Appellate Division Cases
(Civil)
PARTIES
HBS Association (Pvt.) Ltd. and others………………..Appellants.
Vs.
Professor Shahabuddin Khaled Chowdhury and others.……………. Respondents
JUSTICES
Md. Ruhul Amin J
Md. Taiazzul Islam J
Judgment Dated: 22nd February 2005 .
The Companies Act, 1994, Section 233
Scottish Co-operative Wholesale .Society Co, Ltd. vs. Meyer (1958) 3 All HR 66
United Kingdom Companies Act 1985
Indian Companies Act 1956. Section 397
The English Companies ActJ985, Sections 459,461
Australian Companies Act, 1989, Sections 53,260
Mrs. Homera Ahmed vs Nchar Shipping Lines Lta, 22 BID HC 67
Seeking amongst others, appointment of auditors to audit the accounts of the company since its inception ………………………..(2)
The company being of quasi partnership in nature the respondent No.l, a sponsor shareholder cum director and also a joint signatory of the bank accounts of the company opened in several banks, had a legitimate expectation to be involved in and participate in active management of the company and that any action amounting to his dismissal/ exclusion from the management, even in lawful way, gives the Court the discretion to either reinstate him in the management or have his shares bought out at a fair value and in the above circumstances and the fact that the company is a going concern, compulsory purchase order was most proportionate order and accordingly the High Court Division considering the above situation rightly held that in the situation as it stood, the compulsory Purchase of the shares of the Respondent No.l by the majority shareholders i.e. appellant Nos. 2 and 3 at a fair value was the most effective means of protecting the interest of the minority and also the most effective means of resolving the existing dispute in as such a:, had such order not been passed, the court would have had no other effective option but to wind up che company, which would have been grossly disproportionate measure as the company was a going concern …………..(8)
It may be noted he^e chat it is of permanent paramount importance to a person intending to invest in any company that he should have reasonable security and protection against mismanagement of the company resulting in diminution oi the value of his investment. The majority shareholders in a company has the necessary means at their disposal to protect their interest but the minority shareholder often finds himself in a difficult situation. In the Companies Act 1913, which was in force in India till 1956 and in Bangladesh till 1994, there was hardly any provision regarding safeguarding the interest of minority shareholders against any action of the majority shareholders which is oppressive or prejudicial to the interest of the minority. Under section 162 of the said Act one of the circumstances in which a company could be wound up by the order of the Court was when the Court was of opinion that it was just and equitable to do so but such a course however, could not provide any relief to minority shareholder when winding up of the company was not in his interest and furthermore, under the aforesaid provision, it was incumbent upon the aggrieved person to establish that winding up of the company is just and equitable which was not always possible and the remedies were also so inadequate that increasingly need was felt universally for change and reform in this field. In the English Jurisdiction also before 1948, the court would not make a winding up order on the ground that is was just and equitable to do so where the petitioner had another remedy…………………….. (10)
In the instant case the respondent No.l who was a director as well as a joint signatory for operating the bank accounts of the company, also had a legitimate expectation to remain as such and moreover his investment in the company has been stuck off because of his removal from directorship of the company and no opportunity at ; 11 was given to the respondent No.l to remove his capital upon reasonable terms and as under section 233 the Court in a fit case may pass appropriate order and accordingly the High Court Division gave direction upon the appellant Nos. 2 and 3 to purchase the shares of the respondent No.l ………………………(33)
We are of the view that on correct appreciation of the materials on record the High Court Division gave the above direction and we find no cogent reason to interfere with the same ………………………………….(34)
Accordingly the appeal is dismissed. No order as to costs…………………. (35)
Rokanuddin Mahmud, Senior Advocate, instructed by ASM Khalequzzaman, Advocate-on-Record…………………… For the Appellants
Rafiq-ul-Huq, Senior Advocate, instructed by Md. Nawob AH, Advocate-on-Record.
………………………………….For Respondent No.l
Respondent Nos. 2-3 …………………….Not represented.
Civil Appeal No. 163 of2003
(From the judgment and order dated 7th January, 2002 passed by the High Court Division in Matter No. 94 of 2000).
JUDGMENT
Md. Tafazzul Islam J: This appeal by leave has arisen out of the judgment and
order dated 7.1.2002 passed by the High Court Division in Matter No.94 of 2000 directing the appellant Nos. 2 and 3 to purchase the share of the respondent No.l within 3 months from the date of assessment of the value of the shares of the appellant No.l company.
