Lakshmanan, J.
1. The first respondent company is a private limited company incorporated under the provisions of the Indian Companies Act, 1913. Respondents Nos. 2 to 6 are brothers and son of one Balaswamy Naidu. The petitioners are the sons of late Guruviah Naidu. Guruviah Naidu and Balaswamy Naidu are brothers. The capital of the company is Rs. 1 lakh divided into 100 shares of Rs. 1,000 each. The amount of capital paid up or credited as paid up is Rs. 50,000 made up of 50 shares of Rs. 1,000 each.
2. The petitioners, who are the sons of Guruviah Naidu, have filed this petition under sections 397 and 398 of the Companies Act, 1956. The petitioners herein are the shareholders of the first respondent company holding between themselves 25 fully paid-up shares of Rs. 1,000 each out of the total issued and subscribed and paid-up capital of 50 shares of Rs. 50,000 each. They have been holding these shares ever since 1967. The petitioners thus held 50 per cent. of the issued capital of the company and as such they are entitled to invoke section 399 of the Companies Act, 1956, for relief under sections 397 and 398 of the Act. The company constructed a theatre known as Carnatic Talkies situated in Big Bazaar Street, Coimbatore, which is the subject-matter of the present proceedings. The company has been carrying on only the business of exhibiting motion pictures in the said theatre. As stated above, the petitioners' father, V. Guruviah Naidu, became the holder of 25 shares on and from April 27, 1951, and the remaining shares came to be held by his brother, V. Baluswamy Naidu. The late V. Guruviah Naidu was functioning as the managing director of the company from April 27, 1951, till June, 1962, while the late V. Baluswamy Naidu was the only other director of the company throughout the said period and he was acting as the managing director till his death. Subsequent to the death of Baluswamy Naidu, Guruviah Naidu was acting as the managing director of the company till his death on January 10, 1970. The 25 shares which were held by Baluswamy Naidu which were held in the name of a firm, V. Baluswamy Naidu and Sons, and registered as such in the share register of the company transmitted into the following names of his six sons in or about 1967 :
Sl. No. Names No. of shares1. V. B. Gopalakrishnan 42. V. B. Jagadeesan 43. V. B. Devaraj 44. V. B. Padmanabhan 55. V. B. Rangaraj 46. V. B. Selvaraj 4
3. Likewise Guruviah Naidu transferred his shares to his three sons in equal proportion of six shares each and he retained seven shares in his own name. The transfer of 18 shares made in favour of the petitioners were duly registered in the books of the company.
4. According to the petitioners, certain oppressive tactics were practised on them by respondents Nos. 2 to 5 even as early as 1972, and that the third respondent, V. B. Gopalakrishnan, at the instigation of his brothers refused to co-operate with the first petitioner herein in running the theatre for the full time of lease granted to the first petitioner and the third respondent was running the theatre on lease as per the said arrangement. At the time of the death of V. Guruviah Naidu, the other director of the company was the second respondent, V. B. Padmanabhan, as he was appointed as a director of the company after the demise of his father, V. Baluswamy Naidu. By a resolution of the board dated February 21, 1970, the first petitioner was appointed as a director and also managing director of the company till December 5, 1971. On that date, the first petitioner resigned his managing directorship and, therefore, in his place the second respondent, V. B. Padmanabhan, was appointed to that office, while the first respondent continued as a director of the company. According to the petitioners, respondents Nos. 2 to 5 herein were scheming to have complete control of the company and the theatre exclusively for themselves and to prevent the petitioners from exercising any right as members of the said company. It is stated that the second respondent taking advantage of the fact that he was the managing director of the company removed all the records to his residence and kept them for himself. The respondents, particularly the second respondent was preventing the first petitioner from continuing the lease of the theatre by making his brother, the third respondent, who was the co-lessee, to refrain from co-operating with the first petitioner to obtain the licence for running the theatre, although the first petitioner was put in possession of the theatre. The second respondent was interfering with the running of the theatre of the first petitioner from May, 1972, onwards with the result that the first petitioner was forced to institute O.S. No. 43 of 1972 on the file of the Sub-Court, Coimbatore, for restraining his co-lessee, V. B. Gopalakrishnan, from interfering with the theatre by him. The licence granted could not be renewed after its expiry because of the non-co-operating attitude of the respondents, with the result that the theatre had to be closed down and consequently, the company had incurred heavy loss, there was no income from the theatre and the delicate machinery got rusted and deteriorated in value. By preventing the third respondent from co-operating with the first petitioner for renewing the licence, the second respondent was responsible for such an oppressive management and he was also responsible for such oppressive management and oppressive conduct of the affairs of the company. The theatre was closed for want of a licence right from September 10, 1972, onwards. The second respondent, who was the then managing director had deliberately flouted the decision of the board contained in its resolution dated February 4, 1972, for transmission of the seven shares standing in the name of the petitioners' father, the late Guruviah Naidu, in the names of his legal representatives, viz., the petitioners herein by refusing to effect the transfer and register the names of the petitioners in the registers of the company. He had also set up one Rukmini Ammal to file a suit against the company, which was then represented by the second respondent as the managing director, claiming falsely that the shares then standing in the name of late Guruviah Naidu in the registers of the company belonged to her.
5. The suit was dismissed and even thereafter the transmission of the shares was not effected by the second respondent.
6. The petitioners also purchased the four shares standing in the name of Rangaraj, the sixth respondent, on February 25, 1972, and lodged the transfer application and the shares with the company for registration in March, 1972. The second respondent deliberately omitted to register the transfer on false and untenable grounds and instigated a collusive suit to be instituted by his brothers against the said Rangaraj and the petitioners herein for a declaration that the sale by the sixth respondent was void, not valid and binding upon the third, fourth and fifth respondents and the petitioners herein should transfer the shares to them and the second respondent for a sum of Rs. 8,000 and for an injunction restraining the petitioners herein from applying for the registration of the shares of their names with the first respondent company and from acting adversely to their interest and that of the second respondent on the basis of the transfer of the four shares. In the suit, the respondents set up an oral agreement between the brothers and also between the parties to the suit and also between late Guruviah Naidu and his brothers, Baluswamy Naidu, that each of the families should maintain the same number of shares, viz., twenty five shares, to each branch and that if any member of the two branches wished to sell their shares, the first option to purchase the same should be given to the members of the other branch and if the offer so made to the members of the other branch is also not accepted, then the sale should be effected to third parties. When the trial court decreed the suit, appeals were preferred by the petitioner and the sixth respondent to the District Court at Coimbatore in A.S. Nos. 57 of 1977 and A.S. No. 112 of 1977, which were dismissed. Second Appeals Nos. 1994 of 1978 and 2163 of 1978 filed by the petitioners and the sixth respondent respectively to this court were disposed of by a common judgment. While dismissing the second appeals this court directed a modification of the decree of the trial court by substituting the names of respondents Nos. 3 to 5 herein in the place of the petitioners. In other respects, it was held that all other terms of the decree of the trial court would stand. Aggrieved by the judgment and decree passed in the said two appeals, both the petitioners herein and the sixth respondent preferred special leave petitions to the Supreme Court and the Supreme Court granted leave to the petitioners as well as to the sixth respondent to prefer appeals. The said civil appeals were numbered as Civil Appeals Nos. 1946-47 of 1980. When the company petition was filed, the said two appeals were pending. Even at the time of reserving orders in his company petition, the said two appeals were pending. In the mean-while, the appeals were taken up and disposed of by the Supreme Court on November 28, 1991(See V. B. Rangaraj v. V. B. Gopalakrishnan [1992] 73 Comp Cas 201. Allowing the appeals preferred by the petitioners and the sixth respondent, the Supreme Court held as under :
'Hence, the private agreement which is relied upon by the plaintiffs whereunder there is a restriction on a living member to transfer his shareholding only to the branch of family to which he belongs in terms imposes two restrictions which are not stipulated in the article. Firstly, it imposes a restriction on a living member to transfer the shares only to the existing members and, secondly, the transfer has to be only to a member belonging to the same branch of family. The agreement obviously, therefore, imposes additional restrictions on the member's right to transfer his shares which are contrary to the provisions of article 13. They are, therefore, not binding either on the shareholders or on the company. In view of this legal position, the finding recorded by the courts below that the sale by the first defendant of his shares to defendants Nos. 4 to 6 is invalid as it is in breach of the agreement, is erroneous in law. In view of our above finding, it is unnecessary to go into the question whether the High Court was justified in directing the transfer of shares by defendants Nos. 4 to 6 to the plaintiffs even if its finding that the sale was invalid was correct.
