GLUCOSERIES PVT LTD v. DEB KANTA ROY — 1999 DIGILAW 74 (CAL)

R. PAL, J. ( 1 ) -THE question in this appeal primarily is whether the defence of a company in litigation should be conducted by its elected Board of Directors or by a Special Officer. The issue arises in the context of a suit filed by the respondent against Glucoseries Pvt. Ltd. (referred to as the company ). The respondent is a share holder of the company and was its Managing Director in 1980. ( 2 ) IN November, 1980 disputes arose between the share holders of the company. An application was filed under sections 397 and 398 of the Companies Act, 1956 by the majority share holders praying inter alia for supersession of the Board of Directors on the ground of oppression and mismanagement (C. P. No. 448 of 1980 ). On 12th November, 1980 Mr. Sunil Mukherjee, an Advocate of this court was appointed as Special Officer over the company. C. P. No. 448 of 1980 was disposed of on 6/7th June, 1984. The Board of Directors of the Company was superceded. The order dated 6/7th June, 1984 further provided:"the Special officer already appointed is directed to call a meeting of the share holders of the company on the basis of the share holding as on 31st Marh, 1979 as recorded in the relevant Annual Return for constitution of a new Board of Directors. The Special Officer will hand over the charge of the company to the new Board of Directors after the same is constituted. The Special Officer will file a report after handing over charge of the companies to the new Board. Till the new Board is elected the Special Officer will be in charge of the affairs and the Management of the company:" ( 3 ) THE Special Officer was also directed to take possession of the assets and records of the company and to retain the same in his custody as a pre-condition for the stay of the operation of the order dated 6/7th June, 1984. ( 4 ) THE respondent and the company preferred an appeal from the order dated 6/7th June, 1984. The interim order of stay was continued by the appeal court subject to the same condition. Pursuant to the direction in the order dated 6/7th June, 1984 the Special Officer convened a meeting of the share holders of the company by notice dated 18th August, 1984. The interim order of stay was continued by the appeal court subject to the same condition. Pursuant to the direction in the order dated 6/7th June, 1984 the Special Officer convened a meeting of the share holders of the company by notice dated 18th August, 1984. The Special Officer's report which has been filed on 22nd February, 1998 pursuant to the directions given by this court, also records that notice was sent to all the share holders of the company that the meeting would be held on 21st September, 1984 for the purpose of appointing a new Board of Directors. ( 5 ) THE respondent moved an application in the pending appeal to restrain the holding of the meeting. On 20th September, 1984 and interim order was passed by the appeal court allowing the meeting to be held on 21st September, 1984 but no effect was to be given to the resolution to be passed in the said meeting until the disposal of the application. ( 6 ) THE meeting was held on 21srt September, 1984. The Special Officer's report gives the particulars of the persons who attended the meeting and voted. At the meeting Mr. Timirari Bhattacharjee, Mr. Lokenath Bhattacharjee and Mr. P. G. Shah were appointed as directors of the company and resolutions were passed to this effect. The Special Officer's report states that the meeting was duly held in terms of the orders of the court and a new Board of Directors of the company was elected but in view of the order of the appellate court that no effect should be given to the resolution, the Special Officer did not hand over charge to the Board of Directors nor did he filed any report. ( 7 ) THE application of the respondent in the pending appeal was disposed of on 24th June, 1985 by directing that until the disposal of the appeal, the Special Officer would continue and no effect would be given to the resolution passed in the meeting. ( 8 ) DURING the pendency of the appeal the respondent filed this present suit in connection with which this appeal has been preferrd (C. S. No. 194 of 1986 ). He claimed a decree against the company for Rs. ( 8 ) DURING the pendency of the appeal the respondent filed this present suit in connection with which this appeal has been preferrd (C. S. No. 194 of 1986 ). He claimed a decree against the company for Rs. 2,57,900/- on account of unpaid remuneration from the date of incorporation of the company till the date of supersession of the Board by court and for other reliefs. An order was passed in the suit granting liberty