Casestudy1

FossV.Harbottle
FACTS
RichardFossandEdwardStarkieTurtonweretwominority shareholders inthe
"VictoriaParkCompany".ThecompanyhadbeensetupinSeptember1835tobuy
180acres(0.73km2)oflandnearManchesterand,accordingtothereport,
"enclosing and planting the same in an ornamental and parklike manner, and
erectinghousesthereonwithattachedgardensandpleasuregrounds,andselling,
lettingorotherwisedisposingthereof".
This became Victoria Park, Manchester. Subsequently, an Act of Parliament
incorporatedthecompany. Theclaimantsallegedthatpropertyofthecompanyhad
beenmisappliedandwastedandvariousmortgagesweregivenimproperlyoverthe
company'sproperty.Theyaskedthattheguiltypartiesbeheldaccountabletothe
companyandthatareceiverbeappointed.
The defendants were the five company directors (Thomas Harbottle, Joseph
Adshead,HenryByrom,JohnWesthead,RichardBealey)andthesolicitorsand
architect(JosephDenison,ThomasBuntingandRichardLane);andalsoHRotton,
ELloyd,TPeet,JBiggsandSBrooks,thesevera.Therearecertainexceptionsto
the rule in Foss v. Harbottle, where litigation will be allowed. The following
exceptionsprotectbasicminorityrights,whicharenecessarytoprotectregardless
ofthemajority'svote.

Exceptionstotherule
1.Ultraviresandillegality
Thedirectorsofacompany,orashareholdingmajoritymaynotusetheircontrolof
thecompanytopaperoveractionswhichwouldbe ultravires thecompany,or
illegal.
s39CompaniesAct2006fortherulesoncorporatecapacity
2.Actionsrequiringaspecialmajority
If some special voting procedure would be necessary under the company's
constitution orunderthe Companies Act, itwoulddefeat bothifthatcould be

1
sidestepped by ordinary resolutions of a simple majority, and no redress for
aggrievedminoritiestobeallowed.
3.Invasionofindividualrights
4."Fraudsontheminority"
JUDGEMENT
WigramVCdismissedtheclaimandheldthatwhenacompanyiswrongedbyits
directors it is only the company that has standing to sue. In effect the court
establishedtworules.Firstly,the"properplaintiffrule"isthatawrongdonetothe
companymaybevindicatedbythecompanyalone.Secondly,the"majorityrule
principle"statesthatiftheallegedwrongcanbeconfirmedorratifiedbyasimple
majority ofmembersina generalmeeting,thenthecourtwillnotinterfere(legal
term).
TheVictoriaParkCompanyisanincorporatedbody,andtheconductwithwhich
theDefendantsarechargedinthissuitisaninjurynottothePlaintiffsexclusively;
it is an injury to the whole corporation by individuals whom the corporation
entrustedwithpowerstobeexercisedonlyforthegoodofthecorporation.And
fromthecaseofTheAttorneyGeneralvWilson(1840)Cr&Ph1(withoutgoing
further) it may be stated as undoubted law that a bill or information by a
corporationwilllietoberelievedinrespectofinjurieswhichthecorporationhas
sufferedatthehandsofpersonsstandinginthesituationofthedirectorsuponthis
record.Thisbill,however,differsfromthatinTheAttorneyGeneralvWilsonin
thisthat,insteadofthecorporationbeingformallyrepresentedasPlaintiffs,the
billinthiscaseisbroughtbytwoindividualcorporators,professedlyonbehalfof
themselves and all the other members of the corporation, except those who
committedtheinjuriescomplainedofthePlaintiffsassumingtothemselvesthe
rightandpowerinthatmannertosueonbehalfofandrepresentthecorporation
itself.
Itwasnot,norcoulditsuccessfullybe,arguedthatitwasamatterofcourseforany
individualmembersofacorporationthustoassumetothemselvestherightofsuing
inthenameofthecorporation.Inlawthecorporationandtheaggregatemembers
of the corporation are not the same thing for purposes like this; and the only
questioncanbewhetherthefactsallegedinthiscasejustifyadeparturefromthe

