Ramkissendas Dhanuka And Ors. v. Satya Charan Law & Ors.

The Judgment of the Court was as follows:

Derbyshire, C.J:— This is an appeal against a judgment and decree of McNair, J., by the Appellants against whom McNair, J., granted injunctions together with declarations that certain resolutions proposed by the Defendants and passed at a meeting of the Plaintiff Company in January, 1945, were inoperative, and that further, certain persons only were the Directors of the Plaintiff Company.

[After stating the facts his Lordship proceeded.]

2. On January 5th, 1945, the present proceedings were started in which Dr. Satya Charan Law, one of the Directors and a share-holder, and the Company itself, were Plaintiffs; and the Appellants the Defendants. The Plaintiffs set out the matters aforesaid and also certain of the Articles of Association of the Company and claimed—

(a) a declaration that the resolutions passed on January 3rd, 1945, are void, inoperative and of no effect;

(b) a declaration that the Plaintiffs, Dr. S.C Law, Mr. H.D Cumberbatch, Mr. C.L Jatia and Sir David Ezra are the only proper Directors of the Company;

(c) an injunction restraining the Defendants Ramkissendas Dhanuka, Hanuman Prasad Dhanuka, Santi Prasad Jain, Rameswar Prasad Bajoria, Laxmi Narain Modi, Mriganka Kumar Roy and Bhagabati Prasad Khaitan from acting as Directors or dealing with the funds of or using the seal of or otherwise interfering in the management and affairs of the Plaintiff Company;

(d) an injunction restraining the Defendants, their agents and servants from interfering or intermeddling in the management of the Plaintiff Company by its Managing Agents Messrs. Andrew Yule Co., Ltd;

(e) injunctions in like terms pending the final disposal of this suit.

3. On January 5th, 1945, an interim order was made ex parte by McNair, J., substantially in the terms of prayers (c) and (d) until the hearing of the motion. On February 5th, the interim, order was continued until the disposal of the suit.

4. The hearing of the suit began on February 22nd, 1945, and McNair, J., gave his judgment on March 9th, 1945, granting the declarations and injunctions prayed for. It is from that decision that the Appellants have now appealed.

5. The matters at issue obviously concern a struggle between two rival groups of ordinary share-holders to obtain the control of the Company. The Appellants maintain that the resolutions are regular and valid, and also contend that in view of the majority share vote in favour of the resolutions, the Company is improperly joined as a Plaintiff in these proceedings. They also contend that the resolutions are a matter concerning the internal management of the Company and one with which the Court should not concern itself. They also contend that the effect of the injunctions is to force upon the Company Managing Agents which the Company is unwilling to employ and that consequently the Court ought not to grant the injunctions.

6. The Plaintiff, Dr. Law, on the other hand, contends that he is suing on behalf of himself and other share-holders who take the same view as himself and contends that he and other like-minded share-holders have definite rights under the Articles of Association of the Company and that the resolutions in question are in contravention of the Articles of Association by which both the Company and all the share-holders including the Defendants are bound.

7. As regards the Company it is said that under the Articles of Association the Directors are empowered to bring and defend actions by or against the Company concerning its affairs and that the only proper Directors are the four original Directors and that one of them Mr. Cumberbatch has signed the plaint on behalf of the Company, further that the proceedings are in the interests of the Company and that the resolutions, if carried into effect, would be detrimental to the interests of the Company.

8. The suit was tried without any oral evidence and Counsel said that neither party made any charges against the other, and that any charges that have been made are withdrawn. It is therefore a pure question of law whether the resolutions are valid and effective and whether the injunctions granted are properly granted. The Articles of Association of the Company as they stood at all relevant times were adopted by a special resolution passed at an extraordinary general meeting of the Company held on March 23rd, 1944. It is provided in Article 2 that save as reproduced in the Articles of Association the regulations contained in Table “A” in the first schedule to the Companies Act shall not apply to the Company. The relevant Articles appear to be:

[In addition to Articles 67, 109, 111, 126, 129 and 132 set out by McNair, J., his Lordship set out the following Articles.]

9. On a show of hands every member present in person or by general proxy as defined by Article 103 hereof, but not being a member of the Company or being a member not qualified to vote and being a holder of ordinary shares shall have one vote and upon a poll every member present in person or by proxy shall have one vote for every ordinary share held by him, provided that no Company shall vote by proxy so long as a resolution of its Directors under the provisions of sec. 80 of the Act, is in force. The holders of preference shares shall not be entitled to any voting rights, but shall be entitled to be present at any meeting of the Company.

10. At the date of the adoption of these Articles, the persons hereinafter named are the Directors of the Company, that is to say:—

Mr. H.D Cumberbatch.

Sir David Ezra.

Dr. S.C Law and

Mr. Champa Lall Jatia.

11. The qualification of a Director, other than an ex-officio Director, shall be the holding of, in his own name or jointly with any person whether beneficially or as a trustee for any Company or person or otherwise, ordinary shares in the Company of the nominal value of Rs. 5,000.

12. The general management of the affairs of the Company shall be entrusted to Managing Agents to be appointed by the Company and the Managing Agents shall, subject to the control of the Directors, conduct the business of the Company.

13. The Managing Agents shall have the general management of the Company's business, transactions, books, papers, effects, property, affairs and concerns with full power to engage and dismiss managers, assistants and all workmen, and for the purposes of the Company to purchase and obtain all necessary machinery stores, goods and materials of any kind whatsoever and to sell such goods, machinery, stores, materials and/or any of the articles manufactured or acquired by the Company.

14. In logical sequence the first question to be determined should be whether the Plaintiff, Dr. Law, has the right to sue and whether the Company should be joined as a Plaintiff. It is desirable to defer the decision on this question until the matters at issue between the contending parties have been considered.

15. As regards the first resolution appointing new Directors, Article 109 provides that the number of Directors shall be not less than three nor more than four. Article 126 provides that the Company in a general meeting may, from time to time, increase or reduce the number of Directors subject to the provisions of secs. 83A(1) and 83B(2) of the Act.

16. Sec. 83A(1) provides:

“Every company shall have at least 3 directors”.

17. Sec. 83B(2) provides:

“Notwithstanding anything contained in the articles of a company other than a private company not less than ⅔ of the whole number of directors shall be persons whose period of office is liable to determination at any time by retirement of directors in rotation provided that nothing herein contained shall apply to a company incorporated before the commencement of the Indian Companies (Amendment) Act, 1936, where by virtue of the articles of the company the number of directors whose period of office is liable to determination at any time by retirement of directors in rotation falls below the ⅔ proportion mentioned in this section.”

18. It is contended by the Appellant that Article 126 enables the Company in a general meeting by a simple resolution to increase the number of Directors to any figure it likes. It is said that that is so notwithstanding the provisions of Article 109 limiting the maximum to four. The Appellants rely upon the remarks of Lawrence, L.J, in Worcester Corsetry, Limited v. Witting(1). In that case there was an Article (Article 83 of Table A) which provided:

“The company may from time to time in general meeting increase or reduce the number of directors …….”

19. There was another Article (Article 12) which provided:

“Until otherwise determined by a general meeting the number of directors shall not be less than two nor more than seven.”

20. Lawrence, L.J, said:

“That article clearly points out that the company in general meeting can exercise its power to alter the articles in respect of the fixing of a minimum and maximum number of directors without having a special resolution to alter the articles”.

21. Later he says.

“Act of Table A shows in the plainest terms that the company has power to increase or reduce the number of its board.”

22. The Appellants also rely upon the case of Gur Prasad Kapoor v. Rameshwar Prasad(19), where in considering the same Article 83 of Table A which provides that the Company may from time to time in general meeting increase or reduce the number of Directors and Article 98 which contains these words “until otherwise determined by a general meeting the number of Directors shall be not less than five nor more than nine.” Bennet, J., following the passage in Palmer's Company Precedents, 13th Ed., 1927, Part I, page 698 (where there is a specimen of one of the Articles of Association exactly similar to Article 98) held that a general meeting by an ordinary resolution could increase the number of Directors to sixteen.

23. Reliance was also placed upon the case of Tapandas Mohanlal Advani v. The Yeotmal Electric Supply Co.(20) where the Articles of Association provided that until otherwise determined by a general meeting the number of Directors shall be not less than three or more than seven, and it was held that at a general meeting an ordinary resolution could be passed increasing the number of Directors to more than seven. In both the latter cases, however, the Judges distinguished the case of Navnitlal Chabildas…Plaintiff; v. Scindia Steam Navigation Co. Ltd.…Defendants., Ltd.(6), where it was held that a joint stock Company cannot by an ordinary resolution alter the qualifications of its Directors as laid down in its Articles of Association and that such alteration can only be made by a special resolution.

24. It is noteworthy that in the Worcester Corsetry case, in the case of Gur Prasad Kapoor v. Rameshwar Prasad and in the case of Tapandas Mohanlal Advani v. The Yeotmal Electric Supply Co. there were the qualifying; words “until otherwise determined by a general meeting.” It is also worthy of note that the learned Editor of Palmer's Company Precedents, 15th Ed., Vol. I, page 668 in discussing the Article there numbered 81 which provides that “until otherwise determined by a general meeting, the number of Directors shall be not less than three or more than seven,” says that “in the absence of the first seven words it seems that the number cannot be reduced without a special resolution. See Bennett Bros., Ltd. Lewis(2). But query whether this is so where a clause like 91 appears.” Cl. 91 is as follows:

“The company in general meeting may, subject to the provisions of these articles, from time to time appoint new directors, and may increase or reduce the number of directors in office, and may alter their qualifications.”

25. It will be noticed that neither Article 109 nor Article 126 in the present case contains those seven words “until otherwise determined by a general meeting.”

26. In Navnitlal's case, Taraporewala, J., at page 1365 of the report said with regard to the clause “until otherwise determined by a general meeting, the number of the directors shall not be less than three or more than seven” as follows:—

“I am not sure that even by making a provision in the terms of clause 81 in Palmer's Company Precedents, the Company could alter the number of the directors excepting by special resolution.”

27. He also cites the case of Bennett Bros., Limited v. Lewis in which he states that the Court of Appeal held that Article 85 in that case which provided that the number of Directors should not be less than three, could not be contravened excepting by a special resolution.

