Hungerford Investment Trust Ltd., Re (in Voluntary Liquidation) vs Turner Morrison and Co. Ltd.

P.B. Mukharji, C.J.—The main controversy in this group of cases arises out of the relationship between Hungerford Investment Trust Ltd., on the one hand and Turner Morrison & Co. Ltd., on the other. Originally, the relationship was that Hungerford Investment Trust Ltd. was hundred per cent share-holder in Turner Morrison & Co. Ltd. In other words, Turner Morrison & Co. Ltd., the Respondent No. 1, was wholly a subsidiary for Hungerford Investment Trust Ltd. This picture changed when by an agreement in 1955 evidenced in writing dated November 29, 1955, from the Respondent Haridas Mundhra to Nigel Frederick Turner and by a letter of December 8, 1955, from Hungerford Investment Trust Ltd. to Haridas Mundhra, it was agreed in effect that Haridas Mundhra would purchase and Hungerford Investment Trust Ltd. would sell 2500 fully paid up shares of Rs. 1,000 each in Turner Morrison_& Co. Ltd., and the arrangement, according to that agreement, was that the Respondent H. D. Mundhra would first purchase 49 % of the shares and thereafter would have the right of option to purchase the balance of 51 % shares held by Hungerford Investment Trust Ltd., in Turner Morrison & Co. Ltd. on the terms and conditions mentioned in the said agreement and confirmed by the agreement dated October 30, 1956, between the Petitioner, Turners, British India Company and the said Haridas Mundhra. So far as this agreement relating to 49 % shares is concerned, it has been fully executed and the Respondent H. D. Mundhra has got the shares. In the meantime, Hungerford Investment Trust Ltd. went into voluntary liquidation and its liquidator Mr. Hoon is having this present dispute with regard to the transfer of the balance of 51 % shares. The Petitioner company in liquidation and its liquidator Mr. Hoon claim in these proceedings still to be a member of Turner Morrison & Co. Ltd. on the allegation that they are still, the owners of these 51 % shares. That is the foundation of the Petitioner''s claim to maintain these present applications. The Petitioner company''s case, as now represented by its liquidator Mr. Hoon, is that they want to get out of this agreement of 1955, confirmed in 1956 as aforesaid and which has since been merged in the decree for specific performance but for which there is proceeding pending for rescission, so that while that is pending the Petitioner wants to come in and manage the affairs of the Respondent Turner Morrison & Co. Ltd.

There is "one main petition filed on November 28, 1967, followed by four subsidiary petitions and one more petition while the trial of the main petition was going on. Including the main petition, therefore, there are altogether six petitions. As they have been all heard together and one after another, it will be convenient to decide them by one judgment.

The main petition with annexures covers 330 pages and 109 paragraphs. Barring the last three alphabets of the English language the prayers are numerous enough from (a) to (v). The affidavit-in-opposition with annexures covers 308 pages. The main petition with all the affidavits covers a total number of 1,221 pages. The documentary evidence consists of 93 exhibits. The oral evidence includes the testimony of eleven witnesses. On behalf of the Petitioner there were two witnesses, (i) Mr. Hoon with 2,190 questions and (ii) Mr. Dumra with 381 questions. On behalf of the Respondents there were nine witnesses, (i) Mr. K. Tapuria, a Respondent with 1,026 questions, (ii) Mr. T. D. Mundhra with 373 questions, (iii) Mr. Bhave with 194 questions, (iv) Mr. Valliant with 94 questions, (v) Mr. Dasgupta with 97 questions, (vi) Mr. Roy with 87 questions, (vii) Mr. Sinha with 328 questions, (viii) Mr. Mitra with 99 questions and (ix) Mr. K. K. Sen with 19 questions. In fact, all the witnesses together cover about 5,000 questions, to be accurate 4,848 questions. This will indicate the magnitude of the case.

The second application is on summons dated November 21, 1967. All the prayers are the same as in the main petition except prayer (t) in the summons, on the basis of para. 25 of the affidavit in support of the summons regarding the Lodna Colliery licensing tax refund, not to be paid over but no year or date is given. The cost making bulk of this petition is plain from the fact that the whole of the original main petition although on record is unnecessarily made an annexure to this petition which was only an interim application. This second application stood to trial.

The third application is for injunction relating to the meeting of May 30, 1868 on a summons dated May 29, 1968.

The fourth application is on a summons dated September 18, 1968. for restraining sale or disposal of Bombay and Calcutta flats and for restraining Rani Padmabati and Mr. Goenka from acting as Directors of the Respondent Turner Morrison & Co. Ltd.

The fifth application is for addition of parties on summons dated August 11, 1969.

The last and the sixth application is for restraining the holding of the Annual General Meeting of the Respondent. Turner Morrison & Co. Ltd. on August 30, 1969, on a summons dated August 28, 1969.

As the main petition along with these subsidiary petitions and interim application concern inter-related facts with cross-references to the main petition, all these matters are disposed of in this one judgment for the sake of convenience and to avoid repetition.

So far as the main application is concerned, the Central Government was served with notice u/s 400 of the Companies Act, but the Central Government is neither contesting nor appearing in these proceedings.

The following issues were raised and settled by the Court with consent of all counsel appearing for the different parties. The issues are as follows:

(1) Is the Petitioner entitled to maintain this application or claim any of the reliefs?

(2) Is the application maintainable in the absence of the subsidiary companies and their Directors and share-holders?

(3) Whether in facts and circumstances alleged in paras. 77,, 92, 93(4), 93(8) and 97 of the petition, the affairs of the Respondent company No. 1 were and are being conducted in a manner (a) oppressive to the Petitioner or (b) prejudicial to the interest of the Respondent company No. 1 or (c) in a manner prejudicial to the public interest?

(4) Are the Respondents Nos. 2 to 10 guilty of (a) mismanagement and (b) acts prejudicial to the interest of the affairs of the Respondent company No. 1 as alleged in paras. 87 to 89 of the petition?

(5) Were the notices of the Annual General Meetings of the Respondent company No. 1 held in 1965, 1966 and 1967 given to the Petitioner and/or its liquidators at the address to which the said notices were required to be sent or at all? If not, what is the effect thereof?

(6) Were the 52nd, 53rd and 54th Annual General" Meetings of the Respondent company No. 1 held in violation of the provisions in Section 166 and Section 258 of the Companies Act, 1956, as alleged in para. 87 of the petition?

(7) (a) Was the Board of Directors of the Respondent company No. 1 validly constituted in, 1966 and 1967 as alleged in para. 87 of the petition? (b) Is the present Board of Directors validly constituted as alleged in para. 87 of the petition?

(8) Had the Respondents violated the provisions of: (a) Section 258 of the Companies Act, 1956, and Article 80 of the Articles of Association of the Respondent company No. 1, (b) Section 260 of the Companies Act, 1956, and Article 82 of the Articles of Association of the Respondent company No. 1, (c) Sections 198 and 309 of the Companies Act, 1956, (d) Section 207 of the Companies Act, 1956, (e) Sections 163, 196 and 214 of the Companies Act, 1956; as alleged in respect of (a) and (b) above in para. 87, in respect of (c) above in para. 89-(iii), in respect of (d) above in para. 93 (ii) and in respect of (e) above in para. 90 of the petition?

If so, do the" same amount to oppression or mismanagement within the meaning of Sections 397 and 398 of the Companies Act?

(9) Whether the Respondents Nos. 2 to 10 or any of them is responsible for not taking any action for recovering the amounts of Rs. 5,05,364 and Rs. 1,14,342 as alleged in paras. 89(i) and 89(ii) of the petition? If so, what is the effect of such action?

(10) Is the Annual General Meeting of the Respondent company No. 1 alleged to have been held on May 30, 1968, valid and the resolutions passed thereat valid as alleged in the third application?

(11) Were the sale of flats and the selling of Bombay flat arid giving up lease of house in Dover Park held by Smith Stanistreet & Co. Ltd., the subsidiary of the Respondent company No. 1, acts of mismanagement?

(12) Whether in the facts and circumstances, (a) there is a lack of probity and fair dealing on the part of the Respondents in the management and affairs of the Respondent company No. 1, (b) the acts and conduct of the Respondents are burdensome, harsh and wrongful?

(13) Has there been any material change in the management or control of the company as a result of which the affairs of the said company were conducted in a manner prejudicial to the interest of the said company? ''

(14) Is the Petitioner entitled to rely on any ground of allegation of oppression or mismanagement after the riling of the petition?

(15) To what relief, if any, is the Petitioner entitled?

It was also agreed by the counsel for all the parties appearing in these proceedings that the issues Nos. (5), (9), (10) and (11) being disputed questions of fact, were to be tried on evidence. Evidence was, accordingly, given as sated above.

In the main application the Petitioner is the Hungerford Investment Trust Ltd. (in volunary liquidation), described as a company incorporated under the laws of Singapore and having its registered office at N.T.S. Buildings, Singapore, outside the jurisdiction. The Petitioner is signed by Nirmaljit Singh Hoon as liquidator, Brijmohon Bagaria as liquidator and Baij Nath Garg, a constituted Attorney of the Petitioner. There are ten Respondents to the main Petitioner. The first Respondent is Turner Morrison & Co. Ltd. The second Respondent is Haridas Mundhra. The third Respondent is David Mitchel Jaffray. The fourth Respondent is Charles Neil Rodewald. The fifth Respondent is Ardeshir Jivanji Hormasji. The sixth Respondent is Haji Sir Abdul Latiff Hazi Hajrat Khan. The seventh Respondent is Bhubaneshwar Prosad Sinha. The eighth Respondent is Arun Kumar Roy. The ninth Respondent is Ellis Raymond Meyer and the tenth Respondent is Kashinath Tapuria.

Issue No. (1):

I shall take up now the first issue which is: "Is the Petitioner entitled to maintain this application or claim any of the reliefs?" It is a basic issue. Respondens in their affidavit-in-opposition have challenged the Petitioner''s right to maintain the application u/s 397 and Section 398 of the Companies Act.

The Petitioner is a company in voluntary liquidation. The liquidator is making this application on behalf of this company in liquidation.

The first question that arises in this branch is whether the liquidator has any right to apply under Sections 397 and 398 of the Companies Act. It is submitted on behalf of the Respondents that this application is wholly misconceived and is not maintainable at all. In any event, it is submitted on behalf of the Respondents that this being a discretionary remedy no relief should be granted to a company in liquidation applying through the liquidator in the facts and circumstances of this case.

The liquidator is to liquidate the company of which he is the liquidator and not to carry on the business or interfere with the business of management of companies whose shares the liquidated company holds. A liquidator of a company in a voluntary liquidation can carry on the business of that company only in a limited sense for the purpose of better liquidation. But, here the liquidator wants to carry on the business of another company, Turner Morrison &r Co. Ltd., which is not under liquidation.

The Petitioner claims to maintain this application under Sections 397 and 398 of the Companies Act on the ground that the Petitioner company (in liquidation) holds 51 % shares in the Respondent company, Turner Morrison & Co. Ltd., through its liquidator and whose name appears on the register of members of the said Respondent company, Turner Morrison & Co. Ltd. It, therefore, claims to be a member within the meaning of Section 397 of the Companies Act.

19 On behalf of the Respondents, it is contended that these shares were the subject of an agreement for sale which contained the provisions that the Respondent Haridas Mundhra will buy 49 % of the shares with an option to buy the balance of 51 % of the remaining shares held by the Petitioner company in Turner Morrison & Co. Ltd. The Respondents further contend that the Petitioner has lost all its rights as a member and it is only a paper-member now en the register of members of Turner Morrison & Co. Ltd. but in fact and law not a member any more.

The celebrated observations of James L.J. in In Re: Ex parte Emmanuel Batey 17 Ch.D. 35 (39) are as follows:

It is said that the power to carry on the business is inherent in the trustee by virtue of the Act. But it is quite clear that it was never intended that the trustee should carry on the business indefinitely with the view of making profit by it as a going concern.

James L.J. had earlier observed in this connection at the same page (Supra):

It seems to me quite clear that the resolution which authorised the trustee to carry on the business for a further period of fifteen months was ultra vires the majority of the creditors. The Act evidently contemplates, as does the Companies Act, a carrying on of the business only for the purpose of its beneficial winding up, not because the creditors may think that the business will be a very profitable one, and that the longer it is carried on the better it will be and that they will make a profit from it.

Although this case was dealing with the Bankruptcy Act, it was drawing the analogy from the Companies Act. It lays down and notices the principle that a liquidator or a trustee in bankruptcy can carry on the business only for the purpose of beneficial winding up and not for running a business indefinitely and making a profit but of it.

This principle is well-settled and has also been recently emphasised In Re: Great Eastern Electric Co. Ltd. (1941) 1 Ch. 241 (245) which says that a liquidator in a voluntary liquidation is justified in proceeding, in the exercise of his statutory powers, to carry on the business of the company, if he bona fide and reasonably forms the opinion that the carrying on of the business is necessary for the beneficial winding up of the company. Simonds J. relied on the classical observations of Sir George Jessel In Re: M.R. Wreck Recovery and Salvage Co. 15 Ch.D. 353 (360) where the learned Master of Rolls said, speaking on Section 95 of the English Companies Act of 1862:

Now the word ''necessary'' means that it must not be merely beneficial but something more, though the necessity must be determined by the Court, having regard to all the circumstances of the case. It does not, of course, mean that no other course would be possible. Then it must be for the ''beneficial winding up'' of the business of the company...not with a view to its continuance.

No doubt, liquidation does not dissolve the corporate status of the company until the liquidated company is actually dissolved, but that theory does not permit that a company in liquidation through its liquidator would keep on carrying the business of another company indefinitely on the ground that the liquidated company held certain shares, in that other company. Such a right, if permitted, will perpetuate the liquidation which will never end. This aspect of the point is all the more significant and important in my judgment when the statutory provision in Section 397(2)(b) of the Companies Act directs that the Court must be of the opinion, inter alia, "that to wind up the company would unfairly prejudice such member or members." The Court, therefore, in this case has to be satisfied that to wind up Turner Morrison & Co. Ltd. would unfairly prejudice that company and its members. Therefore, the Court must be of the opinion that it should be continued by making a suitable order. That means that this Petitioner company, Hungerford Investment Trust Ltd. (in voluntary liquidation), although in liquidation, through its liquidator would continue carrying on business of another company, Turner Morrison & Co. Ltd. In fact, the whole argument of the Petitioner is to continue the working of Turner Morrison & Co. Ltd. and the liquidator is claiming a voice in that management. That means the Liquidator and the liquidated company Hungerford Investment Trust Ltd. (in voluntary liquidation) would perpetuate the liquidation and there would be no end to such liquidation. That is a course which, to my mind, is entirely illegal and against the whole concept of liquidation.

This Petitioner is a non-resident company in voluntary liquidation. The liquidator is a non-resident voluntary Singapore liquidator, who is not an Indian citizen, of a Singapore company governed by Singapore laws, a foreign company beyond the control of this Court who cannot, in my view, claim a status to call for managing Indian companies. Exhibit 00011 is the Singapore Ordinance and Ex. 00010 is the Singapore Act. This is admitted by Hoon in answer to Qs. 1141 to 1160. In fact, Mr. Hoon says that the Singapore address is given in the petition for technical reasons in answer to Q. 1143, but the Singapore address is now being condemned. Even if the Court had the power, the Court should not exercise such power under Sections 397 and 398 of the Companies Act in favour of such a nonresident voluntary liquidator of a foreign company who is not an Indian citizen himself and who is, therefore, for all practical purposes beyond the control of this Court. That will not be a proper exercise of this Court''s discretion under Sections 397 and 398 of the Companies Act.

There is one more serious obstacle on the way of the Petitioner. There is a decree for specific performance against the Petitioner company and its liquidator. That decree has taken away the liquidator''s or the liquidated company''s voting rights and consequently the liquidator has lost all voice and status in calling for better management in respect of the company whose share he held as liquidator and a fortiori there could be no right to manage in respect of the subsidiaries of the companies of Turner Morrison & Co. Ltd. The decree of specific performance, being an act of the Court, cannot be regarded as an act of mismanagement under this section for the simple reason that relief was available to the Petitioner by ordinary processes of appeal.

This point requires a further scrutiny and elaboration. Who is a member u/s 399 read with Section 41 of the Companies Act? The Applicant is only a paper-member today with no voting right and with no right of management. Is such an Applicant to be regarded as a member within the meaning of Section 399 of the Companies Act to claim the reliefs mentioned therein? Today, except a money claim under the specific performance decree, the liquidator has no membership right left. Such a member, in my view, cannot be within the meaning of Sections 399 and 417 of the Companies Act whose foundation is the member''s basic right to control and participate in the management which he cannot due to oppression or mismanagement. This principle follows naturally from the whole purpose and object of Section 397 of the Companies Act.

Section 397 of the Companies Act, 1956, deals with the application to Court for relief in cases of oppression and where to wind up the company would unfairly prejudice the member or members applying for such relief. That means he must be a kind of member who has not lost his voice of management in the company from whose oppression he wants relief from the Court without winding up the company. The express language of Section 397 of the Companies Act shows that the Court may make such order as it thinks fit but ''with a view to bring to an end the matters complained of without winding up the company. The object of Section 397 of the Companies Act is also clear from the fact that the language indicates that the complaint of any member is with regard to the ''affairs of the company'' being conducted in a manner prejudicial to public interest or oppressive to any member or members. It is to stop that oppression or to stop that prejudice that this section was intended to give relief. It would, therefore, be unrealistic to hold that a member, who has lost by reason of a decree for specific performance his whole right in the voice of management, can still apply under that section for relief from oppression or prejudice. Having lost all fights as a share-holder or a member, there is no legal prejudice or Oppression any more left for him to complain within the meaning of Section 397 of the Companies Act.

In a Division Bench of this Court, to which I was a party, in Maharani Lalita Rajya Lakshmi M.P. Vs. Indian Motor Co., (Hazaribagh) Ltd. and Others, it has been held that u/s 397, the Court has to be satisfied that the affairs of the company are conducted in a manner oppressive to any member or members and the acts of oppression have not only to be alleged with sufficient particulars but they must be proved also to the satisfaction of the Court and that the Court''s opinion on both the points enumerated in Clause. (a) and (b) of Sub-section (2) must be found in the affirmative before any order could be made under that section. If the Court is not satisfied on any of these points, no further question can arise u/s 397 and the power of the Court to make such order ''as it thinks fit'' u/s 397(2) is expressly stamped with the purpose of ''bringing to an end -the matters complained of. Therefore, wide as the powers of the Court is, it is nevertheless controlled by the overall objective of the section which must be kept strictly in view.

The Applicant''s own view about the membership admits this position. The Applicant admits that ''management right is gone'' in para. 35 of the petition, that ''injunction is as good as transfer'' (the injunction in the specific performance decree is that the Applicant is to vote according to the directions of Mr. H. D. Mundhra, the decree-holder in the specific performance suit). Again, ''management and control gone'' in para. 92 of the petition as well as paras. 98 and 99 of the petition. The Petitioner, therefore, knows very well that it or its liquidator has no right whatever as a member any more. No doubt, the Petitioner through its liquidator is a paper-member in the sense that its name appears on the register of share-holders of Turner Morrison & Co. Ltd., but such register cannot prevail against the decree of Court inter-parties and binding on them.

The point, therefore, is that the ''member'' holding u/s 399 of the Companies Act must be a member who has not lost his membership right under a decree which has destroyed his basic title to the shares as in this case under the specific performance decree.

That obviously there are qualifications on the rights of members under Sections 397 and 398 of the Companies Act is plain from the language of Section 399 of the Companies Act. For instance, it uses the language "provided that the Applicant has paid all calls and other sums due on the shares", an expression which was considered by a Division Bench of this Court in Stadmed Private Ltd. and Others Vs. Kshetra Mohan Saha and Others, . This shows that (a) the register of members is not conclusive and (b) the register is only prima facie evidence u/s 104 read with Sections 181 and 182 of the Companies Act, and which prima facie evidence is completely displaced by the outstanding fact and evidence of the decree of specific performance and the order of injunction made therein.

It is also essential in this connection to record that having regard to the purpose and object of a liquidation, the whole tenor of this application is to perpetuate the liquidation, as long as possible, by the liquidator getting the control of the Management of Turner Morrison & Co. Ltd. In H.P. Jayantilal v. The income tax Officer, Ahmedabad AIR 66 S.C.R. 1481 (1483) it is pointed out by the Supreme Court:

On the passing of a special resolution by the company that it be wound up voluntarily under the Companies Act I of 1956, the company does not stand dissolved. That is so expressly provided by Section 487 of the Companies Act. A company which has resolved to be voluntarily wound up may be dissolved in the manner provided by Section 497(5); till then the company has corporate existence and corporate powers. The property of the company does not vest in the liquidator; it continues to remain vested in the company. On the appointment of a liquidator, all the powers of the Board of Directors and of the managing or whole-time directors, managing agents, secretaries and treasurers cease (Section 491) and the liquidator may exercise the powers mentioned in Section 512 including the power to do such things as may be necessary for winding up the affairs of the company and distributing its assets. The liquidator appointed in a members'' winding up is merely an agent of the company to administer the property of the company for purposes prescribed by the statute.

Therefore, it should never be lost sight of that the property continues to vest in the liquidated company and it does not vest in the liquidator so that he can claim to carry on the business of another running company without limit of time and which is obviously not "necessary for winding up the affairs of the company and distributing its assets" as pointed out by the Supreme Court.

There is a still more serious obstacle on the way of the Petitioner. The Petitioner is a member who has agreed to sell the shares in question. Fortynine per cent of these shares have already been irretrievably sold. This can no longer be upset. The balance 51 % cannot now in my view be treated differently except as part of a single transaction or one whole contract about half of which is fully performed and executed. The Court, therefore, will not help such a person to go back in the midstream in a discretionary remedy u/s 397 of the Companies Act. Even apart from the fact that Section 12 of the Specific Relief Act, 1963, (corresponding to Sections 13, 14, 15, 16 and 17 of the old Act) providing a bar, to allow such a liquidator to retain 51 % now will be to destroy the very essence of the contract to sell 100 % shares. (See in this connection the offer and acceptance and their terms at pp. 159-163 of the petition and the agreement at p. 164 of the petition.) It may be debated here that Section 17 of the old Specific Relief Act applies because the new Specific Relief Act came into operation four days after the passing of the specific performance decree in this case. The answer may equally be that it is not the date of the decree for specific performance but the date of the application for rescission before Masud J. which will determine in favour of applying the new Specific Relief Act, 1963, u/s 28 thereof because that application for rescission was made after the new Act. Be that as it may, the equitable principle will lean against upsetting a decree or contract 49 % of which is fully performed and executed.

The next point that to my mind is against the Petitioner is that the liquidator under the resolution and the agreement and under the arrangement in this case is to distribute ''in specie''. As these shares were held under the agreement to sell and as 49 % had already been sold, therefore the sale proceeds could alone be distributed and nothing else. The liquidator under these terms of arrangement and resolution has no authority to claim management right to interfere in another company by reasons of the fact that the shares of that company are being held by the liquidator on behalf of the company in liquidation. The resolution ''in specie'' does not mean distribution of those shares but distribution of their sale proceeds because they had already been sold under the agreement. To distribute the shares now in specie will be illegal and directly against the agreement as well as the decree for specific performance.

Again, alternative remedies under specific sections for alleged breaches of particular sections of the Companies Act have not been used by the Petitioner. The use of Section 397 proceeding in such circumstances may become an oppression which itself should be avoided. To illustrate this aspect of the problem it will be necessary to cite a few instances relevant on the point. Section 163(6) deals with the order for inspection, but this section has not been used in the present case although alleged refusal to give inspection is one of the complaints and issues in these proceedings. It is argued that this section does not include books of account. But, then there is Section 209 of the Companies Act. Secondly, again Section 167(1) gives the Central Government power to call a meeting. That remedy has not been exercised by the liquidator in the present instance, although not calling a meeting in time is one of the complaints and issues in these proceedings. There is also the power of the Central Government u/s 235 to investigate for mismanagement. That power also has not been invoked by the Petitioner. There is also the power of the Central Government u/s 237 to appoint inspectors for investigation and there is also the specific Section 207 dealing with the right to dividends. It should be understood that Section 397 is an extensive remedy and that by way of summary proceeding and should be used not lightly but with great caution and circumspection. It is intended in the public interest of company management and even the private prejudice to members must be such that by reasons of the majority-the minority member cannot obtain redress. Section 397 of the Companies Act was not intended to feed every private grudge or differences between share-holders or was not intended to be exploited for any difference of views between members which could be largely and substantially redressed by invoking specific provisions of specific sections of the Companies Act dealing with particular claims.

But the most serious and, in my opinion, insuperable obstacle on the way of the Petitioner and the liquidator is the fact of Bank Hoffman''s decree. Bank Hoffman''s decree disentitles, in my view, the Petitioner and the liquidator u/s 397 to any relief in these proceedings and specially without even joining that decree-holder to this proceeding. The effect of this decree is that the liquidator has already realised moneys for these very shares by charging them with Bank Hoffman and by mortgaging them with Bank Hoffman and which Bank Hoffman has already obtained a decree thereupon from the Court of Queen''s Bench, London, and to which decree the present Petitioner and the liquidator were not only a party but are also bound by it. In other words, Bank Hoffman, to whom these very shares were mortgaged, foreclosed the shares and they obtained a decree from a proper Court. What then remains of these shares alleged to be held by the Petitioner? How can it be now said that the Petitioner company in liquidation or its liquidator is still a member? This, in my view, is a complete answer to the present application u/s 397 by the Petitioner company in liquidation and its liquidator. The transactions and proceedings of the Petitioner company in liquidation and its liquidator with Bank Hoffman in my judgment completely put the Petitioner out of Court.

I shall scrutinise this position with regard to Bank Hoffman in some more detail. These very shares on the basis of which the Petitioner company in liquidation and its liquidator are claiming to be members and'' claiming the right to apply u/s 397 of the Companies Act were pledged with Bank Hoffman. This is admitted by Mr. Hoon, the liquidator, in answer to Qs. 886-898 and 903-905. Strangely enough, the Directors of a company called Romanigo--a foreign company, about which I shall presently say more--were the Directors of this Bank Hoffman. Hoon in answer to Qs. 877-878 said that Bank Hoffman lent Romanigo, a concern of Mr. Hoon, a sum amounting to �6,50,000 which in Indian currency came to Rs. 86 lakhs which is the very price of these shares under the specific performance decree dated February 25, 1964, being suit No. 600 of 1961 of this Court. This lending by Bank Hoffman by taking the pledge of these shares was after the decree for specific performance had been passed and the lending was on December 9, 1964. Bitter comment has been made by learned Counsel appearing for the Respondents to the effect that without getting any money from H. D. Mundhra, Mr. Hoon was realising this money by practising a fraud on Bank Hoffman, whose Directors were taken as Romanigo Directors, a concern of Mr. Hoon. It will be unnecessary to pursue this allegation against Mr. Hoon. But the fact remains that Mr. Hoon as liquidator of Hungerford Investment Trust has, therefore, lost his right to claim any more as member and he with the company of which he is the liquidator has wiped himself out of the register of members although he remains there only on paper and wants to use his paper-membership to perpetuate this situation. No Court can possibly allow such a course.

I shall pursue further in still more detail this significant Bank Hoffman episode.

Bank Hoffman filed a suit in London Queen''s Bench Division on January 28, 1965, although under the contract of loan the venue of the Court was expressly stated to be Switzerland. The Bank obtained a decree for Rs. 86 lakhs with lightning speed within five days of the filing of the suit and the London decree is dated February 3, 1965. Bank Hoffman started execution against those shares under the decree at Delhi on March 16, 1965. (See answers of Mr. Hoon in Qs. 912-971.) After the Delhi proceedings of Bank Hoffman, Mr. Hoon started criminal proceedings here in Calcutta before the Chief Presidency Magistrate regarding 707 shares out of this lot. (See answers of Mr. Hoon to Qs. 981-997.) But then he failed in the criminal proceedings and they were discharged. Even Mr. Hoon''s naraji petition was dismissed in that connection. His revision petition in this High Court against this discharge in the criminal proceedings also failed. The point remains that Bank Hoffman''s decree still remains unsatisfied and the execution is still supposed to be pending at Delhi although the execution proceeding was filed as early as in 1965. (See answers of Mr. Hoon to Qs. 968 and 1010.) By already realising the full money from Bank Hoffman, Mr. Hoon has lost all his right to call himself a member any more ; so has the company of which he is the liquidator and who is the Petitioner. And he cannot any longer, in my judgment, claim this money from H. D. Mundhra without joining Bank Hoffman, to say the least, because Bank Hoffman is in law the subrogee of those shares. By getting himself paid by Bank Hoffman, whose decree against Mr. Hoon remains still unsatisfied, Mr. Hoon or the Petitioner company in liquidation has lost all status of a member u/s 397 of the Companies Act. I hold on this fact that the Petitioner or the liquidator has no locus standi to maintain this application after this.

It is contended on behalf of the Respondents that no relief can be granted u/s 397 in view of the pending litigation touching these shares which are the foundation of this application. It is submitted for the Respondents that the two suits, viz. (i) specific performance suit and (ii) the lien suit stand on the way of any relief being granted in these proceedings. The main argument in support of this contention for the Respondent is that to grant any relief in these proceedings will be to prejudge both the suits in this collateral proceeding. The specific performance decree in suit No. 600 of 1961 directs the liquidator to deliver shares against the money actually specified in the decree. Therefore, to grant management rights to the liquidator now is to whittle down that decree for specific performance which by its specific terms asked the liquidator to vote only according to the buyer H. D. Mundhra''s.directions. It will mean the management will be altered by the voice of a person, the liquidator or the Petitioner company in liquidation who has lost it under the decree for specific performance. It is needless to say that the specific performance decree, so far as the suit is concerned, has become final. On behalf of the Petitioner it is then urged that there is a proceeding for rescission of the contract and the decree for specific performance. In support of this the order of Masud J. is invoked. But the order of Masud J. is conditioned by (a) extension of time and (b) by giving H. D. Mundhra further opportunity to pay, which he has fulfilled by undertaking here in this Court in these proceedings--but curiously enough which the liquidator for the Petitioner company in liquidation now refuses to accept. It is also contended for the Respondents on this point that to grant any relief herein these proceedings u/s 397 of the Companies Act will be to affect the decree in the lien suit which is pending appeal in the Supreme Court.

I shall only refer here briefly to two decisions of this Court. One is In Re: Bengal Luxmi Cotton Mills Ltd., . B. C. Mitra J. delivering his judgment in that case noticed that ''other remedies'' in Section 443(2) of the Companies Act also includes suits and where such remedy is available or is resorted to, no winding up order is to be made and consequently no order under Sections 397 and 338 can be made. In fact, the learned Judge points out in that decision that the Court ought not to exercise the extra-ordinary and summary jurisdiction under Sections 397 and 398 when the alternative remedy has already been pursued. In fact, developing this point the learned Judge has observed in that decision that an order u/s 397 or Section 398 can be made only on the grounds mentioned therein and the Court will not make an order under those sections on the ground that a criminal complaint has been made against the Directors or an investigation is being made into the company''s affairs or even on the ground that the Directors have been convicted of a criminal offence. The learned Judge held that such matters were entirely foreign to company law and administration and beyond the ambit of the jurisdiction which the Court exercises under Sections 397 and 398 of the Companies Act. Again, a Division Bench of this Court in Mohta Bros. (P.) Ltd. and Others Vs. Calcutta Landing and Shipping Co. Ltd. and Others, enunciated certain broad principles in that decision. One is that negligence and inefficiency even assuming such are proved, do not amount to mismanagement or oppression as contemplated by Sections 397 and 398 of the Act. It holds further that in a petition under Sections 397 and 398 of the Companies Act the Court must confine itself to the case as made out in the petition and to the allegations in the petition itself and supporting affidavits, if any, and not look at other evidence with regard to the events that might have happened subsequent to the petition. This decision is also an authority for saying that full particulars must be given in an application under Sections 397 and 398 of the Act, of the acts of mismanagement and oppression and mere vague and uncertain allegations of mismanagement or of oppression even though they may constitute grounds for suspicion would not entitle a Petitioner to ask the Court to embark upon an investigation into the affairs of the company in the hope that in consequence of such investigation something will turn up which will enable the Court to grant relief to the Petitioner. [See the observations of the Division Bench (Supra (433)

But, this is not the end of the difficulties of the Petitioner. It is urged for the Respondents that the past acts and the delay in the facts of this case are a bar to the granting of any relief u/s 397 of the Companies Act. The facts prove that there was a previous application for mismanagement in the appeal against the decree for specific performance and that application was dismissed and that appeal from the decree of specific performance was also withdrawn by the liquidator and the Petitioner company in liquidation. Now, this present application u/s 397 is made two years thereafter. This is plain and is admitted in para. 43 of the petition. The delay appears from the following record of dates. The Hungerford Investment Trust Ltd. was incorporated on June 23, 1930. Since 1932, Hungerford Investment Trust was holding 100 % shares of Turner Morrison & Co. Ltd. The dates about the holding of the shares are as follows: Hungerford Investment Trust held 2,900 shares of Turner Morrison on July 2, 1930; then 1,450 shares on August 20, 1930, and finally 138 shares on May 18, 1932, apart from the nominee''s shares numbering 12. The grand total of these shares was 4,500 shares. Then the significant agreement took place. On December 18, 1955, Hungerford Investment Trust agreed to sell 49 % of these shares with option to Haridas Mundhra to purchase the balance of 51 % of the shares. Hungerford Investment Trust went into voluntary liquidation on August 10, 1956, within less than a year of that agreement and has, in fact, ratified the original contract. Therefore, the fact remains that up to 1956 Hungerford Investment Trust was 100% share-holder of Turner Morrison & Co. Ltd. Mr. Hoon was appointed liquidator on December 10, 1964. Since then the decree for specific performance has followed. It is a well known principle that there can be no rescission where owing to such change of circumstances since the making of the contract the parties cannot be substantially restored to their original position when the contract was made, now statutorily recognised in Section 27(2)(c) 8c (b) of the new specific Relief Act, 1963.

To continue with the account of facts in this connection I shall only repeat that the two major litigations affecting these shares are, (i) the lien suit No. 2005 of 1965 and its appeal No. 203 of 1968 and thereafter the pending appeal with ad interim stay in the Supreme Court, and (ii) the specific performance suit No. 600 of 1961 where a decree has already been made for specific performance. Although the appeal from the decree for specific performance was withdrawn, another proceeding was taken by the liquidator by making an application for rescission in this Court. This application for rescission resulted in the order of Masud J. which I have mentioned, but then there is also an appeal pending from the order of Masud J. and where there is an interim stay.

This will be the proper stage where I should draw the attention to the terms of injunction which will appear at p. 232 of the petition. Their effect shows that the Applicant or the Petitioner has no right to maintain the application. An application was made on March 31, 1965, in the appeal from the specific performance decree asking for modification of this injunction and expressly asking for the restoration of voting rights on the very same grounds of mismanagement as in the present para. 43 of the petition. This Court refused to grant any relief for restoration of voting rights by modifying the injunction and this is admitted by the Petitioner in para. 44(b) of the petition and the only order there made was to expedite the appeal as admitted at p. 28 of this petition. This shows that the appeal forum was used, by the Petitioner and it failed on this very issue of mismanagement. Thereafter, the second forum that was used by the Petitioner was the rescission application for rescinding the specific performance decree which contained this injunction on August 30, 1965, as admitted in para. 46(a) of the petition read with para. 45 of, the petition. Again, there was an application in the rescission proceedings for restoration of the same voting rights, but again that application was also dismissed on September 28, 1965, a fact which is already admitted in para. 48 of the petition. Therefore, even the second attempt to restore the voting rights for the Petitioner on these very shares on almost the self-same ground of mismanagement also failed. But even then this did not conclude the Petitioner''s efforts. A third attempt was made in the second application for rescission on March 21, 1967, asking for the same relief of restoration of voting rights which resulted in the order of Masud J. dated July 14, 1969, against which also there is an appeal pending by the liquidator. In this sequence of things, this is the fourth attempt in these proceedings on November 26, 1969, to achieve the same result in which the three previous successive applications by the liquidator had failed.

It appears that the whole purpose of these proceedings is therefore to collaterally get behind the properly constituted proceedings that are pending both in the lien suit as well as in the specific performance suit and now added to them is a proceeding for rescission resulting in Masud J.''s order and the pending appeal therefrom. I agree with the views expressed by B. C. Mitra J. In Re: Bengal Luxmi Cotton Mills Ltd., where the learned Judge observes that the delay in itself will not bar a remedy under Sections 397 and 398 of the Companies Act, but if the delay in seeking remedy is such that it is the evidence of acquiescence or condonation of a wrongful act, the discretionary relief which the Court exercises under the sections will not be granted. Here it is not a question of acquiescence or condonation but a question of using these proceedings as a collateral attempt to achieve the result which the liquidator had failed to achieve by direct attacks in the lien suit and the specific performance suit and in the rescission proceedings. The Court should not in its discretion under Sections 397 and 398 of the Companies Act allow a Petitioner in such proceedings to use the sections in this manner.

There is yet another more powerful and cogent reason which stands on the way of the Applicant in this case. The reason for liquidating Hungerford Investment Trust Ltd. was to sell these shares and go. But, now this claim to manage Turner Morrison & Co. Ltd. is to go behind this whole reason which cannot be done without destroying the entire contract between the parties and revoking the voluntary liquidation and restoring the Petitioner company.

I have no hesitation in holding that behind the veil of this application under Sections 397 and 398 of the Companies Act, this whole petition and its object are entirely speculative. I shall indicate the reasons why I hold this application to be a purely speculative one. The present beneficiaries of the Petitioner company Hungerford Investment Trust Ltd. (in liquidation) are (i) Mr. Hoon himself, (ii) Mr. Richard, (iii) Mr. Carmes and (iv) Mr. Frank, who are all share-holders of Romanigo. This will be found from the clear admissions of Mr. Hoon in answer to Qs. 385-410, 825-827, 808, 775-777 and 830-840. These answers establish that Hungerford Investment Trust Ltd., the Petitioner company in liquidation, was the subsidiary of Romanigo. Romanigo was floated in, March 1963. Romanigo acquired Graham''s interests in June 1963. Therefore, Romanigo was buying the share-holding interest of a company already in liquidation. Hence, this is a speculative transaction and the liquidator Mr. Hoon is the speculator. (See also in this connection the answers of Mr. Hoon to Qs. 21-90, 972-975 and 1148-1153).

From above, it also follows that there is a clear conflict of interest so far as Mr. Hoon is concerned as liquidator of Hungerford Investment Trust Ltd. (in liquidation) and as owner of Romanigo. See the answers of Mr. Hoon to Qs. 1063-1064 where, he admits that by combining the two offices, one as the liquidator of Hungerford Investment Trust Ltd. and the other as the major share-holder and partner of Romanigo, there is a conflict of interest. I cannot, therefore, help coming to the conclusion that Mr. Hoon''s whole purpose is to carry on business and he is not at all interested i in liquidation of the Petitioner company of which he is the liquidator. Hungerford Investment Trust Ltd. is liquidated and the attempt now by Mr. Hoon is to revive it as Romanigo, another foreign company, which arises like the Sphinx from the ashes of Hungerford Investment Trust Ltd. The plain fact is that the foreign company Hungerford Investment Trust Ltd. of Singapore agreed to sell these shares and now another foreign company Romanigo wants to carry on the Indian business by obtaining control of Turner Morrison & Co. Ltd. I cannot, therefore, hold that this application is at all bona fide. It has the ulterior purpose just stated. In such circumstances, I cannot accede to this application by the Petitioner company in liquidation and allow its liquidator to use Sections 397 and 398 in this manner.