2
rulewhich,primfacie,wouldrequirethatthecorporationshouldsueinitsown
nameandinitscorporatecharacter,orinthenameofsomeonewhomthelawhas
appointedtobeitsrepresentative...
ThefirstobjectiontakenintheargumentfortheDefendantswasthattheindividual
membersofthecorporationcannotinanycasesueintheforminwhichthisbillis
framed. During the argument I intimated an opinion, to which, upon further
consideration,Ifullyadhere,thattherulewasmuchtoobroadlystatedonthepart
oftheDefendants.Ithinktherearecasesinwhichasuitmightproperlybeso
framed.Corporations like this,ofaprivatenature,are intruth little morethan
privatepartnerships;andincaseswhichmayeasilybesuggesteditwouldbetoo
muchtoholdthatasocietyofprivatepersonsassociatedtogetherinundertakings,
which,thoughcertainlybeneficialtothepublic,areneverthelessmattersofprivate
property,aretobedeprivedoftheircivilrights,interse,because,inordertomake
their common objects more attainable, the Crown or the Legislature may have
conferreduponthemthebenefitofacorporatecharacter.Ifacaseshouldariseof
injurytoacorporationbysomeofitsmembers,forwhichnoadequateremedy
remained,exceptthatofasuitbyindividualcorporatorsintheirprivatecharacters,
and asking in such character the protection of those rights to which in their
corporate character they were entitled, I cannot but think that the principle so
forciblylaiddownbyLordCottenhaminWallworthvHolt(4Myl&Cr635;see
also17Ves320,perLordEldon)andothercaseswouldapply,andtheclaimsof
justicewouldbefoundsuperiortoanydifficultiesarisingoutoftechnicalrules
respectingthemodeinwhichcorporationsarerequiredtosue.
But,ontheotherhand,itmustnotbewithoutreasonsofaveryurgentcharacter
thatestablishedrules oflawandpracticearetobedepartedfrom,ruleswhich,
though in a sense technical, are founded on general principles of justice and
convenience;andthequestioniswhetheracaseisstatedinthisbillentitlingthe
Plaintiffstosueintheirprivatecharacters...
Now,thatmyopinionuponthiscasemaybeclearlyunderstood,Iwillconsider
separatelythetwoprincipalgroundsofcomplainttowhichIhaveadverted,with
referencetoaverymarkeddistinctionbetweenthem.Thefirstgroundofcomplaint
isonewhich,thoughitmightprimfacieentitlethecorporationtorescindthe

3
transactions complained of, does not absolutely and of necessity fall under the
description of a void transaction. The corporation might elect to adopt those
transactions,andholdthedirectorsboundbythem.Inotherwords,thetransactions
admit of confirmation at the option of the corporation. The second ground of
complaintmaystandinadifferentposition;Ialludetothemortgaginginamanner
notauthorizedbythepowersoftheAct.This,beingbeyondthepowersofthe
corporation,mayadmitofnoconfirmationwhilstanyonedissentingvoiceisraised
againstit.ThisdistinctionisfoundinthecaseofPrestonvTheGrandCollierDock
Company(1840)11Sim327,SC;2RailwayCases335.
OnthefirstpointitisonlynecessarytorefertotheclausesoftheActtoshewthat,
whilstthesupremegoverningbody,theproprietorsataspecialgeneralmeeting
assembled,retainthepowerofexercisingthefunctionsconferreduponthembythe
ActofIncorporation,itcannotbecompetenttoindividualcorporatorstosueinthe
mannerproposedbythePlaintiffsonthepresentrecord.Thisineffectpurportsto
beasuitbycestuiquetrustscomplainingofafraudcommittedorallegedtohave
beencommittedbypersonsinafiduciarycharacter.Thecomplaintisthatthose
trusteeshavesoldlandstothemselves,ostensiblyforthebenefitofthecestuique
trusts.ThepropositionIhaveadvancedisthat,althoughtheActshouldprovetobe
voidable,thecestuiquetrustsmayelecttoconfirmit.Now,whoarethecestuique
trustsinthiscase?Thecorporation,inasense,isundoubtedlythecestuiquetrust;
but the majority of the proprietors at a special general meeting assembled,
independentlyofanygeneralrulesoflawuponthesubject,bytheverytermsofthe
incorporationinthepresentcase,haspowertobindthewholebody,andevery
individualcorporatormustbetakentohavecomeintothecorporationuponthe
terms of being liable to be so bound. How then can this Court act in a suit
constitutedasthisis,ifitistobeassumed,forthepurposesoftheargument,that
thepowersofthebodyoftheproprietorsarestillinexistence,andmaylawfullybe
exercised for a purpose like that I have suggested? Whilst the Court may be
declaringtheactscomplainedoftobevoidatthesuitofthepresentPlaintiffs,who
infactmaybetheonlyproprietorswhodisapproveofthem,thegoverningbodyof
proprietorsmaydefeatthedecreebylawfullyresolvingupontheconfirmationof
theveryactswhicharethesubjectofthesuit.Theveryfactthatthegoverningbody

4
of proprietors assembled at the special general meeting may so bind even a
reluctantminorityisdecisivetoshewthattheframeofthissuitcannotbesustained
whilstthatbodyretainsitsfunctions.

Casestudy2
NarayanlalBansilalv.MoneckFirozMistri,1960Co.case72Bom.

