Nafisa Choudhury Vs. United Food Complex Ltd. and another

Nafisa Choudhury (Petitioner)

Vs.

United Food Complex Ltd. and another (Respondents)

Supreme Court

High Court Division

(Original Civil Jurisdiction)

Present:

Md. Awlad Ali J

Judgment

December 12 & 13, 2000.

Cases Referred To-

M Moorthy Vs. Drivers and Conductors Bus Service P Ltd (1991) 71 Company Cases 136 (Mad); Faruk (Md) Vs. Abdul Hamid and others 51 DLR (AD) 48; HR Harmer Ltd (1958) 3 All England Reports 689.

Lawyers Involved:

Moudud Ahmed with Saqwat Seraj, Advocates—For the Petitioner.

Rokunuddin Mahmud with Sheela R Rahman, Advocates—For Respondent Nos. 1 & 3.

Mainul Hosein in with Iqbal Malik, AdvocatesFor Respondent No. 2.

AKM Nazrul Islam with Md Sajjad Hossain, Advocates— For Respondent No. 4.

Matter No. 58 of 2000.

Judgment

Md. Awlad Ali J.- This application under section 2 of the Companies Act, 1994 has been presented by the petitioner who is a share-holder of United Food Complex Ltd.

2. The petitioner’s Case, in brief, is that the petitioner is a minority share-holder holding 28,860 shares out of 1,47,816 shares issued by the United Food Complex Ltd (hereinafter called). The respondent No.1 company is a public limited company which was incorporated on 10-1-81 to carry on business of poultry, fish, dairy, etc. with an authorised capital of 3 crore and a paid up capital of Taka 1,75,000.00. The company was granted a loan of Taka 2,28,70,000.00 by the BSRS the respondent No. 4 by agreements dated 10-6-81 and 28-3-83. The loan was also granted by Investment Corporation of Bangladesh and 5 other commercial banks. The company was granted a working capital loan of Taka 30,00.000.00 by BSRS and Taka 35,00,000.00 by Janata Bank, Dhaka and thus the company received a sum of Taka 3,63,70,000.00 by 1984 as loan and Taka 1,75,000.00 as paid up capital to start its business. It is alleged that the company defaulted in making payment of loan to BSRS and the liability increased from Taka 363 crore in 1984 to Taka 9,49,47,195.00 by the end of 1997. The petitioner and her husband respondent No. 3 invested considerable amount of money to set up their own poultry and poultry hatchery. They imported 3 incubators and 3 hatchers from Denmark at a cost of Taka 17,13,418.00 and spare parts worth of Taka 6,67,296.00. The respondent No. 2 approached the petitioner and respondent No. 3 that they buy shares in the company and integrate their hatchery with the company’s hatchery) thereafter by an agreement dated 26-8-97 between the company represented by the then Managing Director, the respondent No. 2, the petitioner, the respondent Nos. 3, 7 and 8, the petitioner agreed purchase the company’s share worth of Taka 28,86,000.00 on certain conditions. The conditions are that the respondent No. 3 will become the Chairman of the company and all financial and executive power will vest in the Chairman and that BSRS and ICB agreed to reschedule the principal amount of loan and waive accumulated interest and penal interest and that the hatchers and incubators of the petitioner and the respondent No.3 will be taken over by the company and the company will pay the petitioner the actual cost of machines and spate parts as aforesaid and installation charge of Taka 3,00,000.00 by issue of stock debenture and in Case of default, will issue share of the same value. Pursuant to the aforesaid agreement the company submitted a proposal to BSRS for approval a letter dated 2-10-97 issued by the then Managing Director the respondent No. 2. The BSRS asked the company to pay back the working capital of Taka 30,00.000.00. As the company could not arrange more than Taka 2,00,000.00 to pay back working capital, the petitioner and respondent No.3 paid the balance amount of Taka 28,00,000.00 to BSRS on condition that BSRS would approve proposal of the company as contained in the letter dated 2-10-97, Annexure-C. The BSRS suggested in view of the proposal made in the letter dated 2- 10-97 that the respondent No. 3 may become the Managing Director of the company with all financial and administrative powers and the respondent No. 2 may become the Chairman in place of the then Chairman respondent No. 5. The suggestion of BSRS was accepted by the company by letter dated 14-1-98 issued by the then Managing Director, BSRS suggested that no change in Articles of Association will be necessary. The respond No. 3 also accepted BSRS’s suggestion verbally.

