JUDGMENT
V. Dhanapalan, J.
1. Two of the members of the Respondent Company called Madura College, having been aggrieved by the order dated 10.02.1998 of the Company Law Board (hereinafter referred to as the “CLB”), made in Company Petition No. 38 of 1997, have preferred this Civil Miscellaneous Appeal.
2. According to the appellants, Madura College is a Company registered under the provisions of the Indian Companies Act, 1882, on 09.06.1905, having its Registered Office at Thiruparankundram Road, Madurai, Tamil Nadu within the jurisdiction of the District Court of Madurai. The Company is a non-profit Company and limited by guarantee and one which is attracted by Section 25 of the Companies Act, 1956. The Company consists of General Body and Executive Committee referred to as Board of Directors and this Board of Directors shall consist of 12 elected members and 3 ex-officio members and these ex-officio members do not have voting powers. At the time of filing of the Company Petition, the number of members of the Company was fixed at 66. Consequent to death of some members, the present membership of the Company has come down to 51. The admission of new members to the Board is governed by four Articles of the Company, i.e. Articles 6, 7, 8 and 9. Articles 8 and 9 cover a special category of members to pay Rs. 25,000/- and these persons are called “Patron Members” and they are admitted to the Company by the Board of Directors if any vacancy arises in the membership of the Company and these Patron Members are given priority over the other members. Further, a mere payment of Rs. 25,000/- would not automatically make the donor a member. He would become a member only if the Executive Committee approves his candidature and invites him to become a member. These Patron Members who pay Rs. 25,000/- need not go through the process of getting elected by the General Body as provided under Articles 6 and 7.
3. It is the further case of the appellants that the above said two Articles 8 and 9 have been in existence since 1935 and in the year 1988, three persons were admitted by virtue of the said Articles. The Respondent Company is in the nature of Public Trust and hence, the said Articles are very much in the interest of the Company by which the Company may get additional Corpus and invite prominent citizens to become members. Another category of members who are covered by Article 6 and 7 is admitted by the General body and they are required to pay Rs. 500/- as life subscription and these persons are elected by 3/4th of the members present at the Meeting or in the event of such 3/4th of majority not having been secured, by a majority by 3/5th of the total number of votes, held on circulation by the Secretary.
4. These being the methods of admitting the members into the Company, the Company, in its Annual General Body Meeting held on 14.03.1992 passed a Resolution deleting Articles 8 and 9. The said meeting was attended by 21 members. The effect of such deletion is that the clause of Patron Members is totally abolished. The said Resolution was challenged by the then Secretary of the Board in O.S. No. 609 of 1992 on the file of the Sub-Court, Madurai. The Court also granted stay which was effective till about March 1997 and subsequently, the Sub-Court upheld the Resolution. The first appellant is the son of the said Secretary. The appellants are not parties to the said suit and the said judgment is not binding on them. After the decision of the Sub-court, the Company invited applications for membership and accepted applications mostly from relatives of most of the members. Aggrieved by the said act of the Company, the appellants and others who are the members of the Company are of the view that the deletion of the Articles 8 and 9 are oppressive to them as well as to the other members of the Company and have filed petition under Sections 397 and 398 of the Companies Act, 1956 before the CLB which is the proper forum to deal with the contentions raised in the said petition.
5. One of the most important contentions urged by the appellants before the CLB is that the amendment to the Articles of Association was made not with any object in the interest of the Company but with the selfish interest to pack the General Body only with their own close relatives and supporters in order to perpetuate their control of the Company. The CLB, by its order dated 10.02.1998, dismissed the above said Petition and hence, the present appeal.
6. On the other hand, the respondent Company has filed its counter contending that the Madura College Board originally consisted of 16 members and the number of members of the College Board has been increased to a maximum of 66 members and it may be further increased, if and when, the business of the Board and the interest of Madura College and the various institutions referred to it under Article 1, require such increase. At present, the members of the Board can be admitted as per the procedure set out in Articles 6 and 7 which require the approval of the General Body Meeting. Articles 8 and 9 deal with the admission of “Patron Members”. As per Articles 8 and 9, Patron Members can be admitted without the approval of the General Body but with the sanction of the Board of Directors. Articles 8 and 9 were included in the year 1935 and since then, only three Patron Members have been admitted in the year 1988.
7. It is the further case of the respondent Company that Articles 8 and 9 are against the interest of the members of the Company. Any person can be admitted as a member of the Board in accordance with Articles 6 and 7 of the Articles of Association of the Company. The Company, at that time, had an annual income of Rs. 1.15 crores to Rs. 2.26 crores during the period from 1990-1991 to 1994-1995 and the Company is now in a better position from the financial point of view and therefore, it does not require any additional corpus and hence, if Articles 8 and 9 exist, it would facilitate the induction of new members who are relatives of the Directors and hence, Articles 8 and 9 were deleted on 14.03.1992 at a duly convening Annual General Body Meeting with the unanimous resolution of members present at the meeting. As per the provisions of Articles of Association, the members can be admitted in accordance with the provisions of Articles 6 and 7 and as such, there is no violation of the provisions of the Articles of Association. Further, the resolution passed at the General Body Meeting held on 14.03.1992 in relation to deletion of Articles 8 and 9 was upheld in O.S. No. 609 of 1992 by the Sub-Court, Madurai. Moreover, only the alteration of the Objects Clause of the Memorandum requires the prior approval of the Central Government as per Sub-section 8 of Section 25 of the Companies Act, 1956 and nothing contained in the Companies Act, 1956, requires the prior approval of the Central Government for the alternation of Articles of Association for the Company incorporated under Section 25 of the Companies Act, 1956 since the Articles of Association deals with the internal affairs of the Company. It is also the case of the respondent Company that the petition for oppression and mis-management under Section 397 and 398 of the Companies Act, 1956 was filed long after the validity of the Resolution for deletion of Articles 8 and 9 which was upheld by the Sub-Judge, Madurai in O.S. No. 609 of 1992 and in any event, the CLB rightly dismissed the C.P. No. 38 of 1997 by its order dated 10.02.1998.