Fact
OnNovember15,1954,theRegistrarwrotetothecompanyofwhichtheappellant
wastheManagingAgentunders.137,IndianCompaniesAct,1913,thatithadbeen
representedtohimthatthebusinessofthecompanywascarriedoninfraudand
calleduponittofurnishcertaininformation.OnApril15,1955,theRegistrarmade
areporttotheCentralGovernmentunders.137(5)totheeffectthatinhisopinion
theaffairsofthecompanywerecarriedoninfraudofcontributoriesandthey
disclosedanunsatisfactorystateofaffairsandthatacasehadbeenmadeoutfor
aninvestigationunders.138.Thereupon,theCentralGovernment,onNovember
1,1955,appointedanInspectortoinvestigatetheaffairsofthecompanyandto
reportthereon.TheInspectorwasauthorisedunders.140toexamineanypersonon
oath,andhewrotetotheappellantthathewouldexaminehimonoathinrelationto
thebusinessofthecompany.OnApril1,1956,theIndianCompaniesAct,1913,
wasrepealedbytheIndianCompaniesAct,1956,whichconferredwiderandmore
drastic powers of investigation. On July 26, 1956, the Central Government
accordedapprovalunders.239(2)ofthenewActtotheInspectorexercisinghis
powersofinvestigatingintoandreportingontheaffairsofthecompany.InMay
1957theInspectorservednoticesupontheappellantcallinguponhimtoattendhis

5
officeonthedateandthetimespecifiedforthepurposeofbeingexaminedonoath
and to produce certain account books andpapers relating to the company. The
appellantchallengedtheinvestigationandcontended:
that since the Inspector was appointed under the old Act he had no
jurisdictiontoexercisethepowersreferabletotheprovisions ofthenew
Act,
thats.240ofthenewActwhichprovidedfortheproductionofdocuments
and, evidence at such investigations offended Art. 20(3) of the
Constitution,and(iii)thatS.239ofthenewActwhichconferredpowers
on inspectors for investigation and S.240 offended Art.14 of the
Constitution.

JUDGEMENT
CIVILAPPELLATEJURISDICTION.
Appeal from the judgment and decree dated September 3, 1958, of the former
BombayHighCourtinAppealNo.28/1958.A.V.ViswanathaSastri,GanpatRai
andI.N.Shroff,fortheappellant.
M. C. Setalvad, AttorneyGeneral for India, B. Sen and T. M. Sen, for the
respondents.
1960. August 31. The Judgment of the Court was delivered by
GAJENDRAGADKARJ.TheappellantRajaNarayanlalBansilalofBombayisthe
ManagingAgentofaLimitedCompanynamedtheHarinagarSugarMillsLimited.
Byvirtueofthepowerconferredonhimby s.137oftheIndianCompaniesAct,
1913(VIIof1913),theRegistrarwrotetothemillsonNovember15,1954,thatit
hadbeenrepresentedtohimunders.137(6)thatthebusinessofthecompanywas
carriedoninfraud,andsohecalleduponthecompanytofurnishtheinformation
whichherequiredassetoutinapartofhisletter(Ex.A).OnApril15,1955,the
Registrarmadeareport(Ex.AA)totheCentralGovernmentunders.137(5)ofthe
said Act. This report showed that according to the Registrar the affairs of the

6
company were carried on in fraud of contributories and they disclosed an
unsatisfactorystateofaffairs.Thereportpointedoutthattheappellantwasthe
ManagingAgentofthecompanyaswellasitspromoter,andthatitwassuspected
that under a fictitious name of Bansilal Uchant Account the company was
advancing money to the several firms owned by the appellant which were
ostensibly purchased from the company's funds. The report further stated that
betweentheyearsendinginSeptember,1942and1951aboutRs.19,200werepaid
forHarpurFarmandRs.;.39,300forBhavanipurFarm,andaccountsdisclosedthat
theUchantAccountwaschieflyoperateduponforpurchasingsuchlandsoutofthe
fundsofthecompanythoughthepurchaseinfactwasforandonbehalfofthe
appellant.TheRegistraralsoaddedthathehadreasontobelievethattheManaging
Agentwasutilisingthepropertyofthecompanyinsomecasesforhispersonal
gain, and concluded that, in his opinion, a case had been made out for an
investigationunders.138.
Onreceivingthisreport,onNovember1,1955,the'CentralGovernmentpassedan
order under s. 138(4) of the said Act (Ex. B) appointing the first respondent
ManeckP.Mistry,whoisaCharteredAccountant,asaninspectortoinvestigatethe
affairsofthecompanyfromthedateofitsincorporation.Thesaidinspectorwas
askedtopointoutallirregularitiesandcontraventionsoftheprovisionsofthesaid
Actoranyotherlaw,andmakeafullreportasindicatedinacommunicationwhich
wasseparatelysenttohim.Thisseparatecommunication(Ex.BB)prescribesthe
mode of enquiry which should be adopted by inspectors. It requires that while
investigatingtheaffairsofcompaniestheinspectorsshouldbearinmindthatfora
successfulprosecutiontheevidenceinsupportofachargemustbeclear,tangible
andcogent,andthattheirreportsshouldspecifywithreferencetotheevidence
collectedduringtheinvestigationsthepointsspecifiedunderparagraph2(a)

