LADII PANHAD JAISWAL Vs. KAROAL DISTILLERY CO LTD

JUDGEMENT

(1.) One Kishori Lal Jaiswal started a ' distillery business' in the name of Kishori Lal and Sons and set up a factory at Karnal in the Punjab for manufacturing liquor. Kishori Lal died in 1928 leaving him surviving three sons, Durga Prasad, Ladli Prasad and Shanti Prasad. Durga Prasad who was the eldest surviving member became karta of the joint Hindu family, and continued the family business. On the death of Durga Prasad in 1934 leaving him surviving two sons Sajjan Lal and Madan Lal and his wife Suraj Mukhi, Ladli Prasad became the karta of the family and continued the business. By mutual arrangement on November 5, 1940 the joint Hindu family of the three branches was disrupted and the business of Kishori Lal and Sons was thereafter conducted as a partnership concern each branch having a third share therein. On March 23,1941 a private limited company called the Karnal Distillery Company Ltd. was incorporated under the Indian Companies Act,1913, and the business of Kishori Lal and Sons was taken over by that company. Under the final allotment of shares made by the Company on August 1, 1941-1004 shares were allotted to the branch of Durga Prasad, 1503 shares to Ladli Prasad and 1003 to Shanti Prasad. By the Articles of Association the maximum number of Directors was five and the minimum number was two. Ladli Prasad, Shanti Prasad and Suraj Mukhi were appointed as the first Directors of the Company. Every year one-third of the Directors except the Managing Director were to retire by rotation. Ladli Prasad was appointed Managing Director for ten years with the right to continue for another ten years unless a notice of fifteen days within eight years was given by a two-third majority at a special genera] meeting held for the purpose of terminating his appointment as Managing Director, and that two-third of the total number of members could expel a member of the Company. Ladli Prasad as Managing Director of the Company drew an allowance of Rs. 1800/- per month, a commission of 7 1/2 per cent of net profits of the Company, a motor car allowance of Rs. 350/- per month, with a right to be provided a new motor car every three years for personal use and Rs. 30/- per day as travelling allowance. The other Directors of the Company were paid remuneration at the rate of Rs. 250/- per month, and each Director who attend the meeting of the Board of Directors was allowed in addition Rs.25/per day.

(2.) Manifestly there was great disparity between the remuneration received by Ladli Prasad and the other Directors, and this gave rise to quarrels between the members of the family. At an extra-ordinary general meeting of the company held on February 20, 1945 at which Shanti Prasad, Sajjan Lal, Madan Lal and Suraj Mukhi were present, it was resolved that Ladli Prasad be removed from his office of Managing Director and that Shanti Prasad be appointed Managing Director instead. But Ladli Prasad declined to hand over charge of the Managing Director's office to Shanti Prasad. A suit was thereupon filed by Shanti Prasad in the Court of the Subordinate Judge, Karnal, on behalf of the Company against Ladli Prasad on April 10, 1945 for a declaration that he was lawfully appointed Managing Director of the Company and for enforcing the resolution dated February 20,1945. Ladli Prasad in his turn filed a suit for a declaration that Shanti Prasad had ceased to be a Director of the company. In the suit filed by Shanti Prasad on behalf of the Company, the trial Court appointed Suraj Mukhi and Madan Lal as joint receivers to manage the affairs of the Company for the duration of the suit. Against that order Ladli Prasad appealed to the High Court of Judicature at Lahore and obtained an order staying the operation of the order appointing receivers. On October 16, 1945 at an extra-ordinary general meeting of the Company held at the residence of Ladli Prasad at which all the members of the family were present certain special resolutions were passed. The effect of the resolution was that :-

(3.) Coming to know about these amendments, Ladli Prasad called upon Shanti Prasad and the other members of the Company to rescind the resolutions, and failing to induce them to comply with the requisition, he filed a petition on May 1, 1946 in the High Court of Judicature at Lahore for an order for winding up Company. An order for winding up the Company was passed by a single Judge, but was set aside in appeal by the High Court of Lahore by its order dated January 19, 1956.