Case: Ram Autar Jalan Vs. Coal Products P. Limited

2. The short facts leading up to Civil Appeal No. 1412 of 1968 may be stated. They was incorporated in or about August 25, 1945, under the Indian Companies Act, 1913. The registered office of the company is at Victory Colliery in West Bengal. The authorised capital of the company is Rs. 20, 00, 000 divided into 2, 00, 000 ordinary shares of Rs. 10 each, of which Rs. 15, 10, 000 is stated to have been been fully paid and subscribed. The company owned four colleries, compendiously known as Victory Colleries. About September 2, 1945, Kishorilal was appointed managing agent but from about December, 26, 1950, the company ceased to appoint managing agents. Thereafter Kishorilal was appointed the managing director of the company. On or about March 1, 1952, Jagan Mohan Goenka, brother of the Kishorilal ceased to be a director and also a shareholder as he had transferred his shares. When Jagan Mohan Goenka ceased to a direction, his wife, Bhagawati Debi, became a director. In or about 1952 the management of the colleries was divided between two groups which for the sake of convenience may de called the G.L.Group and the M.L.group. Since about October, 1953, the Jagan Mohan Group has been in the management of the M.J.Group. We have already mentioned that Bhagawati Debi is the wife of Jagan Mohan Goenka. Kishorilals wife is Parameshwari Debi and their two sons are shir Rattan Goenka and Nav Rattan Goenka. On June 20, 1966, Hari Shankar Goenka filed an application for winding up of the company and an interlocutory order was made by Mitra J. on JUne 27, 1966The learned judge had directed by that order that"the account in the Bank of India shall be operated by Kishorilal Goenka and Nav Rattam Goenka as it is being done now the account in the United Commercial Bank Ltd. shall be operated by Ram Autar Jalan in the same manner as it is now being done."Ram Autar Rattam, mentioned in this order, it may be stated, is the appellant before us. The respondent, on coming to know that the appellant was acting as a director of the company, asked for information, on or about June 28, 1966, from the United Commercial Bank as to company. The bank, by its letter dated September 12, 1966, ultimately furnished to the respondent a copy of an extract of the resolution of the company dated August 31, 1964, which had been furnished to them and on the basis of which Ram Autar Jalan was operating the bank accounts3. The respondent herein instituted on the original side of the High Court of Calcutta, on September 12, 1966, Suit No. 1871 of 1966. The defendant to the action is Ram Autar Jalan, the appellant before us. The, its authorised capital etc, referred to certified copies of the returns filed by the company with the names of the shareholders and the names and particulars of the directors of the company will appear. According to the plaintiff, since the last return filed by it before the Registrar of Joint Stock Companies, there as been no change in the Board of Directors which comprised of Kishorilal Goenka, Parmeshwari Debi Goenka, Nav rattam Goenka, Bhagawati Debi and Sunil Kumar Ganguli. The plaintiff further stated that the defendant, Ram Autur Jalan, was wrongfully claiming to be a director of the company and was professing to act as such since August 31, 1964. The plaintiff further averred that the defendant was neither appointed as a director in any meeting of the company, nord as a director of the company and the claim of the defendant came to be known by the plaintiff only in or about, 1966. It was further stated by the plaintiff that article 104 of the articles of association of the company deals with the qualifications of a director. It is the plaintiffs case that the defendant did not hold, on August 31, 1964, any shares of the company, nor has the defendant obtained any shares till the date of the suit. Therefore, it was averred that even if the defendant had been appointed as a director on August 31, 1964, as claimed by him inasmuch as he had not acquired the qualification shares within two months, the defendant should be treated as having vacated the office of a director. The plaintiff further alleged that the defendant had been wrongfully and without any authority purporting to act as the director of the company and had been wrongfully dealing with the funds and interfering with the management of the plaintiff by opening bank accounts in the name of the company and operating the same, which acts, according to the plaintiff, were detrimental and prejudicial to the interests of the plaintiff. The plaintiff ultimately sought in suit reliefs by way of perpetual injunction against the defendant restraining him from acting as director and from operating bank accounts or dealing with the funds of the company or using the seal or otherwise