28. Before McNair, J., the case of Bennett Bros. was cited and McNair, J., relied upon it for the proposition that a special resolution was necessary to reduce the number of Directors to below three. Unfortunately we have not had the advantage of seeing that report, as it was missing. It is clear, however, that even if the introduction of the seven words in question namely, “until otherwise determined by a general meeting” do enable the Company to exceed the maximum number of the Directors fixed by the Articles by passing an ordinary resolution, those seven words are absent in Article 109 and Article 126 in the present case. We have therefore to construe the Articles as they stand in the light of the other relevant Articles and in the light of the provisions of the Companies Act with regard to the Articles.

29. The Indian Companies Act of 1913 in sec. 20(1) provides:—

“Subject to the provisions of this Act and to the conditions contained in its memorandum, a company may by special resolution alter or add to its articles; and any alteration or addition so made shall be as valid as if originally contained in the articles, and be subject in like manner to alteration by special resolution.

30. Sec. 21(1) provides:

“The memorandum and articles shall, when registered, bind the company and the members thereof to the same extent as if they respectively had been signed by each member, his heirs, and legal representatives, to observe all the provisions of the memorandum and of the articles subject to the provisions of this Act.”

31. The two Articles in question must be read together, and in my view they must be read and operated in such a way as not to contravene the provisions of sec. 20 of the Companies Act. It is possible for the Company by an ordinary resolution in general meeting to increase the-number of Directors from three to four or to reduce the number of Directors from four to three. This plainly the Company may do by ordinary resolution since it is not altering the Articles but taking advantage of the provisions contained therein. If, however, the number of Directors is increased to a number above four that seems to me to be altering or else acting in contravention of Article 109. If it is altering the Articles so that the maximum of four laid down in Article 109 is to be exceeded then it seems to me that the alteration must be made in the way that the Companies Act provides, namely by a special resolution which may be passed in a general meeting. That satisfies both the Articles and sec. 20 of the Companies Act. But if it is not by a special resolution it seems to me that it is in contravention of the clear terms of Article 109 and is something which the Company and its members are prohibited by secs. 20 and 21 of the Companies Act from doing. I am therefore, of the opinion that reading the two Articles together the Company may in general meeting from time to time increase the number of its Directors from three to four or reduce the number of its Directors from four to three by an ordinary resolution. But if it is desired to increase the number of Directors beyond four then that is an alteration of the Articles and must be done by a special resolution. That being so, I have come to the conclusion that in the present instance the resolution appointing seven additional Directors so as to bring the number from four to eleven ought to have been passed by a special resolution. But it was not so passed. Had it been passed by a special resolution, 75 per cent, of the shareholders present or voting by proxy in favour of it, I think, it would have been good. But it has not been passed by that number, but only 68 per cent., sufficient to make it an ordinary resolution; in my opinion, it is not a proper resolution.

32. What is the effect of such a resolution? In my opinion it is contrary to the provisions of secs. 20 and 21 of the Companies Act, and therefore it is an invalid resolution.

33. That seems to be in accordance with the law as laid down in the English case of Salmon v. Quin & Axtens, Ltd.(12). In that case by the Articles of Association of the Company the general management of the business of the Company was vested in the Directors subject to certain regulations (being not inconsistent with the provisions of the Articles) as might be prescribed by the Company in general meeting. It was provided that no resolution of a meeting of the Directors having for its object (among other things) the acquisition or letting of any premises should be valid unless twenty-four hours' notice of the meeting should have been given to each of the Managing Directors Axten and Salmon and neither of them should have dissented therefrom in writing before or at the meeting. There were 50,007 ordinary; shared of which Axten held 27,240 and Salmon 22,085. Resolutions were passed by the Directors for the acquisition of certain premises and for the letting of certain other premises, but Salmon dissented from each of these resolutions in accordance with the Articles. At an extraordinary general meeting of the Company, resolutions to the same effect were passed by a simple majority of the share-holders. Thereupon Salmon, suing on behalf of himself and all other share-holders of the Company except the Defendants, commenced an action against the Company and Axten and one Boys (another shareholder) for an injunction to restrain the Defendants from acting upon any of the resolutions. Warrington, J., refused the injunction but the Court of Appeal reversed his judgment. It was held by the Court of Appeal that the resolutions of the Company were inconsistent with the provisions of the Articles and that the Company ought to be restrained from acting upon them. In the course of his judgment, Farwell, L.J, said in respect of the resolutions at p. 318 as follows:—

“It is said that those resolutions axe of no effect, and I am of opinion that that contention is right

“Later he says:

“But these resolutions are absolutely inconsistent with Article 80; in truth this is an attempt to alter the terms of the contract between the parties by a simple resolution instead of by a special resolution. The articles forming this contract, under which the business of the company shall be managed by the board, contain a most useful and proper requirement, because a business does require a head to look after it, and a head that shall not be interfered with unnecessarily. Then in order to oust the directors a special resolution would foe required. The case is, in my view, entirely governed, if not by the decision, at any rate by the reasoning of the Lords Justices in Automatic Self-Cleansing Filter Syndicate Co. v. Cunninghame(13) and Gramophone and Type-writer Ltd. v. Stanley(14). I will only refer to one passage in Buckley, L.J's judgment in the latter case. He says: This Court decided not long since, in Automatic Self-Cleansing Filter Syndicate Co. v. Cunninghame that even a resolution of a numerical majority at a general meeting of the company cannot impose its will upon the directors when the articles have confided to them the control of the company's affairs. The directors are not servants to obey directions given by the share-holders as individuals; they are not agents appointed by and bound to serve the shareholders as their principals. They are persons who may by the regulations foe entrusted with the control of the business, and if so entrusted they can be dispossessed from that control only by the statutory majority which can alter the articles. Directors are not, I think, bound to comply with the directions even of all the corporators acting as individuals'. That appears to me to express the true view. Any other construction might, I think, be disastrous, because it might lead to) an interference by a bare majority very inimical to the interests of the minority who had come into a company on the footing that the business should be managed by the Board of Directors.”

34. That decision was affirmed in the House of Lords in Salmon v. Quin & Axtens, Limited.

35. For the above reasons in my opinion the resolution appointing the additional seven Directors being only an ordinary resolution was inoperative to appoint them and therefore was invalid.

36. As regards the second resolution dismissing the Managing Agents, this was of course passed by a majority of sixty-eight per cent of the share-holders entitled to vote either present or by proxy, and is therefore an ordinary resolution but not a special resolution.

37. Article 132 provides that Messrs. Andrew Yule & Co. are and shall continue and be the Managing Agents of the Company for fifteen years certain from October, 1929, and thereafter until they shall be removed therefrom by an extraordinary resolution of the Company passed at an extraordinary general meeting specially convened for that purpose and of which not less than six calendar months' notice shall be given and at which persons holding or representing by proxy or power-of-attorney, not less than three-fourths of the issued ordinary capital of the Company for the time being shall be present. There was an agreement between the Company and Andrew Yule & Co., Ltd. implementing the provisions of the Article. Obviously the resolution does not comply with the provisions of Article 132. This was not an extraordinary resolution nor even a special re- solution, and the meeting although an extraordinary general meeting was not one of which six calendar months' notice was given. As provided by sec. 21(1) the Articles bind the Company and the members to the same extent as if they respectively had been signed by each member, to observe all the provisions of the memorandum and of the Articles, subject to the provisions of the Act. Each of the members of the Company and the Company itself was bound by the Articles including Article 132. It would appear therefore that because of the provisions of sec. 20(1) supported by the decision in the case of Quin & Axtens the resolution dismissing Messrs. Andrew Yule & Co. is an invalid resolution and of no effect.

38. It is contended, however, that the provisions of sec. 87B of the Indian Companies Act makes the dismissal valid. Sec. 87B provides:

“Notwithstanding anything to the contrary contained in the Articles of the company or in any agreement of the company—

(f) the appointment of a managing agent, the removal of a managing agent and any variation of a managing agent's contract of management made after the commencement of the Indian Companies (Amendment) Act, 1936, shall not be valid unless approved by the company by a resolution at a general meeting of the company notwithstanding, anything to the contrary in sec. 86E.

Provided that nothing herein contained shall apply to the appointment of a company's first managing agent made prior to the issue of the prospectus or statement in lieu of prospectus where the terms of the appointment of such managing agent are there set forth.”

39. Sec. 86E provides: “No Director of firm of which such Director is a partner or private Company of which such Director is a Director shall without the consent of the Company in general meeting hold any office of profit under the Company except that of a Managing Director or Manager or a legal or technical adviser or a banker:

Provided that nothing herein contained shall apply to a Director elected or appointed before the commencement of the Indian Companies (Amendment) Act, 1936, in respect of any office of profit under the Company held by him at the commencement of the said Act.

Explanation.— For the purposes of this section the office of Managing Agent shall not be deemed to be an office of profit under the Company.”

40. Sec. 86E is not relevant in our present consideration.

41. I am unable to see that sec. 87B(f) authorises the removal of the Managing Agent by passing a simple resolution where the Articles appoint the Managing Agent. The purpose of sec. 87B seems to be to prevent the appointment of a Managing Agent to a Company or the dismissal of a Managing Agent by a Company without the share-holders in general meeting, giving their assent. But when the Articles of Association bind the members of the Company and the Company itself to follow a certain procedure in dismissing its Managing Agents, and that procedure does not contravene the provisions of sec. 87B, but goes beyond the provisions of sec. 87B in the way of providing protection for the members of the Company, I am unable to see that there is anything in sec. 87B(f) which authorises the abrogation of a contract contained in the Articles of Association prescribing that the services of the Managing Agents shall be dispensed with in a particular manner.

42. I am of the opinion, for the same reasons I have given, in considering the validity of the resolution appointing the 7 additional Directors, that the resolution dismissing Andrew Yule & Co., Ld., is invalid; both resolutions for their validity required a special resolution with a majority of seventy-five per cent. of the share holdings in favour of them, which majority they did not have.

43. It is now convenient to consider the contention of the Appellants that the resolutions in question arose out of internal disputes between the share-holders of the Company and that in such a case the Court does not interfere, in accordance with the rule in Foss v. Harbottle(7).

44. This rule was considered in the case of Mac-Dougall v. Gardiner(8). At page 21, James, L.J, said:

“It is of the utmost importance that this rule should be always adhered to; that is to say, that nothing connected with internal disputes between the shareholders is to be made the subject of a Bill by some one share-holder on behalf of himself and others, unless there be something ultra vires on the part of the company qua company, or on the part of the majority of the company, so that they are not fit persons to determine it; but that every litigation must be in the name of the company, if the company really desire it.”

