1960 Supreme(Cal) 149

HIGH COURT OF CALCUTTA
U. C. Law
HINDUSTHAN CO-OPERATIVE INSURANCE SOCIETY LTD. - Appellant
Versus
STATE - Respondent
Insolvency 4  Of  1949
Decided On : JULY 08, 1960

The affairs of a company may be conducted in a manner oppressive to the minority shareholders and also in a manner prejudicial to the interest of the company, and a material change may take place in the management or control of the company by alteration in its Board of Directors, justifying relief under Sections 397, 398, and 402 of the Companies Act.

Headnote:

HINDUSTAN Co-operative Insurance Society Ltd. v. U. C. LAW - [SECTION 397, 398, 399, 402 OF THE COMPANIES ACT, 1956] - [OPPRESSION OF MINORITY SHAREHOLDERS] - [CONDUCT OF AFFAIRS OF THE COMPANY IN A MANNER PREJUDICIAL TO THE INTEREST OF THE COMPANY] - [MATERIAL CHANGE IN THE MANAGEMENT OR CONTROL OF THE COMPANY] - The affairs of the company were being conducted in a manner oppressive to the minority shareholders and also in a manner prejudicial to the interest of the company. A material change had taken place in the management or control of the company by alteration in its Board of Directors. The court held that the facts and circumstances of the case fully established that the relief under Section 397, 398, and 402 of the Companies Act should be justly available to the applicants.

Fact of the Case:

The applicants, shareholders of the company holding amongst themselves 1,295 shares, obtained consent in writing of other shareholders who hold 3,853 shares, to move this application on behalf and for the benefit of all of them. The total number of shares in support of this application is, therefore, 5,148 which is more than 1/10th of the issued and subscribed share capital of the company as is required under Section 399 of the Companies Act. All calls and other sums due on these shares have also been fully paid up.

Finding of the Court:

The court found that the affairs of the company were being conducted in a manner oppressive to the minority shareholders and also in a manner prejudicial to the interest of the company. A material change had taken place in the management or control of the company by alteration in its Board of Directors. The court held that the facts and circumstances of the case fully established that the relief under Section 397, 398, and 402 of the Companies Act should be justly available to the applicants.

Issues: Whether the affairs of the company were being conducted in a manner oppressive to the minority shareholders and also in a manner prejudicial to the interest of the company.

Ratio Decidendi: The court held that the affairs of the company were being conducted in a manner oppressive to the minority shareholders and also in a manner prejudicial to the interest of the company. A material change had taken place in the management or control of the company by alteration in its Board of Directors. The court held that the facts and circumstances of the case fully established that the relief under Section 397, 398, and 402 of the Companies Act should be justly available to the applicants.

Final Decision: The court made the following order: (1) Sir Dhirendra Nath Mitter, failing Mr. A. B. Gupta, the Chartered Accountant, is appointed Special Officer of the Company at a remuneration of Rs. 1,000/- per month inclusive of all his travelling and. other incidental expenses. (2) The Special Officer is directed to take immediate possession of the registered office of the Company and also to take possession of all books of account, share-registers and all other papers, documents, records whatsoever belonging to the Company now lying with and under the control of the respondents. (3) Immediately upon obtaining possession of the registered office of the company and the share registers and other records mentioned above, the Special Officer is directed to prepare a list of the names of the applicants and their supporters as mentioned in Annexure A to the petition and including the added parties to this application who have supported this application, and ascertain the number of shares held by each of them and recorded in the register of the Company. (4) The Special Officer is directed thereafter to make a valuation of the shares in the following manner: (a) Ascertain the total sum available in respect of the compensation money paid by the Life Insurance Corporation to the Company including the said sum paid as compensation for vesting the management under the Life Insurance (Emergency Provisions) Act, 1956. (b) Ascertain the total sum received and/or receivable for interest due on the said sum lying in short deposit accounts in the name of the Company in different banks mentioned, up to this date. (c) Deduct income-tax payable on the interest paid or payable and ascertain the net interest available. (d) Add the net interest to the compensation money and also the money paid: as compensation for vesting the management as aforesaid. (e) Divide the total with the total number of shares issued by the company, namely, 28,695 shares. The quotient will be the value of one share. (5) The Company through the Special Officer is directed to purchase and pay for the shares standing in the names of the applicants and their supporters whose name appears in Annexure A to the petition, including the added parties to this application as in paragraph 3 above at the valuation so arrived at, out of the funds of the company. (6) After such purchase by the company the Special Officer is directed to convene an Extra-Ordinary General Meeting of the remaining shareholders of the company to consider and if thought fit to pass either of the following resolutions with or without modifications : (i) Resolved that the Company do distribute the compensation money received by the company from the Life Insurance Corporation of India to the shareholders in accordance with law; or (ii) Resolved that the Company do carry on any other business authorised by its Memorandum of Association and utilise the compensation money for the aforesaid objects. (7) The respondents Nos. 1 to 4 are removed from the Board of Directors of the Company, (8) Prasanta Kumar Bose and Nawab K. G. M. Faroqui were not elected as Directors and they are not to act or represent themselves as such Directors any more. (9) B. B. Roy was not validly appointed as the Secretary of the Company and he is not to act as such. He is removed from the office of the Secretary. (10) Let there be an injunction restraining the respondents Nos. 1 to 4 from acting or representing themselves as Directors of the Company and/or dealing with the assets of the Company including the compensation money, the accrued interest thereon and also the money lying in the current account of the company. They are also restrained by an injunction from operating on any of the banks mentioned above. (11) The Special Officer upon purchase of the shares as aforesaid is directed to submit a report to the Court for obtaining further directions. (12) There will be liberty to the Special Officer to apply and also to apply for funds. The Special Officer is also to make a report to the Court after holding the meeting as directed above and apply for further orders. (13) Costs of and incidental to this application are to be paid by the respondents Nos. 1 to 3 to the applicants. Costs of the Central Government will be paid out of the funds of the Company.