interfering with the management of then the same day, the plaintiff filed an application in the suit asking for an injunction restraining the appellant from, in any manner, operating the current account in the name of Coal Products Private Ltd. in the United Commercial Bank Ltd. Burrabazaar Branch, Calcutta and also for an injunction restraining him from acting as a director and dealing with the funds of, or using the seal or otherwise interfering in the management of the company, till the disposal of the suit and also for other reliefs. It may be stated here that the plaintiff was the company, Coal Products (P) Ltd. and the plaint was verified by Basudev Jhajharia, the manager and as such the principal officer of the company4. The defendant opposed the application for injunction on various grounds by hist dated July 19, 1966. The grounds of opposition were as follows : Basudev Jhajharia is not the manager nor the principal officer of the company and, as such he is not entitled to institute the suit. Only directors have power under article 131(9) of the articles of the association to institute legal proceedings on behalf of the company and the directors have no power to delegate their authority. The directors of the company are Kishorilal Goenka Parameshwari Debi Goenka, Bhagawati Debi Goenka and Ram Autur Jalan (defendant). The defendant held 1, 000 shares at the material time. In or about 1963, Kishorilal Goenka arbitrarily divided the colleries of the company into two groups viz, the G.L.Group and the M.J.Group. The management of the M.J.Group was directly controlled by Kishorilal and the G.L.Group was being controlled by the defendant under the instructions of Kishorilal. Kishorilal Goenka, in order to facilitate the grouping of the colleries, suggested that the defendant should be a director of the company and that 1, 000 shares out of the shares held by the defendants sister, Bhagawati Debi, were to be transferred in the name of the defendant. Accordingly, 1, 000 fully paid up shares of Rs. 10 each, bearing numbers 48001 to 49000 covered by Certificate No. 5 were transferred by Bhagawati Debi to the defendant on October 30, 1963. At the board meeting held on August 31, 1964, Bhagawati Debi transferred the said shares in the name of the defendant by a deed of transfer dated October 30, 1963. Certificate No. 5, together with the deed of transfer duly executed in favour of the defendant by Bhagawati Debi and signed by him were lodged by the defendant with the plaintiff company for necessary transfer being effected in his name. Kishorilal Goenka, the managing director, informed the defendant that the transfer of the shares his name had been effected in the books of the company and that the share certificate would be forwarded in due course ; but the defendant had not received from the company the said certificate in spite of the promise made by the managing director. The defendant has been and continues to be a shareholder of the company, holding 1, 000 fully paid up shares since October 30, 1963. Prior to August 31, 1964, one Sunil Kumar Ganguli was a director of the company holding 500 equity shares of Rs. 10 each. Sunil Kumar Ganguli, to the knowledge of Kishorilal. transferred by a deed dated August 31, 1964, his shares in favour of Bhagawati Debi Goenka and upon such transfer he ceased to be a member and, consequently, a director of the company. At the meeting of the board held on August 31, 1964, the defendant was appointed a director in place of the said Sunil Kumar Ganguli and since that date he has been a director and acting as such to the knowledge of Kishorilal. On August 31, 1964, another resolution was passed authorising the opening of the current account in the United Commercial Bank Ltd. empowering the defendant and Bhagawati Debi to operate the said account, singly and severally. On September 2, 1964, the Chief Inspector of Mines, Dhanbad, was informed about the defendant having been appointed as a director in the place of Sunil Kumar Ganguli on August 31, 1964. The nominated owner, under section 76 of the Mines Act for G.L.Group was also intimated to be the defendant. On September 12, 1964, the Registrar of Joint Stock Companies, West Bengal, was intimated about the appointment of the defendant as director on August 31, 1964. The United Commercial Bank Ltd. was furnished on September 28, 1964, with a certified copy of the resolution dated August 31, 1964, appointing the defendant as a director of the company and also authorising the opening of an account in the said bank in the name of the company and further authorosing the defendant and Bhagawati Debi directors of the company to operate the said account, singly and severally. On September 29, 1964, a lease deed was executed by the defendant as director on behalf of the company in favour of the Coal Mines