8. The respondent Company has further contended that there was no violation of the provision of Articles of Association. At present, the members can be admitted as per Articles 6 and 7 which have been in existence from the date of incorporation of the Company and as per the said Articles, new members can be admitted with the approval of the members at a duly convened General Body Meeting whereas the deleted Articles 8 and 9 gave powers to the Board of Directors who are elected among the members of the Company to admit the Patron Members without the consent in the General Body. As regards the respondent Company, the retention of Articles 8 and 9 would only enable the induction of new members who are relatives of the Directors and the chance of admitting Patron Members by the Board of Directors is prevented by deleting Articles 8 and 9 of the Articles of Association and therefore, the deletion of the said Articles is not prejudicial to the interest of the public or the members of the Company and except the deletion of Articles 8 and 9, no alteration or amendment has been made in the Articles of Association of the Company at the above said General Body Meeting and no prejudice will be caused if the members are admitted by General Body Meeting by virtue of Articles 6 and 7 of the Articles of Association which is the usual course for the admission of new members from the date of incorporation of the Company.
9. The respondent Company has also brought to the notice of this Court that its Memorandum and Articles of Association show that its main object is the promotion of Hindu religion, Hindu culture, Hindu civilization, education and educational institutions and it is running four educational institutions, namely
a. Madura College
b. Madura College Higher Secondary School
c. Setupati Higher Secondary School and
d. Town Primary School
10. Other details about the autonomous nature of the Madura College such as that it completed 100 years of existence, offers several undergraduate and post-graduate course in several disciplines are pointed out. In this context, the respondent Company has drawn my attention to Articles 8 and 9 under the heading “Patrons” which need consideration. Article 8 deals with “donations” made by persons to the funds of Madura College Board and other benefits given or contributed by other persons to the Madura College Board. Amongst such donors or benefactors, persons, whose donation or benefaction is Rs. 25,000/- (or more) is considered for special recognition by the Board of Directors. Amongst the category of donors/benefactors, the Board of Directors is given the right to confer the privilege of “patron” by extending invitation to one or more of such of them to become “patron/patrons” of the College. In Article 9, the special privilege/status conferred on a “patron” is indicated and Article 9 reads as under:
All patrons shall become members of the Madura College Board, as such, without being admitted under Clause 7 to existing vacancies, if any, provided, however, they shall be entitled to priority of admission to membership at the next immediate vacancy if the membership strength has reached the maximum.
11. In consequence of this special privilege under Article 9, the person indicated as a patron, by the invitation extended to him not by the General Body of the respondent, but by some of the members of the General Body, constituting the Board of Directors, skips the electoral-process of Articles 6 and 7 to become a member and further he is placed at the top when the vacancy in membership arises to become automatically a member of the respondent. A “patron” is a member-in-waiting and steps in the vacancy of member. These are valuable privileges and in fact, in the conferment of and exercise of this privilege by a Patron, the General Body of the respondent is simply by-passed/ignored.
12. Further, the respondent Company has narrated the events which led to the General Body Meeting on 14.03.1992 and passing of the Special Resolution for deletion of Articles 8 and 9 of the Articles of Association of the Company.
13. During October 1985, Srinivasa Iyer, one of the members passed away and in June 1986, steps were taken to fill up the vacancy. On 04.09.1986, a member proposed V. Sarangapani, Advocate as a fit and proper person to be admitted as a member of the Board in that vacancy and V. Sarangapani had given his consent for the proposal and had agreed to pay life subscription of Rs. 500/- besides donation of Rs. 1,000/- on admission as a member. On 22.10.1986, R. Sankar, brother-in-law of the then Secretary, R. Lakshmipathy also filed a nomination as a fit and proper person to be admitted as a member of the Board and he has also agreed to pay life subscription of Rs. 500/- and donation of Rs. 1,000/- on admission as a member. Since two persons had been nominated for a single vacancy caused by the death of M. Srinivasa Iyer, the procedure of the election by the General Body of the respondent under Article 7(3) had to be followed. However, to favour R. Sankar and to avoid this contest, the first appellant’s father Lakshmipathy, the then Secretary, resorted to invoke Articles 8 and 9. On 11.08.1992, the first appellant’s father, in the capacity as the Secretary, circulated to the Board of Directors, a letter mentioning that R. Sankar offers to donate the sum of Rs. 25,000/- and wishes to become a Patron Member of the Madura College Board. The letter also mentioned the fact that R. Sankar had already given an application to this effect and has paid Rs. 25,000/- by Demand Draft.
14. Between October 1985 and 1988, four vacancies arose on account of demise of certain members. It is alleged by the respondent company that, as is the fact, the Board of Directors of the Company, in its meeting held on 31.01.1988, admitted R. Sankar, L. Ramasubbu, Ashok Muthanna and R. Sathyamoorthy and it is claimed that they are related to the then Secretary. It is further claimed that the said four persons were admitted as Patron Members invoking Articles 8 and 9 on payment of Rs. 25,000/- each by way of donation and that was done in spite of objections raised by ten other members by their letter dated 24.10.1988.
15. The respondent Company has further pleaded in its counter that thereafter, realizing the possible misuse of Articles 8 and 9, in its Annual General Meeting held on 14.03.1982, it deleted the said Articles 8 and 9. It claimed that the meeting was attended by 22 members who unanimously passed the resolution deleting the said two Articles. It is contended on behalf of the respondent Company that the said deletion of Articles 8 and 9 was challenged by R. Lakshmipathi, the father of the first appellant, in Civil Suit which was later dismissed in June 1996. It is further contended that the grounds taken in the Company Petition challenging the deletion of the said two Articles were more or less the same taken in the said Suit filed by the first appellant’s father and the said Suit, according to the Company, was dismissed in June 1996 and in that view of the matter, it was contended on behalf of the Company that the same issue cannot be agitated twice by filing a petition before the CLB.
