rectification of the register of members on the ground that the transfer of shares in favour of respondents 2 to 26 was contrary to law and the Articles of Association of the Company. That petition is still pending.

    8. The appellant prayed for the following reliefs in his petition under sections 397 and 398 of the Companies Act:—

    “(A) Restraining respondents No. 2, 4 and 26 (all Directors) from acting or conducting the affairs of the Company and day to day dealings of the Company for and on behalf of the Company in any way.

    (B) Restraining respondent No. 1, the Company, from allowing respondents Nos. 2, 4 and 26 from acting as its Directors and directing the Company to elect new Directors from the descendants of Shri S.R Laul, Advocate, who are its valid and legitimate members.

    (C) Restraining respondents No. 2 to 26 from voting for any business of the Company or working of the Company, for and on behalf of the Company, or representing themselves as the members of the Company or voting into power respondent No. 2 or his associates or in any way entrusting the management or handing over the control of the Company to respondent No. 2 or his associates (Benamis).

    (D) Restraining all the respondents from distributing, selling out, or transferring of their shares, assets, machineries, fixtures, properties, or lands of the Company, owned or possessed by it or belonging to it, without the prior permission of this Hon'ble Court.

    (E) Restraining all the respondents from operating bank-accounts, for and on behalf of the Company, or incurring expenditure, raising loans, investing the funds of the Company, or in any way appropriating the raw-material, finished material or liquid cash taken from any Government or repayment of any loans taken by them for and on behalf of the Company.

    (F) Restraining the respondents from enjoying any fringe benefits, privileges, or other facilities granted or afforded by the respondent-Company in any capacity.

    (G) To remove the Secretary, Shri Tirath Ram Kundi, from the secretary-ship of the respondent-Company, and to appoint a new impartial and qualified Secretary for the Company.

    (H) Constituting a Committee of management consisting of the descendants of Shri S.R Laul. Advocate, alone shown in serial Nos. 26 to 31 in Annexure, ‘VIII’ at page 82 of the petition to supervise, control and manage all the affairs of the Company including its day-to-day affairs, correspondence, banking operation, business deals, and other incidental activities.

    (I) Cost of the petition may also be awarded to the petitioner.

    (J) Any other or further orders, which this Hon'ble High Court may deem fit and proper, under the circumstances of the case, may also be passed in favour of the petitioner and against the respondents.”

    9. The petition was contested by the respondents and 22 issues in all were framed cut of which the following 7 issues were treated as preliminary issues:—

    “1. Whether the petition should be stayed on the ground that two suits relating to the same subject matter filed by the petitioner in the Court of the Subordinate Judge, Ballabgarh, are pending?

    2. Is the petition bad for misjoinder of parties?

    3. Whether the consent of Shrimati Shiv Chandrika Marwaha in support of the petition constitution a valid consent as contemplated by the Act and the Rules framed thereunder?

    4. Is the petition not maintainable on the principle of internal management as alleged in paragraph 7 of the reply?

    5. Has the petitioner given sufficient particulars of his allegations of activities oppressive to the petitioner and prejudicial to the interest of the Company?

    6. Was the change in management brought about in May, 1969, in the interest of the creditors of the Company and in the interest of the Company?

    7. If issues No. 4, 5 and 6 are decided against the petitioner, is the petition maintainable under sections 597 and 398 of the Act?

    10. The learned Single Judge held issues No. 1 and 4 in favour of the appellant. Issues No. 2 and 3 were not pressed by the learned counsel for the respondents and issues No. 5 and 6 were decided against the appellant with the result that the petition was dismissed.

    11. The learned Single Judge has pointed out that the appellant has not made any specific allegations of oppression of any member or members of the Company and vague allegations have been made with regard to the management of the affairs of the Company by the present management as being prejudicial to the interest of the Company. We have gone through the petition and find that the entire case of the appellant depends on the validity of the transfer of shares effected on May 27, 1969, and November 7, 1970, in the meetings of the board of directors which have been challenged in the petition under section 155 of the Companies Act by the appellant's sister Mrs. Abha Kumar. Since the petition under section 155 of the Companies Act is a better remedy, it is not proper to make investigation into the same facts in the petition under sections 397 and 398 of the Companies Act, particularly because the names of respondents 2 to 26 cannot be removed from the register of members by an order passed in this case nor has any such relief been claimed. For the purposes of this petition and appeal, it will have to be presumed that all the members whose names are entered in the Company's register of members are valid members. The present board of directors, having been constituted by the existing members, cannot be held to be improperly constituted. It is, therefore, necessary that the petition under section 155 of the Companies Act should be decided first. As long as the present register of members of the Company continues, those members cannot be restrained from exercising their individual and corporate rights as shareholders and most of the reliefs prayed for by the appellant cannot be granted.

