RATHNA VELUSAMI CHETTIAR Vs. MANICKAVELU CHETTIAR

JUDGEMENT

(1.) THERE are in the main two interesting questions of company law involved in this case : (1) whether the suit out of which this second appeal arises in maintainable and (2) whether a resolution of the shareholders of a company known as Vel Brothers Ltd. (hereinafter to be referred to as the company) of the 3rd November, 1948, removing the plaintiff from its managing directorship, and appointing the first defendant as managing director instead, is invalid or illegal. The facts which require to be stated for appreciating the point arising for decision are these. The first and the second defendants called upon the managing director, the plaintiff, by letter dated 28th September, 1948, to convene a meeting for electing a new managing director in place of the plaintiff. The reply of 27th October, 1948, that was given to it by the plaintiff was that since the general meeting was anyhow going to be held on 30th December, 1948, the matter might be considered at that juncture. Finding that the plaintiff did not take action on their letter within 21 days the requisitionists sent noticed to all the members of a meeting proposed to be held on 3rd November 1948, at the registered office of the company at 5 p.m. The subject, it was said, was the election of a managing director in place of the plaintiff. It may also be stated that in a letter written by the plaintiff. It may also be stated that in a letter written by the plaintiff, Ex B. 11 of the 27th October, 1948, the himself had expressed an intention to move a resolution at the meeting to be held on 3rd November, 1948, that the company be wound up voluntarily. On 3rd November, 1948, it appears however that the meeting could not be held at the premises of the registered office at the time fixed because the premises were locked. As the lower appellate court has found, the shareholders who were assembled at the registered office for the purpose of the meeting accordingly moved on to the premises at No. 286, Kallukatti East Street, which is only a few yards off the registered office and there held a meeting at which a resolution removing the plaintiff from managing directorship was passed. The validity of the meeting so held and of the resolution so passed is the subject matter of the present action. The plaintiff complains that the meeting and the resolution are altogether invalid and illegal. The answer of the defendants is firstly that a suit of this character is not maintainable and secondly that the meeting and the resolution are perfectly legal and validThe suit was disposed of by the learned District Munsif of Devakottai on the basis of a certain admission made by the pleader for the plaintiff on the plaint which is to the following effect : -

(2.) NO evidence was taken by the learned District Munsif who proceeded on the basis of this admission to deal with the merits of the case after finding the suit to be maintainable as not being a matter of mere internal management or a mere domestic matter on which the court should not interfere. On appeal taken to the court of the Sub -ordinate Judge of Devakottai the judgment of the learned District Munsif has been reversed on both the points. The plaintiff accordingly files this second appeal against the decision of the lower appellate court As regards the maintainability of the suit the learned Subordinate Judge has applied what he calls the well known rule in Foss v. Harbottle which he defines as being that a court will not interfere with the ordinary management of a company acting within its powers and has no jurisdiction to do so at the instance of the shareholders. He has quoted James, L.J., from MacDougall v. Gardiner, at pages 21 and 25 to this effects : -

(3.) THE rule in Foss v. Harbottle has been considered by this court in Nagappa Chettiar v. Madras Race Club, and has been, with its limitation and exceptions, set forth in detail in Palmer's Company Law, 19th edition, by A. F. Topham, K.C., at pages 228 to 230. I have considered the matter carefully and have come to the conclusion that what we are concerned with here is not really either the rule or any exception thereto. The question which arises here is indeed a different matter and is governed not by the rule in Foss v. Harbottle but by what has been said by Sir George Jessel, M.R., in Pulbrook v. Richmond Consolidated Mining Co. The ruling of Sir George Jessel, M.R. has been considered in very close detail by Beasley, J., as he then was in Subramania Aiyer v. The United India Life Assurance Co. Ltd. The case before the learned Judge related to the United India Life Insurance Co. Ltd., Madras. There the articles of association provided for the election or appointment of two directors by the policy holders of the company, the directors so elected or appointed to be known as "policy holders' directors". Two persons alleging themselves to have been validly elected "policy holders' directors" sued the company and its directors for a declaration of the validity of their election as such directors and of their right to act as such and also an injunction restraining the other directors from interfering with their right to act as such directors. On objection taken by the defendants that individually the plaintiffs had no cause of action and that the suit should have been instituted by the policy holders as a body, the objection was overruled by the learned Judge who held that the plaintiffs alone could maintain the suit and that no other policy holders on their behalf could have maintained it, and that the directors of the company had properly been impleaded as defendants. Referring to the decision of Sir George Jessel, M.R., in Pulbrook v. Richmond Consolidated Mining Co., the learned Judge observes at page 398 that that decision