45. In the same case Mellish, L.J, at page 25, said:

“In my opinion if the thing complained of is a thing which in substance the majority of the company are entitled to do, or if something has been done irregularly which the majority of the company are entitled to do regularly, or if something has been done illegally which the majority of the company are entitled to do legally, there can be no use in having a litigation about it, the ultimate end of which is only that a meeting has to be called and then ultimately the majority gets its wishes …. Of course if the majority are abusing their powers, and are depriving the minority of their rights, that is an entirely different thing, and there the minority are entitled to come before this Court to maintain their rights but if what is complained of is simply that something which the majority are entitled to do has been done or undone irregularly, then I think it is quite right that nobody should have a right to set that aside, or to institute a suit in chancery about it except the company itself.”

46. The rule is thus clearly subject to certain exceptions as indicated by James, L.J, and Mellish, L.J Palmer on Company Law, 17th Ed., at page 236, states:

“But the supremacy of the majority must be received with the following qualifications:—

(1) that no majority of the share-holders can sanction that which is ultra vires of the company. Burland v. Earle(11).

(2) that a majority is not entitled to commit a fraud on the minority. Menier v. Hooper's Telegraph Works(21).

(3) that a minority can prevent the company from acting on a special resolution obtained by a trick. Baillie v. Oriental Telephone(15).

(4) that an ordinary resolution inconsistent with the articles is not effectual. Quin & Axtens v. Salmon.

47. In these four cases the minority can commence proceedings in the name of the company. In other cases if the minority purport to do so the action may be stayed and the name of the company struck out and the solicitor ordered to pay the costs personally.”

48. The case of Quin & Axtens v. Salmon is authority for the proposition that Dr. S.C Law can sue on behalf of himself and other minority share-holders to ask the Court to declare that the resolutions of January 3rd, 1945, are invalid. True, Dr. Law sues on behalf of himself and all other share-holders, but as it is clear that the majority share-holders are against him, in my view this is a mere irregularity of pleading apparent on the face of it but not affecting Dr. Law's right to sue.

49. Dr. Law's position in this respect is similar to that of the Plaintiff in Baillie v. Oriental Telephone Co., where a Plaintiff moved on behalf of himself and all other share-holders of a Company to restrain the Directors from acting upon a special resolution passed at a general meeting ratifying the past drawing of certain Directors' fees and legalising the drawing of them in the future. The Plaintiff alleged that the resolution had been obtained by non-disclosure of material facts. Astbury, J., dismissed the motion on the ground that the Plaintiff was not entitled to maintain the action on behalf of himself and the other share-holders without joining the Company as Plaintiffs. The Court of Appeal reversed this decision. At page 518, Swinfen Eady, L.J, said:

“It was then contended that the Plaintiff is not entitled to sue. The Plaintiff's Counsel urged that if this as a special resolution was invalidly passed, how 13 it to toe impeached if the Plaintiff cannot sue; how can the question of illegality be raised? Suppose he called a meeting and the majority of the share-holders were to say ‘We are content with the present position and we will not raise any question’ can it be said that by side wind as it were, not being able to pass a valid special resolution they could pass an invalid one, and then by a bare majority say we will not allow any proceedings to be taken. In my opinion they cannot do that …”

50. In Foss v. Harbottle, Wigram, V.C said:

“If a case should arise of injury to a Corporation by some of its members, for which no adequate remedy remained, except that of a suit by individual Corporators in their private character, and asking in such character the protection of those rights to which in their corporate character they were entitled, I cannot but think that the principle laid down by Lord Cottenham in Wallworth v. Holt(22) and other cases would apply, and the claims of justice would be found superior to any difficulties arising out of technical rules respecting the mode in which corporations are required to sue. In other words it has been said that in certain cases members may sue on behalf of the Corporation if the interests of justice require it.”

51. The last passage in the judgment of Swinfen Eady, L.J, appears to be authority for the proposition that in certain cases members of the Company may sue on behalf of the corporation as distinct from all other members who are of the same mind as the members suing. The passage from Palmer cited above appears to treat it as such.

52. Article 149 of the Company's Articles provides (inter alia) that the Directors have the power:—

“(5) to institute and conduct any legal proceedings by or against the company or its officers concerning the affairs of the company . . . .”

53. It appears from the minutes of the meeting of January 3rd that before the resolutions were passed the existing board of four Directors had been advised that the resolution if passed would be ineffectual.

54. After the resolutions had been passed and the seven added Directors proceeded to attempt to take over the management and the banking account of the Company, a state of affairs arose which called for prompt action if the affairs of the Company were not to be involved in chaos.

55. If the original Directors acceded to the Defendants' demands they would be doing something which they had been advised was not legal. If they refused and did nothing more, the reputation and the credit of the Company might be damaged by conflicting claims as to who was to manage it. It seems to me that the four original Directors were right in seeking the advice and protection of the Court not only for their own benefit but that of the Company. They were advised (and rightly so in the opinion of McNair, J., and this Court) that they were the only Directors of the Company. They had under Article 149(6) the power to bring the matter before the Court in the name of the Company for the Court's decision.

56. The plaint was signed by a Director, Mr. Cumberbatch. In my view the Company was not under the circumstances improperly joined as a Plaintiff.

57. The Appellants have contended that to grant the injunctions, particularly the second one restraining them from interfering with the management of the Company by Messrs. Andrew Yule & Co., Ltd., is contrary to the established practice of this Court in that it forces an Agent upon an unwilling Company.

58. They rely upon the case of Bainbridge v. Smith(18). In that case Herbert Bainbridge, the Plaintiff, claimed on the death of his father to take his seat as a Managing Director on the Board of Directors of a Company under the provisions of one of the Articles of Association which provided that he should be a Director if he possessed the necessary qualification of holding in his own right shares of the nominal value of £25,000. The board of Directors refused to recognise the Plaintiff as a Director on the ground that he had not sufficient qualification and the Plaintiff brought an action to restrain them from excluding him from the Board and moved for an interim injunction in the same terms apparently which Stirling, J., granted. The Defendants appealed. The Court of Appeal had not the necessary materials before it to decide whether the Plaintiff held the shares in his own right and suggested that an extraordinary general meeting of the Company should be held to consider and answer the question whether if the Plaintiff had the necessary qualification, the meeting desired him to act as one of the Managing Directors and that the determination of the appeal should be held over till the question was answered. Cotton, L.J, said:

“If the company says that even if the Plaintiff has the necessary, qualification they do not desire him to act as one of their managing directors, we should not grant the injunction, because it would be contrary to the principles on which this Court acts to grant specific performance of this contract by compelling this company to take this gentleman as a managing director, although he was qualified so to act, when they do not desire him tot act as such.”

59. The appeal stood over, and when the shareholders passed a resolution that they did not desire the Plaintiff to act as Managing Director, the Court thereupon dissolved the injunction. Apparently the resolution was an ordinary resolution.

60. That case is different from the present. Mr. Bainbridge was suing to enforce his contract under the Articles of Association, to the right to act as Managing Director; it really was an action for specific performance of a contract akin to a contract of service.

61. The present suit is by a share-holder and the Company against other share-holders who have threatened to do something which the Company alleges and the Court has now found is illegal. It is not to enforce a claim to employment with an employer, but a suit to prevent third persons interfering with the Company's employees who are carrying out their contract of service with the Company. In other words it is not a suit to enforce a contract, but a suit to prevent the procurement of a breach of contract.

62. I think the first injunction granted is, under the circumstances, necessary relief. I have had doubts whether the second injunction is necessary. Messrs. Andrew Yule & Co., Ltd., are not parties to the suit and the injunction on the face of it appears to be in their interest. However, having regard to the fourth resolution passed by the seven added Directors on January 4th “that the Bankers of the Company be informed that Messrs. Andrew Yule & Co., Ltd., have ceased to be the Managing Agents of the Company and their powers to operate the banking account has been and is hereby revoked and the Bankers be also informed that the banking accounts on behalf of the Company will temporarily be operated by Mr. R. Bajoria and Mr. L.N Modi, who are empowered to sign and endorse cheques also.” I am not prepared to say that the injunction is unnecessary and not in the interests of the Company.

63. Accordingly I am of the opinion that McNair, J.'s decision was right and that the appeal should be dismissed with costs.

64. Certified for two Counsel.

Gentle, J.:— This is an appeal by eight of the nine Defendants in the suit. Respondent No. 1, Dr. Satya Charan Law, is a share-holder and Director of Respondent No. 2, the Lothian Jute Mills Coy., Ltd.; they were the two Plaintiffs in the suit. The main questions which arise are the validity of a resolution by the Company appointing Appellants Nos. 1 to 3 and 5 to 8 as Directors of the Company; the validity of another resolution by the Company removing Messrs. Andrew Yule & Co., Ltd., from their appointment as the Company's Managing Agents; whether Respondent No. 1, as a minority shareholder, is entitled to maintain a suit challenging the validity of the two resolutions; and whether the Company is properly a Plaintiff in the suit.

[After stating the facts his Lordship proceeded.]

McNair, J., granted the declarations and injunctions and decreed the suit in the Plaintiff's favour. Against this decision the present appeal is preferred by the Appellants.

65. The case for the Appellants can be shortly summarised. The Articles of the Company must be read together, thus words in Art. 126 must be read with words in Art. 109; this enables the Company to increase the prescribed maximum number of Directors by an ordinary resolution and it need not pass a special resolution for that purpose; the removal of Messrs. Andrew Yule as Managing Agents by an ordinary resolution is authorised by sec. 87B(f) of the Indian Companies Act; even if this is not so, the ordinary resolution determined the Managing Agents' agreement and, if it was wrongful it was nevertheless effective; any declaration or injunction by the Court in respect of the removal of the Managing Agents is, in effect, an order for specific performance of a contract of service which the Court cannot grant; Respondent No. 1 is not entitled to sue on behalf of himself and other share-holders since the will of the majority of share-holders must prevail even if their determination is not in conformity with the Articles; Respondent No; 2, the Lothian Company, cannot be a Plaintiff in a suit for relief which is not desired by the majority of share-holders but is contrary to their wishes; and thus the Company has been made a Plaintiff without any authority; and, similarly as with the Respondent No. 1, with respect to the Managing Agents, the Company cannot obtain the relief sought in the suit.

