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Judgment
I.P. Mukerjee, J.—Two suits were filed in this court. One was by Sreejaya Bhattacharjee Godfrey and Saunam alias Rishi Bhattacharjee against MKB (Asia) (P.) Ltd., Autri Bhattacharjee, Priyanka Bhattacharjee and Sumon Majumder. It was numbered as CS No. 25 of 2013. An interim application was taken out in aid thereof, GA No. 301 of 2013. The second suit was by the same plaintiffs. It was against Shreejaya Tea & Industries (P.) Ltd., Autri Bhattacharjee, Priyanka Bhattacharjee and Sumon Majumder. It was numbered as CS No. 26 of 2013. An interim application was taken out in aid of this suit, GA No. 300 of 2013. Both the interim applications can be disposed of by this common judgment. This is because the non-corporate parties are the same. Although, one suit concerns MKB (Asia) (P.) Ltd. and the other Shreejaya Tea & Industries (P.) Ltd., this does not make a difference because both the companies are controlled by the same family. The disputes are the same.
Sreejaya Bhattacharjee Godfrey, Saunam alias Rishi Bhattacharjee, Autri Bhattacharjee, are siblings, Sreejaya being the sister. Priyanka Bhattacharjee is the wife of Autri Bhattacharjee, Sumon Majumder is an outsider. The father of these siblings was Mridul Bhattacharjee. Both these companies were controlled by him. Shares were held by him, the siblings along with their mother Reeta Bhattacharjee.
Both these tea companies have their controlling office at Gillander House, 8, Netaji Subhash Road, Kolkata-700 001. It appears that the paid-up capital of MKB (Asia) (P.) Ltd. is Rs. 45,70,000 divided into equity shares of Rs. 100 each. They were held in the following manner:
On 26th December, 2012 a very unfortunate thing happened. Mridul Kumar Bhattacharjee and Rita Bhattacharjee were brutally murdered at the Konapathar tea estate belonging to Shreejaya Tea & Industries (P.) Ltd. Mridul and Reeta did not make a Will.
Now, it is more or less admitted that upon intestate devolution their children would hold the following shares:
The paid-up of capital of Shreejaya Tea & Industries (P.) Ltd. is Rs. 6,41,700 divided into 6,417 shares of Rs. 100 each. It was held by Mridul Bhattacharjee and his family in the following manner:
After the death of their parents the shares in this company devolved on the children in the following manner:
Sreejaya Bhattacharjee Godfrey, had emigrated to the United States in 1998 and is a permanent resident of that country. His brother Saunam alias Rishi Bhattacharjee permanently migrated to Canada in 1996.
Submissions-Plaintiffs
It was, however, submitted on behalf of Sreejaya Bhattacharjee Godfrey and Saunam (Rishi) Bhattacharjee that after the demise of their parents they have decided to take control of and manage these two companies. The allegation against Autri Bhattacharjee by Sreejaya Bhattacharjee Godfrey and Saunam (Rishi) Bhattacharjee is that although the articles of association of these two companies provide for two to eleven directors, Autri is acting as the sole director, which is not permissible.
By clause 82 of the articles of association of the company (MKB) the quorum for a meeting of the Board of directors is two directors. Upon the death of their parents Mridul Kumar Bhattacharjee and Reeta Bhattacharjee, Autri Bhattacharjee was the only surviving member of the Board. Because of the above clause he could not function as a director of the company. Nevertheless he was exercising powers as somebody in absolute control of the company. He, purporting to act as the sole director appointed his wife Priyanka Bhattacharjee and an associate Sumon Majumder as additional directors.
I was shown a bank document being Annexure F at p. 80 of the petition (MKB (Asia) (P.) Ltd.) that an amount of Rs. 12,30,870.54 had been paid to Purshotam Tea Co. from the account of MKB (Asia) (P.) Ltd. Furthermore, I was shown an e-mail dated 17th January, 2013 sent by Autri Bhattacharjee to the workers holding himself to be in-charge of these companies.
According to Sreejaya Bhattacharjee Godfrey and Saunam (Rishi) Bhattacharjee Autri Bhattacharjee was never a director of Shreejaya Tea & Industries (P.) Ltd.
Furthermore, the allegation against the other brother is that he, in control of these two companies, would sell off their assets and flee to a foreign country.
Sreejaya Bhattacharjee Godfrey and Saunam (Rishi) Bhattacharjee have majority shareholding in both the companies. They are interested in residing in this country and running these companies.
