V.N.Bhajekar vs K.M.

Shinkar
K.Naveen - BA0160027

Facts of the case: - “

The suit is related to a sequel of resolutions which were passed by the board of directors of
company Indian Co-operative Navigation & Trading Co., Ltd along with an extraordinary
resolution passed in a general meeting and confirmed as a special resolution in another
extraordinary general meeting of the shareholders of the company to appoint the 7th defendant
company as managing agents of the former said defendant company. The plaintiffs, who are
some of the directors, have brought this suit for challenging the said resolutions and the
respective meetings in which they were passed, and for a declaration that the said resolutions
were invalid and of no effect, and for an injunction restraining the 7th defendant company from
acting on the agreement executed in pursuance thereof. First resolution passed by the board of
directors on February 18, 1933, the plaintiffs contend that two of the directors were interested
parties, and there was no proper quorum, and that the meeting of the board of directors on the
18th was held in direct violation of a decision arrived at on a previous meeting of the board on
February 17, 1933, to the effect that the next meeting of the board of directors should be held
on February 20, 1933. As to the extraordinary general meeting and the resolutions passed
therein on February 27, 1933, the plaintiffs say that the meeting was irregularly and improperly
convened and that there was in law no valid extraordinary general meeting held on February
27, 1933. For the same reason the plaintiffs submit that the confirmatory meeting on March 15,
1933, was also invalid and improper. It may be stated that the extraordinary resolutions with
regard to the execution of the proposed agreement between the 6th defendant company and the
7th defendant company for employing the latter as managing agents was passed at the
extraordinary general meeting of February 27, 1933, and confirmed in the confirmatory
meeting of March 15, 1933. ”
Issue: - “

It is clear from the facts set out that the subject-matter of the resolutions challenged and the
questions raised by the plaintiffs are all relating to the internal management of the company
acting within its powers. The contention is that these resolutions are illegal and void because
of certain irregularities. The question, then, is, whether the Court has jurisdiction to interfere
with the internal management of the company acting within its powers, and, secondly, if so,
who can sue. ”

Judgement: - “

It was established having referred to the cases of MacDougall v. Gardiner and Burland v. Earle
that the Court has no jurisdiction to interfere with the internal management of the companies
acting within their own powers, and, secondly, to redress a wrong done to the company the
action must prima facie be brought by the company itself. Even where a minority of
shareholders are alleged to have been overborne by the vote of a majority, the plaintiffs cannot
complain of acts which are valid if done with the approval of the majority of the shareholders
or are capable of being confirmed by the majority, mere irregularity or informality which can
be remedied by the majority being insufficient. It was also said that Mere irregularities
committed by the directors cannot give a cause of action to shareholders and entitle them to
challenge the validity of the resolutions passed, and the aggrieved shareholders must appeal to
the company in general meeting. To arrive at this point, the court had referred to the case of
Normandy v. Ind. Coope. and Co. Limited [1908]. In the end, the judge held that the suit and
notice of motion to be dismissed with costs.”

Analysis:-

It is clear in this case from the facts set out that there is no departure from the principles set in
the case of foss vs harbottle whose exception does not apply here. Even though, there were
irregularities in the procedural aspects of the resolutions, they were ratified later in the
extraordinary general meeting and confirmatory meeting in which the plaintiffs were present.
It is a clear fact that any irregularities can be later ratified in subsequent meeting and that court
need not interfere into such matters unless it falls under any exceptions laid out in the case of
foss vs. harbottle. Therefore the shareholders cannot raise any issues individually without
having the company itself doing it. So, no interim injunction was to be given to the plaintiffs
and the resolutions were held to be valid owing to their subsequent ratification.