2. The aforesaid Matter No.94 of 2000 arose out of an application filed by the respondent No.l under section 233 of the Companies Act 1994, seeking amongst others, appointment of auditors to audit the accounts of the company since its inception, directions upon the appellant Nos.2 and 3 for conducting the affairs of the company without discrimination and also in accordance with the Articles of Association of the company, cancellation
of resolutions dated 18.1.96, 9.12.99 and 31.12.99 purportedly passed by the company
in violation of the Articles of Association of the company, hereinafter referred to as the Article, and also for withdrawal of several returns filed by the company removing the petitioner from the Board of Directors of the company. In the said application it was contended, inter alia, that the company is a private limited company having authorised capital of Tk. 1,00,00,000/- divided into 1,00,000 ordinary shares of Tk. 100/-each and it
was incorporated on 15.12.1993 mainly to build a 22 storied super market cum residential
apartment complex named VIP Tower at 125 Chaateswari Road, Chittagong and to sell the shops and apartments to be built therein; out of the four subscribers of the company the respondent No.l, the appellant Nos.2, the appellant No.3 and Abul Bashar respectively subscribed 625, 2500, 1000 and 875 shares, total being 5000 fully paid shares. Abul Bashar, later on, having transferred his 875 shares to the appellant No.2 the number of shareholders of the company was reduced to three (Annexures- B ana B-l to the application); Article 3 1 provided presence of three members to constitute the quorum for holding the general meeting of the company and out of them one must be the Chairman and Managing Director of the company or in the alternative the written
permission of the Chairman and/or the Managing Director is required for holding such meeting of the company; Article 53(d) provided for operation of bank accounts of the company by any two members of the company out of whom one must be the appellant No.2 and the respondent No.l was also one of the other two signatories; the company in the year 1995 commenced the project of the aforesaid VIP Tower and opened accounts with diffident banks at Chittagong namely Islamic Bank, Chawkbazar Branch, Arab
Bangladesh Bank Ltd. CD.A. Avenue Branch and Al Arafa Islami Bank, Agrabad Branch and in all the above accounts of the company the respondent No.l was one of the joint signatories along with the appellant No.2; immediately after starting of the piling works of the above V.I.P. Tower advertisements were published by the company for allotment of 520 shops and sale of 248 apartments and then the company received Tk. 15 crores
against allotments of shops and agreements for sale of apartments; the appellant No.2 in violation of the Article 53(d) opened Account No. 33004229 with Al Arafa Islami Bank in the fictitious name of K. Alam and since then all further transactions were carried out through the aforesaid account (Annexure-C, C-l, C-2 and C-3 of the application) and the appellant No.2 started misappropriation of funds and refused to provide any account of the money received from the customers of the company and to cover the wrongdoings
he, in collusion with the appellant No.3, also fabricated various resolutions purportedly
removing the respondent No.l from the Board of Directors of the company and in his place appointing his son Sabbir Hossain as a new director of the company and filed particulars of directors before the Registrar of Joint Stock Companies sliowing that the respondent No. 1 has been removed from the Board of Directors of the company and Sabbir Hossain has been appointed in his place and the appellant No.2, in collusion with
the appellant No.3, also fabricated resolution dated 18.01.96 amending Articles 38, 39 and 53 and also fabricated resolutions dated 9.12.99 and 31.12.99; the respondent No. 1 in the aforesaid circumstances submitted an application to the Assistant Registrar. Joint Stock Companies, Chittagong, stating the manner in which the above purported resolutions were fabricated and the said Assistant Registrar then sent several letters seeking explanation from the appellant No.2 regarding the said resolutions but the appellants did not send any reply except a perfunctory reply to the letter dated 22.11.99 (Annexures E,F.F- l,F-2 and F-3 of the application).
3. The appellants contested the above application by filing affidavit-in-opposition denying the material allegations and stating, inter alia, that though the respondent No.l was subscriber of 625 shares, which is equivalent to 12.5% of the paid up capital of the company, and became one of the first directors of the company but he having not paid any amount against the above shares no share certificates were issued in his favour against those sharers and ultimately his shares were forfeited for non payment of the share money and hence the respondent No. 1, not being a shareholder, is not eligible to file the present application under section 233 of the Companies Act 1994; the Memorandum and Articles of Association of the company the copy of which has been annexed as Annexure-A to the application, is not the certified copy of the approved
Memorandum and Articles of Association Khaled Chcmdliur\ (Md. Taf’az/ul Islam .1) y AD C (2008 ) of the company and Annexure- 1 to the affidavit-in-opposition is the duly certified copy of the same; though in terms of Article 39 the respondent No.l was also
one of the first subscribers of the company along with appellant Nos. 2 and 3 and Abul Bashar but Article 40 provided that a director must hold shares of nominal value of Tk.60,000/- in his or her own name and in terms of Article 44(a) the office of a director shall be vacated if any director fails to obtain the qualification shares within the time as specified under section 97(1) of the Companies Act, 1994 or at any time any such director ceases to hold such qualification share and the respondent No. 1, having failed to pay share money within 15.12.93, i.e. 60 days from the date of appointment by signing
Memorandum and Articles of Association, the shares subscribed by him were forfeited
and thereby he ceased to be shareholder and consequently he also ceased to be a director of the company (Annexures 2,3,4 and 5 of the affidavit-in-opposition); in the course of business, the company by registered deeds dated 25.4.95 and 12.11.96 purchased about 5 bighas of land for construction of V.I.P. Tower and prior to this there was a baina dated 28.10.93 signed between the sellers of the land, the appellant Nos. 2, and 3 and their children, the respondent No.l and the said Abul Bashar and on signing of the baina an
amount of Tk.40 lakhs was paid to the said sellers as advance; prior to the signing of
the said baina the respondent No. 1 and the said Abul Bashar signed an agreement
dated 19.10.1993 acknowledging that their share to the said advance of the 40 lacs amounts to Tk. 12 lakhs out of which they have only paid 5 lakhs out of which Abul Bashar having paid Tk. 4,50,000/and the respondent No. 1 having paid Tk. 50,000/- and they promised to pay within a year the remaining Tk.7 lakhs to the appellant No.2 who, over and above his portion of the advance against the above baina, also paid this amount of Tk.7 lacs; the said balance amount of Tk.7 lakhs was not paid by the respondent No. 1 and Abul Bashar but however Abul Bashar, not being able to pay his share of the advance, transferred 875 shares to appellant No.2 and accordingly return was filed to the
Registrar of Joint Stock Company on 15.12.95 showing that Abul Bashar after transfer of his shares had ceased to be a shareholder of the company (Annexures 10 and 11 of the affidavit-in-opposition); in terms of Article 31 of the correct version of the Memorandum and Articles of Association as contained in Annexure-1 to the affidavit-in-opposition, the quorum for holding a general meeting is the presence of only two members and therefore
the allegation of fabrications of the resolutions are not correct; an extra-ordinary general meeting of the company was held on 18.1.96 and Articles 38,39 and 53 were duly amended by passing special resolutions whereby the appellant No.3 became the Chairman of the company and appellant No.2 became its Managing Director and the appellant No.3 was also authorised to operate the bank accounts of the company in the absence of the appellant No.2; besides in the meeting of the Board of Directors of the company held on 9.3.98 similar decision regarding operation of the accounts of the company maintained with the Al Arafa Bank by the appellant Nos, 2 and 3 was also taken (Annexures 12 and 13 of the affidavit-in-opposition); under the principles of Islamic banking, bank loan or credit facilities are not given directly to a borrower but are disbursed directly to the supplier of the goods and therefore the above Al Arafa Bank permitted K. Alam, the supplier of the building construction materials, to open an account
with the said bank and said K. Alam also authorised the appellant No.2 to operate the said account and following the complain made by the respondent No.l an investigation was made by the Bangladesh Bank into the said account of K. Alam but no irregularity was found (Annexure-14 to the affidavit-in-opposition); the wife of the respondent No. 1 and the wife of Abul Bashar after creating a forged document with the help of their husbands obtained an order of injunction from the First Court of the Subordinate Judge, Chittagong
which was however vacated on 28.01.2001.