16. It is the further case of the respondent Company that the said deletion was made as early as 14.03.1992 but the appellants herein have chosen to approach the CLB after five years i.e. in June 1997, after exhausting the remedy of filing a Suit through the first appellant’s father. It was also contended on behalf of the respondent Company that the appellants had not explained the delay between March 1992 and June 1997 and the Company Petition is therefore liable to be dismissed in limine on the grounds of delay and latches. It is specifically contended by the respondent Company that the first appellant and his father are residing in the same house and the appellants, in collusion with the first appellant’s father, have filed the Company Petition.
17. The respondent Company has also challenged the maintainability of the petition by contending that out of nine members who have consented to filing of the Company Petition, N.M.R. Krishnamoorthy, N. Ganapathy Subramaniam and K.S. Venkateswaran had participated in the Annual General Body Meeting held on 14.03.1992 and they were parties to the said unanimous resolution taken in the said Annual General Meeting deleting the said two Articles 8 and 9 and in such a circumstance, if those three members are taken out from the category of the said nine members, the requirement under Section 399 of the Act is not fulfilled before filing the Company Petition. It is also contended that those three members have not explained in their respective letters of consent as to what made them reversing their earlier stand and on the above sole ground, the Company Petition is not maintainable and has to be dismissed in limine.
18. The petitioners before the CLB who are the appellants herein have filed their rejoinder and stated that the said four members who were admitted as Patron Members under the said Articles 8 and 9 as then were in force and such induction of members was in the interest of the Company. They have also contended that the Secretary is not the sole admitting authority and the respondent Company has not disclosed as to who were those ten members protesting against the admission of the said four Patron Members in the year 1988 and it has also not disclosed the said letter alleged to have been made by ten other members.
19. Regarding the contention of the respondent Company that the subject matter of the Company Petition is the same as in the said suit and that after exhausting the remedies in the Civil Court, the appellants cannot approach the CLB with a petition made under Sections 397 and 398 of the Act, it is the contention of the appellants that they were not parties to the said Suit and the findings in the said Suit as to the validity of the said Resolution deleting the said Articles 8 and 9 are not binding on them and the filing of the said Suit cannot be taken as a bar to the filing of the Company Petition.
20. Heard Mr. C. Harikrishnan, learned Senior Counsel for Mr. K.J. Rebello appearing for the appellants and Mr. Arvind P. Datar, learned Senior Counsel for Mr. M. Saravanan appearing for the respondent Company.
21. Mr. C. Harikrishnan, learned Senior Counsel for the appellants, narrating the history as also the financial position of the Company has submitted that
a. the provision of Patron Member as contemplated by the said Articles 8 and 9 would facilitate introducing persons of caliber and substance on the Board without undergoing the process of seeking consensus of the General Body,
b. the said two Articles were there to induct the men of status and position and by so inducting the members from the public on payment of Rs. 25,000/- by each member, the Company would generate adequate finances for fulfilling the objects of the Company,
c. the said deletion of Articles 8 and 9 would adversely affect the monetary benefits and participation of persons of substance,
d. the Company is a non-profit making body in the nature of a public Trust and the main object of the Company is to further the noble cause as contemplated in its Objects Clause,
e. the said deletion of Articles 8 and 9 as approved in the General Body Meeting of the Company would debar the Company in achieving its objects in the nature of public trust and also would interfere with the interests of the members of the Company in the pursuit of the noble objects of the Company and therefore, the deletion is against the public interest of the Company when it has to look after the welfare of a large number of students and the development of the Hindu religion as also the advancement of the Hindu culture and tradition,
f. the said three members, K.S. Venkateswaran, N.M.R. Krishnamoorthy and N. Ganapathy Subramanian, having been parties to the said resolution passed on 14.03.1992 deleting Articles 8 and 9, are not estopped from challenging the said resolution by giving consent to the filing of the Company Petition under Sections 397 and 398 of the Act,
g. the first appellant was not aware of the said Civil Suit although he happens to be residing with his father in the same house and just by such chance residence, it could not be presumed that there has been any collusion between the first appellant and his father.
22. Per contra, Mr. Arvind P. Datar, learned Senior Counsel for the respondent Company has contended that
a. the admission of members rests with the General Body under Articles 6 and 7 of Articles of Association of the Company whereas the admission of Patron Members under Articles 8 and 9 rests with the Executive Committee of the Company,
b. the Company’s interest should be looked into by the General Body of shareholders and invocation of Articles 8 and 9 by inducting some Patron Members at the behest of some interested members of the Executive Committee would only further the interest of some of the influential members of the Executive Committee as has been done in the present case and this sort of anomaly or discretion should be done away with,
c. the resolution deleting the Articles 8 and 9 was unanimous and fulfilled all the statutory requirements.
d. the purpose of the said resolution was to shift the rights and responsibilities from the Executive Committee to the General Body and the General Body comprises 66 members at present.
e. a member can seek admission through Articles 6 and 7 if he has the approval of 3/4th or at least 3/5th of the majority and not otherwise, whereas any induction of so called “patron members” on payment of Rs. 25,000/- under the said Articles 8 and 9, could be made without the approval of the General Body of members and the majority of members had no say in this mode of induction and this goes against the public interest as also interest of the General Body members of the Company.
f. in any event, the said deletion of Articles 8 and 9 is to take effect prospectively and the induction of persons on the Executive Committee already made under said Articles 8 and 9, would not, in any way, affect the interest of the appellants nor any of the existing members of the Company.
g that three of the nine consentors were parties to the said resolution dated 14.03.1992 deleting the said Articles 8 and 9 and now their consent to filing of the Company Petition challenging the said resolution is not valid in the eye of law and such consent given by the said three members should not be taken into account while considering the requisite shareholding under Section 399 of the Act for maintaining the Company Petition under Sections 397 and 398 of the Act.
h. if the said three members are taken out from the category of consenting members, then the appellants would fail to have their requisite shareholding as contemplated by Section 399 of the Act and the Company Petition had to be dismissed on that sole ground.
i. the appellants have slept over their alleged right in challenging the said resolution dated 14.03.1992 deleting the Articles 8 and 9 for full five years and there has been no explanation as to the delay in making the Company Petition and hence, the CLB has rightly dismissed the Company Petition on the ground of delay and latches.
