Jyotirmoy Dey vs Dacca Picture Palace Ltd.

A.N. Ray, J.—This is an application for an injunction restraining the Defendant No. 2, Sheikh Naseem Anwar, from acting as Director of the Defendant company Dacca Picture Palace Ltd. and/ or from usurping the functions of a Director of the Defendant company and/or from in any way participating in and/or interfering with the management and affairs of the Defendant company until the disposal of the suit. The other orders for injunction relate to restraining the Defendants from acting upon the resolution dated December 28, 1961, and from acting upon Power of Attorney dated January 13, 1962, and an injunction restraining the Defendant No. 2 from operating the banking account of the company.

The suit was instituted on June 29, 1962. The suit was instituted by the Plaintiffs in their individual capacity as also for and on behalf of other share-holders of the Defendant No. 1 except the Defendant No. 2, an alleged share-holder of the Defendant No. 1. The Plaintiffs ask for a declaration that the Defendant No. 2 is not a share-holder of the Defendant company and for rectification of the share register and for a declaration that the Defendant No. 2 is not a Director of the Defendant company and for an injunction restraining the Defendant No. 2 from acting as a Director and for a declaration that the resolution dated December 28,1961, is void and for a further declaration that the Power of Attorney dated January 13, 1962, is null and void and for consequential relief�s founded thereon.

At the outset it should be stated that though the suit is instituted for self and on behalf of other share-holders no leave under Order 1, Rule 8 has been obtained though it is claimed in the plaint. Such leave is a judicial act. It is imperative that leave should be obtained. The provisions of Order 1, Rule 8 further require service of notice under Order 1, Rule 8. There is no such service under Order 1, Rule 8. Such service is equally imperative.

The Petitioners challenge the appointment of the Defendant No. 2 as a Director principally on the ground that the Defendant No. 2 did not acquire shares within time and further that the acquisition of shares by the Defendant is an infraction of the Foreign Exchange Regulation Act. In the second place, the Petitioners allege that the resolution dated December 28, 1961, purports to appoint the Defendant No. 2 as a Managing Director or a Manager and there is no sanction by the Central Government in that behalf and, therefore, the appointment is ineffective. On these two broad grounds the Petitioners ask for an injunction.

As to the first contention that the acquisition of shares by the Defendant No. 2 is in violation of the Foreign Exchange Regulation Act, it now appears on the affidavit evidence that there is a Reserve Bank sanction to the acquisition of shares. Counsel on behalf of the Petitioners contended that there could not be such retrospective sanction. The relative provisions of the Foreign Exchange Regulation Act are to be found in Section 13(l)(d) and Section 13(4)(a). u/s 13(l)(d).--

No person shall, except with the general or special permission of the Reserve Bank issue, whether in the States or elsewhere, any security which is registered or to be registered in the States, to a person resident outside India.

Section 13(4)(a) enacts that no person shall, except with the general or special permission of the Reserve Bank enter any transfer of securities in any register or book in which securities are registered or inscribed if he has any ground for suspecting that the transfer involves any contravention of the provisions of this section. All that the statute contemplates is permission. Counsel for the Respondents rightly contends that the word ''permission'' is not prefaced by the word ''prior'' and, therefore, such permission can be given retrospectively. I am, therefore, of opinion that there is no substance in the first contention.

The second contention, on behalf of the Petitioners, was founded on the definition of Manager or Managing Director as found in Section 2, Sub-sections (24) and (26) of the Companies Act and Sections 269 and 388 of the Companies Act which require sanction of the Central Government in relation to appointment of Directors and Managers respectively. The Petitioner''s case is founded on the resolution dated December 28,1961, and it is submitted that the Defendant No. 2 has been appointed as a Manager or a Managing Director. The definitions of Manager and Managing Director are set out hereunder:

2(24) ''Manager'' means an individual (not being the managing agent) who, subject to the superintendence, control and direction of the Board of Directors, has the management of the whole, or substantially the whole, of the affairs of a company, and includes a director or any other person occupying the position of a manager, by whatever name called, and whether under a contract of service or not;

2(26) ''Managing director'' means a director who, by virtue of an agreement with the company or of a resolution passed by the company in general meeting or by its Board of Directors or, by virtue of its memorandum or articles of association, is entrusted with substantial powers of management which would not otherwise be exercisable by him, and includes a director occupying the position of a managing director, by whatever name called:

Counsel on behalf of the Respondent, in my view, rightly emphasized on the words ''management of the whole, or substantially the whole, of the affairs of a company'' in relation to the definition of manager and on the words: ''entrusted with substantial power of management'' in the definition of Managing Director and contended that the resolution of December 28,1961, does not confer on the Defendant No. 2 the management of the whole or substantially the whole of the affairs of the company or substantial powers of management. The resolution is set out in an annexure to the petition. It will appear that the resolution states that--

Nasim Anwar Director-in-charge of the company''s affairs in Pakistan be and is hereby authorised to operate all the Banking Accounts of the Dacca Picture Palace Ltd. and the said Banks be and are hereby authorised to honour cheques, bills of exchange and promissory notes drawn, accepted or made on behalf of Dacca Picture Palace Ltd. by the said Director namely Mr. S. Nasim Anwar and to act on any instruction so given by the aforesaid Director relating to the accounts at the aforesaid Banks, whether the same be overdrawn or not or relating to the transactions of the company.

