Maharani Lalita Rajya Lakshmi M.P. Vs. Indian Motor Co., (Hazaribagh) Ltd. and ors. - Court Judgment

P.B. Mukharji, J.

1. This is an appeal from the judgment of G.K. Mitter, J. dismissing the petitioner's application under sections 397 and 399 of the Indian Companies Act.

2. The company is Indian Motor Co. Hazaribagh) Ltd. The petitioner is Maharani Lalita Rajya Laskhmi, a share-holder owning more than thirty per cent of the shares. Her allegation is that the Board of Directors is guilty of certain acts of omission and commission detrimental to the interest of the company and/or to the minority of the share-holders. She sets them out in paragraph 18 of her petition.

3. Briefly, these allegations amount to this that the income of the company is deliberately shown less by excessive expenditure and many items of such expenditure are not properly vouched or receipted, The other allegation is that there is mismanagement of the affairs of the company attributable to the fact that the head office of the company is at Calcutta whereas the business of the company is in Hazaribagh and that passengers are travelling without ticket, or at prices below the scheduled rates, that buses are purchased at high cost and after heavy depreciations sold to friends and relatives of the Managing Agents and/or their employees, and that the consumption of petrol as reported by the running staff of the company from Hazaribagh is not properly checked by the staff of the Managing Agents and the result is that a great loss is suffered by the company. There are other allegations such as that dividends are not properly being declared or that they are being declared at too low a figure, that she was not given access to and inspection of the books of account of the: company.

4. The main defect of this application is that the facts alleged are not proved. It is essential to remember that under section 397 of the Companies Act, the Court has to be satisfied that there ' is oppression. It has to be satisfied that the affairs of the company are being conducted in 3 manner oppresive to any member or members of the company. The acts of oppression, therefore, have not only to be alleged with sufficient particulars but they must be proved also to the satisfaction of the Court.

5. It is also necessary to emphasise that the Court has to form an opinion on two essential points, that are set out in section 397(2) of the Act. These two points are first, the one that I have already stated, namely that the company's affairs are being conducted in a manner oppresive to any member or members of the company and, secondly, that to wind up the company would unfairly prejudice such member or members but that otherwise the facts would justify the making of a winding-up order on the ground that it was just and equitable that the company should be wound up. It is imperative that the Court's opinion on both these points must be formed in the affirmative before any order could be made under Section 397 of the Companies Act. If the Court is not satisfied on any one of these points and is of the opinion that either a company is not being conducted in a manner oppressive or that, the facts do not justify the making of a winding-up order, then no further question can arise under Section 397. It is also proper to emphasise that the power of the Court to make such order, as it thinks fit, under Section 397(2) of the Act is expressly stamped with the purpose of 'bringing to an end the matters complained of.' Therefore, wide as the power of the Court is following from the word* of the expression 'such order as it thinks fit,' it is nevertheless controlled by the overall objective of this section which must be kept strictly in view that the order must be directed 'to bringing to an end the matters complained of.' The marginal note of Section 397 of the Companies Act shows also that the purpose of the order of the Court in this section is to give relief in cases of oppression.'

6. Having stated broadly the interpretation and effect of Section 397 of the Companies Act, it will be useful at this stage to revert to the facts and the arguments advanced to us in this appeal. The first point that is argued is that denial of access to or inspection of the hooks of account of the Company to the petitioner was an act of oppression within the meaning of section 397 of the Act. This argument cannot have any force because a sharp-holder has no such tight recognised by the Companies Act. Mr. Choudhnry on behalf of the appellant realised this difficulty and, therefore, took up the position that although she had no legal right, it was a proper act of company management and she having more than thirty per cent of the shared should have been given such access and inspection. That argument also cannot succeed because to concede such a right will be to permit the Directors to do something which the law does not permit them to do or which might be objectionable in law: besides then every shareholder will claim such right and to allow some and deny others will lead to discrimination and confusion. Lastly, this argument must, in my view, fail on the simple ground that this cannot be an act of oppression within the meaning of Section 897 of the Companies Act. The words of Section 397 of the Companies act material for this purpose are.--'the affairs of the company are being conducted in a manner oppressive to any member or members.' One singly and solitary instance of any act does not seem to answer the oppressive continuity of conducting the affairs of the company implicit in the construction of the language of Section 397 'the affairs are being conducted' used in the expression just quoted above. This would only be true if it were at all an act of oppression but as we are satisfied this is not so, this argument in any event does not help the appellant.