Mr. S.N. Mookerji, learned senior advocate took me through the articles of association. He also submitted as follows.
In the definition clause, clause 2(iii), "Board of directors, directors or Board" means the directors of the company duly assembled at a meeting of the directors.
He submitted that the reference to ''directors'' and "Board of directors" signified that there was no intention in the articles that any individual could act as a director. Clause 7 empowered the directors to issue further shares on terms they though fit subject to its approval in a general meeting.
The articles visualised a family company. Clause 30 stipulated that shares may not be transferred by a member except at a fair value to a member and if that was not possible, then, transfer may be made to a close relative. On the death of a member his legal representative would be the sole representative.
Clause 72 provided that the number of directors shall not be less than two or more than eleven. Clause 74 permitted the Board of directors to take in a new director as an additional director but the number in the Board shall not to exceed eleven.
Therefore, a single person could not function as a director. A minimum of two directors had to constitute the Board. In case of more than two directors the quorum should be two. In case of a two-member Board both the members had to meet to constitute a meeting of the Board.
Therefore, Autri Bhattacharjee could not take any decision regarding the company. He could not represent to the employees that he was in control of the company. He could not withdraw any amount. He could not sell any asset of the company. He could not take in additional directors nor allot any shares to them. In other words, he could not run the company at all.
Defendant Nos. 2, 3, 4
On the other hand Mr. Ratnanko Banerjee, learned counsel appearing for Autri Bhattacharjee, Priyanka Bhattacharjee and Sumon Majumder cited clause 74 of the articles which is as follows:
The Board of directors shall have power at any time and from time-to-time, to appoint and remunerate any person as a director either to fill a casual vacancy or as an addition to the Board but so that the total number of directors shall not at any time exceed the maximum fixed as above. But any person so appointed shall hold office only until the next following annual general meeting of the company and shall then be eligible for re-election.
He submitted as follows:
On the death of his parents, Autri became the sole director. He had the power to function on behalf of the company as nobody else was there. He had been helping his parents to run the business for a long time as Sumon Bhattacharjee Godfrey had migrated to the United States in 1998 and Saunam Bhattacharjee (Rishi) had left for Canada in 1996. The company should not be left to them. He cited section 260 of the Act and contended that his wife Priyanka Bhattacharjee and an associate Sumon Majumder had been rightfully taken in as additional directors by him. He referred me to two decisions. One was of the Bombay High Court in the case of Shailesh Harilal Shan and Others, etc. Vs. Matushree Textiles Limited and Others etc., . The other was Macson Development Co. Ltd. v. Gordon 19 DLR (2d) 465.
My decision
The question of jurisdiction has to be decided first.
I need not decide the question of jurisdiction in CS No. 26 of 2013 because in that suit all the defendants have been pleaded to be within the jurisdiction of this court. It is a well known principle that the pleading regarding jurisdiction shall at this stage be taken as correct, subject to displacement at the time of trial.
As far as Suit No. 25 of 2013 is concerned, it is pleaded in paragraph 45 of the plaint that the cause of action as pleaded in paragraphs 3, 19, 28, 32, 33 and 42 of the plaint had arisen within the jurisdiction of this court. It is stated in paragraph 3 that although the registered office of the defendant company is in Assam, it has a branch office within the jurisdiction of this court. The activities of the company were being carried out at the branch office. The sale of tea was being made by the defendant-company through this branch office, as pleaded in paragraph 19. The bank accounts are within the jurisdiction as pleaded in paragraph 28. In paragraphs 32 and 33 it is pleaded that the defendants were taking decisions from this branch office. I think that the pleadings regarding jurisdiction are adequate, as at this stage the court goes by the pleadings. There is no scope now to investigate into the merits of the case. The pleadings have to be taken as correct.
My other prima facie findings are as follows:
The Companies Act makes it explicit that a private limited company has to have a minimum of two directors [section 252(2)] The quorum for a meeting of the directors of such a company cannot be less than two [section 287(2)]. Unless a contrary stipulation is there in the articles of association, the directors of a private limited company have to be appointed by the company in a general meeting [section 255(2)].
Now, the powers of the company, except those that are exercisable in a general meeting, are to be exercised by the Board of directors [section 291].
Therefore, to exercise the powers of the company, a Board of directors, of which the minimum number has to be two, is to act. It follows that a director, unless expressly authorised by the Board cannot act individually to represent the company.
In this case there could not be any Board, as Autri Bhattacharjee was the only surviving director. Autri Bhattacharjee could not function assuming the powers of the Board. Nothing was shown to me to suggest that Autri Bhattacharjee had been given powers by the Board of directors to act in a particular field or with regard to certain matters.