3. Thereafter the share holders of the company in their annual general meeting held on 31.12-97 elected the respondent No. 3 as Managing Director and respondent No. 2 as Chairman of the company as suggested by BSRS and by a resolution passed at an extraordinary general meeting held on 9-6-98 the share holders amended the Articles 101(a) and 145 Articles of Association of the company and substituted the names of respondent Nos. 2 and 3 as Chairman and Managing Director respectively in place of former Chairman and the Managing Director. The company forwarded the proceeding of the annual general meeting as aforesaid and the extraordinary general meeting Annexure-F & G to BSRS vide its letter dated 1-11-98 and the resolution adopted at the extraordinary general meeting held on 9-6-98 was submitted to the Registrar, Joint Stock Companies for recording the amendment of Articles 101(a) and 145 of the Articles of Association on 24-6-98. The BSRS by their letter dated 16-4-98 informed the company of their approval of the company’s proposal by their Board of Directors in a meeting held on 23-3-98. The contents of letter amongst others, were waiver of 100% interest and penal interest if the outstanding loan is repaid within 18 months or alternatively waiver of 75% of accumulated interest and 100% penal interest if the loan is repaid within 7 years and Taka 2 lac paid by the company and Taka 28 lac to be paid would be adjusted with the working capital loan. Confirmation of Mr. Manzoor A Chowdhury as new Director and Managing Director that Chairman Mr. GM Manik would be released from the Chairmanship and that Mr. Syed AL Nesar Ahmed would be the Chairman. The then Managing Director of the company by letter dated 26-4-98 informed the BSRS of the companies acceptance of the alternative proposal as mentioned in the letter dated 16-4-98 Annexure-J. The respondent No.3 wrote to BSRS on 12-5-98 and 21-6-98 to draw up necessary documents and to complete the legal formalities as soon as possible reply was received by the respondent No. 3. Thereafter he addressed BSRS by several letters to complete the legal formalities. Although respondent No. 2 was replaced by respondent No. 3 as Managing Director according to Article 145 of the Articles of Association but the respondent No. 2 refused to give the power of Managing Director to respondent No. 3 and resisted respondent No. 3 from performing his function as Managing Director. Further, the respondent No. 2 addressed a letter dated 30-9-98 to respondent No. 3 stating that respondent No. 3 could not be recognised as the Managing Director unless he has executed a personal guarantee in favour of BSRS for all past loans of the company. It is alleged that the respondent No. 2 declared that he shall continue to act as Managing Director till the legal formalities have been completed. The petitioner claims that BSRS gave unqualified approval to the appointment of respondent No. 3 as Managing Director. Then the respondent No. 3 called a general meeting of the share holders at the companies firm at Savers to discuss the prevailing state of affairs of the company but the respondent No. 2 in excess of his authority cancelled the meeting only a day before the meeting was due to be held and since then the respondent No. 2 has prevented the petitioner and her husband respondent No. 3 from entering into the registered office of the company as well as the premises of the company’s firm. The allegation of the petitioner is that the action of the respondent No. 2 is a continuation of the oppressive management prevailing in the company for more than a decade. The affairs of the company are being conducted and the powers of a Director are being exercised in manners which are burdensome, harsh and wrongful lacking in probity and fair dealing to the prejudice of the interest of the petitioner as a minority share holder.

4. As regards oppression, mismanagement and unfair management which is prejudicial to the interest of the petitioner as a minority share holder the allegations that have been made by the petitioner precisely are that the respondent No. 2 being the Chairman has usurped the office of the Managing Director in violation of the agreement dated 26-8-97 and the Articles of Association and is illegally exercising the powers and that the company did not pay BSRS the first two installments due on 1-6-98 and 1-1-99 and the subsequent installments in terms of rescheduling of loan as per letter dated 16-4-98 Annexure-J. Similarly, the company has defaulted in loan repayment to ICB. The Board of Directors has ceased to have any control over the affairs of the company and the Board has not met since 23-8-98 in violation of section 96 of the Companies Act, 1994 and the respondent No. 2 has appointed his wife respondent No. 6 as Director and the respondent Nos. 7 and 8 to increase his support in the Board of Directors without the approval of BSRS. No annual general meeting has been held for the year 1997, 98 and 99 in violation of the Companies Act. The accounts of the company have not been audited and presented to the share holders for the aforesaid years. The company has not submitted the audited balance sheet and profit and loss account since 1989 and statutory returns since 1990 to the Registrar of Joint Stock Companies and has not submitted for inspection the Cash Book, share registers, annual general meeting’s minutes, attendance register and notice register of Board of Director’s meetings, balance sheet from 1989-97, etc. to the Registrar Joint Stock Companies. The company has violated loan agreement with BSRS dated 28-3-83, and also violated loan agreement with ICB and other Banks. The company is paying respondent No. 2 and his wife salary and other facilities without any sanction by the proper Authority as per Article 149 of the Articles of Association of the company and the company has refused to issue to the petitioner debentures or shares worth of Taka 17,28,488.00 in violation of the terms of the agreement dated 26-8-97. The respondent No. 2 in excess of his authority called a meeting of the Board of Directors on 14-5-2000. The company incurred huge financial loss due to mismanagement and for one-man rule of respondent No. 2 and the situation is such that no one except respondent No. 2 has knowledge of the company’s real state of affairs. The affairs of the company are being conducted and the powers of the Directors are being exercised in a manner prejudicial to the legitimate expectation on the part of the petitioner in joining the company.

