A shareholder cannot maintain a personal action for wrongs done to the company, and a derivative action is maintainable only when the company has a right to sue but is not likely to sue due to the misconduct of the directors.

Soumen Sen, J.

1. This application has been filed by the defendant no.1, praying inter alia, for rejection of the plaint.

2. The applicant is an award-holder.

3. The question which arises in this application for determination is, if a share-holder of a company can maintain an action by a way of a suit to challenge an award on behalf of the company.

4. A brief summary of facts as appear from the pleadings are narrated hereinafter.

5. The plaintiffs are incorporated in Mauritius and jointly hold the entire issued paid up and subscribed capital of the proforma defendant. The defendant no.1 is a company owned by Sarda group. The defendant no.2 is a joint-venture company. The proforma defendant and the defendant no.1 hold the entire issued paid up and subscribed capital of the defendant no.2. Pursuant to the permission granted by the Government of India, Ministry of Finance, by its letter dated 14th June, 2007 to the plaintiff no. 1, the proforma defendant was incorporated as a wholly owned subsidiary of the plaintiff in India, interalia, for the purpose of engaging in construction, development projects, including and by way of consortium and joint development agreement and to make downstream investment in the wholly owned subsidiaries and joint ventures engaged for the aforesaid activities. Pursuant to the approval of the Foreign Investment Promotion Board (FIPB), foreign equity participation of US $ 10,000,000 was to be made by the plaintiff no. 1 in the paid up share capital of the proforma defendant. Following the approval, the plaintiff no. 1 subscribed to the paid up share capital and holds 99.5% of the share capital of and in the proforma defendant and balance 0.5% of the share capital is being held by the proforma defendant. In the meantime, in or about July 2007, the plaintiffs through the proforma defendant had entered into a joint venture agreement with the Sarda Group, represented by defendant no.1 for developing land and construction buildings and other real estate development activities. In terms of the joint venture agreement, the proforma defendant held 50% of the equity share capital in the defendant no.2, whereas the balance share capital of the company was held by the defendant no.1. However, the directorial pattern was not as agreed and Mr. Jagdish Sarda all along had and has control over the defendant no.2 through his nominated board of directors. The plaintiffs, all throughout reposed trust and faith in Mr. Sarda and had never objected to the same. Between 12th September, 2007 and 31st March, 2009, there have been changes in the board of directors. By reason of cessation of office by Manoj Chandra Mohan Vinchoo and Robert Ken on 31st March, 2009 and 23rd April, 2009, respectively the defendant no.3 became the sole director of the proforma defendant.

6. Since the defendant No. 3 was the sole director, he could not hold a valid board meeting. However, the said defendant no.3 illegally and unauthorisedly held board meetings of the proforma defendant and in the said illegal and unauthorized board meetings appointed defendant nos.4 and 5 as additional directors in the board of directors of the proforma defendant. The defendant no.3, as sole director of the proforma defendant was incapable of holding any valid board meeting or could appoint defendant nos.4 and 5 as additional directors of the proforma defendant. The said appointments are illegal, invalid and not binding on the proforma defendant or on the plaintiffs. The plaintiffs recorded its objection to such appointments in an electronic mail, dated 1st October, 2009, sent to the defendant no.3. The defendant no.3, however in disregard to such objection, continued to act as director of the proforma defendant and sanctioned unsecured loan to the alleged three directors amounting to Rs.1 crore, each. By reason of such illegal activities, the plaintiffs, held a meeting on 15th December, 2009 and revoked the authority of defendant nos.3 and 4, and appointed two