Prima facie this resolution does not confer on the Defendant No. 2 the powers of the Manager or of Managing Director. The language in which it is couched is in my opinion an authority enabling the Defendant No. 2 to operate on the banking accounts and honouring cheques, bill of exchange and promissory notes.

An argument was founded that a Power of Attorney was conferred on the Defendant No. 2 and it had the effect of making the Defendant No. 2 a Manager or a Managing Director. I am unable to accept that contention. The Power of Attorney is set out in the annexure to the affidavit affirmed by Sheikh Fazlul Ellahi on August 6, 1962. This is a general Power of Attorney. It follows the usual language. An argument was found on behalf of" the Petitioner that the Power authorised Sheikh Nasim Anwar to charge the properties, whole or any portion of the aforesaid properties for limited or unlimited period and that such a Power was first in excess of Powers of the Board and therefore bad, and secondly the Power was an infringement of the provisions contained in Section 293(l)(d) of the Companies Act. The substantial character of the Power is to appear on behalf of the company and to do certain acts in connection with the company''s properties and to appear in Courts of Pakistan and to open accounts and to receive moneys. It is contended that if there be anything in excess the blue pencil test should apply. There can be severance and that which is good is upheld. I do not express any view as to whether there is an excess of power in the Power of Attorney.

Counsel on behalf of the Respondent contended that there was no agreement in the present case and the resolution of the Board dated December 28, 1961, and the Power of Attorney were justified by counsel for the Respondent relying on the Articles of the company, namely, Articles 88 and 90. Article 90 confers power on the Board to open and to maintain branches and/or to establish Local Boards and from time to time to provide with the management of the affairs of the company in different parts of India, Burma, Ceylon, Pakistan and to appoint person or persons to be the Attorneys of the company with such powers including power to sub-delegate and upon such terms as may be thought fit. Article 88 in the present case confers power to delegate by resolution powers or duties upon the Directors and such Directors would exercise those powers subject to the absolute control, supervision and direction of the Board. Reference was made by counsel for the Respondent to the decision in the case of Gibson v. Barton L.R. (1875) 10 Q.B. Cases 329 (336) in support of the proposition that the words ''manager or director'' should not have a loose meaning attached to it when the statute has a definition for these words. In the present case, as I have indicated, I am unable to hold that the Defendant No. 2 has been appointed a Manager or a Managing Director either by resolution or by Power of Attorney.

Counsel for the Respondent contended that the Petitioner was guilty of delay and, secondly, that the petition was defective inasmuch as certain paragraphs of the petition were verified as submissions and submissions are not allegations of facts and, thirdly, that the suit as framed was incompetent. As to delay there is not any explanation. On the contrary, it appears that disputes started in Pakistan and there is an attempt to wrest power by certain sections there. On behalf of the Respondent it is contended that this suit is bolstered by dissidents. There may be some substance in it. The second contention as to verification of the petition is justified and it appears that in para. 18 of the petition it is stated that the Petitioner came to know about the wrongful and illegal acts of the Defendant No. 2 from Puspabilas Dey. In the verification it is stated that the statements contained in para. 18 are based on information received from Sri Puspa Pal. It is needless to say that the verification is irresponsible and such statements cannot be relied upon.

As to the frame of the suit, counsel on behalf of the Petitioner contended that an individual share-holder can maintain an action in respect of wrongs which are ultra vires the company. The distinction between individual and corporate rights has. to be appreciated in order to test the proper constitution of a suit. This question came up for consideration in the decision in Jhajharia Brothers Ltd. v. Sholapur Spinning and Weaving Co. Ltd. ILR (1941) Cat 30. Ameer Ali J. said:

There can of course be suits by share holders against the company for individual wrong done to them. Apart from individual wrong there may be suits to restrain acts of ultra vires.... The Court interferes in cases of acts of ultra vires because it is not an act within the Constitution... If the wrongdoer has the balance of power and therefore the company does not take action, there are two courses open. The minority may take the risk and boldly use the company''s name. The other course, and what has been thought to be the better course, where the wrongful act is supported by the majority, is for the minority share-holders to sue in their own name or, as a matter of convenience, for a share-holder to sue on behalf of himself and all the other share-holders. If, however, as generally happens and must happen logically, the wrongdoers are also share-holders, these share-holders as a matter of course must be excluded from the category of the Plaintiffs; hence the phrase ''except those who are Defendants''. It is manifest that the present suit suffers from defect as pointed out by Ameer Ali J. in Jhajharia Brothers Ltd.''s case (Supra).

Counsel on behalf of the Respondent contended that if the Petitioner''s case was that the wrongdoers were the Directors, the suit was bad by non-joinder of the wrongdoers. If the Directors are themselves wrongdoers it is proper to add them as Defendants: See Ferguson v. Wilson (1866) 2 Ch. App. 77 (90). Considering all the facts and circumstances in the present case, I am of opinion that the Petitioners are not entitled to succeed on this application. This application is, therefore, dismissed with costs.