Unipak Ltd. and Others v. Amarasena
UNIPAK LTD. AND OTHERSv.
COURT OF APPEALDISSANAYAKE, J. ANDSOMAWANSA, J.
CA NO. 547/92 (F)
DC MT. LAVINIA NO. 432/SplAPRIL 05, 2001
Companies Act, No. 17 of 1982, sections 210, 211, 214 and 216 – Removal fromthe Board of Directors – Alleged material change in the management and controlof company – Minority rights – Protection from oppression and mismanagement -Court interference with the internal management of a company – Acts claimed tobe intra vires – Jurisdiction of court.
The petitioner-respondent instituted action in terms of sections 210 and 211 of theCompanies Act, the complaint being that the 2nd and 3rd respondent-appellants havewrongfully and unlawfully removed her from the Board of Directors, that the affairsof the company are being conducted in a manner offensive to her and prejudicialto the interests of the company and that a material change has taken place in themanagement or control of the company. It was her contention that the purportedremoval of her from the Board is invalid. The position of the 1st, 2nd and 3rdrespondents-appellants was that, all steps taken by them have been legal and inthe best interest of the company. The District Court held with the plaintiff-respondent.
On appeal it was contended that court has no jurisdiction to interfere with the internalmanagement of a company where the acts complained of are intra vires its powers.
(1) Sections 210 and 211 provide for prevention of oppression and mismanagementand section 210 (2) provides that where on any application made under theabove provisions of subsection 1, the court is of opinion that the affairs ofa company are being conducted in a manner oppressive to any member,the court may with a view to remedying the matters make such order asit thinks fit.
Sri Lanka Law Reports
 3 Sri L.R.
Section 211 (2) provides that if the court is of opinion that the affairs of thecompany are being conducted as referred to in subsection (1), the court maywith a view to remedying or preventing the matters complained of makesuch order as it thinks fit. Section 216 deals with the powers of court onapplications under sections 210 and 211.
(2) There are strong grounds for the court to interfere with the internal managementof the company. Section 216 vests the court with the power to make theorders that were made by court, and they were in fact made in the interestsof the company (except the order not to issue cheques on any of the Bankaccounts).
APPEAL from the Order of the District Court of Mt. Lavinia.
Cases referred to :
Burland and Others v. Earle and Others – (1902) AC 83.
Lee v. Chou Wen Hsun and Others – (1985) B CLC 45.
Re. The Langham Skating Revile Company – (1877) 36 CT 605.
M. A. Sumanthiran with Ms Bandaranayake for 1st, 2nd and 3rd respondents*
Plaintiff-respondent not represented.
Cur. adv. vult.
May 17, 2002
A. M. SOMAWANSA, J.
The petitioner-respondent instituted action No. 432/Spl on 22.03.1985in the District Court of Mount Lavinia against the 1st, 2nd and 3rdrespondents-appellants in terms of the provisions of sections 210 and211 of the Companies Act, No. 17 of 1982. The petitioner-respondenthas come to court on the basis that she holds 1,000 shares of the1st respondent appellant company and is therefore entitled to makethis application in terms of section 214 of the said Act No. 17 of 1982.Her complaint being that the 2nd and 3rd respondents-appellants havewrongfully and unlawfully removed her from the Board of Directors of
Unipak Ltd, and Others v. Amarasena (Somawansa, J.)
the said company on or about 27th December, 1984, that the affairsof the said company are being conducted in a manner offensive toher and in a manner prejudicial to the interests of the said companyand that a material change has taken place on the management orcontrol of the company by reason of which it is likely that the affairsof the company may be conducted in a manner prejudicial to theinterests of the company. In the circumstances, the petitioner-respondentprayed for among other reliefs, for a declaration that the purportedremoval of her from the Board of Directors is invalid and that shestill continues to be a Director.
The 1st, 2nd and 3rd respondents-appellants filed objections andpleaded, inter alia, that the 2nd and 3rd respondents-appellants hold80% of the issued share capital of the 1st respondent-appellant companythat all steps taken by them have been legal and in the best interestof the company and that for the reason set out in their objectionsthe petitioner-respondent is not entitled to any relief and her applicationshould be dismissed in limine.
