Saji Koduvath, Advocate, Kottayam.

Synopsis

• 1.      Court’s Jurisdiction in Civil Disputes of Associations
• 2.      Instances When Court Interferes
• 3.      Limitations to the Rule of Majority
• 4.      General Law of Contracts and Companies Act
• 5.      No Suit Where Statutory Authorities Have Jurisdiction
• 6.      When Minority can File Suits without Sanction of Majority
• 7.      Individual Membership Rights and Qualified Minority Rights
• 8.     Qualified minority rights
• 9.      Individual Membership Rights and Corp. Membership Rights
• 10. Individual Can Maintain Cause of the Collective Body
• 11.   Foss Vs. Harbottle
• 12.    Exceptions to the Rule in Foss Vs. Harbottle
• 13.    Derivative Action
• 14.   Theoretical Sources for Court-Intervention
• 15.   When Court Interferes

Provisions of the Societies Registration Act, 1860:

• 6. Suits by and against societies – Every society registered under this Act may sue or be sued in the name of the president, chairman, or principal secretary, or trustees, as shall be determined by the rules and regulations of the society, and, in default of such determination, in the name of such person as shall be appointed by the governing body for the occasion.
•    Provided that it shall be competent for any person having a claim or demand against the society, to sue the president or chairman, or principal secretary or the trustees thereof, if on application to the governing body some other officer or person be not nominated to be the defendant.

Court’s Jurisdiction in Civil Disputes of Associations of Persons

The civil courts have jurisdiction to deal with civil disputes pertaining to property and person.[1] The courts will not ordinarily interfere with the internal affairs of associations of persons. The jurisdiction of a civil court to interfere with the internal affairs of associations is ‘rather limited’.[2] Courts interfere in the internal matters of associations, on proper grounds, to safeguard its affairs in general, so also to protect the lawful interests of the individual members of such associations. Beyond the general jurisdiction of courts to intervene and set right illegalities, the jurisdiction thereof is obtained by Courts from three sources:  

• (i)  contract, [3]
• (ii) court is the protector of all charities[4] and
• (iii) formation of associations is, besides common law right as well as statutory right, a fundamental right[5] protected by our courts.

Instances When Court Interferes

See Chapter: Court’s Jurisdiction to Interfere in the Internal Affairs.

Limitations to the Rule of Majority

Rights of minority shareholders in a company, or of minority members of an association are protected

• (a) by the common/general law pertaining to contract and associations, and
• (b) by the provisions of the enactments applicable.

In N K Mohapatra Vs. State[6] it is observed:

• “Even though rule of majority prevails, it cannot be so in certain cases. A proper balance of rights of majority and minority shareholders is essential for smooth functioning of the company. Attempt is to be made to maintain that balance by admitting, on principle, the rule of majority but limiting it, at the same time by number of well defined minority rights. The exceptions under the common law are, however, as exceptions to the rule in Foss v. Horbottle (1843) 2 Hare 461. Majority cannot confirm:
•  (i)  any act which is illegal or ultra vires the company;
•  (ii) any act which is a fraud on the minority.
• Reason for this exception is that if minority shareholders were denied right to bring an action on behalf of themselves and all others, their grievance would never reach the Court because the wrong-doers themselves being in control would not allow the company to sue.  Various rights are given to minority shareholders under the Act. Under the general law …. the majority of members must not commit a fraud on minority but must act bona fide for benefit of the company as a whole. Thus, in Cook v. Deeks (916) I AC 554, an individual shareholder was able, despite Foss’s case (supra), to bring an action to recover company’s property from those who had taken it and who, by their voting power, prevented the company itself from suing. Again, an alteration of articles must not be in fraud of the minority. Chapter V I of the Act deals with prevention of oppression and mismanagement. Ss. 397 and 398 deal with the procedure for getting relief in cases of oppression and mismanagement respectively.”

General Law of Contracts and Companies Act

In TAK Mohideen Pichai Taraganar Vs.  Tinnevelly Mills Co.[7] it was held that the general right of suit cannot be considered to have been taken away merely because of some ‘regulatory’ provisions.

 Relying on this decision, it is held in Avanthi Explosives P. Ltd. Vs. Principal Subordinate Judge, Tirupathi[8] that the general law of contracts is the basis of the rights of parties and that the Companies Act merely ‘regulates’ these rights and does not create any new right or remedy. Unless there is an exclusion of the jurisdiction of the civil court, by words express or implied, the suit is maintainable, and no such exclusion has been held existing by the courts in respect of individual rights.