5. On such averments the petitioner has prayed for the following reliefs:

(i) To prohibit the respondent No. 2 from exercising the powers of the Managing Director in violation of the Articles of Association.

(ii) To direct the respondent No. 1 company to take appropriation and necessary action to conduct the company’s affairs in a manner prescribed in the articles of association and the Companies Act, 1994.

(iii) To appoint an independent auditor furnish an audit report of the company for the year 1997, 1998 and 1999; and

(iv) To direct the company and BSRS to complete all legal formalities pursuant to the letter dated 16-4-98 to enable the company to function smoothly.

6. The respondent No. 2 who is the main contestant has filed affidavit-in-opposition and various supplementary affidavits-in-opposition to resist the aforesaid prayers of the petitioner, and denying the allegations made in the petition the respondent No. 2 has stated that respondent No.2 the Managing Director of the company and the respondent No. 3 is a Director and since the respondent No. 3 did not assume the office of the Managing Director of the company after completion of the formalities with BSRS as per their letter dated 16-8-99 the respondent No. 3 cannot claim to be the Managing Director of the company. Further Case of the respondent No. 2 is that the respondent No. 3 voluntarily relinquished the office of the Managing Director with effect from 1-5-98 after five months of his work as Managing Director. It has been stated that as the respondent No. 3 relinquished the office of the Managing Director the respondent No. 2 being the Founder Managing Director of the respondent No. 1 had no other alternative but to assume the office of the Managing Director with the consent of all the Directors and share holders of the company and that BSRS also acknowledge him as the Managing Director by their letter dated 3-2-99 and that the respondent No. 2 had been given power by the Board of Directors in the Board meeting held on 7-6-99 (Annexure-1) to operate the Bank account of the company as the Managing Director. It is, averred that the respondent No. 2 has reassumed office of the Managing Director of the company and that this position has been well settled by judgment dated 13-3-2000 in Matter No. 5 of 1999 passed by the Company Bench of the High Court Division, The respondent No. 2 claims that he is running the affairs of the company under the control and guidelines of the Board of Directors and several Board meetings were held after 23-8-1998 and the notices of those meeting were served upon the petitioner and the respondent No. 3. The respondent No. 3 attended the Board Meeting held on 14-5-2000 but refused to sign the attendance register. It is alleged that the respondent No. 3 had taken the cash book, ledger book of 1997, voucher and the statements of account from January to September 1998, share register, minutes of annual general meetings from 1990 and Board Meeting’s minutes from the head office of the company to his residence and those had not been returned to the company and consequently, the annual general meetings for the year 1998 and 1999 could not be held and for the same reason the accounts of the company for the year 1997-1999 could not be prepared and audited. He further claims that the statutory return of the company was submitted to the office of the Registrar, Joint Stock Companies up to 1996. It is denied by the respondent No. 2 that he is enjoying the remuneration and other facilities without approval of the Board of Directors. It is categorically asserted that in view of the judgment of the Company Bench of the High Court Division dated 13-3-2000 in Matter No.5 of 1999 the respondent No.2 is the Managing Director of the company.

7. The respondent No.2, has, in his supplementary affidavit-in-opposition, annexed some papers including the judgment of the Company Bench in matter No.5 of 1999 and a letter dated 16-8-1999 addressed to Mr. AKM Nazrul Islam, Bar-at-Law issued by Mr. Abdur Rahim Khan of BSRS. In supplementary affidavit dated 3-12-2000 the respondent No.2 has annexed some certificates issued by some other Directors and share holders opposing the Managing Directorship of Mr Manzoor Ahmed Chowdhury.