Labour Housing Board. A further communication was sent on December, 19, 1964, by the defendant, as a directors of the company, of the Chief Inspector of Mines in respect of which certain information was asked from the M.J.Group colliery, which was under the control of Kishorilal. The sending of the said communication, by the Chief Inspector of Mines, to the M.J.Group colliety with knowledge of the defendant functioning as a director of the company. The defendant being a shareholder and a lawfully elected director of the company, cannot be restrained by any injunction, as asked for by the plaintiffFrom the stand taken by the defendant it is clear that he (i) claims to have 1, 000 shares transferred by Bhagawati Debi in his favour by a transfer deed on October 30, 1963, that the lodged and the same with the company for effecting the necessary changes in its registrars ; (ii) that Sunil Kumar Ganguli, whomwas a shareholder and director till August 31, 1964, transferred on that date his entire holding of 500 shares in favour of the defendants sister, Bhagawati Debi, as such S.K.Ganguli ceased to be a director. (iii) that at the Board meeting held on August 31, 1964, the defendant was appointed as director in the place of Ganguli and (iv) that the various communications referred to by him will establish that he has been acting as a director from August 31, 19645. From the facts stated above it is evident that the question they arose for consideration before the learned trial judge was whether the plaintiff, to entitle it to get an order of interim injunction, has prima facie established that the defendant did not have the necessary share qualification on August 31, 1964, to make him eligible for directorship and that the defendant, in law, had no right to function as a director. A consideration of this question will also involve the subsidiary aspect, namely, whether Sunil Kumar Ganguli ceased to be a director on August 31, 1964, because it is the claim of the defendant that it was in the place of Sunil Kumar Ganguli that he was elected as a director7. On September 10, 1966, the appellant before us instituted in the City Civil Court, Calcutta Title Suit No. 573 of 1966 for an injunction restraining the company and its directors, including Kishorilal, from conducting the board meeting scheduled to take place on September 12, 1966. His claim was that he was a director of the company no notice had been given of the board meeting for September 12, 1966, and he came to know about the meeting from his sister, Bhagawati Debi, who received a notice on September 9, 1966. The fourth suit is the present suit, filed by the company on September 12, 1966. On November 21, 1966, the present appellant instituted Suit No. 2304 of 1966 in the Calcutta High Court against the company Kishorilal and Bhagawati Debi for a declaration that he is the holder of a thousand ordinary (equity) shares of the company, represented by Certificate No. 5 relating to share numbers 48001 to 49000 and that he is a director of the company since August 31, 1964. In the suit he further asked for rectification of the share registrar of the company by including his name as a shareholder of the company. He further claims an injunction restraining the company and Kishorilal from interfering with his right to act as a director and shareholder of the company and also asks for damages8. Another suit has also been brought to our notice, and that is suit No. 2103 of 1968 filed by the Bhagawati Debi in the High Court, against the company and its directors. She also appears to have obtained some interim order on August 14, 1968In support of their claim for injunction, the plaintiff produced before the learned trial judge the registrars of the company to establish that the defendant was not a shareholder and that he has never been appointed a director. They also produced materials to show that Sunil Kumar Ganguli who, according to the defendant, had ceased to be a director with effect from August 31, 1964, continued to be a director of the company., T e minutes of t e board meeting dated October 30, 1963 produced by the plaintiff showed that the said meeting was attended by Kishorilal Goenka, Bhagawati Debi and Parameshwari Debi. At that meeting the place of one Hari shankar Mahesheka, the boardd Sunil Kumar Ganguli as a director of the company and he was authorised to operate the bank accounts with the Bank of India Ltd. at the board meeting on August 31, 1964, the directors who were present were Kishorilal Goenka, Bhagawati Debi, Parameshwari Debi and Sunil Kumar Ganguli. The board, by resolution of that date, authorised the opening of a bank account with the United Commercial Bank Ltd Burrahbazar Branch, Calcutta and authorised Bhagawati Debi, director to operate the account singly. The plaintiff also produced copy of the letter