No Civil Suit Where Statutory Authorities Have Jurisdiction

The dismissal of the suit was upheld by our Apex Court in Church of North India Vs. Lavajibhai Ratanjibhai[9] holding that the civil court has no jurisdiction where bar is imposed in relation to a matter whereover the statutory authorities (under BPT Act) have the requisite jurisdiction. It is observed that in such a case, if only a question arises which is outside the purview of the Act or in relation to a matter unconnected with the administration or possession of the trust property, the Civil Court may have jurisdiction. It is also pointed out in this decision that a society created under a statute must conform to its provisions and the courts would interfere in case of its violation.[10]

When Minority can File Suits without Sanction of Majority

Certain rights of minority shareholders in a company, or of minority members of an association, are protected by our courts. [11] Such rights can be classified, generally, under following heads.

• (i)   Individual Membership Rights
• (ii)  Qualified Minority Rights
• (iii) Corporate membership rights
• (iv) Exceptions to the Rule in Foss Vs. Harbottle
• (v)  Derivative Action

Kalinga Tubes Ltd Vs. Shanti Prasad Jain

In Kalinga Tubes Ltd Vs. Shanti Prasad Jain[12] it is observed as under:

• “The rule of supremacy of the majority, usually referred to as the Rule in Foss v. Harbottle, (1848-2 Hare 461), is subject to considerable qualification which can be grouped under three heads:
• (a) individual membership rights,
• (b) qualified minority rights, and
• (c) exceptions, properly called, to the Rule in Foss v. Harbottle, which are
  • (i) an act which is ultra vires the Company or illegal;
  • (ii) an act which constitutes a fraud against the minority and the wrongdoers are themselves in control of the Company; and
  • (iii) a resolution which requires a qualified majority but has been passed by simple majority.”

It is further observed that the ‘alternative remedy’ is available under two conditions

• (i) the affairs of the Company are conducted in manner oppressive to some part of the members, and
• (ii) the Court must find a case for winding-up order under the just and equitable clause but such winding up would unfairly prejudice the members.

Palmer on Company Law

Palmer on Company Law lays down that the rights a share carries are

• (a) principal rights
• (b) rights of an ancillary character and
• (c) corporate and individual membership rights.[13] It is observed:

With respect to principal rights, it is stated:

• “The Principal rights which a share may carry are –
• (1) The right to dividend if, while the company is a going concern, a dividend is duly declared;
• (2) the right to vote at the meetings of members; and
• (3) the right, in the winding up of the company, after the payment of the debts to receive a proportionate part of the capital or otherwise to participate in the distribution of assets of the company.”

With respect to ancillary rights, it is stated:

• “Apart from these principal rights and duties, others of ancillary character are carried by a share, e.g., the following rights of the shareholder:
• (a) to receive notice of general meetings unless the articles otherwise provide;
• (b) to receive a copy of every balance sheet (and of the documents annexed there to) which is to be laid before the general meeting;
• (c) to receive a copy of the memorandum, and the articles;
• (d) to inspect and obtain copies of the minutes of general meetings;
• (e) to inspect copies of Directors’ service contracts;
• (f) to inspect the various registers to be maintained by the company without charge.”

The author continues:

• “Apart from those principal and ancillary rights which a share carries, the shareholder is further entitled to the numerous corporate and individual membership rights  which the constitution of the company or the Acts themselves give him; examples of these rights are:
• (a) to petition the court for the winding up of the company;
• (b) to petition for the alternative remedy”

The law on the matter is summed up as under:

• “To sum up: The holding of a share in a company limited by shares generally carries the right to receive a proportion of the profits of the company and of its assets in the winding up, and all other benefits of membership, combined with an obligation to contribute to its liabilities, all measured by a certain sum of money which is the nominal value of the share, and all subject to the memorandum and articles of the company.”

Individual Membership Rights and Qualified Minority Rights

The ‘individual membership right’ is the right to maintain oneself in full membership of a society or a company with all the rights and privileges pertaining to that status.[14] The principal individual membership rights recognized in law were the right to vote and stand as a candidate in elections.

But its scope was widened accepting, by courts, that this right implies the right to insist strict observance of the legal rules, statutory provisions and provisions in the memorandum and articles which cannot be waived by a bare majority of shareholders.