4. The respondent No.l filed affidavit-inreply denying the claim made by the appellants to the effect that the respondent No.l is not a shareholder of the company and stated that the even the very contents of Annexure- 1, on which the appellants rely, will show that all the shares subscribed by the sponsor shareholders are fully paid up shares and that admittedly
the respondent No. 1 was a sponsor shareholder of the company and further the list of shareholders submitted by the appellant No.2 with the Registrar of Joint Stock Companies on 31.12.98 will also show that the respondent No. 1 is the holder of 625 fully paid up shares and moreover the contents of Annexures Y, Z and ZA of the affidavit-in-reply will prove that some payments against purchase of the land was
made by the respondent No. 1; for various illegalities irregularities of the appellants
the Assistant Registrar, Joint Stock Companies, Chittagong sought explanation from the appellant No.2 but the appellant No.2 failed to give any satisfactory explanation: the resolutions of the so called extra-ordinary general meeting of the company held on 18.01.96 was filed as late as on 9.9.99 and as such on the face of it nullity in the eye of law and further the so called investigation report filed by the Bangladesh Bank has been manipulated by Al Arafa Bank to save its skin and that there was never any supplier in the name and style of K Alam.
5. The High Court Division, after hearing held that Annexure X- 1 to the affidavit-in-opposition is the true certified copy of the approved Memorandum and Articles of Association of the company and that Article 31 was duly amended and in terms of the amended Article 31 the presence of only two shareholders constituted quorum for holding general meeting of the company and accordingly the extraordinary general meetings of the company were duly held. But at the same time High Court Division also allowed relief to the respondent No. 1 on the ground that as is evident from the Memorandum and Articles of Association and returns filed by the company the respondent No.l is a holder of 625 fully paid up shares and accordingly is entitled to file the application under section
233 of the company Act 1994 and that the amendment in question, though legal, but were made to deprive the respondent No.l to participate in the management of the company and his interest has also been discriminated because of removing him from the post of director of the company and also excluding him as one of tike signatories of the bank accounts of the company and accordingly the High Court Division, while not entertaining the prayer for rectification of the Articles, was at the same time interested to see that a fair settlement of the affairs of the company is reached but since the relationship between
respondent No.l on one hand and appellant Nos.2 and 3 on the other hand reached to such a stage that it would be impossible for them to work together for the interest of the company which resulted in a deadlock in the affairs of the company and therefore to ensure continuity of the business of the company the appellant Nos. 2 and 3, the major shareholders of the company, should buy the shares of the respondent No.l, the minority shareholder, at a fair price within 3 months after the assessment of the value of the shares of the company to be made by Rahman Huq, a Chartered Accountant Firm, and once
such assessment is made the appellant Nos. 2 and 3 are to purchase the shares of
the respondent No. 1 within 3 weeks from the date of the assessment.
6. Leave was granted in the following terms:
“Mr.Rokanuddin Mahmud, the learned counsel appearing for the petitioners submits
that there being no prayer to buy out of the minority shares by the majority shareholders and there being no such power vested in the High Court Division either in section 233 of the said Act or any other section or law, the High Court Division was wrong in giving a direction for purchase of the shares of petitioner-respondent by respondent-petitioners at a fair price and such order cannot be passed in an application under section 233 of the
said Act. The learned counsel submits that the aforesaid directive of the High Court
Division is violative of the fundamental rights of respondent-petitioners Nos.2 and 3 as the said Article prohibits any compulsory sale or purchase or acquisition of any property except in accordance with any law and inasmuch as the permits such buy out.Dr. M. Zahir, the learned counsel appearing for the respondent No. 1 has submitted that the respondent No.l has a legitimate expectation as he has invested money in the company which is a small company in the nature of quasi partnership and in such company it is expected that should be allowed to participate in the management of the company. He then submits that the respondent No. 1 was removed by an illegal meeting as he was not given any notice of the meeting required under section 88(2) of the Companies Act. No notice has been produced by the respondents to show that such notice was given. Moreover, such removal was not in the best interest of the company. He claims that the petitioners by practicing fraud on the respondents No.l altered the Articles of Association. The shares held by the respondents are fully paid up, will be evident from the record which contains a list of shareholders, filed with the Registrar of Joint Stock Companies. It shows that the respondent No. l’s shares are fully paid. He then submits that the record shows that the respondent No.l is a shareholder and once his name is entered, even if the share is not paid, a call in writing must be made on him. But no such call in writing was
made on him. He has further submitted that to make any correction of Memorandum and Articles of Association, the person correcting it should be authorised by the Managing Director, but in this case no letter of authority has been produced before this court. Therefore, alteration of Memorandum of Articles of Association was done fraudulently with the help of the office of the Registrar of the Joint Stock Companies. As a result amended Articles of Association remains the same and quorum required is the presence
of three persons in the meeting. Since two persons were present in the meetings the resolutions thus adopted are against the interest of the respondent No. 1.”