8. In this matter the company is represented by Mr Rokanuddin Mahmud who has filed a separate affidavit-in-opposition on behalf of the respondent No.1, The respondent No.3 also has filed an affidavit-in-opposition. In the affidavit-in opposition filed by the respondent No.1 company the company has supported the Case of the petitioner and it has been stated that the company has no objection to the intervention by the Court on the application filed by the petitioner under section 233 of the Companies Act, as it will enable the company to run and manage the affairs of the company without any feud between the parties. The respondent No.3 in his affidavit-in-opposition stated that he has no objection to the intervention by this Court on the application filed by the petitioner, as that will enable the company to be run and managed lawfully. The respondent No.3 BSRS as one of the creditors of the company has also filed an affidavit- in-opposition and supported the Case of the petitioner. It has been stated inter alia, that the BSRS Board of Directors in its 216 meeting held on 23-3-1998 approved the appointment of respondent No.3 as the new Managing Director and respondent No.2 as the new Chairman and accordingly, Article 101(a) and 145 of the Articles of Association of the company were amended by special resolution passed at the extraordinary meeting of the share holders held on 9-6-1998 and that BSRS Board of Directors in the same meeting held on 23-3-1998 granted rebate of 70% and 100% penal interest and approved the rescheduling of the loan repayment by the company. The BSRS intimated to the company all the terms by letter dated 16-4-1998. The time limit given by the BSRS for repayment of loan in 45 days with effect from 16-4-1998 had already expired and in the meantime Mr Manzoor Ahmed Chowdhury has written to BSRS and indicated his willingness to execute loan agreement with BSRS and to provide personal guarantee for the loan but Mr Neser Ahmed, the respondent No.2 by his letter dated 19-7-2000 requested the BSRS not to execute any document with Mr Manzur Ahmed Chowdhury. The company by its letter dated 26-4-98 accepted the second option of paying dues in 14 equal half-yearly installments.

9. Now the questions which require consideration by this Court as to whether the activities of the majority share holder as alleged in the petition are oppressive and prejudicial to the interest of the petitioner who is admittedly the minority share holder, and whether the respondent No. 2 has usurped the office of the Managing Director and by that usurpation of the office of the Managing Director by the respondent No. 2 there has been mismanagement or unfair management in the affairs of the company or whether the usurpation of powers of the Managing Director in violation of the Rules of the company i.e. the Articles of Association, is oppressive and prejudicial to the interest of the minority share holder the petitioner and the other members within the company. As regards mismanagement and unfair management various allegations have been made as stated above including the violation of the articles of association of the company.

10. Mr. Moudud Ahmed, the learned Counsel representing the petitioner has contended that the mismanagement and unfair management has prejudicially affected the interest of the petitioner in the company as she is not getting any benefit out of her investment in the company and that for non payment of the loan granted by the BSRS and other financial institutions the interest of the petitioner as minority shareholder is otherwise affected and he submits that the affairs of the company are being conducted in such a manner by the respondent No. 2 that the interest of the petitioner and her husband who also invested huge capital to invigorate the activities of the company to enable it to repay its huge loan, is seriously prejudiced. He has further contended that the usurpation of the office of the Managing Director by the respondent No.2 is surely mismanagement and unfair management and such mismanagement is oppressive and prejudicial to the interest of the petitioner and other shareholders. He has referred me to a decision in the Case of M Moorthy Vs. Drivers and Conductors Bus Service P Ltd (1991) 71 Company Cases 136 (Mad) where mismanagement was held to be prejudicial to the interest of the minority share holders and that could be a ground for interference by the company Court. Further it was observed that usurpation of office of Director and Managing Director is said to be oppression and, as such prejudicial to the interest of the minority shareholders.

11. So far as the usurpation of powers of the Managing Director by the respondent No. 2 is concerned, various papers have been annexed to the petition. Some of them may be referred to for determining the question whether the respondent No. 2 has usurped the office of the Managing Director and the allegation on such account stand to be correct.

12. In the deed of agreement dated 26-8-97’ between the company and the respondent No. 3, the petitioner and the respondent Nos. 6 and 7 it was stipulated in paragraph 19 to the following effect ‘The agreement is subject to the approval and necessary amendment to the company’s Articles of Association by the present share holders of the company, the Bangladesh Shilpa Rin Sangstha and the Investment Corporation of Bangladesh and the rescheduling of the principal amount of loan, writing off of the interest and penal interest and penal insurance premium accrued thereon failing which either the second or third parties reserve their right to withdraw from this contract without any liability thereof and the money advanced by the second party (the respondent No. 3 and the petitioner) and the third parties (respondent No. 6 and 7) for import of parent chicks, feed or purchase of share shall be liable to be refunded forthwith on demand.