Starlite Real Estate (ASCOT) Mauritius Ltd. Case

In Starlite Real Estate (ASCOT) Mauritius Limited Vs. Jagrati Trade Services Private Limited[15]  it is observed as under: 

• “There is a clear distinction between individual and corporate membership rights of shareholders. A member can always sue for wrongs done to himself in his capacity as a member. The individual rights of a member arise in part from the general law. … … The dividing line between personal and corporate rights is not always very easy to draw. The Courts, however, incline to treat a provision in the memorandum or articles as conferring a personal right on a member, if he has a special interest in its observance distinct from the general interest which every member has in the company adhering to the terms of its constitution. In an action for violation of personal rights a single shareholder suing alone and not even on behalf of other shareholders may make the company a defendant and obtain his reliefs. Where a wrong has been done to the company and an action is brought to restrain its continuance or to recover the company’s property or damages or compensation due to it, it is a derivative action.”[16]

The individual membership rights can be exercised by any individual shareholder.[17] Following are expressed as rights “under the contract”, “emanating from his membership” in Starlite Real Estate (ASCOT) Mauritius Limited Vs. Jagrati Trade Services Private Limited:[18]

• “to have his name entered and kept on the register of members;
• to vote at meetings of members;
• to receive dividends which have been duly declared;
• to exercise pre-emption rights conferred by the articles and
• to have his capital returned in proper order of priority on a winding up or on a properly authorized reduction of capital.”

It is further demonstrated that “under the general law” he is entitled

• “to restrain the company from doing acts which are ultra vires;
• to have a reasonable opportunity to speak at meetings of members;
• to move amendments to resolutions proposed at such meetings to transfer his shares;
• not to have his financial obligations to the company increased without his consent; and
• to exercise the many rights conferred on him by the Companies Act, such as his right to inspect various documents and registers kept by the Company.”

Life Insurance Corporation of India Vs. Escorts Limited

Our Apex Court held in Life Insurance Corporation of India Vs. Escorts Limited[19] as under: 

• “The rights of a shareholder are:
• (i)   to elect Directors and thus to participate in the management through them;
• (ii) to vote on resolutions at meetings of the Company;
• (iii) to enjoy the profits of the Company in the shape. of dividends;
• (iv) to apply to the Court for relief in the case of oppression;
• (v) to apply to the Court for relief in the case of mismanagement;
• (vi) to apply to the Court for winding up of the Company;
• (vii)to share in the surplus on winding up” and transfer of shares.”

To enforce ‘individual membership rights’, a member of a Company or an association can file suits in his personal capacity; that is, without the sanction of majority and without impleading the company, club or society as a co-plaintiff or defendant. They are rights which cannot be waived by a bare majority of shareholders.

The following are the well recognised individual membership rights.[20]

•  (i)  Right to vote,
• (ii) right to stand as a candidate as a director/ office-bearer and 
• (iii) set-right illegal acts.

Nagappa Chettiar Vs. Madras Race Club

In Nagappa Chettiar Vs. Madras Race Club,[21] a suit filed for declaration that the meeting of the general body held on 7/11/1947 was invalid and that the managing committee comprising of certain defendants purported to have been elected at the said meeting was not entitled to assume office and for consequential injunction, it is held:

• “A share-holder is entitled to institute a suit to enforce his individual rights against the Company such as his right to vote or his right to stand as a director of a company at an election ……….. It is open to a majority always to set right a thing which was done by the majority either illegally or irregularly if thing complained of was one which the majority of the company were entitled to do legally and was within the powers of the company, by calling a fresh meeting.  That is the reason why in such cases the court refuses to interfere at the instance of a share-holder even in a representative action brought by him. If the majority, however, acts in an oppressive manner, it is not as if the minority are without a remedy. …… From this it follows that a share-holder or share-holders are entitled to bring an action:
•  (i) In respect of matters which are ultra vires the company and which the majority of share-holders were incapable of sanctioning;[22]
• (ii) Where the act complained of constitutes a fraud on the minority and
• (iii) Where the action of the majority is illegal“.

Joseph Vs. Jos

Referring the individual membership rights and the corporate membership rights of members in a Company, the Kerala High Court (KK Mathew, J.), in Joseph Vs. Jos,[23] pointed out that an individual membership right is a right to maintain himself in full membership with all the rights and privileges appertaining to that status; and that this right implies that the individual shareholder can insist on the strict observance of the legal rules, statutory provisions and provisions in the memorandum and articles which cannot be waived by a bare majority of shareholders.[24]

Qualified Minority Rights

Contra-distinct to individual membership rights, to enforce the qualified minority rights the co-operation of the minority group of a specified size within the corporate body is required (Paras 59.02 and 58.04 of Palmer).[25] The qualified minority rights enable the minority to preserve, in important matters, the status which is founded on the original contract of shareholders and the company.

In Mathrubhumi Printing and Publishing Co. Ltd. Vs. Vardhaman Publishers Ltd. [26] it is pointed out from the Companies Act, 1956 that the proceedings to enforce qualified minority rights could be initiated only under Section 397 or Section 398 read with Section 399 of the said Act.

