case of shareholders entity remedies case of sonoo-with-numbers

SONOO AND ORS. VS ISSUR AND ORS. And CHITTOO CoRespondent

1968 MR 207
GARRIOCH, Ag. S.P.J.

The five applicants, who claim to be directors of the Vacoas Transport
Company Ltd. (which I will call "the Company") are seeking on the one hand to
restrain the respondents and the Company from giving effect to resolutions
passed at a general meeting of the Company held on the 26th September, 1968,
whereby the applicants and the co-respondent were purportedly removed as
directors of the Company and respondents Nos. 6, 7 and 8 elected in their stead,
and on the other hand to restrain the said respondents from preventing the co-
respondent and the first applicant from acting as chairman and secretary of the
Board of Directors, respectively. The application is resisted by the
respondents. The co-respondent has, through his counsel, Mr. Gujadhur, expressed
his agreement with the action taken by the respondents and his consent to his
removal as director.

The circumstances which have led to this application are the following. On
the l0th September this year a meeting of the Board of Directors of the Company
(which I will call "the Board") which was then composed of the five applicants,
the co-respondent and the first five respondents, was held and was attended by
all the directors except respondents Nos. 2, 4 and 5 who were then out of the
country. At that meeting, resolutions were passed-the two respondents present
voting against--the effect of which was (1) to terminate the appointment of the
General Managing Agencies Co. Ltd., which had been managing agents of the
Company since 1966, and to appoint a six-day old company, the Managing and
Buying Agents Co. Ltd in its stead; and (2) to award contracts of service to
applicant No. 1, the secretary of the Company to the co-respondent, to applicant
No. 2 and to a brother of applicant No. 3, who were already employed by the
Company in various functions, for a duration of twenty-five years and at
increased salaries. The various contracts of employment were signed immediately.
Four days later, on the 14th September, at another meeting of the Board at which
was to be discussed a letter of protest from the first respondent concerning the
decisions taken at the earlier meeting, the said respondent was removed as
chairman of the Board and the co-respondent appointed in his place.

Another meeting of the Board was held on the l0th September which was
attended by all the directors (respondents Nos. 2, 4 and 5 had by then
returned). Resolutions were passed whereby the co-respondent was removed as
chairman and the first respondent re-appointed and the first applicant's
appointment as secretary was revoked and the fourth respondent appointed to act
in his place. At that meeting there was also considered a requisition from the
Vacoas Holding Co. Ltd., which hold more than fifty per cent of the shares in
the Company, asking that an extraordinary general meeting of the Company be
convened for the purpose of passing an ordinary resolution to remove the five
applicants and the co-respondent as directors of the Board. The Board, after
discussion of the requisition, resolved to convene an extraordinary general
meeting for the 26th September, 1968, at 2 p.m. It is said that the purpose
which the Board had in mind was the removal of only two directors, namely
applicants Nos. 1 and 5. Notice of the meeting was, however, subsequently
published in the following terms:

NOTICE
THE VACOAS TRANSPORT COMPANY LIMITED

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Shareholders of the Vacoas Transport Company Limited having right to
vote are hereby invited to attend an Extraordinary Meeting of the Company
which will be held at its Head Office situated at Bonne Terre, Vacoas, on
Thursday 26th September, :1968, at 2.00 p.m.

The following Extraordinary Resolution will be examined and voted.

Extraordinary Resolution
"To re-organize the Board of Directors of the Company Dated this
19th day of September, 1968.

On the 25th of September, 1968, the five applicants and the co-respondent
decided to convene an urgent meeting of the Board for the next day, the 26th, at
10 a.m. for the following purposes, among others:

.................. ...........................................................
(2) To prepare for the Extraordinary General Meeting which will be held
on 26th September, 1968, at 2.00 p.m. and to make sure that all
steps have been taken concerning, the proper and regular holding of
such meeting, more especially to verify the deposit within the
prescribed delay of proxies given by shareholders and to take all
decisions and steps required.

(3) To take cognizance of a declaration of a Director concerning
irregularities committed by the President and the Secretary in
relation to the deposit of Proxies and if necessary to vote for
their removal and replacement.