to the Special Officer to file the written statement for the company with the assistance of the share holders as there was no effective Board of Directors of the Company on that date. The prayer of the majority of the share holders (at whose instance the application under sections 397 and 398 had been filed) to intervene in the suit was not granted at that stage. The Special Officer has filed the written statement in the suit. ( 9 ) ON 7th August, 1990 the appeal preferred by the respondent and the company from the order dated 6/7th. June, 1984 was dismissed for default. The restoration application was also dismissed on 14th November, 1990. A Special Leave Petition [slp (C) No. 17419 of 1991] from the order of dismissal of the restoration application was filed before the Supreme Court. The same is still pending but no interim order was passed. ( 10 ) ON 20th July, 1994 the respondent filed an application before the company court in the section 397 and 398 proceeding, praying that he may be appointed as a Receiver in respect of the company and that he may be authorised to institute a suit against the company's tenants. The allegation in the application against the Special Officer was that he was not in the know (sic) of the affairs of the company and was not acquainted sufficiently to be able to take any effective step to safeguard the interest of the company. The respondent was however not successful in being appointed as Receiver as prayed for by him. ( 11 ) THE majority of the share holders (referred to as the applicants) then made an application in the pending suit for leave to conduct the defence of the company on 20th April, 1998. The respondent was however not successful in being appointed as Receiver as prayed for by him. ( 11 ) THE majority of the share holders (referred to as the applicants) then made an application in the pending suit for leave to conduct the defence of the company on 20th April, 1998. It was claimed that the Special Officer was incompetent to conduct the defence of the company as he stood discharged by virtue of the dismissal of the appeal preferred by the respondent. ( 12 ) THE application was dismissed by an order dated 30th June, 1998. On 8th July, 1998 the present appeal was preferred and admitted. No order of stay was passed in view of the assurances of the counsel for the respondents that the suit would not be proceeded with. In view of the fact that all the papers of the court below had been included in the stay petition, this court directed that the appeal itself would be heard and disposed on the basis of the papers filed with the stay petition. ( 13 ) IN the hearing before us a preliminary objection was taken by the respondent that the order was not an appealable one. ( 14 ) THE applicants have appealed in the name of the company. It is claimed that the defence of the company could not be properly conducted unless the appellants were permitted to conduct the defence. It has been further submitted that the respondent himself had claimed that the Special Officer was inept and could not properly look after the interest of the company. According to the appellants the majority can represent the company on the authority of the decision of the Supreme Court in Dr. Satya Charan Law v. Rameshwar Prasad Bajoria : AIR 1950 FC 133. Shah Babulal Khimji v. Jayaben : AIR 1981 SC 1786 has laid down : "this, in other words, every interlocutory order cannot be regarded as a judgment but only those orders would be judgments which decide the matters of moment or affect vital and valuable rights of the parties and which work serious injustice to the party concerned. " ( 15 ) THIS principle was followed in Calcutta Chemical Co. v. Krishna Das Pal : (1985) 57 Comp. " ( 15 ) THIS principle was followed in Calcutta Chemical Co. v. Krishna Das Pal : (1985) 57 Comp. Case 503 where an order refusing leave to a company to file a supplementary affidavit in aid of its defence was held to be appealable. It was held that the defence of the company had been seriously prejudiced by the order and that :"the seriousness of the prejudice or injustice caused to an aggrieved party by an interlocutory order is the guiding factor for the decision of the question as to whether such an order is a judgment within the meaning of cl. 15 of the Letters Patent. We are, therefore, of the view that the impugned order is a judgment under cl. 15 of the Letters Patent and, consequently, the appeal is quite maintainable. The contention to the contrary is overruled. " ( 16 ) THE question of appellability is thus combined with the merits of the matter. The facts as narrated above clearly show that the Special Officer has got no right to proceed to act in such capacity. His