7. The learned counsel appearing for the appellant submits that in fact there is no deadlock in the affaires of company and the same is being run and managed smoothly without any hindrance and there is also on impediment in holding the general meeting as well as the meeting of the Board of Directors of the company and all such meetings are being duly held and the bank accounts of the company are also operated as per various resolution passed by the company in this regard as well as per provisions of the Articles of Association of the company and that the High Court Division having not found that
the amendments are illegal or prejudicial, its finding that there was a deadlock in the
affairs of the company is based on mere surmise and conjecture. The learned counsel
next submits that there being no power vested in the High Court Division under section 233 of the Companies Act 1994 to direct the majority shareholders to buy out the minority shere-holders, the direction given by the High Court Division to the above effect can not be sustained specially when it was never the case of the respondent No.l that he proposed to sell his shares but the Board of the Directors of the company refused his proposal and further the facts of the case of Nahar Shipping Lines Ltd. vs. Mrs. Homera
Ahmed, reported in 9 MLR (AD) 72, is different from the facts of the present case in as such as, amongest other, in the present case in the application filed under section 233 there is no prayer to buy out the minority shares by the majority shareholders. The learned counsel further submits that removal of a director being permitted by the Articles of Assocition of the company and the respondent No.l was removed from the post of director in accordance with law and accordingly such removal cannot be regarded as oppression of the minority and/or resulting deadlock in the affairs in the company and further transfer of shares by a member to his heirs and/ or induction or ouster of a director
itself is not an act prejudicial to the interest of the company. The learned counsel next submits that though in English jurisdiction the House of Lords in the case of Scottish Co-operative Wholesale Society Ltd. vs. Meyer (1958) 3 All ER 66 affirmed the decision of the Court of Appeal directing the majority shareholders to purchase the shareholders of minority shareholders but subsequently in the case of ‘O’ Neill and of another vs. Philips
and others (1999) 2 All ER 961 the House of Lords took a different views. The learned counsel lastly submits that the direction of the High Court Division directing the appellant Nos. 2 and 3 to buy out the shown of the respondent No. 1 is also violative of the fundamental rights of the appellant Nos. 2 and 3 as provided in the Constitution of the People’s Republic of Bangladesh.
8. The learned counsel appearing for the respondents submits that in 9 MLR (AD) 70 the Appellate Division affirmed the judgment passed by the High Court Division which has been reported in 22 BLD HC 67 holding that under section 233 of the Companies Act 1994 the High Court Division can give the relief as sought by the applicant or any other relief and as it deems fit and from the judgment reported in 22 BLD HC 67 it will appear
that the High Court Division while giving relief under section 233 discussed relevant
provisions of the relevant laws of English, Indian and Australian jurisdictions and also cited relevant case laws of the above jurisdictions and^that the principle as laid down in 9 MLR (AD) 70 is very much applicable in the instant case in as much as herein all the sponsor shareholders of the company were also the directors of the company and the records of the present case reveal that there were serious allegations of diversion of the funds of the company and that the appellant No.2 obtained orders from the courts restraining the respondent No.l from entering the project site and further the relationship between the parties reached to such a stage that A both the parties could not any longer work together for the best interest of the company and the company being of quasi partnership in nature the respondent No.l, a sponsor shareholder cum director and also
a joint signatory of the bank accounts of the company opened in several banks, had a legitimate expectation to be involved in and participate in active management of the company and that any action amounting to his dismissal/ exclusion from the management, even in lawful way, gives the Court the discretion to either reinstate
him in the-management or have his shares bought out at a fair value and in the above
circumstances and the fact that the company is a going concern, compulsory purchase
order was most proportionate order and accordingly the High Court Division considering the above situation rightly held that in the situation as it stood, the compulsory Purchase of the shares of the Respondent No.l by the majority shareholders i.e. appellant Nos. 2 and 3 at a fair value was the most effective means of protecting the interest of the minority and also the most effective means of resolving the existing dispute in as much as had such order not been passed, the court would have had no other effective option but to wind up the company, which would have been grossly disproportionate measure as the company was a going concern. The learned counsel also referred to the decision reported in 37 DLR (HCD) 41, where the High Court Division held that in appropriate case the Court can give reliefex debitio justiceo and that this section 233 of the Companies Act has also been considered in the decisions reported in 53 DLR (HCD) 81 and 56 DLR (AD) 83 wherein effective orders have been passed under section 233 in order to protect the interest of the minority.
9. As it appears the main question involved in this appeal is to what extent the High Court Division can grant relief under section 233 of the Companies Act 1994 for safeguarding the interest of minority shareholders and whether in the present case the High Court Division acted beyond the scope of section 233 by directing the appellant Nos. 2 and 3 to buy out the shares of the respondent NJ. 1 at a fair value.
