ALBERT DAIVD LTD Vs. STATE

JUDGEMENT

(1.) IN the Matter of Albert David Ltd. , two Notices have been taken out under sections 397 and 398 of the Indian Companies Act, 1956, complaining against the persons in control and management of the company, The first Notice was taken out on december 17, 1956, by Albert Judah and his wife Moselle Judah, The second Notice has been taken out on March 8, 1958, by Debendra Nath Bhattacharyya. The reliefs claimed in both the applications are practically the same. In or about the time the first. Notice was taken out, Albert Judah instituted a suit in this court being suit No, 487 of 1956, to establish his title in a bunch of 26752 ordinary shares of the company. This bunch of shares originally belonged to Judah but sold on January 24, 1956, to one Ramapada Gupta. The sale was challenged in the suit. The suit and the Notice, dated December 17, 1956, came before me and the suit was heard first, In the first week of March, 1958, I delivered judgment upholding the claim of Judah in that bunch of 26752 shares. Against the judgment and decree an appeal has been taken and the same is pending. After the disposal of the suit, the second Notice was taken out by Debendra Nath Bhattacharyya, another shareholder holding another big bunch of shares, preferring substantially the same complaint-against the persons who are in control and management of the company. These two applications have come up now to be heard and as they relate to the same subject matter, claiming more or less the identical reliefs, they were heard together and are covered by this judgment.

(2.) IN 1938 Judah promoted the above company as a private company which was converted into a public company in 1948. Judah and his wife owned more than 90 per cent, of the ordinary shares of the company. Judah was the largest holder of Preference Shares as well. Under the Articles Judah was the Managing Director of the company. In 1939 Dr. Sudhir Lal Mukherjee, a very able chemist, was taken in and put in charge of the manufacture of medicines. Shortly thereafter he was made a Director. Under the Articles, a Director need not be a share-holder. In 1948 Dr. B. P. Neogy was admitted into the company. Shortly thereafter he was appointed a Director as well. The company attained phenomenal success and the annual sale of the product rose to more than Rs. 50 lakhs from 1952 onward. This success was attributable to Dr. Mukherjee who was in charge of manufacturing side and to Judah who was a super-salesman. Judah as the promoter and owner of practically all the shares was No. 1 in the company while Dr. Mukherjee was the No. 2. Things went on smoothly till the middle of 1954. Thereafter there was friction between Judah on the one side and Dr. Mukherjee and Dr. Neogy on the other. On September, 10, 1954 a general meeting was convened to increase the share capital of the company from Rs. 19 lakhs to Rs. 25 lakhs. According to Judah, this meeting ended in nothing as a result of the difference of opinion as to the manner in which the share capital was to be increased. Judah was of opinion that it should be increased by issue of preference shares which carried no voting right, while Dr. Mukherjee and Dr. Neogy intended that it should be increased by the issue of ordinary shares. Dr. Mukherjee's group do not agree that the meeting ended in nothing. They contended that the meeting was held and the meeting unanimously agreed to the increase of share capital by the issue of ordinary shares. There is a minute to that effect in the Minute Book of the company. On the same date Judah was completely ousted from the company and Dr. Mukherjee and Dr. Neogy took complete control and management. A spate of litigation followed and ultimately on March 24, 1956, Dr. Mukherjee and Dr. Neogy purporting to act as directors sold the whole bunch of 26752 ordinary shares belonging to Judah to Ramapada Gupta in enforcement of a lien for a debt of over Rs. 4 lakhs alleged to be due by Judah to the company. Thereupon Judah instituted the suit No. 487 of 1956 challenging the sale as wrongful and to establish his title in the shares. He also took out the present notice complaining that the affairs of the company are being conducted in a manner oppressive to him and his group and also prejudicial to the interest of the company and asking the court to interfere in the matter and pass suitable orders. Originally in the notice taken out by the petitioners in their first application dated December, 17, 1957, the company was not named as a party and a copy of the notice was not served on the company. After the hearing of the Suit No. 437 of 1956 was concluded but before judgment was delivered, it was realised that the company was necessary party in this application and that the application could not be heard in the absence of the company. Thereupon, the petitioners took out summons on February 28, 1958, for an order that the company be added a party and that liberty be given to the petitioners to serve a copy of the notice on the company. The grounds made was that through inadvertence the company was left out. The application was opposed. I allowed the application. Both the parties agreed before me that the company was a necessary party. If that be so, the proceeding could not be heard in the absence of the company. Had the application been moved in the absence of the company, I would not have dismissed the application on the ground of non-joinder but would have adjourned the matter after directing the notice to be served on the company. Save that this application for addition is delayed, no other ground is urged. Some sort of explanation for delay has been given by the petitioners. I felt that the proper order would be to allow the application but directing the petitioners to pay the costs to the opposing party and I made an order accordingly. Thereupon the notice was amended and a copy of the notice was served on the company.

