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1989 Supreme(Ker) 135
Judges : RADHAKRISHNA MENON
Chackochan - Appellant
Versus
The Federal Bank - Respondent
Case No : C.P. No. 28 of 1988
Decided On : 03/27/1989
Advocates Appeared :
C.M. Devan; E.R. Venkiteswaran; For Petitioners B.S. Krishnan; T.R. Raman Pillai; C.K. Sivasankara Panicker; C.C. Thomas; P.V. Madhavan Nambiar; K.P. Dandapani; P.F. Thomas; Mathai M. Paikeday; K.K. Usha; For Respondents
The main legal point established in the judgment is that a petition under S.397 of The Companies Act, 1956 is not maintainable if the allegations of oppressive conduct and prejudicial conduct to minority shareholders are not established.
Headnote:
COMPANIES ACT - WINDING UP - S.397, S.399 - The court dismissed the application under S.397 read with S.399 of The Companies Act, 1956 for reliefs including conducting the meeting by appointing an Advocate Commissioner, declaring proxies obtained by the Company as invalid, and conducting business without considering the proxies. The court found that the allegations of oppressive conduct by the Chairman and Directors in using the bank's machinery to get their candidates elected were not sustained. The court also held that the petitioners failed to establish that the company's affairs were conducted in a prejudicial manner to the minority shareholders. The court dismissed the petition with costs and issued directions for the conduct of the election of directors.
Fact of the Case:
The petitioners filed an application under S.397 read with S.399 of The Companies Act, 1956, alleging oppressive conduct by the Chairman and Directors in using the bank's machinery to get their candidates elected as Directors. The petitioners sought reliefs including conducting the meeting by appointing an Advocate Commissioner, declaring proxies obtained by the Company as invalid, and conducting business without considering the proxies. The respondents raised a preliminary point on the maintainability of the petition under the law.
Finding of the Court:
The court found that the allegations of oppressive conduct by the Chairman and Directors were not sustained. The court also held that the petitioners failed to establish that the company's affairs were conducted in a prejudicial manner to the minority shareholders. The court dismissed the petition with costs and issued directions for the conduct of the election of directors.
Ratio Decidendi: The court held that the petition under S.397 was not maintainable as the allegations of oppressive conduct and prejudicial conduct to minority shareholders were not established. The court also found that the petitioners failed to establish that the company's affairs were conducted in a prejudicial manner to the minority shareholders.
Final Decision: The court dismissed the petition under S.397 with costs and issued directions for the conduct of the election of directors.
1. An application presented under S.397 read with S399 of The Companies Act, 1956 for the following reliefs:
"a. The meeting scheduled to be held on 30th August, 1988 of the Company be conducted by appointing an Advocate Commissioner to supervise the election at the Municipal Town Hall, Alwaye:
b. To declare that the proxies obtained by the Company on 28-8-1988 be declared invalid and non-existent.
c. To conduct the business to be transacted on 30th August, 1988 without taking into consideration of the proxies obtained by the Company on 28-8-1988.
d. To pass such other orders as this Hon'ble Court deem fit and proper in the circumstances of the case".
2. The sum and substance of the allegations in the petition is that the Chairman and the Directors in using the machinery of the bank to get their candidates elected as Directors (to fill the vacancies caused on the retirement of Directors by rotation) has conducted the affairs of the company in a manner oppressive to the minority share holders including the petitioners.
3. Before I go into the merits of the case, I shall deal with the preliminary point, namely whether the petition is maintainable in law, raised by the company and the other contesting respondents.
4. The case set up by the respondents in this regard has two aspects.(1) The company, being a banking company, any question pertaining to its management requires to be considered under the provisions contained in The Banking Regulations Act, 1949, for short, The Act (2) To maintain a petition under S.397 of The Companies Act, the petitioners are bound to obtain the consent in writing of those 100
members/ share holders mentioned in sub-section 3991(a) and who have not figured as petitioners. So that the petition could be said to be one on their behalf and for their benefit also. Since the consents in writing of the said members have not been produced, the petition is liable to be dismissed.
5. The first aspect: The learned counsel for the contesting respondents dilating on this submitted as follows:- The rights of the share holders in regard to the management of a banking company are circumscribed by the provisions of The Act The activities of the Board of Directors are governed by the special provisions contained in the Act Specific reference however, requires to be made to the provisions contained in Pan III of The Act which governs matters relating to suspension of business and winding up of banking companies. Since the Act is a consolidating Act, The Act is a complete code in itself as regards the matters it deals with. After the coming into force of The Act, a banking company can be wound up only under the provisions contained in Part III of The Act That means now a petition to wind up a banking company under S.433 of The Companies Act is not possible. If that be the position in law, a petition under S.397, since the same is enacted with the intention of avoiding winding up on the 'just and equitable' ground (see S.433(f) of The Companies Act), is not maintainable.
6. The learned counsel for the petitioners on the other hand contended that in as much as the provisions of The Act are only in addition to and not in derogation of The Companies Act, the respondents shall not be heard to say that a petition under S.397 which was enacted with the object of safeguarding the interest of the share holders is not maintainable. Amplifying this aspect the learned counsel submitted that it is enough for a petitioner under S.397 to show that the oppressive acts of the majority share holders have brought about circumstances which warrant a winding up of the company on the 'just and equitable' ground and not that circumstances warranting a winding up of the company do in fact exist In support of this argument he relied on a decision of the Supreme Court in Shanti Prasad v. Kalinga Tubes Ltd. (A.I.R. 1965 S.C 1535).
7. To consider the aforesaid competing arguments it is necessary to study the scope of the provisions of The Act re