In the circumstances, the appeals are allowed, the decree of the High Court is set aside, and the plaintiffs' suit is dismissed with costs.'
7. It is seen that as a result of the several deliberate acts of commission and omission on the part of the respondents, the first and third petitioners herein filed Company Petition No. 88 of 1973 on the file of this court against the first and second respondents herein for various reliefs including those for superseding the board of directors of the first respondent company and appointing one or more administrators to carry on the business of the company. The said company petition was ordered on October 4, 1974, by this court in terms of the joint memorandum of compromise filed by the parties to the said company petition, pursuant to which the company was managed by the board constituted, viz., the second petitioner and the second respondent as the only two directors of the company in accordance with the articles of association of the company. As per the said orders, the term of office of the board of directors of the company was to come to an end on December 27, 1980. The second respondent, who was acting as the managing director of the first respondent company, failed to convene either the meeting of the board of directors or the general body meeting of the company and the first and third petitioners were, therefore, obliged to file Company Application No. 2048 of 1980 in the said Company Petition No. 88 of 1973 against respondents Nos. 1 and 2, praying for directions to the board of directors for convening a general body meeting of the company for the purpose of electing directors and also for appointment of a chairman for the purpose of conducting the proceedings of the general body meeting and also for necessary directions for electing the directors in the general body meeting for constituting a board consisting of at least three directors. The second petitioner filed his counter-affidavit, supporting the application which the second respondent filed a counter affidavit, resisting the said application. However, during the hearing of the said application, the second respondent herein offered to file a supplemental affidavit undertaking to convene a meeting of the board of directors on December 1, 1980, for considering and approving of the draft profit and loss account for the year June 30, 1978, and for convening the annual general body meeting. Thereafter, the said company petition was closed in view of the undertaking given by the second respondent that he would hold the general body meeting after convening a meeting of the board of directors on December 1, 1980.
8. A board of directors meeting was held on December 1, 1980, and in that meeting the second petitioner herein insisted that the second respondent convene the general body meeting of the company at least on December 27, 1980, since the terms of office of the second respondent as managing director as per the orders passed in Company Petition No. 88 of 1973 would come to an end. But the second respondent refused to do so stating that he would hold the general body meeting only on January 5, 1981, and that he would hold another meeting of the board of directors on December 8, 1980, for setting the agenda for the general body meeting. On that day, the second petitioner noticed some writing dated October 8, 1980, in the minutes book under the caption PROCEEDINGS OF THE MANAGING DIRECTOR. Thereafter, the second petitioner addressed a letter on the same day to the second respondent stating that the minutes book should contain only the proceedings of the meeting of the board of directors and not any proceedings of the managing directors alleged to have taken place on October 8, 1980. The second petitioner also asked for a copy of the writing dated October 8, 1980, and also the circumstances under which the same found a place in the minutes book. The second respondent has neither furnished a copy of the writing dated October 8, 1980, nor sent any reply. According to the petitioners, the second respondent had unauthorisedly and illegally introduced the said writing in the minutes book of the first respondent company with the full knowledge that the appeals filed by the petitioners and the sixth respondent herein were pending in the Supreme Court.
9. The petitioner has also filed Company Petition No. 1 of 1981, for rectification of the register of members since it became necessary to have the register of members rectified since the second respondent removed from the register of members of the company the name of the sixth respondent without any reasonable cause. It is, therefore, stated that the second respondent taking advantage of his position as managing director of the company at the relevant time pursuant to the order passed in Company Petition No. 88 of 1973 by compromise had interpolated the alleged proceedings dated October 8, 1980, in the minutes book of the company without even bringing it to the notice of the second respondent, who was during the relevant time, the only other director of the company. This act on the part of the second respondent is harsh, oppressive burden-some, wrongful and prejudicial to the interest of the petitioners herein and the object of the second respondent in meddling with the records of the company is only to gain complete control of the company for himself and his brother by excluding the petitioners from having any control or participation in the administration of the company.
10. The second respondent did not take any steps to convene the meeting of the board if directors as per the order of the court in Company Petition No. 88 of 1973 and also to convene a general body meeting for passing accounts. The arrangement pursuant to the compromise order had come to an end as early as on December 27, 1980, and that the second respondent as the managing director had taken advantage of continuing to remain the managing director of the company with the active assistance and collusion of his brothers, viz., the respondents in this case. As a matter of fact even in the general body meeting held on January 5, 1981, the second respondent and his brother who were having an upper hand refused to consider the objections raised by the second petitioner herein. The second respondent, who presided over the meeting declared that the general body meeting was adjourned. Since the second respondent declared that the meeting was adjourned, the petitioner left the meeting as they were under the impression that the general body meeting would be held again on some other date to be fixed. During the general body meeting and before it was adjourned by the second respondent, the petitioners handed over to the second respondent some proposals to be considered and passed in the general body. It was only after these proposals were submitted the second respondent thought it fit to adjourn the meeting and immediately thereafter the petitioners herein sent a telegram to the second respondent. The second respondent sent a reply telegram falsely alleging that the petitioners herein participated in the election of the chairman and that the adjournment motion was lost and at that stage, the petitioner walked out of the meeting though the second respondent told them that the meeting would go on with its business, etc. The petitioners submitted that the meeting was adjourned by the second respondent in collusion and in conspiracy with his brothers, viz., respondents Nos. 3 to 5, and prepared some resolutions as if they were passed in the general body meeting and as if three directors were elected in the meeting, viz., the second respondent, the second petitioner and the third respondent. According to the petitioners, the general body meeting was adjourned and as such no business could have been transacted thereafter and in any event the resolutions said to have been passed in the general body meeting after the petitioners left the meeting, are mere make-believe affairs prepared by the second respondent in collusion and conspiracy with his brothers. It is pertinent to point out that more than two directors cannot be elected inasmuch as in the articles of the company, there is provision for electing only two directors. The petitioners stated that no business was transacted at the meeting convened and held on January 5, 1981, and that in any event the third respondent has not been elected as a director of the first respondent company and is not a director of the company. The petitioners submitted that the articles of association of the first respondent company provide only for two directors and that there is no provision for a third director and that, therefore, the allegation of the third respondent as a director cannot be taken up without amending the articles of association of the first respondent company, by increasing the strength of the board as required by the provisions of the Companies Act.
