RATNAM AND OTHERS v. JAYATILAKE

044-SLLR-SLLR-2002-V-1-RATNAM-AND-OTHERS-v.-JAYATILAKE.pdf


CA
Ratnam and Others v. Jayatilake
409
RATNAM AND OTHERS
V.
JAYATJLAKE
COURT OF APPEALUDALAGAMA, J.
CA NO. 1063/93 (F)
DC COLOMBO NO. 3443/SplJUNE 11, ANDJULY 01, 2002
Companies Act, No. 17 of 1982, sections S3 (1), 74, 75, 111 (2), 113, 170, 194(2), 210, 211, 213 and 214 (1) – Conduct of affairs done in a manner oppressive- Bonus shares – Could they be included in the 5% computation? ~ Capacityto activate sections 210 and 211 – What is oppression? – Power of court to protectminority shareholders.
The respondents alleged, that the appellants by their conduct of the affairs ofthe 3rd respondent company, violated the provisions of sections 210-211. Thetrial Judge in response to this application made absolute the Order Nisi.
Held:
In computing the 5% required under s. 214 (1) Bonus shares would beincluded.
In view of section 211 (2) the court could with a view to remedying orpreventing matters complained of or apprehended make such order as itthinks fit – by such a discretion granted to the District Court in exercisingsuch powers, the District Court could grant remedies to prevent an injustice.
Per Udalagama, J.
“I am inclined to the view that the term oppression did include “burdensome”,“harsh” and “wrongful” acts."
(3) When all the events are considered as part of a continuing story as opposedto individual events, in isolation, that on a balance of probability the affairsof the company appears to have been conducted in a manner oppressiveto the respondent to this appeal, who was a minority shareholder.
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APPEAL from the District Court of Colombo.Case referred to :
In Re Hammer Ltd. – 1958 3 Allah 189.N. D. R. Casie Chetty for appellants.
J.C. Weliamuna for respondent.
Cur. adv. vult
July 26, 2002UDALAGAMA, J.
This is an appeal by the 1st to 4th respondents-appellants seeking 1to set aside the judgment dated 12. 11. 1993 in DC Colombo caseNo. 3443/Spl., whereby the learned District Judge in response toan application under the provisions of sections 210 and 211 ofthe Companies Act, No. 17 of 1982, made the order Nisi dated23. 01. 1992, absolute.
The respondent to this appeal by his petition dated 17. 01. 1992filed action in the court below alleging that the respondents to thatapplication by their conduct of the affairs of the company named inthe caption to the plaint as the 3rd respondent, violated the provisions 1°of the aforesaid sections 210 and 211 of the Companies Act referredto above.
The complaint of the respondent to this appeal appeared to bethat the conduct of the affairs of the company was done in a manneroppressive to the latter as a Director and a shareholder. The petitionerto that application (the respondent) also sought, inter alia, interim reliefin terms of section 213 of the Companies Act referred to above andalso sought a declaration that the petitioner is a Director of the 3rd
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Ratnam and Others v. Jayatilake (Udalagama, J.)
411
respondent-company and that he be declared entitled to 149,500shares of the aforesaid company and further that vehicle bearing 20No. 14 Sri 1516 which apparently had been taken over be returnedto the petitioner to that application.
Subsequent to consideration of the submissions made by theparties, the learned District Judge by his impugned order, and asstated above, made the order Nisi already entered, absolute.
It was conceded that the 3rd respondent to the application in theDistrict Court referred to above, is a limited liability company incorporatedunder the provisions of the Companies Act and that the respondentto this appeal was a shareholder.
When this appeal was taken up for argument on 11. 06. 2002, 30learned Counsel for the appellant confined his argument to 3 matters,namely, (1) the propriety of the petitioner to claim relief under theprovisions of sections, 210 and 211 of the Companies Act referredto above, (2) whether the petitioner instituted the action in the courtbelow to gain a collateral purpose, and (3) whether the activities ofthe company was, in fact conducted in a manner oppressive to thepetitioner to that application.