10. It may be noted here that it is of permanent paramount importance to a person intending to invest in any company that he should have reasonable security and protection against mismanagement of the company resulting in diminution of the value of his investment. The majority shareholders in a company has the necessary means at their disposal to protect their interest but the minority shareholder often finds himself in a difficult situation. In the Companies Act 1913, which was in force in India till 1956 and in Bangladesh till 1994, there was hardly any provision regarding safeguarding the interest of minority shareholders against any action of the majority shareholders which is
oppressive or prejudicial to the interest of the minority. Under section 162 of the said
Act one of the circumstances in which a company could be wound up by the order of the Court was when the Court was of opinion that it was just and equitable to do so but such a course however, could not provide any relief to minority shareholder when winding up of the company was not in his interest and furthermore, under the aforesaid provision, it was incumbent upon the aggrieved person to establish that winding up of the company is just and equitable which was not always possible and the remedies were also so inadequate that increasingly need was felt universally for change and reform in this field. In the English Jurisdiction also before 1948, the court would not make a winding up order
on the ground that is was just and equitable to do so where the petitioner had another remedy. If the directors did an ultravires act the proper remedy was injunction or if they mismanaged, it was said that the petitioner should address himself to the general body of the members. Such remedies in many instances turned out to be illusory or inadequate
where the perpetrators of the aforesaid wrongs also controlled the majority voting
power. In consideration of the above in the year 1945 the Cohen Committee noted as
follows:
“In many cases, however, the winding up of the company will not benefit the minority
shareholders since the break up value of the asset may be small or the only available
purchaser may be that very majority whose oppression has driven the minority to seek redress. We therefore, suggest that the Court should have in addition the power to impose upon the parties to a dispute whatever settlement the court considers just and equitable. This discretion must be unfettered, for it is impossible to lay down a general guide to the solution of what are essentially individual cases. We do not think that the court can be expected in every case to find and impose a solution but our proposal will give the court a jurisdiction which it at present lacks and thereby at least empower it to impose a solution
in those cases where none exist.”
11. This is what was sought to be achieved by S. 210 of 1948 Act which runs as follows:-” If on petition of any member of a company who complains that the affairs of the company are being conducted in a manner oppressive to some part of the members (including himself) the court is of opinion (a) that the companys affairs are being conducted as aforesaid and (b) that to wind up the company would unfairly prejudice that part of the members but otherwise the facts would justify the making of a winding up order on the ground that it was just and equitable that the company should be wound up, the court may, with a view to bringing to an end the matters complained of make such order as it think fit, whether for regulating the conduct of the companys affairs in future or for the purchase of the shares of any members of the company by other members of
the company or by the company and in the case of purchase by the company for reduction accordingly of the company’s capital, or otherwise”
12. In the case of Scottish Co-operative Wholesale Society Co. Ltd. vs. Meyer (1958) 3 All ER 66 the House of Lords gave liberal interpretation to the above section 210. The fact of this case is that Scottish Textile & Manufacturing Co. Ltd., which was a private company was formed in 1946 by the appellant Society to manufacture rayon cloth at a time when this product was subject to a system of state licensing. The society held the
majority of the issued shares and had appointed three of its own directors to the Board; the respondents Meyer and Lucas who held the rest of the shares, were joint managing directors and as such filled the remaining seats on the Board; The society had formed this subsidiary because it could not have secured a license to produce rayon cloth without experienced managers and the respondents hadie the necessary experience. After licensing ceased in 1952 the society by transferring the company’s business to another branch of its organisation and cutting off the supply of raw materials on which the company was dependent, caused its activities to come to a standstill, with the result that it
made no profits and the value of its shares fell greatly. The respondents petitioned for
relief under section 210 which 1948 Act and the House of Lords, confirming the decision of the Court of Appeal ordered the society to purchase the shares of the respondents at a fair price.
13. But even after pronouncement of the above judgment in many cases effective protection was not available to minorities since in terms of the law as it stood, one
had to establish facts that would justify the making of a winding up order on the ground that it was just and equitable that the company should be wound up and in the case of a solvent going concern the winding up order was no remedy at all and the courts too were most reluctant to make such an order. It was the opinion of the Jenkins Committee that the aforesaid provision did not produce the desired result and Jenkins Committee and later on the Gower Commission expressed the view that the basic condition for relief that is whether the affairs of the company were conducted in a manner oppressive to the
minority should be broadened to include unfair dealing of any kind and the relevant
law should be so formulated as to provide for not only a course of action but also any
particular act which is oppressive or unfairly prejudices the interest of the minority.
14. Accordingly necessary changes were made by section 75 of Companies Act 1980, which now, with some modification, are sections 459 and 461 of the Companies Act 1985 which read as follows:
United Kingdom Companies Act 1985:
Protection of Company’s Members against Unfair Prejudice Section 459: Order on application of company member (1)A member of a company may apply to the court by petition for an order under this part on the ground that the company’s affairs are being or have been conducted in a manner which is [unfairly prejudicial to the interests of its members generally or of some part of its members] (including at least himself) or that any actual or proposed act or omission of the company (including an act or omission on
its behalf) is or would be so prejudicial.
(2)The provisions of this part apply to a person who is not a member of a company but to whom shares in the company have been transferred or transmitted by operation of law, as those provisions apply to a member of the company; and references to a member or members are to be construed accordingly. Section 461: Provisions as to petitions and orders under this Part (l)If the court is satisfied that a petition under this part is well founded, it may make such order as it thinks fit for giving relief in respect of the matters complained of (2)Without prejudice to the generality of subsection (1). the court’s order
may(a)regulate the conduct of the company’s affairs in the future, (b)require the company to refrain from doing or continuing an act complained of by the petitioner or to do an act which the petitioner has complained of by the petitioner or to do an act which the petitioner has complained it has omitted to do, (c)authorise civil proceedings to be brought in the name and on behalf of the company by such person or persons and on such terms as the court may direct, (d)provide for the purchase of the shares of any members of the company by other members or by the company itself and, in the case of a purchase by the company itself, the reduction of the company’s capital accordingly.
15. In India substantially similar provisions were incorporated in section 397 of the Companies Act 1956 which reads as follows:
Indian Companies Act 1956, Section 397.