7. It was then, argued that the Managing Agents were acting as dictators and attempting to control the majority by obtaining the largest number of shares. The Managing Agents have 9,000 shares and the appellant has 7.000 shares and it is attempted to be shown that the Mariasing Agents wanted to acquire the appellant', shares. Mr. Choudhury for the appellant graphically put this part of his argument by saying that this attempt to tyrannise is implicit in this situation because a joint stock company is a kind of democracy where such control is detrimenal to what he said 'the democratic bottom of the company's substratum.' This was an ingenious attempt to come within Section 397(2Xb) of the Companies Act read with Section 433(f) that the facts justified winding-up of the company.

8. There are two complete answers to this argument. The first answer is that to attempt to get a majority by lawful means is not a tact or a circumstance which justifies winding-up of the company. If any authority is needed tor that proposition, one need only refer to the Privy Council ' decision of Ripon Press and Sugar Mill Co. Eld. Bellary v. Gopal Chetti where Lord Blanesburgh at page 422 (of Ind App) : (at p. 6 of AIR) made this significant observation:

'The fact that Venkata Rao had a preponderating voice in the company by reason of his owning or controlling a large number of shares was of itself no reason for winding-up the Company; the allegation that dividends had not been paid regularly was no ground for winding-up. ....'

9. Being faced with this authority, Mr. Choudhury resiled slightly from his previous position and said that here this is not by itself but there are other allegations along with it. No doubt, but we shall presently examine thoseother allegations.

10. The second answer to Mr. Choudhury's argument on this branch is on the facts. The Company in this case is unquestionably a profitable and thriving company. There is not the slightest justification in fact, to wind up such a Company. In fact, far from being just and equitable, that such a company should be wound up, it would he just and equitable to prevent such a company from being pushed into this position by the use or misuse of Section 397 of the Companies Act. One single instance will prove what the fact is. The appellant purchased these shares only for Rs. 14,238/-. The value of these shares thereafter rose to Rs. 80,000/-and soon thereafter to Rs. 1,00.000/-. A company could not be said to be fit for winding-up in such circumstances as are proved in this case.

11. The next ground about ticketless travel or travelling at low fares or consumption of petrol forming acts of oppression, has no basis on the facts proved. In fact, the learned Judge dismissed the affidavits attempted to be used for these purposes as frivolous. A person who was supposed to have travelled in 1951 is making affidavit in 1959 showing how after the travel he returned the ticket to the bus conductor. It failure of conductors of buses to charge proper fares or to take return of tickets from passengers without the slightest proof that the Board or directors or those in charge of conducting the affairs, of the company are implicated in the complaint, was to be a ground for this Court taking action under section 397 of the Companies Act, then no company will be safe in this country. This cannot be a ground of oppression of any member of the Company within the meaning of Section 397 of the Companies Act,

12. It is then argued that the Board of Directors controlled by the Managing Agents has not been properly declaring dividends. In fact what is said in paragraph 21 of the petition is that dividend which is much below the actual profit earned by the Company has been declared. I fail to see how this is an act of oppression to, any member or members within the meaning ot section 397 of the Companies Act. The Board of Directors has a discretion to declare dividend and the rate of such dividend. There is no company law that I know which obliges a Board of Directors to use up all its profits by declaring dividend. No company law lays down that all profits must be declared and exhausted in paying dividends. Surely, failure to do so could not be a ground for an application for oppression under section 397 of the Companies Act. Besides, that will also not be a ground for winding-up a company as indicated by Lord Blanesburgh in the observation quoted above in the Privy Council decision of 58 Ind App 416: (AIR 1932 PC 1.)

13. Lastly it is contended on behalf of the appellant that the explanatory statement of Item 6 in the agenda of the annual general meeting of the company does not satisfy the requirements of section 173(2) of the Companies Act. The argument briefly is that this section is mandatory by reason of the provision,--

'there shall be annexed to the notice of the meeting a statement setting out all material facts concerning each such item of business, including in particular, the nature and extent of the interest. . . . .'