66. I propose, firstly, to deal with the resolution purporting to increase the maximum number of Directors from four to eleven and appointing seven of the Appellants to the Board. In this connection the relevant Articles of the Company provide that:—

[In addition to Articles 109, 111, 112 and 126 his Lordship set out the following Articles.]

67. Art. 114. Unless otherwise determined by the Company in general meeting each Director shall be paid out of the funds of the Company by way of remuneration for his services the sum of Rs. 32 for each meeting of the Directors. The Directors may allow and pay to any Director who for the time being is resident out of the place at which any meeting of the Directors may be held and who shall come to that place for the purpose of attending such meeting, such sum as the Directors may consider fair and reasonable for his expenses and loss of time in connection with his attending at the meeting in addition to his remuneration as above specified.

68. Art. 115. The continuing Directors may act notwithstanding any vacancy in their body; but so that if the number falls below the minimum above fixed the Directors shall not, except for the purpose of filling vacancies, act so long as the number is below the minimum.

69. Art. 128. Any casual vacancy occurring among the Directors may be filled up by the Directors, but any person so chosen shall retain his office so long only as the vacating Director would have retained the same if no vacancy had occurred. Provided that the Directors may not fill a casual vacancy by appointing any person who has been removed from the office of a Director of the Company under Article 127.

70. Mr. N.C Chatterjee, for the Appellants, contended that, to obtain a true construction of the Articles, all should be read together and the words in Art. 126 “The Company in general meeting may from time to time increase or decrease the number of Directors” should be read with the words in Article 109 “The number of Directors shall not be less than three nor more than four.” When this is done the meaning of the Articles is that power is conferred upon the Company to increase the number of Directors, beyond the prescribed maximum of four, by means of an ordinary resolution. Therefore, he says, the ordinary resolution passed by the Company increasing the number of Directors from four to eleven and appointing seven of the Appellants as Directors, in addition to the existing four Directors, is a valid resolution.

71. Mr. Chatterjee conceded that, if Art. 109 stood alone and if there were no Art. 126, sec. 20(1) of the Indian Companies Act (the terms of which are later set out and discussed) would apply and a special resolution would be necessary to alter “four” in Art. 109 in order to increase the maximum number of Directors to eleven.

72. It was contended that if Art. 109 provided “unless otherwise determined in a general meeting the number of Directors shall be not less than three nor more than four,” the number of Directors could be increased above the stipulated maximum by an ordinary resolution. In support of this proposition, reliance was placed upon Gur Prasad Kapoor v. Rameswar Prasad and Worcester Corsetry, Ltd. v. Witting and a note at page 668 in 15th Edition of Palmer's Precedents.

73. Kapoor's case is direct authority for the proposition; there the wording in Art. 98 was exactly worded as above and it was held the number of Directors could be increased above the prescribed maximum by an ordinary resolution.

74. In The Worcester Corsetry case, Art. 12 was similarly worded and fixed the number of Directors as not less than two nor more than seven; Arts. 83, 84 and 85 corresponded to Lothian's Articles 126, 128 and 111; at p. 649 of the report Lawrence, L.J, observed:

“That article (Art. 12) clearly points out that the company in general meeting can exercise its power to alter the articles in respect of the fixing of a minimum and maximum number of directors without having a special resolution to alter the articles.”

75. This supports Mr. Chatterjee's contention but if was not, however, a matter which arose for decision and the observation was not germane to the question which was decided, namely, whether Articles 84 and 85 (Lothian Articles 128 and 111) delegated to the Directors the entire powers of the Company to appoint Directors. It was held they did not do so to the exclusion of the Company which retained power by Art. 83 (Lothian Art. 126) to increase the number of Directors from three to five, which was within the maximum prescribed by Art. 12.

76. The note in Palmer appears below the author's model Article 81 which is worded in the same way. The note states:

“in the absence of the first seven words it seems that the number cannot be reduced without a special resolution, Sennet Bros. Ltd. v. Lewis. But query whether this is so where a clause like 61 . . . appears”

“Clause 91 at p. 689 in Palmer corresponds to Article 126 of the Lothian Articles. In the decision, cited by Palmer, Article 85 fixed the number of Directors as not less than three nor more than seven and was worded similar to model Article 81; the Company resolved to reduce its Directors and the reduction made was held not to be less than the prescribed minimum. In his judgment, Vaughan Williams, L.J, observed:

“If its (the resolution's) effect was to reduce the directors to two, there would be an inconsistency with Art. 85”.

77. Bennet Bros. Case does not seem to support Palmer's suggestion in his note.

78. Whilst the observation by Lawrence, L.J, was obiter dicta, the opinion of such an eminent and experienced jurist in Company legislation commands, every respect and in this country, where the English authorities are not binding upon the Courts to the same extent as if it were the ratio justified of the decision. Since the seven words are absent from Art. 109, I do not consider a pronouncement regarding their effect is necessary in the present instance and I beg to reserve an expression of opinion upon their true meaning and effect. I have referred to them at some length since considerable time and argument were devoted to them.

79. I now proceed to discuss whether Art. 126 must be read with Article 109 and, if this is done, whether the Company can increase the number of its Directors above the maximum in Article 109 by an ordinary resolution.

80. If Article 126 is not complementary to Article 109 and the words, “the Company in general meeting may from time to time increase or reduce the number of Directors,” are not read with the words in the latter Article, an increase in the maximum number of Directors requires a special resolution, pursuant to sec. 20(1), to alter the maximum number of four Directors.

81. The Articles have delegated power to the Directors to appoint an additional Director up to the fixed maximum (Article 111) and to fill up casual vacancies (Article 128). In Blair Open Hearth Company v. Reigart(4) there were Articles corresponding to Articles 111 and 128 but there was no Article corresponding to Article 126; another Article, which fixed the maximum and minimum number of Directors, contained the seven words. It was held that the Company had delegated to the Directors power to appoint additional Directors and to fill up vacancies and it had no residual power to do those things. This decision was distinguished in Worcester Corsetry, Ltd. v. Witting in which, as previously mentioned, Arts. 83, 84 and 85 corresponded to Lothian Arts. 126, 128 and 111 and Art. 12 fixed the maximum and minimum numbers of Directors “unless otherwise determined in a general meeting.” At page 649, Lawrence, L.J, rejected the argument that Art. 83 was merely complementary to Art. 12 and only empowered the Company to fix another minimum or maximum. Slesser, L.J, at p. 653 after referring to Art. 12 said, “I do not think that Art. 83 is dealing with such matter (increase in the maximum number of Directors). Art. 83 gives the Company in terms power to increase the number of Director,” i.e, within the permitted maximum; the view taken in that case was that Art. 83 (Lothian Art. 126), did not relate to the Article fixing the membership of the Board but to the appointment of Directors within the numbers stipulated by such Article and empowered the Company to appoint within those limits.

82. In the Lothian Articles, when it is the intention to empower the Company to alter an Article by some particular means, the necessary provision is included in the Article itself. Art. 114 fixes the Directors' remuneration at Rs. 32 for each meeting and it contains the words “unless otherwise determined by the Company in general meeting” which are absent from Art. 109. Apart from the meaning and effect of those words, power is expressly given to determine a different remuneration. If there had been the intention to confer a similar power with respect to Art. 109, those words could have been included in it but they have not been; their absence in Art. 109, whilst present in Art. 114, is an indication there was no intention to confer any special power upon the Company to alter the size of the membership of the Board.

83. In Blair's case there was no Article corresponding to Art. 126 but the Board fixation Article contained the words “unless otherwise determined in a general meeting.” In that case it was not suggested they should be read with the Articles delegating to the Directors powers of appointment of additional Directors and to fill vacancies and, if so read, then the Company might have had power to do those things in spite of the delegation; it was held they had not the power in the absence of an Article like Art. 126.

84. In my opinion Art. 126 does not relate to an increase in the maximum number of Directors but to an increase in the actual number within the permitted maximum and that the words in that Article have not to be read with Art. 109.

85. Now assuming the words in Art. 126 are read with those in Art. 109 the combined provision would then read “The number of Directors shall be not less than three nor more than four; the Company in general meeting may from time to time increase or reduce the number of Directors.” The words in Art. 126 would, however, not be included in Art. 109 but the words of the two Articles would still remain in their respective places.

86. The power of a Company to alter its Articles is given by sec. 20(1) of the Indian Companies Act, which provides that:

[His Lordship after setting out the provisions of the section proceeded.]

87. This sub-section corresponds to sub-secs. (1) and (2) of sec. 10 of the English Companies Act.

88. If a statute creates an obligation and provides in the same section or passage a specific means 01 procedure for enforcing it, no other method than that thus provided can be used for that purpose vide Lamplugh v. Norton(23) and Wake v. Sheffield(24). The principle must be the same when a statute creates a permissive power which, if utilised, can be exercised only by the method which is prescribed. The word “may” in sec. 20(1) is permissive to the extent that a Company is not obliged but is allowed, if thought convenient or necessary, to alter its Articles. The sub-section then prescribes the method to be used when the power to alter is exercised, namely, a special resolution. The word “may” is not permissive with respect to the method but means “must.” It comes to this, a Company, at its option “may” alter its Articles but if it exercises the option it “must” do so by a special resolution. The sub-section does not mean the alteration can be made by a special resolution or by an ordinary resolution at the will or pleasure of the members. The sub-section mandatorily requires a special resolution to alter the Articles, this is manifested and emphasised in the latter part which enacts that any alteration which is made shall be subject to alteration by a special resolution.

89. A Company cannot exempt itself from or contract out of the provisions of the Companies Acts by a clause in its Articles excepting a regulation in an Article from operation of the statute. Vide Walker v. London Tramways Company(25) and Malleson v. National Insurance Company(26). In Ayre v. Skelsey's Adamant Cement Company(27) it was held, by Kekewich, J., at p. 589, that an Article should be ignored which required a majority greater than that needed for a special resolution to alter an Article and that the statute prevailed. This decision was upheld by the Court of Appeal, Ayre v. Skelsey's Adamant Cement Co(28), upon other grounds which were expressed by Kekewich, J.; reference to the above finding does not appear in the report but, it can be said, the Court of Appeal did not disagree with its correctness.