7
 Casestudy3
MihirMafatlalv.MafatlalIndustriesltd

Facts
The transferorcompany MFL was proposed to be amalgamated with the
respondentcompany MIL. The directors ofthe respondentcompany MIL and
transferorcompanyMFLapprovedtheproposalforamalgamationoftheMFLwith
MILandpursuanttotherespectiveresolutionspassedbythemandthedetailed
SchemeofAmalgamationwasfinalized.Theappellantwhohasobjectedtothe
amalgamationbeforetheHighCourtofGujaratishimselfoneofthedirectorsof
thetransferorcompanybeingMFL.

8
TransferorcompanysregisteredofficewaslocatedatBombay.Thecorresponding
application for the scheme of amalgamation was moved to the Bombay High
Court. The appellant at this stage did not object to this very scheme of
amalgamationonbehalfofthetransferorcompanyofwhichhewasoneofthe
directors and party to the Resolution approving the said amalgamation. Single
Judge of theBombay High Court sanctioned the said Scheme on behalf of
transferorcompany.

TheregisteredofficeofthetransfereecompanywaslocatedatAhmadabad.The
respondent transfereecompany had approached the High Court of Gujarat for
sanctioningthisverySchemeofAmalgamation.Atthisstagetheappellantwhowas
oneoftheshareholdersofthetransfereecompanyfiledhisobjectiontotheScheme
ofAmalgamationmovedunderSection391oftheAct.Inthemeetingofequity
shareholders convened pursuant to the orderof the High Court, overwhelming
majorityoftheequityshareholdersoftherespondenttransfereecompanyapproved
theScheme.

ISSUE:Whether scheme of amalgamation is prejudicial to interests of

CONTENTIONS
1. The Respondent Company did not disclose the interest of the directors
namely,ShriArvindMafatlalandShriHrishikeshMafatlal.
2. The Scheme as proposed was unfair to the minority shareholders
representedbytheappellant.
3. TheSchemewasotherwiseunfairtotheequityshareholdersastheexchange
ratio ofequity shares ofthe transferor andtransferee companies wasex
facieunreasonable and unfair to the shareholders of the transferee
company.
4. The appellant represented adistinct class of equity
shareholderssofarastherespondenttransfereecompanyis concerned and

9
 consequentlyseparatemeetingsofarashisgroupisconcernedshouldhave
beenconvenedbytheCompanyCourtandasthathasnotbeendonethe
Schemeisliabletoberejected.
HELD
ContentionNo.1:Ifnondisclosureofinterestislikelytoaffectthevotingpatternof
theclassofcreditorsorshareholderswhoarecalledupontovoteonthescheme,
thenonlysuchspecialinterestofthedirectorisrequiredtobecommunicatedtothe
votersasperSection393(1)(a).
ContentionNo.2:TheSchemeofCompromiseandArrangementisneitherunfair
norunreasonabletotheminorityshareholdersrepresentedbytheappellant.
ContentionNo.3:Oncetheexchangeratioofthesharesofthetransfereecompany
tobeallottedtotheshareholdersofthetransferorcompanyhasbeenworkedoutby
a recognized firm of charteredaccountants whoare experts in the field of
valuationandifnomistakecanbepointedoutinthesaidvaluation,itisnotforthe
courttosubstituteitsexchangeratio,especiallywhenthesamehasbeenaccepted
withoutdemurbytheoverwhelmingmajorityoftheshareholders.
ContentionNo.4:unlessaseparateanddifferenttypeofSchemeofCompromiseis
offered to a subclass of a class of creditors or shareholders otherwise equally
circumscribedbytheclassnoseparatemeetingofsuchsubclassofthemainclass
ofmembersorcreditorsisrequiredtobeconvened.

CONCLUSION:
Theappealfailedandwasdismissed.
KEYTAKEAWAYS
o ThescopeofCompanyCourttosanctionschemeofamalgamationislimited
andthereforeCourtcaninterveneinmatteronlywhenitisnotjustandfair
or prejudicialto the interest of shareholders.Court can only go through
schemeandexaminewhetherithascompliedrequirementsunderSection
391(2)andwaspassedrequisitemajorityornot.
o Individualpersonalinterestofminorityshareholdersisofnoconcernunless
itisaffectingclassinterestofsuchequityshareholders.

