- (1.) One Kishori Lal Jaiswal started a ' distillery business' in the name of Kishori Lal and Sons and set up a factory at Karnal in the Punjab for manufacturing liquor. Kishori Lal died in 1928 leaving him surviving three sons, Durga Prasad, Ladli Prasad and Shanti Prasad. Durga Prasad who was the eldest surviving member became karta of the joint Hindu family, and continued the family business. On the death of Durga Prasad in 1934 leaving him surviving two sons Sajjan Lal and Madan Lal and his wife Suraj Mukhi, Ladli Prasad became the karta of the family and continued the business. By mutual arrangement on November 5, 1940 the joint Hindu family of the three branches was disrupted and the business of Kishori Lal and Sons was thereafter conducted as a partnership concern each branch having a third share therein. On March 23,1941 a private limited company called the Karnal Distillery Company Ltd. was incorporated under the Indian Companies Act,1913, and the business of Kishori Lal and Sons was taken over by that company. Under the final allotment of shares made by the Company on August 1, 1941-1004 shares were allotted to the branch of Durga Prasad, 1503 shares to Ladli Prasad and 1003 to Shanti Prasad. By the Articles of Association the maximum number of Directors was five and the minimum number was two. Ladli Prasad, Shanti Prasad and Suraj Mukhi were appointed as the first Directors of the Company. Every year one-third of the Directors except the Managing Director were to retire by rotation. Ladli Prasad was appointed Managing Director for ten years with the right to continue for another ten years unless a notice of fifteen days within eight years was given by a two-third majority at a special genera] meeting held for the purpose of terminating his appointment as Managing Director, and that two-third of the total number of members could expel a member of the Company. Ladli Prasad as Managing Director of the Company drew an allowance of Rs. 1800/- per month, a commission of 7 1/2 per cent of net profits of the Company, a motor car allowance of Rs. 350/- per month, with a right to be provided a new motor car every three years for personal use and Rs. 30/- per day as travelling allowance. The other Directors of the Company were paid remuneration at the rate of Rs. 250/- per month, and each Director who attend the meeting of the Board of Directors was allowed in addition Rs.25/per day.
(2.) Manifestly there was great disparity between the remuneration received by Ladli Prasad and the other Directors, and this gave rise to quarrels between the members of the family. At an extra-ordinary general meeting of the company held on February 20, 1945 at which Shanti Prasad, Sajjan Lal, Madan Lal and Suraj Mukhi were present, it was resolved that Ladli Prasad be removed from his office of Managing Director and that Shanti Prasad be appointed Managing Director instead. But Ladli Prasad declined to hand over charge of the Managing Director's office to Shanti Prasad. A suit was thereupon filed by Shanti Prasad in the Court of the Subordinate Judge, Karnal, on behalf of the Company against Ladli Prasad on April 10, 1945 for a declaration that he was lawfully appointed Managing Director of the Company and for enforcing the resolution dated February 20,1945. Ladli Prasad in his turn filed a suit for a declaration that Shanti Prasad had ceased to be a Director of the company. In the suit filed by Shanti Prasad on behalf of the Company, the trial Court appointed Suraj Mukhi and Madan Lal as joint receivers to manage the affairs of the Company for the duration of the suit. Against that order Ladli Prasad appealed to the High Court of Judicature at Lahore and obtained an order staying the operation of the order appointing receivers. On October 16, 1945 at an extra-ordinary general meeting of the Company held at the residence of Ladli Prasad at which all the members of the family were present certain special resolutions were passed. The effect of the resolution was that :- (1) Each branch of the family should own 1170 shares and for this purpose Ladli Prasad should transfer 167 shares to Shanti Prasad and 166 to the branch of Durga Prasad. (2) Resolution dated February 20 ,1945 purporting to remove Ladli Prasad from the Managing Directorship was canceled. (3) Resignation of Ladli Prasad of his post as Managing Director was accepted, and he was appointed permanent Director and Chairman, and Madan Lal s/o Durga Prasad was appointed Director in place of Suraj Mukhi who submitted her resignation. Shanti Prasad continued to be a Director of the Company. (4) The maximum number of Directors was fixed at three and the quorum of the Directors meeting was also fixed at three. (5) Every decision submitted to a meeting of the Directors or members was to be deemed to be passed only if the decision hereon be unanimous, and the proceedings recorded being signed by the Chairman of the Company and all the Directors or the members as the case may be, present at the meeting (6) Shanti Prasad was appointed Manager for five years under the control of the Board of Directors. (7) Article 47 which gave power to two third majority to expel a member of the Company was deleted. (8) Each Director was to be paid Rs. 900/- per month as remuneration and Rs. 25/- for each meeting of the Board of Directors attended. No extra remuneration to be paid to Shanti Prasad as Manager or to Ladli Prasad as Chairman. (9) Ladli Prasad gave up the remuneration which had been provided for him under the Articles of Association as originally framed, and he was discharged in respect of all previous accounts which were ratified and confirmed. (10) All contracts executed, business done, benefits derived by Ladli Prasad under the facilities granted to him by resolution dated April 30, 1941 of the Board of Directors were confirmed and ratified and all transactions recorded in the accounts of the Company for the period April 1, 1941 till the date of the resolution were ratified and it was resolved that the accounts of each of the four years ending March 31, 1942, 1943, 1944 and 1945 be confirmed. (11) Dividend at the rate of 65 per cent of the face value of the share free of income tax was declared . (12) While ratifying and confirming the contracts executed, business done, benefits derived in the name, or from the Company by any Director or the Managing Director of the Company in the past, it was resolved that in future no Director of the Company will contract in the name of the Company for his personal benefit. 13. A large number of Articles of Association of the Company were amended in order to make them consistent with the special resolutions. Effect was given to these resolutions. Shanti Prasad assumed the office of Manager of the Company and took charge of the Company's properties, assets and business. Re-adjustment in share-holding of the members was also effected, Ladli Prasad having transferred the shares according to the terms of the resolution. But dispute started afresh. In a meeting of the Board of Directors held on March 3,1946, at which Shanti Prasad and Madan Lal were present, it was resolved to call an extra- ordinary general meeting of the shareholders of the Company on March 28,1946 to consider a requisition received from Suraj Mukhi and Madan Lal for cancelling some of the special resolutions passed at the meeting held on October 16, 1945. No notice of this meeting was given to Ladli Prasad. At the meeting held on March 28, 1946-in the absence of Ladli Prasad- several resolutions were passed to the effect that, all amendments made in the Articles of Association by the resolutions dated October 16, 1945 do stand cancelled and original Articles of Association of the year 1941 (including Art. 47 which authorised the Company by a 2/3rd majority to expel any member) do stand restored. It was also resolved that Ladli Prasad be removed from the Directorate and Chairmanship of the Company, and in his place Suraj Mukhi be appointed Director of the Company at a remuneration of Rs. 900/- per month; that Shanti Prasad be appointed Managing Director for ten years, such appointment not being liable to termination earlier by the members; and that Shanti Prasad do receive in addition to his remuneration as Director Rs. l000/- per month as Managing Director, a travelling allowance of Rs. 30/- per day and a motor- car allowance of Rs. 200/- per month.
(3.) Coming to know about these amendments, Ladli Prasad called upon Shanti Prasad and the other members of the Company to rescind the resolutions, and failing to induce them to comply with the requisition, he filed a petition on May 1, 1946 in the High Court of Judicature at Lahore for an order for winding up Company. An order for winding up the Company was passed by a single Judge, but was set aside in appeal by the High Court of Lahore by its order dated January 19, 1956.;