23. In dealing with the contentions made on behalf of the appellants that the said provisions under Articles 8 and 9 should be preserved for the interest of the Company as the induction of members under the said two Articles on payment of Rs. 25,000/- each would procure substantial monetary benefits to the Company, Mr. Datar has contended that the factual position would be otherwise as the income of the Company varies from Rs. 1.50 crores to Rs. 2.26 crores during the period 1990-1991 to 1994-1995 and the Company is in a better shape from the financial point of view.
24. Mr. N. Venkataraman, learned Counsel for the respondent Company, following Mr. Datar, has contended that
a. the Patron Members even under the provisions of Articles 6 and 7 of the Articles of the Company can be elected on contribution of Rs. 25,000/- each when there is no maximum amount fixed by the Articles 6 and 7,
b. it should be in the interest of the Company that new members are admitted by the General Body of Members which at present consists of 66 members and the Executive Committee comprises only 12 members and
c. if Articles 8 and 9 are allowed to remain on the Articles of Association, then, it might enable the members of Executive Committee to make arbitrary use of the same against the interest of the Company and ignoring the wishes of the General Body members and therefore, there is no merit in the appeal and after analyzing all the materials available before it, the CLB rightly dismissed the Company Petition filed under Sections 397 and 398 of the Companies Act.
25. In the light of the rival submissions made by the learned Senior Counsel on either side, let me now look into whether the reasoning and findings given by the CLB is proper and in accordance with law.
26. It is seen that the Company Petition has been filed under Section 397 and 398 of the Act. The scope of Section 397 in case of oppression and 398 in case of mismanagement is as follows:
397. Application to Tribunal for relief in cases of oppression:
1.Any members of a Company who 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 (including any one or more of themselves) may apply to the Tribunal for an order under this Section, provided such members have a right so to apply in virtue of Section 399.
2.If, on any application under Sub-section (1), the Tribunal is of opinion –
a. 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; and
b. That to wind up the Company would unfairly prejudice such member or members, but that otherwise the facts would justify the making of a winding up order on the ground that it was just and equitable that the Company should be wound up, the Tribunal may, with a view to bringing to an end, the matters complained of, make such order as it thinks fit.
398. Application to Tribunal for relief in cases of mismanagement:
1. Any members of a Company who complain –
a. that the affairs of the Company are being conducted in a manner prejudicial to public interest or in a manner prejudicial to the interests of the Company; or
b. that a material change (not being a change brought about by, or in the interests of, any creditors including debentureholders, or any class of shareholders, of the Company) has taken place in the management or control of the Company, whether by an alteration in its Board of Directors or Manager or in the ownership of the Company’s shares, or if it has no share capital, in its membership, or in any other 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 interests of the Company;
may apply to the Tribunal for an order under this Section, provided such members have a right so to apply in virtue of Section 399.
2. If, on any application under Sub-section (1), the Tribunal is of opinion that the affairs of the Company are being conducted as aforesaid or that by reason of any material change as aforesaid in the management or control of the Company, it is likely that the affairs of the Company will be conducted as aforesaid, the Tribunal may, with a view to bringing to an end or preventing the matters complained of or apprehended, make such order as it thinks fit.
27. From a reading of the above Sections, it is to be seen whether a case under the above provision has been made out before the CLB and if so, whether the CLB has considered the scope of the provision of law made in this regard and the appellants herein are entitled for any relief as prayed for. It is also to be seen whether the CLB has properly considered the Company Petition made under the above provisions.
28. In the light of the above provisions, let me now go into the pleadings as well as submissions made on behalf of the appellants as well as the respondent.
29. On behalf of the appellants, it is strongly contended that the Company is a non-profit-making body in the nature of a public trust and the main object of the Company is to further the noble cause as contemplated in its Objects Clause and in that view of the matter, such deletion of Articles 8 and 9 as approved in the General Body of the Company would debar the Company in achieving its objects and therefore, it was contended that the deletion is against public interest and in the interest of the Company. It is also contended by the appellants that the Company has to look after the welfare of a large number of students and the development of the Hindu religion as also the advancement of Hindu culture and tradition and there was no estoppel on the part of three members having been parties to the resolution have given consent for filing the Company Petition. Also, the first appellant was not aware that the Civil Suit filed by his father although he happens to be residing with his father in the same house and just by such chance residence, it could not be presumed that there has been any collusion between the first appellant and his father.
30. It is seen that the subject matter of the petition and the question involved in this proceedings are whether the deletion of Articles 8 and 9 of the Articles of Association of the Company is in a manner prejudicial to public interest, oppressive to any member or members and it amounts to mismanagement and the affairs are against the interest of the Company.
31. It is further seen from the provisions contained in Articles 6 and 7 that a member may be admitted by a special majority of 3/4 of the members present at a meeting or by a majority of 3/5 of the total members of the votes polled in the event of circulation by the Secretary, that there is an elaborate provision aiming to achieve the democratic method of selection and the General Body is empowered to select such persons. Whereas under Article 8 which came into effect in the year 1935, a person donating Rs. 25,000/- can become a Patron Member. Article 9 bestows upon a Patron, a special privilege by which the Board of Directors admit a Patron to be a member. Under the provisions of Article 8, a member does not go through the electoral process as contemplated by Articles 6 and 7 and a Patron Member automatically becomes a member of the Company in the event of any vacancy of membership. It is not disputed till the year 1986, no Patron Member was admitted in pursuance of Articles 8 and 9. It is also seen that though Articles 8 and 9 were introduced in the year 1935, only once in the year 1988, the Articles were invoked.