Individual Membership Rights and Corporate Membership Rights

An Individual Can Maintain Cause of the Collective Body 

The Kerala High Court in Joseph Vs. Jos[27] observed as under:

• “…  There are two kinds of rights for a member of the company, one the individual membership right, and the other the corporate membership right. So far as the corporate membership rights are concerned, a shareholder can assert those rights only in conformity with the decision of the majority of the shareholders. An individual membership right is a right to maintain himself in full membership with all the rights and privileges appertaining to that status. …”

Where the right of an individual is affected or infringed and he has no other effective remedy, and where there are no vitiating circumstances such as delay, latches, etc., it is held in Committee of Management Arya Kanya Pathshala Inter College Vs. State of U P that the cause of the collective body will be maintainable at the instance of an individual.[28] 

Foss Vs. Harbottle[29]

In Foss Vs. Harbottle, the minority shareholders of a company raised claim for damages against some of the directors. But the court held – it could not interfere, for the majority resolved that no action should be taken against the directors. This rule had been applied in several cases later, vide MacDougall Vs. Gardiner [30]

The rule in Foss Vs. Harbottle is that any action in a civil court, in which a wrong is alleged to have been done to a company, has to be brought in the name of the company itself.

Exceptions to the Rule in Foss Vs. Harbottle

Nevertheless, several exceptions were later admitted to the rule in Foss Vs. Harbottle. Palmer’s Company Law recognises[31] the following exceptions whereby the majority cannot confirm: [32]

• 1. an act which is ultra vires the company or illegal;
• 2. an act which constitutes a fraud against the minority and the wrong-doers arc themselves in control of the company; or
• 3. a resolution which requires a qualified majority but has been passed by a simple majority.

Another important exception was later on added to the rule in Foss v. Harbottle: that is, “justice requires that the courts should intervene“. In Heyting Vs. Dupont,[33] it is held:   

• “….there are cases which suggest that the rule is not a rigid one and that exception will be made where the justice of the case demands it.”

Important Indian Cases Applied the Exceptions:

• (1) T.A.K. Mohideen Pichai  Taraganar Vs. Tinnevelly Mills Co. Ltd.[34] Suit for declaration  that the plaintiffs were the validly elected and that the defendant company had no power to nominate such  directors.
• (2) Pydah Venatachalapathi Vs. Guntur Cotton, Jute and Paper Mills Co. Ltd.[35] Suit for a declaration that the defendant ceased to hold office.
• (3) M.K. Srinivasan Vs. Watrap S. Subrahmanya Ayyar.[36] Suit for a declaration that the appointments of certain directors should be declared illegal and for a direction to order a poll for electing five shareholders as directors in the vacancies
• (4) A. S. Krishnan Vs. M. Sundaram.[37]
• (5) Satyavart Sidhantalankar Vs. Arya Samaj, Bombay.[38]
• (6) Sree Krishna Jute Mills Ltd. Vs. Mothey Krishna Rao.[39] Application for a direction to the secretary and treasurer of the firm to hand over the records, account books, pass books, keys, etc., to the applicant. The objection of the respondents that the petitioners should have filed a suit and not a company petition was upheld.
• (7) Nagappa Chettiar Vs. Madras Race Club.[40] Suit for a declaration that the meeting of the general body held was invalid and that the managing committee comprising of certain defendants purported to have been elected at the said meeting was not entitled to assume office.
• (8) M.R.S. Rathnavelusami Chettiar Vs.  M.R.S. Manichavelu Chettiar.[41] Suit for a declaration that the removal from office of the managing director was illegal.
• (9) Star Tile Works Vs. N. Govindan.[42] Suit for a declaration that the entire proceedings of a meeting were void and illegal.
• (10) Shridhar Misra Vs. Jaichandra Vidyalankar.[43]
• (11) Muni Lal Peshawaria Vs. Balwant Rai Kumar.[44] Suit for the taking of accounts and for distribution of surplus assets in the course of the winding up.
• (12) Joseph Vs. Jos.[45] Suit for a declaration that the proceedings of the meeting regarding the election of certain directors were null and void.
• (13) Panipat Woollen and General Mills Co. Ltd. Vs. R.L.  Kaushik.[46]  Suit for a declaration that the plaintiff was a director and that one of the directors was not properly elected.
• (14) S. Krishnaswamy Vs. South India Film Chamber of Commerce.[47] 
• (15) Gokul Chit Funds and Trades P. Ltd. Vs. K. Thoundasseri Kochu Ouseph Vareed.[48] Application filed on the company side of the High Court that an election held on   8/09/1975, was illegal and contrary to the provisions of the Act was held not maintainable and the party was directed to file a civil suit.
• (16) Bhagawandas Garg Vs. Canara Bank Ltd.[49]    Suit for recovery of money against the Canara Bank in respect of the deposit amount payable by the plaintiff in respect of twelve shares.
• (17) R. Prakasam Vs. Sree Narayana Dharma Paripalana Yogam .[50] Suit for a declaration that the annual general meeting was not duly and validly convened that the election of the president, vice-president, directors, etc., made at a meeting was invalid.
• (18) Marikar (Motors) Vs. M.I. Ravi Kumar.[51] Suit for a declaration that the co-option of certain defendants as directors was illegal.
• (19) Avanthi Explosives Vs. Principal Subordinate Judge Tirupathi.[52]
• (20) Sardar Kanwaldeep Singh and other Vs. Assistant Registrar Firms, Societies and Chits, Faizabad.[53]
• (21) Sri Bhaben Chandra Pegu Vs. The State of Assam. [54] The Division Bench considered the Rule with regard to the convening of a meeting of the governing body and pointed out that it was a statutory Rule and commission of act in violation of the Rules in passing an order or interfering in the management of the affairs of the college must be held to be void, unlawful and illegal, and was liable to be set aside and/or quashed.
• (21) Rajeev Saumitra Vs. Neetu Singh.[55]
• (22) Starlight Real Estate (Ascot) Mauritius Limited Vs. Jagrati Trade Services Private Limited.[56]

