Corporate Law Case Brief – VB Rangaraj v. VB Gopalakrishnan

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Articles of Association

Facts: Family consisting of two brothers Baluswamy Naidu and Guruviah Naidu owning a Private company being the sole shareholders of the company, with equal distribution of shares among them. They entered into an oral agreement , that each of the branches of the family would always continue to hold equal number of shares and that if any member in either of the branches wished to sell his shares, he would give the first option of purchase to the members of that branch and only if the offer so made was declined, the shares would be sold to others. There was a restriction on transfer of shares by way of a right of pre-emption which were not stated in the agreement. The restrictions are in the latter event the shares of the deceased member shall be first distributed among the existing members equally and if they are to be transferred to any new member, it would be done so with the consent of the majority of the existing members.

One of the son’s of Baluswamy Naidu sold the shares to sons of Guruviah Naidu . Hence the plaintiffs who are the other son’s of Baluswamy’s filed the present suit for :

(i)         a declaration that the said sale was void and not binding upon the plaintiffs

(ii)        an order directing defendants to transfer the said shares to the plaintiffs

(iii)       a permanent injunction restraining defendants from applying for registering the said shares in their names and from acting adversely to the interests of the plaintiffs on the basis of the transfer of the said shares.


 Whether the shareholders can among themselves enter into an agreement which is contrary to or inconsistent with the Articles of Association of the company.


The Articles of Association are the regulations of the company binding on the company and its shareholders and that the shares are a movable property and their transfer is regulated by the Articles of Association of the company.

“Whether under the Companies Act or Transfer of Property Act, the shares are, therefore, transferable like any other movable property. The only restriction on the transfer of the shares of a company is as laid down in its Articles, if any.  A restriction which is not specified in the Articles is, therefore, not binding either on the company or on the shareholders.  The vendee of the shares cannot be denied the registration of the shares purchased by him on a ground other than that stated in Articles.”

Judgement: The Trial Court holds that the sale of the said shares was invalid and not binding on the plaintiffs , and directed the defendants  to transfer the said shares to the plaintiffs, and granted permanent injunction . High Court Reversed the decision by Trial Court and held that

(i)         the sale of the shares by the defendant in favour of other two defendants was valid and the plaintiffs are not entitled to purchase the said shares.

(ii)        the agreement was not binding on the company and the shareholders.

(iii)       the company was not bound in law to register the said shares in the plaintiffs’ names.

The oral agreement which is relied upon by the plaintiffs whereunder there is a restriction on a living member to transfer his shareholding only to the branch of family to which he belongs in terms imposes two restrictions which are not stipulated in the Article. Firstly, it imposes a restriction on a living member to transfer the shares only to the existing members and secondly the transfer has to be only to a member belonging to the same branch of family. The agreement obviously, therefore, imposes additional restrictions on the member’s right to transfer his shares which are contrary to the agreement. They are, therefore, not binding either on the shareholders or on the company.

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Corporate Law Case Brief – Boreland’s Trustee v. Steel Bros. Co. Ltd.

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This case is a U.K company law case which concerns its issues relating to the enforceability of a company’s constitution and the nature of the company’s share.


  • Mr Borland was a shareholder. He turned bankrupt and the company he was working for had a pre-emption rule that upon a shareholder’s bankruptcy, his shares would be transferred to the manager or the directors at the fair value price and not at the current value price.
  • The current value price is the current true value of the share which is above par to the fair value price.
  • Borland’s trustee argued that the article which was imposed by the company upon a shareholders bankruptcy was invalid and fraud as a shareholder upon turning bankrupt was forced to part his shares at a value below the current value and it went against the bankruptcy laws of the state.
  • He requested an injunction against the article of parting shares or share transfer at anything below the current value.
  • He argued against Steel Brothers limited on two major grounds. They are
  • 1) Absolute Ownership
  • 2) Rule Against Perpetuity
  • Rule Against Perpetuity – The rule basically says any interests that may be vested in a particular share or property is forbidden in the future. Thus he states that since his shares are transferred to the manager or the director of the company, his future rights are taken away in the share or the property and this is the sole reason he frames his second argument on.


  • The issue, in this case, was whether the pre-emption rule created by the company relating to a shareholders bankruptcy went against the bankruptcy laws and was eventually void?