Learned Counsel for the Respondents have also urged that events outside the petition should not be considered u/s 397 of the Companies Act, In support of this proposition, counsel for the Respondents relied on the decision In Re: Lundie Bros. Ltd. (1965) 2 All. E.R. 692 (699) and the observations made therein and also in N. Ramanathan Chettiar v. A. & F. Harvey Ltd. and Ors. 37 C.C. 212(224) being the observations of the Chairman of the Companies Tribunal, New Delhi. Sir Barnes Peacock speaking for the Privy Council in Abdool Hossein Zenail Abadin v. Charles Agnew Turner 14.I.A. 111 (125) observed as follows:

It is a well-known rule that a charge of fraud must be substantially proved as laid, and that when one kind of fraud is charged, another kind of fraud cannot upon failure of proof be substituted for it.

The same principle was emphasized by a Division Bench of this Court (Supra) which I have just quoted. Mismanagement is like fraud and must be clearly particularised in a proceeding u/s 397 of the Companies Act and one kind of mismanagement cannot be pleaded and some other kind of mismanagement proved.

The main contention for the Respondents on this point is that the following events are outside the petition:

(i) Loan to Grahams Trading (India).

(ii) Guarantee in favour of Shalimar Tar Products Ltd.

(iii) Appointment of Mr. Jaffrey and Mr. Rodewald as Administrative Officers.

(iv) Withholding of, information to share-holders,

(v) Attempt to appoint liquidators of Hungerford Investment Trust Ltd.

(vi) Indiscriminate loan and advances to subsidiaries and other companies.

(vii) Breach of Articles 47 and 50 of the Articles of Association of Turner Morrison & Co. Ltd., and

(viii) Loan to Rameswar Daga and British India Corporation.

It is plain that no one of these allegations is made in the petition itself. Therefore, on the authorities mentioned above, they do not appropriately come within the ambit of the investigation u/s 397 of the Companies Act.

It has also been contended on behalf of the Respondents that events after the petition was filed on November 26, 1967, can-.not also be considered u/s 397 of the Companies Act. These events after the petition was filed are stated to be as follows:

(i) That whole of the issue No. (11) regarding resale of flats and surrender of lease.

(ii) The guarantee in favour of Alcock Ashdown. (iii) The appointment of Rani Padmabati and Mr. Goenka. (iv) The whole of the issue No. (10) relating to all the resolutions at the meeting of May 30, 1968.

In support of this branch of the argument the Respondents relied on the Supreme Court decision in Shanti Prasad Jain Vs. Kalinga Tubes Ltd., a decision of the Supreme Court. The Supreme Court there lays down that law has not defined what is oppression for the purposes of Section 397 of the Companies Act and it is left to the Courts to decide on the facts of each case whether there is such oppression as called for action under that section. The second principle that the Supreme Court enunciates in that decision is that it must further be shown that the conduct of the majority share-holders was oppressive to the minority as members and this required that the events had to be considered not in isolation but as a part of a consecutive story. It is laid down there that there must be continuous acts on the part of the majority share-holders, continuing upto the date of the petition showing that the affairs of the company were being conducted in a manner oppressive to some part of the members. The Supreme Court cautions that the conduct must be burdensome, harsh and wrongful and mere lack of confidence between the majority shareholders and the minority holders would not be enough and that mere loss of confidence between the groups of share-holders would not come within Section 397 unless the lack of confidence sprang from a desire to oppress the minority in the management of the company''s affairs and there was at least an element of lack of probity and fair dealing.

On the other hand, on behalf of the Petitioner it is contended that events subsequent to the petition can be considered by reason of Section 403 of the Companies Act which provides that pending the making by it of a final order u/s 397 or Section 398 the Court may on the application of any party to the proceeding make any interim order which it thinks fit for regulating the conduct of company''s affairs upon such terms and conditions as appear to be just and equitable. But then this section only relates to interim order. But, even then they may come u/s 397 even though they are subsequent. To that extent the contention of the Petitioner appears to be sound insofar as events subsequent to the petition are concerned but which relate to or spring directly from the allegations in the petition and which concern interim order ''for regulating the conduct of the company''s affairs'' within the meaning of Section 403 of the Companies Act. But, then if the main application fails or is not maintainable the interim protective protections cannot endure.

Serious and disputed questions of title and controversies, already the subject of pending legal proceedings, should not generally in my view be adjudicated in this summary proceeding u/s 397 of the Companies Act. Section 397 is in the nature of a summary proceeding by way of an application. Serious questions have been raised in the controversies between the parties, for instance, (i) question, whether certain shares are forged or not, (ii) different judgments in pending suits from which appeals are going on and (iii) the 707 shares whether rightly or wrongly withheld which is the subject of criminal proceeding as well as lien suit proceedings.

The words of crucial significance used in Sections 397 and 398 are ''oppression'' and ''mismanagement''. Apparently, it has not included the expressions ''illegality'' for which the ordinary remedies of suit or other provisions in the Companies Act are available. It is, therefore, debatable how far illegality of meetings and resolutions passed therein can be entertained under Sections 397 and 398 of the Companies Act. The better approach is to consider, what were Sections 397 and 398 intended to do? They were intended to give more effective relief in the case of oppression and mismanagement where previously no effective remedy could be obtained because of the rule in Foss v. Harbottle ( (1843) 2 Hare. 461) and the majority rule among share-holders. In Mohanlal Ganpatram v. Shri Sayaji Jubilee Cotton & Jute Mills Co. Ltd. AIR 1965 Guj 96 it is laid down that the question whether a particular action of the Directors was within the limits of the law or was in contravention of any provision of law is not a proper subject-matter of inquiry in a petition u/s 397 or Section 398 of the Companies Act. If an action of the Directors is illegal or invalid, the company or the share-holders may take appropriate action in a Court of law challenging the validity of such action but a petition u/s 397 or Section 398 is not an appropriate remedy for the purpose. [See the observations of the learned Judge (Supra (103)) Incidentally, the Court there also discusses the question how far the power of the Court extends to interfere in respect of past and concluded transactions which are no longer continuing wrongs.

We have already noticed the decision of the Supreme Court saying that there is no definition to say what exactly is oppression in any case. A Division Bench of this Court in Ramashankar Prosad and Others Vs. Sindri Iron Foundry (P) Ltd. and Others, also discussed this aspect of the case and noticed the difference between the English law and the Indian law on the point and came to the conclusion that an application for relief u/s 397 even by a majority of share-holders was maintainable.

The recent House of Lords decision in Scottish Co-operative Wholesale Society Ltd. v. Meyer and Anr. (1958) 3 All E.R. 66(83) discusses oppression in this context of company law. Lord Denning in discussing these principles enunciates them as follows:

One of the most useful orders mentioned in the section--which will enable the Court to do justice to the injured share-holders--is to order the oppressor to buy their shares at a fair price; and a fair price would be, I think, the value which the shares would have had at the date of the petition, if there had been no oppression. Once the oppressor has bought the shares, the company can survive. It can continue to operate. That is a matter for him. It is no doubt true that an order of this kind gives to the oppressed share-holders what; is, in effect, money compensation for the injury done to them; but I see no objection to this. The section gives a large discretion to the Court and it is well-exercised in making an oppressor make compensation to those who have suffered at his hands.

One essential condition u/s 397 of the Companies Act, as indicated, u/s 397(2)(b) is That the Court should be of the opinion that to wind up the company would unfairly prejudice such member or members but

that otherwise the facts would justify the making of the winding up order on the ground that it was just and equitable that the company should be wound up.

In other words, the statutory requirement is that the Court should form an opinion that although the facts would justify winding up on just and equitable ground, to do so would be to unfairly prejudice the member or members who are making the application. The question, therefore, is to examine whether this petition discloses facts which exists for winding up Turner Morrison & Co. Ltd. on equitable grounds, taking an overall consideration of the different factors existing and the different grounds alleged in the present petition of the Petitioner. This Court is not of the opinion that facts would justify the making of an winding up order of the Respondent Turner Morris-son & Co. Ltd. on just and equitable grounds. This ground is pleaded in para. 93 of the petition. I have carefully scanned the eleven grounds set out in different sub-paragraphs of para. 93 of the petition. These eleven grounds are as follows:

(i) Respondent Turner Morrison & Co. Ltd. has only two persons who own all the shares ;

(ii) Respondent H. D. Mundhra and other Respondents have illegally withheld dividends payable in respect of 51 % share capital for the years ending December 31, 1963, 1964 and 1965.

(iii) Balance-sheets for the calendar years 1963, 1964 and 1965 reveal gross lack of probity in the conduct of affairs- of the company without any particulars stated therein;

(iv) Institution of suit No. 2005 of 1965 in violation of the mandate of the general meeting which finalised the payment, of the taxes outstanding in a meeting of the share-holders held on October 31, 1957, as mala fide ;

(v) That the said suit is false and fictitious;

(vi) That there is violation of the order passed in suit No. 600 of 1961 ;

(vii) That the company and its Directors are acting in disregard and violation of the Articles of Association,

(viii) That the companies under the control of the Respondent Mundhra and other Directors have disregarded the provisions of the Companies Act by withholding information regarding the company and its subsidiaries and/or controlled companies;

(ix) That there was correspondence between the Company Law Board arid the Respondent company Turner Morrison 8c Co. Ltd. and the refusal to grant inspection;

(x) That the Petitioner is unable to cast its vote according to its desire; and

(xi) That the balance-sheets of 1964 and 1965 show gross mismanagement of the company and lack of probity in the management of the Respondent Mundhra and other Respondents.

I do not consider that these grounds in the particular facts and circumstances of the case, which will be dealt with by me later on under different issues, are enough justification for winding up the Respondent company Turner Morrison & Co. Ltd. The facts are on record that large dividends have been declared by the Respondent company Turner Morrison 8c Co. Ltd. and a dividend of 16 % has been declared in the year ending December 31, 1966, which is just the last year before this application was made on November 26, 1967. The Respondent Turner Morrison 8c Co. Ltd. is making profits. In this connection, attention may be drawn to the decision of the Supreme Court in Rajahmundry Electric Supply Corporation Ltd. Vs. A. Nageswara Rao and Others, where Venkatarama Ayyar J. delivering the judgment of the Supreme Court observed as follows:

When once it is held that the words ''just and equitable'' are not to be construed ejusdem generis, then whether mismanagement of directors is a ground for a winding up order u/s 162(vi) becomes a question to be decided on the facts of each case. Where nothing more is established than that the directors have misappropriated the funds of the company, an order for winding up would not be just or equitable, because if it is a sound concern, such an order must operate harshly on the rights of the share-holders.

Lord Shaw in Loch and Anr. v. John Blackwood Ltd. (1924) AC. 783 (788,791), in discussing the just and equitable ground for winding up of a company after indicating that there must be established "a justifiable lack of confidence in the conduct and management of the company''s affairs", observed as follows:

But this lack of confidence must be grounded on the conduct of the directors, not in regard to their private life or affairs, but in regard to company''s business. Furthermore, the lack of confidence must spring not from the dissatisfaction of being outvoted on the business affairs or on what is called the domestic policy of the company. On the other hand, wherever lack of confidence is rested on the 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.

The line of demarcation between the case where lack of confidence springs only from dissatisfaction of being outvoted in the business affairs or, what is called, the domestic policy of the company on the one hand and on the other where there is lack of probity, does not rest on a rigid and inflexible rule but where the line has to be drawn has to be judged on the facts of each case.

Lord Shaw in that case ( Supra (791)) again therefore utters the caution in these terms:

The words ''just and equitable'' are words of the widest significance and do not limit the jurisdiction of the Court to any case. It is a question of fact and each case must depend on its own circumstances.

No doubt, gross misappropriation, complete lack of probity in the management of the company would be a ground in an appropriate case for winding up of company. The situation is not rendered easier for the Petitioner because the Petitioner obviously thinks that when it comes into the management by replacing the present management, it will be able to manage the company better. There is a tacit assumption in this argument of. the Petitioner that the potentiality and prospect of the Respondent Turner Morrison & Co. Ltd. are attractive. But, apart from the potentiality, declaration of dividend at the rate of 16 % is a good enough practical test to show it is not merely a prospect but an existing fact that the company is functioning with profit and credit. In those circumstances, I would hesitate to come to the opinion that facts exist in this particular case which would justify the winding up of the Respondent company Turner Morrison & Co. Ltd.

The different counsel appearing for the different sets of Respondents in this case have in this connection drawn my particular attention to the statements made in para. 99 of the petition to show that this petition is demurrable on the face of it. In this paragraph, the Petitioner states as follows:

Your Petitioner prays that an order should be made as prayed to safeguard the rights of your Petitioner until the Respondent Mundhra pays the decretal dues under the decree dated 25.2.64 - or the said decree and or the contract referred to therein is rescinded. It may be noticed from the said decree that the Respondent Mundhra is in effect enjoying possession of your Petitioner''s 51 % shares without payment of decretal dues which does not carry any interest.

The whole basis of this allegation is to get behind the decree for specific performance dated February 25, 1964, and this, as I have said, cannot be done in these proceedings for the simple reason that the decree for specific performance has become final and there is also a further proceeding for rescission of the decree and/or the contract to sell which, as I have already indicated, is already executed to the extent of 49 % and about which rescission proceeding there is an appeal pending. In such circumstances, the whole object of this application appears to be to- go behind these legal proceedings, a course for which I cannot permit Sections 397 and 398 of the Companies Act to be used. Besides, the fact remains that here in this Court payment has been offered. and undertaking has been given, but curiously enough the Petitioner company through its liquidator has refused to accept it for reason which are difficult to understand and which I shall discuss later on. On those facts also the application should fail.

I shall analyse at this stage here the relevant sections and their effect on this application. Sections 397 to 409 are contained in chap. 6 of the Companies Act, 1956, under the title ''Prevention of oppression and mismanagement''. Section 397 deals with application to Court for relief in cases of oppression. Section 398 deals with application to Court for relief in cases of mismanagement. I have already, discussed what is oppression and what is mismanagement. They are words of wide import. There is no rigid definition for either of the concepts, namely, oppression or mismanagement. They have to be found by the Court by scrutiny of the facts in each case. An application u/s 397 to the Court for relief in case of oppression must satisfy the following requirements:

(a) application must be made by a member of a company ;

(b) that the member must complain that the affairs of the company are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members; and

(c) that such member must have a right to apply in virtue of Section 399 of the Companies Act.

Section 399 describes the members of the company who shall have the right to apply either u/s 397 or Section 398 and they are--

(a) in case of a company having a share capital not less than 1Q0 members of the company or not less than 1/10th of the total number of its members, whichever is less, or any member or members holding not less than 1/10th of the issued share capital of the company provided that the Applicant or Applicants have paid all calls and other sums due on their shares, and

(b) in case of a company not having a share capital not less than I /5th of the total number of its members.

It will be clear from these provisions that the Applicant must be a person who has ''paid all calls and other sums due on their shares'' as in Section 399(1) of the Companies Act. The whole issue in this case is that the Applicant is not a person who answers these tests of having paid ''other sums due on their shares. That controversy is represented by the full-fledged lien suit which is now pending appeal in the Supreme Court. Until the Supreme Court decides, it is impossible for this Court u/s 397 proceedings here to pre-judge that issue. The expression ''affairs of the company are being conducted'' appearing both in Sections 397 and 398 of the Companies Act shows a kind of a continuing wrong. The expression ''are being conducted'' indicates that construction. It is argued on behalf of the Petitioner in this case that there is a ''material change'' within the meaning of Section 398(1)(b) of the Companies Act. The learned Counsel for the Petitioner submits that this material change within the meaning of Section 398(1)(b) has occurred by reasons of the decree of the Court for specific performance dated February 25, 1964, and the injunction therein, whereby the Petitioner cannot even exercise his voting rights in respect of these 51 % shares except in accordance with the wishes and directions of the Respondent Haridas Mundhra. I do not think that an act of Court or a decree for specific performance on these terms can constitute ''a material change'' within the meaning of Section 398(1)(b) of the Companies Act. The relevant portion of Section 398(1)(b) reads as follows:

Any members of a company who complain that a material change (not being a change brought by or in the interest of any creditor including debenture-holders or any class of share-holders of the company), whether by an alteration of its board of directors, or of its managing agent or secretaries and treasurers or manager or in the constitution or control of the firm or body corporate acting as its managing agent or secretaries and treasurers, or in the ownership of the company''s shares, or if it has no share capital in its membership, or in any manner whatsoever, and that by reason of such change it is likely that the affairs of the company will be conducted in a manner prejudicial to public interest or in a manner prejudicial to the interest of the company.

Although the ''material change'' mentioned there may arise ''in any other manner whatsoever'', yet I am unable to accede to the argument for the Petitioner that this material change can be the Court''s decree for specific performance in the present case. I am unable to accept the proposition that an act of Court can be described by the parties bound by that act and represented in that act to be responsible for "conducting the affairs of the company in a manner prejudicial to public interest or in a manner prejudicial to the interest of the company" within the meaning of Section 398(1)(b) of the Companies Act. I, therefore, hold that the Petitioner has no right to make the application u/s 398(1)(b) on the ground of a material change caused by the decree for specific performance of the Court dated February 25, 1964, and the injunction granted therein.

To continue with the analysis of this group of sections, it will be pertinent to observe that Sections 400 and 401 require notice to be given to the Central Government of all applications under Sections 397 and 398 and that the Central Government has also a right to apply under those sections. The fact remains that although notice was given by the Petitioner of this application to the Central Government has not chosen to appear or contest or support this application. Section 401 gives express right to the Central Government to apply u/s 397 or Section 398 of the Companies Act although it is not a member of the company and incidentally the Central Government may cause an application to be made to the Court for such an order by any person authorised by it in this behalf. The fact is that the Central Government has not chosen to act under '' Section 401 of the Companies Act in this case. To my mind the provisions of Section 401 indicate that these proceedings u/s 397 or Section 398 of the Companies Act are intended to be in public interest largely or in the commercial interest of the company concerned and not a kind of a provision to feed the private grudge between the warring groups of Directors or individual shareholders. These provisions are followed by describing the different and extensive powers of the Court on an application u/s 397 or Section 398 and they are to be found in Section 402 of the Companies Act, 1956. The range of powers is wide and extensive. These powers are expressly said to be without prejudice to generality of the powers of the Court u/s 397 or Section 398 to make any order as it thinks fit with a view to bringing to an end the matters complained of. The particular powers mentioned in Section 402 cover such variety of powers as (a) the regulation of the conduct of the company''s affairs in future, (b) the purchase of the shares or interests of any members of the company by other members thereof or by the company, and (c) in case of such a purchase of its shares by the company as aforesaid, the consequent reduction of its share capital. Pausing here for a while, apparently the Court has powers in such cases under the express provisions of Section 402(a), (b) & (c) to direct an order for purchase of shares or interest of any member of the company not only by the other members but also by the company itself and also provide for the consequent reduction in the share capital. This apparently was what Lord Denning had expressed in the case noticed above. If I could hold these proceedings were maintainable and competent, then I would have considered whether such a course should not be adopted in this case in making an order u/s 397 of the Companies Act by purchase or deletion of these 51 % shares as reduction of share capital provided of course it was otherwise justified and of course by paying compensation to the Petitioner for these shares at the value already fixed by the decree for specific performance. But that question at the moment does not arise.

Pursuing the other powers mentioned in Section 402 of the Companies Act it appears that they include powers of termination, setting aside or modification of any agreement howsoever arrived at between the company on the one hand and (a) the managing director, (b) any other director, (c) the managing agent, (d) the secretaries and the treasurers, and (e) the manager, upon such terms and conditions as may in the opinion of the Court be just and equitable in all the circumstances of the case. It also includes the power for termination, setting aside or modification of any agreement between the company and any person not referred to in the categories just mentioned, provided that no such agreement shall be terminated or set aside or modified except after due notice to the party concerned and provided further that no such agreement shall be modified except after obtaining the consent of the party concerned. Finally, these powers include the power of setting aside of any transfer, delivery of goods, payment, execution or other act relating to property made or done by or against the company within three months before the date of the application u/s 397 or Section 398 which would, if made or done by or against any individual, be deemed in his insolvency to be a fraudulent preference. Finally, in Section 402(g) a general power is also given to the Court to make provision for any other matter for which, in the opinion of the Court, it is just and equitable that provision should be made. This analysis will show that the nature of these powers is extensive and they should be used with caution and with the principle in mind that normally the Court should not substitute itself for the company in getting into its management under the provisions of Sections 397 and 398 of the Companies Act except insofar as are-required and that within the limits and-purposes of these sections. After making provision for interim order by the Court u/s 403 of the Companies Act, the statute goes on to provide the effect of alteration of memorandum or articles of a company by order u/s 397 or Section 398 and that effect is provided for in Section 404 of the Companies Act, 1956. It plainly suggests that where an order u/s 397 or Section 398 makes an alternation in the memorandum or the articles of a company, then, notwithstanding any other provision of this Act, the company shall not have the power except to the extent, if any, permitted in the order, to make without the leave of the Court, any alteration whatsoever which is inconsistent with the order, either in the memorandum or in the articles and subject to such provisions the alterations made by such order shall have the same effect as if they had been duly made by the company in accordance with the provisions of the Companies Act and the said provisions shall apply accordingly to the memorandum or the articles as so altered. That is why u/s 404(3) a certified copy of every order altering or giving leave to alter the memorandum or articles of a company shall within thirty days thereafter be filed by the company with the Registrar of Companies who shall thereafter register the same.

Sections 405, 406 and 407 of the Companies Act deal respectively with the addition of Respondents to applications u/s 397 or Section 398, applicability of Sections 539 to 544 to proceedings under Sections 397 and 398 and the consequences of termination and modification of certain agreements.

All these provisions are followed by what are called the title ''Powers of Central Government'' and are provided for in Sections 408 and 409 of the Companies Act, 1956. Section 408 provides the powers of the Central Government to prevent oppression or mismanagement and Section 409 provides for the power of the Central Government to prevent change in Board of Directors likely to affect the company prejudicially. The reason for noticing these sections is that, apart from the Court, the Central Government had both the power to prevent oppression or mismanagement as well as the power to prevent a change in the Board of Directors likely to affect the company prejudicially. But, in the facts and circumstances of this case, in spite of notice to the Central Government of this petition, the Central Government has not thought it fit to intervene. The only conclusion is that the Central Government must have come to the conclusion that there is neither oppression nor mismanagement nor a change in the Board of Directors likely to affect the company prejudicially. No doubt, the conduct of the Central Government or its action or its view in any manner cannot make any inroad on the powers of the Court under Sections 397 and 398 of the Companies Act. The Court''s powers under Sections 397 and. 398 are independent subject, of course, to the notice to the Central Government u/s 400. Nevertheless the Court has, in my view, in exercising its functions under Sections 397 and 398 of the Companies Act, can reasonably take into consideration the fact that the Central Government has not used its powers to prevent oppression or mismanagement or change in the Board of Directors prejudicially affecting the company in the facts and circumstances of a particular case.

There are certain other miscellaneous points arising on this branch of this issue. I have already dealt with the argument that the register of members of the company is not conclusive and such register is only prima facie evidence u/s 164 read with Section 108(2) of the-Companies Act, 1956. The reason for relying on the register of members is that the Petitioner thereby wants to show that it is a registered share-holder in the Respondent company Turner Morrison & Co. Ltd., at least to the extent of 51 %. Section 164 of the Companies Act provides:

The register of members, the register of debenture-holders and the annual returns, certificates and statements referred to in sections 159, 160 and 161 shall be prima facie evidence of any matters directed or authorised to be inserted therein by this Act.

The register of members, therefore, is only prima facie and not conclusive evidence. Again, Sections 181 and 182 of the Companies Act provide for restrictions on the exercise of. voting right of members who have not paid calls, etc. or in other cases. These provisions indicate that, notwithstanding anything contained in- the Companies Act, the articles of a company may provide that no member shall exercise any voting right in respect of any shares registered in his name on which any calls or other sums presently payable by him have not been paid or in regard to which the company has exercised any right of lien. I have already made reference to this aspect of the case and the facts of the lien suit. Section 182 of the Companies Act again provides that a public company or a private company which is a subsidiary of a public company shall not prohibit any member from exercising his voting right on the ground that he has not held his share or other interest in the company for any specified period preceding the date on which the vote is taken or on any other ground not being a ground set in Section 181. The whole contention of the Respondents is that this prima facie evidence of the register of members is completely displaced by the facts of orders made in legally constituted proceedings and suits and which I have discussed above. The decision in Pulbrook v. Richmond Consolidated Mining Co. 9ChD. 610 does not, in my opinion, assist the contention of the Petitioner on this point. There it was held that a Director of a company could, if qualified, sustain an action in his own name against other Directors on the ground of individual injury to himself, for an injunction to restrain them from wrongfully excluding him from acting as a Director and where the articles of a company having provided that no person should be eligible as a Director unless he held as registered member in his own right capital of the nominal value of �500 at least, it was held that beneficial ownership was not necessary for a qualification and that a registered holder of the required capital, though he had transferred his shares to another, was properly eligible. The language of the Companies Act considered by the English Court there is very different from the provisions of Sections 397 and 398 of the Companies Act, 1956, which I will have to consider. The observations of Jessel M.R. in that case (Supra (615)) that "the company cannot look behind the register as to the beneficial interest" enunciate a very well-settled principle that the company''s register of members is not affected by considerations of trust and beneficial interest. But that is not the point here in the present petition. This principle of the company''s normal inability to enquire into the beneficial ownership is well explained in Buckley''s Companies Acts (13th ed., p. 845) where the learned editors observe:

As between the share-holder and the company, the person entitled to exercise the right of voting is the person legally entitled to the shares, the member whose name is on the register. The company has no right to enquire into the beneficial ownership or to reject votes on the ground that a member is by the articles restricted to so many votes altogether, and that other registered share-holders who vote are really nominees of his, and that he is thus exceeding the limited number.

Here the question is that the title to the shares on which the Petitioner is basing its claim is itself in dispute and controversy in legally constituted proceedings and decrees and they are as much binding on both the Respondent company Turner Morrison & Co. Ltd. and the Petitioner company in liquidation because they are both parties to such proceedings.

72 In Howrah Trading Co. Ltd. Vs. Commissioner of Income Tax, Central, Calcutta., the Supreme Court explains this aspect of the company law by making the following observations:

The company recognises no persons except one whose name is on the register of members upon whom alone calls for unpaid capital can be made and to whom only the dividend declared by the company is legally payable. Of course, between the. transferor and the transferee certain equities arise even on the execution and handing over of ''a blank transfer'' and among these equities is the right of the transferee to claim the dividend declared and paid to the transferor who is treated as a trustee on behalf of the transferee. These equities, however, do not touch the company and no claim by the transferee, whose name is not on the register of members, can be made against the company if the transferee retains the money in his own hands and fails to pay it to him.

This doctrine does not help the Petitioner because it points to the equities between the transferor and the transferee but not with the company. But, this is with the company itself in a number of litigations mentioned above.

There was another point made by the Respondents that all the liquidators have not joined in making this application. I do not think that the submission of the Respondents has any substance. The answer to this argument of the Respondents is contained in Section 406 read with Section 512(1)(a) and Section 512(4) which will indicate that even one liquidator could exercise powers. Besides, there are minutes authorising the liquidator in this case.

Reliance was placed on behalf of the Petitioner on the decision of B. C. Mitra J. In Re: Clive Mills Limited 68 C.W.N 8841(887-99, 905-07) and the observations. That case, however, has no application to the facts of the present case and that decision is also no authority for avoiding the judicial orders, judgment and decree passed in duly constituted proceedings by invoking Section 397 of the Companies Act. That will certainly not be exercising discretion u/s 397.

Reference was also made to the decision of the English Court of Appeal In Re: H. R. Harmer Ltd, (1958) 3 AU ER. 689. That decision has got some discussion on what is oppression, a point with which I have already dealt with and on which we have our Supreme Court decision to guide us and which has been cited above.

On behalf of the Petitioner, reliance was also placed on the case In Re: Fairbaim Engineering Co. (1893) 3 Ch D. 450 which holds that a general meeting of a company in voluntary liquidation has power to elect Directors and sanction the exercise by them the powers of enforcing payment of calls by sale or forfeiture of shares. I do not think that that case has any application in the facts of the present proceedings because it deals with the general meeting of a company in voluntary liquidation and its Directors to enforce sale or forfeiture of shares and the old English Companies Act of 1862 which it considers does not apply here. Comparison may be made in this connection to Section 491 of the Indian Companies Act, 1956, which provides that on the appointment of a liquidator, all the powers of the Board of Directors and of the Managing or whole time Directors will cease except for certain purposes mentioned therein. While on this point of voluntary liquidator, a reference to Section 518 of the Indian Companies Act, 1956, would show that such a voluntary liquidator could apply to the Court to have certain questions determined of to exercise certain power?. But no such application, in fact, was made in this case.

It will not -be necessary to discuss also another decision with regard to the effect of the decree for specific performance and how far it creates any, interest in the property having regard to the view which I have already taken. A contract does not create any interest in the property. The seller''s only remedy in this case is against the buyer for the money or the price. [See the observations of Viscount Dunedin in Maneckji Pestonji Bharucha and Anr. v. Wadilal Sarabhai & Co. 53 I.A. 92 (97-98).]

A reference was made to Rule 88(2) of the Companies Rules. It is no longer material having regard to the view that I am taking. Rule 88(2) provides that a petition u/s 397 or Section 398 shall not be withdrawn without leave of the Court. It is unnecessary to pursue the point as it is no longer relevant for the present purposes.

Then comes the question of limitation. It has been contended for the Respondents that this application is barred by limitation. Section 402(f) of the Companies Act, 1956, which I have already noticed, gives the Court the power to provide for setting aside any transfer, delivery of goods, payment or execution or other act relating to property made or done by or against the company within three months before the date of the application u/s 397 or Section 398, which would, if made or done by or against an individual, be deemed in his insolvency to be a fraudulent preference. Under this section it would appear that issue No. (9) is covered. Issue No. (9) raises the question whether the Respondents Nos. 2 to 10 or any of them is responsible for not taking any action for recovering the amounts of Rs. 5,05,364 and Rs. 1,14,342 as alleged in paras. 89(i) and 89(ii) of the petition. When I discuss issue No. (9) I shall deal with this question, and it will be enough to say that limitation u/s 402(f) of the Companies Act, 1956, covers issue No. (9) directly.

The general question, however, still remains. What is the limitation for an application u/s 397 or Section 398 of the Companies Act, 1956? The present main petition u/s 397 of the Companies Act was filed on November 28, 1967. The new Limitation Act, 1963, applies to this case. It is contended for the Respondents that the present application is barred by Article 137 of the Limitation Act, 1963. Article 137 appears as the last Article in pt. II of the third division of the schedule to the Limitation Act of 1963. This schedule of the Limitation Act, 1963, has three different divisions. The first division relates to suit divided into different parts relating to different types of suits. The second division relates to appeals. The third division relates to ''applications''. In this third division relating to applications, pt. I deals with ''applications in specified cases'' and pt. II deals with ''other applications''.

Now Article 137 in pt. II of this schedule to the Limitation Act, 1963, reads as follows:

Any other application for which no period or limitation is provided elsewhere in this division three years--when the right to apply accrues.

This Article from its language and from its context is a residuary Article with regard to applications. No express specific provision is made with regard to applications u/s 397 or Section 398 of the Companies Act, 1956. In a sense, it is different from its predecessor Article 181 of the Limitation Act of 1908. First, because the previous Article 181 of the old Act was held to apply only to applications for execution not falling within the previous Article 182. But, under the new Limitation Act of 1963, Article 136 would apply to all applications for execution and there is no further room left for invoking Article 137 and, secondly, because Article 181 of the old Act was restricted in its application to applications under the CPC only, but the present Article 137 of the new Limitation Act, 1963, does not appear to suffer from any such restriction. It will be unnecessary to refer to the decision in Madan Lal Thanvi Vs. Deputy Inspector General of Police, Jodhpur and Another, , because that dealt with the old Article 181 under the Limitation Act of 1908. As at present advised, I would hold that Article 137 of the new Limitation Act, 1963, applies to an application u/s 397 or Section 398 of the Companies Act. I would, therefore, hold that events that happened prior to November 28, 1964, will be barred by the application of Article 137 of the Limitation Act of 1963, being more than three years before the date of the filing of this petition on November 28, 1967, but others are within the limitation.

Finally, I do not think that this Court should exercise the discretion in favour of the petition because of the following reasons apart from those which I have already set out above:

(i) There is no letter of demand listing these diverse allegations before commencing such an extensive application on November 26, 1967.

(ii) There is no written complaint by the Petitioner about the validity of the Board of Directors regarding which many complaints are now being made in the petition.

(iii) There is no complaint in writing regarding the validity of the Annual General Meetings complained of in the present petition.

(iv) There is no written complaint regarding notice of the said Annual General Meetings and their services.

(v) There is no written complaint regarding issue No. (9) in respect of Rs. 5,05,364 and Rs. 1,14,342. And

(vi) There is no written complaint about the selling or surrendering flats which is the subject of issue. No: (11).

For the reasons recorded above, I answer issue No. (1) in the negative and I hold that the Petitioner is not entitled to maintain this application or claim any of the reliefs.

Issue No. (2):

This issue raises the question, "Is the application maintainable in the absence of the subsidiary companies and their Directors and share-holders?"

This issue is really the subject of the second application No. 306 of 1969 in the group of applications and which seeks to add these subsidiaries. This application has been bitterly opposed on diverse grounds on behalf of the Respondents.

The first ground taken by the Respondents to oppose this application is the inordinate delay in making this application. The main original petition u/s 397 was made on November 28, 1967, as already stated. The affidavit-in-opposition to that application dated February 19, 1968, in para. 97 took this point of objection about the absence of subsidiaries. More than one year thereafter, in fact, from July 21, 1969, the hearing commenced of these proceedings. The Respondents concluded their submissions on August 7, 1969. Issues were framed and trial on evidence on specific issues were to start on September 10, 1969. After the conclusion of the Respondents'' submission on August 7, 1969, the present second application to add subsidiaries was made on August 11, 1969. The delay is therefore plain. There is no justification for the Petitioner company in liquidation and its liquidator for this delay in making this application to join the subsidiaries. I made the order on this application on September 5, 1969, directing this application to join subsidiaries to stand to trial along with the main application.

The objections on the merits to this application are set out in the affidavit affirmed by Tapuria on August 26, 1969. I shall deal with the different subsidiary companies presently. But, the general ground taken in the affidavit of Tapuria affirmed On August 26, 1969, is that there are no reasons stated in the petition why they should be joined. In the petition, no ground is set out why the subsidiaries should be joined. Secondly, the Petitioner company in liquidation is not a share-holder in many of these subsidiaries. For instance, Alcock Ashdown is not even a subsidiary of the Respondent Turner Morrison & Co. Ltd. who holds only a minority share there ; similarly with Angelo Brothers ; similarly the Petitioner company in liquidation holds no share in Shalimar Tar Products Ltd. although it is a subsidiary of the Respondent Turner Morrison & Co. Ltd.; and similar defence is also taken on behalf of Shalimar Works Ltd.

Before dealing with these separate subsidiary companies intended to be joined as parties to the present application, I should like to deal with the decision in Life Insurance Corporation of India v. Haridas Mundhra & Ors. 36 Comp. Cases 371 on which reliance was placed by the learned Counsel Mr. Mukherjee appearing for the Petitioner company. This decision was rendered on February 14, 1962, by the Allahabad High Court-. The ratio of this decision is that though a holding company and its subsidiary are separate legal entities, yet, for certain purposes, the affairs of a subsidiary have been treated by the Companies Act, 1956, as affairs of the holding company also. It also lays down the proposition that whether in every case, under Sections 397 and 398 of the Companies Act, 1956, the Court is entitled to make an enquiry into the affairs of the subsidiary company or not, on the facts of that case the Directors of the British India Corporation were treating the subsidiary company, B.S., as a mere branch or department of the Corporation and, therefore, the affairs of the company, B.S., became the affairs of the British India Corporation and the affairs of the subsidiary company, B.S., were relevant u/s 398 and also u/s 543 read with sch. XI(ii). There it was established on the evidence that the affairs of the British India Corporation were conducted in a manner prejudicial to its interest and the case came under Clause (a) of Sub-section (1) of Section 398. A Division Bench of the Allahabad High Court, therefore, held" that the Trial Judge was right in appointing an interim committee of management. It was on the basis of this decision that Mr. Mukherjee, learned Counsel for the Petitioner, supported his arguments for joining the subsidiaries in the present instance as parties to this proceedings under Sections 397 and 398 of the Companies Act.

There are two outstanding points of difference between the case of Life Insurance Corporation of India v. Haridas Mundhra and Ors. 36 Comp. Cases 371 and the present case before me. In the first place, the subsidiaries in that case were not made parties in fact and it was held there that the holding company''s dealings with the subsidiaries were included in the expression the ''affairs of the company'' (26). Secondly, in that case there was hundred per cent ownership and the British India Corporation Ltd. had hundred per cent shares in the subsidiary company B.S. (M/s. Begg Sutherland & Co. Private Ltd.). But, that is not the case here in the cases of many of the subsidiary companies intended to be joined. Here the Respondent Turner Morrison & Co. Ltd. does not hold hundred per cent shares in all these subsidiaries as in that Allahabad High Court case of Life Insurance Corporation v. Haridas Mundhra and Ors. 36 Corporation Cases 371 [observations.-at 374-75, 383-89) For instance, I shall cite the cases of the different companies intended to be joined in these applications.

The first case is that of Graham Trading Co. Ltd. (England). Its balance-sheet for the year ending December 31, 1966, at p. 22, shows that Turner Morrison is the hundred per cent owner of the subscribed share capital for which see Ex. 0004. But there is no allegation in the present petition which touches this English company in any manner or in any way and with regard to which no allegation is made. No act of Turner Morrison & Co. Ltd. in respect of this English company is challenged in the whole petition. Therefore, there will be no point in joining this company.

Graham Trading Co. (India) Ltd. Here Turner Morrison owns hundred per cent shares for which see the balance-sheet Ex. 0004 at p. 28. The allegations are at para. 89(F) of the petition. The Directors are: A. Broughton, A. J. Hormasji--both are employees of Turner Morrison. (See Tapuria, Q. 404). But the point remains that Mr. Hoon, the liquidator for the Petitioner company, was not asked a single question in examination-in-chief on any of the allegations made in para. 89(F) nor was Tapuria asked any question either. Yet, this was a clear issue on para. 89 of the petition. Therefore, I must hold the allegations in para. 89(F) are not proved and be it noted that they are denied in the affidavit-in-opposition. Exhibit T(15) showing the minutes of Turner Morrison dated March 26, 1965, do not form at all a part of the allegations made in para. 89(F) of the petition. Exhibit T(5) similarly deals with foreign exchange violation and fine and Tapuria in Q. 950 was only shown this Ex. T(15). Exhibit T(3) again, the minutes of T.M. dated December 17, 1966, only shows loans for Graham by T.M. But, then again this is not the allegation in para. 89(F). I am using the word T.M. for the abbreviation of Turner Morrison & Co. Ltd.

Then comes the case of Lodna Colliery which is a subsidiary, because T.M. holds 4,64,940 shares out of 8,70,000 shares. (See the balance-sheet Ex. 0004, p. 38). T.M. is also the Managing Agent of Lodna Colliery. It is not a case of hundred per cent ownership, but it is a case of more than 50 % control. The allegations in, respect of this Lodna Colliery are to be found in para. 89(C) of the petition. Mr. Hoon, while he came to the box, has not proved any of these allegations. There is no witness for the Respondent on the point who was asked anything about this particular allegation. All these allegations in para. 89(C) of the petition were denied in the affidavit-in-opposition. Hence, I must hold that the allegations are not proved. I need only add that the Directors of this concern as shown in Ex. 0004 (p. 36) are the Respondents B. P. Sinha, Rodewald and two other persons P. Sengupta and Gopaldas Tulsidas.