Section 397: Application to Company Law board for relief in cases of oppression (1 ) Any members of a company who complain that the affairs of the company are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member of members may apply to the Company Law Board for an order under this section, provided such members have a right to to apply in virtue of section 399. (2)If, on any application under sub-section (1) the Company Law Board is of opinion, (a)that the company’s affairs are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members; and (b)that to wind up the company would unfairly prejudice such member or members, but that otherwise the facts would
justify the making of a winding-up order on the ground that it was just and equitable
that the company should be wound up; the Company Law Board may, with a view to bringing to an end the matters complained of make such order as it thinks fit.
16. Subsequently Ishtaq Committee, which was formed to make necessary change in the Companies Act 1913 which was in force in Bangladesh, considering the views expressed by Jenkins Committee, Gower Commission and the relevant provisions of laws of English, Indian and other jurisdiction took the view that the law should not make it incumbent upon the aggrieved persons to seek a specific relief, rather the court’s powers
should remain unfettered to enable it to find the best possible remedy in the ircumstances
of each case. The result is incorporation of section 233 in the Companies Act 1994.
17. Section 233 of the Companies Act 1994 provides as follows: “Power of Court to give direction for protection interest of the minority.(l) Subject to fulfilment of the conditions of the required minimum as specified in section I995(a) and (b) any member or debentureholder of a company may either individually or jointly bring to the notice of the
court by application that
(a) the affairs of the company are being conducted or the powers of the directors are being exercised in a manner prejudicial to one or more of its members or debenture holders or in disregard of his or their interest; or
(b) the company is acting or is likely to act in a manner which discriminated or is likely to discriminate the interest of any member or debenture holder;
(c) a resolution of the members, debenture holders or any class of them has been passed or is likely to be passed which discriminates or is likely to discriminate the interest of one or more of the members, or likely to debenture holder; and party for such order, as in his or their opinion, would be necessary for safeguarding his or their interest and also the interest of any other member or debenture
holder. (2)…………………
(3) if after hearing the parties present on the date so fixed, the Court is of opinion that the interest of the applicant or applicants has been or is being or is likely to be prejudicially affected for reasons specified in the application, it may make orders as prayed for or such other order as it deems fit including a direction (a) to cancel or modify any resolution or transaction, or (b) to regulate the conduct of the company’s affairs in the future in such manner as is specified therein (c) to amend any provision of the memorandum and articles of the company.
18. It thus appears that under section 233 of the Companies Act 1994, for protection of minority interest, over and above the powers given under sections 397 and 398 of Indian Companies Act 1956 additional prior given to court and under it member or debenture holder of a company who held required member of shares may individually or jointly bring to the notice of the court by application that (a) the affairs of the company are being conducted or the powers of the directors are being exercised in a manner prejudicial to one or more of its members or debenfure holders or in disregard of his or their interest, or
(b) the company is acting or is likely to act in a manner which discriminated or is
likely to discriminate the interest of any member or debenture holder;
(c)a resolution of the members, debenture holders or any class of them has been
passed or is likely to be passed which discriminates or is likely to discriminate the interest of one or more of the members or likely to debenture holder.
19. In the case of Mrs. Homera Ahmed vs Nehar Shipping Lines Ltd, 22 BLD HC
67, K.M. Hasan J, as he then was, in his detailed judgment discussed the scope of
above section 233. In the said case an application under section 233 under Companies Act 1994 was filed raising the grounds, amongst others, that the petitioners never received any benefit from the company since the death of Mr. Ashraf Ahmed, one of the sponser director the petitioners have been excluded by the respondents, the majority shareholders, to take part in the affairs and management of the company though the petitioners own 27.50% of the shares in the company; the petitioners were kept in dark about the affairs of the company by the respondents; no Annual General Meeting of the
Company has been held since 1985; financial bungling committed by the respondent
Nos. 2-5 have been evidenced by the demands for repayment by financial institutions;
the respondents have treated the company as their own personal business and have received all the benefits without disclosing the same to the petitioners or sharing the same with them they have filed false accounts with the Registrar of Companies and have defrauded the company and that the petitioners have been deprived of all the profits earned by the company utilizing the’vessels Shah Badar1 and Shah Badar-Il owned by the company and the petitioner No.4 wrote letters inter alia, to the Secretary Ministry of
Commerce complaining the above issues on 7th February 1991 and also to the respondent Nos.2 on 1st June 1991 but she did not get any reply from them.