13. The respondent No. 2 the then Managing Director wrote a letter dated 2-10-97 to the BSRS where in paragraph 13 it was proposed that in view of the departure of the present Chairman of company Mr GM Manik and the induction of new share holders, it is necessary to restructure the management by amendment of the Articles of the company and the proposed amendments were incorporated in that letter, Annexure-C.

14. By letter dated 14-1-98 the respondent No.2 proposed to the BSRS that the will accept the post of Chairman and Mr Manjoor Ahmed Chowdhury would assume the post of Managing Direct The Chairman and the Managing Director shall jointly operate the bank account of the company. Then in 15th annual general meeting of the company held on 31-12-97 resolution was unanimously adopted which is in vernacular, and it was stated in paragraph 3 of resolution in the following terms.

“????????? ??????????? ???????? ??? ??????? ??????????? ??????? ???? ?.??, ????? ?????? ????????? ?????????? ? ???? ??????? ?????? ??????? ?????? ???? ?????? ???? ?????”

15. It appears from the minutes of extraordinary general meeting of the share holders of the company held on 9-6-9 that the respondent No. 2 Mr Syed Neser Ahmed, Chairman of the company presided over meeting and in that meeting it was unanimously resolved that in view of the approval accorded by the BSRS and the expected approval of the ICB in near future the following amendments of the articles of association of the company be made.

(i) In article 101(a) the name of Mr. Mohammad Manik shall be substituted by the name of Mr Syed Al Neser Ahmed as chairman of the company.

(ii) In article 145 the name of Syed Al Neser LA Ahmed shall be substituted by the name of Mr. Manzoor A. Chowdhury as Managing Director of the company.

(iii) In article 146 (c) the sentence “the Director and the Chairman of the company shall jointly open and operate bank accounts shall be added, BSRS the respondent No. 4 by their letter dated 16-4-98 approved the said amendments under conditions that the company will repay the loan within one and half year with effect from 1-7-98 in which Case 100% interest and penal interest will be waived or alternatively rebate of 75% of accumulated interest and 100% penal interest will be granted if the loan is repaid in 7 years by 14 monthly installments, accordingly rescheduling will be made. In the said letter it was stated in paragraph 4 in the following terms.

“???????? ???? ??????? (???? ??????????? ??????? ?????? ??????? ??????? ????) ?????? ???? ????? ????? ???????? ??????????? ??? ??????? ??? ????”

In paragraph 6 of the letter it was stated in the following terms:

“??????? ??????????? ??????? ???? ?.??, ????? ???????? ????????? ?????????? ?????? ??????? ???? ???? ??????? ????? ????”

(?) ??????? ????????????? ???????? ????? ?? ??? ??????? ???????? ?? ????? ???????? ?????? ???????? ???????? ???? ????“

16. Pursuant to the approval of the BSRS the amendments of the articles of association were made in the Extraordinary General Meeting on 9-6- 98 and that was sent to the Registrar, Joint Stock Companies for recording the amendments.

17. In amended article 101 (a) it has been laid down that Mr Syed Al Neser Ahmed shall be the chairman of the company. Under amended article 145 it is provided that Mr Manzoor Ahmad shall be the Managing Director of the company and he shall hold and remain in the said office for at least 5 years and in accordance with the rules and regulations of the company and provisions of law. The powers of the Managing Director are enumerated in articles 146 and in clause (e) of the said article it has been provided that the Managing Director may open bank account or accounts in the name of the company with any bank at home or abroad and to operate upon the same and to borrow money from the bank or other credit agencies by way of loans, overdraft, cash credit facilities, etc and in clauses (n) and (o) the power has been given to the Managing Director Mr Manzoor Ahmed Chowdhury to appear for and on behalf of the company before any Court proceeding and to institute, prosecute, defend, settle, compound, submit to arbitration, compromise, withdraw any suits, actions, accounts, claims and demand whatsoever whether arising from any legal proceeding or not and to sign and verify plaints, written statements, petitions, application and vakalatnama and powers authorising legal practitioners to act for and on behalf of the company before all Courts. After the articles of association as aforesaid were amended pursuant to the resolution passed at extra ordinary general meeting on 9-6-98 the BSRS respondent No. 4 had not withdrawn the approval that was given, for non fulfillment of the condition as contained in the letter dated 16-4-98 Annexure J.