32. Reliance has been placed by the learned Counsel for the appellants on a decision of this Court reported in 1963 Vol. XXXIII Comp. Cas. 346 (M. Gomathinayagam Pillai and Ors. v. Sri Manthiramurthi High School Committee, Tirunelveli) wherein it was held as under:
There is no distinction in this country between an eleemosynary and a lay corporation. Whenever there is a public, charitable, or religious trust, the jurisdiction of the Court could be invoked under Section 92 of the civil Procedure Code. For the application of that Section, it makes no difference whether the trustee is an individual or a Company nor is there any distinction between a Company in whom the office of trustee vests and one which is specially formed for the purpose of executing the trust.
If an association is registered under Section 25 of the Indian Companies Act, the members of it and they alone will have power to apply to the Company Court for reliefs in case there is mismanagement. But in a case where the beneficiaries of a trust want to complain that there has been a breach of the trust or that a direction of the court is necessary, they can file a suit under Section 92 of the Civil Procedure Code for any of the reliefs mentioned therein. The provisions of the Companies Act have no application to such a case.
33. Further reliance has been placed by the learned Counsel for the appellants on a decision of the Apex Court (Shanti Prasad Jain v. Kalinga Tubes Ltd. etc.) wherein it was held as under:
14. …Section 397 gives a right to members of a Company who comply with the conditions of Section 399 to apply to the Court for relief under Section 402 of the Act or such other relief as may be suitable in the circumstances of the case, if the affairs of a Company are being conducted I a manner oppressive to any member or members including any one or more of those applying. The Court then has power to make such orders under Section 397 read with Section 402 as it thinks fit, if it comes to the conclusion that the affairs of the Company are being conducted in a manner oppressive to any member or members and that to wind up the Company would unfairly prejudice such member or members, but that otherwise the facts might justify the making of a winding up order on the ground that it was just and equitable that the Company should be wound up. The law, however, has not defined what is oppression for purposes of this Section, and it is left to Courts to decide on the facts of each case whether there is such oppression as calls for action under this Section.
19. These observations from the four cases referred to above apply to Section 397 also which is almost in the same words as Section 210 of the English Act, and the question in each case is whether the conduct of the affairs of a company by the majority shareholders was oppressive to the majority shareholders and that depends upon the facts proved in a particular case. As has already been indicated, it is not enough to show that there is just and equitable cause for winding up the Company, though that must be shown as preliminary to the application of Section 397. It must further be shown that the conduct of the majority shareholders was oppressive to the minority as members and this requires that events have to be considered not in isolation but as a part of a consecutive story. There must be continuous acts on the part of the majority shareholders, continuing up to the date of petition, showing that the affairs of the Company were being conducted in a manner oppressive to some part of the members. The conduct must be burdensome, harsh and wrongful and mere lack of confidence between the majority shareholders and the minority shareholders would not be enough unless the lack of confidence springs from oppression of a minority by a majority in the management of the Company’s affairs, and such oppression must involve at least an element of lack of probity or fair dealing to a member in the matter of his proprietary rights as a shareholder. It is in the light of these principles that we have to consider the facts in this case with reference to Section 397.
21. However, it is said that the conduct of the three parties later on shows that when thee was actual increase of capital to Rs. 61 lacs sometime after July 1954, this increase was shared equally by the three parties and further when Mr. Rath sold his holdings in the Company, they were purchased equally by the three parties so much so that one odd share out of 250 shares was held by the three parties jointly. This is undoubtedly so, and does give some colour to the argument that the three parties concerned in the agreement intended that their shareholdings should remain equal even later. But this intention cannot be said to bind the Company, muchless so when the Company was not bound strictly speaking even by the express terms of the agreement. So far as the Company is concerned, it was free to dispose of shares as the directors or the shareholders in general meeting considered proper without regard to this agreement.
34. …It may be that the appellant was sore inasmuch as he must have felt that his assistance was taken when the Company was in need of such assistance; but later the Patnaik and Loganathan groups acted in the manner in which they did when they felt that the appellant’s support was no longer necessary to the Company. But if the appellant’s support was no longer necessary to the Company by 1958 the action of the Patnaik and Loganathan groups which resulted in the loss of such support cannot be said to be prejudicial to the interests of the Company. We, therefore, agree with the High Court that no case has been made out for action under Section 398 on the ground that the affairs of the Company were being conducted in a manner prejudicial to its interests.
34. Further, the learned Counsel for the appellants has relied on a decision of the Supreme Court (Needle Industries (India) Ltd and others v. Needle Industries Newey (India) Holdings Ltd. and others) wherein paragraph 46 reads as under:
46. In an application under Section 210 of the English Companies Act, as under Section 397 of four Companies Act, before granting relief the Court has to satisfy itself that to wind up the Company will unfairly prejudice the members complaining of oppression, but that otherwise the facts will justify the making of a winding up order on the ground that it is just and equitable that the Company should be wound up. The rule as regards the duty of utmost good faith, on which stress was laid by Lord Keith in Meyer, received further and close consideration in Ebrahimi v. Westbourne Galleries Ltd. (1973) AC 360 (HL) wherein Lord Wilberforce considered the scope, nature and extent of the “just and equitable” principle as a ground for winding up a Company. The business of the respondent Company was a very profitable one and profits used to be distributed among the directors in the shape of fees, no dividends being declared. On being removed as a director by the votes of two other directors, the appellant petitioned for an order under Section 210. Allowing an appeal from the judgment of the Court of appeal, it was held by the House of Lords that the words “just and equitable” which occur in Section 222 (f) of the English Act, corresponding to our Section 433(f), were not to be construed ejusdem generis with Clauses (a) to (e) of Section 222 of corresponding to our Clauses (a) to (e) of Section 433. Lord Wilberforce observed that the words “just and equitable” are a recognition of the fact that a limited company is more than a mere legal entity, with a personality in law of its own; and there is room in company law for recognition of the fact that behind it, or amongst it, there are individuals, with rights, expectations and obligations inter se which are not necessarily submerged in the company structure.