  • The judge, in this case, Farwell J rejected the argument put forward by Borland’s Trustee and held that the article was valid.
  • The grounds on which the judge held its decision was that
  • 1) The transfer could be made because the contract engendered in the articles of association is always prior to the rights contained in a share or the shareholder.
  • Also, he held that this rule was fair and it was a fair agreement for the business of the company. They were binding equally on all shareholders and there was nothing put forward by any other shareholder about such a fraudulent rule of a share transfer and thus nothing against the bankruptcy laws.

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Corporate Law Case Brief – Lakshmanaswami Mudaliar v. L.I.C.

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  • At an Extraordinary General Meeting of the shareholders of the United India Life Assurance Company Ltd., a resolution was passed, among other matters sanctioning a donation of Rs. 2 lakhs from out of the Share.
  • On July 1, 1956, the Life Insurance Corporation Act came into force by the provisions of which on the appointed day all the assets and liabilities appertaining to the controlled business of an insurer vested in the Life Insurance Corporation.
  • BY s. 15(l)(a) of the Life Insurance Corporation Act power was given to the Corporation to apply to the Tribunal for relief in respect of payments made by the insurers, during the five years preceding the date of vesting, not reasonably necessary for the purpose of the controlled business.
  • The Corporation applied to the Tribunal for relief in respect of the payments of Rs. 2 lakhs by the Company to the appellants on the ground that the said payment was ultra vires the powers of the company and was not reasonably necessary for the purpose of the controlled business. The Tribunal ordered the appellants to restore the sum of Rs. 2 lakhs to the Corporation.
  • Then a special leave application was filed to the Supreme Court in appeal of the matter decided in the tribunal.


  • Whether the plaintiff consented to the subletting of parts of the demised premises and if so, when and to what effect ?


  • An act of the company is ultra vires, if it is not:
    • Essential for the fulfilment of the objects stated in the Memorandum
    • Incidental or consequential to the attainment of its objects
    • Which the company is authorized to do by the company Act, in course of its business.
    • Where a company does an act which is ultra vires, no legal relationship or effect ensues therefrom. Such an act is absolutely void and cannot be ratified even if all shareholders agree.
    • The bearers of the company who were responsible for passing the resolution ultra vires the company are personally liable to make good, the amount belonging to the company which was unlawfully disbursed in pursuance of the resolution.
    • Section 13 of the Company Act (1956), required to specify the main object of the company and object ancillary to the attainment of the main object.
    • It was held that the Memorandum of Association of a company must be read fairly and its import derived from a reasonable interpretation of the language which its employs. Where a particular act has not been provided for in the Memorandum of Association, the directors cannot seek recourse to the Articles of Association to imply that such business falls within its objects.
    • The Memorandum of Association has to be read with the Articles of Association, where the terms are ambiguous or silent. This process may explain the provisions of the Memorandum itself but cannot extend to the scope.

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Corporate Law Case Brief – Ashbury Rly. Carriage & Iron Company v. Riche

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  • In this case the objects set out in the company’s memorandum were “to make and sell, or lend on hire, railway carriages and wagons, and all kinds of railway plant, fittings, machinery and rolling stock; to carry on the business of mechanical engineers and general contractors; to purchase, lease, work and sell mines, minerals, land and buildings; to purchase and sell as merchants, timber, coal, metals, or other materials, and to buy any such materials on commission or as agents.” The Directors of the Company entered into a contract with Riches for financing a construction of a railway line in Belgium. The Contract was ratified by all the members of the company, but later on it was repudiated by the Company. Riche sued the company for the breach of contract.


  • Whether the contract was valid and if not, whether it could be ratified by the members of the company?


  • The contract was beyond the objects as defined in the objects clause of memorandum and therefore it was void, and
  • The Company had no capacity to ratify the Contract.
  • The contract of employment with Mr Riche was ultra vires for the words in the objects clause
  • ‘to make sell or lend on hire….. all kinds of railway plant …. to carry on the business of  mechanical engineers and general contractors’ DID NOT extend to the construction of an actual railway line.
  • An ultra vires act or contract is void because the Company lacks the capacity to make such contract, how can they have capacity to ratify it. If the shareholders are permitted to ratify an ultra vires act or contract, it will be permitting to do the Act which Parliament is prohibiting to do so.
  • The Company incorporated under the Companies Act has power to do only those things which are authorized by its object clause of its memorandum and anything not so authorized (expressly or impliedly) is ultra vires the company and cannot be ratified or made effective even by unanimous agreement of the members.
  • The Directors were made personally liable.