A Society or a club, as in the case of a company, acts as provided in the bylaws or through its resolutions. In Daman Singh Vs. State of Punjab and Haryana[57]  it is held by our Apex Court with respect to a Co-operative Society:

• “Once a person becomes a Member of a Co-operative Society, he loses his individuality qua the society and he has no independent rights except those given to him by the statute and the by-laws. He must act and speak through the society; or rather, the society alone can act and speak for him qua rights or duties of the society as a body.”

The legal actions with respect to a registered society have to be brought by the people authorised to sue under Sec. 6 of the So. Regn. Act. In case of an unregistered society or a club, the legal action has to be initiated by all its members (or by one or more members in a representative action).

Derivative Action

When the directors of a company or the governing body of an association fail to take action on behalf of the company or association, the members thereof, even if minority, will be permitted by courts to proceed on behalf of the company or association. Such rights also arise from the ‘exceptions to Foss Vs. Harbottle’. It is actually a derivative action on behalf of the company as it is necessitated or derived when there is illegal action or inaction on the part of the directors. It is essentially and primarily for the benefit of the company as opposed to personal rights of members.[58] 

In Starlight Real Estate (Ascot) Mauritius Limited Vs. Jagrati Trade Services Private Limited[59] referring to ‘Company Actions in the Modern Set-Up’ by S.C. Sen, First Edition, ‘The New Frontiers of Company Law’ by S.C. Sen, 1971 Edition and ‘Guide To Companies Act’, by A. Ramaiya, 17th Edition, the law on this point is summarized by Manmohan Singh, J.,  as under:

• “In company jurisprudence, company actions are divided into different groups:-
• (a) Actions by the Company – for enforcement of Company’s rights. 
• (b) Derivate actions – i.e., actions by shareholders for enforcement of the Company’s rights (as distinguished from class rights of shareholders). 
• (c) Representative actions – i.e., actions by shareholders for enforcement of their class or corporate rights. 
• (d) Personal actions by shareholders – for enforcement of their personal rights.”

In Sohan Nayyar Vs. Lt Governor of Delhi[60] it is held by the Delhi High Court as under:

• “(1) In the case of Corporations, where there are members, a suit may be maintained by the Corporation acting through its directors. If the directors refuse to act or the action complained of is that of the directors themselves, then such a suit can be maintained by the majority shareholders in the name of the Corporation.
• (2) If the action is challenged by the minority shareholders when the directors refuse to act, then the action or suit has to be brought by the minority shareholders[61] in their own name. This may be done by them acting jointly or there may be a representative suit by a class of shareholders or members.
•  (3) In the case of an arbitration award which is filed in Court, the objections may be filed by the parties thereto or if the parties refuse to file objections or fail to file objections, then a person claiming under them can also file objections provided they can show some interest in the subject-matter of the award or reference, as the case may be.
• (4) The principle which applies to appeals, namely, that third parties can also file objections, even though not parties to the suit, applies also to objections against ail award being made a rule of the Court subject to the same limitations, i.e., the objectors must show that they have an interest in the subject-matter of award or reference and they obtain leave of the Court which should normally not be refused.
• (5) In the case of arbitration awards against a Corporation which have been filed in the Court, members of the Corporation can maintain objections as they are debarred from filing a suit because of S. 32 of the Arbitration Act, to challenge the award or the arbitration agreement, as the case may be. These objections can be filed on the same basis as a suit can be filed by majority or minority shareholders of a company, which means that if the majority shareholders object to the award they can do so in the name of the company and if the minority shareholders challenge the same, they can do so in their own names.
• (6) In order to determine whether it is the majority or minority shareholders who are maintaining the objections, the Court can even call a meeting of the company.”