Relief under the provisions of sections 210 and 211 of theCompanies Act
It appears to be the contention of the learned Counsel for the 40appellant that the respondent to this appeal not being a member ofthe company as at 17. 01. 1992, was not entitled to seek remediesunder the aforesaid provisions of sections 210 and 211 of the CompaniesAct. The learned Counsel adverted to the fact that the burden of proofas to the eligibility of the respondent to this appeal to seek relief underthe aforesaid provisions lay on the respondent to this appeal and thathis failure to prove that he was a shareholder in the 3rd defendant-company as at the date of the plaint warranted a dismissal of hisapplication.
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Learned Counsel further complained of the absence of documentary soproof, to wit, even the production of a copy of the register of theshareholders as contemplated by the provisions of section 111 (2)of the Companies Act, which failure prima facie precluded him frominstituting the action.
It was the finding of the learned District Judge, vide his impugnedorder, that the respondent to this application held more than 5% ofthe shares of the 3rd defendant-company. I am inclined to the viewthat in computing the 5% referred to above and required by theprovisions of section 214 (1) of the Companies Act that it would alsoinclude bonus shares although the learned Counsel for the appellant «>contended that the issue of bonus shares to the respondent wereadmittedly so issued through the generosity of the 1st respondent-appellant. However, I am inclined to the view that bonus shares werethose achieved by a shareholder and hence need to be counted asrightfully accrued by the latter. Such shares could not be disregardedon the basis that those were given to a party on the basis ofbenevolence or generosity. The learned District Judge also correctlyrejected the argument based on document R1 filed of record, thatthe respondent to this appeal ceased to be a shareholder.
On a perusal of R1 it is apparent to this court that the said 70document, apart from not conforming to the Articles of Associationand to the provisions of sections 74 and 75 of the Companies Act,is clearly incomplete. However, notwithstanding such defect I am alsoinclined to the view that the learned District Judge was correct inholding that the document marked C1 and filed of record which hadbeen despatched after R1 referred to above, that the appellant hadby the said C1 accepted the continued shareholding of the respondentto this application.
In any event the document marked ‘A’ also filed of record whichpertains to the annual return of the Company having a share capital sopursuant to the provisions of section 120 of the Companies Act and
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Ratnam and Others v. Jayatilake (Udalagama, J.)
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document 'A1a return as to the allotment of shares pursuant to theprovisions of section 53 (1) (a) of the Companies Act, favour thecontention made on behalf of the respondent to this appeal that thelatter was, in fact a shareholder and thereby having a right to instituteaction under section 210 of the Companies Act referred to above.
I would also hold as correct the finding of the learned District Judgethat the procedure as contemplated in Article 3 of the Articles ofAssociation of the 3rd respondent-company and the related provisionsof sections 74 (2) and 75 of the Companies Act had not been followed soin respect of the transfer of shares thereby rendering nugatory thepurported transfer of shares by the respondent to this appeal. Thefinal conclusion arrived at by the learned District Judge, consideringthe material placed before him and as stated above appears to bethat the alleged transfer of shares is unacceptable. I am inclined tothe view on a balance of probabilities that the finding of the learnedDistrict Judge is reasonable, proper and justified.
The alleged resignation of the respondent to this appeal from thedirectorship of the 3rd respondent-company as appearing in R3A hadbeen rejected by the learned District Judge due to the fact that the *°oRegistrar of Companies was not informed of such resignation withintwo weeks. This finding too could not be challenged in view of theprovisions of section 194 (2) of the Companies Act.
Pursuant to the consideration of the above, I am inclined to theview on a balance of probabilities that the respondent to this appealhad, in fact the capacity to activate the provisions of sections 210and 211 of the Companies Act to prevent oppression of the latteras a member or 3rd respondent-company.
Collateral purpose
Learned Counsel for the appellant also adverted to the fact that nothe respondent to this appeal instituted this action for a collateral
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purpose and as such the latter’s petition to the court below oughtto have been rejected. It is apparent to this court that the respondentto this appeal did, in fact claim a number of reliefs as appearing fromhis petition to the court below dated 17. 01. 1992. It is also apparentfrom the legend in the heading above the caption that the latter hadmade the application under sections 210 and 211 of the CompaniesAct. The prayer to the petition specifically claimed relief under theprovisions of sections 210 and 211 of the Companies Act. It is alsoapparent from the provisions of the Companies Act that the aforesaid 120sections are all under the hearing “prevention of oppression andmismanagement”.