Rather, the BSRS appearing in this proceeding has asserted that the amendments made were approved and the amendment is valid under the law. The legal consequence would follow that for non fulfillment of the conditions as contained in the said letter, amendments of the article can not be fulfilled. The BSRS does not say so. The BSRS may, however, invoke article 34 of President’s Order 128 of 1972 or can take action in terms of the loan agreement. No objection was raised to such amendment and alteration of the articles of association nor there had been any allegation by the respondent No. 2 or by the other Directors and shareholders that the amendment was made by practicing fraud upon them. By subsequent letter dated 30-9-98 the respondent No. 2 Mr Naser Ahmed being the Chairman of the company addressed the respondent No. 3 as the Managing Director of the company. Mr. Moudud Ahmed, pointing out all these papers, has submitted that the respondent No. 3 under the law and according to the articles of association is the Managing Director of the respondents No.1 company but he was resisted by the respondent No. 2 from performing his function as the Managing Director and thus the respondent No. 2 has usurped the office of the Managing Director which is oppressive and prejudicial to the minority shareholder namely, the petitioner and others. Mr Moudud Ahmed further contended that this Court in exercise of the power under section 233 of the Companies Act can make any direction as corrective measure and for bringing the affairs of the company to its right track so that the minority share holder’s interest is protected in all respects. He has referred to a decision in the Case of Faruk (Md) Vs. Abdul Hamid and others reported in 51 DLR (AD) 48 where it has been observed in paragraph 10 to the effect that th provisions of appointing auditors in the annual general meeting is for prospective auditing of a company when the minority shareholders apply under section 233 of the Companies Act, the Court has inherent power to make alternative arrangements for appointment of Auditors for past years, if no auditing has taken place.

18. Mr AKM Nazrul Islam, the learned Counsel has appeared on behalf of the BSRS and he has with candor, admitted that he is supporting the Case of the petitioner in order to protect the interest of BSRS as regards repayment of loan by the company. He has contended that if the company’s affairs are run and conducted according to the articles of association of the company and the law in that case there cannot be any mismanagement and the business of the company will run smoothly and the company’s business flourish and it will be able to make profit and repay the loan according to the agreement made with the company. He argues that as per amended article the respondent No. 3 is the Managing Director. He has further contended that the violation of the articles of association of the company is also a ground for interference by this Court and the Court has wide powers to regulate the conduct of the affairs and further contended that the articles of association as approved by the BSRS binding upon all including the company. He has referred to section 20 of the Companies Act, 1994 which is in the following terms.

“20. Alteration of articles by special resolution subject to the provisions of this Act and to the conditions contained in its, memorandum, a company may by special resolution alter, exclude from or add to its articles; and any alteration, exclusion or addition so made shall be as valid as ii originally contained in the articles, and be subject in like manner to alteration, exclusive or addition by special resolution”.

He has supported the contention of Mr. Moudud Ahmed that by violating the provisions of the amended articles the respondent No. 2 has usurped the office of the Managing Director which, is in detriment to the interest of the minority share holders including the petitioner. Mr Nazrul Islam has referred me to an English Case namely H R Harmer Ltd reported in (1958) 3 All England Reports 689. In that Case the short fact is that the company namely, Harmer Ltd is a company and the father Mr Harmer allotted some shares to his two sons, who also became share holders, direct of the company. By the company’s articles father was appointed Governing Director for life but no special rights were attached to that office. C and B, two sons, each became the life directors. Father was appointed Chairman of the Board of Directors with casting vote. The father considered that he was entitled to disregard resolution of the Board as long as he held the voting control. He assumed powers which he did not possess and exercised them against the wishes of the share-holders namely, the two sons who had major beneficial interest but minority votes. By a petition presented on October 1, 1957 two sons applied to the Court for an order under section 210 of the Companies Act, 1948 (which is almost corresponding to our section 233 of our Companies Act, 1994) complaining that owing to the actions of the father, the affairs of the company were being conducted in a manner oppressive to some part of the members including themselves. On appeal from an order granting relief under section 210 it was contended on behalf of the father that the sons were not entitled to the order for the reasons among others viz(a) it was not shown that the affairs of the company were being conducted in a manner oppressive to the sons as members but only as directors (b) the sons were not entitled to complain of the fathers conduct because they had acquired their ordinary shares as a gift from him and because it had been recognised from the time when company was formed that the father intended to retain control office of it (c) the acts complained of might have been lawfully done by calling a general meeting and passing the requisite resolution and (d) this was not a Case of discrimination between different share holders or classes of share holders. In the decision the term the word oppressive in section 210 of the Companies Act 1948 meant “burdensome, harsh and wrongful, The relief granted by the company Judge viewing that the affairs of the company had been conducted in a manner oppressive to the sons as members not merely as directors, and even if the father’s acts might lawfully have been done with the authority of a general meeting the sons were entitled to require that the proper procedure should be followed. The appeal by the Chairman HR Harmer Ltd. was dismissed by the Court of Appeal and the leave to appeal to the House of Lords was refused.