Next comes the company of Shalimar Tar Products Ltd. which is a subsidiary because T.M. holds 27,950 shares out of 43,644 shares as will be clear from >Ex. 0004 (p. 50). The Directors of this company were A. K. Roy, Tapuria, Jaffray, Silverstone, Hormasji and Broughton. (See Ex. 0004, p. 48). It is to be noticed also that T.M. is the Managing Agent of Shalimar Tar Products Ltd. The allegations against this company are made in para. 89(B) of the petition. But the very verification clause is faulty and defective. It is to be noticed also that there is a complete denial of these allegations also in the affidavit-in-opposition. Here again, when Mr. Hoon came to the box, he was not asked in examination-in-chief any single question on this point. On the other hand, Mr. Tapuria''s evidence in Qs. 532-542 and in Qs. 894-899 gives the answer. There is also the evidence of witness P. K. Sinha in answer to Qs. 147-152 where he described this company as a Tar department of T.M. (See also the answers of the witness P. K. Sinha in Qs. 185-186.) Mr. Mukherjee, learned Counsel for the Petitioner, seised the word ''department'' in this evidence on the ground that in the Life Insurance Corporation case (Supra) of the Allahabad High Court that was one of the considerations which appealed to the Court. In the context of the present case, I do not think that this description by the use of the word ''department'' makes any difference. The fact remains that Mr. Hoon, who was the witness on behalf of the Petitioner, was never asked a single question in examination-in-chief on this point and, therefore, the allegations in para. 89(B) of the petition are not proved.

The next company is Shalimar Works Ltd. This is a subsidiary of T.M. as will appear from Ex. 0004 (p. 62). But here again it is not a question of hundred per cent ownership. T.M. held 21,550 shares out of 31,000 shares and, therefore, had the controlling majority. The Directors of this company are Tapuria, Jaffray, A. K. Roy Chowdhury and Rodewald. [See Ex. 0004 (p. 61).] The allegations on this point are to be found in para. 89(E) of the petition..1 shall deal with this particular allegation when I come to discuss issue No. (9) which covers this point.

T.M. Pakistan Ltd. is the next company which is intended to be joined. Here T.M. is the hundred per cent owner, as will appear from Ex. 0004 (p. 90). But, then this by itself will not do because there is no allegation whatsoever against this Pakistan company in the present petition. Therefore, it will be useless and improper to join such a company against whom no allegation has been made.

The next company is Smith Stanistreet & Co. Ltd. This is a subsidiary. The holding company is Shalimar Works Ltd. (See Ex.0004, p. 82). The Directors mentioned in Ex.0004 are Jaffrey, Hormasji and K. R. Puri. The relevant allegations against this company are made in para. 89(D) of the petition. The answers by Tapuria on this point are to be found in Qs. 87, 334-338. As this is a part of issue No. (9) and issue No. (11), I shall deal with this part when I deal with these issues.

The next company is Angello Brothers. This is not a subsidiary. Turner Morrison & Co. Ltd. only holds 36 % of its shares. The allegations against this company are to be found in para. 89(G) of the petition. There is hardly any allegation except the vague one that the dividends and profits are being reduced. Tapuria answers this point in his evidence in Qs. 883, 887 and 892-897. But, these questions do not at all cross-examine Tapuria on reduction of dividend and profits as alleged in para. 89(G) of the petition. Therefore, that allegation also has not been proved. The Directors of this company include B. P. Sinha, Jaffrey, Rodewald and Tapuria who are all the Respondents here and their names are set out in the annexure to the affidavit-in-opposition of Hormasji dated February 18, 1968.

The next company is Alcock Ashdown. This is not a subsidiary at all. It raises the question of guarantee of Rs. 1,20,000. Turner Morrison & Co. Ltd. was the Managing Agent of Alcock Ashdown till 1964. The point is that there is no allegation made against this company in the first original petition. This point of questioning the guarantee to Alcock Ashdown was raised for the first time in para. 25(X) of the third application No. 144 of 1969 dated May 29, 1968. Now, that third application is only an interim application for injunction against holding of the Annual General Meeting dated May 3, 1968, u/s 403 of the Companies Act, 1956. Plainly, therefore, this is an attempt to introduce new allegations in the original petition and cannot, therefore, be permitted. (See also in this connection the evidence of Tapuria in answer Qs. 150-152 and 844-860).

Finally, the next company is the British India Corporation. This is 49 % share-holder of Turner Morrison & Co. Ltd. (See Ex. R-l). The only question is whether the British India Corporation gave authority to Mr. Mundhra to repay. But, that surely is no ground nor does it make it necessary for them to be joined as parties to these proceedings u/s 397.

Apart from these companies and subsidiaries, two other persons are intended to be joined: one is Rani Padmabati and the other is S. B. Goenka. Rani Padmabati became a Director of Turner Morrison & Co. Ltd. on January 9, 1968, and re-appointed on May 30, 1968. S. B. Goenka became a Director on April 29, 1968, and reappointed on May 30, 1968. The dates would show that these appointments were made subsequent td the filing of the main petition u/s 397 and-Section 398 of the Companies Act, 1956. There was no injunction restraining Turner Morrison & Co. Ltd. from appointing Directors for carrying on the business of the company in the meantime. It is said that the object is to make them parties on the ground that they became Directors after the application was instituted and for this purpose Section 405 of the Companies Act, 1956, was invoked. That section provides:

If the managing director or any other director, the managing agent, secretaries and treasurers or the manager of a company or any other person who has not been impleaded as a Respondent to any application u/s 397 or Section 398 applies to be added as a Respondent thereto, the Court shall, if it is satisfied that there is sufficient cause for doing so, direct that he may be added as a Respondent accordingly.

But I do not see how that section can be applied because here neither Rani Padmabati nor S. B. Goenka is applying to be made a party to this proceeding. It is the Petitioner who is forcing them to be parties to this proceeding. I, therefore, hold that Section 405 of the Companies Act does not apply to the facts of this case.

Prayers (e), (f) and (g) of this second petition to join parties are invoked to show that these persons should be joined. These prayers (e), (f) and (g) respectively are:

(i) Investigation of the affairs of the Respondent No. 1 and of the dealings of the Respondents Nos. 2 to 10 for the purpose of finding out the losses caused by them to the Respondent No. 1 and to its subsidiaries or controlled companies.

(ii) Consequent upon such investigation and tracing out of the losses an order to the said Respondents Directors to contribute to the assets, of the company and/or the subsidiary companies and/or controlled companies thereof as compensation for losses caused by their acts of misfeasance and non-feasance.

(iii) Respondents or one or more of-them, as may be found liable, be ordered to contribute under the provision of Section 543 read with Sections 397 and 398 of the Companies Act.

The ordinary provisions of the CPC for joining parties are contained in the well-known rule in Order 1, Rule 10 of the Code of Civil Procedure. It will be unnecessary to discuss these principles in that provision which lay down that the Court has wide powers to add parties with a view to effectually and completely adjudicate upon and settle all questions involved in a suit and for the purpose of determination of the real matter in dispute. Apart from this provision in the CPC there is this Rule 6 in the Companies Court Rules, 1969, issued by the Supreme Court saying that save as provided by the Act or by these Rules the practice and procedure of the Court and the provisions of the Code, so far as applicable, shall apply to all proceedings under the Act and these Rules. I have already considered the provisions in Section 405 of the Companies Act, 1956, for addition of the Respondents to an application under Sections 397 and 398.

I shall notice the case cited at the bar, Regina v. Board of Trade (1965)) 1 Q.B. 603, on which Mr. Mukherjee, the learned Counsel for the Petitioner, relied. It contains an exposition of the expression ''affairs of the company'' in construing Section 165(a) of the English Act of 1948. Phillimore J. observes that the word ''affairs'' was unambiguous and must be given its natural meaning of the business affairs of the company which included its goodwill, its profit and loss, its contracts and investments and assets, including its share-holding in and ability to control a subsidiary or a sub-subsidiary and that the affairs of a company do not cease to be its affairs upon the appointment of a Receiver and Manager and the fact that the actions of a Receiver and Manager might primarily be designed to serve the interest of the debenture-holder and to that extent were his affairs, do not prevent the affairs of the company whose future might depend on such actions carried out in its name. The relevant observations appear at p. 613 of that report. In other words A the ratio of the observation is that the affairs of the company would include those of its subsidiaries. Gower in his Principles of Modern Company Law (2nd ed., pp. 190-92) points out to the difficulty that the statutory definition of control cannot cover all the cases in which control can be exercised and control is a matter of degree ranging from complete legal control for all purposes over a wholly owned subsidiary to de facto control, except in the event of a major scandal, normally exercisable by the existing management even though they may hold a few or none of the shares. Gower points out that it may be difficult to detect, particularly when pyramiding through numerous subsidiaries and sub-subsidiaries has been resorted to, but it is coming to be recognised as a separate item of property, the value of which will depend upon the degree of its completeness. But the question whether the affairs of the company would include the affairs of the subsidiaries can be answered by taking the view that certainly a holding company''s affairs may include its subsidiaries and, insofar as they do so, the affairs of the company will include the affairs of its subsidiaries. The different statutory provisions show the connection between the holding company and the subsidiary and how even the accounts of the subsidiary have to be noticed and checked by the holding company. I shall presently deal with this aspect of the company law. But, that is not by itself enough ground that subsidiaries or controlled companies should all be joined in every application against the holding company u/s 397 of the Companies Act.

It is further argued on behalf of the Petitioner that the employees of T.M. have been appointed Directors of these subsidiaries and that each Board meeting of T.M. considers summary of accounts of these subsidiaries. This argument is advanced in support of the submission that the subsidiaries in this case are treated as the departments of T.M. By way of illustration it is said that four officers are appointed for the entire group, e.g. (i) Ramakrishnan, Group Taxing Officer, at Rs. 4,000 per month; (ii) K. N. Srivastava, Group Internal Auditor, at Rs. 3,000 per month ; (iii) S. S. Mukherjee, Group Accountant and (iv) Gopalakrishnan, Group Advisor, at Rs. 5,000 per month. '' This illustration is intended to support the submission that T.M. with all its subsidiaries are really one concern. There is also a further submission on this branch. The fact that the employees of T.M. are appointed Directors of the subsidiaries is supported by Ex. T(1) being the minutes of T.M. dated July 11, 1967, at p. 95 of the brief of resolutions. Secondly, it is said that there is a common superannuation benefit fund for providing retirement benefits to T.M.''s associated companies like Angelo Brothers, Shalimar Works Ltd. and Shalimar Tar Ltd.

These arguments in my judgment proceed on a fundamental misconception about the legal relationship between the holding company and its subsidiaries. There is nothing legally wrong on principle that a holding company should have control of the subsidiaries because that is the very essence of a subsidiary. The question is how does law regulate this relationship between the holding company and its subsidiaries. In this branch of Company Law there are acute controversies. These controversies mainly centre round the theory of monopoly and concentration of power. What is said is that a holding company by creating subsidiaries, who are in theory different legal entities, set up a complex which very often puts itself beyond the control of law by diverse means which escape and define detection. Law, both in India and abroad, has fried to adjust itself to meet this new challenge inherent in this scheme of a holding company controlling its subsidiaries.

I propose to discuss briefly for the purposes of this application the Company Law relating to subsidiaries. The specific sections which I propose to notice in this connection are Sections 4, 42, 212, 213, 214(2), 295(2)(b), 318(3)(d), 370, 370(2)(a)(i) and 370(14)(d). The principles that I deduce from these sections which I shall presently notice in a little more detail are that they create certain restrictions and rights between a holding company and its subsidiaries. They show that the subsidiaries still remain separate and distinct under these sections. These special rights and restrictions emphasize the distinctiveness of the holding company vis-a-vis its subsidiaries. My reading of these sections is that they do not create the fiction that the holding company and the subsidiaries are the same.

Section 4 of the Companies Act, 1956, defines holding company and subsidiaries. It provides, inter alia, that:

...a company shall, subject to the provisions of Sub-section (3), be deemed to be a subsidiary of another if, but only if,

(a) that other controls the composition of its Board of Directors ; or

(b) that other

(i) where the first-mentioned company is an existing company in respect of which the holders of preference shares issued before the commencement of this Act have the same voting rights in all respects as the holders of equity shares exercises or controls more than half of the total voting power of such company ;

(ii) where the first-mentioned company is any other company, holds more than half in nominal value of its equity share capital; or

(c) the first-mentioned company is a subsidiary of any company which is that other''s subsidiary.

In other words, if company B is a subsidiary of company A, and company C is a subsidiary of company B, then company C is a subsidiary of company A by virtue of Clause (c) above.

Section 4(2) of the Companies Act, 1956, proceeds to explain what is meant by controlling the composition of the Board of Directors and defines, inter alia, that this control shall be deemed to exist

if, but only if, that other company by the exercise of some power exercisable by it at its discretion without the consent or concurrence of any other person, can appoint or remove the holders of all or a majority of the directorships; but for the purpose of this provision that other company shall be deemed to have power to appoint to a directorship with respect to which any of the following conditions is satisfied, that is to say, (a) that a person cannot be appointed thereto without, the exercise in his favour by that other company of such a power as aforesaid; (b) that a person''s appointment thereto follows necessarily from his appointment as director, managing agent, secretaries and treasurers, or manager of, or to any other office or employment in, that other company; or (c) that the directorship is held by an individual nominated by that other company or a subsidiary thereof.

These provisions are clear enough to show where the control of the composition of the Board of Directors may be said to arise. Thereafter Section 4(3) of the Act proceeds to lay down the tests by which one company is to be regarded as a subsidiary of another and provides, inter alia, that in determining this question,

(a) any shares held or power exercisable by that other company in a fiduciary capacity shall be treated as not held or exercisable by it;

(b) subject to the provisions of Clauses (c) and (d) any shares held or power exercisable

(i).by any person as a nominee for that other company (except where that other is concerned only in a fiduciary capacity) ; or

(ii) by, or by a nominee for, a subsidiary of that other company, not being a subsidiary which is concerned only in a fiduciary capacity ;

shall be treated as held or exercisable by that other company;

(c) any shares held or power exercisable by any person by virtue of the provisions of any debentures of the first-mentioned company or of a trust deed for securing any issue of such debentures shall be disregarded;

(d) any shares held or power exercisable by, or by a nominee for, that other or its subsidiary not being held or exercisable as mentioned in Clause (c) shall be treated as not held or exercisable by that other, if the ordinary business of that other or its subsidiary, as the case may be, includes the lending of money and the shares are held or the power is exercisable as aforesaid by way of security only for the purposes of a transaction entered into in the ordinary course of that business.

Thereafter Sub-sections (4), (5), (6) and (7) of Section 4 proceed, inter alia, to prove--(a) that a company shall be deemed to be the holding company of another if, but only if, that other is its subsidiary; (b) the expression ''company'' in this section includes any body corporate and the. expression ''equity share capital'' has the same meaning as in Section 85(2), (c) in the case of a body corporate which is incorporated in a country outside India, as subsidiary or holding company of the body corporate under the law of such country shall be deemed to be a subsidiary or" holding company of the body corporate within the meaning and for the purposes of this Act also, whether the requirements of this section are fulfilled or not; and (d) a private company being a subsidiary of a body corporate incorporated outside India which, if incorporated in India, would be a public company within the meaning of this Act, shall be deemed for the purposes of this Act to be a subsidiary of a public company if the entire share capital in that private company is not held by that body corporate whether alone or together with one or more other bodies corporate incorporated outside India.

A glance at this definition would at once show how involved the concept is. The attempt in Section 4 is to specify certain instances which are commonly met in company management and to formulate the tests which should govern the definition of a holding company and its subsidiaries.

Section 42 of the Companies Act is the next relevant section in this connection. It deals with the membership of the holding company. It provides, inter alia, that except in the cases mentioned in the section a body corporate cannot be a member of a company which is its holding company and any allotment or transfer of shares in a company to its subsidiary shall be void. Having said that Section 42 engrafts certain exceptions by saying that nothing in that section shall apply, (a) where the subsidiary is concerned as the legal representative of a deceased member of the holding company ; or (b) where the subsidiary is concerned as trustee unless the holding company or a subsidiary thereof is beneficially interested under the trust and is not so interested only by way of security for the purposes of a transaction entered into by it in the ordinary course of a business which includes the lending of money. This is the provision of Section 42(2) of the Companies Act. By Sub-section (3) of Section 42 further direction is made by saying that this section shall not prevent a subsidiary from continuing to be a member of its holding company if it was a member thereof, either at the commencement of this Act or before, becoming a subsidiary of the holding company, but except in the cases referred to in Sub-section (2), the subsidiary shall have no right to vote at the meetings of the holding company or of any class of members thereof. Section 42(4) provides that subject to Sub-section (2), Sub-section (1) and (3) of Section 42 shall apply even in relation to a nominee for a body corporate which is a subsidiary. In short, the principle recognised in Section 42 is a bar to a, subsidiary company being a member of its holding company and a bar to the allotment or transfer of shares in a company to its subsidiary with the exceptions and qualifications mentioned as above.

I shall now notice the group of Sections 212, 213 and 214(2) of the Companies Act, 1956, in relation to this point. Section 212 deals with balance-sheets of holding companies and directs that they should include certain particulars as to their subsidiaries. It provides, inter alia, that there shall be attached to the balance-sheet of a holding company having a subsidiary or subsidiaries at the end of a financial year as at which the holding company''s balance-sheet is made out such documents as, (a) a copy of the balance-sheet of the subsidiary; (b) a copy of its profit and loss account; (c) a copy of the report of its Board of Directors; and (d) a copy of the report of its auditors. Further details about these requirements are to be found in the different Sub-sections (2), (3), (4), (5), (6), (7), (8), (9) and (10) of Section 212. This is followed by Section 213 providing for the financial year of a holding company and its subsidiary and for equating the financial year of the holding company and its subsidiary.

All these provisions are a clear indication in the Companies Act, 1956, that the company law, has not gone to the extent of creating the fiction that a holding company and its subsidiaries are the same and these provisions will indicate that they are still treated separately, no doubt with many restrictions and qualifications.

The next significant section is Section 214 of the Companies Act dealing with the rights of the holding company''s representatives and members. It provides, inter alia, that a holding company may by resolution authorise representatives named in the resolution to inspect the books of account kept by any of its subsidiaries, and the books of account of any such subsidiary shall be open to inspection by those representatives at any time during business hours and that the rights conferred by Section 235 upon members of a company may be exercised, in respect of any subsidiary, by members of the holding company as if they were alone members of the subsidiary. This will be clear from Sub-section (1) and (2) of Section 214 of the Companies Act, 1956. Reading Sections 212 and 214 together it will be plain that the holding company''s inspecting and dealing with the accounts of its subsidiaries is provided by the sections themselves and, therefore, the argument of the Petitioner that in each Board meeting. of the T.M. summary of accounts of the subsidiaries was considered cannot be any illegality whatever. In fact, that is a statutory obligation in the relationship between the holding company and its subsidiaries.

Section 214(2) of the Act which is just mentioned above is limited only to this specific purpose and no others when read with Section 235 which relates only to investigation of affairs of the company on application by members or on report by the Registrar.

It will be appropriate now to just notice the provision of Section 235 of the Companies Act which deals with the investigation of the affairs of a company on the application by members or reports by Registrars. It is for the purposes of this Section 235 that the rights conferred upon the members of a company may be exercised in respect of a subsidiary by members of the- holding company as if they alone were members of the subsidiary. But this is for the members of the holding company and not of the subsidiaries.

The next section relevant in this context is Section 295(2)(b) of the Companies Act, 1956. Section 295 deals with loans to Directors and others. Section 295(2)(b) makes the provisions that the principle mentioned in Sub-section (1) of Section 295, disabling a company to make any loan to or give any guarantee or provide any security in connection with a loan made by any other person to, or to any other person by, a Director of the lending company or of a company which is its holding company or any partner or relative of any such Director, shall not apply to any loan made by a holding company to a subsidiary or to any guarantee given or security provided by a holding company in respect of any loan made to its subsidiary. Section 295(2)(b) of the Companies Act, therefore, is a direct recognition of the relationship between the holding company and its subsidiaries and the normal bar as provided in Section 295(1) will not be applicable in the case of loans, securities or guarantees, provided by a holding company to its subsidiaries. I am, therefore, bound to hold on this express provision that the argument of the Petitioner on this point cannot be upheld in law.

The next group of sections which I propose to take up is Section 370, Section 370(2)(a)(i) and Section 372(14)(d) of the Companies Act, 1956. Section 370 deals with loans etc. to companies under the same management. It provides, inter alia, that no company shall make any loan to, or give any guarantee, or provide any security in connection with a loan made by any other person to, or to any other person by, any body corporate unless the making of such loan, the giving of such guarantee or the provision of such security has been previously authorised by a special resolution of the lending company provided that no special resolution shall be necessary in the case of loans made to other bodies corporate not under the same management as the lending company where the aggregate of such loans does not exceed 10 % of the aggregate of the subscribed capital of the lending company and its free reserves; provided further that the aggregate of the loans made to all bodies corporate shall not exceed without the proper approval of the Central Government certain limits. This is a provision which is intended to prevent interlocking of finance between the holding company and its subsidiary. But, then here again an exception is made in Section 370(2) (a) (i) of the Companies Act by saying that this provision shall not apply to ''any loan made, by a holding company to its subsidiary''. This again is an illustration that a holding company is permitted to lend to its subsidiary without the usual restriction mentioned in Section 370(1) of the Act. Therefore, such transactions between the holding company and its subsidiaries are within the exemption of the law expressly granted. Finally, Section 372 of the Companies Act deals with purchases by a company of shares etc. of other companies. The main principle there is that a company mentioned there shall not be entitled to subscribe for or purchase (whether by itself, or by any individual or association of individuals in trust for it or for its benefit or on its account) the shares of any other body corporate except in accordance with the restrictions and conditions specified in that section. This is followed by different provisions in different Sub-sections. But, by Sub-section (14) of Section 372 and specially by Sub-clause (d) thereof, it is expressly provided, that Section 372 shall not apply to investments by a holding company in its subsidiary. Here, again, is a clear and direct recognition in favour of the holding company and subsidiaries who are treated separately.

It follows that all these express statutory provisions of the Indian Companies Act, 1956, maintain the distinction between a holding company and its subsidiaries as separate legal entities and, although certain provisions are made, there are also equally certain exemptions made in defence to common managerial concepts between the holding company and its subsidiaries.

Section 399 and the right to apply under Sections 397-398 of the Companies Act, 1956, are to my mind clear on the point. The extended right given u/s 214(2), read with Section 235 of the Companies Act; to a non-member by the express provision contained therein is not given u/s 399 to such a non-member. To convert Section 397 application of a holding company into also an application against its subsidiaries by. adding them as parties is, to my mind, to give a right to persons who are not members within the meaning of Sections 397, 398 and 399 of the Companies Act and is plainly against the statute. I am, therefore, unable to accept this contention of the Petitioner. I, therefore, hold that (i) Richardson and Cruddas shares, covered by issue No. (9), (ii) Smith Stanistreet & Co., covered by issue No. (9), (iii) Alcock Ashdown guarantee and (iv) issue No. (1) relating to Bombay flats and Calcutta leases are all outside the powers u/s 397 of the Companies Act, 1956, against the holding company. The whole of issue No. (9) and part of issue No. (11) are not covered by Section 397 of the Companies Act in these facts and circumstances.

An argument was advanced at this stage on behalf of the Petitioner u/s 402 to rope in these transactions, but that argument cannot be sustained because (i) it is not by the company, that is, by the holding company Turner Morrison & Co. Ltd., as I have already indicated, and (ii) because the limitation of three months expressly provided under the statute is within three months before 1967, so that all reliefs on the ground of Richardson and Cruddas, an event of 1967, and Smith Stanistreet and Rameswar Daga, all events of 1957, are barred by special provision u/s 402(f) of the Companies Act, 1956.

I need only add here to explain the nexus of legal relationship between the holding company and the subsidiary by making a reference once again to Section 212(10) of the Companies Act and the form at sch. VI at p. 803, item 3, relating to the provisions for subsidiaries, read with Section 214 for regulation and inspection of the subsidiaries only to emphasize once that all these provisions show that there is a statutory obligation of a holding company to consider the accounts etc. of its subsidiary., In doing so, Turner Morrison & Co. Ltd. has done nothing wrong but has only followed the law. The position on this point is also explained clearly in the evidence of K. N. Tapuria in answer to Qs. 983-995 and of Hormasji in answer to Qs. 464-467 in suit No. 2005 of 1965 and the evidence of S. K. Pathak in answer to Qs. 301-306 in suit No. 2005-65 and. also of K. N. Tapuria in that suit in answer to Qs. 518-521.

These provisions of the Indian Companies Act, 1956, are in keeping with advanced thinking on the subject. They represent some of the striking limitations imposed by the Companies Act on the recognition of separate personality of each individual company and the attempt of the law in connection with the legal control of associated companies within the same group of enterprises. These'' have been caused by the modern commercial habit of creating a pyramid of inter-related companies, theoretically separate legal entities but in reality part of one complex and one concern represented by the group "as a whole. Diverse views have been expressed on this branch of the law. The separation of the group into distinct legal companies and legal entities is not by itself either illegal or improbable. They may be caused by the most economical and convenient arrangement in a different set of circumstances or where it is desirable to distinguish between different aspects and spheres of manufacturing and production and integration of the enterprise in relation to its various products. It has often been said that it enables the advantage of size for having a centralised financial policy without the handicap of over-centralization. But, then the danger of such an arrangement is the risk of abuse. No doubt, these statutory provisions of the Companies Act, which I have analysed, do not cover all cases of control. Control is a matter of degree and varies from complete legal control for all practical purposes over a wholly owned subsidiary to different shades and spheres of de facto control. When pyramiding through numerous subsidiaries and sub-subsidiaries is practised, it may be difficult to detect that this control is itself becoming a kind of property as Lord Uthwatt observed in the House of Lords in Short v. Treasury Commissioners (1948) A.C. 534. The statutory definition in the Companies Act, 1956, of a holding company and a subsidiary and its other provisions relating to control and restriction of the relationship between the.two at least placed the fight emphasis on the power to control the composition of the Board of Directors for naturally the Board is the company''s brain and controlling centre. But, de facto control over the Board can exist without any legal power at all. In Berle & Means'' work The Modern Corporation and Private Property it is explained that in a company with a large and dispersed membership a comparatively small proportion of the total shares, if held in one hand, may enable actual control to be exercised particularly if the hand is that of the existing management with control over proxy-voting machinery. [See the observations of the learned authors (p. 69).] Indeed, the modern company management has brought to light that there are various methods of exercising pressure or power which are perhaps incapable as yet of precise legal definition and, therefore, of legal control. The learned authors Barle and Means point out that there are other devices. The legal control may be exercised through agreement divorced from the share-holding, through weighed voting, through interlocking directorships, through voting agreements or what is becoming so popular in America, the voting trust. Apparently such devices are still not caught by the system of statutory control in the Companies Act, 1956.

For these reasons, I hold that it will be improper and illegal to join the subsidiaries in this application on the facts and circumstances of the case. It will be improper on the merits and facts and it will be illegal under the provisions of the law and authorities I have discussed. I, therefore, dismiss the second application seeking to add parties to the present application. I hold, however, that the main application u/s 397 of the Companies Act is not demurrable or objectionable in the absence of the subsidiary companies and their Directors and share-holders, and in appropriate case they would come under the expression ''affairs of the company'' meaning the affairs of the holding company which include, in my judgment of the analysis of different statutory provisions in the Companies Act, 1956, the affairs of the subsidiaries, but in that event the subsidiaries do not become ipso facto necessary and proper parties.

Issue No. (3):

This issue raises the following question:

Whether in the facts and circumstances alleged in paras. 77, 92, 93(4), 93(8) and 97 of the petition, the affairs of the Respondent company No. 1 were and are being conducted in a manner (a) oppressive to the Petitioner or (b) prejudicial to the interest of the Respondent company No. 1 or (c) in a manner prejudicial to the public interest?

It will be clear from this issue that it is in three parts. The first part deals with oppression. The second part deals with what is prejudicial to the interest of the Respondent Turner Morrison & Co. Ltd. The third part deals with what is prejudicial to public interest.

The relevant paragraphs are mentioned in the issue itself, namely, paras. 77, 92, 93(4), 93(8) and 97 of the petition.

Paragraph 77 of the petition speaks of oppression to the Petitioner under two parts--(a) non-delivery of 707 shares of Turner Morrison & Co. Ltd. held by the Petitioner and (b) filing of the lien suit was itself oppression.

I shall take up the first ground of oppression regarding non-delivery of 707 shares. The answer to this case of the Petitioner to my mind is compelling. The answer is:

(a) Non-delivery of these 707 shares is already the subject of both civil and criminal proceedings. These proceedings ''will give complete relief to the parties. In the present application they cannot be pre-judged.

(b) These 707 shares are not in danger because they are in the hands of a Receiver appointed by the Court.

(c) The liquidator Mr. Hoon for the Petitioner actually made a criminal complaint on this point, but his criminal complaint was dismissed on June 18, 1966. (See for instance Mr. Hoon''s answers to Qs. 579, 981, 985, 989 and 991-995.) The admission of Mr. Hoon will be clear when in answer to Q. 981 he admits that he filed a criminal complaint with the Police in respect of these 707 shares in 1966 and where again in answer to Qs. 985-986 he admits that it was found that the case was not true and finally in1 answer to Qs. 990 and 991 Mr. Hoon had to admit that the Chief Presidency Magistrate discharged the accused on this very complaint relating to 707 shares.

(d) Again these 707 shares are also the subject of the pending litigation for specific performance in suit No. 600 of 1961 filed by Mr. Mundhra. Therefore, non-delivery in such circumstances cannot be oppression u/s 397 proceedings here.

(e) In fact, I find that the reasons for non-delivery appear at full length from a consideration of the three letters:

(i) Dated December 9, 1964 at p. 234 of the petition,

(ii) Dated December 22, 1964 at p. 235 of the petition,

(iii) Reply dated January 13, 1965 at p. 250 of the petition.

These grounds are fully stated in that reply why 707 shares could not be produced and I need not repeat them here. I am, therefore, unable to hold that the non-delivery of 707 shares in such facts and circumstances can at all be regarded as oppression.

I shall pursue this matter in some more details on this point. Some relevant datas will illustrate the state of litigation covering these 707 shares. The suit for specific performance was instituted by H. D. Mundhra on April 19, 1961, being suit No. 600 of 1961. He obtained a decree in the suit for specific performance on February 25, 1964, directing this Petitioner company H.I.T. to deliver the shares. Within three days thereafter on February 28, 1964, there was an income tax notice of attachment of the decree for which see p. 248 of the petition and the letter dated January 11, 1965, at p. 247 of the petition. Thereafter the Petitioner company Hungerford Investment Trust Ltd. (in voluntary liquidation), on March 20, 1964, appealed from that decree for specific performance. While that appeal was pending on April 10, 1964, there was an attachment by a judgment-creditor Champaran Sugar Mills Ltd. and Kanpur Sugar Mills Ltd., attaching the decree-holder Mr. Mundhra''s option rights under the decree. At this stage there was a letter dated September 9, 1964, from the Respondent company Turner Morrison to the Central Government stating that the decree-holder Mundhra had become the owner of those shares and making the point that the Petitioner company was not the holding company of Turner Morrison. (See p. 327 of the petition.) The Central Government replied on November 24, 1964, rejecting the contention of the Respondent company Turner Morrison &: Co. Ltd. Thereafter on November 30, 1964, followed the attachment by L.I.C. of the option rights of the decree-holder Mundhra under the specific performance decree. The other relevant letters are dated December 9, 1964, at p. 234 of the petition, dated December 22, 1964, at p. 235 of the petition where the Respondent company T.M. writes to the I.T.O. if they have any objection to the delivery of these shares, and this will be found at p. 247 of the petition, the letter dated January 18, 1965, being the reply from the I.T.O. stating the grounds why these 707 shares cannot be released and appearing at p. 250 of the petition and finally the two letters of the I.T.O. dated March 19, 1965, and August 18, 1965, respectively at pp. 252 and 253 of the petition. Thereafter on August 26, 1965, a significant event happened and that was the Petitioner company''s appeal from the decree for specific performance was withdrawn by the Petitioner with the result that the decree for specific performance has become final, subject no doubt to the collateral proceedings for its rescission which I have mentioned elsewhere.

The reason for mentioning these dates and the letters and correspondence is to show that these letters and correspondence and events including the decrees, and the attachments clearly establish the complications and the disputed questions-of title relating to these 707 shares. They involve such questions as the effect of the decree in the suit for specific performance in suit No. 600 of 1961 and its interpretation and also the correspondence with the Company Law Board and its effect. In addition, there is the attachment by the income tax authorities dated February 28, 1964, and set out in the appeal paper-book No. 202 of 1968, pt. II, at p. 201 from the Certificate Officer to the Registrar of the High Court staying execution of the decree. Therefore, Srivastava''s letter, which came subsequently on January 18, 1965, set out at p. 249 of the petition, being a reply to the letter of January 11, 1965, cannot be called in aid for the attachment already made on February 28, 1964. "I mention this because at one stage it was argued by the Petitioner that Srivastava''s letter was an inspired letter and was a letter written to order. Apart from the attachment by the income tax department there are also (i) the attachment by the judgment-debtors and Champaran Sugar Mills and Kanpur Sugar Mills Ltd. of the option rights of the decree-holder Mundhra in the specific performance decree in suit No. 600 of 1961 made on April 10, 1964, and the proceedings of which can be found reported in Champarun Sugar Co. Ltd. and Another Vs. Haridas Mundhra and Others, , and (ii) the other attachment on November 30, 1964, by the judgment-creditor L.I.C. of the same option rights of the decree-holder Mundhra in the specific performance decree which is admitted by the Petitioner in para. 41 of the petition. This is not the end of the complicated questions relating to the title of these 707 shares. The affidavit of Pratap Narayan affirmed on April 24, 1965, in execution proceedings before the District Judge of Delhi initiated by Bank Hoffman (p. 255 of the petition) indicates that the Respondent company T.M. would be in contempt if these 707 shares were delivered and that the Directors were claiming a lien.

For these many reasons I hold that non-delivery of these 707 shares of the Respondent company T.M: held by the Petitioner company Hungerford Investment Trust Ltd. (in voluntary liquidation) is not and cannot in law or fact be oppression in this case.

I now come to the second part of issue No. (3) relating to matters prejudicial to the interest of the Respondent company Turner Morrison & Co. Ltd. The only point made here by the Petitioner is that the filing of the lien suit is an oppression. This will be found in the second part in para. 77 of the petition and in para. 93(iv) of the petition.

To appreciate this point it is necessary to recall certain relevant facts with regard to this lien suit. That suit was instituted by Turner Morrison & Co. Limited against Hungerford Investment Trust Ltd. (in voluntary-liquidation) for the recovery of a sum of Rs. 79,70,802 and Rs. 47,96,250-16 P. amounting altogether to a sum of Rs. 1,27,57,452-16 P. The other reliefs claimed in that suit were a declaration that the Respondent company T.M. had a first and para-, mount lien and charge on 2,295 shares which the Petitioner held in the Respondent company T.M., possession of those shares and a decree directing the sale of such shares and appropriation of the sale proceeds thereof in portent satisfaction of the claim of the Respondent company T.M. This suit was instituted on November 15, 1965. A Receiver was appointed of those 51 % shares including the said 707 shares on or about July 13, 1966. I delivered the judgment in that suit on November 13, 1968, dismissing the suit of the Respondent company T.M. and directing the Receiver to make over these shares. There was an appeal from my decree and judgment. That appeal was dismissed by the Court of Appeal here on June 24, 1969, but there was a stay of operation-of the order of dismissal with a view to enable the Respondent company T.M. to appeal to the Supreme Court. On July 14, 1969, the Respondent company T.M. made an application for certificate to appeal to the Supreme Court and there was again a stay of the operation of the order of dismissal of this lien suit of the Respondent company T.M. In this matter there is an appeal now pending in the Supreme Court. I have set out my reasons for dismissing that lien suit in my judgment in Turner Morrission & Co. Ltd. v. Hungerford Investment Trust Ltd. (1969) 1 Com. LJ. 94 and I need not repeat my reasons and views expressed therein.

But, I am satisfied in these proceedings under Sections 397 and 398 of the Companies Act that the filing of the lien suit could not be regarded as an oppression because the Petitioner could have acted u/s 207 of the Companies Act of 1956, which provides for the penalty for failure to distribute dividends within 42 days. But no such steps were taken by the Petitioner. The Petitioner''s steps to recover the said 707 shares appear to be confined only to (a) writing letters for delivery and (b) criminal complaint, in Calcutta which failed. That, in my opinion, would not provide a ground for making an application under Sections 397 and 398 of the Companies Act or constitute oppression within the meaning of s; 397 of the Companies Act of 1956.

In the course of arguments Mr. Mukherjee, the learned Counsel for the Petitioner, added two more submissions apart from his submission that the filing of lien suit was an oppression. They are; first, the withholding of information about Rodewald and Jaffray''s appointment as Managing Directors and later on as Administrative Officers and for which he drew my attention to the letter dated June 10, 1967, at p. 284 of the petition. But, I find on records that no complaint whatsoever was made on this particular point at any stage. The matter only came to be put in cross-examination of the Respondent''s witnesses. The provision is clearly made in this respect in s, 302 of the Companies Act, 1956, dealing with disclosure to members of Directors'' interest in contract, etc. Section 302(2) of the Companies Act expressly provides that where a company enters into a contract for the appointment of a Managing Director of the company or varies any such contract which is already in existence, the company shall send an abstract of the terms of the contract or variation to every member of the company within the time specified therein. Any breach of this provision is punishable by Sub-section (5) of Section 302 providing that if default is made in complying with this provision, the company and every officer of the company in default shall be punishable with fine which may extend to one thousand rupees. No such procedure was adopted by the Petitioner or its liquidator Mr. Hoon. If the letter of June 16, 1967, was asked for these information''s, and if Mr. Hoon did not get them, he could have presented an application for taking of steps to have the Respondent company T.M., and its Directors fined for default u/s 302(5) without initiating this extensive proceedings u/s 397 of the Companies Act in December 1967.

In my view, the answer on the facts have been sufficiently given to this aspect of the problem by the evidence of Mr. K. N. Tapuria, specially in his answers to Qs. 736-744 and 959-966. Reference may also be made to his answers to Qs. 404, 406, 497-499 and 504 and to Exs. T-3 and T-10 dated respectively December 7, 1966 and February 8, 1966, in the minutes in the book of resolutions. Reliance has been placed by learned Counsel appearing for the Respondents on Article 89 of the Memorandum and Articles of Association of the Respondent Turner Morrison & Co. Ltd. dealing with the power to appoint Manager providing that the Directors may, subject to the sanction of a General Meeting to be obtained before or even after the appointment, appoint any person as Secretary, Manager or Managing and General Agent and may fix terms of his employment and may appoint a substitute and may also fix terms of his remuneration as provided therein. It will not be necessary to discuss in detail this Article as I am of the view that on the facts they do not constitute oppression within the meaning of Section 397 of the Companies Act or even prejudice to the Respondent company Turner Morrison & Co. Ltd., because it could have been corrected by the liquidator by invoking Section 302(5) of the Companies Act, 1956.

For these reasons, I hold that neither the riling of the lien suit nor this further submission, which I have just noticed, constitutes oppression under pt. I of issue No. (3) relating to oppression.

I shall next take up issue No. (3)(b) relating to the question of allegations which are supposed to constitute matters prejudicial to the Respondent company Turner Morrison & Co.''s interest. These allegations are made in para. 77 of the petition. The argument centres round a number of points.

