Decided on October 19,1955


Referred Judgements :-



Subba Rao, C.J. - (1.)This is an appeal against the judgment of our learned brother, Bhimasankaram, J., appointing two joint administrators for a period of six months tentatively giving them all powers of management which vest in the Board of Directors of the Rajahmundry Electric Supply Corporation, Ltd.
(2.)The Rajahmundry Electric Supply Corporation (hereinafter called the company) is a private limited company and was incorporated under the Indian Companies Act, 1913, in the year 1925. The registered office of the company is at Rajahmundry. The nominal capital of the company is Rs. 4,00,000 divided into 4000 shares of Rs. 100 each. Of these, 2813 ordinary shares and 100 preference shares are fully paid up. The total number of shareholders is 545. The objects of the company are to generate and supply electric energy and to stock and sell electrical accessories and machinery and to do other things set forth in the memorandum of association. Under the articles of association, the affairs of the company are managed by a Board of Directors consisting of a Chairman, a Vice-Chairman and other Directors. The directors are elected at the general body meeting. The Board of Directors have also power to co-opt another director if a vacancy is caused by death, resignation or otherwise. At the first ordinary meeting of the company all the directors shall retire from office and at the ordinary meeting in every subsequent year, one third of the directors for the time being shall retire from office. The general managment of the business of the company shall vest in the chairman and vice-chairman or the managing director for such period as is resolved by the directors. There is a secretary, who is a paid servant of the Board, working under its direct supervision. All books and accounts of the company shall be maintained and kept by the secretary at the registered office of the company and may be inspected by any of the directors at any time. They shall be checked and initialled by the managing officer at least once in a month. The first Board of Directors consisted of some of the influential members of the locality and the management of the company was carefully conducted without any rift or trouble. The 3rd respondent Ramamohana Rao had been the director of the company from about the year 1940. He was vice-chairman from 31st March, 1953. He resigned his vice-chairmanship on 9th January, 1955 and he was removed from the office of director on 26th March, 1955, at a general body meeting. The 2nd respondent has been a director from the year 1942. He was vice-chairman from 1951, and has been chairman from 31st March, 1953. The 4th respondent has been director from about 1940. He was appointed as vice-chairman on 18th January, 1955, but it is said that he was removed from office on 15th August, 1955. The other respondents are also directors of the company. But it is said that respondents 5 and 7 lost thier share qualification and therefore ceased to be directors, that the 8th respondent died in August, 1955 and that the 9th respondent ceased to be a director by his absence from consecutive meetings. The petitioner, one of the shareholders of the company, filed O.P. No. 3 of 1955 on the file of this Court under section 162 (v) and (vi) and section 153-C of the Indian Companies Act either for winding up the company or, in the alternative, for taking action under section 153-C. He alleged in the petition that he had obtained the consent of 80 shareholders, i.e., more than no of the total number of shareholders. He made grave and serious allegations against the 2nd respondent, the chairman and the 3rd respondent, the erstwhile vice-chairman and alleged that the affairs of the company were being conducted in a manner oppressive to the petitioner and the other share-holders and that the present management, relying on brute majority are ruling despotically. The company represented by the 4th respondent, who was the vice-chairman at that time, filed a counter throwing most of the blame on the 3rd respondent and stating that, after he became vice-chairman, steps were being taken for improving the affairs of the company. The 2nd respondent in his counter-affidavit threw the entire blame on the 3rd respondent, the then vice-chairman. He alleged that as chairman he had very little to do with the day-to-day administration and that the entire management was entrusted to the 3rd respondent who, according to him, came of a very highly respectable family in Andhra being the son of the late Devata Sriramamurthi, a well-known Congressman. The stand taken by him is expressed in the following statement in his. counter :
"Thus I stale that except the 3rd respondent, who was in sole charge of the management of the company, myself and the other directors of the company left the entire thing to the management of the 3rd respondent having implicit faith in him and having no reason whatsoever to believe at any time before end of last calendar year that there is anything wrong with the affairs of the company."

(3.)He proceeded to deny the specific allegations made againt him in the petition. It is suggested that the petition was filed as a counterblast by the petitioner, who was a close friend and well-wisher of the 3rd respondent for the specific purpose of taking away the management of the company from the hands of the present directors. The 3rd respondent, in his counter, supported the petitioner and agreed with him that, in the interests of all concerned, interim administrators should be appointed. He would say that, after his resignation, the 2nd respondent and his friends have been making desperate attempts to extricate themselves and to fasten liability for their misdeeds on him. According to him, the chairman was also the treasurer of the company and was solely in charge of the funds of the company and he was alone authorised to operate on the bank's accounts and to issue cheques, etc. He denied the specific allegations made against him in the petition. The 9th respondent filed a separate counter supporting the petitioner and Stating that it was necessary that an order appointing an interim administrator should be made immediately to take over the entire management of the company. The 5th respondent adopted the counter filed by the 9th respondent.

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