(3.) THE petition being the ground of the notice is long. It sets out the history of the company having been promoted by Judah and in which on September 10, 1954, Judah and his wife owned more than 90 per cent, of the ordinary shares and all but few preference shares. At that date Dr, Mukherjee who was brought in by Judah was holding only 1000 shares and that again as a gift from Judah, Dr. Neogy was the other man also brought in by Judah. Both Dr. Mukherjee and Dr. Neogy were made directors by Judah. The petition recites in detail how these two gentlemen improperly and illegally first ousted Judah from the Board of Directors on the pica that Judah was a debtor and how by force and fraud physically ousted Judah and his group from the management of the company. It is alleged that at the General meeting held on September 10, 1954, though actually no resolution was passed raising the share capital to Rs. 25 Lakhs by the issue of 60000 additional ordinary shares, such a resolution was fraudulently incorporated in the minute book and on the basis of this resolution shares were allotted to Dr. Mukherjee and Dr. Neogy themselves, their friends and nominees, without making any offer to Judah and his wife, in direct violation of section 105 of the Indian Companies Act. One of such friends of Dr. Mukherjee's group was Mr. D. N. Bhattacharyya who came to acquire 32000 shares being the largest block of new shares. This resulted in a number of litigations challenging inter alia the legality of the issue and allotment of additional shares. Ultimately, Judah in the interest of the company, to avoid protracted litigation, came to a settlement with D. N. Bhattacharyya, the holder of the largest block of new shares, so that Judah's group along with. Bhattacharyya, together were the owners of the overwhelming majority of shares. All suits instituted by Judah and his group were withdrawn. The nominees of the majority were however unable to get the management by reason of the improper acts of the present directors who are alleged to have usurped the management. The most important of such acts was the sale of 26752 shares belonging to Judah to Ramapada Gupta. The ostensible reason of sale was in enforcement of lien for a debt of over Rs. 4 lakhs alleged to be due by Judah to the company. The real reason was to drive away Judah from the company and deprive him of his voting power. This act of the Mukherjee group who are in control of the company has been characterised as illegal and malafide and the immediate cause of this application and the suit No. 487 of 1956 previously referred to. It is contended that the Judah's group who represent the majority of the share-holders have been kept out of the company by the present management illegally. The tactics adopted are, as indicated before, the wrongful sale of all the ordinary shares of Judah, failure to call proper meetings for election of directors, keeping themselves in office with full knowledge of its illegality, causing false minutes to be entered in the minute book, causing false entries to be made in the accounts and balance sheets of the company and have them passed in general meetings which are illegal. It is alleged that a deadlock has been created in the management of the company and two rival sets claim to be directors. In opposition to the claim of Dr. Mukherjee's group, two other gentlemen claim to have been elected directors in the general meeting held on October 8, 1956. Allegations of misappropriation of the company's funds and of maintaining 200 hired goondas to maintain the present management in office has been made in the petition. Allegations of falsifying and fabricating books and records have also been made in paragraphs 41 and 42 of the petition. It is contended that the affairs of the company are being conducted (1) in a manner oppressive to Judah and his group and (2) prejudicial to the interest of the company. It is alleged that the present management have gone to the extent of disobeying the orders of the court.