11. The petitioners filed Company Petition No. 1 of 1981 under section 155 of the Companies Act for rectification of the register of members deleting the names of respondents Nos. 2 to 5 in respect of the shares bearing Nos. 23 to 26, and originally standing in the name of the sixth respondent. It is seen from the typed set of documents filed by the first and second respondents, that the articles of association included therein did not correspond with the articles of association of the first respondent company. Hence the petitioners submit that the respondents have created documents to suit their purpose. The records of the Registrar of Companies relating to the first respondent company was inspected and the inspection of the records has revealed that the second respondent had filed Form No. 23 under section 192 of the Companies Act, on June 21, 1973, in his capacity as the managing director of the first respondent company. The said Form would disclose that at the general body meeting said to have been held on June 11, 1973, certain resolutions amending the articles of the first respondent company were passed. The resolution said to have been passed at the general meeting on June 11, 1973, are to the effect that the number of directors of the company shall be not less than 2 and not more than 4 and that the said resolution was substituted in the place as article 31. Likewise Sri V. B. Padmanabhan shall hold office for life or until they voluntarily resign. Subject No. 3 relates to the articles of association 35 and substitution of the resolution that the business of the company shall be carried on by the board of directors, subject to the direction, control and superintendance of the board of directors at all time. Subject No. 4 relates to the deletion of article 36 and substitution of article 35 in its place to the effect that Sri V. B. Padmanabhan shall be the managing director of the company entrusted with substantial power of the management of the company and shall hold office as managing director for the period up to June 30, 1975. Thereafter, Sri V. G. Balasundaram shall be the managing director of the company for a period of two years from July 1, 1975, until June 30, 1977. Thereafter Sri V. B. Padmanabhan and Sri V. G. Balasundaram shall hold office as managing director of the company in turn and in the alternative for a period of two years each commencing from July 1, 1977. The said return further disclosed that a notice of the meeting was said to have been dispatched on May 31, 1973, and resolutions were said to have been passed on June 11, 1973. The petitioners submit that no notice of the meeting purported to have been held on June 11, 1973, was ever sent to the petitioners or their group or any meeting was really help on June 11, 1973. When the petitioners instituted proceedings under sections 397 and 398 of the Companies Act on the file of this court in Company Petition No. 88 of 1973, no whisper has been made about the amendment of the articles of the company. The petitioners filed the articles of association in the said proceedings and no objection was ever taken that the articles of association filed by the petitioner did not represent the correct position. For the first time the present articles of association in the alleged form came to light when the second respondent filed a typed set of documents in C.P. No. 1 of 1981. The petitioners had till then no knowledge of the return filed by the second respondent with the Registrar of Companies and there was no occasion for the petitioners to be apprised of the said amendment and they came to know of the same only on inspection of the relevant records with the Registrar of Companies and in view of the compromise entered into in C.P. No. 88 of 1973. The petitioners, therefore, submit that the meeting purported to have been held on June 11, 1973, was not really held and the resolution purported to be passed in the said meeting is illegal and void. Therefore, the articles of association of the first respondent will be one that stood prior to the alleged meeting dated June 11, 1973. It is, therefore, submitted by the petitioners that they are entitled to a declaration that the purported meeting held on June 11, 1973, was illegal, void and that any resolutions passed thereat are not valid and binding on the first respondent company. Hence, the third respondent, who is purported to have been appointed at the meeting held on January 5, 1981, cannot function as such a director of the first respondent company. The petitioners further submit that even alternatively and assuming but not conceding that proceedings of the meeting purported to have been convened on January 5, 1981, were to be correct and that the articles were amended on June 11, 1973, even then the third respondent cannot be said to be legally appointed as a director of the company, the said purported amendment of the articles of association would contemplate that any director other than the one mentioned in the alleged amended articles under article 32 of the association should be appointed in the general meeting by a special resolution. If that be the case the appointment of the third respondent should be considered as a special business and the provisions of section 173 of the Companies Act shall apply to the first respondent company. The notice issued for holding the meeting on January 5, 1981, should disclose the intention to move the election of the third respondent as a director as and by way of a special resolution by setting out the special resolution as such. The notice did not disclose any such resolution as required under section 189 of the Companies Act and there is no explanatory statement attached to the notice as required under section 173 of the Companies Act. The provisions of sections 173 and 189 are mandatory and in the absence of compliance with the said provisions the purported resolutions are illegal and void.
12. According to the petitioners, they are entitled to have the affairs of the company managed properly and for that purpose have a general body meeting convened and the company being managed properly by a duly appointed board of directors in accordance with the provisions of the Companies Act. It is also essential in the interest of the company and its shareholders that the board of directors of the company should be superseded and the affairs of the company administered by one or more administrators to be appointed by this court for such period as may be decided by this court. As the action of the second respondent has resulted in serious loss to the company and its shareholders, it is necessary to give directions for appropriate proceedings being instituted against the second respondent pursuant to section 406 read with sections 539 to 544 of the Companies Act so that the second respondent may be surcharged and the company compensated for the loss sustained by the acts and omissions of the second respondent.
13. With these averments, the petitioners have filed the above company petition praying :
(1) to supersede the board of directors of the first respondent company and appoint one or more administrators to carry on the business of the company;
(2) to assess the damages sustained by the company by reason of the wrongful acts of the second respondent and to make an order surcharging the second respondent and directing payment of compensation of the first respondent company;
(3) to direct the administrators to convene one or more general meetings of the company after complying with such directions as this court may deem fit, for appointment of a new board of directors to take charge of the affairs of the company and to vest the management with such board;
(4) for declaring that the extraordinary general meeting of the first respondent company held on June 11, 1973, as illegal and void and that the resolutions said to have been passed thereat are not binding on the company;
(5) for declaring that the proceedings of the annual general body meeting held on January 5, 1981, and as recorded by the second respondent in the minutes book of the first respondent company are illegal and void and not binding on the first respondent company;
(6) for declaring that the third respondent is not a director of the first respondent company;
(7) for ad interim injunction restraining the third respondent from acting or functioning as a director of the first respondent company pending disposal of the company petition and for other reliefs.