tenure was fixed up to the disposal of the appeal filed by the respondent and the company. The appeal having been dismissed his tenure has come to an end (See Hiralal Patni v. Loon Karan Sethiya : AIR 1962 SC 21 ). The Special Officer cannot act. Someone must represent the interest of the company in the suit. ( 17 ) THE respondent initially submitted that no election had been held or at least there was no evidence of any election having been held at any meeting under the Special Officer. It was pursuant to this challenge that the court direct the Special Officer to submit a report. As already noted the report of the Special Officer confirmed the holding of the meeting and the election of the Board of Directors. ( 18 ) THE next submission of the respondent was that the Board was not properly constituted in terms of the order dated 6/7th June, 1984. According to the respondent Lokenath Bhattacharjee is dead and P. G. Shah was not a share holder of the company at all. He was an employee of a corporate share holder of the company and was not a share holder whose name appeared in the annual reports of the company in respect of the year ended on 31st March, 1979. According to the respondent Lokenath Bhattacharjee is dead and P. G. Shah was not a share holder of the company at all. He was an employee of a corporate share holder of the company and was not a share holder whose name appeared in the annual reports of the company in respect of the year ended on 31st March, 1979. ( 19 ) IT is also submitted that the Board never took charge of the affairs of the company. Therefore, the Special Officer continued. It is also submitted that the appeal was dismissed in 1990 but no step had been taken by the Board of Directors to take over charge from the Special Officer in terms of the order dated 6/7th June. 1984. According to the respondent this appeal was malafied to further defer a decision on the suit filed by the respondent. ( 20 ) AS far as the Board of Directors is concerned there can be no doubt in the light of the report of the Special Officer that three Directors were appointed. But reading section 235 of the Companies Act, 1956 and Article 31 of the Company's Articles of Association together it would appear that P. G. Shah could not have been elected as Director of the company in terms of the order of the court dated 6/7th June, 1984. Section 253 of the Companies Act, 1956 provides :"253. Only individuals to be directors.- No body corporate, association or firm shall be appointed director of a company, and only an individual shall be so appointed. "article 31 of the Articles of Association of the Company also provide:"the qualification of a Director shall be his holding at least ten equity shares of the company in his own name. " ( 21 ) P. G. Shah was not a share holder of the company. He was an employee of a company which was a share holder of the company. ( 22 ) THIS leaves us with Lokenath Bhattacharjee and Timirari Bhattacharjee. Lokenath Bhattacharjee has died. According to the appellants a sole director at least for the purpose of holding meeting can co-opt another director. Assuming that the Board cannot be validly constituted nevertheless the applicants as the majority share holders of the company can protect the Company's interest. The decision of the Supreme Court in Dr. Lokenath Bhattacharjee has died. According to the appellants a sole director at least for the purpose of holding meeting can co-opt another director. Assuming that the Board cannot be validly constituted nevertheless the applicants as the majority share holders of the company can protect the Company's interest. The decision of the Supreme Court in Dr. Satya Charan Law v. Rameshwar Prasad Bajoria (supra) clarifies the issue :"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 malafide 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. " ( 23 ) THERE is therefore no one to defend the company in the suit. Where the right to defend is an issue, in the light of the law laid down by the Supreme Court in Shah Babulal Khimji v. Jayaben (supra) and in Calcutta Chemical v. K. D. Paul (supra) that the order would be an apealable one. The order of dismissal has affected the valuable right of the company to be defended and works serious injustice to the company and its interest. ( 24 ) THE applicant before the learned single Judge had the right to defend the suit on the basis of the principles in Dr. Satya Charan Law's case (supra ). ( 25 ) ACCORDINGLY we hold that the impugned order is an appealable one and we allow the appeal by setting aside the order and grant leave to the appellants to conduct the defence of the company in the suit. M. H. S. Ansari J. I agree. Appeal allowed.