10
 Casestudy4
lalitaRajyalaxmiv.IndianMotorCo.,AIR1962Cal127

JUDGMENT
1. This is an appeal from the judgment of G.K. Mitter, J. dismissing the
petitioner'sapplicationundersections397and399oftheIndianCompanies
Act.

11
2. The company is Indian Motor Co. Hazaribagh) Ltd. The petitioner is
MaharaniLalitaRajyaLaskhmi,ashareholderowningmorethanthirtyper
centoftheshares.HerallegationisthattheBoardofDirectorsisguiltyof
certain acts of omission and commission detrimental to the interest of the
company and/or to the minority of the shareholders. She sets them out in
paragraph18ofherpetition.
3.Briefly,theseallegationsamounttothisthattheincomeofthecompanyis
deliberately shown less by excessive expenditure and many items of such
expenditurearenotproperlyvouchedorreceipted,Theotherallegationisthat
thereismismanagementoftheaffairsofthecompanyattributabletothefact
thattheheadofficeofthecompanyisatCalcuttawhereasthebusinessofthe
companyisinHazaribaghandthatpassengersaretravellingwithoutticket,orat
pricesbelowthescheduledrates,thatbusesarepurchasedathighcostandafter
heavydepreciationssoldtofriendsandrelativesoftheManagingAgentsand/or
theiremployees,andthattheconsumptionofpetrolasreportedbytherunning
staffofthecompanyfromHazaribaghisnotproperlycheckedbythestaffof
the Managing Agents and the result is that a great loss is suffered by the
company.Thereareotherallegationssuchasthatdividendsarenotproperly
beingdeclaredorthattheyarebeingdeclaredattoolowafigure,thatshewas
notgivenaccesstoandinspectionofthebooksofaccountofthe:company.
4.Themaindefectofthisapplicationisthatthefactsallegedarenotproved.It
isessentialtorememberthatundersection397oftheCompaniesAct,theCourt
hastobesatisfiedthatthere'isoppression.Ithastobesatisfiedthattheaffairs
ofthecompanyarebeingconductedin3manneroppresivetoanymemberor
membersofthecompany.Theactsofoppression,therefore,havenotonlytobe
alleged with sufficient particulars but they must be proved also to the
satisfactionoftheCourt.
5.ItisalsonecessarytoemphasisethattheCourthastoformanopinionontwo
essentialpoints,thataresetoutinsection397(2)oftheAct.Thesetwopoints
arefirst,theonethatIhavealreadystated,namelythatthecompany'saffairsare
being conducted in a manner oppresive to any member or members of the
companyand,secondly,thattowindupthecompanywouldunfairlyprejudice

12
suchmemberormembersbutthatotherwisethefactswouldjustifythemaking
ofawindinguporderonthegroundthatitwas justandequitablethatthe
companyshouldbewoundup.ItisimperativethattheCourt'sopiniononboth
thesepointsmustbeformedintheaffirmativebeforeanyordercouldbemade
underSection397oftheCompaniesAct.IftheCourtisnotsatisfiedonanyone
of these points and is of the opinion that either a company is not being
conductedinamanneroppressiveorthat,thefactsdonotjustifythemakingof
awindinguporder,thennofurtherquestioncanariseunderSection397.Itis
alsopropertoemphasisethatthepoweroftheCourttomakesuchorder,asit
thinks fit, under Section 397(2) of the Act is expressly stamped with the
purposeof"bringingtoanendthematterscomplainedof."Therefore,wideas
thepoweroftheCourtisfollowingfromtheword*oftheexpression"such
orderasitthinksfit,"itisneverthelesscontrolledbytheoverallobjectiveofthis
sectionwhichmustbekeptstrictlyinviewthattheordermustbedirected"to
bringingtoanendthematterscomplainedof."ThemarginalnoteofSection
397oftheCompaniesActshowsalsothatthepurposeoftheorderoftheCourt
inthissectionistogivereliefincasesofoppression."
6.Having statedbroadly the interpretation andeffectofSection397ofthe
CompaniesAct,itwillbeusefulatthis stagetoreverttothefactsandthe
argumentsadvancedtousinthisappeal.Thefirstpointthatisarguedisthat
denialofaccesstoorinspectionofthehooksofaccountoftheCompanytothe
petitionerwasanactofoppressionwithinthemeaningofsection397ofthe
Act.Thisargumentcannothaveanyforcebecauseasharpholderhasnosuch
tight recognised by the Companies Act. Mr. Choudhnry on behalf of the
appellant realised this difficulty and, therefore, took up the position that
althoughshehadnolegalright,itwasaproperactofcompanymanagement
andshehavingmorethanthirtypercentofthesharedshouldhavebeengiven
such access and inspection. That argument also cannot succeed because to
concedesucharightwillbetopermittheDirectorstodosomethingwhichthe
lawdoesnotpermitthemtodoorwhichmightbeobjectionableinlaw:besides
theneveryshareholderwillclaimsuchrightandtoallowsomeanddenyothers
willleadtodiscriminationandconfusion.Lastly,thisargumentmust,inmy