The points argued are (i) giving indemnity to Directors and Secretary and (ii) giving indemnity in favour of Rodewald for non-delivery of these shares. Reliance is placed respectively on Ex. Q-4 dated November 21, 1967, and Ex. T-l dated July 11, 1967. The third submission on this point is that the Respondent company Turner Morrison & Co. Ltd. agreed to bear expenses for criminal case instituted against Jaffray, Rodewald and Hormasji in respect of 707 shares as stated in para. 50(vi) of the petition. (See in this connection three exhibits Nos. T-3, T-8 and T-10 dated respectively December 17, 1966, March 15, 1967 and February 8, 1966.

The answer to this allegation is that they were being-prosecuted because of their association with the Respondent company Turner Morrison & Co. Ltd. as its office-bearers. Secondly, it is also covered by Article 122 dealing with indemnity.'' It was contended on behalf of the Petitioner that law has now changed by Section 201 of the Companies Act corresponding to Section 205 of the English Act. But, I find there is no real change in law on principle. The only change is in respect of the words ''officer'' and ''auditor''. But, ''officer'' includes Directors u/s 2(30) of the Companies Act, 1956. In this connection, reference may also be made to Palmer''s Company Law (17th ed. p. 645).

The second allegation in this respect is that the conduct of the Respondent company and its Directors have caused the loss of managing agency. Reference on this point may be made to para. 93 (ix) of the petition, but this allegation of causing loss of managing agency is not alleged in the petition. Reference may be made to the two exhibits, Ex. T-l 1 and Ex. T-l, in the book of resolutions. The evidence of Mr. K. N. Tapuria on this point is clear and direct and he has denied in Q. 810 the allegation that the company lost the managing agency of a number of companies by reason of non-intimation of the change of constitution. There are many reasons for the loss of managing agency. The first reason is that the managing agency was on the wane and was not encouraged by the trends of Company Law and now, of course, they have all been abolished and the companies were getting ready for the new situation. Secondly, the loss of agency of a number of shipping companies in Bombay was explained by the fact that Mogul Lines was taken over by the Government of India, Bank Lines did not wish to continue the agency here on the old scale but was turned over to Lord Inchcape group of agency in Mackinon & Mackenzie and the creation of Pakistan also caused the losses of Pakistan agencies. All these facts will be clear from the answer of Tapuria to Qs. 808-823. I, therefore, am unable to hold that the alleged loss of managing agency was in the facts and circumstances of this case prejudicial to the Respondent company Turner Morrison & Co. Ltd.''s interest to justify an application under Sections 397 and 398 of the Companies Act, 1956.

The next allegation on this branch is non-recovery of loans from B.I.C. and Rameswar Daga. Questions were put to the witnesses of the Respondents on this point. But, the outstanding fact remains that this was never alleged in the Petitioner. The relevant exhibits are Ex. T-3 dated December 17, 1966, Ex. T-5 dated September 28, 1965 and Ex. S-5 dated March 1, 1957. When there was no allegation made in the petition, I am not prepared to consider this as justifiable ground under Sections 397 and 398 of the Companies Act.-

But, I will also refer in this connection to the facts as appearing on the evidence. I shall first take up the evidence of Mr. Tapuria. The relevant answers are to be found in Qs. 560-581.

The minutes of the Respondent company Turner Morrison & Co. Ltd., Ex. T-5 dated September 28, 1965, show that the Chairman reported that there were two items of advance outstanding in the company''s books against B.I.C. Ltd. and Rameswar Daga. The amount in respect of B.I.C. Ltd. was Rs. 58,860 and for Daga it was Rs. 3,09,260. The minutes show that it was considered by the Board that it would be prudent if some provisions were made in the accounts of 1965 for these advances which were doubtful of recovery. It was, therefore, resolved that a provision to be made in the accounts for 1964 for Rs. 29,430 and Rs. 1,54,630, being half of the amounts due from B.I.C. Ltd. and Rameswar Daga. Mr. Tapuria in answer to Q. 562, about the demand for recovery of these amounts, said that so far B.I.C. was concerned they did not have any acknowledgment of debt and no action was taken during the whole period when this very Petitioner was in full control of Turner Morrison & Co. Ltd. and about which the Petitioner through its liquidator is now making a grievance. Then, when the new management came for the first time it got notice of this and subsequently the new management had personal discussions. The B.I.C. had a Government controlled Board and they had a change and some other people came and which was still continuing. There was an enquiry into its present state of affairs and the new management of the Respondent company tried to come to a satisfactory settlement. It is also said by Mr. Tapuria in answer to that Q. 562 that dividends were withheld so that the amount was secured. Therefore, there was no risk at all and nothing prejudicial to Turner Morrison & Co. Ltd. It is also pointed that in the judgment of the case to which reference has already been made relating to B.I.C, there is a judicial pronouncement that the Respondent H. D. Mundhra was the beneficial owner of these dividends under any circumstances. Mr. Tapuria makes it very clear that the present complaint that no demands were made for recovery of this amount was actually not made when the Petitioner company was in full control of 100 % shares in the Respondent company Turner Morrison & Co. Ltd. In the series of answers to the questions already mentioned, Mr. Tapuria also makes it clear that the amount of dividend withheld from Haridas Mundhra is much more than the amount due from B.I.C. (See his answers to Q. 575.)

I shall also refer here to the evidence of Mr. T. D. Mundhra on this point. His relevant answers are to be found in Qs. 120 to 139 and Qs. 331 to 337. This witness Mr. T.T. Mundhra was a Director of B.I.C. until 1958. He says in answer to Q. 130 that Rameswar Daga was related to, the Respondent H. D. Mundhra because Rameswar''s sister was married to his elder brother the Respondent Haridas Mundhra. So, Rameswar Daga was the brother-in-law of the Respondent H. D. Mundhra. The fact remains that, even so far as Rameswar Daga is concerned, not only there was no allegation in the petition under Sections 397 and 398 of the Companies Act, but there does not appear any correspondence on record for so many years alleging illegality or impropriety of this old transaction with Rameswar Daga. Normally it cannot be barred by limitation u/s 402 of the Companies Act which I have discussed. In any event, it would not be a kind of a continuing wrong to show that the affairs of the company are being conducted in a manner prejudicial to the interest of the Respondent company Turner Morrison & Co. Ltd. within the meaning of Sections 397 and 398 of the Companies Act, 1956.

For these reasons, I hold that these allegations have not been established and they do not prove that the conduct of the Respondent company and its'' Directors has been such which comes within the meaning of being prejudicial to the interest of the Respondent company Turner Morrison & Co. Ltd.

I now come to the third part of issue No. (3) dealing with the conduct prejudicial to public interest. The allegations are to be found in paras. 92, 95 (ii) & (iii) and para. 99 of the petition. Reference may also be made in this connection to paras. 41, 47 and 67 of the petition.

One submission is made on behalf of the Petitioner and that is that the Respondent H. D. Mundhra has no title to the 49 % shares now because of attachment of these shares mentioned above, therefore, his voice or control in any shape or form is prejudicial to the public interest within the meaning of Section 397 of the Companies Act. The answer, however, to that submission is (a) that no question of title u/s 397 can be decided and (b) that these attachments do not create any title or charge in these shares.

The next submission on this point is that public interest is affected because a large number of employees are involved including a large number of subsidiaries. No doubt they do. But the question is, who is the custodian of public interest? I have already held that the present Petitioner and its liquidator made this application as a purely speculative transaction and that they have no further interest left in these shares to qualify even to become a member within the meaning of Sections 397, 398 and 399 of the Companies Act. Who is the primary custodian of public interest in this context of the company law? The primary custodian obviously in the section that I have analysed is the State and the Government. But they have not acted. They do not come forward to support the allegation that public interest has been endangered or jeopardized. Not a single letter has been written by the Petitioner or by its present liquidator Mr. Hoon to the Government to take any steps u/s 388B introduced by the Amending Act of 1963, and now repealed. No step was also taken under Sections 235, 236, 237(b), 400 and 615. u/s 400, as I have already indicated, the notice was given to the Central Government, but the Central Government has chosen not to come to support this petition or to oppose it. Section 615 gives power to the Central Government to direct companies to furnish information and statistics.

The questions then arises, is Section 397 or Courts thereunder the proper forum to act as the custodian of public interest when those more directly concerned do not act or are not invoked specially because Section 397 of the Companies Act is discretionary? The Courts under Sections 397 and 398 of the Companies Act, 1956, are certainly custodian of public interest in the context of the company management intended to be remedied thereunder. But in acting as such custodian the Court is free to take into consideration the fact, how another custodian, the State or the Government has acted in this matter. The Government''s action or conduct certainly does not bind this Court. But the fact remains that one who takes up the cudgel in favour of public interest must be above-board and, in this case, I cannot say that it can be true so far as the Petitioner and its liquidator are concerned.

For these reasons, I hold, it has not been proved or established in fact or law that the conduct of the Respondent company and its Director has been such as to amount to prejudice to public interest within the meaning of Section 397 of the Companies Act, 1956.

Issue No. (4):

I come now to issue No. (4). This issue is as follows:

Are the Respondents Nos. 2-10 guilty of (a) mismanagement,

(b) acts prejudicial to the interest of the affairs of the Respondent company No. I as alleged in paras. 87 to 89 of the petition?

Issue No. (4)(a) raises the question of mismanagement. So far as the Respondents Nos. 2-10 are concerned, the relevant allegations are to be found in para. 87 of the petition. The main arguments on these allegations have been confined to five points:

Excess remuneration paid to Jaffray and Rodewald;

Declining profits;

Indiscriminate loans and advances to subsidiaries and other companies;

Fine for Rs. 25,000 for violation of Foreign Exchange Regulations; and

Withholding dividend payable to the Petitioner company in liquidation.

I shall briefly discuss each one of these points. The first allegation is about the excess remuneration and it will be found in paras. 89(iii) and (iv) of the petition. This argument is based on Section 198 read with Section 309 of the Companies Act, 1956. Section 198 of the Companies Act deals with the overall maximum managerial remuneration and the managerial remuneration in case of absence or inadequacy of profits, and Section 309 of the Companies Act deals with the remuneration of Directors. I shall presently discuss these sections. Before I do so I shall deal with some facts and exhibits on the point.

In this connection the two balance-sheets of the years ending 1965 and 1966, marked respectively Exs. 0005 and 0004, are relevant because the argument is based on these balance-sheets. But, the answer on the facts appear in para. 76(iii) of the affidavit-in-opposition of Hormasji affirmed on February 19, 1968. It is clearly pointed out in that affidavit that the payments to the Directors of the Respondent company T.M. during the years 1963, 1964 and 1965 were all made strictly in accordance with their service agreements with the company, such agreements being also sanctioned by the Central Government subject to the provision of Section 309 of the Companies Act. The copes of the relative sanctions and relative resolutions appear as annex. ''S'' of this affidavit-in-opposition of Hormasji. It is further stated in that affidavit that the payments to each of the Directors in excess of 5 % of the net profits of the company were not sanctioned by the Central Government for the years 1963, 1964 and 1965 and, the amount drawn in excess for the year -1963 has since been refunded in full. For the years 1964 and 1965 it was agreed that the refunds due from the Directors for the year 1964 would be paid in full to the extent of the net income that'' they had received during that year in instalments culminating in January 1968. That affidavit also makes it clear that the tax that was deducted and paid in excess will in due course, when recovered by and refunded to the individuals concerned, would in turn be refunded by them to the company. Indeed in that affidavit it is pointed out that a proposal for payment in part of the excess remuneration drawn in 1965 was then with the Central Government. In those circumstances, in affidavit-in-opposition it was denied there was any violation whatever of the Companies Act.

Apart from this affidavit of Hormasji his evidence in suit No, 2005 of 1968, Turner Morrison & Go. Ltd. v. Hungerford Investment Trust Ltd. (1969) 1 Com. L.J. 94, in answer to Qs. 624-659 shows the details of these facts. There in answer to Q. 647 Hormasji has said that Jaffray, who has retired to England, has paid the excess received but not fully and there is certain amount still to be recovered and is being recovered in instalments from the pension due to be paid to him, but it is not a very large sum.

Exhibit T7 of the resolutions dated April 19, 1966, also shows that application was made in fact to the Central Government for sanction. Reference also on this point may be made to other resolutions which are marked Ex. T8 dated March 15, 1967, Ex. T4 dated August 30, 1967, and Ex. T9 dated September 20, 1967. The Company Law Board by its letter dated August 15, 1967, refused to sanction for the excess. Thereafter there was a further application for sanction to the Central Government. Reference may be made to the letter of October 27, 1966, annexed to Hormasji''s affidavit-in-opposition.

Relevant evidence of K. N. Tapuria will be found in the answers to Qs. 129-148, 587-644, 648-666 and 1022.

In addition to this oral evidence there is also the documentary evidence, marked Ex. 0006, giving the details of payments and outstandings with regard to these excess remunerations.

If these facts are now analysed in the light of Section 198 of the Companies Act, then it must be held that this ground of excess remuneration is certainly not mismanagement in the facts and circumstances of the case. Section 198 sets a limit of 10 % of net profits of the financial year. Therefore, this can only be ascertained after the year and after the calculations. The methods and requirements of calculation are to be found in Sections 349-351. It very often happens in the case of company management that in those circumstances ex post facto after the calculations of the financial year are made out according to the statutory provisions of the Companies Act that certain remunerations have been paid which were in excess. Retrospectively there are many instances when remunerations already paid are found to be in excess of the statutory limit. It was openly discussed at the Board meeting and formal letters and correspondence for sanction of the Central Government are on the record. Besides, Section 309(5)(A) of the Companies Act, 1956, makes clear provision that if any Director draws or receives directly or indirectly by way of remuneration any such sum or sums in excess of limit prescribed by this section or without the prior sanction of the Central Government where it is required, he shall refund such sums to the company and, until such sum is refunded, hold it in trust for the company and further in Section 309(5)(B) it is also provided that the company shall not waive recovery of any sum refundable to it under Sub-section (5)(A) unless permitted by the Central Government. The evidence establishes that both Jaffray and Rodewald have made already part payments by way of refund and the arrangement now is to deduct from their pensions payable to them by the company. I must also record here that the learned Counsel appearing both for Jaffray and Rodewald have given an undertaking to the Court in writing to refund such excess. These undertakings in Writing given to the Court, signed by the counsel dated August 5, 1969, in this proceeding appear in these terms:

Counsel on behalf of Mr. D. M. Jaffray/C. N. Rodewald gives an undertaking to Court that the said Mr. D. M. Jaffray/ C. N. Rodewald will not withdraw moneys due to him from the superannuation fund of Turner Morrison & Co. Ltd., without leaving a sum of Rs. 1,03,370 or Rs. 36,094 being the amount in excess of remuneration drawn by the said Mr. D. N. Jaffray and Mr. C. N. Rodewald (respectively) from Turner Morrison & Co. Ltd. after taking into account the exemption granted on behalf of the Central Government by its letter dated the 9th May, 1968, and in the event of the exemption granted by the said letter not being approved or sanctioned by the company at the general meeting, then the said Mr. D. M. Jaffray/C. N. Rodewald through his counsel undertakes to this Hon''ble Court not to withdraw any sum from the said superannuation fund without leaving the balance amount of Rs. 1,55,044/87,768.

After this and on these facts it is impossible to hold that this excess remuneration is an act of mismanagement in the facts and circumstances of this case. I hold accordingly.

The next submission of the learned Counsel for the Petitioner in this issue is on the basis of declining profits. The allegation on this point is to be found in para. 89(vi) of the petition. On the facts I am bound to hold that it has not been established at all that profits have been declining and certainly not for the cause alleged. There is the evidence of Tapuria in answer to Qs. 108-110, Qs. 645-647 and Qs. 863-870 that instead of the profits declining the profits are increasing. In this connection, the relevant resolutions are dated July 28, 1967, September 20, 1967,. and October 30, 1967, November 21, 1967, December 29, 1967, and March 6, 1968, marked respectively as Exs. T(14), T(19), T(4) and Exs. Q(4), Q(5) and Q(6).

Declining profits by themselves, even if any, cannot be a conclusive proof of mismanagement in a company. Declining profits may be due to various causes like industrial recession, high wages, cost of living, higher taxation and industrial disputes. Full and detailed reasons are set out in para. 76 of the affidavit-in-opposition of Hormasji affirmed on February 19, 1968, which have not been challenged in evidence. (For illustration, see the Lodna Colliery''s balance-sheet marked Ex. 0005 at p. 30.) On these facts and for these reasons I hold that there is no mismanagement on the ground of declining profits as alleged.

The next submission of the learned Counsel for the Petitioner company is that the indiscriminate loans and advances to subsidiaries and other companies in this case are the proof of mismanagement.

In support of this allegation, Mr. Mukherjee, learned Counsel for the Petitioner company, draws the attention of the Court to (i) Graham Trading Co.--Ex. T(15), which is a resolution dated March 26, 1965, and Ex. T(3), a resolution dated December 17, 1966; (ii) Shalimar Tar--Ex.T(16), a resolution dated March 29, 1966, and Ex. T(3), a resolution dated December 17, 1966, showing exceeding limits and that even without security, although the fact remains that one Board resolution can revise another Board resolution, for which see such resolutions as are marked Ex. T(8) dated March 15, 1967, Ex. T(1) dated July U, 1967, Ex. T(14) dated July 8, 1967, Ex. Q(4) dated November 21, 1967, Ex. Q(6) dated March 6, 1968, and Ex. T(4) dated October 30, 1967 ; (iii) Shalimar Works--Ex. T(3), a resolution dated December 16, 1966, and Ex. T(8), a resolution dated March 15, 1967 ; and finally (iv) Smith Stanistreet--Ex. T(3), a resolution dated December 17, 1966.

The learned Counsel for the Petitioner also relied on the balance-sheet annexed in the affidavit-in-reply in the main petition. From this an attempt was made to argue that loans were increasing but reasons were not given. There was confusion in- the argument because the amounts included sundry debts. But, they were trade debts and did not include actual loans. For instance, see the evidence of Tapuria in Qs. 970-977 and also the evidence of Hormasji in suit No. 2005 of 1968 in Qs. 977-989 on the letter of April 9, 1966, mentioned at p. 209 of the main petition.

On the facts I do not find that this allegation of indiscriminate loans has at all been established. As I have shown from the different statutory provisions in the Companies Act, loans and advances can be made by the holding company to the subsidiaries as part of its normal business. But the fact remains that there is no averment in the petition about these indiscriminate loans. Secondly, the argument is made now that giving loan is mismanagement, but there is no argument that these loans have not been recovered or that they were unconscionable either in the matter of loan or interest or that the company was not financially in a position to lend. Thirdly, there is no proof at all and I find no question in cross-examination or in examination-in-chief except what Tapuria was asked in Qs. 507, 533-537, 543, 556 and 560-563. Fourthly, I need only repeat that Section 370(2)(a)(i) of the Companies Act, 1956, shows that the restriction on granting loan does not apply to a holding company lending to its subsidiary.

For these reasons I must hold that it has not been established by the Petitioner that there have been indiscriminate loans and advances to subsidiaries and other companies to constitute mismanagement within the meaning of Section 397 of the Companies Act of 1956.

The next argument for the Petitioner is that the fine of Rs. 25,000 for violation of foreign exchange regulations shows mismanagement. The allegations are made in para. 89(v) of the petition. It is alleged there that the Respondent No. 3 Jaffray was found guilty of offences under the Foreign Exchange Regulation Act and that for his alleged misdeeds and the misdeeds by the Respondent Nos. 4 and 5 being respectively Rodewald and Hormasji, for whom three cars were procured from abroad, the company (T.M.) was also found guilty. Penalty was levied on the company (T.M.) and the Respondent No. 3 for the sum of Rs. 25,000 and that such penalty of Rs. 25,000 was paid out of the funds of the company (T.M.) and that nothing was paid by the Respondent No. 3 Jaffray. That is the allegation in para. 89(v) of the petition. The order imposing fine is annexed to the petition. The operative part of this order imposing the fine under the Foreign Exchange Regulation Act and dated November 3, 1965, is, inter alia, as follows:

I, therefore, find Messrs. Turner Morrison & Co., Calcutta, and its Director Mr. David Michell Jaffray are jointly and severally guilty u/s 4(3) of the Foreign Exchange Regulation Act. As regards the other Directors of the company, there is no evidence to indicate that they were either party to or were even aware of what was being done. I therefore give them the benefit of doubt and acquit them.

I, therefore, impose a penalty of Rs. 25,000 only on Messrs. Turner Morrison &: Co. and its Director Mr. David Michell Jaffray (jointly and individually) u/s 23(1)(a) of the Foreign Exchange Regulation Act.

Sd. C.D. Venkataraman,

Director of Enforcement

Ministry of Finance, Dept. of Revenue

Govt. of India, New Delhi

The evidence of Hormasji on this point will appear in answer to Qs. 583-592 in suit No. 2005 of 1965. The evidence of Tapuria on this point will be found in answer to Qs. 910-924 in these proceedings.

Violation of Foreign Exchange Regulation Act is an offence and, so far as the offence in this case is concerned, it is established in the proceedings under the Foreign Exchange Regulation Act for which there has been an order for penalty quoted above.

The question now is whether this order for penalty is a proof of mismanagement of the Respondent company T.M. within the meaning of Sections 397-398 of the Companies Act. The very order of penalty, which I have quoted above, shows that even the authorities under the Foreign Exchange Regulation Act come to the finding that

as regards the other Directors of the company, there is no evidence to indicate that they were either party to or were even aware of what was being done.

I would hesitate on that finding to hold that there is mismanagement for the company T.M., in the facts of this case, by reason of this violation of the Foreign Exchange Regulation Act. Learned Counsel for the Respondents point out from the evidence of the liquidator Mr. Hoon that he had also imported foreign cars in violation of Foreign Exchange Regulation Act when his car was seized. So, it was argued before me that if anything happened, then it was the pot calling the kettle black in this case. Leaving that aside, which is neither relevant nor material for my purpose, I also find that this cannot constitute, in the facts and circumstances of the case, an act of mismanagement within the meaning of Sections 397-398 of the Companies Act. Besides, it is a past act, and is not a continuing wrong. It has not been repeated. So, it cannot come even within the meaning of the ''affairs of the company being conducted in a manner'' which suggests continuing mismanagement.

It was argued by the learned Counsel for the Petitioner that Jaffray did not pay a penny of this fine, but the Respondent company Turner Morrison & Co. Ltd. paid the whole of it and, therefore, that is an act of mismanagement in complicity with the company in this offence with regard to importation of three Rover cars. This argument also is not sound. I shall give the reasons briefly.

The order of imposition of the fine quoted above shows that both Turner Morrison & Co. Ltd. and its Director Jaffray were ''jointly and severally'' held guilty u/s 74(3) of the Foreign Exchange Regulation Act, and the penalty was imposed on them jointly and individually u/s 23(1)(a) of the Foreign Exchange Regulation Act. Therefore, the guilt was both joint and several and the penalty was also payable jointly or severally. The company T.M.''s stand is that these cars were used for company''s purposes and there was nothing personal for Mr. Jaffray.'' I have mentioned the evidence of Hormasji and Tapuria. I shall repeat only that Hormasji''s evidence in answer to Qs. 583-592 in suit No. 2005-65 and Tapuria''s evidence in answer to Qs. 910-924 make the position clear. It will also be appropriate in this connection and in this context of facts to refer to Article 122 of the Memorandum and Articles of Association of Turner Morrison & Co. Ltd. annexed to the petition. That Article reads as follows:

Article 122. Indemnity: Every director, manager, secretary and other officer or servant of the company, shall be indemnified by the company against, and it shall be the duty of the directors, Out of the funds of the company, to pay all costs, losses and expenses which any such officer or servant may incur or become liable to by reason of any contract entered into, or act or deed done by him as such officer or servant, or in any way in the discharge of his duties. And no director or other officer of the company shall be liable for the acts, receipts, neglects or defaults of any other director or officer etc.

The facts established here show that the cars were registered in the company T.M.''s name and are used for company purposes. Jaffray had nothing personal about them. Jaffray has retired to England while the cars are here. In those circumstances, I am satisfied that the payment of the fine by the company T.M. was legal and proper both by reason of the terms of the order imposing the penalty and also by reason of Article 122 and by reason of the fact that the cars were used for the purposes of the company and not for the personal use of Mr. Jaffray.

For these reasons, I hold that this episode of order for the penalty of Rs. 25,000 under the Foreign Exchange Regulation Act does not constitute an act of mismanagement by the act itself within the meaning of Sections 397-398 of the Companies Act.

The next submission of the learned Counsel on this point is that the withholding of the dividends payable to the Petitioner company from 1963 to 1965 is an act of mismanagement. This allegation is made in paras. 89(xiv) and 93(H) of the petition. It is also alleged that this money is used as part of the working capital of the Respondent company T.M. (See the evidence of Hormasji in answer to Qs. 664-669 in suit No. 2005 of 1965. There is also no denial in the affidavit-in-opposition that this is used as part of the working capital.) But the fact remains that even in para, 80(ii) of the affidavit-in-opposition of Hormasji there is a clear denial that any of the Directors has violated any provision of the Companies Act.

But the effective answer to this is that this very controversy, whether the company has a lien or not, is the subject-matter of the lien suit, which I have discussed above and which is now pending appeal in the Supreme Court and, therefore, in a proceeding u/s 397 of the Companies Act, I cannot hold that withholding of dividends in such circumstances is an act of mismanagement within the meaning of Sections 397 and 398 of the Companies Act. Even independently of the litigation, that is, pending in appeal in the Supreme Court and a litigation, the whole gamut of which has taken the course from the Courts here to the Supreme Court, cannot be made to suggest that this withholding is a kind of mismanagement under the Company Law until the highest Court of the land has pronounced upon the subject. At best, it remains at the moment, a debatable question in the facts and circumstances of the case and would provide no ground whatever, in my judgment, to be a ground for mismanagement within the meaning of Section 397 of the Companies Act. I hold accordingly.

The next branch of issue No. (4) is issue No. (4)(b) which relates to the question of acts prejudicial to the interest of the affairs of the Respondent company T.M.

It is largely covered under different heads of mismanagement which I have just discussed. It is also partly covered by issue No. (3) relating to conduct prejudicial to the interests of the Respondent company T.M. I shall, therefore, only discuss the new argument which has been advanced under this issue. Now, that argument is that unfit persons are in the Board of Management of the Respondent company T.M.

The first submission on this point is that according to the Petitioner company and its liquidator, J affray and Rodewald are unfit persons because they were convicted under the Foreign Exchange Regulation Act. The answer is that they were not actually convicted in that sense but a penalty was imposed for violating the Foreign Exchange Regulations. It is an offence under the statute and not a crime under the Indian Penal Code. Section 274 of the Companies Act, 1956, is relevant on this point because that deals with the disqualification of the Directors. Now, Section 274(1)(d) provides, inter alia, that a person shall not be capable of being appointed Director of a company if he has been convicted by a Court of any offence involving moral turpitude and sentenced in respect thereof to imprisonment for not less than six months and a period of not less than five years has not elapsed from the date of the expiry of the sentence. Now, there has been in that sense in my judgment no conviction and he has not been ''convicted by a Court'' within the meaning of Section 274(1)(d) nor has there been any sentence of imprisonment which is required in order to disqualify a person from becoming a Director of a company. It is needless to emphasize that these penal provisions should be strictly construed. As indicated there was an order for penalty and that penalty has been paid. This is so far as the law is concerned on the point. On the facts, I find that these two persons Jaffray and Rodewald were in fact responsible for building up the organisation of Turner Morrison & Co. Ltd. in its earlier stages. They were associated with this company for a long period of time. Jaffray was first appointed a Director on February 8, 1958. (See Ex. T-10.) Rodewald was appointed Director on December 15, 1958. (See also Ex. T-10.) Then even prior to 1958 these two persons were there as executives. Reference also may be made in this connection to Ex. T3 and to Section 2(24) of the Companies Act defining a manager. I, therefore, cannot accept the submission made on behalf of the Petitioner that Jaffray and Rodewald are unfit persons to be Directors or to be associated with the Respondent company T.M.

With regard to the other next Director Abdul Latiff I find that he has already resigned. Therefore, no further question arises with regard to him. Similarly with regard to the Respondent Ellis Raymond Meyer who is also there no more as he did not seek re-election. Again, I find the Respondent Arun Kumar Roy has also resigned v. and is no longer there with the Respondent company T.M. and, hence, no further question arises with regard to him.

The next objection raised on behalf of the Petitioner is against two persons, (a) Rani Padmabati and (b) S. B. Goenka. It is said that they are unfit persons to be on the Board of the Respondent company T.M. Facts on record show that Rani Padmabati has been in public life. She was a Cabinet Minister of a State Government in charge of Commerce and Industry. (See the evidence of Tapuria in, answer to Q. 99.) In that answer Mr. Tapuria has said that Rani Padmabati was an M.P. since 1967 and prior to that she was in the State Assembly of Madhya Pradesh where she was Minister for nearly 15 years holding different portfolios including one which was connected with Mining and similar other industries. Apart from that she is connected with a Board in that State for attracting new industries in Madhya Pradesh known as Madhya Pradesh State Industrial Board and she is also in the Parliamentary Consultative Committee for Commerce Ministry. That surely in my judgment is a sufficient credential for any person to become a Director on the Board of the Respondent company T.M. As against this Hoon''s answer to Q. 57 is revealing for the answer shows that he hardly knows anything about Rani Padmabati and sarcastically made the statement-- "I do not know. There are many many hundreds and millions of Ranis in India." If he does not know then it is highly improper in my judgment for him to make the allegation that she is an unfit person to be a Director on the Board of Turner Morrison & Co. Ltd. That is a kind of irresponsibility on which it is difficult to base any finding. I have, therefore, no hesitation in holding that Rani Padmabati is a fit and proper person to be on the Board of Turner Morrison & Co. Ltd.

Again, the objection is taken on behalf of the Petitioner and its liquidator that S. B. Goenka is an unfit person to be a Director. Now, what are the material and facts'' on record? In answer to Q. 101, Tapuria says that S. B. Goenka is a prominent businessman of Calcutta and his main business centres are in coal industry and he owns several coal companies and he has also some tea interests. Tapuria''s evidence is that Mr. Goenka is a very well-known businessman in Calcutta and is a very respectable person. As against this again Mr. Hoon''s answers to Qs. 58 and 59 are revealing. He says that he never heard of Mr. Goenka and he also says, "I do not know about S. B. Goenka other than what I stated." This will be found from his answers to Qs. 58-59. If that be so and if he does not know and if it is hearsay that he is trying to introduce and even that hearsay does not suggest anything against S. B. Goenka, then it is difficult to see how he makes the allegation that S. B. Goenka is an unfit person. I, therefore, have no hesitation in holding that nothing has been shown against S. B. Goenka to say that he is an unfit person to be a Director in the Board of Management of the Respondent company T.M. In the light of this evidence the allegations in paras. 87(B)-(viii), 89(v), 89(xii), 89(xiii) have to be judged. I must hold that there is nothing against S. B. Goenka established which disqualifies him or makes him unfit to be a Director of the Respondent company T.M.

The next person to whom objection is taken on behalf of the Petitioner is Mr. K. N. Tapuria. The objection of the Petitioner and its liquidator appears to be that he is not an independent person because he is a son-in-law of H. D. Mundhra. I am unable to hold that that is a legal disqualification for a man like Mr. K. N. Tapuria to become a Director of the Respondent company T.M. The law does not say so. But what is more, I find that the liquidator Mr. Hoon for the Petitioner himself does not say a word against Tapuria in evidence. Tapuria''s business experience and interest appear sufficiently in his answers to Qs. 3 to 13 in these proceedings. This is the record. He is the son of late Rai Bahadur Mangtulal Tapuria, who was a well-known businessman of Calcutta. His family has been in Calcutta for nearly 150 years. His father was also associated with several business houses. They had their own business. His father was a Director of the Reserve Bank of India, a Director of the Imperial Bank of India, now the State Bank of India, until he retired from active business in 1951. He was also a Member of the Legislative Council of West Bengal from 1937 until 1943-44. Apart from that he was associated with several other industrial institutions and commercial houses. So far as Kashi Nath Tapuria himself is concerned, he studied upto the B.A. class in Presidency College and he also had been a student of St. Xavier''s College. He says that his family also has business interest in textiles and they have textile mills in Bombay, engineering units in Calcutta, marble and granite business in Rajasthan and South India in addition to export of several commodities from India to other countries. He has also said that he is a Director of nearly 15 companies including those in the Turner Morrison group. But apart from Turner Morrison group he is also a Director and Chairman of Robert McLean Co. Ltd., Lewis & Tyler Private Ltd., Lucky Trading Co. Ltd., Calcutta Steel Co. Ltd., Bhaskar Textiles Ltd., Jaysree Textile & Industries Ltd., Universal Cables Ltd., Bihar Alloy Steel Ltd., New India Investment Corporation Ltd. and R. M. Appliances (P.) Ltd. This has not been challenged in cross-examination nor has anything been shown that this record is not true. I am, therefore, bound to hold on this record and evidence that Kashi Nath Tapuria is a fit and proper person to be in the Board of Directors and the Management of the Respondent company T.M. Ltd.

The next objection is to Respondent Bhubaneshwar Prosad Sinha. The objection to him is on the ground that he has no business experience and that it is strange to find him in the Board of Management of Turner Morrison & Co. Ltd. Nothing has been shown to suggest or establish that the Respondent Bhubaneshwar Prosad Sinha has any practical experience of running a business concern at all nor has this Respondent Bhubaneshwar Prosad Sinha come to the box to assert that he has any business experience. But, the Respondent Bhubaneshwar Prosad Sinha is a retired Chief Justice of India. It has been argued on behalf of the Respondents that under complex company legislation and specially under the Companies Act, a legal knowledge is a reasonable qualification for a Director in company management. While, therefore, I accept the criticism of the learned Counsel for the Petitioner that the Respondent Bhubaneshwar Prosad Sinha has no practical business experience, yet I find that his long years of association with law do hot make him otherwise an unfit and disqualified person to be on the Board. His association with and his entry into the Respondent company T.M. was the subject of a good deal of criticism in the lien suit No. 2005 of 1965 between Turner Morrison & Co. Ltd. v. Hungerford Investment Trust Ltd (Supra) and on which point I have already expressed my own views in that judgment. But, that view is not enough to disqualify the Respondent Bhubaneshwar Prosad Sinha. to become a Director of the Respondent company T.M. Ltd., however indiscreet or improper his association with it might be.

This disposes of the Petitioner''s argument that the Board of Management of the Respondent company T.M. contains unfit persons and on that ground it is prejudicial to the interest of the Respondent company T.M. I hold on this branch of issue No. (4)(b) that the presence of these persons for reasons and facts stated above is not prejudicial to the interest of the Respondent company T.M. Ltd. within the meaning of Sections 397 and 398 of the Companies.Act. I hold accordingly.

Issue No. (5):

I proceed now to issue No. (5) which is in the following terms:

Were the notices of the Annual General Meetings of the Respondent company No. 1 held in 1965, 1966 and 1967 given to the Petitioner and/or its liquidators at the address to which the said notices were required to be sent or at all? If not, what is the effect thereof?

The case of the Petitioner on this point is a string of contradictions. The first letter of complaint from Mr. Hoon regarding non-service of notice is dated February 3, 1967. That is mentioned at p. 306 of the petition. But that is a request by Mr. Hoon to send notices to Calcutta almost implying an admission that it was sent to Singapore, for that was the address then. But, even then the important point to notice is that Mr. Hoon made no complaint there, about the years 1965 and 1966, which he has introduced now. Then, the Petitioner''s contention is that this notice should have been sent to No. 7 St. Helen''s Place, Bishop''s Gate, London, E.C. 3, according to a letter of December 9, 1964, which is mentioned at p. 234 of the petition. But, then reference should be made to a letter dated May 18, 1961, marked Ex. 8, and the reply dated May 23, 1961, also marked Ex. 8. Letter dated May 18, 1961, Ex. 8, is from Elvy Robb & Company, Solicitors, London, to the Respondent company T.M. informing them of the appointment of two liquidators of the Petitioner and that the address was St. James'' Street, London, S.W. 1. The reply from the Respondent company T.M. of May 23, 1969, noted that address.

Significantly, the Petitioner company here, as I have already stated, even in the present petition states as having its registered office at Singapore. If the notices are sent to the registered office then what is wrong in law, because H.I.T., the Petitioner company in liquidation, is the share-holder, and the liquidator''s personal residence cannot change the registered office of the company in liquidation. But these are not the only contradictions of the Petitioner on this point.

Actual copies of the notices of these three meetings are marked Ex. 0007. Two witnesses, Probhat Sinha and Pulin Behari Roy, called on behalf of the Respondents, have spoken on this subject of copy of notices. (See evidence of the witness Probhat Sinha in answer to Os. 19-46 and Qs. 252-263. See also in this connection para. 73 of Hormasji''s affidavit-in-opposition affirmed on February 19, 1968.) There it is denied that notices of the meetings were not sent to the Petitioner at the addresses in London and it is clearly stated that all notices had been sent to London since the change of address was notified. The witness Prabhat Kumar Sinha, who works in the Accounts Department of Turner Morrison & Co. Ltd. since 1958, clearly and categorically said in answer to Q. 122 that since 1958, from when he was working in this company, he saw that these notices were being despatched to London. (See P. K. Sinha''s answers to Qs. 121-124; also, his answers to Qs. 136-143, 267-283 and 324). The importance of P. K. Sinha''s evidence is that he despatched the notices according to the addresses given in these lists which were collectively marked as Ex. 9. (P. K. Sinha''s answer to Q. 324).

Next on the point of facts is that even the actual postal receipts had been produced on behalf of the Respondents and marked as Ex. 3. The postal register despatch book is marked - as Ex. 4A (1965), Ex. 5A (1966) and Ex. 6A (1967). The 1967 notice with the acknowledgment receipt is marked Ex. 7, addressed to 7 St. Helens Place. The postal date shows the date as ''5.1.67.''

The 1965 notice, however, has not been supported by any evidence and the postal receipt copy, annexed to the affidavit-in-opposition of Hormasji to the first application, appears to relate to the year 1964.

The 1966 notice was sent to Bombay for despatch to London under circumstances of postal difficulties explained in the evidence of Probhat Kumar Sinha in his answers to Qs. 4-10, 31-38, 62-67 and 22-24. (See also in this connection the evidence of the witness Pulin Behari Roy in answer to his Qs. 32 and 78-81.)

It must also be recorded here that these 1966 and 1967.notices were disclosed in the affidavit-in-opposition of Hormasji and they appear in the annexures to that affidavit-in-opposition.

As against all this massive evidence on behalf of the Respondents, the Petitioner company has produced no record whatever. Its liquidator Mr. Hoon produced no records or register of liquidators to show what letters were received. It is necessary at this stage to examine some of the answers which Mr. Hoon gave on this point. As a liquidator, whose responsibility Is to keep himself informed about the affairs of the company he is liquidating, Mr. Hoon strangely says in answer to Q. 282 on the question whether there was book or a record containing entries of the letters received by the Petitioner company (in liquidation) in London, that ''I do not know.'' Then I asked him in Q. 283: ''Who would?'' And his only answer was: "I have been out from London here fighting this case in and out, but each time I have gone there I have checked up particularly if notices were received in London--the answer "was ''no''." The series of question that followed from the Court from Q. 283 showed that he was prevaricating throughout to give an answer straight on the point whether the Petitioner company in liquidation had a register or a record of incoming letters. And finally in answer to Q. 289 he said: T believe we have a register''. I cannot help coming to the conclusion, as I watched witness Hoon giving his evidence in the witness-box, that he was withholding his register for, had it been produced, it would have shown that his present complaint about non-receipt of notice was baseless and frivolous. The contradiction on the point whether the notices were to be sent to Singapore or to London are manifest from Mr. Hoon''s answers to Qs. 1760-1769.