90. The Articles of a Company must be read and construed subject to the provisions of the Companies Act, a provision in an Article which is inconsistent with or contravenes the Act, is void and must be ignored. When two constructions can be given to an Article, one of which conforms with the Act and the other contravenes it, the former must be preferred. By sec. 81(2) of the Indian Companies Act, which corresponds to sec. 117(2) of the English Act, the English Act of 1929, a special resolution is passed at a general meeting. The words in Art. 126 “The Company in general meeting may from time to time increase, or reduce the number of Directors,” do not specify the kind of resolution to effect the increase or decrease and the Article does not say it shall be by an ordinary resolution. In this respect there is no contravention of sec. 20(1). When the words are construed subject to that sub-section, the kind of resolution which is required is found to be a special resolution. Even if Art. 126 had expressly provided for an ordinary resolution the Article would not prevail over the section; a fortiori, it cannot do so when an ordinary resolution is not mentioned and could be inferred only by implication.

91. If an alteration in the maximum number of Directors could be made by an ordinary resolution under Art. 126, the maximum number in Art. 109 would not be altered. In those circumstances the number authorised by the resolution would conflict with the Article. In Navnitlal Chabildas v. Scindia Steam Navigation Co., Ltd. by Art. 90 the Directors' qualification was Rs. 30,000 of shares and did not contain “Unless otherwise determined in a general meeting,” Art. 100 corresponded to Lothian Art. 126, including a provision to alter the qualification. It was held that the qualification could only be altered by a special resolution and not by an ordinary resolution. At p. 1366, Taraporewala, J., observed that the Company could not allow Art. 90 to remain as it was and, at the same time, say that that Article was no longer in force by reason of a resolution at a general meeting providing for a different qualification. With respect I agree with the finding and observation. The decision in Navnitlal's cases covers the matters in the present appeal regarding an increase in the maximum number of Directors.

92. In my opinion, assuming the words in Art. 126 are read with those in Art. 109, they do not empower the Company to alter the maximum number of Directors by an ordinary resolution but a special resolution, pursuant to sec. 20(1), is required for that purpose.

93. It is convenient now to consider the resolution which purported to terminate Messrs. Andrew Yule's agreement with the Company and to remove them from the appointment as Managing Agents. In this connection reference to the provisions of Art. 132 is required. They are the following:—

[His Lordship after setting out the Article proceeded.]

94. This Article substantially accords with the relevant term of the agreement dated 15th November, 1929, by which Messrs. Andrew Yule were appointed the Company's Managing Agents.

95. It has been previously mentioned that the resolution was not passed by a three-fourths majority but by a bare majority and it was not an extraordinary resolution. The notice convening the meeting which passed the resolution was given less than six months before the date upon which the meeting was held. In both of these respects the resolution does not conform with the agreement and with Art. 132.

96. The Appellant justified the validity of the resolution solely upon cl. (f) of sec. 87B of the Indian Companies Act which, it is contended, empowered the Company to terminate the Managing Agents' appointment and to remove them from their office. The provisions of this enactment are:

Sec. 87B.

[His Lordship after setting out the provisions proceeded.]

97. The provisions of sec. 86E are not relevant to the present consideration.

98. Mr. Chatterjee argued that, even in the absence of cause or reason, and irrespective of the period remaining before the expiration of a Managing Agent's agreement by effluxion of time, cl. (f) confers power upon a Company summarily to terminate such agreement and to remove a Managing Agent by passing an ordinary resolution at any time during the currency of the agreement. Unless the clause enables this to be done without compensation being payable in respect of the unexpired period of the term of the engagement, (and the clause is silent regarding payment or deprivation of such compensation), the clause has accomplished nothing since the position is the same as when an unexpired agreement is wrongly determined and the injured party is left with a remedy in damages for the loss sustained on account of his contract having been wrongfully repudiated.

99. In order to compare cl. (f) with two other clauses of sec. 87B I will assume that it does confer power upon a Company summarily to determine its Managing Agent's agreement and, also, I must assume it enables this to be done without payment of compensation in respect of the unexpired period of the term of the agreement.

100. Cl. (a) of sec. 87B provides that a Company in general meeting, of which notice is given to a Managing Agent in the same manner as to members of the Company, can remove its Managing Agents, whether a person or firm or Company, if the Managing Agent or a member of the Managing Agent firm or a Director or an officer of the Managing Agent Company is convicted of a non-bailable offence under the Indian Penal Code in relation to the affairs of the Company; but, in the case of a Managing Agent firm or Company, if the convicted member of such firm or convicted Director or officer of such Company is expelled or dismissed within thirty days of conviction, the firm or Company is not liable to be removed. Cl. (a) conflicts with cl. (f) in several respects. The former requires cause to exist before removal can take place; even when cause has arisen it cannot be availed, with respect to a Managing Agent firm or Company, if the person who created the cause is dismissed within thirty days of his conviction. Cause is not required under cl. (f) and if removal could be effected without cause by that clause, then cl. (a) is redundant and unnecessary. Cl. (f) operates, without exception, against an innocent. Managing Agent firm or Company whereas cl. (a) does not do so. Cl. (a) requires notice of the meeting to be given to the Managing Agent at which a resolution to remove him is to be considered but no such notice is required by cl. (f). If cl. (f) bears the suggested meaning, an innocent as well as a guilty firm or Company is affected by its terms, without any exception, whereas cl. (a) applies only to a guilty firm or Company which does not rid itself of a convicted member, Director or officer.

101. Cl. (e) provides that when a Company is wound up, either by the Court or voluntarily, any management contract with a Managing Agent shall thereupon be determined, but without prejudice to the right of the Managing Agent to recover any money recoverable by the Managing Agent from the Company unless the Court finds the winding up is due to the negligence or default of the Managing Agent, in which event he shall not be entitled to receive any compensation for the premature termination of the management contract. This clause conflicts with cl. (f) since it contemplates compensation being payable in respect of the unexpired period of a Managing Agent's agreement unless he is found guilty of negligence or default, but compensation is not payable under cl. (f). With respect at least to a voluntary liquidation, the application of cl. (e) could be prevented and be inoperative since, before passing a resolution to wind up, a Company could resolve to remove its Managing Agent, pursuant to cl. (f), so that compensation would not be payable even in the absence of negligence or default. In this respect cl. (e) is redundant.

102. Conflicts between cl. (f) on the one hand and cls. (a) and (e) on the other, and the redundancies of the two last clauses arise only if cl. (f) bears the meaning for which Mr. Chatterjee contends.

103. Cl. (f) is clear and unambiguous. Whilst its object is to prevent the appointment and removal of a Managing Agent and variation in the terms of his engagement being effected contrary to the wishes of the share-holders, it does not confer power upon a Company in general meeting to do those things. The word “approval” does not mean a Company in general meeting is to appoint, remove and vary but to sanction them being done by the method which and by the per son who, apart from the clause, would bind the Company. If it had been intended that the Company should itself do these things, the clause could have so provided, but it has not done so. No matter by whatever methods or whomever persons these things may have been done and although all legal and contractual formalities may have been observed in the doing of them, a Company's approval, i.e, its sanction, is required in order to make them valid and binding upon the Company. The clause does not empower a Company in general meeting either to do, or to approve the doing by someone on its behalf of, something which is wrongful or illegal, e.g, summarily to dismiss a Managing Agent before the expiration of the term of his agreement in the absence of any ground justifying such course. The act which the clause requires to be approved by the Company before it is valid is one which is lawful and right, and apart from the clause, would have been binding upon it; the clause does not empower a Company to make lawful and right what is unlawful and wrong. In my opinion the resolution passed by the Lothian Company in general meeting was not authorised by cl.(f).

104. It was not suggested, in argument, that Art. 132 is repugnant to any provision of the Companies Act or the memorandum of the Company or that the term in Messrs. Andrew Yule's agreement, corresponding to that Article, is un-enforceable. Both the Article and the term prescribe when and how the agreement terminates. The resolution does not comply either with the Article or the agreement and it was not a lawful termination of the contract and not a lawful removal of the Managing Agents.

105. The observations by Collins, M.R, in Auto-matic Self-Cleansing Filter Syndicate Company, Ltd. v. Cunningham are pertinent to both resolutions. At p. 43 he said “It is not fair to say that a majority at a meeting is for the purpose of this case the principal so as to alter the mandate of the Agent. The minority also must be taken into account. There are provisions by which the minority may be over-borne, but that can only be done by special machinery in the shape of special resolutions. Short of that the mandate which must be obeyed is not that of the majority — it is that of the whole entity made up of all the share-holders.”

106. The conclusions to which I have arrived regarding the two ordinary resolutions are that they violated the Company's Articles and were ultra vires its powers given by the Articles. In regard to the increase in the number of Directors, the Companies Act mandatorily requires that such increase must be made by an alteration to Art. 109 by special resolution; the ordinary resolution was inoperative and ineffective to increase the size of the Board and, it follows to appoint seven of the Appellants as Directors. In regard to the other resolution since it did not conform with Article 132, it did not effect a lawful determination of the contract.

107. The question next to be considered is whether Respondent No. 1, as a share-holder, and Respondent No. 2, the Company, or either of them, can properly be Plaintiffs in the suit.

108. sec. 21(1) of the Indian Companies Act provides:—

[His Lordship after setting out the provisions proceeded.]

109. Reference will be made to decisions of the Courts in England and it is convenient to notice that the above sub-section substantially corresponds, save that the words “and sealed” are included between “signed” and “by each member” to the English Companies Act as follows:— Sec. 50 of the 1862 Act, sec. 14 of the 1908 Act and sec. 20(1) of the 1929 Act.

110. It is not in dispute there is a contract between the Company and each of its members upon the terms contained in the Articles. Is there also a contract between each individual member and all other members upon the terms of the Articles?

111. When sec. 21(1) is analysed it reflects that the sub-sec. (a) enacts that the Articles bind all members and (b) deems, in effect, that (i) the Articles contain a covenant by each member to observe the provisions of the Articles and (ii) the Articles are signed by each member. In those circumstances there are mutual promises between all members to observe the Articles. This is comparable to an agreement signed by several executants containing a term that each will carry out and observe the stipulations in the agreement. Halsbury's Laws of England, Volume 7, page 67, paragraph 86 states “A promise under seal is called a covenant.” Whilst the law is different in India to that in England regarding a document under seal, nevertheless, when there are mutual promises between parties to an agreement which amount to consideration moving from each to the others, the terms in the document can be enforced by and against each party.

