Case: Dr. Satya Churn Law and Others Vs. Rameshwar Prosad Bajoria and Others

may by the regulations be entrusted with the control of the business, and if so entrusted they can be dispossessed from that control only by the statutory majority which can alter the articles. Directors are not, I think, bound to comply with the directions even of all the corporators acting as individuals.This statement of the law cannot be questioned, but, as the learned author has himself pointed out, there may be exceptions, such as when the directors are acting mala fide and the case of Marshalls Valve Gear Company, Limited v. manning, Wardle & Co., Limited has been cited by him as a possible illustration of the exception. In that case, the directors of a company had the entire management of the company and their powers were defined in almost the same terms as the powers of the directors in the present case. One of these directors, Marshall, held 42, 900 shares, the other three directors held 28, 000 shares, and the remaining 600 shares were held by others. The three directors who held Defendant company. At a directors meeting Marshall proposed a suit against the Defendant company for infringement of patent rights. The other three directors overruled his proposition. He, therefore, brought a suit against the Defendant in name of the company. Thereafter, at a meeting of the Board of Directors of the Plaintiff company, which Marshall did not attend, a resolution was passed that a Marshall had instituted a suit in the name of the company without the sanction of the Board of Directors, the solicitors of the company should be instructed to apply to the Court to have the name of the company struck out. The matter ultimately came up before Neville, J., who dismissed the motion for striking out the name of the company and observed : The company is of course the owner of Marshalls patent, and alone able to litigate for the protection of that patent. The three directors had, in what I will assume to be the exercise of their discretion, refused on behalf of the company to oppose the grant of the patent to themselves or to those from whom they acquired it, and they have refused to commence, or to allow to proceed so far as they can help it, any action for the purpose of establishing that the new patent is an infringement of the patent of the company. New it is obvious that in the position in which they have placed themselves on this question their duty and their interest are in direct conflict. On the one hand it is their duty as directors to protect the interests of the original patent, which is the property of the company; on the other hand their personal interests are clearly to maintain the validity of the patent which belongs to them, and which, it is alleged, is an infringement. Mr. Marshall has commenced an action in the name of the company for the purpose of restraining an alleged infringement on the part of the owners of the new patent, and the other directors come to the Court and ask to have the writ in that action taken off the file on the ground that the action was commenced without the authority of the company. It admitted that the calling of a meeting of share-holders to ascertain the wishes of the company would be useless because the position of the voting power is perfectly well understood. It is divided between the persons concerned, and undoubtedly the managing director, who has commenced this action, would have the majority of votes at a general meeting, and, therefore, if it is right that effect should be given to the wishes of the majority of the company in the present case, it is admitted that no object is to be gained by calling a meeting because the result of that meeting is a foregone conclusion. Under these circumstances ought the Court to direct the removal of the writ ? The learned Judge answered the question posed by him, in the negative, and, while referring to the case of Automatic Self-Cleansing Filter Syndicate Co. v. Cunninghame expressed the view that the decision in that case was not inconsistent with any of the decisions that had preceded it, though some of the observations made by the learned Judge in that case extended beyond any of the decisions in the previous cases and appeared to be inconsistent with the law as it stood at the time when that case was decided. 12. The correct position seems to us to be that ordinarily the directors of a company are the only persons who can conduct litigation in the name of the company, but when they are themselves the wrongdoers against the company and have acted male fide or beyond their powers, and their personal interest is in conflict with their duty in such a way that they cannot or will not take steps to seek redress for the wrong done to the company, the majority of the share-holders must in such a case be entitled to take steps to redress the wrong. There is no provision in the Articles of Association to meet the contingency, and, therefore, the rule which has been laid down in a long line of cases that in such circumstances the majority of the share-holders can sue in the name of the company must apply. In MacDougall v. Gardiner and Pender v. Lushington, specific reference was made to the fact that the directors, being the custodians of the seal of the company, were the persons who should normally sue in the name of the company, but nevertheless it was held that the majority of the share-holders were entitled to sue in the name of the company when relief was sought against the directors themselves. Even in Automatic Self-Cleansing Filter Syndicate Company, Ltd. v. Cunninghame, it was recognised that misconduct on the part of the directors provided an exception to the rule laid down in that case.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]It may be stated here that though no meeting of the ordinary share-holders was held for the purpose of authorizing the Plaintiffs to file the present suit on behalf of the Company, it was conceded by for the Defendants before Edgley, J., that it would be unnecessary that such a meeting should be held in order to ascertain the wishes of the majority of the share-holders inasmuch as the Plaintiffs commanded a majority of the votes of the ordinary share-holders. The case has, therefore, proceeded in both the Courts below on the footing that at a meeting of the ordinary share-holders, the Plaintiffs would be able by a majority to assure the passage of a resolution empowering them to continue the suit. The case has also proceeded on the footing that whatever the ultimate decision in regard to the Plaintiffs allegations might be, for the purpose of deciding the preliminary issue, it must be assumed that the acts complained of by the Plaintiffs, namely, the removal of Plaintiff No. 1 from the board of directors and the appointment of Sir David Ezra, were due to the fraudulent conduct of the Defendants, were illegal and were detrimental to the interests of the company.It seems to be well-settled now that in order to redress a wrong done to a company or to recover monies or damages alleged to be due to the company, the action should prima facie be brought by the company itself. [See Fose v. Harbottle, Mozley v. Alston and MacDougall v. Gardiner].9. These cases make it quite clear that ordinarily the company would be a proper Plaintiff in a case like the present11. The effect of these cases is summarized by Buckley in his book on Companies (11th Edition, p. 723) in these words :-12. The correct position seems to us to be that ordinarily the directors of a company are the only persons who can conduct litigation in the name of the company, but when they are themselves the wrongdoers against the company and have acted male fide or beyond their powers, and their personal interest is in conflict with their duty in such a way that they cannot or will not take steps to seek redress for the wrong done to the company, the majority of the share-holders must in such a case be entitled to take steps to redress the wrong. There is no provision in the Articles of Association to meet the contingency, and, therefore, the rule which has been laid down in a long line of cases that in such circumstances the majority of the share-holders can sue in the name of the company must apply. In MacDougall v. Gardiner and Pender v. Lushington, specific reference was made to the fact that the directors, being the custodians of the seal of the company, were the persons who should normally sue in the name of the company, but nevertheless it was held that the majority of the share-holders were entitled to sue in the name of the company when relief was sought against the directors themselves. Even in Automatic Self-Cleansing Filter Syndicate Company, Ltd. v. Cunninghame, it was recognised that misconduct on the part of the directors provided an exception to the rule laid down in that case