Theoretical Sources for Court-Intervention

The theoretical sources for court-intervention for enforcing the doctrine of ‘individual membership rights’ can be laid down as under:

(i) Courts enforce contract.

The general law of contract is the genesis of the rights of shareholders in a Company or of members of an association. The Companies Act merely regulates the general law of contract which is the basis of the rights of parties and does not create any new rights or remedies.  Unless there is an exclusion of the jurisdiction of the civil court, by words express or implied, the suits are maintainable, and no such exclusion has been held existing by the courts in respect of individual rights. [62]

(ii) Courts ensure rule of law

Courts ensure rule of law and intervene to prevent illegality and fraud especially in ‘public matters’ and where ‘fiduciary relationship’ is involved.

In Asansol Electric Supply Co Vs. Chunilal Daw: 1970-75 Cal WN 704 it is observed: 

• “The majority can always set right a thing which was done by the minority either illegally or irregularly, if the thing complained of was one which the majority of the share-holders were entitled to do legally and was within the powers of the company, by calling afresh meeting. In such cases, the court will refuse to interfere at the instance of a share-holder even in a suit brought in a representative capacity. But, the question is, if the majority acts in an oppressive manner or does an act which is ultra vires the company, whether the minority has any remedy against the same. There is no difference of opinion that a suit at the instance of the Company is always maintainable, but if the majority of the share-holders act illegally, they will not permit the minority share-holders to use the name of the company for any suit for the purpose of correcting the illegal acts done by the majority or for any other relief against them.”

In Avanthi Explosives P. Ltd. Vs. Principal Subordinate Judge, Tirupathi: 1987-62 CC 301 (AP), it is observed as under:

• “The rule in Foss Vs. Harbottle, [1843] 2 Hare 461 does not apply to such acts as referred to above inasmuch as the majority cannot sanction those acts. A resolution which is ultra vires or illegal or is a fraud on the minority or is not bona fide or for the benefits of the company as a whole or is intended to discriminate between the majority shareholders and the minority shareholders, is illegal and can be questioned by a separate action in the civil court. The reason for this is that if the minority were denied that right, their grievance could never reach the court because the wrongdoers themselves being in control, do not allow the company to sue. In some cases, it has been held that further exceptions to the rule in Foss v/s. Harbottl, [1843] 2 Hare 461, are permissible in cases in which “justice requires that the courts should intervene” to assist an otherwise minority shareholder. In Heyting v/s. Dupont,, [1964] 1 WLR 843, Harman L.J. said (at page 854) : “….there are cases which suggest that the rule (in Foss Vs. Harbottle, [1843] 2 Hare 461) is not a rigid one and that exception will be made where the justice of the case demands it.”[63]

In Fraser v. Whalley[64] it was observed:

• “…  I have no doubt that the Court will interfere to prevent so gross a breach of trust. I say nothing on the question whether the policy advocated by the directors, or that which I am told is to be pursued by Savin, is the more for the interest of the company. That is a matter wholly for the shareholders. I fully concur in the principle laid down in Foss  Vs. Harbottle, (1843) 2 Hare 461 : (67 E. R. 189) as to that, but if the directors can clandestinely and at the last moment use a state resolution for the express purpose of preventing the free action of the shareholders, this Court will take care that when the company cannot interfere, the Court will do so.”[65]

(iii) Courts take cognisance of civil rights unless barred.

No express provision in the Companies Act or in the So. Regn. Act excluding the jurisdiction of civil courts. When there is no express provision excluding jurisdiction of the civil courts, such exclusion can be implied only in cases where a right itself is created and the machinery for enforcement of such right is also provided by the statute. If the right is traceable to general law of contract or it is a common law right, it can be enforced through civil court, even though the forum under the statute also will have jurisdiction to enforce that right.[66]

(iv) Suits for redressal of individual wrongs cannot be rejected as matters concerned with internal management.[67]

(v) The ‘individual membership rights’ are rights traceable to general law of contract or  that pre-existed in common law and not first introduced by the enactments relating to Companies or Societies.

In Rajeev Saumitra Vs. Neetu Singh[68] it is held: 

• “If the right is traceable to general law of contract or it is a common law right, it can be enforced through civil court, even though the forum under the statute also will have jurisdiction to enforce that right.”