19. Mr Rokunuddin Mahmud, the learned Counsel has appeared for the company and the respondent No.3 and he has placing the materials submitted that the Articles of Association of the company, particularly articles 101(a), 145 and 146 were amended in accordance with law which were approved by the BSRS and the amended articles are binding upon all including the company and according to the articles of association, the respondent No.3 should be allowed to function as Managing Director of the company and for not having allowed the respondent No.3 to function as Managing Director there has been mismanagement in the company’s affairs resulting in the interest of the minority share holders being prejudicially affected. The company will be benefited if the affairs of the company are conducted according to the articles of association.

20. Mr Mainul Hosein, the learned Counsel representing the respondent No.2, has contended that the question as to whether the respondent No.3 is the Managing Director of the company or not has been decided by judgment dated 13-3-2000 passed by the Company Bench in Matter No.5/99 and that question cannot be reagitated in the application filed by the present petitioner who is the wife of respondent No.3. He has further contended that since the issue is pending before the Appellate Division in the form of leave petition the same cannot be reopened and decided by this Court. He argues that the reliefs sought in the present petition and the relief sought in the earlier petition filed by the respondent No.3 are almost the same and the respondent No.3 having been unsuccessful in that Case, the present application has been filed through his wife. His contention is that the petitioner has not been able to make out any Case that the interests of the minority share holders have in any way been affected; and that there has not been any discriminatory treatment of the interest of the petitioner or of any members of the company. Mr. Mainul Hosein, however, has admitted that there is and has been mismanagement in the affairs of the company for which all members will suffer but for such mismanagement section 233 of the Companies Act cannot be invoked. Mr Hossain has pointed out that Mr Manzoor Ahmed Chowdhury, the respondent No.3, relinquished the office of the Managing Director with effect from 1-5-1998 and that after he had relinquished the office, the respondent No.2 was compelled to assume the office of the Managing Director for the greater interest of the company and he is functioning as the Managing Director under the supervision of the Board of Directors. But there is no evidence that the respondent No.3 relinquished the office of Managing Director. It further appears from Annexure-3 to the affidavit-in-opposition filed by the respondent No. 2 that a meeting of the Board of Directors of the Company was called on 14-5-2000 and on that date Mr Manzoor Ahmed Chowdhury the respondent No.3 appeared and objected to the holding of such meeting stating that Mr Nesar Ahmed being the Chairman cannot call a meeting of the Board of Directors and hence the meeting is illegal and he further asserted that he is the Managing Director of the Company. Therefore, the contention raised by Mr Mainul Hosein that the respondent No.3 relinquished the office of the Managing Director does not hold good. As regards his contention that the issue is sub judice as a leave petition against the judgment dated 13-3-2000 in. Matter No.5/99 is pending before the Appellate Division, it is stated that the respondent No.3 who was the petitioner in the Company Matter No.5/99 has withdrawn the leave petition and the same has been dismissed by the order dated 7-12-2000 (the certified copy of the order has been placed)., He has referred me to Annexure-’I’ minutes of the Board of Directors meeting held on 7-6-1999 and contended that the meeting expressed the view that as Mr. Manzoor Ahmed did not execute the legal formalities with BSRS and as such, he has not been considered as the Managing Director of the Company. In reply to that Mr Moudud Ahmed argued that the so-called meeting has no validity. Lastly, and today Mr Mainul Hosein has submitted another affidavit on behalf of the respondent No.2 questioning the validity of the resolution passed at extraordinary general meeting held on 9-6-1998 and he has contended that the resolution was required to be passed by a majority of not less than 3 of the share holders as contemplated under section 87 of the Companies Act, but it was not passed by such majority. On plain reading of section 87 of the Companies Act it does not seem to me that the argument advanced by the learned Counsel has got any validity.