49. The question sometimes arises as to whether an action in contravention of law is per se oppressive. It is said, as was done by W.H. Bhagwati J. in S.M. Ganpatram v. Sayaji Jubilee Cotton and Jute Mills Co., (1964) 34 Com Cas 777 at pp.830-31; AIR 1965 Guj. 96 at p. 103 that “a resolution passed by the Directors may be perfectly legal and yet oppressive, and conversely a resolution which is in contravention of the law may be in the interests of the shareholders and the Company”. On this question, Lord President Cooper observed in Elder v. Elder (1952) SC 49:
The decisions indicate that conduct which is technically legal and correct may nevertheless be such as to justify the application of the “just and equitable” jurisdiction, and conversely that conduct involving illegality and contravention of the Act may not suffice to warrant the remedy of winding up, especially where alternative remedies are available. Where the just and equitable” jurisdiction has been applied in cases of this type, the circumstances have always, I think, been such as to warrant the inference tat there has been, at least, an unfair abuse of powers and an impairment of confidence in the probity with which the Company’s affairs are being conducted, as distinguished from mere resentment on the part of a minority at being outvoted on some issue of domestic policy.
Neither the judgment of Bhagwati J. nor the observations in Elder are capable of the construction that every illegality is per se oppressive or that the illegality of an action does not bear upon its oppressiveness. In Elder a complaint was made that Elder had not received the notice of the Board Meeting. It was held that since it was not shown that any prejudice was occasioned thereby or that Elder could have bought the shares had he been present, no complain of oppression could be entertained merely on the ground that the failure to give notice of the Board meeting was a act of illegality. The true position is that an isolated act, which is contrary to law, may not necessarily and by itself support the inference that the law was violated with a mala fide intention or that such violation was burdensome, harsh and wrongful. But, a series of illegal acts following upon one another can, in the context, lead justifiably to the conclusion that they are a part of the same transaction, of which the object is to cause or commit the oppression of persons against whom those acts are directed. This may usefully be illustrated by reference to a familiar jurisdiction in which a litigant asks for the transfer of is case from one Judge to another. An isolated order passed by a Judge which is contrary to law will not normally support the inference that he is biased; but a series of wrong or illegal orders to the prejudice of a party are generally accepted as supporting the inference of a reasonable apprehension that the Judge is biased and that the party complaining of the orders will not get justice at his hands.
35. On behalf of the respondent Company three submissions were made before the CLB and they are as follows:
a. the appellants are not entitled to seek the same relief before the CLB which had already been sought for in the Civil Suit by the father of the first appellant challenging the very same resolution dated 14.03.1992,
b. the appellants had not explained the delay between March 1992 and June 1997 and the petition therefore is liable to be dismissed in limine on the grounds of delay and latches.
c. the consent given by the three of the consentors who participated and voted in favour of the said resolution deleting Articles 8 and 9 can be taken as a valid consent and consequently the petition before the CLB should fail not being in conformity with the requirements of Section 399 of the Act.
36. In defence of his case, the learned Senior Counsel for the respondent Company also has relied on paragraph 19 of the decision of the Supreme Court (Shanti Prasad Jain v. Kalinga Tubes Ltd. etc.) as stated supra.
37. In the instant case, the appellants and the supporting shareholders received a notice of Annual General Body Meeting of the members of the Company scheduled to take place on 14.03.1992 on a subject of deletion of Articles 8 and 9 of the Articles of Association of the Company with an explanatory note stating that the Board of Directors felt that the admission of a member to the College Board should be under the control of the General Body and not to be left to the decision of the Board of Directors as it gives room for those who are admitted by special choice instead of election by the General Body which has got primary right to membership. Due to preoccupation of the appellants, they were not in a position to attend the said meeting. Subsequently also, they did not hear anything about the amendment proposed at the Annual General Meeting and only after an information that the Secretary of the Board had called for applications for admission to the category of life members, they were prompted to look into the matter and collect details. In such a situation, when the appellants have not chosen to attend the meeting whether they have the right to question the same. In this context, the appellants have contended that the Annual General Meeting held on 14.03.1992 had been attended by 21 members and passed the required resolution that Articles 8 and 9 of the Articles of Association of the Company were to be deleted. The effect of such a deletion is that the clause of patron members has been totally abolished. The copies of the notice and proceedings of the meeting dated 14.03.1992 were annexed to the Company Petition and collectively marked as Exhibits before the CLB and they were obtained from the Registrar of Companies, Madras.
38. It is argued that the appellants are attempting to re-agitate the matter which was already been decided against their interest on the ground of delay and latches and they are trying to obtain relief through preliminary remedies with an approach being mis-conceived in law as malafide and clearly without jurisdiction. In this context, reliance was placed on a decision of the Allahabad High Court reported in 1970 Volume 40 Comp Cas 282 (Raghunath Swarup Mathur and Ors. v. Har Swarup Mathur and Ors.)
Those complaints of the petitioners against the conduct of the affairs of the Company by the contesting opposite parties which could be supported by some particulars relate to a period before September 30, 1965, when a new Managing Director was elected. The petition in this Court was filed on August 23, 1967. Delay, if considerable and unexplained, is enough to defeat equities and to justify a refusal to exercise discretionary powers. In this case, delay is both considerable and unexplained so far as any question of giving relief against the alleged mismanagement before September 30, 1965 is concerned. Moreover, alleged mismanagement up to 1965 could not, as already indicated, be said to be even relevant unless reasonably correlated to a prospect of mismanagement in and after 1967.