It is observed in Starlite Real Estate (ASCOT) Mauritius Limited Vs. Jagrati Trade Services Private Limited[69] as under:

• “…. The individual rights of a member arise in part from the general law. Under the contract emanating from his memberships, he is entitled to have his name entered and kept on the register of members, to vote at meetings of members, to receive dividends which have been duly declared….”[70]

A right pre-existing in common law is recognised by the statute and a new statutory remedy for its enforcement provided, without expressly excluding the civil courts jurisdiction, then both the common law and the statutory remedies might become a concurrent remedies leaving open an element of election to the persons of inherence.[71]

When Court Interferes

See Chapter: Court’s Jurisdiction to Interfere in the Internal Affairs.

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[1]      Narayan Nagappa Hegde v. Shankar Narasimha Bhatta: AIR 1966 Kar 5; K V Joseph Vs. Devayani Amma: AIR  1999  Ker 181. Dhulabhai Vs. State of MP: AIR 1969 SC 78 ; Premier Automobiles Ltd. Vs. Kamlekar Shantaram Wadke:  AIR 1975 SC 2238, Munshi ram Vs.Municipal Committee, Chheharta: AIR 1976 SC 1250, Jitendra Nath Biswas Vs.M/s. Empire of India & Ceylone Tea Co.:  AIR 1990 SC 255, Saraswathi Vs. Lachanna:  (1994) 1 SCC 611.

[2]      TP Daver Vs. Lodge Victoria No. 363 SC Belgaum, 1963 AIR SC 1144

[3]      Board of Trustees, Ayurvedic & Unani Tibia College, Delhi Vs. The State: AIR 1962 SC 458;  Siddheshwar Sahkari Sakhar Karkhana Vs. Commir. of IT, Kolhapur: AIR 2004 SC 4716; Hyderabad Karnataka Education Society Vs. Registrar of Societies: AIR 2000 SC 301; Daman Singh Vs. State of Punjab AIR 1985 SC 973; Zoroastrian Co-op. Housing Society Ltd. Vs. District Registrar: AIR 2005 SC 2306; State Bank of India Staff Association Vs. Mohindra Bhattacharyya:  AIR 1991 Cal 378; B.C.C.I. Vs. Netaji Cricket Club: AIR 2005 SC 592.

[4]      C Chikka Venkatappa Vs. D Hanumanthappa: 1970 (1) Mys LJ 296; Narayan Krishnaji Vs. Anjuman E Islamia: AIR 1952 Kar 14: Thenappa Chattier Vs. Kuruppan Chhietier: AIR 1968 SC 915. Nelson Vs. Kallayam Pastotate: AIR 2007 SC 1337

[5]      A P Dairy Development Corpn. Vs. B Narasimha Reddy: AIR 2011 SC 3298; Dharam Dutt Vs. Union of India: AIR 2004 SC 1295.

[6]      AIR  1994 Ori 301

[7]      AIR 1928 Mad 571

[8]      1987-62 CC 301; APLJ 1985 3 219

[9]      AIR 2005 SC 2544.

[10]    See also: The Commissioner, Hindu Religious Endowments, Madras Vs. Sri Lakshmindra Thirtha wamiar of Sri Shirur Mutt, AIR 1954 SC 282; Ratilal Panachand Gandhi Vs. State of Bombay AIR 1954 SC 388.

[11]    R. C. Copper v. Union of India ( AIR 1970 SC 564). 

[12]    AIR 1963 Ori. 189

[13]    Khadija Vs. P.K. Mohammed P. Ltd: 1985-58 CC 543; ILR  1983-2 Ker 374.

[14]    CL Joseph Vs. Jos AIR 1965 Ker 68

[15]    2016-195 CC 434

[16]    Referred to in Rajeev Saumitra Vs. Neetu Singh: 2016-198 CC 359.

[17]    Mathrubhumi Printing and Publishing Co. Ltd. Vs. Vardhaman Publishers Ltd.: 1992-73 CC 80; ILR1992-2 Ker 134.

[18]    2016-195 CC 434

[19]    AIR 1986 SC 1370.

[20]    Nagappa Chettiar Vs. Madras Race Club : AIR 1951 Mad 831,         CL Joseph Vs. Jos AIR 1965 Ker 68; Star Tiles Works Vs. N. Govindan AIR 1959 Ker  254

[21]    AIR 1951 Mad 831; [1949] 19 Comp Cases 175.

[22]    See Burland Vs. Earl, 1902 AC 83

[23]   AIR 1965 Ker 68

[24]    Quoted in Rajeev Saumitra Vs. Neetu Singh: 2016-198 Comp Cases 359.