    12. The appellant has not adopted an above-board method. He has filed the petition under sections 397 and 398 of the Companies Act himself with the support of his mother without making his sister a party, while the petition under section 155 of the Companies Act has been filed by his sister, to which the appellant and his mother have not been made parties. The counsel of the petitioner in each petition is the same and the game seems to be quite clear that if the decision goes against the petitioner in one case, the petitioner in the other will say that he or she is not bound by that decision because he or she was not a party thereto. Unless the transfer of shares in favour of respondents 2 to 26 is held to be invalid, no relief can be granted to the appellant in the present case as it cannot be said that the board of directors of the Company is not properly constituted at present. The whole case of the appellant is that, because of transfers of shares, a change in the management of the Company has taken place and the present board of directors is managing or will mange the affairs of the Company in a manner prejudicial to the interests of the Company and the minority shareholders represented by himself, his mother and sister. Otherwise, no instances have been stated in the petition as to the acts of mismanagement by the present board of directors except that the appellant has been removed from the directorship of the Company and has been deprived of all the consequential benefits as a director. That grievance is as a director and not in the capacity of a shareholder. It is well-settled that only oppression in the character of a member has to be complained of and not in any other capacity. Reference in this connection may usefully be made to the judgment of their Lordships of the Supreme Court in Shanti Prasad Jain v. Kalinga Tubes Ltd. . A.I.R 1965 S.C 1535.. In C.L Joseph v. Jos . A.I.R 1965 Kerala 68., the learned Judge held that a shareholder has two kinds of rights, namely, individual rights and corporate rights. Every shareholder can enforce his individual rights singly but corporate rights have to be endorsed by the majority. As I have said above, the appellant has not alleged the infringement of any individual right of his as a shareholder. All that he has submitted is that the shares should have been offered to him for purchase before the members holding them had transferred them in ravour of respondents 2 to 26, in support of which no provision of law or the Articles of Association of the Company has been cited, and that he should not have been removed from the directorship or the Company. The matter with regard to the validity of the transfer of shares is sending in this Court in a petition filed under section 155 of the Companies Act and his removal from directorship was by the Company in general meeting held in accordance with section 284 of the Companies Act. It cannot, therefore, be said that any right of the appellant as a shareholder has been oppressed by the present management.

    13. The learned counsel referred to Re. H.R Harmer Ltd.3., Re. Albert David Ltd.4, Ramshankar Prosad v. Sindri Iron Foundry (P) Ltd. . 70 C.W.N 520., and The Asansol Electric Supply Co. v. Chunmlal Daw . A.I.R 1972 Cal. 19., which are all distinguishable. In Albert David Ltd. (supra), it was held that—

    “the right to appoint a director is a very valuable right of a shareholder and when this right is infringed, his right qua shareholder is also affected. The shareholder in such a case is entitled to apply under section 397 of the Act.”

    14. In the present case, the appellant was a director and was removed by a resolution of the Company as provided in section 284 of the Companies Act and it has not been shown how the resolution removing him from directorship was illegal. It is only improper or illegal removal from directorship that may affect the right of a shareholder but not the removal in accordance with the provisions of the Act. In Ramshankar Prosad v. Sindri Iron Foundry (P.) Ltd. (supra), the facts were that the minority of shareholders drove away the majority of shareholders and thereafter usurped the functions of the majority. The learned Judges held:

    “What is it but shameful and shameless ‘departure from the standards of fair dealing’ the visibility of which is all too clear to all except to the blind? What is it but a gross and naked violation of the conditions of fair play? If the Saraogi group are the Directors, they are shareholders too by virtue of having invested Rs. 5 lakhs. Did they entrust that much to the company relying on the doctrine: might is right—a doctrine the Prosad group translated into practice on March 13, 1963, after having made earlier preparations to that end by faked meetings and faked resolutions? Certainly not. They parted with such a heavy sum in favour of the company in the sure belief that decency and probity would rule the affairs of the company and that right would be might, not vice versa. So, the Saraogi group are very much affected as well. Surely, it is no disqualification for a shareholder too qua shareholder to be a Director. And by being a director he does not lose his separate entity as a shareholder.”