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Corporate Law Case Brief – Royal British Bank v. Turquand

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– Doctrine of Constructive notice

  • The Memorandum of Association of a Company has to be lodged with the Registrar of Companies.
  • This is available for public inspection, people doing business with the Company are free to inspect the document to see if there is any limitation of powers or limitations placed on the nature of the business.
  • This created a problem- outsiders are deemed to know any limitation placed on the Directors of the Company.
  • Therefore if later, it was found that there was some irregularity within the Company in respect of any decisions, outsiders dealing with the Company are deemed to be aware of it.


  • Turquand was the official manager (liquidator) of the insolvent ‘Cameron’s Coalbrook Steam, Coal, and Swansea and London Railway Company’. It was incorporated under the Joint Stock Companies Act 1844.
  • The company had given a bond for £2000 to the Royal British Bank, which secured the company’s drawings on its current account. The bond was under the company’s seal, signed by two directors and the secretary.
  • The company alleged that under its registered deed of settlement (the articles of association), directors only had power to borrow what had been authorised by a company resolution.
  • A resolution had been passed but not specifying how much the directors could borrow.

The Company claimed that there was no resolution passed authorising the issue of the bond and that therefore the Company was not liable

3) HELD:

The Court held that the Company was entitled to sue on the bond. As the requirement for the resolution was a matter of internal regulation for the Company and the Bank could not know whether such resolution had in fact been passed, it was entitled to presume that the resolution had indeed been passed.

The rule is also known as the Indoor Management rule.


The rule in Turquand’s case is a presumption of regularity. In other words, a person dealing with the Company is entitled to presume that all the internal procedures of the Company have been complied with. This is a practical approach to solving problems facing outsiders because an outsider would have difficulty to discover what is going on in the Company.

To summarize the above points-

  1. If an officer of the Company has exceeded his authority as given to him by the Articles of Association.
  2. There has been some non-compliance with an internal procedure
  3. The outsider may presume that the internal procedure had been complied with.

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Corporate Law Case Brief – Ramana Dayaram Shetty v. International Airports Authority of India

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  • The International Airport Authority of India invited tenders by a public notice for putting up and running a second class restaurant and two snack bars at the International Airport, Bombay.

PARAGRAPH (1): Tenders were invited from registered second class hoteliers having at least five years’ experience for putting up and running a second class restaurant and two snack bars at the Bombay Airport for a period of three years.

PARAGRAPH (8): Acceptance of the tender would rest with the Airport Director who does not bind himself to accept any tender and reserves to himself the right to reject all or any of the tenders received without assigning any reasons therefor.

Out of the six tenders that were received, only the tender of the 4th respondents was complete and had offered the highest amount as license fee. All the other tenders were rejected because they were incomplete.

  • The conditions of paragraph (1) of the tender notice were not satisfied by the fourth respondent. He was therefore called upon by the authorities for production of documentary evidence.
  • The fourth respondent reiterated that it had considerable experience of catering for various reputed commercial houses, clubs, messes and banks and that they had Eating Houses Catering Establishment (Canteen) Licence. Satisfied with the information given by the fourth respondents, the first respondent accepted their tender on the terms and conditions set out in its letter.

Arguments of the Appellant:

The Airport Authority was bound to give effect to the most important condition of eligibility and acceptance of the tender by the first respondent was in violation of the standard or norm of eligibility set up by the first respondent.

Arguments of the Respondent:

  1. The grading is given by the Bombay City Municipal Corporation only to hotels or restaurants and not to persons running them and, therefore there could be no second grade hotelier.
  2. The notice setting out the conditions of eligibility having had no statutory force.
  3. The Airport Authority reserved to itself the right to reject all or any of the tenders without assigning any reasons and, therefore, it was competent to it to reject all the tenders or negotiate with any person it considered fit to enter into a contract


  • Once the norms and standards are laid down by any executive authority he cannot go back from the standards established. It is the very essence of the rule of administrative law which was taken from the enunciation of Mr. Justice Frankfurter in Viteralli v. Seton where the learned judge held that “an executive agency must be rigorously held to the standards by which it professes its action to be judged”. This principle was later adopted by Supreme court in S. Ahluwalia v. Punjab and by Mathew, J. in Sukhdev v. Bhagatram.
  • Every action of the executive government must be informed with reason and should be free from arbitrariness.
  • Judgment of Mathew, J. in Punnan Thomas v. State of Kerala where it was held that

a government cannot lay down arbitrary and capricious standards for the choice of persons with whom alone it will deal”.