At the conclusion of the inquiry, the learned District Judge by hisorder dated 14th May, 1992, held with the petitioner-respondent andin terms of provisions of section 216 made the following orders :
revoking the removal of the petitioner-respondent from theBoard of Directors by the respondents-appellants as being anunlawful act and reinstating the petitioner-respondent as aDirector.
requiring the -respondents-appellants to hold the Annual GeneralMeeting and Directors’ Meeting and granting the petitioner-respondent-as a Director the right to nominate dates for samein the event of the failure of the respondents-appellants todo so.
Sri Lanka Law Reports
 3 Sri L.R.
that the petitioner-respondent was entitled to, as a Director,to enter any premises where the official affairs of the 1st -torespondent-appellant company were being carried on andbeing held under the said company and to examine all booksof the said company and at Directors’ Meeting to require thatthey be audited.
not to issue cheques on any of the Bank accounts of the1st respondent-appellant company nor to utilize the monieslying in those accounts either for the benefit of the respondents-appellants or for the purpose of the said company withoutthe petitioner-respondent being a signatory to same and forthe Bank not to pay out any money on cheques which do sonot bear the signature of the petitioner-respondent.
for the 2nd respondent-appellant to maintain all books andaccounts of the company properly and to make them availableto the petitioner-respondent or to her nominee for purpose ofexamination.
issue share certificates to shareholders and to maintain ashare register.
to pay the petitioner-respondent as a Director a sum not lessthan Rs. 5,000 per mensem.
such payment to be made taking into consideration the assets eoof the 1 st respondent-appellant company and with the consentof the petitioner-respondent as Director.
At the very outset it must be stated that on an examination ofthe original case record, I find that the only documents that have beentendered to court by the respondents-appellants are the statement ofobjection and the affidavit of the 2nd and 3rd respondents-appellants.Though it is stated therein that copies of audited statements of the
CAUnipak Ltd, and Others v. Amarasena (Somawansa, J.)177
1st respondent-appellant company as at 31st March, 1983 and 31stMarch, 1984, marked D and D2 are being tendered with the said
statement of objections no such audited statement could be found inthe original case record. In any event it appears that no other documentshave been tendered by the respondents-appellants. Therefore, whileconceding the fact that the respondents-appellants filed a statementof objections dated 29th April, 1985, denying the above-mentionedallegation of the petitioner-respondents, I must say the respondents-appellants have failed to place any documentary proof in support oftheir position except for the two copies of audited statements whichare missing from the record. So that the contention of the counselfor the respondents-appellants that they have placed adequatedocumentary proof in support of their position is incorrect.
The main contention of the counsel for the respondents-appellantsis that a court has no jurisdiction to interfere with the internal managementof a company where the acts complained of are intra vires its powers.Counsel for the respondents-appellants has cited decisions of threedecided cases in support of this contention. One of which is Burlandand Others v. Earle and Others where it was held that it is anelementary principle that a court has no jurisdiction to interfere withthe internal management of companies acting within their powers. Theother is Lee v. Chou Wen Hsein and Others1-2'1 where a Director wasexpelled by his fellow Directors it was held that even if one or moreDirectors acted from ulterior motives the expulsion would be effective;presumably this is because the act of the other Directors if improperlymotivated is voidable not void.
However, it appears to me that another elementary principle originatesfrom these decisions and that is that if the acts complained of areultra vires its powers then the court will interfere. This .principle wasrecognized in Re The Langham Skating Rink Company where it wasobserved that the power to manage the affairs of a company vestswith the Directors and it is settled law that a court will not interferewith such power unless strong grounds are shown for doing so.