14. The company petition was resisted by the respondents. The second respondent filed a counter-affidavit for himself and on behalf of the respondent company. He also filed an additional counter-affidavit to the amended petition under sections 397 and 398 of the Act on July 20, 1983. The petitioners filed a reply affidavit to the additional counter filed by the second respondent. They denied the allegations as baseless and unsustainable and devoid of any merits. According to them, there are no facts to justify the making of a winding up order and the requirement of section 397 of the Act is also not satisfied. There are absolutely no grounds for invoking section 298 of the Act. The allegations are very vague and baseless in regard to the mismanagement. It is also denied that they set up Rukmani Ammal to institute any suit. According to the respondents, after the second respondent became the managing director of the company on December 28, 1978, the meetings of the board of directors of the company were held on December 28, 1978, January 20, 1979, February 10, 1979, March 10, 1979, April 21, 1979, May 5, 1979, June 9, 1979, December 1, 1980, December 8, 1980, and January 12, 1981, and the meeting of the general body was held on January 5, 1981. At the general body meeting accounts of the company for the year ended June 30, 1978, were laid and adopted. However, because of the absolute lack of co-operation and the obstructive attitude of the second petitioner as co-director, meetings of the board of directors could not be held more frequently and further general meetings could not be held to bring the accounts up to date. It is also stated in paragraph 8 of the counter-affidavit as to what transpired at the annual general meeting of the company held on January 5, 1981. They also denied the allegations made in the company petition concerning the proceedings of the general body meeting held on January 5, 1981. The contentions now advanced against the proceedings of the said meeting are an afterthought and obviously invented only for the purpose of this company petition. The respondents have also denied the allegations in paragraphs 18-A and 18-B of the company petition. According to them, article 31 of the articles of association of the company provides that the number of directors of the company shall be not less than two and not more than four. In the circumstances the election of the third respondent at the general meeting on January 5, 1981, was well within the number of directors provided in the said article. According to the respondents, there was no necessity to amend the articles of association to increase the strength of the board of directors of the company at the general meeting on January 5, 1981. A valid general meeting was properly held on June 11, 1973, after due notice to all the shareholders including the petitioner. The petitioners had deliberately stayed away from that meeting with ulterior motives, the special resolutions were validly passed at that meeting amending the articles of association in certain respects and thereafter return in Form No. 23 under section 192 of the Act was filed with the Registrar of Companies regarding the amendments to the articles of association and other subsequent proceeding to the knowledge of the petitioners. The proceedings of the meetings of the board of directors of the company subsequent to the election at the general meeting held on January 5, 1981, would show that the second respondent has always adopted an obstructive attitude in all the meetings that he attended. Therefore, from any point of view, this company petition has no merits.
15. The petitioners filed a reply affidavit to the additional counter-affidavit reiterating the contentions raised earlier and contended that the prayers enumerated in the company petition are absolutely tenable and justified and that the petitioners are entitled to the reliefs as prayed for.
16. I have heard the lengthy and elaborate submissions of Mr. T. Raghavan, learned senior counsel appearing on behalf of the petitioners and Mr. T. R. Rajgopalan, learned counsel appearing on behalf of the respondents.
17. Exhibits P-1 to P-47 were marked by consent on behalf of the petitioners and exhibits C-1 to C-6 were marked. No oral evidence was let in by either parties and arguments were advanced on the basis of the pleadings and on the basis of the documents filed in these proceedings.
18. In this company petition, the following reliefs are sought for :
(a) for superseding the board of directors of the company and appointment of administrator.
(b) to convene the general meeting for appointment of a new board of directors to take charge of the affairs of the company and to vest the management with such board. These reliefs are sought for on the basis that the meetings held on June 11, 1973, and January 5, 1981, are illegal and void and not binding on the company apart from the factum of the meetings being disputed.
19. For appointment of administrator the contention of the petitioners is that (a) earlier pursuant to the order of this court in C.P. No. 88 of 1973 there would be two directors one being Mr. V. G. Sunder Raj (second petitioner) and the other Mr. V. B. Padmanabhan (second respondent) representing the two groups. Mr. V. G. Sunder Raj would be the managing director for the first three years from the date of his appointment and Mr. V. B. Padmanabhan would be the managing director for the period of two years immediately following the expiry of three years of the tenure of Mr. V. G. Sunder Raj. The total tenure contemplated is five years. The order does not contemplate the continuance of the two directors appointed by the court.
20. A meeting dated January 5, 1981, was purported to have been convened. Whether the said meeting is valid is a question raised. The notice dated December 12, 1980, issued in the name of the board by Mr. V. B. Padmanabhan (R-2) as managing director of the company. The agenda referred to three items of business, viz., (1) consideration of accounts, (2) appointment of auditors, and (3) appointment of directors. The petitioner challenges the meeting on two counts. (a) That the purported meeting did not take place. For that reliance is placed on the telegram dated January 5, 1981, sent by the second and third petitioners and another. A reply to the same was issued by Mr. V. B. Padmanabhan, the second respondent. The minutes dated January 5, 1981, are alleged to be the minutes produced. The transactions purported to have been taken place would show that apart from the appointment of auditors there were election of directors. It is stated in the alleged meeting that three of them are elected, viz., (1) V. B. Padmanabhan (R-2), (2) V. B. Gopalakrishnan (R-3) and (3) V. G. Sunder Raj (second petitioner). Assuming that the meeting had taken place on January 5, 1981, the election of the three directors is not in accordance with the articles of association of the company as there could be only two directors under the articles. So there is no place for the third director. The respondent relies on an alleged amendment to the articles purported to have been made at an extraordinary general meeting said to have been held on June 11, 1973. The petitioners challenge the holding of such meeting. The petitioner has detailed in paragraphs 18(c), 18(d) of the petition as to how there would never have been a meeting on June 11, 1973, and the resolutions purported to have been passed on June 11, 1973, are illegal and void. The purported proceedings held on January 5, 1981, depend upon the factum and validity of the alleged meeting of June 11, 1973.
21. The following are the circumstances that would be relevant to be noticed to show that no meeting would have been held on June 11, 1973. These circumstances have been relied on by the petitioners.
(a) The suit, O.S. No. 1246 of 1972, filed by V. G. Balasundaram on the file of the District Munisiff Court, Coimbatore, for declaration and for permanent injunction for delivery of the books and papers of the plaintiff company in the hands of the plaintiff was dismissed by the said court on May 11, 1973.
(b) A requisition meeting was convened by petitioners Nos. 2 and 3 for removal of the second respondent. A reference to the letter dated May 30, 1973, will show that petitioners Nos. 2 and 3 have requested respondents Nos. 2 and 3 and the company to convene an extraordinary general meeting of the company for the purpose of passing a special resolution as required under section 284 of the Act. The resolutions were for the removal of the second respondent from the post of director of the company and to appoint the second petitioner to be the director of the company in the place of the second respondent.
(c) The letter dated June 6, 1973, sent by the company to petitioners Nos. 2 and 3 from the second respondent herein expressing their inability to convene the general body meeting for the removal of the second respondent in view of the pendency of the proceedings in O.S. No. 870 of 1972 on the file of the District Munsiff Court, Coimbatore, and O.S. No. 463 of 1972 on the file of the Sub-court, Coimbatore.
(d) Notice dated June 7, 1973, sent by registered post with acknowledgment due from the first petitioner to the second respondent and also to the Registrar of Companies and to the chartered accountants. It is stated therein that the business of the company could not be transacted in view of the extraordinary circumstances mentioned in the said letter. The said communication was sent to place on record that no business was transacted in the board meeting of the company on June 7, 1973.
(e) Notice of the board meeting for June 16, 1973, was sent on June 8, 1973. Item No. 3 of the agenda is to consider the requisition dated May 30, 1973, received by the company on June 4, 1973, from petitioners Nos. 2 and 3.