112. Reference can now be made to decisions of the English Courts.

113. In Welton v. Saffrey(29), Lord Herschell dissented from the opinion expressed by the five other learned Lords of Appeal that a member of a Company in liquidation is liable to calls upon shares, issued at a discount, for the amounts unpaid on his shares, for the adjustment of the rights of the contributories inter se. In the course of his speech Lord Herschell said, at P. 315 that the Companies Act does not purport to settle the rights of the members inter se, it leaves these to be determined by the Articles; there is no contract in terms between the individual members of the Company; but the Articles do not any the less regulate their rights inter se; such rights can only be enforced by or against a member through the Company or the liquidator; and no member has, as between himself and another member, any right beyond that which the contract with the Company gives. It would seem that Lord Herschell's view was that, whilst the rights as between one member and the other members are determined by the Articles, no member can, himself, enforce his rights but it must be done for him by the Company with whom alone each member contracts. Lord Macnaughten does not seem to have accepted this view; at p. 323, he said:

“If directors, being duly authorised in that behalf, invite persons to take shares in certain terms varying the rights of members inter se, acceptance of the invitation must I think establish a contractual relation between the members themselves.”

114. In Imperial Hydropathie Hotel Company, Blackpool v. Hampson(30), Cotton, L.J, at p. 10 said, “there are the Articles of Association, which under the Act are a contract between all the share-holders to comply with the regulations in them.” In Automatic Self-Cleansing Filter Syndicate Co. Ltd. v. Cunninghame, Cozens Hardy, L.J, said, at p. 44:

“It has been decided that the articles of association are a contract between the members of the company inter se.”

115. In Wood v. Odessa Waterworks Co.(31), Stirling, J., observed at p. 642, that

“The articles of association constitute a contract not merely between the share-holders and the company but between each individual share-holder and every other.”

116. This observation was quoted by Farwell, L.J, at p. 318 in Salmons v. Quin & Axtens, Ltd. when delivering judgment in the Court of Appeal, with which Cozen Hardy, M.R, agreed; Farwell, L.J, added:

“I think, that that is accurate, subject to this observation, that it may well be that the Court would not enforce the covenant as between individual shareholders in most cases.”

117. An appeal to the House of Lords, reported as Quin & Axtens, Ltd. v. Solmon was dismissed; in his speech Lord Loreburn, L.C, said, at p. 443,

“I do not see any solid ground for complaint against the judgment of the Court of Appeal.”

and at p. 444, Lord Macnaughten stated:

“I think the judgment of the Court of Appeal, is perfectly right”.

118. The other learned Law Lords concurred; it must be deemed therefore that the House of Lords agreed with the judgment of the Court of Appeal delivered by Farwell, L.J, including his approval of Stirling, J.'s observation.

119. Lord Herschell's opinion was given in an appeal wherein he dissented from the conclusions of five other members of the House of Lords and with which opinion Lord Macnaughten did not agree. Opinion to the contrary has been expressed by learned Judges in the Court of Appeal, and, it would seem, received approval in the House of Lords. In these circumstances the latter opinion should prevail and with which, respectfully, I venture to agree. Although sec. 21(1) of the Indian Companies Act differs slightly in wording with the corresponding sections of the English Acts, I think the meaning and effect is the same and that the Articles of a Company incorporated in India constitute a contract between each member with the other members to observe the provisions in the Articles.

120. It follows that when some members of a Company, it may be the majority of members, do not carry out the terms of that agreement, which each has made with all other members, to observe and carry out the provisions in the Articles but they act contrary to the Articles, one or more of the other members has or have the right to come to the Court and ask for the agreement to be enforced against those members who have violated their obligations. The Court has then to decide whether it can, and if so, if it has a, discretion in the matter, it will enforce the agreement.

121. Now returning to the ordinary resolution increasing the number of Directors to eleven and appointing seven of the Respondents to the Board. The Appellants' argument is that whilst the effect of sec. 20(1) is to require the increase to be made by a special resolution, but since the Company is empowered to make the increase by a special resolution, it is able to regularise the irregularity; the size of the Board is a matter of internal management of the Company and the majority of the share-holders desire the increase, in those circumstances the Court will not interfere with what has been done and the increase must therefore remain and the added seven Directors are entitled to act as such. Foss v. Harbottle, Mosley v. Alston(9) and Mac Dougall v. Gardiner were cited in support of the argument. Particular reference was made to an observation in Mac Dougall's cases by Mellish, L.J, at p. 25:

“if the thing complained of is a thing which in substance the majority of the company are entitled to do, or if something has been done illegally which the majority of the company are entitled to do legally there can toe no use in having a litigation about it, the ultimate end of which is only that a meeting has to be called and then ultimately the majority gets its wishes.”

122. Later, however, the learned Lord Justice said:

“Of course if the majority are abusing their powers and are depriving the minority of their rights, that is an entirely different thing, and there the minority are entitled to come to this Court to maintain their rights.”

123. An increase in the directorate can be legally and regularly made only by a special resolution. In the present case the majority of the shareholders cannot pass a special resolution as they have not the required majority of three-fourths of the votes and, in consequence, they are not entitled to increase the number of Directors of the Company and cannot regularise or legalise the increase which was purported to be effected by an ordinary resolution. In those circumstances I am unable to see that the first observation of Mellish, L.J, can apply. At pp. 21 and 22 of his judgment in Mac Dougall's cases, James, L.J, said:

“Nothing connected with the internal disputes between the share holders is to be made the subject of a bill by some one share-holder on behalf of himself and others, unless there is something illegal, oppressive or fraudulent — unless there is something ultra vires on the part of the company qua company or on the part of the majority of the company, so that they are not fit persons to determine it.”

124. James, L.J, does envisage the correctness of one share-holder, on his own and other share-holders' behalf, filing a bill when there is an legal thing done by the majority and also when the thing done is ultra vires the Company. Mellish, L.J, in his second observation above quoted recognises the right of a minority of share-holders to come to the Court to maintain their rights when the majority abuse their powers and deprive the minority of their rights. The minority share-holders of the Lothian Company, and the Company itself, have the right that all share-holders should observe the Articles, that the Company's affairs be vested in and controlled by the Directors (Arts. 131 and 148), i.e, the real and lawful Directors, who are four in number, and that the number of Directors be not increased save by a special resolution. An increase of the number of Directors to eleven and appointment of seven more Directors by an ordinary resolution abuses that right, is ultra vires the Company, and is an illegality which cannot be legalised since the majority of shareholders do not command sufficient voting power. If the minority were not entitled to come to the Court, and if and when they did, the Court would not interfere, in circumstances like the present case, it must inevitably mean that sec. 20(1) is entirely nugatory and a resolution carried by a majority of one vote can accomplish what the statute enacts can only be done by a majority of three to one. Sec. 55(1) empowers a Company to reduce its capital by a special resolution but the reduction is subject to confirmation by the Court; if a resolution to reduce were passed by a bare majority, the Court would not confirm the resolution on the ground that it was the wish of the majority to do so and because the Articles and statute contained provisions by which the reduction could be made by special resolution.

125. Salmon v. Quin and Axtens, Ltd. is a decision by the Court of Appeal, affirmed by the House of Lords. In that case the majority of the ordinary shares of a Company were held by two persons, Salmon and Axtens, who were Directors and the Managing Directors of the Company; Article 75 provided that the business of the Company should be managed by the Board who could exercise all the powers of the Company subject to the Articles and to such regulations (not being inconsistent with the Articles) as might be prescribed by the Company in general meeting; Article 80 provided that no resolution of a meeting of the Directors to enter into a contract exceeding £1000 to purchase or to let any premises or to carry out any matter affecting the rights of Salmon and Axtens as ordinary share-holders, should be valid or binding if either Salmon or Axtens dissented in writing from it before or at the meeting at which the resolution was to be put to the vote. At Board meetings, resolutions were passed (1) to purchase premises, (2) to let out other premises and (3) to issue £6000 of the unissued ordinary share capital. Salmon dissented in writing to each of the resolutions before it was passed. Subsequently an extraordinary general meeting of the Company was held at which resolutions were passed by the preponderence of Axtens' votes, similar in terms to those passed by the Board. Salmon, suing on behalf of himself and all other share-holders except the Defendants, commenced an action against the Company and two share-holders, including Axtens, for an injunction to restrain them from acting upon any resolution passed at the extraordinary general meeting and moved for an interlocutory injunction, which was refused by Warrington, J. Salmon appealed to the Court of Appeal, where Farwell, L.J, delivered judgment, with which Cozens Hardy, M.R, agreed. At p. 319, he said:

“in truth this is an attempt to alter the terms of the contract between the parties by a simple resolution instead of by a special resolution.”

126. Later he quoted, as the true view, the words of Buckley, L.J, at p. 105 in Gramophone and Typewritter, Ltd. v. Stanley:

“even a resolution of a numerical majority at a general meeting of the company cannot impose its will upon the directors when the articles have confided to them the control of the company's affairs . . . they can be dispossessed from that control only by the statutory majority which can alter the particles”.

127. At p. 444 of the report of the appeal by the Company and the majority share-holders to the House of Lords, Quin and Axtens, Ltd. v. Salmon, the Lord Chancellor said:

“it seems to me that the regulations or resolutions which have been passed are of themselves inconsistent with the provisions of these articles and therefore this appeal fails.”

128. Some observations in the Court of Appeal which were made in Baillie v. Oriental Telephone and Electric Co., Ltd. are directly in point. At p. 515, Lord Cozens Hardy, M.R, said:

“the contention was this: Even if it be not a good special resolution the company alone can alter it (an article of the company), and they, by an ordinary resolution, can give it the same effect as if it were a good resolution. That seems to me to be directly opposed to the Act of Parliament, which says in terms, that certain things can be done by special resolution and other things cannot; and to say that the company by an ordinary resolution can indirectly do that which the Act says can only be done by a special resolution is a proposition which I am not prepared for one moment to assent to.”

129. Swinfen Eady, L.J, at p. 518, said:

“It was then contended that the Plaintiff is not entitled to sue. The Plaintiff's counsel urged that if this, as a special resolution, was invalidly passed, how is it to be impeached if the Plaintiff cannot sue; how can the question of illegality be raised? Suppose he called a meeting and the majority of the shareholders were to say, ‘We are content with the present position, and we will not raise any question’ can it be said that, by a side wind as it were not being able to pass a valid special resolution they could pass an invalid one and then by a bare majority say we will not allow any proceedings to be taken.? In my opinion they cannot do that.”

