Syed Al Nesar Ahmed, MD, United Food Complex Ltd. Vs. Nafisa Choudhury and others, 53 DLR (AD) (2001) 83

Case No: Civil Petition for Leave to Appeal No. 252 of 2001

Judge: Mainur Reza Chowdhury ,

Court: Appellate Division ,,

Advocate: Mr. A. K. M. Nazrul Islam,Mr. Moudud Ahmed,,

Citation: 53 DLR (AD) (2001) 83

Case Year: 2001

Appellant: Syed Al Nesar Ahmed

Respondent: Nafisa Choudhury

Subject: Company Matter,

Delivery Date: 2001-5-22

 
Supreme Court 
Appellate Division
(Civil)
 
Present:
Mahmudul Amin Choudhury CJ                     
Mainur Reza Chowdhury J                      
Md. Gholam Rabbani J                     
Md. Ruhul Amin J                  
Md. Faziul Karim J              
 
Syed Al Nesar Ahmed, MD, United Food Complex Ltd.
.............. Petitioner
Vs. 
Nafisa Choudhury and others
...............Respondents
 
Judgment 
May 22, 2001
 
The Companies Act, 1994
Section 233 
The Companies Act, 1994 has given wider power to the Court under section 233 for the protection of the interest of the minority share holders. The High Court Division passing the order directing the respondent company to take necessary action to conduct the company’s affairs in the manner prescribed in the articles of association, committed no illegality by passing the order……(9)
 
Lawyers Involved:
AFM Hasan Arif, Advocate, instructed by Sharifuddin Chakiader, Advocate-on-Record-—For the Petitioner 
Moudud Ahmed, Senior Advocate, instructed by Md. Aftab Hossain, Advocate-on-Record—For Respondent No1.  
AKM Nazrul Islam, Senior Advocate, instructed by Md. Ataur Rahman Khan, Advocate-on- Record—For Respondent No. 4. 
Not represented—Respondent Nos. 2, 3, 5-10. 
 
Civil Petition for Leave to Appeal No. 252 of 2001. 
(From the judgment and order dated 12, 13 December at 2000 passed by the High Court Division in Matter No. 58 at 2000).  
 
JUDGMENT
 
Mainur Reza Chowdhmy J.
 
1. This leave petition arises out of the judgment and order passed by the High Court Division in Matter No. 58 of 2000 allowing the application by respondent No. 1 under section 233 of the Companies Act, 1994 inter alia directing the respondent No. 1 company and the other respondents to take necessary action to conduct the company’s affairs in a manner prescribed in the Articles of Association and 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 of the Companies Act, 1994.  
 
2. The respondent No. 1 Nafisa Chouhdhury as petitioner stated in her petition briefly is as follows.  
 
3. The minority share holder holds 28,860 shares out of 1,47,816 shares issued by the respondent company namely, United Food Complex Ltd. The respondent No. 1 company was granted loan by Bangladesh Shilpa Rin Sangstha (BSRS), Investment Corporation of Bangladesh (ICB) and 5 other Commercial Banks. The respondent company defaulted in payment of loan to Bangladesh Shilpa Rin Sangstha and the liability increased from Taka 3.63 crore in 1984 to Taka 9, 49, 47,195 by the end of 1997. The petitioner and her husband (respondent No. 3 before the High Court Division) had set up their own poultry and poultry hatchery. The respondent No. 2 (present petitioner) approached the petitioner and respondent No. 3 to buy shares in the respondent company and integrate their hatchery with the, company’s hatchery and thereafter by an agreement dated 26-8-1997 was entered amongst the company represented by the then Managing Director the respondent No. 2, the petitioner, the respondent Nos. 3, 7 and 8 whereby the petitioner agreed to purchase the company’s share worth Taka 28,86,000 on certain conditions among others, the conditions were that the respondent Nos. 3 would become the Chairman of the company and all financial and executive power would vest in the Chairman. Pursuant to the said agreement the respondent company submitted a proposal to Bangladesh Shilpa Rin Sangstha for approval issued by respondent No. 2. The Bangladesh Shilpa Rin Sangstha then asked the company to pay back the working capital of Taka 30,00,000. As the company could not arrange more than Taka 2,00,000 to pay back the petitioner and her husband respondent No. 3 paid the balance amount of Taka 28,00,000 on condition that Bangladesh Shilpa Rin Sangstha approved the proposal of the company as contained in the letter dated 2-10-1997. The Bangladesh Shilpa Rin Sangstha suggested that in view of the proposal made in the letter dated 2-10-1997 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 Bangladesh Shilpa Rin Sangstha was accepted by the company by letter dated 14-1-1998 issued by the then Managing Director Bangladesh Shilpa Rin Sangstha said that no change in Articles of Association would be necessary. The respondent No. 3 also accepted Bangladesh Shilpa Rin Sangstha’s suggestion verbally.  
 