At 10.02 a.m. on the 26th, the five applicants, the co-respondent and the
first five respondents met. Before the items on the agenda were discussed,
respondent No. 2 questioned the regularity of the meeting on the ground that no
"moral delay" had been given to the directors and that the requirements of
article 103 of the articles of association had not been complied with in that
the meeting had not been convened through the secretary. He observed that there
was coming on that morning before the Curepipe Court a case in which the Company
was defendant. After respondent No. 2's declaration, the five respondents walked
out. The directors remaining, namely, the five applicants and the co-respondent,
went on with the meeting. The decision was taken (1) to postpone the
extraordinary general meeting which had been convened for 2 p.m. and (2) to
revoke the appointment of respondents Nos. 1 and 4 as chairman and secretary of
the Board, respectively, and to appoint the co-respondent as chairman and to
reinstate applicant No. 1 as secretary. A notice of postponement of the
extraordinary general meeting signed by the co-respondent as chairman and
applicant No. 1 as secretary was posted up in front of the office of the Company
where the meeting was to take place. Later, another notice signed by respondent
No. 4 was posted up in front of the office warning shareholders that the
extraordinary meeting had been duly convened upon the requisition of the Vacoas
Holding Company Ltd and would be held.

At 2 p.m. on the same 26th September, a number of shareholders met who,
either personally or by proxy, represented a total of 225,690 shares out of a
total of 270,000 shares with voting right. At the outset of the proceedings a
declaration was made, according to the applicants and their witnesses by the co-
respondent, but according to the respondents and the co-respondent himself, by
applicant No. 1, to the effect that the meeting could not legally take place
because it had been duly postponed to the l0th of October and that any

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resolutions which might be passed by the shareholders at the said meeting would
be illegal. After which applicant No. 1, the co-respondent and two other
shareholders, Mr. Attorney Rajah and Mrs. Rojoa, walked out. The meeting
proceeded under the chairmanship of respondent No. 1. Accord-ing to the minutes
of proceedings, he then explained to the meeting the word "reorganise" used in
the notice of the extraordinary resolution. Respondent No. 4 then proposed a
resolution for the removal of the five applicants and of the co-respondent and
their replacement by respondents Nos. 6, 7 and 8. The resolution was put to the
vote. Voters representing 182,021 shares voted for the resolution. The
representative of the United Bus Service Ltd., holding 32,168 shares, did not
participate in the voting and other shareholders holding together 10,729 shares
left the meeting before the vote was taken. Following the meeting, a notice was
published in the press informing the public of the removal of the applicants and
co-respondent as directors of the Company.

On the 1st October, 1968, the applicants commenced the present
proceedings. On the l0th October another extraordinary general meeting of the
Company was held. The shareholders present either personally or by proxy
represented a total of 225,875 shares. Respondent No. 1 took the chair and made
a declaration to the effect that, since the extraordinary general meeting of the
26th September, the applicants had challenged the validity of the resolutions
passed at that meeting and removing them as directors; that, without admitting
the applicants' contention, he was proposing, so far as need be, that those
resolutions concerning the re-organization of the Board be confirmed and voted
as an extraordinary resolution. Mr. Attorney Rajah then stated that the co-
respondent should be in the chair, having been appointed chairman at the Board
meeting of the 26th of September. The co-respondent stated that he was not the
chairman and refused to preside. Mr. Rajah then said that the meeting was
illegal and walked out followed by a number of shareholders representing 15,314
shares. The shareholders present then voted in favour of respondent No. 1
remaining in the chair. A poll was taken on the declaration of respondent No. 1
regarding the resolution passed at the meeting of the 26th September. 178,808
votes were recorded for and 350 against. The United Bus Service Ltd's
representative again abstained from voting.

I have purposely confined the above narrative to facts as to which there
is no real controversy or, if there is, one which cannot have effect on my
decision. The affidavits filed by the parties contain beside those facts a
prolix recital of other matters the relevance of which I am still unable to see.
In the view of the respondents they are in fact irrelevant. For the applicants
it was said that they had been put forward mainly in order to refute the
allegations of fraud made by respondent No. 1 against the applicants. As a
matter of fact the statement of claim which has, since the inception of the
proceedings before the Judge in Chambers, been filed by the applicants against
the respondents and the Company makes no reference to them. I myself am clear
that they were put forward merely by way of an apology of their respective
conduct in the case and to show that such conduct was warranted by the other
side's unfair practices.

Be that as it may, I do not desire to go beyond those facts which I have
specifically set out above and which I consider sufficient for coming to a
conclusion as to the various issues raised.