(f) Another letter dated June 8, 1973, was sent to the first petitioner herein in connection with the board meeting held on June 7, 1973, enclosing the agenda for the meeting held on June 16, 1973, and requesting the first petitioner to attend the said meeting.
(g) O.S. No. 416 of 1973 is the suit filed by the company by its managing director, the second respondent herein against the second, third and first petitioners respectively on the file of the Sub-Court, Coimbatore, to declare that the resolutions proposed and contained in the requisition for general meeting dated May 30, 1973, and the notice of the extraordinary general meeting of the first respondent company issued by petitioners Nos. 2 and 3 on July 5, 1973, are illegal and opposed to the articles of association and invalid and without any legal effect and for a consequential injunction restraining the petitioners herein from making any claim or asserting any rights on the basis of the said resolution or seeking to enforce the same in any manner and for costs. This suit was filed on July 9, 1973.
(h) The written statement filed by the petitioners in O.S. No. 416 of 1973 is another document marked as exhibit P-13 in the present proceedings to show that no meeting would have been held on June 11, 1973. It is mentioned in paragraph 11 of the written statement that no special resolution is required under the article for removal of a director. Article 27 has been misinterpreted by the respondents herein and V. B. Padmanabhan was not appointed as director for any specific term and is removable at the will of the general body. Only article 31, section 284 of the Act would apply and in either event, only an ordinary resolution is required. The allegation that the proposed resolution was also opposed to articles 31, 32, 35 and 36 are meaningless and none of these articles apply to the proposed resolution. It is also stated in paragraph 12 of the written statement that no special resolution is required for appointment of a director unless the strength of directors is thereby increased.
(i) The written statement filed by V. G. Balasundaram, the first petitioner herein and the third defendant in O.S. No. 416 of 1973, and marked as exhibit P-14 in these proceedings is also relevant to be noticed in this context. It is also stated that no resolution is required under the articles for removal of a director.
(j) Company Petition No. 88 of 1973 was filed on October 16, 1973, on the file of this court by petitioners Nos. 1 to 3 impleading the first respondent company and V. B. Padmanabhan as respondents Nos. 1 and 2. The said petition was filed under sections 397 and 398 of the Companies Act. Several acts of misconduct have been alleged against the respondents therein. It is stated in paragraph 22 of Company Petition No. 88 of 1973 that the petitioners and the other members of the company are entitled to have the affairs of the company managed properly by a duly appointed board of directors in accordance with the provisions of the Companies Act. The articles of the company which were drawn up in the year 1935 are totally inadequate to ensure proper management of the company. The articles, particularly the provisions relating to the appointment of directors, their powers and duties require a revision so as to bring them in line with the provisions of the Companies Act. It is also essential in the interests of the company and the shareholders that the board of directors of the company should be superseded and the affairs of the company administered by one or more administrators to be appointed by this court for such period as may be decided by this court. As the action of the second respondent has resulted in serious loss to the company, it is also necessary that this court may be pleased to give directions for appropriate action being instituted against the second respondent, V. B. Padmanabhan.
(k) In the said company petition, a memorandum of compromise was entered into and signed by the petitioners and the respondents and their respective counsel. This memorandum of compromise dated October 14, 1974, is marked as exhibit P-4 in the present proceedings. Under the said memorandum of compromise, parties have agreed to withdraw the following legal proceedings, which were then pending and allow them to be dismissed as settled out of court :
1. C.P. No. 35 of 1974, High Court, Madras.
2. O.S. Nos. 416 of 1973 and 265 of 1974, Sub-Court, Coimbatore.
(l) It is mentioned in paragraph 22 of the compromise that the respective contentions of parties in the suit in O.S. No. 416 of 1973, Sub-court, Coimbatore, are left open and the parties shall be at liberty to proceed with the said suit. It is also a matter of record that the two appeals in A.S. Nos. 57 and 112 of 1977 preferred on the file of the District Court, Coimbatore, and the two second appeals in S.A. Nos. 1994 of 1978 and 2163 of 1979, respectively, preferred against the said judgments of the District Court on the file of this court were dismissed.
22. The respondents claim that the amended articles of association were filed in O.S. No. 416 of 1973. According to the petitioners, the said amended articles were never marked as exhibit and that the suit was not tried at all. There is no occasion for the petitioners to know that the articles of association were filed by the respondents in O.S. No. 416 of 1973 were different from the articles filed in C.P. No. 88 of 1973.
23. In Company Petition No. 88 of 1973, in Company Petition No. 1(A) of 1981 and Company Petition No. 10 of 1981 (the present proceedings), the petitioners filed the original articles of association, which are marked as exhibit P-1. In this connection it is useful to refer to rule 22 in the Ramaiya's Companies Act, Eleventh edition, Appendix V, page 1786. Rule 22 provides that every petition and application mentioned in Appendix II shall be accompanied by the documents set opposite thereto in column (4) of the said Appendix. The petitioners' case is that it is only in the course of the hearing in C.P. No. 1(A) of 1981 that the purported meeting said to have been held on June 11, 1973, came to be known. The written statement filed by the petitioners in O.S. No. 416 of 1973 would clearly show that the pleadings were on the basis of the existing articles of association without reference to the purported amendment. The minutes book of the proceedings is also not produced.
24. There were at all times only two directors of the company. In para 22 of Company Petition No. 88 of 1973, specific reference is made that the articles were drawn up in 1935 and that the articles relating to the appointment of directors require revision so as to bring them in line with the provisions of the Companies Act, 1956. In the counter-affidavit filed by the second respondent, there is no reference to the amendment of the articles at the meeting purported to be held on June 11, 1973.
25. That no meeting was held on June 11, 1973, was further made clear in the counter filed by Mr. V. B. Padmanabhan, the second respondent herein in Company Application No. 715 of 1978 in C.P. No. 88 of 1973 (available at pages 209 and 210 of typed set No. 3). It is alleged by Mr. V. B. Padmanabhan that the articles of the first respondent company provided and provides only for two directors. This would clearly show that the respondents wanted to keep in dark the manipulation of the minutes to be utilised at an appropriate time which came to them at the meeting held on January 5, 1981. The contention of the respondents that no meeting was held would be evident from their additional counter-affidavit. A reference to paragraph 6 of the additional counter-affidavit will amply prove this. It shows therefrom that according to them it was a requisitioned general meeting and notice was sent to all shareholders under certificate of posting.
26. Section 169 is the relevant provision with regard to the requisition meeting. Section 169 provides that an extraordinary general meeting may be called on requisition of members holding at least one tenth of the paid-up capital carrying voting rights in respect of that matter. A notice should be sent by the requisitionists to the company. The company should forthwith convene a board meeting and the board will convene a requisition meeting within 21 days of the receipt of the notice. If the board does not convene the meeting, then the requisitionists would convene the meeting. There is no reference as to when the requisition notice was received by the company, when the board meeting of the company was convened for consideration and how the company should have issued a notice.
27. From a perusal of the notice, it is seen that the notice is said to have been issued by the said company. But from the dates given earlier, it would show that there was no board meeting which considered by requisition for holding the meeting and decided to convene a meeting. No presumption of the minutes would arise with reference to the minutes of the requisitioned meeting. Sections 193 and 195 of the Companies Act will not be applicable to the minutes of the requisitioned meeting and the minutes have to be proved as a matter of fact. As rightly contended by Mr. T. Ragavan the minutes book is not produced before this court.