4. Thereafter the share holders of the company in their annual general meeting held on 3 1-12-1997 elected the respondent No. 3 as Managing Director and respondent No. 2 as Chairman of the company as suggested by Bangladesh Shilpa Rin Sangstha and by a resolution passed at an extraordinary general meeting held on 9-6-1998 the share holders amended the Articles 101(a) and 145 of the Articles of Association of 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 resolution adopted changing the articles were submitted to the Registrar, Joint Stock Companies for recording the amendment of Articles 101(a) and 145. Although respondent No. 2 (petitioner before us) was replaced by respondent No. 3 as Managing Director according to article 145 of the Articles of Association but 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 30-9-1998 to respondent No. 3 stating that respondent No. 3 would not be recognised as the Managing Director unless he executed a personal guarantee in favour of Bangladesh Shilpa Rin Sangstha for all past loans of the company. The respondent No. 2 declared that he would continue to act as Managing Director till the legal formalities had been completed. The petitioner claimed that because of Bangladesh Shilpa Rin Sangstha’s unqualified approval to the appointment of respondent No. 3 as Managing Director the respondent No. 3 called a general meeting of the share holders at the company’s farm at Savar to discuss the prevailing state 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 farm. The petitioner alleged that the action of the respondent No. 2 was a continuation of the oppressive management prevailing in the company for more than a decade. The affairs of the company were being conducted and the powers of the Directors were exercised in a manner which was burdensome, harsh and wrongful lacking in probity and fair dealing to the prejudice of the interest of the petitioner as a minority share holder. It was alleged that there was oppression and mismanagement which was prejudicial to the interest of the petitioner as a minority share holder, The specific allegations made by the respondent No. 2 were that the Chairman had usurped the office of the Managing Director in violation of the agreement dated 26-8-1997 and the Articles of Association and was illegally exercising the powers and that the company did not pay Bangladesh Shilpa Rin Sangstha the first two installments due on 1-6-1998 and 1-1-1999, the company defaulted in loan repayment to ICB. The Board of Directors had ceased to have any control over the affairs of the company and the Board had not met since 23-8-1998 in violation of section 96 of the Company Act, 1994 and the respondent No. 2 has appointed his wife respondent No. 6 as Director. No annual general meeting had been held for the years 1997, 1998 and 1999 in violation of the Companies Act. The accounts of the company had not been audited to the share holders for the aforesaid years. The company had not submitted the audited balance sheet and profit and loss account since 1998 and statutory returns since 1990 to the Registrar of Joint Stock Companies. The company had violated loan agreement with Bangladesh Shilpa Rin Sangstha and ICB and other Banks. The company was 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 had refused to issue to the petitioner debentures or share worth of Taka 17, 28,488 in violation of the terms of the agreement dated 26-8-1997. The affairs of the company were being conducted and the powers of the directors were being exercised in a manner prejudicial to the legitimate expectation on the part of the petitioner in joining the company. The petitioner therefore 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 appropriate and necessary action to conduct the company’s affairs in a manner prescribed in the articles of association and the Company Act, 1994.  
(iii) To appoint an independent auditor to furnish an audit report of the company for the years 1997, 1998 and 1999 and 
(iv) To direct the company and Bangladesh Shilpa Rin Sangstha to complete all legal formalities pursuant to the letter dated 16-4-1998 to enable the company to function smoothly. 
 
5. The respondent No. 2 filed affidavit-in opposition and various supplementary affidavit-in oppositions to resist the aforesaid prayers of the petitioner denying the allegations made in the petition and inter alia, stating that the respondent No. 2 was the Managing Director of the company and the respondent No. 3 was 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 16-4-1998 the respondent No. 3 could not claim to be the Managing Director of the company. Further, it was stated that respondent No. 3 voluntarily relinquished the office of the Managing Director with effect from 1-5-1998 after 5 months of his work as Managing Director. The respondent No. 3 having relinquished the office of the Managing Director and the respondent No. 2 being the founder Managing Director of the respondent company he had no other alternative but to assume the office of Managing Director with the consent of all the Directors and share holders of the company, and that BSRS acknowledged him as the Managing Director. The Board of Directors in the Board meeting held on 7-6-1999 authorised him to operate the Bank account of the company as the Managing Director. The respondent No. 2 has reassumed the office of the Managing Director of the company and this position was well settled by judgment dated 13-3-2000 in Matter No. 5 of 1999 passed by the Company Bench of the High Court Division.  
 