The first of those issues which I have to decide is one relating to both
procedure and jurisdiction. The respondents contend that the applicant's action
is not properly brought in that they are taking proceedings in their own names
against the Company for a wrong allegedly done to it. Any such action should

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have been entered in the name of the Company according to the rule laid down in
Foss v. Harbottle (1842) 2 Ha. 461 and Mozley v. Alston (1847) 1 Ph. 790. The
rule shortly is that every action to remedy a wrong done to a company must
prima facie be brought in the name of the company, for the court has no
jurisdiction to interfere in the internal management of a company which is
acting within its powers and will not therefore allow a minority to complain of
a matter which can be ratified by the majority of the company in general
meeting. It was argued for the respondents that the applicant's case did not
come within the recognised exceptions to the above rule which applied only in
cases where the majority could not confirm the act or resolution complained of
either (a) because the act was ultra vires or illegal, or (b) it constituted a
fraud against the minority and the wrongdoers themselves are in control of the
company or (c) the resolution required a qualified majority but had been passed
by a simple majority; that there was no suggestion that the resolution impugned
by the applicants was ultra vires the Company or that it was not passed by the
requisite majority; that,as regards fraud, no averment of fraud had been made by
the applicants either in their first affidavit or in their statement of claim
and that it must, therefore, be inferred that they were not basing their
application on any allegation of fraud; and finally that, assuming that such was
their purpose or that the case in their view did come within such exceptions,
their action should, if not entered in the name of the Company, at any rate be
representative, that is to say, they should have proceeded both in their names
and in the names of the other shareholders complaining.

I agree that the applicants could not invoke any one of the three
exceptions referred to above. There are, however, other exceptions to the rule
in Foss v. Harbottle such as the following which it may be necessary to bear in
mind in this matter. First of all it is quite clear that the rule does not apply
in an instance where a member is suing in respect of an individual wrong
(Pender v. Lushington (1877) 6 Ch. D. 70). Then it seems that there will also be
those cases where relief would be granted to individual shareholders in
circumstances falling outside the classified exceptions already referred to
because there is an absolute necessity to waive the rule in order that there may
not be a denial of justice.

The grounds advanced by the applicants for the granting of an injunction
are the following:

That it is in the interest of justice and of the Company and in
order to avoid irreparable damages and prejudice being caused to the
credit and smooth running of the Company and the Company itself and to the
General body of the shareholders of the Company and to us personally and
which cannot be compensated by damages.

It appears from the preceding statement that the wrong for which the
applicants are seeking a remedy is alleged to be at the same time individual and
one against the Company. The wrong complained of is, in effect, the illegal
removal of the five applicants and of the co-respondent as directors and the
appointment of the last three respondents in their stead.

There may no doubt be cases where the exclusion of a director from board
meetings will, in addition to its being a wrong done to the individual, also be
a wrong done to the company and there the company has a right to complain and
prima facie should itself bring remedial action. Here the applicants have chosen
to proceed in their own names and have made the Company a respondent. The
removal of a director is an act which is within the powers of the Company and
can, therefore, be both validly done or confirmed by the required majority. The

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applicants cannot be in a better position than the Company if it had been
plaintiff and be allowed to complain of such an act as a wrong done to the
Company. The position is, however, obscured by the fact that the applicants are
suing, seemingly, also for the infringement of an individual right. I do not
wish to express an opinion as to how far such an action may be maintained in the
present circumstances as an exception to the rule in Foss v. Harbottle, but
shall rather proceed to consider this application in the light of principles
applying to the particular wrong complained of.

It is well settled that directors who have been excluded from the board of
directors can, in certain circumstances, sue in their own names for redress.
They can so sue, for instance, where the board themselves have excluded them
from office (Pullbrook v. Richmund etc. Co. (1878) 6 Ch. D. 610; Hayes v.
Bristol Plant Hire Ltd. (1957) 1 W.L.R. 499). The principle on which the court
will act in such cases is that whereas it will not force a company, which has in
general meeting expressed the wish not to employ any person as director, so to
employ him (Harben v.Phillips (1883) 23 Ch. D. 14; Bainbridge v. Smith (1889) 41
Ch. D. 462), yet, when it is the Board themselves who have removed him, the
court does not regard his exclusion as the act of the company. In this case, the
applicants have been removed not by the Board but by a resolution purported to
have been passed at the extraordinary general meeting of the Company of the 26th
September. The applicants contend, however, that such meeting was illegal for
two reasons: the first is that the meeting had been duly postponed and could
not, consequently, be validly field; the second that, having regard to the fact
that the resolution to be passed was an extraordinary resolution, the notice
calling that meeting did not sufficiently specify the matters on which the
shareholders would be called upon to vote. The result is, they submit, that the
resolutions passed at the meeting are invalid and it cannot therefore be said
that they have been removed by the company. This leads us to consider what both
sides agree are the real issues in the case, namely, whether the extraordinary
general meeting held on the 26th September was validly held and, if not, whether
I should interfere by injunction.