20. The High Court Division after referring to the above section 233 observed that provisions of the section are equivalent to the provisions in sections 459 and 461 of the English Companies Act, 1985, Section 397 of the Indian Companies Act, 1956 and Section 53 and 260 of the Australian. Companies Act, 1989; an analysis of these- equivalent provisions give an useful insight into the Bangladeshi section 233 and helps to understand its meaning and construction, particularly, as this is a noble provision and as its application is not as developed in the other jurisdictions; the words of section 233(1) to consider in the context of the case were; “affairs of the company” and “powers of the directors”; section 459 of the English provision is based upon “unfairly prejudicial” of the conduct which has been discussed in different decisions of the English Courts, section 397 of the Indian Companies Act, 1956 and section 260 of the Australian legislation; English Court in Re. BSB Holding Ltd. IBCLC(1996) 155, held that the words “unfairly prejudicial” were wide and general and the circumstances in which they apply cannot,
therefore, be exhaustively categorized; Mrs. Justice Arden who delivered the judgment in that case anaK/ed the guidelines set out in the case by Neil LJ in Re Saul D Harrison & Sons PLC (1995) 1 BCLC 492 and the said guidelines include the following:
(i)the words “unfairly prejudicial” are general words and they should be used flexibly to meet the circumstances of the particular case (ii) the section giving relief should not be allowed to become an instrument of oppression nor to stifle managerial decisions (iii) the relevant conduct of commission and omission must relate to the affairs of the company of which the petitioner is a member (iv) prejudicial conduct means causing prejudice or harm to the relevant interest (v) unfairness can arise out of a breach of the petitioner’s
legal rights, i.e. those in the memorandum and articles of association or arising out of
the fiduciary duties of directors, or the petitioner’s legitimate expectations (vi) serious mismanagement of a company; business can constitute unfairly prejudicial conduct and (vii) directors exceeding their powers or exercising then for some illegitimate or ulterior purpose would allow a shareholder to complain; in India, the operative words giving rise to relief under section 397 is “a manner oppressive to any member or members” which is
upon “oppression” and the conduct required must be burdensome, harsh and wrongful; under the Australian regulation, section 260 provides a reriedy against any person involved in the affairs of the company, this includes the directors, majority shareholders, substantial shareholders as well as the company itself and under this section an application must allege that “affairs of the company” being conducted in an oppressive, unfairly prejudicial, or unfairly discriminatory manner or contrary to the interests of the members as a whole; the expression “affairs of the company” is widely defined in section 53 of the Act, in relation to body corporate “affairs of the company” which means (i)
the promotion, formation, membership, control, business, trading, transaction, property, liabilities profits and the income,receipts, losses, out going and expenditure (ii) the internal management and proceedings; and the power of persons to exercise, or to control the exercise of the rights to vote attached to shares in the body corporate or to dispose of or to exercise control over the disposal of such shares; as the Bangladeshi statute contains similar words, the situations encompassed in the Australian section 53 will also be encompassed in Bangladesh section 233; the starting point of the inquiry by the Court on an application by minority shareholder protection must be words of section 233 itself; the word “prejudice” is wider and general than the words “unfairly prejudicial” used in the English and Australian sections and the circumstances in which this will apply cannot therefore be categorized; under the Australian section 260 relief is granted where a minority shareholder finds himself “locked-in”; in Bangladesh a similar situation would entitle a minority shareholder for relief as in the instant case because a minority shareholder was not allowed to take part, but his investment is locked in the company
and he can neither take it out nor can participate in the profit, as it is in the instant case; section 233(1) has been considered recently in the cases Nafisa Chowdhury vs. United Food Complex 53 DLR (2001) 81 and Syed Al Nesar Ahmed vs. Nafisa Chowdhury 53 DLR (AD) 2001) 83 respectively wherein mismanagement of the company and usurpation of the office of the Managing Director of the company named in the articles and harsh and burdensome and wrongful conduct were accepted as being situations covered by the section and in this case covered the powers of the Managing Director, the
holding of annual general meetings and the appointment of auditors and the court gave appropriate directions to deal with the situation complained of.
21. The High Court Division held that under section 233 if the court after hearing the evidence and the submissions, is of the opinion on a balance of probabilities that the applicant “has been or is being or is likely to be” prejudicially affected, it can give relief and there must be a causal nexus between the misconduct relied upon and the effect upon the applicant and the alleged conduct of commission or omission must relate to the affairs of the company, one of whose member is the petitioner before the company court. It is also to be remembered that the management of a company is entrusted to the directors,
who under the law have to exercise their powers in the interest of the company as
whole and that a remedy under section 233 can be given only if the directors have
acted in the breach of duty specified by any of its articles and there has been breach thereof or any relevant agreement and further under section 233, the court can give the relief sought by the applicant or any other relief. The objective of the relief is to negate the impact of the prejudicial or other relevant misconduct on the part of the majority shareholders and such relief can take any form that is thought to be suitable either by the applicant or by the court and in the English and Australian jurisdictions, there are specific provisions which provide the relief and that the Indian section 397 is flexible as that of the Bangladeshi provision in terms of the relief that can be given ard the Bangladesh provision is so wide that each of relief contemplated by the English and the Australian provisions can be given under it and most common relief is for the majority to buy out the minority share in appropriate situations, the minority can be ordered to sell to the majority as has been held in Re Brenfeld Squash Racquets Club Ltd. (1996) 2 BCLC 1984 and that in Bird Precision Bellows Ltd. (1984) Ch.419 it was held that the court could determine the valuation on the basis of expert evidence but the valuation has to be fair.
22. The High Court Division, after narrating the prejudicial and misconduct on the part of the majority shareholders took the view that the Court has the power in the interest of the company to direct the majority respondent to buy the shares of the minority shareholder i.e. the petitioner and accordingly relying on the scenario presented by Mr. A.M. Chowdhury, FCA on the valuation of the shares of the company gave direction for purchase of the shares of the minority.