28. According to the petitioners, no meeting was ever held on January 5, 1981, and even assuming that such a meeting was held, and the articles duly amended the proceedings of the said meeting were challenged with reference to the election of directors on two grounds :
(a) Appointment of a third director should be done by a special resolution;
(b) Even in the so called amended articles the appointment of directors is contemplated by a special resolution.
29. Section 189 of the Companies Act stipulates that the notice must specify the resolution as special resolution and to be passed. Article 27 of the articles of association of the company contemplates increase in the number of directors by special resolution in general meeting. If such an increase is contemplated with reference to the meeting held on January 5, 1981, a special resolution should have been passed for appointment of directors. The purported amended article 32 contemplates the appointment of directors in general meeting by special resolution. In my view, section 189 of the Companies Act is mandatory and has not been compiled with in this case. Section 189(2) of the Act says as follows :
'A resolution shall be a special resolution when -
(a) the intention to propose the resolution as a special resolution has been duly specified in the notice calling the general meeting or other intimation given to the members of the resolution :
(b) the notice required under this Act has been duly given of the general meeting.'
30. In two decisions of our High Court and the Patna High Court respectively Self Help Private Industrial Estate Private Ltd., In re [1972] 42 Comp Cas 605 and Parikh Engineering and Body Building Co. Ltd., In re [1975] 45 Comp Cas 157, it has been held by two learned judges that for want of proper or sufficient notice or other defect in procedure a special resolution is not effective.
31. Section 173 of the Companies Act is equally mandatory. The said section applies to the company as the articles of association has not expressly excluded the application of section 173. Section 173(1) of the Act contemplates the appointment of directors in the place of directors retiring as ordinary directors. There are only two directors appointed by virtue of compromise. The appointment of a third director is not a director appointed in the place of directors retiring. The explanatory statement is mandatory, as could be seen from the following two decisions in :
1. Sheth Mohanlal Ganpatram v. Shri Sayaji Jubilee Cotton and Jute Mills Ltd. [1964] 34 Comp Cas 777 (Guj);
2. Firestone Tyre and Rubber Co. v. Synthetics and Chemicals Ltd. [1971] 41 Comp Cas 377 .
32. The notice dated December 12, 1980, for the meeting to be held on January 5, 1991, is in my view thus defective. The notice dated December 12, 1980, has been marked as exhibit P-5 in these proceedings. Subject No. 3 in the agenda relates to the appointment of directors. In my view, the appointment of directors can only be by a resolution with required majority. I am also of the view that every single requirement of section 189 of the Act is absent in the instant case. If these appointments are bad since they are not by a special resolution., then it can be construed that there is no valid board at all. Every single requirement of the Act prescribed for the protection of the shareholders is violated. Section 166 of the Act speaks about the condition of the annual general meeting. It is contended that no general body meetings were held in regard to the company in question. Section 210 of the Act provides that : 'At every annual general meeting of a company held in pursuance of section 166, the board of directors of the company shall lay before the company -
(a) a balance-sheet as at the end of the period specified in sub-section (3), and
(b) a profit and loss account for that period.'
It is contended that the material provisions mentioned above have not been compiled with by the respondents, Section 285 of the Act relates to the meetings of the board of directors, which contemplates that a meeting of the board of directors of the company shall be held at least once in every three months and at least four such meetings shall be held in every year. It is also seen that the petitioners sent a telegram on January 5, 1981, itself. There is also a dispute as to what happened on January 5, 1981, in the said meeting. It is seen from the proceedings of the first respondent company under subject No. 3 that according to the members as soon as this subject was taken up Shri V. G. Sundar Raj moved a resolution that subject No. 1 of the agenda to be deferred to another date and that the same may be considered by the general body at the adjourned meeting. The above said resolution was seconded by Shri V. G. Muniraj. The chairman of the meeting Shri. V. B. Padmanabhan, the second respondent herein stated that the accounts have already been passed by the board of directors, that this meeting has been called pursuant to an undertaking given in the High Court and the proceedings before the High Court and that it is not proper to defer the subject and that, therefore, the chairman has stated that he was putting the resolution for adjournment to vote. It is also stated in the minutes that the resolution for adjournment was lost by only two members voting for the resolution and four members voting against the resolution and accordingly, the chairman declared the resolution as lost. At this stage, Shri V. G. Sundar Raj, Shri V. G. Muniraj and Shri V. G. Krishnaswamy Naidu (proxy for Shri V. G. Balasundaram) staged a walk out from the meeting and thereupon it was resolved that the profit and loss account for the year ended June 30, 1979, and the balance-sheet as on that date and the reports of the board of directors and the auditors be and they are thereby received, adopted and approved. Shri V. B. Jagadeesan seconded the above resolution and the resolution was then put to vote and declared carried by the chairman on show of hands unanimously. Likewise, subject No. 3 which relates to appointment of directors resolved that Shri V. B. Padmanabhan, the second respondent, was appointed as director of the company. The said resolution was proposed by Mr. V. B. Jagadeesan and seconded by V. B. Devarajan. It is stated in the minutes that at that stage Shri V. B. Padmanabhan intervened and stated that it would not be proper for him to be the chairman while considering the resolution concerning his appointment as director and, therefore, he stepped down from the chair. Again, Shri V. B. Padamanabhan proposed and Shri V. B. Jagadeesan seconded that V. B. Gopalakrishnan be voted to the chair unanimously. After Shri V. B. Gopalakrishnan assumed the chair, the resolution relating to the appointment of Shri V. B. Padmanabhan as director was put to vote and declared carried by the chairman on show of hands unanimously. At this stage, Shri V. B. Gopalakrishnan stepped down from the chair and Shri V. B. Padmanabhan assumed the chair, having already been elected to the chair and he moved the following resolution :
(a) That Shri V. G. Sundara Raj be appointed as director of the company.
(b) The said resolution was seconded by Shri V. B. Jagadeesan and the resolution was then put to vote and declared and carried by the chairman on show of hands by three members voting for the resolution and Shri V. B. Gopalakrishnan voting against the resolution.
(c) Shri V. B. Jagadeesan proposed another resolution, proposing to appoint Shri V. B. Gopalakrishnan as director of the company.
(d) The said resolution was seconded by Shri V. B. Devarajan and then the said resolution was put to vote and declared and carried by show of hands unanimously.
(e) The meeting terminated with a vote of thanks to the chair. The minutes of the meeting was signed by the chairmen of the meeting.