39. In the instant case, the resolution of the respondent Company dated 14.03.1992 was not challenged within the time prescribed and they have filed the Company Petition only in June 1997. The delay is considerable and unexplained as contended by the respondent Company.
40. Further reliance has been placed by the learned Senior Counsel for the respondent Company on a decision of the Supreme Court reported in 2001 Vol. 105 Comp. Cas. 493 (Hanuman Prasad Bagri and Ors. v. Bagress Cereals Pvt. Ltd. and Ors.) and the relevant paragraph reads as follows:
Section 397(2) of the Act provides that an order could be made on an application made under Sub-section (1) if the court is of the opinion-(1) that the company’s affairs are being conducted in a manner prejudicial to public interest or in a manner oppressive of any member or members; and (2) that the facts would justify the making of a winding up order on the ground that it was just and equitable that the Company should be winding up, and (3) that the winding up order would unfairly prejudice the applicants. No case appears to have been made out that the Company’s affairs are being conducted in a manner oppressive of any member or members. Therefore, we have to pay our attention only to the aspect that the winding up of the Company would unfairly prejudice the members of the company who have the grievance and are the applicants before the Court and that otherwise the facts would justify the making of a winding up order on the ground that it was just and equitable that the Company should be wound up. In order to be successful on this ground, the petitioners have to make out a case for winding up of the Company on just and equitable grounds. If the facts fall short of the case set out for winding up on just and equitable grounds, no relief can be granted to the petitioners. On the other hand, the party resisting the winding up can demonstrate that there are neither just nor equitable grounds for winding up and an order for winding up would be unjust and unfair to them. On these tests, the Division Bench examined the matter before it.
41. Taking overall aspects of the matter, the CLB has dealt with the three issues, namely, the relief sought for by the appellants before it was entitled after the decision of the Civil Suit filed by the father of the first appellant and on the point of delay and latches in filing the petition and also the validity of the consent of the three persons in filing the Company Petition. The CLB, on going through the material evidence and the contentions raised by both sides, has given findings on all the issues and dismissed the Company Petition filed by the appellants herein.
42. In that view of the matter, whether this Court will interfere in any of the findings under what circumstances in accordance with the scope of the law made in respect of the findings of the CLB.
43. Now, let me look into the findings of the CLB in respect of three issues as stated supra.
44. In respect of first contention that the subject matter as challenged in the petition before the CLB similar to the one with what had been agitated in the Civil Suit and the same was disposed of in favour of the defendant Company.
45. It is seen that there was a suit in City Civil Court filed by the father of the first appellant whereby he being the plaintiff in the suit challenged the legality of the resolution passed by the General Body of the members in the Annual General Meeting held on 14.02.1992. It appears that the plaintiff in the said suit challenged the said resolution on more or less the same grounds as are taken in the petition before the CLB under Section 397 and 398 of the Act. It is seen that the above suit has been dismissed and the Civil Court upheld the legality of the deletion of the said resolution and rejected the contention of the plaintiff in the said suit. In such a situation, the CLB found that it is difficult to believe that the petitioner in the proceedings before it did not have any knowledge of such resolution resulting in the deletion of the said Articles 8 and 9 immediately after the said resolution was carried unanimously in the said General Body Meeting held in March 1992. This decision of the CLB that the first appellant being the son of the then Secretary, has filed the suit on the same subject matter and the CLB has rejected that contention to go into the legality of the same resolution which has been challenged before the Civil Court and the first appellant has no right to challenge the same before the CLB and the CLB took a view that if it allowed the first appellant to challenge the very same resolution practically on the same ground or one or two more, it would be simply encouraging the petitioners before it to abuse the process of Court.
46. Therefore, the first appellant was not aware of the said Civil Suit although he has happened to reside with his father in the same house a test by such chance residence and that could not be presumed that there has been any collusion between the firs appellant and his father as contended by the first appellant cannot have any hold over and therefore in the absence of any other contra or conflicting material evidence, there is no reason to repudiate or rescind the decision of the Civil Court as this Court also feels that the first appellant has knowledge about the Civil Suit and the decision is binding on him.
47. Regarding the second contention i.e. about the delay and latches of challenging the resolution dated 14.02.1992, they have moved the CLB in June 1997 and the delay in presenting the petition before the CLB has not been explained and it was filed after a period of five years. The same subject matter of the challenge had already been agitated in the Civil Suit. It is seen that there was a suit in the City Civil Court and it was decided in favour of the respondent Company and the deletion of Articles 8 and 9 was upheld by the Civil Court. The appellants have not taken any step from March 1992 until the filing of Company Petition before the CLB challenging the said resolution. It appears that the appellants conveniently waited to know the result of the suit filed by the father of the first appellant challenging the very same resolution which is challenged practically on the same grounds as were taken in the suit filed by the father of the first appellant and the legality of the said resolution was affirmed by the judgment delivered by the said Civil Court and the delay in presenting the Company Petition without assigning proper reasons had not been appreciated by the CLB and rejected the same. In this respect also, no reason has been assigned or argued before this Court for the delay in presenting the Company Petition and hence, this Court is not convinced to interfere with the findings of the CLB in rejecting the Company Petition on the ground of delay and latches.
48. The last point arising for consideration before this Court is whether the CLB is proper in giving a finding that the consent of the persons namely K.S. Venkateswaran, N.M.R. Krishnamoorhy and N. Ganapathy Subramanian should be treated as invalid in view of their participation to the said resolution passed by the General Body of members of the respondent company on 14.03.1992 deleting the said two Articles. In the consent letters given by the said three persons, it is explicitly stated that they are in full agreement with the allegations and averments contained in the petition and also reliefs sought for against the Company. The CLB has come to the conclusion that it would be difficult to accept a proposition that a person after voting for a proposal cannot resile from the same even if he is convinced later that his earlier decision was not appropriate. Thus, the mere fact that consentors change their mind cannot be a ground for debarring them from supporting the Company Petition.