This is not the end of Mr. Hoon''s contradiction and embarrassment on this point of fact. It appears and established on records that this liquidator Mr. Hoon received the accounts passed at the very meeting without protest and more or less contemporaneously and yet he made no complaint on this point until. 1967. (See Hoon''s answers to Qs. 233-290.) These answers also indicated to my mind, while the witness Hoon was giving evidence, that he was trying to avoid straight answers to straight questions. The point may be illustrated by certain dates. The 1965 accounts were duly passed on the general meeting held on January 14, 1965. Liquidator Mr. Hoon received accounts on September 1, 1965. (See annexure to affidavit-in-opposition of Hormasji to the third application in the list.) Again, the second meeting of 1966 held on January 17, 1966, shows that Mr. Hoon, the liquidator, received the accounts on the very same day, January 17, 1966, and even signed the acknowledgment receipt. (See the affidavit-in-opposition of Hormasji.) Finally, with regard to the third meeting of 1967, held on February 6, 1967, it is established that the liquidator Mr. Hoon received the accounts on September 13, 1967, sent to him. (See in this connection the letter of September 13, 1967, annexed to the first petition at p. 307.) Indeed, I find that Mr. Hoon took as many as 15 copies on September 21, 1967. (See also the affidavit-in-opposition of Hormasji to the third application at p. 173.) The notice dated September 7, 1964, for the meeting on September 30, 1964, was sent, but this letter of the change of address came subsequently on December 9, 1964.

The relevant evidence on the notice of January 5,,1967, is to be found in the answers of witness Probhat Kumar Sinha to Qs. 42-43/68-72, 282-288 and also in the evidence of witness Pulin Behari Roy in answer to Qs. 33-40 and 82-85, which can be compared with the evidence of Mr. Hoon in answer to Qs. 12-19,'' 270, 285-289, 298, 306, 1760-1761, 1797-1799, 1802-1837 and Mr. Hoon''s letters dated February 3, 1967, February 13, 1967 and June 14, 1967.

On facts, there is still more insuperable difficulty -on the way of the liquidator Mr. Hoon in this issue. His complaint is that there was no proper service of this notice and, therefore, these meetings are bad in law. But, the fact remains that this liquidator Mr. Hoon claimed dividends declared at these very meetings and, in fact, successfully made his point in the lien suit No. 2005 of 1965, which Turner Morrison & Co. Ltd. brought against him, and which success perhaps went into his head while he was giving evidence in these proceedings. Surely, if the liquidator Mr. Hoon claimed dividends declared at these meetings, his point about the non-service of notices of these meetings must be deemed to have been waived, for he cannot in one breath claim dividends declared at these meetings and at the same time say that the meetings were illegal or bad because there was no service of notices of these meetings on the Petitioner and its liquidator.

At this stage, I shall conclude my discussion on this issue No. (5) by reference to certain aspects of law relating to irregularity and ratification and by discussion of some of the sections like Sections 172, 53(1), (2) & (4) and Articles 47, 50, 51 and 114 to 117 of the Articles of Association of the Respondent company T.M.

The main point in this issue No. (5) is that the notices of the Annual General Meetings of these three years of 1965, 1966 and 1967, were not given or sent to the addresses of the liquidators as notified. I have already shown that on the facts that has not been established by the Petitioner.- Now, at best, this is an irregularity which can be ratified by conduct even if there is a breach of Article 47 of the Respondent company T.M. Lord Denning in H.L. Bolton v. T.J. Graham & Sons Ltd (1956) 3 All E.R. 624 (629) observed as follows:

The Directors met frequently and discussed the development. It is quite true to say that they did not meet as a Board and no j vote or minute was taken, but nevertheless those Directors individually considered the matter and went further with it as a real project.

Again, in Hooper v. Kerr, Stuart & Co. Ltd. 83 L.T. 729 Cozens-Hardy J. observed as follows:

In fact, there had been no meeting of the Board of Directors after the receipt of the requisition. On the 14th December, a meeting of the Board of Directors, of which the Plaintiff had notice, at which meeting a resolution was passed ratifying and confirming the action of the Secretary > in issuing the notice of the 10th December. The question is whether, although the notice was not authorised beforehand, it has been so ratified now as to make it a good and valid notice. In my opinion it is.

In a sense, both Articles 47 and 50 of the Respondent company T.M. in this context become relevant. Article 47 provides that subsequent general meetings shall be held at least once in every subsequent calendar year at such time and place as may be determined by the Directors, but not more than 15 calendar months after the holding of the last preceding general meeting. At any rate, this Article 47 shows that such general meeting can be held ''at such time and place as may be determined by the Directors''. Again, Article 50 provides for notice of meeting in these terms:

seven days'' notice at least, specifying the place, day and hour of meeting, and in case of special business, the general nature of such business shall be given by notice sent by post, or otherwise served, as hereinafter provided.

This is followed by Article 51 which expressly says:

The accidental omission to give any such notice to any of the members shall not invalidate any resolution passed at any such meeting.

Thereafter, Article 54 deals with the business of the ordinary meeting, quorum and choice of the Chairman, followed by Article 57 providing for a declaration of the Chairman to be conclusive and an entry to that effect to the book of the proceedings of the company shall be

a conclusive evidence of the fact without proof of the number or proportion of the votes recorded in favour or against any such resolution.

In support of this proposition the authorities seem to my mind to be clear. The facts established here are that these impugned notices, even if they were not sent at the addresses the liquidators wanted, a fact which I hold has not been established, cannot save the Petitioner because of the fact that I find that the presence of the Directors at the meetings actually held is clear ratification in this case and, in any event, because of the fact that the share-holders have passed and allowed this. The English Court of Appeal in Browne v. La Trinidad Ltd. 58 L.T. 137 (140-41) is an authority on this point where Cotton L.J. observed as follows:

But the only question which we have now to consider is this, whether, even if there was such informality that the Court might have interfered before the Board had summoned the special general meeting, that meeting can be said to have called without authority, and to have been incompetent to act, though the resolutions of the Board were in fact passed at a meeting of the directors, of which everybody had sufficient notice with the exception of the Plaintiff, he not having raised any objection as to the shortness of the time, or shown that he could not have gone to the meeting before the other directors had passed the resolutions. In my opinion, if there was an irregularity at the Board meeting, it was not such an irregularity as to vitiate the action of the Board, and even if there had been an irregularity as regards the constitution of the Board, that would not have deprived the general body of share-holders of the power of acting, when the notice was issued by the directors, as such, and was signed in the usual way by the secretary, as required in the Articles, on behalf of the directors.

Here, the facts establish that even the dividends declared at these meetings are claimed by the liquidator himself on behalf of the Petitioner company and that is sufficient waiver and ratification even by him so far as the validity or service of the notice is concerned. In that view, the decision of Cozens-Hardy J. In Re: Haycraft Gold Reduction & Mining Co. (1900) 2 Ch-D. 230 (237) cannot be of any assistance to the Petitioner. I shall conclude this issue by a brief reference to certain sections of the Companies Act, 1956. Section 172 of the Act provides for contents and manner of service of notice to persons on whom it is to be served. By Sub-section 2(i) of Section 172 of the Companies Act, it is expressly provided that notice of every meeting of the company shall be given to every member of the company in any manner authorised by Sub-sections (1) to (4) of Section 53 of the Companies Act. Now, Section 53 of the Companies Act, 1956, in its Sub-sections (1) to (4) makes" these provisions. In s. 53(1) it is provided:

A document may be served by a company on any member thereof either personally or by sending it by post to him to his registered address, or if he has no registered address in India, to the address, if any, within India supplied by him to the company for the giving of notices to him.

A glance at this provision will at once make it clear that a notice may be served by a company to its member at ''his registered address''. Now, in this case, the Petitioner company claims to be a registered member of the Respondent company T.M. Ltd. and the registered address of the Petitioner company is Singapore. That cuts across-the whole case of the Petitioner company where its liquidator claims that the notices are to be sent wherever the liquidator happens to reside and in this case it was in London. It is further provided by Section 53(2) that a service of a document or notice by post will be deemed to be effected by properly addressing and posting a letter, provided that where the member has intimated to the company in advance that the document should be sent to him under certificate of posting or by registered post with or without acknowledgment due, such service will not be deemed to be- effective unless it is sent in the manner intimated by the member. That, in my opinion, has been done in the facts of this case. Coming back to Section 172 of the Companies Act, 1956, there is one more provision to which it is necessary to refer. That is Section 172(3) of the Companies Act, 1956, which provides:

The accidental omission to give notice to, or the non-receipt of notice by, any member or other person to whom it should be given shall not invalidate the proceedings at the meeting.

That, in my view, is a complete answer to the Petitioner''s case on this point.

I, therefore, hold on the issue No. (5) that the notices of the Annual General Meetings of 1965, 1966 and 1967 were in fact given to the liquidators at the address they wanted and that in any event they have ratified by their conduct of (a) obtaining copies of the balance-sheets passed at these meetings and (b) claiming dividend passed at these meetings. I hold further that even if the service of notices was not properly given at the address, even then the only effect in the facts of this case will be that it was an irregularity which has been cured by the subsequent conduct.

Issue No. (6):

I now come to issue No. (6) which is in these terms:

Were the 52nd, 53rd and 54th Annual General Meetings of the Respondent company No. 1 held in violation of the provisions in Section 166 and Section 258 of the Companies Act, 1965, as alleged in para. 87 of the petition?

On behalf of the Petitioner company it is urged that the 53rd Annual General Meeting for the year ending 1964 was beyond time and it was argued that it should have been held by June 1965, but in fact held on January 10, 1966, and adjourned for lack of quorum till January 17, 1966. It is, therefore, argued on behalf of the Petitioner company that it is in breach of Section 166 read with Section 210(2)(b) of the Companies Act, 1956. It is next submitted by the Petitioner company that the 54th Annual General Meeting for the year 1965 is beyond time and it is said that it should have been held by June 1965 but in fact was held on January 30, 1967, adjourned till February 6, 1967, and, therefore, in breach of Section 166 read with Section 210(2)(b) of the Companies Act, 1956.

But here again, accounts of these very meetings were taken by the liquidator Mr. Hoon on March 21, 1967. (See also the letter at p. 306 enclosing the minutes of February 6, 1967.) There was no immediate protest. This letter of February 3, 1967, from the liquidator Mr. Hoon is significant because it states, inter alia:

Further to the discussion that Mr. N. S. Hoon had with your Mr. A. J. Hormasji today, please note that in future a copy of all correspondence addressed to the registered office of Hunger-ford Investment Trust Ltd. (in voluntary liquidation) should be sent to Mr. N. S. Hoon at the above address (Camp Room No. 255, Grand Hotel, Calcutta 13) until further notice. Mr. Hoon, although being in Calcutta, could not attend the meeting of Turner Morrison & Co. Ltd. held recently as the notice of the meeting was sent to Singapore. We, therefore, request you to send a copy of the minutes of the meeting and a copy of the annual accounts to Mr. Hoon at the above Calcutta address at your earliest.

On February 13, 1967, the Respondent company T.M. Ltd. through its Secretary replied to this letter sending the liquidator Mr. Hoon a certified copy of the minutes of the 54th Annual General Meeting of the company which was held on January 30, 1967, and adjourned and also a copy of the minutes of the adjourned general meeting which was held on February 6, 1967, and a copy of the audited accounts of the company for the year ending December 31, 1965,, together with the Directors'' report.

There was some cross-examination so far as the resolutions of the Respondent company T.M. Ltd. is concerned regarding the previous practice of approving notices of Annual General Meetings by the Board of Directors and in support of that such resolutions as those dated (i) April 10, 1953, Ex. S(1); (ii) April 13, 1955, Ex. S(2); (iii) March 29, 1965, Ex. S(3); (iv) October 4, 1957, Ex. S(4); (v) April 29, 1968, Ex. Q(2); (vi) October 30, 1967, Ex. T(4); (vii) September 28, 1965, Ex. T(5); (viii) December 7, 1966, Ex. T(3) and (ix) August 4, 1964, Ex. T(17) were relied upon. In this case, the first and the third notices were by the Secretary and the second was by the Director. Jaffray. In this connection reference may be made to the evidence of K. N. Tapuria and his answers to Qs. 204-225, 283-327 and 686, In Buckley on Companies Cases (13th ed., p. 332) the law on this point is stated in these terms:

A notice issued by the secretary after mentioning the matter to some of the directors, but without any express approval by any director and without any board meeting for considering it, was invalid and so was a notice issued by the secretary on his own responsibility and without any authority from the directors (Re Hay craft Gold Reduction and Mining Company, (1900) 2 Cha. 230, and In Re: State of Wyoming Syndicate, (1901) 2 Cha. 431). But a notice issued under the authority of a board meeting at which two directors were present, in a case where the quorum was three, but an invalid resolution had been passed six years before reducing the quorum to two, was irregular but valid (Southern Counties Deposit Bank v. Rider and Kirk-wood, (1895) 73 I.T. 374). And a notice issued by the directors de facto may be valid (Boschoek Proprietary Co. v. Fuke, (1906) 1 Ch. 148). A notice issued without authority may become a good notice if adopted and ratified by a board meeting (Hooper v. Kerr. Stuart and Co., (1900) 83 I.T. 729).

It will appear from these observations of Buckley that a notice issued even without authority may become a good notice if adopted and ratified by the Board meeting. I find in this case there has been such adoption and ratification. The same view was expressed in Palmer''s Company Law (21st eel., p. 468) where the observation appears,

notice of a general meeting given by the Secretary without the sanction of the Directors or other proper authority is invalid, but such a notice may be ratified by the Directors before the meeting.

Besides, the evidence of Mr. Tapuria, to which reference has already been made, makes the point clear that these notices had the Directors'' approval.

The Annual General Meeting for year ending 1963 should have been held by June 1964 (52nd Annual General Meeting), but in fact held in September 1964, adjourned till October 7, 1964, and adjourned again till December 15, 1964, and again further adjourned till September 7, 1965, and again adjourned till September 14, 1965, when it was ultimately held. This is said to be in breach of Section 166 of the Companies Act read with Section 210(2)(b) of the Companies Act. As already pointed out Articles and accounts of the meeting were taken on behalf of the Petitioner company by its liquidator Mr. Hoon on January 17, 1966, but no protest was made at that time.

The answer is that the 52nd Annual General Meeting was held in September 1964 and was adjourned which can be done. The reasons for the delay appears from the evidence and records of these proceedings and that reason is that the delay was due to seizure of books and fresh accounts had to be made after copies of the whole accounts were made out. This will be clear from the answers to the affidavit-in-opposition of Hormasji to the first application and particularly in para. 74B thereof.

The more serious answer is that dividend was declared at this 52nd Annual General Meeting at 20 % and claimed by this liquidator Mr. Hoon. Similarly the 53rd Annual General Meeting also declared dividend at 10 %.- Again, dividend was declared at the 54th Annual General Meeting at 7 %. This divided was also claimed for the Petitioner by its liquidator Mr. Hoon. I cannot again see how the Petitioner company through its liquidator Mr. Hoon can Claim dividend and at the same time challenge the meetings as void and illegal. He cannot approbate and reprobate at the same time.

Annual General Meeting has to be held whether accounts are ready or not. Reference in this connection was made by the learned Counsel for the Respondents to the decision of this Court In Re: Brahmaputra Loan Co. ILR Cal.408 by Buckland J. where the learned Judge had the occasion to discuss Section 76 of the old Indian Companies Act and came to the conclusion that that section was not intended to enable the Court to make an order which would excuse the persons responsible for failure to call a general meeting from the consequences of their omission because it was held there that Section 76 of the old Indian Companies Act was mandatory and made no reference to the balance-sheet, the preparation of which had nothing to do with the matter. But this law is changed now having regard to the present Section 167 of the Companies Act, 1956. The contrast and the change in the law would also appear if the present Section 210 of the Companies Act, 1956, is compared with the old Section 131 of the old Indian Companies Act regarding annual accounts and balance-sheet Section Section 210 of the Companies Act, 1956, now lays down that at every Annual General Meeting of the company the Board of Directors shall lay before the company a balance-sheet and a profit and loss account. The Petitioner company or its liquidator Mr. Hoon could also have invoked Section 167 of the Companies Act, 1956, which gives power to the Central Government to call Annual General Meeting in case of default in holding Annual General Meeting if he was genuinely interested in the management of the Respondent Turner Morrison 8a Co. Ltd., but no such step of course was taken by the Petitioner company or its liquidator Mr. Hoon.

I shall discuss here at this stage whether meeting held in violation of time is invalid for all purposes or whether the Directors are liable to fine and penalty only as specified in the statute. It appears to me from my study of the cases that there is no direct authority on the point. In Re: Coal Marketing Co. India Private Ltd., I came to the conclusion on the expression ''other than an Annual General Meeting'' in Section 186(1) of the Companies Act, 1956:

This expression makes it quite clear that Parliament did not want this Court to exercise any power with regard to annual general meeting but granted this power to the Court to order meeting in respect of meetings other than the annual general meeting. This is express statutory exclusion of the annual general meeting from the Court''s power to order meetings. The annual general meeting therefore in case of default can only be called by either the directions of the Registrar within the meaning of the exemption u/s 166(1) of the Companies Act or by the Central Government u/s 167 of the Act. I am therefore disinclined to so interpret section 633 of the Companies Act and Sub-section (2) thereof as to whittle down the clear prohibition upon the Court to grant any extension of time with regard to calling, holding and conducting of an annual general meeting.

The position then under the Companies Act, 1956, can be stated in these terms: The Court has no power to extend or grant time in case of a default and, if the Central Government does not sanction, then the default can never be remedied and the continued default will helplessly open the Directors to increasing penalty without remedy. Section 168 of the Companies Act, 1956, provides the penalty and fine by saying that the company and every officer of the company who is in default shall be punishable with fine which may extend to Rs. 5,000 and in the case of a continuing default with a further fine which may extend to Rs. 250 for everyday after the first during which such default continues. This can be compared with Section 629A which provides for penalty where no specific penalty is provided in the Act. If the sequence of the sections is considered on this point, then it will be seen that Section 166 fixes time for the Annual General Meetings. It is followed by Section 167 which indicates that the default may be condoned by the sanction of the Government. Section 168 of the Companies Act thereafter provides for the penalty for default in compliance with Section 166 or Section 167.

The situation, therefore, is acute from the point of view of legal implications. On behalf of the Petitioner it is contended that when once the time has passed, any meeting held beyond that time by the company is illegal and void. On behalf of the Respondents it is said that the meeting cannot be illegal and void because that is not what the Companies Act says. Now, I find that Section 168 which provides for penalty in case of default does not declare the meeting illegal. The Companies Act, 1956, uses such expressions as ''default'', void'' and ''voidable''. I shall illustrate this aspect of the consideration. Section 416(3) of the Companies Act, 1956, discusing contracts by agents of the company expressly provides,

if default is made in complying with the requirements of this section, the contract shall, at the option of the company, be voidable as against the company and the person who enters into such contract, or every officer of the company who is in default, as the case be, shall be punishable with fine which may extend to Rs. 200.

Now, this is a case of a default u/s 416 relating to contracts but which does not make the contracts void but voidable. Similarly, u/s 303(8) of the Companies Act, 1956, the word ''default'' is used and only punishment with fine is provided for without saying that the default would render any act void or illegal with regard to registers to be kept under that section. Similarly, u/s 307(8) the word ''default'' is used and only punishment with fine is provided for but no act is said to become void or illegal by reason of such default. Similarly, u/s 308 of the Companies Act providing for duty of the Directors and persons deemed to be Directors to make disclosures of share-holdings, it is provided by Sub-section (3) thereof that the default or failure to comply with such requirements would be punishable with imprisonment or fine but without saying that any act done or conduct would become illegal or void. At the same time where the Companies Act intended to render an act ''void'', it has said so. For instance, Section 270(2) of the Companies Act, 1956, renders any provision in the Articles of the company ''void'' insofar as it requires a person to hold qualification shares before his appointment as a Director or to obtain them within a shorter time than two months after his appointment as such; again, the penalty is provided u/s 272 in the case of the Director in circumstances mentioned therein but without making his continuance ''void''; again, Section 283(1)(a) of the Act says that the office of a Director shall be vacant if certain circumstances occur; further, a clear example appears from Section 312 of the Act which provides that any assignment of office made after the commencement of this Act by any Director of a company shall be void; and finally, Section 376 of the Companies Act, 1956, renders certain conditions prohibiting reconstruction or amalgamation of a company except on continuance of Managing Agent etc. ''void''.

From this analysis of the different provisions of the Companies Act, it appears that the statute has said ''void'' when it wanted to render an. action void; it has said ''voidable'' where it has wanted to render it voidable ; and it has said ''punishable'' where it has wanted to make it punishable.

The question then arises: What ft the appropriate and proper interpretation to be put upon this time limit u/s 166 of the Companies Act, 1956? Is it to be interpreted by saying that if the meeting is held in violation of the time specified u/s 166, then it is invalid or void or illegal for all purposes? Or, whether this prohibition of time limit only makes the Directors who commit default liable only to fine or penalty under provisions like Section 168? Section 168 of the Act provides for the penalty but does not make the meeting illegal. To make the meeting illegal would be, in such circumstances, to perpetuate an endless deadlock with endless penalty without remedy. That is a construction which should be avoided unless the Court is compelled to adopt that construction by reason of the language of the relevant sections of the Companies Act. But, I do not think that the Court is so compelled. I have already described the situation that the Court under the Companies Act, 1956, has no power-to extend or grant time for Annual General Meeting. If the Central Government does not sanction u/s 210 of the Companies Act, 1956, such meeting, then the default is without remedy.and continuing default, having regard to the provisions in Section 168, would throw open the company''s Directors to continuing penalties with fines without remedy. Therefore, I come to this construction that the default regarding time in holding Annual General Meeting is penalisable as by statute and according to the terms thereof. But, the meeting can nevertheless be held and such meeting would not be void. The statutory provisions for fine, which I have quoted above, also show that the meeting is not void. Otherwise, the situation would be impossible in law. Section 168 of the Companies Act, 1956, speaks of continuing default. If the default is to be discontinued, the fine has to be paid under the terms of that section. Payment of the fine under the penalty should cure the default or else the payment of the fine and the penalty would not resolve the difficulty because the company could not hold its meeting by itself. I have already contrasted sections of the Companies Act which say when breach of a section makes the act void, but it does not do so under Sections 166, 167 and 168 of the Companies Act regulating the holding of the Annual General Meeting, its default and the penalty thereof. Sections 166, 167 and 168 do not say that a meeting held by the company itself beyond the time indicated would be void or voidable but they only provide the penalty payable. From my analysis of the sections of the Companies Act it is plain that the statute draws the distinction between the void, voidability and penalisability of the acts of omission or commission of the company.

I, therefore, hold that the consequence of default in holding Annual General Meeting, even where there is such a default, is only liability for penalty and for payment of fine as prescribed by the statute and the further consequence is that the meeting, if held by the company beyond time, cannot be said to be void or illegal. This Court will not read more consequences than the specific penalty specifically provided by the specific terms of Sections 166, 167 and 168 of the Companies Act. In this connection, I shall refer once again to Section 629A of the Companies Act, 1956, which provides:

If a company or any other person contravenes any provision of this Act for which no punishment is provided elsewhere in this Act or any condition, limitation or restriction, subject to which any approval, sanction, consent, confirmation, recognition in relation to any matter, has been accorded, given or granted, the company and every officer of the company who is in default or such other person shall be punishable with fine which may extend to five hundred rupees, and where the contravention is a continuing one, with a further fine which may extend to fifty rupees for every day after the first during which the contravention continues.

This, no doubt, is a section which provides a proper sanction for enforcement of and complying with the statute where no specific penalty for contravention has already been prescribed. But the scope of this section is very wide. Any person who has to comply with any provision of the Act and contravenes the same, he is punishable under this section. It is to be noticed that, besides the officers of a company, a share-holder, a liquidator or any other person who has to comply with but contravenes any provisions of this Act will also come under.this section and that will also involve the liquidator himself. There are two other sections to which reference may be useful. One is Section 293(5) which says that no debt incurred by the company in excess of the limit imposed by Section 293(1)(d) shall be valid or effectual unless the lender proves that he advanced the loan in good faith and without knowledge that the limit imposed by that clause had been exceeded and Section 534 of the Companies Act, 1956, renders a floating charge invalid in the circumstances mentioned therein. It is significant that in Sections 166, 167 and 168 of the Companies Act, 1956, in respect of the holding and conduct of the Annual General Meetings such words as ''valid'' or ''invalid'' are not used.

Another submission made on behalf of the Petitioner company is with reference to the minutes of the adjourned 52nd Annual General Meeting held on October 7, 1964, and-appearing at p. 312 of the annexures to the petition. The argument is that the Directors'' appointment was adjourned for more than one week in contravention of Article 50 of the Articles of the Respondent company TM. Ltd. Article 50 of the Articles of the Respondent company T.M. Ltd. provides seven days'' notice at least specifying the place, day and hour of the meeting. But this complaint is answered by saying that the Directors'' appointment was not adjourned for more than one week as under Article 50 the rest of the adjournment was for passing of the accounts, a point which I have already dealt with. Besides, Article 88 of the Articles provides that all acts done at any meeting of the Directors or of a committee of Directors or by any person acting as a Director shall, notwithstanding that it shall afterwards be discovered that there was some defect in the appointment of such Directors or persons acting as aforesaid or that they or any of them were disqualified, be as valid as if every such person had been duly appointed and was qualified to be a Director and this may be read along with other relevant Articles, viz. Articles 82-87.

For the reasons stated above, I hold that the 52nd, 53rd and 54th Annual General Meetings of the Respondent No. 1, even if in violation of the time prima facie imposed in Sections 166 and 258 of the Companies Act, do not render them invalid or void. I answer the issue accordingly. I further hold on this issue that it is not a ground in the facts and circumstances of this case for an application under Sections 397 and 398 of the Companies Act of 1956, as other remedies were open to -the Petitioner company and its liquidator, from the sections which I have indicated which could have cured the defect, if any, in respect of these Annual General Meetings.

Issue No. (7):

This issue is in two parts and is as follows:

(7)(a). Was the Board of Directors of the Respondent company No. 1 validly constituted in 1966 and 1967 as alleged in para. 87 of the petition? And (7)(b). Is the present Board of Directors validly constituted as alleged in para. 87 of the petition?

I shall take up issue No. (7)(a) first relating to the validity of the constitution of the Board of Directors of the Respondent company T.M. Ltd. in 1966 and 1967. The allegations, as indicated already, are -to be. found in para. 87 of the petition.

Briefly, the contention of the Petitioner company on this point is as follows. Jaffray was due to retire by rotation at the Annual General Meeting for the year ending December 31, 1964. Therefore, Jaffray could not be a valid Director in 1966, because he was due to retire on December 31, 1965, at the latest. Secondly, Rodewald was not a valid Director because the purported appointment of him on February 8, 1966, was invalid on the ground that the Board which appointed him consisted of Jaffray and Hajarat Khan. Thirdly, the Respondents Bhubaneshwar Prosad Sinha and Meyer were not valid Directors because they were taken as Directors on March 29, 1966, by a Board which was itself not valid. Similarly with the Respondents A. K. Roy and K. N. Tapuria. In any event, it is submitted on behalf of the Petitioner company that assuming B. P. Sinh''a, E. R. Meyer, A. K. Roy and K. N. Tapuria were validly co-opted, they ceased to be Directors on September 30, 1966, on which date they should have been re-elected.

The next submission made by the Petitioner company on this point is that these appointments caused an increase in the Board of Directors in violation of Section 258 of the Companies Act and Article 82 because there is no resolution in.the Annual General Meeting increasing the number of Directors beyond three.

This briefly is the contention of the Petitioner on this point.

Section 258 of the Companies Act, 1956, deals with the right of a company to increase or reduce the number of Directors. It provides, inter alia, that subject to the provisions of Sections 252, 255 and 259 a company in the general meeting may, by -ordinary resolution, increase or reduce the number of its Directors within the limits fixed in that behalf by its Articles. Within the meaning and subject to limitations imposed by that section the company, therefore, in a general meeting can increase the number of Directors. It has been done so in this case and that is a complete answer in any event to this objection. The appointment by the Respondent company T.M. Ltd. in the general meeting appears plainly from the minutes of the following meetings of (i) October 7, 1964--the 52nd Annual General Meeting where Hajarat Khan was re-elected and where Rodewald and Jaffray continued as Directors: (ii) January 17, 1966--the 53rd Annual. General Meeting where Jaffray was re-elected as Director j (iii) March 29, 1966, Ex. T(16)--where Respondents Bhubaneshwar Prasad.Sinha and Ellis Raymond Meyer were co-opted; (iv) September 21, 1966, Ex. T(3), and the affidavit-in-opposition of Hormasji at p. 271 as well as the petition at p. 54 clearly establishing the resignation of Rodewald and the co-option of A. K. Roy and Tapuria; (v) September30, 1966, where Jaffray resigned, for which see the affidavit-in-opposition of Hormasji at p. 271 and the petition at p. 54 ; and (vi) February 6, 1967--the 54th Annual General Meeting where Respondents Bhubaneshwar Prosad Sinha, E. R. Meyer and A.K. Roy were elected and. Hajarat Khan continued, and hence on this date the approval of the company in the general meeting exists.

Really two points emerge from this submission of the Petitioner. They are: (i) alleged breach of Section 258 of the Companies Act, 1956, meaning thereby increase in the number of Directors with, out being passed at the Annual General Meeting read with Article 82 of the Articles of the Respondent company T.M. Ltd. and (ii) alleged breach of Section 256 of the Companies Act meaning thereby that the Directors had retired because the meetings had been held late and at one time.

One answer is that this is not proper to be dealt with u/s 397 or Section 398 of the Companies Act to deal with the authority of the Board of Directors. See for instance the provision even of de facto Directors u/s 290 of the Companies Act. For the purpose of additional Directors provisions are made in Sections 258 and 260 of the Companies Act. Section 260 of the Companies Act, 1956, expressly provides for additional Directors which lays down that nothing in Section 255, Section 258 or Section 259 shall affect any power conferred on the Board of Directors by the Articles to appoint additional Directors, provided that such additional Directors shall hold office only upto the date of the next Annual General Meeting of the company; provided further that the number of Directors and additional Directors together shall not exceed the maximum strength fixed for the Board by its Articles. This clearly shows that Section 260 by express terms overrides the provisions of Section 258 of the Companies Act, 1956. Coming to the Articles of the Respondent company T.M. Ltd., the relevant Articles are (i) Article 70, providing

until otherwise determined by a general meeting the number of directors shall not be less than two, nor more than twelve, but the continuing directors may act, notwithstanding any vacancy,

(ii) Article 80 providing

the company in general meeting may from time to time increase or reduce the number of directors and may also determine in what manner or rotation such increased or decreased number is to go out of office

and (iii) Article 82 providing

the directors shall have power from time to time and, at any time, to appoint any other qualified person to be a director either to fill a casual vacancy or as addition to the board, but so that the total number of directors shall not at any time exceed maximum number fixed as above, but a director so appointed shall hold office only until the next following ordinary meeting and shall then be eligible for re-election.

In this view of the provisions of the Companies Act and the Articles of the Respondent company T.M. Ltd., I am unable to accept the submission on this behalf by the Petitioner; Mr. Mukherjee, learned Counsel for the Petitioner, relied on the Australian case of Grant and Ors. v. John Grant & Sons 82 Commonwealth L.R. 1. This Australian case is to be distinguished on the ground that here in the present proceeding before me Article 82 of the Articles of Association of the Respondent company T.M. Ltd. governs the situation and such Article or any similar Article was absent in the Australian case and, secondly, it is to be distinguished also by the Indian statutory provision whereby Section 260 of the Companies Act expressly overrides Section 258 of the Companies Act.

For these reasons, I hold that the Board of Directors of the Respondent company No. 1 was validly constituted in 1966 and 1967 and answer the issue, accordingly, in the affirmative.

Proceeding now to issue No. (7)(b) it will be seen that this issue is really covered by issue No. (8) and is confined to the present Board of Directors and not to the years 1966 and 1967 as in issue No. (7)(a).

I shall, therefore, anticipate and discuss here the points raised in issue No. (8).

The first submission on behalf of the Petitioner is that the Respondents have violated Section 258 of the Companies Act and Article 80 of the Articles of Association of the Respondent company No. 1, T.M. Ltd. In support of this submission Mr. Mukherjee, learned Counsel for the Petitioner, has referred me to certain authorities. I have already quoted Section 258 of the Companies Act elsewhere in this judgment. He relies first on the decision of the Bombay High Court in Krishnaprasad Jwaladutt Pilani Vs. Colaba Land and Mills Co. Ltd., laying down the proposition that the Court has to ascertain the tenure of the office of the -elected Director not merely from Section 256 but also from the language of Sections 166, 255 and 256 read together and in a case where despite the mandatory provisions of Section 166 and in breach of their duty as Directors, the Directors do not call an Annual General Meeting of the company for any length of time, they cannot claim to continue in their office of Directors after the expiry of the period mentioned in the section for calling the statutory meeting because a Director vacates his office at the latest on the last day on which an Annual General Meeting could have been called as required by Section 166. The next case on which he relies is a decision of this Court to which reference has already been made, namely, In re Coal Marketing Co. of India Ltd. (Supra).

But, I have discussed the provisions of Section 260 of the Companies Act dealing with additional Directors and Article 82 dealing with the Directors'' power to fill up casual vacancies.

Here also Mr. Mukherjee, the learned Counsel for the Petitioner argues, that the defect, if any, is not curable by the Article curing defects and it was for that purpose that he relied on the Australian decision in Grant v. John Grant if Sons (Supra) already cited. I have already dealt with this Australian case. I need only add here that Latham C.J. in that case dissented and, besides, the observations of Williams J. in that case (Supra (26-28, 33-34)) are also relevant. The next case on which Mr. Mukherjee for the Petitioner relied is the House of Lords'' decision in Morris v. Kanssen (1946) All E.R. 586 (590) arid the observations of Lord Simonds therein. The principle or the doctrine there was that the defect could not cover a case where there was a total absence of appointment or fraudulent usurpation of authority and was concerned with, the actual statutory provision of the English Companies Act and the schedule and tables thereunder. They are very different from the provisions of the Indian Companies Act, 1956, and the particular Articles of the Respondent company No. 1, T.M. Ltd., which I Have already discussed. Finally, Mr. Mukherjee relied on the resolution, marked Ex. G-10, dated February 8, 1966, pointing out the fact that the general meeting to approve was not held.

The real answer to my mind of Mr. Mukherjee''s submission on this point is Article 79 and Section 256 of the Companies Act. Article 79 of the Respondent company T.M. provides as follows:

If at any general meeting at which an election of Directors ought to take place, the places of the retiring Directors are not filled up, the retiring Directors or such of them as have not had their places filled up shall continue in office until the dissolution of the ordinary meeting in the next year and so on from year to year until their places are filled up, unless it shall be determined at such general meeting to reduce the number of Directors.

The answer is also provided by Section 256 of the Companies Act. The main features of this statutory provision u/s 256 of the Indian Companies Act, 1956, may be noticed here with a little more emphasis Section In Sub-section (1) it lays down that at the first Annual General Meeting held next after the date of the general meeting at which the first Directors are appointed in accordance with Section 255, and at every subsequent Annual General Meeting, one-third of such of the Directors for the time being as are liable-to retire by rotation, or, if their number is not three or a multiple of three, then, the number nearest to one-third shall retire from office. Section 256(2) then proceeds to state that the Directors to retire by rotation at every Annual General Meeting shall be those who have been longest in office since their last appointment, but as between persons who became Directors on the same day, those who are to retire shall, in default of arid subject to any agreement among themselves, be determined by lot. Then Section 256(3) provides that at the Annual General Meeting at which a Director retires as aforesaid, the company may fill up the vacancy by appointing the retiring Director or some other person thereto.

I shall now quote in extenso Sub-section (4) of Section 256 of the Companies Act, 1956, relevant for the present purpose, which is as follows:

4(a). If the place of the retiring Director is not so filled up and the meeting has not expressly resolved not to fill the vacancy, the meeting shall stand adjourned till the same day in the next week, at the same time and place, or if that day is a public holiday, till the next succeeding day which is not a public holiday, at the same time and place.

(b) If at the adjourned meeting also, the place of the retiring Director is not filled up and that meeting also has not expressly resolved not to fill the vacancy, the retiring Director shall be deemed to have been re-appointed at the adjourned meeting, unless

(i) at that meeting or at the previous meeting a resolution for the re-appointment of such Director has been put to the meeting and lost;

(ii) the retiring Director has, by a notice in writing addressed to the company or its Board of Directors, expressed his unwillingness to be so re-appointed ;

(iii) he is not qualified or is disqualified for appointment;

(iv) a resolution, whether special or ordinary, is required for his appointment or re-appointment in virtue of any provisions of this Act; or

(v) the proviso to Sub-section (2) of Section 263 is applicable to the case.

The tenor of this provision is that if the place of the retiring Director is not filled up and where the meeting has not expressly resolved not to fill up the vacancy, the meeting automatically stands adjourned till the same day next week or upto the time mentioned above, and if at that adjourned meeting the place of the retiring Director is not filled up without any express resolution not to fill it up, then the statute provides "the retiring Director shall be deemed to have been re-appointed at the adjourned meeting" unless, of course, he is hit by the, qualifications (i) to (v) mentioned in Sub-clause (b) of Sub-section (4) of Section 256 of the Act. Now, this gives the complete answer, in my view, to the arguments made by Mr. Mukherjee for the Petitioner on this point.

On the cases, it has to be noticed that the Bombay decision in Krishnaprosad Jawladutt Pilani v. Colaba Land & Mills Co. ( Supra) can be distinguished by two decisions of this Court. One is in Kailash Chandra Dutt Vs. Jogesh Chandra Majumdar and Others, , a decision of- a Division Bench of this Court. The Court observed there as follows:

With regard to the merits, the Articles of Association provided that the Director should be elected annually at general meeting. If follows, therefore, that so long as the general meeting is not held in which the Directors are to be elected, the Directors elected at the previous general meeting would continue in office. It is contended by the learned Advocate for the Respondent that, according to the true interpretation of the Articles, the Directors would hold office only for one year from the date of their appointment, and if no general meeting is held at the lapse of one year, the Directors would automatically vacate their office and the company would go on without any Directors at all. I am unable to accept this contention of the learned Advocate as it seems to me that it would be unreasonable to hold that this is the true meaning of the Articles of Association.

The other decision is the decision of a learned single Judge of this Court In Re: Hindusthan Co-operative Insurance Society Ltd., where it followed the Bombay decision in Krishnaprasad Jwaladutt Pilani Vs. Colaba Land and Mills Co. Ltd., But, then that case is to be distinguished by reason of the finding of the learned Judge when the learned Judge said that

this is not a case where there was a defective appointment, but one where there was no appointment of Directors at all.