21. In section 233 of the Companies Act it is provided that any member or debenture holder of a company may either individually or jointly bring to the notice of the Court by application that the affairs of the company are being conducted or the powers of the directors are being exercised in manner prejudicial to one or more of its members. The petitioner is a member of the company that she is admittedly the minority share holder. On the allegations stated above, the application, made by the petitioner is competent. The allegation of mismanagement is admitted by learned Counsel of the respondent No.2 and that is otherwise established by the materials on This Court has the power to give direction for protection of interest of the minority, that is interest of the petitioner in the company. The word interest has been used in various legislation in various senses. In the present context, it need no however be only the possibility of a pecuniary advantage; it may equally be the likelihood of a pecuniary loss. The petitioner claims that affairs of the company are being conducted in disregard of her interest and the interest of respondent No.3. In second part of clause (c) of section 233 it is provided that the applicant may pray 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. In sot sub-section (3) it has been laid down that the Court is of opinion that the interest of the applicant is being or is likely to be prejudicially affected for reasons given in the application, the Court may make such order as prayed, for or such other order it deems including direction- (a) to cancel or modify any resolution or (b) to regulate the conduct of the company’s affairs in such manner as specified therein (c) to amend any provision of the memorandum and articles of the Company. Therefore, it appears that the Court can make any just order beyond the relief sought for, to bring the affairs of the company to its right track to safeguard the interest of the minority share holders. The Court’s power is very wide in that regard. Since the Court has the power to make direction to amend any provision of the memorandum and articles of the company it has the power to direct the company and other respondents to follow the articles of the company so that the affairs of the company are well conducted and the powers of the directors are exercised according to the rules of the company. In that view the Managing Director appointed for a particular period under the articles should be allowed to function as Managing Director with all such powers as given in the Articles of Association and in accordance with the provision of law. The judgment delivered in matter No.5/99 and the observation made therein as regard the entitlement of the respondent No.3 to function as the Managing Director of the company has no bearing in the present premises as the relevant portion of the letter dated 16-4-1998 and the resolution passed in extraordinary general meeting on 9-6-1998 were not noticed and taken into consideration.

22. In the previous legislation there was no express provision for protection of the interest of the minority share holder. The concept for protection of the interest of the minority was methodically imported from English Jurisdiction. In the present legislation namely, the Companies Act 1994, wider power has been given to the Court under section 233. A minority share holder can petition the Court for reliefs if his or their interest are unfairly prejudiced by the manner in which their companies affairs are conducted and if the members do not adhere to the procedure prescribed by articles and if there has been fundamental breach of the rules and where the majority are endeavoring directly or indirectly to appropriate to themselves money, property or advantages which belong to the company or in which the other shareholders are entitled to participate. In the instant Case as it appears from the facts, the materials placed before the Court that there has been total mismanagement and the affairs of the company are being conducted in a manner prejudicial to the interest of the petitioner and some other members such as the respondent No.3 and that the respondent No.2 has usurped the office of the Managing Director in violation of the articles. Reasons given in the application warrant intervention by this Court.

23. It appears that Ms Sheela R Rahman filed an application for rejection of warrant of Attorney signed by the respondent No.2 appointing the lawyer to represent the respondent No.1 company and on such application question arose who will represent the company Mr. Mainul Hosein or Mr. Rukunuddin Mahmud. It has already been stated as per Articles of Association (article 149 clause (0) Manzoor Ahmed Chowdhury appears to be competent person to appoint lawyer for the company and Mr Rokunuddin Mahmud is as such, competent to represent the company the respondent No.1 and the representation of the company by Mainul Hosein cannot be accepted. Thus the application is disposed of.

24. In the facts and circumstances of the Case and for the reasons stated above, the respondent No.1 company and the other respondents are directed to take necessary action to conduct the company’s affairs in a manner prescribed in the Articles of Association and to allow the person who is named in the articles of association as Managing Director of the company to function as Managing Director for his tenure as per articles and the Companies Act, 1994. The respondent company is directed to hold annual general meeting for the year 1998 and 1999 for which they are at liberty to obtain permission from this Court in accordance with law and further directed to appoint an independent Auditor to furnish the Court with an audit report of the company for the years 1997, 1998, 1999 for which the company will pay the Auditor’s fee, The respondent company and the respondent No. 4 BSRS are directed to complete all legal formalities pursuant to the letter dated 16-4-1998.

With the aforesaid directions the application is allowed without any order as to costs.

Ed.

Source: 53 DLR (2001) 81