33. In my opinion, the notice itself is not in consonance with section 189(2)(a) of the Act for the reasons mentioned above. Exhibit P-1 is the memorandum and articles of association of the first respondent company. Paragraph 27 deals with the appointment of directors by a special resolution. Paragraph 29 and 30(a) have to be noticed in this connection. Paragraph 29 of exhibit P-1 deals with the show of hands only. It further deals with decision at the meeting on the question submitted and the procedure to be followed. It says that every question submitted to a meeting shall be decided in the first instance by show of hands by the members present in person and by the duly constituted representative of any company or corporation and the chairman shall have in case of equality of votes a casting vote and unless a poll is demanded by any member, a declaration by the chairman that the resolution has been carried or lost and an entry to that effect in the minutes book shall be conclusive evidence without proof of the number or proportion of votes recorded in favour of or against, such resolution. Article 30(a) provides that if a poll is demanded by any member, every member present shall have a vote for each share and the result of the poll shall be deemed to be resolution of the meeting. A reference to the minutes of the meeting which is marked as exhibit P-39 of the proceedings will show that Shri V. B. Padmanabhan, the chairman elected by show of hands proposed that Shri V. B. Gopalakrishnan be elected to the chairman and that a poll was taken on the said resolution with 25 votes being cast in favour and 25 votes being cast against the said motion and that at that stage Shri V. B. Padmanabhan as chairman gave his casting vote in favour of the election of Shri V. B. Gopalakrishnan and Shri. V. B. Gopalakrishnan was elected to the chair and after the election he conducted the further proceedings.
34. As stated above, article 30(a) does not provide a casting vote, which apart from oppression in my view is a good ground for winding up. As far as poll is concerned, there is no casting vote. If that is so, V. B. Gopalakrishnan cannot conduct the proceedings, if he is not properly elected. It is seen from the minutes that Mr. V. B. Gopalakrishnan conducted the further proceedings. As seen from the proceedings mentioned earlier it will be seen that the meeting held on January 5, 1981, is not a valid meeting and that the meeting was objected to by telegrams sent by the petitioner. Therefore, there is a serious dispute as to the validity of the meeting. That apart it is also seen that the notice sent is also defective in regard to the appointment of directors.
35. Section 173 of the Act deals with the explanatory statement to be annexed to the notice. The appointment of directors can be under two circumstances; (a) directors retiring by rotation or being reappointed. In that case, no explanatory statement is required. The object of enacting section 173 is to secure that all facts which have a bearing on the question on which the shareholders have to form their judgment are brought to the notice of the shareholders so that the shareholders can exercise an intelligent judgment. The provision is enacted in the interests of the shareholders so that the material facts concerning the item of business to be transacted at the meeting are before the shareholders and they also know what is the concern or interest of the management in any item of business, the idea being that the shareholders may not be duped by the management and may not be persuaded to act in the manner desired by the management unless they have formed their own judgment on the question after being placed in full possession of all the material facts and apprised of the interest of the management in any particular action being taken.
36. Having regard to the whole purpose and scope of the provision enacted in section 173, I am of the opinion that it is mandatory and not directory and that any disobedience to its requirements must lead to the nullification of the action taken. In the instant case, there is no article excluding section 170(2) of the Act. In the case of private companies, these provisions will apply. Therefore, in my opinion, under section 173 of the Act with regard to appointment of directors, there should have been an explanatory statement which is mandatory. In the instant case, no explanatory statement has been appended to the notice which is mandatory. Hence failure to append an explanatory statement is not only defective but also fatal and an incurable defect. Hence, on this point also I hold that the entire meeting held on January 5, 1981, and the resolution stated to have been adopted after the petitioners withdrew from the meeting are bad in law. This point has been specially raised by the petitioners in their pleadings. I have already held that section 173 is mandatory and not directory. Hence, respondents Nos. 2 and 3 cannot consider themselves as duly elected directors since, in my view, the notice is defective and once the notice is held to be defective, no business can be transacted. It was virtually an ex parte meeting. In this context, support can be derived from the decision in Seth Mohanlal Ganpatram v. Shri Sayaji Jubilee Cotton and Jute Mills Ltd. [1964] 34 Comp Cas 777, of the Gujarat High Court. It was held that section 173 of the Act enacts a provision which is mandatory and not directory and that the object of enacting section 173 is to secure that all facts which have a bearing on the question on which the shareholders have to form their judgment are brought to the notice of the shareholders so that the shareholders can exercise an intelligent judgment.
37. Section 195 of the Act also does not save the situation. In my view, the statutory presumption is something which is rebuttable.
38. Let me now deal with the validity of the meeting said to have been held on June 11, 1973.
39. Section 169 of the Act provides that an extraordinary general meeting may be called on the requisition of members holding at least one-tenth of the paid up share capital of the company as at that date carrying the right of voting in regard to that matter. The requisition is not placed before this court. The board is expected to call for a meeting if there is a valid requisition. If there was no requisition, it is the duty of the parties to place that requisition before the meeting. According to the petitioners, no notice was served on them for the meeting held on June 11, 1973. That none of the petitioners attended the meeting is a common ground. The minutes are stated to be recorded for June 11, 1973, meeting. The minutes are stated to be recorded in some book which is not at all the minutes book. That is also not placed before the court. Hence, in my view, the statutory presumption under section 195 of the Act does not arise. The minutes of the general meeting should contain a fair summary of the proceedings of such meeting and in particular of all material questions asked or comments made. Section 193 of the Act provides that every company shall cause minutes of all proceedings of every general meeting of its board of directors or of every committee of the board to be kept by making within thirty days of the conclusion of every such meeting concerned, entries thereof in books kept for that purpose with their pages consecutively numbered. If the presumption is not under section 193, presumption under section 195 is not at all available. The factum with regard to the June 11, 1973, meeting is not placed before this court. This court is also not in a position to know what was the requisition, who could lead it, was it a valid requisition and if so, why the company has not acted on that, I may say that there is practically no material on these aspects. The judgment of the apex court in Shanti Prasad Jain v. Kalinga Tubes Ltd. [1965] 35 Comp Cas 351 , is also a judgment under section 397 of the Act. The Supreme Court said that the circumstances must be such as to warrant the inference that there has been, at least, an unfair abuse of powers and an impairment of confidence in the probity with which the company's affairs are being conducted as distinguished from mere resentment on the part of a minority at being outvoted on some issue of domestic policy. The Supreme Court said that the conduct must be continuous act on the part of the majority shareholders, continuing up to the date of petition, showing that the affairs of the company were being conducted in a manner oppressive to some part of the members. The conduct must be burdensome, harsh and wrongful and mere lack of confidence between the majority shareholders and the minority shareholders would not be enough unless the lack of confidence springs for oppression of a minority by a majority in the management of the company's affairs, and such oppression must involve at least an element of lack of probity or fair dealing to the member in the matter of his proprietary rights as a shareholder.
40. The observations made by the Supreme Court are directly applicable to the facts of this case. In this case, the loss of confidence against the respondents is justifiable. Shanti Prasad Jain v. Kalinga Tubes Ltd. [1965] 35 Comp Cas 351 has been followed in (sic) which relates to a case of small companies. The relevant passage in Rajahmundry Electric Supply Corporation v. A. Nageswara Rao [1956] 26 Comp Cas 91 is extracted hereunder (at page 97) :
'Loch v. John Blackwood Ltd. [1924] AC 783 was itself a case in which the order for winding up was asked for on the ground of mismanagement by the directors, and the law was thus stated at page 788 : 'It is undoubtedly true that at the foundation of applications for winding up, on the just and equitable rule, there must lie a justifiable lack of confidence in the conduct and management of the company's affairs. But this lack of confidence must be grounded on conduct of the directors, not in regard to their private life or affairs, but in regard to the company's business. Furthermore the lack of confidence must spring not from dissatisfaction at being outvoted on the business affairs or on what is called the domestic policy of the company. On the other hand, whenever the lack of confidence is rested on a lack of probity in the conduct of the company's affairs, then the former is justified by the latter, and it is under the statute just and equitable that the company be wound up'.'