That surely is not the case here. The observations by Lord Greene M.R. in Grundt v. Great Boulder Proprietary Mines Ltd. (1948) 1 Ch.D. 145 (158-59) may in this connection be seen,

The Bombay decision in Krishnaprasad Jwaladutt Pilani Vs. Colaba Land and Mills Co. Ltd., and the report of the judgment do not make it clear in what proceedings, under what section that application was made and how was the declaration made because it was not a suit. This decision was referred to in the subsequent Bombay decision in Lalchand Mengraj v. Shree Ram Mills Ltd. (1968) 38 Comp. Cases 606 (619). The first Krishnaprasad Jwaladutt Pilani Vs. Colaba Land and Mills Co. Ltd., held that the Director fictionally retires in this context of things, but the second Krishnaprasad Jwaladutt Pilani Vs. Colaba Land and Mills Co. Ltd., came to the view that the fiction of continuance applies. In fact, the second Bombay case applied a double fiction. First, the fiction of the Director having retired and the second fiction is'' the Director having continued. The better opinion seems to be not to invoke fiction at all but simply say that, as the meeting in fact was not held, the Director continued until the meeting was actually held which was the simple view taken by the Calcutta case in Kailash Chandra Dutt Vs. Jogesh Chandra Majumdar and Others, . The recent decision of the Madhya Pradesh High Court In the matter of In Re: The Pasari Flour Mills Ltd., appears to notice this difference and observed:

From whatever angle this point is examined it must be held that the Directors continue in their office whether because they have not retired at an Annual General Meeting, or because of the deeming provision contained in Sub-section (4) of section 256 and shall continue to remain in office until there is an election at an Annual General Meeting.

I need only refer to another observation of Ameer Ali J. of this Court in Satinath Mukherjee v. Suresh Chandra Roy ILR (1940) Cal. 560 where the learned Judge makes the observation that there was no notional adjourned general meeting and notional re-appointment of the Directors under Article 148 of the old Companies Act and the Defendants there were therefore deemed to have been re-elected.

I should prefer to locate the language of Section 256 of the Companies Act, 1956, which I have quoted elsewhere. The crucial expression in the different Sub-sections is ''meeting held''. I would give a plain and ordinary meaning to that expression that the meeting must actually be held. The Companies Act mentions about fictional meetings elsewhere but u/s 256 of the Companies Act it uses the words ''meeting held'' and that can only mean that the retirement takes place at the actual meeting ''held''. To my mind Section 356(4) makes the intention plain and clear. Further, I consider that Section 260 of the Companies Act also deals with the actual dates of the meeting. In other words, the meetings are not void. Determinations like remuneration do not make the meeting void. Again Section 283 of the Companies Act specified various circumstances in which the Director vacates, but this is not one of such circumstances -mentioned in the section. Not holding the meeting is not mentioned as a circumstance leading to automatic vacating of the Director''s office.

For these reasons, I answer issue No. (7)(b) also in the affirmative and I hold that the present Board of Directors is validly constituted.

Issue No. (5):

I come now to issue No. (8). Issue No. (8) is as follows:

Have the Respondents violated the provisions of:

(a) Section 158 of the Companies Act, 1956, and Article 80 of the Articles of Association of the Respondent company No. 1?-

(b) Section 260 of the Companies Act, 1956, and Article 82 of the Articles of Association of the Respondent company No. 1?

(c) Sections 198 and 309 of the Companies Act, 1956?

(d) Section 207 of the Companies Act, 1956?

(e) Sections 163, 196 and 214 of the Companies Act, 1956, as alleged in respect of (a) and (b) above in para. 87, in respect of (c) above in para. 89(iii), in respect of (d) above in para. 93(ii) and in respect of (e) above in para. 90 of the petition? If so, do the same amount to oppression or mismanagement within the meaning of Sections 397 and 398 of the Companies Act, 1956?

Much of this issue has already been covered in my treatment of the foregoing issues. Issue No. (8)(a) is already decided under the head ''increase in the number of Directors'' under issue No. (7) and dealing with Section 258 of the Companies Act, Issue No. (8)(b) dealing with Section 260 of the Companies Act, 1956, has already been decided under the head ''additional Directors'' under issue No. (7). Regarding issue No. (8)(c), I have already decided it under issue No. (4)(a) relating to excess remuneration. On issue No. (8)(d) dealing with Section 207, I have already given my decision on the subject of non-payment of dividends declared under issue No. (4).

The only new point under this issue No. (8) is issue N/o. (8)(e) dealing with Sections 163, 196 and 214 of the Companies Act of 1956.

The relevant documents are to be found in the annexure to the petition at pp. 283-284, 287, 289, 291, 293, 297, 298 and 299. At those pages are to be found the letters on the subject of inspection by the Petitioner company certain books of the Respondent company No. 1 T.M. Ltd. and its subsidiaries. Apart from these letters reliance has also been placed on behalf of the Petitioner on two resolutions, viz., Ex. T(1) dated July 11, 1967, and Ex. T(9) dated September 20, 1967, of the meeting of the Directors of the Respondent company T.M. Ltd. Mr. Mukherjee, learned Counsel for the Petitioner, also relied on the evidence of Hormasji in suit No. 2005 of 1965 in his answers to Qs. 609-613 to establish the Petitioner''s complaint about refusal to give inspection of documents. In this connection reference may also be made to the letter dated September 9, 1964, from the Respondent company T.M. Ltd. to the Company Law Board appearing at p. 327 of the annexure to the petition.

Now, the relevant law on this point is contained in Sections 163, 196 and 214 of the Companies Act, 1956. Section 163 of the Companies Act provides for the place of keeping and inspection of registers and returns. So far as these registers and returns are concerned, special provisions are made in Sub-sections (5) and (6) of Section 163 in case of any default. Section 163(5) of the Companies Act provides, inter alia, that if any inspection, or the making of any extract required under this section is refused or if any copy required under this section is not sent within the period specified in Sub-section (4), the company and every officer of the company who is in default shall be punishable in respect of each offence with fine which may extend to fifty rupees for every day during which the default or refusal continues and Sub-section (6) of Section 163 provides, inter alia, that the Court may also, by an order, compel an immediate inspection of the document or direct that the extract required shall forthwith be allowed to be taken by the person requiring it, or that the copy required shall forthwith be sent to the person requiring it, as the case may be. Now, when there is a refusal, there is a penalty for fine and there is also a remedy by which the Court could be moved for immediate inspection. None of these remedies was invoked by the Petitioner or its liquidator in this case, even if their alleged complaint of refusal to give inspection is justified.

Then Section 196 of the Companies Act, 1956, provides for inspection of minute books of general meetings. Here again, Sub-section (3) and (4) of Section 196 provide for remedies in case of default or refusal in this respect. Section 196(3) provides for punishment with fine which may extend to rupees five hundred for the company and every officer who is in default, and Section 196(4) gives again the Court the power by order to compel immediate inspection. None of these remedies was invoked by the Petitioner or its liquidator.

Without using specific remedies given for specific grievances like refusal of inspection of books or registers or minutes of general meetings, an application under Sections 397 and 398 of the Companies Act appears to me to be an abuse of those proceedings.

Then again, Section 214 of the Companies Act of 1956, provides, inter alia, that a holding company may by resolution authorise the representatives named in the resolution to inspect the books of account kept by any of its subsidiaries and the books of account of any such subsidiary shall be open to inspection by those representatives at any time during business hours. Now, the right under this Section 214 of the Companies Act arises only when the holding company''s right to inspection is supported by a resolution which has been passed to that effect. There is a copy of this resolution which is dated July 28, 1967, appearing at p. 299 of the annexure to the petition. The date of the resolution will show that it was just before the long vacation of this Court, but this petition u/s 397 was filed immediately after the long vacation. The letter conveying the aforesaid resolution of July 28, 1967, and which letter is dated September 14, 1967, and, as I have said, appearing at p. 299 of the annexure to the petition and which offers inspection, was not followed up by the Petitioner company and its liquidator.

A Division Bench of this Court in Maharani Lalita Rajya Lakshmi M.P. Vs. Indian Motor Co., (Hazaribagh) Ltd. and Others, pointed out that denial of access to or inspection of books of account would not necessarily be an act of oppression unless the facts justify. This Division Bench was followed by another Division Bench in Mohta Brothers v. Calcutta Landing and Shipping Co. (Supra (433)). The facts here show that inspection under Sections 163 and 196 of the Companies Act, insofar as the right belongs to a member, has been fully offered and given while the right u/s 214 arose only after the passing of the resolution and that, as I have shown on the facts, was offered but not followed up by the Petitioner company and its liquidator. In such circumstances I am bound to hold, which I do, that these facts do not amount to oppression or mismanagement within the meaning of Sections 397 and 398 of the Companies Act, 1956, and I answer the issue accordingly.

Issue No. (9):

I proceed now to consider issue No. (9) which is in the following terms:

Whether the Respondents Nos. 2 to 10 or any of them is responsible for not taking any action for recovering the amounts of Rs. 5,05,364 and Rs. 1,14,342 as alleged in paras. 89(i) and 89(ii) of the petition? If so, what is the effect of such action?

As the issue indicates it involves two major questions:

(i) Non-recovery of Rs. 5"05,364 and

(ii) Non-recovery of Rs. 1,14,342.

I shall first deal with the question of non-recovery of Rs. 5,05,364. The relevant allegations and the Petitioner''s case are to be found in para. 89(i) of the petition. The Petitioner''s case is that the Respondents Nos. 2 to 10 or any of them have not taken any action to recover the amount of Rs. 5,05,364 said to have been invested under the influence of the Respondent Haridas Mundhra for alleged purchase of 5,700, 5 1/2 % preference shares of Rs. 100 each in Richardson & Cruddas Ltd., which is under the control of the Respondent Haridas Mundhra from the fund of Shalimar Works Ltd. of which the Respondents Nos. 3 and 4 are the Directors on the strength of the share-holding of the company in that concern. It is alleged by the Petitioner that none of the Respondents Nos. 3 and 4 hold any shares of their own in that concern and that 5 700 shares were gorged which had been issued by and at the instance of Haridas Mundhra who was practically all in all in that concern at that time. The Police seized all these shares long ago as these were still in their custody. In spite thereof the Respondents Nos. 2 to 10 are alleged not to have taken any steps for realising all the money paid for the same. Therefore, it is pleaded in that paragraph of the petition by the Petitioner that the Respondents Nos. 2 to 10 are liable to reimburse the same with interest to the funds of the company and order should be made for such reimbursement. That is the gist of the Petitioner''s case on this point.

Mr. Haridas Mundhra gave evidence in suit No. 600 of 1961 and there in answers to Qs. 200 and 437 he has said that Rs. 5,01,000 and odd have been paid out of his personal account from Shalimar Works Ltd. His evidence was that Shalimar Works Ltd. had the credit of Rs. 5,01,000 and odd by sale of his shares to them. So they paid out of the credit to Sandersons & Morgans who Had paid a sum of Rs. 9,34,956-50 P. This, will be found in Haridas Mundhra''s answers to Qs. 200 and 437 in suit No. 600 of 1961

The evidence of the liquidator Mr. Hoon on this point is to be found in his answers to Qs. 28, 90, 102, 666-670, 682-699 and 712. The reference by the liquidator Mr. Hoon to the letter dated April 22, 1965, is identified as Ex. P.

I shall pursue this evidence a little further on this point. One of the Respondents'' witnesses Leslie Desmond Valliant has proved the seizure by the Police of these shares between December 1959 and February 1960. (See Qs. 13 to 17.) He has also proved the seizure list dated December 28, 1959, bearing his signature (Ex. 10). It is his clear evidence that these 5,000 shares were seized by the Police and the balance of the shares in February I960 being altogether in two lots, one of 5,000 and the other of 700 shares. He also proved the written statement filed in suit No. 1556 of 1959 in the Calcutta High Court, i.e. Jessop & Co. Ltd. v. Richardson & Cruddas. That written statement with the affidavit is marked Ex.12. The actual share scrips were produced from the Police custody in Court in these proceedings. He was asked a number of questions in cross-examination by Mr. Mukherjee, learned Counsel for the Petitioner, about the forgery of these shares or share scrips, but the witness could not naturally help the learned Counsel for the Petitioner.

Then there is also the evidence of the witness Sachi Dulal Mitra for the Respondents. He proved the voucher dated May 6, 1957, and his instructions that he should prepare a voucher regarding purchase of 5,700 shares of Richardson & Cruddas by Shalimar Works. (See his answers to Qs. 7 to 17.) He has also proved the stamp duty paid for the transfer on May 7, 1957. (See his answers to Qs. 18 to 20 and 27.)

This witness also proved the payment voucher dated May 10, 1957, representing the transfer fee in respect of the 5,700 shares of Richardson & Cruddas Ltd. on May 10, 1957. (See his evidence in answer to Qs. 28-29). These documents are marked Ex. 19 in these proceedings. He has also proved in cross-examination that Shalimar Works Ltd. purchased these shares of Richardson & Cruddas Ltd. through Sandersons & Morgans.

The other evidence is of witness Krishna Kumar Sen for the Respondents in these proceedings and he proved in answer to Qs. 6-15 the receipt of Sandersons & Morgans for Rs. 5,01,600 granted by Sandersons & Morgans in favour of the Respondent No. 1 T.M. Ltd., who were then the managing agents of Shalimar Works Ltd., and which was a receipt in respect of the purchase price of these 5,700 shares in Richardson & Cruddas Ltd. This receipt was granted in the usual course of business and is marked as Ex. 13

Then there is.also the evidence of the witness and Respondent Kashinath Tapuria on this point. The relevant evidence is to be found in his answers to Qs. 14-24 and 407-437. His evidence in brief is that Shalimar Works in the year 1957 acquired some preference shares of Richardson & Cruddas Ltd. the total value of which was Rs. 5,01,000 for 5,700 shares. At that time, the Respondent T.M. Ltd. was the managing agent of Shalimar Works and, what is more significant, the Petitioner company was controlling the affairs of T.M. Ltd. from the Directors of T.M. Ltd. Mr. Tapuria has denied the charge of forgery and has said that no Court of law or authority has yet held them to be forged and that there are three suits in this Court in respect thereof and which are all pending. Not only has he denied the alleged charge of forgery of these shares made by the Petitioner or its liquidator, he has also said that he had reasons to believe that the shares were genuine because the company sent the shares for transfer immediately after purchase and the shares were duly transferred in the name of the company. (See particularly his answer to Q. 423).

The above represents the evidence on this point. From this evidence it will be clear that the whole ground on which this allegation is made that these 5,700 shares were forged and, therefore, this sum of Rs. 5,05,364 should have been recovered by the Respondent T.M. Ltd., the foundation of this allegation has not been proved. There is no proof that the shares were forged. No Court has held that these shares are forged. There is no proof and no record about this alleged forgery. The Petitioner or its liquidator has not even produced the criminal prosecution records. The issue is litigated even in civil suits as in the written statement, Ex. 12, which I shall describe as ''Jessop suit'' mentioned above. In fact, Tapuria has also in his evidence said in answer to Q. 20 that these shares were quoted in the Stock Exchange when the shares were purchased and the shares were also registered by the company. (See Tapuria''s answer to Q. 23). Again, this allegation regarding non-recovery of Rs. 5,05,364 does not relate to an affair of the company but of its subsidiaries.

Apart from these points, the answer on the merits to this allegation is that this purchase was made in 1957 when Hunger-ford Investment Trust Ltd. was the hundred per cent share-holder of Turner Morrison & Co. Ltd., and it is strange now to find that it is the Petitioner company in liquidation through its liquidator complaining about the state of affairs which was open to the Petitioner company as hundred per cent share-holders to stop, prevent or take appropriate action. Secondly, there is no Court decision that the shares are forged, nor is there any evidence in support of it. Besides, whether the shares are forged or not is already the subject-matter of the civil and criminal proceedings and I, therefore, cannot see how this issue of forgery can at all be a subject matter of an application under Sections 397 and 398 of the Companies Act, 1956, in the present state and context of facts. On the other hand, I find that proof of payment is established by receipt of Sandersons & Morgans by Ex. 13 and supported by Ex. 19 and the evidence of the witnesses K. K. Sen and S. D. Mitra for the Respondents. I have already said that these shares were actually produced and marked Ex.11. Besides, I have already said that this claim even if established would be barred by limitation.

On these facts, I am bound to hold that no question of recovery of Rs. 5,05,364 can arise and they could only arise if it is established that they were forged. But that has not been done as yet. This ground, therefore, must fail. I hold accordingly.

I now come to the second item of charge in this issue relating to the allegation of non-recovery of the sum of Rs. 1,14,342. The relevant allegations on this point are to be found, as I have said, in paras. 89(i) and 89(ii) of the petition.

The Petitioner''s allegation briefly is that the Respondents Nos. 2 to 10 or any of them have not. taken any steps for the realisation of the sum of Rs. 1,14,342, said to be advanced illegally to a Mundhra concern from the funds of Smith Stanistreet & Co. Ltd. under the influence of the Respondent H. D. Mundhra, and it has been illegally shown to be a doubtful advance and, therefore, the Respondents No. 2 to 10 are liable to reimburse that amount. This will be found in para. 89(ii) of the petition.

The relevant evidence of the liquidator Mr. Hoon for the Petitioner company is to be found in answer to Qs. 29-33, 84-95, 101, 157-159, 162-170, 207 and 341-346. In answer to Qs. 157-159, he says this sum of Rs. 1,14,342 was not a loan but an advance to one of the Mundhra-concerns, viz. Smith Stanistreet & Co. Ltd.

The evidence of the witness-Respondent Tapuria will be found in answer to Qs. 25-36 and 341-373 on this point. He says there is an entry in the balance-sheet showing that this sum of Rs. 1,14,342 advanced from the funds of Smith Stanistreet 8c Co. Ltd. has been shown as doubtful advance. In the balance-sheet of 1964 the total figure of Rs. 1,14,342 appears, but this doubtful advance has continued from 1957 or 1958. In answer to Qs. 341-373 Tapuria says that this sum of Rs. 1,14,342 was advanced to one Jetmull Kallumul and Richardson 8c Cruddas Ltd. He has also said that in 1957 or'',1958 the Respondent H. D. Mundhra was a Director and a major share-holder in Richardson 8c Cruddas. But he has said that Haridas Mundhra was dot connected with Jethmull Kalumul. It is also his evidence that the money was advanced in 1957 when Smith Stanistreet was a subsidiary and under control of the Respondent company T.M. Ltd.

The evidence of Hormasji on this point, without advancing matters any further, appears in answer to Qs. 941-943 in his evidence in suit No. 2005 of 1965.

An accountant of Smith Stanistrest & Co. since 1954, witness Krishna Chandra Dasgupta came to give evidence on behalf of the Respondents. In answer to Qs. 14-35 he proves that the figure of Rs. 1,14,342 is appearing in the accounts of Smith Stanistreet 8c Co. from 1963. His evidence is that this was doubtful advance and it appears as doubtful debt in the balance-sheet of June 1958. (See his answer to Q. 35). The advance is shown from 1957 from the balance-sheet marked Ex. 0001.

On this evidence I do not consider that the Petitioner company has succeeded in establishing that non-recovery of Rs. 1,14,342 is an act of oppression or mismanagement. In the first place, if it was a wrong, it was an ancient wrong of 1957. That does not justify a proceeding in the year 1967 under Sections 397 and 398 of the Companies Act. In the first place, this is barred by limitation under Article 137 of the Limitation Act of 1963 read with Section 402(f) of the Companies Act, 1956. In the second place, this happened at a time when the Petitioner company was a hundred per cent share-holder of the Respondent company T.M. Ltd. and in full control of it. I, therefore, on these facts am unable to hold the Respondents Nos. 2 to 10 as the persons responsible for non-recovery of Rs. 1,14,342 and I also hold that such an allegation does not and cannot amount to an act of oppression or mismanagement in the facts and circumstances of this case to be the subject-matter of an application under Sections 397 and 398 of the Companies Act, 1956, in the year 1967 when this petition was filed. I, therefore, find also this issue against the Petitioner.

Issue No. (10):

Proceeding to issue No. (10) it is as follows:

Is the Annual General Meeting of the Respondent company No. 1 alleged to have been held on May 30, 1968, valid and the resolutions passed thereat valid as alleged in the third application?

This really is the subject-matter of the third application in this series. This application was filed on May 29, 1968, when the main petition was pending.

This issue No. (10) challenges the Annual General Meeting held on May 30, 1968, on a number of grounds of which the three major grounds are:

(i) The previous Board of Directors was invalid, a point which has already been covered by issue No. (7);

(ii) that the meeting was beyond time, a point which also has been covered by issue No. (7);

(iii) the question of quorum raising the question of interpretation of Article 53 and Section 174 of the Companies Act.

This issue raises also subsidiary questions like challenging the explanatory statement given in the notice of the resolutions passed at the meeting and the presence of Mundhra at the meeting of May 30, 1968.

Broadly speaking this meeting of May 30, 1968, which is the 55th Annual General Meeting, is challenged to be bad on two grounds by the Petitioner ; (i) it is not valid, (ii) the resolutions passed at that meeting also are not valid.

The validity of the meeting of May 30, 1968, is challenged by the Petitioner on the grounds, (i) that it was not covered by a valid Board of Directors, and (ii) it was held beyond the statutory period by reason of. Section 166 read with Section 210 of the Companies Act, 1956. The contention for the Petitioner is that this meeting was for the year ending December 31, 1966, and should have been held at the latest by September 30, 1967, and the Central Government did not extend the time nor was any intimation given to the Central Government. Reliance was placed, on this aspect of the argument, by Mr. Mukherjee for the Petitioner on the decision in Re Coal Marketing Co. of India Ltd. (Supra). These points have already been covered by me while dealing with issue No. (7).

The new point that is raised under this issue by the Petitioner is that there was no quorum in that meeting of May 30, 1968. In support of this argument reference is first made to Article 53 of the Articles of Association of the Respondent company T.M. Ltd. which provides, inter alia, as follows:

The quorum of a general meeting shall be two members present, personally or by proxy, holding or representing by proxy hot less than two-third part of the issued ordinary share capital of the company, and no business shall be transacted at any general meeting unless the requisite quorum be present at the commencement of the business.

It will be relevant also to have in view Article 69 of the Articles of Association of the Respondent company T.M. Ltd. which provides, inter alia, as follows:

No member shall be entitled to be present or to vote on any question, either personally or by proxy, or as proxy for another member, at any general meeting, or upon a poll, or be reckoned in a quorum, whilst any call or other sum shall be due and payable to the company in respect of any shares of such member.

The main contention for the Petitioner on this point is that the two persons with proper qualifications were not present to form the quorum at this meeting of May 30, 1968. The controversy rages round the meaning of the expression--

two members present personally or by proxy holding or representing by proxy not less than two-third part of the issued ordinary share capital of the company.

In support of this argument Mr. Mukherjee, learned Counsel for the Petitioner, has drawn my attention to the fact that the Respondent company T.M. Ltd., and its Board of Directors took up the position repeatedly that there was a lack of quorum when such a situation arose previously. For instance, he draws my attention to the 52nd meeting adjourned for lack of quorum on September 30, 1964, (vide p. 311 of the annexure to the petition), the adjourned Annual General Meeting for lack of quorum on September 7, 1965, (vide p. 314 of the petition), the extra-ordinary general meting adjourned for lack of quorum on December 22, 1965, (vide p. 317 of the annexure to the petition), the 53rd Annual General Meeting adjourned for lack of quorum on January 10, 1966, (wide p. 319 of the annexure to the petition), the 54th Annual General Meeting adjourned for lack of quorum on January 30, 1967, (vide p. 322 of the annexure to the petition) and the 55th Annual General Meeting adjourned for lack of quorum on May 30, 1968, (vide p. 161 of the annexure to Hormasji''s affidavit-in-opposition affirmed on June 18, 1968). Therefore, Mr. Mukherjee submits that on the basis of these precedents it must be taken that this meeting of May 30, 1968, was bad for lack of quorum. The argument is prima facie attractive having regard to these precedents. But the question has to be decided on law.

Section. 174 of the Companies Act, 1956, deals with the quorum for meeting. Under Sub-section (1) of that section it is provided, inter alia, that unless the Articles of the company provide for a larger number, five members personally present in case of a public company other than a public company which has become such by virtue of Section 43A, and two members personally present in the case of any other company shall be the quorum for meeting of the company. In the present case the latter part of Section 174 applies which speaks ''two members personally present''. But then, as indicated above, Article 53 of the Articles of the Respondent company T.M. Ltd. not only uses the expression ''two members present'' but also they must personally or by proxy hold or represent by proxy not less than two-thirds of the issued ordinary share capital of the company. On behalf of the Respondents it is said that in the present case at the meeting of May 30, 1968, the two members present satisfied this requirement.

The minutes of the 55th Annual General Meeting held on May 30, 1968, appear as annex. T to the affidavit-in-opposition of Hormasji affirmed on February 19, 1968. The minutes say that the persons present were:

Mr. B. P. Sinha, Director,

Mr. S. B. Goenka, Director,

Mr. H. D. Mundhra,

M/s. British India Corporation Ltd., represented by Mr. T.D. Mundhra, and

Mr. A. J. Hormasji, Secretary.

The minutes also show--

The Chairman declared that two members being personally present constituted a quorum as required by section 174 of the Companies Act and thereupon the meeting proceeded with its business.

But, then it is contended by the Petitioner that Article 53 is repugnant to Section 174 of the Companies Act and, therefore, also Section 9 of the Companies Act, 1956. u/s 9 of the Companies Act in the case of a repugnancy between Articles and the Act, the Act shall prevail. To this the Respondents'' answer is that there is no repugnancy between Section 174 and Article 53 of the Companies Act in this case. The substance of the arguments on behalf of the Respondents on this point is that the number affects the quality of two-thirds'' value, but the number remains two, and therefore Article 53 is not repugnant to the statute and it is within the saving of the opening words in Section 174 of the Companies Act--"Unless the Articles of the company provide for a larger number." The Articles do not provide for a larger number. All that Article 53 tries to do is to impose a qualification on that number that they must be "holding or representing by proxy not less than two-thirds part of the issued ordinary share capital of the company." I accept the submission on behalf of the Respondents on this point that in this case Article 53 is not repugnant to Section 174 in. those circumstances and for these reasons just stated. I hold that the number remains ''2'' and Article 53 has not provided for a larger number.: The remaining expression in Section 174(1) of the Companies Act, ''two members personally present'' is satisfied in this instance by the persons noted in the minutes, of the meeting of May 30, 1968, as stated above. The qualification of the two members to represent two-thirds part of the value of the issued ordinary share capital does not reduce the number ''2'' or increase the number ''2''.

I need only refer to Section 43A of the Companies Act, 1956, dealing with the case where private companies become public companies in certain cases in order to pin-point the expression ''any other company'' in Section 174 of the Companies Act, 1956, where the number is fixed at ''2''.

But then it is argued on behalf of the Petitioner company that Tulsidas Mundhra, who was representing British India Corporation Ltd., had no authority to represent B.I.C. Ltd. at that meeting. Prima facie, the authority of Tulsidas, Mundhra to represent B.I.C. Ltd. is based on the extract from the minute No. 12630 of the minutes of the meeting of the Board of Directors of the B.I.C. Ltd., held in Sutherland House, Kanpur, U.P., on Saturday, September 21, 1967, and which reads as follows:

12630. TURNER MORRISON & Co. PRIVATE LTD. Further to minute No. 12623, the Board resolved, at the request of Mr. H. D. Mundhra, in accordance with the provisions of Section 187 of the Companies Act, 1956, that Mr. H. D. Mundhra, or Mr. T. D. Mundhra, or Mr. H. N. Nicholls be and are hereby authorised to act as the Corporation''s representatives at any general meeting of Turner Morrison & Co. P. Ltd. or at any meeting of any class of members of the company, and that the said persons be and are hereby entitled to exercise the same rights and powers (including the right to vote by proxy) on behalf of the Corporation which the Corporation can exercise.

It was remitted to the Secretary to send a certified copy of the above resolution to Turner Morrison 8c Co. Pvt. Ltd.

This is certified to be the true copy and signed by the Secretary. This is Ex. 20 and alternatively Ex. 0002 in these proceedings.

This is clear and enough authority for Tulsidas Mundhra to represent the B.I.C. Ltd. This resolution u/s 187 of the Act read with Section 41 of the Act applies where a body corporate is itself a member. No doubt, Ex. R-l, the share register of T.M-. Ltd., shows that formally B.I.C. Ltd. became a member of T.M. Ltd. on October 16, 1957, about four weeks after the date of this resolution ; but that was done in view of the negotiations which had already started.

I shall now proceed to examine the evidence on the point. The first evidence I take up is that of Tulsidas Mundhra himself. The relevant evidence is to be found in T. D. Mundhra''s answers to Qs. 6-13, 93-94, 206-216, 363-373. He was a Director of B.I.C. Ltd. in the month of April 1956 and continued upto May 1958 (vide Qs. 3-4). He proved the resolution on authority, Ex. 10, which I have mentioned above (vide Q. 9). I must state here also that the Enforcement Officer Dilip Kumar Das of the Enforcement Directorate, Government of India, produced a certified copy of these minutes,. Ex. 20, from'' their custody (vide T. D. Mundhra''s Q. 6). There is, therefore, no question of this resolution being fabricated one but was being produced from the Police custody where they had been lying seized. I am mentioning this because some cloud was thrown about the genuineness of this resolution by suggesting to T. D. Mundhra in Q. 93-94 that although this resolution was dated September 21, 1957, yet the only meeting that T. D. Mundhra attended on the authority of that resolution was this general meeting of May 30, 1968, and because of the fact that a letter from one Rameswar Tantia dated July 25, 1968, was produced to show that B.I.C. Ltd. had not given any authority to T. D. Mundhra. It is the evidence of T. D. Mundhra in the questions I have mentioned above that this resolution was never rescinded by B.I.C. Ltd. and the shares were the shares of H. D. Mundhra and B.I.C. Ltd. was only holding them as a trustee for H. D. Mundhra (vide Qs. 367-368).

The evidence of the witness-Respondent Tapuria will be found in his answers to Qs. 60-65, 111-114, 727-735. He also confirms and supports this authority in favour of Tulsidas Mundhra and also says that this resolution has never been rescinded by the B.I.C. Ltd. When Mr. Tapuria was cross-examined on the point as to how this resolution of the B.I.C. Ltd. came to be passed on September 21, 1957, when B.I.C. Ltd. had not become a member of T.M. Ltd. until October 16, 1957, Mr. Tapuria explained it in answer to Q. 732:

But by that time the deal for acquiring the 49 % shares in T.M. had already gone through, as I have already read out in. various documents yesterday, and although shares may have been transferred on certain date in October, B.I.C. were the owners probably on the date when this resolution was passed.

Now, Ex. 20 obviously is a great impediment on the way of the Petitioner in this case in challenging the authority of Tulsidas Mundhra to represent the B.I.C. Ltd. Therefore, an attempt was made by the liquidator Mr. Hoon in his fourth petition affirmed on September 17, 1968, where he annexes a letter from Rameswar Tantia dated July 25, 1968, stating that B.I.C. had not given any authority to Tulsidas Mundhra to represent it at the last Annual General Meeting of May 30, 1968, and a second letter from the same Rameswar Tantia dated July 25, 1968, in the same petition.

I shall examine these two letters both dated July 25, 1968, one signed by R. K. ''Murthy for Rameswar Tantia, the Managing Director, on behalf of B.I.C. Ltd. and the other signed by Rameswar Tantia, Managing Director for B.I.C. Ltd. Both the letters are in identical terms. The letters read, inter alia, as follows:

In reply to your enquiry vide your letter dated 10.6.68, we confirm that we have not issued any proxy whatsoever in favour of Sri Tulsidas Mundhra in respect of the shares of Turner Morrison ''& Co. Ltd., Calcutta, registered in our name in connection with the last Annual General Meeting of that company.

This letter is addressed to the liquidator Hoon at Spences Hotel, Calcutta.

This letter reveals a number of points. First, it refers to an enquiry made by the liquidator Mr. Hoon. Secondly, it mentions the liquidator Mr. Hoon''s letter dated June 10, 1968, which has not been produced by Mr. Hoon in these proceedings. Thirdly, the letter is very guarded saying only that no proxy has been issued in favour of T. D. Mundhra in connection with the last Annual General Meeting of the company. That is the expression used in that letter which I have just quoted. But that was not the point. The point was that there was an actual resolution of the Board of Directors of B.I.C. dated September 21, 1957. Therefore, it is plain that there is no denial that there was no such resolution or even assertion that such resolution has been rescinded by B.I.C. Ltd.

Next, it is inexplicable why two letters of the same date should be written, one by Rameswar Tantia, the Managing Director, himself and another by somebody else, R. K. Murthy, signing for Rameswar Tantia. Finally, the fact remains that this Rameswar Tantia has not been called by the Petitioner or its liquidator Mr. Hoon to come and give evidence in this proceeding on this question of authority for Tulsidas Mundhra. This Rameswar Tantia is said to be now the Managing Director of the B.I.C. Ltd. Putting the best interpretation to the letters of Tantia dated July 25, 1968, they only show that there was no specific authority for the last Annual General Meeting, but that is consistent with the general authority as shown by Ex.20 being resolution dated December 21. 1957, on the basis of a formal certified resolution of the Board of Directors of the B.I.C. Ltd., marked Ex. 20. This letter again of Rameswar Tantia dated July 25, 1968, was a reply to'' Mr. Hoon''s letter dated June 10, 1968, which had not been produced in spite of demands made for the same for which see the cross-examination of Mr. Hoon in Qs. 1959, 1962 and 1975-1976. It is not even known when Tantia became the Managing Director of B.I.C. Ltd. as will be appearing from Hoon''s own answers to Qs. 46-49, 446, 1950-1952, 1975. Having failed to challenge the resolution of the B.I.C. Ltd., marked Ex. 20, the Petitioner fell back on another criticism. I shall presently notice such criticism.

It is contended on behalf of the Petitioner company that T. D. Mundhra could not represent B.I.C. Ltd. because B.I.C. was indebted to the Respondent company T.M. Ltd. for Rs. 58,000 for the stamp for transfer in respect of these very shares. Therefore, it is said on behalf of the Petitioner that the B.I.C. cannot be reckoned in a quorum under Article 69 as aforesaid. Sufficient reply to this aspect of the case would be found from the answers given in the evidence of Bijoy Chakraborty in suit No. 600 of 1961 in Qs. 12-24/65-68, 121-132 and 136-138, and also in the evidence, of T. D. Mundhra in Qs. 120-123, 331-337 and 341, and further in the evidence of Tapuria in answer to Qs. 560-570, 573-575 and 577-581.

But then, the point is that Article 69, which I have already quoted, does not apply because (i) it applies to the Respondent T.M.''s own general meetings and (ii) call or "other sum was due or payable to the company, i.e. to the Respondent T.M. Ltd. and B.I.C. Ltd. did not owe money but Haridas Mundhra did. Further, the Respondent T.M. Ltd. has no resolution that B.I.C. Ltd. owned any money to T.M. Ltd. There is no letter or correspondence from the Respondent T.M. Ltd. saying that any money was due to it from the B.I.C. I have already mentioned the evidence where it has been established and it is also in the judgment reported from the Allahabad High Court [ (1966) Comp. Cases 370] that the shares really belonged to Haridas Mundhra and B.I.C. was only holding as a trustee for Haridas Mundhra. In those circumstances, I do not see how Article 69 applies and how Ex. T(5), the resolution dated September 28, 1965, and Ex. T(3), the resolution dated February 17, 1966, can help in the matter. But even then the dividend of the Respondent T.M. Ltd. to B.I.C. Ltd. payable to Mundhra has been withheld against these dues. See, for instance, annex. I of the affidavit-in-opposition of Mr. Hormasji affirmed on June 18, 1968, although it does not directly bear on this question. Tapuria''s answers to Qs. 556 and 575 make it clear that dividend withheld would be very much more and nothing could be due because the evidence shows that the due is Rs. 58,000, but the dividend withheld amounted to more than Rs. 351,840 on 2,199 shares of B.I.C. Ltd. in the Respondent T.M. Ltd., each share of Rs. 1,000 with declared dividend at 16 %. (See Ex. 0004.) The evidence of Haridas Mundhra in suit No. 600 of 1961 in answer to Qs. 643-644 and Qs. 816-818 also support that the B.I.C. Ltd. was only a trustee for Mundhra and, therefore, between T.M. Ltd. and the" beneficiary there may be a question, but no question can arise between B.LC. Ltd. and the Respondent T.M. Ltd. Again, in the petition at pp. 236 and 242 and in the affidavit of Jay Narayan Chowdhury, the income tax officer, affirmed on May 3, 1967, filed in suit No. 600 of 1961 it is shown that there has been no appropriation of this dividend towards this alleged due of Rs. 58,000. It is noteworthy and significant that this allegation that B.I.C. Ltd. is indebted to T.M. is not in the petition or in the issues specifically, although these alleged letters of authority were questioned and debated in the petition and affidavit. The fact remains that dividend due to B.I.C. Ltd. has been withheld.

But, the argument for the Petitioner did not end there The next point taken is that three names were suggested in the B.I.C. resolution, (i) H. D. Mundhra, (ii) T. D. Mundhra and (iii) Nichols. Therefore, it is said that it was not certain who could represent. But, T. D. Mundhra in his evidence in answer to Qs. 79-85 has said that when Haridas Mundhra was present T. D, Mundhra could not act, and that is the interpretation. The'' appropriate and ordinary interpretation would be that these three persons separately in their own were to represent, the first failing the second and the second failing the third.

The next argument advanced by the Petitioner on this point is that this resolution of B.I.C. Ltd., marked Ex. 20, dated September 21, 1957, is no longer good because the Board of Directors of B.I.C. Ltd. which passed that resolution has been superseded by the Allahabad High Court in 1958 in the case already cited [ (1966) Company Cases 370 (379)] and where the judgment was delivered on May 16 and 23 and November 26 in 1958. A subsequent suppression of the Board of Directors under those circumstances cannot, in my opinion, supersede the acts of the Board of Directors prior thereto and make all those acts a nullity or invalid. If a previous resolution of a previously constituted Board had to be superseded, then it must be done- specifically or else the authority continues. Finally, the argument that this resolution of the B.I.C. Ltd., marked Ex. 20, is not genuine cannot be accepted in this case. because as I have already said that it was admittedly produced from the Police custody where it has been lying since February 1964, long before the present proceedings u/s 397 were instituted and long before this question at all arose.

The next contention of the Petitioner is to challenge this meeting of May 30, 1968, on the ground that Haridas Mundhra was not present at the meeting. In fact, this argument is based by disputing the presence of Haridas Mundhra at the meeting of May 30, 1968.

In support of this branch of the argument Mr. Mukherjee, the learned Counsel for the Petitioner, relied on the evidence of the two persons the liquidator Mr. Hoon and Mr. Dumra. Harichand Dumra, witness for the Petitioner, suggested that Haridas Mundhra could not be present at the meeting of May 30, 1968. His relevant evidence on the point is to be found in Qs. 41-63, 91-96, 138-141, 150, 173, 184-186, 208-210. Now, this Dumra was a chance witness. He suggested in answers to these questions that he was the person who accompanied the liquidator Mr. Hoon to the Bankshall Police Court here in Calcuta on this very May 30, 1968, where this Mr. Hoon was defending himself against a warrant of arrest and was in need of help for arrangements for bail. He did not offer him bail but he says that if he asked him, he would have and he went prepared for it (Q. 49). His evidence is that he was there, in the Police Court and off for two hours and tried to fix the time from 10-15 or 10-20 a.m. onwards upto 12 o''clock. At the same time, he says he was not all the time inside the Court. There he supposes to have seen H. D. Mundhra on that date and he tried to suggest in Q. 56 that he thought he almost saw him all the time. In answer to Q. 91, this Dumra says that he offered protection to Mr. Hoon when he was homeless in 1948 and kept him in his house. On that slender evidence Mr. Hoon tried to build up the case to dispute the presence of H. D. Mundhra at the meeting of May 30,1968. Mr. Dumra produced no record, no diary, nothing to connect him with his going to the Bankshall Police Court on May 30, 1968. No record has been produced to show that H. D. Mundhra was present at the Police Court on May 30, 1968, in connection with the warrant of arrest of Mr. Hoon on his bail. The answers given by Dumra in the evidence noted above in general did not impress me. If Mr. Mundhra was present in the Bankshall Police Court, then many persons who were actually engaged in freeing Mr. Hoon from the warrant of arrest and offering bail including lawyers could have been called and other Police records from the Police Court could have been produced to show who were present in Court on that date.