The decisions cited by Mr. Banerjee do not apply to these facts. The principle is that, if initially, the Board is validly constituted with at least the minimum number of directors, as required by the articles or by law, subsequently, in case of a shortfall, the remaining members may take additional directors to achieve the quorum. This is true if the above provision, which is contained in regulation 75 of Table A of Schedule I to the Act is adopted by the articles of association [See section 28(1)]. The articles of these two companies have not adopted this provision. Hence, one director could not exercise any power of the company.
In such a case where two members of the Board comprising of three directors have been killed, what was the course of action open to the surviving director? If there was no Board to call a general meeting, the Company Law Board could have been approached to call a general meeting u/s 167 or section 186.
Instead of so doing Autri Bhattacharjee started acting on his own. He appointed additional directors. In view of my analysis above the appointment of additional directors, who are the third and fourth defendants were plainly not in order.
I am not unmindful of the fact that both these companies are family companies where members of a particular family hold the entire shares or an overwhelming number of shares. Each sibling has more or less an equal stake, one a little less, one a little more. Two siblings are in a position to control the company, with the possibility of the third being left out. It needs no reiteration that such a closely held family company is considered like a family partnership. Like each and every member of the family is usually a partner in a family partnership, members of a family are allowed to participate in the affairs of the family company. Every effort should be made that every major interest in the family is represented on the Board.
I would like to read two paragraphs from Ramaiya''s Companies Act, 15th edn. at p. 3107 and 3109.
Where a shareholder-cum-director of a small private company who was also under service agreement as a production director was summarily dismissed by the company and thereafter excluded from participation in management, he was allowed to claim relief u/s 459 of the [English] 1985 Act and was held to be entitled to an order that his shares should be purchased. His legitimate expectation of participation in management as a director beyond the scope of his service agreement involved mutual confidence, the articles restricted the right of transfer of members'' interest in the company, these factors showed the elements of a quasi-partnership, though he knew that he would be a junior partner with a dominant senior partner, his rights were not restricted to his strict rights under the constitution of the company and his conduct did not justify his dismissal and exclusion from management, his shares were ordered to be purchases on a pro rata basis, without any discount for the fact that he was a minority shareholder-Quinlan v. Essex Hinge Co. Ltd. [1996] 2 BCLC 47 (Ch D)....
In a case in which the shares of a founding member, who had earlier gifted his shares to his sons controlling the company, were purchased by the company at a higher value then their market price, a minority shareholders action questioning the validity of the transaction was allowed. The court stated: "...because of the fundamental resemblance of the close corporation to the partnership, the trust and confidence which are essential to this scale and manner of enterprise, and the inherent danger to minority interests in the close corporation, we hold that stockholders in the close corporation owe one another substantially the same fiduciary duty in the operation of the enterprise that partners owe to one another. In our previous decisions, we have defined the standard of duty owed by partners to one another as the "utmost good faith and loyalty".... Stockholders in close corporations must discharge their management and stockholder responsibilities in conformity with this strict good faith standard. They may not act out of avarice, expediency or self-interest in derogation of their duty of loyalty to the other stockholders and the corporation. "Donahue v. Rodd Electrotype Co. of New England Inc. [1975] 328 NE 2d 505 at 511 (Supreme Judicial Court).
In this company also the need is for this. Therefore, the interim order that I pass today is that at least for the time being the plaintiffs and the second defendant will constitute the Board of directors.
This Board of directors will convene a meeting not later than 15th April, 2013. They will call a general meeting of the companies not later than 15th May, 2013, on the basis of the shareholding mentioned in the petition.
For the time being, to avoid any allegation of mismanagement or oppression the decisions of the Board will have to be taken unanimously.
The Board of directors will take steps for transmission of the shares as mentioned in the petition as there is no dispute regarding the same, in favour, of the above heirs of Mridul Kumar Bhattacharjee and Reeta Bhattacharjee by 31st March, 2013.
I desire that the suit should be expedited. Till the Board of directors or the general body takes any substantive decision the existing interim order will continue. I make it absolutely plain that by this order a chance is given to the members of the above family to carry on the business of the companies amicably. Should there be a deadlock, this court will actively consider appointment of an administrator to run the two companies. Liberty to apply for implementation of this order.
I do not think that this interlocutory application should be kept pending, as all the papers required for its adjudication were before me. Therefore, both the interim applications are disposed of.