  • Judgment of Ray, J. in Erusian Equipment and Chemicals Ltd. v. State of West Bengal where it was held

when the government is dealing with the public, whether by way of giving jobs or entering into a contract, or granting license or quotas or other forms of largesse, it cannot act arbitrarily at its sweet will but it has to follow according to the norms and standards which is not arbitrary, irrational or irrelevant. The power and discretion of the government in awarding jobs, granting licenses, quotas, etc. must be in conformity with the rational, relevant and non-discriminatory standards or norms, and if the government departs any time its action is liable to be struck down unless it is proved that the action of government is based on some valid principle which is not irrational, unreasonable and discriminatory.

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Corporate Law Case Brief – Mysore Paper Mills Ltd. v. Mysore Paper Mills Officer’s Association

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The Respondent joined the services of the Appellant Company. The Company transferred him to the regional office in Calcutta. The Respondent challenged this order stated that this transfer was made to prevent him from becoming an Executive Member of the Appellant Company’s Officer’s Association.


(i) Is the present Writ Petition maintainable against the Appellant Company? Is the Company considered “State or other authority” within Article 12 of the Constitution of India?


  • Section 617 of the Companies Act, 1956 defines “Governmental Company”.
  • Section 617: Definition of” Government company”. For the purposes of 3 this Act] Government company means any company in which not less than fifty- one per cent. of the 4 paid up share capital] is held by the Central Government, or by any State Government or Governments, or partly by the Central Government and partly by one or more State Governments 5 and includes a company which is a subsidiary of a Government company as thus defined].
  • If the Appellant Company falls within the ambit of the above definition, it is said to be ‘State or other authorities’ under Article 12 of the Constitution.
  • The Court also stated that the tests to determine whether a corporation is an instrumentality or agency of the Government laid down in Ajay Hasia and International Airport Authorities case are not conclusive but merely indicative which have to be used with care and caution, because while stressing the necessity of a wide meaning to be placed on the expression “other authorities”, it must be realized that it should not be stretched so far as to bring in every autonomous body which has some nexus with the government within the sweep of the expression.
  • The appellant-company in the present case is a Government company as envisaged in Section 617 attracting Section 619 of the Companies Act as more than 97% of the share capital has been contributed by the State Government and the financial institutions controlled and belonging to the Government of India.
  • The appellant-company with important public duties obligating to undertake, permit, sponsor rural development and for social and economic welfare of the people in rural areas by undertaking programmes to assist and promote activities for the growth of national economy which are akin and related to the public duties of the State.
  • 5 out of the 12 directors are Government and departmental persons, besides other elected directors also are to be with the concurrence and nomination of the Government and the various other form of supervision and control.
  • The above mentioned points show that the State Government has deep and pervasive control of the Appellant Company and its day-to-day administration confirm that the position of the Appellant Company is nothing but an instrumentality and agency of the State Government and the physical form of company is merely a cloak or cover for the Government.


The Appellant Company falls within the ambit of “State and other authorities” under Article 12 of the Constitution. Appeals fail and stand dismissed.

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Corporate Law Case Brief – RC Cooper v. Union of India

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  • The government decided to nationalize 14 major commercial banks on 19th July, 1969. All commercial banks with a deposit base over Rs.50 crores were nationalized
  • Petitioners- shareholders, depositors and a director. Shareholders had to give up their shares at low values due to nationalization of banks.


  • Petitioner- 14, 19 and 31.
    • The act lacked legislative competence
    • The act interfered with guarantee of freedom of trade and commerce
    • The act (and thus the acquisitions) was not made in public interest
    • Petitioner’s value of investment reduced, right to receive dividends ceased; suffered financial loss. ‘deprived of the right as a shareholder to carry on business through the agency of the company’
  • UOI- petition not maintainable because no fundamental right of the petitioner was directly impaired as he was not the owner of the property of the undertaking taken over.


