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

facts of the case, in so far as they bear on the point to be decided in the appeal, are briefly these2. The Lothian Jute Mills Co., Ltd. (which will hereinafter be referred to as the company) is a joint stock company of which Messrs. Andrew Yule & Co. are the managing agents. In October, 1944, the directors of the company were Mr. Cumberbatch, Sir David Ezra, Dr. Satya Charan Law and Mr. Champalal Jatia. At a general meeting of the company held on the 9th March, 1945, Mr. Rameshwar Prosad Bajoria, the 1st Plaintiff, was elected a director of the company, and Sir David Ezra, who had retired by rotation and offered himself for re-election, was not elected. On the 28th December, 1945, Dr. Satya Charan law, Mr. Cumberbatch and Mr. Champalal Jatia requested Mr. Bajoria in writing, in terms of Art. 116 (k) of the Articles of Association of the company, to resign his directorship of the company and appointed Sir David Ezra in his place.3. The suit, which has given rise to this appeal, was instituted on the 14th January, 1946, by Mr. Bajoria and three others, against the four directors of the company, including Sir David Ezra (who has since died), and, in this suit, the company was also made a co-Plaintiff. The substance of the allegations made in the plaint was that the three directors, Dr. Satya Charan law, Mr. Cumberbatch and Mr. Jathia, has acted wrongfully, illegally and mala fide, in asking Plaintiff No. 1, Mr. Bajoria, to resign, that they had exercised their power under Art. 116 (k) of the Articles of Association not in the interest of or for the benefit of the company and its share-holders but for their own ends, that their act was a mere contrivance for excluding the majority of the share-holders from having an effective control or voice in the management of the company, that Sir David Ezra, who was appointed in place of Plaintiff No. 1, did not enjoy the confidence of the majority of the share-holders and his appointment was made with the object or representative of one group of share-holders who were acting in the interests of the managing agents whose aim was to perpetuate their control of the affairs of the company to the detriment of the company and its share-holders, and the exclusion or removal of Plaintiff No. 1 from his office as a director was a wrong done to him and also to the company. On the basis of these allegations, the Plaintiffs asked for a declaration that Plaintiff No. 1 was still a director of the company, that the act of the Defendants purporting to remove Mr. Bajoria from the office of director was void and inoperative, and that the appointment of Defendant No. 4, Sir David Ezra, as a director of the Company was illegal and should be cancelled. The Plaintiffs further asked for an injunction restraining the Defendants from preventing Plaintiff No. 1 from acting as a director of the company and restraining Defendant No. 4 from acting as a director in the place of Plaintiff No. 1.On the 2nd February, 1946, the Defendants put in a written statement, denying the allegations made by the Plaintiffs and stating among other things that the company had been wrongfully impleaded as Plaintiff and its name should be struck out from the plaint. Later on, a number of issues were framed in the suit, the first issue being in these terms : Has the company been properly impleaded as Plaintiff ? This issue was set down by Edgley, J., before whom the case ultimately came for hearing on the Original Side, as a preliminary issue, and the learned Judge, after hearing the parties, answered it in favour of the Defendants and directed the name of the company to be struck off from the plaint. The learned Judge, however, observed that it was open to the Plaintiffs to make the company a Defendant. The decision of Edgley, J., was subsequently reversed on appeal by a Division Bench of the High Court, which held that the suit had been properly filed and the company had been correctly made a co-Plaintiff in the suit.

Court's reasoning:
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