13
view,failonthesimplegroundthatthiscannotbeanactofoppressionwithin
themeaningofSection897oftheCompaniesAct.ThewordsofSection397of
theCompaniesactmaterialforthispurposeare."theaffairsofthecompany
arebeingconductedinamanneroppressivetoanymemberormembers."One
singlyandsolitaryinstanceofanyactdoesnotseemtoanswertheoppressive
continuityofconductingtheaffairsofthecompanyimplicitintheconstruction
ofthelanguageofSection397"theaffairsarebeingconducted"usedinthe
expressionjustquotedabove.Thiswouldonlybetrueifitwereatallanactof
oppressionbutaswearesatisfiedthisisnotso,thisargumentinanyeventdoes
nothelptheappellant.
7.Itwasthen,arguedthattheManagingAgentswereactingasdictatorsand
attemptingtocontrolthemajoritybyobtainingthelargestnumberofshares.
TheManagingAgentshave9,000sharesandtheappellanthas7.000sharesand
itisattemptedtobeshownthattheMariasingAgentswantedtoacquirethe
appellant',shares.Mr.Choudhuryfortheappellantgraphicallyputthispartof
hisargumentbysayingthatthisattempttotyranniseisimplicitinthissituation
becauseajointstockcompanyisakindofdemocracywheresuchcontrolis
detrimenal to what he said "the democratic bottom of the company's
substratum."ThiswasaningeniousattempttocomewithinSection397(2Xb)of
theCompaniesActreadwithSection433(f)thatthefactsjustifiedwindingup
ofthecompany.

14
 CaseStudy5
BaktiyarpurBiharLightRailwayCo.LtdV.UOIAIR1954Cal
449

JUDGMENT

1.Thisappealhastakenaninordinatelylongtimeandthathasbeenbecausethe
factsareinsuchaconfusedstatethatthelearnedcounselforbothpartiesfound
considerabledifficultyingettingoutofthemwhattheyrequiredfortheirrespective
purposes.Itmustalsobesaidthatthecarriageoftheproceedingsbeforethelearned
Judgebelowwasslovenlytoadegreeonthepartofbothparties.Theydidnotseem
tohaveconsidereditnecessarytoexaminewhattheiropponentwassaying,norto
applytheirmindstodecidingwhatfactstheyhadthemselvestoproveinorderto
obtainanorderintheirfavour.

2.TheappellantisapublicLimitedCompanywhichwasformedforthepurposeof
constructing and maintaining a Railway, operating between the Station of
BukhtiarpurontheEastIndianRailwayandthetownofBehar,Thereappearsto
havebeenanagreementbetweenthepromotersandcertainlocalauthoritieswhich
entitled those authorities to take over the Railway in certain circumstances. In
pursuanceofthatagreement,theCompanyappearstohaveestablishedaRailway
runningbetweenBukhtiarpurandRajgirkundwhichwasadistanceofabout30
miles.ThelinewasconnectedwiththeEastIndianRailwayandnaturallysome
mutualadjustmentsbetweentheappellantRailwayandtheEastIndianRailway
becamenecessary.Itisstatedinthepetitionthattherewasinterchangeofcoaching
and goods traffic of every description between the two Railways and the East
IndianRailwayaffordedtotheLightRailwayjointstationfacilitiesasalsotheright
ofconveyanceoverItslinesofmaterialsrequiredbytheLightRailwayforitsown
purposes.

15
3.ThecaseofrespondentNo.1,theUnionofIndiawhoreallyrepresenttheEast
IndianRailway,isthatasaresultoftheinterchangeofcoachingandgoodstraffic
betweentheEastIndianRailwayandtheappellantRailway,alargesumcametobe
duefromthelatterby1950andonJune6ofthatyear,anoticeofdemandwas
servedontheLightRailway,claimingpaymentofasumofRs.5,22,313126.That
amountwasmadeupoftheallegedduesoftheEastIndianRailwayundercertain
trafficbillsandavarietyofbillsofotherdescriptions.