The complaint on this ground reduces itself to the allegation that it is not clearly stated that Ganguly and Co. had only two partners and that these two persons N. N. Ganguly and R. N. Ganguly constituted the firm each having eight annas' interest therein. What was stated in the explanatory note challenged was:

'Sri N.N. Ganguli a director of the company and partner of Ganguli and Company and Sri R.N. Ganguli a partner of Ganguli and Company are interested in the above resolution.'

This explanatory note was essential because Ganguly and Company were being appointed Managing Agents of the company for a renewed period.

14. It was, therefore, contended that this explanatory note did not show that these two persons were all the partners or that each one of them had eight annas' share. Therefore, it is argued that this explanatory note does not satisfy Section 173(2) of the Companies Act.

15. Before proceeding to answer this question, it may be mentioned that this particular section was amended by the Amendment Act LXV of 1960 which came into force on the 28th of December 1960, introducing the words 'the nature of the concern or interest' in place of the words 'the nature and extent of the interest.' The Amendment Act of 1960 does not] apply to this case because the annual general meeting for which this explanatory note was submitted was held on the 30th of September 1959, long before the amendment came into force.

16. Here again there are two complete answers to the argument advanced by Mr. Choudhury on behalf of the appellant. The first answer is on the facts and the second answer is on the law.

17. The first answer on the facts follows from the proposition that it a share-holder is aware of the facts, it is not for him or her to complain of insufficiency of notice of a meeting. This principle was laid down by the Privy Council in the case of Parashuram Detaram shamdasani v. Tata Industrial Bank Ltd., 55 Ind App 274: (AIR 1928 PC 180), where again Lord Blanesburgh at page 284 (of IA): (at p. 185 of AIR) observed:

'No possible complaint of the notice or circular on the ground of insufficiency is. therefore, open to him.'

There His Lordship is emphasizing the aspect that a share-holder who by his conduct shows that he knew the real effect of the work to be transacted at a meeting, cannot complain, of a notice on the ground of insufficiency. What are the facts in this case? The petitioner while affirming an affidavit on the 28th of September 1959 before the annual meeting was to and about whose explanatory note she was complaining as insufficient notice, herself gives in paragraphs 4, 10, 11 and 12 of the petition along with Annexure A thereof, the fullest possible details about these two Gangulys and their interest. Therefore following Lord Blanesburgh's principle and wholesome rule, she cannot be heard to complain of insufficiency of the explanatory note. Besides we are not satisfied on the facts here, that there has been any failure to comply with the substance of Section 173(2) of the Companies Act. How much is 'all material facts' and what is 'nature and extent of interest under Section 173(2) are questions of fact and degree to be judged in each case. Here the disclosure of the essential facts that the two Gangulis were partners of the firm Ganguli and Co. in the explanatory note satisfies the real purpose and effect of this statutory provision.

18. Now the second answer is on the law on this branch of the appellant's argument Section 173 of the Companies Act concerns what is indicated in the marginal note of that section as 'Explanatory statement to be annexed to notice.' Although it imposes; by Section 173(2) an obligation that there shall be annexed to the notice of meeting a statement of the type and nature which I have discussed above, the question is, does failure to comply with the details of Section 173(2) of the Companies Act make it a case ipso facto of oppression in conducting the affairs of the company within the meaning of Section 397(1) of the Companies Act? I do not see how it can be the kind of oppression which Section 397 contemplates because breach of Section 173(2) can at best make the meeting called invalid and no more. If such a meeting is invalid then the Companies Act provides procedure for calling valid or regular meetings or for regularising irregular proceedings. That right is always open to every shareholder. But that does not mean that this failure to supply the fullest possible details in the explanatory note under section 173(2) of the Companies Ace will be visited with an application under Section 397 as typifying such failure to be an act of oppression within the meaning of section 397.

19. For these reasons, this appeal must tail and is dismissed with exists.

20. Certified for two Counsel for the Company.

Law, J.

21. I agree.