41. In Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd. [1981] 51 Comp Cas 743 , the Supreme Court had extracted a passage from Lindley on Partnership (14th Edition, pages 194-95) which cites Blisset v. Daniel [1853] 10 Hare 493; 68 ER 1022 as an authority for the proposition that :
'The utmost good faith is due from every member of a partnership towards every other member; and if any dispute arise between partners touching any transaction by which one seeks to benefit himself at the expense of the firm, he will be required to show not only that he has the law on his side, but that his conduct will bear to be tried by the highest standard of honour.'
42. Mr. T. R. Rajagopalan, learned counsel appearing for the respondents, argued that a single act does not constitute oppression. Needle Industries (India) Ltd.'s case [1981] 51 Comp Cas 743 was referred to by learned counsel. The said case was considered by the Delhi High Court after Needle Industries (India) Ltd.'s case [1981] 51 Comp Cas 743 . I have also been taken through the pleadings and also the relevant documents filed in this case. According to learned counsel, the documents filed in this case show that the petitioners had knowledge about the management. According to Mr. Rajagopalan, learned counsel for the respondents, there was a change in the management and that from 1975 the petitioners' group were in management for a period of three years and then for two years, the respondents' side were in management and in view of the compromise reached between the parties, the June 11, 1973, meeting cannot be relied upon for oppression. Learned counsel has also relied on certain passages in some judgment in support of his contention. However, I am of the view that the very fact that the respondents suppressed the alleged meeting stated to have been held on June 11, 1973, and used the alleged amendment of the articles at the meeting held on January 5, 1981, for the purpose of electing a majority of board is not a single act. What is dormant till 1981, by suppression and given up at the time C.P. No. 88 of 1973 was sought to be reactivated at the meeting convened for January 5, 1981. In my view, the contention of the respondents is baseless. I am also of the view that in view of the decisions in :
1. Ramashankar Prosad v. Sindri Iron Foundry : AIR1966Cal512 .
2. AIR 1982 (2) LG. 216 .
43. The contention that a single act does not constitute oppression is not at all acceptable. But the said single act again has a long standing effect. While reiterating his arguments. Mr. T. R. Rajagopalan contended that isolated instances cannot be a ground for a petition under section 397 and that in the nature of the case, it cannot be said that there is oppression. He cited the decision in Maharani Lalita Rajya Lakshmi v. Indian Motor Co. (Hazaribagh) Ltd. : AIR1962Cal127 , which in turn refers to a case of single and solitary instances and a case under section 397.
44. Mr. T. Raghavan, learned counsel for the petitioners has also cited the following decision : Seethiah v. Venkatasubbiah [1949] 19 Comp Cas 107; AIR 1949 Mad 675, and submitted that subsequent events after the filing of the petition can also be taken into account and that no pleading is necessary for the said purpose. It is a fact that no meeting was held after 1982 and no accounts have also been submitted and the company's position is not disclosed by the respondents and no particulars as to the position obtained in the company were made available to the court. No accounts whether audited or not were filed in this court. While arguing on this point, Mr. T. Raghavan, learned senior counsel for the petitioners drew my attention to the decision in Gopal Krishnaji Ketkar v. Mohd. Haji Latif, : [1968]3SCR862 . In the instant case, as mentioned above, the respondents have not placed this court any documents and if they fail to do so, this court is always entitled to draw an adverse inference.
45. Before I conclude I must also advert to the impact of the judgment of the Hon'ble Supreme Court dated November 28, 1991, in V. B. Rangaraj v. V. B. Gopalakrishnan [1992] 73 Comp Cas 201 .
46. Company Petition No. 1A of 1981 proceeded on the basis that the judgment of Ramanujam J. in the second appeal is binding on the parties, subject to final decision of the Supreme Court. Parties proceeded on the basis that each group holds 25 shares. There would be a deadlock. The judgment of the Supreme Court resolved the said deadlock. If one group holds majority, then there will be no deadlock and it is possible for the company to run. The court under section 402 of the Act has power to require the other members also to sell their shares. It is to be noticed that the powers of this court under section 402 are very wide.
47. For the forgoing reasons, I have no hesitation to hold that the several acts on the part of the respondents mentioned above are harsh, oppressive, burdensome and prejudicial to the interest of the petitioners herein. The second respondent also did not take any steps to convene the meeting of the board of directors and also finalise accounts and place them before the board and also convene a general body meeting for passing the accounts. In view of this obstructive attitude on the part of the respondents, the second petitioner who is the only other director in the company during the relevant time was kept completely in the dark in regard to the administration of the company. The petitioners who are holding 25 shares and are entitled to participate in the affairs of the company are prevented from participating in the affairs of the company because of the prejudicial and oppressive conduct of the respondents. Because of the prejudicial conduct of the members of the respondent group, the company has incurred heavy loss. The licence of the company also was not renewed in time and the second respondent was responsible for such oppressive management. The theatre was closed for want of a licence. I also hold that the meeting purported to have been held on June 11, 1973, was not really held and that the resolution purported to have been passed in the said meeting is illegal and void. Therefore, I hold that the articles of association of the first respondent company will be as they stood prior to the alleged meeting dated June 11, 1973, and hence the petitioners are entitled to a declaration that the extraordinary general meeting of the first respondent company held on June 11, 1973, is illegal and void and that the resolutions passed thereat are not binding on the first respondent company. Likewise the third respondent, who is purported to have been appointed at the meeting held on January 5, 1981, cannot function as such director of the first respondent company. The appointment of the third respondent was not considered as a special business under the provisions of section 173 of the Act. The notice issued for holding the meeting for January 5, 1981, has not disclosed the intention to move the election of the third respondent as a director as and by away of special resolution. There is also no explanatory statement attached to the notice as required under section 173 of the Act, which is mandatory and in the absence of compliance with the said provisions, I hold that the purported resolutions are illegal and void.
48. For the aforesaid reasons :
(a) the petition filed by the petitioners has to be allowed in toto and in the interest of the company and its shareholders, the board of directors of the company is superseded;
(b) the affairs of the company are directed to be administered by petitioners Nos. 1 to 3;
(c) since it is proved that the action of the second respondent has resulted in serious loss to the company and its shareholders, the petitioners, as administrators are directed to take appropriate proceedings being instituted against the second respondent pursuant to section 406 read with section 539 to 544 of the Act, so that the second respondent may be surcharged and the company compensated for the loss sustained by the acts and omissions of the second respondent;
(d) the petitioners will engage a chartered accountant to go into the accounts and affairs of the company, during the management of the respondents to assess the damages sustained by the company, by reason of the wrongful acts of the second respondent and the petitioners are permitted to take appropriate proceedings against the second respondent by way of surcharge proceedings as mentioned above; and also move this court for any directions;
(e) the petitioners as administrators shall convene one or more general meetings of the company, after complying with the above directions for appointment of a new board of directors to take charge of the affairs of the company and to vest with the management of such board.
(f) this company petition is allowed with costs of the petitioners.