23. In 9 MLR (AD) 58 the Appellate Division affirmed the above judgment.
24. The learned Advocate of the appellant however referred to the decision reported
in (1999) 3 All ER 961. The facts of the above case are that in January 1985 Phillips who held the entire issued share capital of a company which operated in the construction industry, gave O’ Neill a worker employed by the company, 25 shares and appointed him a director. On 30 December 1985 Phillips retired from the Board leaving O’ Neill as sole, and in effect Managing Director. The company prospered and O’ Neill was credited with half the profits, some of which he drew in the form of salary and dividends and some
of which he left in the company. When a dividend was declared, Phillips waived a third of his 75% entitlement in favour of O’ Neill to produce equality. In 1988 £ 49,000 of retained profits, which partly represented O’ Neill’s under drawn entitlement, was capitalised by the issue of bonus shares allotted in the same proportions as their existing holdings to increase the company’s issued share capital to £50,000, and in September 1999 another £ 50,000 was capitalised in the same way and non-voting shares were issued. Discussions also took place with a view to O’ Neili’s obtaining 50% shareholding but no agreement was, in the event, concluded. In 1991 the construction industry went into recession and Phillips became alarmed about the company’s financial position and concerned about 0′ Neill’s management. He accordingly decided to resume personal command and gave O’ Neill the option of managing, under him, the UK or the German branches of the business. O’ Neill chose to go to Germany and remain in the board as an ordinary director. Later that year Phillips determined that as O’ Neill was no longer acting
as Managing Director and he would be paid only his salary and dividends payable
on his 25% shareholding. O’ Neill decided to sever his links with the company and issued a petition under section 459(1) of the Companies Act 1985 claiming that the company’s affairs were being conducted in a manner unfairly prejudicial to his interests. The judge dismissed the petition on the grounds that Phillips had not committed himself to unequal sharing of profits or made any promises regarding additional shares, and that the prejudice to 0′ Neills interests had not been suffered in his capacity as a member of the company. O’ Neill appealed to the Court of Appeal, which allowed his appeal and ordered Phillips to buy his shares, holding that O’ Neill had a legitimate expectation that he would receive an equal share of profits and additional shares and that denial by Phillips of those expectations was unfairly prejudicial to O’ Neill’s interests as a member and had forced him out of the company. Phillips appealed to the House of Lords. The House of Lord after hearing held that for the purposes of S 459 of the 1985 Act, although a member of a company would not ordinarily be entitled to complain of unfairness unless there had been some breach of the terms on which he had agreed that the company’s affairs should be conducted, equitable considerations might make it unfair for those conducting the affairs of the company to rely on their strict legal powers. That would be
so where the exercise of the power in question would conflict with the promises the parties had exchanged, and it was not necessary that such promises should be independently enforceable as a matter of contract. However, the fact that trust and confidence between the parties had broken down was not sufficient and that in the
instant case, since the judge had found that Phillips had made no promises, there was
no basis, consistent with the principles of equity, for a court to hold that Phillips had
behaved unfairly. It followed that there was no basis for the Court of Appeal’s finding that O’ Neill had been driven out of the company. Accordingly, the appeal was allowed and the petition dismissed.
25. So the facts of the above case is different from the facts of the present case.
26. As it appears in the above case the House of Lords interpreted the word “unfairly prejudicial” as follows:
“In section 459 Parliament has chosen fairness as the criterion by which the court must decide whether it has jurisdiction to grant relief and it is clear from the legislative
history (which discussed in Re Saul D Harrison & sons place [1995] 1 BCLC 14
at 17-20) that it chose this concept to free the court from technical considerations of legal right and to confer a wide power to do what appeared just and equitable. But this does not mean that the court can do whatever the individual judge happens to think fair. The concept of fairness must be applied judicially and the content which it is given by the courts must be based upon rational principles. As Warner J said in Re J E Code & Son Ltd [1992] BCLC 213 at 227; The court … has a very wide discretion, but it does not sit under a palm tree’.
27. Although fairness is a notion which can be applied to all kinds of activities, its content will depend upon the context in which it is being us-ed. Conduct which is perfectly fair between competing businessmen may not be fair between members
of a family. In some sports it may require, at best, observance of the rules, in others (“it’s not cricket’) it may be unfair in some circumstances to take advantage of them. All is said to be fair in love and war. So the context and background are very important.
28. In the case of section 459, the background has the following two features.
First a company is an association of persons for an economic purpose, usually entered into with legal advice and some decree of formality. The terms of the association are contained in the articles of association and sometimes in collateral agreements between the shareholders. Thus the manner in which the affairs of the company may be conducted is closely regulated by rules to which the shareholders have agreed. Secondly, company law has developed seamlessly from the law of partnership which was treated by equity,
like the Roman societies, as a contract of good faith. One of the traditional roles of
equity, as a separate jurisdiction, was to restrain the exercise of strict legal rights in certain relationships in which it considered that this would be contrary to good faith. These principles have, with appropriate modification, been canned over into company law.
29. The first of these two features leads to the conclusion that a member of a company
will not ordinarily be entitled to complain of unfairness unless there has been some breach of the terms on which he agreed that the affairs of the company should be conducted. But the second leads to the conclusion that there will be cases in which equitable considerations make it unfair for those conducting the affairs of the company to rely upon their strict legal powers. Thus unfairness may consist in a breach of the rules or in using the rules in a manner which equity would regard as contrary to good faith.”
30. The House of Lords further held that this approach to the concept of unfairness in section 459 runs parallel to that which the House of Lords in the case of Ebrahimi vs Westbourne Galleries Ltd [1972] 2 All ER 492, [1973] AC 360, adopted in giving the concept of ‘just and equitable’ as a ground for winding up and after referring to cases on the equitable jurisdiction to require partners to exercise their powers in good faith, Lord
Wilberforce in the decision reported in [1972] 2 All ER 492 at 500, [1973] AC 360 at 379):said ‘The words [just and equitable’] are a recognition of the fact that a limited company is more than a mere legal entity, with a personality in law of its own; that there is room in company law for recognition of the fact that behind it, or amongst it, there
are individuals, with rights, expectations and obligations inter se which are not ecessarily
submerged in the company structure. That structure is defined by the Companies Act 1948 and by the articles of association by which shareholders agree to be bound. In most companies and in most contexts, this definition is sufficient and exhaustive, equally so whether the company is large or small. The ‘Just and equitable’ provision does not, as the
respondents [the companyj suggest, entitle one party to disregard the obligation he assumes by entering a company, nor the court to dispense him from it. It does as equity does, enable the court to subject the exercise of legal rights to equitable considerations