NopaymentwasmadeincompliancewiththenoticebutareplywassentonJune
10,1950,inwhichitwasstatedthatthecompanywasnotliableforthewholeof
thedemandinanyevent,inasmuchastillacertaindate,themanagementhadbeen
inthehandsofMartin&Company.Whoitwas,whowasmakingthestatementis,
bynomeans,clear,sinceformallyatleast,itwastheRailwayitselfwhichwas
writingandthelanguageusedintheletter"priortoourtakingoverchargefrom
Martins"whichsuggeststhattheRailwaywastakingoverchargefromitselfis
plainlymeaningless.Bethatasitmay,itwasfurtherstatedinthecourseofthe
replythatiftheDistrictBoardofPatnahadtakenovertheRailway,theEastIndian
RailwayshouldlooktotheDistrictBoardofPatnaforpayment,inasmuchasthe
Railwaycouldhavebeentakenoveronlyasagoingconcern,comprisingassetsas
wellasliabilities.Theonlyotherstatementcontainedinthereplytowhichitis
necessarytoreferisthatthecompanywasnotinapositiontoaccepttheentire
amountclaimed"offhand",inasmuchitsAccountsSectionwouldhavetocheckthe
sameandmakeareporttoitasregardsitsliabilityforpayment.

4.Ishouldstateherethatalthoughthecompany'sreplyoftheJune10purportsto
beareplytotheEastIndianRailway'sletterofthe6thJune,thereferencetothe
acquisitionoftheRailwaybytheDistrictBoardisextraneoustothelatterandno
mentionthereofcanbefoundinit.ItwashoweverexplainedtousbyMr.Bose
whoappearsonbehalfoftheappellantthatthematterofacquisitionmusthave
croppedupandmusthavebeendiscussedbetweentherepresentativesoftheLight
RailwayandtheLawOfficeroftheEastIndianRailwaytowhichareferenceisto
befoundinthethirdparagraphoftheLightRailway'sreply,

16
5.Thenextthingwhichhappenedwasthaton3061950,theChiefCommercial
ManageroftheEastIndianRailway,addressedanotherlettertotheLightRailway,
this time claiming payment of two several sums of Rs. 5,23,203136 and Rs.
61,530153.Noreplytothisletterissaidtohavebeenreceived.

6.Thereafter,onJuly18,theUnionofIndiamadeanapplicationtothisCourtfora
windinguporderinrespectoftheLightRailwayCompany.Thepetitionreferredto
theduesallegedtohavebeenowingbytheLightRailwayCompanytotheEast
IndianRailwayandallegedfurtherthatinspiteofthetwolettersofdemandsenton
June10andJune30,1950,respectively,nopaymenthadbeenmade.Theamount
ofthedueswasstatedtobeRs.5,91,78420.Itwasalsostatedinthepetitionthat
theLightRailwayhadbeentakenoverfromtheappellantcompanybytheDistrict
Board,Patna,onorabout2561950,andthataccordingtotheinformationofthe
petitioner,asumofRs.10,00,623/orthereaboutshadbeenpaidbytheDistrict
BoardtotheLightRailwayCompanyaspurchasepriceorcompensation.

7.OntheaboveallegationstheUnionofIndiaaskedforawindinguporderonthe
groundthattheLightRailwayCompanywasunabletopayitsdebtsandonthe
furthergroundthatthesubstratumofthecompanywasgone.

8.TheallegationsmadebytheUnionofIndiainitspetitionforwindingupwere
soughttobeansweredonbehalfoftheappellantcompanybyasocalledaffidavit.
WhyIdescribeitas"socalled",Ishallexplainlater.Theaffidavithoweverstated
thatifthgDistrictBoardofPatnahadreallytakenovertheLightRailwayon256
1950,asallegedinthepetition,thenonthepetitioner'sowncase,itwastheDistrict
Boardwhichwasliabletomeetitsclaimsandthereforethepetitionerwasnota
creditor of the Light Railway Company at all. Without prejudice to that basic
contentionitwasfurtherstatedthat,innoevent,couldtheLightRailwayCompany
beheldliablelorthepetitioner'sduesforanyperiodpriortothreeyearsandthatthe
amountoftheduesandtheliabilitytopaythesamewerebothdenied.Itwassaidin
thelastplacethatitwasnotafactthattheDistrictBoardofPatnahadpurchased
theLightRailwayandthattheRailwayCompanydidnotadmitthatpossessionof
theRailwayhadbeentakenbytheDistrictBoard.Itwasaddedthattherewas

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alreadyaninjunctionagainsttheDistrictBoardnottointerferewiththeCompany's
possession.