Equally unconvincing is the other point which will be found in his answers to Qs. 38-40, 71, 466, 471, 473, 486-504 and 516-621.

On the other hand, the evidence of T. D. Mundhra in his answers to Qs. 12, 27-28, 37-39, 296-297 clearly establish the presence of H. D. Mundhra at the meeting of May 30, 1968. In the result, the oral testimony, therefore, is conflicting. H, D. Mundhra has not come to the box. But T. D. Mundhra was present at the meeting of May 30, 1968, and he has given his evidence on the point saying that H. D. Mundhra was present at the meeting of May 30, 1968.

In this context of facts, the following considerations in my judgment appear to be decisive. The minutes are prima facie conclusive. (See Section 195 of the Companies Act and also Article 57 of the Respondent T.M. Ltd., read with Section 194 of the Companies Act.) These minutes have not been challenged to show that they are false or even forged. So, the presumption must operate that when the oral testimony is conflicting, minutes being contemporaneous are more reliable. See Kerr v. John Motiram Ltd. (1910) 1 Ch.D. 657 (660). Secondly, the proceedings which were supposed to have kept H. D. Mundhra away from the meeting of May 30, 1968, were proceedings in connection with the arrest of the liquidator Mr. Hoon in the Chief Presidency Magistrate''s Court on that date, i.e. May 30, 1968. But, the Petitioner company or its liquidator Mr. Hoon has produced no record of that proceedings in connection with the warrant of arrest. Mr. Hoon was supposed to surrender on that date and be enlarged on bail. Yet records could have shown the time of surrender and sureties regarding bail could have been called to prove who was present and when the sureties actually completed giving of the bail. Again, I find neither Mr. Hoon nor Mr. Dumra was present at the meeting of May 30, 1968, and, therefore, they would not be appropriate persons to speak about who was present at the meeting of May 30,1968. A person T. D. Mundhra who was present has spoken on the subject. Finally, there is another compelling circumstance in this regard. The particular point of the absence of H, D. Mundhra from the meeting of May 30,1968, was not mentioned or even alleged in the third petition as will be seen from the answers of Mr. Hoon to Qs. 466-467, 521 and 527-529. What is worst, this was for the first time alleged from the box by Mr. Hoon in answer to Qs. 44-45. Yet this Mr. Hoon had the minutes on June 18, 1968, when the affidavit-in-opposition of Hormasji was filed. But, Mr. Hoon''s affidavit-in-reply never challenged the minutes of May 30, 1968, on the ground that H. D. Mundhra was not present. (See particularly para. 19 of Mr. Hoon''s affidavit-in-reply dated August 1, 1968, and his answer to Q. 466.) It is also plain that the minutes of this meeting appear at p. 166 of the third petition and the affidavit-in-opposition of Hormasji.

For these reasons and grounds, I have no hesitation in holding that the absence of H. D. Mundhra was a point invented by the Petitioner and its liquidator and is not worthy of credit. I reject this argument in those circumstances.

The next branch of this issue is concerned with the validity of the resolutions passed at the meeting of May 30,1968, which are challenged as invalid. These resolutions are annexures to the third application at p. 25. I shall classify these resolutions and the points as I proceed to deal with them.

The Petitioner questions certain items of ''special business'' in these resolutions, viz. items Nos. (4), (5), (6), (7), (9) and the special resolution No. 9 under this issue. I shall take up these items separately.

The first item that I propose to discuss is ''special business'',--items Nos. (4) and (5). The Petitioner contends that explanatory statements do not make full disclosure of these items, because (a) the dates of their (Rani Padmabati and S. B. Goenka) first appointment as Directors were not given, and (b) no name of the share-holder who proposed u/s 57 of the Companies Act. It is also alleged by the Petitioner that no notice of their appointment was given u/s 640B of the Companies Act. But, it is found on record that this notice was in fact given, as proved by Ex. 0007 and the evidence of Tapuria in answer to Qs. 196-200 and 801-802 and also para. 22 of the affidavit-in-opposition of H. D. Mundhra dated June 18, 1968.

Another point was made in this connection about quorum, viz. if there was no quorum, then also these resolutions were invalid. But, I have already dealt with the question of quorum. These resolutions were proposed by T. D. Mundhra representing B.I.C. Ltd. as an ordinary resolution and seconded by H. D. Mundhra and were passed unanimously.

The next complaint of the Petitioner is with regard to ''special business''--items Nos. (6) and (7). The minutes of the resolutions of the meeting of May 30, 1968, show that these items Nos. (6) and (7) deal with the approval of appointment of D. M. Jaffray as a Managing Director on the terms and conditions set out therein and also of C. N. Rodewald as a Managing Director on the terms and conditions set out therein. They were proposed by H. D. Mundhra as ordinary resolution and seconded by T. D. Mundhra representing B.I.C. Ltd. and were passed unanimously. The actual point of objection in the special business, items Nos. (6) and (7), on behalf of the Petitioner is again that the explanatory statement lacks in material particulars and that it is misleading. (But see the third petition and the notice at p. 25 and the explanatory statement at p. 29). It is also contended that the explanatory statement does not mention that the approval was being sought under Article 89 of the Articles of Association of the Respondent company T.M. Ltd. and it is emphasized as important because the Articles do not mention appointment of Managing Directors but only mention Managers. It is also submitted that Ex. T-10, the resolution dated February 8, 1966, mentions an agreement which is not stated in the explanatory statement. It is necessary to state that u/s 2(24) of the Companies Act, 1956) a Manager means

an individual (not being the Managing Agent) who, subject to the superintendence, control and direction of the Board of Directors, has the management of the whole, or substantially the whole of the affairs of a company, and includes a Director or any other person occupying the position of a Manager, by whatever name called, and whether under a contract of service or not.

And u/s 2(26), a Managing Director means

a Director who, by virtue of an agreement with the company or of a resolution passed by the company in general meeting or by its Board of Directors or- by virtue of its'' Memorandum or Articles of Association, is entrusted with substantial powers of management which would not otherwise be exercisable by him, and includes a Director occupying the position of a Managing Director, by whatever name called.

I, therefore, do not see any substance in the objection of the Petitioner that Articles of the Respondent company T.M. Ltd. do not mention the appointment of Managing Directors and mentions only Managers.

The Government sanction was refused to appoint Mr. Jaffray and Mr. Rodewald as Managing Directors and, therefore, it is argued on behalf of the Petitioner that this was got round by appointing them as Administrative Officers. The fact that the Government refused sanction to appoint J affray and Rodewald being appointed as Managing Directors would appear from the balance-sheet for the year ending December 31, 1965, Ex. 0005. The Petitioner contends that immediately after that refusal these persons were appointed Administrative Officers with almost the same pay on December 17, 1963, as per resolution, marked Ex. T-3, with retrospective effect from April 1, 1966, for Jaffray and from September 21, 1966, for Rodewald. It is, therefore, submitted for the Petitioner that these persons could by this device carry on the day to day administration. In support of this argument, reference is made to Tapuria''s evidence in answer to Qs. 406, 742-743 and 961-965. Section 269 of the Companies Act, 1956, provides for the appointment or reappointment of a Managing or whole-time Director requiring Government approval in certain cases and Section 388 of the Act provides for the application of Sections 269, 310, 311, 312 and 317 to Managers.

It is also argued on behalf of the Petitioner that these items Nos. (6) and (7) of the special business are also in violation of Section 302(2) of the Companies Act, 1956, requiring disclosure to members of Director''s interest m contracts appointing Manager or Managing Directors. But this is not pleaded at all in the petition.

Finally, it is submitted on this point that the explanatory statement is misleading. To appreciate this point, reference is to be made to the letter of August 15, 1967, from the Central Government to the Respondent company T.M. Ltd. This is Ex. T-4. But, Ex. T-4 mentions this letter of August 15, 1967, although it was not disclosed. It cannot, therefore, be said that there is no notice about that letter. Then the letter of May 9, 1968, is said to have never been placed before the share-holders. (But see annex. H in Tapuria''s affidavit-in-opposition dated September 9, 1969, and also Ex. TJ3.) In fact, the previous letter of October 27, 1966, from the Central Government to the Respondent T.M. Ltd. is mentioned in the explanatory statement, and in this connection annex. J to Hormasji''s affidavit-in-opposition affirmed on June 18, 1968, may be seen. The complaint of the Petitioner is that these appointments were not brought up in the general meeting of June 30, 1967. (But on this point see the evidence of Tapuria in answer to Qs. 736-744.)

The next challenge by the Petitioner is with respect to a special business resolution No. 8 mentioned in the third application in para. 25(x) on the subject of securing finance from the Tube Mill Division. It is said that u/s 293(1)(a) of the Companies Act, 1956, prior sanction of the share-holder is necessary and, in this connection, Section 292(1)(e) of the Companies Act was also invoked by the Petitioner. It is said that the Board was incompetent to create this mortgage and this could not be ratified at this meeting and the Tube Mill Division is a separate unit or undertaking of the Respondent company T.M. Ltd.

The answer to this complaint is to be found in Tapuria''s evidence and the reason why this mortgage came into existence. In answer to Qs. 830-843 he makes it clear that the Articles empower the Directors to borrow money against mortgage of the company''s assets and, therefore, there is no need of taking any sanction of the shareholders in the first instance, and at the meeting of May 30, 1968, the resolution was passed for obtaining the sanction of the share-holders because the State Bank of India wanted that particular resolution. Then there is also evidence of the witness Madhab Basudeb Bhave for the Respondents who in answer to Qs. 180-187 explains the circumstances in which the mortgage of the Bombay Tube Mill plant came into being. It may be mentioned here that Mr. M. B. Bhave was the Manager of the Bombay branch of the Respondent company T.M. Ltd. since 19)66.

It is also contended on this point that the explanatory statement is misleading. It is said that it was a renewal of mortgage originally created in year 1965. [See the resolution, Ex. T(13), dated March 8, 1965, and the resolution dated March 15, 1967, marked Ex. T(8).] It is on record at p. 27 of the third petition that this notice is given regarding this special business in resolution No. 8 under this head. The full answer is given at p. 29 of the explanatory statement appearing in para. 22 of the affidavit-in-opposition of Hormasji. In that event the subsequent ratification will be valid. Kapur J. in Kripa Ram v. Shrinivas Prosad AIR 1951 p&h. 79 (85) observes:

Section 86H puts a restriction on the powers of Directors in regard to disposing of the undertaking of a company, but it does not say that such a thing cannot be done. All it says is that it must be done with the consent of the company, i.e. the shareholders. Article 135(19) gives the same power to the company as are given by Section 86H, Companies Act. In my opinion, the transaction which the Defendants intend to enter into is not one which is ultra vires of the company. Even if it was held that the Directors of the company cannot enter into these transactions without the assent of the company, a point on which I give no final opinion, it is a matter which can be sanctioned or ratified by the share-holders. In other words, it can be approved of by the share-holders or is capable for being approved.

The next challenge of the Petitioner is against the special resolution No. 9 relating to the guarantee in connection with a loan made to Alcock Ashdown & Co. Ltd. The answer, so far as the Respondent is concerned, on the facts will be found in para. 20(xi) of the affidavit-in-opposition of Hormasji.

The Petitioner''s contention on this point is that this guarantee is bad because (i) it contravenes Section 370 of the Companies Act, 1956, and (ii) the explanatory statement does not give material facts as the guarantee was first given in 1965 and renewed from time to time.

On Section 370 of the Companies Act, 1956, the following points are to be noticed: (a) previous authorisation by special resolution was not given here and here they were seeking to ratify it, and (b) Section 370(1B)(v) of the Companies Act, 1956, was infringed because the evidence shows the guarantee was given in March 1965, but the guarantee was not revoked u/s 370(1B)(v).

But, the answer to this point u/s 370 of the Companies Act, 1956, is that it does not apply at all. Sub-section (5) of Section 370 of the Companies Act, 1956, introduced by the amending Act XXXI of 1965 from October 15, 1965, uses significant expression--

any loan, guarantee or security has been made, given or provided by a company which could not have been made, given or provided under this section as amended by that Act.

The answer is that this guarantee could have been given at the time when it was created. I shall elaborate the point a little further. Up-to December 31, 1964, Section 370 of the Companies Act, 1956, does not apply except Section 370(2)(b)(ii) which excludes it for a managed company. After December 31, 1964, the Respondent company T.M. Ltd. is not within the control of any common or same management as Alcock Ashdown & Co. Ltd. in March 1965, when the guarantee was given. The words ''same management'' by Section 46 under the Companies Amendment Act, 1965, came into operation only on April 1, 1967, by notification dated December 24, 1966. That, in my view, completely answers this objection of the Petitioners on this point.

Reliance was in this connection placed on the resolution dated March, 8, 1965, marked Ex.T(13), resolution dated March 29, 1966, marked Ex. T(16), and resolution dated December 17, 1966, marked Ex. T(3); but these resolutions were not brought before the share-holders at the meetings of January 10, 1966, and January 30, 1967, (See annex. M of Hormasji''s affidavit affirmed on June 18, 1968, at pp. 217-219.)

It was also contended on behalf of the Petitioner that the amount of guarantee after expiry of the managing agency increased from Rs. 10 lakhs to Rs. one crore and it is also said that Section 173 of the Companies Act is not satisfied by the explanatory statement.

It is to be remembered that this meeting was held while the main application under Sections 397 and 398 of the Companies Act, 1956, was pending in this Court.

The above represents briefly the major contentions of the Petitioner with regard to these individual resolutions under issue No. (10). So far as these individual resolutions under issue No. (10) are concerned, the following points are, in my view, essential to be noticed:

(1) what are the particulars wanted in the explanatory statement;

(2) their sufficiency from the common sense point of view; and

(3) knowledge if already there, then would the lack of particulars be an obstacle.

The Division Bench of this Court in Maharani Lalita Rajya Lakshmi M.P. Vs. Indian Motor Co., (Hazaribagh) Ltd. and Others, lays down that failure to comply with the details of Section 173(2) of the Companies Act, 1956, does not make it a case ipso facto of oppression in conducting the affairs of the company because the breach of Section 173(2) can at best make the meeting called invalid and no more and, if such a meeting is invalid, then the Companies Act itself provides the procedure for calling valid or regular meetings or for regularising irregular proceedings. That right is always open to every share-holder. It was further pointed out in that decision of the Division Bench that a share-holder who by his conduct shows that he knew the legal effect of the work to be transacted at a meeting, cannot complain of a notice on the ground of insufficiency. How much is ''all material facts'' and what is the ''nature and extent of interest'' u/s 173(2) of the Companies Act, 1956, are questions of fact and degree to be judged in each case. See the observations made by me in that decision to which I was a party at p. 130. See also the decision of the Privy Council in Parashuram Detaram v. Tata Industrial Bank Ltd. 55 LA. 274.

Now, what are the facts on this point? Before the meeting on May 30, 1968, the Petitioner made application on May 29, 1968, challenging this proposed meeting and itself annexing the notice and the explanatory statement. The Petitioner and its liquidator knew fully the business intended to be transacted at that meeting. Two persons who are the share-holders knowing everything were there and there was no absentee share-holder.

Another Division Bench decision of this Court in East India Commercial. Co. Private Ltd. v. Raymon Engineering Works Ltd. AIR 19GS Cal. 232 (235) expressed the same view. That decision notices also the authority of the English Court in Henderson v. Bank of Australasia 45 Ph-D. 330 (337, 343, 349). Chitty J. was considering the question about the notice which specifies the business to be done or the objects of the meeting and expressed the view,

the Court does not scrutinise these notices with a view to exercise criticism, or to find Out defects, but it looks at them fairly. I think the question may be put in this form: What is the meaning which this notice would fairly carry to ordinary minds? That, I think, is a reasonable test. Another matter of very considerable importance in dealing with this as a practical question is, how did the meeting itself understand the notice? There were questions raised and discussions at the meeting, but no one raised any objection on the ground that this addition of the words as to the qualification applied to each share, was not within the scope of the notice; and it is plain that the Plaintiff, who took an active- part in the meeting, did not raise the objection. It is plain he put no one on his guard, either the Chairman or any of the share-holders there assembled.

These observations of Chitty J. were naturally confined to notice and not to explanatory statement. On appeal, the judgment of Chitty J. was set aside and Cotton L.J. expressed the view:

The first is that the objects for which the meeting was called was not sufficiently expressed in the notice calling it. I do not think it necessary to decide that point, having regard to the opinion that we all entertain on the second objection; but at present advised, I think that the notice clearly and reasonably expressed to the share-holders what matters were going to be discussed at the meeting.

No doubt, the other member of the Court of Appeal Lopes L.J. expressed his doubts on the point how far the notice was sufficient. The explanatory statement and the notice in the present case before me were all annexed to the third petition, filed by the Petitioner on May 29, 1968, and solemnly affirmed by the affidavit of Baijnath Garg on May 29, 1968, and the affidavit of the liquidator Nirmaljit Singh Hoon affirmed on the same day. The petition shows that the Petitioner and its liquidator and Mr. Garg affirming the affidavit knew very well what was the notice, what was its object and what were the particulars of the explanatory statement because they themselves were saying that these particulars were wanting in the explanatory statement. Taking, therefore, the test that such notices and explanatory statements should be read fairly and, from the business point of view, I am satisfied from the facts and circumstances of the case that the Petitioner and the liquidator had no grounds whatsoever on this point. I hold accordingly. I hold further that in these facts and, circumstances and for the reasons stated above, the resolutions passed and the special items discussed above were valid and cannot now be challenged in proceedings under Sections 397-398 of the Companies Act.

I, therefore, hold that on issue No. (10), the Annual General Meeting of the Respondent company T.M. Ltd. held on May 30, 1968, is valid and the resolutions passed thereat are also valid.

Issue No. (11):

I now come to issue No. (11) which is in these terms:

Were the sale of- flats and the selling of Bombay flat and giving up lease of houses in Dover Park held by Smith Stanistreet & Co. Ltd., a subsidiary of the Respondent company No. 1, acts of mismanagement?

This issue relates to the sale of Bombay flat and giving up of the Calcutta lease in Dover Park. The Petitioner condemns these transactions because (i) application u/s 397 was pending when these transactions were gone" through and (ii) there was an interim injunction dated December 1, 1967, restraining the Respondent from dealing with or disposing of assets except in the usual course of business.

Regarding the Bombay flat, the complaint of the Petitioner is that there was no negotiation with any party except Castrol Ltd. In other words, there was not sufficient scouring of the market before the Bombay flat was sold. But the point is that Castrol Ltd. was already in occupation. (See the answers of witness Madhab Basudeb Bhave and particularly his answers to Qs. 8-24, 28-32, 34-60, 110-116 and 139-147.) This Bombay flat belonged to Turner Morrison & Co. Ltd., Bombay branch. This was managed by Hill Properties Ltd., which was a limited company the members of which were mainly companies and they had constructed the buildings for housing the staff of the member companies. The idea was that they owned shares which entitled them to a flat. This flat was purchased by the Respondent T.M. by way of a share capital of Rs. 1,18,000 in 1952 and the flats were occupied in 1954. It is this flat which was sold to Castrol Ltd. Witness Bhave was Manager of the Bombay office and he negotiated this transaction. Castrol Ltd. is a well-known U.K. company having world-wide interest and their business is connected with lubricating oils. For about six years before the sale to Castrol Ltd. this flat was not occupied by the Respondent T.M. although formerly it was used by T.M.''s shipping employees. Castrol Ltd., therefore, who were already in occupation of the flat, purchased it.

Here, the Articles of the Hill Properties Ltd., which are marked Ex. 2, are relevant because by Article 4(b) of the Hill Properties Ltd. there is a restriction on the right of sale. (See also Articles 52-57 dealing with transfer and transmission with special provision for existing members to have the right of pre-emption.) The entire correspondence on this point consisting of (i) letter dated August 18, 1969, Ex. 18, (ii) letter dated April 8, 1968, Ex. 17, (iii) letter dated April 1, 1968, Ex. 16, (iv) letter dated March 21, 1968, Ex. 15, and (v) letter dated March 11, 1968, Ex. 14, completely answer the case of the Petitioner under this issue No. (11) regarding the Bombay flat. I am satisfied that there was nothing irregular or unconscionable in this transaction in favour of Castrol Ltd. both on the evidence of Bhave, whose answers I have mentioned above, and also on the evidence of these documents consisting of the letters and having regard to the restriction on the right of transfer under the Articles of the Hill Properties Ltd.

The next point about Bombay flat was that, according to the Petitioner, it was sold at an under-value. Again, on that same evidence of Bhave as well on the letters mentioned above, I am unable to accept the charge of under-value made by the Petitioner and its liquidator Mr. Hoon. I shall discuss briefly some evidence on this point. The evidence of Tapuria for the Respondents will be found in his answers to Qs. 66-75, 82-84 and 769-794. He says that the sale was concluded at a total value of Rs. 1 lakh 90 or 92 thousand and odd including the furniture in the flat. Originally Castrol Ltd. had offered a lower price, but then finally they agreed to that figure. This figure was approved at a meeting of the Board of Directors. (See the Board resolution dated February 13, 1968, for sale of several flats.) Tapuria''s evidence is that this was the best offer that they could get and the Board of Directors was satisfied about the price. In answer to Q. 76 he characterised as ridiculous the suggestion that it was a ''throw-away'' price.

It was also put to Mr. Tapuria that this sale was in violation of the Court''s order of injunction and Mr. Tapuria has answered that suggestion in Q. 769 by saying that it was nowhere in the order of the Court at all. Hiring or purchase of flat was incidental to the administration by the executive and it was just like buying a car to provide the executive with a transport and, if die executive''s services were either terminated with or dispensed with or if he retires, the flat would become surplus, and it was Mr. Tapuria''s definite evidence in answer to Q. 769 that it was in the usual course of business that this transaction was put through and in no violation of the order of the Court. -The remedies of contempt of Court and for injunction restraining such sale could have been obtained by the Petitioner if what the Petitioner and its liquidator alleged was true.

It appears from the evidence that there were two flats, viz., flats Nos. 8 and 12 were purchased in 1952 at the same price and both were of the same area and in the same premises. (See Bhave''s answers to Qs. 17, 18, 96 and 132.) What the Petitioner contends is that the resolution dated April 29, 1968, marked Ex. Q(2), shows that the resolution was to sell flat 12 for Rs. 2,25,000, but then there is the other resolution marked Ex. Q(3) dated May 28, 1968, by which flat 8 was sold at Rs. 1,55,000. (See Bhave''s answers to Qs. 53-54, 85-89, 135-138 and 173-175.) On that evidence, I am completely unable to accept this allegation of sale at an under-value having regard to the fact that the allocation of the price was made between the flat and furniture and the fixtures along with it. While both the Respondent Tapuria as well as Bhave gave evidence about the price and the negotiations for sale of flat, no evidence was called by the Petitioner or its liquidator to show that higher prices could be obtained in Bombay for flats of this description in the area where, this flat is situate.

There is no evidence to contest the evidence led on behalf of the Respondents, and I am bound to accept that evidence in the circumstances of this case. I do not find there anything unfair or unconscionable in this transaction.

The other charge under this issue No. (11) is with regard to the surrender of the Dover Park residence in Calcutta by the Respondent company T.M. Ltd. This objection, to my mind, is completely frivolous and baseless. The liquidator Mr. Hoon, in answer to Qs. 75-78, 610-635, 664, tried to speak on this subject. According, to him and from these answers his case is that this Dover Park flat was surrendered early in 1968 and, according to him, he tried to say in answer to Q. 75:

My personal knowledge was that Rs. 1,50,000 was pocketed by these people before they surrendered this one as a compensation and it was confirmed to me by Rodewald even at a later date and it was further confirmed by B.P. Singh himself, but it has gone into the books.

Again, in answer to Q. 78 he was supposed to have had a conversasion with Rodewald when he told him that the money had been pocketed by Tapuria and Haridas Mundhra and they have had no share in that. He was particularly cross-examined in Qs. 610-635 about his allegation that Mundhra and Tapuria had pocketed Rs. 1,50,000 and under pressure of that cross-examination he had to admit in answer to Q. 611: ''I do not have any evidence''. And again in answer to Q. 618 he says: "No, I did not see personally at all. This is all hearsay." So, he himself says it is all hearsay evidence. This Court certainly is not going to act on hearsay evidence of this nature and of this description. As against this, there is a complete denial by Tapuria in his answers to Qs. 88-96 and Qs. 765-798. He says in answer to Q. 90 that it had to be surrendered because the property had absolutely become uninhabitable and unusable, the roof was leaking and, unless a heavy amount was spent, it could not be properly repaired and there was also litigation going on between the landlord and their company and it was not possible for the Chief Executive to live in such a place. He has characterised Mr. Hoon''s allegation about pocketing Rs. 1,50,000 by him and Haridas Mundhra as ''a maliciously false statement'' in his answer to Q. 798.

It is not denied that the house at Dover Park was in that dilapidated and unusable condition by any challenge on behalf of the Petitioner or its liquidator.

On those facts and circumstances, I am bound to hold that the surrender of Dover Park flat in Calcutta was not invalid, irregular or in any way an unfair transaction.

For the reasons and on the facts stated above, I hold that the sale of the Bombay flat and the giving up of the lease of the house at Dover Park, Calcutta, held by Smith Stanistreet & Co. Ltd., a subsidiary of the Respondent company T.M. Ltd., was not at all an act of mismanagement, and I hold accordingly.

Issue No. (12):

I proceed now to issue No. (12); This issue is a general summary issue relating to probity and fair dealing and is in the following terms:

Whether in the facts and circumstances

(a) there is a lack of probity and fair dealing on the part of the Respondents in the management and affairs of the Respondent company No. 1?

(b) the acts and conduct of the Respondents are burdensome, harsh and wrongful?

Insofar as they cover many of the allegations already dealt with in the foregoing issues, I do not propose to repeat them. Almost all the foregoing issues cover the grounds of probity and fair dealing and burdensome and harsh and wrongful act or conduct as specified in those issues. It will be unnecessary to repeat them here.

But there are certain arguments advanced by the Petitioner which are new for this particular issue No. (12). I propose to deal with them in this issue.

The first submission that is made for the Petitioner is that there is an imprudent investment. In support of this allegation reliance is placed on Ex. T-l, a resolution dated July 11, 1967, which shows that four shares of the Respondent company T.M. Ltd. were sold at Rs. 30 per share, but the purchase, of the larger block of 10,755 shares was made at Rs. 100 each on the same day. This is the gist of the allegation. Curiously enough, not a word is alleged in the petition under, Section 397-398 of the Companies Act, 1956, about this imprudent investment. Normally, therefore, I would not consider such an argument in an application of this nature. But, I find on the merits that this allegation is sufficiently answered on behalf of the Respondents. On this point, the evidence of Tapuria in answers to Qs. 454-457, 460-468, 477-478 and 488 are relevant. In answer to Q. 488 Mr. Tapuria makes it abundantly clear that the reason for the divergence in ''value is that one set was only of four shares and the other was for a much larger block of 10,755 shares which really represent the value of the controlling interest.

I am, therefore, unable to hold that this was such an instance of imprudent investment which would justify an application under Sections 397-398 of the Companies Act, 1956.

The second point that has been urged under this issue on behalf of the Petitioner is the waiver of interest due on debentures of East India Clinic Ltd. for 1965, 1966 and 1967. In support of this argument, Mr. Mukherjee for the Petitioner relied on Ex. T-3, being a resolution dated December 17, 1966. But, here again two outstanding obstacles are on the way of the Petitioner. One is that there is riot a word of allegation pleaded in the petition. The second is that it was not even put to Tapuria in cross-examination and there was no question on the amount of waiver or why there was waiver.

On that material I am bound to hold, which I do, that there is no lack of probity or fair dealing or any burdensome, harsh or wrongful conduct on the part of the Respondents in respect of this waiver of interest due on the debentures of East India Clinic Ltd.

The third submission made under this issue on behalf of the Petitioner is about the purchase of further debentures on July 28, 1967. In support of this argument, reliance is placed on Ex. T-4, a resolution dated July 28, 1967. That resolution shows that the Board authorised the purchase of East India Clinic debentures only to the value of Rs. 3,000.

The answer here again is that not a single question was put to any of the Respondents'' numerous witnesses who came to the box on this point and there is no allegation to that effect in the petition which has been supported by any evidence-led by the Petitioner. In any event, I would not surely act under Sections 397-398 of the Companies Act for this purchase of East India Clinic debentures of only Rs. 3,000.

For the reasons recorded above and in the foregoing issues, I hold that there is no lack of probity or fair dealing or any burdensome or harsh or wrongful act or conduct in the part of the Respondents or any one of them under this issue and which can come under Sections 397 and 398 of the Companies Act.

Issue No. (13):

The next issue No. (13) is in these terms:

Has there been any material change in the management or control of the company as a result of which the affairs of the said company were conducted in a manner prejudicial to the interest of the said company.

The company in this case is the Respondent No. 1 T.M. Ltd. I have already discussed about material change. These words ''material change'' occur u/s 398(1)(b) of the Companies Act, 1956. This particular section has been quoted elsewhere in the judgment.

The argument on behalf of the Petitioner is that on February 25, 1964, by the decree for specific performance and an injunction restraining the liquidator Mr. Hoon from exercising his voting rights except in accordance with the dictates of the Respondent Haridas Mundhra and because of the change in the Board of Directors in 1966 and 1967, there has been a material change which the Petitioner alleges to have resulted to its prejudice and the prejudice of the Respondent company T.M. Ltd. Basically, this again arises from Section 398 of the Companies Act, 1956, which relates to relief in cases of mismanagement. If the specific instance of mismanagement has not been proved, as I hold they have not been in these proceedings, then no further question arises in this issue. But, I am also convinced that the Court''s orders and decree for specific performance and injunction restraining Mr. Hoon from exercising his voting rights except according to the dictates of H. D. Mundhra cannot constitute ''material change'' within the meaning of Section 398(1)(b) of the Companies Act, 1956. The language of that provision shows that the ''material change'' there illustrated is a material change caused by the parties themselves without the intervention by the Court. The Court''s decree or order cannot create prejudice in that legal sense because, if there was a prejudice, then the law provides for appeals, revisions and other proceedings which were open to the Petitioner.

I am, therefore, unable to hold that there has been any material change within the meaning of Section 398 of the Companies Act, 1956, which would justify action thereunder.

Issue No. (14):

This issue relates to post-petition acts of oppression and mismanagement and is in these terms:

Is the Petitioner entitled to rely on any ground of allegation of oppression or mismanagement after the filing of the petition?

The post-petition acts of mismanagement are: (i) sale of Bombay flat and surrender of the Calcutta lease. The Bombay flat x was sold on May 28, 1968, and the Calcutta lease was surrendered in 1968, both after the main petition in these proceedings was filed. But this issue is already covered by my decision in issue No. (11). (ii) The other post-petition act of mismanagement is with respect to the Annual General Meeting of May 30, 1968. But this again has been Covered by my decision on issue No. (10).

I have already said that there is one main petition under Sections 397 and 398 of the Companies Act, 1956, with four other subsidiary applications, viz., (i) summons dated November 21, 1967, where the prayers are the same as the prayers in the main petition, except prayer (t) relating to Lodna Colliery income tax refund; (ii) application for injunction regarding the meeting of May 30, 1968, and summons dated May 29/1968; (iii) application and summons dated September 18, 1968, for restraining sale or disposal of the Bombay flat or the Calcutta flats and for restraining Rani Padmabati and Mr. Goenka from acting as Directors; and (iv) an application for addition of parties on summons dated August 11, 1969, regarding subsidiaries and other companies and other Directors.

There is yet another application, which I shall call as the sixth application, for restraining the Annual General Meeting on August 30, 1969, and summons dated August 28, 1969, and which I shall deal with separately.

I have already decided issues Nos. (10) and (11) relating to sale of flats and surrender of lease and the Annual General Meeting on May 30, 1968,- both of which were post-petition acts. There I decided against the Petitioner and in favour of the Respondents, With regard to the other applications, I have decided them individually under different issues except the sixth application which I shall decide presently. I, therefore, answer the issue No. (14) accordingly. I need only notice here that on behalf of the Respondents it has been urged that these post-petition acts of oppression or mismanagement were not ''continuing wrongs'' within the meaning of ''being conducted'' under Sections 397 and 398 of the Companies Act, 1956. I do not need to decide this question because I have given my decision on the merits.

Issue No. (15):

I proceed now to the last issue, issue No. (15), in these proceedings which is in these terms: "To what relief, if any, is the Petitioner entitled?"

To determine this issue it will be necessary once again to refer back to the scope of Sections 397 and 398 of the Companies Act, 1956. The major part of this aspect of the question has already been dealt with by me under issue No. (1) relating to the Petitioner''s right to maintain this application or claim the reliefs.

I shall only briefly add a few more observations on this aspect of the law. Section 153 of the old Companies Act was introduced in 1951 by Section 7 of Act LII of 1951 and was predecessor of the present Sections 397 and 402 of the Companies Act, 1956. The expression ''without prejudice to any other action'' in old Section 153 has now been dropped in Section 397 of the Companies Act, 1956. That would seem to encourage the idea that Section 397 is not any more without prejudice to any other section but may be invoked simultaneously with other reliefs under other sections. But, then this does not take away the fact that orders under Sections 397 and 398 of the Companies Act are discretionary orders of a very wide nature and should be used with circumspection and care or else every disgruntled person in company management can put the whole business of the company into jeopardy by bringing proceedings under these sections and calling for extensive remedies thereunder. I need also to add that Section 398 of the Companies Act, 1956, is an original introduction, and there is no corresponding English section in the English Companies Act whose model the Indian Companies Act has been following for a very long time.

The danger of opening out the proceedings under Sections 397 and 398 of the Companies Act, 1956, too widely in circumstances revealed in the present proceedings is very real indeed. A Division Bench of the Madras High Court in N.V. Vaidyanatha Ayyar and Another Vs. Indian Bank Ltd., Tiruchirapalli and Others, made significant observations on this aspect of the problem as follows:

A share-holder is no doubt interested in the property of the company in which he holds shares; if the property is riot properly looked after and administered, the share-holder would naturally suffer in his pocket. But this does not" mean that every shareholder, who apprehends that the property of the company is being mismanaged or is even fraudulently disposed of, is entitled to come to Court in the manner the Petitioner has done.

It is easy to see that if such a course were permitted, the business of the company can be brought to a complete standstill when differences of opinion exist among the members of the company. One legal effect of incorporation is to vest the ownership of the property in the company, which acquires a separate legal existence. The property has to be managed by the directors, subject to the control of the share-holders and the provisions of the constitution of the company. If the directors misbehave, they can be removed.

If they are able to get the backing of the majority and threaten to use that majority to oppress the minority, that will be an occasion when'' the Court will interfere. The Petitioner alleges that the Managing Director has perpetrated a fraud on the company in collusion with Chellappa Chettiar. In'' respect of such a conduct, the Petitioner has a specific remedy provided u/s 153C, Indian Companies Act.

The principles indicate that the wide powers of Sections 397 and 398 of the Companies Act, 1956, given to the Court should no doubt be used in appropriate cases, but they must be used with caution and not to substitute the company by the Court management for every difference of opinion between the share-holders.

This caution becomes all the more important where the Applicant is a company which has gone into liquidation and is now trying to influence the management of other companies in which it used to hold shares while it was a going concern.

The ''Objects and Reasons'' of the Companies Act, 1956, make this position clear. In this connection Lord Jenkins report the review of the provisions of working of the English Companies Act, 1948, and the Prevention of Fraud (Investments) Act, 1958, made some revealing observations in dealing with the English law on the subject. It noticed two changes in the law designed to strengthen the position of the minorities were recommended by the Cohen Committee and adopted in the 1948 English Act. The first was Section 225 which prevented a contributory''s petition being defeated by the mere facts of the existence of an alternative remedy. The second was Section 210 which was entirely new. It makes the comment that neither section produced the results expected of it. The Committee, therefore, agreed with the views expressed by many witnesses before it that, even as interpreted in Scottish Co-operative Wholesale Societies Ltd. v. Meyer (Supra) and Re H. R. Harmer Ltd. (Supra), Section 210 of the English Act, as it stood then, called for amendment if it was to afford effective protection to minorities in circumstances such as those with which it was intended to deal. The Jenkins report at para. 196 observes:

Firstly, there was the requirement that the Applicant, in order to succeed, had to show not only that the affairs of the company were being conducted in a manner oppressive to some part of the members (including himself), but also under Sub-section (2)(b) that to wind up the company would unfairly prejudice that part of the members, but otherwise the facts would justify the making of a winding up order on the ground that it was just and equitable that the company be wound up. A case for winding up under the just and equitable rule at the instance of a contributory was difficult to establish and it was suggested that there was no sufficient reason for making the establishment of such a case an essential condition of intervention by the Court.

It proceeds to the discussion that the basic condition for relief under this section was that there had to be ''oppression'' which indicated a course of conduct as distinct from an isolated act. In Elder v. Elder (1952) Scot. Cases 49 it was said that, for there to be oppression, the conduct complained of should at the lowest involve a visible departure from the standards of fair dealing and a violation of the conditions of fair play on which every share-holder who entrusted his money to a company was entitled to rely. These were the reasons for the present law. In para. 4 of the ''Objects and Reasons'' of the Indian Companies Act, 1956, it is being said:

In the Indian Companies (Amendment) Act, 1951 (LII of 1951), certain special powers were conferred on Courts of Law and the Central Government. While the powers conferred on the Courts by section 7 of that Act were based largely on the provisions of section 210 of the English Companies Act, 1948, the other powers conferred on the Central Government were of a quasi-administrative nature to be exercised on the recommendations of an Advisory Commission provided for u/s 8 of the Amendment Act.

In commenting on this aspect of the problem, Gower on Principles of Modern Company Law (3rd ed., pp. 600-604) observes that the Cohen report instances two situations envisaged for employment of the section the first, where controlling Directors unreasonably refuse to register transfers of the minority''s holdings so as to force a sale to themselves at a low price, and the second, where they take excessive remuneration so as to leave nothing for distribution by way of dividend. But, these were expressly stated to be but illustrations of a general problem. The Jenkins Committee added two further illustrations, viz., issue of shares to the Directors and others on advantageous terms and the passing of non-cumulative preference dividends on shares held by the minority. In English law decisions both in Scottish Co-operative Wholesale Society Ltd. v. Meyer (Supra (342)) and in Re H. R. Harmer Ltd. (Supra) a tendency is to be seen to apply the section liberally. Lord Simonds in the Scottish Co-operative v. Meyer (1958) 3 All E.R. 66 attempted to definite oppression to mean ''burdensome, harsh and wrongful''. Gower makes the comment that if some of these decisions are correct, the section fails to achieve all that was intended of it and particularly points out that the interpretation placed on the requirement that it must be just and equitable to wind up the company is particularly unfortunate. Be that as it may, that expression does occur in the statute and also in the Indian Companies Act, 1956. While Gower quotes the Jenkins Committee''s report, when it said that it was not the intention of that Committee to encourage litigation in cases in which, for instance, an independent majority had reached a bona fide decision to the effect that in the interests of the company as a whole no action should be taken, has made this observation that implementation of this recommendation, when coupled with those enabling a petition to be based on a single act and empower the Court to grant an injunction, would certainly strengthen the position of a minority. No doubt, that is a very bold suggestion, but having regard to the language of the Indian Companies Act, 1956, in Sections 397 and 398 and specially the expression ''are being conducted'', the company statute has yet to go a long way to amend it before such a view could be taken of the present provisions. I have already noticed the observations of our Supreme Court in Shanti Prosad Jain v. Kalinga Tubes Ltd. (Supra (1542-43)).