    15. Reliance was placed by the learned Judges on the judgment of the Court of Appeal in Re. H.R Harmer Ltd. (Supra). The following observations of Jenkins, L.J, were quoted with approval:—

    “It appears to me that the sons as members, and not merely as directors, were oppressed by the singular conduct of the father. The oppression must, no doubt, be oppression of members as such, but it does not follow that the fact the oppressed members are also directors is a disqualifying circumstance when the question of relief under section 210 (corresponding to section 397 of the Companies Act subject to one exception) arises. I think there may well be oppression from the point of view of member-directors where a majority shareholder (that is to say a shareholder with a preponderance of voting power) proceeds, on the strength of his control, to act contrary to the decisions of, or without the authority of, the duly constituted board of directors of the company.”

    16. In H.R Harmers case (supra), the facts were that the Company consisted of the father and his two sons. The majority of shares were held by the father but all three of them were the only shareholder and directors of the Company. The father went to Australia in January, 1948, and decided to open a branch there against the wishes of his sons. In 1954, the father purported to dismiss summarily a Mr. Edwards which was opposed by the two sons as directors but the father exerted his authority as the majority shareholder. On these facts, it was held by Jankins, L.J, that there may well be oppression from the point of view of member-directors where a majority shareholder (that is to say, a shareholder with a preponderance of voting power) proceeds, on the strength of his control, to act contrary to the decision of, or without the authority of the duty constituted board of directors of the company. It clearly shows that in that case the father was acting against the interest of the Company and contrary to the wishes of the duly constituted board of directors. No such case has been made out in the present case.

    17. The learned counsel for the appellant lastly submitted that the affairs of the Company were not being conducted in accordance with the provisions of the Companies Act or the Articles of Association of the Company. The instance given was that in the meeting of the board of directors held on November 7, 1970, some shares were transferred about which there was no mention in the agenda which was issued for the meeting. No provision of law or the Articles of Association of the Company has been brought to our notice obliging the board of directors to only transact that business for which agenda is issued. It is well known that every agenda of a meeting has a residuary clause “to consider any other matter with the permission of the Chairman”. The matter with regard to the transfer of shares was considered in the meeting of the board of directors held on November 7, 1970, with the permission of fie Chairman. No illegality was committed thereby. The learned counsel relied on The Asansol Electric Supply Co. v. Chunnilal Daw (supra) for the proposition that no proceedings can be held with regard to an item which is not in the agenda. That judgment has no applicability because it related to a general meeting of the Company and not to a meeting of the board of directors of the Company. For general meetings, specific provision for issuance of an agenda has been made in sections 171 to 173 of the Companies Act whereas no provision has been made as to the issuance of an agenda for the meeting of the board of directors. The ratio of that decision is, therefore, not applicable.

    18. The learned counsel for the appellant then relied on Rajahmundry Electric Supplycorporation Ltd. v. 1. A. Nageshwara Rao . AIR 1956 SC 213. and Mrs. Gajarabai M. Patny v. Patny Transport (Private) Ltd., Secunderabad . AIR 1966 AP 226., in order to show what is just and equitable for winding up of the Company. That question does not arise in the present case in view of the discussion made above. Lastly, the learned counsel for the appellant submitted that the learned Single Judge erred in law in holding that the change in the management was brought about by and in the interests of the Company's creditor-Messrs. India Iron Traders Corporation and, therefore, no grievance can be made by the appellant under section 398 of the Companies Act in view of what is contained in section 398(1)(b) within brackets. The argument is that a creditor is only concerned with the recovery or realisation of the amount due to him and not with the management of the Company's affairs. We are of the opinion that the argument of the learned counsel is clearly wrong. The Legislature, while providing exception in clause (b) of section 398(1) of the Companies Act, clearly visualized that cases might occur in which financially hard-pressed companies might save themselves by arranging with their creditors to become shareholders and directors in lieu of remaining creditors for the whole or part of the amount due to them and that such a change occurring in the management will not afford a cause of action to any member under section 398 of the Companies Act. In the present case admittedly the change in the management was brought about by and in the interests of a creditor of the Company and the decision of the learned Single Judge on this point, with respect, is correct which is upheld.

    19. For the reasons given above, we find no merit in this appeal which is dismissed with costs.

    20. Appeal dismissed.

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    Suresh Chandra Marwaha v. Messrs Lauls Private Limited, N.I.T, Faridabad And Others
    (Aug 7, 1972)