  • Whether shareholder’s rights impaired?-Not formal but qualitative test- if the State action impairs the right of the shareholders as well as of the company, the court will not, concentrating merely upon technical operation of the action, deny to itself jurisdiction to grant relief.
  • Under the Constitution the extent of protection against impairment of a fundamental right is determined not by the object of the legislature nor by the form of the action, but by its direct operation upon the individual’s tights.


  • A company registered under the Indian Companies Act is a legal person, separate and distinct from its individual members. Hence a shareholder, a depositor or a director is not entitled to move a petition for infringement of the rights of the company unless by the action impugned his rights are also infringed.
  • Challenging infringement of his own rights and not of the banks.
  • Rights under article 19- an individual right of a shareholder as a citizen because his/her rights are equally and necessarily affected when the rights of the company are affected.
  • The Act was held to be valid. However there were a few disproportionalities with regards to the fair sum of compensation, it was not considered to be a valid ground for repealing the act. The court orders the government to grant ‘just equivalent’ or ‘fair indemnification’ to the aggrieved parties. The nationalization was allowed.

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Corporate Law Case Brief – Ajay Hasia v. Khalid Majid

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Facts: The petitioners in this case challenged the procedure of admission in the Regional Engineering College. The admission process was that they were two tests conducted one was a written exam and the other was a viva test. The viva test of the petitioners lasted only for 2 or 3 minutes where formal relating to their parentage, residence were and no questions relating to the subject. When the admissions were announced, the petitioners found that though they had obtained very good marks in the qualifying examination, they had not been able to secure admission to the college because the marks awarded to them at the viva voce examination were very low and candidates who had much less marks at the qualifying examination, had succeeded in obtaining very high marks at the viva voce examination and thereby managed to secure admission in preference to the petitioners. The petitioners thus filed a writ against the college and challenging the validity of the admissions on various grounds. One of the grounds for admission was that their right to equality under Article 14 of the constitution was violated.

Issue: The issue in the present case was whether college was a state and if it was state whether it violated Article 14 of the Constitution.

Analysis: With increasing Government commercial ventures and economic projects, the corporation has become an effective legal contrivance in the hands of the Government for carrying out its activities, for it is found that this legal facility of corporate instrument provides considerable flexibility and elasticity and facilitates proper and efficient management with professional skills and on business principles. For meeting this administrative need the corporation came into being as the third arm of the Government and over the years it has been increasingly utilized by the Government for setting up and running public enterprises and carrying out other public functions. The corporation even though is a distinct juristic entity with a corporate structure of its own and it carries on its functions on business principles with a certain amount of autonomy which is necessary as well as useful from the point of view of effective business management, but behind the formal ownership, the reality that the government still continues to have deeply pervasive control. It is really the Government that acts through the instrumentality or agency of the corporation and has the juristic veil of corporate personality for the purpose of convenience of management and administration.  The features of a corporation may be adopted in order to free the Government from the inevitable constraints of red-tapism and slow motion but by doing so, the Government cannot be allowed to neglect the basic human rights. As this would lead to the government assigning almost every State business such as Post and Telegraph, Rail Road and Telephones, etc., in short every economic activity and thereby cheat the people of India out of the Fundamental Rights guaranteed to them.

A corporation may be created in one of two ways. It may be either established by statute or incorporated under a law such as the Companies Act 1956 or the Societies Registration Act 1860. Where a Corporation is wholly controlled by Government not only in its policy making but also in carrying out the functions entrusted to it by the law establishing it or by the Charter of its incorporation, there can be no doubt that it would be an instrumentality or agency of Government. Thus the court in the present case laid down the following test to determine whether the corporation comes within the ambit of other authorities under Article 12 of the constitution.

(1) If Government holds the entire share capital of the corporation it would go a long way towards indicating that the corporation is an instrumentality or agency of Government.

(2) Where the financial assistance of the State is so much as to meet almost entire expenditure of the corporation, it would afford some indication of the corporation being impregnated with governmental character.

(3) It may also be a relevant factor…whether the corporation enjoys monopoly status, which is the State conferred or State protected.

(4) Existence of deep and pervasive State control may afford an indication that the Corporation is a State agency or instrumentality.