The view that I have taken of Sections 397 and 398 of the Companies Act, 1956, is marked by certain considerations. The application certainly must be by a member in the appropriate sense. Secondly, it must be established that the company''s affairs are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members. Thirdly, the Court must be satisfied that to wind up the company would unfairly prejudice the member or the members although otherwise the facts would justify the making of a winding up order. Next, the Court must act with a view to bring an end to the matters complained of. To that end the Court has wide powers to make such orders as it thinks fit. Similarly, u/s 398 it must be a member''s complaint. The complaint must relate to the affairs of the company being conducted in a manner prejudicial to public interest or to the interest of the company or a material change as described therein had occurred. He must also be such a member who has a right to apply u/s 399 of the Companies Act. The power of the Court is entirely discretionary. What will guide the discretion of the Court cannot be limited because the statute does not limit that discretion. The Court can take into consideration any relevant and cogent circumstance. In doing so, it may take into consideration the fact that the Central Government which is the custodian of public interest in this context has not acted in spite of notice. The Court may consider also that it will be inappropriate to allow a particular person to bring to a standstill the management of a company to which reference was made by the Division Bench of the Madras High Court. The Court may again, in the exercise of its discretion, consider that if other remedies under other specific sections of the Companies Act were open to a company member he should have availed himself of it in the first instance before asking for the interference of the Court in its discretionary remedy u/s 397 or Section 398 of the Companies Act. This discretion, wide as it is, is still controlled by the above provisions of the statute. It is essential that in applications under Sections 397 and 398 of the Companies Act, 1956, fair and reasonable particulars should be given of those affairs of the company against which the complaint is made as being prejudicial to public interest or in any manner oppressive. Without particulars of prejudice and oppression it is difficult, if not impossible, to deal with bare allegations in an application of this nature. Again, the words ''are being conducted'' mean a kind of continuity which may not be continuous or may be interrupted but nevertheless it must suggest a course of conduct or act. The condition that the Court must be satisfied that the facts pleaded would justify the making of a winding up order on the ground that it is just and equitable that the company should be wound up and that to do so would unfairly prejudice a member or members is a condition which must be respected. Otherwise, a large and profitable business conducted by a company will be thrown at the mercy of a disgruntled member u/s 397 of the Companies Act. Again, the statutory requirement is that while the Court may make such order as it thinks fit, it must do so with a view to bring an end to the matters complained of. If the Court is satisfied that the matters complained of cannot be put an end to, then one of the conditions u/s 397 of the Companies Act, 1956, is not satisfied and in that case the Court might take other actions but not an action u/s 397 of the Act. Almost similar requirements, although not exactly the same, are to be found in Section 398 of the Companies Act, 1956. Finally, the Applicant must be a member within the meaning of Section 399 of the Companies Act, 1956. It is a member''s right to apply under these two sections and that member must not be a paper-member but a member who has a voice in the management and who has not lost it, as the Petitioner company in liquidation and its liquidator are in this case by virtue of the Court''s orders and decrees. Its only exception is the right of the Central Government to apply these two sections by reasons of express provision contained in Section 401 of the Companies Act, 1956.

This issue No. (15) relates to reliefs I shall analyse the range of the reliefs claimed to show what exactly is the purpose of making this application.

The first two reliefs marked (a) and (b) ask for removal of all the Respondents Nos. 2 to 10 from their position as Managers, Secretary and Directors or Controllers of the Respondent company T.M. Ltd. and for appointment of a Board of Management with proper representation of the Petitioner and/or special officer appointed to carry on the management of the Respondent T.M. Ltd. and its subsidiaries. Now, these are most extensive remedies. It means almost total displacement" of the present management and control of the Respondent T.M. Ltd. These claims for reliefs also reveal that this Petitioner company in liquidation and its liquidator want to have a representation in the management of the Respondent T.M. Ltd. I have already expressed my view in issue No. (1) that the Petitioner company in voluntary liquidation and its liquidator cannot claim this relief in the facts and circumstances of this case. I need only add that when this particular point was being argued, I asked the counsel on either side if the parties could suggest any committee of management which would be acceptable to all concerned, but they failed to make any suggestion of any kind on that point.,

Prayers (c) and (d) represent reliefs by way of injunction restraining the Respondents Nos. 2 to 10 from acting as Managers, Secretary or Directors of the Respondent company T.M. Ltd., and/or interfering in any manner whatsoever with the affairs of- the said company and for removal of the Respondents Nos. 3 and 4 from their positions as Managers or principal/administrative officers of the Respondent company T.M. Ltd. These reliefs are really consequential following upon reliefs claimed in prayers (a) and (b). I have already given my findings on the relative issues on this point.

The next prayers in the relief claimed are (e) and (f) calling for investigation of the affairs of the Respondent T.M. Ltd., and of the dealings of the Respondents Nos. 2 to 10 with regard to the said company for the purpose of finding out losses caused by them to the Respondent No. 1 and to its subsidiaries or controlled companies and consequent upon such investigation and tracing out of the losses an order to all the Respondents to contribute to the assets of the Respondent company T.M. Ltd. and its subsidiaries or controlled companies as compensation. I have already dealt with these prayers under the relative issues discussed above. These prayers indicate that what the Petitioner company is really after is a full-fledged investigation not only of the whole management of the Respondent company T.M. Ltd. but also of its subsidiaries and controlled companies more in the nature indicated by Sections 408 and 409 of the Companies Act.

Prayer (g) in the reliefs sought is consequential and calls for an order upon the Respondents to contribute under the provisions of Section 543 read with Sections 397 and 398 of the Companies Act the sums of money to the assets of the Respondent T.M. Ltd., and subsidiaries and controlled companies by wav of compensation.

I have dealt with this prayer under the relevant issue considered above.

Now, prayer (h) in the reliefs asks for an order directing the Respondents to pay to the Petitioner the due dividend on the 51 % shares of the Petitioner in the capital of the Respondent No. 1, T.M. Ltd., and pending decision to deposit this amount in any bank or in this Court as may be directed. Now, this prayer raises an interesting aspect of this case. This matter is already subjudice in the lien suit pending appeal in the Supreme Court now. But the attitude represented by the Petitioner company and its liquidator in this respect is revealing to show that the whole of the present application is not bona fide. During the course of the proceedings on August 4, 1969, in this Court the Respondent No. 2 Haridas Mundhra gave the following undertaking in writing through the counsel to the Court which is on the record and reads as follows:

(1) Haridas Mundhra will carry out all his obligations under the decree passed in suit No. 600 of 1961 and also under the order passed by his Lordship the Hon''ble Mr. Justice Masud dated July 14, 1969,. made on the application of Hungerford Investment Trust Ltd. (in voluntary liquidation) under Master''s Summons dated March 21, 1967.

(2) Hungerford Investment Trust Ltd. will withdraw the appeal against the said order dated July 14, 1969, and also the Company Petition No. 274 of 1967 and all applications made therein.

(3) Save as above, Hungerford Investment Trust Ltd. and Haridas Mundhra shall have no claim against each other.

(4) All parties including the Receiver will act on a signed copy of the Minutes.

Even the Respondent Turner Morrison & Co. Ltd. through its Attorneys also gave a written undertaking, filed in the records of these proceedings which reads as follows:

Turner Morrison & Co. Ltd. is claiming a lien on 2,295 shares of Turner Morrison & Co. Ltd., held by Hungerford Investment Trust Limited (in voluntary liquidation) and/or their nominees bearing distinctive numbers 1 to 1450; 1601 to 2295; 1451; 1456 to 1592; 1453; 1454; 1455; 1595; 1597; 1598; 1599; 1600; 1452; 1593; and 1594 for the sum, of Rs. 1,27,67,052-16 P. upto 15th November, 1965, and as claimed in suit No. 2005 of 1965 of this Hon''ble Court (Turner Morrison & Co. Ltd. v. Hungerford Investment Trust Limited (in voluntary liquidation) and for further interest on the said sum from 16th November, 1965, onwards. Hungerford Investment Trust Ltd. (in voluntary liquidation) has filed Company Petition No. 274 of 1967 and made three applications therein and has also filed or caused to be filed suits bearing No. 129 of 1966 (Hungerford Investment Trust Ltd. (in voluntary liquidation) v. Turner Morrison & Co. Ltd.) and suit No. 1275 of 1966 (Geoffrey Turner if Co. Ltd. v. Turner Morrison if Co. Ltd.). In order to defend the said applications and the said suit No. 129 of 1966 and No. 1275 of 1966 of this Hon''ble Court, Turner Morrison & Co. Ltd. has to incur costs and further the pendency of such applications and suits are affecting the reputation and management of Turner Morrison & Co. Ltd. and, accordingly, Turner Morrison & Co. Ltd. desire to settle such suits and applications.

As it appears that no settlement can be arrived at with Hungerford Investment Trust Ltd. (in voluntary liquidation) unless Turner Morrison & Co. Ltd. agrees not to enforce the lien against the sum of Rs. 86,60,000 being the sale proceeds of the said shares which Hungerford Investment Trust Ltd. (in voluntary liquidation) would receive by sale of the said shares against payment pursuant to the decree dated 25th February, 1964, passed by his Lordship the Hon''ble Mr. Justice A. N. Roy in suit No. 600 of 1961 of this Hon''ble Court and/or pursuant to the order of his Lordship Mr. Justice S- A. Masud dated 14th July, 1969, in the said suit, Turner Morrison & Co. Ltd. is agreeable to and abide by the following terms provided Hungerford Investment Trust Ltd. (in voluntary liquidation) accepts the same but not otherwise:

(a) Turner Morrison & Co. Ltd. would, in the event of these terms being accepted by Hungerford Investment Trust Ltd. (in voluntary liquidation), not enforce its lien against the said sale proceeds which Hungerford Investment Trust Ltd. (in voluntary liquidation) would receive and Turner Morrison ''& Co. Ltd. would not in such an event further pursue its application for leave to appeal to the Supreme Court against the judgment of the Court of Appeal in appeal No. 203 of 1968 of this Hon''ble Court, but Hungerford Investment Trust Ltd. shall be restrained from acquiring or purchasing any right title and interest in the said shares. Turner Morrison & Co. Ltd. is, however, not surrendering or waiving or abandoning its lien over the said shares and against any person or persons who may hold or receive or be entitled to hold or to receive the said shares in terms of the said decree or order or in terms of any other legal proceedings or otherwise.

(b) Hungerford Investment Trust Ltd. (in voluntary liquidation) undertakes to withdraw the Company Petition No. 274 of 1967 and the three applications made therein as also the suit No. 129 of 1966 (Hungerford Investment Trust Ltd. v. Turner Morrison.& Co. Ltd.) and to cause the suit No. 1275 of 1966 (Geoffrey Turner & Co. Ltd. v. Turner Morrison & Co. Ltd.) to be withdrawn and Turner Morrison & Co. Ltd. undertakes to withdraw its petition for leave of appeal to the Supreme Court against the judgment delivered on 23rd and 24th June, 1969, by the Hon''ble Court of Appeal in appeal No. 203 of 1967 (Turner Morrison & Co. Ltd. v. Hungerford Investment Trust Ltd.). The sum of Rs. 1 lakh deposited by Turner Morrison & Co. Ltd. with this Hon''ble Court as security in appeal No. 203 of 1968 (Turner Morrison & Co. Ltd. v. Hungerford Investment Trust (in voluntary liquidation) shall be refunded to Turner Morrison & Co. Ltd. and Hungerford Investment Trust Ltd. will have no claim in respect thereof.

(c) Turner Morrison & Co. Ltd. shall pay to Hungerford Investment Trust Ltd. (in voluntary liquidation) as dividends the sum of- Rs. 12,16,350 less the sum of Rs. 3,02,251-50 P. (being the amount of tax deductible on Rs. 12,16,350) upon receipt of the permission of the Reserve Bank of India to enable it to make such payment if necessary.

Save as aforesaid, Hungerford Investment Trust Ltd. and Turner Morrison $c Co. Ltd. shall have no claim against one another.

All parties shall act on a signed copy of the Minutes.

I direct that these written undertakings be kept with the records of these proceedings and as part thereof.

The point on which it is essential to focus attention is that although full payment of Rs. 86 lakhs and odd which is the price for 51 % of the shares decreed by the specific performance decree was offered to the Petitioner company and its liquidator Mr. Hoon, the liquidator rejects that offer on no rational or sensible grounds. This refusal by the liquidator Mr. Hoon indicates the motive of this application.

It will be necessary to examine at some length some of the most astonishing answers which the liquidator Mr. Hoon has given in this connection. The whole complaint of the Petitioner company and its liquidator was that Haridas Mundhra was not willing to pay the money and take the shares. But under the brilliant cross-examination of the learned Counsel Mr. Huq Chowdhury, Mr. Hoon admits in answer to Q. 1175 that he did not take the money offered by Haridas Mundhra and instead of that he went on appeal against the order of Masud J. because, according to Mr. Hoon, T did not want to surrender my valuable rights''. These valuable rights obviously mean to swallow the management of Turner Morrison & Co. Ltd, and all its subsidiaries and controlled companies. The question was directly put to Mr. Hoon in Q. 1179 that in this Court in writing on behalf of the company and on behalf of Haridas Mundhra an offer had been given to Mr. Hoon that his dues would be paid in cash and that he should also be paid the dividends for all these years and all other claims whatever are there in any other Court. In answer 16 Q. 1179 the liquidator Mr. Hoon representing this Petitioner company, in voluntary liquidation, came forward with the astonishing answer ''No, I do not want to surrender my rights''. Apparently, therefore, this liquidator was more anxious for his alleged rights than for the best interest of the liquidation of the company whose liquidator he is. Again, in answer to Q. 1180, under pressure of severe cross-examination this liquidator Mr. Hoon said that he was not willing to take this money decree under the specific performance decree because all that happened in 1967 and ''now everything is in my favour''. Apparently, the success in the lien suit had gone into the head of this liquidator and he came to think that everything was in his favour and that is why he made such wild claims in the present proceedings while giving evidence.

This liquidator Mr. Hoon obviously in the series of the questions mentioned above found himself in great difficulty to explain his refusal. (See for instance his answers to Qs. 738-744 and 1175-1194.) He, therefore, came forward with another explanation that he could not take this money now offered by the Respondent company T.M. and Haridas Mundhra because there has been devaluation of the Indian rupee in the meantime. It is difficult to understand what has devaluation to do with this question. The decree for specific performance fixed the price of these shares at Rs. 86 lakhs and odd and that decree was payable in India and performable in Indian rupee.... From that point of view devaluation of the Indian rupee in relation to foreign currency has nothing to do with this question. Secondly, for the act of devaluation neither the Respondent company T.M. Ltd. nor Haridas Mundhra is responsible. It is an act of the State. I need only say that the decree for specific performance was passed in the year 1964, and it specified no time for payment but directed that payment to be made against delivery of shares. Mr. Hoon''s allegation against Mr. Mundhra is that there is no offer of payment and Mr. Mundhra''s allegation against Mr. Hoon is that he was not in a position to deliver the shares. Having regard to the Bank Hoffman episode, which I have discussed above, I am satisfied that Mr. Hoon was in no position to deliver or take delivery of the shares, which he pledged with Bank Hoffman who had foreclosed them by obtaining the decree from Queen''s Bench Division in London.

This one act of the Petitioner company and its liquidator Mr. Hoon to refuse to accept anything under the decree for specific performance, which is binding on the parties herein, is a clear proof, that whole of this application is mala fide and is made with an ulterior motive of getting round the liquidation of the Petitioner company and getting into the management of the Respondent T.M. its subsidiaries and its controlled companies, as I have already indicated above. (See particularly also Mr. Hoon''s answers to Qs. 1174-1192). I repeat that the decree for specific performance had become final. Recalling a few relevant dates on the point, I say that the decree for specific performance was passed on February 25, 1964, and the appeal from it was withdrawn by the liquidator Mr. Hoon on August 26, 1965. But within four days thereafter, on August 30, 1965, the liquidator Mr. Hoon came forward with an application for payment of the decretal money and the lien was pleaded as a defence by the Respondents to that application. That application was dismissed by Ray J. on September 28, 1965- This was followed by the lien suit on November 15, 1965. Within a month thereafter on December 15, 1965, Mr. Hoon''s appeal from the decree of Ray J. for specific performance was dismissed. Now, this devaluation which is now put forward as an excuse for refusing to accept the money came in June 1966. It was thereafter on August 18, 1.966, that Mr. Hoon''s appeal was dismissed. But then this liquidator Mr. Hoon would not accept these decrees and orders.

Now, the liquidator Hoon has pre-occupied himself with finding out ways and means for rescission of the contract and the decree. His first application for rescission was on March 21, 1967. This was followed by dismissal of the lien suit on November 13, 1968, from which there was an appeal and that appeal was dismissed on November 14, 1968. Started again the rescission application by the liquidator Mr. Hoon before Masud J. on July 14, 1969. The order of Masud J. in substance provided, inter alia, as follows:

I direct Mr. Mundhra to pay the sum of Rs. 86,60,000 to the Receiver within a fortnight from today. Unless an execution Court otherwise directs, and after payment of the said sum, the Receiver will hand over the said 51 % shares to Mr. Mundhra''s Solicitor and also the proper transfer deeds signed by the Petitioner company, or in their refusal, signed by the Receiver, after a fortnight from today. If such payment is made by Mr. Mudhra within the said period, the Receiver will forthwith pay the said sum to the Petitioner''s Solicitor. The pay-merit of the said sum to the Receiver or to the Petitioner''s Solicitor will be operative forthwith unless the Appeal Court or Supreme Court otherwise directs. On delivery of the shares to Mr. Mundhra''s Solicitor and on payment of the said sum to the Petitioner''s Solicitor, the Receiver will stand discharged....... In default of payment of the said sum of Rs. 86,60,000 to the Receiver within a fortnight from today, the agreement between the parties dated 30.10.56 and the decree dated 25.2.64 including the injunction order set out in the said decree do stand rescinded and the Petitioner is absolved from all obligations under the said contract or the decree.

Then followed the curious course. After delivery of that judgment Mr. Mukherjee, learned Counsel for the Petitioner and its liquidator, asked for a stay of that order and which necessarily followed by extension of the time by ten days, as will be clear from the order and judgment of Masud J. dated July 14, 1969. Here again it will be seen from obtaining this stay order that the Petitioner company (in liquidation) and its liquidator Mr. Hoon were not keen to have the money and hand over the shares. Many arguments have been advanced before me in these proceedings on the judgment of Masud J. But, I do not propose to discuss these arguments because there is again an appeal pending from the order of Masud J. from July 25, 1969. I need only say here that I do not find from the judgment and order of Masud J. any discussion of the questions and problems raised before me in these proceedings how the decree and contract for specific performance can at all be rescinded when (i) there is one whole contract of which 49 % has been fully executed and performed, (ii) the Petitioner company has already gone into liquidation and how can such a liquidator revive the liquidated company''s share-holding of 51 % in the Respondent T.M. Ltd., (iii) how can there be now a splitting up of the decree for specific performance and the contract for 51 %, (iv) the Petitioner company and the liquidator have not only pledged these 51 % shares but the pledgee Bank Hoffman has obtained a decree on the pledge and which decree remains unsatisfied by the Petitioner judgment-debtor and its liquidator and (v) when the first application for rescission had already failed. (See paras. 45 and 46(a) of the petition and discussed in subpart, (xi) under issue No. (1) herein and also Mr. Hoon''s own answers Co Qs. 1167-1171.) I am sure, whatever grievance there may be, either of the Petitioner or of the Respondents, in respect of this judgment and order of Masud J., will be sufficiently agitated and resolved in the appeal now pending from that order.

Continuing with the prayers for reliefs in the petition, prayer (h) asks for an order upon the Respondents to pay to the Petitioner the due dividend on the 51 % shares of the Petitioner in the capital of the Respondent No. 1. That again is a self-contradictory prayer because having regard to the challenge that the Petitioner company and its liquidator have made to the meetings and the validity of the Board of Directors of the Respondent company T.M. Ltd., discussed in the foregoing issues, it is strange that in one breath'' this liquidator Mr. Hoon is asking for dividends declared and passed at those very meetings and then challenging those very meetings as illegal and invalid. Other prayers in the petition are covered by the different issues already discussed.

On a consideration of all these facts and the reasons, I do not think that the Petitioner company in liquidation is entitled to any of the reliefs claimed and I hold, accordingly, on this issue No. (15).

This disposes of the specific issues raised in these applications.

On a total consideration of the entire case of the Petitioner company, as disclosed in the petition and the evidence of Mr. Hoon and of Mr. Dumra, who was the only other witness called by the Petitioner apart from Mr. Hoon, certain striking features of the case appear uncontroverted. This liquidator Mr. Hoon, representing, the Petitioner company in liquidation has produced no records of the liquidators of liquidators'' books of accounts in spite of repeated questions while he was giving evidence in the box. Whenever he has said in his evidence that he had heard something from some one else or seen some other records, he has not been able in a single instance to produce either the supporting witnesses of the supporting records. His animus against the Respondent H. D. Mundhra is plain and may or may not be justified. He has made extensive charges against H.D. Mundhra for procuring letters, manipulating powers, forging documents and even maligning lawyers, Judges and general administration of the country. (See Mr. Hoon''s answer to Q. 545.) It will be necessary to look into the testimony of this liquidator Mr. Hoon, representing the Petitioner company in greater detail to assess the value of his evidence in these proceedings.

The outstanding facts about Mr. Hoon" are that he is not an Indian citizen but a British citizen. Nothing has been shown to suggest that he has any asset in India. He has produced no income tax receipt to show that he has paid any income tax. He keeps no accounts. It is in evidence that he says that he floats American and Canadian companies but he has floated no Indian company. He talks about his millions in Canada but he cannot produce any Canadian passbook and ultimately tried to impress the Court by producing American credit cards from Bank of America or the Western Air Lines and the Canadian Pacific.

In answer to Q. 1294, Mr. Hoon says that he started from a scratch and did not pay any income tax as he had no taxable income in the past when he was a broker. He says he came from West Pakistan in answer to Q- 366. Then he migrated to India immediately after partition. In a series of answers from Q. 1195 onwards, he says that he changed his nationality in 1959 and settled in London from 1957 or 1958. In answer to Q. 1237, he said he did not pay a pie as income tax. I have already noticed his answer to Q. 1294. Again, in answer to Q. 1387, when he was talking about his Canadian affluence, he says that even then he did not pay any income tax and his answer was: ''These things were seized, running into millions''. Then he was asked in Q. 1388 to produce the receipt. He could not produce the receipt. Then he was asked whether he could produce any bank pass-books in Canada in Q. 1392 where he said that they were with the Attorneys in Canada. (See his answers to Qs. 1392-1394.)

Again, in answers to Qs. 1309-1315 he at first says that he kept no accounts and then ultimately peters down into the answer that these things are so old that it was impossible to pinpoint.

In answers to Qs. 1358 and 1359 he said he floated American and Canadian companies but no Indian company. He has shown no Indian asset, not an iota of Indian property. The Canadian episode of which he spoke appears as a kind of South Sea bubble. In answer to Qs. 1364 and 1365 he says all these Canadian companies ended up by their being a huge tax claim of three million and odd dollars in one year. According to his evidence in answer to Q. 1364,

I protested because it was impossible for me to make 30 or 40 million dollars in any year in America. But they seized and sent a writ to all the people who owned money and my bank and other by putting a tax on me with a total aggregate of over 3 million dollars,

and with the result that he left Canada for good.

His typical answers when he wished to avoid telling the truth to the Court will appear from some of the questions. In Qs. 254-260 he was being asked about the injunction to the effect that Hungerford Investment Trust Ltd., in liquidation, had to vote according to the direction of another person and his answer was that the injunction did not order Mundhra to do illegal acts and he mentioned about his chasing him by 60 or 70 letters where he alleges to have said that he had no notice of the meetings. But he could not produce any of them. Again in answers to Qs. 282-290 he would not even say whether Petitioner company had any register of letters. Again when he was asked in Qs. 465-466 why he had not put in writing anywhere that the Respondent Haridas Mundhra was not present at the Annual General Meeting of May 30, 1968, his answer was, ''it actually dawned on me later'', when he was supposed to check up Police records. In answer to Q. 552 he shows how easily he draws inference against the Respondent Haridas Mundhra where he suggests ''there are other powerful devtas behind, him''. The kind of answer he gives on this point is also clear from his answer to Q. 556 when he was asked whether his evidence was that Mundhra procured and manipulated his arrest. He gave the reply: "No, he could not succeed to get me arrested but that was his cherished goal." He caps it up by his amazing answer in Q. 558 by the assertion: "These things are interpolated ; those are inspired judgments, inspired findings, they have no relevance to facts" in respect of the proceedings for Mr. Hoon''s arrest.

Then this liquidator Mr. Hoon made most wild and reckless allegations against the whole Bar and profession and even mentioned names of Advocates-General. This will be found in the series of Qs. from 558 to 563 put to Mr. Hoon. (See also his answer to O. 601 to show how he used the witness-box in these proceedings.) Another example of his use of the witness-box will be found in his answer to Q. 948 when he was criticising appearance of the counsel Sri Ashoke Sen for Haridas Mundhra and Mr. Hoon gave the answer:

Because he is unclean. He has done something just very unclean, extremely injudicious. He prostituted his old position as ex-Law Minister. He did something which he should be ashamed of. (See also Mr. Hoon''s answer to Q. 545.)

His evidence about the company Romanigo is extra-ordinary and it reveals where his interest lies. This will be plain from his answers to Qs. 772-778, 808-824 and 1064. The name Romanigo indicates and reflects the initials of the members of his family, his wife and his daughter. Ramanigo owned Turner Morrison and Graham group o� companies and that group in turn, amongst other companies, owned this Petitioner company in liquidation. The share-holders of this Ramanigo were this liquidator Mr. Hoon, Mr. Richards, Mr. Carnes and Mr. Frank. According to Mr. Hoon''s evidence, Romanigo was floated as a company with one million Franc in Luxemburg, and is governed by the laws of Luxemburg. In answer to Q. 815, Mr. Hoon says that his nationality is British. When I asked him in Q. 824 to produce the Articles of Association or the Memorandum of Romanigo, Mr. Hoon replied to my question that they were in Luxemburg and he did not have any. The significant point about this Romanigo is that three people, to begin with, controlled the entire group (Q. 828). He has admitted, as I have already pointed out, in answer to Q. 1064 that Mr. Hoon''s combining the post of a liquidator of the Petitioner company in liquidation and the major share-holder and a partner of Romanigo created a conflict between duty and interest. He admits in answer to Qs. 857-872 that there are only three contributories in this context so far as the Petitioner company in liquidation is concerned. These three are: (i) Mr. Hoon himself, (ii) Romanigo and (iii) the group which owns the Graham group of companies. They between themselves represent ninety shares, but out of those ninety shares this liquidator Mr. Hoon has only one share (Q. 869) so that the value of his one share will be about Rs. 1 lakh only (Q. 872). That is all the stake that this liquidator has and he is not now even satisfied with Rs. 86,60,000 but wants the entire control of the Respondent company T.M. Ltd. and all its subsidiaries and controlled companies. If the answers to Qs. 851 and 872 are compared, it will be seen that this value of Rs. 86,60,000 represents the value of the specific performance decree. But then the liquidator Mr. Hoon would not have this money because he wants the management of the Respondent company T.M. Ltd., its subsidiaries and its controlled companies.

In answer to Q. 2018, this liquidator Mr. Hoon says that. he was taxed in London and in Canada, but no proof has been produced. In answer to Q. 2019 he says he has no income in India and he pays no income tax in India. Then, when he was asked in Q. 2020 how was he defraying his expenses in this litigation, he said he brought money from London. When he was asked in Q. 2021 to produce any document which would show that such money was brought in through various channels like the Reserve Bank of India, the Bank of England, he made a bold assertion that he certainly could. Immediately in the next Q. 2022 he said that he did not have the documents but he would certainly show them. He never did.

The other extra-ordinary feature of his evidence is that when he was asked if he was coming to the Court by a car No. WBG1472 he Said he did not know the number of the car in which he used to come to the Court. Then he was asked whether the car belonged to New Central Jute Mills Ltd. In answer to Q. 2028 his evidence is astonishing because he says: T do not know whose car it is''. It is extra-ordinary that a man, who was coming by oar everyday to this Court during these proceedings, did not know the number of the car in which he was coming in and did not know to whom the car belonged. Looking at his demeanour at this stage it was palpable that he was dodging the answer. In answer to Q. 2029, he said one Dr. Tarneja gave it to him, but he admitted that he did not know, in answer to Q. 2030, that the car belonged to Central Jute Mills Ltd. Finally, the suggestion was very squarely put to this liquidator Mr. Hoon in Q. 2031 that this car belonged to Sahu Jain group of industries placed at the disposal of this liquidator Mr. Hoon. In answer to that Q. 2031, Mr. Hoon said: "I do not know, I cannot deny it. I took it from Dr. Tarneja who works there." The moment he said ''THREE'', he was immediately asked in Q. 2032: In the New Central Jute Mills Ltd? And then he realised that he did let himself in for trouble and he answered back by saying, ''I do not know''. Ultimately he had to admit in Q. 2033 that this Dr. Tarneja from whom he was supposed to be taking the car works as a Personnel Manager in Sahu Jain in one of their companies. (See the series of his answers to Qs. 2025 to 2035.) The result of all this evidence is that he cannot explain how he is incurring the large costs and expenses of these litigations and how he is defraying his expenses here in India and he cannot produce any bank books or any record to show that he had brought any money whatever from London. The suggestion remains that some one else is behind him to finance this litigation for the purpose of obtaining the control of the Respondent company T.M. Ltd., its subsidiaries and its controlled companies. The suggestion is against Sahu Jain and even.the name of Shanti Prosad Jain has been suggested in Q. 2035.

Having failed to produce proof of his Canadian and London affluence, the liquidator Mr. Hoon produced in re-examination American Credit Card from the Bank of America and by Western Airlines and the Canadian Pacific. But none of these Cards was after 1962. (See Mr. Hoon''s answer to Q. 2136.) It is in evidence that he imported two costly cars which were seized by the Calcutta Customs. (See his answers to Qs. 2164-2190.) These answers give a fitting reply to the allegation which he was making against Mr. Jaffray and Mr. Rodewald about import of two Rover cars for the Respondent company T.M. Ltd. It is in evidence that his married life even is married by quarrels and disputes and assault between him and his wife as will be evident from his answer to Q. 1421-1424.

Now, such is the person who is the Applicant before me representing the Petitioner company as its liquidator. The impression that I got from his answers in the witness-box and his demeanour is that he has little regard for truth and that he is a man of dubious assets and dubious business connections with no known property or assets in India and there is a good deal of justification in the learned Counsel appearing for the Respondent in describing him as an ''adventurer and a speculator''. In that context I would hesitate a good deal to exercise my discretion under Sections 397-398 of the Companies Act in his favour when I am satisfied on the facts that the application is not bona fide at all, that it is made for collateral purposes and to feed fat the private grudge he bears against the Respondents and particularly against the Respondent H. D. Mundhra.

This disposes of the first five applications which I have no hesitation in dismissing.

What remains now is the sixth application in the series which I propose to deal with at this point.

This sixth application relates to the meeting of August 30, 1969. The application was made on August 28, 1969, while these proceedings were going on. The interim order that I made on the application on August 28, 1969, is as follows:

The consideration of item No. (1) of the Agenda in the Notice dated August 6, 1969, will be adjourned and the other two items Nos. (2) and (3), if considered and passed at the meeting to be held on August 30, 1969, will be subject to any order that may be passed in this application.

This was really a Chambers Summons dated August 28, 1969, asking, inter alia, for an injunction restraining the Respondents from holding the Annual General Meeting convened to be held on August 30, 1969, pursuant to the notice dated August 6, 1969, against considering or passing any resolution set out in such notice. The interim order virtually or in fact disposed of the application. But, what is attempted now in this application is to have a probe into what happened at the meeting of August 30, 1969.

Annexure ''A'' to Mr. Boon''s affidavit dated August 27, 1969, in support of this application shows two letters stating the objections and their answers. The letters in reply are retrospectively dated August 21, 1969, and August 26, 1969. In the letter of August 21, 1969, the usual allegations are repeated, with which I have dealt with in the issues before, that there is no valid Board of Directors, that no Annual General Meeting could be held after the statutory period and that the alleged grounds for non-preparation of the accounts of the company are not accepted. The reply of the Respondent company T.M. Ltd. dated August 26, 1969, reiterated its decision to hold the Board meeting on the date notified. It points out the reason why the balance-sheet and the profit and loss account for the year ending December 31 could not be placed before the meeting and adequately explained it in the explanatory statement attached with the notice of the meeting. The notice of this 56th Annual General Meeting held on August 30, 1969, notified.to transact the following business:

To receive and to consider the Profit & Loss Account for the year ended 31.12.67, the balance-sheet as on that date and the reports of the Directors and the Auditors of the company;

To appoint a Director in place of K. N. Tapuria who retires by rotation but who being eligible offers himself for reappointment ;

To appoint Auditors and to fix their remuneration.

It would be seen from the above that the interim order directed consideration of item No. (1) above to be adjourned and other items, items Nos. (2) and (3), if considered and passed at the meeting held on August 30, 1969, would be ''subject to any order that may be passed in this application''.

Now, the fate of this application necessarily depends on the main petition and the findings thereon and, having regard to that, that application also must fail. What has happened in this case is that the meeting was held on August 30, 1969. What transpired at the meeting is immaterial now for the purpose of this application. The relevant sections of the Companies Act are Sections 173(1)(a) dealing with (i) audit, (ii) balance-sheet and (iii) Directors and Section 224 of the Companies Act, 1956, dealing with the annual appointment of Auditors.; I do not think that there should be ordinarily an injunction restraining the company from doing its statutory duty or discharging its statutory obligation.

The affidavit used in this application are those of K. N. Tapuria which has been criticized as verified on submission and of S. B. Goenka that he was not present at the meeting of August 30, 1969. But the minutes of the meeting of August 30, 1969, appears as annex. ''M'' to the affidavit-in-opposition of Tapuria. It has been said that Respondent B. P. Sinha has not filed any affidavit to support his minutes as he was supposed to be the Chairman, but in his place Mr. Pathak, Who ultimately wrote the minutes, also has not filed any affidavit. Mr. T. D. Mundhra and another person who attended has not filed any affidavit either. In those circumstances, learned Counsel for the Petitioner Mr. Mukherjee argues that there is really no opposition.

Mr. Mukherjee, learned Counsel for the Petitioner company, is, not quite correct on this point because Respondent H. D. Mundhra has filed an affidavit and he is one of the persons who was present both at the original meeting on August 30, 1969, and the adjourned meeting on September 1, 1969. It is contended for the Petitioner that S. K. Pathak has informed the Registrar of Joint Stock Companies on September 1, 1969, but that information is questioned as suspicious. But, beyond the suspicion nothing else could be said about it because it is a matter of record. Then it is argued, the Respondent B. P. Sinha could not adjourn the meeting of August 30, 1969, without ''consent'' of the meeting under Article 59 of the Articles of Association of the Respondent company T.M. Ltd. But there the consent is implicit because H. D. Mundhra can direct the liquidator Mr. Hoon to vote according to Mr. H. D. Mundhra''s wishes under the terms of injunction in the specific performance decree.

There is complete contradiction at either side about what transpired in the meetings. It is on record that the liquidator Mr. Hoon issued letters of authorisation to four strangers, viz. (i) Abani Mohan Gupta, (ii) Vinod Chandra, (iii) Anthony Hugh Meyer and (iv) Baij Nath Garg. These are complete outsiders except the fourth one. The first three are never known to have been associated with the company in any way or in any manner. The fourth one, viz. Mr. Garg, was the Constituted Attorney who at the same time tried to appear as an Advocate for the Petitioner in the earlier stages of the proceedings when it was found that he had no right to appear in this Court.

These letters of authorisation are unknown in the statute. The relevant sections relating to proxy under the Company Law are Sections 176(3) & (4) and 187(2) of the Companies Act, 1956, and the relevant Articles for these purposes are Articles 65, 66, 67 and 68 of the Articles of the Respondent company T.M. Ltd.

As I read the law, I find there cannot be more than one representation u/s 187. u/s 188(2) of the Companies Act, 1956, the representative is expressly given the right to vote by proxy on behalf of the body corporate. It does not speak of divided representation or a division in the representation on behalf of the body corporate. This has to be distinguished and contrasted on this point from Section 139 of the English law which on this point is different from the Indian statute. In my view, the words ''such person'', though singular, may include plural because of Section 13 of the General Clauses Act. But Section 176(1)(b) of the Companies Act, 1956, provides that unless the Articles otherwise provide a member of a private company shall not be entitled to appoint more than one proxy to attend on the same occasion. But, then it is said it is limited to a private company and the present case is that of a public company. In 6 Halsbury (Simonds'' 3rd ed;, p. 344, Article 672) it is stated that a corporation within the meaning of the English Companies Act, 1948, may by resolution of the Directors or other Governing Body authorise such person as it thinks fit to act as its representative at any meeting of the company and the person so authorized being entitled to exercise the same powers on behalf of the corporation which he represents as if he were an individual share-holder of the company. (See also Buckley on Companies Act, 13th ed., p. 327.)

Mr. Garg''s minutes at p. 52 of the affidavit-in-reply of the liquidator Mr. Hoon and the minutes of the Chairman Mr. B. P. Sinha are completely at variance. One of the, points taken is, according to Mr. Garg''s minutes, that half-an-hour after the notified time and place the next adjourned meeting was to be held at Mr. Hoon''s residential flat. Reference on this point may be made to Section 174(4) of the Companies Act, 1956, and Article 55 of the Articles of Association of the Respondent company No. 1.

Now, there are innumerable difficulties in Mr. Garg being elected as Chairman according to the version of Mr. Hoon about the proceedings of this meeting. Mr. Garg cannot be a Chairman because he cannot be proposed by Mr. Hoon nor seconded by Mr. Meyer who is an outsider. Secondly, Mr. Garg also is personally disqualified to become the Chairman on the ground that he is not a member under Article 54. That is the end of this matter. It will not be necessary to pursue any further this application because, according to my judgment, the major applications have all failed.

The comments of Mr. Mukherjee, learned Counsel for the Petitioner, about absence of the Respondents Haridas Mundhra and Bhubaneshwar Prosad Sinha from the witness-box have a good deal of force and are in many ways justified. But these comments cannot make any difference in the results of these applications having regard to my findings under the different issues discussed above. Although the Respondent Haridas Mundhra has not given evidence in these proceedings his evidence in suit No. 600 of 1961 has been used in these proceedings. Bare assertions without proof by the Petitioner company and its liquidator and specially when the liquidator produced no record whatsoever and where the liquidator gives answers which are in the nature of hearsay and makes reckless allegations such as I have illustrated from his answers and where it is found, and I have found, that the Petitioner company and its liquidator have no right to maintain the main application in the facts and circumstances of the case and where I have come to the conclusion, as I have done, that the application is not bona fide but made with an ulterior purpose, do not establish such allegations. Therefore, I am of the opinion that the absence of the Respondents Haridas Mundhra and Bhubaneshwar Prosad Sinha from the witness-box cannot make any difference in the results of these applications.

For the reasons recorded above, all these applications are dismissed with costs. The costs of the first five applications will be treated as of a hearing of a suit and certified for two counsel. The costs of the sixth application on Chamber Summons relating to the meeting of August 30, 1969, will be treated as a Chamber Summons but certified for counsel. All interim orders vacated.

Mr. Mukherjee for the Petitioner orally asked for a stay of this order which I refuse having regard to my finding that this is an utter abuse of the procedure under Sections 397 and 398 of the Companies Act and having regard to my finding that this application is not bona fide and my assessment of Mr. Hoon''s testimony in this case.