Sri Lanka Law Reports
 3 Sri L.R.
In the instant case, it appears that the petitioner-respondent hasshown strong grounds for the court to interfere. One being her unlawfulremoval from the Board of Directors on or about 27th December, 1984,by the 2nd and 3rd respondents-appellants. In the petition of appealas well as in the written submissions filed by the respondents-appellantsit is contended that the respondents-appellants acted well within thepowers conferred on them by the Articles of Association in removingthe petitioner-respondent from the Board of Directors. Unfortunately,except for the bare statement that they acted well within the powersconferred on them by the Articles of Association the respondents- noappellants have failed to adduce any evidence to establish this fact.
No evidence as to the procedure adopted was in conformity with thepowers conferred on them by the Articles of Association or in factthat they adopted any procedure other than informing the Registrar ofCompanies that the petitioner-respondent has been removed from theBoard of Directors. In fact, there is no evidence that the removal wascommunicated to the petitioner-respondent.
The respondents-appellants have also failed to adduce any evidence.to establish that the company held any Annual General Meeting orBoard of Directors’ Meetings or that the company was maintaining books «oof accounts and registers in proper order. It is suffice to say that exceptfor a bare denial of the matters raised in the petition and affidavitfiled by the petitioner-respondent the respondents-appellants have failedto adduce any evidence to rebut the said matters raised by thepetitioner-respondent where as the petitioner-respondent along with thepetition and affidavit and also annexed to their counter affidavit producedseveral documents to establish her complaint.
Sections 210 and 211 of the Companies Act, No. 17 of 1982 providesfor prevention of oppression and mismanagement and section 210 (2)of the said Act provides that where on any application made under 130the provisions of subsection (1) the court is of opinion that the affairsof a company are being conducted in a manner oppressive to anymember. . . the court may with a view to remedying the matters
Unipak Ltd and Others v. Amarasena (Somawansa, J.)
complained of make such order as it think fit. Likewise, section 211
of the said Act provides that where on any application made underthe provisions of subsection (1) the court is of opinion that the affairsof the company are being conducted as referred to in subsection (1)
(in a manner prejudicial to the interest of the company or that byany material change that has taken place in the management or controlof the company whether by an alteration in its Board of Directors) no… it is likely that the affairs of the company will be conducted asaforesaid the court may with a view to remedying or preventing thematters complained of or apprehended make such order as it thinksfit.
Section 216 of the Companies Act, No. 17 of 1982 deals with thepowers of court on application under section 210 or section 211 ofthe said Act and the relevant provision in the said section to the instantcase are –
216. “Without prejudice to the generality of the powers of thecourt conferred by section 210 or section 211, any order made under isothe provisions either of such sections may provide for –
the regulation of the conduct of the company’s affairsin future;
any other matter for which in the opinion of the courtit is just and equitable that provision should be made”.
On an examination of the material placed before the learned DistrictJudge at the inquiry, I am inclined to take the view that he has correctlyexercised his discretion in view of the fact that the petitioner-appellantdid satisfy court that there are strong grounds for the court to interferewith the internal management of the 1 st respondent-appellant company ieosupported by documentary evidence. I am also of the view that interms of section 216 of the Companies Act, No. 17 of 1982, the learnedDistrict Judge is vested with the power to make the orders he made
Sri Lanka Law Reports
(20021 3 Sri L.R.
on 14. 05. 1992 and in fact they were made in the interest of the1st respondent-appellant company as well except item 04 whereby thelearned District Judge has ordered –
“not to issue cheques on any of the Bank accounts of the 1strespondent-appellant company nor to utilize the monies lying in thoseaccounts either for the benefit of the respondents-appellants or forthe purpose of the said company without the petitioner-respondent 170being a signatory to same and for the bank not to pay out anymoney on cheques which do not bear the signature of the petitioner-respondent.”
I am of the view that if this order was to be implemented it wouldhave an impact on the day to day business or the affairs of the 1strespondent-appellant company and may operate adversely specially inview of the fact that the petitioner-respondent’s whereabouts are unknownand the notices sent to her to the given address have been returned.
In the circumstances, I would delete item 04 of the orders of the learnedDistrict Judge. Subject to the-said variation the appeal is dismissed.
N. E. DISSANAYAKE, J. – I agree.
Appeal dismissed subject of deletion of item 4 of the order.