(5) If the functions of the corporation of public importance and closely related to governmental functions, it would be a relevant factor in classifying the corporation as an instrumentality or agency of Government.

(6) Specifically, if a department of Government is transferred to a corporation, it would be a strong factor supportive of this inference of the corporation being an instrumentality or agency of Government.


The government stated what the memorandum and articles of association of the company should contain. The Memorandum of Association confers power on the Society to acquire and hold property in the name of the State Government, and the monies for running the college would be provided by the State and Central Governments. The rules made, amended, varied or rescinded for the conduct of the affairs of the Society from time to time needed the approval of the Government of Jammu and Kashmir State. Clause 7 of the Memorandum of Association states that in case the Society or the college is not functioning properly, the State Government will have the power to take over the administration and assets of the college with the prior approval of the Central Government. Clause 6 of the Memorandum of Association empowers the State Government to appoint one or more persons to review the working and progress of the Society, or the college and to hold inquiries into the affairs thereof and to make a report and on receipt of any such report, the State Government has power, with the approval of the Central Government, to take such action and issue such directions as it may consider necessary in respect of any of the matters dealt with in the report and the Society or the College. Thus as the Government of Kashmir satisfied all the six provisions of the test and had complete control over the working of the college, the society was the agency of the government.

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Corporate Law Case Brief – Bennett Coleman vs Union of India

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The appeals have been preferred by respondent 1 i.e. the company (represented by its shareholders) and respondent 8 and 10 in their capacity as the directors of the company; challenging the judgment and order passed on August 28, 1969 wherein the judge directed reconstitution of the board of directors for the said company in the manner done for seven years. This order has been challenged on certain grounds via appeal.


Whether the appeal can be held to be maintainable?

Reasoning & Analysis:

It was contended that appellants had lost right to appeal on ground that it had submitted to Orders of Court. The order of the court specifically meant that they would make such orders fit as it thought based on the circumstances of the case and that no party would have any right of appeal against such order. Thus, the court dwelled into determining whether the right to appeal is lost to the party by laying down a test for the same which stated that the correct test for judging whether the right to appeal be lost is to ascertain what procedure the original court had followed because of the agreement. Should because of the agreement the procedure for reaching the decision be fundamentally different to that usually followed by courts, the right of appeal would be lost.

The appellants challenged the reconstitution of the board of directors contending that it contravened provisions of Section 255 (Appointment of directors and proportion of those who are to retire by rotation) of the Companies Act of 1956. The order of the judge had immuned 2/3rd of directors from retiring by rotation and further the board had fixed a period of seven years thus depriving the shareholders of the company a right in the management of the affairs of the company. The appellants contended that by appointing three directors by the Government was in violation of Section 408 (Powers of Company Law Board on application under sections 397 or 398) of the Companies Act of 1956 stating that the court was not entitled to frame a new article 95 contravening Section 255 which the judge by amendment modified article 95 of the articles of association to provide that at each general meeting, the directors elected by the shareholders would retire from office and there is no provision made for retirement by rotation in regard to the remaining directors.

To answer the above contentions, the court distinguishes between the powers of the Government and the powers of the court by looking at Sections 408 and 402 of the Companies Act of 1956 by stating that while dealing with the prevention of oppression and mismanagement; some limitation has been set on the Government’s powers however no limitations or restrictions have been set on the court’s powers (Section 402 of the Companies Act of 1956) that may be required by the court to act upon for bringing about an end to the oppression and management complained of and to prevent any further oppression or mismanagement in the future. Under Section 397 read with Section 402 of the Companies Act of 1956, power has been conferred on the court to make such orders as it thinks fit. This the court would judicially exercise with the objective of preventing the affairs of the company from being conducted in a way that may be prejudicial to public interest. Sections 397 and 398 (Application to Company Law Board for relief in cases of oppression & mismanagement respectively) of the Companies Act of 1956 are intended to avoid the winding up of the company and to keep it going while at the same time providing relief to the minority shareholders of the company from acts of oppression and mismanagement and this the court can only do so by interfering with the normal corporate management of the company.


While acting under Section 398 and Section 402 of the Companies Act of 1956, the court has ample jurisdiction and very wide powers to pass such orders and give directions as it thinks fit to achieve the object and the same will not be violative of Section 255.

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