On the first point, the applicants argue that the Board had power under
article 62 of the articles of association to postpone the extraordinary general
meeting and it was that power which they had regularly exercised at the board
meeting of the 26th September at which all the directors were present. On the
part of the respondents it is submitted, firstly that the said board meeting was
irregular because due notice thereof had not been given to the respondents a
reasonable time before the meeting and that, consequently, the decision to
postpone the Company meeting was ineffective; secondly, that the Board had no
power to postpone a meeting of the Company convened in pursuance of a
requisition. As regards the respondents' first objection, the rule may be thus
stated: the notice convening a meeting of directors must be given a reasonable
time before the meeting and, in default, the notice would be invalid and the
meeting irregular, unless all the directors are present at the meeting. It seems
also to result from the authorities (Browne v. La Trinidad (1888) 37 Ch. D. 1;
Homer District etc., Mines (1888) 39 Ch. D. 546) that even if all the directors
are present, but those to whom short notice has been given at once object to the
meeting being proceeded with, the meeting cannot validly take place. The
respondents thus appear to be right in their contention.

As to the second point made by the respondents, the position is quite
clear. Directors, in the absence of express provisions in the articles, have no
power to postpone a meeting which has been duly and properly convened (Smith v.
Paringa Mines (1906) 2 Ch. 193). In the present instance article 62 of the
articles of association expressly excludes a meeting convened in pursuance of a

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requisition from those meetings which the Board have power to postpone. The
applicants, however, contend that the meeting of the Company called for the 26th
September was not one convened by virtue of the requisition but was one convened
by the Board themselves. It is submitted on their part that the object of the
meeting as set out in the requisition was to remove six directors, namely, the
five applicants and the co-respondent, by means of an ordinary resolution.
However, when the requisition was discussed at the Board meeting of the l0th
September, the Board decided upon the removal of only two directors, namely,
applicants Nos. 1 and 5 ;and, in the notice given by the Board summoning the
meeting, the resolution to be voted was stated as an extraordinary resolution
"to reorganise the Board of Directors of the Company". It could not, therefore,
be said, in the applicants' view, that the meeting convened by that notice was
the one requisitioned. I have carefully considered that argument, and have come
to the conclusion that having regard to the general terms of the notice and of
the fact that at the said meeting the removal of the five applicants and of the
co-respondent was in fact proposed and put to the vote, that the meeting was
convened in pursuance of the requisition. The fact that the notice mentioned an
extraordinary resolution instead of an ordinary resolution is explained by the
respondents. They say that since directors cannot, under the articles of
association, be removed before the expiration of their terms of office except by
an extraordinary resolution, the Board thought fit to rectify the
requisitionists' error. The amendment does not alter my view of the position.

It remains for me to examine the applicants' submission that the notice
did not sufficiently particularize the matters which the shareholders were to be
asked to pronounce on. They argue that the terms used in the notice "to
reorganise the Board of Directors" were, in view of the resolutions which were
to be proposed, misleading; that the "reorganisation" of the Board could not be
understood by the shareholders as meaning the removal of six specific directors
and their replacement bythree others to be elected.

The first rule with respect to notice is that they should be given in
accordance with the articles of association. In the present case article 67 of
the articles of association lays down that, apart from business which may
according to the articles be transacted at ordinary general meetings without
notice, no general meeting shall enter upon, discuss or transact any business
which has not been specially mentioned in the notice or notices upon which it
was convened. Article 65, on the other hand, provides that the fact that a
notice shall merely state generally the object of the meeting shall not
invalidate any resolution passed at such meeting. It was on the latter article
that the respondents relied to say that the notice did in fact give a
sufficient, though general idea, to the share-holders of what they would be
called upon to decide.