[25]    Mathrubhumi Printing and Publishing Co. Ltd. Vs. Vardhaman Publishers Ltd.: 1992-73 CC 80; ILR1992-2 Ker 134.

[26]    1992-73 CC 80; ILR1992-2 Ker 134.

[27]    AIR 1965 Ker 68. Quoted in Rajeev Saumitra Vs. Neetu Singh: 2016-198 Comp Cases 359.

[28]    2011- 2 ADJ 65.

[29]    [1843] 2  Hare 461

[30]    [1875] 1 Ch 13.

[31]    Referred to in  S Manmohan Singh Vs. S Balbir: ILR  1975-1 Del 427

[32]    Also see: Edwards v. Halliwell [1950] 1 All ER 1064 (CA).  Avanthi Explosives Vs. Principal Subordinate Judge Tirupathi 1987- 62   Comp. Cases 301.

[33]    [1964] 1 WLR 843 (CA). Avanthi Explosives Vs. Principal Subordinate Judge Tirupathi: 1987- 62   Comp. Cases 301.

[34]    AIR 1928 Mad 571.

[35]    AIR 1929 Mad 353.

[36]    [1932] 2 Comp Cases 147; AIR 1932 Mad 100.

[37]    AIR 1941 Bom. 312

[38]    AIR 1946 Bom 516

[39]    [1947] 17 Comp Cases 63 (Mad); AIR 1947 Mad 322.  

[40]    AIR 1951 Mad 831; [1949] 19 Comp Cases 175.

[41]    [1951] 21 Comp Cases 93; AIR 1951 Mad 542.

[42]    AIR 1959 Ker  254.

[43]    AIR 1959 All 598

[44]    [1964] 34 Comp Cases 717, AIR 1965 Punj 24. 

[45]    AIR 1965 Ker 68; [1964] 34 Comp Cases 931 (Ker).

[46]    [1969] 39 Comp Cases 249 (P&H).

[47]    AIR 1969 Mad 42

[48]    [1977] 47 Comp Cases 264 (Ker).

[49]    [1978] 1 WR 504; [1981] 51 Comp Cases 38 (AP).

[50]    [1980] 50 Comp Cases 611 (Ker).

[51]    [1982] 52  Comp Cases 362 (Ker).

[52]    1987- 62   Comp. Cases 301

[53]    AIR 1994 All 161

[54]    [1998 (1) GLR 38].          Raja Himanshu Dhar Singh Vs. Additional Registrar Co-op. Societies: AIR1962 All 439.

[55]    2016-198 CC 359.

[56]    2016-195 CC 434

[57]    AIR1985 SC 973

[58]    Starlight Real Estate (Ascot) Mauritius Limited Vs. Jagrati Trade Services Private Limited: 2016-195 CC 434.

[59]    2016-195 CC 434

[60]    AIR 1983 Del 301

[61]    The Court referred to Estmanco (Kilner House) Ltd. v. Greater London Council, (1982) 1 All ER 437 and  Daniels v. Daniels (1978) 2 All ER 89, See also: Onyx Musicabsolute Com Pvt Ltd Vs. Yash Raj Films Pvt Ltd: 2008-6 BCR 418. Escorts Ltd Vs. Union Of India: 1985-57 CC 241.

[62]    Avanthi Explosives Vs. Principal Subordinate Judge, Tirupathi: 1987- 62 CC 301. Starlite Real Estate (ASCOT) Mauritius Limited Vs. Jagrati Trade Services Private Limited, 2016-195 CC 434

[63]    Quoted in Rajeev Saumitra Vs. Neetu Singh: 2016-198 CC 359

[64]    (1864) 2 H. and M. 10: (11 L. T. 175)

[65]    Quoted in Nanalal Zaver Vs. Bombay Life Assurance Co Ltd: AIR  1950 SC 172

[66]    Raja Ram Kumar Bhargava Vs. Union of India: [1988] 171 ITR 254.  Referred to in Rajeev Saumitra Vs. Neetu Singh: 2016-198 Comp Cases 359.

[67]    R.  Prakasam v. Sree Narayana Dharma Paripalana Yogam [1980] 50 Comp Cases 611 (Ker). Referred to in Avanthi Explosives Vs. Principal Subordinate Judge, Tirupathi: 1987- 62   Comp Cases 301.

[68]    2016-198 CC 359

[69]    2016-195 CC 434

[70]    Quoted in Rajeev Saumitra Vs. Neetu Singh: 2016-198 CC 359.

[71]    Dhulabhai Vs. State of MP: AIR 1969 SC 78.

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