130. In Baillie's cases the Plaintiff sued the Company and its Directors alleging that special resolutions were passed without the shareholders being given sufficient and full information upon the subject-matter of the resolutions and he moved for an interim injunction restraining the Directors from acting upon them. The motion, was resisted upon the grounds that the Plaintiff, was not entitled to sue on behalf of himself and other share-holders without joining the Company as a Plaintiff. The injunction was refused by Artbury, J., but, on appeal, was granted by the Court of Appeal. Reference also can usefully be made to one further authority. In Borland v. Earle, an appeal to the Judicial Committee from Ontario, when delivering the judgment of the Board, Lord Davey observed, at p. 93:

“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.”

131. The ordinary resolution increasing the number of Directors of the Lothian Company and appointing seven of the Appellants as Directors, violated sec. 20(1) of the Companies Act and the Company's Articles and it was illegal and ultra vires the powers of the Company; the Appellants, in voting for the resolution and by seeking to enforce it, have failed to carry out their contract with Respondent No. 1 and with the Company, to observe the provisions in the Articles; upon the authorities which I have just cited, Respondent No. 1, as a minority shareholder, was entitled to come to the Court to obtain relief against what was done and he can maintain the present suit. The second resolution, terminating the Managing Agents' agreement and removing them, was ultra vires the Company's powers, and also was a violation of the Appellants contract with the Company and the other share-holders. Subject to what I shall have presently to say regarding the competence of the Court to grant relief, Respondent No. 1 is also entitled to come to the Court with respect of that resolution.

132. As regards the position of the Company as Plaintiff. In Borland v. Earle, their Lordships of the Judicial Committee said, “It is clear law that in order to redress a wrong done to the Company …. the action should prima facie be brought by the Company itself “and, after referring to minority share-holders suing, their Lordships added “in such an action the Plaintiffs cannot have a larger right to relief than the Company would have if it were Plaintiff.” In Mac Dougall v. Gardiner it was pointed out by Mellish, L.J, at p. 25, that a suit, claiming (a) a declaration that the conduct of the Chairman at a meeting of a Company was illegal and improper and (b) an injunction restraining the Directors from carrying out some proposed arrangement, should be brought in the name of the Company; it would seem that James, L.J, at p. 22, in that case, considered it should be at the wish of the majority of share-holders but that means that the Company should properly be a Plaintiff. Subject to my later observations, the Company is properly a Plaintiff and is entitled to claim the relief sought in the suit.

133. The question now arises whether the position of the Company as a Plaintiff is authorised and it has properly been so constituted.

134. Reference to the provisions of some further Articles is now necessary. They are the following:

Art. 148: “The control of the company shall be vested in the directors and the business of the company shall be managed by the directors who in addition to the powers and authorities by these presents or otherwise expressly conferred upon them, may exercise all such powers and do all such acts and things as may be exercised or done by the company and are not or by statute law expressly directed or required to be exercised or done by the company in general meeting. ….

Art. 149. Without prejudice to the general powers conferred by the last article …. it is hereby expressly declared that the directors shall have the following powers, that is to say, power—

(b) …. to institute, conduct, defend, com-pound or abandon any legal proceedings by or against the company or its officers or otherwise concerning the affairs of the company ……..”

135. The present suit concerns the affairs of the Company, which properly can, and indeed should, be a Plaintiff in the proceedings. The widest powers are conferred upon the Directors, in whom is vested the control of the Company, and they are empowered to institute and conduct all proceedings by the Company concerning its affairs. The plaint is signed by Dr. Law, for himself, and by Mr. Cumberbatch as a Director and principal officer of the Company and it is verified by Dr. Law, who, in the verification, says the statements in some of the paragraphs are made upon information received by him from fellow Directors. Mr. Cumberbatch is a Director and the Chairman of the Board, pursuant to Art. 109, and is one of the real and lawful Directors of the Company. Upon the face of the plaint, the suit is regularly instituted and is authorised as a proceeding by the Company which the Articles empower the Directors to bring and conduct.

136. Paragraph 18 of the written statement alleges that

“The majority of the share-holders are opposed to the suit in the name of the company. The company has been joined as Plaintiff without authority and its name should be struck out. Persons using the name of the company have not the support of the majority of shareholders and they have wrongly used the name of the company.”

137. The objection in the written statement to the Company as Plaintiff, in my view, is made solely on the ground that the majority of the shareholders do not support the use of its name as such. This objection cannot prevail in the light of the delegation to, and empowerment of, it Directors in the Articles. It is not alleged in the written statement that the suit is one which is beyond the powers of the Directors to institute or that it was brought in the absence of the exercise of their powers, so as to make its institution unauthoritative.

138. Issue No. 3 deals with the maintainability of the suit and three questions are raised, whether: (a) the suit has been properly instituted in the name of the Company; (b) Mr. Cumberbatch has authority to represent the Company and to use its name as Plaintiff; (c) the Plaintiffs have the support of the majority of the share-holders and, if not, can they continue the action. This issue must have reference to the allegations made in the pleadings, (a) and (c) can only, and (c) expressly does, deal with the majority of the share-holders being opposed to the suit; (b) can have reference only to the right or authority of Mr. Cumberbatch to use the name of the Company by signing the plaint on its behalf in a suit to which the majority of the share-holders are opposed. Issue No. 3 does not deal with matters not raised by the pleadings, and the question of the power of the Directors to institute the suit by the Company and the exercise of that power is not raised by the issue.

139. In these circumstances, since the suit, on its face, is one by the Company and since the power of the Directors and the exercise of their power to institute it by the Company are not in controversy, it follows that the authority of and for the Company thus to sue is not in contest and the presumption in favour of that authority is not questioned.

140. Now, if I am wrong regarding paragraph 18 of the plaint and issue No. 3, and assuming they do raise the question of the Director's power and their exercise of it to institute the suit by the Company; in that event the burden is upon the Defendants to establish that the Company's name as Plaintiff has been used without authority. There is no evidence, either oral or documentary, of the absence of authority for the Company to sue and for it to be a Plaintiff in the suit.

141. I find that the Company is properly a Plaintiff and its name has not been used without authority.

142. Reference to one further matter is desirable before I leave the question of want of authority to use the Company's name as a Plaintiff. In John Shaw and Sons (Salford), Ltd. v. Shaw(32), Roche, L.J, referred to the authorities and, at p. 147, said the principles derived from them are that an objection to a right to sue should not be taken at the trial but by an interlocutory motion or summons, if that procedure is not adopted, the Court need not, and ordinarily should not, entertain such an objection at the trial as if it were a defence. Later he observed:

“when it clearly appears that there is want of authority to sue, e.g, if an admission in that sense were made in the course of the hearing, the same result in any opinion ought to follow and the action in question ought to be struck out.”

143. The Defendants in the present suit did not move the Court by an interlocutory application and, during the hearing, there was nothing, by way of admission or otherwise, by which it appeared there was want of authority for the Company to be a Plaintiff. The above supplies an additional reason not to strike out the name of the Company as a Plaintiff.

144. Now I come to consider-whether the invalidity of the resolution, which purported to terminate Messrs. Andrew Yule's agreement with the Company and to remove them from the appointment as Managing Agents, can be the subject of relief in this suit at the instance of a minority; share-holder and of the Company. Accepting that the termination and removal were unlawful, it was argued, that the Plaintiffs are seeking, in substance, to obtain an order for specific performance of the Managing Agents' agreement; the agreement is one for personal service and a Court cannot grant specific performance of such agreement; the sole remedy for wrongful termination of a contract of that nature is an action for damages by the injured party against the party in default. That is saying, in effect, that Messrs. Andrew Yule's agreement has been, in fact, determined and they ceased to be the Managing Agents upon the passing of the resolution but they can sue the Company for damages for wrongful dismissal. 1 think this must result in saying that, whilst Art. 132 provides for the continuance of Messrs. Andrew Yule as Managing Agents until an extraordinary resolution is passed at a meeting of which at least six months' notice is given, nevertheless, if the Article is violated and not observed and an ordinary resolution is passed to terminate and to remove, such resolution is as effective as if there had been compliance with the Article. Whilst the Managing Agents may have a claim against the Company for compensation for wrongful dismissal as damages for breach of the agreement, that is a thing apart from the non-observance of Article 132.

145. It is beyond dispute that a Court will not grant specific performance of a contract for personal services nor an injunction to prevent breach of such contract by one of the parties, vide secs. 21(b) and 56.(f) of the Specific Relief Act, By sec. 42 of the same enactment the Court has a discretion to make a declaration at the suit of any person regarding his right as to property against any other person who denies such right; the Plaintiff in such suit need not ask for any further relief but, a declaration shall not be made where the Plaintiff, being able to seek further relief than a mere declaration, fails to do so. In the present case, unless prevented by secs. 21(b) and 56(f), the Court can grant the declarations claimed in the suit.

146. Messrs. Andrew Yule's agreement with the Company is, undoubtedly, a service contract. Mr. Chatterjee contended that the substance and not the form of the relief sought must be examined to ascertain its nature and, when this is done, it is apparent that the Plaintiffs are seeking to obtain specific performance by the Company of its Managing Agents' agreement. Reference was made to two Indian and one English decision to support the argument as to the nature of the relief claimed in the suit, which decisions now require examination.

147. Nusserwanji Merwanji Panday v. Gordon(33) was a suit by the partners of a Managing Agent firm against a Company and its Directors. Cl. 4 of the memorandum of the Company provided that the firm should be appointed its Agents and the Company should enter into an agreement with the firm for the agency to be continued for twenty-five years; Art. 97 provided that; the then members of the firm and such other persons as for the time being constituted the firm should, upon entering into an agreement with the Company, be the Agents for twenty-five years and, inter alia, have full powers to appoint such solicitors as they should think proper; an agreement between the Company and the firm was duly made; the Agents appointed solicitors who acted for the Company for many years; ultimately the Board resolved to appoint other solicitors for the Company in substitution for those engaged by the Agents; this step was preparatory to termination of the firm's employment as the Company's Agents. An interlocutory injunction restraining the Defendants, i.e, the Company and its Directors, from employing the new solicitors was refused. In that case the Agents were not parties to an agreement with the Directors, as share-holders, and the Company upon the terms of the Articles, and the firm could not enforce the Articles. The action was brought upon the agency agreement to enforce one or more of its terms and to obtain, in effect, an order against the Company specifically to perform a contract for services to which it was a party.