addressed by it on June 28, 1966 to the United Commercial Bank asking for information as to how a bank account was opened in the name of the company and how it was being operated by the defendant. Though the bank appears to have declined to give this information, later on, by its letter dated September 12, 1966, the bank furnished the plaintiff with a copy of the resolution which had been furnished to it at the time of opening of the account. That copy of the resolution appears to have been certified by the dependent. It is on the basis of all materials that thee plaintiff urged that the defendant is not a shareholder, that he has been appointed a director and that he has no right to act as suchThe learned trial judge was not prepared at this stage, to accept the contention of the defendant regarding the competency of the suit, as that question will have to be decided that at the trial. In this connection, the learned judge adverted to the fact that no application had been filed by the defendant to strike out the suit on the ground that the suit, as instituted, was not competent. Regarding the contention of the plaintiff that the defendant had not acquired and did not possess the necessary share qualification the learned judge disposed of it by stating that it was a question of fact. The learned judge referred to all the allegations made by the defendant charging Kishorilal with various fraudement acts, including tampering with the books of the company. While accepting fact that the register of shareholders of the company, produced by the plaintiff, is undoubtedly prima facie evidence of matters directed or authorised to be stated therein under section 164 of the companies Act, the learned judge stated that he did not consider it proper to rely entirely on that prima facie evidence in this case and to act on the same. The learned judge then proceeded to consider the de facto claim made by the defendant of having acted as a director from 1964 and held that it was very improbable that Kishorilal would not have known about this till 1966, as claimed by him9. The learned judge then refers to the order of Mitra J. Passed on June 27, 1966, in the company petition, authorising the defendant to operate the account in the United Commercial Bank and takes the view that if an order is passed restraining the defedant from functioning as a director, such an order will come into inflict with the order Mitra J dated June 27, 1966. The learned judge further proceeds to state that as the defendant has been functioning as a director from August 31, 1964, the balance of convenience is for permitting him to continue as suchThe learned judges, so far as we can see, has neither adverted to nor considered the question as to whether the plaintiff has prima facie established that in law the defendant was not entitled to function as a director for the reason stated by them. It is more or less on the reasoning set out above that the learned trial judge dismissed the application filed by the plaintiff10. On appeal, the Division Bench has not agreed with the decision of the learned trial judge. The learned judge refer to the order of Mitra J dated June 27, 1966, and advert to the fact that because of this order the plaintiff has confined the relief of injunction only to restraining the defendant from acting as a director. The learned judges consider the claim made by the defendant about his having become a shareholder and appointed as a director and also the case of the plaintiff that such a claim cannot be recognised in view of the articles of association and the registrars of the company produced by it11. The learned judges are of the view that as the plaintiff has impeached the appointment and authority of the defendant, the plaintiff will have to make out prima facie that those allegations are justified, so as to entitled them to get an order of injunction. The learned judges, after a fairly elaborate consideration of the relevant articles of association and the provision of the companies Act, and the documents produced by the company are satisfied that the plaintiff has made out a case that the defendant is not a shareholder of the company and that he has not been appointed as director. In support of this conclusion the learned judges rely upon the minutes, dated August 31, 1964, produced by the company wherein there is no resolution appointing the defendant as a director. The learned judges also accept the case of the plaintiff that Ganguli continued to be a director of the company even as late as June 30, 1965. For this purpose the learned judges rely on the returns filed by the plaintiff before the registrar of Joint Stock Companies On June 4, 1966, regarding the appointment of Nav Rattan Goenka as a director on December 28, 1965, and this return was signed by Sunil Kumar Ganguli, as a