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IN THE HIGH COURT OF ALLAHABAD
N. D. Ojha and B. L. Yadav, JJ.
RAI SAHEB VISHWAMITRA - Appellant
Versus
AMAR NATH MEHROTRA - Respondents
Special Appeal 12 Of 1983
Decided On : 01/07/1986
COMPANY LAW - SECTIONS 397 AND 398 OF THE COMPANIES ACT, 1956 - MAINTAINABILITY OF PETITION - PETITIONERS IN CONTROL OF COMPANY - NO OPPRESSION ESTABLISHED - MEETING HELD ON DECEMBER 30, 1982 - PROCEEDINGS NOT QUASHED - PETITION DISMISSED.
Fact of the Case:
Petitioners, directors of a company, filed a petition under sections 397 and 398 of the Companies Act, 1956, seeking to stay a meeting scheduled to be held on December 30, 1982, and later, to quash the proceedings of the meeting held on that date. The petitioners alleged that the meeting was convened by certain shareholders in a manner prejudicial to the company and oppressive to them as members.
Finding of the Court:
The court found that the petitioners were in actual management of the company's affairs and that the meeting held on December 30, 1982, was not given effect to due to an interim order passed by the court. The court held that the petition was not maintainable under sections 397 and 398 of the Act as the petitioners had not established that the affairs of the company were being conducted in a manner prejudicial to the public interest or oppressive to any member.
Issues: 1. Whether the petition under sections 397 and 398 of the Companies Act, 1956, was maintainable. 2. Whether the meeting held on December 30, 1982, was conducted in a manner prejudicial to the public interest or oppressive to any member.
Ratio Decidendi: 1. Section 397 of the Companies Act, 1956, empowers members of a company to apply to the court for an order if they complain that the company's affairs are being conducted in a manner prejudicial to public interest or oppressive to any member. However, in the instant case, the petitioners, who were in control of the company, failed to establish that the affairs of the company were being conducted in such a manner. 2. Section 398(2) of the Act allows the court to make an order to prevent or bring to an end matters complained of or apprehended if it is of the opinion that the company's affairs are being conducted in a manner prejudicial to the public interest or that a material change in management or control of the company is likely to result in such conduct. However, in the present case, the new directors appointed in the meeting had not yet taken over charge, and therefore, it was premature to conclude that their conduct would be prejudicial to the company.
Final Decision: The petition was dismissed as it was not maintainable under sections 397 and 398 of the Companies Act, 1956. The interim order passed earlier was vacated.
( 1 ) THIS is a company petition filed under sections 397 and 398 of the Companies Act, 1956, in the matter of Jhausi Electric Supply Co. Ltd. The prayer in the petition is that an order be passed staying the so-called meeting to be held on December 30, 1982.
( 2 ) JHANSI Electric Supply Co. Ltd. is a public limited company which was incorporated on august 19, 1937. The business of the company was the supply of electricity to the cities of jhansi and Gorakhpur in the State of U. P. Both the power houses of the company were taken over by the Government. The position, consequently, is that now the company has ceased to carry on its business of supplying electricity.
( 3 ) IT has been stated in the petition that compensation in respect of the taking-over of the power house in Jhansi City has already been paid while proceedings are going on before the arbitrators for assessment of the compensation for taking over of the power house in Gorakhpur City.
( 4 ) THE last annual general meeting of the company was held on December 26, 1981. All the items in the agenda had been taken for consideration in the said meeting, but the last item in the agenda regarding the appointment of Sri Amar Nath Mehrotra as a new director of the company could not be taken. It has consequently been alleged that since the last item in the agenda could not be taken and Amar Nath Mehrotra could not be appointed as a director of the company, he along with other shareholders of the company requisitioned a meeting at a place other than the registered office of the company and, as such, it was alleged that this court should stay the holding of the meeting summoned for December 30, 1982.
( 5 ) THIS petition was filed in this court on December 21, 1982. It was admitted on December 23, 1982. On an application made for grant of an ad interim order, it was directed that the meeting scheduled to. be held on December 30, 1982, shall be held, but the resolution passed in the meeting shall not be given effect to until further orders of this court.
( 6 ) AFTER this order was passed, the meeting was held on December 30, 1982. The petitioner thereafter moved an application on March 8, 1983, again, under sections 397, 398 and 399 of the companies Act, 1956, for quashing the proceedings held on December 30, 1982.
( 7 ) THE position, therefore, which emerges from out of the above facts is that, initially, the application was for stay of the proceedings of the meeting scheduled to be held on December 30, 1982, and, thereafter, the quashing of the proceedings held on December 30, 1982, has been sought.
( 8 ) I have heard the learned counsel for the parties. The main contention of the learned counsel for the respondent is that this petition is not maintainable under Sections 397 and 398 of the companies Act. The parties also made their respective submissions on the merits of the validity of the meeting held on December 30, 1982. It is not necessary for me to go into the merits of the validity of the meeting held on December 30, 1982, as in my opinion, the objection raised by the respondents is sustain-able, as the application is not maintainable under sections 397 and 398 of the Companies Act.
( 9 ) IT is admitted by the parties that the petitioners were in actual management of the affairs of the company. Shri Sunder Lal Mehrotra was the managing director of the company. He died on May 16, 1981. The other directors of the company were Rai Saheb Vishwamitra, petitioner No. 1, shri Shanker Lal Mehrotra, petitioner No. 7, and Shri Lalji Meh-rotra. All these directors belonged to the petitioners group. It were actually the petitioners who were managing the affairs of the company. By the resolution passed in the impugned meeting dated December 30, 1982, rai Saheb Vishwamitra, Lalji Mehrotra and Shanker Lal Mehrotra have been removed from the directorship of the company and new directors, namely, Amar Nath Mehrotra, Shyamji Mehrotra and A. N. Agrawal, have been appoint
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