NARENDRA KUMAR BERLIA Vs. OM PRAKASH BERLIA

JUDGEMENT

(1.) Considerable time has been wasted in the Court failing to notice at the outset as to the form of the action. The frame of the suit makes it an apparent derivative action brought by shareholders but the reliefs claimed are as personal to the plaintiffs as partition of alleged joint family assets. On behalf of the plaintiffs it has been represented that the suit is for partition of joint properties. Much argument has been made on it being permissible to treat companies and their assets as family properties if the facts so warrant.

(2.) It was only upon one of the contesting defendants, the fifteenth defendant company, referring to the cause-title and the relevant paragraph in the plaint that the glaring error has come to light. It is no longer necessary to consider the merits of the matter since the claim is so utterly misconceived that no interlocutory order can be made in aid of any of the reliefs claimed in the suit.

(3.) It is imperative to first clear the air as to what is a derivative action. The doctrine of indoor management otherwise known as the rule of judicial noninterference that has flowed from Foss v. Harbottle,1843 2 Hare 461 recognises the ordinary refusal by the Court to interfere in the management of a company at the instance of minority shareholders who may be dissatisfied with the conduct of the company's affairs. The rule embodies the paramount thought that the Court should not enquire into the desirability or wisdom of the acts of those responsible for the company's affairs. In its most rigid form, the rule prevents the Court from remedying a wrong which has been done to the company unless its majority members want it to be righted. Over the years since Foss & Harbottle, the rule has undergone substantial transformation. Through MacDougall v. Gardiner,1875 1 Ch 13; Pender v. Lushington,1877 6 Ch 70; Burland v. Earle, 1902 AC 83; Automatic Self-Cleansing Filter Syndicate Co. Ltd. v. Cunninghame, 1906 2 Ch 34; Cook v. Deeks, 1916 1 AC 554; Edwards v. Halliwell,1950 2 AllER 1064; Pavlides v. Jensen, 1956 2 AllER 518; and, Prudential Assurance Company Ltd v. Newman Industries Ltd (No 2), 1982 1 AllER 354, among others, the inflexibility of the original rule has been moulded to accommodate complaints in several situations. Classically, a derivative action is where a member or some members can sue in his or their name where the beneficiary of the reliefs claimed is the company itself. The member or members suing derive their corporate right to sue on behalf of the company from the company itself. As has been succinctly explained in Pennington's Company Law :