49. The learned Senior Counsel for the appellant has indicated that the resolution dated 14.03.1992 which is being challenged herein if allowed to stay, then it would affect the interest of the petitioners and also it may amount to conducting the affairs of the Company in a manner oppressive to the appellants being members of the Company and also argued that in any event, the said resolution is against the public interest of the Company or public policy. But, it is seen that the result of deletion of Articles 8 and 9 would be that the Executive Committee of the Company will not be empowered to induct any outsider called a patron member to the membership of the Company whereas the General Body of the Company has been empowered to induct new members.
50. Further, it is seen that since the introduction of the Articles 8 and 9 to the Articles of Association of the Company, only once in the year 1988 these Articles have been applied and invoked. The power to induct members as contemplated under Articles 6 and 7 are in force continuously and the General Body of the Company has been empowered to induct the members if the Executive Committee should feel that in the interest of the Company, some new members should be inducted into the membership of the Company, by invoking Articles 6 and 7 within the powers of the General Body of the Company.
51. In the light of these provisions contemplated under Articles 6 and 7, the Articles 8 and 9 have given a power only to the Executive Committee which may go against the very object of the respondent Company and this would be one of the short-cut methods to become a patron and then enter into the Board. This would have been the reason felt by the respondent Company to delete the Articles 8 and 9 in the interest of the Company and therefore, the contention that the resolution passed by the Company in the said General Body Meeting could not go against the larger public interest of the Company. It would appear from the Objects Clause that the aim of the Company is to promote Hindu culture, civilization and educational institutions established on the basis of the Hindu tradition or culture and I think that the General Body of Members is the proper and should be the proper authority to consider who should be inducted into the membership of the Company in furtherance of the promotion of said objects of the Company.
52. In respect of the inviting members by the Executive Body as per the provision of Article 8, in order to achieve the above object, the General Body would have felt that it is unnecessary that the Articles 8 and 9 are to be left solely to the Executive Body to decide and induct a member and therefore, the Governing Body has decided to pass a resolution to delete Articles 8 and 9. Such deletion cannot be considered either as oppression under Section 397 or mismanagement under Section 398 of the Act.
53. In the light of the discussion what I have made above and the decisions relied on by the learned Senior Counsel on either side, it would be only proper for this Court to see whether there is any case of oppression as contemplated under Section 397 or an act of mismanagement under Section 398 of the Act . It is an occasion where the resolution was passed on 14.03.1992 and thereafter, there is no other action of the respondent Company which is prejudicial to the interest of the appellants herein. It would also be seen that the resolution passed is only prospective in nature and there is no reason to believe any action which is continuous in nature. Further, no material has been placed before me as to how this could be an act of oppression against them or any other member of the Company except the contention made by the counsel that this is against public interest which is covered under Section 397 and 398 of the Act or it is an act against Sections 397 and 398 of the Act. Also, it is not the case that the affairs of the Company are being conducted in a manner contrary to the provisions of law or against the interest of the Company or any creditors.
54. The deletion of Articles 8 and 9 has the effect of curbing the right of the Executive Committee in inducting the so called patron members and resting with the General Body of members the right and authority of inducting all members according to usual electoral process is one such democratic process has to be followed. Therefore, the contention of the appellants that Executive Committee alone is competent to do any such act is not proper and in my view, the deletion has no adverse effect in the interest of the Company and it cannot be said to be against public interest or prejudicial to the interest of the Company and I do not see any oppression or mismanagement as contemplated under Sections 397 and 398 of the Companies Act and there is no continuing act of oppression or mismanagement.
55. The CLB has taken note of all these factors while deciding the Company Petition and has applied its mind to the provision contemplated under Sub-section 2(b) of Section 397 of the Act which stipulates that if the Company Law Board is of opinion that to wind up the Company would unfairly prejudice such member or members but that otherwise the facts would justify the making of a winding up order on the ground that it was just and equitable that the Company should be wound up, the CLB may make such an order as it thinks fit. There has been no point made out by the appellants that the Company is liable to be wound up on just and equitable grounds, but the facts would justify not to make a winding up order on such ground. The CLB has concluded that the question of oppression can only be considered if the nature of oppression is such or if the affairs of the Company are being conducted in such a manner prejudicial to the public interest that the winding up of the Company would be the proper course but the facts of the case would justify in not making of a winding up order with a view to bringing an end the matters complained of. This view of the Company Law Board is in my opinion, is in conformity with the provision of law and no case is made out by the appellants before the CLB under Sections 397 and 398 of the Act. Therefore, I have no hesitation to uphold the decision of the CLB holding that the validity of the resolution dated 14.03.1992 unanimously taken in the Annual General Meeting deleting the Articles 8 and 9 of the Articles of Association of the Company is justifiable.
56. The CLB has also made a note on the proposal to increase the membership fee even for ordinary members taking into consideration the fact that Rs. 25,000/- was fixed as patron membership fee in the year 1935. It appears that those Articles namely Articles 8 and 9 were invoked only for once in 1986 but the fact remains that there were persons desirous of becoming members of the Company by paying a sum of Rs. 25,000/-. This indication of the CLB, taking note of the nature of the Company as a non-profit body which has a noble objective of managing educational institution in larger public interest, is correct in my view also, as any addition to the Corpus, irrespective of the quantum has beneficial effect on the resources of the Company
57. Thus, I have no hesitation to uphold the findings of the CLB on three key issues already stated supra.
In the light of the above discussion and various decisions stated supra, the appeal is devoid of merits and deserves to be dismissed. Accordingly, it is dismissed without any order as to costs.