The rule above stated must of course be read as subject to the statutory
provisions regarding the giving of notice of extraordinary resolutions (which
the one concerned was) namely, section 70(l) of the Companies Ordinance (Cap.
397), which requires that notice of such resolution should specify the intention
to propose the resolution as an extraordinary resolution. This section of our
law corresponds to section 69(1) of the English Companies (Consolidation) Act of
1908, the effect of which has been determined to be that, where practicable, it
is desirable to set out in the notice of an extraordinary resolution the exact
terms of the resolution; but that the words are not to be strictly construed
Bond that, where full and fair notice of the proposed resolution is given, that
will suffice even though the exact terms are not set out. In the present
instance, even assuming that the terms of article 65 of the articles of
association could apply, I do not think that the notice under reference read in

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its ordinary sense could be said to give a full and fair idea of what the
shareholders would be asked to pronounce upon. I would thus be prepared to
decide this issue in favour of the applicants. This is not the end, however,
because though assuming that it is right to say that the extraordinary
resolution passed on the 26th September, 1968, was invalidated for want of
proper notice it still remains, for the purpose of the exercise of my
jurisdiction to grant or refuse the injunction prayed for, to consider, in the
light of the principles enunciated in such cases as Harben v. Phillips and
Baintbridge v. Smith (supra)the effect upon my decision of those resolutions,
bearing in mind that they were voted again at the subsequent extraordinary
general meeting held on the 10th October, 1968. In the first place, it cannot be
disputed that the resolutions passed by the majority at the meeting of the 26th
September concern acts which it was within the powers of such majority to do
legally and regularly. If, therefore, the applicants are right in their
submission that the resolutions are invalid because the shareholders have not
had due notice thereof, the solution clearly lies in another general meeting
regularly convened for the purpose of pronouncing on the specific question of
the removal of applicants.

Is there any need in the meantime for an injunction to issue that will
have for result to restore the status quo ante the 26th September? I do not
think so. It seems to me that a requisite majority of shareholders have had an
opportunity to express their wish at the meeting of the 26th September. If the
meeting was irregular, such wish may not have been effectual to remove the
applicants from office, but it still was their wish clearly expressed. Then
there is the meeting of the l0th October. The resolution passed at that meeting
also the applicants say was invalid for the following reasons:-

(a) It was not the Chairman of the Company who took the chair.
(b) The resolutions purported to have been passed at the so-called

Extraordinary General Meeting of 26.9.68 was illegal and invalid and
could not be confirmed.
(c) The proposal made by Mr. Issur and put to vote was not on the agenda
of the meeting which read as follows:

"The following extraordinary Resolution will be examined and voted-

Extraordinary Resolution
To reorganise the Board of Directors of the Company".

(d) In any event on the said agenda, the meeting could not be asked to
vote a resolution dismissing directors from office.

I really find no substance in ground (a). Having regard to what occurred
at the meeting, the fact that the co-respondent was not the chairman of the
meeting (even assuming that he was still the chairman of the Board) cannot by
itself have invalidated the resolutions passed(see article 70 of the articles of
association). Grounds (b) to (d) raise substantially the same issues as have
been considered with respect to the validity of the general meeting of the 26th
September. The position, however, as regards the meeting of the l0th October is
different in that the shareholders could not but have known this time what was
intended to be conveyed by the terms of the notice and must have been aware that
their votes were to be sought for the specific purpose of voting the removal of
the applicants and of the co-respondent from office. It seems to me, therefore,
that the objection based on insufficiency of notice is not strictly tenable as
far as the second general meeting is concerned. But what really matters is that
I am so far in presence of an expression of desire by a requisite majority of
shareholders of the Company that the applicants should not be its directors.

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In the result, taking the case as a whole, I see no ground for granting
the applicants' motion for an interlocutory injunction. As for the middle course
suggested by them, that is, that I should myself order a meeting to take place
to seek the views of the shareholders in the matter, I have not been
sufficiently enlightened as to the advisability of doing so, but would be
prepared to listen to what the parties have to say, if they wish to be heard.

The application is otherwise dismissed with costs.

Applicant: Attorney A. Rajah
H. Moollan, of Counsel

Respondent: Attorney G. Baguant (for all respondents except No. 8)
M. Gujadhur for respondent No. 8

A. Raffray, Q.C., of Counsel (M. Avrillon with him) for all
respondents except No. 8

Co-respondent: Attorney G. Rivalland
M. Gujadhur

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