148. Ramkumar Potdar v. The Sholapur Spinning & Weaving Co., Ltd.(34) was a suit by a minority share-holder against a Company and its Directors; the Company's agreement with its Managing Agent firm provided that the firm or member or members of it for the time being should be Agents of the Company so long as the firm carried on business in Bombay or until it should resign; at the date of a resolution (mentioned below) by the Company there was no one in the firm who had been a member of it when the agreement was made and there was no agreement with the existing members of the firm; clause 9 of the Company's memorandum and Art. 100 each contained a like provision to that in the agreement; at a meeting of the Directors it was resolved that the agreement for employment of the firm as Managing Agents and their employment as such be determined; in the plaint claims were made for a declaration that the resolution passed by the Directors was ultra vires and for an injunction restraining the Company and its Directors from carrying out the resolution. The suit was dismissed by Broomfield, J. an appeal, heard by Beaumont, C.J, and Rangnekar, J., was dismissed for the reason, inter alia, that the Court would not make an order, the effect of which would be to enforce specifically a contract of personal service; other reasons given were that the clause in the memorandum did not constitute a contract between the Company and the firm, therein mentioned, and the members of the firm at the date of the resolution were not members at the time the agreement was made. In the course of his judgment, Beaumont, C.J, observed at p. 244:

“It is a well-settled principle in company law that the court does not generally interfere with the internal management of the affairs of a company and, if the majority of the share-holders consider that a particular contract of employment should be terminated, the court would not as a rule consider the matter at the instance of a minority share-holder”.

149. By using the words “generally” and “as a rule” the learned Chief Justice appears to contemplate there are cases in which the Court will interfere and consider a termination of a contract of employment by a resolution of the majority of share-holders.

150. The last decision is Bainbridge v. Smith. The Art. 100 of a Company provided that Bainbridge senior should accept the office and act as Managing Director of the Company for ten years; in case he retired after the expiration of five years, or in case of his death, his son should serve and act as Managing Director in his stead for the remainder of the ten years; an agreement, by which the Company acquired a brewery undertaking and to which agreement the Company, and Bainbridge senior and junior were parties, contained a term to the same effect as Art. 100; the father died and his executors transferred to the son sufficient shares to make up the son's qualification as Managing Director; the Directors excluded the son from a Board meeting and a resolution was passed declining to allow him to attend; the son commenced an action, against the Directors claiming specific, performance of the agreement and an injunction restraining them from excluding him from acting as Managing Director of the Company; and he moved for an interim injunction. The argument was directed to the question whether the son had acquired his qualification and the judgment mainly relates to that matter. At p. 474, Cotton, L.J, stated:

“if the company says that even if the son had the qualification they do not desire him to act as one of the managing directors we should not grant any injunction because it would be contrary to the principles on which this court acts to grant specific performance of this contract by compelling this company to take this gentleman as managing director.”

151. The Defendants gave an undertaking to call a meeting of the Company and submit the question for its decision. The meeting was held at which the share-holders resolved they did not desire the son to act as Managing Director and, subsequently, the injunction was dissolved.

152. In Nusserwanji's and Ramkumar's cases the Company was sued and the question that arose was of specific performance by the Company of service agreements. In Bainbridge's cases, whilst the Directors alone were Defendants, the object of the action was specific performance by a Company of a contract for service and to force it to employ or appoint the Plaintiff as its Managing Director. In each of these three cases the action was to compel a Company either to retain or to take persons in its service.

153. In my opinion these three decisions are distinguishable from the present case. Firstly, the Company, as well as its share-holder, is a Plaintiff and an order involving specific performance by the Company to perform a service contract does not arise. Secondly, the Company, as well as its share-holder, is asserting against the Defendants the contract between each and all of than, contained in the Articles, so as to prevent the Defendants from forcing the Company to violate its agreement with the Managing Agents by means of a resolution which is ultra vires the Company and in violation of the Defendants' obligations under their contract with the Company and its members. Thirdly, the Defendants are not parties to the agreement between the Company and the Managing. Agents nor represent nor act for the Company, e.g, as its directors; but, by unlawful means, they are trying to force the Company to violate that agreement. The claim by the Company and its share-holder is to prevent the Defendants unlawfully to cause the Company to violate its agreement with the Managing Agents, i.e, to prevent unlawful means being used to cause an unlawful act being committed.

154. An action lies against a person who, without just cause, seduces one party to a contract, including a service contract, to break it; the other party to the contract has a remedy in damages against such person. I do not see why, in that case, an action does not lie against the seducer, at the instance of either party to the contract, to prevent him occasioning the breaking. In the present case wrongful means were sought to be used by the majority of the share-holders including the Defendants, to force the Company to break its contract with the Managing Agents. The relief sought in the suit is not either in form or in substance, to compel the Company specifically to perform a contract of service but it is to prevent the Defendants from occasioning the Company wrongfully to break it. In my opinion both the Company and its minority shareholder were entitled to come to the Court with respect to the second ordinary resolution.

155. It remains to deal with the events which took place subsequent to the passing of the two resolutions at the general meeting of the Company on 3rd January, 1945.

156. On the same day as the two resolutions were passed, Appellant No. 7 purported to convene a meeting of the Board of Directors of the Company to be held on 4th January; and he wrote to Messrs. Andrew Yule, enclosing a copy of the notice of the Board meeting, stating that all the Company's books, papers and documents were in their possession and requesting them to produce the “Directors' Minute Book” and to instruct an assistant to be in attendance at the meeting.

157. The meeting was held; Appellants Nos. 1 to 3 and 5 to 7 were present; Appellant No. 8 was absent; Dr. S.C Law, Mr. Cumberbatch, Sir David Ezra and Mr. C.L Jatia did not attend although it would seem they were given notice. Appellant No. 3 was voted to the chair and five resolutions were passed by which:

1. Appellants Nos. 6 and 7 were severally and jointly empowered to look after and manage the Company's affairs;

2. Messrs. Andrew Yule were to be called upon to make over all the Company's books, papers and documents to Appellants Nos. 6 and 7;

3. The registered office of the Company was to be shifted to No. 20, Beadon Street;

4. Appellants Nos. 6 and 7 were empowered to arrange for the removal of the Company's books, papers and documents to the new registered office and to make all other arrangements including appointments of clerks and any necessary staff:

5. The Company's bankers were to be inform ed that Messrs. Andrew Yule had ceased to be the Managing Agents and their power to operate the banking account had been and was thereby revoked and the banking account would temporarily be operated by Appellants Nos. 6 and 7.

158. It appears from the cause title of the suit that No. 20, Beadon Street is the business address of Appellants Nos. 3, 6 and 7. The registered office of the Company was No. 8, Clive Row, whereat the meeting took place.

159. Prior to the general meeting on 3rd January, 1945, none of the Appellants were more than share-holders of the Company and could have had no knowledge of its internal affairs and ad-ministration. If the above five resolutions had been put into effect, the sole control and management of the Company would have passed from those conversant with all matters into the hands of Appellants Nos. 6 and 7, who would have taken possession of all books, papers and documents and kept them at their own office and have engaged an entirely new staff who were, like themselves, ignorant of the Company's affairs, e.g, general administration, contracts and other dealings and transactions, assets and liabilities, and business connections generally. Further, what is a matter of paramount importance, those two Appellants would exclusively have operated the Company's banking account and been in charge of its funds. Although the firm's existing Directors might remain on the Board, (the continuance of Mr. Cumberbatch would have been problematical since he was appointed an ex-officio Director by Messrs. Andrew Yule) nevertheless, the seven Appellants appointed as Directors by the ordinary resolution of the Company would always have been able to do as they liked and any objection or proposal by the other four Directors could be outvoted then. There would have been a complete ouster of the established administration and a supplanting of it by a new and ignorant one in its place. Since, as I have held, the two Company's resolutions were invalid, the five resolutions had no validity, force or effect.

160. The operation of these five resolutions was prevented by an interim order of Court made on 5th January, 1945, restraining the Defendants from acting as Directors of the Company and otherwise interfering in its management and affairs and from interfering and intermeddling with the management by Messrs. Andrew Yule; by another order dated 5th February, 1945, the interim injunction was made absolute until the hearing of the suit. By reason of the orders of Court and the decree passed by McNair, J., the administration of the Company has remained with Messrs. Andrew Yule up to the present time. In two affidavits, filed on behalf of the Defendants, in opposition to the application for the interlocutory injunction, and also in the written statement, allegations were made that the share-holders were dissatisfied with the result of Messrs. Andrew Yule's management and that it was inefficient; no attempt was made at the trial to justify these allegations and, clearly, they were abandoned and must be presumed to be without foundation.

161. The suit was instituted on the same day, 3rd January, 1945, as the two resolutions of the Company were passed. It is, therefore, logical to infer that the existing Directors and the Company took legal advice, prior to the general meeting, regarding the legal position in the event of the resolutions being passed by a majority of less than three-fourths of the members present, so that each would be neither an extraordinary resolution nor a special resolution, and regarding he position and the consequences which might Follow if that event occurred and if an endeavour were made to put into effect resolutions passed by less than the required majority.

162. At the time the two resolutions by the Company were passed, the question of their validity and effectiveness must have been a matter of concern and the position was, at least, one of uncertainty. The complete uprooting of the Company's existing administration was to be apprehended, and this was, in fact, attempted within twenty-four hours from the resolutions being passed. If it had been accomplished it might well have had serious adverse effects upon the Company's position, credit and reputation. This would more especially be probable if the Company's affairs, books, papers, documents and funds passed into the control of people having no authority or right to them and those people and the staff which they engaged were ignorant of all matters connected with the Company and its administration.

163. In those circumstances it was not only correct, but it was the duty for the four regular and proper Directors, immediately to take proceedings and there was every reason for a suit to be instituted in the name of the Company as Plaintiff for the validity of the resolutions and the Company's legal position to be ascertained. It was also correct for Dr. Law, as a share-holder who had opposed the resolutions, to join in the suit with the Company and to challenge the procedure by which his rights, as a minority share-holder, had been ignored and jeopardised. The propriety of immediate action was justified by the events which occurred and by the steps taken by the Appellants, who were not legally appointed Directors, as reflected by the five resolutions passed at the meeting which they held on 4th January. It was essential that the legal position should be ascertained and the correct method to do this was by means of a suit in the name of the Company.

164. In my opinion the judgment of McNair, J., is correct, and this appeal should be dismissed with costs.

Solicitors: M.L Khemka for the Appellants; Messrs. Orr, Dignam & Co. and K.K Dutt & Co. for the Respondents.

S.C.S/R.C