director. Therefore, the learned judges reject the claim of the defendant that Sunil Kumar Ganguli ceased to be a director with effect from August 31, 1964, and that he has been appointed as director in the place of Sunil Kumar Ganguli. The learned judges are also of the view that there is no delay in the institution of the suit as the plaintiff knew about the defendant claiming rights as a director only as per the letter dated September 12, 1966, the United Commercial BankThe letter dated December 19, 1964, to the Chief , Inspector of Mines sent by the defendant and which according with him, had been sent to Kishorilal Goenka has been adverted to by the learned judges and they are of the view that the copy of the letter sent by the Chief Inspector to Kishorilal does not refer to the defendant as a director of the company. The learned judge also refer to the fact that Bhagawati Debi has not filed any supporting affidavit to establish about the resolution of August 31, 1964, regarding the appointment of the defendant as a director. They also refer to the fact that the defendant himself has not given any particulars as to how exactly he lodged the transfer deed stated to have been executed in the favour by Bhagawati Debi in October, 1963. The learned judges are also of he view that if the defendant had really got a transfer of shares, as have the necessary changes effected in the books of the company and he would not have waited, as he has done till November, 1966, for obtaining relief for rectification of the share register. Having due regard to order of Mitra J. dated June 27, 1966, the learned judges have granted an order of interim injunction in terms of prayer (g) with the modification that the defendant will be at liberty to operate the banking accounts in terms of the order dated June 27, 1966. The learned judges have also made it clear that the order of injunction will not prevent the defendant from acting as agent or authorised of Bhagawati Debi if she wants to appoint the defendant as agent pr authorised attorney on her behalf. That is, the defendant has been restrained from functioning as a director of the company

Court's reasoning:
13. We are not inclined to accept the contentions of Mr. Sarjoo Prasad, The learned trial judge has not directly considered the question, having the regard to the share registers and documents produced by the company. Whether the plaintiff cannot be considered to have prima facie established that the defendant is not a shareholder of the company and that he was not been validity appointed as a director of the company. When the whole question was whether the defendant was in law entitled to function as a director, the learned trial judge, instead of considering this important aspect, has given more weight to the fact that the defendant has been de facto functioning as a director. We are not able to appreciate the reasoning of the learned trial judge. The learned trial judge has been very much influenced by the order of Mitra J. dated June 27, 1966, and according to the learned judge, this order practically recognised the defendant as a director. A close reading of the entire proceedings before the company court, which have been placed before us, will show that the order of Mitra J. has been passed without prejudice to the rights of the parties. In fact even the plaintiff restricted the relief for injunction under clause (g) to the defendant being not allowed to act as a director because of the fact that he has been allowed to operate the bank account under the orders dated June 27, 1966. When once from the records produced by the company it is evident prima facie at this stage that the defendant is not shown as a shareholder and that he has not been appointed a director, as claimed by him, and that Sunil Kumar Ganguli did not cease to be a director from August 31, 1964, in our opinion, the appellate court was perfectly justified in granting the injunction restraining the defendant from functioning as a director. The appellate court was also perfectly justified in drawing an adverse inference against the defendant about his having become a shareholder, having due regard to the fact that he had instituted a suit for rectification of the share register only as late as November 21, 1966, though he claimed to have obtained a transfer of shares as early as October 30, 1963. His Plea that he delivered the transfer deed to Kishorilal Goenka and that the latter assured him that the necessary changes had been effected in the registers of the company, are all matters to be investigated in the trial of the suitWe are in entire agreement with the conclusions arrived at, at this stage, by the appellate bench as we are satisfied that a correct approach has been made by it for considering the matters arising at the interlocutory stage of the proceedings.