9.Therewasanaffidavitinreply,filedonbehalfoftheUnionofIndiaandtheonly
statementcontainedinthataffidavittowhichitisnecessarytoreferisthestatement
containedinparagraph8.Bythatparagraph,theUnionsoughttomeetthecaseput
forwardbytheappellantcompanythattheRailwayhadnot,infact,beentakenover
by the District Board, as alleged. The declarant of the affidavit who was one
SectionKhandaswami,describinghimselfasconnectedwiththeTrafficAccounts
DepartmentoftheEastIndianRailwayreferredtoandsetoutcopiesofatelegram
saidtohavebeensentbytheChairmanoftheDistrictBoardofPatnatotheGeneral
ManageroftheEastIndianRailwayon2561950,andaletterfromtheDistrict
Board to the General Manager dated June 28 following. It appears from the
telegramthataccordingtothesender,possessionoftheLightRailwayhadbeen
peacefullyassumedandregulartrainserviceswererunning.Itappearsfromthe
letter that according to the writer the purchase price of the Railway had been
depositedwiththeImperialBankofIndia,Patna.Nothingwassaidinthereplyas
regards theinjunctionwhich,accordingtotheaffidavitinopposition,hadbeen
issuedagainsttheDistrictBoard.

10.ThesewereallthematerialsbeforeMr.JusticeBachawatwhenhemadethe
windinguporder,appealedfrom.Unfortunately,thelearnedJudgedidnotdeliver
anyjudgmentandsowearedeprivedofthebenefitofknowingwhatviewhetook
ofthefacts.AllthatcanbesafelypresumedisthatthelearnedJudgethoughtthata
casehadbeenmadeoutforhispassingawindinguporder.

11.Ihaveomittedtostatethatthereappearstohavebeenanothercreditorbefore
thelearnedJudge,viz.,theBengalNagpurRailwayAdministrationwhich,through
anaffidavitaffirmedbytheirDeputyGeneralManager,D.K.Hopkins,putforward
aclaimofRs.1,78,498140.Themannerinwhichthisdebtwassaidtohavebeen
incurredbytheLightRailwayCompanywasthesameasinthecaseofthedebt
allegedtobeduetotheEastIndianRailway.WhatparttheBengalNagpurRailway
AdministrationtookintheproceedingsbeforethelearnedJudgeisnotatallclear

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anditappearsthatintherecitalofthepapersreadbeforethelearnedJudge,as
containedinhisorder,theaffidavitofD.K.Hopkinsisnotincluded.

12.Thepresentappeal,Ineedhardlypointout,isbytheBukhtiarpurBiharLight
RailwayCompanyLtd.OnbehalfofthecompanyMr.Bosctooktwopointsbefore
us.Heurged,inthefirstinstance,thattherehadbeennovalidstatutorynoticeof
demandatallandinthesecondplacethat,inanyevent,therewasabonafide
disputeabouttheallegedduesandthereforethepresentcasewasnotonewherethe
companywasunabletopayitsdebts,noronewhereitwasjustandequitableto
passawindinguporder.Mr.Bosedidnotseemtosetmuchstorebyhisfirstpoint,
inasmuchashehimselfstatedthathetookitsothatitmightnotbesaidagainsthim
thathehadoverlookedorabandonedit.Hisprincipalargumentwasconcentrated
onthesecondpoint.

13.Itappearstous,however,thatalthoughthelearnedcounselfortheappellantdid
nothimselflaymuchstressonhisfirstpoint,itisyetapointwhichmustsucceed.
Accordingtotnepetitionforwindingupitself,theregisteredofficeoftheRailway
CompanyissituatedatNo.135,CanningStreet,Calcutta.Thatbeingso,ifanotice
ofdemandwastooperateasavalidstatutorynoticeunderSection163(1)(i)ofthe
Indian Companies Act, it would have to be delivered to the Company at its
registeredoffice.TheletterofJune6,however,wasaddressedto"FraserRoad,
Patna" which was not the appellant Company's registered office. That fact is
sufficienttopreventtheUnionofIndiafromrelyinguponthenoticeof661950,
forthepurposesofSection163(1)(i)oftheAct.

14.Therewasindeedasecondnoticeaswellwhichwasdeliveredattheregistered
officeoftheappellantcompany,butthatnoticewassentonlyon3061950,and
thereforeitcouldnotserveasastatutorynoticeofdemand,seeingthatthepetition
forwindingupwasmadeonJuly18.Theintervalbetweentheserviceofthenotice
ofdemandandthemakingofthepetitionforwindingupwaslessthanthreeweeks.
IoughttostateherethatonbehalfoftheUnionofIndia,Mr.Karadmittedthat
therewasnostatutorynoticeofdemandinthecaseonwhichhisclientcouldrely

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andhealsoinformedusthatthecourtofappealhadalreadysoheldinconnection
withtheapplicationforastayoftheorderwhichisunderappealbeforeusnow.

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