6. The company was represented and has filed a separate affidavit-in-opposition. In the affidavit-in-opposition filed by the respondent No. 1 company it has supported the case of the petitioner and stated that the company had no objection to the intervention by the Court on the application filed by the petitioner under section 233 of the Companies Act. The respondent No. 4 BSRS which is one of the creditors of the company also filed an affidavit- in-opposition and supported case of the petitioner. It is stated that BSRS Board of Directors in its 216th 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 were amended by special resolution passed at the extraordinary meeting of the share holders on 9-6-1998. The 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 by the repayment of the company. It is also admitted that Mr. Manzoor Ahmed Choudhury, respondent No. 3, had written to BSRS and indicated his willingness to execute loan agreement with BSRS and to provide personal guarantee for the loan but respondent No. 2 (petitioner before us) by his letter dated 19-7-2000 requested the BSRS not to execute any document with Mr. Manzoor Ahmed Choudhury respondent No. 3. 
 
7. With the statement on affidavit by respective parties, the High Court Division considered whether the activities of the majority share holders as alleged in the petition were oppressive and prejudicial to the interest of the petitioner who is admittedly a minority share holder and whether the respondent No. 2 had usurped the office of the Managing Director and by that usurpation of the office of the Managing Director by respondent No. 2 there has been mismanagement or unfair management in the affairs of the company and whether the usurpation of powers of the Managing Director in violation of the Rules of the company i.e. the Articles of Association was oppressive and prejudicial to the interest of the minority share holders, that is petitioner and the other members of company. The High Court Division after considering this statement made by the affidavit and Annexes to the petition found that in the 15th annual general meeting of respondent company held on 31-12-1997 it was (unanimously adopted by resolution that the management of the company was to change by making the Managing Director Sayed Al Nesar Ahmed the Chairman, and appointing Mr. Manzoor Ahmed Choudhury (respondent No. 3) as Managing Director of the company. 
 
8. In the extraordinary general meeting of the share holders of the company held on 9-6-1998 respondent No. 2 Mr. Nesar Ahmed as Chairman of the company presided over meeting and in that meeting it was unanimously resolved that in view of the approval accorded by BSRS and expected approval of the ICB in near future approved the amendments of the Article 101(a) by which the name of Mr. Mohammad Manik was substituted by the name of Mr. Syed Al Nesar Ahmed as Chairman of the company and in Article 145 name of Syed Al NesarAhmed shall be substituted by the name of Mr. Manzoor Ahmed Choudhury as Managing Director of the company. The above amendments were sent to the Registrar, Joint Stock Companies for recording the same. Under amended article 145 it is provided that Mr. Manzoor Ahmed (respondent No. 3) shall be the Managing Director of the company and he shall hold and remain in the said office for at least 5 years. Article 146 provides for the powers of the Managing Director which include opening of bank account or accounts and to operate. The article also provides power to bon money from the banks or other agencies by way of loans overdraft, cash facilities, etc. BSRS appearing in the proceeding asserted that the amendments made were approved and the amendments are valid under the law. The High Court Division therefore held that the alleged non-fulfillment of the conditions as contained in the letter dated 16-4-1998 would not nullify the amendment of the articles. The BSRS could take action in terms of the loan agreement for non-fulfillment of the loan agreement. Therefore the respondent No. 3 was found to be the Managing Director of respondent company after the amendment of article 145. The High Court Division also found that there was no evidence that respondent No. 3 relinquished the office of the Managing Director.  
 
9. The High Court Division also held that the petitioner admittedly being a minority share holder was competent to file an application under section 233 of the Companies Act and in the facts and circumstances the application under section 233 could be maintained. The petitioner had claimed that the affairs of the company were being conducted in disregard of her interest and the interest of respondent No. 3 and clause (c) of section 233 provides that 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 the company. In sub-section (3) it has been laid down that if 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 as it deems fit. The court held that the present legislation i.e. the Companies Act 1994 has given wider power to the court under section 233 for the protection of the interest of the minority share holder. A minority share holder can petition the Court for relief if his or their interest are unfairly prejudiced by the manner in which their company’s affairs are conducted and if the members do not follow the procedure prescribed by articles and if there has been fundamental breach of the rules and where the majority endeavouring directly or indirectly to appropriate to themselves money, property or advantages which belonged to the company or in which the other shareholders are entitled to participate. In the instant case it was found from the facts, the materials placed before the Court that there was total mismanagement and the affairs of the company were being conducted in a manner prejudicial to the interest of the petitioner and some other member such as the respondent Nos. 3, and that the respondent No. 2 (petitioner before us) had usurped the office of the Managing Director in violation of the articles. Having found that the affairs of the company were being mismanaged the High Court Division directed respondent company and other respondents 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 of Association and the Companies Act, 1994. The respondent company was further to hold annual general meeting of the for the year 1998 and 1999 for which they were at liberty to obtain permission from the Court in accordance with law. The court also directed the respondent company and the respondent No. 4 BSRS to complete all legal formalities pursuant to the letter dated 16-4-1998. Having gone through the judgment of the High Court Division we do not find any illegality in its findings that the petitioner is minority shareholder, that the application was a proper application under section 233 of the Companies Act and thus the directions given by the High Court Division were in accordance with law and the Companies Act, 1994 and calls for no interference. 
 
The petition is, therefore, dismissed.  
 
Ed.