Perusing the relevant order Nisi issued on 12. 01. 1992, wherebythe learned District Judge pursuant to submissions made byMr. Vernon Wijetunge, QC and in accordance with the provisions ofsections 210 and 211 of the Companies Act, proceeded to issue orderNisi granting relief as prayed for in paragraphs (?) to {&>) of the petitionto that application.The submission of learned Counsel for the appellantappears to be that the respondent to this appeal is entitled only toa declaration that he is entitled to 149,500 shares and the car bearing 130No. 14 Sri 1516. There also appears to be the submission of thelearned Counsel for the appellant that the petitioner was seeking touse the process of court for a collateral purpose by his applicationto the court below. However, I am inclined to the view that theopportunity granted to tender objections against the order Nisi beenmade absolute was precisely for the purpose of enabling court toentertain objections including the type of objections made by learnedCounsel for the appellant, before this court.
If the respondent to this appeal did, in fact have an ulterior motive,the forum to place those facts in the first instance was the District 140Court. Perusing the impugned order, no reference is made to theparticular objection of the appellant that the respondent to this appealwas harbouring an ulterior motive, nor does it appear to be that theappellant did in fact canvass that objection in the court below.
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Ratnam and Others v. Jayatilake (Udalagama, J.)
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In any event, I am inclined to the view that the reliefs given inthe order Nisi are confirmed when the said order Nisi is made absoluteand that the appellant is not entitled to raise such objections in thiscourt at this stage. Besides, vide provisions of section 211 (2) of theCompanies Act, the court could with a view to remedying or preventingthe matters complained of or apprehended, make such order as it 150thinks fit.
I am of the view that by such a discretion granted to the DistrictCourt in exercising such powers the District Court could grant remediesto prevent an injustice. I would concur with the observation made inH. R. Hammer Ltd.,m which held, under the provisions of the EnglishCompanies Act, that provisions made to enable a court to pronouncean appropriate order to protect minority shareholders in similarcircumstances was proper. Besides, the powers conferred on courtsvide provisions of section 216 of the Companies Act in respect ofapplications under sections 210 and 211 would warrant the District ieoCourt granting relief as prayed for.
In the attendant circumstances, I would reject the argument oflearned Counsel for the appellant that the respondent to this appealdid abuse the process of Court.
Oppression
Lastly, on the question of oppression, the learned District Judgehad interpreted the term “oppression” on the authorities tendered bythe respondent to this appeal (page 103). I am inclined to the viewthat the term oppression did include “burdensome", “harsh" and“wrongful” acts (In re. H. R. Hammer Ltd. (supra)). I would also hold 170as correct the finding of fact made by the learned District Judge inrespect of the instances referred to by the latter in his impugned orderin regard to the purported resignation notwithstanding the understandingto withdraw the letter of resignation, the unilateral decision of theappellant to not hold a meeting of Directors and shareholders, the
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unauthorized transfer of shares and the perverse nature of therequirements of the respondent to this appeal to return forthwith thecar issued admittedly for the use of the respondent to this appeal.Considering the events of the company pertaining to this applicationas unfolded by the learned District Judge, I would venture to state 180that when all the events are considered as part of the continuing storyas opposed to an individual event, in isolation, that on a balance ofprobability the affairs of the company appears to have been conductedin a manner oppressive to the respondent to this appeal, who admittedlywas a minority shareholder as correctly held by the learned DistrictJudge.
I will also reject the submissions of the learned Counsel for theappellant that the remedy available to the respondent to this appealwas provided for by the provisions of section 113 of the CompaniesAct. This averment too while not having been taken up before the 190learned District Judge, in any event ought to be rejected as provisionsof section 113 referred to above entitles court to only rectify the registerof members of the company. In any event, for the reasons as statedabove the respondent to this appeaf was not precluded from seekingrelief under the provisions of sections 210 and 211, as he did byhis petition to the court below.
In all the attendant circumstances, I would dismissed this appealwith costs.
Appeal dismissed.